As filed with the Securities and Exchange commission
on January 28, 1997
Registration No. 333-9217
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X]
Pre-Effective Amendment No.
2
[X]
Post-Effective Amendment No.
[ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X]
Amendment No. 2
[X]
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
1025 Thomas Jefferson St. N. W., Suite 400 East
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
<PAGE>
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>
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 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
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 , 1997.
<PAGE>
TABLE OF CONTENTS
Page
----
SUMMARY OF EXPENSES . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . 1
INVESTMENT OBJECTIVES AND POLICIES. . . . . . . . . . . . . . . .
. . . . . . . . . 3
MONEY MARKET FUND. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . 3
PREFERRED STOCK FUND . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . 4
INDEX 600 FUND. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . 5
INDEX 500 FUND. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . 5
INDEX PACIFIC FUND. . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . 5
INDEX EUROPEAN FUND . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . 5
COMMON INVESTMENT POLICES, PRACTICES AND RISK FACTORS . . . . . .
. . . . . . . . . 9
MANAGEMENT OF THE FUNDS . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 12
IMPORTANT INFORMATION ABOUT YOUR INVESTMENT . . . . . . . . . . .
. . . . . . . . 14
HOW THE FUNDS VALUE THEIR SHARES . . . . . . . . . . . . . .
. . . . . . . . 14
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES . . . . . . . . . .
. . . . . . . . 14
HOW THE FUNDS REPORT PERFORMANCE . . . . . . . . . . . . . .
. . . . . . . . 16
INVESTING IN THE FUNDS. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 17
HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 17
HOW TO EXCHANGE SHARES . . . . . . . . . . . . . . . . . . .
. . . . . . . . 18
HOW TO SELL SHARES . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 18
OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 19
<PAGE>
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%
Total Fund
Operating Expenses 0.46% 0.90% 0.60% 0.60%
1.20% 1.20%
(after reimbursement)
"Other Expenses" are based on estimated amounts for the Funds'
fiscal year.
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, it is estimated that
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 commissions,
and extraordinary expenses are not expenses eligible for
reimbursement.
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.<PAGE>
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; (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 (i)
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. Under normal circumstances, at least 65% of
the Fund's total assets will be invested in preferred stocks.
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 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.
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.
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.
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 80% of their total
assets
in the stocks comprising their respective benchmarks. However,
initially and until such time as an Index Fund's total assets
exceed $25 million, or if total assets drop below $25 million, the
percentage of an Index Fund's assets invested in such securities
may be as low as 65%. 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. It is,
however,
intended the Index Funds will generally invest in stocks in
approximately the same proportions as the stocks are represented in
their respective benchmark indexes.
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. There is no assurance as to how
closely an Index Fund's performance will correspond to the
performance of its respective benchmark index. Moreover, the
benchmark index may not perform favorably in which case the
respective Index Fund's performance would similarly be unfavorable.
Each Index Fund may use futures contracts on market indexes ("index
futures contracts") and options on such index futures contracts for
hedging purposes or as a substitute for a comparable market
position in the underlying securities. 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 and the price at which the agreement is made.
Risks associated with the use of futures contracts are: (i)
imperfect correlation between the change in value of securities
included on the index and the prices of futures contracts; and (ii)
possible lack of a liquid secondary market for a futures position
when desired. The risk that an Index Fund will be unable to close
out a futures position will be minimized to the extent that such
transactions are entered into on a national exchange with an active
and liquid secondary market. In addition, because of the low margin
deposits normally required in futures trading, a high degree of
leverage is typical of a futures trading account. As a result, a
relatively small price movement in a futures contract may result in
substantial losses to a Fund.
About the Benchmark Indexes
Fund Benchmark
Index 600 Fund S&P Small Cap 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 Small Cap 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 and volatility 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 &
Poor's, 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 & Poor's; 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 Funds is endorsed, sold or promoted by any of the
sponsors of the Benchmark Indexes (the "Sponsors"), and no Sponsor
is an affiliate or a sponsor of the Trust, the Funds, or Capital
Management. The Sponsors are not responsible for and do not
participate in the operation or management of any Fund, nor do they
guarantee the accuracy or completeness of their respective
Benchmark Indexes or the data therein. Inclusion of a stock in a
Benchmark Index does not imply that it is a good investment.
"Financial Times/S&P Actuaries Large-Cap Pacific Index" and
"Financial Times/S&P Actuaries Large-Cap European Index" are
trademarks of The Financial Times Limited and Standard & Poor's
Corporation. "S&P SmallCap 600 Stock Index," "S&P 600," "S&P
500
Composite Stock Price Index," and "S&P 500," are trademarks of The
McGraw-Hill Companies, Inc. These trademarks have been
licensed
for use by the Trust.
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
and non-U.S. branches of such banks (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. If the seller of the
agreement defaults and the value of the collateral declines, or if
the seller enters an insolvency proceeding, realization of the
value of the collateral by the Funds may be delayed or limited.
<PAGE>
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, other than the Money Market 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 options on such
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. A Fund will not enter
into futures contracts or options if the aggregate initial margin
and premium required to do so will exceed 5% of the Fund's total
assets.
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 of 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 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.
One Orchard Equities, Inc. distributes and markets the Trust's
Funds. Financial Administrative Services Corporation ("FASCorp" or
the "Transfer Agent") performs transfer agent servicing functions
for the Funds. FASCorp is a wholly owned subsidiary and One
Orchard Equities is an indirect wholly owned subsidiary of
GWL&A.
<PAGE>
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 investment income and capital gains to shareholders each
year.
The Money Market Fund ordinarily declares dividends from net
investment income daily and distributes dividends monthly. The
Preferred Stock Fund ordinarily distributes dividends from net
investment 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
declares 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 investment companies 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 1-800-
338-4015 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 only by mail. Redemptions may
not be made by telephone.
By Mail
You can redeem shares by sending a "letter of instruction" by
regular or express mail to the Transfer Agent at 8515 East Orchard
Road, Englewood, Colorado 80111. 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.
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 8515
East Orchard Road, Englewood, Colorado 80111. 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
1-800-338-4015.
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.<PAGE>
INVESTMENT ADVISER
GW Capital Management, Inc.
8515 East Orchard Road
Englewood, Colorado 80111
- ------------------------
DISTRIBUTOR
One Orchard Equities, Inc.
8515 East Orchard Road
Englewood, Colorado 80111
- ------------------------
TRANSFER AGENT
Financial Administrative Services Corporation
8515 East Orchard Road
Englewood, Colorado 80111
- ------------------------
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
<PAGE>
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
, 1997
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.
<PAGE>
TABLE OF CONTENTS
Page
----
INVESTMENT OBJECTIVES . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . 1
INVESTMENT POLICIES AND PRACTICES . . . . . . . . . . . . . . . .
. . . . . . . . . 1
INVESTMENT LIMITATIONS. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 15
MANAGEMENT OF THE FUNDS . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 18
PORTFOLIO TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 21
VALUATION OF PORTFOLIO SECURITIES . . . . . . . . . . . . . . . .
. . . . . . . . 23
INVESTMENT PERFORMANCE. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 25
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION. . . . . . . . . .
. . . . . . . . 28
DIVIDENDS, DISTRIBUTIONS AND TAXES. . . . . . . . . . . . . . . .
. . . . . . . . 29
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 36
APPENDIX. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 39
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 43
<PAGE>
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"), a wholly-owned subsidiary of Great-West
Life & Annuity Insurance Company ("GWL&A"), 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.
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.
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.
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.
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.
Reverse Repurchase Agreements. In a reverse repurchase agreement,
the Fund sells a portfolio instrument to another party, such as a
bank or broker-dealer, in return for cash and agrees to repurchase
the instrument at a particular price and time. While a reverse
repurchase agreement is outstanding, the Fund will maintain
appropriate liquid assets in a segregated custodial account to
cover its obligation under the agreement. The Fund will enter into
reverse repurchase agreements only with parties whose credit-
worthiness has been found satisfactory by Capital Management. Such
transactions may increase fluctuations in the market value of the
Fund's assets and may be viewed as a form of leverage. The Funds
currently do not intend to invest in reverse repurchase agreements
within the coming year.
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.
Short Sales "Against the Box." If a Fund enters into a short sale
against the box, it will be required to set aside securities
equivalent in kind and amount to the securities sold short (or
securities convertible or exchangeable into such securities) and
will be required to hold such securities while the short sale is
outstanding. The Fund will incur transaction costs, including
interest expenses, in connection with opening, maintaining, and
closing short sales against the box.
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, liquid assets 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 Trust has
filed a notice of eligibility for exclusion from the definition of
the term "commodity pool operator" with the Commodity Futures
Trading Commission and the National Futures Association, which
regulate trading in the futures markets. 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. Accordingly, to the extent that a
Fund may invest in futures contracts and options, a Fund may only
enter into futures contract and option positions for other than
bona fide hedging purposes to the extent that the aggregate initial
margin and premiums required to establish such positions will not
exceed 5% of the liquidation value of the Fund. This limitation on
a Fund's permissible investments in futures contracts and options
is not a fundamental investment limitation and may be changed as
regulatory agencies permit.
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
with respect to the Money Market Fund 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. Reverse repurchase
agreements and other investments which are "covered" by a
segregated account or an offsetting position in accordance
with applicable SEC requirements ("covered investments") do
not constitute borrowings for purposes of the 300% asset
coverage requirement. The Fund will repay all borrowings in
excess of 5% of its total assets before any additional
investments are made. Covered investments will not be
considered borrowings for purposes of applying the limitation
on making additional investments when borrowings exceed 5% of
total assets.
(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.
<PAGE>
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 _______________, 1997. Capital
Management is a wholly-owned subsidiary of GWL&A, 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 (unless otherwise indicated). 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 (*).
Rex Jennings (72), Trustee; President Emeritus, Denver Metro
Chamber of Commerce.
Richard P. Koeppe (65), Trustee; Retired Superintendent, Denver
Public Schools.
*Dennis Low (53), Trustee; Executive Vice President, Financial
Services, of GWL&A.
*James D. Motz (47), Trustee and President; Senior Vice
President, Employee Benefits, of GWL&A.
Sanford Zisman (57), Trustee; Attorney, Zisman & Ingraham, P.C.
Glen R. Derback (45), Treasurer; Vice President, Financial
Control, of GWL&A.
Ruth B. Lurie (56), Secretary, is Vice President and Counsel of
GWL&A.
Mark J. Pavlik (36), Controller, is Manager, Financial Control,
of GWL&A.
*Beverly A. Byrne (41), Assistant Secretary, is Assistant
Counsel of GWL&A.
Compensation
The Trust pays no salaries or compensation to any of its officers
or Trustees affiliated with Capital Management or its affiliates.
The chart below sets forth the annual fees paid or expected to be
paid to the non-interested Trustees and certain other information.
R.P. Koeppe R. Jennings
S. Zisman
Compensation
Received from the
Trust* $8,000 $8,000
$8,000
Pension or
Retirement
Benefits Accrued as
Fund Expense* $0 $0
$0
Total Compensation
Received from the
Trust and All
Affiliated Funds** $16,000 $16,000
$16,000
* Estimated for current fiscal year
** As of January 15, 1997 there were twenty-nine funds for
which
the Trustees serve as Trustees or Directors of which six are
Funds of the Trust. The total compensation paid is comprised
of the amount estimated to be paid during the Trust's current
fiscal year by the Trust and all affiliated investment
companies.
As of January 15, 1997, 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
_______________, 1997. As approved, the Agreement will remain in
effect until August 20, 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.
<PAGE>
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. Higher portfolio turnover may also increase a
shareholder's current tax liability for capital gains by increasing
the level of capital gains realized by a Fund.
