SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X]
Amendment No. [ ]
ORCHARD SERIES FUND
(Exact Name of Registrant as Specified in Charter)
8515 E. Orchard Road, Englewood, Colorado 80111
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (303) 689-3000
W.T. McCallum
President and Chief Executive Officer
Great-West Life & Annuity Insurance Company
8515 E. Orchard Road
Englewood, Colorado 80111
(Name and Address of Agent for Service)
Copies of Communications to:
James F. Jorden, Esquire
Jorden Burt Berenson & Johnson LLP
Suite 400 East
1025 Thomas Jefferson St. N. W.
Washington, D. C. 20007-0805
Approximate Date of Proposed Public Offering: Upon this
Registration Statement
being declared effective.
It is proposed that this filing will become effective (check
appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date
for a
previously filed post-effective amendment.
Pursuant to the provisions of Rule 24f-2 of the Investment Company
Act of
1940, Registrant hereby elects to register an indefinite number of
shares.
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 hereafter 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>
ORCHARD SERIES FUND
REGISTRATION STATEMENT ON FORM N-1A
CROSS-REFERENCE SHEET
PROSPECTUS
(PART A)
Item Caption
1 Cover Page
2 Summary of Expenses
3 Important Information about Your Investment - How the Funds
Report
Performance
4 Investment Objectives and Policies; Common Investment
Policies, Practices
and Risk Factors
5 Management of the Funds; Back Cover
6 Management of the Funds; Important Information about Your
Investment -
Dividends, Other Distributions and Taxes
7 Investing in the Funds - How to Buy Shares; Investing in the
Funds - How
to Exchange Shares; Investing in the Funds - Other Information;
Important
Information about Your Investment - How the Funds Value Their
Shares
8 Investing in the Funds - How to Buy Shares; Investing in the
Funds -
Other Information; Important Information about Your Investment -
How the
Funds Value Their Shares
9 Not Applicable
STATEMENT OF ADDITIONAL INFORMATION
(PART B)
Item Caption
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Investment Objectives; Investment Policies and Practices;
Investment
Limitations
14 Management of the Funds
15 Management of the Funds
16 Management of the Funds
17 Portfolio Transactions
18 Other Information
19 Valuation of Portfolio Securities; Additional Purchase and
Redemption
Information
20 Dividends, Distributions and Taxes
21 Not Applicable
22 Investment Performance
23 Financial Statements
OTHER INFORMATION
(PART C)
Item Caption
24 Financial Statements and Exhibits
25 Persons Controlled by or under Common Control
26 Number of Holders of Securities
27 Indemnification
28 Business and Other Connections of Investment adviser
29 Principal Underwriter
30 Location of Accounts and Records
31 Management Services
32 Undertakings
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 30, 1996
ORCHARD SERIES FUNDSM
8515 East Orchard Road
Englewood, Colorado 80111
(800) 338-4015
PROSPECTUS
The Orchard Series Fund is an open-end management investment
company
organized as a Delaware business trust (the "Trust"). The Trust
offers six
diversified investment portfolios, commonly known as mutual funds
(the "Funds"). The Funds are "no-load," meaning you pay no sales
charges or
distribution fees. GW Capital Management, Inc. ("Capital
Management"), an
indirect, wholly-owned subsidiary of The Great-West Life Assurance
Company,
serves as the Funds' investment adviser. The Funds and a brief
description of
their investment objectives are listed below.
Orchard Money Market Fund. This Fund seeks as high a level of
current
income as is consistent with the preservation of capital and
liquidity by
investing in high-quality, short-term debt securities. An
investment in
the Fund is neither insured nor guaranteed by the U.S. government.
While
the Fund seeks to maintain a stable net asset value of $1.00 per
share,
there is no assurance that it will be able to do so.
Orchard Preferred Stock Fund. This Fund seeks a high level of
dividend
income qualifying for the corporate dividends received deduction
under
applicable federal tax law by investing primarily in cumulative
preferred
stocks issued by domestic corporations.
The Orchard Stock Index Funds. Each of the following Funds (the
"Index
Funds") seeks long-term growth of capital and a modest level of
income by
investing in the common stocks that comprise a specified benchmark
index.
Fund Benchmark
Orchard Index 600 Fund S&P SmallCap 600 Stock Index
Orchard Index 500 Fund S&P 500 Composite Stock Price
Index
Orchard Index Pacific Fund Financial Times/S&P-Actuaries
Large-Cap Pacific Index
Orchard Index European Fund Financial Times/S&P-Actuaries
Large-Cap European Index
This prospectus gives you information about the Funds that you
should know
before investing. You should read this prospectus carefully and
retain it
for future reference. A Statement of Additional Information dated
as of
the date of this Prospectus has been filed with the Securities and
Exchange
Commission and is incorporated herein by reference. It provides
additional
information about the Funds and is available free of charge upon
request.
To obtain a copy call (303) 689-3000 or write: Orchard Series
Fund, 8515 East
Orchard Road, Englewood, Colorado 80111.
Shares of the Funds are not deposits or obligations of, or
guaranteed by,
any depository institution. Shares are not insured by the FDIC,
the
federal reserve board, or any other agency, and are subject to
investment
risk, including the possible loss of principal.
LIKE ALL MUTUAL FUNDS, 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.
The date of this Prospectus is July 30, 1996.
TABLE OF CONTENTS
Page
----
SUMMARY OF EXPENSES
INVESTMENT OBJECTIVES AND POLICIES
MONEY MARKET FUND
PREFERRED STOCK FUND
INDEX 600 FUND
INDEX 500 FUND
INDEX PACIFIC FUND
INDEX EUROPEAN FUND
COMMON INVESTMENT POLICES, PRACTICES AND RISK FACTORS
MANAGEMENT OF THE FUNDS
IMPORTANT INFORMATION ABOUT YOUR INVESTMENT
HOW THE FUNDS VALUE THEIR SHARES
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES
HOW THE FUNDS REPORT PERFORMANCE
INVESTING IN THE FUNDS
HOW TO BUY SHARES
HOW TO EXCHANGE SHARES
HOW TO SELL SHARES
OTHER INFORMATION
SUMMARY OF EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases NONE
Sales Load Imposed on Reinvested Dividends NONE
Deferred Sales Load NONE
Redemption Fees NONE
Exchange Fees NONE
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Money Preferred Index Index Index Index
Market Stock 600 500 Pacific European
Fund Fund Fund Fund Fund Fund
Management Fees
0.20% 0.90% 0.60% 0.60% 1.00% 1.00%
12b-1 Fees
NONE NONE NONE NONE NONE NONE
Other Expenses
0.26% 0.00% 0.00% 0.00% 0.20% 0.20%
(after reimbursement)
Total Fund
Operating Expenses
0.46% 0.90% 0.60% 0.60% 1.20% 1.20%
(after reimbursement)
Subject to revision, Capital Management has voluntarily agreed to
reimburse the Index Pacific Fund, the Index European Fund, and the
Money Market Fund to the extent that total operating expenses
exceed 1.20%, 1.20%, and 0.46%, respectively, of average net
assets. If this agreement were not in effect, estimates of total
operating expenses would have been 1.50%, 1.50%, and 0.52% for the
Index Pacific Fund, the Index European Fund, and the Money Market
Fund, respectively. Interest, taxes, brokerage commission
Example
To illustrate the various expenses that you will bear by investing
in shares of a Fund, assume that each Fund's annual return is 5%
and that its operating expenses are exactly as just described.
Then, for every $1,000 you invested, the following shows how much
you would have to pay in total expenses if you redeemed your
investment after the number of years indicated.
Fund 1 Year 3 Years
- -------------------- ------ -------
Money Market Fund $ 5 $ 16
Preferred Stock Fund $ 9 $ 31
Index 600 Fund $ 6 $ 21
Index 500 Fund $ 6 $ 21
Index Pacific Fund $ 13 $ 41
Index European Fund $ 13 $ 41
This example illustrates the effect of expenses and should not be
considered a representation of actual or expected expenses or
returns. Actual expenses and returns may vary.
INVESTMENT OBJECTIVES AND POLICIES
Each of the Funds is a diversified investment portfolio of the
Trust, an open-end investment management company organized as a
Delaware business trust on July 23, 1996. The Funds are commonly
known as mutual funds. By investing in a mutual fund, you and
other shareholders pool money together to be invested toward a
specified investment objective.
Each Fund has its own investment objective and policies. In
addition, each Fund is subject to certain fundamental investment
restrictions that cannot be changed without shareholder approval.
These are set forth in the Statement of Additional Information.
All investment policies not designated in the Statement of
Additional Information as being fundamental may be changed without
shareholder approval.
The following is a description of the Funds' investment objectives
and policies. There is no assurance that the Funds will meet their
investment objectives. Additional investment policies, as well as
various investment practices and techniques in which the Funds may
engage, are described under "COMMON INVESTMENT POLICIES, PRACTICES
AND RISKS FACTORS."
MONEY MARKET FUND
This Fund seeks as high a level of current income as is consistent
with the preservation of capital and liquidity by investing in
high-quality, short-term debt securities.
The Fund may invest in a variety of high-quality, short-term debt
securities, including but not limited to: (1) securities issued or
guaranteed as to principal and interest by the United States or its
agencies or instrumentalities ("U.S. government securities"); (2)
certificates of deposit, time deposits and bankers' acceptances
that are obligations of a U.S. financial institution with total
assets exceeding $1 billion, or that are obligations which are
fully insured by the Federal Deposit Insurance Corporation; (3)
commercial paper and other short-term corporate debt instruments;
(4) repurchase agreements; and (5) from time to time, floating rate
notes and Eurodollar certificates of deposit.
The Fund generally invests in securities that when acquired are
rated in the highest rating category for short-term debt
obligations by at least one nationally recognized statistical
rating organization ("NRSRO"), such as Moody's Investor Services,
Inc. and Standard & Poor's Corporation; or (ii) deemed by Capital
Management under the direction of the Funds' Board of Trustees (the
"Board of Trustees") to be of comparable quality to such rated
securities. The Fund only enters into repurchase agreements that
are entirely collateralized by U.S. government securities or
securities that, at the time the repurchase agreement is entered
into, are rated in the highest rating category for short-term debt
obligations by at least one NRSRO.
All securities purchased by the Fund are denominated in U.S.
dollars. The Fund invests in securities with remaining maturities
not exceeding 13 months, and maintains a dollar weighted average
portfolio maturity of 90 days or less.
PREFERRED STOCK FUND
This Fund seeks a high level of dividend income qualifying for the
corporate dividends received deduction under applicable federal tax
law by investing primarily in cumulative preferred stocks issued by
domestic corporations.
The Fund invests in preferred stocks that when acquired are rated
by one or more NRSROs in one of the four highest rating categories
for such securities. Securities having such a rating are commonly
known as "investment grade securities." The Fund is not required
to sell securities whose ratings are later downgraded below
investment grade.
The Fund will purchase money market securities as a cash reserve
and may invest in such securities for investment purposes as
warranted by market conditions. In addition, the Fund may invest
in convertible preferred stocks. The Fund will convert its shares
of preferred stock into common stock if the conversion becomes
attractive, or if forced to convert by the issuing company. This
may result in the realization of capital gains, in addition to
gains and losses realized as a result of the Fund's normal trading
activities.
The Fund may also invest in unrated and non-cumulative preferred
stocks. Before investing in any unrated preferred stocks a
thorough risk analysis will be performed. This analysis must
reveal that the securities would be of investment grade quality
prior to purchase by the Fund. Any unrated or non-cumulative
preferred stock purchases by the Fund will be made only after the
portfolio manager has determined that these investments represent
superior expected return potential versus comparable rated,
cumulative preferred issues.
Most cumulative, non-participating, non-convertible preferred
stocks are issued with a fixed dividend rate, with no fixed
maturity date. These features produce an equity security with
fixed rate bond-like characteristics. The price of this type of
preferred stock, like the price of fixed rate bonds, tends to
fluctuate inversely with the general level of interest rates.
Convertible preferred stocks may have the support of the market
value of the underlying common stock into which the preferred is
convertible. A stable or rising market value for the underlying
common stock can mitigate the effect of adverse interest rate
movements on the market price of a convertible preferred stock.
However, because of the conversion feature, a convertible preferred
stock is typically issued with a lower dividend rate per share than
a non-convertible preferred stock. A lower dividend rate per share
may result in a convertible preferred stock having greater price
volatility in response to a change in market interest rates than a
non-convertible preferred stock. The lower yield could result in
a more dramatic price reaction to a change in market yields. This
could be expected to occur in the case where the price of the
underlying common stock languishes, so the potential for future
conversion is low.
Under section 243 of the Internal Revenue Code, corporations (but
not individuals) generally are allowed a federal income tax
deduction of 70% of the amount of the dividends they receive from
other corporations. In order for a corporation to qualify for this
deduction, it generally is necessary for the corporation to hold
the underlying stock for at least 45 days. The applicable holding
period is 90 days in the case of certain preferred stock. Each
corporate shareholder in the Fund generally will be eligible for a
dividends received deduction for such shareholder's pro rata share
of dividends received by the Fund which qualify for the dividends
received deduction and which are designated by the Fund as
qualifying dividends.
The Fund's annual portfolio turnover rate may exceed 100 percent.
Higher portfolio turnover increases brokerage commissions and other
transaction costs. It also may act to increase shareholders'
current tax liability for capital gains by increasing the level of
realized capital gains.
INDEX 600 FUND
INDEX 500 FUND
INDEX PACIFIC FUND
INDEX EUROPEAN FUND
Each Index Fund seeks investment results that track the total
return of the common stocks that comprise its benchmark index by
investing in such stocks in approximately the same proportions as
the stocks are represented in the index.
The Index Funds normally invest at least 65% of their assets in the
stocks comprising their respective benchmarks. Although they focus
on common stocks, the Index Funds may also invest in other equity
securities and in other types of instruments. The Index Funds
purchase short-term debt securities for cash management purposes
and use various techniques, such as futures contracts, to adjust
their exposure to their benchmarks.
As a mutual fund, each Index Fund seeks to spread investment risk
by diversifying its holdings among many companies and industries.
Stock values fluctuate in response to the activities of individual
companies and general market and economic conditions. Capital
Management may use various investment techniques to hedge the Index
Funds' risks, but there is no guarantee that these strategies will
work as intended.
Although the Index Funds normally invest their assets according to
their investment strategy, they reserve the right to invest without
limitation in preferred stocks and investment grade debt
instruments for temporary, defensive purposes.
Index Investing
The Index Funds buy and sell stocks to duplicate the compositions
of their benchmark indexes. Their composition may not always be
identical to that of their benchmarks. If extraordinary
circumstances warrant, an Index Fund may exclude a stock held in
the corresponding index and include a similar stock in its place if
doing so will help the Fund achieve its objective.
Statistical techniques are generally used to determine which stocks
to buy and sell, rather than traditional economic, financial and
market analysis. This "passive" or "indexing" investment technique
tends to result in a lower portfolio turnover rate than that
experienced by many other mutual funds. Lower portfolio turnover
reduces brokerage commissions and other transaction costs that
would otherwise be borne by shareholders. It also acts to reduce
shareholders' current tax liability for capital gains by reducing
the level of realized capital gains.
While the Index Funds seek to maximize the correlation between
their performance and that of their benchmarks, certain factors not
associated with the benchmarks but which affect the Index Funds
will account for differences in performance. Such factors include
the amount of the Index Fund's total assets, management fees and
expenses, brokerage commissions and other transaction costs, and
changes in the composition of the benchmark. Accordingly, there is
no assurance as to the actual degree of correlation that will be
achieved by the Index Funds.
Each Index Fund seeks to achieve a 95% or better long-term
correlation between its total return and that of its benchmark
index. Capital Management monitors the correlation between the
performance of the Index Funds and their benchmarks on a regular
basis. In the unlikely event that an Index Fund cannot achieve a
long-term correlation of 95% or better, the Board of Trustees will
consider alternative arrangements.
About the Benchmark Indexes
Fund Benchmark
Index 600 Fund S&P SmallCap 600 Stock Index
Index 500 Fund S&P 500 Composite Stock Price Index
Index Pacific Fund Financial Times/S&P-Actuaries
Large-Cap Pacific Index
Index European Fund Financial Times/S&P-Actuaries
Large-Cap European Index
The S&P SmallCap 600 Stock Index (the "S&P 600") is a widely
recognized, unmanaged index of 600 stock prices. The index is
market-value weighted, meaning that each stock's influence on the
index's performance is directly proportional to that stock's
"market value" (stock price multiplied by the number of outstanding
shares). The stocks which make up the S&P 600 trade on the New
York Stock Exchange, American Stock Exchange, or NASDAQ quotation
system. The S&P 600 is designed to monitor the performance of
publicly traded common stocks of the small company sector of the
United States equities market. The stocks of small companies often
involve more risk than those of larger companies.
The S&P 500 Composite Stock Price Index (the "S&P 500") is a widely
recognized, unmanaged, market-value weighted index of 500 stock
prices. The stocks which make up the S&P 500 trade on the New York
Stock Exchange, the American Stock Exchange, or the NASDAQ National
Market System. It is generally acknowledged that the S&P 500
broadly represents the performance of publicly traded common stocks
in the United States.
Both the S&P 600 and the S&P 500 are sponsored by the Standard and
Poor's Corporation, which is responsible for determining which
stocks are represented on the indexes. Total returns for the S&P
600 and the S&P 500 assume reinvestment of dividends, but do not
include the effect of taxes, brokerage commissions or other costs
you would pay if you actually invested in those stocks.
The Financial Times/S&P-Actuaries Large-Cap Pacific Index (the
"Pacific Index") and the Financial Times/S&P-Actuaries Large-Cap
European Index (the "European Index") are unmanaged, market-value
weighted indexes of equity securities traded on the stock exchanges
of the countries represented in the respective indexes. They are
designed to represent the performance of stocks in the large-cap
sector of the markets from the countries included in the European
and Pacific Rim regions of the world.
The Pacific Index and European Index are sponsored by the Financial
Times-Stock Exchange International; Standard and Poor's
Corporation; Goldman, Sachs and Company; and Nat West Securities,
Ltd. Each of these entities has voting rights on a committee that
is responsible for determining the composition of the stocks
comprising the indexes.
None of the sponsors of the Benchmark Indexes is an affiliate or a
sponsor of the Trust, the Funds, or Capital Management. Inclusion
of a stock in an index does not imply that it is a good investment.
COMMON INVESTMENT POLICES, PRACTICES AND RISK FACTORS
The following pages contain more detailed information about certain
types of instruments in which the Funds may invest, strategies
Capital Management may employ in pursuit of the Funds' investment
objectives, and a summary of related risks. Any investment
limitation listed supplement those discussed earlier. A complete
listing of the Funds' investment limitations and more detailed
information about their investment practices are contained in the
Statement of Additional Information. Securities that met
applicable investment policies and limitations when acquired need
not be sold in the event of a later change in circumstances.
Capital Management may not buy all of these securities or use all
of these techniques unless it believes that they are consistent
with the Funds' investment objectives and policies and that doing
so will help the Funds achieve their objectives.
Money Market Instruments and Temporary Investment Strategies
In addition to the Money Market Fund, the other Funds each may hold
cash or cash equivalents and may invest in short-term, high-quality
debt instruments (that is in "money market instruments") as deemed
appropriate by Capital management, or may invest any or all of
their assets in money market instruments as deemed necessary by
Capital Management for temporary defensive purposes.
The types of money market instruments in which the Funds may invest
include, but are not limited to: (1) bankers' acceptances; (2)
obligations of U.S. and non-U.S. governments and their agencies and
instrumentalities; (3) short-term corporate obligations, including
commercial paper, notes, and bonds; (4) obligations of U.S. banks,
non-U.S. branches of such bank (Eurodollars), U.S. branches and
agencies of non-U.S. banks (Yankee dollars), and non-U.S. branches
of non-U.S. banks; (5) asset-backed securities; and (6) repurchase
agreements.
Repurchase Agreements
Each Fund may enter into repurchase agreements. In a repurchase
agreement, the Fund buys a security at one price and simultaneously
agrees to sell it back at a higher price. Delays or losses could
result if the other party to the agreement defaults or becomes
insolvent.
Equity Securities
Each Fund, except the Money Market Fund, invests directly or
indirectly in equity securities, such as common stocks, preferred
stocks, convertible stocks, and warrants. Although equity
securities have a history of long-term growth in value, their
prices fluctuate based on changes in a company's financial
condition and on overall market and economic conditions. Equity
securities of smaller companies are especially sensitive to these
factors.
Illiquid Securities
Each Fund may invest up to 15% of its net assets in illiquid
securities, except the Money Market Fund which may invest up to 10%
of its net assets in illiquid securities. The term "illiquid
securities" means securities that cannot be sold in the ordinary
course of business within seven days at approximately the price
used in determining a Fund's net asset value. Under the supervision
of the Board of Trustees, Capital Management determines the
liquidity of portfolio securities and, through reports from Capital
Management, the Board of Trustees monitors investments in illiquid
securities. Certain types of securities are generally considered to
be illiquid. Included among these are "restricted securities" which
are securities whose public resale is subject to legal
restrictions. However, certain types of restricted securities
(commonly known as "Rule 144A securities") that can be resold to
qualified institutional investors may be treated as liquid if they
are determined to be readily marketable pursuant to policies and
guidelines of the Board of Trustees.
A Fund may be unable to sell illiquid securities when desirable or
may be forced to sell them at a price that is lower than the price
at which they are valued or that could be obtained if the
securities were more liquid. In addition, sales of illiquid
securities may require more time and may result in higher dealer
discounts and other selling expenses than do sales of securities
that are not illiquid. Illiquid securities may also be more
difficult to value due to the unavailability of reliable market
quotations for such securities.
Adjusting Investment Exposure
Each Fund can use various techniques to increase or decrease its
exposure to changing security prices, currency exchange rates, or
other factors that affect security values. These techniques may
involve derivative transactions such as buying and selling options
and futures contracts, including futures on market indexes, and
entering into currency exchange contracts.
Capital Management can use these practices to adjust the risk and
return characteristics of a Fund's portfolio of investments. If
Capital Management judges market conditions incorrectly or employs
a strategy that does not correlate well with a Fund's investments,
these techniques could result in a loss, regardless of whether the
intent was to reduce risk or increase return. These techniques may
increase a Fund's volatility and may involve a small investment
relative to the magnitude of the risk assumed. In addition, these
techniques could result in a loss if the counterparty to the
transaction does not perform as promised.
Foreign Investments
Each Fund, except the Money Market Fund, may invest in foreign
securities and securities issued by U.S. entities with substantial
foreign operations in a manner consistent with its investment
objective and policies. Such foreign investments may involve
additional risks and considerations. These include risks relating
to political or economic conditions in foreign countries,
fluctuations in foreign currencies, withholding or other taxes,
operational risks, increased regulatory burdens, and the
potentially less stringent investor protection and disclosure
standards of foreign markets. Furthermore, the securities of some
foreign companies and foreign securities markets are less liquid
and at times more volatile than securities of comparable U.S.
companies and U.S. securities markets. Foreign brokerage
commissions and other fees are also generally higher than those
imposed in the United States. There are also special tax
considerations that apply to securities of foreign issuers and
securities principally traded overseas.
A Fund's investments in foreign securities may include investments
in countries whose economies or securities markets are not yet
highly developed. Investments in these "emerging market securities"
include additional risks to those generally associated with foreign
investing. The extent of economic development, political stability,
and market liquidity varies widely in comparison to more developed
nations. The economies these countries may be subject to greater
social, economic, and political uncertainties or may be based only
a few industries. These factors can make emerging market securities
more volatile.
The Index Pacific Fund and the Index European Fund have substantial
exposure to foreign markets since these Funds invest primarily in
securities of foreign issuers. The other Funds may have some
exposure to foreign markets, but their exposure is minimized since
these Funds invest primarily in securities of domestic issuers.
Lending
Each Fund may lend its portfolio securities to brokers or dealers
and other institutions as a means of earning interest income. The
Funds may lend securities only if (i) the loan is at all times
fully collateralized by cash, cash equivalents, U.S. government
securities or other high-quality debt securities, and (ii) the
value of all loaned securities is not more than 33 1/3 percent of
the Fund's total assets at the time of the loan.
Borrowing
Each Fund may borrow from banks for temporary and emergency
purposes, but not in an amount exceeding 33 1/3 percent of its
total assets. If a Fund borrows money, its share price may be
subject to greater fluctuation until the borrowing is paid off. A
Fund will repay all borrowings in excess of 5 percent of its total
assets before any investments are made.
Other Risk Factors
As a mutual fund, each Fund is subject to market risk. The value of
a Fund's shares will fluctuate in response to changes in economic
conditions, interest rates, and the market's perception of a Fund's
underlying portfolio securities.
No Fund should be considered to be a complete investment program by
itself. You should consider your own investment objectives as well
as your other investments when deciding whether to purchase shares
of any Fund.
MANAGEMENT OF THE FUNDS
The Trust is governed by the Board of Trustees which is responsible
for overall management of the Funds' business affairs. The
Trustees meet at least 4 times during the year to, among other
things, oversee the Funds' activities, review contractual
arrangements with companies that provide services to the Funds, and
review performance.
Investment Adviser
The Funds are managed by GW Capital Management, Inc. (Capital
Management), which selects the Funds' portfolio investments and
handles their business affairs. Capital Management is a registered
investment adviser under the Investment Advisers Act of 1940. Paul
Desmarais and his associates, a group of private holding companies,
have indirect voting control over Capital Management.
Capital Management is a wholly-owned subsidiary of Great-West Life
& Annuity Insurance Company ("GWL&A"), which is a wholly-owned
subsidiary of The Great-West Life Assurance Company ("Great-West").
Great-West serves as the investment adviser for: Maxim Series
Fund, Inc., a registered open-end management investment company
(shares of the Maxim Series Fund are sold only in connection with
certain insurance contracts); Great-West Variable Annuity Account
A, a separate account of GWL&A, registered as a management
investment company; and certain non-registered, tax-qualified
corporate pension plan separate accounts of GWL&A.
Portfolio Managers
Jim Desmond, an Assistant Vice President at Capital Management, is
responsible for the day-to-day management of the Preferred Stock
Fund. He is also an Assistant Vice President at Great-West where
he has managed GWL&A's separate account assets since 1991. From
September, 1987, to December, 1991, he was an equity portfolio
manager for the Colorado Public Employees Retirement Association.
Mr. Desmond has approximately fifteen years equity analysis and
portfolio management experience.
Other Information
The Trust has authorized capital of an unlimited number of shares
of beneficial interest in the Trust. Shares may be issued in one
or more series of shares, and each series may be issued in one or
more classes of shares. Presently, each Fund represents a separate
series of shares. The Trust may establish additional series or
classes in the future.
The Trust is not required to hold an annual shareholders meetings,
although special meetings may be called for a specific Fund or the
Trust as a whole for purposes such as electing or removing
trustees, changing fundamental investment policies, or approving a
new or amended investment advisory agreement. As a shareholder,
you receive one vote for each share of a Fund you own and a
proportionate vote for each fractional interest you own.
Shareholder inquiries can be made by telephone at (800) 338-4015,
or by mail to the Trust at 8515 East Orchard Road, Englewood,
Colorado 80111.
BenefitsCorp Equities, Inc. distributes and markets the Trust's
Funds. (the "Transfer Agent") performs transfer agent
servicing functions for the Funds.
IMPORTANT INFORMATION ABOUT YOUR INVESTMENT
HOW THE FUNDS VALUE THEIR SHARES
The price of a Fund's shares is based on the net asset value of
that Fund. Each Fund's per share net asset value is determined by
dividing the value of its net assets by the number of its
outstanding shares. A Fund's net asset value per share will
normally be determined as of the close of regular trading on the
New York Stock Exchange ("NYSE") (currently 4:00 p.m. Eastern Time)
Monday through Friday, except on holidays on which the NYSE is
closed.
