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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |x|
Pre-Effective Amendment No. | |
Post-Effective Amendment No. | |
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 |x|
Amendment No. | |
MASTERS CONCENTRATED SELECT TRUST
(Exact name of registrant as specified in charter)
4 Orinda Way, Suite 230-D
Orinda, CA 94563
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number (including area code): (510) 254-8999
KENNETH E. GREGORY
Masters Concentrated Select Trust
4 Orinda Way, Suite 230-D
Orinda, CA 94563
(Name and address of agent for service of process)
With a copy to
JULIE ALLECTA, ESQ.
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, CA 94104-2878
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of the registration statement.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940,
Registrant elects to register an indefinite number of shares of beneficial
interest, $.001.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date unti the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Reigstration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 495)
<TABLE>
<CAPTION>
NA Item No. Location
- ----------- --------
Part A
<S> <C> <C>
Item 1. Cover Page........................................... Cover Page
Item 2. Synopsis............................................. The Fund At A Glance; Expenses
Item 3. Condensed Financial Information...................... Performance
Item 4. General Description of Registrant.................... Cover Page; The Fund In Detail: Organization,
Fundamental Policies and Investment Restrictions,
Investment Philosophy
Item 5. Management of Fund .................................. The Fund in Detail: Management, Investment
Managers, Breakdown of Expenses, Organization
Item 6. Capital Stock and Other Securities................... Dividends, Capital Gains, and Taxes; General
Information
Item 7. Purchase of Securities Being Offered................. Your Account: Ways to Set Up Your Account,
How to Buy Shares
Item 8. Redemption or Repurchase............................. Your Account: How to Sell Shares
Item 9. Pending Legal Proceedings............................ Not Applicable
Part B
Item 10 Cover Page........................................... Coverage Page
Item 11 Table of Contents.................................... Table of Contents
Item 12 General Information and History...................... Not Applicable
Item 13 Investment Objectives and Policies................... Investment Objectives and Policies
Item 14 Management of the Fund............................... Management
Item 15 Control Persons and Principal
Holders of Securities.............................. General Information
Item 16 Investment Advisory and Other Services............... Management; General Information
Item 17 Brokerage Allocation and Other Practices............. Portfolio Transactions and Brokerage
Item 18 Capital Stock and Other Practices.................... General Information
Item 19 Purchase, Redemption and Pricing
of Securities Being Offered.......................... Net Asset Value
Item 20 Tax Status........................................... Taxation
Item 21 Underwriters......................................... Not Applicable
Item 22 Calculation of Performance Data...................... Performance
Item 23 Financial Statements................................. Not Applicable
</TABLE>
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to the Registration Statement.
<PAGE>
Please read this prospectus before investing, and keep it on file for future
reference. It contains important information, including how the Fund invests and
the services available to shareholders.
A Statement of Additional Information (SAI) dated , 1996 has been filed with the
Securities and Exchange Commission (SEC) and is incorporated herein by reference
(legally forms a part of this prospectus). For a free copy of the SAI, call
(800) .
Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the U.S. Government, the FDIC,
the Federal Reserve Board, or any other U.S. Government 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 MASTERS SELECT EQUITY FUND
A No-load Mutual Fund
The Masters Select Equity Fund is a growth fund that seeks to increase the value
of your investment over the long term by using the combined talents and best
stock picking ideas of six highly regarded portfolio managers.
Prospectus
__________________________ , 1996
Litman/Gregory Fund
Advisors, LLC
4 Orinda Way
Orinda, CA 94563
<PAGE>
Contents 3 Goal, Strategy and Management
The Fund at a Glance 4
Who May Want to Invest 4
Expenses 5 Investment Philosophy; Management; Investment
The Fund in Detail Managers; Securities, Investment Practices and
Risks; Fundamental Policies and Investment
Restrictions; Breakdown of Expenses, Organization
Your Account 16 Ways to Set Up Your Account
17 How to Buy Shares
19 How to Sell Shares
Shareholder and Account 21 Statements and Reports, Investor Services, Share
Policies Price, Purchases, Redemptions
Dividends, Capital Gains 22 Distribution Options, Taxes
and Taxes
Performance 23
General Information 24
Prospectus 2
<PAGE>
The Fund at a Glance
Goal: The Masters Select Equity Fund (the "Fund") seeks long term growth of
capital. As with any mutual fund, there is no assurance that the Fund will
achieve this goal.
Strategy: The Fund invests in stocks using six well known, highly regarded
investment managers. Each manager will run a portion of the Fund's portfolio and
invest in a maximum of 15 stocks. This approach is designed to:
o Combine the efforts of six
experienced, world class managers, all with superior long term public track
records at other mutual funds.
o Access only the best stock picking ideas of each manager at any point in
time. This will be achieved by limiting each manager to a maximum of 15
stocks within that manager's segment of the Fund.
o Deliver a Fund portfolio that is prudently diversified in terms of stocks
(typically 60 to 90) and industries while still allowing the managers to run
portfolio segments focused on only their favorites stocks.
o Further diversify across different size companies and stock picking styles
by using six portfolio managers, each with a different stock picking
discipline.
The Fund's Advisor has extensive experience evaluating investment managers and
mutual funds. The Advisor has selected investment managers for the Fund that it
believes are superior, based on their track record as well as the Advisor's
subjective assessment of their investment philosophy, analytical support and
other characteristics that it believes are found in superior investment
managers.
Management: Litman/Gregory Fund Advisors, LLC is the Fund's Advisor. The Advisor
is an affiliate of L/G Research, which publishes the No- Load Fund Analyst and
conducts in-depth research on mutual funds and investment management firms. The
Advisor is also affiliated with Litman/Gregory & Company, LLC, an investment
management firm.
The Advisor has contracted with investment managers to manage the day-to-day
stock picking. The individual portfolio managers are as follows:
Dick Weiss: Member of the Executive Committee at Strong Capital Management, Inc.
and co-portfolio manager of Strong Common Stock Fund and Strong Opportunity
Fund.
Mason Hawkins: Chief Executive Officer of Southeastern Asset Management and lead
portfolio manager of Longleaf Partners Fund.
Shelby Davis: CEO of Davis Selected Advisers, LP and co-portfolio manager of
Davis New York Venture Fund and Selected American Shares.
Spiros "Sig" Segalas: President of Jennison Associates and portfolio manager of
Harbor Capital Appreciation Fund.
Foster Friess (and team): President of Friess Associates and also lead portfolio
manager of the Brandywine Fund.
3 Prospectus
<PAGE>
Jean-Marie Eveillard: President of
Societe Generale Asset Management
Corporation and lead manager of
SoGen International and SoGen Overseas Funds.
Who May Want to Invest
The Fund is intended for investors who are willing to ride out stock market
fluctuations in pursuit of potentially above average long-term returns.
The value of the Fund's investments will vary from day to day, and generally
reflects market conditions, interest rates, and other company, political or
economic events. In the short term, stock prices can fluctuate dramatically in
response to these factors. When you sell your shares, they may be worth more or
less than what you paid for them. By itself, the Fund does not constitute a
balanced investment plan.
Expenses
Transaction Expenses
Maximum sales charge None
Maximum sales charge on
reinvested dividends None
Deferred sales charge on redemptions None
Redemption fee None
Shareholder transactions expenses are charges you pay when you buy or sell
shares of the Fund.
The following are projections of operating expenses, based on estimated expenses
for the Fund's first year, and are calculated as a percentage of average net
assets. The Advisor reimburses the Fund for any expenses in excess of 1.75% of
average net assets. Without this reimbursement, the total Fund operating
expenses are estimated to be %.
Annual Operating Expenses
Investment advisory fee 1.10%
12b-1 fee None
Other expenses of the Fund,
after reimbursement by the Advisor .65%
-----
Total Fund operating expenses 1.75%
Annual operating expenses are paid out of the Fund's assets. The Fund pays an
investment advisory fee to the Advisor equal to 1.10% of the Fund's average net
assets. Each of the investment managers receives a fee for its services from
Litman/Gregory, not from the Fund. The Fund also incurs other expenses for
services such as administrative services, maintaining shareholder records and
furnishing shareholder statements and financial reports. The Fund's expenses are
factored into its share price or dividends and are not charged directly to
shareholder accounts.
Example: Let's say, hypothetically, that the Fund's annual return is 5% and that
its operating expenses are exactly as just described. For every $1,000 you
invest, here's how much you would pay in total expenses if you close your
account after the number of years indicated:
After 1 year $ 18
After 3 years $ 55
This example illustrates the effect of expenses, but it is not meant to suggest
actual or expected costs or returns, all of which may vary. For a more complete
description of the various costs and expenses, see "Breakdown of Expenses."
Prospectus 4
<PAGE>
The Fund in Detail
Investment Philosophy
The investment objective of the Fund is growth; that is, the increase in the
value of your investment over the long term. The investment managers selected by
the Advisor invest in securities of companies which they believe have strong
appreciation potential. Under normal circumstances, the Fund intends to be
substantially or fully invested in equity securities, including common stocks
and other securities with the characteristics of common stocks. The Fund's
strategy is based on several fundamental beliefs:
First, the Advisor believes that it is possible to identify investment managers
who will deliver superior performance relative to their peer groups. This belief
is based on the Advisor's extensive experience evaluating and picking stock
mutual funds.
Second, the Advisor believes that at any point in time most investment managers
own a small number of stocks in which they are highly confident. However,
because holding only 10 or 15 stocks is not considered prudent from a
diversification standpoint or practical given the large dollar amounts managed
by most successful managers, most stock mutual funds hold more than 50 stocks.
The Advisor believes that, over time, the performance of most investment
managers' "highest confidence" stocks exceed that of their more diversified
portfolios.
Third, the Advisor believes that during any given year certain stock picking
styles will generate higher returns than the Standard & Poor's 500 Stock Index
("S&P 500") while others will lag. By including a variety of stock picking
styles in a single mutual fund the Advisor believes the variability of returns
between stock picking styles can be lessened. The Fund's managers have been
selected with the specific objective of maintaining exposure to large company
stocks at 50% to 75% of total assets in normal market conditions.
The Fund's strategy is to allocate assets to investment managers who, based on
the Advisor's research, are among the best in their respective style groups, as
determined by the Advisor. The investment managers manage their portfolio
segments by investing in their best stock picking ideas. Each investment
manager's portfolio includes a minimum of 5 securities and a maximum of 15
securities. Thus the Fund will hold a minimum of 30 securities and a maximum of
90 securities at any point in time. The Fund expects to hold between 60 and 75
securities. The Fund's six investment managers represent different stock picking
styles and emphasize a variety of market capitalizations.
The Advisor believes that superior investment managers exhibit:
o Consistently above-average performance relative to an appropriate peer group.
The Advisor measures investment manager performance against performance
composites made up
5 Prospectus
<PAGE>
of other advisory firms using a similar stock picking style. The Advisor
maintains its own database and has developed proprietary software to measure
performance over various time periods.
o A record of outreturning the S&P 500 over the long term.
o Certain characteristics including the ability to think independently and
avoid "Wall Street herd mentality," as well as the obsessiveness to work
harder and more creatively to get an edge. These traits are assessed
subjectively by the Advisor.
o A focus on the job of stock picking and portfolio management. Thus, the
Advisor seeks investment managers who have attempted to mitigate
non-investment distractions by delegating most business management and
marketing duties.
The Advisor has extensive experience evaluating investment advisory firms using
the above criteria and believes each of the investment managers selected to
participate in the Fund exhibit the qualities mentioned above. Under unusual
market conditions, for temporary defensive purposes, up to 35% of the Fund's
assets may be invested in short term, high quality debt securities. Each
investment manager may take a temporary defensive position with respect to that
manager's portfolio segment.
Management
The Fund is managed by Litman/Gregory Fund Advisors, LLC, 4 Orinda Way, Orinda
CA 94563, which has overall responsibility for assets under management,
allocates assets among investment managers, monitors and evaluates performance
of the investment managers, and recommends selection of investment managers to
the Board of Trustees. Kenneth E. Gregory is a Trustee of the Trust and will be
responsible for monitoring the day-to-day activity of the investment managers.
Gregory is also President of L/G Research, an affiliated firm which publishes
the No-Load Fund Analyst newsletter and conducts research on financial markets
and mutual funds. He has been editor of the newsletter since its beginning in
1989. Gregory is also President and Chief Investment Officer of Litman/Gregory &
Company, LLC, a money management firm. He has held this position since the
founding of Litman/Gregory & Company, a predecessor firm, in 1987. Prior to
March, 1987, he was President of Williams Asset Management. He has been in the
investment business since 1979.
Investment Managers
The Advisor allocates assets among six investment managers. The investment
methods used by these managers in selecting securities for the Fund varies. The
segment of the Fund's portfolio managed by an investment manager will, under
normal circumstances, differ from the segments managed by the other investment
managers with respect to portfolio composition, turnover, issuer capitalization
and issuer financial condition. Since selections are made independently by each
investment manager, it is possible
Prospectus 6
<PAGE>
that a security held by one portfolio segment may also be held by other
portfolio segments of the Fund or that several managers may simultaneously favor
the same industry segment. The Advisor will monitor the overall portfolio on a
daily basis to ensure that such overlaps do not create an unintended
concentration. The allocation of Fund assets to each investment manager is not
expected to change materially and is outlined below. Each investment manager
selects the brokers and dealers to execute transactions for the segment of the
Fund being managed by that manager. Information on the investment managers is
summarized in the grid below and detailed in the paragraphs that follow.
INVESTMENT MANAGER SUMMARY
<TABLE>
<CAPTION>
Portfolio Allocation of Investment Size of Stock Picking
Manager Fund Portfolio Experience Companies Style
<S> <C> <C> <C> <C>
Mason Hawkins 20% Over 25 years. All sizes but Value
Longleaf Funds mostly mid and
large-cap
Shelby Davis 20% Over 30 years. Mostly large-cap Growth at a
Davis New York reasonable price
Venture Fund since
1969. Selected
American Shares
since 1993
Sprios "Sig" 20% Over 30 years. Mostly large-cap Earnings
Segalas Harbor Capital momentum
Appreciation Fund
since 1990
Foster Friess 10% Over 25 years. Small and mid- Earnings
and team Brandywine Funds cap momentum
Richard Weiss 10% Over 20 years. Small cap Growth at a
Strong Common reasonable price
Stock and Strong
Opportunity Funds
Jean-Marie 20% Over 30 years. No market cap Value oriented
Eveillard SoGen International restrictions and global. At
Fund and SoGen least 50%
Overseas Fund invested in the
U.S.
</TABLE>
7 Prospectus
<PAGE>
Shelby Davis/Davis Selected Advisers. Shelby M. C. Davis is the co-portfolio
manager for the segment of the Fund's assets managed by Davis Selected Advisers
LP, 124 E. Marcy Street, Santa Fe, NM 87501. Davis has been in the investment
business for over 30 years and has been a portfolio manager for Davis New York
Venture Fund since 1969. He became a portfolio manager for the Selected American
Shares Fund in 1993. He is also the chief executive officer of, and controls,
Davis Selected Advisers LP. In total Davis manages over $4 billion including the
two funds. For the ten years ended June 30, 1996, Davis New York Venture Fund
returned 15.8% on an annualized basis; during the same period, the S&P 500
returned 13.8% Approximately 20% of the Fund's assets will be managed by Davis.
He invests primarily in large companies using a strategy that takes into account
both growth and value. This approach is often referred to as "growth at a
reasonable price." Davis prefers high quality companies as evidenced by some or
all of the following:
o Solid top-line (revenue) and unit growth
o Management with a stake in the business
o A business plan for the next three to five years
o Participation in an industry that is capable of earning a good return on
capital
o Respected by competitors
o Low cost operations
Davis often seeks to buy companies exhibiting some or all of these
characteristics at depressed prices because they are temporarily out of favor.
When buy out-of-favor stocks, he often believes there is a catalyst which will
eventually push the stock price higher.
Mason Hawkins/Southeastern Asset Management. Mason Hawkins is the lead portfolio
manager for the portion of the Fund's assets run by Southeastern Asset
Management, Inc. (Southeastern), 6075 Poplar Avenue, Memphis, Tennessee 38119.
Hawkins has been in the investment business for over 20 years and founded
Southeastern, which he controls, in 1975. He has managed the Longleaf Partners
Fund since its inception in 1987. In total, Southeastern manages over $6
billion. Since its inception in [month], 1987, Longleaf Partners Fund returned
__% on an annualized basis through June 30, 1996. During the same period the S&P
500 returned __%.
Approximately 20% of the Fund's assets are managed by Southeastern using a value
oriented approach to picking stocks. The Firm considers companies of all sizes,
although most of its portion of the Fund's assets are expected to be invested in
mid-sized and larger companies. Southeastern focuses on securities of companies
believed to have unrecognized intrinsic value and the potential to grow their
economic worth. Southeastern believes that superior
Prospectus 8
<PAGE>
long term performance can be achieved when positions in financially strong,
well-managed companies are acquired at prices significantly below their business
value and are sold when they approach their corporate worth. Corporate intrinsic
value is determined through careful securities analysis and the use of
established disciplines consistently applied over long periods of time.
Securities which can be identified and purchased at a price significantly
discounted from their intrinsic worth not only protect investment capital from
significant loss but also facilitate major rewards when the true business value
is ultimately recognized. Seeking the largest margin of safety possible,
Southeastern requires at least a 40% market value discount from its appraisal of
an issuer's intrinsic value before purchasing the security. To determine
intrinsic value, current publicly available financial statements are carefully
scrutinized, and two primary methods of appraisal are applied. The first
assesses what is believed to be the real economic value of the issuer's net
assets, and the second examines the issuer's ability to generate free cash flow
after required or maintenance capital expenditures. After free cash flow is
determined, conservative projections about its rate of future growth are made.
The present value of that stream of cash flow plus its terminal value is then
calculated using a discount rate based on expected interest rates. If the
calculations are accurate, the present value would be the price at which buyers
and sellers negotiating at arms length would accept for the whole company. In a
concluding analysis, the asset value determination and/or the discounted free
cash flow value are compared to business transactions of comparable
corporations. Other considerations used in selecting potential investments
include the following:
o Indications of shareholder oriented management.
o Evidence of financial strength
o Potential earnings improvement.
Spiros Segalas/Jennison Associates. Spiros "Sig" Segalas is the portfolio
manager for the segment of the Fund's assets run by Jennison Associates Capital
Corp., 466 Lexington Avenue, New York, New York 10017. Segalas has been in the
investment business for over 30 years and has been the portfolio manager for the
Harbor Capital Appreciation Fund since May, 1990. He is President of Jennison
Associates Capital Corp., an indirect wholly-owned subsidiary of the Prudential
Insurance Company. Jennison Associates manages over $15 billion in U.S. equity
securities. Since Segalas became portfolio manager of Harbor Capital
Appreciation Fund in [month], 1990, through June 30, 1996, the Fund returned __%
on an annualized basis. During the same period, the S&P 500 returned __%.
Approximately 20% of the Fund's assets will be run by Segalas. He invests in
mid-sized and large companies experiencing superior absolute and relative
earnings growth. Earnings predictability and
9 Prospectus
<PAGE>
confidence in earnings forecasts are an important part of the selection process.
Segalas takes into account price/earnings ratios relative to the market as well
as the companies' histories and the overall stock market. In addition, he seeks
out companies experiencing some or all of the following:
o High sales growth
o High unit growth
o High or improving returns on assets and equity
o Strong balance sheet.
Segalas also prefers companies with a competitive advantage such as unique
management, marketing or research and development.
Foster Friess and Team/Friess Associates. Foster Friess is the lead portfolio
manager for the segment of the Fund's assets run by Friess Associates, Inc., 350
Broadway, Jackson, Wyoming 83001. Friess has been in the investment business for
over 25 years and has been manager of the Brandywine Fund since 1986. He is also
President and with his wife, Lynette Friess, sole owner of Friess Associates. In
total Friess manages over $9 billion. For the ten years ended June 30, 1996,
Brandywine Fund returned 16.9% on an annualized basis. During the same period
the S&P 500 returned 13.8%.
Approximately 10% of the Fund's assets will be run by Friess and his team.
Friess invests in stocks of well-financed issuers which have proven records of
profitability and strong earnings momentum. Emphasis will be placed on companies
with market capitalizations under $5 billion. These companies are likely to be
lesser known companies moving from a lower to higher market share position
within their industry groups rather than the largest and best known companies in
these groups. Friess may, however, purchase common stocks of well known, highly
researched mid-sized companies if it believes those common stocks offer
particular opportunity for long term capital growth. In selecting investments,
Friess will consider financial characteristics of the issuer, including
historical sales and net income, debt/equity and price/earnings ratios and book
value. Friess may also review research reports of broker-dealers and trade
publications and, in appropriate situations, meet with management. Greater
weight will be given to internal factors, such as product or service
development, than to external factors, such as interest rate changes, commodity
price fluctuations, general stock market trends and foreign currency exchange
values. A particular issuer's dividend history is not considered important.
Richard T. Weiss/Strong Capital Management. Richard Weiss is the portfolio
manager for the segment of the Fund's assets run by Strong Capital Management,
Inc., 100 Heritage Reserve, Menomonee Falls, Wisconsin 53051. Weiss has been in
the investment business for over 20 years and has been the co-manager of the
Strong Common Stock Fund and the Strong Opportunity Fund since joining Strong in
1991. Weiss is
Prospectus 10
<PAGE>
a member of the firm's Executive Committee. Prior to joining Strong he was the
lead manager of the SteinRoe Special Fund commencing in 1981. In total, Weiss
co-manages over $3 billion. Strong Capital Management was founded in 1974 and is
owned by its active employees; Richard Strong is the majority owner. Since Weiss
began co-management of the Strong Common Stock Fund in March, 1991, it has
returned 23.16% on an annualized basis through June 30, 1996. During the same
period, the Strong Opportunity Fund returned 18.00% on an annualized basis. The
S&P 500 returned 15.14% during that period.