Although it is not possible to predict future portfolio turnover
rates accurately, and such rates may vary from year to year, each
fee the portfolio turnover rates of the Preferred Stock Fund, Index
600 Fund, Index 500 Fund, Index Pacific Fund and Index European
Fund are not expected to exceed 100% in the coming year.
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.
<PAGE>
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
before 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 Funds'
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.
<PAGE>
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.
Deloitte & Touche LLP 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
January 27,1997, together with the notes thereto and the report of
Deloitte & Touche LLP are attached to this Statement of Additional
Information. <PAGE>
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.
<PAGE>
PART C
OTHER INFORMATION
<PAGE>
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 R.B. Lurie
(11) Consent of Deloitte & Touche LLP
(12) Not applicable.
(13) Form of Subscription Agreement.
(14) Not applicable.
(15) Not applicable.
(16) Not applicable.
(17) Not applicable.
(18) Not applicable.
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 January 27,
1997
--------------
- -------------------------
Orchard Money Market Fund 1
Orchard Preferred Stock Fund 1
Orchard Index 600 Fund 1
Orchard Index 500 Fund 1
Orchard Index Pacific Fund 1
Orchard Index European Fund 1
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. Capital
Management 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,
One Orchard Equities, Inc. 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 One Orchard Equities, Inc. named below is
8515 East Orchard Road, Englewood, Colorado 80111.
Name
- -------------------
Positions and Offices
with Underwriter
- ---------------------
Positions and Officers
with Registrant
- ----------------------
Robert E. Kavanagh
Director and
President
None
Stan Kenyon
Director
None
Alan D. MacLennan
Director
None
Glen R. Derback
Treasurer
Treasurer
Beverly A. Byrne
Secretary
Assistant 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 Financial
Administrative Services Corporation, 8515 East Orchard Road,
Englewood, Colorado 80111.
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Pre-Effective Amendment No. 2 to its 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 27th day
of January, 1997.
ORCHARD SERIES FUND
/s/ J.D. Motz
J.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/ J.D. Motz President 1/27/97
J.D. Motz
/s/ J.D. Motz Trustee 1/27/97
J.D. Motz
/s/ G.R. Derback Treasurer 1/27/97
G.R. Derback
/s/ R.P. Koeppe* Trustee 1/27/97
R.P. Koeppe
/s/ R. Jennings* Trustee 1/27/97
R. Jennings
<PAGE>
Signature Title Date
/s/ D. Low Trustee 1/27/97
D. Low
/s/ S. Zisman* Trustee 1/27/97
S. Zisman
*By: /s/ R.B. Lurie
R.B. Lurie
Attorney-in-fact pursuant to Powers of Attorney filed under
Pre-Effective Amendment No. 1 to this Registration Statement.<PAGE>
ORCHARD SERIES FUND
Statement of Assets and Liabilities
as of January 27, 1997 and
Independent Auditors' Report
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholder of
Orchard Series Fund
We have audited the accompanying statement of assets and
liabilities of Orchard Money Market Fund, Orchard Preferred Stock
Fund, Orchard Index 600 Fund, Orchard Index 500 Fund, Orchard Index
Pacific Fund, and Orchard Index European Fund, of Orchard Series
Fund as of January 27, 1997. This financial statement is the
responsibility of the Fund's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statement. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, such statement of assets and liabilities presents
fairly, in all material respects, the financial position of Orchard
Money Market Fund, Orchard Preferred Stock Fund, Orchard Index 600
Fund, Orchard Index 500 Fund, Orchard Index Pacific Fund, and
Orchard Index European Fund, of Orchard Series Fund as of January
27, 1997 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Denver, Colorado
January 27, 1997
ORCHARD SERIES FUND
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 27, 1996
Orchard Money Market Fund
Orchard Preferred Stock Fund
Orchard Index 600 Fund
Orchard Index 500 Fund
Orchard Index Pacific Fund
Orchard Index European Fund
Total
ASSETS:
Cash
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$600,000
LIABILITIES
Payable to affiliates
NET ASSETS
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$600,000
NET ASSETS REPRESENTED BY:
Capital Stock
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$600,000
Outstanding Shares
100,000
10,000
10,000
10,000
10,000
10,000
150,000
Net Asset Value per Share
1.00
10.00
10.00
10.00
10.00
10.00
ORCHARD SERIES FUND
NOTES TO FINANCIAL STATEMENT
JANUARY 27, 1997
1. ORGANIZATION
Orchard Series Fund is an open-end management investment company
organized as a Delaware business trust (the Trust) on July 23,
1996. The Trust offers six separate diversified portfolios,
commonly known as mutual funds (the Funds), which are registered
with the Securities and Exchange Commission under the provisions of
the Investment Company Act of 1940, as amended: Orchard Money
Market Fund, Orchard Preferred Stock Fund, Orchard Index 600 Fund,
Orchard Index 500 Fund, Orchard Index Pacific Fund, and Orchard
Index European Fund. Since the date of incorporation, the Trust's
activities have been limited to organizational matters with no
operating activities; the Funds are expected to become effective
and available for sale on or about February 1, 1997.
Initial capitalization of $100,000 for each fund was received on
January 27, 1997 from Great-West Life & Annuity Insurance Company
(GWL&A).
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies of
the Funds, which are in accordance with generally accepted
accounting principles in the investment company industry:
Security Valuation - Securities traded on national securities
exchanges are valued daily at the closing prices of the securities
on these exchanges, and securities traded on over-the-counter
markets are valued daily at the average between the quoted bid and
asked prices. Short-term and money market securities are valued at
amortized cost which approximates market value.
Federal Income Taxes - For federal income tax purposes, each
Portfolio is expected to qualify as a regulated investment company
under the provisions of the Internal Revenue Code by distributing
substantially all of its taxable net income (both ordinary and
capital gain) to its shareholders and complying with other
requirements for regulated investment companies.
Dividends - Dividends from the investment income of the Money
Market Fund are declared daily and reinvested monthly. Dividends
from investment income of the Preferred Stock Fund are declared and
reinvested quarterly. Dividends from the investment income of the
Index 600 and Index 500 Funds are declared and reinvested
semi-annually while dividends from the investment income of the
Index Pacific and Index European Funds are declared and reinvested
annually. All of the Funds generally distribute capital gains, if
any, in the fiscal year in which they were earned.
ORCHARD SERIES FUND
NOTES TO FINANCIAL STATEMENT
JANUARY 27, 1997
3. INVESTMENT ADVISORY AGREEMENT
GW Capital Management, Inc. (Capital Management), a wholly-owned
subsidiary of GWL&A, serves as investment advisor to the Funds
pursuant to an investment advisory agreement, which was approved by
the Funds' Board of Directors. Capital Management is a registered
investment adviser under the Investment Advisers Act of 1940. The
investment advisory agreement provides that Capital Management,
subject to the supervision and approval of the Funds' Board of
Directors, is responsible for the day-to-day management of each
portfolio which includes selecting the Funds' investments and
handling their business affairs.
As compensation for its services to the Funds, the investment
advisor receives monthly compensation at the annual rate of .20% of
the average daily net assets of the Money Market Fund, .90% of the
average daily net assets of the Preferred Stock Fund, .60% of the
average daily net assets of the Index 600 Fund and Index 500 Fund,
and 1.00% of the average daily net assets of the Index Pacific and
Index European Funds.
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 .46%, respectively, of average net assets.
Interest, taxes, brokerage commissions, and extraordinary expenses
are not expenses eligible for reimbursement.
4. OTHER RELATED PARTY TRANSACTIONS
One Orchard Equities ("OOE"), a wholly-owned subsidiary of One
Corporation ("ONE"), which is a wholly-owned subsidiary of GWL&A,
distributes and markets the Trust's Funds. Financial
Administrative Services Corporation ("FASCORP"), a wholly-owned
subsidiary of GWL&A, performs transfer agent servicing functions
for the Funds.
Certain officers of the Trust are also directors and/or officers of
GWL&A or its subsidiaries. No officer of the Trust receives any
compensation directly from the Funds.
5. CAPITAL STOCK
The Trust has authorized capital of an unlimited number of
shares with no stated par value. Shares may be issued in one or
more series of shares, and each series may be issued in one or more
classes of shares. Each Fund represents a separate series of
shares.
<PAGE>
EXHIBIT INDEX
Exhibit Description
24 Powers of Attorney *
27 Financial Data Schedule +
99.24(b)(1) Declaration of Trust**
99.24(b)(2) Bylaws**
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 R.B. Lurie +
99.24(b)(11) Consent of Deloitte & Touche LLP +
99.24(b)(13) Form of Subscription Agreement.+
+ Filed with this Pre-Effective Amendment No. 2.
* Filed with Pre-Effective Amendment No. 1 on November 19,
1996.
** Filed with the Registration Statement on July 30, 1996.
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> JUL-23-1996
<PERIOD-END> JAN-27-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 600,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 600,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 600,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
EXHIBIT 99.24(b)(6)
PRINCIPAL UNDERWRITING AGREEMENT<PAGE>
PRINCIPAL UNDERWRITING
AGREEMENT
This PRINCIPAL UNDERWRITING AGREEMENT (the "Agreement") is
made this day of , 1997, by and between Orchard
Series Fund, a Delaware business trust (the "Trust") and One
Orchard Equities, Inc., a Colorado corporation (the "Distributor").
WHEREAS, the Trust is registered as an investment company
under the Investment Company Act of 1940 (the "1940 Act") and has
shares of beneficial interest which represent separate investment
portfolios of the Trust (each a Fund, and collectively, the
"Funds") named in Schedule A to this Agreement and which are or
will be registered under the Securities Act of 1933 (the "1933
Act") and the securities acts of various states and jurisdictions;
and
WHEREAS, the Distributor is or will be prior to acting as
Distributor of the Funds, registered as a broker/dealer under the
provisions of the Securities Exchange Act of 1934 and is a member
in good standing of the National Association of Securities Dealers,
Inc.; and
WHEREAS, the Distributor desires to act as the exclusive
principal underwriter of the Funds;
NOW, THEREFORE, in consideration of the mutual promises and
undertakings herein provided, the Trust and Distributor hereby
agree as follows:
Appointment of Underwriter. The Trust appoints the Distributor as
the exclusive sales agent for distribution of the Funds (other than
sales made directly by the Trust) and agrees that it will deliver
to the Distributor such shares of the Funds as the Distributor may
sell. The Distributor agrees to use its best efforts to promote
the sale of the Funds, but is not obligated to sell any specific
number of shares.
Independent Contractor. The Distributor will undertake and
discharge its obligations hereunder as an independent contractor
and shall have no authority or power to obligate or bind the Trust
by its actions, conduct or contracts, except that the Distributor
is authorized to accept orders for the purchase or repurchase of
shares of the Funds as agent of the Trust. The Distributor may
appoint sub-agents or distribute the Funds through dealers (or
otherwise) as it may determine necessary or desirable from time to
time. This Agreement shall not, however, be construed as
authorizing any dealer or other person to accept orders for sale or
repurchase on behalf of the Trust or any Fund or otherwise to act
as agent of the Trust or any Fund for any purpose.
Offering Price. Shares of the Funds shall be offered for sale at
a price equivalent to their net asset value determined in the
manner set forth in the then current prospectus and statements of
additional information of the Trust relating to the Funds. All
orders shall be subject to acceptance by the Trust, and the Trust
reserves the right, in its sole discretion, to reject any order
received. Neither the Trust nor any Fund shall be liable to anyone
for failure to accept any order.
Payment for Shares. At or prior to the time of delivery of any
shares, the Distributor will pay or cause to be paid to the Trust
for the account of the applicable Fund, an amount in cash equal to
the net asset value of such shares. In the event that the
Distributor pays for shares sold by it prior to its receipt of
payment from purchasers, the Distributor is authorized to reimburse
itself for the net asset value of such shares from the offering
price of such shares when received by the Distributor.