Assets of the Funds other than the Money Market Fund are valued
primarily on the basis of market quotations. Foreign securities
are valued on the basis of quotations from the primary market in
which they are traded, and are translated from the local currency
into U.S. Dollars using current exchange rates. If quotations are
not readily available, or if values have been materially affected
by events occurring after the close of a foreign market, assets are
valued by a method that the Board of Trustees believes accurately
reflects fair value.
Assets of the Money Market Fund are valued on an amortized-cost
basis. Under this method, securities are valued at their
acquisition cost as adjusted for amortization of premium or
accretion of discount rather than at their value based on current
market factors. While this method attempts to provide certainty in
valuation, the value of securities based on amortized cost value
may differ from that based on market value. Short-term investments
of all Funds that will mature in not more than 60 days are also
valued at amortized cost.
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES
You are entitled to your share of the earnings of each Fund in
which you are a shareholder, which are passed along to shareholders
as "distributions." Earnings from net investment income, such as
stock dividends and interest from short-term debt instruments and
other investments, are passed along as "dividend distributions."
Earnings realized when a Fund sells securities for a higher price
than it paid for them are passed along as "capital gains
distributions." Each of the Funds distribute substantially all of
its net income and capital gains to shareholders each year.
The Money Market Fund ordinarily declares dividends from net income
daily and distributes dividends monthly. The Preferred Stock Fund
ordinarily distributes dividends from net income quarterly. The
Index 600 and Index 500 Funds ordinarily distribute dividends
semi-annually, while the Index Pacific and Index European Funds
ordinarily distribute such dividends annually. All of the Funds
generally distribute capital gains, if any, in the fiscal year in
which they were earned.
Distribution Option
Shareholders of a Fund can either receive distributions in cash or
reinvest them in additional shares of the Fund at the net asset
value in effect on the reinvestment date. Unless you elect, by
writing to the Trust or Transfer Agent, to receive your
distributions in cash, they will be automatically reinvested. You
can change your election at any time by writing to the Trust or
Transfer Agent.
Taxes
As with any investment, you should consider how your investment in
a Fund will be taxed.
Taxes on distributions. Distributions are subject to federal
income tax, and may also be subject to state or local taxes. If
you live outside the United States, your distributions could also
be taxed by the country in which you reside. Your distributions
are taxable when they are paid, whether you take them in cash or
reinvest them. However, distributions declared in December and
paid in January are taxable as if they were paid on December 31.
For federal tax purposes, a Fund's dividend distributions are taxed
as dividends and gain distributions are taxed as long-term capital
gains. A portion of the dividend distributions (but not capital
gains distributions) paid by a Fund may be eligible for the
dividends received deduction for corporate shareholders to the
extent that such distributions are attributable to dividends paid
by United States corporations and are so designated by the Fund.
Every January, the Trust will send you and the IRS a statement
showing the taxable distributions paid to you in the previous year.
Taxes on transactions. Redemptions and exchanges of shares in any
Fund may be subject to federal income tax. In general, your gain
or loss on any redemption, sale, or other exchange will equal the
difference between the cost of the shares you redeem, sell or
exchange, and the price you receive when you redeem, sell, or
exchange them.
You will receive a consolidated transaction statement at least
quarterly. You should keep your regular account statements,
because the information they contain will be essential in
calculating the amount and character of your gains and losses.
However, it is the responsibility of you and your tax preparer to
determine whether a given transaction will result in taxable gain
or loss and the amount of tax to be paid, if any.
"Buying a dividend." If you buy shares shortly before a Fund
deducts a distribution from its net asset value, you will pay the
full price for the shares and then receive a portion of the price
back in the form of a taxable distribution. Any capital loss
arising from the sale or redemption of shares held for six months
or less will be disallowed to the extent of exempt-interest
dividends received on such shares, and (to the extent not
disallowed) generally will be treated as long-term capital loss to
the extent of the amount of capital gain dividends received on such
shares.
Effect of foreign taxes. Dividends and interest received by the
Funds on foreign securities may give rise to withholding and other
taxes imposed by foreign governments. These taxes generally will
reduce the amount of their distributions.
There are tax requirements that all funds must follow in order to
avoid federal taxation. In order to comply with these
requirements, the Funds may be required to limit their investment
activity in some types of instruments.
HOW THE FUNDS REPORT PERFORMANCE
From time to time, the Trust may include a Fund's yield and total
return in advertisements, sales literature, and shareholder
reports. In addition, the Trust may advertise the Money Market
Fund's yield and effective yield. These measures of a Fund's
performance are based on past results and are not intended to
indicate future performance.
Yield
A Fund's "yield" refers to the income generated by an investment in
the Fund over a specified 30-day period (7-day period for the Money
Market Fund) expressed as an annual percentage rate. The Money
Market Fund's "effective yield" is calculated similarly, but the
income earned by an investment in the Fund, when annualized, is
assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of the
assumed reinvestment.
Total Return
A Fund's "total return" refers to the average annual rate of return
of an investment in the Fund. Total return is computed by
calculating the percentage change in the value of an investment of
$1,000 to the end of a specified period, assuming all dividends and
capital gain distributions are reinvested.
Annual and Semi-Annual Shareholder Reports
The fiscal year of the Funds ends on October 31 of each year. Twice
a year shareholders of each Fund will receive a report containing
a summary of the Fund's performance and other information.
INVESTING IN THE FUNDS
HOW TO BUY SHARES
Shares of a Fund can be purchased at the next share price
calculated after your order is received and accepted by the
Transfer Agent. Because you pay no commissions or sales charges
when you purchase shares, a Fund's share price is equivalent to the
Fund's net asset value per share.
If you do not already have an account with the Trust, you can
purchase shares by mailing a completed account application to the
Transfer Agent. In addition, you must either (i) include with your
application a check or money order made payable to the appropriate
Fund in the amount that you wish to invest, or (ii) wire (that is
electronically transfer) such amount to an account designated by
the Transfer Agent.
Once you have an account with the Trust, you can purchase shares by
mailing a check or money order made payable to the appropriate Fund
to the Transfer Agent, together with instructions specifying the
name and number of the account. You can also purchase shares by
wiring the amount that you wish to invest to your account.
If you wish to make an initial purchase of shares by wiring your
investment, you must first telephone the Transfer Agent at
between the hours of 8:00 a.m. and 4:00 p.m. (Eastern Time)
on any day that the NYSE is open for trading to receive an account
number with the Trust. You will be asked to provide the following
information: the name in which the account will be established,
the account holder's address, tax identification number, and
dividend distribution election. If requested, the Transfer Agent
will provide the instructions that your bank will need to complete
the transfer.
The Funds and Transfer Agent reserve the right to reject any order
to purchase shares, and the Funds reserve the right to cancel any
purchase order for which payment has not been received within three
business days following receipt of the order. If the Transfer
Agent deems it appropriate, additional documentation or
verification of authority may be required and an order will not be
deemed accepted unless and until such additional documentation or
verification is received by the Transfer Agent.
Your bank may charge a fee for its services. Presently, the
Transfer Agent does not charge a fee for its wire transfer
services, but reserves the right to charge for these services.
HOW TO SELL SHARES
You can withdraw money from your account by selling (that is by
"redeeming") some or all of your shares. Your shares will be sold
at the next share price calculated after your order is received and
accepted by the Transfer Agent. Because you pay no commissions or
sales charges when you sell shares of the Funds, each Fund's share
price is equivalent to the Fund's net asset value per share. You
can arrange to sell shares of a Fund by mail or by telephone.
By Mail
You can redeem shares by sending a "letter of instruction" by
regular or express mail to the Transfer Agent at . The
letter should include: (1) the name of the account from which
shares are to be redeemed; (2) the account number; (3) the name of
the Fund; (4) the dollar amount or number of shares to be redeemed;
(5) any special payment instructions; (6) the signatures of the
person or persons authorized to effect redemptions of shares held
by the account; and (7) any special requirements or documents
requested by the Transfer Agent to assure proper authorization of
such persons.
By Telephone
You can redeem shares by telephoning the Transfer Agent at
. Redemptions made by telephone will be paid in one of two
ways. If you selected the option on your account application to
link your bank account to your account with the Trust, you may
elect to have redemption proceeds sent by wire to the bank account
specified in your application. There is no limit on the amount of
proceeds that can be paid in this manner. The wire transfers will
normally be initiated on the first business day after the
redemption.
Otherwise, redemptions by telephone will be paid by check made
payable to the account owner(s) of record and will be mailed to the
address on the account. Up to $ may be redeemed in this
manner once every seven days. This service will not be available
within 30 days of a change of address on an account.
HOW TO EXCHANGE SHARES
You can exchange shares of a Fund that you own for shares of
another Fund. There are no sales charges or distribution fees. To
complete the exchange, shares of the Fund to be exchanged will be
sold, and shares of the another Fund will be purchased, at their
respective share prices next calculated after the exchange request
is received by the Transfer Agent. The minimum amount that may
exchanged is the lesser of $500 or the remaining value of the
investment in the Fund to be exchanged.
You can request an exchange in writing or by telephone. Written
requests should be submitted to the Transfer Agent by mail at
. The form must be signed by the account owner(s) and
include the following information: (1) the name of the account for
which shares are to be exchanged; (2) the account number; (3) the
name of the Fund, the shares of which are to be exchanged; (4) the
dollar amount or number of shares to be exchanged; (5) the name of
the Fund(s) to be acquired in the exchange; (6) the signatures of
the person or persons authorized to effect exchanges of shares held
by the account; and (7) any special requirements or documents
requested by the Transfer Agent to assure proper authorization of
such persons.
You can request an exchange by telephoning the Transfer Agent at
.
The Funds reserve the right to refuse exchanges if, in the Board of
Trustees' or Capital Management's judgment, a Fund would be unable
to invest the money effectively in accordance with its investment
objective and policies, or would potentially be otherwise adversely
affected.
Exchanges may be restricted or refused if a Fund receives or
anticipates simultaneous orders affecting significant portions of
the Fund's assets. In particular, a pattern of exchanges that
coincides with a "market timing" strategy may be disruptive to the
Fund.
Although a Fund will attempt to provide prior notice whenever it is
reasonably able to do so, it may impose these restrictions at any
time. Each Fund reserves the right to terminate or modify the
exchange privilege in the future.
OTHER INFORMATION
Telephone transaction privileges for purchases, redemptions, or
exchanges may be modified, suspended, or terminated by a Fund at
any time. If an account has more than one owner of record, the
Funds and the Transfer Agent may rely on the instructions of any
one owner. Each account owner has telephone transaction privileges
unless the Transfer Agent receives cancellation instructions from
an account owner.
The Transfer Agent will record telephone calls and has adopted
other procedures to confirm that telephone instructions are
genuine. The Funds will not be liable for losses or expenses
arising from unauthorized telephone transactions, provided they use
reasonable procedures to avoid such losses or expenses. If you are
unable to reach the Transfer Agent during periods of unusual market
activity, severe weather, or other unusual, extreme, or emergency
conditions, you may not be able to complete a telephone transaction
and should consider placing your order by mail.
INVESTMENT ADVISER
GW Capital Management, Inc.
8515 East Orchard Road
Englewood, Colorado 80111
- ------------------------
DISTRIBUTOR
BenefitsCorp Equities, Inc.
8515 East Orchard Road
Englewood, Colorado 80111
- ------------------------
TRANSFER AGENT
- ------------------------
CUSTODIAN
Bank of New York
One Wall Street
New York, New York 10286
- ------------------------
AUDITORS
Deloitte & Touche LLP
555 17th Street
Suite 3600
Denver, Colorado 80202
21
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 30, 1996
ORCHARD SERIES FUND
(the "Trust")
Orchard Money Market Fund
Orchard Preferred Stock Fund
Orchard Index 600 Fund
Orchard Index 500 Fund
Orchard Index Pacific Fund
Orchard Index European Fund
(the "Funds")
STATEMENT OF ADDITIONAL INFORMATION
The date of the Trust's current Prospectus to which this Statement
of Additional Information relates and the date of this Statement of
Additional Information is
, 1996
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the Trust's
current Prospectus. A copy of the Prospectus may be obtained by
writing the Trust at 8515 East Orchard Road, Englewood, Colorado
80111, or by calling (303) 689-3000.
TABLE OF CONTENTS
Page
----
INVESTMENT OBJECTIVES
INVESTMENT POLICIES AND PRACTICES
INVESTMENT LIMITATIONS
MANAGEMENT OF THE FUNDS
PORTFOLIO TRANSACTIONS
VALUATION OF PORTFOLIO SECURITIES
INVESTMENT PERFORMANCE
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
DIVIDENDS, DISTRIBUTIONS AND TAXES
OTHER INFORMATION
FINANCIAL STATEMENTS
APPENDIX
INVESTMENT OBJECTIVES
The Orchard Series Fund is an open-end management investment
company organized as a Delaware business trust (the Trust). The
Trust offers six diversified investment portfolios, commonly known
as mutual funds (the Funds). The Funds are "no-load," meaning you
pay no sales charges or distribution fees. GW Capital Management,
Inc.("Capital Management"), an indirect, wholly-owned subsidiary of
The Great-West Life Assurance Company, serves as the Funds'
investment adviser. The Funds and a brief description of their
investment objectives are listed below.
Orchard Money Market Fund. This Fund seeks as high a level of
current income as is consistent with the preservation of capital
and liquidity by investing in high-quality, short-term debt
securities. An investment in the Fund is neither insured nor
guaranteed by the U.S. government. While the Fund seeks to
maintain a stable net asset value of $1.00 per share, there is no
assurance that it will be able to do so.
Orchard Preferred Stock Fund. This Fund seeks a high level of
dividend income qualifying for the corporate dividends received
deduction under applicable federal tax law by investing primarily
in cumulative preferred stocks issued by domestic corporations.
The Orchard Stock Index Funds. Each of the following Funds (the
"Index Funds") seeks long-term growth of capital and a modest level
of income by investing in the common stocks that comprise a
specified benchmark index.
Fund Benchmark
Orchard Index 600 Fund S&P Small-Cap 600 Stock Index
Orchard Index 500 Fund S&P 500 Composite Stock Price Index
Orchard Index Pacific Fund Financial Times/S&P-Actuaries
Large-Cap Pacific Index
Orchard Index European Fund Financial Times/S&P-Actuaries
Large-Cap European Index
INVESTMENT POLICIES AND PRACTICES
Except as described below and except as otherwise specifically
stated in the Prospectus or this Statement of Additional
Information, the Funds' investment policies set forth in the
Prospectus and in this Statement of Additional Information are not
fundamental and may be changed without shareholder approval. A
listing of the Funds' fundamental investment limitations is
contained in this Statement of Additional Information under
"INVESTMENT LIMITATIONS." These limitations are fundamental
policies of each Fund, which means that they may not be changed
without shareholder approval. Securities that met applicable
investment policies and limitations when acquired need not be sold
in the event of a later change in circumstances.
The following pages contain more detailed information about types
of securities in which the Funds may invest, investment practices
and techniques that Capital Management may employ in pursuit of the
Funds' investment objectives, and a discussion of related risks.
Capital Management may not buy all of these securities or use all
of these techniques to the full extent permitted unless it believes
that they are consistent with the Funds' investment objectives and
policies and that doing so will help the Funds achieve their
objectives. Unless otherwise provided, each Fund may invest in all
these securities or use all of these techniques.
Repurchase Agreements. A repurchase agreement is an instrument
under which the purchaser acquires ownership of a debt security and
the seller agrees to repurchase the obligation at a mutually agreed
upon time and price. The total amount received on repurchase is
calculated to exceed the price paid by the purchaser, reflecting an
agreed upon market rate of interest for the period from the time of
purchase of the security to the settlement date (i.e., the time of
repurchase), and would not necessarily relate to the interest rate
on the underlying securities. A purchaser will only enter into
repurchase agreements with underlying securities consisting of
securities of the U.S. government and its agencies and
instrumentalities, certificates of deposit, commercial paper,
bankers' acceptances, and other high-quality, short-term debt
securities and will be entered only with counterparties approved
pursuant to creditworthiness standards established by the Funds'
board of trustees (the "Board of Trustees"). While investment in
repurchase agreements may be made for periods up to 30 days, it is
expected that typically such periods will be for a week or less.
The staff of the Securities and Exchange Commission has taken the
position that repurchase agreements of greater than 7 days are
illiquid securities; accordingly, such repurchase agreements are
subject to a Fund's policy regarding illiquid securities.
Although repurchase transactions usually do not impose market risks
on the purchaser, the purchaser would be subject to the risk of
loss if the seller fails to repurchase the securities for any
reason and the value of the securities is less than the agreed upon
repurchase price. In addition, if the seller defaults, the
purchaser may incur disposition costs in connection with
liquidating the securities. Moreover, if the seller is insolvent
and bankruptcy proceedings are commenced, under current law, the
purchaser could be ordered by a court not to liquidate the
securities for an indeterminate period of time and the amount
realized by the purchaser upon liquidation of the securities may be
limited.
Bankers' Acceptances. A bankers' acceptance is a time draft drawn
on a commercial bank by a borrower, usually in connection with
international commercial transactions (to finance the import,
export, transfer or storage of goods). The borrower is liable for
payment as well as the bank, which unconditionally guarantees to
pay the draft at its face amount on the maturity date. Most
acceptances have maturities of six months or less and are traded in
secondary markets prior to maturity. The Funds generally will not
invest in acceptances with maturities exceeding 7 days where to do
so would tend to create liquidity problems.
Certificates of Deposit. A certificate of deposit generally is a
short-term, interest bearing negotiable certificate issued by a
commercial bank or savings and loan association against funds
deposited in the issuing institution.
Commercial Paper. Commercial paper is a short-term promissory note
issued by a corporation primarily to finance short-term credit
needs.
Eurodollar Certificates of Deposit. A Eurodollar certificate of
deposit is a short-term obligation of a foreign subsidiary of a
U.S. bank payable in U.S. dollars.
Foreign Currency Transactions. The Funds, other than the Money
Market Fund, may conduct foreign currency transactions on a spot
(i.e., cash) basis or by entering into forward contracts to
purchase or sell foreign currencies at a future date and price.
The Funds will convert currency on a spot basis from time to time,
and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers generally do not charge a fee for
conversion, they do realize a profit based on the difference
between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to
a Fund at one rate, while offering a lesser rate of exchange should
the Fund desire to resell that currency to the dealer. Forward
contracts are generally traded in an interbank market conducted
directly between currency traders (usually large commercial banks)
and their customers. The parties to a forward contract may agree
to offset or terminate the contract before its maturity, or may
hold the contract to maturity and complete the contemplated
currency exchange.
A Fund may use currency forward contracts for any purpose
consistent with its investment objective. The following discussion
summarizes the principal currency management strategies involving
forward contracts that could be used by a Fund. A Funds may also
use options and futures contracts relating to foreign currencies
for the same purposes.
When a Fund agrees to buy or sell a security denominated in a
foreign currency, it may desire to "lock in" the U.S. dollar price
for the security. By entering into a forward contract for the
purchase or sale, for a fixed amount of U.S. dollars, of the amount
of foreign currency involved in the underlying security
transaction, the Fund will be able to protect itself against an
adverse change in foreign currency values between the date the
security is purchased or sold and the date on which payment is made
or received. This technique is sometimes referred to as a
"settlement hedge" or "transaction hedge." The Funds may also
enter into forward contracts to purchase or sell a foreign currency
in anticipation of future purchases or sales of securities
denominated in foreign currency, even if the specific investments
have not yet been selected by Capital Management.
The Funds may also use forward contracts to hedge against a decline
in the value of existing investments denominated in foreign
currency. For example, if a Fund owned securities denominated in
pounds sterling, it could enter into a forward contract to sell
pounds sterling in return for U.S. dollars to hedge against
possible declines in the pound's value. Such a hedge, sometimes
referred to as a "position hedge," would tend to offset both
positive and negative currency fluctuations, but would not offset
changes in security values caused by other factors. A Fund could
also hedge the position by selling another currency expected to
perform similarly to the pound sterling, for example, by entering
into a forward contract to sell Deutsche marks or European Currency
Units in return for U.S. dollars. This type of hedge, sometimes
referred to as a "proxy hedge," could offer advantages in terms of
cost, yield, or efficiency, but generally would not hedge currency
exposure as effectively as a simple hedge into U.S. dollars. Proxy
hedges may result in losses if the currency used to hedge does not
perform similarly to the currency in which the hedged securities
are denominated.
Each Fund may enter into forward contracts to shift its investment
exposure from one currency into another. This may include shifting
exposure from U.S. dollars into a foreign currency, or from one
foreign currency into another foreign currency. For example, if a
Fund held investments denominated in Deutschemarks, the Fund could
enter into forward contracts to sell Deutschemarks and purchase
Swiss Francs. This type of strategy, sometimes known as a
"cross-hedge," will tend to reduce or eliminate exposure to the
currency that is sold, and increase exposure to the currency that
is purchased, much as if the Fund had sold a security denominated
in one currency and purchased an equivalent security denominated in
another. Cross-hedges protect against losses resulting from a
decline in the hedged currency, but will cause the Fund to assume
the risk of fluctuations in the value of the currency it purchases.
Under certain conditions, SEC guidelines require mutual funds to
set aside appropriate liquid assets in a segregated custodial
account to cover currency forward contracts. As required by SEC
guidelines, the Funds will segregate assets to cover currency
forward contracts, if any, whose purpose is essentially
speculative. The Funds will not segregate assets to cover forward
contracts entered into for hedging purposes, including settlement
hedges, position hedges, and proxy hedges.
Successful use of currency management strategies will depend on
Capital Management's skill in analyzing and predicting currency
values. Currency management strategies may substantially change a
Fund's investment exposure to changes in currency exchange rates,
and could result in losses to the Fund if currencies do not perform
as Capital Management anticipates. For example, if a currency's
value rose at a time when Capital Management had hedged a Fund by
selling that currency in exchange for dollars, the Fund would be
unable to participate in the currency's appreciation. If Capital
Management hedges currency exposure through proxy hedges, a Fund
could realize currency losses from the hedge and the security
position at the same time if the two currencies do not move in
tandem. Similarly, if Capital Management increases a Fund's
exposure to a foreign currency, and that currency's value declines,
the Fund will realize a loss. There is no assurance that Capital
Management's use of currency management strategies will be
advantageous to the Funds or that it will hedge at an appropriate
time.
Foreign Securities. Each Fund, except the Money Market Fund, may
invest in foreign securities and securities issued by U.S. entities
with substantial foreign operations in a manner consistent with its
investment objective and policies. Such foreign investments may
involve significant risks in addition to those risks normally
associated with U.S. equity investments.
There may be less information publicly available about a foreign
corporate or government issuer than about a U.S. issuer, and
foreign corporate issuers are not generally subject to accounting,
auditing and financial reporting standards and practices comparable
to those in the United States. The securities of some foreign
issuers are less liquid and at times more volatile than securities
of comparable U.S. issuers. Foreign brokerage commissions and
securities custody costs are often higher than those in the United
States, and judgements against foreign entities may be more
difficult to obtain and enforce. With respect to certain foreign
countries, there is a possibility of governmental expropriation of
assets, confiscatory taxation, political or financial instability
and diplomatic developments that could affect the value of
investments in those countries. The receipt of interest on foreign
government securities may depend on the availability of tax or
other revenues to satisfy the issuer's obligations.
A Fund's investments in foreign securities may include investments
in countries whose economies or securities markets are not yet
highly developed. Special considerations associated with these
investments (in addition to the considerations regarding foreign
investments generally) may include, among others, greater political
uncertainties, an economy's dependence on revenues from particular
commodities or on international aid or developmental assistance,
currency transfer restrictions, illiquid markets, delays and
disruptions in securities settlement procedures.
Most foreign securities in a Fund will be denominated in foreign
currencies or traded in securities markets in which settlements are
made in foreign currencies. Similarly, any income on such
securities is generally paid to a Fund in foreign currencies. The
value of these foreign currencies relative to the U.S. dollar
varies continually, causing changes in the dollar value of a Fund's
investments (even if the price of the investments is unchanged) and
changes in the dollar value of a Fund's income available for
distribution to its shareholders. The effect of changes in the
dollar value of a foreign currency on the dollar value of a Fund's
assets and on the net investment income available for distribution
may be favorable or unfavorable.
A Fund may incur costs in connection with conversions between
various currencies. In addition, a Fund may be required to
liquidate portfolio assets, or may incur increased currency
conversion costs, to compensate for a decline in the dollar value
of a foreign currency occurring between the time when a Fund
declares and pays a dividend, or between the time when a Fund
accrues and pays an operating expense in U.S. dollars.
American Depository Receipts ("ADRs"), as well as other "hybrid"
forms of ADRs including European depository Receipts and Global
Depository Receipts, are certificates evidencing ownership of
shares of a foreign issuer. These certificate are issued by
depository banks and generally trade on an established market in
the United States or elsewhere. The underlying shares are held in
trust by a custodian bank or similar financial institution in the
issuer's home country. The depository bank may not have physical
custody of the underlying security at all times and may charge fees
for various services, including forwarding dividends and interest
and corporate actions. ADRs are an alternative to directly
purchasing the underlying foreign securities in their national
markets and currencies. However, ADRs continue to be subject to
the risks associated with investing directly in foreign securities.
These risks include foreign exchange risks as well as the political
and economic risks of the underlying issuer's country.
Futures. See "Futures and Options" below.
Illiquid Securities. Each Fund may invest up to 15% of its net
assets in illiquid securities, except the Money Market Fund which
may invest up to 10% of its net assets in illiquid securities. The
term "illiquid securities" means securities that cannot be sold in
the ordinary course of business within seven days at approximately
the price used in determining a Fund's net asset value. Under the
supervision of the Board of Trustees, Capital Management determines
the liquidity of portfolio securities and, through reports from
Capital Management, the Board of Trustees monitors investments in
illiquid securities. Certain types of securities are considered
generally to be illiquid. Included among these are "restricted
securities" which are securities whose public resale is subject to
legal restrictions. However, certain types of restricted securities
(commonly known as "Rule 144A securities") that can be resold to
qualified institutional investors may be treated as liquid if they
are determined to be readily marketable pursuant to policies and
guidelines of the Board of Trustees.
Lending of Portfolio Securities. Each Fund from time-to-time may
lend its portfolio securities to brokers, dealers and financial
institutions and receive as collateral cash, U.S. Treasury
securities or other high-qualify, short-term securities which, at
all times while the loan is outstanding, will be maintained in
amounts equal to at least 100% of the current market value of the
loaned securities. Any cash collateral will be invested in
short-term securities, which will increase the current income of
the Fund. Such loans will not have terms longer than 30 days and
will be terminable at any time. The Fund will have the right to
regain record ownership of loaned securities to exercise beneficial
rights such as voting rights, subscription rights and rights to
dividends, interest or other distributions. The Fund may pay
reasonable fees to persons unaffiliated with the Fund for services
in arranging such loans. Delays or losses could result if the
borrower becomes bankrupt or defaults on its obligation to return
the loaned securities.
Money Market Instruments and Temporary Investment Strategies. In
addition to the Money Market Fund, the other Funds each may hold
cash or cash equivalents and may invest in short-term, high-quality
debt instruments (that is in "money market instruments") as deemed
appropriate by Capital management, or may invest any or all of
their assets in money market instruments as deemed necessary by
Capital Management for temporary defensive purposes.
The types of money market instruments in which the Funds may invest
include, but are not limited to: (1) acceptances; (2) obligations
of U.S. and non-U.S. governments and their agencies and
instrumentalities; (3) short-term corporate obligations, including
commercial paper, notes, and bonds; (4) obligations of U.S. banks,
non-U.S. branches of such bank (Eurodollars), U.S. branches and
agencies of non-U.S. banks (Yankee dollars), and non-U.S. branches
of non-U.S. banks; (5) asset-backed securities; and (6) repurchase
agreements.