Approximately 10% of the Fund's assets will be run by Weiss. He will invest in
stocks of small and mid-sized companies that are undervalued either because they
are not broadly recognized, are in transition, or are out of favor based on
short-term factors. In seeking attractively valued companies, Weiss focuses on
companies with above average growth potential that also exhibit some or all of
the following:
o Low institutional ownership and low analyst coverage
o High quality management
o Sustainable competitive advantage.
Weiss evaluates the degree of undervaluation relative to his estimate of each
company's private market value. This private market value approach is based on
an assessment of what a private buyer would be willing to pay for the future
cash flow stream of the target company. Based on his experience, Weiss believes
that, except for technology and other high growth stocks, most stocks trade
between 50% and 80% of private market value. When trading at the low end of this
range, companies take steps to prevent takeover, or they are taken over. The
private market value estimate is applied flexibly based on the outlook for the
industry and the company fundamentals.
Jean-Marie Eveillard/Societe Generale Asset Management Corp. Jean-Marie
Eveillard is the portfolio manager for the component of the Fund's assets run by
Societe Generale Asset Management (SGAM), 1221 Avenue of the Americas, New York,
New York 10020. Eveillard has been in the investment business for over 30 years
and has been the portfolio manager for SoGen International Fund, a multi-asset
global fund, since 1979. He has also managed the SoGen Overseas Fund, an
international stock fund, since its inception in 1993. Eveillard is also
President of SGAM, an indirect subsidiary of Societe Generale, one of France's
largest banks. SGAM currently manages over $6 billion. Over the past ten years
SoGen International Fund has returned 12.38% on an annualized basis, while over
the same period the Morgan Stanley EAFE Index has returned __% and the S&P 500
has returned __%. Because SoGen International Fund invested in fixed income
investments as well as stocks, there indexes are not ideal benchmarks.
Approximately 20% of the Fund's assets will be run by Eveillard, who will invest
in securities all over the
11 Prospectus
<PAGE>
world. At least 50% of his segment must be invested in U.S. securities.
Eveillard is a value investor and uses a bottom-up orientation that focuses on
the fundamentals of a specific security rather than its immediate environment.
In searching for obscure or depressed securities, his approach is flexible. so
that despite an equity focus he will sometimes own fixed income securities that
he believes can deliver equity-type returns. Eveillard is also flexible in the
size of companies looked at (very small to very large) as well their geographic
location (developed or emerging markets). Eveillard's time horizon is three to
five years, and his indifference to short term issues allows him to consider
companies that have become bargains offering long term value due to temporary
problems. Eveillard avoids a "black box" approach to assessing value. In
particular, whenever possible, he looks for an imbalance between his estimate of
what a reasonable buyer would pay for the entire company, and the price for the
security in the public market.
It is expected that Eveillard will limit his segment of the Fund's portfolio to
$150 million. When his allocation reaches this limit, it is expected that the
Fund will add an additional manager to manage new cash flows that would
otherwise have been allocated to Eveillard.
Securities, Investment Practices and Risks
Under normal circumstances, the Fund intends to be substantially or fully
invested in equity securities, including common stocks and other securities with
the characteristics of common stocks. This section describes briefly some of the
other securities the Fund may buy and some of the strategies that may be used by
the Fund, as well as some of the risks associated with investing in the Fund.
More information on this subject is contained in the SAI.
Options on Securities and Securities Indices. The Fund may buy call options on
securities in order to fix the cost of a future purchase or to attempt to
enhance return. The Fund may buy put options on securities to hedge against a
decline in the value of securities it owns or to attempt to enhance return. The
Fund may also write (sell) put and covered call options on securities in which
it is authorized to invest. The Fund may also purchase and write options on U.S.
securities indices. Options transactions will be entered into for hedging
purposes and not for speculation. The Fund's ability to use these instruments
successfully will depend on an investment manager's ability to predict
accurately movements in the prices of securities, interest rates and the
securities markets. There is no assurance that liquid secondary markets for
options will always exist, and the correlation between hedging instruments and
the securities or sectors being hedged may be imperfect. The requirement to
cover obligations may impede portfolio management or the ability to meet
redemption requests. It may also be necessary to defer closing out
Prospectus 12
<PAGE>
options positions to avoid adverse tax consequences.
U.S. Government Securities.The Fund may invest in direct obligations of the
United States, such as Treasury bills, notes and bonds, as well as obligations
of U.S. agencies and instrumentalities. Not all securities issued by agencies
and instrumentalities of the U.S. Government are backed by the full faith and
credit of the United States. Some, such as securities issued by the Federal
National Mortgage Association, are supported solely or primarily by the
creditworthiness of the issuer. If an obligation is not backed by the full faith
and credit of the United States, the Fund must look principally to the agency or
instrumentality issuing or guaranteeing the security for repayment and may not
be able to assert a claim against the U.S. Government if the agency or
instrumentality does not meet its commitments. The Fund may also invest in
mortgage-backed securities.
Repurchase Agreements. The Fund may enter into repurchase agreements, in which
the Fund buys securities and the seller agrees to repurchase them from the Fund
at a mutually agree- upon time and price. The period of maturity is normally
overnight or a few days. The resale price is higher than the purchase price,
reflecting the Fund's rate of return. Each repurchase agreement is fully
collateralized, but if the seller defaults, the Fund may incur a loss. The Fund
only enters into repurchase agreements with institutions which meet certain
creditworthiness and other criteria.
Illiquid Securities. The Fund may invest up to 15% of its net assets in
securities that at the time of purchase have legal or contractual restrictions
on resale or are otherwise illiquid.
Small Companies. The Fund may, from time to time, invest a portion of its assets
in small companies. While smaller companies generally have potential for rapid
growth, investments in smaller companies also often involve greater risks
because they may lack the management experience, financial resources, product
diversification and competitive strengths of larger companies. In addition, in
many instances the securities of smaller companies may be less liquid than those
of larger companies.
Foreign Securities. The Fund may invest up to 25% of its total assets in foreign
securities, including depositary receipts, although under normal circumstances
the Advisor expects that the total invested in foreign securities will be less
than __% of total assets. American Depositary Receipts (ADRs) are receipts
issued by a U.S. bank or trust company evidencing ownership of underlying
securities issued by a foreign issuer. European and Global Depositary Receipts
(EDRs and GDRs) are bearer receipts designed for use in foreign securities
markets. Depositary receipts may be sponsored or unsponsored; unsponsored
depositary receipts are organized without the cooperation of the foreign issuer
of the underlying securities. As
13 Prospectus
<PAGE>
a result, information about the issuer may not be as current or complete as for
sponsored receipts, and the prices of unsponsored receipts may be more volatile.
The Fund may also invest in foreign exchange forward contracts or currency
futures or options on foreign currency in connection with its investments in
foreign securities.
There are special risks associated with investing in foreign securities,
including increased political and economic risk, as well as exposure to currency
fluctuations. The Fund may also invest in foreign securities of issuers in
emerging or developing countries, which involve greater risks than other foreign
investments. Emerging markets may be more volatile than both the U.S. and more
developed foreign markets, and there are other risks more fully described in the
SAI.
Investment Companies. The Fund may invest in the securities of other investment
companies except to the extent permitted by the Investment Company Act of 1940
(1940 Act).
Securities Lending. The Fund may lend up to 10% of its portfolio securities to
financial institutions in order to increase the Fund's income.
Borrowing. The Fund may borrow from banks in an amount up to 20% of its total
assets, but only for temporary, extraordinary or emergency purposes. The Fund
may also engage in reverse repurchase agreements.
Junk Bonds. The Fund may invest up to 10% of its total assets in debt securities
rated below investment grade by a recognized rating agency or in unrated
securities determined by an investment adviser to be of comparable quality.
These securities are subject to greater risk of loss of income and principal
than higher- rated bonds, as well as greater market risk and greater price
volatility.
Other Information. The Fund may also engage in transactions in stock index
futures and may sell short "against the box," which is a way of locking in
unrealized gains; it does not currently intend to engage in any other short
sales. The Fund may invest up to 5% of its total assets in securities on a
when-issued or delayed-delivery basis.
The Advisor does not expect the Fund's portfolio turnover rate to exceed 100%.
Fundamental Policies and Investment Restrictions
A fundamental policy is one which cannot be changed without the vote of a
majority of the Fund's outstanding shares, as defined in 1940 Act. The Fund's
investment objective is a fundamental policy, as is its policy to be a
diversified fund and not to concentrate in securities of issuers in any one
industry. Most of the limits and restrictions set forth above are not
fundamental policies and may be changed by the Board of Trustees without
shareholder approval. A complete description of the Fund's fundamental policies
and investment restrictions is contained in the SAI.
Prospectus 14
<PAGE>
Breakdown of Expenses
Like all mutual funds, the Fund pays expenses related to its daily operations.
Expenses paid out of the Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted from
shareholder accounts.
The Fund pays an investment advisory fee to the Advisor each month, at the
annual rate of 1.10% of the Fund's average daily net assets. This fee is higher
than that paid by most mutual funds. The Advisor (not the Fund) pays the
investment managers.
While the investment advisory fee is a significant component of the Fund's
annual operating expenses, the Fund also pays other expenses. The Fund pays a
monthly administration fee to Investment Company Administration Corporation for
managing some of its business affairs, at the annual rate of 0.00% of its
average net assets. The Fund also pays other expenses, such as legal, audit,
custodian and transfer agency fees, as well as the compensation of Trustees who
are not affiliated with the Advisor or any of the investment managers.
The Advisor has agreed to reimburse the Fund for any ordinary operating expenses
above 1.75% of the Fund's average net assets. The Advisor reserves the right to
be repaid by the Fund if expenses subsequently fall below the specified limit
within the next three years. But the Fund's operating expenses including any
repayments will never be allowed to exceed 1.75% of average annual net assets.
This expense limitation arrangement is guaranteed by the Advisor for at least
the first year of the Fund's operations. After that, it may be terminated at any
time, subject to approval by the Board of Trustees and prior notice to
shareholders. This expense limitation will decrease the Fund's expenses and
boost its performance.
Organization
The Masters Select Equity Fund is a series of Masters Concentrated Select Trust
(the Trust), an open-end management investment company, organized as a Delaware
business trust on ,1996.
The Trust is governed by a Board of Trustees, responsible for protecting the
interests of shareholders. The Trustees are experienced executives who meet
throughout the year to oversee the activities of the Fund, review contractual
arrangements with companies that provide services to the Fund and review
performance. The majority of Trustees are not otherwise affiliated with the
Advisor or any of the investment managers. Information about the Trustees and
offices is contained in the SAI.
The Fund may hold special meetings and mail proxy materials. These meetings may
be called to elect or remove Trustees, change fundamental policies, approve an
investment advisory contract, or for other purposes. Shareholders not attending
these meetings are encouraged to vote by proxy. The Fund will mail proxy
materials in advance, including a voting card and information about the
proposals to be voted on. The number of votes you are entitled to is based on
the number of shares of the Fund you own.
15 Prospectus
<PAGE>
Ways to Set Up Your Account
Individual or Joint Account
For your general investment needs
Individual accounts are owned by one person. Joint accounts can have two or more
owners (tenants).
- --------------------------------------------------------------------------------
Retirement
To shelter your retirement savings from taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current taxes. In addition, contributions to these accounts may be
tax deductible. Retirement accounts require special applications and typically
have lower minimums.
Individual Retirement Accounts (IRAs) allow anyone of legal age and under 70 1/2
with earned income to invest up to $2000 per tax year. Individuals can also
invest in a spouse's IRA if the spouse has earned income of less than $250 and
the combined contributions do not exceed $2,250.
o Rollover IRAs retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
o Simplified Employee Pension Plans (SEP-IRAs) provide small business owners or
those with self-employed income (and their eligible employees) with many of
the same advantages as a Keogh, but with fewer administrative requirements.
o Other retirement plans, such as Keogh or corporate profit sharing plans,
403(b) plans and 401(k) plans, may invest in the Fund. All of these accounts
need to be established by the plan's trustee. The Fund does not offer
prototypes of these plans.
- --------------------------------------------------------------------------------
Gifts or Transfers to Minor (UGMA, UTMA)
To invest for a child's education or other future needs
These custodial accounts provide a way to give money to a child and obtain tax
benefits. An individual can give up to $10,000 a year per child without paying
federal gift tax. Depending on state laws, you can set up a custodial account
under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors
Act(UTMA).
- --------------------------------------------------------------------------------
Trust
For money being invested by a trust
The trust must be established before an account can be opened.
- --------------------------------------------------------------------------------
Business or Organization
For investment needs of corporations, associations, partnerships or other groups
Does not require a special application.
Prospectus 16
<PAGE>
Your Account
How to Buy Shares
You can open a new account by mailing in an application with a check for $1,000
or more.
After your account is open, you may add to it by:
o mailing a check or money order along with the form at the bottom of your
account statement, or a letter;
o wiring money from your bank; or
o making automatic investments.
The Fund is a no-load fund, which means you pay no sales commissions of any
kind. Once each business day, the Fund calculates its share price: the share
price is the Fund's net asset value (NAV). Shares are purchased at the next
share price calculated after your investment is received and accepted. Share
price is normally calculated at 4 p.m. Eastern time.
If you are investing through a tax-sheltered retirement plan, such as an IRA,
for the first time, you will need a special application. Retirement investing
also involves its own investment procedures. Call (800) 000-0000 for more
information and a retirement application.
If you buy shares by check and then sell those shares within two weeks, the
payment may be delayed for up to seven business days to ensure that your
purchase check has cleared.
[Name of Transfer Agent] is the Fund's Transfer Agent; its address is
____________________________________________, and its mailing address is P.O.
Box .
First Fund Distributors, Inc., 4455 E.
Camelback Road, Suite 261E,
Phoenix AZ 85018, is the Trust's
principal underwriter.
Minimum Investments
To Open an Account* $1,000
For retirement accounts $500
To Add to an Account* $250
For retirement accounts $250
Through automatic investment plans $100
Minimum Balance $500
For retirement accounts $250
* The minimum investment requirements may be waived from time to time by the
Distributor.
For Information: (800) 000-0000
To Invest
By Mail:
By Wire: Call:
(800) 000-0000 to set
up an account and
arrange a wire transfer
17 Prospectus
<PAGE>
How to Buy Shares
Mail (Envelope)
- --------------------------------------------------------------------------------
To open an account:
o Complete and sign the new account application. Make your check or money order
payable to "Litman/Gregory Mutual Fund."
Mail to the address on the new account application or, for overnight
delivery, send to:
To add to an account:
o Make your check or money order payable to "Litman/Gregory Mutual Fund." Put
your account number on your check.
Mail your check and the stub from the bottom of your account statement (or
enclose a note with your name, address and account number) to the address on
your account statement or, for overnight delivery, send to:
- --------------------------------------------------------------------------------
Wire (Tel)
- --------------------------------------------------------------------------------
To open an account:
o Call 1-800-000-0000 for instructions on opening an account by wire.
To add to an account:
o Call 1-800-000-0000 for instructions on adding to an account by wire.
- --------------------------------------------------------------------------------
Automatic Investment Plan (Hand)
- --------------------------------------------------------------------------------
To open an account:
o If you sign up for the Automatic Investment Plan when you open your account,
the minimum initial investment will be waived.
o Complete and sign the Automatic Investment Plan section of the new account
application.
To add to an account:
o Sign up for the Automatic Investment Plan or call 1-800-000- 0000 for
instructions on how to establish this Plan.
Prospectus 18
<PAGE>
How to Sell Shares
You can arrange to take money out of your account at any time by selling
(redeeming) some or all of your shares. Your shares will be sold at the next net
asset value per share (share price) calculated after your order is received and
accepted. The share price is normally calculated at 4 p.m. Eastern time.
To sell shares in a non-retirement account, you may use any of the methods
described on these two pages.
To sell shares in a retirement account, your request must be made in writing.
Certain requests must include a signature guarantee. It is designed to protect
you and the Fund from fraud. Your request must be made in writing and include a
signature guarantee if any of the following situations apply:
o You wish ro redeem more than $100,000 worth of shares,
o Your account registration has changed within the last 30 days,
o The check is being mailed to a different address from the one on your account
(record address), or
o The check is being made payable to someone other than the account owner.
You should be able to obtain a signature guarantee from a bank, broker-dealer,
credit union (if authorized under state law), securities exchange or
association, clearing agency or savings association. A notary public cannot
provide a signature guarantee.
Selling Shares in Writing
Write a "letter of instruction" with:
o Your name,
o Your Fund account number,
o The dollar amount or number of shares to be redeemed, and
o Any other applicable requirements listed in the table at right.
o Unless otherwise instructed, the Fund will send a check to the record address.
Mail your letter to:
Selling Shares by Telephone
If you accepted the telephone redemption option when you filled out your new
account application, you can sell shares simply by calling 1-800-000-0000. The
amount you wish redeemed (up to $000,000) will be wired to your bank account.
19 Prospectus
<PAGE>
How to Sell Shares
<TABLE>
<CAPTION>
<S> <C> <C>
By Phone All account types except o Maximum check request: $ 00,000
(800) 000-0000 retirement
- ------------------------------------------------------------------------------------------------------------------------------------
Mail or in Person Individual, Joint Tenant, o The letter of instructions must be signed be all persons required to sign for
Sole Proprietorship, transactions, exactly as their names appear on the account.
UGMA, UTMA
Retirement Account o The account owner should complete a
retirement distribution form. Call
(800) 000-0000 to request one.
Trust o The trustee must sign the letter indicating capacity as trustee. If the
trustee's name is not in the account registration, provide a copy of the
trust document certified within the last 60 days.
Business or Organization o At least one person authorized by corporate resolutions to act on the account
must sign the letter.
o Include a corporate resolution with corporate seal or a signature guarantee.
Executor, Administrator, o Call (800) 000-0000 for
Conservator, Guardian instructions.
- ------------------------------------------------------------------------------------------------------------------------------------
Wire All account types except o You must sign up for the wire feature
retirement before using it. To verify that it is in
place, call (800) 000-0000.
Minimum wire: $5,000.
o Your wire redemption request must be received by the Fund before 4 p.m.
Eastern time for money to be wired the next business day.
</TABLE>
Prospectus 20
<PAGE>
Shareholder and Account Policies
Statements and Reports
Statements and reports that the Fund sends you include the following:
o Confirmation statements (after every transaction that affects your account
balance or your account registration)
o Financial reports (every six months)
Investor Services
The Fund offers the following services to investors:
A systematic withdrawal plan lets you set up periodic redemptions from your
account.
Regular Investment Plan: One easy way to pursue your financial goals is
to invest money regularly. The Fund offers a convenient service that lets you
transfer money into your Fund account automatically. While regular investment
plans do not guarantee a profit and will not protect you against loss in a
declining market, they can be an excellent way to invest for retirement, a home,
educational expenses, and other long term financial goals. Certain restrictions
apply for retirement accounts. Call (800) 000-0000 for more information.
Share Price
The Fund is open for business each day the New York Stock Exchange (NYSE) is
open. The Fund calculates its NAV as of the close of business of the NYSE,
normally 4 p.m. Eastern time.
The Fund's NAV is the value of a single share. The NAV is computed by adding the
value of the Fund's investments, cash, and other assets, subtracting its
liabilities and then dividing the result by the number of shares outstanding.
The NAV is also the redemption price (price to sell one share).
The Fund's assets are valued primarily on the basis of market quotations. If
quotations are not readily available, assets are valued by a method that the
Board of Trustees believes accurately reflects fair value.
Purchases
o All of your purchases must be made in U.S. dollars, and checks must be drawn
on U.S. banks.
o The Fund does not accept cash, credit cards or third-party checks.
o If your check does not clear, your purchase will be cancelled and you will be
liable for any losses or fees the Fund or its transfer agent incurs.
o Your ability to make automatic investments may be immediately terminated if
any item is unpaid by your financial institution.
o The Fund reserves the right to reject any purchase order. For example, a
purchase order may be refused if, in the Advisor's opinion, it is so large
that it would disrupt management of the Fund. Order may also be rejected from
persons believed by the Advisor to be "market timers."
Prospectus 21
<PAGE>
Certain financial institutions that have entered into sales agreements with the
Fund may enter confirmed purchase orders on behalf of customers by phone, with
payment to follow no later than the time when the Fund is priced on the
following business day. If payment is not received by that time, the financial
institution could be held liable for resulting fees or losses.
Redemptions
o Normally, redemption proceeds will be mailed to you on the next business day,
but if making immediate payment could adversely affect the Fund, it may take
up to seven days to pay you.
o Redemptions may be suspended or payment dates postponed when the New York
Stock Exchange (NYSE) is closed (other than weekends or holidays), when
trading on the NYSE is restricted, or as permitted by the SEC.
Dividends, Capital Gains, and Taxes
The Fund distributes substantially all of its net income and capital gains, if
any, to shareholders each year. Normally, dividends and capital gains are
distributed in December.
Distribution Options
When you open an account, specify on your application how you want to receive
your distributions. If the option you prefer is not listed on the application,
call (800) 000-0000 for instructions. The Fund offers three options:
1. Reinvestment Option. Your dividend and capital gain distributions will be
automatically reinvested in additional shares of the Fund. If you do not
indicate a choice on your application, you will be assigned this option.
2. Income-Earned Option. Your capital gain distributions will be automatically
reinvested, but you will be sent a check for each dividend distribution.