Purchases for Your Own Account. The Distributor shall not purchase
shares of any Fund for its own account for purposes of resale to
the public, but it may purchase shares for its own investment
account upon its written assurance to the Trust that the purchase
is for investment purposes only and that the shares will not be
resold except through redemption by the Trust.
Allocation of Expenses. The Distributor shall bear the expense of
preparing, printing and distributing advertising, sales literature,
prospectuses and statements of additional information. The Trust
shall bear the expense of registering shares of the Funds under the
1933 Act and the Trust under the 1940 Act, qualifying shares for
sale under the blue sky laws of any state, the preparation and
printing of prospectuses, statements of additional information and
reports required to be filed with the Securities and Exchange
Commission and other authorities, the preparation, printing and
mailing of prospectuses and statements of additional information to
shareholders of the Funds and the direct expenses of the issuance
of shares.
Furnishing of Information. The Trust will furnish to the
Distributor such information with respect to the Trust and the
Funds in such form and signed by such officers of the Trust as the
Distributor may reasonably request, and the Trust warrants that the
statements therein contained when so signed will be true and
correct. The Trust will also furnish to the Distributor such
information and will take such action as the Distributor may
reasonably request in order to qualify the shares for sale to the
public under the blue sky laws or in jurisdictions in which the
Distributor may wish to offer them. If requested by the
Distributor, the Trust will furnish to the Distributor at least
annually audited financial statements of its books and accounts
certified by independent public accountants, and such additional
information regarding its financial condition, as the Distributor
may reasonably request from time to time.
Conduct of Business. Other than currently effective prospectuses
and statements of additional information, the Distributor will not
issue any sales material or statements except literature or
advertising which conforms to the requirements of federal and state
securities laws and rules and regulations thereunder and which have
been filed, where necessary, with the appropriate regulatory
authorities. The Distributor will furnish to the Trust copies of
all such material prior to its use and no such material shall be
published if the Trust shall reasonably and promptly object.
The Distributor shall comply with the applicable federal and
state laws and regulations where shares of the Funds are offered
for sale and conduct its affairs with the Trust and with dealers,
brokers or investors in accordance with the Conduct Rules of the
NASD.
Other Activities. Services provided by the Distributor pursuant to
this Agreement shall not be deemed to be exclusive, and the
Distributor may render similar services and act as an underwriter,
distributor or dealer for other investment companies.
Term of Agreement. This Agreement shall become effective on the
date indicated and shall remain in effect for a period of two (2)
years from the date of this Agreement. This Agreement shall
continue annually thereafter for successive one (1) year periods if
approved at least annually (i) by a vote of a majority of the
outstanding voting securities of the Trust or by a vote of the
trustees of the Trust (the "Trustees"), and (ii) by a vote of a
majority of the Trustees who are parties to this Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on this Agreement.
Termination. This Agreement: (i) may be terminated at any time
without the payment of any penalty, either by vote of the Trustees
or by a vote of a majority of the outstanding voting securities of
the Trust, on sixty (60) days' written notice to the Distributor;
(ii) shall terminate immediately in the event of its assignment ;
and (iii) may be terminated by the Distributor on sixty (60) days'
written notice to the Trust.
Suspension of Sales. The Trust reserves the right at all times to
suspend or limit the public offering of shares upon written notice
to the Distributor.
Miscellaneous. This Agreement shall be subject to the laws of the
State of Colorado and shall be interpreted and construed to further
and promote the operation of the Trust as an open-end investment
company. As used herein, the terms "net asset value," "offering
price," "investment company," "open-end investment company,"
"assignment," "principal underwriter," "interested person," and
"majority of the outstanding voting securities," shall have the
meanings set forth in the 1933 Act and the 1940 Act, as applicable,
and the rules and regulations thereunder.
Liability. Nothing contained herein shall be deemed to protect the
Distributor against any liability to the Trust or to its
shareholders to which the Distributor would otherwise be subject by
reason of willful misfeasance, bad faith, or gross negligence in
the performance of its duties hereunder, or by reason of reckless
disregard of its obligations and duties hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto
duly authorized at Englewood, Colorado, on the day and year first
written above.
ORCHARD SERIES FUND
By:
Name: J.D. Motz
Title: President
ONE ORCHARD EQUITIES, INC.
By:
Name: R.E. Kavanagh
Title: President
<PAGE>
Schedule A
Orchard Money Market Fund
Orchard Preferred Stock Fund
Orchard Index 600 Fund
Orchard Index 500 Fund
Orchard Index Pacific Fund
Orchard Index European Fund
EXHIBIT 24(b)(8)
CUSTODY AGREEMENT<PAGE>
CUSTODY AGREEMENT
This Agreement is made this 31st day of January, 1997 between
Orchard Series Fund, Inc. (the "Company"), a Delaware Business
Trust, and The Bank of New York ("BNY").
1. BNY will open and maintain an account on behalf of the
Company (the "Account") and hold therein all cash, securities and
other property as shall from time to time be received and accepted
by BNY pursuant to this Agreement, and will collect and receive all
income, monies and other properties paid or deposited in respect of
the property held in the Account or realized on the sale or other
disposition of property in the Account. All assets in the Account
shall be held for the use and benefit of the Company, shall remain
the specific property of the Company and shall not be subject to
any claim made by the Bank against the Company, nor to any right of
set off by the Bank and, except for cash, shall not be subject to
the claim of any third party against the Bank.
2. BNY will, upon instructions of the Company given as
provided in paragraph 14: (a) deliver or receive securities and
other property, (b) convert, redeem or exchange for other
securities and other property any securities or other property at
any time held in the Account, and (c) transfer or make payments
from the Account of securities and other property to such persons
as may from time to time be specified by the Company.
3. BNY shall notify Company of any fractional interests
in
securities received by BNY as a result of stock dividends and will
dispose or sell of such fractional interests.
4. When BNY is instructed to receive securities against
payment, the Company will have funds or equivalent receivables on
deposit with BNY or have funds made available to BNY in advance for
such purpose.
5. BNY is not under any duty to provide the Company with
investment advice or to supervise the Company's investments.
6. BNY shall notify the Company of each transaction
involving the Account and will render a statement of transactions
with respect to the Account on a regular basis. Additional
periodic statements and certifications of assets shall be rendered
as the Company may reasonably require. BNY shall at all times
maintain proper books and records with regard to all transactions
contemplated by this Agreement. Books and records shall be subject
to audit and inspection by the Company. During the course of BNY's
regular business hours, authorized employees and representatives of
the Company, upon giving one business day notice, or regulatory
officials, upon reasonably notice whenever possible, shall be
entitled to examine on BNY's premises, BNY's records relating to
the Account or inspect the assets of the Account.
7. The Bank will send to the Company (i) such proxies
(signed in blank if issued in the name of the nominee) and
communications with respect to securities in the Account as call
for voting or other action by the stockholder; (ii) any information
which relates to legal proceedings and which is received by BNY for
forwarding to the Company; and (iii) any information relating to
the securities.
8. The Company hereby authorizes BNY to hold securities
owned by the Company with the Depository Trust Company, the
Participants Trust Company, the Federal Reserve Bank and Euroclear.
Securities so held by BNY, or held in fungible bulk by BNY for more
than one owner, shall be separately identified on BNY's official
records as being owned by the Company. BNY shall provide annual
certification that the securities are held in custody or as
required by applicable regulatory officials.
9. BNY's records shall identify which securities are kept
with the Depository Trust Company, the Participants Trust Company,
the Federal Reserve Bank and Euroclear and shall also identify the
location of the securities, and, if held through an agent, the name
of the agent.
10. All the securities that are registered must be
registered
in the name of the Company, in the name of a nominee of the
Company, in BNY's name or its nominee, or, if held in an authorized
clearing corporation, in the name of the clearing corporation or
its nominee. For securities held in the name of a nominee, the
Company will have the same responsibility as if the securities were
registered in its name.
11. Compensation for BNY's services pursuant to this
Agreement shall be as agreed to in advance from time-to-time by BNY
and the Company and shall be evidenced in writing. BNY will
provide a monthly statement to the Company reflecting the fees due
and owing to BNY for its services rendered pursuant to this
Agreement. The Company will remit payment according to said
invoice within 30 business days after receipt thereof either by
electronic wire transfer or by check. If such statement is not
paid within the thirty day period, BNY is authorized to charge the
account in accordance with its preauthorized debit procedures.
12. BNY is authorized to charge the account with all taxes
and expenses incidental to the transfer of securities on the
Company's behalf and will provide on a monthly basis an itemized
statement to the Company of such charges.
13. BNY is authorized to disclose the Company's name,
address
and securities position to the issuers of such securities when
requested to do so by them.
14. BNY shall be authorized to accept and rely upon the
instructions given by any authorized employee of the Company,
including any verbal instructions which the individual receiving
such instructions on behalf of BNY believes in good faith to have
been given by an authorized employee of the Company, and all
authorizations shall remain in full force and effect until canceled
or superseded by subsequent instructions received by BNY.
15. BNY will post income and principal payments to the
Account pursuant to Schedule A attached hereto and incorporated
herein by reference. For any failure to so post income and
principal payments, BNY agrees to pay compensation to the Company
as agreed to in writing by the parties.
16. After safe delivery of securities to BNY and until
redelivery or other disposition of such securities pursuant to
instructions by the Company, BNY assumes liability for loss thereof
due to the negligence or willful misconduct of BNY, the unexcused
breach of the Agreement by BNY or violation by BNY of any
applicable law, regulation or order. Safe delivery shall be
evidenced by a confirmation issued by BNY.
17. BNY agrees that it is responsible for and required to
fully reimburse and indemnify the Company for any loss of
securities pursuant to Paragraph 16 above. In the event there is
a loss of securities as to which BNY is obligated to indemnify the
Company, BNY shall promptly replace the same or the value thereof,
and the value of any loss of rights or privileges pertaining to
such securities which result from such loss.
18. When BNY is instructed to deliver securities against
payment, delivery may actually be made before receipt of payment in
accordance with generally accepted market practice of net end-of-
day settlement. The Company bears the risk that the recipient of
the securities may fail to make payment, return the securities or
hold the securities or the proceeds of their sale in trust for the
Company of for BNY as agent.
19. The Company will execute its investment transactions
on
its own behalf. However, in the event the Company chooses to
utilize the services of BNY, BNY will, at its sole discretion,
accept orders from the Company for the purchase or sale of
securities and either execute such orders itself or by means of an
agent, such as a broker or other financial organization of its
choice, subject to the fees and commissions in effect from time to
time. BNY shall not be responsible for any act or omission, or for
the solvency, of any broker or agent selected by BNY to effect any
transaction for the Company's account. When instructed to buy or
sell securities for which BNY acts as a dealer, BNY will buy or
sell such securities from or to itself as principal.
20. BNY will be entitled to reverse any credits made on
the
Company's behalf where such credits have been previously made and
securities or monies are not finally collected.
21. All shipments of negotiable or non-negotiable
securities
from BNY must be by registered mail, registered airmail and/or
express and connecting messenger therewith and must be insured.
22. BNY shall be under no obligation or duty to take
action
to effect collection of any amount if the securities upon which
such payment is due are in default, or if payment is refused after
due demand and presentation.
23. It is understood that BNY is authorized to supply any
information regarding the Account which is required by any law or
governmental regulation now or hereafter in effect.
24. Each and every right granted to the parties hereunder
or
under any other document delivered hereunder or in connection
herewith, or in connection herewith, or allowed them by law or
equity, shall be cumulative and may be exercised from time to time.
No failure on the part of either party to exercise, and no delay in
exercising, any right will operate as a waiver thereof, nor will
any single or partial exercise by either party or any right
preclude any other or future exercise thereof or the exercise of
any other right.