Options. See "Futures and Options" below.
A Fund may be unable to sell illiquid securities when desirable or
may be forced to sell them at a price that is lower than the price
at which they are valued or that could be obtained if the
securities were more liquid. In addition, sales of illiquid
securities may require more time and may result in higher dealer
discounts and other selling expenses than do sales of securities
that are not illiquid. Illiquid securities may also be more
difficult to value due to the unavailability of reliable market
quotations for such securities.
Stripped Treasury Securities. Each Fund may invest in zero-coupon
bonds. These securities are U.S. Treasury bonds which have been
stripped of their unmatured interest coupons, the coupons
themselves, and receipts or certificates representing interests in
such stripped debt obligations and coupons. Interest is not paid
in cash during the term of these securities, but is accrued and
paid at maturity. Such obligations have greater price volatility
than coupon obligations and other normal interest-paying
securities, and the value of zero coupon securities reacts more
quickly to changes in interest rates than do coupon bonds. Since
dividend income is accrued throughout the term of the zero coupon
obligation, but not actually received until maturity, a Fund may
have to sell other securities to pay said accrued dividends prior
to maturity of the zero coupon obligation. Zero coupon securities
are purchased at a discount from face value, the discount
reflecting the current value of the deferred interest. The
discount is taxable even though there is no cash return until
maturity.
Time Deposits. A time deposit is a deposit in a commercial bank
for a specified period of time at a fixed interest rate for which
a negotiable certificate is not received.
U.S. Government Securities. These are securities issued or
guaranteed as to principal and interest by the U.S. government or
its agencies or instrumentalities. U.S. Treasury bills and notes
and certain agency securities, such as those issued by the
Government National Mortgage Association, are backed by the full
faith and credit of the U.S. government. Securities of other
government agencies and instrumentalities are not backed by the
full faith and credit of U.S. government. These securities have
different degrees of government support and may involve the risk of
non-payment of principal and interest. For example, some are
supported by the agency's right to borrow from the U.S. Treasury
under certain circumstances, such as those of the Federal Home Loan
Banks. Others are supported by the discretionary authority of the
U.S. government to purchase certain obligations of the agency or
instrumentality, such as those of the Federal National Mortgage
Association. Still other are supported only by the credit of the
agency that issued them, such as those of the Student Loan
Marketing Association. The U.S. government and its agencies and
instrumentalities do not guarantee the market value of their
securities, and consequently, the value of such securities may
fluctuate.
Variable Amount Master Demand Notes. A variable amount master
demand note is a note which fixes a minimum and maximum amount of
credit and provides for lending and repayment within those limits
at the discretion of the lender. Before investing in any variable
amount master demand notes, the liquidity of the issuer must be
determined through periodic credit analysis based upon publicly
available information.
Variable or Floating Rate Securities. These securities have
interest rates that are adjusted periodically, or which "float"
continuously according to formulas intended to stabilize their
market values. Many of them also carry demand features that permit
the Funds to sell them on short notice at par value plus accrued
interest. When determining the maturity of a variable or floating
rate instrument, the Fund may look to the date the demand feature
can be exercised, or to the date the interest rate is readjusted,
rather than to the final maturity of the instrument.
When-Issued and Delayed-Delivery Transactions. When-issued or
delayed-delivery transactions arise when securities are purchased
or sold with payment and delivery taking place in the future in
order to secure what is considered to be an advantageous price and
yield at the time of entering into the transaction. While the
Funds generally purchase securities on a when-issued basis with the
intention of acquiring the securities, the Funds may sell the
securities before the settlement date if Capital Management deems
it advisable. At the time a Fund makes the commitment to purchase
securities on a when-issued basis, the Fund will record the
transaction and thereafter reflect the value, each day, of such
security in determining the net asset value of the Fund. At the
time of delivery of the securities, the value may be more or less
than the purchase price. A Fund will maintain, in a segregated
account, cash, U.S. government securities or other liquid,
high-grade debt obligations having a value equal to or greater than
the Fund's purchase commitments; likewise a Fund will segregate
securities sold on a delayed-delivery basis.
Futures and Options
Futures Contracts. When a Fund purchases a futures contract, it
agrees to purchase a specified underlying instrument at a specified
future date. When a Fund sells a futures contract, it agrees to
sell the underlying instrument at a specified future date. The
price at which the purchase and sale will take place is fixed when
the Fund enters into the contract. Futures can be held until their
delivery dates, or can be closed out before then if a liquid
secondary market is available.
The value of a futures contract tends to increase and decrease in
tandem with the value of its underlying instrument. Therefore,
purchasing futures contracts will tend to increase a Fund's
exposure to positive and negative price fluctuations in the
underlying instrument, much as if it had purchased the underlying
instrument directly. When a Fund sells a futures contract, by
contrast, the value of its futures position will tend to move in a
direction contrary to the market.
Futures Margin Payments. The purchaser or seller of a futures
contract is not required to deliver or pay for the underlying
instrument unless the contract is held until the delivery date.
However, both the purchaser and seller are required to deposit
"initial margin" with a futures broker, known as a futures
commission merchant ("FCM"), when the contract is entered into.
Initial margin deposits are typically equal to a percentage of the
contract's value. If the value of either party's position
declines, that party will be required to make additional "variation
margin" payments to settle the change in value on a daily basis.
The party that has a gain may be entitled to receive all or a
portion of this amount. Initial and variation margin payments do
not constitute purchasing securities on margin for purposes of a
Fund's investment limitations. In the event of a bankruptcy of an
FCM that holds margin on behalf of a Fund, the Fund may be entitled
to return of margin owed to it only in proportion to the amount
received by the FCM's other customers, potentially resulting in
losses to the Fund.
Index Futures Contracts. An index futures contract obligates the
seller to deliver (and the purchaser to take) an amount of cash
equal to a specific dollar amount times the difference between the
value of a specific index at the close of the last trading day of
the contract and the price at which the agreement is made. No
physical delivery of the underlying security in the index is made.
Purchasing Put and Call Options. By purchasing a put option, a
Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return
for this right, the Fund pays the current market price for the
option (known as the option premium). Options have various types
of underlying instruments, including specific securities, indices
of securities prices, and futures contracts. The Fund may
terminate its position in a put option it has purchased by allowing
it to expire or by exercising the option. If the option is allowed
to expire, the Fund will lose the entire premium it paid. If the
Fund exercises the option, in completes the sale of the underlying
instrument at the strike price. A Fund may also terminate a put
option position by closing it out in the secondary market (that is
by selling it to another party) at its current price, if a liquid
secondary market exists.
The buyer of a typical put option can expect to realize a gain or
security prices fall substantially. However, if the underlying
instrument's price does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss
(limited to the amount of the premium paid, plus related
transaction costs).
The features of call options are essentially the same as those of
put options, except that the purchaser of a call option obtains the
right to purchase, rather than sell, the underlying instrument at
the option's strike price. A call buyer typically attempts to
participate in potential price increases of the underlying
instrument with risk limited to the cost of the option if security
prices fall. At the same time, the buyer can expect to suffer a
loss if security prices do not rise sufficiently to offset the cost
of the option.
Writing Put and Call Options. When a Fund writes a put option, it
takes the opposite side of the transaction from the option's
purchaser. In return for receipt of the premium, the Fund assumes
the obligation to pay the strike price for the option's underlying
instrument if the other party to the option chooses to exercise it.
When writing an option on a futures contract, the Fund will be
required to make margin payments to an FCM as described above for
futures contracts. A Fund may seek to terminate its position in a
put option it writes before exercise by closing out the option in
the secondary market at is current price. If the secondary market
is not liquid for a put option the Fund has written, however, the
Fund must continue to be prepared to pay the strike price while the
option is outstanding, regardless of price changes, and must
continue to set aside assets to cover its position.
If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time,
it is likely that the writer will also profit, because it should be
able to close out the option at a lower price. If security prices
fall, the put writer would expect to suffer a loss from purchasing
the underlying instrument directly, which can exceed the amount of
the premium received.
Writing a call option obligates a Fund to sell or deliver the
option's underlying instrument, in return for the strike price,
upon exercise of the option. The characteristics of writing call
options are similar to those of writing put options, except that
writing calls generally is a profitable strategy if prices remain
the same or fall. Through receipt of the option premium, a call
writer can mitigate the effect of a price decline. At the same
time, because a call writer gives up some ability to participate in
security price increases.
OTC Options. Unlike exchange-traded options, which are
standardized with respect to the underlying instrument, expiration
date, contract size, and strike price, the terms of
over-the-counter ("OTC") options (options not traded on exchanges)
generally are established through negotiation with the other party
to the option contract. While this type of arrangement allows the
Funds greater flexibility to tailor an option to its needs, OTC
options generally involve greater credit risk than exchange-traded
options, which are guaranteed by the clearing organization of the
exchanges where they are traded.
Options and Futures Relating to Foreign Currencies. Currency
futures contracts are similar to forward currency exchange
contracts, except that they are traded on exchanges (and have
margin requirements) and are standardized as to contract size and
delivery date. Most currency futures contracts call for payment or
delivery in U.S. dollars. The underlying instrument of a currency
option may be a foreign currency, which generally is purchased or
delivered in exchange for U.S. dollars, or may be a futures
contract. The purchaser of a currency call option obtains the
right to purchase the underlying currency, and the purchaser of a
currency put obtains the right to sell the underlying currency.
The uses and risks of currency options and futures are similar to
options and futures relating to securities or indices, as discussed
above. The Funds may purchase and sell currency futures and may
purchase and write currency options to increase or decrease their
exposure to different foreign currencies. A Fund may also purchase
and write currency options in conjunction with each other or with
currency futures or forward contracts. Currency futures and
options values can be expected to correlate with exchange rates,
but may not reflect other factors that affect the value of a Fund's
investments. A currency hedge, for example, should protect a
Yen-denominated security from a decline in the Yen, but will not
protect a Fund against a price decline resulting from deterioration
in the issuer's creditworthiness. Because the value of a Fund's
foreign-denominated investments changes in response to many factors
other than exchange rates, it may not be possible to match the
amount of currency options and futures to the value of the Fund's
investments exactly over time.
Asset Coverage for Futures and Options Positions. The Funds will
comply with guidelines established by the Securities and Exchange
Commission with respect to coverage of options and futures
strategies by mutual Funds, and if the guidelines so require will
set aside appropriate liquid assets in a segregated custodial
account in the amount prescribed. Securities held in a segregated
account cannot be sold while the futures or option strategy is
outstanding, unless they are replaced with other suitable assets.
As a result, there is a possibility that segregation of a large
percentage of a Fund's assets could impede portfolio management or
the Fund's ability to meet redemption requests or other current
obligations.
Combined Positions. A Fund may purchase and write options in
combination with each other, or in combination with futures or
forward contracts, to adjust the risk and return characteristics of
the overall position. For example, a Fund may purchase a put
option and write a call option on the same underlying instrument,
in order to construct a combined position whose risk and return
characteristics are similar to selling a futures contract. Another
possible combined position would involve writing a call option at
one strike price and buying a call option at a lower price, in
order to reduce the risk of the written call option in the event of
a substantial price increase. Because combined options positions
involve multiple trades, they result in higher transaction costs
and may be more difficult to open and close out.
Correlation of Price Changes. Options and futures prices can also
diverge from the prices of their underlying instruments, even if
the underlying instruments match a Fund's investments well.
Options and futures prices are affected by such factors as current
and anticipated short-term interest rates, changes in volatility of
the underlying instrument, and the time remaining until expiration
of the contract, which may not affect security prices the same way.
Imperfect correlation may also result from differing levels of
demand in the options and futures markets and the securities
markets, from structural differences in how options and futures and
securities are traded, or from imposition of daily price
fluctuation limits or trading halts. A Fund may purchase or sell
options and futures contracts with a greater or lesser value than
the securities it wishes to hedge or intends to purchase in order
to attempt to compensate differences in volatility between the
contract and the securities, although this may not be successful in
all cases. If price changes in a Fund's options or futures
positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses
that are not offset by gains in other investments.
Limitations on Futures and Options Transactions. The Funds intend
to comply with Rule 4.5 under the Commodity Exchange Act, which
limits the extent to which the Funds can commit assets to initial
margin deposits and option premiums.
Liquidity of Options and Futures Contracts. There is no assurance
that a liquid secondary market will exist for any particular option
or futures contract at any particular time. Options may have
relatively low trading volume and liquidity if their strike prices
are not close to the underlying instrument's current price. In
addition, exchanges may establish daily price fluctuation limits
for options and futures contracts, and may halt trading if a
contract's price moves upward or downward more than the limit in a
given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed, it may be impossible
for a Fund to enter into new positions or close out existing
positions. If the secondary market for a contract is not liquid
because of price fluctuation limits or otherwise, it could prevent
prompt liquidation of unfavorable positions, and potentially could
require a Fund to continue to hold a position until delivery or
expiration regardless of changes in its value. As a result, a
Fund's access to assets held to cover its options or futures
positions could also be impaired.
INVESTMENT LIMITATIONS
Below is a description of certain limitations that constitute the
Funds' fundamental policies, which means that they may not be
changed with respect to any Fund without approval by vote of a
majority of the outstanding voting shares of such Fund. For this
purpose, "majority" means the lesser of (i) 67% of the shares
represented at a meeting at which more than 50% of the outstanding
share are represented or (ii) more than 50% of the outstanding
shares.
Each Fund will not:
(1) Invest more than 25% of its total assets (taken at market
value at the time of each investment) in the securities of issuers
primarily engaged in the same industry; provided that there shall
be no limitation on the purchase of U.S. government securities or
of certificates of deposit and bankers' acceptances; utilities will
be divided according to their services; for example, gas, gas
transmission, electric and telephone each will be considered a
separate industry for purposes of this restriction.
(2) Purchase or sell interests in commodities, commodities
contracts, oil, gas or other mineral exploration or development
programs, or real estate, except that a Fund may purchase
securities of issuers which invest or deal in any of the above;
provided, however, that the Funds, except the Money Market Fund,
may invest in futures contracts on financial indexes, foreign
currency transactions and options on permissible futures contracts.
(3) (a) purchase any securities on margin, (b) make short sales of
securities, or (c) maintain a short position, except that a Fund
(i) may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities, (ii)
other than the Money Market Fund, may make margin payments in
connection with transactions in futures contracts and currency
futures contracts and enter into permissible options transactions,
and (iii) may make short sales against the box.
(4) Make loans, except as provided in limitation (5) below and
except through the purchase of obligations in private placements
(the purchase of publicly-traded obligations are not being
considered the making of a loan) and through repurchase agreements.
(5) Lend its portfolio securities in excess of 33 1/3% of its
total assets, taken at market value at the time of the loan,
provided that such loan shall be made in accordance with the
guidelines set forth under "Lending of Portfolio Securities" in
this Statement of Additional Information.
(6) Borrow except that a Fund may borrow for temporary or
emergency purposes. The Fund will not borrow unless immediately
after any such borrowing there is an asset coverage of at least 300
percent for all borrowings of the Fund. If such asset coverage
falls below 300 percent, the Fund will within three days thereafter
reduce the amount of its borrowings to an extent that the asset
coverage of such borrowings will be at least 300 percent. The Fund
will repay all borrowings in excess of 5% of its total assets
before any investments are made. For purposes of this limitation,
reverse repurchase agreements and other investments covered by
segregated accounts do not constitute borrowings.
(7) Mortgage, pledge, hypothecate or in any manner transfer, as
security for indebtedness, any securities owned or held by the Fund
except as may be necessary in connection with borrowings mentioned
in limitation (6) above, and then such mortgaging, pledging or
hypothecating may not exceed 10% of the Fund's total assets, taken
at market value at the time thereof. A Fund will not, as a matter
of operating policy, mortgage, pledge or hypothecate its portfolio
securities to the extent that at any time the percentage of the
value of pledged securities will exceed 10% of the value of the
Fund's shares. This limitation shall not apply to segregated
accounts.
(8) Underwrite securities of other issuers except insofar as the
Fund may be deemed an underwriter under the Securities Act of 1933
in selling portfolio securities.
(9) Issue senior securities. The issuance of more than one series
or classes of shares of beneficial interest, obtaining of
short-term credits as may be necessary for the clearance of
purchases and sales of portfolio securities, short sales against
the box, the purchase or sale of permissible options and futures
transactions (and the use of initial and maintenance margin
arrangements with respect to futures contracts or related options
transactions), the purchase or sale of securities on a when issued
or delayed delivery basis, permissible borrowings entered into in
accordance with a Fund's investment objectives and policies, and
reverse repurchase agreements are not deemed to be issuances of
senior securities.
Diversified Portfolio of Securities
Each Fund will operate as a diversified investment portfolio of the
Trust, meaning that at least 75% of the value of its total assets
will be represented by cash and cash items (including receivables),
U.S. government securities, securities of other investment
companies, and other securities, the value of which with respect to
any one issuer is neither more than 5% of the Fund's total assets
nor more than 10% of the outstanding voting securities of such
issuer.
MANAGEMENT OF THE FUND
Investment Adviser
GW Capital Management, Inc. (Capital Management), a Colorado
corporation, located at 8515 East Orchard Road, Englewood, Colorado
80111, serves as investment adviser to the Trust pursuant to an
Investment Advisory Agreement dated _______________, 1996. Capital
Management is a wholly-owned subsidiary of Great-West Life &
Annuity Insurance Company, which is a wholly-owned subsidiary of
The Great-West Life Assurance Company ("Great-West"), a Canadian
stock life insurance company. Great-West is a 99.4% owned
subsidiary of Great-West Lifeco Inc., which in turn is an 86.4%
owned subsidiary of Power Financial Corporation, Montreal, Quebec.
Power Corporation of Canada, a holding and management company, has
voting control of Power Financial Corporation of Canada. Mr. Paul
Desmarais, and his associates, a group of private holding
companies, have voting control of Power Corporation of Canada.
Trustees and Officers
The trustees and executive officers of the Trust, their ages,
position(s) with the Trust, and principal occupations during the
past 5 years (or as otherwise indicated) are set forth below. The
business address of each trustee and officer is 8515 East Orchard
Road, Englewood, Colorado 80111. Those trustees and officers who
are "interested persons" (as defined in the Investment Company Act
of 1940, as amended) by virtue of their affiliation with either the
Trust or Capital Management are indicated by an asterisk (*).
*Dennis Low (52), Trustee, is Executive Vice President, Financial
Services, of Great-West.
*James D. Motz (47), President, is Senior Vice President, Employee
Benefits, of Great-West.
Glen R. Derback (44), Treasurer, is Vice President, Financial
Control, of Great-West.
Ruth B. Lurie (55), Secretary, is Vice President and Counsel of
Great-West.
Mark J. Pavlik (35), Controller, is Manager, Financial Control, of
Great-West.
Beverly A. Byrne (40), Assistant Secretary, is Assistant Counsel of
Great-West (since 1993), and has been an attorney with Great-West
since 1988.
Compensation
As of , 1996, no person owns of record or
beneficially 5% or more of the shares outstanding of the Trust or
any Fund except Capital Management and its affiliates which owned
100% of the Funds' outstanding shares as of the date of this
Statement of Additional Information. As of the date of this
Statement of Additional Information, the trustees and officers of
the Trust, as a group, owned of record or beneficially less than 1%
of the outstanding share of each Fund.
Investment Advisory Agreement
The Investment Advisory Agreement became effective on
_______________, 1996. As approved, the Agreement will remain in
effect until _________________, 1998, and will continue in effect
from year to year if approved annually by the Board of Trustees
including the vote of a majority of the trustees who are not
parties to the Agreement or interested persons of any such party,
or by vote of a majority of the outstanding shares of each Fund.
Any amendment to the Agreement becomes effective with respect to a
Fund upon approval by vote of a majority of the voting securities
of the Fund. The agreement is not assignable and may be terminated
without penalty with respect to any Fund either by the Board of
Trustees or by vote of a majority of the outstanding voting
securities of such Fund or by Capital Management, each on 60 days
notice to the other party.
The Investment Advisory Agreement provides that Capital Management,
subject to the direction of the Board of Trustees, is responsible
for selecting the Funds' investments and for managing their
business affairs. Capital Management provides the Funds' portfolio
managers who consider analyses from various sources, make the
necessary investment decisions, and effect transactions
accordingly. Capital Management also performs certain
administrative and management services for the Fund and provides
all the office space, facilities, equipment and personnel necessary
to perform its duties under the Agreement.
The Investment Advisory Agreement provides that Capital Management
shall not be subject to any liability in connection with the
performance of its services thereunder in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of
its obligations and duties.
Managements Fees
Each Fund pays a management fee to Capital Management for managing
its investments and business affairs. Capital Management is paid
monthly at an annual rate of a Fund's average net assets according
to the following schedule.
MANAGEMENT FEE
(as a percentage of average net assets)
-------------------
Money Market Fund 0.20%
Preferred Stock Fund 0.90%
Index 600 Fund 0.60%
Index 500 Fund 0.60%
Index Pacific Fund 1.00%
Index European Fund 1.00%
Expenses of the Funds
In addition to the management fees paid to Capital Management, the
Trust pays certain other costs including, but not limited to, (a)
brokerage commissions; (b) federal, state and local taxes,
including issue and transfer taxes incurred by or levied on the
Funds; (c) interest charges on borrowing; (d) fees and expenses of
registering the shares of the Funds under the applicable federal
securities laws and of qualifying shares of the Fund under
applicable state securities laws including expenses attendant upon
renewing and increasing such registrations and qualifications; (e)
expenses of printing and distributing the Funds' prospectus and
other reports to shareholders; (f) costs of proxy solicitations;
(g) transfer agent fees; (h) charges and expenses of the Trust's
custodian; (i) compensation and expenses of the "independent"
trustees; and (j) such nonrecurring items as may arise, including
expenses incurred in connection with litigation, proceedings and
claims and the obligations of the Trust to indemnify its trustees
and officers with respect thereto.
Subject to revision, Capital Management has voluntarily agreed to
reimburse the Index Pacific Fund, the Index European Fund, and the
Money Market Fund to the extent that total operating expenses, but
excluding interest, taxes, brokerage commissions, and extraordinary
expenses, exceed 1.20%, 1.20%, and 0.46%, respectively, of average
net assets.
PORTFOLIO TRANSACTIONS
Subject to the direction of the Board of Trustees, Capital
Management is primarily responsible for placement of Funds'
portfolio transactions. Capital Management has no obligation to
deal with any broker, dealer or group of brokers or dealers in the
execution of transactions in portfolio securities. In placing
orders, it is the policy of the Trust to obtain the most favorable
net results, taking into account various factors, including price,
dealer spread or commissions, if any, size of the transaction and
difficulty of execution. While Capital Management generally will
seek reasonably competitive spreads or commissions, the Funds will
not necessarily pay the lowest spread or commission available.
Transactions on U.S. futures and stock exchanges and other agency
transactions involve the payment of negotiated brokerage
commissions. Commissions vary among different brokers and dealers,
which may charge different commissions according to such factors as
the difficulty and size of the transaction. Transactions in
foreign securities often involve the payment of fixed brokerage
commissions, which may be higher than those for negotiated
transactions in the United States. Prices for over-the-counter
transactions usually include an undisclosed commission or "mark-up"
that is retained by the broker or dealer effecting the trade. The
cost of securities purchased from an underwriter or from a dealer
in connection with an underwritten offering usually includes a
fixed commission which is paid by the issuer to the underwriter or
dealer. Transactions in U.S. government securities occur usually
through issuers and underwriters of and major dealers in such
securities, acting as principals. These transactions are normally
made on a net basis and do not involve payment of brokerage
commissions.
In placing portfolio transactions, Capital Management may give
consideration to brokers or dealers which provide supplemental
investment research, in addition to such research obtained for a
flat fee, and pay commissions to such brokers or dealers furnishing
such services which are in excess of commissions which another
broker or dealer may charge for the same transaction. Such
supplemental research ordinarily consists of assessments and
analyses of the business or prospects of a company, industry, or
economic sector. Supplemental research obtained through brokers or
dealers will be in addition to and not in lieu of the services
required to be performed by Capital Management. The expenses of
Capital Management will not necessarily be reduced as a result of
the receipt of such supplemental information. Capital Management
may use any supplemental investment research obtained for the
benefit of the Funds in providing investment advice to its other
investment advisory accounts, and may use such information in
managing its own accounts. Conversely, such supplemental
information obtained by the placement of business for Capital
Management will be considered by and may be useful to Capital
Management in carrying out its obligations to the Trust.
If in the best interests of both one or more Funds and other client
accounts of Capital Management, Capital Management may, to the
extent permitted by applicable law, but need not, aggregate the
purchases or sales of securities for these accounts to obtain
favorable overall execution. When this occurs, Capital Management
will allocate the securities purchased and sold and the expenses
incurred in a manner that it deems equitable to all accounts. In
making this determination, Capital Management may consider, among
other things, the investment objectives of the respective client
accounts, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the
size of investment commitments generally, and the opinions of
persons responsible for managing the Funds and other client
accounts. The use of aggregated transactions may adversely affect
the size of the position obtainable for the Funds, and may itself
adversely affect transaction prices to the extent that it increases
the demand for the securities being purchased or the supply of the
securities being sold.
Portfolio Turnover
The turnover rate for each Fund is calculated by dividing (a) the
lesser of purchases or sales of portfolio securities for the fiscal
year by (b) the monthly average value of portfolio securities owned
by the Fund during the fiscal year. In computing the portfolio
turnover rate, certain U.S. government securities (long-term for
periods before 1986 and short-term for all periods) and all other
securities, the maturities or expiration dates of which at the time
of acquisition are one year or less, are excluded.
There are no fixed limitations regarding the portfolio turnover of
the Funds. Portfolio turnover rates are expected to fluctuate
under constantly changing economic conditions and market
circumstances. Securities initially satisfying the basic policies
and objectives of each Fund may be disposed of when appropriate in
Capital Management's judgement.
With respect to any Fund, a higher portfolio turnover rate may
involve correspondingly greater brokerage commissions and other
expenses which might be borne by the Fund and, thus, indirectly by
its shareholders.
VALUATION OF PORTFOLIO SECURITIES
The net asset value of each Fund is determined in the manner
described in the Prospectus. Securities held by each Fund other
than the Money Market Fund will be valued as follows: portfolio
securities which are traded on stock exchanges are valued at the
last sale price on the principal exchange as of the close of
business on the day the securities are being valued, or, lacking
any sales, at the mean between the bid and asked prices.
Securities traded in the over-the-counter market and included in
the National Market System are valued at the mean between the bid
and asked prices which may be based on the valuations furnished by
a pricing service or from independent securities dealers.
Otherwise, over-the-counter securities are valued at the mean
between the bid and asked prices or yield equivalent as obtained
from one or more dealers that make markets in the securities.
Portfolio securities which are traded both in the over-the-counter
market and on an exchange are valued according to the broadest and
most representative market, and it is expected that for debt
securities this ordinarily will be the over-the-counter market.
Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by
or under procedures or guidelines established by the Board of
Trustees, including valuations furnished by pricing services
retained by Capital Management.
The net asset value per share of the Money Market Fund is
determined by using the amortized cost method of valuing its
portfolio instruments. Under the amortized cost method of
valuation, an instrument is valued at cost and the interest payable
at maturity upon the instrument is accrued daily as income over the
remaining life of the instrument. Neither the amount of daily
income nor the net asset value is affected by unrealized
appreciation or depreciation of the Fund's investments assuming the
instrument's obligation is paid in full on maturity. In periods of
declining interest rates, the indicated daily yield on shares of
the portfolio computed using amortized cost may tend to be higher
than a similar computation made using a method of valuation based
upon market prices and estimates. In periods of rising interest
rates, the indicated daily yield on shares of the portfolio
computed using amortized costs may tend to be lower than a similar
computation made using a method of valuation based upon market
prices and estimates. For all Funds, securities with remaining
maturities of not more than 60 days are valued at amortized cost,
which approximates market value.