3. Cash Option. You will be sent a check for your dividend and capital gain
distributions.
For retirement accounts, all distributions are automatically
reinvested. When you are over 59 1/2 years old, you can receive distributions in
cash.
When the Fund deducts a distribution from its NAV, the reinvestment price
is the Fund's NAV at the close of business that day. Cash distribution checks
will be mailed within seven days.
Understanding Distributions
As a Fund shareholder, you are entitled to your share of the Fund's net income
and gains on its investments. The Fund passes its earnings along to its
investors as distributions. The Fund earns dividends from stocks and interest
from short term investments. These are passed along as dividend distributions.
The Fund realizes capital gains whenever it sells securities for a higher price
than it paid for them. These are passed along as capital gain distributions.
Prospectus 22
<PAGE>
Taxes
As with any investment, you should consider how your investment in the Fund will
be taxed. If your account is not a tax-deferred retirement account, you should
be aware of these tax implications.
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, the Fund's income and short term capital gain
distributions are taxed as dividends; long term capital gain distributions are
taxed as long term capital gains. Every January, the Fund will send you and the
IRS a statement showing the taxable distributions.
Taxes on transactions. Your redemptions are subject to capital gains tax. A
capital gain or loss is the difference between the cost of your shares and the
price you receive when you sell them.
Whenever you sell shares of the Fund, the Fund will send you a confirmation
statement showing how many shares you sold and at what price. You will also
receive a consolidated transaction statement every January. However, it is up to
you or your tax preparer to determine whether the sales resulted in a capital
gain and, if so, the amount of the tax to be paid. Be sure to keep your regular
account statements; the information they contain will be essential in
calculating the amount of your capital gains.
"Buying a dividend." If you buy shares just before the Fund deducts a
distribution from its NAV, 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.
There are tax requirements that all funds must follow in order to avoid federal
taxation. In its effort to adhere to these requirements, the Fund may have to
limit its investment activity in some types of instruments.
When you sign your account application, you will be asked to certify that your
Social Security or taxpayer identification number is correct and that you are
not subject to 31 % withholding for failing to report income to the IRS. If you
violate IRS regulations, the IRS can require a fund to withhold 31% of your
taxable distributions and redemptions.
Performance
Mutual fund performance is commonly measured as total return. Total return is
the change in value of an investment over a given period, assuming reinvestment
of any dividends and capital gains. Total return reflects the Fund's performance
over a stated period of time. An average annual total return is a hypothetical
rate of return that, if achieved annually, would have
23 Prospectus
<PAGE>
produced the same total return if performance had been constant over the entire
period. Average annual total return smooths out variations in performance; it is
not the same as actual year-by-year results. Total return and average annual
total return are based on past results and are not a prediction of future
performance. They do not include the effect of income taxes paid by
shareholders. The Fund may sometimes show its performance compared to certain
performance rankings, averages or stock indices (described more fully in the
SAI).
General Information
The Fund is the only existing series of shares of Masters Concentrated Select
Trust (the Trust). The Board of Trustees may at its own discretion, create
additional series of shares. The Declaration of Trust contains an express
disclaimer of shareholder liability for its acts or obligations and provides for
indemnification and reimbursement of expenses out of the Trust's property for
any shareholder held personally liable for its obligations.
Shareholders are entitled to one vote for each full share held (and fractional
votes for fractional shares) and may vote in the election of Trustees and on
other matters submitted to meetings of shareholders. It is not contemplated that
regular annual meetings of shareholders will be held.
The Declaration of Trust provides that the shareholders have the right to remove
a Trustee. Upon the written request of the record holders of ten percent of the
Trust's shares, the Trustees will call a meeting of shareholders to vote on the
removal of a Trustee. In addition, ten shareholders holding the lesser of
$25,000 worth or one per cent of the shares may communicate with other
shareholders to request a meeting to remove a Trustee. No amendment may be made
to the Declaration of Trust that would have a material adverse effect on
shareholders without the approval of the holders of more than 50% of the Trust's
shares. Shareholders have no pre-emptive or conversion rights. Shares when
issued are fully paid and non-assessable, except as set forth above.
Prospectus 24
<PAGE>
THE MASTERS SELECT EQUITY FUND
Statement of Additional Information
Dated , 1996
This Statement of Additional Information is not a prospectus, and it should be
read in conjunction with the prospectus dated___________________ , 1996, as may
be amended from time to time, of The Masters Select Equity Fund (the "Fund"), a
series of Masters Concentrated Select Trust (the "Trust"). Litman/Gregory Fund
Advisors, LLC (the "Advisor") is the Advisor of the Fund. A copy of the
prospectus may be obtained from the Fund at [address], telephone [telephone
number].
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Cross-reference to sections
Page in the prospectus
---- ---------------------------
<S> <C> <C>
Investment Objective and Policies.................... B-2 The Fund at a Glance; The Fund in
Detail
Management........................................... B-18 The Fund in Detail: Management,
Investment Managers, Breakdown of
Expenses, Organization
Portfolio Transactions and Brokerage................. B-20 The Fund in Detail: Investment Managers
Net Asset Value...................................... B-21 Your Account: How to Buy Shares
Taxation ........................................... B-22 Taxes
Dividends and Distributions.......................... B-24 Dividends, Capital Gains, and Taxes
Performance Information.............................. B-24 Performance
General Information.................................. B-25 General Information
Appendix............................................. B-26 Not applicable
</TABLE>
B-1
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Fund is to provide long-term growth of
capital. There is no assurance that the Fund will achieve its objective. The
discussion below supplements information contained in the prospectus as to
investment policies of the Fund.
Convertible Securities and Warrants
The Fund may invest in convertible securities and warrants. A
convertible security is a fixed income security (a debt instrument or a
preferred stock) which may be converted at a stated price within a specified
period of time into a certain quantity of the common stock of the same or a
different issuer. Convertible securities are senior to common stocks in an
issuer's capital structure, but are usually subordinated to similar
non-convertible securities. While providing a fixed income stream (generally
higher in yield than the income derivable from common stock but lower than that
afforded by a similar nonconvertible security), a convertible security also
affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation attendant upon a market price advance in
the convertible security's underlying common stock.
A warrant gives the holder a right to purchase at any time during a
specified period a predetermined number of shares of common stock at a fixed
price. Unlike convertible debt securities or preferred stock, warrants do not
pay a fixed dividend. Investments in warrants involve certain risks, including
the possible lack of a liquid market for resale of the warrants, potential price
fluctuations as a result of speculation or other factors, and failure of the
price of the underlying security to reach or have reasonable prospects of
reaching a level at which the warrant can be prudently exercised (in which event
the warrant may expire without being exercised, resulting in a loss of the
Fund's entire investment therein).
Other Corporate Debt Securities
The Fund may invest in non-convertible debt securities of foreign and
domestic companies over a cross-section of industries. The debt securities in
which the Fund may invest will be of varying maturities and may include
corporate bonds, debentures, notes and other similar corporate debt instruments.
The value of a longer-term debt security fluctuates more widely in response to
changes in interest rates than do shorter-term debt securities.
Risks of Investing in Debt Securities
There are a number of risks generally associated with an investment in
debt securities (including convertible securities). Yields on short,
intermediate, and long-term securities depend on a variety of factors, including
the general condition of the money and bond markets, the size of a particular
offering, the maturity of the obligation, and the rating of the issue.
Debt securities with longer maturities tend to produce higher yields and are
generally subject to potentially greater capital appreciation and depreciation
than obligations with short maturities and lower yields. The market prices of
debt securities usually vary, depending upon available yields. An increase in
interest rates will generally reduce the value of such portfolio investments,
and a decline in interest rates will generally increase the value of such
portfolio investments. The ability of the Fund to achieve its investment
objective also depends on the continuing ability of the issuers of the debt
securities in which the Fund invests to meet their obligations for the payment
of interest and principal when due.
Risks of Investing in Lower-Rated Debt Securities
As set forth in the prospectus, the Fund may invest a portion of its
net assets in debt securities rated below "Baa" by Moody's or "BBB" by S&P or
below investment grade by other recognized rating agencies, or in unrated
securities of comparable quality under certain circumstances. Securities with
ratings below "Baa" and/or "BBB" are commonly referred to as "junk bonds." Such
bonds are subject to greater market fluctuations and risk of loss of income and
principal than higher rated bonds for a variety of reasons, including the
following:
Sensitivity to Interest Rate and Economic Changes. The economy and
interest rates affect high yield securities differently from other securities.
For example, the prices of high yield bonds have been found to be less sensitive
to interest rate changes than higher-rated investments, but more sensitive to
adverse economic changes or individual corporate developments. Also, during an
economic downturn or substantial period of rising interest rates, highly
leveraged issuers may experience financial stress which would adversely affect
their ability to service their principal and
B-2
<PAGE>
interest obligations, to meet projected business goals, and to obtain additional
financing. If the issuer of a bond defaults, the Fund may incur additional
expenses to seek recovery. In addition, periods of economic uncertainty and
changes can be expected to result in increased volatility of market prices of
high yield bonds and the Fund's asset values.
Payment Expectations. High yield bonds present certain risks based on
payment expectations. For example, high yield bonds may contain redemption and
call provisions. If an issuer exercises these provisions in a declining interest
rate market, the Fund would have to replace the security with a lower yielding
security, resulting in a decreased return for investors. Conversely, a high
yield bond's value will decrease in a rising interest rate market, as will the
value of the Fund's assets. If the Fund experiences unexpected net redemptions,
it may be forced to sell its high yield bonds without regard to their investment
merits, thereby decreasing the asset base upon which the Fund's expenses can be
spread and possibly reducing the Fund's rate of return.
Liquidity and Valuation. To the extent that there is no established
retail secondary market, there may be thin trading of high yield bonds, and this
may impact an Investment advisor's ability to accurately value high yield bonds
and the Fund's assets and hinder the Fund's ability to dispose of the bonds.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of high yield bonds, especially
in a thinly traded market.
Credit Ratings. Credit ratings evaluate the safety of principal and
interest payments, not the market value risk of high yield bonds. Also, since
credit rating agencies may fail to timely change the credit ratings to reflect
subsequent events, an investment advisor must monitor the issuers of high yield
bonds in the Fund's portfolio to determine if the issuers will have sufficient
cash flow and profits to meet required principal and interest payments, and to
assure the bonds' liquidity so the Fund can meet redemption requests. The Fund
will not necessarily dispose of a portfolio security when its rating has been
changed.
Short-Term Investments
The Fund may invest in any of the following securities and instruments:
Bank Certificates or Deposit, Bankers' Acceptances and Time Deposits.
The Fund may acquire certificates of deposit, bankers' acceptances and time
deposits. Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by the Fund will be
dollar-denominated obligations of domestic or foreign banks or financial
institutions which at the time of purchase have capital, surplus and undivided
profits in excess of $100 million (including assets of both domestic and foreign
branches), based on latest published reports, or less than $100 million if the
principal amount of such bank obligations are fully insured by the U.S.
Government. If the Fund holds instruments of foreign banks or financial
institutions, it may be subject to additional investment risks that are
different in some respects from those incurred by a fund which invests only in
debt obligations of U.S. domestic issuers. See "Foreign Investments" below. Such
risks include future political and economic developments, the possible
imposition of withholding taxes by the particular country in which the issuer is
located on interest income payable on the securities, the possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on these securities.
Domestic banks and foreign banks are subject to different governmental
regulations with respect to the amount and types of loans which may be made and
interest rates which may be charged. In addition, the profitability of the
banking industry depends largely upon the availability and cost of funds for the
purpose of financing lending operations under prevailing money market
conditions. General economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers play an important part
in the operations of the banking industry.
As a result of federal and state laws and regulations, domestic banks
are, among other things, required to maintain specified levels of reserves,
limited in the amount which they can loan to a single borrower, and subject to
other regulations designed to promote financial soundness. However, such laws
and regulations do not necessarily apply to foreign bank obligations that the
Fund may acquire.
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In addition to purchasing certificates of deposit and bankers'
acceptances, to the extent permitted under its investment objectives and
policies stated above and in its prospectus, the Fund may make interest-bearing
time or other interest-bearing deposits in commercial or savings banks. Time
deposits are non-negotiable deposits maintained at a banking institution for a
specified period of time at a specified interest rate.
Savings Association Obligations. The Fund may invest in certificates of
deposit (interest-bearing time deposits) issued by savings banks or savings and
loan associations that have capital, surplus and undivided profits in excess of
$100 million, based on latest published reports, or less than $100 million if
the principal amount of such obligations is fully insured by the U.S.
Government.
Commercial Paper, Short-Term Notes and Other Corporate Obligations. The
Fund may invest a portion of its assets in commercial paper and short-term
notes. Commercial paper consists of unsecured promissory notes issued by
corporations. Issues of commercial paper and short-term notes will normally have
maturities of less than nine months and fixed rates of return, although such
instruments may have maturities of up to one year.
Commercial paper and short-term notes will consist of issues rated at
the time of purchase "A-2" or higher by S&P, "Prime-1" or "Prime-2" by Moody's,
or similarly rated by another nationally recognized statistical rating
organization or, if unrated, will be determined by an investment advisor to be
of comparable quality. These rating symbols are described in Appendix A.
Corporate obligations include bonds and notes issued by corporations to
finance longer-term credit needs than supported by commercial paper. While such
obligations generally have maturities of ten years or more, the Fund may
purchase corporate obligations which have remaining maturities of one year or
less from the date of purchase and which are rated "AA" or higher by S&P or "Aa"
or higher by Moody's.
Money Market Funds
The Fund may under certain circumstances invest a portion of its assets
in money market funds. The Investment Company Act of 1940 (the "1940 Act")
prohibits the Fund from investing more than 5% of the value of its total assets
in any one investment company. or more than 10% of the value of its total assets
in investment companies as a group, and also restricts its investment in any
investment company to 3% of the voting securities of such investment company.
The Advisor and the investment managers will not impose advisory fees on assets
of the Fund invested in a money market mutual fund. However, an investment in a
money market mutual fund will involve payment by the Fund of its pro rata share
of advisory and administrative fees charged by such fund.
Government Obligations
The Fund may make short-term investments in U.S. Government
obligations. Such obligations include Treasury bills, certificates of
indebtedness, notes and bonds, and issues of such entities as the Government
National Mortgage Association ("GNMA"), Export-Import Bank of the United States,
Tennessee Valley Authority, Resolution Funding Corporation, Farmers Home
Administration, Federal Home Loan Banks, Federal Intermediate Credit Banks,
Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration,
Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage
Corporation, and the Student Loan Marketing Association.
Some of these obligations, such as those of the GNMA, are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Export-Import Bank of United States, are supported by the right of the issuer to
borrow from the Treasury; others, such as those of the FNMA, are supported by
the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law.
The Fund may invest in sovereign debt obligations of foreign countries.
A sovereign debtor's willingness or ability to repay principal and interest in a
timely manner may be affected by a number of factors, including its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
principal international lenders and the political constraints to which it may be
subject. Emerging market governments could default on their sovereign debt. Such
sovereign debtors also may be dependent on expected disbursements from foreign
governments, multilateral agencies and other entities abroad to reduce principal
and interest arrearages on their debt. The
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commitments on the part of these governments, agencies and others to make such
disbursements may be conditioned on a sovereign debtor's implementation of
economic reforms and/or economic performance and the timely service of such
debtor's obligations. Failure to meet such conditions could result in the
cancellation of such third parties' commitments to lend funds to the sovereign
debtor, which may further impair such debtor's ability or willingness to service
its debt in a timely manner.
Zero Coupon Securities
The Fund may invest up to 35% of its net assets in zero coupon
securities issued by the U.S. Treasury. Zero coupon Treasury securities are U.S.
Treasury notes and bonds which have been stripped of their unmatured interest
coupons and receipts, or certificates representing interests in such stripped
debt obligations or coupons. Because a zero coupon security pays no interest to
its holder during its life or for a substantial period of time, it usually
trades at a deep discount from its face or par value and will be subject to
greater fluctuations of market value in response to changing interest rates than
debt obligations of comparable maturities which make current distributions of
interest.
Variable and Floating Rate Instruments
The Fund may acquire variable and floating rate instruments. Such
instruments are frequently not rated by credit rating agencies; however, unrated
variable and floating rate instruments purchased by the Fund will be determined
by an investment advisor under guidelines established by the Trust's Board of
Trustees to be of comparable quality at the time of the purchase to rated
instruments eligible for purchase by the Fund. In making such determinations, an
investment advisor will consider the earning power, cash flow and other
liquidity ratios of the issuers of such instruments (such issuers include
financial, merchandising, bank holding and other companies) and will monitor
their financial condition. An active secondary market may not exist with respect
to particular variable or floating rate instruments purchased by the Fund. The
absence of such an active secondary market could make it difficult for the Fund
to dispose of the variable or floating rate instrument involved in the event of
the issuer of the instrument defaulting on its payment obligation or during
periods in which the Fund is not entitled to exercise its demand rights, and the
Fund could, for these or other reasons, suffer a loss to the extent of the
default. Variable and floating rate instruments may be secured by bank letters
of credit.
Mortgage-Related Securities
The Fund may invest in mortgage-related securities. Mortgage-related
securities are derivative interests in pools of mortgage loans made to U.S.
residential home buyers, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental,
government-related and private organizations. The Fund may also invest in debt
securities which are secured with collateral consisting of U.S. mortgage-related
securities, and in other types of U.S. mortgage-related securities.
U.S. Mortgage Pass-Through Securities. Interests in pools of
mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their residential mortgage
loans, net of any fees paid to the issuer or guarantor of such securities.
Additional payments are caused by repayments of principal resulting from the
sale of the underlying residential property, refinancing or foreclosure, net of
fees or costs which may be incurred. Some mortgage-related securities (such as
securities issued by the Government National Mortgage Association) are described
as "modified pass-throughs." These securities entitle the holder to receive all
interest and principal payments owed on the mortgage pool, net of certain fees,
at the scheduled payment dates regardless of whether or not the mortgagor
actually makes the payment.
The principal governmental guarantor of U.S. mortgage-related
securities is the Government National Mortgage Association ("GNMA"). GNMA is a
wholly owned United States Government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the United States Government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage bankers)
and backed by pools of mortgages insured by the Federal Housing Agency or
guaranteed by the Veterans Administration.
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Government-related guarantors include the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
FNMA is a government-sponsored corporation owned entirely by private
stockholders and subject to general regulation by the Secretary of Housing and
Urban Development. FNMA purchases conventional residential mortgages not insured
or guaranteed by any government agency from a list of approved seller/services
which include state and federally chartered savings and loan associations,
mutual savings banks, commercial banks and credit unions and mortgage bankers.
FHLMC is a government-sponsored corporation created to increase availability of
mortgage credit for residential housing and owned entirely by private
stockholders. FHLMC issues participation certificates which represent interests
in conventional mortgages from FHLMC's national portfolio. Pass- through
securities issued by FNMA and participation certificates issued by FHLMC are
guaranteed as to timely payment of principal and interest by FNMA and FHLMC,
respectively, but are not backed by the full faith and credit of the United
States Government.
Although the underlying mortgage loans in a pool may have maturities of
up to 30 years, the actual average life of the pool certificates typically will
be substantially less because the mortgages will be subject to normal principal
amortization and may be prepaid prior to maturity. Prepayment rates vary widely
and may be affected by changes in market interest rates. In periods of falling
interest rates, the rate of prepayment tends to increase, thereby shortening the
actual average life of the pool certificates. Conversely, when interest rates
are rising, the rate of prepayments tends to decrease, thereby lengthening the
actual average life of the certificates. Accordingly, it is not possible to
predict accurately the average life of a particular pool.
Collateralized Mortgage Obligations ("CMOs"). A domestic or foreign CMO
in which the Fund may invest is a hybrid between a mortgage-backed bond and a
mortgage pass-through security. Like a bond, interest is paid, in most cases,
semiannually. CMOs may be collateralized by whole mortgage loans, but are more
typically collateralized by portfolios of mortgage pass-through securities
guaranteed by GNMA, FHLMC, FNMA or equivalent foreign entities.
CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal and
interest received from the pool of underlying mortgages, including prepayments,
is first returned to the class having the earliest maturity date or highest
maturity. Classes that have longer maturity dates and lower seniority will
receive principal only after the higher class has been retired.
Foreign Investments and Currencies
The Fund may invest in securities of foreign issuers that are not
publicly traded in the United States. The Fund may also invest in depositary
receipts and in foreign currency futures contracts and may purchase and sell
foreign currency on a spot basis.
Depositary Receipts. Depositary Receipts ("Drs") include American
Depositary Receipts ("ADRS"), European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs") or other forms of depositary receipts. Drs are
receipts typically issued in connection with a U.S. or foreign bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation.
Risks of Investing in Foreign Securities. Investments in foreign
securities involve certain inherent risks, including the following:
Political and Economic Factors. Individual foreign economies of certain
countries may differ favorably or unfavorably from the United States' economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, diversification and balance of payments
position. The internal politics of certain foreign countries may not be as
stable as those of the United States. Governments in certain foreign countries
also continue to participate to a significant degree, through ownership interest
or regulation, in their respective economies. Action by these governments could
include restrictions on foreign investment, nationalization, expropriation of
goods or imposition of taxes, and could have a significant effect on market
prices of securities and payment of interest. The economies of many foreign
countries are heavily dependent upon international trade and are accordingly
affected by the trade policies and economic conditions of their trading
partners. Enactment by these trading partners of protectionist trade legislation
could have a significant adverse effect upon the securities markets of such
countries.