25. In case any provision in or obligation under this
Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality or enforceability of the
remaining provisions or obligations shall not in any way be
affected or impaired thereby, and if any provision is inapplicable
to any person or circumstances, it shall nevertheless remain
applicable to all other persons and circumstances.
26. The Agreement may be amended or terminated at any time
by
written agreement of the parties and may be terminated by either
party at any time upon 60 days written notice to the other party.
In the event of termination of the Agreement, BNY shall join in
whatever action is necessary to effect the safe return to the
Company, or the transfer to such person(s) designated by the
Company, of the assets comprising the Account.
27. Notices and other communications shall be addressed to
the parties hereto at the address set forth in the signature part
of this Agreement.
28. The Agreement shall be governed by the laws of the
State
of New York and will be binding upon the successors and assigns of
the parties hereto.
Dated as of the day and year first above written.
ORCHARD SERIES FUND, INC. THE BANK OF NEW YORK
8515 East Orchard Road 48 Wall Street
Englewood, CO 80111 New York, NY
By: By:
Title: Title:Christopher M.
Teevan
Vice President
By: By:
Title: Title:Peter L. Apito,
Jr.
Vice President
Global Custody Agreement
Agreement dated as of , 1997, between The
Bank of New York (the "Custodian"), acting through its office at 35
avenue des Arts, Brussels, Belgium, and Orchard Series Fund (the
"Client").
Whereas, the Client desires to arrange for the custody of certain
assets and the provision of related services by the Custodian;
Now, Therefore, in consideration of the mutual agreements contained
herein, the Custodian and the Client agree as follows:
1. Definitions. The following terms, as used herein, shall have
the following meanings:
"Authorized Instruction" means (i) a written, oral or electronic
communication accepted by the Custodian in good faith that has been
transmitted subject to the Security Procedures agreed upon in
writing by the Custodian and the Client or (ii) any other written,
oral or electronic communication given by a Client that the
Custodian believes in good faith to have been given by an
Authorized Person.
"Authorized Persons" means those individuals who have been
designated by or duly authorized by a Client pursuant to necessary
corporate or other action (which shall be evidenced by appropriate
documentation delivered to the Custodian) to act on behalf of the
Client in connection with this Agreement. Such persons shall
continue to be Authorized Persons until such time as the Client has
delivered to the Custodian appropriate documents revoking the
authority of such persons.
"Cash" has the meaning set forth in Section 5.
"Cash Account" means a current account (which may be divided into
a number of subaccounts, denominated in U.S. dollars, Belgian
francs or any other currency or Composite Currency Unit acceptable
to the Custodian) opened by the Custodian on its books in the name
of a Client.
"Communication Products" has the meaning set forth in Section 28.
"Composite Currency Units" means the European Currency Unit
("ECU"), the Special Drawing Right ("SDR") or another composite
unit consisting of the aggregate of specified amounts of specified
currencies, as such ECU, SDR or other unit may be constituted from
time to time.
"BNY Affiliate" means any office or branch of The Bank of New York
("BNY") and any other entity that directly, or indirectly through
one or more intermediaries, controls BNY or that is controlled by
or is under common control with BNY.
"Securities Account" means any securities account opened by the
Custodian on its books in the name of a Client.
"Securities Depository" means any securities depository, book-entry
system or clearing system used by the Custodian from time to time
in accordance with Section 4(e) hereof.
"Security" means any share, stock, bond, debenture, note,
certificate of indebtedness, warrant or other security or financial
instrument acceptable to the Custodian (whether represented by a
certificate or by a book-entry on the records of the issuer or
other entity responsible for recording such book-entries) that is
from time to time held for the account of a Client directly, or
indirectly through a Subcustodian or Securities Depository, by the
Custodian pursuant to this Agreement.
"Security Procedure" means, for any specified method of
communication, a procedure agreed upon in writing by the Custodian
and the Client for the purpose of verifying that an Authorized
Instruction given pursuant to such method of communication is that
of the Client or detecting error in the transmission or the content
of such Authorized Instruction. A Security Procedure may require
the use of algorithms or other codes, identifying words or numbers,
encryption, callback procedures, or similar security devices.
"Subcustodian" means any bank or other institution (other than a
Securities Depository) used by the Custodian to hold Securities
from time to time in accordance with Section 4(e) hereof.
"Unencumbered Securities Account" has the meaning set forth in
Section 14.
2. Representations, Warranties and Covenants of the Client. The
Client represents and warrants that the execution and delivery by
the Client of its Client Designation Agreement and the performance
by the Client of this Agreement (i) are within the Client's
corporate, trust or other constitutive powers; (ii) have been duly
authorized by all necessary corporate, trust or other appropriate
action under its organizational documents; (iii) require no action
by or in respect of, or filing with, any governmental body, agency
or official (including without limitation any exchange control
approvals); and (iv) do not contravene, or constitute a default
under, any provision of applicable law or regulation or of the
organizational documents of such Client or of any agreement,
judgment, injunction, order, decree or other instrument binding
upon such Client. The Client represents, warrants and covenants
that the Custodian shall be entitled to transfer all of the
Client's Securities free of any proprietary or equitable interest
of any person or entity (other than interests of the Client and
interests of the Custodian, Subcustodians and Securities
Depositories that are created by this Agreement). The Client
agrees to inform the Custodian immediately if any statement set
forth in this Section 2 or in Appendix B ceases to be true and
correct as of any date after the date hereof.
3. Securities Accounts. The Client will establish with the
Custodian one or more Securities Accounts, which shall contain, in
the manner and on the terms specified herein, the Client's
Securities.
4. Terms of Custody.
Authority to Hold Securities. Subject to the terms and
conditions of this Agreement, the Client hereby authorizes the
Custodian to hold any Securities received from time to time for the
account of such Client. The Custodian may, at its sole discretion,
hold the Securities directly or indirectly through one or more
Subcustodians or Securities Depositories. Securities held
indirectly through any Subcustodian shall be held subject to the
terms and conditions of the Custodian's agreement with such
Subcustodian. Securities held indirectly through any Securities
Depository shall be held subject to the Custodian or Subcustodian's
Agreement and such Securities Depository and to the rules and terms
and conditions of such Securities Depository.
(b) Fungibility. The Client agrees that all Securities held by
the Custodian directly, or indirectly through any Subcustodian or
Securities Depository, shall be subject to the provisions of the
Belgian Royal Decree No. 62 of November 10, 1967, as amended. In
accordance with the Royal Decree, all Securities of any issue shall
be treated as fungible with all other securities of the same issue
held by the Custodian directly, or indirectly through any
Subcustodian or Securities Depository. Therefore, the Client shall
have no right to any specific securities of an issue but shall
instead be entitled, subject to applicable laws and regulations and
to the terms of this Agreement, to transfer, deliver or repossess
from the Custodian an amount of securities of such issue that is
equivalent to the amount of such securities credited to a
Securities Account, without regard to the certificate numbers (or
other identifying information) of the securities originally
deposited, and the Custodian's obligation to the Client with
respect to such Securities shall be limited to effecting such
transfer, delivery or repossession.
(c) Identification of Client's Interests. The Custodian shall
cause the Client's interest in any Securities held by the Custodian
directly, to be evidenced by a credit to a Securities Account on
the books of the Custodian. The Custodian shall cause the Client's
interest in any Securities held indirectly by the Custodian through
a Subcustodian or Securities Depository to be evidenced by (i) a
credit to a Securities Account on the books of the Custodian, (ii)
by a credit to the account of the Custodian on the books of the
Subcustodian and (iii) by a credit to the account of the Custodian
or Subcustodian on the books of the Securities Depository.
Securities may be registered in the name of the Custodian's
nominee, or as to any Securities held by an entity other than the
Custodian, in the name of such entity's nominee. The Client agrees
to held any such nominee harmless from any liability as a holder of
record of such Securities..
(d) Liens of Subcustodians and Securities Depositories. Unless
otherwise authorized by the Client in writing, the Custodian shall
hold Securities indirectly through a Subcustodian or Securities
Depository only if (i) the Securities are not subject to any right,
charge, security interest, lien or claim of any kind in favor of
such Subcustodian or Securities Depository or the creditors or
operators of any of them, including a receiver or trustee in
bankruptcy or similar authority, except for a claim of payment for
the safe custody or administration of the Securities or for funds
advanced on behalf of the applicable Client by such Subcustodian or
Securities Depository and (ii) beneficial ownership of the
Securities is freely transferable without the payment of money or
value other than for safe custody or administration.
5. Cash Account.
(a) The Client will establish and maintain with the Custodian a
Cash Account to be used in connection with transactions relating to
the Client's Securities. The collected balance from time to time
in the Client's Cash Account shall constitute "Cash". Any credit
made to a Cash Account shall be provisional and may be reversed if
such payment is not actually collected or received.
(b) Except as otherwise provided by law, the Cash Account
(including subdivisions maintained in different currencies,
including Composite Currency Units) shall constitute one single and
indivisible current account. Consequently, the Custodian has the
right, among others, of transferring the balance of any subaccount
of a Cash Account to any other subaccount at any time and without
prior notice.
(c) The Custodian may in accordance with customary practice hold
any currency (other than Belgian Francs) or Composite Currency Unit
in which any subdivision of a Cash Account is denominated on
deposit in, and effect transactions relating thereto through, an
account (a "Foreign Account") with a BNY Affiliate or another bank
in the country where such currency is the lawful currency or in
other countries where such currency or Composite Currency Unit may
be lawfully held on deposit.
(d) The Custodian shall have no liability for any loss or damage
arising from the applicability of any law or regulation now or
hereafter in effect, or from the occurrence of any event, which may
affect the transferability, convertibility, or availability of any
currency (other than Belgian Francs) or Composite Currency Unit in
the countries where such Foreign Accounts are maintained and in no
event shall the Custodian be obligated to substitute another
currency for a currency (including a currency that is a component
of a Composite Currency Unit) whose transferability, convertibility
or availability has been affected by such law, regulation or event.
To the extent that any such law, regulation or event imposes a cost
or charge upon the Custodian in relation to the transferability,
convertibility, or availability of any such currency or Composite
Currency Unit, such cost or charge shall be for the account of the
applicable Client. If pursuant to any such law or regulation, or
as a result of any such event, the Custodian cannot deal in any
component currency of a Composite Currency Unit or effect a
particular transaction in a Composite Currency Unit on behalf of a
Client, the Custodian may thereafter treat any account denominated
in an affected Composite Currency Unit as a group of separate
accounts denominated in the relevant component currencies.
(e) Transactions in a currency or Composite Currency Unit shall be
subject to the regulations laid down by the exchange control
authorities of Belgium and of the country where such currency (or
component currency) is the lawful currency or where such currency
or Composite Currency Unit is held on deposit.
6. Instructions by the Client.
(a) Generally. The Client shall give Authorized Instructions with
respect to its Cash and Securities only to the Custodian or to the
Custodian's designee. The Client agrees to be bound by all
Authorized Instructions whether or not such instructions were duly
authorized in accordance with the Client's own procedures. The
Custodian shall not be required to follow any Authorized
Instruction that would violate any applicable law, decree,
regulation or order of any government or governmental body
(including any court or tribunal) or that would be contrary to any
provision of this Agreement.
(b) Payments. Payments shall be made by the Custodian, or a
Subcustodian only to the extent that sufficient Cash in the
applicable currency is available in a Cash Account or otherwise
available therefor and only (i) as specified by an Authorized
Instruction, (ii) as permitted by Sections 14 and 15 or (iii) upon
the termination of this Agreement as set forth in Section 17
hereof. The Custodian may make payments, or direct a Subcustodian
to make payments, from time to time on behalf of a Client when
sufficient Cash in the applicable currency is not available in the
Cash Account or otherwise available therefor, but neither the
Custodian nor any Subcustodian shall have any obligation to make
such payments. If any payments are made that result in an
overdraft in a particular currency, then such overdraft shall be
payable on demand by the Custodian and shall bear interest for the
day outstanding at the rate customarily charged by the Custodian
for overdrafts in such currency.