The amortized cost method of valuation permits the Money Market
Fund to maintain a stable $1.00 net asset value per share. The
Board of Trustees periodically reviews the extent of any deviation
from the $1.00 per share value that would occur if a method of
valuation based on market prices and estimates were used. In the
event such a deviation would exceed one-half of one percent, the
Board of Trustees will promptly consider any action that reasonably
should be initiated to eliminate or reduce material dilution or
other unfair results to shareholders. Such action may include
selling portfolio securities prior to maturity, not declaring
earned income dividends, valuing portfolio securities on the basis
of current market prices, if available, or if not available, at
fair market value as determined in good faith by the Board of
Trustees, and in kind redemption of portfolio securities
(considered highly unlikely by management of the Trust).
INVESTMENT PERFORMANCE
The Funds may quote measure of investment performance in various
ways. All performance information supplied by the Funds in
advertising is historical and is not intended to indicated future
returns.
Money Market Fund
In accordance with regulations prescribed by the SEC, the Trust is
required to compute the Money Market Fund's current annualized
yield for a seven-day period in a manner which does not take into
consideration any realized or unrealized gains or losses on its
portfolio securities. This current annualized yield is computed by
determining the net change (exclusive of realized gains and losses
on the sale of securities and unrealized appreciation and
depreciation) in the value of a hypothetical account having a
balance of one share of the Money Market Fund at the beginning of
such seven-day period, dividing such net change in account value by
the value of the account at the beginning of the period to
determine the base period return and annualizing this quotient on
a 365-day basis.
The SEC also permits the Trust to disclose the effective yield of
the Money Market Fund for the same seven-day period, determined on
a compounded basis. The effective yield is calculated by
compounding the annualized base period return by adding one to the
base period return, raising the sum to a power equal to 365 divided
by 7, and subtracting one from the result.
The yield on amounts held in the Money Market Fund normally will
fluctuate on a daily basis. Therefore, the disclosed yield for any
given past period is not an indication or representation of future
yields or rates of return. The Fund's actual yield is affected by
changes in interest rates on money market securities, average
portfolio maturity of the Fund, the types and quality of portfolio
securities held by the Fund, and its operating expenses.
Other Funds
Standardized Average Annual Total Return Quotations. Average
annual total return quotations for shares of a Fund are computed by
finding the average annual compounded rates of return that would
cause a hypothetical investment made on the first day of a
designated period to equal the ending redeemable value of such
hypothetical investment on the last day of the designated period in
accordance with the following formula:
P(I+T) n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $ 1,000
initial payment made at the beginning of the designated period (or
fractional portion thereof)
The computation above assumes that all dividends and distributions
made by a Fund are reinvested at net asset value during the
designated period. The average annual total return quotation is
determined to the nearest 1/100 of 1%.
One of the primary methods used to measure performance is "total
return." Total return will normally represent the percentage change
in value of a Fund, or of a hypothetical investment in a Fund, over
any period up to the lifetime of the Fund. Unless otherwise
indicated, total return calculations will usually assume the
reinvestment of all dividends and capital gains distributions and
will be expressed as a percentage increase or decrease from an
initial value, for the entire period or for one or more specified
periods within the entire period.
Total return percentages for periods longer than one year will
usually be accompanied by total return percentages for each year
within the period and/or by the average annual compounded total
return for the period. The income and capital components of a
given return may be separated and portrayed in a variety of ways in
order to illustrate their relative significance. Performance may
also be portrayed in terms of cash or investment values, without
percentages. Past performance cannot guarantee any particular
result. In determining the average annual total return (calculated
as provided above), recurring fees, if any, that are charged to all
shareholder accounts are taken into consideration.
Each Fund's average annual total return quotations and yield
quotations as they may appear in the Prospectus, this Statement of
Additional Information or in advertising are calculated by standard
methods prescribed by the SEC.
Each Fund may also publish its distribution rate and/or its
effective distribution rate. A Fund's distribution rate is
computed by dividing the most recent monthly distribution per share
annualized, by the current net asset value per share. A Fund's
effective distribution rate is computed by dividing the
distribution rate by the ratio used to annualize the most recent
monthly distribution and reinvesting the resulting amount for a
full year on the basis of such ratio. The effective distribution
rate will be higher than the distribution rate because of the
compounding effect of the assumed reinvestment. A Fund's yield is
calculated using a standardized formula, the income component of
which is computed from the yields to maturity of all debt
obligations held by the Fund based on prescribed methods (with all
purchases and sales of securities during such period included in
the income calculation on a settlement date basis), whereas the
distribution rate is based on a Fund's last monthly distribution.
A Fund's monthly distribution tends to be relatively stable and may
be more or less than the amount of net investment income and short-
term capital gain actually earned by the Fund during the month.
Other data that may be advertised or published about each Fund
include the average portfolio quality, the average portfolio
maturity and the average portfolio duration.
Standardized Yield Quotations. The yield of a Fund is computed by
dividing the Fund's net investment income per share during a base
period of 30 days, or one month, by the maximum offering price per
share on the last day of such base period in accordance with the
following formula:
2[( a - b + 1 )6 - 1 ]
(cd)
Where: a = net investment income earned during the period
b = net expenses accrued for the period
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share
Net investment income will be determined in accordance with rules
established by the SEC.
Performance Comparisons
Performance information contained in reports to shareholders,
advertisement, and other promotional materials may be compared to
that of various unmanaged indexes. These indexes may assume the
reinvestment of dividends, but generally do not reflect deductions
for operating expenses.
Advertisements quoting performance rankings of a Fund as measured
by financial publications or by independent organizations such as
Lipper Analytical Services, Inc. and Morning Star, Inc., and
advertisements presenting a Fund's the historical performance, may
form time to time be sent to investors or placed in newspapers and
magazines such as The New York Times, The Wall Street Journal,
Barons, Investor's Daily, Money Magazine, Changing Times, Business
Week and Forbes or any other media on behalf of the Funds.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each Fund is open for business and its net asset value per share is
calculated each day that the New York Stock Exchange ("NYSE") is
open for trading. The Funds anticipates that the NYSE will be
closed for trading on: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day, and Christmas Day. Though it is expected that the same holiday
schedule will be observed in the future, the NYSE may modify its
holiday schedule at any time. In addition, the Funds will not
process wire purchase and redemptions on days when the Federal
Reserve Wire System is closed, and may be unable to do so during
periods of severe weather or other emergency conditions.
Payment to shareholders for shares redeemed, that is sold back to
a Fund, will be made within seven days after receipt by the
Transfer Agent of a request for redemption in proper form, except
that a Fund may suspend the right of redemption or postpone the
date of payment for more than seven days (a) for any period (i)
during which the New York Stock Exchange ("NYSE") is closed other
than customary week-end and holiday closings or (ii) during which
trading on the NYSE is restricted; (b) for any period during which
an emergency exists as a result of which (i) disposal by the Fund
of securities owned by it is not reasonably practicable or (ii) it
is not reasonably practicable for the Fund fairly to determine the
value of its net assets; or (c) for such other period as the SEC
may permit for the protection of a Fund's shareholders.
If a Fund is requested to redeem shares for which it has not yet
received good payment, the Fund may delay the payment of redemption
proceeds until such time as it has received good funds for the
purchase of the shares being redeemed.
The value of shares redeemed may be more or less than the
shareholder's cost, depending upon the market value of the
portfolio securities at the time of redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following is only a summary of certain tax considerations
generally affecting the Funds and their shareholders that are not
described in the Prospectus. No attempt is made to present a
detailed explanation of the tax treatment of any Fund or its
shareholders, and this discussion is not intended as a substitute
for careful tax planning.
Qualification as a Regulated Investment Company
The Internal Revenue Code of 1986, as amended (the "Code"),
provides that each investment portfolio of a series investment
company is to be treated as a separate corporation. Accordingly,
each of the Funds will seek to be taxed as a regulated investment
company under Subchapter M of the Code. As a regulated investment
company, each Fund will not be subject federal income tax on the
portion of its net investment income (i.e., its taxable interest,
dividends and other taxable ordinary income, net of expenses) and
net realized capital gain (i.e., the excess of capital gains over
capital losses) that it distributes to shareholders, provided that
it distributes at least 90% of its investment company taxable
income (i.e., net investment income and the excess of net
short-term capital gain over net long-term capital loss) and at
least 90% of its tax-exempt income (net of expenses allocable
thereto) for the taxable year (the "Distribution Requirement"), and
satisfies certain other requirements of the Code that are described
below. Each Fund will be subject to tax at regular corporate rates
on any income or gains that it does not distribute. Distributions
by a Fund made during the taxable year or, under specified
circumstances, within one month after the close of the taxable
year, will be considered distributions of income and gains of the
taxable year and can therefore satisfy the Distribution
Requirement.
In addition to satisfying the Distribution Requirement, each Fund
must (i) derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or
foreign currencies (to the extent such currency gains are ancillary
to the Fund's principal business of investing in stock and
securities) and other income (including but not limited to gains
from options, futures or forward contracts) derived with respect to
its business of investing in such stock, securities, currencies
(the "Income Requirement"); and (ii) derive less than 30% of its
gross income (exclusive of certain gains on designated hedging
transactions that are offset by realized or unrealized losses on
offsetting positions) from the sale or other disposition of stock,
securities or foreign currencies (or options, futures or forward
contracts thereon) held for less than three months (the
"Short-Short Gain Test"). However, foreign currency gains,
including those derived from options, futures and forwards, will
not be characterized as Short-Short Gain if they are directly
related to the Fund's investment in stock or securities (or options
or futures thereon). Because of the Short-Short Gain Test, a Fund
may have to limit the sale of appreciated securities it has held
for less than three months. However, the Short-Short Gain Test
will not prevent a Fund from disposing of investments at a loss,
since the recognition of a loss before the expiration of the
three-month holding period is disregarded. Interest (including
original issue discount) received by a Fund at maturity or upon the
disposition of a security held for less than three months will not
be treated as gross income derived from the sale or other
disposition of such security within the meaning of the Short-Short
Gain Test. However, income that is attributable to realized market
appreciation will be treated as gross income from the sale or other
disposition of securities for this purpose.
In general, for purposes of determining whether capital gain or
loss recognized by a Fund on the disposition of an asset is
long-term or short-term, the holding period of the asset may be
affected if (i) the asset is used to close a "short sale" (which
includes for certain purposes the acquisition of a put option) or
is substantially identical to another asset so used, (ii) the asset
is otherwise held by a Fund as part of a "straddle," or (iii) the
asset is stock and a Fund grants certain call options with respect
thereto. However, for purposes of the Short-Short Gain Text, the
holding period of the asset disposed of may be reduced only in the
case of clause (i), above.
Certain debt securities purchased by a Fund (such as zero-coupon
bonds) may be treated for federal income tax purposes as having
original issue discount. Original issue discount, generally
defined as the excess of the stated redemption price at maturity
over the issue price, is treated as interest for Federal income tax
purposes. Whether or not a Fund actually receives cash, it is
deemed to have earned original issue discount income that is
subject to the distribution requirements of the Code. Generally,
the amount of original issue discount included in the income of a
Fund each year is determined on the basis of a constant yield to
maturity that takes into account the compounding of accrued
interest.
In addition, a Fund may purchase debt securities at a discount that
exceeds any original issue discount that remained on the securities
at the time the Fund purchased the securities. This additional
discount represents market discount for income tax purposes.
Treatment of market discount varies depending upon the maturity of
the debt security and the date on which it was issued. For a debt
security issued after July 18, 1984 having a fixed maturity date or
more than six months from the date of issue and having market
discount, the gain realized on disposition will be treated as
interest to the extent it does not exceed the accrued market
discount on the security (unless a Fund elects for all its debt
securities having a fixed maturity date or more than one year from
the date of issue to include market discount in income in taxable
years to which it is attributable). Generally, market discount
accrues on a daily basis. For any debt security issued on or after
July 18, 1984 (unless a Fund makes the election to include market
discount in income currently), or any debt security having a fixed
maturity date of not more than six months from the date of issue,
the gain realized on disposition will be characterized as long-term
or short-term capital gain depending on the period a Fund held the
security. A Fund may be required to capitalize, rather than deduct
currently, part of all of any net direct interest expense on
indebtedness incurred or continued to purchase or carry any debt
security having market discount (unless such Fund makes the
election to include market discount in income currently).
At the close of each quarter of its taxable year, at least 50% of
the value of a Fund's assets must consist of cash or cash items,
U.S. Government securities, securities of other regulated
investment companies and securities of other issuers (as to which
the Fund has not invested more than 5% of the value of its total
assets in securities of such issuer and the Fund does not hold more
than 10% of the outstanding voting securities of such issuer), and
no more than 25% of the value of its total assets may be invested
in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies),
or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses (the "Asset
Diversification Test").
If for any taxable year a Fund does not qualify as a regulated
investment company, all of its taxable income (including its net
capital gain) will be subject to tax at regular corporate rates
without any deduction for distributions to shareholders, and such
distributions will be taxable as ordinary dividends to the extent
of the current and accumulated earnings and profits of the Fund.
In such event, such distributions generally will be eligible for
the dividends-received deductions in the case of corporate
shareholders.
If a Fund were to fail to qualify as a RIC for one or more taxable
years, the Fund could then qualify (or requalify) as a RIC for
subsequent taxable year only if the Fund had distributed to the
Fund's shareholders a taxable dividend equal to the full amount of
any earnings or profits (less the interest charge mentioned below,
if applicable) attributable to such period. The Fund might also be
required to pay to the U.S. Internal Revenue Service interest on
50% of such accumulated earnings and profits. In addition,
pursuant to the Code and an interpretative notice issued by the
IRS, if the Fund should fail to qualify as a RIC and should
thereafter seek to requalify as a RIC, the Fund may be subject to
tax on the excess (if any) of the fair market of the Fund's's
assets over the Fund's basis in such assets, as of the day
immediately before the first taxable year for which the Fund seeks
to requalify as a RIC.
If a Fund determines that the Fund will not qualify as a RIC under
Subchapter M of the Code, the Fund will establish procedures to
reflect the anticipated tax liability in the Fund's net asset
value.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to distribute in each calendar year an amount
equal to 98% of ordinary taxable income for the calendar year and
98% of capital gain net income for the one-year period ended on
October 31 of such calendar year. The balance of such income must
be distributed during the next calendar year. For the foregoing
purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any
taxable year ending in such calendar year.
U.S. Treasury regulations may permit a regulated investment
company, in determining its investment company taxable income and
undistributed net capital for any taxable year, to treat any
capital loss incurred after October 31 as if it had been incurred
in the succeeding year. For purposes of the excise tax, a
regulated investment company may: (I) reduce its capital gain net
income by the amount of any net ordinary loss for any calendar
year; and (ii) exclude foreign currency gains and losses incurred
after October 31 of any year in determining the amount of ordinary
taxable income for the current calendar year (and, instead, include
such gains and losses in determining ordinary taxable income for
the succeeding calendar year).
Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net
income prior to the end of each calendar year to avoid liability
for the excise tax. However, investors should note that a Fund may
in certain circumstances be required to liquidate portfolio
investments to make sufficient distributions to avoid excise tax
liability.
Distributions
Each Fund anticipates distributing substantially all of its
investment company taxable income for each taxable year. Such
distributions will be taxable to shareholders as ordinary income
and treated as dividends for federal income tax purposes, but they
will generally not qualify for the 70% dividends-received deduction
for corporations.
A Fund may either retain or distribute to shareholders the Fund's
net capital gain (i.e., the excess of net long-term capital gain
over net short-term capital loss) for each taxable year. Each Fund
currently intends to distribute any such amounts. If net capital
gain is distributed and designated as a capital gain dividend, it
will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his or
her shares or whether such gain was recognized by the Fund prior to
the date on which the shareholder acquired his or her shares.
Conversely, if a Fund elects to retain net capital gain, it will be
taxed thereon (except to the extent of any available capital loss
carryovers) at the then current applicable corporate tax rate. If
a Fund elects to retain its net capital gain, it is expected the
Fund will also elect to have shareholders treated as having
received a distribution of such gain, with the result that the
shareholders will be required to report their respective shares of
such gain on their returns as long-term capital gain, will receive
a refundable tax credit for their allocable share of tax paid by
the Fund on the gain, and will increase the tax basis for their
shares by an amount equal to the deemed distribution less the tax
credit.
Investors should be careful to consider the tax implications of
purchasing shares just prior to the next dividend date of any
ordinary income dividend or capital gain dividend. Those
purchasing just prior to an ordinary income dividend or capital
gain dividend will be taxed on the entire amount of the dividend
received, even though the net asset value per share on the date of
such purchase reflected the amount of such dividend.
Distributions by a Fund that do not constitute ordinary income
dividends or capital gain dividends will be treated as a return of
capital to the extent of (and will reduce) the shareholder's tax
basis in his or her shares; any excess will be treated as gain from
the sale of his or her shares, as discussed below.
Distributions by a Fund will be treated in the manner described
above regardless of whether such distributions are paid in cash or
reinvested in additional shares of the Fund. Shareholders
receiving a distribution in the form of additional shares will be
treated as receiving a distribution in an amount equal to the fair
market value of the shares received, determined as of the
reinvestment date. Ordinarily, shareholders are required to take
distributions by a Fund into account in the year in which the
distributions are made. However, distributions declared in
October, November or December of any year and payable to
shareholders of record on a specified date in such month will be
deemed to have been received by the shareholders (and made by the
Fund) on December 31, of such calendar year if such distributions
are actually made in January of the following year. Shareholders
will be advised annually as to the U.S. federal income tax
consequences of distributions made (or deemed made) during the
year.
Sale or Redemption of Fund Shares
A shareholder will recognize gain or loss on the sale or redemption
of shares in an amount equal to the difference between the proceeds
of the sale or redemption and the shareholder's adjusted tax basis
in the shares. In general, any gain or loss arising from (or
treated as arising from) the sale or redemption of shares of a Fund
will be considered capital gain or loss and will be long-term
capital gain or loss if the shares were held for longer than one
year. However, any capital loss arising from the sale or
redemption of shares held for six months or less will be disallowed
to the extent of the amount of exempt-interest dividends received
on such shares and (to the extent not disallowed) will be treated
as long-term capital loss to the extent of the amount of capital
gain dividends received on such shares. For this purpose, special
holding period rules provided in Code Section 246(c)(3) and (4)
generally will apply in determining the holding period of shares.
For shareholders who are individuals, capital gains are currently
taxed at the same rate as ordinary income, up to a maximum rate of
28 percent and the deduction of capital losses is subject to
limitation.
Backup Withholding
Each Fund will be required in certain cases to withhold and remit
to the U.S. Treasury 31% of ordinary income dividends and capital
gain dividends, and the proceeds of redemption of shares, paid to
any shareholder (i) who has provided either an incorrect tax
identification number or no number at all, (ii) who is subject to
backup withholding by the Internal Revenue Service for failure to
report the receipt of interest or dividend income properly, or
(iii) who has failed to certify to the Fund that it is not subject
to backup withholding or that it is a corporation or other "exempt
recipient." Each Fund also reserves the right to close accounts
that fail to provide a certified tax identification number, by
redeeming such accounts in full at the current net asset value.
Foreign Shareholders
The U.S. federal income taxation of a shareholder who, as to the
United States, is a nonresident alien individual, foreign trust or
estate, foreign corporation, or foreign partnership ("foreign
shareholder") depends on whether the income for a Fund is
"effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from a Fund is not effectively connected with a U.S.
trade or business carried on by the foreign shareholder, ordinary
income dividends will be subject to U.S. withholding tax at the
rate of 30% (or lower treaty rate, if applicable) upon the gross
amount of the dividend. Such foreign shareholders generally would
be exempt from U.S. federal income tax on gains realized on the
sale of shares of the Fund and on capital gain dividends and
amounts retained by the Fund that are designated as undistributed
capital gains.
If the income from a Fund is effectively connected with a U.S.
trade or business carried on by the foreign shareholder, then
ordinary income dividends, capital gain dividends, and any gains
realized upon the sale of shares of the Fund will be subject to
U.S. federal income tax at the rates applicable to U.S. citizens
and residents or domestic corporations.
In the case of foreign non-corporate shareholders, a Fund may be
required to withhold U.S. federal income tax at a rate of 20% on
distributions that are otherwise exempt from withholding tax (or
taxable at a reduced treaty rate) unless such shareholders furnish
the Fund with proper notification of their foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may differ from those
described herein. Foreign shareholders are urged to consult their
own tax advisers with respect to the particular tax consequences to
them of an investment in the Funds, including the applicability of
foreign taxes.
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of U.S. federal income tax
consequences is based on the Code and the regulations issued
thereunder as in effect on the date of this Statement of Additional
Information. Future legislative or administrative changes or court
decisions may significantly change the conclusions expressed
herein, and any such changes or decisions may have a retroactive
effect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends and
capital gain dividends from regulated investment companies often
differ from the rules for U.S. federal income taxation described
above. Shareholders are urged to consult their tax advisers as to
the consequences of these and other state and local tax rules
affecting investments in the Funds.
OTHER INFORMATION
Organization of the Trust
The Trust is an open-end management investment company organized as
a Delaware business trust on July 23, 1996. The Trust has
authorized capital of an unlimited number of shares of beneficial
interest in the Trust. Shares may be issued in one or more series
of shares, and each series may be issued in one or more classes of
shares. Presently, each Fund represents a separate series of
shares. The Trust may establish additional series or classes in
the future.
The assets of the Trust received for the sale of shares of a Fund
and all income, earnings, profits, and proceeds thereof, subject
only to the rights of creditors, are allocated to such Fund, and
constitute the underlying assets of such Fund. The underlying
assets of a Fund are accounted for separately on the books of the
Trust, and are to be charged with the liabilities with respect to
such Fund and with a share of the general expenses of the Trust.
Expenses with respect to the Trust are to be allocated between the
Funds in a manner deemed to be fair and equitable by the Board of
Trustees. In the event of dissolution or liquidation of a Fund, the
Board of Trustees will distribute the remaining proceeds or assets
of the Fund ratably among its shareholders.
Shareholder and Trustee Liability
Shareholders of a business trust such as the Trust may, under
certain circumstance, be held personally liable for the obligations
of the trust. The Declaration of Trust provides that the Trust
shall not have any claim against shareholders except for the
payment of the purchase price of shares and requires that every
note, bond, contract or other undertaking entered into or executed
by the Trust or the trustees shall include a provision limiting the
obligations created thereby to the Trust and its assets. The
Declaration of Trust provides for indemnification out of each
Fund's assets of any shareholders held personally liable for the
obligations of the Fund. The Declaration of Trust also provides
that each Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the Fund
and satisfy any judgement thereon. In addition, under Delaware law,
shareholders of the Funds are entitled to the same limitation of
personal liability extended to stockholders of Delaware
corporations. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its
obligations. In view of the above, the risk of personal liability
to shareholders is remote.
The Declaration of Trust further provides that the trustees will
not be liable for any neglect or wrongdoing, but nothing in the
Declaration of Trust protects the trustees against any liability to
which they would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of their office.
Voting Rights
The shares of the Funds have no preemptive or conversion rights.
Voting and dividends rights, the right or redemption, and exchange
privileges are described in the Prospectus. Shares are fully paid
and nonassessable, except as set forth under "Shareholder and
Trustee Liability" above. Shareholders representing 10% or more of
the Trust or any Fund may, as set forth in the Declaration of
Trust, call meetings of the Trust or a Fund for any purpose related
to the Trust or Fund, as the case may be, including in the case of
a meeting of the entire Trust, the purpose of voting on removal of
one or more trustees. The Trust or any Fund may be terminated upon
the sale of its assets to another investment company (as defined in
the Investment Company Act of 1940, as amended), or upon
liquidation and distribution of its assets, if approved by vote of
the holders of a majority of the outstanding shares of the Trust or
the Fund. If not so terminated, the Trust or the Fund will continue
indefinitely.
Custodian
The Bank of New York, One Wall Street, New York, New York 10286,
is custodian of the Funds' assets. The custodian is responsible
for the safekeeping of a Fund's assets and the appointment of the
subcustodian banks and clearing agencies. The custodian takes no
part in determining the investment policies of a Fund or in
deciding which securities are purchased or sold by a Fund. However,
a Fund may invest in obligations of the custodian and may purchase
securities from or sell securities to the custodian.
Independent Public Accountant
Deloitte & Touche LLP, 555 17th Street, Suite 3600, Denver,
Colorado 80202, serves as the Funds' independent public accountant.
Auditor examines financial statements for the Funds and provides
other audit, tax, and related services.
FINANCIAL STATEMENTS
The Trust's and each Fund's audited financial statements as of
, 1996, together with the notes thereto and the report of
Deloitte & Touche LLP are attached to this Statement of Additional
Information.
APPENDIX
Corporate Bond Ratings by Moody's Investors Service, Inc.
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 edge". 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 risks appear somewhat larger than in Aaa securities.
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 sometime 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 where 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.
Corporate Bond Ratings by Standard & Poor's Corporation
AAA - This is the highest rating assigned by Standard & Poor's to
a debt obligation and indicates an extremely strong capacity to pay
principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the
majority of instances they differ from AAA issues only in a small
degree.
A - Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity
to pay principal and interest. Whereas they normally exhibit
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity for
bonds rated BBB than for bonds in the A category.
BB, B, CCC, and CC - Standard & Poor's describes the BB, B, CCC and
CC rated issues together with issues rated CCC and CC. Debt in
these categories is regarded on balance as predominantly
speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and CC the highest
degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
C - The rating C is reserved for income bonds on which no interest
is being paid.
D - Bonds rated D are in default, and payment of interest and/or
repayment of principal is in arrears.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be
modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
Commercial Paper Ratings by Moody's Investors Service, Inc.
Prime-1 - Commercial Paper issuers rated Prime-1 are judged to be
of the best quality. Their short-term debt obligations carry the
smallest degree of investment risk. Margins of support for current
indebtedness are large or stable with cash flow and asset
protection well assured. Current liquidity provides ample coverage
of near-term liabilities and unused alternative financing
arrangements are generally available. While protective elements
may change over the intermediate or longer term, such changes are
most unlikely to impair the fundamentally strong position of
short-term obligations.
Prime-2 - Issuers in the Commercial Paper market rated Prime-2 are
high quality. Protection for short-term holders is assured with
liquidity and value of current assets as well as cash generation in
sound relationship to current indebtedness. They are rated lower
than the best commercial paper issuers because margins of
protection may not be as large or because fluctuations of
protective elements over the near or immediate term may be of
greater amplitude. Temporary increases in relative short and
overall debt load may occur. Alternative means of financing remain
assured.
Prime-3 - Issuers in the Commercial Paper market rated Prime-3 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 earning 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.
Commercial Paper Ratings by Standard & Poor's Corporation
A - Issuers assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issuers in this category are
further refined with the designation 1, 2 and 3 to indicate the
relative degree of safety.
A-1 - This designation indicates that the degree of safety
regarding timely payment is very strong.
A-2 - Capacity for timely payment for issuers with this designation
is strong. However, the relative degree of safety is not as
overwhelming as for issues designated "A-1".
A-3 - Issuers carrying this designation have a satisfactory
capacity for timely payment. They are, however, somewhat more
vulnerable to the adverse effects of changes in circumstances than
obligations carrying the higher designation.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements*
(b) Exhibits
(1) Declaration of Trust
(2) Bylaws
(3) Not applicable.