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Currency Fluctuations. The Fund may invest in securities denominated in
foreign currencies. Accordingly, a change in the value of any such currency
against the U.S. dollar will result in a corresponding change in the U.S. dollar
value of the Fund's assets denominated in that currency. Such changes will also
affect the Fund's income. The value of the Fund's assets may also be affected
significantly by currency restrictions and exchange control regulations enacted
from time to time.
Market Characteristics. The investment advisors expect that most
foreign securities in which the Fund invest will be purchased in
over-the-counter markets or on exchanges located in the countries in which the
principal offices of the issuers of the various securities are located, if that
is the best available market. Foreign exchanges and markets may be more volatile
than those in the United States. While growing in volume, they usually have
substantially less volume than U.S. markets, and the Fund's portfolio securities
may be less liquid and more volatile than U.S. Government securities. Moreover,
settlement practices for transactions in foreign markets may differ from those
in United States markets, and may include delays beyond periods customary in the
United States. Foreign security trading practices, including those involving
securities settlement where Fund assets may be released prior to receipt of
payment or securities, may expose the Fund to increased risk in the event of a
failed trade or the insolvency of a foreign broker-dealer.
Transactions in options on securities, futures contracts, futures
options and currency contracts may not be regulated as effectively on foreign
exchanges as similar transactions in the United States, and may not involve
clearing mechanisms and related guarantees. The value of such positions also
could be adversely affected by the imposition of different exercise terms and
procedures and margin requirements than in the United States. The value of the
Fund's positions may also be adversely impacted by delays in its ability to act
upon economic events occurring in foreign markets during non-business hours in
the United States.
Legal and Regulatory Matters. Certain foreign countries may have less
supervision of securities markets, brokers and issuers of securities, and less
financial information available to issuers, than is available in the United
States.
Taxes. The interest payable on certain of the Fund's foreign portfolio
securities may be subject to foreign withholding taxes, thus reducing the net
amount of income available for distribution to the Fund's shareholders.
Costs. To the extent that the Fund invests in foreign securities, its
expense ratio is likely to be higher than those of investment companies
investing only in domestic securities, since the cost of maintaining the custody
of foreign securities is higher.
In considering whether to invest in the securities of a foreign
company, an investment advisor considers such factors as the characteristics of
the particular company, differences between economic trends and the performance
of securities markets within the U.S. and those within other countries, and also
factors relating to the general economic, governmental and social conditions of
the country or countries where the company is located. The extent to which the
Fund will be invested in foreign companies and countries and depository receipts
will fluctuate from time to time within the limitations described in the
prospectus, depending on an investment advisor's assessment of prevailing
market, economic and other conditions.
Options on Securities and Securities Indices
Purchasing Put and Call Options. The Fund may purchase covered "put"
and "call" options with respect to securities which are otherwise eligible for
purchase by the Fund and with respect to various stock indices subject to
certain restrictions. The Fund will engage in trading of such derivative
securities exclusively for hedging purposes.
If the Fund purchases a put option, the Fund acquires the right to sell
the underlying security at a specified price at any time during the term of the
option (for "American-style" options) or on the option expiration date (for
"European- style" options). Purchasing put options may be used as a portfolio
investment strategy when an investment advisor perceives significant short-term
risk but substantial long-term appreciation for the underlying security. The put
option acts as an insurance policy, as it protects against significant downward
price movement while it allows full participation in any upward movement. If the
Fund is holding a stock which it feels has strong fundamentals, but for some
reason may be weak in the near term, the Fund may purchase a put option on such
security, thereby giving itself the right to sell such security at a certain
strike price throughout the term of the option. Consequently, the Fund will
exercise the put only if the price of such security falls below the strike price
of the put. The difference between the put's strike price
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and the market price of the underlying security on the date the Fund exercises
the put, less transaction costs, will be the amount by which the Fund will be
able to hedge against a decline in the underlying security. If during the period
of the option the market price for the underlying security remains at or above
the put's strike price, the put will expire worthless, representing a loss of
the price the Fund paid for the put, plus transaction costs. If the price of the
underlying security increases, the profit the Fund realizes on the sale of the
security will be reduced by the premium paid for the put option less any amount
for which the put may be sold.
If the Fund purchases a call option, it acquires the right to purchase
the underlying security at a specified price at any time during the term of the
option. The purchase of a call option is a type of insurance policy to hedge
against losses that could occur if the Fund has a short position in the
underlying security and the security thereafter increases in price. The Fund
will exercise a call option only if the price of the underlying security is
above the strike price at the time of exercise. If during the option period the
market price for the underlying security remains at or below the strike price of
the call option, the option will expire worthless, representing a loss of the
price paid for the option, plus transaction costs. If the call option has been
purchased to hedge a short position of the Fund in the underlying security and
the price of the underlying security thereafter falls, the profit the Fund
realizes on the cover of the short position in the security will be reduced by
the premium paid for the call option less any amount for which such option may
be sold.
Prior to exercise or expiration, an option may be sold when it has
remaining value by a purchaser through a "closing sale transaction," which is
accomplished by selling an option of the same series as the option previously
purchased. The Fund generally will purchase only those options for which an
investment advisor believes there is an active secondary market to facilitate
closing transactions.
Writing Call Options. The Fund may write covered call options. A call
option is "covered" if the Fund owns the security underlying the call or has an
absolute right to acquire the security without additional cash consideration
(or, if additional cash consideration is required, cash or cash equivalents in
such amount as are held in a segregated account by the Custodian). The writer of
a call option receives a premium and gives the purchaser the right to buy the
security underlying the option at the exercise price. The writer has the
obligation upon exercise of the option to deliver the underlying security
against payment of the exercise price during the option period. If the writer of
an exchange-traded option wishes to terminate his obligation, he may effect a
"closing purchase transaction." This is accomplished by buying an option of the
same series as the option previously written. A writer may not effect a closing
purchase transaction after it has been notified of the exercise of an option.
Effecting a closing transaction in the case of a written call option
will permit the Fund to write another call option on the underlying security
with either a different exercise price, expiration date or both. Also, effecting
a closing transaction will permit the cash or proceeds from the concurrent sale
of any securities subject to the option to be used for other investments of the
Fund. If the Fund desires to sell a particular security from its portfolio on
which it has written a call option, it will effect a closing transaction prior
to or concurrent with the sale of the security.
The Fund will realize a gain from a closing transaction if the cost of
the closing transaction is less than the premium received from writing the
option or if the proceeds from the closing transaction are more than the premium
paid to purchase the option. The Fund will realize a loss from a closing
transaction if the cost of the closing transaction is more than the premium
received from writing the option or if the proceeds from the closing transaction
are less than the premium paid to purchase the option. However, because
increases in the market price of a call option will generally reflect increases
in the market price of the underlying security, any loss to the Fund resulting
from the repurchase of a call option is likely to be offset in whole or in part
by appreciation of the underlying security owned by the Fund.
Stock Index Options. The Fund may also purchase put and call options
with respect to the S&P 500 and other stock indices. Such options may be
purchased as a hedge against changes resulting from market conditions in the
values of securities which are held in the Fund's portfolio or which it intends
to purchase or sell, or when they are economically appropriate for the reduction
of risks inherent in the ongoing management of the Fund.
The distinctive characteristics of options on stock indices create
certain risks that are not present with stock options generally. Because the
value of an index option depends upon movements in the level of the index rather
than the price of a particular stock, whether the Fund will realize a gain or
loss on the purchase or sale of an option on an index depends upon movements in
the level of stock prices in the stock market generally rather than movements in
the price of a particular stock. Accordingly, successful use by the Fund of
options on a stock index would be subject to an
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investment advisor's ability to predict correctly movements in the direction of
the stock market generally. This requires different skills and techniques than
predicting changes in the price of individual stocks.
Index prices may be distorted if trading of certain stocks included in
the index is interrupted. Trading of index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
stocks included in the index. If this were to occur, the Fund would not be able
to close out options which it had purchased, and if restrictions on exercise
were imposed, the Fund might be unable to exercise an option it holds, which
could result in substantial losses to the Fund. It is the policy of the Fund to
purchase put or call options only with respect to an index which an investment
advisor believes includes a sufficient number of stocks to minimize the
likelihood of a trading halt in the index.
Risks Of Investing in Options. There are several risks associated with
transactions in options on securities and indices. Options may be more volatile
than the underlying instruments and, therefore, on a percentage basis, an
investment in options may be subject to greater fluctuation than an investment
in the underlying instruments themselves. There are also significant differences
between the securities and options markets that could result in an imperfect
correlation between these markets, causing a given transaction not to achieve
its objective. In addition, a liquid secondary market for particular options may
be absent for reasons which include the following: there may be insufficient
trading interest in certain options; restrictions may be imposed by an exchange
on opening transactions or closing transactions or both; trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of option of underlying securities; unusual or unforeseen
circumstances may interrupt normal operations on an exchange; the facilities of
an exchange or clearing corporation may not at all times be adequate to handle
current trading volume; or one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in that class or series of options) would
cease to exist, although outstanding options that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events. The
extent to which the Fund may enter into options transactions may be limited by
the Internal Revenue Code (the "Code") requirements for qualification of the
Fund as a regulated investment company. See "Dividends and Distributions" and
"Taxation."
In addition, when trading options on foreign exchanges, many of the
protections afforded to participants in United States option exchanges will not
be available. For example, there may be no daily price fluctuation limits in
such exchanges or markets, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchaser of an
option cannot lose more than the amount of the premium plus related transaction
costs, this entire amount could be lost. Moreover, the Fund as an option writer
could lose amounts substantially in excess of its initial investment, due to the
margin and collateral requirements typically associated with such option
writing. See "Dealer Options" below.
Dealer Options. The Fund will engage in transactions involving dealer
options as well as exchange-traded options. Certain risks are specific to dealer
options. While the Fund might look to a clearing corporation to exercise
exchange-traded options, if the Fund were to purchase a dealer option it would
need to rely on the dealer from which it purchased the option to perform if the
option were exercised. Failure by the dealer to do so would result in the loss
of the premium paid by the Fund as well as loss of the expected benefit of the
transaction.
Exchange-traded options generally have a continuous liquid market while
dealer options may not. Consequently, the Fund may generally be able to realize
the value of a dealer option it has purchased only by exercising or reselling
the option to the dealer who issued it. Similarly, when the Fund writes a dealer
option, the Fund may generally be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the dealer
to whom the Fund originally wrote the option. While the Fund will seek to enter
into dealer options only with dealers who will agree to and which are expected
to be capable of entering into closing transactions with the Fund, there can be
no assurance that the Fund will at any time be able to liquidate a dealer option
at a favorable price at any time prior to expiration. Unless the Fund, as a
covered dealer call option writer, is able to effect a closing purchase
transaction, it will not be able to liquidate securities (or other assets) used
as cover until the option expires or is exercised. In the event of insolvency of
the other party, the Fund may be unable to liquidate a dealer option. With
respect to options written by the
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Fund, the inability to enter into a closing transaction may result in material
losses to the Fund. For example, because the Fund must maintain a secured
position with respect to any call option on a security it writes, the Fund may
not sell the assets which it has segregated to secure the position while it is
obligated under the option. This requirement may impair the Fund's ability to
sell portfolio securities at a time when such sale might be advantageous.
The Staff of the Securities and Exchange Commission (the "Commission")
has taken the position that purchased dealer options are illiquid securities.
The Fund may treat the cover used for written dealer options as liquid if the
dealer agrees that the Fund may repurchase the dealer option it has written for
a maximum price to be calculated by a predetermined formula. In such cases, the
dealer option would be considered illiquid only to the extent the maximum
purchase price under the formula exceeds the intrinsic value of the option.
Accordingly, the Fund will treat dealer options as subject to the Fund's
limitation on illiquid securities. If the Commission changes its position on the
liquidity of dealer options, the Fund will change its treatment of such
instruments accordingly.
Foreign Currency Options. The Fund may buy or sell put and call options
on foreign currencies. A put or call option on a foreign currency gives the
purchaser of the option the right to sell or purchase a foreign currency at the
exercise price until the option expires. The Fund will use foreign currency
options separately or in combination to control currency volatility. Among the
strategies employed to control currency volatility is an option collar. An
option collar involves the purchase of a put option and the simultaneous sale of
call option on the same currency with the same expiration date but with
different exercise (or "strike") prices. Generally, the put option will have an
out-of-the-money strike price, while the call option will have either an
at-the-money strike price or an in-the-money strike price. Foreign currency
options are derivative securities. Currency options traded on U.S. or other
exchanges may be subject to position limits which may limit the ability of the
Fund to reduce foreign currency risk using such options.
As with other kinds of option transactions, the writing of an option on
foreign currency will constitute only a partial hedge, up to the amount of the
premium received. The Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations: however, in the event of exchange rate
movements adverse to the Fund's position, the Fund may forfeit the entire amount
of the premium plus related transaction costs.
Spread Transactions. The Fund may purchase covered spread options from
securities dealers. These covered spread options are not presently
exchange-listed or exchange-traded. The purchase of a spread option gives the
Fund the right to put a securities that it owns at a fixed dollar spread or
fixed yield spread in relationship to another security that the Fund does not
own, but which is used as a benchmark. The risk to the Fund, in addition to the
risks of dealer options described above, is the cost of the premium paid as well
as any transaction costs. The purchase of spread options will be used to protect
the Fund against adverse changes in prevailing credit quality spreads, i.e., the
yield spread between high quality and lower quality securities. This protection
is provided only during the life of the spread options.
Forward Currency Contracts
The Fund may enter into forward currency contracts in anticipation of
changes in currency exchange rates. A forward currency contract is an obligation
to purchase or sell a specific currency at a future date, which may be any fix
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. For example, the Fund might purchase a
particular currency or enter into a forward currency contract to preserve the
U.S. dollar price of securities it intends to or has contracted to purchase.
Alternatively, it might sell a particular currency on either a spot or forward
basis to hedge against an anticipated decline in the dollar value of securities
it intends to or has contracted to sell. Although this strategy could minimize
the risk of loss due to a decline in the value of the hedged currency, it could
also limit any potential gain from an increase in the value of the currency.
Futures Contracts and Related Options
The Fund may invest in futures contracts and options on futures
contracts as a hedge against changes in market conditions or interest rates. The
Fund will trade in such derivative securities for bona fide hedging purposes and
otherwise in accordance with the rules of the Commodity Futures Trading
Commission ("CFTC"). Each such Fund will segregate liquid assets in a separate
account with its Custodian when required to do so by CFTC guidelines in order to
cover its obligation in connection with futures and options transactions.
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No price is paid or received by the Fund upon the purchase or sale of a
futures contract. When it enters into a domestic futures contract, the Fund will
be required to deposit in a segregated account with its Custodian an amount of
cash or U.S. Treasury bills equal to approximately 5% of the contract amount.
This amount is known as initial margin. The margin requirements for foreign
futures contracts may be different.
The nature of initial margin in futures transactions is different from
that of margin in securities transactions. Futures contract margin does not
involve the borrowing of funds by the customer to finance the transactions.
Rather, the initial margin is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Fund upon termination of the
futures contract, assuming all contractual obligations have been satisfied.
Subsequent payments (called variation margin) to and from the broker will be
made on a daily basis as the price of the underlying stock index fluctuates, to
reflect movements in the price of the contract making the long and short
positions in the futures contract more or less valuable. For example, when the
Fund has purchased a stock index futures contract and the price of the
underlying stock index has risen, that position will have increased in value and
the Fund will receive from the broker a variation margin payment equal to that
increase in value. Conversely, when the Fund has purchased a stock index futures
contract and the price of the underlying stock index has declined, the position
will be less valuable and the Fund will be required to make a variation margin
payment to the broker.
At any time prior to expiration of a futures contract, the Fund may
elect to close the position by taking an opposite position, which will operate
to terminate the Fund's position in the futures contract A final determination
of variation margin is made on closing the position. Additional cash is paid by
or released to the Fund, which realizes a loss or a gain.
Stock Index Futures Contracts. The Fund may invest in futures contracts
on stock indices. Currently, stock index futures contracts can be purchased or
sold with respect to the S&P 500 Stock Price Index on the Chicago Mercantile
Exchange, the Major Market Index on the Chicago Board of Trade, the New York
Stock Exchange Composite Index on the New York Futures Exchange and the Value
Line Stock Index on the Kansas City Board of Trade. Foreign financial and stock
index futures are traded on foreign exchanges including the London International
Financial Futures Exchange, the Singapore International Monetary Exchange, the
Sydney Futures Exchange Limited and the Tokyo Stock Exchange.
Interest Rate or Financial Futures Contracts. The Fund may invest in
interest rate or financial futures contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, a contract is made to purchase or sell a bond in the future for
a set price on a certain date. Historically, the prices for bonds established in
the futures markets have generally tended to move in the aggregate in concert
with cash market prices, and the prices have maintained fairly predictable
relationships.
The sale of an interest rate or financial futures contract by the Fund
would create an obligation by the Fund, as seller, to deliver the specific type
of financial instrument called for in the contract at a specific future time for
a specified price. A futures contract purchased by the Fund would create an
obligation by the Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The specific
securities delivered or taken, respectively, at settlement date, would not be
determined until at or near that date. The determination would be in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made.
Although interest rate or financial futures contracts by their terms
call for actual delivery or acceptance of securities, in most cases the
contracts are closed out before the settlement date without delivery of
securities. Closing out of a futures contract sale is effected by the Fund's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Fund is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the Fund's entering
into a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
The Fund will deal only in standardized contracts on recognized
exchanges. Each exchange guarantees performance under contract provisions
through a clearing corporation, a nonprofit organization managed by the exchange
membership. Domestic interest rate futures contracts are traded in an auction
environment on the floors of several
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exchanges - principally, the Chicago Board of Trade and the Chicago Mercantile
Exchange. A public market now exists in domestic futures contracts covering
various financial instruments including long-term United States Treasury bonds
and notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage-backed securities; three-month United States Treasury bills; and 90-day
commercial paper. The Fund may trade in any futures contract for which there
exists a public market, including, without limitation, the foregoing
instruments. International interest rate futures contracts are traded on the
London International Financial Futures Exchange, the Singapore International
Monetary Exchange, the Sydney Futures Exchange Limited and the Tokyo Stock
Exchange.
Foreign Currency Futures Contracts. The Fund may use foreign currency
future contracts for hedging purposes. A foreign currency futures contract
provides for the future sale by one party and purchase by another party of a
specified quantity of a foreign currency at a specified price and time. A public
market exists in futures contracts covering several foreign currencies,
including the Australian dollar, the Canadian dollar, the British pound, the
German mark, the Japanese yen, the Swiss franc, and certain multinational
currencies such as the European Currency Unit ("ECU"). Other foreign currency
futures contracts are likely to be developed and traded in the future. The Fund
will only enter into futures contracts and futures options which are
standardized and traded on a U.S. or foreign exchange, board of trade, or
similar entity, or quoted on an automated quotation system.
Risks of Transactions in Futures Contracts. There are several risks
related to the use of futures as a hedging device. One risk arises because of
the imperfect correlation between movements in the price of the futures contract
and movements in the price of the securities which are the subject of the hedge.
The price of the future may move more or less than the price of the securities
being hedged. If the price of the future moves less than the price of the
securities which are the subject of the hedge, the hedge will not be fully
effective, but if the price of the securities being hedged has moved in an
unfavorable direction, the Fund would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the loss on the
future. If the price of the future moves more than the price of the hedged
securities, the Fund will experience either a loss or a gain on the future which
will not be completely offset by movements in the price of the securities which
are subject to the hedge.
To compensate for the imperfect correlation of movements in the price
of securities being hedged and movements in the price of the futures contract,
the Fund may buy or sell futures contracts in a greater dollar amount than the
dollar amount of securities being hedged if the historical volatility of the
prices of such securities has been greater than the historical volatility over
such time period of the future. Conversely, the Fund may buy or sell fewer
futures contracts if the historical volatility of the price of the securities
being hedged is less than the historical volatility of the futures contract
being used. It is possible that, when the Fund has sold futures to hedge its
portfolio against a decline in the market, the market may advance while the
value of securities held in the Fund's portfolio may decline. If this occurs,
the Fund will lose money on the future and also experience a decline in value in
its portfolio securities. However, the Advisor believes that over time the value
of a diversified portfolio will tend to move in the same direction as the market
indices upon which the futures are based.
Where futures are purchased to hedge against a possible increase in the
price of securities before the Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead. If the Fund then decides not to invest in
securities or options at that time because of concern as to possible further
market decline or for other reasons, it will realize a loss on the futures
contract that is not offset by a reduction in the price of securities purchased.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the stock index or cash market due to certain market distortions.
All participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions, which could distort the normal relationship between the index or
cash market and futures markets. In addition, the deposit requirements in the
futures market are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the futures market
may also cause temporary price distortions. As a result of price distortions in
the futures market and the imperfect correlation between movements in the cash
market and the price of securities and movements in the price of futures, a
correct forecast of general trends by an investment advisor may still not result
in a successful hedging transaction over a very short time frame.
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Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Fund may
intend to purchase or sell futures only on exchanges or boards of trade where
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures position, and in the event of adverse price
movements, the Fund would continue to be required to make daily cash payments of
variation margin. When futures contracts have been used to hedge portfolio
securities, such securities will not be sold until the futures contract can be
terminated. In such circumstances, an increase in the price of the securities,
if any, may partially or completely offset losses on the futures contract.
However, as described above, there is no guarantee that the price of the
securities will in fact correlate with the price movements in the futures
contract and thus provide an offset to losses on a futures contract.
Most United States futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
Successful use of futures by the Fund is also subject to an investment
advisor's ability to predict correctly movements in the direction of the market.