(c) Delivery of Securities. Any Securities held by a Subcustodian
shall be subject only to the instructions of the Custodian and any
Securities held by a Securities Depository shall be subject only to
the instructions of the Custodian or the Subcustodian for which
such Securities Depository is acting. A Client's Securities shall
be transferred, exchanged, or delivered by the Custodian, or a
Subcustodian at the direction of the Custodian, only to the extent
that sufficient Securities are actually in a Securities Account and
available for delivery and only:
(i) as specified by an Authorized Instruction;
(ii) in exchange for or upon conversion into other Securities or
Cash pursuant to a plan of merger, consolidation, reorganization,
recapitalization or readjustment;
(iii) upon the conversion of Securities pursuant to their terms
into other Securities;
(iv) as permitted by Sections 14 and 15; or
(v) upon the termination of this Agreement with respect to such
Client as set forth in Section 17 hereof.
7. Corporate Actions.
Until the Custodian receives an Authorized Instruction to the
contrary, the Custodian shall, or shall instruct the appropriate
Subcustodian to:
(i) collect dividends, interest and other payments made and stock
dividends, rights and similary distributions made or issued with
respect to Securities, in each case net of any applicable taxes or
other charges withheld by the payor of such payment or
distribution;
(ii) promptly after the Custodian becomes aware thereof, notify the
Client of any rights offering by any issuer of Securities held in
a Securities Account and, to the extent permitted by law applicable
to the relevant Subcustodian and the Custodian, sell such rights in
the principal market for such rights and deposit the proceeds of
such sale in the Cash Account if the Client does not instruct the
Custodian whether to purchase securities under such rights offering
by the deadline for such purchase;
(iii) promptly after receipt thereof, forward to the Client
those communications relating to any Securities which call for
voting or the exercise of rights or other specific action
(including materials relating to legal proceedings intended to be
transmitted to holders of such Securities);
(iv) present for payment maturing Securities and those called for
redemption;
(v) execute in the name of the Client such ownership and other
certificates as may be required to obtain payment or exercise any
rights in respect of any Securities;
(vi) accept and open all mail directed to the Client in care of the
Custodian or Subcustodian;
(vii) disclose the Client's name, address and Securities
position and any other information to the issuers of Securities
when requested to do so by them; and
(viii) dispose of fractional interests received by the Custodian
or Subcustodian as a result of stock dividends by selling any
fractional interest received in accordance with local law and
practice.
With respect to corporate actions not listed above, the Custodian
shall (in the absence of an Authorized Instruction from the Client
within any prescribed deadline) take any action that it considers
appropriate in the circumstances; provided that the Custodian shall
not be liable for the consequences of any such action. If the
Custodian or any Subcustodian or Securities Depository holds any
Securities in which the Client has an interest as part of a
fungible mass, the Custodian or such Subcustodian or Securities
Depository shall select the securities to participate in partial
redemptions, partial payments or other actions affecting less than
all securities of the relevant class in any non-discriminatory
manner that it customarily uses to make such selection. If any
Securities become subject to a partial redemption, partial payment
or other action, the Client agrees that any manner used by the
Securities Depository to select the securities to participate in
such partial redemption, partial payment or other action shall be
acceptable.
8. Reporting.
(a) Statements. The Custodian shall mail, or cause to be mailed,
or transmit electronically to the Client (or, with prior written
consent of the Client, make available electronically) monthly
statements of the Securities Accounts and Cash Account. Such
statements shall list all of the Securities and Cash and specify
(i) whether the Securities are held directly by the Custodian or
indirectly through a Subcustodian or Securities Depository and (ii)
the amount of Cash held on deposit in each currency. The Client
agrees that the such statement shall be binding on the Client 30
days after (a) in the case of any statement sent by mail, it has
been mailed by first class mail, postage prepaid or (b) in the case
of any statement transmitted or made available electronically, it
has been transmitted or made available electronically to the
Client, unless the Client has theretofore notified the Custodian in
writing of any inaccuracy in such statement.
(b) Access to Records. The Custodian shall allow the Client and
its independent public accountants reasonable access to the records
of the Custodian relating to the Client's Securities and Cash as is
required by the Client or its accountants in connection with their
examination of the books and records pertaining to the affairs of
the Client and shall require the Subcustodian and Securities
Depository to grant such access to the Client and its independent
public accountants to the extent consistent with applicable law and
regulations. The Custodian has no obligation to maintain any
records for a period of more than 10 years. The Custodian shall
have no obligation to require any Subcustodian or Securities
Depository to maintain records for any specified period of time.
(c) Other Information. From time to time the Custodian may
provide additional reporting information to a Client on terms and
conditions agreed upon by the Custodian and such Client in writing.
The additional information may include data obtained from third
parties, such as pricing valuation information relating to the
Client's Securities. The Client agrees that it shall not
redistribute or resell data obtained by the Custodian from third
parties, except that, to the extent the Client is acting on behalf
of another party, it may provide such data to the beneficial owners
of the Client's Securities as recorded on the Client's books and
records.
9. Taxes.
The respective responsibilities of the Client and the Custodian
with respect to tax matters are set forth in Appendix C hereto and
incorporated by reference herein.
10. Responsibilities; Indemnification by the Custodian.
(a) Standard of Care. The Custodian shall use reasonable care in
the performance of its duties hereunder and shall exercise the same
degree of care with respect to the Securities as it would with
respect to its own securities and property. The Custodian shall
require the Subcustodian to use reasonable care in the performance
of its duties and to exercise the same degree of care with respect
to the Securities as it would with respect to its own securities
and property and those of its other Customers. The Custodian shall
be responsible to ensure that each Subcustodian that is a BNY
Affiliate performs in accordance with the foregoing standard. The
Custodian's responsibility with respect to any Securities held by
a Subcustodian (other than a BNY Affiliate) or any carrier of
Securities acting for the Custodian or any Subcustodian is limited
to the failure on the part of the Custodian (or a Subcustodian that
is a BNY Affiliate) to exercise reasonable care in the selection or
retention of such Subcustodian or carrier; it being understood that
the Client shall be deemed to have approved the selection of the
Subcustodians listed on Appendix A (as amended from time to time in
accordance with Section 19) or otherwise approved or selected by
the Client.
(b) Insurance. The Custodian shall, and shall require each
Subcustodian to, maintain insurance coverage with respect to the
Securities covering such risks and in such amounts as the Custodian
or such Subcustodian maintains with respect to securities which the
Custodian or such Subcustodian holds for its own account and for
the account of other customers.
(c) Indemnification by the Custodian and Subcustodians. The
Custodian shall indemnify the Client against, and hold the Client
harmless from, any loss or liability (including, without
limitation, the reasonable fees and disbursements of counsel and
other legal advisors, but excluding all losses and liabilities of
the types described in Section 11 hereof) incurred by the Client by
reason of the negligence (whether through action or inaction),
fraud or willful misconduct of the Custodian or any Subcustodian
that is a BNY Affiliate in connection with the services provided
pursuant to this Agreement or the applicable subcustodian
agreement. The Custodian shall require the Subcustodian that is
not a BNY Affiliate to indemnify the Custodian and the Client
against, and hold the Custodian and the Client harmless from, any
loss or liability (including, without limitation, the reasonable
fees and disbursements of counsel, but excluding all losses and
liabilities of the types specified in Section 11) incurred by the
Custodian or the Client by reason of the negligence (whether
through action or inaction), fraud or willful misconduct of such
Subcustodian in connection with the services provided by such
Subcustodian pursuant to this Agreement and the applicable
subcustodian agreement.
11. Limitations on Responsibilities and Liabilities.
(a) Generally. The Custodian shall be responsible for the
performance of only those duties as are set forth herein or
contained in an Authorized Instruction that is not contrary to the
provisions of this Agreement.
(b) Consequential Damages. Under no circumstances shall the
Custodian, any Subcustodian or any Securities Depositories be
liable to the Client or any other person for indirect, special or
consequential damages, even if the Custodian or such Subcustodian
or Securities Depository is apprised of the likelihood of such
damages.
(c) Corporate Actions. The Custodian shall not be liable for any
loss occasioned by the failure of the Custodian to notify any
Client of any payment of dividends or interest or any redemption,
rights offering or other distribution made with respect to any
Security or any other corporate action taken or to be taken with
respect to any Security if the Custodian or a Subcustodian has not
received notice of such transaction directly from the issuer of
such Security or if such distribution or action was not included in
the reports of an internationally-recognized investment data
service selected by the Custodian.
(d) Authorized Instructions. Neither the Custodian nor any
Subcustodian shall be liable for any action taken in good faith
upon an Authorized Instruction.
(e) Payment and Delivery Instructions. In some securities
markets, securities deliveries and payments therefor may not be or
are not customarily made simultaneously. Accordingly, the Client
agrees that, notwithstanding the Client's instruction to deliver
Securities against payment or to pay for Securities against
delivery, the Custodian or a Subcustodian may make or accept
payment for or delivery of Securities in such form and manner as
shall be in accordance with relevant local law and practice or with
the customs prevailing in the relevant market among securities
dealers. The Client shall bear the risk that (i) the recipient of
Securities may fail to make payment, return such Securities or hold
such Securities or the proceeds of their sale in trust for the
Client and (ii) the recipient of payment for Securities may fail to
deliver the Securities (such failure to include, without
limitation, delivery of forged or stolen Securities) or to return
such payment, in the case whether such failure is total or partial
or merely a failure to perform on a timely basis. Neither the
Custodian nor any Subcustodian shall be liable to any Client for
any loss resulting from any of the foregoing events.
(f) Reversals. In some securities markets and cash clearing
systems, deliveries of securities and cash may be reversed under
certain circumstances. Accordingly, credits of securities to a
Securities Account and cash to a Cash Account are provisional and
subject to reversal if, in accordance with relevant local law and
practice, the delivery of the security or cash giving rise to the
credit is reversed.
(g) Foreign Currency Risks. The Client shall bear all risks of
investing in Securities or holding Cash denominated in a currency
other than that of the Client's home jurisdiction. Without
limiting the foregoing, the Client shall bear the risks that rules
or procedures imposed by Securities Depositories, exchange
controls, asset freezes or other laws or regulations shall prohibit
or impose burdens or costs on the transfer to, by or for the
account of the Client of Securities or Cash held outside the
Client's jurisdiction or denominated in a currency other than the
currency of the Client's home jurisdiction or the conversion of
Cash from one currency into another currency. The Custodian shall
not be obligated to substitute another currency for a currency
(including a currency that is a component of a Composite Currency
Unit) whose transferability, convertibility or availability has
been affected by such law, regulation, rule or procedure. Neither
the Custodian nor any Subcustodian shall be liable to any Client
for any loss resulting from any of the foregoing events.
(h) Force Majeure. Notwithstanding any other provision contained
herein, neither the Custodian nor any Subcustodian shall be liable
for any action taken, or any failure to take any action required to
be taken, hereunder or otherwise to fulfill its obligations
hereunder (including without limitation the failure to receive or
deliver securities or the failure to receive or make any payment)
in the event and to the extent that the taking of such action or
such failure arises out of or is caused by war, insurrection, riot,
civil commotion, act of God, accident, fire, water damage,
explosion, mechanical breakdown, computer or system failure or
other failure of equipment, or malfunction or failures caused by
computer virus, failure or malfunctioning of any communications
media for whatever reason, interruption (whether partial or total)
of power supplies or other utility of service, strike or other
stoppage (whether partial or total) of labor, any law, decree,
regulation or order of any government or governmental body
(including any court or tribunal), or any other cause (whether
similar or dissimilar to any of the foregoing) whatsoever beyond
its reasonable control or the reasonable control of any
Subcustodain.