(4.1) Declaration of Trust (included in Item 24(b)(1))
(4.2) Bylaws (included in Item 24(b)(2))
(5) Form of Investment Advisory Agreement
(6) Form of Principal Underwriting Agreement*
(7) Not applicable.
(8) Form of Custodian Agreement*
(9) Form of Transfer Agency Agreement*
(10) Opinion of Jorden Burt Berenson & Johnson LLP*
(11.1) Consent of Deloitte & Touche LLP*
(11.2) Consent of Jorden Burt Berenson & Johnson LLP (included
in Item 24(b)(10))
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15) Not applicable.
(16) Not applicable.
(17) Not applicable.
(18) Not applicable.
* To be filed by amendment.
Item 25. Persons Controlled by or under Common Control with
Registrant.
Not applicable.
Item 26. Number of Holders of Securities.
Number of Record Holders
Title of Class as of ______________, 1996
- -------------- -------------------------
Orchard Money Market Fund 0
Orchard Preferred Stock Fund 0
Orchard Index 600 Fund 0
Orchard Index 500 Fund 0
Orchard Index Pacific Fund 0
Orchard Index European Fund 0
Item 27. Indemnification.
Article X of the Declaration of Trust sets forth the reasonable and
fair means for determining whether indemnification shall be
provided to any past or present trustee or officer of the Trust. It
states that the Registrant shall indemnify any present or past
trustee or officer to the fullest extent permitted by law against
liability and all expenses reasonably incurred by him or her in
connection with any claim, action suit or proceeding in which he or
she is involved by virtue of his or her service as a trustee, an
officer, or both. Additionally, amounts paid or incurred in
settlement of such matters are covered by this indemnification.
Indemnification will not be provided in certain circumstances,
however. These include instances of willful misfeasance, bad faith,
gross negligence, and reckless disregard of the duties involved in
the conduct of the particular office involved.
Item 28. Business and Other Connections of Investment Adviser.
Registrant's investment adviser, GW Capital Management, Inc.
("Capital Management"), is a wholly-owned subsidiary of Great-West
Life & Annuity Insurance Company ("GWL&A"), which is a wholly-owned
subsidiary of The Great-West Life Assurance Company ("Great-West").
Great-West provides investment advisory services to various
unregistered separate accounts of GWL&A and to Great-West Variable
Annuity Account A and the Maxim Series Fund, Inc., which are
registered investment companies. The directors and officers of
Capital Management have held, during the past two fiscal years, the
following positions of a substantial nature.
Name Position(s)
- ---- -----------
John T. Hughes Director and Chairman of the Board, Capital
Management; Senior Vice President and Chief Investment Officer
(U.S. Operations), Great-West; Senior Vice President, Chief
Investment Officer, GWL&A; Chairman of the Board, GWL Properties
Inc.
Wayne Hoffmann Director, Capital Management; Vice President,
Investments, Great-West and GWL&A.
Mark S. Hollen Director, Capital Management; Vice President,
Investment Administration and Financial Control, Great-West and
GWL&A.
Mark S. Corbett President, Capital Management; Vice President,
Investments, Great-West and GWL&A.
Ernie Friesen Vice President, Capital Management; Assistant Vice
President, Investments, Great-West and GWL&A.
David G. McLeod Treasurer, Capital Management; Assistant Vice
President, Investment Administration, Great-West and GWL&A.
Beverly A. Byrne Secretary, Capital Management; Associate
Counsel, Great-West; Associate Counsel and Assistant Secretary,
GWL&A; Secretary, Financial Administrative Services Corporation and
Confed Admin Services, Inc.; Assistant Secretary, Benefits
Communication Corporation, BenefitsCorp Equities, Inc., One
Corporation, Great-West Benefit Services, Inc., Great-West Variable
Annuity Account A, and Maxim Series Fund, Inc.
Item 29. Principal Underwriter.
(a) Not applicable.
(b) The principal business address of the directors and officers
of BenefitsCorp Equities, Inc. named below is 8515 East Orchard
Road, Englewood, Colorado 80111.
Name
- -------------------
Positions and Offices with Underwriter
- ---------------------
Positions and Officers with Registrant
- ----------------------
Robert D. Bond
Director
None
Robert K. Shaw
Director
None
John A. Brown
Director
None
Charles P. Nelson
Director and President
None
Dennis Low
Director
Trustee
Gregory E. Seller
Director and Vice President, Major Accounts
None
Joan W. McCallen
Director
None
Jack Baker
Vice President, Licensing and Contracts
None
Glen R. Derback
Treasurer
Treasurer
Shelley A. Brandon
Compliance Officer
None
Ruth B. Lurie
Secretary
None
Beverly A. Byrne
Assistant Secretary
Secretary
(c) Not applicable.
Item 30. Location of Accounts and Records.
All accounts, books, and other documents required to be maintained
by Section 31(a) of the Investment Company Act of 1940 and the
rules promulgated thereunder are maintained in the physical
possession of: Orchard Series Fund, 8515 East Orchard Road,
Englewood, Colorado 80111; GW Capital Management, Inc., 8515 East
Orchard Road, Englewood, Colorado 80111; or .
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
(a) Not applicable.
(b) Registrant undertakes to file a post-effective amendment,
using financial statements which need not be certified, within four
to six months from the effective date of Registrant's 1933 Act
Registration Statement.
(c) Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders upon request and without charge.
(d) Registrant undertakes to comply with Section 16(c) of the
Investment Company Act of 1940 as it relates to the assistance to
be rendered to shareholders with respect to the calling of a
meeting to replace a director.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this
Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Englewood in
the State of Colorado on the day of July, 1996.
ORCHARD SERIES FUND
By: /s/ James D. Motz
James D. Motz
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in
the capacities and on the date indicated.
Signature Title Date
/s/ James D. Motz President July 30, 1996
James D. Motz
/s/ Glen R. Derback Treasurer July 30, 1996
Glen R. Derback
/s/ Dennis Low Trustee July 30, 1996
Dennis Low
EXHIBIT INDEX
Exhibit Description
24 Power of Attorney*
27 Financial Data Schedule*
99.24(b)(1) Declaration of Trust
99.24(b)(2) Bylaws
99.24(b)(4.1) Declaration of Trust (included in Exhibit
99.24(b)(1))
99.24(b)(4.2) Bylaws (included in Exhibit 99.24(b)(2))
99.24(b)(5) Form of Investment Advisory Agreement
99.24(b)(6) Form of Principal Underwriting Agreement*
99.24(b)(8) Form of Custodian Agreement*
99.24(b)(9) Form of Transfer Agency Agreement*
99.24(b)(10) Opinion of Jorden Burt Berenson & Johnson LLP*
99.24(b)(11.1) Consent of Deloitte & Touche LLP*
99.24(b)(11.2) Consent of Jorden Burt Berenson & Johnson LLP
(included in Exhibit 99.24(b)(10))
* To be filed by amendment.
EXHIBIT 99.24(b)(1)
Declaration of Trust
EXHIBIT 99.24(b)(2)
Bylaws
EXHIBIT 99.24(b)(5)
Form of Investment Advisory Agreement
7
ORCHARD SERIES FUND
DECLARATION OF TRUST
DECLARATION OF TRUST (herein after "Trust Instrument") made this
18th day of July, 1996, by the Trustees (as defined below).
WHEREAS, the Trustees desire to establish a business trust for the
investment and reinvestment of funds contributed thereto;
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust hereunder shall be held and managed in
trust under this Trust Instrument as herein set forth below.
ARTICLE I
NAME AND DEFINITIONS
Section 1.01. Name. The name of the trust created hereby is the
"Orchard Series Fund".
Section 1.02. Definitions. Wherever used herein, unless otherwise
required by the context or specifically provided:
(a) The term "Bylaws" means the Bylaws referred to in Article IV,
Section 4.01(e) hereof, as from time to time amended.
(b) The term "Commission" has the meaning given it in the 1940 Act
(as defined below). The terms "Affiliated Person," "Assignment,"
"Interested Person," and "Principal Underwriter" shall have the
meanings given them in the 1940 Act, as modified by or interpreted
by any applicable order or orders of the Commission or any rules or
regulations adopted or interpretive releases of the Commission
thereunder. "Majority Shareholder Vote" shall have the same
meaning as the term "vote of a majority of the outstanding voting
securities" is given in the 1940 Act, as modified by or interpreted
by any applicable order or orders of the Commission or any rules or
regulations adopted or interpretive releases of the Commission
thereunder.
(c) The term "Delaware Act" refers to Chapter 38 of Title 12 of
the Delaware Code entitled "Treatment of Delaware Business Trusts,"
as it may be amended from time to time.
(d) The term "Net Asset Value" means the net asset value of each
Series (as defined below) of the Trust (as defined below)
determined in the manner provided in Article IX, Section 9.03
hereof.
(e) The term "Outstanding Shares" means those Shares (as defined
below) shown from time to time in the books of the Trust or its
Transfer Agent (as defined below) as then issued and outstanding,
but shall not include Shares which have been redeemed or
repurchased by the Trust and which are at the time held in the
treasury of the Trust.
(f) The term "Series" means a series of Shares of the Trust
established in accordance with the provisions of Article II,
Section 2.06 hereof.
(g) The term "Shareholder" means a record owner of Outstanding
Shares of the Trust.
(h) The term "Shares" means the equal proportionate transferable
units of beneficial interest into which the beneficial interest of
each Series of the Trust or class thereof shall be divided and may
include fractions of Shares as well as whole Shares.
(i) The term "Trust" refers to the Orchard Series Fund and all
Series of the Orchard Series Fund, if any, and reference to the
Trust, when applicable to one or more Series of the Trust, shall
refer to any such Series.
z
(j) The term "Trustees" means the person or persons who has or
have signed this Trust Instrument, so long as he or they shall
continue in office in accordance with the terms hereof, and all
other persons who may from time to time be duly qualified and
serving as Trustees in accordance with the provisions of Article
III hereof and reference herein to a Trustee or to the Trustees
shall refer to the individual Trustees in their capacity as
Trustees hereunder.
(k) The term "Trust Property" means any and all property, real or
personal, tangible or intangible, which is owned or held by or for
the account of one or more of the Trust or any Series, or the
Trustees on behalf of the Trust or any Series.
(l) The term "1940 Act" refers to the Investment Company Act of
1940, as amended from time to time.
ARTICLE II
BENEFICIAL INTEREST
Section 2.01. Shares of Beneficial Interest. The beneficial
interest in the Trust shall be divided into such transferable
Shares of one or more separate and distinct Series or classes of a
Series as the Trustees shall from time to time create and
establish. The number of Shares of each Series, and class thereof,
authorized hereunder is unlimited. Each Share shall have no par
value. All Shares issued hereunder, including without limitation,
Shares issued in connection with a dividend in Shares or a split or
reverse split of Shares, shall be fully paid and nonassessable.
Section 2.02. Issuance of Shares. The Trustees in their
discretion may, from time to time, without vote of the
Shareholders, issue Shares, in addition to the then issued and
outstanding Shares and Shares held in the treasury, to such party
or parties and for such amount and type of consideration, subject
to applicable law, including cash or securities, at such time or
times and on such terms as the Trustees may deem appropriate, and
may in such manner acquire other assets (including the acquisition
of assets subject to, and in connection with, the assumption of
liabilities) and businesses. In connection with any issuance of
Shares, the Trustees may issue fractional Shares and Shares held in
the treasury. The Trustees from time to time may divide or combine
the Shares into a greater or lesser number without thereby changing
the proportionate beneficial interests in the Trust. Contributions
to the Trust may be accepted for, and Shares shall be redeemed as,
whole Shares and/or 1/1,000th of a Share or integral multiples
thereof.
Section 2.03. Register of Shares and Share Certificates. A
register shall be kept at the principal office of the Trust or an
office of the Trust's Transfer Agent (the "Transfer Agent") which
shall contain the names and addresses of the Shareholders of each
Series, the number of Shares of that Series (or any class or
classes thereof) held by them respectively and a record of all
transfers thereof. As to Shares for which no certificate has been
issued, such register shall be conclusive as to who are the holders
of the Shares and who shall be entitled to receive dividends or
other distributions or otherwise to exercise or enjoy the rights of
Shareholders. No Shareholder shall be entitled to receive payment
of any dividend or other distribution, nor to have notice given to
him as herein or in the Bylaws provided, until he has given his
address to the Transfer Agent or such other officer or agent of the
Trustees as shall keep the said register for entry thereon. The
Trustees, in their discretion, may authorize the issuance of share
certificates and promulgate appropriate rules and regulations as to
their use. Such certificates may be issuable for any purpose
limited in the Trustees discretion. In the event that one or more
certificates are issued, whether in the name of a shareholder or a
nominee, such certificate or certificates shall constitute evidence
of ownership of Shares for all purposes, including transfer,
assignment or sale of such Shares, subject to such limitations as
the Trustees may, in their discretion, prescribe.
Section 2.04. Transfer of Shares. Except as otherwise provided by
the Trustees, Shares shall be transferable on the records of the
Trust only by the record holder thereof or by his agent thereunto
duly authorized in writing, upon delivery to the Trustees or the
Trust's Transfer Agent of a duly executed instrument of transfer,
together with a Share certificate, if one is outstanding, and such
evidence of the genuineness of each such execution and
authorization and of such other matters as may be required by the
Trustees. Upon such delivery the transfer shall be recorded on the
register of the Trust. Until such record is made, the Shareholder
of record shall be deemed to be the holder of such Shares for all
purposes hereunder and neither the Trustees nor the Trust, nor any
Transfer Agent or registrar nor any officer, employee or agent of
the Trust shall be affected by any notice of the proposed transfer.
Section 2.05. Treasury Shares. Shares held in the treasury shall,
until reissued pursuant to Section 2.02 hereof, not confer any
voting rights on the Trustees, nor shall such Shares be entitled to
any dividends or other distributions declared with respect to the
Shares.
Section 2.06. Establishment of Series. The Trust created hereby
shall consist of one or more Series and separate and distinct
records shall be maintained by the Trust of each Series and the
assets associated with any such Series shall be held and accounted
for separately from the assets of the Trust or any other Series.
The Trustees shall have full power and authority, in their sole
discretion, and without obtaining any prior authorization or vote
of the Shareholders of any Series of the Trust, to establish and
designate and to change in any manner such Series of Shares or any
classes of initial or additional Series and to fix such
preferences, voting powers, rights and privileges of such Series or
classes thereof as the Trustees may from time to time determine, to
divide and combine the Shares or any Series of classes thereof into
a greater or lesser number, to classify or reclassify any issued
Shares or any Series or classes thereof into one or more Series or
classes of Shares, and to take such other action with respect to
the Shares as the Trustees may deem desirable. The establishment
and designation of any Series shall be effective upon the adoption
of a resolution by a majority of the Trustees setting forth such
establishment and designation and the relative rights and
preferences of the Shares of such Series. A Series may issue any
number of Shares and need not issue shares. At any time that there
are no Shares outstanding of any particular Series previously
established and designated, the Trustees may by a majority vote
abolish that Series and the establishment and designation thereof.
All references to Shares in this Trust Instrument shall be deemed
to be Shares of any or all Series, or classes thereof, as the
context may require. All provisions herein relating to the Trust
shall apply equally to each Series of the Trust, and each class
thereof, except as the context otherwise requires.
Each Share of a Series of the Trust shall represent an equal
beneficial interest in the net assets of such Series. Each holder
of Shares of a Series shall be entitled to receive his pro rata
share of distributions of income and capital gains, if any, made
with respect to such Series. Upon redemption of his Shares, such
Shareholder shall be paid solely out of the funds and property of
such Series of the Trust.
Section 2.07. Investment in the Trust. The Trustees shall accept
investments in any Series of the Trust from such persons and on
such terms as they may from time to time authorize. At the
Trustees' discretion, such investments, subject to applicable law,
may be in the form of cash or securities in which the affected
Series is authorized to invest, valued as provided in Article IX,
Section 9.03 hereof. Investments in a Series shall be credited to
each Shareholder's account in the form of full Shares at the Net
Asset Value per Share next determined after the investment is
received; provided, however, that the Trustees may, in their sole
discretion, (a) fix the Net Asset Value per Share of the initial
capital contribution, (b) impose a sales charge upon investments in
the Trust in such manner and at such time determined by the
Trustees or (c) issue fractional Shares.
Section 2.08. Assets and Liabilities of Series. All consideration
received by the Trust for the issue or sale of Shares of a
particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings,
profits, and proceeds thereof, including any proceeds derived from
the sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds in whatever
form the same may be, shall be held and accounted for separately
from the other assets of the Trust and of every other Series and
may be referred to herein as "assets belonging to" that Series.
The assets belonging to a particular Series shall belong to that
Series for all purposes, and to no other Series, subject only to
the rights of creditors of that Series. In addition, any assets,
income, earnings, profits or funds, or payments and proceeds with
respect thereto, which are not readily identifiable as belonging to
any particular Series shall be allocated by the Trustees between
and among one or more of the Series in such manner as the Trustees,
in their sole discretion, deem fair and equitable. Each such
allocation shall be conclusive and binding upon the Shareholders of
all Series for all purposes, and such assets, income, earnings,
profits or funds, or payments and proceeds with respect thereto
shall be assets belonging to that Series. The assets belonging to
a particular Series shall be so recorded upon the books of the
Trust, and shall be held by the Trustees in trust for the benefit
of the holders of Shares of that Series. The assets belonging to
each particular Series shall be charged with the liabilities of
that Series and all expenses, costs, charges, and reserves
attributable to that Series. Any general liabilities, expenses,
costs, charges, or reserves of the Trust which are not readily
identifiable as belonging to a particular Series shall be allocated
and charged by the Trustees between or among any one or more of the
Series in such manner as the Trustees, in their sole discretion,
deem fair and equitable. Each such allocation shall be conclusive
and binding upon the Shareholders of all Series for all purposes.
Without limitation of the foregoing provisions of this Section
2.08, but subject to the right of the Trustees in their discretion
to allocate general liabilities, expenses, costs, charges, or
reserves as herein provided, the debts, liabilities, obligations,
and expenses incurred, contracted for or otherwise existing with
respect to a particular Series shall be enforceable against the
assets of that Series. Notice of this contractual limitation on
inter-Series liabilities may, in the Trustee's sole discretion, be
set forth in the certificate of trust of the Trust (whether
originally or by amendment) as filed or to be filed in the Office
of the Secretary of State of the State of Delaware pursuant to the
Delaware Act, and upon the giving of such notice in the certificate
of trust, the statutory provisions of Section 3802 of setting forth
such notice in the certificate of trust shall become applicable to
the Trust and each Series. Any person extending credit to,
contracting with or having any claim against any Series may look
only to the assets of that Series to satisfy or enforce any debt,
liability, obligation or expense incurred, contracted for or
otherwise existing with respect to that Series. No Shareholder or
former Shareholder of any Series shall have a claim on or any right
to any assets allocated or belonging to any other Series.
Section 2.09. No Preemptive Rights. Shareholders shall have no
preemptive or other right to subscribe to any additional Shares or
other securities issued by the Trust or the Trustees, whether of
the same or other Series.
Section 2.10. Personal Liability of Shareholders. Each
Shareholder of the Trust and of each Series shall not be personally
liable for the debts, liabilities, obligations and expenses
incurred by, contracted for, or otherwise existing with respect to,
the Trust or by or on behalf of any Series. The Trustees shall
have no power to bind any Shareholder personally or to call upon
any Shareholder for the payment of any sum of money or assessment
whatsoever other than such as the Shareholder may at any time
personally agree to pay by way of subscription for any Shares or
otherwise. Every note, bond, contract or other undertaking issued
by or on behalf of the Trust or the Trustees relating to the Trust
or to a Series shall include a recitation limiting the obligation
represented thereby to the Trust or to one or more Series and its
or their assets (but the omission of such a recitation shall not
operate to bind any Shareholder or Trustee of the Trust).
Section 2.11. Assent to Trust Instrument. Every Shareholder, by
virtue of having purchased a Share shall become a Shareholder and
shall be held to have expressly assented and agreed to be bound by
the terms hereof.
Section 2.12. Redemption of Shares. The Trust, pursuant to a
resolution of the Trustees and without the vote or consent of the
Shareholders of the Trust, shall have the right to redeem at net
asset value all Shares in any Shareholder account, the value of
which is less than a reasonable minimum amount specified in that
resolution. In no event shall an involuntary redemption be
exercised with respect to Shareholder accounts that are at least as
large as the Trust's minimum initial investment amount at the time
of the redemption. The resolution of the Trustees shall set forth
that the redemption of Shares in such accounts has been determined
to be in the economic best interest of the Trust or to be necessary
to reduce disproportionately burdensome expenses in servicing
Shareholder accounts. The resolution of the Trustees also shall
provide that prior notice of at least sixty (60) days shall be
given to a Shareholder before redemption of his or her Shares, and
that the Shareholder shall have the reasonable period of time
specified in the resolution of the Trustees to avoid the redemption
by increasing the Shareholder's account to at least the amount
specified in the resolution of the Trustees. Shareholders shall be
bound by and/or compelled to accept such a redemption; provided,
that the terms and conditions set forth in this Trust Instrument
have been fulfilled.
ARTICLE III
THE TRUSTEES
Section 3.01. Management of the Trust. The Trustees shall have
exclusive and absolute control over the Trust Property and over the
business of the Trust to the same extent as if the Trustees were
the sole owners of the Trust Property and business in their own
right, but with such powers of delegation as may be permitted by
this Trust Instrument. The Trustees shall have power to conduct
the business of the Trust and carry on its operations in any and
all of its branches and maintain offices both within and without
the State of Delaware, in any and all states of the United States
of America, in the District of Columbia, in any and all
commonwealths, territories, dependencies, colonies, or possessions
of the United States of America, and in any foreign jurisdiction
and to do all such other things and execute all such instruments as
they deem necessary, proper or desirable in order to promote the
interests of the Trust although such things are not herein
specifically mentioned. Any determination as to what is in the
interests of the Trust made by the Trustees in good faith shall be
conclusive. In construing the provisions of this Trust Instrument,
the presumption shall be in favor of a grant of power to the
Trustees.
The enumeration of any specific power in this Trust Instrument
shall not be construed as limiting the aforesaid power. The powers
of the Trustees may be exercised without order of or resort to any
court.
Except for the Trustees named herein or appointed to fill vacancies
pursuant to Section 3.04 of this Article III, the Trustees shall be
elected by the Shareholders owning of record a plurality of the
Shares voting at a meeting of Shareholders. Such a meeting shall
be held on a date fixed by the Trustees. In the event that less
than a majority of the Trustees holding office have been elected by
Shareholders, the Trustees then in office will call a Shareholders'
meeting for the election of Trustees.
Section 3.02. Initial Trustees. The initial Trustees shall be the
person or persons who has or have signed this Trust Instrument. On
a date fixed by the Trustees, the Shareholders shall elect at least
three (3) but not more than fifteen (15) Trustees, as specified by
the Trustees pursuant to Section 3.06 of this Article III.
Section 3.03. Term of Office of Trustees. The Trustees shall hold
office during the lifetime of this Trust, and until its termination
as herein provided, except that: (a) any Trustee may resign his
trust by written instrument signed by him and delivered to the
other Trustees, which shall take effect upon such delivery or upon
such later date as is specified therein; (b) any Trustee may be
removed at any time by written instrument, signed by at least
two-thirds of the number of Trustees prior to such removal,
specifying the date when such removal shall become effective; (c)
any Trustee who requests in writing to be retired or who has died,
become physically or mentally incapacitated by reason of disease or
otherwise, or is otherwise unable to serve, may be retired by
written instrument signed by a majority of the other Trustees,
specifying the date of his retirement; and (d) a Trustee may be
removed at any meeting of the Shareholders of the Trust by a vote
of Shareholders owning at least two-thirds of the outstanding
Shares.
Section 3.04. Vacancies and Appointment of Trustees. In case of
the declination to serve, death, resignation, retirement, removal,
physical or mental incapacity by reason of disease or otherwise, or
a Trustee is otherwise unable to serve, or an increase in the
number of Trustees, a vacancy shall occur. Whenever a vacancy in
the Board of Trustees shall occur, until such vacancy is filled,
the other Trustees shall have all the powers hereunder and the
certificate of the other Trustees of such vacancy shall be
conclusive. In the case of an existing vacancy, the remaining
Trustees shall fill such vacancy by appointing such other person as
they in their discretion shall see fit consistent with the
limitations under the 1940 Act. Such appointment shall be
evidenced by a written instrument signed by a majority of the
Trustees in office or by resolution of the Trustees, duly adopted,
which shall be recorded in the minutes of a meeting of the
Trustees, whereupon the appointment shall take effect.
An appointment of a Trustee may be made by the Trustees then in
office in anticipation of a vacancy to occur by reason of
retirement, resignation or increase in number of Trustees effective
at a later date, provided that said appointment shall become
effective only at or after the effective date of said retirement,
resignation or increase in number of Trustees. As soon as any
Trustee appointed pursuant to this Section 3.04 shall have accepted
this trust, the trust estate shall vest in the new Trustee or
Trustees, together with the continuing Trustees, without any
further act or conveyance, and he shall be deemed a Trustee
hereunder. The power to appoint a Trustee pursuant to this Section
3.04 is subject to the provisions of Section 16(a) of the 1940 Act.
Section 3.05. Temporary Absence of Trustee. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding
six (6) months at any one time to any other Trustee or Trustees,
provided that in no case shall less than two (2) Trustees
personally exercise the other powers hereunder except as herein
otherwise expressly provided.
Section 3.06. Number of Trustees. The number of Trustees shall be
at least three (3), and thereafter shall be such number as shall be
fixed from time to time by a majority of the Trustees, provided,
however, that the number of Trustees shall in no event be more than
fifteen (15). A reduction in the number of Trustees shall not be
effective until a corresponding vacancy in an office of Trustee
shall occur.
Section 3.07. Effect of Death, Resignation, Etc., of a Trustee.
The declination to serve, death, resignation, retirement, removal,
incapacity, or inability of the Trustees, or any one of them, shall
not operate to terminate the Trust or to revoke any existing agency
created pursuant to the terms of this Trust Instrument.
Section 3.08. Ownership of Assets of the Trust. The assets of the
Trust and of each Series shall be held separate and apart from any
assets now or hereafter held in any capacity other than as Trustee
hereunder by the Trustees or any successor Trustees. Legal title
in all of the assets of the Trust and the right to conduct any
business shall at all times be considered as vested in the Trustees
on behalf of the Trust, except that the Trustees may cause legal
title to any Trust Property to be held by, or in the name of, the
Trust, or in the name of any person as nominee. No Shareholder
shall be deemed to have a severable ownership in any individual
asset of the Trust or of any Series or any right of partition or
possession thereof, but each Shareholder shall have, except as
otherwise provided for herein, a proportionate undivided beneficial
interest in the Trust or Series. The Shares shall be personal
property giving only the rights specifically set forth in this
Trust Instrument.
Section 3.09. Execution of Instruments. Any Trustee may
authorize, by power of attorney, one or more officers of the Trust
to sign on his behalf such written instruments as the Trustee may
designate in accordance with applicable law.
ARTICLE IV
POWERS OF THE TRUSTEES
Section 4.01. Powers. The Trustees in all instances shall act as
principals, and are and shall be free from the control of the
Shareholders. The Trustees shall have full power and authority to
do any and all acts and to make and execute any and all contracts
and instruments that they may consider necessary or appropriate in
connection with the management of the Trust. The Trustees shall
not in any way be bound or limited by present or future laws or
customs in regard to trust investments, but shall have full
authority and power to make any and all investments which they, in
their sole discretion, shall deem proper to accomplish the purpose
of this Trust without recourse to any court or other authority.