For example, if the Fund has hedged against the possibility of a decline in the
market adversely affecting stocks held in its portfolio and stock prices
increase instead, the Fund will lose part or all of the benefit of the increased
value of the stocks which it has hedged because it will have offsetting losses
in its futures positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Fund may have to sell
securities at a time when it may be disadvantageous to do so.
In the event of the bankruptcy of a broker through which the Fund
engages in transactions in futures contracts or options, the Fund could
experience delays and losses in liquidating open positions purchased or sold
through the broker, and incur a loss of all or part of its margin deposits with
the broker.
Options on Futures Contracts. As described above, the Fund may purchase
options on the futures contracts they can purchase or sell. A futures option
gives the holder, in return for the premium paid, the right to buy (call) from
or sell (put) to the writer of the option a futures contract at a specified
price at any time during the period of the option. Upon exercise, the writer of
the option is obligated to pay the difference between the cash value of the
futures contract and the exercise price. Like the buyer or seller of a futures
contract, the holder or writer of an option has the right to terminate its
position prior to the scheduled expiration of the option by selling, or
purchasing an option of the same series, at which time the person entering into
the closing transaction will realize a gain or loss. There is no guarantee that
such closing transactions can be effected.
Investments in futures options involve some of the same considerations
as investments in futures contracts (for example, the existence of a liquid
secondary market). In addition, the purchase of an option also entails the risk
that changes in the value of the underlying futures contract will not be fully
reflected in the value of the option. Depending on the pricing of the option
compared to either the futures contract upon which it is based, or upon the
price of the securities being hedged, an option may or may not be less risky
than ownership of the futures contract or such securities. In general, the
market prices of options can be expected to be more volatile than the market
prices on the underlying futures contracts. Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to the Fund because the
maximum amount at risk is limited to the premium paid for the options (plus
transaction costs).
Restrictions on the Use or Futures Contracts and Related Options. The
Fund will not engage in transactions in futures contracts or related options for
speculation, but only as a hedge against changes resulting from market
conditions in the values of securities held in the Fund's portfolio or which it
intends to purchase and where the transactions are economically appropriate to
the reduction of risks inherent in the ongoing management of the Fund. The Fund
may not purchase or sell futures or purchase related options if, immediately
thereafter, more than 25% of its net assets would be hedged. The Fund also may
not purchase or sell futures or purchase related options if, immediately
B-13
<PAGE>
thereafter, the sum of the amount of margin deposits on the Fund's existing
futures positions and premiums paid for such options would exceed 5% of the
market value of the Fund's net assets.
Upon the purchase of futures contracts by the Fund, an amount of liquid
securities equal to the market value of the futures contracts, will be deposited
in a segregated account with the Custodian or in a margin account with a broker
to collateralize the position and thereby insure that the use of such futures is
unleveraged.
These restrictions, which are derived from current federal and state
regulations regarding the use of options and futures by mutual funds, are not
"fundamental restrictions" and may be changed by the Trustees of the Trust if
applicable law permits such a change and the change is consistent with the
overall investment objective and policies of the Fund.
The extent to which the Fund may enter into futures and options
transactions may be limited by the Code requirements for qualification of the
Fund as a regulated investment company. See "Taxation."
Repurchase Agreements
The Fund may enter into repurchase agreements with respect to its
portfolio securities. Pursuant to such agreements, the Fund acquires securities
from financial institutions such as banks and broker-dealers as are deemed to be
creditworthy by an investment advisor, subject to the seller's agreement to
repurchase and the Fund's agreement to resell such securities at a mutually
agreed upon date and price. The repurchase price generally equals the price paid
by the Fund plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the underlying portfolio security).
Securities subject to repurchase agreements will be held by the Custodian or in
the Federal Reserve/Treasury Book-Entry System or an equivalent foreign system.
The seller under a repurchase agreement will be required to maintain the value
of the underlying securities at not less than 102% of the repurchase price under
the agreement. If the seller defaults on its repurchase obligation, the Fund
holding the repurchase agreement will suffer a loss to the extent that the
proceeds from a sale of the underlying securities are less than the repurchase
price under the agreement. Bankruptcy or insolvency of such a defaulting seller
may cause the Fund's rights with respect to such securities to be delayed or
limited. Repurchase agreements are considered to be loans under the 1940 Act.
Reverse Repurchase Agreements.
The Fund may enter into reverse repurchase agreements, as set forth in
the prospectus. The Fund typically will invest the proceeds of a reverse
repurchase agreement in money market instruments or repurchase agreements
maturing not later than the expiration of the reverse repurchase agreement. The
Fund may use the proceeds of reverse repurchase agreements to provide liquidity
to meet redemption requests when sale of the Fund's securities is
disadvantageous.
The Fund causes the custodian to segregate liquid assets, such as cash,
U.S. Government securities or other high grade liquid debt securities equal in
value to its obligations (including accrued interest) with respect to reverse
repurchase agreements. In segregating such assets, the custodian either places
such securities in a segregated account or separately identifies such assets and
renders them unavailable for investment. Such assets are marked to market daily
to ensure full collateralization is maintained.
Dollar Roll Transactions
The Fund may enter into dollar roll transactions. A dollar roll
transaction involves a sale by the Fund of a security to a financial institution
concurrently with an agreement by the Fund to purchase a similar security from
the institution at a later date at an agreed-upon price. The securities that are
repurchased will bear the same interest rate as those sold, but generally will
be collateralized by different pools of mortgages with different prepayment
histories than those sold. During the period between the sale and repurchase,
the Fund will not be entitled to receive interest and principal payments on the
securities sold. Proceeds of the sale will be invested in additional portfolio
securities of the Fund, and the income from these investments, together with any
additional fee income received on the sale, may or may not generate income for
the Fund exceeding the yield on the securities sold.
At the time the Fund enters into a dollar roll transaction, it causes
its custodian to segregate liquid assets such as cash, U.S. Government
securities or other high-grade liquid debt securities having a value equal to
the purchase price for the similar security (including accrued interest) and
subsequently marks the assets to market daily to ensure that full
collateralization is maintained.
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When-Issued Securities, Forward Commitments and Delayed Settlements
The Fund may purchase securities on a "when-issued," forward commitment
or delayed settlement basis. In this event, the Custodian will set aside cash or
liquid portfolio securities equal to the amount of the commitment in a separate
account. Normally, the Custodian will set aside portfolio securities to satisfy
a purchase commitment. In such a case, the Fund may be required subsequently to
place additional assets in the separate account in order to assure that the
value of the account remains equal to the amount of the Fund's commitment. It
may be expected that the Fund's net assets will fluctuate to a greater degree
when it sets aside portfolio securities to cover such purchase commitments than
when it sets aside cash.
The Fund does not intend to engage in these transactions for
speculative purposes but only in furtherance of its investment objectives.
Because the Fund will set aside cash or liquid portfolio securities to satisfy
its purchase commitments in the manner described, the Fund's liquidity and the
ability of an investment advisor to manage it may be affected in the event the
Fund's forward commitments, commitments to purchase when-issued securities and
delayed settlements ever exceeded 15% of the value of its net assets.
The Fund will purchase securities on a when-issued, forward commitment
or delayed settlement basis only with the intention of completing the
transaction. If deemed advisable as a matter of investment strategy, however,
the Fund may dispose of or renegotiate a commitment after it is entered into,
and may sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. In these cases the Fund may
realize a taxable capital gain or loss. When the Fund engages in when-issued,
forward commitment and delayed settlement transactions, it relies on the other
party to consummate the trade. Failure of such party to do so may result in the
Fund's incurring a loss or missing an opportunity to obtain a price credited to
be advantageous.
The market value of the securities underlying a when-issued purchase,
forward commitment to purchase securities, or a delayed settlement and any
subsequent fluctuations in their market value is taken into account when
determining the market value of the Fund starting on the day the Fund agrees to
purchase the securities. The Fund does not earn interest on the securities it
has committed to purchase until they are paid for and delivered on the
settlement date.
Zero-Coupon, Step-Coupon and Pay-in-Kind Securities
The Fund may invest in zero-coupon, step-coupon and pay-in-kind
securities. These securities are debt securities that do not make regular cash
interest payments. Zero-coupon and step-coupon securities are sold at a deep
discount to their face value. Pay-in-kind securities pay interest through the
issuance of additional securities. Because these securities do not pay current
cash income, the price of these securities can be volatile when interest rates
fluctuate. While these securities do not pay current cash income, the Code
requires the holders of these securities to include in income each year the
portion of the original issue discount (or deemed discount) and other non-cash
income on the securities accruing that year. The Fund may be required to
distribute a portion of that discount and income and may be required to dispose
of other portfolio securities, which may occur in periods of adverse market
prices, in order to generate cash to meet these distribution requirements.
Borrowing
The Fund is authorized to borrow money from time to time for temporary,
extraordinary or emergency purposes or for clearance of transactions in amounts
up to 20% of the value of its total assets at the time of such borrowings. The
use of borrowing by the Fund involves special risk considerations that may not
be associated with other funds having similar objectives and policies. Since
substantially all of the Fund's assets fluctuate in value, whereas the interest
obligation resulting from a borrowing will be fixed by the terms of the Fund's
agreement with its lender, the asset value per share of the Fund will tend to
increase more when its portfolio securities increase in value and to decrease
more when its portfolio assets decrease in value than would otherwise be the
case if the Fund did not borrow funds. In addition, interest costs on borrowings
may fluctuate with changing market rates of interest and may partially offset or
exceed the return earned on borrowed funds. Under adverse market conditions, the
Fund might have to sell portfolio securities to meet interest or principal
payments at a time when fundamental investment considerations would not favor
such sales.
Lending Portfolio Securities
The Fund may lend its portfolio securities in an amount not exceeding
30% of its total assets to financial institutions such as banks and brokers if
the loan is collateralized in accordance with applicable regulations. Under the
present regulatory requirements which govern loans of portfolio securities, the
loan collateral must, on each business day,
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<PAGE>
at least equal the value of the loaned securities and must consist of cash,
letters of credit of domestic banks or domestic branches of foreign banks, or
securities of the U.S. Government or its agencies. To be acceptable as
collateral, letters of credit must obligate a bank to pay amounts demanded by
the Fund if the demand meets the terms of the letter. Such terms and the issuing
bank would have to be satisfactory to the Fund. Any loan might be secured by any
one or more of the three types of collateral. The terms of the Fund's loans must
permit the Fund to reacquire loaned securities on five days' notice or in time
to vote on any serious matter and must meet certain tests under the Code.
Short Sales
The Fund is authorized to make short sales of securities it owns or has
the right to acquire at no added cost through conversion or exchange of other
securities it owns (referred to as short sales "against the box") and to make
short sales of securities which it does not own or have the right to acquire.
In a short sale that is not "against the box," the Fund sells a
security which it does not own, in anticipation of a decline in the market value
of the security. To complete the sale, the Fund must borrow the security
(generally from the broker through which the short sale is made) in order to
make delivery to the buyer. The Fund is then obligated to replace the security
borrowed by purchasing it at the market price at the time of replacement. The
Fund is said to have a "short position" in the securities sold until it delivers
them to the broker. The period during which the Fund has a short position can
range from one day to more than a year. Until the security is replaced, the
proceeds of the short sale are retained by the broker, and the Fund is required
to pay to the broker a negotiated portion of any dividends or interest which
accrue during the period of the loan. To meet current margin requirements, the
Fund is also required to deposit with the broker additional cash or securities
so that the total deposit with the broker is maintained daily at 150% of the
current market value of the securities sold short (100% of the current market
value if a security is held in the account that is convertible or exchangeable
into the security sold short within 90 days without restriction other than the
payment of money).
Short sales by the Fund that are not made "against the box" create
opportunities to increase the Fund's return but, at the same time, involve
specific risk considerations and may be considered a speculative technique.
Since the Fund in effect profits from a decline in the price of the securities
sold short without the need to invest the full purchase price of the securities
on the date of the short sale, the Fund's net asset value per share will tend to
increase more when the securities it has sold short decrease in value, and to
decrease more when the securities it has sold short increase in value, than
would otherwise be the case if it had not engaged in such short sales. The
amount of any gain will be decreased, and the amount of any loss increased, by
the amount of any premium, dividends or interest the Fund may be required to pay
in connection with the short sale. Furthermore, under adverse market conditions
the Fund might have difficulty purchasing securities to meet its short sale
delivery obligations, and might have to sell portfolio securities to raise the
capital necessary to meet its short sale obligations at a time when fundamental
investment considerations would not favor such sales.
If the Fund makes a short sale "against the box," the Fund would not
immediately deliver the securities sold and would not receive the proceeds from
the sale. The seller is said to have a short position in the securities sold
until it delivers the securities sold, at which time it receives the proceeds of
the sale. To secure its obligation to deliver securities sold short, the Fund
will deposit in escrow in a separate account with the Custodian an equal amount
of the securities sold short or securities convertible into or exchangeable for
such securities. The Fund can close out its short position by purchasing and
delivering an equal amount of the securities sold short, rather than by
delivering securities already held by the Fund, because the Fund might want to
continue to receive interest and dividend payments on securities in its
portfolio that are convertible into the securities sold short.
The Fund's decision to make a short sale "against the box" may be a
technique to hedge against market risks when an investment advisor believes that
the price of a security may decline, causing a decline in the value of a
security owned by the Fund or a security convertible into or exchangeable for
such security. In such case, any future losses in the Fund's long position would
be reduced by a gain in the short position. The extent to which such gains or
losses in the long position are reduced will depend upon the amount of
securities sold short relative to the amount of the securities the Fund owns,
either directly or indirectly, and, in the case where the Fund owns convertible
securities, changes in the investment values or conversion premiums of such
securities.
The extent to which the Fund may enter into short sales transactions
may be limited by the Code requirements for qualification of the Fund as a
regulated investment company. See "Taxation."
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Illiquid Securities
The Fund may not invest more than 15% of the value of its net assets in
securities that at the time of purchase have legal or contractual restrictions
on resale or are otherwise illiquid. The investment advisors will monitor the
amount of illiquid securities in the Fund's portfolio, under the supervision of
the Trust's Board of Trustees, to ensure compliance with the Fund's investment
restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933 (the "Securities Act"), securities
which are otherwise not readily marketable and repurchase agreements having a
maturity of longer than seven days. Securities which have not been registered
under the Securities Act are referred to as private placement or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and the Fund might be unable
to dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemption within
seven days. The Fund might also have to register such restricted securities in
order to dispose of them, resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act,
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accordance with Rule 144A promulgated by the Commission under the Securities
Act, the Trust's Board of Trustees may determine that such securities are not
illiquid securities notwithstanding their legal or contractual restrictions on
resale. In all other cases, however, securities subject to restrictions on
resale will be deemed illiquid.
Risks of Investing in Small Companies
As stated in the prospectus, the Fund may invest in securities of small
companies. Additional risks of such investments include the markets on which
such securities are frequently traded. In many instances the securities of
smaller companies are traded only over-the-counter or on a regional securities
exchange, and the frequency and volume of their trading is substantially less
than is typical of larger companies. Therefore, the securities of smaller
companies may be subject to greater and more abrupt price fluctuations. When
making large sales, the Fund may have to sell portfolio holdings at discounts
from quoted prices or may have to make a series of small sales over an extended
period of time due to the trading volume of smaller company securities.
Investors should be aware that, based on the foregoing factors, an investment in
the Fund may be subject to greater price fluctuations than an investment in a
fund that invests exclusively in larger, more established companies. An
Advisor's research efforts may also play a greater role in selecting securities
for the Fund than in a fund that invests in a larger, more established
companies.
Investment Restrictions
The Trust (on behalf of the Fund) has adopted the following
restrictions as fundamental policies, which may not be changed without the
favorable vote of the holders of a "majority," as defined in the 1940 Act, of
the outstanding voting securities of the Fund. Under the 1940 Act, the "vote of
the holders of a majority of the outstanding voting securities" means the vote
of the holders of the lesser of (i) 67% of the shares of the Fund represented at
a meeting at which the holders of more than 50% of its outstanding shares are
represented or (ii) more than 50% of the outstanding shares of the Fund.
As a matter of fundamental policy, the Fund is diversified; i.e., as to
75% of the value of a its total assets: (i) no more than 5% of the value of its
total assets may be invested in the securities of any one issuer (other than
U.S. Government securities); and (ii) the Fund may not purchase more than 10% of
the outstanding voting securities of an issuer. The Fund's investment objective
is also fundamental.
In addition, the Fund may not:
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1. Issue senior securities, borrow money or pledge its assets, except
that (i) the Fund may borrow on an unsecured basis from banks for temporary or
emergency purposes or for the clearance of transactions in amounts not exceeding
10% of its total assets (not including the amount borrowed), provided that it
will not make investments while borrowings in excess of 5% of the value of its
total assets are outstanding; and (ii) this restriction shall not prohibit the
Fund from engaging in options, futures and foreign currency transactions or
short sales;
2. Purchase securities on margin, except such short-term credits as may
be necessary for the clearance of transactions;
3. Act as underwriter (except to the extent the Fund may be deemed to
be an underwriter in connection with the sale of securities in its investment
portfolio);
4. Invest 25% or more of its total assets, calculated at the time of
purchase and taken at market value, in any one industry (other than U.S.
Government securities);
5. Purchase or sell real estate or interests in real estate or real
estate limited partnerships (although the Fund may purchase and sell securities
which are secured by real estate and securities of companies which invest or
deal in real estate);
6. Purchase or sell commodities or commodity futures contracts, except
that the Fund may purchase and sell stock index futures contracts and currency
and financial futures contracts and related options in accordance with any rules
of the Commodity Futures Trading Commission;
7. Invest in oil and gas limited partnerships or oil, gas or mineral
leases;
8. Make loans of money (except for purchases of debt securities
consistent with the investment policies of the Fund and except for repurchase
agreements); or
9. Make investments for the purpose of exercising control or
management.
The Fund observes the following restrictions as a matter of operating
but not fundamental policy, pursuant to positions taken by federal and state
regulatory authorities:
The Fund may not:
1. Purchase any security if as a result the Fund would then hold more
than 10% of any class of voting securities of an issuer (taking all common stock
issues as a single class, all preferred stock issues as a single class, and all
debt issues as a single class);
2. Invest in securities of any issuer if, to the knowledge of the Fund,
any officer or Trustee of the Fund or any officer or Director of the Advisor
owns more than 1/2 of 1% of the outstanding securities of such issuer, and such
officers, Trustees and Directors who own more than 1/2 of 1% own in the
aggregate more than 5% of the outstanding securities of such issuer;
3. Invest more than 5% of the value of its net assets in warrants
(included in that amount, but not to exceed 2% of the value of the Fund's net
assets, may be warrants which are not listed on the New York or American Stock
Exchange).
4. Invest in any security if as a result the Fund would have more than
5% of its total assets invested in securities of companies which together with
any predecessor have been in continuous operation for fewer than three years.
5. Invest in the securities of other investment companies or purchase
any other investment company's voting securities or make any other investment in
other investment companies except to the extent permitted by federal and state
law.
6. Invest more 15% of its assets in securities which are restricted as
to disposition or otherwise are illiquid or have no readily available market
(except for securities which are determined by the Board of Trustees to be
liquid).
MANAGEMENT
The overall management of the business and affairs of the Trust is
vested with its Board of Trustees. The Board approves all significant agreements
between the Trust and persons or companies furnishing services to it, including
the
B-18
<PAGE>
agreements with the Advisor, Administrator, Custodian and Transfer Agent. The
day to day operations of the Trust are delegated to its officers, subject to the
Fund's investment objectives and policies and to general supervision by the
Board of Trustees.
The Trustees and officers of the Trust, positions with the Trust, their
business addresses and principal occupations during the past five years are:
[Names and addresses to be provided by amendment]
* denotes Trustees who are "interested persons" of the Trust under the 1940 Act.
It is estimated that each Trustee who is not an interested person of
the Trust will receive a fee at the annual rate of $________.
The Advisor and the Managers
Subject to the supervision of the Board of Trustees, investment
management and services is provided by the Advisor, pursuant to an Investment
Advisory Agreement (the "Advisory Agreement"). In addition, the assets of the
Fund are divided into segments by the Advisor, and individual selection of
securities in each segment is provided by an investment manager ("Manager"),
selected by the Board of Trustees and pursuant to various Management Agreements.
Under the Advisory Agreement, the Advisor has overall responsibility for assets
under management, allocates assets among Managers, monitors and evaluates
performance of the Managers, and recommends selection of Managers to the Board
of Trustees. Under the Management Agreements, the Managers have authority
(subject to the Advisor's oversight) to select investments and brokers.
As compensation for the Advisor's services, the Fund pays it an
advisory fee at the rate specified in the prospectus. In addition to the fees
payable to the Advisor, the Managers and the Administrator, the Trust is
responsible for its operating expenses, including: (i) interest and taxes; (ii)
brokerage commissions; (iii) insurance premiums; (iv) compensation and expenses
of Trustees other than those affiliated with the Advisor, the Managers or the
Administrator; (v) legal and audit expenses; (vi) fees and expenses of the
custodian, shareholder service and transfer agents; (vii) fees and expenses for
registration or qualification of the Trust and its shares under federal or state
securities laws; (viii) expenses of preparing, printing and mailing reports and
notices and proxy material to shareholders; (ix) other expenses incidental to
holding any shareholder meetings; (x) dues or assessments of or contributions to
the Investment Company Institute or any successor; (xi) such non-recurring
expenses as may arise, including litigation affecting the Trust and the legal
obligations with respect to which the Trust may have to indemnify their officers
and Trustees; and (xii) amortization of organization costs.