(i) Delays. Except in the case of a failure by the Custodian or
a BNY Affiliate to exercise the standard of care required by
Section 10(a), the Custodian shall not be liable for delays in
carrying out payment instructions given by the Client. In the
event that a delay in the carrying out of a payment instruction is
caused by such a failure of the Custodian or a BNY Affiliate, the
liability of the Custodian shall not exceed an interest equivalent
for the period from the day when the payment would have been
carried out, but for the negligence, fraud or wilful misconduct of
the Custodian or such BNY Affiliate, until the day when it is
actually carried out (excluding any portion of such period during
which the Custodian cannot carry out such instructions as a result
of any event referred to in Section 11(h)); provided that if the
Client shall fail to report the delay to the Custodian within 10
days from the date when the payment would, but for the negligence,
of the Custodian or a BNY Affiliate, have been made, then the
Custodian shall not be liable for an interest equivalent for more
than a total of 10 days.
(j) Client's Reporting Obligations. The Client shall be solely
responsible for compliance with any notification, license or other
requirement of any jurisdiction relating to or affecting the
Client's beneficial ownership of the Securities, and neither the
Custodian nor any Subcustodian assumes liability for noncompliance
with such requirements.
(k) No Investment Advice. Neither the Custodian nor any
Subcustodian or BNY Affiliate is under any duty to provide any
Client with investment advice or to supervise its investments.
(l) Fraudulent Securities. The Custodian shall have no liability
for losses incurred by the Client or any other person as a result
of the receipt or acceptance of fraudulent, forged or invalid
Securities (or Securities which are otherwise not freely
transferable or deliverable without encumbrance in any relevant
market).
(m) Third Party Information. The Custodian shall have no
responsibility for the accuracy of any information provided by the
Custodian to a Client that has been obtained from third parties
pursuant to Section 7 or 8(c) of this Agreement.
12. Use of BNY Affiliates.
(a) Executing Orders. The Custodian shall, in its sole discretion
and if permitted by applicable law, accept orders from the Client
for the purchase or sale of Securities and either execute such
orders itself or by means of BNY Affiliates or brokers or other
financial organizations of its choice, subject to the fees and
commissions in effect from time to time. The Custodian shall not
be responsible for any act or omission, or for the solvency, of any
broker or other financial organization so selected to effect any
transaction for the account of a Client. When instructed to buy or
sell Securities for which the Custodian or a BNY Affiliate acts as
a dealer, the Custodian may buy or sell such Securities from or to
either itself, as principal, or such BNY Affiliate.
(b) Disclosure to BNY Affiliates. Notwithstanding the provisions
of Section 26 hereof, the Custodian may disclose to any BNY
Affiliate details with respect to the Securities and the
transactions effected hereunder. Such disclosure shall be for the
purpose of identifying banking, securities and financial services
that BNY Affiliates may be able to provide to the Client.
(c) Sub-Contracting. The Client hereby agrees that the Custodian
may arrange with any BNY Affiliate to perform on behalf of the
Custodian any act required to be performed by the Custodian
hereunder.
13. Fees. The Client agrees to pay the Custodian as compensation
for the services provided hereunder a fee computed at rates
determined by the Custodian from time to time and communicated to
the Client in advance, as well as all assessments, charges and
expenses (including, without limitation, legal expenses and
attorney's fees) incurred by the Custodian in connection with this
Agreement.
14. Right to Debit and Set-Off. The Custodian has the right to
debit any subaccount of a Client's Cash Account for any amount
payable by the Client in connection with any and all obligations of
the Client to the Custodian. In addition to the rights of the
Custodian under applicable law and other agreements, at any time
when a Client shall not have honored any and all of its obligations
to the Custodian, the Custodian shall have the right without notice
to the Client to retain or set-off, against such obligations of the
Client, any assets the Custodian or any BNY Affiliate may directly
or indirectly hold for the account of the Client, and any
obligations (whether matured or unmatured) that the Custodian or
any BNY Affiliate may have to the Client in any currency or
Composite Currency Unit, including time deposits and all assets
credited to any of the Client's Securities Accounts other than an
Unencumbered Securities Account. Any such asset of, or obligation
to, the Client may be transferred among the Custodian and any BNY
Affiliates in order to effect the above rights. For purposes of
this Agreement, an "Unencumbered Securities Account" means any
Securities Account that is designated by the Client, and
acknowledged by the Custodian in writing, as containing only
securities held for the account of the Client's customers and any
other Securities Account as to which the Client and the Custodian
have agreed in writing shall be considered an Unencumbered
Securities Account.
15. Security Interests. In order to secure the prompt and
complete payment when due of any and all obligations of a Client to
the Custodian, now outstanding or which may be outstanding at any
time in the future, the Client hereby pledges and grants to the
Custodian a security interest in (i) all of the Client's right,
title and interest in and to the Client's Cash Account, including
any credit or debit balance which now appears or may at any time in
the future appear in any currency or Composite Currency Unit
subaccount of such Cash Account, (ii) all of the Client's right,
title and interest in and to all time deposit accounts and notice
accounts that the Client may open from time to time with the
Custodian, (iii) all of the Client's right, title and interest in
and to all of the Client's Securities Accounts (other than
Unencumbered Securities Accounts) and the amount of all securities
which are now or at any time in the future shall be standing to the
credit of such Securities Accounts (other than an Unencumbered
Securities Account) (clauses (i), (ii) and (iii) of this Section 15
being referred to collectively herein as the Client's
"Collateral"), (iv) all amounts of cash, securities or other
property or countervalue received or to be received with respect to
or in exchange for any and all of the then existing Collateral
which are, or are intended, to be credited to the Client's Cash
Account or one of the Client's Securities Accounts (other than an
Unencumbered Securities Account) and (v) to the extent not covered
by the foregoing, all proceeds, product, offspring, rents or
profits of any or all of the foregoing (whether acquired before or
after the commencement of any bankruptcy or liquidation proceeding
by or in respect of the Client) which are, or are intended to be
credited to the Client's Cash Account or one of the Client's
Securities Accounts (other than an Unencumbered Securities
Account). All time deposit accounts and notice accounts shall be
deemed constituted for an indefinite period, even though a Client
and the Custodian may agree from time to time that interest thereon
will be paid on specified dates rather than only at final maturity.
The foregoing security interests are granted as security only and
shall not subject the Custodian to, or transfer or in any way
affect or modify, any obligation or liability of the Client with
respect to any of the Client's Collateral or any transaction in
connection therewith. The Client authorizes the Custodian to
perform all acts which the Custodian, in its sole discretion, deems
necessary or desirable to perfect and preserve its security
interests and rights under this Section 15. Upon any breach by the
Client of its obligations hereunder, the Custodian shall be
entitled to exercise all of the remedies available to a secured
creditor under applicable law.
16. Indemnification by the Client. The Client agrees to indemnify
the Custodian and to hold the Custodian harmless from any loss or
liability (including, without limitation, the reasonable fees and
disbursements of counsel and other legal advisors) incurred by the
Custodian or any Subcustodian in rendering services hereunder to
the Client or in connection with any breach of the terms of this
Agreement by such Client, except such loss or liability which
results from the Custodian's or such Subcustodian's failure to
exercise the standard of care required by Section 10(a) hereof.
17. Termination. This Agreement may be terminated by the
Custodian or the Client, following receipt by the other party of 60
days' prior written notice thereof; provided that such termination
may be immediate if the other party shall be in breach of its
obligations hereunder or shall become the subject of bankruptcy,
insolvency, reorganization, receivership or other similar
proceedings. If notice of termination is given by the Custodian,
then such Client shall, within 60 days following receipt of such
notice, specify in an Authorized Instruction the names of the
persons to whom all of such Client's Securities and Cash shall be
delivered or paid. In such case, the Custodian shall, subject to
the payment of amounts owed to it pursuant to Sections 6(b) and 13
hereof, deliver such Securities and Cash, and cause the
Subcustodian to deliver any such Securities or Cash held by such
Subcustodian, to the persons so specified. If within 60 days
following the receipt of a notice of termination by the Custodian,
the Custodian does not receive from the Client the names of the
persons to whom such Securities and Cash shall be delivered, the
Custodian, at its election, may deliver such Securities and Cash,
and instruct the Subcustodian holding any Securities or Cash to
deliver such Securities and Cash, to a bank or a trust company
doing business in the state or country where such Securities and
Cash were held. Securities or Cash so delivered shall be held and
disposed of pursuant to the provisions of this Agreement or an
Authorized Instruction or may be continued to be held until the
names of such persons are delivered to the Custodian. If notice of
termination is given by the Client, the Custodian shall, subject to
the payment of all amounts owed to it pursuant to Sections 6(b) and
13 hereof, deliver such Securities and Cash, and instruct the
Subcustodian holding any Securities or Cash to deliver such
Securities or Cash, to the persons specified in an Authorized
Instruction. If this Agreement is terminated by the Custodian or
the Client, but the Custodian or a BNY Affiliate continues to
provide other services to the Client in connection with which the
Client uses Communication Products, then the provisions of Sections
27 and 28 hereof shall survive the termination of this Agreement
until the time that no such other services continue to be provided
by the Custodian or a BNY Affiliate to the Client or until
otherwise terminated in writing by the Client or the Custodian.
The provisions of Sections 20, 24, 26 and Appendix G hereof and the
indemnity provisions of this Agreement and the provisions limiting
the liabilities of the Custodian and the Subcustodians shall
survive the termination of this Agreement (including any subsequent
termination of Sections 27 and 28 hereof).
18. Notices. Except as otherwise specified herein, any notice or
other communication to the Custodian or the Client is to be
addressed to the respective party as set forth in Appendix D
hereto, or in such manner as may be specified by the one party to
the other in writing from time to time. Unless otherwise specified
herein, notices shall be effective when received. If any
Authorized Instruction is given to the Custodian orally, then the
Custodian's record of such instruction shall constitute conclusive
evidence of the contents of such instruction, notwithstanding any
conflicting written confirmation or record of such instruction
provided by the Client.
19. Amendments and Waivers. Any provision of this Agreement
(including the Appendices hereto) may be amended or waived if, but
only if, such amendment or waiver is in writing and is signed by
the Client and the Custodian; provided that (i) the Custodian may
from time to time delete the name of any Subcustodian or Securities
Depository from Appendix A without notice to or consent by the
Client and, (ii) the Custodian may from time to time add the name
of any bank, securities depository, book-entry system or clearing
system to Appendix A if it notifies the Client by first class mail
of such addition and does not receive in writing an objection to
such addition within 30 days after the date such notice is mailed.
20. Claims. Any claim arising out of or related to this Agreement
must be brought no later than one year after such claim has
accrued.
21. Successors and Assigns; Governing Law; Jurisdiction. This
Agreement shall bind the successors and assigns of the Custodian
and the Client. Except as otherwise provided by the terms of this
Agreement, neither the Custodian nor the Client may assign any of
its rights or obligations under this Agreement without the prior
written consent of the other party. This Agreement shall be
governed by and construed in accordance with the law of Belgium,
[Alternate: This Agreement shall be governed by and construed in
accordance with the law of the [State of New York] [England] except
that the provisions set forth in Sections 4(b) and 15 shall be
governed by the law of Belgium.] The Client hereby submits to the
non-exclusive jurisdiction of any civil or commercial court in
Brussels [any federal or state court in New York City] [the High
Court of Justice in London] for purposes of all legal proceedings
arising out of or relating to this Agreement or the transactions
contemplated hereby. The Client hereby irrevocably waives, to the
fullest extent permitted by applicable law, any objection which it
may now or hereafter have to the laying of venue of any such
proceeding brought in such a court and any claim that any such
proceeding brought in such a court has been brought in an
inconvenient forum. [For New York law only: The Client and the
Custodian each hereby irrevocably waives any and all rights to
trial by jury in any legal proceeding arising out of or relating to
this Agreement.] [To the extent that the Client has or may
hereafter have any immunity (sovereign or otherwise) from
jurisdiction of any court or from any legal process with respect to
itself or its property, the Client hereby irrevocably waives such
immunity in respect of its obligations under this Agreement.]