Subject to any applicable limitation in this Trust Instrument or
the Bylaws of the Trust, the Trustees shall have power and
authority:
(a) To invest and reinvest cash and other property, and to hold
cash or other property uninvested, without in any event being bound
or limited by any present or future law or custom in regard to
investments by trustees, and to sell, exchange, lend, pledge,
mortgage, hypothecate, write options on and lease any or all the
assets of the Trust;
(b) To operate as and carry on the business of an investment
company, and exercise all the powers necessary and appropriate to
the conduct of such operations;
(c) To borrow money and in this connection issue notes or other
evidence of indebtedness; to secure borrowings by mortgaging,
pledging or otherwise subjecting as security the Trust Property; to
endorse, guarantee, or undertake the performance of an obligation
or engagement of any other person and to lend Trust Property;
(d) To provide for the distribution of interests of the Trust
either through a principal underwriter in the manner hereinafter
provided for or by the Trust itself, or both, or otherwise pursuant
to a plan of distribution of any kind;
(e) To adopt Bylaws not inconsistent with this Trust Instrument
providing for the conduct of the business of the Trust and to amend
and repeal them to the extent that they do not reserve that right
to the Shareholders; such Bylaws shall be deemed incorporated and
included in this Trust Instrument;
(f) To elect and remove such officers and appoint and terminate
such agents as they consider appropriate;
(g) To employ one or more banks, trust companies or companies that
are members of a national securities exchange or such other
entities as the Commission may permit as custodians of any assets
of the Trust subject to any conditions set forth in this Trust
Instrument or in the Bylaws;
(h) To retain one or more Transfer Agents and shareholder
servicing agents, or both;
(i) To set record dates in the manner provided herein or in the
Bylaws;
(j) To delegate such authority as they consider desirable to any
officers of the Trust and to any investment advisor, manager,
custodian, underwriter or other agent or independent contractor;
(k) To sell or exchange any or all of the assets of the Trust,
subject to the provisions of Article XI, Section 11.04(b) hereof;
(l) To vote or give assent, or exercise any rights of ownership,
with respect to stock or other securities or property; and to
execute and deliver powers of attorney to such person or persons as
the Trustees shall deem proper, granting to such person or persons
such power and discretion with relation to securities or property
as the Trustees shall deem proper;
(m) To exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities;
(n) To hold any security or property in a form not indicating any
trust, whether in bearer, book entry, unregistered or other
negotiable form; or either in the name of the Trust or in the name
of a custodian or a nominee or nominees, subject in either case to
proper safeguards according to the usual practice of Delaware
business trusts or investment companies;
(o) To establish separate and distinct Series with separately
defined investment objectives and policies and distinct investment
purposes in accordance with the provisions of Article II hereof and
to establish classes of such Series having relative rights, powers
and duties as they may provide consistent with applicable law;
(p) Subject to the provisions of Section 3804 of the Delaware Act,
to allocate assets, liabilities and expenses of the Trust to a
particular Series or to apportion the same between or among two or
more Series, provided that any liabilities or expenses incurred by
a particular Series shall be payable solely out of the assets
belonging to that Series as provided for in Article II hereof;
(q) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or
concern, any security of which is held in the Trust; to consent to
any contract, lease, mortgage, purchase, or sale of property by
such corporation or concern, and to pay calls or subscriptions with
respect to any security held in the Trust;
(r) To compromise, arbitrate, or otherwise adjust claims in favor
of or against the Trust or any matter in controversy including, but
not limited to, claims for taxes;
(s) To make distributions of income and of capital gains to
Shareholders in the manner hereinafter provided;
(t) To establish, from time to time, a minimum investment for
Shareholders in the Trust or in one or more Series or class, and to
require the redemption of the Shares of any Shareholders whose
investment is less than such minimum upon giving notice to such
Shareholder;
(u) To establish one or more committees, to delegate any of the
powers of the Trustees to said committees and to adopt a committee
charter providing for such responsibilities, membership (including
Trustees, officers or other agents of the Trust therein) and any
other characteristics of said committees as the Trustees may deem
proper. Notwithstanding the provisions of this Article IV, and in
addition to such provisions or any other provision of this Trust
Instrument or of the Bylaws, the Trustees may by resolution appoint
a committee consisting of less than the whole number of Trustees
then in office, which committee may be empowered to act for and
bind the Trustees and the Trust, as if the acts of such committee
were the acts of all the Trustees then in office, with respect to
the institution, prosecution, dismissal, settlement, review or
investigation of any action, suit or proceeding which shall be
pending or threatened to be brought before any court,
administrative agency or other adjudicatory body;
(v) To interpret the investment policies, practices, or
limitations of any Series;
(w) To establish a registered office and have a registered agent
in the state of Delaware; and
(x) In general to carry on any other business in connection with
or incidental to any of the foregoing powers, to do everything
necessary, suitable, or proper for the accomplishment of any
purpose or the attainment of any object or the furtherance of any
power hereinbefore set forth, either alone or in association with
others, and to do every other act or thing incidental or
appurtenant to or growing out of or connected with the aforesaid
business or purposes, objects or powers.
The foregoing clauses shall be construed both as objects and power,
and the foregoing enumeration of specific powers shall not be held
to limit or restrict in any manner the general powers of the
Trustees. Any action by one or more of the Trustees in their
capacity as such hereunder shall be deemed an action on behalf of
the Trust or the applicable Series, and not an action in an
individual capacity.
The Trustees shall not be limited to investing in obligations
maturing before the possible termination of the Trust.
No one dealing with the Trustees shall be under any obligation to
make any inquiry concerning the authority of the Trustees, or to
see to the application of any payments made or property transferred
to the Trustees or upon their order.
Section 4.02. Issuance and Repurchase of Shares. The Trustees
shall have the power to issue, sell, repurchase, redeem, retire,
cancel, reclassify, acquire, hold, resell, reissue, dispose of, and
otherwise deal in Shares and, subject to the provisions set forth
in Article II and Article IX, to apply to any such repurchase,
redemption, retirement, cancellation, or acquisition of Shares any
funds or property of the Trust, or the particular Series of the
Trust, with respect to which such Shares are issued.
Section 4.03. Trustees and Officers as Shareholders. Any Trustee,
officer, or other agent of the Trust may acquire, own, and dispose
of Shares to the same extent as if he were not a Trustee, officer,
or agent; and the Trustees may issue and sell or cause to be issued
and sold Shares to and buy such Shares from any such person or any
firm or company in which he is interested, subject only to the
general limitations herein contained as to the sale and purchase of
such Shares; and all subject to any restrictions which may be
contained in the Bylaws.
Section 4.04. Action by the Trustees. The Trustees shall act by
majority vote at a meeting duly called or by unanimous written
consent without a meeting or by telephone meeting provided a quorum
of Trustees participate in any such telephone meeting, unless the
1940 Act requires that a particular action be taken only at a
meeting at which the Trustees are present in person. At any
meeting of the Trustees, a majority of the Trustees shall
constitute a quorum. Meetings of the Trustees may be called orally
or in writing by the Chairman, by any two (2) other Trustees, or by
such designated officers of the Trust as may be set forth in the
Bylaws. Notice of the time, date and place of all meetings of the
Trustees shall be given by the party calling the meeting, or by
such designated officers of the Trust as may be set forth in the
Bylaws, to each Trustee by telephone, telefax, or telegram sent to
his home or business address at least twenty-four (24) hours in
advance of the meeting or by written notice mailed to his home or
business address at least seventy-two (72) hours in advance of the
meeting. Notice need not be given to any Trustee who attends the
meeting without objecting to the lack of notice or who executes a
written waiver of notice with respect to the meeting. Any meeting
conducted by telephone shall be deemed to take place at the
principal office of the Trust, as determined by the Bylaws or by
the Trustees. Subject to the requirements of the 1940 Act, the
Trustees by majority vote may delegate to any one or more of their
number their authority to approve particular matters or take
particular actions on behalf of the Trust. Written consents or
waivers of the Trustees may be executed in one or more
counterparts. Execution of a written consent or waiver and
delivery thereof to the Trust may be accomplished by telefax.
Section 4.05. Chairman of the Trustees. The Trustees shall
appoint one of their number to be Chairman of the Board of
Trustees. The Chairman shall preside at all meetings of the
Trustees, shall be responsible for the execution of policies
established by the Trustees and the administration of the Trust,
and may be (but is not required to be) an officer of the Trust.
Section 4.06. Principal Transactions. Except to the extent
prohibited by applicable law, the Trustees, on behalf of the Trust,
may buy any securities from or sell any securities to, or lend any
assets of the Trust to, any Trustees or officer of the Trust or any
firm of which any such Trustee or officer is a member acting as
principal, or have any such dealings with any investment advisor,
distributor or Transfer Agent for the Trust or with any Interested
Person of such person; and the Trust may employ any such person, or
firm or company in which such person is an Interested Person, as
broker, legal counsel, registrar, investment advisor, distributor,
Transfer Agent, dividend disbursing agent, or custodian, or in any
other capacity upon customary terms.
ARTICLE V
EXPENSES OF THE TRUST
Section 5.01. Trustee Reimbursement. Subject to the provisions of
Article II, Section 2.08 hereof, the Trustees may be reimbursed
from the Trust estate or the assets belonging to the appropriate
Series for their expenses and disbursements, including, without
limitation, fees and expenses of Trustees who are not Interested
Persons of the Trust, interest expense, taxes, fees and commissions
of every kind, expenses of pricing Trust portfolio securities,
expenses of issue, repurchase and redemption of shares, including
expenses attributable to a program of periodic repurchases or
redemptions, expenses of registering and qualifying the Trust and
its Shares under Federal and State laws and regulations or under
the laws of any foreign jurisdiction, charges of third parties,
including investment advisors, managers, custodians, Transfer
Agents, portfolio accounting and/or pricing agents, and registrars,
expenses of preparing and setting up in type prospectuses and
statements of additional information and other related Trust
documents, expenses of printing and distributing prospectuses sent
to existing Shareholders, auditing and legal expenses, reports to
Shareholders, expenses of meetings of Shareholders and proxy
solicitations therefor, insurance expenses, association membership
dues and for such non-recurring items as may arise, including
litigation to which the Trust (or a Trustee acting as such) is a
party, and for all losses and liabilities by them incurred in
administering the Trust, and for the payment of such expenses,
disbursements, losses and liabilities the Trustees shall have a
lien on the assets belonging to the appropriate Series, on the
assets of each such Series, prior to any rights or interests of the
Shareholders thereto. This section shall not preclude the Trust
from directly paying any of the aforementioned fees and expenses.
ARTICLE VI
INVESTMENT ADVISOR, PRINCIPAL UNDERWRITER, AND TRANSFER AGENT
Section 6.01. Investment Advisor. The Trustees may in their
discretion, from time to time, enter into an investment advisory or
management contract or contracts with respect to the Trust or any
Series whereby the other party or parties to such contract or
contracts shall undertake to furnish the Trustees with such
management, investment advisory, statistical and research
facilities and services and such other facilities and services, if
any, and all upon such terms and conditions, as the Trustees may in
their discretion determine; provided, however, that the initial
approval and entering into of such contract or contracts shall be
subject to a Majority Shareholder Vote. Notwithstanding any other
provision of this Trust Instrument, the Trustees may authorize any
investment advisor (subject to such general or specific
instructions as the Trustees from time to time may adopt) to effect
purchases, sales or exchanges of portfolio securities, other
investment instruments of the Trust, or other Trust Property on
behalf of the Trustees, or may authorize any officer, agent, or
Trustee to effect such purchases, sales, or exchanges pursuant to
recommendations of the investment advisor (and all without further
action by the Trustees). Any such purchases, sales, and exchanges
shall be deemed to have been authorized by all of the Trustees.
The Trustees may authorize, subject to applicable requirements of
the 1940 Act, including those relating to Shareholder approval, the
investment advisor to employ, from time to time, one or more
sub-advisors to perform such of the acts and services of the
investment advisor, and upon such terms and conditions, as may be
agreed upon between the investment advisor and sub-advisor. Any
reference in this Trust Instrument to the investment advisor shall
be deemed to include such sub-advisors, unless the context
otherwise requires.
Section 6.02. Principal Underwriter. The Trustees may in their
discretion from time to time enter into an exclusive or
non-exclusive underwriting contract or contracts providing for the
sale of Shares, whereby the Trust may either agree to sell Shares
to the other party to the contract or appoint such other party its
sales agent for such Shares. In either case, the contract shall be
on such terms and conditions, if any, as may be prescribed in the
Bylaws, and such further terms and conditions as the Trustees may
in their discretion determine not inconsistent with the provisions
of this Article VI, or of the Bylaws; and such contract may also
provide for the repurchase or sale of Shares by such other party as
principal or as agent of the Trust.
Section 6.03. Transfer Agent. The Trustees may in their
discretion from time to time enter into one or more transfer agency
and shareholder service contracts whereby the other party or
parties shall undertake to furnish the Trustees with transfer
agency and shareholder services. The contract or contracts shall
be on such terms and conditions as the Trustees may in their
discretion determine not inconsistent with the provisions of this
Trust Instrument or of the Bylaws.
Section 6.04. Parties to Contract. Any contract of the character
described in Sections 6.01, 6.02, and 6.03 of this Article VI or
any contract of the character described in Article VIII hereof may
be entered into with any corporation, firm, partnership, trust, or
association, although one or more of the Trustees or officers of
the Trust may be an officer, director, trustee, shareholder, or
member of such other party to the contract, and no such contract
shall be invalidated or rendered void or voidable by reason of the
existence of any relationship, nor shall any person holding such
relationship be disqualified from voting on or executing the same
in his capacity as Shareholder and/or Trustee, nor shall any person
holding such relationship be liable merely by reason of such
relationship for any loss or expense to the Trust under or by
reason of said contract or accountable for any profit realized
directly or indirectly therefrom, provided that the contract when
entered into was not inconsistent with the provisions of this
Article VI or Article VIII hereof or of the Bylaws. The same
person (including a firm, corporation, partnership, trust or
association) may be the other party to contracts entered into
pursuant to Sections 6.01, 6.02 and 6.03 of this Article VI or
pursuant to Article VIII hereof, and any individual may be
financially interested or otherwise affiliated with persons who are
parties to any or all of the contracts mentioned in this Section
6.04.
Section 6.05. Provisions and Amendments. Any contract entered
into pursuant to Sections 6.01 or 6.02 of this Article VI shall be
consistent with and subject to the requirements of Section 15 of
the 1940 Act or other applicable Act of Congress hereafter enacted
with respect to its continuance in effect, its termination, and the
method of authorization and approval of such contract or renewal
thereof, and no amendment to any contract, entered into pursuant to
Section 6.01 of this Article VI shall be effective unless assented
to in a manner consistent with the requirements of said Section 15,
as modified by any applicable rule, regulation or order of the
Commission.
ARTICLE VII
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 7.01. Voting Powers. The Shareholders shall have power to
vote only (i) for the election of Trustees as provided in Article
III, Sections 3.01 and 3.02 hereof, (ii) for the removal of
Trustees as provided in Article III, Section 3.03(d) hereof, (iii)
with respect to any investment advisory or management contract as
provided in Article VI, Sections 6.01 and 6.05 hereof, and (iv)
with respect to such additional matters relating to the Trust as
may be required by law, by this Trust Instrument, or the Bylaws or
any registration of the Trust with the Commission or any State, or
as the Trustees may consider desirable.
On any matter submitted to a vote of the Shareholders, all Shares
shall be voted separately by individual Series, except: (i) when
required by the 1940 Act, Shares shall be voted in the aggregate
and not by individual Series; and (ii) when the Trustees have
determined that the matter affects the interests of more than one
Series, then the Shareholders of all such affected Series shall be
entitled to vote thereon. The Trustees also may determine that a
matter affects only the interests of one (1) or more classes of a
Series, in which case any such matter shall be voted on by such
class or classes. Each whole Share shall be entitled to one (1)
vote as to any matter on which it is entitled to vote, and each
fractional Share shall be entitled to a proportionate fractional
vote. There shall be no cumulative voting in the election of
Trustees. Shares may be voted in person or by proxy or in any
manner provided for in the Bylaws. A proxy may be given in
writing. The Bylaws may provide that proxies may also, or may
instead, be given by any electronic or telecommunications device or
in any other manner. Notwithstanding anything else herein or in
the Bylaws, in the event a proposal by anyone other than the
officers or Trustees of the Trust is submitted to a vote of the
Shareholders of one or more Series or of the Trust, or in the event
of any proxy contest or proxy solicitation or proposal in
opposition to any proposal by the officers or Trustees of the
Trust, Shares may be voted only in person or by written proxy.
Until Shares are issued, the Trustees may exercise all rights of
Shareholders and may take any action required or permitted by law,
this Trust Instrument or any of the Bylaws of the Trust to be taken
by Shareholders.
Section 7.02. Meetings. The first Shareholders' meeting shall be
held in order to elect Trustees as specified in Section 3.02 of
Article III hereof at the principal office of the Trust or such
other place as the Trustees may designate. Meetings may be held
within or without the State of Delaware. Special meetings of the
Shareholders of any Series may be called by the Trustees and shall
be called by the Trustees upon the written request of Shareholders
owning at least one-tenth of the Outstanding Shares entitled to
vote. Whenever ten (10) or more Shareholders meeting the
qualifications set forth in Section 16(c) of the 1940 Act, as the
same may be amended from time to time, seek the opportunity of
furnishing materials to the other Shareholders with a view to
obtaining signatures on such a request for a meeting, the Trustees
shall comply with the provisions of said Section 16(c) with respect
to providing such Shareholders access to the list of the
Shareholders of record of the Trust or the mailing of such
materials to such Shareholders of record, subject to any rights
provided to the Trust or any Trustees provided by said Section
16(c). Notice, as determined by the Trustees, shall be given at
least ten (10) days prior to any such meeting.
Section 7.03. Quorum and Required Vote. One-third of Shares
entitled to vote in person or by proxy shall be a quorum for the
transaction of business at a Shareholders' meeting, except that
where any provision of law or of this Trust Instrument permits or
request that holders of any Series shall vote as a Series (or that
holders of a class shall vote as a class), then one-third of the
aggregate number of Shares of that Series (or that class) entitled
to vote shall be necessary to constitute a quorum for the
transactions of business by that Series (or that class). Any
lesser number shall be sufficient for adjournments. Any adjourned
session or sessions may be held, within a reasonable time after the
date set for the original meeting, without the necessity of further
notice. Except when a larger vote is required by law or by any
provision of this Trust Instrument or the Bylaws, a majority of the
Shares voted in person or by proxy shall decide any questions and
a plurality shall elect a Trustee, provided that where any
provision of law or of this Trust Instrument permits or requires
that the Shareholders of any Series shall vote as a Series (or that
the holders of any class shall vote as a class), then a majority of
the Shares present in person or by proxy of that Series or, if
required by law, a Majority Shareholder Vote of that Series (or
class), voted on the matter present in person or by proxy shall
decide that matter insofar as that Series (or class) is concerned.
Shareholders may act by unanimous written consent. Actions taken
by Series (or class) may be consented to unanimously in writing by
Shareholders of that Series.
ARTICLE VIII
CUSTODIAN
Section 8.01. Appointment and Duties. The Trustees at all times
shall employ a bank, a company that is a member of a national
securities exchange, or a trust company, each having capital,
surplus and undivided profits of at least two million dollars
($2,000,000) as custodian with authority as its agent, but subject
to such restrictions, limitations, and other requirements, if any,
as may be contained in the Bylaws of the Trust:
(1) to hold the securities owned by the Trust and deliver the same
upon written order or oral order confirmed in writing;
(2) to receive and receipt for any moneys due to the Trust and
deposit the same in its own banking department or elsewhere as the
Trustees may direct; and
(3) to disburse such funds upon orders or vouchers;
and the Trust also may employ such custodian as its agent:
(4) to keep the books and accounts of the Trust or of any Series
or class and furnish clerical and accounting services; and
(5) to compute, if authorized to do so by the Trustees, the Net
Asset Value of any Series, or class thereof, in accordance with the
provisions hereof; all upon such basis of compensation as may be
agreed upon between the Trustees and the custodian.
The Trustees also may authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and
services of the custodian, and upon such terms and conditions, as
may be agreed upon between the custodian and such sub-custodian and
approved by the Trustees, provided that in every case such
sub-custodian shall be a bank, a company that is a member of a
national securities exchange, a trust company, or other company or
financial institution as may be permitted by the Commission, or
otherwise in accordance with the 1940 Act.
Section 8.02. Central Certificate System. Subject to such rules,
regulations, and orders as the Commission may adopt, the Trustees
may direct the custodian to deposit all or any part of the
securities owned by the Trust in a system for the central handling
of securities established by a national securities exchange or a
national securities association registered with the Commission
under the Securities Exchange Act of 1934, as amended, or such
other person as may be permitted by the Commission, or otherwise in
accordance with the 1940 Act, pursuant to which system all
securities of any particular class or series of any issuer
deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical
delivery of such securities, provided that all such deposits shall
be subject to withdrawal only upon the order of the Trust or its
custodians, sub-custodians or other agents.
ARTICLE IX
DISTRIBUTIONS AND REDEMPTIONS
Section 9.01. Distributions.
(a) The Trustees from time to time may declare and pay dividends
or other distributions with respect to any Series. The amount of
such dividends or distributions and the payment of them and whether
they are in cash or any other Trust Property shall be wholly in the
discretion of the Trustees.
(b) Dividends and other distributions may be paid or made to the
Shareholders of record at the time of declaring a dividend or other
distribution or among the Shareholders of record at such other date
or time or dates or times as the Trustees shall determine, which
dividends or distributions, at the election of the Trustees, may be
paid pursuant to a standing resolution or resolutions adopted only
once or with such frequency as the Trustees may determine. The
Trustees may adopt and offer to Shareholders such dividend
reinvestment plans, cash dividend payout plans, or related plans as
the Trustees shall deem appropriate.
(c) Anything in this Trust Instrument to the contrary
notwithstanding, the Trustees at any time may declare and
distribute a stock dividend pro rata among the Shareholders of a
particular Series, or class thereof, as of the record date of that
Series fixed as provided in paragraph (b) of this Section 9.01.
Section 9.02. Redemptions. In case any holder of record of Shares
of a particular Series desires to dispose of his Shares or any
portion thereof, he may deposit at the office of the Transfer Agent
or other authorized agent of that Series a written request or such
other form of request as the Trustees from time to time may
authorize, requesting that the Series purchase the shares in
accordance with this Section 9.02; and the Shareholder so
requesting shall be entitled to require the Series to purchase, and
the Series or the Principal Underwriter of the Series shall
purchase his said Shares, but only at the Net Asset Value thereof
(as described in Section 9.03 of this Article IX). The Series
shall make payment for any shares to be redeemed, as aforesaid, in
cash or property from the assets of that Series and payment for
such Shares shall be made by the Series or the Principal
Underwriter of the Series to the Shareholder of record within seven
(7) days after the date upon which the request is effective. Upon
redemption, shares shall become Treasury shares and may be
re-issued from time to time.
Section 9.03. Determination of Net Asset Value and Valuation of
Portfolio Assets. The term "Net Asset Value" of any Series shall
mean that amount by which the assets of that Series exceed its
liabilities, all as determined by or under the direction of the
Trustees. Such value shall be determined separately for each
Series and shall be determined on such days and at such times as
the Trustees may determine. Such determination shall be made with
respect to securities for which market quotations are readily
available, at the market value of such securities; and with respect
to other securities and assets, at the fair value as determined in
good faith by the Trustees; provided, however, that the Trustees,
without Shareholder approval, may alter the method of valuing
portfolio securities insofar as permitted under the 1940 Act and
the rules, regulations, and interpretations thereof promulgated or
issued by the Commission or insofar as permitted by any Order of
the Commission applicable to the Series. The Trustees may delegate
any of their powers and duties under this Section 9.03 with respect
to valuation of assets and liabilities. The resulting amount,
which shall represent the total Net Asset Value of the particular
Series, shall be divided by the total number of shares of that
Series outstanding at the time and the quotient so obtained shall
be the Net Asset Value per Share of that Series. At any time the
Trustees may cause the Net Asset Value per Share last determined to
be determined again in similar manner and may fix the time when
such redetermined value shall become effective. If, for any
reason, the net income of any Series, determined at any time, is a
negative amount, the Trustees shall have the power with respect to
that Series: (i) to offset each Shareholder's pro rata share of
such negative amount from the accrued dividend account of such
Shareholder; or (ii) to reduce the number of Outstanding Shares of
such Series by reducing the number of Shares in the account of each
Shareholder by a pro rata portion of the number of full and
fractional Shares which represents the amount of such excess
negative net income; or (iii) to cause to be recorded on the books
of such Series an asset account in the amount of such negative net
income (provided that the same shall thereupon become the property
of such Series with respect to such Series and shall not be paid to
any Shareholder), which account may be reduced by the amount of
dividends declared thereafter upon the Outstanding Shares of such
Series on the day such negative net income is experienced, until
such asset account is reduced to zero; or (iv) to combine the
methods described in clauses (i) and (ii) and (iii) of the
sentence; or (v) to take any other action they deem appropriate, in
order to cause (or in order to assist in causing) the Net Asset
Value per Share of such Series to remain at a constant amount per
Outstanding Share immediately after each such determination and
declaration. The Trustees also shall have the power not to declare
a dividend out of net income for the purpose of causing the Net
Asset Value per share to be increased. The Trustees shall not be
required to adopt, but at any time may adopt, discontinue, or amend
the practice of maintaining the Net Asset Value per Share of the
Series at a constant amount.
Section 9.04. Suspension of the Right of Redemption. The Trustees
may declare a suspension of the right of redemption or postpone the
date of payment as permitted under the 1940 Act. Such suspension
shall take effect at such time as the Trustees shall specify but
not later than the close of business on the business day next
following the declaration of suspension, and thereafter there shall
be no right of redemption or payment until the Trustees shall
declare the suspension at an end. In the case of a suspension of
the right of redemption, a Shareholder may either withdraw his
request for redemption or receive payment based on the Net Asset
Value per Share next determined after the termination of the
suspension. In the event that any Series are divided into classes,
the provisions of this Section 9.04, to the extent applicable as
determined in the discretion of the Trustees and consistent with
applicable law, may be equally applied to each such class.
Section 9.05. Redemption of Shares in Order to Qualify as
Regulated Investment Company. If the Trustees, at any time and in
good faith, shall be of the opinion that direct or indirect
ownership of Shares of any Series has or may become concentrated in
any person to an extent which would disqualify any Series as a
regulated investment company under the Internal Revenue Code, then
the Trustees shall have the power (but not the obligation) by lot
or other means deemed equitable by them (i) to call for redemption
by any such person of a number, or principal amount, of Shares
sufficient to maintain or bring the direct or indirect ownership of
Shares into conformity with the requirements for such qualification
and (ii) to refuse to transfer or issue Shares to any person whose
acquisition of the Shares in question would result in such
disqualification. The redemption shall be effected at the
redemption price and in the manner provided in this Article IX.
The holders of Shares, upon demand, shall disclose to the Trustees
in writing such information with respect to direct and indirect
ownership of Shares as the Trustees deem necessary to comply with
the provisions of the Internal Revenue Code, or to comply with the
requirements of any other taxing authority.
ARTICLE X
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 10.01. Limitation of Liability. A Trustee, when acting in
such capacity, shall not be personally liable to any person other
than the Trust or a beneficial owner for any act, omission, or
obligation of the Trust or any Trustee. A Trustee shall not be
liable for any act or omission of any conduct whatsoever in his
capacity as Trustee, provided that nothing contained herein or in
the Delaware Act shall protect any Trustee against any liability to
the Trust or to Shareholders to which he otherwise would be subject
by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of the
office of Trustee hereunder.
Section 10.02. Indemnification.