The Advisor is controlled by [information to be provided].
Under the Advisory Agreement and each Management Agreement, the Advisor
and the Managers will not be liable to the Trust for any error of judgment by
the Advisor or Managers or any loss sustained by the Trust except in the case of
a breach of fiduciary duty with respect to the receipt of compensation for
services (in which case any award of damages will be limited as provided in the
1940 Act) or of willful misfeasance, bad faith, gross negligence or reckless
disregard of duty.
The Advisory Agreement and the Management Agreements will remain in
effect for a period not to exceed two years. Thereafter, if not terminated, each
Advisory and Management Agreement will continue automatically for successive
annual periods, provided that such continuance is specifically approved at least
annually (i) by a majority vote of the Independent Trustees cast in person at a
meeting called for the purpose of voting on such approval, and (ii) by the Board
of Trustees or by vote of a majority of the outstanding voting securities of the
Portfolio.
B-19
<PAGE>
The Advisory and Management Agreements are terminable by vote of the
Board of Trustees or by the holders of a majority of the outstanding voting
securities of the Trust at any time without penalty, on 60 days written notice
to the Advisor or a Manager. The Advisory and Management Agreements also may be
terminated by the Advisor or a Manager on 60 days written notice to the Trust.
The Advisory and Management Agreements terminate automatically upon their
assignment (as defined in the 1940 Act).
The Advisor also provides certain administrative services to the Trust,
including assisting shareholders of the Trust, furnishing office space and
permitting certain employees to serve as officers and Trustees of the Trust. To
the extent the Advisor provides services not covered by the Advisory Agreement,
the Advisor may seek reimbursement therefor from the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Each Management Agreement states that in connection with its duties to
arrange for the purchase and the sale of securities held by the Fund by placing
purchase and sale orders for the Fund, each Manager shall select such
broker-dealers ("brokers") as shall, in its judgment, achieve the policy of
"best execution," i.e., prompt and efficient execution at the most favorable
securities price. In making such selection, the Managers are authorized in the
Management Agreements to consider the reliability, integrity and financial
condition of brokers. Each Manager also is authorized to consider whether the
broker provides research or statistical information to the Fund and/or other
accounts of the Manager.
The Management Agreements state that the commissions paid to brokers
may be higher than another broker would have charged if a good faith
determination is made by a Manager that the commission is reasonable in relation
to the services provided, viewed in terms of either that particular transaction
or the Manager's overall responsibilities as to the accounts as to which it
exercises investment discretion and that the Manager shall use its judgment in
determining that the amount of commissions paid are reasonable in relation to
the value of brokerage and research services provided and need not place or
attempt to place a specific dollar value on such services or on the portion of
commission rates reflecting such services. The Management Agreements provide
that, to demonstrate that such determinations were in good faith, and to show
the overall reasonableness of commissions paid, the Manager shall be prepared to
show that commissions paid (i) were for purposes contemplated by the Management
Agreements; (ii) were for products or services which provide lawful and
appropriate assistance to its decision-making process; and (iii) were within a
reasonable range as compared to the rates charged by brokers to other
institutional investors as such rates may become known from available
information.
The research services discussed above may be in written form or through
direct contact with individuals and may include information as to particular
companies and securities as well as market, economic or institutional areas and
information assisting in the valuation of the Fund's investments. The research
which each Manager receives for the Fund's brokerage commissions, whether or not
useful to the Fund, may be useful to it in managing the accounts of its other
advisory clients. Similarly, the research received for the commissions of such
accounts may be useful to the Fund.
The debt securities which may be a component of the Fund's portfolio
are generally traded on a "net" basis with dealers acting as principal for their
own accounts without a stated commission although the price of the security
usually includes a profit to the dealer. Money market instruments usually trade
on a "net" basis as well. On occasion, certain money market instruments may be
purchased by the Fund directly from an issuer in which case no commissions or
discounts are paid. In underwritten offerings, securities are purchased at a
fixed price which includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or discount.
Investment decisions for the Fund are made independently from those of
other client accounts of the Managers or their affiliates. Nevertheless, it is
possible that at times the same securities will be acceptable for the Fund and
for one or more of such client accounts. The Managers and their personnel may
have interests in one or more of those client accounts, either through direct
investment or because of management fees based on gains in the account. To the
extent any of these client accounts and the Fund seek to acquire the same
security at the same time, the Fund may not be able to acquire as large a
portion of such security as it desires, or it may have to pay a higher price or
obtain a lower yield for such security. Similarly, the Fund may not be able to
obtain as high a price for, or as large an execution of, an order to sell any
particular security at the same time. If one or more of such client accounts
simultaneously purchases or sells the same security that the Fund is purchasing
or selling, each day's transactions in such security will be allocated between
B-20
<PAGE>
the Fund and all such client accounts in a manner deemed equitable by the
Managers, taking into account the respective sizes of the accounts, the amount
being purchased or sold and other factors deemed relevant by the Managers. It is
recognized that in some cases this system could have a detrimental effect on the
price or value of the security insofar as the Fund is concerned. In other cases,
however, it is believed that the ability of the Fund to participate in volume
transactions may produce better executions for the Fund.
The Fund does not effect securities transactions through brokers in
accordance with any formula, nor does it effect securities transactions through
such brokers solely for selling shares of the Fund. However, brokers who execute
transactions for the Fund may from time to time effect purchases of shares of
the Fund for their customers.
NET ASSET VALUE
The net asset value of the Fund's shares will fluctuate and is
determined as of the close of trading on the New York Stock Exchange (currently
4:00 p.m. Eastern time) each business day. The Exchange annually announces the
days on which it will not be open for trading. The most recent announcement
indicates that it will not be open on the following days: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. However, the Exchange may close on days not
included in that announcement.
The net asset value per share is computed by dividing the value of the
securities held by the Fund plus any cash or other assets (including interest
and dividends accrued but not yet received) minus all liabilities (including
accrued expenses) by the total number of shares in the Fund outstanding at such
time.
Generally, trading in and valuation of foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. In addition, trading in and valuation of foreign securities may not take
place on every day in which the NYSE is open for trading. Furthermore, trading
takes place in various foreign markets on days in which the NYSE is not open for
trading and on which the Fund's net asset value is not calculated. Occasionally,
events affecting the values of such securities in U.S. dollars on a day on which
the Fund calculates its net asset value may occur between the times when such
securities are valued and the close of the NYSE that will not be reflected in
the computation of the Fund's net asset value unless the Board or its delegates
deem that such events would materially affect the net asset value, in which case
an adjustment would be made.
Generally, the Fund's investments are valued at market value or, in the
absence of a market value, at fair value as determined in good faith by the
Managers and the Trust's Pricing Committee pursuant to procedures approved by or
under the direction of the Board.
The Fund's securities, including ADRs, EDRs and GDRs, which are traded
on securities exchanges are valued at the last sale price on the exchange on
which such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any reported sales, at the mean between
the last available bid and asked price. Securities that are traded on more than
one exchange are valued on the exchange determined by the Managers to be the
primary market. Securities traded in the over-the-counter market are valued at
the mean between the last available bid and asked price prior to the time of
valuation. Securities and assets for which market quotations are not readily
available (including restricted securities which are subject to limitations as
to their sale) are valued at fair value as determined in good faith by or under
the direction of the Board.
Short-term debt obligations with remaining maturities in excess of 60
days are valued at current market prices, as discussed above. Short-term
securities with 60 days or less remaining to maturity are, unless conditions
indicate otherwise, amortized to maturity based on their cost to the Fund if
acquired within 60 days of maturity or, if already held by the Fund on the 60th
day, based on the value determined on the 61st day.
Corporate debt securities, mortgage-related securities and asset-backed
securities held by the Fund are valued on the basis of valuations provided by
dealers in those instruments, by an independent pricing service, approved by the
Board, or at fair value as determined in good faith by procedures approved by
the Board. Any such pricing service, in determining value, will use information
with respect to transactions in the securities being valued, quotations from
dealers, market transactions in comparable securities, analyses and evaluations
of various relationships between securities and yield to maturity information.
An option that is written by the Fund is generally valued at the last
sale price or, in the absence of the last sale price, the last offer price. An
option that is purchased by the Fund is generally valued at the last sale price
or, in the
B-21
<PAGE>
absence of the last sale price, the last bid price. The value of a futures
contract equals the unrealized gain or loss on the contract that is determined
by marking the contract to the current settlement price for a like contract on
the valuation date of the futures contract if the securities underlying the
futures contract experience significant price fluctuations after the
determination of the settlement price. When a settlement price cannot be used,
futures contracts will be valued at their fair market value as determined by or
under the direction of the Board.
Any assets or liabilities initially expressed in terms of foreign
currencies are translated into U.S. dollars at the official exchange rate or,
alternatively, at the mean of the current bid and asked prices of such
currencies against the U.S. dollar last quoted by a major bank that is a regular
participant in the foreign exchange market or on the basis of a pricing service
that takes into account the quotes provided by a number of such major banks. If
neither of these alternatives is available or both are deemed not to provide a
suitable methodology for converting a foreign currency into U.S. dollars, the
Board in good faith will establish a conversion rate for such currency.
All other assets of the Fund are valued in such manner as the Board in
good faith deems appropriate to reflect their fair value.
TAXATION
The Fund will be taxed, under the Internal Revenue Code (the "Code"),
as a separate entity from any other series of the Trust, and it intends to elect
to qualify for treatment as a regulated investment company ("RIC") under
Subchapter M of the Code. In each taxable year that the Fund qualifies, the Fund
(but not its shareholders) will be relieved of federal income tax on that part
of its investment company taxable income (consisting generally of interest and
dividend income, net short term capital gain and net realized gains from
currency transactions) and net capital gain that is distributed to shareholders.
In order to qualify for treatment as a RIC, the Fund must distribute
annually to shareholders at least 90% of its investment company taxable income
and must meet several additional requirements. Among these requirements are the
following: (1) at least 90% of the Fund's gross income each taxable year must be
derived from dividends, interest, payments with respect to securities loans and
gains from the sale or other disposition of securities or foreign currencies, or
other income derived with respect to its business of investing in securities or
currencies; (2) less than 30% of the Fund's gross income each taxable year may
be derived from the sale or other disposition of securities held for less than
three months; (3) at the close of each quarter of the Fund's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, U.S. Government securities, securities of other RICs and other
securities, limited in respect of any one issuer, to an amount that does not
exceed 5% of the value of the Fund and that does not represent more than 10% of
the outstanding voting securities of such issuer; and (4) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its assets
may be invested in securities (other than U.S. Government securities or the
securities of other RICs) of any one issuer.
Distributions of net investment income and net realized capital gains
by the Fund will be taxable to shareholders whether made in cash or reinvested
in shares. In determining amounts of net realized capital gains to be
distributed, any capital loss carryovers from prior years will be applied
against capital gains. Shareholders receiving distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share of the Fund on the
reinvestment date. Fund distributions also will be included in individual and
corporate shareholders' income on which the alternative minimum tax may be
imposed.
The Fund or any securities dealer effecting a redemption of the Fund's
shares by a shareholder will be required to file information reports with the
IRS with respect to distributions and payments made to the shareholder. In
addition, the Fund will be required to withhold federal income tax at the rate
of 31% on taxable dividends, redemptions and other payments made to accounts of
individual or other non-exempt shareholders who have not furnished their correct
taxpayer identification numbers and made certain required certifications on the
Account Application Form or with respect to which the Fund or the securities
dealer has been notified by the IRS that the number furnished is incorrect or
that the account is otherwise subject to withholding.
The Fund intends to declare and pay dividends and other distributions,
as stated in the Prospectus. In order to avoid the payment of any federal excise
tax based on net income, the Fund must declare on or before December 31 of each
year, and pay on or before January 31 of the following year, distributions at
least equal to 98% of its ordinary income for that calendar year and at least
98% of the excess of any capital gains over any capital losses realized in the
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<PAGE>
one-year period ending October 31 of that year, together with any undistributed
amounts of ordinary income and capital gains (in excess of capital losses) from
the previous calendar year.
The Fund may receive dividend distributions from U.S. corporations. To
the extent that the Fund receives such dividends and distributes them to its
shareholders, and meets certain other requirements of the Code, corporate
shareholders of the Fund may be entitled to the "dividends received" deduction.
Availability of the deduction is subject to certain holding period and
debt-financing limitations.
The use of hedging strategies, such as entering into futures contracts
and forward contracts and purchasing options, involves complex rules that will
determine the character and timing of recognition of the income received in
connection therewith by the Fund. Income from foreign currencies (except certain
gains therefrom that may be excluded by future regulations) and income from
transactions in options, futures contracts and forward contracts derived by the
Fund with respect to its business of investing in securities or foreign
currencies will qualify as permissible income under Subchapter M of the Code.
For accounting purposes, when the Fund purchases an option, the premium
paid by the Fund is recorded as an asset and is subsequently adjusted to the
current market value of the option. Any gain or loss realized by the Fund upon
the expiration or sale of such options held by the Fund generally will be
capital gain or loss.
Any security, option, or other position entered into or held by the
Fund that substantially diminishes the Fund's risk of loss from any other
position held by that Fund may constitute a "straddle" for federal income tax
purposes. In general, straddles are subject to certain rules that may affect the
amount, character and timing of the Fund's gains and losses with respect to
straddle positions by requiring, among other things, that the loss realized on
disposition of one position of a straddle be deferred until gain is realized on
disposition of the offsetting position; that the Fund's holding period in
certain straddle positions not begin until the straddle is terminated (possibly
resulting in the gain being treated as short-term capital gain rather than
long-term capital gain); and that losses recognized with respect to certain
straddle positions, which would otherwise constitute short-term capital losses,
be treated as long-term capital losses. Different elections are available to the
Fund that may mitigate the effects of the straddle rules.
Certain options, futures contracts and forward contracts that are
subject to Section 1256 of the Code ("Section 1256 Contracts") and that are held
by the Fund at the end of its taxable year generally will be required to be
"marked to market" for federal income tax purposes, that is, deemed to have been
sold at market value. Sixty percent of any net gain or loss recognized on these
deemed sales and 60% of any net gain or loss realized from any actual sales of
Section 1256 Contracts will be treated as long-term capital gain or loss, and
the balance will be treated as short-term capital gain or loss.
Section 988 of the Code contains special tax rules applicable to
certain foreign currency transactions that may affect the amount, timing and
character of income, gain or loss recognized by the Fund. Under these rules,
foreign exchange gain or loss realized with respect to foreign
currency-denominated debt instruments, foreign currency forward contracts,
foreign currency-denominated payables and receivables and foreign currency
options and futures contracts (other than options and futures contracts that are
governed by the mark-to-market and 60/40 rules of Section 1256 of the Code and
for which no election is made) is treated as ordinary income or loss. Some part
of the Fund's gain or loss on the sale or other disposition of shares of a
foreign corporation may, because of changes in foreign currency exchange rates,
be treated as ordinary income or loss under Section 988 of the Code, rather than
as capital gain or loss.
Redemptions and exchanges of shares of the Fund will result in gains or
losses for tax purposes to the extent of the difference between the proceeds and
the shareholder's adjusted tax basis for the shares. Any loss realized upon the
redemption or exchange of shares within six months from their date of purchase
will be treated as a long-term capital loss to the extent of distributions of
long-term capital gain dividends with respect to such shares during such
six-month period. All or a portion of a loss realized upon the redemption of
shares of the Fund may be disallowed to the extent shares of the same Fund are
purchased (including shares acquired by means of reinvested dividends) within 30
days before or after such redemption.
Distributions and redemptions may be subject to state and local income
taxes, and the treatment thereof may differ from the federal income tax
treatment. Foreign taxes may apply to non-U.S. investors.
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<PAGE>
The above discussion and the related discussion in the Prospectus are
not intended to be complete discussions of all applicable federal tax
consequences of an investment in the Fund. The law firm of Heller, Ehrman, White
& McAuliffe has expressed no opinion in respect thereof. Nonresident aliens and
foreign persons are subject to different tax rules, and may be subject to
withholding of up to 30% on certain payments received from the Fund.
Shareholders are advised to consult with their own tax advisers concerning the
application of foreign, federal, state and local taxes to an investment in the
Fund.
DIVIDENDS AND DISTRIBUTIONS
Dividends from the Fund's investment company taxable income (whether
paid in cash or invested in additional shares) will be taxable to shareholders
as ordinary income to the extent of the Fund's earnings and profits.
Distributions of the Fund's net capital gain (whether paid in cash or invested
in additional shares) will be taxable to shareholders as long-term capital gain,
regardless of how long they have held their Fund shares.
Dividends declared by the Fund in October, November or December of any
year and payable to shareholders of record on a date in one of such months will
be deemed to have been paid by the Fund and received by the shareholders on the
record date if the dividends are paid by the Fund during the following January.
Accordingly, such dividends will be taxed to shareholders for the year in which
the record date falls.
The Fund is required to withhold 31% of all dividends, capital gain
distributions and repurchase proceeds payable to any individuals and certain
other noncorporate shareholders who do not provide the Fund with a correct
taxpayer identification number. The Fund also is required to withhold 31% of all
dividends and capital gain distributions paid to such shareholders who otherwise
are subject to backup withholding.
PERFORMANCE INFORMATION
Total Return
Average annual total return quotations used in the Fund's advertising
and promotional materials are calculated according to the following formula:
n
P(1 + T) = ERV
where "P" equals a hypothetical initial payment of $1000; "T" equals average
annual total return; "n" equals the number of years; and "ERV" equals the ending
redeemable value at the end of the period of a hypothetical $1000 payment made
at the beginning of the period.
Under the foregoing formula, the time periods used in advertising will
be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication. Average
annual total return, or "T" in the above formula, is computed by finding the
average annual compounded rates of return over the period that would equate the
initial amount invested to the ending redeemable value. Average annual total
return assumes the reinvestment of all dividends and distributions.
Yield
Annualized yield quotations used in the Fund's advertising and
promotional materials are calculated by dividing the Fund's interest income for
a specified thirty-day period, net of expenses, by the average number of shares
outstanding during the period, and expressing the result as an annualized
percentage (assuming semi-annual compounding) of the net asset value per share
at the end of the period. Yield quotations are calculated according to the
following formula:
6
YIELD = 2 [(a-b + 1) - 1]
---
cd
where "a" equals dividends and interest earned during the period; "b" equals
expenses accrued for the period, net of reimbursements; "c" equals the average
daily number of shares outstanding during the period that are entitled to
receive dividends and "d" equals the maximum offering price per share on the
last day of the period.
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<PAGE>
Except as noted below, in determining net investment income earned
during the period ("a" in the above formula), the Fund calculates interest
earned on each debt obligation held by it during the period by (1) computing the
obligation's yield to maturity, based on the market value of the obligation
(including actual accrued interest) on the last business day of the period or,
if the obligation was purchased during the period, the purchase price plus
accrued interest; (2) dividing the yield to maturity by 360 and multiplying the
resulting quotient by the market value of the obligation (including actual
accrued interest). Once interest earned is calculated in this fashion for each
debt obligation held by the Fund, net investment income is then determined by
totaling all such interest earned.
For purposes of these calculations, the maturity of an obligation with
one or more call provisions is assumed to be the next date on which the
obligation reasonably can be expected to be called or, if none, the maturity
date.
Other information
Performance data of the Fund quoted in advertising and other
promotional materials represents past performance and is not intended to predict
or indicate future results. The return and principal value of an investment in
the Fund will fluctuate, and an investor's redemption proceeds may be more or
less than the original investment amount. In advertising and promotional
materials the Fund may compare its performance with data published by Lipper
Analytical Services, Inc. ("Lipper") or CDA Investment Technologies, Inc.
("CDA"). The Fund also may refer in such materials to mutual fund performance
rankings and other data, such as comparative asset, expense and fee levels,
published by Lipper or CDA. Advertising and promotional materials also may refer
to discussions of a Fund and comparative mutual fund data and ratings reported
in independent periodicals including, but not limited to, The Wall Street
Journal, Money Magazine, Forbes, Business Week, Financial World and Barron's.
GENERAL INFORMATION
The Trust is a newly organized entity and has no prior business
history. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest and to divide or
combine the shares into a greater or lesser number of shares without thereby
changing the proportionate beneficial interest in the Fund. Each share
represents an interest in the Fund proportionately equal to the interest of each
other share. Upon the Trust's liquidation, all shareholders would share pro rata
in the net assets of the Fund available for distribution to shareholders. If
they deem it advisable and in the best interest of shareholders, the Board of
Trustees may create additional series of shares which differ from each other
only as to dividends. The Board of Trustees has created one series of shares,
and may create additional series in the future, which have separate assets and
liabilities. In the event more than one series were created, income and
operating expenses not specifically attributable to a particular Fund would be
allocated fairly among the Funds by the Trustees, generally on the basis of the
relative net assets of each Fund.
Rule 18f-2 under the 1940 Act provides that as to any investment
company which has two or more series outstanding and as to any matter required
to be submitted to shareholder vote, such matter is not deemed to have been
effectively acted upon unless approved by the holders of a "majority" (as
defined in the Rule) of the voting securities of each series affected by the
matter. Such separate voting requirements do not apply to the election of
Trustees or the ratification of the selection of accountants. The Rule contains
special provisions for cases in which an advisory contract is approved by one or
more, but not all, series. A change in investment policy may go into effect as
to one or more series whose holders so approve the change even though the
required vote is not obtained as to the holders of other affected series.
The Trust's custodian,________________________, is responsible for
holding the Funds' assets, and _________________ acts as the Trust's accounting
services agent. The Trust's independent accountants, ,
_________________________________, assist in the preparation of certain reports
to the Securities and Exchange Commission and the Fund's tax returns.