22. Counterparts. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures thereto and
hereto were upon the same instrument.
23. Headings. The section headings used herein are for
information only and shall not affect the interpretation of any
provision of this Agreement.
24. Evidence. The Custodian's books and records (whether on
paper, microfilm, microfiche, by electronic or magnetic recording,
or any other mechanically reproducible form or otherwise) shall be
deemed to constitute, in the absence of manifest error, sufficient
evidence of the facts stated therein and of any obligations of the
Client to the Custodian.
25. Integration. This Agreement constitutes the entire agreement
between the parties hereto and supersedes any and all prior
agreements and understanding, oral or written, relating to the
subject matter hereof.
26. Confidentiality. The parties hereto agree not to disclose to
any other party and to keep confidential the terms and conditions
of this Agreement, any amendment hereof, and any Exhibit,
Attachment or Appendix hereto, including but not limited to service
level profiles. The Client agrees to cause all of its Authorized
Persons to comply with the provisions of this Section 26. In the
event that either a Client (including any of its Authorized
Persons) or the Custodian breaches any provision of this Section
26, the other party shall be entitled to temporary and permanent
injunctive relief against the other party (or such Authorized
Person, as the case may be) without the necessity of proving actual
damages. Notwithstanding any other provision herein, the Custodian
may disclose the Client's name, address and securities position and
other information to such persons and to such an extent as required
by law (including, but not limited to, article 28 of the Belgian
Law of December 4, 1990 relating to securities transactions
suspected of constituting market manipulation, insider trading and
other breaches of financial regulations), the rules of any stock
exchange or regulatory or self-regulatory organization or any order
or decrees of any court or administrative body that is binding on
the Custodian or any Subcustodian or Securities Depository.
27. Security Procedures. The validity of all Authorized
Instructions (including communications requesting cancellation or
amendment of an Authorized Instruction), shall be subject to
compliance with the applicable Security Procedure. The Client
shall (i) not disclose, or permit any Authorized Person to
disclose, except on a "need to know" basis, any aspects of any
Security Procedure, (ii) notify the Custodian immediately if the
confidentiality of any Security Procedure is compromised and (iii)
act to prevent the Security Procedures from being further
compromised. The Client shall designate one or more persons, as
identified in Appendix E to receive Security Procedure materials
from the Custodian. The Client may amend Appendix E from time to
time upon seven days' prior written notice to the Custodian in
accordance with Section 18 of this Agreement. The Client
acknowledges that it has been fully informed of the protections and
risks associated with each of the various Security Procedures. If
the Client chooses not to use any Security Procedure, then the
Client agrees to be bound by any instruction that the Custodian
believes in good faith to have been given by an Authorized Person.
28. License. The Custodian hereby grants to the Client a
personal, nontransferable and nonexclusive license to use, for its
internal purposes only, the respective number of copies of any
hardware, firmware, microcode and software set forth in Appendix F
or hereafter identified by the Custodian in writing as
communication products (the "Communication Products"), for the
respective terms set forth in Appendix F and at the respective
locations set forth in Appendix F, solely in connection with
transmitting and receiving electronic communications to and from
the Custodian in connection with this Agreement. The Client hereby
acknowledges and agrees that this license is subject to the terms
and conditions set forth in Appendix G.
29. Severability. In the event any of the terms or provisions of
this Agreement shall be held to be illegal or unenforceable, the
validity of the remaining provisions shall not be affected.
In Witness Whereof, the parties have caused this Agreement to be
duly executed by their respective authorized representatives as of
the day and year first above written.
The Bank of New York Orchard Series Fund
By: ______________________________ By: __________________
Christopher M. Teevan James D. Motz
Title: Vice President Title: President
Rev. 4/94 5.CUS
087a.PG
1
EXHIBIT 24(b)(9)
FORM OF TRANSFER AGENCY AGREEMENT<PAGE>
TRANSFER AGENCY
AND SERVICE AGREEMENT
AGREEMENT made as of the day of , 1997 by
and between ORCHARD SERIES FUND, a Delaware business trust, having
its principal office and place of business at 8515 East Orchard
Road, Englewood, Colorado 80111 (the "Trust"), and FINANCIAL
ADMINISTRATIVE SERVICES CORPORATION, a Colorado corporation, having
its principal office and place of business at 8515 East Orchard
Road, Englewood, Colorado 80111, (the "Agent").
WHEREAS, the Trust desires to appoint the Agent as its
transfer agent, dividend disbursing agent and shareholder servicing
agent in connection with certain other activities, and the Agent
desires to accept such appointment;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article I TERMS OF APPOINTMENT; DUTIES OF THE AGENT
1.01. Subject to the terms and conditions set forth in
this Agreement, the Trust hereby employs and appoints the Agent to
act as, and the Agent agrees to act as, the transfer agent,
registrar and dividend disbursing agent for the Trust and all
series thereof set out in the currently effective prospectus and
statement of additional information ("Prospectus") of the Trust,
including without limitation any periodic investment plan or
periodic withdrawal program.
1.02. In accordance with procedures established from time
to time by agreement between the Trust and the Agent, the Agent
shall:
a. Receive for acceptance, orders for the purchase of
Shares, and promptly deliver payment and appropriate
documentation therefor to the Custodian of the Trust (the
"Custodian");
b. Pursuant to purchase orders, issue the appropriate
number of Shares and hold such Shares in the appropriate
Shareholder account;
c. Receive for acceptance redemption requests and
redemption directions and deliver the appropriate
documentation therefor to the Custodian;
d. At the appropriate time as and when it receives
monies paid to it by the Custodian with respect to any
redemption, pay over or cause to be paid over in the
appropriate manner such monies as instructed by the redeeming
Shareholders;
e. Effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions;
f. Prepare and transmit payments for dividends and
distributions declared by the Trust;
g. Calculate any sales charges payable by a Shareholder
on purchases and/or redemptions of Shares of the Trust as such
charges may be reflected in the Prospectus;
h. Maintain records of account for and advise the Trust
and its Shareholders as to the foregoing; and
i. Record the issuance of Shares of the Trust and
maintain a record of the total number of Shares of the Trust
which are based upon data provided to it by the Trust, issued
and outstanding. When recording the issuance of Shares, the
Agent shall have no obligation to take cognizance of any Blue
Sky laws relating to the issue or sale of such Shares, which
functions shall be the sole responsibility of the Trust and
otherwise comply with Rules 17Ad 1-13 under the Securities
Exchange Act of 1934 (the "1934 Act").
1.03. In addition to and not in lieu of the services set
forth in Section 1.02, the Agent shall: (i) perform all of the
customary services of a transfer agent, dividend disbursing agent
and registrar, including but not limited to, maintaining all
Shareholder accounts, preparing Shareholder meeting lists,
withholding taxes on non-resident alien accounts, and (ii) provide
a system which will enable the Trust to monitor the total number of
Shares sold in each State or other jurisdiction.
1.04. The Trust shall (i) identify to the Agent in writing
those transactions and assets to be treated as exempt from Blue Sky
reporting for each State and (ii) verify the establishment of
transactions for each State on the system prior to activation and
thereafter monitor the daily activity for each State. The
responsibility of the Agent for the Trust's registration status
under the Blue Sky or securities laws of any State or other
jurisdiction is solely limited to the initial establishment of
transactions subject to Blue Sky compliance by the Trust and the
reporting of such transactions to the Trust as provided above and
as agreed from time to time by the Trust and the Agent.
1.05. The Agent may also provide such additional services
and functions not specifically described herein as may be mutually
agreed between the Agent and the Trust and set forth in Schedule A
hereto. Procedures applicable to certain of these services may be
established from time to time by agreement between the Trust and
the Agent.
<PAGE>
Article II FEES AND EXPENSES
2.01. For performance by the Agent pursuant to this
Agreement, the Trust shall to pay the Agent those fees and expenses
as agreed to by the parties from time to time.
Article III REPRESENTATIONS AND WARRANTIES OF THE AGENT
The Agent represents and warrants to the Trust that:
3.01. It is a corporation duly organized and existing and
in good standing under the laws of Colorado and it is duly
qualified to carry on its business in Colorado.
3.02. It is and will remain registered with the U.S.
Securities and Exchange Commission ("SEC") as a transfer agent
pursuant to the requirements of Section 17A of the 1934 Act.
3.03. It is empowered under applicable laws and by its
Articles of Incorporation and Bylaws to enter into and perform this
Agreement.
3.04. All requisite corporate proceedings have been taken
to authorize it to enter into and perform this Agreement.
3.05. It has and will continue to have access to the
necessary facilities, equipment and personnel to perform its duties
and obligations under this Agreement.
Article IV REPRESENTATIONS AND WARRANTIES OF THE TRUST
The Trust represents and warrants to the Agent that:
4.01. It is a Delaware business trust duly organized and
existing and in good standing under the laws of Delaware.
4.02. It is empowered under applicable laws and by its
Declaration of Trust and Bylaws to enter into and perform this
Agreement.
4.03. All corporate proceedings required by said
Declaration of Trust and Bylaws have been taken to authorize it to
enter into and perform this Agreement.
4.04. It is an investment company registered with the SEC
under the Investment Company Act of 1940, as amended (the "1940
Act").
4.05. A registration statement under the Securities Act of
1933 (the "1933 Act") is currently effective and will remain
effective, and appropriate state securities law filings have been
made and will continue to be made, with respect to all Shares of
the Trust being offered for sale.
Article V DUTY OF CARE AND INDEMNIFICATION
5.01. The Agent shall not be responsible for, and the
Trust shall indemnify and hold the Agent harmless from and against,
any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of or attributable to:
a. All actions of the Agent or its agents or
subcontractors required to be taken pursuant to this Agreement,
provided that such actions are taken in good faith and without
negligence or willful misconduct.
b. The Trust's refusal or failure to comply with the
terms of this Agreement, or which arise out of the Trust's lack of
good faith, negligence or willful misconduct or which arise out of
the breach of any representation or warranty of the Trust
hereunder.
c. The reliance on or use by the Agent or its agents or
subcontractors of information, records and documents which (i) are
received by the Agent or its agents or subcontractors and furnished
to it by or on behalf of the Trust, and (ii) have been prepared
and/or maintained by the Trust or any other person or firm on
behalf of the Trust.
d. The reliance on, or the carrying out by the Agent or
its agents or subcontractors of, any instructions or requests of
the Trust.
e. The offer or sale of Shares in violation of any
requirement under the federal securities laws or regulations or the
securities or Blue Sky laws of any State or other jurisdiction that
such Shares be registered in such State or other jurisdiction or in
violation of any stop order or other determination or ruling by any
federal agency or any State or other jurisdiction with respect to
the offer or sale of such Shares in such State or other
jurisdiction.
5.02. The Agent shall indemnify and hold the Trust
harmless from and against any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability arising out
of or attributable to any action or failure or omission to act by
the Agent as a result of the Agent' lack of good faith, negligence
or willful misconduct.
5.03. At any time the Agent may apply to any officer of
the Trust for instructions, and may consult with legal counsel,
with respect to any matter arising in connection with the services
to be performed by the Agent under this Agreement, and the Agent
and its agents or subcontractors shall not be liable and shall be
indemnified by the Trust for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such
counsel. The Agent, its agents and subcontractors shall be
protected and indemnified in acting upon any paper or document
furnished by or on behalf of the Trust, reasonably believed to be
genuine and to have been signed by the proper person or persons, or
upon any instruction, information, data, records or documents
provided to the Agent or its agents or subcontractors by machine
readable input, telex, CRT data entry or other similar means
authorized by the Trust, and shall not be held to have notice of
any change of authority of any person, until receipt of written
notice thereof from the Trust. The Agent, its agents and
subcontractors shall also be protected and indemnified in
recognizing stock certificates which are reasonably believed to
bear the proper manual or facsimile signature of the officers of
the Trust, and the proper countersignature of any former transfer
agent or registrar, or of a co-transfer agent or co-registrar.