(a) Subject to the exceptions and limitations contained in
paragraph (b) below:
(i) every person who is, or has been, a Trustee, officer, employee
or agent of the Trust (hereinafter referred to as a "Covered
Person") shall be indemnified by the Trust to the fullest extent
permitted by law against liability and against all expenses
reasonably incurred or paid by him in connection with any claim,
action, suit, or proceeding in which he becomes involved as a party
or otherwise by virtue of his being or having been a Trustee,
officer, employee or agent and against amounts paid or incurred by
him in the settlement thereof; and
(ii) the words "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits, or proceedings (civil,
criminal, or other, including appeals), actual or threatened, while
in office or thereafter, and the words "liability" and "expenses"
shall include, without limitation, attorneys' fees, costs,
judgments, amounts paid in settlement, fines, penalties, and other
liabilities.
(b) No indemnification shall be provided hereunder to a Covered
Person:
(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust or
its Shareholders by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the
conduct of his office or (B) not to have acted in good faith in the
reasonable belief that his action was in the best interest of the
Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office:
(A) by the court or other body approving the settlement;
(B) by at least a majority of those Trustees who neither are
Interested Persons of the Trust nor are parties to the matter based
upon a review of readily-available facts (as opposed to a full
trial-type inquiry); or
(C) by written opinion of independent legal counsel based upon a
review of readily-available facts (as opposed to a full trial-type
inquiry); provided, however, that any Shareholder, by appropriate
legal proceedings, may challenge any such determination by the
Trustees or by independent counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable,
shall not be exclusive of or affect any other rights to which any
Covered Person may now or hereafter be entitled, shall continue as
to a person who has ceased to be a Covered Person and shall inure
to the benefit of the heirs, executors, and administrators of such
a person. Nothing contained herein shall affect any rights to
indemnification to which Trust personnel, other than Covered
Persons, and other persons may be entitled by contract or otherwise
under law.
(d) Expenses in connection with the preparation and presentation
of a defense to any claim, action, suit, or proceeding of the
character described in paragraph (a) of this Section 10.02 may be
paid by the Trust or Series from time to time prior to final
disposition thereof upon receipt of any undertaking by or on behalf
of such Covered Person that such amount will be paid over by him to
the Trust or Series if it ultimately is determined that he is not
entitled to indemnification under this Section 10.02; provided,
however, that either (a) such Covered Person shall have provided
appropriate security for such undertaking, (b) the Trust is insured
against losses arising out of any such advance payments, or (c)
either a majority of the Trustees who are neither Interested
Persons of the Trust nor parties to the matter, or independent
legal counsel in a written opinion, shall have determined, based
upon a review of readily-available facts (as opposed to a
trial-type inquiry or full investigation), that there is a reason
to believe that such Covered Person will be found entitled to
indemnification under this Section 10.02.
Section 10.03. Shareholders. In case any Shareholder or former
Shareholder of any Series shall be held to be personally liable
solely by reason of his being or having been a Shareholder of such
Series and not because of his acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his heirs,
executors, administrators, or other legal representatives, or, in
the case of a corporation or other entity, its corporate or other
general successor) shall be entitled out of the assets belonging to
the applicable Series to be held harmless from and indemnified
against all loss and expense arising from such liability. The
Trust, on behalf of the affected Series, shall assume, upon request
by the Shareholder, the defense of any claim made against the
Shareholder for any act or obligation of the Series and satisfy any
judgment thereon from the assets of the Series.
ARTICLE XI
MISCELLANEOUS
Section 11.01. Trust Not a Partnership. It is hereby
expressly declared that a trust and not a partnership is created
hereby. No Trustee hereunder shall have any power to bind
personally either the Trust's officers or any Shareholder. All
persons extending credit to, contracting with, or having any claim
against the Trust or the Trustees shall look only to the assets of
the appropriate Series or (if the Trustees shall have yet to have
established the Series) the Trust for payment under such credit,
contract, or claim; and neither the Shareholders nor the Trustees,
nor any of their agents, whether past, present, or future, shall be
personally liable therefore. Nothing in this Trust Instrument
shall protect a Trustee against any liability to which the Trustee
otherwise would be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties
involved in the conduct of the office of Trustee hereunder.
Section 11.02. Trustee's Good Faith Action; Expert Advice; No Bond
or Surety. The exercise by the Trustees of their powers and
discretion hereunder in good faith and with reasonable care under
the circumstances then prevailing shall be binding upon everyone
interested. Subject to the provisions of Article X hereof and to
Section 11.01 of this Article XI, the Trustees shall not be liable
for errors of judgment or mistakes of fact or law. The Trustees
may take advice of counsel or other experts with respect to the
meaning and operation of the Trust Instrument, and, subject to the
provisions of Article X hereof and Section 11.01 of this Article
XI, shall be under no liability for any act or omission in
accordance with such advice or for failing to follow such advice.
The Trustees shall not be required to give any bond as such, nor
any surety if a bond is obtained.
Section 11.03. Establishment of Record Dates. The Trustees may
close the Share transfer books of the Trust for a period not
exceeding ninety (90) days preceding the date of any meeting of
Shareholders, or the date for the payment of any dividends or other
distributions, or the date for the allotment of rights, or the date
when any change or conversion or exchange of Shares shall go into
effect; or in lieu of closing the stock transfer books as
aforesaid, the Trustees may fix in advance a date, not exceeding
ninety (90) days preceding the date of any meeting of Shareholders,
or the date for payment of any dividend or other distribution, or
the date for the allotment of rights, or the date when any change
or conversion or exchange of shares shall go into effect, as a
record date for the determination of the Shareholders entitled to
notice of, and to vote at, any such meeting, or entitled to receive
payment of any such dividend or other distribution, or to any such
allotment of rights, or to exercise the rights in respect of any
such change, conversion, or exchange of Shares, and, in such case,
such Shareholders and only such Shareholders as shall be
Shareholders of record on the date so fixed shall be entitled to
such notice of, and to vote at, such meeting, or to receive payment
of such dividend or other distribution, or to receive such
allotment or rights, or to exercise such rights, as the case may
be, notwithstanding any transfer of any Shares on the books of the
Trust after any such date fixed as aforesaid.
Section 11.04. Termination of Trust.
(a) This Trust shall continue without limitation of time but
subject to the provisions of paragraph (b) of this Section 11.04.
(b) The Trustees, subject to a Majority Shareholder Vote of each
Series affected by the matter, or, if applicable, to a Majority
Shareholder Vote of the Trust, and subject to a vote of a majority
of the Trustees and the provisions of the 1940 Act and other
applicable law, may:
(i) sell and convey all or substantially all of the assets of the
Trust or any affected Series to a trust, partnership, association,
or corporation, or to a separate series of shares thereof, which
trust, partnership, association, or corporation is an investment
company as defined in the 1940 Act, or is a series thereof, for
adequate consideration which may include the assumption of all
outstanding obligations, taxes, and other liabilities, accrued or
contingent, of the Trust or any affected Series, and which may
include shares of beneficial interest, stock, or other ownership
interests of such trust, partnership, association, or corporation
or of a series thereof; or
(ii) at any time, sell and convert into money all of the assets of
the Trust or any affected Series.
Upon making reasonable provision, in the determination of the
Trustees, for the payment of all such liabilities in either (i) or
(ii) of this Section 11.04(b), by such assumption or otherwise, the
Trustees shall distribute the remaining proceeds or assets (as the
case may be) of each Series (or class) ratably among the holders of
Shares of that Series then outstanding.
(c) Upon completion of the distribution of the remaining proceeds
or the remaining assets as provided in paragraph (b) of this
Section 11.04, the Trust or any affected Series shall terminate and
the Trustees and the Trust shall be discharged of any and all
further liabilities and duties hereunder and the right, title, and
interest of all parties with respect to the Trust or Series shall
be canceled and discharged.
Upon termination of the Trust, following completion of winding up
of the Trust's business, the Trustees shall cause a certificate of
cancellation of the Trust's certificate of trust to be filed in
accordance with the Delaware Act, which certificate of cancellation
may be signed by any one Trustee.
Section 11.05. Reorganization. Notwithstanding anything else
herein, the Trustees, in order to change the form of organization
of the Trust, may, without prior Shareholder approval, (i) cause
the Trust (or a Series of the Trust) to merge or consolidate with
or into one or more trusts, partnerships, associations, or
corporations so long as the surviving or resulting entity is an
open-end management investment company under the 1940 Act, or is a
series thereof, that will succeed to or assume the Trust's
registration under that Act, or (ii) cause the Trust to
incorporate under the laws of the State of Delaware. Any agreement
of merger or consolidation or certificate of merger may be signed
by a majority of Trustees and facsimile signature conveyed by
electronic or telecommunication means shall be valid.
Pursuant to and in accordance with the provisions of Section
3815(f) of the Delaware Act, and notwithstanding anything to the
contrary contained in this Trust Instrument, an agreement of merger
or consolidation approved by the Trustees in accordance with this
Section 11.05 may effect any amendment to the Trust Instrument or
effect the adoption of a new trust instrument of the Trust if the
Trust is the surviving or resulting trust in the merger or
consolidation.
Section 11.06. Filing of Copies; References; Headings. The
original or a copy of this Trust Instrument and the original or a
copy of each amendment hereof or Trust Instrument supplemental
hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. Anyone dealing with the Trust may
rely on a certificate by an officer or Trustee of the Trust as to
whether or not any such amendments or supplements have been made
and as to any matters in connection with the Trust hereunder, and,
with the same effect as if it were the original, may rely on a copy
certified by an officer or Trustee of the Trust to be a copy of
this Trust Instrument or of any such amendment or supplemental
Trust Instrument, and references to this Trust Instrument, and all
expressions such as or similar to "herein," "hereof," and
"hereunder" shall be deemed to refer to this Trust Instrument as
amended or affected by any such supplemental Trust Instrument. All
expressions such as or similar to "his," "he," and "him" shall be
deemed to include the feminine and neuter, as well as masculine,
genders. Headings are placed herein for convenience of reference
only and, in case of any conflict, the text of this Trust
Instrument, rather than the headings, shall control. This Trust
Instrument may be executed in any number of counterparts each of
which shall be deemed an original.
Section 11.07. Applicable Law. The trust set forth in this
instrument is made in the State of Delaware, and the Trust and this
Trust Instrument, and the rights and obligations of the Trustees
and Shareholders hereunder, are to be governed by and construed and
administered according to the Delaware Act and the laws of said
State; provided, however, that there shall not be applicable to the
Trust, the Trustees or this Trust Instrument (a) the provisions of
Section 3540 of Title 12 of the Delaware Code or (b) any provisions
of the laws (statutory or common) of the State of Delaware (other
than the Delaware Act) pertaining to trusts which relate to or
regulate (i) the filing with any court or governmental body or
agency of trustee accounts or schedules of trustee fees and
charges, (ii) affirmative requirements to post bonds for trustees,
officers, agents, or employees of a trust, (iii) the necessity for
obtaining court or other governmental approval concerning the
acquisition, holding, or disposition of real or personal property,
(iv) fees or other sums payable to trustees, officers, agents, or
employees of a trust, (v) the allocation of receipts and
expenditures to income and principal, (vi) restrictions or
limitations on the permissible nature, amount, or concentration of
trust investments or requirements relating to the titling, storage,
or other manner of holding of trust assets, or (vii) the
establishment of fiduciary or other standards or responsibilities
or limitations on the acts or powers of trustees, which are
inconsistent with the limitations or liabilities or authorities and
powers of the Trustees set forth or referenced in this Trust
Instrument. The Trust shall be of the type commonly called a
"business trust," and, without limiting the provisions hereof, the
Trust may exercise all powers or privileges afforded to trusts or
actions that may be engaged in by trusts under the Delaware Act,
and the absence of a specific reference herein to any such power,
privilege, or action shall not imply that the Trust may not
exercise such power or privilege or take such actions.
Section 11.08. Amendments. Except as specifically provided herein,
the Trustees, without Shareholder vote, may amend or otherwise
supplement this Trust Instrument by making an amendment, a Trust
Instrument supplemental hereto, or an amended and restated trust
instrument. Shareholders shall have the right to vote (i) on any
amendment which would affect their right to vote granted in Section
7.01 of Article VII hereof, (ii) on any amendment to this Section
11.08, (iii) on any amendment as may be required by law or by the
Trust's registration statement filed with the Commission, and (iv)
on any amendment submitted to the Shareholders by the Trustees.
Any amendment required or permitted to be submitted to Shareholders
which, as the Trustees determine, shall affect the Shareholders of
one or more Series shall be authorized by vote of the Shareholders
of each Series affected and no vote of Shareholders of a Series not
affected shall be required. Notwithstanding anything else herein,
any amendment to Article X hereof shall not limit the rights to
indemnification or insurance provided therein with respect to
action or omission of Covered Persons prior to such amendment.
Section 11.09. Fiscal Year. The fiscal year of the Trust shall end
on a specified date as set forth in the Bylaws, provided, however,
that the Trustees, without Shareholder approval, may change the
fiscal year of the Trust.
Section 11.10. Provisions in Conflict With Law. The provisions of
this Trust Instrument are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions
is in conflict with the 1940 Act, with the regulated investment
company provisions of the Internal Revenue Code, or with other
applicable laws and regulations, the conflicting provision shall be
deemed never to have constituted a part of this Trust Instrument;
provided, however, that such determination shall not affect any of
the remaining provisions of this Trust Instrument or render invalid
or improper any action taken or omitted prior to such
determination. If any provision of this Trust Instrument shall be
held invalid or improper, unenforceability shall attach only to
such provision in such jurisdiction and shall not in any manner
affect such provisions in any other jurisdiction or any other
provision of this Trust Instrument in any jurisdiction.
IN WITNESS WHEREOF, the undersigned, being all of the initial
Trustees of the Trust, have executed this instrument this 18th day
of July, 1996.
/s/ Dennis Low
Dennis Low, as Trustee
Orchard Series Fund - Declaration of Trust
Page 28
Orchard Series Fund - Declaration of Trust
Orchard Series Fund - Declaration of Trust
ORCHARD SERIES FUND
BYLAWS
These Bylaws of the Orchard Series Fund, a Delaware business trust
(the "Trust"), are subject to the Trust's Declaration of Trust,
dated July 18, 1996, as from time to time amended or restated (the
"Trust Instrument"). Capitalized terms used herein which are
defined in the Trust Instrument are used as therein defined.
ARTICLE I
PRINCIPAL OFFICE
The principal office of the Trust shall be located at 8515 East
Orchard Road, Englewood, Colorado, or such other location as the
Trustees, from time to time, may determine. The Trust may
establish and maintain such other offices and places of business as
the Trustees, from time to time, may determine.
ARTICLE II
OFFICERS
Section 1. Officers. The officers of the Trust shall be a
President, a Treasurer, a Secretary, and such other officers as the
Trustees from time to time may elect. The Trustees may delegate to
any officer or committee the power to appoint any subordinate
officers or agents. It shall not be necessary for any Trustee or
officer to be a holder of Shares in the Trust.
Section 2. Election of Officers. The President, Treasurer and
Secretary shall be chosen by the Trustees. Two (2) or more offices
may be held by a single person except the offices of President and
Secretary. Subject to the provisions of Section 5 hereof, the
President, the Treasurer, and the Secretary shall each hold office
until their successors are chosen and qualified and all other
officers shall hold office at the pleasure of the Trustees.
Section 3. Resignations. Any officer of the Trust may resign,
notwithstanding Section 2 hereof, by filing a written resignation
with the Chairman of the Board of Trustees, the President, or the
Secretary, which resignation shall take effect on being so filed or
at such time as may be therein specified.
Section 4. Surety Bonds. The Trustees may require any officer
or agent of the Trust to execute a bond (including, without
limitation, any bond required by the 1940 Act and the rules and
regulations of the Commission) to the Trust in such sum and with
such surety or sureties as the Trustees may determine, conditioned
upon the faithful performance of such officer's or agent's duties
to the Trust including responsibility for negligence and for the
accounting of any of the Trust's property, funds, or securities
that may come into such officer's or agent's hands.
Section 5. Removal. Any officer of the Trust may be removed
from office whenever in the judgment of the Trustees the best
interest of the Trust will be served thereby, by the vote of a
majority of the Trustees at any regular or special meeting of the
Trustees. In addition, any officer or agent appointed in
accordance with the provisions of Section 13 hereof may be removed,
either with or without cause, by any officer upon whom such power
of removal shall have been conferred by the Trustees.
Section 6. Compensation. The salaries or other compensation,
if any, of the officers of the Trust shall be fixed from time to
time by resolution of the Trustees.
Section 7. President. The President shall be the chief
executive officer of the Trust and, subject to the direction of the
Trustees, shall have general administration of the business and
affairs of the Trust. Except as the Trustees otherwise may order,
the President shall have the power to grant, issue, execute, or
sign such powers of attorney, proxies, agreements, or other
documents as may be deemed advisable or necessary in the
furtherance of the interest of the Trust or any Series thereof, and
shall have the power to employ attorneys, accountants, and other
advisers and agents and counsel for the Trust. The President shall
perform such duties additional to all of the foregoing as the
Trustees from time to time may designate.
Section 8. Treasurer. The Treasurer shall be the principal
financial and accounting officer of the Trust. He shall deliver
all funds and securities of the Trust which may come into his hands
to such company as the Trustees shall employ as Custodian in
accordance with the Trust Instrument and applicable provisions of
law. He shall make annual reports regarding the business and
condition of the Trust, which reports shall be preserved in Trust
records, and he shall furnish such other reports regarding the
business and condition of the Trust as the Trustees from time to
time may require. The Treasurer shall perform such additional
duties as the Trustees from time to time may designate.
Section 9. Secretary. The Secretary shall record all votes and
minutes of meetings of the Trustees and the Shareholders in books
kept for such purpose. He shall have the custody of the seal of
the Trust. The Secretary shall perform such additional duties as
the Trustees from time to time may designate.
Section 10. Vice President. Any Vice President of the Trust
shall perform such duties as the Trustees or the President from
time to time may designate. At the request or in the absence or
disability of the President, the Vice President (or, if there are
two (2) or more Vice Presidents, then the senior of the Vice
Presidents present and able to act) may perform all the duties of
the President and, when so acting, shall have all the powers of and
be subject to all the restrictions upon the President.
Section 11. Assistant Treasurer. Any Assistant Treasurer of the
Trust shall perform such duties as the Trustees or the Treasurer
from time to time may designate, and, in the absence of the
Treasurer, the senior Assistant Treasurer, present and able to act,
may perform all the duties of the Treasurer.
Section 12. Assistant Secretary. Any Assistant Secretary of the
Trust shall perform such duties as the Trustees or the Secretary
from time to time may designate, and, in the absence of the
Secretary, the senior Assistant Secretary, present and able to act,
may perform all the duties of the Secretary.
Section 13. Subordinate Officers. The Trustees from time to
time may appoint such other officers or agents as the Trustees may
deem advisable, each of whom shall have such title, hold office for
such period, have such authority, and perform such duties as the
Trustees may determine. The Trustees from time to time may
delegate to one (1) or more officers or committees of Trustees the
power to appoint any such subordinate officers or agents and to
prescribe their respective terms of office, authorities, and
duties.
ARTICLE III
TRUSTEES
Section 1. Management of the Trust; General. The business and
affairs of the Trust shall be managed by, or under the direction
of, the Trustees, and the Trustees shall have all powers necessary
and desirable to carry out their responsibilities, so far as such
powers are not inconsistent with these Bylaws, the Trust
Instrument, or the law of the State of Delaware or other applicable
law, including the 1940 Act.
Section 2. Chairman of the Board. The Trustees shall appoint
one from among their number to be Chairman of the Board of Trustees
who shall serve as such at the pleasure of the Trustees. When
present, he shall preside at all meetings of the Shareholders and
the Trustees, and he may appoint, subject to the approval of the
Trustees, a Trustee to preside at such meetings in his absence. He
shall perform such other duties as the Trustees from time to time
may designate.
Section 3. Compensation. Each Trustee may receive such
compensation for his services and reimbursement for his expenses as
may be fixed from time to time by resolution of the Trustees.
Section 4. Resignations. Any Trustee may resign his trust by
delivering a written resignation signed by him to the President or
the Secretary, who shall accept delivery of the resignation on
behalf of the other Trustees.
ARTICLE IV
COMMITTEES
Section 1. Executive Committee. The Trustees may, by
resolution adopted by a majority of their number, designate an
"Executive Committee" consisting of two or more Trustees, which
committee shall have and may exercise all the powers and authority
of the Trustees with respect to all matters other than:
(a) the submission to Shareholders of any action requiring
authorization of Shareholders pursuant to statute or the Trust
Instrument;
(b) the filling of vacancies in the number of the Trustees;
(c) the fixing of compensation, including compensation for service
on any committee, including the Executive Committee;
(d) the approval or termination of any contract with an investment
adviser or principal underwriter, as such terms are defined in the
1940 Act, or the taking of any other action by the Trustees
required to be taken by the 1940 Act;
(e) the amendment or repeal of these Bylaws or the adoption of new
bylaws;
(f) the amendment or repeal of any resolution of the Trustees that
by its terms may be amended or repealed only by the Trustees; and
(g) the declaration of dividends and the issuance of Shares of the
Trust.
The Executive Committee shall keep written minutes of its
proceedings and shall report such minutes to the Trustees. The
Trustees may rescind or modify any action of the Executive
Committee.
Section 2. Other Committees. The Trustees may from time to
time, by resolution adopted by a majority of their number,
designate one or more other committees of Trustees, each such
committee to consist of such number of the Trustees and to have
such powers and duties as the Trustees may, by resolution,
prescribe.
Section 3. General. One-third, but not less than two, of the
members of any committee shall be present in person at any meeting
of such committee in order to constitute a quorum for the
transaction of business at such meeting and the act of a majority
present shall be the act of such committee. The Trustees may
designate a chairman of any committee and such chairman or any two
members of any committee may fix the time and place of its meetings
unless the Trustees shall otherwise provide. In the absence or
disqualification of any member of any committee, the member or
members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may
unanimously appoint another Trustee to act at the meeting in the
place of any such absent or disqualified member. The Trustees
shall have the power at any time to change the membership of any
committee, to fill all vacancies, to designate alternate members to
replace any absent or disqualified member, or to dissolve any such
committee. Nothing herein shall be deemed to prevent the Trustees
from appointing one or more committees consisting wholly or in part
of persons who are not Trustees; provided, however, that no such
committee shall have or may exercise any authority or power of the
Trustees in the management of the business or affairs of the Trust.
ARTICLE V
SHAREHOLDERS' MEETING
Section 1. Special Meetings. A special meeting of the
Shareholders shall be called by the Secretary whenever (i) ordered
by the Trustees or (ii) requested in writing by the holder or
holders of at least twenty-five percent (25%) of the Outstanding
Shares entitled to vote at such meeting. If the Secretary, when so
ordered or requested, refuses or neglects for more than thirty (30)
days to call such special meeting, the Trustees or the Shareholders
so requesting, in the name of the Secretary, may call the meeting
by giving notice thereof in the manner required when notice is
given by the Secretary. If the meeting is a meeting of the
Shareholders of one (1) or more Series or classes of Shares, but
not a meeting of all Shareholders of the Trust, then only special
meetings of the Shareholders of such one (1) or more Series or
classes shall be called and only the Shareholders of such one (1)
or more Series or classes shall be entitled to notice of and to
vote at such meeting.
Section 2. Notices. Except as above provided, notices of any
meeting of the Shareholders shall be given by the Secretary by
delivering or mailing, postage prepaid, to each Shareholder
entitled to vote at said meeting, written or printed notification
of such meeting at least fifteen (15) days before the meeting, to
such address as may be registered with the Trust by the
Shareholder. Notice by mail shall be deemed to be given when
deposited, postage prepaid, in the United States mail, addressed to
the Shareholder at his address as it appears on the records of the
Trust. Notice of any Shareholder meeting need not be given to any
Shareholder if a written waiver of notice, executed before or after
such meeting, is filed with the record of such meeting, or to any
Shareholder who shall attend such meeting in person or by proxy.
Notice of adjournment of a Shareholders' meeting to another time or
place need not be given, if such time and place are announced at
the meeting and reasonable notice is given to persons present at
the meeting and the adjourned meeting is held within a reasonable
time after the date set for the original meeting.
Section 4. Organization. At each meeting of the Shareholders,
the Chairman of the Board of Trustees, or in his absence or
inability to act, the President, or in his absence or inability to
act, a Vice President, shall act as chairman of the meeting.
Section 5. Inspectors. The Trustees may, in advance of any
meeting of the Shareholders, appoint one or more inspectors to act
at such meeting or any adjournment thereof. If the inspectors
shall not be so appointed or if any of them shall fail to appear or
act, the chairman of the meeting may, and on the request of any
Shareholder entitled to vote thereat shall, appoint inspectors.
Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath to execute faithfully the duties of
inspector at such meeting with strict impartiality and according to
the best of his ability. The inspectors shall determine the number
of shares outstanding and the voting number of each, the number of
Shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots,
or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate
all votes, ballots or consents, determine the result, and do such
acts as are proper to conduct the election or vote in fairness to
all Shareholders. On request of the chairman of the meeting or of
any Shareholder entitled to vote thereat, the inspectors shall make
a report in writing of any challenge, request, or matter determined
by them and shall execute a certificate of any fact found by them.
No Trustee or candidate for the office of Trustee shall act as
inspector of an election of Trustees. Inspectors need not be
Shareholders.
Section 6. Voting-Proxies. Subject to the provisions of the
Trust Instrument, Shareholders entitled to vote may vote either in
person or by proxy, provided that either (i) an instrument
authorizing such proxy to act is executed by the Shareholder in
writing and dated not more than eleven (11) months before the
meeting, unless this instrument specifically provides for a longer
period or (ii) the Trustees adopt by resolution an electronic,
telephonic, computerized, or other alternative to execution of a
written instrument authorizing the proxy to act, which
authorization is received no more than eleven (11) months before
the meeting. Proxies shall be delivered to the Secretary of the
Trust or other persons responsible for recording the proceedings
before being voted. A proxy with respect to Shares held in the
name of two (2) or more persons shall be valid if executed by one
(1) of them unless at or prior to exercise of such proxy the Trust
receives specific written notice to the contrary from any one (1)
of them. Unless otherwise specifically limited by their terms,
proxies shall entitle the holder thereof to vote at any adjournment
of a meeting. A proxy purporting to be exercised by or on behalf
of a Shareholder shall be deemed valid unless challenged at or
prior to its exercise and the burden of providing invalidity shall
rest on the challenger. At all meetings of the Shareholders,
unless the voting is conducted by inspectors, all questions
relating to the qualifications of voters, the validity of proxies,
and the acceptance or rejection of votes shall be decided by the
Chairman of the meeting. Except as otherwise provided herein or in
the Trust Instrument, as these Bylaws or such Trust Instrument may
be amended or restated from time to time, all matters relating to
the giving, voting, or validity of proxies shall be governed by the
General Corporation Law of the State of Delaware relating to
proxies, and judicial interpretations thereunder, as if the Trust
were a Delaware corporation and the Shareholders were shareholders
of a Delaware corporation.
Section 7. Place of Meeting. All special meetings of the
Shareholders shall be held at the principal place of business of
the Trust or at such other place in the United States as the
Trustees may designate.
Section 8. Action Without a Meeting. Any action to be taken by
Shareholders may be taken without a meeting if all Shareholders
entitled to vote on the matter consent to the action in writing and
the written consents are filed with the records of meetings of
Shareholders of the Trust. Such consent shall be treated for all
purposes as a vote at a meeting of the Shareholders held at the
principal place of business of the Trust.
ARTICLE VI
TRUSTEES' MEETINGS
Section 1. Special Meetings. Special meetings of the Trustees
may be called orally or in writing by the Chairman of the Board of
Trustees, any two (2) other Trustees, the President or the
Secretary.