Shares of the Fund owned by the Trustees and officers as a group were
less than 1% at________, 1996.
B-25
<PAGE>
APPENDIX
Description of Ratings
Moody's Investors Service, Inc.: Corporate Bond Ratings
Aaa--Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. 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.
Moody's applies numerical modifiers "1", "2" and "3" to both the Aaa
and Aa rating classifications. The modifier "1" indicates that the security
ranks in the higher end of its generic rating category; the modifier "2"
indicates a mid-range ranking; and the modifier "3" indicates that the issue
ranks in the lower end of its generic rating category.
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 period of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Standard & Poor's Corporation: Corporate Bond Ratings
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 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 adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
Commercial Paper Ratings
Moody's commercial paper ratings are assessments of the issuer's
ability to repay punctually promissory obligations. Moody's employs the
following three designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers: Prime 1--highest quality; Prime
2--higher quality; Prime 3--high quality.
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment. Ratings are graded into four categories,
ranging from "A" for the highest quality obligations to "D" for the lowest.
Issues assigned the highest rating, A, are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers "1", "2" and "3" to indicate the relative degree of safety. The
designation A-1 indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. A "+" designation is applied to those issues
rated "A-1" which possess extremely strong safety characteristics. Capacity for
timely payment on issues with the designation "A-2" is strong. However, the
relative degree of safety is not as high as for issues designated A-1. Issues
carrying the designation "A-3" have a satisfactory capacity for timely payment.
They are, however, somewhat more vulnerable to the adverse effect of changes in
circumstances than obligations carrying the higher designations.
B-26
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
To be filed by amendment.
(b) Exhibits:
(1) Declaration of Trust
(2) By-Laws
(3) Not applicable
(4) Specimen stock certificate(1)
(5) Managers Agreements(1)
(6) Distribution Agreement(1)
(7) Not applicable
(8) Custodian Agreement(1)
(9) Administration Agreement with Investment Company
Administration Corporation(1)
(10) Opinion and consent of counsel(1)
(11) Consent of Independent Auditors(1)
(12) Not applicable
(13) Investment letter(1)
(14) Individual Retirement Account forms(1)
(15) Not applicable
(16) Not applicable
(1) To be filed by amendment.
Item 25. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 26. Number of Holders of Securities.
Not applicable.
Item 27. Indemnification.
Article VI of Registrant's By-Laws states as follows:
Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the purpose of this
Article, "agent" means any person who is or was a Trustee, officer, employee or
other agent of this Trust or is or was serving at the request of this Trust as a
Trustee, director, officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise or was a
Trustee, director, officer, employee or agent of a foreign or domestic
corporation which was a predecessor of another enterprise at the request of such
predecessor entity; "proceeding" means any threatened, pending or completed
action or proceeding, whether civil, criminal, administrative or investigative;
and "expenses" includes without limitation attorney's fees and any expenses of
establishing a right to indemnification under this Article.
<PAGE>
Section 2. ACTIONS OTHER THAN BY TRUST. This Trust shall indemnify any
person who was or is a party or is threatened to be made a party to any
proceeding (other than an action by or in the right of this Trust) by reason of
the fact that such person is or was an agent of this Trust, against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with such proceeding, if it is determined that person acted in
good faith and reasonably believed:
(a) in the case of conduct in his official capacity as a Trustee
of the Trust, that his conduct was in the Trust's best
interests, and
(b) in all other cases, that his conduct was at least not opposed
to the Trust's best interests, and
(c) in the case of a criminal proceeding, that he had no
reasonable cause to believe the conduct of that person was
unlawful.
The termination of any proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent shall not of
itself create a presumption that the person did not act in good faith and in a
manner which the person reasonably believed to be in the best interests of this
Trust or that the person had reasonable cause to believe that the person's
conduct was unlawful.
Section 3. ACTIONS BY THE TRUST. This Trust shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action by or in the right of this Trust to procure a
judgment in its favor by reason of the fact that that person is or was an agent
of this Trust, against expenses actually and reasonably incurred by that person
in connection with the defense or settlement of that action if that person acted
in good faith, in a manner that person believed to be in the best interests of
this Trust and with such care, including reasonable inquiry, as an ordinarily
prudent person in a like position would use under similar circumstances.
Section 4. EXCLUSION OF INDEMNIFICATION. Notwithstanding any provision
to the contrary contained herein, there shall be no right to indemnification for
any liability arising by reason of willful misfeasance, bad faith, gross
negligence, or the reckless disregard of the duties involved in the conduct of
the agent's office with this Trust.
No indemnification shall be made under Sections 2 or 3 of this Article:
(a) In respect of any claim, issue, or matter as to which that
person shall have been adjudged to be liable on the basis that
personal benefit was improperly received by him, whether or
not the benefit resulted from an action taken in the person's
official capacity; or
(b) In respect of any claim, issue or matter as to which that
person shall have been adjudged to be liable in the
performance of that person's duty to this Trust, unless and
only to the extent that the court in which that action was
brought shall determine upon
<PAGE>
application that in view of all the circumstances of the case,
that person was not liable by reason of the disabling conduct
set forth in the preceding paragraph and is fairly and
reasonably entitled to indemnity for the expenses which the
court shall determine; or
(c) of amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without court approval,
or of expenses incurred in defending a threatened or pending
action which is settled or otherwise disposed of without court
approval, unless the required approval set forth in Section 6
of this Article is obtained.
Section 5. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent of
this Trust has been successful on the merits in defense of any proceeding
referred to in Sections 2 or 3 of this Article or in defense of any claim, issue
or matter therein, before the court or other body before whom the proceeding was
brought, the agent shall be indemnified against expenses actually and reasonably
incurred by the agent in connection therewith, provided that the Board of
Trustees, including a majority who are disinterested, non-party Trustees, also
determines that based upon a review of the facts, the agent was not liable by
reason of the disabling conduct referred to in Section 4 of this Article.
Section 6. REQUIRED APPROVAL. Except as provided in Section 5 of this
Article, any indemnification under this Article shall be made by this Trust only
if authorized in the specific case on a determination that indemnification of
the agent is proper in the circumstances because the agent has met the
applicable standard of conduct set forth in Sections 2 or 3 of this Article and
is not prohibited from indemnification because of the disabling conduct set
forth in Section 4 of this Article, by:
(a) A majority vote of a quorum consisting of Trustees who are not
parties to the proceeding and are not interested persons of
the Trust (as defined in the Investment Company Act of 1940);
or
(b) A written opinion by an independent legal counsel.
Section 7. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by this Trust before the final disposition of the
proceeding upon a written undertaking by or on behalf of the agent, to repay the
amount of the advance if it is ultimately determined that he or she is not
entitled to indemnification, together with at least one of the following as a
condition to the advance: (I) security for the undertaking; or (ii) the
existence of insurance protecting the Trust against losses arising by reason of
any lawful advances; or (iii) a determination by a majority of a quorum of
Trustees who are not parties to the proceeding and are not interested persons of
the Trust, or by an independent legal counsel in a written opinion, based on a
review of readily available facts that there is reason to believe that the agent
ultimately will be found entitled to indemnification. Determinations and
authorizations of payments under this Section must be made in the manner
specified in Section 6 of this Article for determining that the indemnification
is permissible.
<PAGE>
Section 8. OTHER CONTRACTUAL RIGHTS. Nothing contained in this Article
shall affect any right to indemnification to which persons other than Trustees
and officers of this Trust or any subsidiary hereof may be entitled by contract
or otherwise.
Section 9. LIMITATIONS. No indemnification or advance shall be made
under this Article, except as provided in Sections 5 or 6 in any circumstances
where it appears:
(a) that it would be inconsistent with a provision of the
Agreement and Declaration of Trust of the Trust, a resolution
of the shareholders, or an agreement in effect at the time of
accrual of the alleged cause of action asserted in the
proceeding in which the expenses were incurred or other
amounts were paid which prohibits or otherwise limits
indemnification; or
(b) that it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
Section 10. INSURANCE. Upon and in the event of a determination by the
Board of Trustees of this Trust to purchase such insurance, this Trust shall
purchase and maintain insurance on behalf of any agent of this Trust against any
liability asserted against or incurred by the agent in such capacity or arising
out of the agent's status as such, but only to the extent that this Trust would
have the power to indemnify the agent against that liability under the
provisions of this Article and the Agreement and Declaration of Trust of the
Trust.
Section 11. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This Article does not
apply to any proceeding against any Trustee, investment manger or other
fiduciary of an employee benefit plan in that person's capacity as such, even
though that person may also be an agent of this Trust as defined in Section 1 of
this Article. Nothing contained in this Article shall limit any right to
indemnification to which such a Trustee, investment manager, or other fiduciary
may be entitled by contract or otherwise which shall be enforceable to the
extent permitted by applicable law other than this Article.
Item 28. Business and Other Connections of Investment Adviser.
Not applicable.
Item 29. Principal Underwriters.
(a) The Registrant's principal underwriter also acts as principal
underwriter for the following investment companies:
Guiness Flight Investment Funds, Inc.
Jurika & Voyles Mutual Funds
Olympic Trust
Professionally Managed Portfolios
Rainier Investment Management Mutual Funds
RNC Liquid Assets Fund, Inc.
O'Shaughnessy Funds, Inc.
<PAGE>
(b) The following information is furnished with respect to the officers
and directors of First Fund Distributors, Inc.:
Position and Offices Position and
Name and Principal with Principal Offices with
Business Address Underwriter Registrant
- ---------------- --------------------- ------------
Robert H. Wadsworth President Assistant
4455 E. Camelback Road and Treasurer Secretary
Suite 261E
Phoenix, AZ 85018
Eric M. Banhazl Vice President Assistant
2025 E. Financial Way Treasurer
Glendora, CA 91741
Steven J. Paggioli Vice President & Assistant
479 West 22nd Street Secretary Secretary
New York, New York 10011
(c) Not applicable.
Item 30. Location of Accounts and Records.
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the rules promulgated thereunder are in the possession of Registrant and
Registrant's custodian, as follows: the documents required to be maintained by
paragraphs (4), (5), (6), (7), (10) and (11) of Rule 31a-1(b) will be maintained
by the Registrant, and all other records will be maintained by the Custodian.
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
Registrant hereby undertakes to:
(a) File a post-effective amendment, using financial statements
which may not be certified, within four to six months of the
effective date of this Registration Statement; and
(b) Furnish each person to whom a Prospectus is delivered a copy
of Registrant's latest annual request to shareholders, upon
request and without charge.
(c) If requested to do so by the holders of at least 10% of the
Trust's outstanding shares, call a meeting of shareholders for
the purposes of voting upon the question of removal of a
director and assist in communications with other shareholders.
<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 Registration
Statement on Form N-1A of Masters Concentrated Select Trust to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Orinda and
State of California on the 9th day of August, 1996.
MASTERS CONCENTRATED SELECT TRUST
By /s/ Kenneth E. Gregory
-------------------------
Kenneth E. Gregory
President
This Registration Statement on Form N-1A of Masters Concentrated Select
Trust has been signed below by the following persons in the capacities indicated
on August 9, 1996.
/s/ Kenneth E. Gregory President and
- ---------------------- Trustee
Kenneth E. Gregory
/s/ Richard D. Burritt Trustee
- ----------------------
Richard D. Burritt
/s/ Robert H. Wadsworth Trustee and
- ----------------------- Principal Financial and Accounting Officer
Robert H. Wadsworth
AGREEMENT AND DECLARATION OF TRUST
of
Masters Concentrated Select Trust
a Delaware Business Trust
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I Name and Definitions
1. Name................................................. 1
2. Definitions.......................................... 1
(a) Trust....................................... 1
(b) Trust Property.............................. 1
(c) Trustees.................................... 1
(d) Shares...................................... 2
(e) Shareholder................................. 2
(f) Person...................................... 2
(g) 1940 Act.................................... 2
(h) Commission and Principal Underwriter........ 2
(i) Declaration of Trust........................ 2
(j) By-Laws..................................... 2
(k) Interested Person........................... 2
(l) Investment Manager.......................... 2
(m) Series...................................... 2
ARTICLE II Purpose of Trust............................ 2
ARTICLE III Shares
1. Division of Beneficial Interest...................... 3
2. Ownership of Shares.................................. 3
3. Investments in the Trust............................. 4
4. Status of Shares and Limitation of
Personal Liability................................. 4
5. Power of Board of Trustees to Change
Provisions Relating to Shares...................... 4
6. Establishment and Designation of Series.............. 5
(a) Assets With Respect to a Particular Series.. 5
(b) Liabilities Held With Respect to a
Particular Series......................... 5
(c) Dividends, Distributions, Redemptions,
and Repurchases........................... 6
(d) Voting...................................... 6
(e) Equality.................................... 6
(f) Fractions................................... 6
(g) Exchange Privileges......................... 7
(h) Combination of Series....................... 7
(i) Elimination of Series....................... 7
7. Indemnification of Shareholders...................... 7
i
<PAGE>
Page
----
ARTICLE IV The Board of Trustees
1. Number, Election and Tenure...................... 7
2. Effect of Death, Resignation, etc.
of a Trustee................................... 8
3. Powers........................................... 8
4. Payment of Expenses by the Trust................. 11
5. Payment of Expenses by Shareholders.............. 11
6. Ownership of Assets of the Trust................. 11
7. Service Contracts................................ 12
ARTICLE V Shareholders' Voting Powers and Meetings
1. Voting Powers.................................... 13
2. Voting Power and Meetings........................ 14
3. Quorum and Required Vote......................... 14
4. Action by Written Consent........................ 14
5. Record Dates..................................... 15
6. Additional Provisions............................ 15
ARTICLE VI Net Asset Value, Distributions,
and Redemptions
1. Determination of Net Asset Value, Net
Income and Distributions....................... 15
2. Redemptions and Repurchases...................... 15
3. Redemptions at the Option of the Trust........... 16
ARTICLE VII Compensation and Limitation of
Liability of Trustees
1. Compensation..................................... 16
2. Indemnification and Limitation of Liability...... 16
3. Trustee's Good Faith Action, Expert
Advice, No Bond or Surety...................... 17
4. Insurance........................................ 17
ARTICLE VIII Miscellaneous
1. Liability of Third Persons Dealing
with Trustees.................................. 17
2. Termination of Trust or Series................... 18
3. Merger and Consolidation......................... 18
4. Amendments....................................... 18
5. Filing of Copies, References, Headings........... 19
6. Applicable Law................................... 19
7. Provisions in Conflict with Law or Regulations... 19
8. Business Trust Only.............................. 20
ii
<PAGE>
AGREEMENT AND DECLARATION OF TRUST
OF
Masters Concentrated Select Trust
WHEREAS, THIS AGREEMENT AND DECLARATION OF TRUST is made and
entered into as of the date set forth below by the Trustees named hereunder for
the purpose of forming a Delaware business trust in accordance with the
provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby direct that a Certificate
of Trust be filed with the Office of the Secretary of State of the State of
Delaware and do hereby declare that the Trustees will hold IN TRUST all cash,
securities and other assets which the Trust now possesses or may hereafter
acquire from time to time in any manner and manage and dispose of the same upon
the following terms and conditions for the pro rata benefit of the holders of
Shares in this Trust.
ARTICLE I
Name and Definitions
Section 1. Name. This Trust shall be known as Masters
Concentrated Select Trust and the Trustees shall conduct the business of the
Trust under that name or any other name as they may from time to time determine.
Section 2. Definitions. Whenever used herein, unless otherwise
required by the context or specifically provided:
(a) The "Trust" refers to the Delaware business trust
established by this Agreement and Declaration of Trust, as amended from time to
time;
(b) The "Trust Property" means any and all property, real or
personal, tangible or intangible, which is owned or held by or for the account
of the Trust;
(c) "Trustees" refers to the persons who have signed this
Agreement and Declaration of Trust, so long as they continue in office in
accordance with the terms hereof, and all other persons who may from time to
time be duly elected or appointed to serve on the Board of Trustees in
accordance with the provisions hereof, and reference herein to a Trustee or the
Trustees shall refer to such person or persons in their capacity as trustees
hereunder;
1
<PAGE>
(d) "Shares" means the shares of beneficial interest into
which the beneficial interest in the Trust shall be divided from time to time
and includes fractions of Shares as well as whole Shares;
(e) "Shareholder" means a record owner of outstanding Shares;
(f) "Person" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures, estates and other entities,
whether or not legal entities, and governments and agencies and political
subdivisions thereof, whether domestic or foreign;
(g) The "1940 Act" refers to the Investment Company Act of
1940 and the Rules and Regulations thereunder, all as amended from time to time;
(h) The terms "Commission" and "Principal Underwriter" shall
have the meanings given them in the 1940 Act;
(i) "Declaration of Trust" shall mean this Agreement and
Declaration of Trust, as amended or restated from time to time;
(j) "By-Laws" shall mean the By-Laws of the Trust as amended
from time to time and incorporated herein by reference;
(k) The term "Interested Person" has the meaning given it in
Section 2(a)(19) of the 1940 Act;
(l) "Investment Manager" or "Manager" means a party furnishing
services to the Trust pursuant to any contract described in Article IV, Section
7(a) hereof;
(m) "Series" refers to each Series of Shares established and
designated under or in accordance with the provisions of Article III.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to conduct, operate and carry on
the business of a management investment company registered under the 1940 Act
through one or more Series investing primarily in securities.
2
<PAGE>
ARTICLE III
Shares
Section 1. Division of Beneficial Interest. The beneficial
interest in the Trust shall at all times be divided into an unlimited number of
Shares, with a par value of $ .01 per Share. The Trustees may authorize the
division of Shares into separate Series and the division of Series into separate
classes of Shares. The different Series shall be established and designated, and
the variations in the relative rights and preferences as between the different
Series shall be fixed and determined, by the Trustees. If only one or no Series
(or classes ) shall be established, the Shares shall have the rights and
preferences provided for herein and in Article III, Section 6 hereof to the
extent relevant and not otherwise provided for herein, and all references to
Series (and classes) shall be construed (as the context may require) to refer to
the Trust.
Subject to the provisions of Section 6 of this Article III,
each Share shall have voting rights as provided in Article V hereof, and holders
of the Shares of any Series shall be entitled to receive dividends, when, if and
as declared with respect thereto in the manner provided in Article VI, Section 1
hereof. No Shares shall have any priority or preference over any other Share of
the same Series with respect to dividends or distributions upon termination of
the Trust or of such Series made pursuant to Article VIII, Section 4 hereof. All
dividends and distributions shall be made ratably among all Shareholders of a
particular (class of a) particular Series from the assets held with respect to
such Series according to the number of Shares of such (class of such) Series
held of record by such Shareholder on the record date for any dividend or
distribution or on the date of termination, as the case may be. Shareholders
shall have no preemptive or other right to subscribe to any additional Shares or
other securities issued by the Trust or any Series. The Trustees may from time
to time divide or combine the Shares of any particular Series into a greater or
lesser number of Shares of that Series without thereby materially changing the
proportionate beneficial interest of the Shares of that Series in the assets
held with respect to that Series or materially affecting the rights of Shares of
any other Series.
Section 2. Ownership of Shares. The ownership of Shares shall
be recorded on the books of the Trust or a transfer or similar agent for the
Trust, which books shall be maintained separately for the Shares of each Series
(or class). No certificates certifying the ownership of Shares shall be issued
except as the Board of Trustees may otherwise determine from time to time. The
Trustees may make such rules as they consider appropriate for the transfer of
Shares of each Series (or class) and similar matters. The record books of the
Trust as kept by the Trust or any transfer or similar agent, as the case may be,
shall be conclusive as to who are the Shareholders of each Series (or class) and
as to the number of Shares of each Series (or class)
3
<PAGE>
held from time to time by each.
Section 3. Investments in the Trust. Investments may be
accepted by the Trust from such Persons, at such times, on such terms, and for
such consideration as the Trustees from time to time may authorize.
Section 4. Status of Shares and Limitation of Personal
Liability. Shares shall be deemed to be personal property giving only the rights
provided in this instrument. Every Shareholder by virtue of having become a
Shareholder shall be held to have expressly assented and agreed to the terms
hereof and to have become a party hereto. The death of a Shareholder during the
existence of the Trust shall not operate to terminate the Trust, nor entitle the
representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but entitles
such representative only to the rights of said deceased Shareholder under this
Trust. Ownership of Shares shall not entitle the Shareholder to any title in or
to the whole or any part of the Trust Property or right to call for a partition
or division of the same or for an accounting, nor shall the ownership of Shares
constitute the Shareholders as partners. Neither the Trust nor the Trustees, nor
any officer, employee or agent of the Trust shall have any power to bind
personally any Shareholders, nor, except as specifically provided herein, to
call upon any Shareholder for the payment of any sum of money or assessment
whatsoever other than such as the Shareholder may at any time personally agree
to pay.
Section 5. Power of Board of Trustees to Change Provisions
Relating to Shares. Notwithstanding any other provision of this Declaration of
Trust and without limiting the power of the Board of Trustees to amend the
Declaration of Trust as provided elsewhere herein, the Board of Trustees shall
have the power to amend this Declaration of Trust, at any time and from time to
time, in such manner as the Board of Trustees may determine in their sole
discretion, without the need for Shareholder action, so as to add to, delete,
replace or otherwise modify any provisions relating to the Shares contained in
this Declaration of Trust, provided that before adopting any such amendment
without Shareholder approval the Board of Trustees shall determine that it is
consistent with the fair and equitable treatment of all Shareholders or that
Shareholder approval is not otherwise required by the 1940 Act or other
applicable law. If Shares have been issued, Shareholder approval shall be
required to adopt any amendments to this Declaration of Trust which would
adversely affect to a material degree the rights and preferences of the Shares
of any Series (or class) or to increase or decrease the par value of the Shares
of any Series (or class).