5.04. In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of
God, strikes, equipment or transmission failure or damage
reasonably beyond its control, or other causes reasonably beyond
its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or
otherwise from such causes.
5.05. Neither party to this Agreement shall be liable to
the other party for consequential damages under any provision of
this Agreement or for any act or failure to act hereunder.
5.06. In order that the indemnification provisions
contained in this Article V shall apply, upon the assertion of a
claim for which either party may be required to indemnify the
other, the party seeking indemnification shall promptly notify the
other party of such assertion, and shall keep the other party
advised with respect to all developments concerning such claim. The
party who may be required to indemnify shall have the option to
participate with the party seeking indemnification in the defense
of such claim. The party seeking indemnification shall in no case
confess any claim or make any compromise in any case in which the
other party may be required to indemnify it except with the other
party's prior written consent.
Article VI DOCUMENTS AND COVENANTS OF THE TRUST
AND THE AGENT
6.01. The Trust shall promptly furnish to the Agent the
following:
a. The current registration statements and any
amendments and supplements thereto filed with the SEC pursuant to
the requirements of the 1933 Act and the 1940 Act;
b. All account application forms or other documents
relating to Shareholder accounts and/or relating to any plan
program or service offered or to be offered by the Trust; and
c. Such other certificates, documents or opinions as the
Agent deems to be appropriate or necessary for the proper
performance of its duties.
6.02. The Agent hereby agrees to establish and maintain
facilities and procedures reasonably acceptable to the Trust for
safekeeping of stock certificates, check forms and facsimile
signature imprinting devices, if any; and for the preparation or
use, and for keeping account of, such certificates, forms and
devices.
6.03. The Agent shall prepare and keep records relating to
the services to be performed hereunder, in the form and manner as
it may deem advisable. To the extent required by Section 31 of the
1940 Act, and the Rules and Regulations thereunder, the Agent
agrees that all such records prepared or maintained by the Agent
relating to the services to be performed by the Agent hereunder are
the property of the Trust and will be preserved, maintained and
made available in accordance with such Section 31 of the 1940 Act,
and the Rules and Regulations thereunder, and will be surrendered
promptly to the Trust on and in accordance with its request.
6.04. The Agent and the Trust agree that all books,
records, information and data pertaining to the business of the
other party which are exchanged or received pursuant to the
negotiation or the carrying out of this Agreement shall remain
confidential and shall not be voluntarily disclosed to any other
person except as may be required by law or with the prior consent
of the Agent and the Trust.
6.05. In case of any requests or demands for the
inspection of the Shareholder records of the Trust, the Agent will
endeavor to notify the Trust and to secure instructions from an
authorized officer of the Trust as to such inspection. The Agent
reserves the right, however, to exhibit the Shareholder records to
any person whenever it is advised by its counsel that it may be
held liable for the failure to exhibit the Shareholder records to
such person.
Article VII TERMINATION OF AGREEMENT
7.01. This Agreement may be terminated by either party
upon one hundred twenty (120) days written notice to the other.
7.02. Should the Trust exercise its right to terminate,
all out-of-pocket expenses associated with the movement of records
and other materials will be borne by the Trust. Additionally, the
Agent reserves the right to charge for any other reasonable fees
and expenses associated with such termination.
Article VIII ASSIGNMENT
8.01. Except as provided in Section 8.03 below, neither
this Agreement nor any rights or obligations hereunder may be
assigned by either party without the written consent of the other
party.
8.02. This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors
and assigns.
8.03. The Agent may, with prior written consent by the
Trust, subcontract, in whole or in part, for the performance of its
obligations and duties hereunder with any person or entity
including but not limited to a registered broker-dealer which is a
subsidiary or affiliate of Agent duly registered as a broker-dealer
and/or a transfer agent pursuant to the 1934 Act; provided,
however, that the Agent shall be as fully responsible to the Trust
for the acts and omissions of any agent or subcontractor as it is
for its own acts and omissions.
Article IX AFFILIATIONS
9.01. The Agent may now or hereafter, without the consent
of or notice to the Trust, function as transfer agent and/or
shareholder servicing agent for any other investment company
registered with the SEC under the 1940 Act.
9.02. It is understood and agreed that the directors,
officers, employees, agents and Shareholders of the Trust, and the
directors, officers, employees, agents and shareholders of the
Trust's investment adviser and/or distributor, are or may be
interested in the Agent as directors, officers, employees, agents,
shareholders or otherwise, and that the directors, officers,
employees, agents or shareholders of the Agent may be interested in
the Trust as directors, officers, employees, agents, Shareholders
or otherwise, or in the investment adviser and/or distributor as
officers, directors, employees, agents, shareholders or otherwise.
Article X AMENDMENT
10.01. This Agreement may be amended or modified by a
written agreement executed by both parties and authorized or
approved by a resolution of the Board of Directors of the Trust.
<PAGE>
Article XI APPLICABLE LAW
11.01. This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of the
State of Colorado.
Article XII MISCELLANEOUS
12.01. In the event that any check or other order for
payment of money on the account of any Shareholder or new investor
is returned unpaid for any reason, the Agent will (a) give prompt
notification to the Trust's distributor ("Distributor") of such
non-payment; and (b) take such other action, including imposition
of a reasonable processing or handling fee, as the Agent may, in
its sole discretion, deem appropriate or as the Trust and the
Distributor may instruct the Agent.
12.02. Any notice or other instrument authorized or
required by this Agreement to be given in writing to the Trust or
to the Agent shall be sufficiently given if addressed to that party
and received by it at its office set forth below or at such other
place as it may from time to time designate in writing.
To the Trust:
Orchard Series Fund
8515 East Orchard Road
Englewood, Colorado 80111
Attention: Secretary
To the Agent:
Financial Administrative Services Corporation
8515 East Orchard Road
Englewood, Colorado 80111
Attention: Secretary
12.03. This Agreement constitutes the entire agreement
between the parties hereto and supersedes any prior agreement with
respect to the subject matter hereof whether oral or written.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in their names and on their behalf under
their seals by and through their duly authorized officers, as of
the day and year first above written.
ORCHARD SERIES FUND
By:
Name:
Title:
ATTEST:
Name:
Title:
FINANCIAL ADMINISTRATIVE
SERVICES CORPORATION
By:
Name:
Title:
ATTEST:
Name:
Title:<PAGE>
SCHEDULE A
The services to be performed by the Transfer Agent or its agent
shall be as follows:
A. Daily Records
Maintain daily the following information with respect to each
Shareholder account received:
Name and Address (Zip Code)
Class of Shares
Taxpayer Identification Number
Beneficial Owner Code; i.e., male, female, joint tenant,
etc.
Dividend Code (reinvestment)
Number of Shares Held
B. Other Daily Activity
Answer written inquiries relating to Shareholder accounts (matters
relating to portfolio management, distribution of shares and other
management policy questions will be referred to the Trust).
Process dividends and disbursements into established Shareholder
accounts in accordance with written instruction by Shareholder.
Upon receipt of proper instructions and all required documentation,
process requests for repurchase of Shares.
Identify redemption requests made with respect to accounts in which
shares have been purchased within an agreed-upon period of time for
determining whether good funds have been collected with respect to
such purchase and process as agreed by the Transfer Agent in
accordance with written instructions of the Trust.
Examine and process all transfers of shares, ensuring that all
transfer requirements and legal documents have been supplied.
Issue and mail replacement checks.
Open new accounts and maintain records or exchanges between
accounts.
C. Dividend Activity
Calculate and process share dividends and distributions as
instructed by the Trust.
Compute, prepare and mail all necessary reports to Shareholders or
various authorities as requested by the Trust.
D. Meetings of Shareholders
Cause to be mailed proxy and related material for all meetings of
Shareholders. Tabulate returned proxies.
Prepare and submit to the Trust an Affidavit of Mailing.
At the time of the meeting, furnish a certified list of
Shareholders, hard copy, microfilm or microfiche, and, if requested
by the Fund, Inspection of Election.
E. Periodic Activities
Cause to be mailed reports, prospectuses, and any other enclosures
requested by the Trust.
EXHIBIT 24(b)(10)
OPINION OF RUTH B. LURIE<PAGE>
ORCHARD SERIES FUND
8515 East Orchard Road
Englewood, Colorado 80111
January 27, 1997
Securities and Exchange Commission
450 Fifth St., N.W.
Washington, D.C. 20549
Re: Opinion of Counsel
Gentlemen:
This letter is furnished as the requisite opinion of counsel
described in Form N1-A, Part C, Item 24(b)(10). Orchard Series
Fund (the "Trust"), as issuer, has registered an indefinite amount
of securities under the Securities Act of 1933, as amended, as
provided in Rule 24f-2 of the Investment Company Act of 1940.
I am the Secretary of the Trust. In so acting, I have made such
examination of the law, records and documents as in my judgment are
necessary or appropriate to enable me to render the opinion
expressed below. For purposes of such examination, I have assumed
the genuineness of all signatures and the conformity to the
original of all copies.
I am a member of the Colorado Bar and do not purport to be an
expert on the laws of any other state. My opinion herein as to any
other law is based upon a limited inquiry thereof which I have
deemed appropriate under the circumstances.
Based on the foregoing, I am of the opinion that the securities,
assuming that the securities will be issued and sold in accordance
with the provisions of the registration statement, to which the
Form N1-A registration statement is applicable and with which this
opinion accompanies, will be legally issued, fully paid and
nonassessable.
I consent to the use of this opinion as an exhibit to the
registration statement.
Sincerely,
/s/ Ruth B. Lurie
Ruth B. Lurie
Secretary
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Pre-Effective Amendment No. 2 to
Registration Statement No. 333-9217 of Orchard Series Fund of our
report dated January 27, 1997 appearing in the Statement of
Additional Information, which is a part of such Registration
Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE, LLP
Denver, Colorado
January 27, 1997
Exhibit 24(b)(13)
FORM OF SUBSCRIPTION AGREEMENT<PAGE>
January 27, 1997
Orchard Series Fund
8515 East Orchard Road
Englewood, Colorado 80111
Attention: Glen Derback, Treasurer
Re: Subscription for Stock of Orchard Series Fund Trust
Dear Mr. Derback:
Great-West Life & Annuity Insurance Company ("GWL&A") hereby offers
to purchase the following shares of common stock of Orchard Series
Fund: 100,000 shares of each of the Orchard Money Market Fund,
Orchard Preferred Stock Fund, Orchard Index European Fund, Orchard
Index Pacific Fund, Orchard Index 600 Fund and the Orchard Index
500 Fund; each with no par value per shares, for an aggregate
purchase price of $600,000, such shares to be fully paid and non-
assessable upon issuance and receipt by Orchard Series Fund of said
payment.
GWL&A hereby represents that it is acquiring such shares for its
own account for the purpose of investment and not with a view to or
for sale in connection with any distribution of such shares, nor
with any present intention of distributing or selling such shares.
GWL&A does, however, reserve the freedom of action with regard to
the possible redemption of those shares in the future at a time and
in a manner which would be consistent with the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as
amended.
Sincerely, Accepted and Agreed to this
27th day of January, 1997
/s/ M.S. Hollen
ORCHARD SERIES FUND
M.S. Hollen
Vice President, By: /s/ G.R. Derback
Investment Administration Glen R. Derback, Treasurer
and Financial Control
/s/ D.G. McLeod
D.G. McLeod
Assistant Vice President,
Investment Administration