Section 2. Regular Meetings. Regular meetings of the Trustees
may be held at such places and at such times as the Trustees from
time to time may determine; each Trustee present at such
determination shall be deemed a party calling the meeting and no
call or notice will be required to such Trustee provided that any
Trustee who is absent when such determination is made shall be
given notice of the determination by the party calling the meeting,
the President or the Secretary, as provided for in Section 4.04 of
the Trust Instrument.
Section 3. Quorum and Voting. The presence of a majority of
the Trustees in person at any meeting of the Trustees shall
constitute a quorum for the transaction of business at such
meeting. A vote of a majority of the Trustees at any meeting at
which a quorum in present shall constitute an act of the Trustees
unless these Bylaws, the Trust Instrument or the 1940 Act or other
applicable law expressly requires otherwise, in which case a vote
pursuant to the provisions of the applicable instrument or law
shall constitute an act of the Trustees.
Section 4. Notice. Except as otherwise provided, notice of any
special meeting of the Trustees shall be given by the party calling
the meeting to each Trustee, as provided for in Section 4.04 of the
Trust Instrument. A written notice may be mailed, postage prepaid,
addressed to him at his address as registered on the books of the
Trust or, if not so registered, at his last known address.
Section 5. Place of Meeting. All special meetings of the
Trustees shall be held at the principal place of business of the
Trust or such other place as the Trustees may designate. Any
meeting may adjourn to any place.
Section 6. Special Action. When all the Trustees shall be
present at any meeting, however called or wherever held, or shall
assent to the holding of the meeting without notice, or shall sign
a written assent thereto filed with the record of such meeting, the
acts of such meeting shall be valid as if such meeting had been
regularly held.
Section 7. Action By Consent. Subject to the 1940 Act and
other applicable law, any action by the Trustees may be taken
without a meeting if a written consent thereto is signed by all the
Trustees and filed with the records of the Trustees' meeting. Such
consent shall be treated, for all purposes, as a vote at a meeting
of the Trustees held at the principal place of business of the
Trust.
Section 8. Participation in Meetings By Conference Telephone.
Subject to the requirements of the 1940 Act, Trustees may
participate in a meeting of Trustees by conference telephone or
similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such
participation shall constitute presence in person at such meeting.
Any meeting conducted by telephone shall be deemed to take place at
and from the principal office of the Trust.
ARTICLE VII
SHARES OF BENEFICIAL INTEREST
Section 1. Beneficial Interest. The beneficial interest in the
Trust at all times shall be divided into such transferable Shares
of one (1) or more separate and distinct Series, or classes
thereof, as the Trustees from time to time shall create and
establish. The number of Shares is unlimited, and each Share of
each Series or class thereof shall be without par value and shall
represent an equal proportionate interest with each other Share in
the Series, none having priority or preference over another, except
to the extent that such priorities or preferences are established
with respect to one (1) or more classes of shares consistent with
applicable law and any rule or order of the Commission.
Section 2. Transfer of Shares. The Shares of the Trust shall
be transferable, so as to affect the rights of the Trust, only by
transfer recorded on the books of the Trust, in person or by
attorney.
Section 3. Equitable Interest Not Recognized. The Trust shall
be entitled to treat the holder of record of any Share or Shares of
beneficial interest as the holder in fact thereof, and shall not be
bound to recognize any equitable or other claim or interest in such
Share or Shares on the part of any other person except as otherwise
may be expressly provided by law.
Section 4. Share Certificate. If and when the Trustees, in
their discretion, so authorizes, each Shareholder shall be entitled
to a certificate or certificates which shall certify the number of
Shares owned by him in the respective Series. Each certificate
shall be signed by the President or a Vice President and
counter-signed by the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer and shall be sealed with the
Trust Seal. The signatures may be either manual or facsimile
signatures and the seal may be either facsimile or any other form.
If certificates are not requested by the Shareholder, his Shares
will be held on deposit by the Trust. In case any officer who has
signed or whose facsimile signature has been placed on such
certificate shall have ceased to be such officer before such
certificate is issued, such certificate may be issued by the Trust
with the same effect as if he or she were such officer at the time
of the certificate's issue.
In lieu of issuing certificates for Shares, the Trustees or the
transfer or shareholder services agent either may issue receipts
therefor or may keep accounts upon the books of the Trust for the
record holders of such Shares, who in either case shall be deemed,
for all purposes hereunder, to be holders of certificates for such
Shares as if they had accepted such certificates and shall be held
to have expressly assented and agreed to the terms hereof.
Section 5. Loss of Certificate. In the case of the alleged
loss or destruction or the mutilation of a Share certificate, a
duplicate certificate may be issued in place thereof, upon such
terms as the Trustees may prescribe.
Section 6. Discontinuance of Issuance of Certificates. The
Trustees at any time may discontinue the issuance of Share
certificates and may require, by written notice to each
Shareholder, the surrender of Share certificates to the Trust for
cancellation. Such surrender and cancellation shall not affect the
ownership of Shares in the Trust.
ARTICLE VIII
OWNERSHIP OF TRUST ASSETS
The Trustees, acting for and on behalf of the Trust, shall be
deemed to hold legal and beneficial ownership of any income earned
on securities held by the Trust issued by any business entity
formed, organized or existing under the laws of any jurisdiction
other than a state, commonwealth, possession, territory, or colony
of the United States or the laws of the United States.
ARTICLE IX
INSPECTION OF BOOKS
The Trustees from time to time shall determine whether and to what
extent, and at what times and places, and under what conditions and
regulations, the accounts and books of the Trust or any of them
shall be open to the inspection of the Shareholders; and no
Shareholder shall have any right to inspect any account or book or
document of the Trust except as conferred by law or otherwise by
resolution of the Trustees or the Shareholders.
ARTICLE X
INSURANCE OF OFFICERS, TRUSTEES, AND EMPLOYEES
The Trust may purchase and maintain insurance on behalf of any
Covered Person or employee of the Trust, including any Covered
Person or employee of the Trust who is or was serving at the
request of the Trust as a Trustee, officer, or employee of a
corporation, partnership, association, joint venture, trust, or
other enterprise, against any liability asserted against him and
incurred by him in any such capacity or arising out of his status
as such, whether or not the Trustees would have the power to
indemnify him against such liability.
The Trust may not acquire or obtain a contract for insurance that
protects or purports to protect any Trustee or officer of the Trust
against any liability to the Trust or its Shareholders to which he
otherwise would be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office.
ARTICLE XI
SEAL
The seal of the Trust shall be circular in form bearing the
inscription:
"ORCHARD SERIES FUND
THE STATE OF DELAWARE"
The form of the seal shall be subject to alteration by the Trustees
and the seal may be used by causing the seal or a facsimile to be
impressed or affixed or printed or otherwise reproduced.
Any officer or Trustee of the Trust shall have authority to affix
the seal of the Trust to any document, instrument, or other paper
executed and delivered by or on behalf of the Trust; however,
unless otherwise required by the Trustees, the seal shall not be
necessary to be placed on, and the seal's absence shall not impair
the validity of, any document, instrument, or other paper executed
by or on behalf of the Trust.
ARTICLE XII
FISCAL YEAR
The fiscal year of the Trust shall end on such date as the Trustees
from time to time shall determine.
ARTICLE XIII
EXECUTION OF INSTRUMENTS
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
acceptances, bills of exchange, and other orders of obligations for
the payment of money shall be signed by such officer or officers or
person or persons as the Trustees by resolution shall from time to
time designate.
Section 2. Sale or Transfer of Securities. Stock certificates,
bonds, or other securities at any time owned by the Trust may be
held on behalf of the Trust or sold, transferred, or otherwise
disposed of subject to any limits imposed by these Bylaws and
pursuant to authorization by the Trustees and, when so authorized
to be held on behalf of the Trust or sold, transferred or otherwise
disposed of, may be transferred from the name of the Treat by the
signature of the President, a Vice President, the Treasurer, the
Assistant Treasurer, the Secretary, or the Assistant Secretary.
ARTICLE XIV
AMENDMENTS
These Bylaws may be amended at any meeting of the Trustees by a
vote majority of all Trustees
ARTICLE XV
REPORT TO SHAREHOLDERS
The Trustees at least semi-annually shall submit to the
Shareholders a written financial report of the Trust including
financial statements which shall be certified at least annually by
independent public accountants.
ARTICLE XVI
HEADINGS
Headings are placed in these Bylaws for convenience of reference
only and, in case of any conflict, the text of these Bylaws rather
than the headings shall control.
Orchard Series Fund - Bylaws
Page
Orchard Series Fund - Bylaws
INVESTMENT ADVISORY AGREEMENT
This INVESTMENT ADVISORY AGREEMENT (this "Agreement") is made this
day of , 1996, by and between the Orchard Series
Fund, a Delaware business trust (the "Trust"), and GW Capital
Management, Inc., a Colorado corporation (the "Adviser"), whereby
it is agreed as follows:
ARTICLE I
Appointment of the Adviser
A. The Funds. The term "Funds" in this Agreement shall refer,
collectively, to the following series of the Trust:
Orchard Money Market Fund
Orchard Preferred Stock Fund
Orchard Index 600 Fund
Orchard Index 500 Fund
Orchard Index Pacific Fund
Orchard Index European Fund
B. Appointment. The Trust hereby appoints the Adviser to manage
the investment and reinvestment of the assets of the Funds and to
administer the business affairs of the Funds, for the period and on
the terms herein set forth. The Adviser accepts such appointment
and agrees to render the services herein set forth, for the
compensation herein provided. The Adviser shall for all purposes
herein be deemed to be an independent contractor and shall, unless
otherwise expressly provided or authorized, have no authority to
act for or represent the Trust in any way or otherwise be deemed an
agent of the Trust.
ARTICLE II
Duties of the Adviser
A. Investment Advisory Services. In carrying out its obligations
to manage the investment and reinvestment of the assets of the
Funds, the Adviser shall, when appropriate and consistent with the
limitations set forth in Section C of this Article:
(a) perform research and obtain and evaluate pertinent economic,
statistical, and financial data relevant to the investment policies
of the Funds;
(b) consult with and recommend to the Board of Trustees of the
Trust (the "Board") an overall investment plan with respect to each
of the Funds;
(c) seek out, present, and recommend, specific investment
opportunities, consistent with any overall investment plan approved
by the Board;
(d) take such steps as are necessary to implement any overall
investment plan approved by the Board, including making and
carrying out decisions to acquire or dispose of permissible
investments, management of investments and any other property of
the Funds, and providing or obtaining such services as may be
necessary in managing, acquiring or disposing of investments;
(e) regularly report to the Board with respect to the
implementation of any approved overall investment plan and any
other activities in connection with management of the assets of the
Funds;
(f) maintain all required accounts, records, memoranda,
instructions or authorizations relating to the acquisition or
disposition of investments for the Funds; and
(g) determine the net asset value of the Funds as required by
applicable law.
If the Funds would, in the judgment of the Adviser, benefit from
the use of supplemental investment research from third parties
outside the context of brokerage transactions, the Adviser is
authorized to obtain and pay from the Funds' assets a reasonable
flat fee for such information. It is understood that expenses
incurred by the Adviser may not necessarily be reduced as a result
of the receipt of such information.
B. Administrative Services. In addition to the performance of
investment advisory services, the Adviser shall perform, or
supervise the performance of, administrative services in connection
with the management of the Funds, including all financial reporting
for the Funds. In this connection, the Adviser agrees to (a)
assist in supervising all aspects of the Funds' operations,
including the co-ordination of all matters relating to the
functions of the custodian, transfer agent or other shareholder
service agents, if any, accountants, attorneys and other parties
performing services or operational functions for the Funds; (b)
provide the Funds, at the Adviser's expense, with services of
persons, who may be the Adviser's officers, competent to perform
such administrative and clerical functions as are necessary in
order to provide effective administration of the Funds, including
duties in connection with certain reports and the maintenance of
certain books and records of the Funds; and (c) provide the Funds,
at the Adviser's expense, with adequate office space and related
services necessary for its operations as contemplated in this
Agreement. Nothing contained herein will be construed to restrict
the Trust's right to hire its own employees or to contract for
services to be performed by third parties.
C. Fidelity Bond. The Adviser shall arrange for providing and
maintaining a bond issued by a reputable insurance company
authorized to do business in the place where the bond is issued
against larceny and embezzlement covering each officer and employee
of the Trust and/or the Adviser who may singly or jointly with
others have access to funds or securities of the Trust, with direct
or indirect authority to draw upon such funds or to direct
generally the disposition of such funds. The bond shall be in such
reasonable amount as a majority of the trustees of the Trust who
are not "interested persons" of the Trust, as defined in the
Investment Company Act of 1940, as amended from time to time (the
"Investment Company Act"), shall determine, with due consideration
given to the aggregate assets of the Trust to which any such
officer or employee may have access. The premium for the bond
shall be payable by the Trust in accordance with Section B of
Article III.
D. Limitations on Services. The Adviser shall perform the
services under this Agreement subject to the Board's direction and
in accordance with the investment objectives and policies set forth
in the Trust's registration statement, as amended from time to time
(the "Registration Statement"), filed with the Securities and
Exchange Commission.
The Trust has furnished or will furnish the Adviser with copies of
its Registration Statement, declaration of trust, and bylaws, each
as currently in effect, and during the term of this Agreement
agrees: (a) to furnish the Adviser with copies of all registration
statements, proxy statements, reports to shareholders, sales
literature, and other material prepared for distribution to
shareholders of the Funds or the public that refer in any way to
the Adviser not later than the date such material is first
distributed to the public, or sooner if practicable, and the Trust
shall not use such material, or shall discontinue use of such
material, if the Adviser reasonably objects in writing within five
(5) business days (or within such other time as may be mutually
agreed); (b) to furnish the Adviser with true and correct copies of
each amendment or supplement to its Registration Statement,
declaration of trust, or bylaws as soon as reasonably practicable;
and (c) to provide the Adviser (i) with written notice of any
resolutions, policies, restrictions of procedures adopted by the
Board which affect the Adviser's investment management
responsibilities hereunder; and (ii) a list of every natural person
or entity deemed by the Trust to be an "affiliated person" or
"promoter" of or "principal underwriter" for the Trust or an
affiliated person of such person, as such terms are defined in the
Investment Company Act, and the Trust shall promptly notify the
Adviser of any additions or deletions to such list.
ARTICLE III
Compensation of the Adviser
A. Investment Management Fee. As compensation for its services
to the Trust under this Agreement, the Adviser shall receive
monthly compensation with respect to each Fund at an annual rate
based on a percentage of the average daily net assets of such Fund,
according to the following schedule:
Fund Fee
Orchard Money Market Fund 0.26%
Orchard Preferred Stock Fund 0.90%
Orchard Index 600 Fund 0.60%
Orchard Index 500 Fund 0.60%
Orchard Index Pacific Fund 1.00%
Orchard Index European Fund 1.00%
In the event of the termination of this Agreement with respect to
any Fund, the fee with respect to such Fund shall be reduced
proportionately based on the number of calendar days during the
last month in which this Agreement is in effect and shall be paid
within five (5) business days of the date this Agreement is
terminated with respect to such Fund. For purposes of calculating
the Adviser's fee, the value of the net assets of the Funds shall
be determined in the same manner as the Funds use to compute the
value of their net assets in connection with the determination of
the net asset value of their shares, all as set forth more fully in
each of the Fund's current prospectus and statement of additional
information.
B. Expenses of the Adviser. The Adviser shall be responsible for
all expenses incurred in performing the services set forth in
Article II. These expenses include costs incurred in providing
investment advisory services; compensating and furnishing office
space for officers and employees of the Adviser connected with
investment and economic research, trading, and investment
management of the Funds; and paying the fees of all trustees of the
Trust who are affiliated persons of the Adviser or any of its
affiliates.
C. Expenses of the Trust. The Trust pays all other expenses
incurred in its operation and all of its general administrative
expenses, including redemption expenses, expenses of portfolio
transactions, shareholder servicing costs, pricing costs (including
the daily calculation of net asset value), interest, charges of the
custodian and transfer agent, if any, cost of auditing services,
trustees' fees, legal expenses, state franchise taxes, certain
other taxes, expenses of registering the shares under federal and
state securities laws, fees of the Securities and Exchange
Commission, advisory fees, certain insurance premiums (including
fidelity bond premiums), costs of maintenance of corporate
existence, investor services (including allocable personnel and
telephone expenses), costs of printing proxies, stock certificates,
costs of board and shareholder meetings (including fees and
expenses of the disinterested trustees), and any extraordinary
expenses, including litigation costs. Accounting services are
provided for the Funds by the Adviser and the Trust reimburses the
Adviser for its costs in connection therewith. All expenses of
organizing the Trust or forming any series thereof shall be borne
by Trust.
D. Expense Limitation. The Adviser agrees that if the total
expenses of any Fund (exclusive of interest, taxes, brokerage
expenses and extraordinary items such as litigation expenses) for
any fiscal year of the Trust exceed the lowest expense limitation
imposed in any jurisdiction in which that Fund is then making sales
of its shares or in which its shares are then qualified for sale,
if any, the Adviser will pay or reimburse such Fund for that excess
up to the amount of its management fees payable with respect to
that Fund during that fiscal year. The amount of the monthly
management fee payable by any Fund under Section A of this Article
shall be reduced to the extent that the monthly expenses of that
Fund, on an annualized basis, would exceed the foregoing
limitation. At the end of each fiscal year of the Trust, if the
aggregate annual expenses chargeable to any Fund for that year
exceed the foregoing limitation, the Adviser will promptly
reimburse that Fund for the amount of such excess to the extent not
already reimbursed by reduction of the monthly management fee (but
only up to the amount of its management fees payable with respect
to that Fund during that fiscal year), but if such expenses are
within the foregoing limitation, any excess amount previously
withheld from the monthly management fee during that fiscal year
will be promptly paid over to the Adviser.
In the event that this Agreement (i) is terminated with respect to
any one or more Funds as of a date other than the last day of the
fiscal year of the Trust or (ii) commences with respect to one or
more Funds as of a date other than the first day of the fiscal year
of the Trust, then the expenses of such Fund or Funds shall be
annualized and the Adviser shall pay to, or receive from, the
applicable Fund or Funds a pro rata portion of the amount that the
Adviser would have been required to pay or would have been entitled
to receive, if any, had this Agreement been in effect with respect
to such Fund or Funds for the full fiscal year.
ARTICLE IV
Portfolio Transactions and Brokerage
In connection with the management of the investment and
reinvestment of the assets of the Funds, the Adviser is authorized
to select the brokers or dealers that will execute the purchase and
sale of portfolio securities for the Funds. The Adviser will use
its best efforts on behalf of the Funds to obtain the best overall
terms available for any transaction, taking into consideration such
factors which the Adviser deems relevant, including the breadth of
the market in and the price of the security, the financial
condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any (for the specific
transaction and on a continuing basis). The Adviser may also
consider the brokerage and research services (as those term are
defined in Section 28(e) of the Securities and Exchange Act of
1934, as amended from time to time (the "Exchange Act")) provided
to any Fund and/or other account over which the Adviser or an
affiliate of the Adviser exercises investment discretion. The
Adviser may pay a broker or dealer a commission for effecting a
portfolio transaction in excess of the amount of commission another
broker or dealer would have charged for effecting the same
transaction if the Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage
and research services provided (in terms of either that particular
transaction or the Adviser's overall responsibilities). Subject to
the terms of this Agreement and the provisions of the Investment
Company Act, the Exchange Act and other applicable law, the Adviser
may select a broker or dealer with which it or the Funds are
affiliated. In addition, subject to obtaining the best price and
execution, the Adviser may also allocate brokerage transactions of
the Funds in a manner which takes into account the sale of shares
of the Funds.
ARTICLE V
Activities of the Adviser
The services of the Adviser to the Trust under this Agreement are
not to be deemed exclusive, and the Adviser and its affiliates
shall be free to render similar services to others, provided its
services under this Agreement are not impaired thereby. It is
understood that trustees, officers, and shareholders of the Trust
or a Fund are or may become interested in the Adviser as directors,
officers, and shareholders of the Adviser or otherwise; that
directors, officers, and shareholders of the Adviser are or may
become similarly interested in the Trust or a Fund; and that the
Adviser is or may become interested in the Trust or a Fund as a
shareholder or otherwise. The Adviser shall notify the Trust of
any change in its ownership or control that causes an "assignment"
of this Agreement (as that term is defined in the Investment
Company Act and the rules and regulations thereunder) within a
reasonable time after such change.
It is agreed that the Adviser may use any supplemental investment
research obtained for the benefit of the Funds in providing
investment advice to its other investment advisory accounts. The
Adviser or its affiliates may use such information in managing
their own accounts. Conversely, such supplemental information
obtained by the placement of business for the Adviser or other
entities advised by the Adviser will be considered by and may be
useful to the Adviser in carrying out its obligations to the Trust.
Securities held by the Funds may also be held by separate accounts
or other mutual funds for which the Adviser acts as an investment
adviser or by the Adviser or its affiliates. Because of different
investment objectives or other factors, a particular security may
be bought by the Adviser or its subsidiaries or for one or more
clients when one or more clients are selling the same security. If
purchases or sales of securities for the Funds or other entities
for which the Adviser or its subsidiaries act as investment adviser
or for their advisory clients arise for consideration at or about
the same time, the Trust agrees that the Adviser may make
transactions in such securities, insofar as feasible, for the
respective entities and clients in a manner deemed equitable to
all. To the extent that transactions on behalf of more than one
client of the Adviser during the same period may increase the
demand for securities being purchased or the supply of securities
being sold, the Trust recognizes that there may be an adverse
effect on price.
It is agreed that, on occasions when the Adviser deems the purchase
or sale of a security to be in the best interests of the Funds as
well as other accounts or clients, it may, to the extent permitted
by applicable laws and regulations, but will not be obligated to,
aggregate the securities to be sold or purchased for the Funds with
those to be sold or purchased for other accounts or companies in
order to obtain favorable execution and low brokerage commissions.
In that event, allocation of the securities purchased or sold, as
well as the expenses incurred in the transaction, will be made by
the Adviser in the manner it considers to be most equitable and
consistent with its fiduciary obligations to the Trust and to such
other accounts or clients. The Trust recognizes that in some cases
this procedure may adversely affect the size of the position
obtainable for the Funds.
ARTICLE VI
Term of this Agreement
A. Duration. This Agreement shall remain in effect until
, 1998, unless sooner terminated in accordance with
its terms, and shall continue in effect from year to year
thereafter only so long as such continuance is specifically
approved at least annually (a) by the Board, including the votes of
a majority of the trustees who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting such approval, or (b) by vote of
a majority of the outstanding voting securities of such Fund. (As
used in this Agreement, the terms "interested persons" and "vote of
a majority of the outstanding voting securities" shall have
meanings given to them in the Investment Company Act.)
B. Amendment. Any amendment to this Agreement shall become
effective with respect to any Fund upon approval of a majority of
the outstanding voting securities of such Fund.
C. Termination. This Agreement may be terminated with respect to
any Fund at any time, without payment of any penalty, by the Board,
by vote of a majority of the outstanding voting securities of such
Fund, or by the Adviser, each on sixty (60) days prior written
notice to the other party.
D. Automatic Termination. This Agreement shall automatically and
immediately terminate in the event of its assignment.
E. Approval, Amendment or Termination by Individual Fund. Any
approval, amendment or termination of this Agreement by the vote of
a majority of the outstanding voting securities of any Fund shall
be effective to continue, amend or terminate this Agreement with
respect to such Fund notwithstanding (a) that such action has not
been approved by vote of a majority of the outstanding voting
securities of any other Fund, and (b) that such action has not been
approved by vote of a majority of the outstanding voting securities
of the Trust, unless such action shall be required by any
applicable law or otherwise.
ARTICLE VII
Recordkeeping
The Adviser agrees that all accounts and records which it maintains
for the Trust shall be the property of the Trust and that it will
surrender promptly to the designated officers of the Trust any or
all such accounts and records upon request. The Adviser further
agrees to preserve for the period prescribed by the rules and
regulations of the Securities and Exchange Commission all such
records as are required to be maintained pursuant to such rules and
regulations. The Adviser also agrees that it will maintain all
records and accounts regarding the investment activities of the
Funds in a confidential manner. All such accounts or records shall
be made available within five (5) business days of the request to
the Funds' accountants or auditors during regular business hours at
the Adviser's offices upon reasonable prior written notice. In
addition, the Adviser will provide any materials, reasonably
related to the investment advisory services provided hereunder, as
may be reasonably requested in writing by any trustee or officer of
the Trust or as may be required by any governmental agency having
jurisdiction.
ARTICLE VIII
Representations and Warranties
A. The Trust represents and warrants that it is duly registered
with the Securities and Exchange Commission under the Investment
Company Act as an open-end management investment company, and that
all required action has been or will be taken by the Trust under
the Securities Act of 1933, as amended from time to time, and the
Investment Company Act to permit the public offering of, and to
consummate the sale of, shares of the Funds.
B. The Adviser represents and warrants that it is duly registered
with the Securities and Exchange Commission under the Investment
Advisers Act of 1940.
ARTICLE IX
Liability of the Adviser
In the absence of willful misfeasance, bad faith, gross negligence
or reckless disregard of obligations or duties on the part of the
Adviser (or its officers, directors, agents, employees, controlling
persons, shareholders, and any other person or entity affiliated
with the Adviser or retained by it to perform or assist in the
performance of its obligations under this Agreement), neither the
Adviser nor any of its officers, directors, employees or agents
shall be subject to liability to the Trust or to any of its
shareholders for any act or omission in the course of, or connected
with, rendering services hereunder, including without limitation
any error of judgment or mistake of law or for any loss suffered by
the Trust or any of its shareholders in connection with the matters
to which this Agreement relates. Any person, even though also an
officer, director, partner, employee or agent of the Adviser, who
may be or becomes an officer, trustee, employee or agent of the
Trust, shall be deemed when rendering services to the Trust or
acting on any business of the Trust to be rendering such services
to or acting solely for the Trust and not as the Adviser's officer,
director, partner, employee or agent or as one under the Adviser's
control or direction even though paid by the Adviser. The Adviser
shall not be required to take any legal action on behalf of the
Trust unless fully indemnified to its reasonable satisfaction for
all costs and liabilities likely to be incurred or suffered by it.
If the Trust requires the Adviser to take any action which in the
Adviser's opinion may make the Adviser liable for payment of monies
or liable in any other way, the Adviser shall be indemnified in any
reasonable amount and form satisfactory to it as a prerequisite to
taking such action. No provision of this Agreement shall be
construed to protect any trustee or officer of the Trust, or any
director or officer of the Adviser, from liability in violation of
Section 17(h) and (i) of the Investment Company Act or other
applicable law.
ARTICLE X
Subcontractors
The Trust hereby agrees that the Adviser may subcontract for the
performance of any of the services contemplated to be rendered by
the Adviser to any Fund hereunder provided, however, that each
subcontract meets all of the requirements of the Investment Company
Act.
ARTICLE XI
Limitation of Liability
It is expressly agreed that the obligations of the Trust hereunder
shall not be binding upon any trustee, shareholder, nominee,
officer, agent or employee of the Trust personally, but shall bind
only the property of the Trust, as provided in the Trust's
declaration of trust.
ARTICLE XII
Miscellaneous
A. Notice. Any notice under this Agreement shall be in writing,
addressed and delivered or mailed, postage prepaid, to the other
party at such address as such other party may designate in writing
for the receipt of such notices.
B. 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.
C. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware and
the federal securities laws of the United States.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed of the date first written above.
ORCHARD SERIES FUND
By:
Name:
Title:
GW CAPITAL MANAGEMENT, INC.
By:
Name:
Title:
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