Subject to the foregoing Paragraph, the Board of Trustees may
amend the Declaration of Trust to amend any of the provisions set forth in
paragraphs (a) through (i) of Section 6 of this Article III.
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Section 6. Establishment and Designation of Series. The
establishment and designation of any Series (or class) of Shares shall be
effective upon the resolution by a majority of the then Trustees, adopting a
resolution which sets forth such establishment and designation and the relative
rights and preferences of such Series (or class). Each such resolution shall be
incorporated herein by reference upon adoption.
Shares of each Series (or class) established pursuant to this
Section 6, unless otherwise provided in the resolution establishing such Series,
shall have the following relative rights and preferences:
(a) Assets Held With Respect to a Particular Series. All
consideration received by the Trust for the issue or sale of Shares of a
particular Series, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits, and proceeds thereof from
whatever source derived, including, without limitation, any proceeds derived
from the sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same may be,
shall irrevocably be held with respect to that Series for all purposes, subject
only to the rights of creditors, and shall be so recorded upon the books of
account of the Trust. Such consideration, assets, income, earnings, profits and
proceeds thereof, from whatever source derived, including, without limitation,
any proceeds derived from the sale, exchange or liquidation of such assets, and
any funds or payments derived from any reinvestment of such proceeds, in
whatever form the same may be, are herein referred to as "assets held with
respect to" that Series. In the event that there are any assets, income,
earnings, profits and proceeds thereof, funds or payments which are not readily
identifiable as assets held with respect to any particular Series (collectively
"General Assets"), the Trustees shall allocate such General Assets to, between
or among any one or more of the Series in such manner and on such basis as the
Trustees, in their sole discretion, deem fair and equitable, and any General
Asset so allocated to a particular Series shall be held with respect to that
Series. Each such allocation by the Trustees shall be conclusive and binding
upon the Shareholders of all Series for all purposes.
(b) Liabilities Held With Respect to a Particular Series. The
assets of the Trust held with respect to each particular Series shall be charged
against the liabilities of the Trust held with respect to that Series and all
expenses, costs, charges and reserves attributable to that Series, and any
general liabilities of the Trust which are not readily identifiable as being
held with respect to any particular Series shall be allocated and charged by the
Trustees to and among any one or more of the Series in such manner and on such
basis as the Trustees in their sole discretion deem fair and equitable. The
liabilities, expenses, costs, charges, and reserves so charged to a Series are
herein referred to as "liabilities held with respect to" that Series. Each
allocation of liabilities, expenses, costs, charges
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and reserves by the Trustees shall be conclusive and binding upon the holders of
all Series for all purposes. All Persons who have extended credit which has been
allocated to a particular Series, or who have a claim or contract which has been
allocated to any particular Series, shall look to the assets of that particular
Series for payment of such credit, claim, or contract.
(c) Dividends, Distributions, Redemptions, and Repurchases.
Notwithstanding any other provisions of this Declaration of Trust, including,
without limitation, Article VI, no dividend or distribution including, without
limitation, any distribution paid upon termination of the Trust or of any Series
(or class) with respect to, nor any redemption or repurchase of, the Shares of
any Series (or class) shall be effected by the Trust other than from the assets
held with respect to such Series, nor, except as specifically provided in
Section 7 of this Article III, shall any Shareholder of any particular Series
otherwise have any right or claim against the assets held with respect to any
other Series except to the extent that such Shareholder has such a right or
claim hereunder as a Shareholder of such other Series. The Trustees shall have
full discretion, to the extent not inconsistent with the 1940 Act, to determine
which items shall be treated as income and which items as capital; and each such
determination and allocation shall be conclusive and binding upon the
Shareholders.
(d) Voting. All Shares of the Trust entitled to vote on a
matter shall vote separately by Series (and, if applicable, by class): that is,
the Shareholders of each Series (or class) shall have the right to approve or
disapprove matters affecting the Trust and each respective Series (or class) as
if the Series (or classes) were separate companies. There are, however, two
exceptions to voting by separate Series (or classes). First, if the 1940 Act
requires all Shares of the Trust to be voted in the aggregate without
differentiation between the separate Series (or classes), then all the Trust's
Shares shall be entitled to vote on a one- vote-per-Share basis. Second, if any
matter affects only the interests of some but not all Series (or classes), then
only the Shareholders of such affected Series (or classes) shall be entitled to
vote on the matter.
(e) Equality. All the Shares of each particular Series shall
represent an equal proportionate interest in the assets held with respect to
that Series (subject to the liabilities held with respect to that Series and
such rights and preferences as may have been established and designated with
respect to classes of Shares within such Series), and each Share of any
particular Series shall be equal to each other Share of that Series.
(f) Fractions. Any fractional Share of a Series shall carry
proportionately all the rights and obligations of a whole share of that Series,
including rights with respect to voting, receipt of dividends and distributions,
redemption of Shares and termination of the Trust.
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(g) Exchange Privilege. The Trustees shall have the authority
to provide that the holders of Shares of any Series shall have the right to
exchange said Shares for Shares of one or more other Series of Shares in
accordance with such requirements and procedures as may be established by the
Trustees.
(h) Combination of Series. The Trustees shall have the
authority, without the approval of the Shareholders of any Series unless
otherwise required by applicable law, to combine the assets and liabilities held
with respect to any two or more Series into assets and liabilities held with
respect to a single Series.
(i) Elimination of Series. At any time that there are no
Shares outstanding of any particular Series (or class) previously established
and designated, the Trustees may by resolution of a majority of the then
Trustees abolish that Series (or class) and rescind the establishment and
designation thereof.
Section 7. Indemnification of Shareholders. If any Shareholder
or former Shareholder shall be exposed to liability by reason of a claim or
demand relating to his being or having been a Shareholder, and not because of
his acts or omissions, the Shareholder or former Shareholder (or his heirs,
executors, administrators, or other legal representatives or in the case of a
corporation or other entity, its corporate or other general successor) shall be
entitled to be held harmless from and indemnified out of the assets of the Trust
against all loss and expense arising from such claim or demand.
ARTICLE IV
The Board of Trustees
Section 1. Number, Election and Tenure. The number of Trustees
constituting the Board of Trustees shall be fixed from time to time by a written
instrument signed, or by resolution approved at a duly constituted meeting, by a
majority of the Board of Trustees, provided, however, that the number of
Trustees shall in no event be less than one (1) nor more than fifteen (15). The
Board of Trustees, by action of a majority of the then Trustees at a duly
constituted meeting, may fill vacancies in the Board of Trustees or remove
Trustees with or without cause. Each Trustee shall serve during the continued
lifetime of the Trust until he dies, resigns, is declared bankrupt or
incompetent by a court of appropriate jurisdiction, or is removed, or, if
sooner, until the next meeting of Shareholders called for the purpose of
electing Trustees and until the election and qualification of his successor. Any
Trustee may resign at any time by written instrument signed by him and delivered
to any officer of the Trust or to a meeting of the Trustees. Such resignation
shall be effective upon receipt unless specified to be effective at some other
time. Except to the extent expressly provided in a written agreement with the
Trust, no Trustee resigning and no Trustee removed shall have any right to
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any compensation for any period following his resignation or removal, or any
right to damages on account of such removal. The Shareholders may fix the number
of Trustees and elect Trustees at any meeting of Shareholders called by the
Trustees for that purpose. Any Trustee may be removed at any meeting of
Shareholders by a vote of two-thirds of the outstanding Shares of the Trust. A
meeting of Shareholders for the purpose of electing or removing one or more
Trustees may be called (i) by the Trustees upon their own vote, or (ii) upon the
demand of Shareholders owning 10% or more of the Shares of the Trust in the
aggregate.
Section 2. Effect of Death, Resignation, etc. of a Trustee.
The death, declination, resignation, retirement, removal, or incapacity of one
or more Trustees, or all of them, shall not operate to annul the Trust or to
revoke any existing agency created pursuant to the terms of this Declaration of
Trust. Whenever a vacancy in the Board of Trustees shall occur, until such
vacancy is filled as provided in Article IV, Section 1, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by this Declaration
of Trust. As conclusive evidence of such vacancy, a written instrument
certifying the existence of such vacancy may be executed by an officer of the
Trust or by a majority of the Board of Trustees. In the event of the death,
declination, resignation, retirement, removal, or incapacity of all the then
Trustees within a short period of time and without the opportunity for at least
one Trustee being able to appoint additional Trustees to fill vacancies, the
Trust's Investment Manager(s) are empowered to appoint new Trustees subject to
the provisions of Section 16(a) of the 1940 Act.
Section 3. Powers. Subject to the provisions of this
Declaration of Trust, the business of the Trust shall be managed by the Board of
Trustees, and such Board shall have all powers necessary or convenient to carry
out that responsibility including the power to engage in securities transactions
of all kinds on behalf of the Trust. Without limiting the foregoing, the
Trustees may: adopt By-Laws not inconsistent with this Declaration of Trust
providing for the regulation and management of the affairs of the Trust and may
amend and repeal them to the extent that such By-Laws do not reserve that right
to the Shareholders; fill vacancies in or remove from their number, and may
elect and remove such officers and appoint and terminate such agents as they
consider appropriate; appoint from their own number and establish and terminate
one or more committees consisting of two or more Trustees which may exercise the
powers and authority of the Board of Trustees to the extent that the Trustees
determine; employ one or more custodians of the assets of the Trust and may
authorize such custodians to employ subcustodians and to deposit all or any part
of such assets in a system or systems for the central handling of securities or
with a Federal Reserve Bank, retain a transfer agent or a Shareholder servicing
agent, or both; provide for the issuance and distribution of Shares by the Trust
directly or through one or more Principal Underwriters or otherwise; redeem,
repurchase and
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transfer Shares pursuant to applicable law; set record dates for the
determination of Shareholders with respect to various matters; declare and pay
dividends and distributions to Shareholders of each Series from the assets of
such Series; and in general delegate such authority as they consider desirable
to any officer of the Trust, to any committee of the Trustees and to any agent
or employee of the Trust or to any such custodian, transfer or Shareholder
servicing agent, or Principal Underwriter. Any determination as to what is in
the interests of the Trust made by the Trustees in good faith shall be
conclusive. In construing the provisions of this Declaration of Trust, the
presumption shall be in favor of a grant of power to the Trustees. Unless
otherwise specified or required by law, any action by the Board of Trustees
shall be deemed effective if approved or taken by a majority of the Trustees
then in office.
Without limiting the foregoing, the Trust shall have power and
authority:
(a) To invest and reinvest cash, to hold cash uninvested, and
to subscribe for, invest in, reinvest in, purchase or otherwise acquire, own,
hold, pledge, sell, assign, transfer, exchange, distribute, write options on,
lend or otherwise deal in or dispose of contracts for the future acquisition or
delivery of fixed income or other securities, and securities of every nature and
kind, including, without limitation, all types of bonds, debentures, stocks,
negotiable or non-negotiable instruments, obligations, evidences of
indebtedness, certificates of deposit or indebtedness, commercial paper,
repurchase agreements, bankers' acceptances, and other securities of any kind,
issued, created, guaranteed, or sponsored by any and all Persons, including,
without limitation, states, territories, and possessions of the United States
and the District of Columbia and any political subdivision, agency, or
instrumentality thereof, any foreign government or any political subdivision of
the U.S. Government or any foreign government, or any international
instrumentality, or by any bank or savings institution, or by any corporation or
organization organized under the laws of the United States or of any state,
territory, or possession thereof, or by any corporation or organization
organized under any foreign law, or in "when issued" contracts for any such
securities, to change the investments of the assets of the Trust; and to
exercise any and all rights, powers, and privileges of ownership or interest in
respect of any and all such investments of every kind and description,
including, without limitation, the right to consent and otherwise act with
respect thereto, with power to designate one or more Persons, to exercise any of
said rights, powers, and privileges in respect of any of said instruments;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate,
lease, or write options with respect to or otherwise deal in any property rights
relating to any or all of the assets of the Trust or any Series;
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(c) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property, and to execute
and deliver proxies or powers of attorney to such person or persons as the
Trustees shall deem proper, granting to such person or persons such power and
discretion with relation to securities or property as the Trustees shall deem
proper;
(d) To exercise powers and right of subscription or otherwise
which in any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating
any trust, whether in bearer, unregistered or other negotiable form, or in its
own name or in the name of a custodian or subcustodian or a nominee or nominees
or otherwise;
(f) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or issuer of any
security which is held in the Trust; to consent to any contract, lease,
mortgage, purchase or sale of property by such corporation or issuer; and to pay
calls or subscriptions with respect to any security held in the Trust;
(g) To join with other security holders in acting through a
committee, depositary, voting trustee or otherwise, and in that connection to
deposit any security with, or transfer any security to, any such committee,
depositary or trustee, and to delegate to them such power and authority with
relation to any security (whether or not so deposited or transferred) as the
Trustees shall deem proper, and to agree to pay, and to pay, such portion of the
expenses and compensation of such committee, depositary or trustee as the
Trustees shall deem proper;
(h) To compromise, arbitrate or otherwise adjust claims in
favor of or against the Trust or any matter in controversy, including but not
limited to claims for taxes;
(i) To enter into joint ventures, general or limited
partnerships and any other combination or associations;
(j) To borrow funds or other property in the name of the Trust
exclusively for Trust purposes;
(k) To endorse or guarantee the payment of any notes or other
obligations of any Person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof;
(l) To purchase and pay for entirely out of Trust Property
such insurance as the Trustees may deem necessary or appropriate for the conduct
of the business, including, without limitation, insurance policies insuring the
assets of the Trust or payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, investment advisers,
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principal underwriters, or independent contractors of the Trust, individually
against all claims and liabilities of every nature arising by reason of holding
Shares, holding, being or having held any such office or position, or by reason
of any action alleged to have been taken or omitted by any such Person as
Trustee, officer, employee, agent, investment adviser, principal underwriter, or
independent contractor, including any action taken or omitted that may be
determined to constitute negligence, whether or not the Trust would have the
power to indemnify such Person against liability; and
(m) to adopt, establish and carry out pension, profit-sharing,
share bonus, share purchase, savings, thrift and other retirement, incentive and
benefit plans, trusts and provisions, including the purchasing of life insurance
and annuity contracts as a means of providing such retirement and other
benefits, for any or all of the Trustees, officers, employees and agents of the
Trust.
The Trust shall not be limited to investing in obligations
maturing before the possible termination of the Trust or one or more of its
Series. The Trust shall not in any way be bound or limited by any present or
future law or custom in regard to investment by fiduciaries. The Trust shall not
be required to obtain any court order to deal with any assets of the Trust or
take any other action hereunder.
Section 4. Payment of Expenses by the Trust. The Trustees are
authorized to pay or cause to be paid out of the principal or income of the
Trust, or partly out of the principal and partly out of income, as they deem
fair, all expenses, fees, charges, taxes and liabilities incurred or arising in
connection with the Trust, or in connection with the management thereof,
including, but not limited to, the Trustees' compensation and such expenses and
charges for the services of the Trust's officers, employees, investment adviser
or manager, principal underwriter, auditors, counsel, custodian, transfer agent,
Shareholder servicing agent, and such other agents or independent contractors
and such other expenses and charges as the Trustees may deem necessary or proper
to incur.
Section 5. Payment of Expenses by Shareholders. The Trustees
shall have the power, as frequently as they may determine, to cause each
Shareholder, or each Shareholder of any particular Series, to pay directly, in
advance or arrears, for charges of the Trust's custodian or transfer,
Shareholder servicing or similar agent, an amount fixed from time to time by the
Trustees, by setting off such charges due from such Shareholder from declared
but unpaid dividends owed such Shareholder and/or by reducing the number of
shares in the account of such Shareholder by that number of full and/or
fractional Shares which represents the outstanding amount of such charges due
from such Shareholder.
Section 6. Ownership of Assets of the Trust. Title to all of
the assets of the Trust shall at all times be considered as
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vested in the Trust, except that the Trustees shall have power to cause legal
title to any Trust Property to be held by or in the name of one or more of the
Trustees, or in the name of the Trust, or in the name of any other Person as
nominee, on such terms as the Trustees may determine. The right, title and
interest of the Trustees in the Trust Property shall vest automatically in each
Person who may hereafter become a Trustee. Upon the resignation, removal or
death of a Trustee he shall automatically cease to have any right, title or
interest in any of the Trust Property, and the right, title and interest of such
Trustee in the Trust Property shall vest automatically in the remaining
Trustees. Such vesting and cessation of title shall be effective whether or not
conveyancing documents have been executed and delivered.
Section 7. Service Contracts.
(a) Subject to such requirements and restrictions as may be
set forth in the By-Laws, the Trustees may, at any time and from time to time,
contract for exclusive or nonexclusive advisory, management and/or
administrative services for the Trust or for any Series with any corporation,
trust, association or other organization; and any such contract may contain such
other terms as the Trustees may determine, including without limitation,
authority for the Investment Manager or administrator to determine from time to
time without prior consultation with the Trustees what investments shall be
purchased, held, sold or exchanged and what portion, if any, of the assets of
the Trust shall be held uninvested and to make changes in the Trust's
investments, or such other activities as may specifically be delegated to such
party.
(b) The Trustees may also, at any time and from time to time,
contract with any corporation, trust, association or other organization,
appointing it exclusive or nonexclusive distributor or Principal Underwriter for
the Shares of one or more of the Series (or classes) or other securities to be
issued by the Trust. Every such contract shall comply with such requirements and
restrictions as may be set forth in the By-Laws; and any such contract may
contain such other terms as the Trustees may determine.
(c) The Trustees are also empowered, at any time and from time
to time, to contract with any corporations, trusts, associations or other
organizations, appointing it or them the custodian, transfer agent and/or
Shareholder servicing agent for the Trust or one or more of its Series. Every
such contract shall comply with such requirements and restrictions as may be set
forth in the By-Laws or stipulated by resolution of the Trustees.
(d) The Trustees are further empowered, at any time and from
time to time, to contract with any entity to provide such other services to the
Trust or one or more of the Series, as the Trustees determine to be in the best
interests of the Trust and the applicable Series.
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(e) The fact that:
(i) any of the Shareholders, Trustees, or officers of
the Trust is a shareholder, director, officer, partner,
trustee, employee, Manager, adviser, Principal Underwriter,
distributor, or affiliate or agent of or for any corporation,
trust, association, or other organization, or for any parent
or affiliate of any organization with which an advisory,
management or administration contract, or principal
underwriter's or distributor's contract, or transfer,
Shareholder servicing or other type of service contract may
have been or may hereafter be made, or that any such
organization, or any parent or affiliate thereof, is a
Shareholder or has an interest in the Trust, or that
(ii) any corporation, trust, association or other
organization with which an advisory, management or
administration contract or principal underwriter's or
distributor's contract, or transfer, Shareholder servicing or
other type of service contract may have been or may hereafter
be made also has an advisory, management or administration
contract, or principal underwriter's or distributor's
contract, or transfer, shareholder servicing or other service
contract with one or more other corporations, trust,
associations, or other organizations, or has other business or
interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same, or create any liability or accountability to the Trust or its
Shareholders, provided approval of each such contract is made pursuant to the
requirements of the 1940 Act.
ARTICLE V
Shareholders' Voting Powers and Meetings
Section 1. Voting Powers. Subject to the provisions of Article
III, Section 6(d), the Shareholders shall have power to vote only (i) for the
election or removal of Trustees as provided in Article IV, Section 1, and (ii)
with respect to such additional matters relating to the Trust as may be required
by this Declaration of Trust, the By-Laws or any registration of the Trust with
the Commission (or any successor agency) or any state, or as the Trustees may
consider necessary or desirable. Each whole Share shall be entitled to one vote
as to any matter on which it is entitled to vote and each fractional Share shall
be entitled to a proportionate fractional vote. There shall be no cumulative
voting in the election of Trustees. Shares may be voted in person or by proxy. A
proxy with respect to Shares held in the name of two or more persons shall be
valid if executed by any one of them unless at or prior to exercise of the proxy
the Trust receives a specific
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written notice to the contrary from any one of them. A proxy purporting to be
executed by or on behalf of a Shareholder shall be deemed valid unless
challenged at or prior to its exercise and the burden of proving invalidity
shall rest on the challenger.
Section 2. Voting Power and Meetings. Meetings of the
Shareholders may be called by the Trustees for the purpose of electing Trustees
as provided in Article IV, Section 1 and for such other purposes as may be
prescribed by law, by this Declaration of Trust or by the By-Laws. Meetings of
the Shareholders may also be called by the Trustees from time to time for the
purpose of taking action upon any other matter deemed by the Trustees to be
necessary or desirable. A meeting of Shareholders may be held at any place
designated by the Trustees. Written notice of any meeting of Shareholders shall
be given or caused to be given by the Trustees by mailing such notice at least
seven (7) days before such meeting, postage prepaid, stating the time and place
of the meeting, to each Shareholder at the Shareholder's address as it appears
on the records of the Trust. Whenever notice of a meeting is required to be
given to a Shareholder under this Declaration of Trust or the By-Laws, a written
waiver thereof, executed before or after the meeting by such Shareholder or his
attorney thereunto authorized and filed with the records of the meeting, shall
be deemed equivalent to such notice.
Section 3. Quorum and Required Vote. Except when a larger
quorum is required by applicable law, by the By-Laws or by this Declaration of
Trust, forty percent (40%) of the Shares entitled to vote shall constitute a
quorum at a Shareholders' meeting. When any one or more Series (or classes) is
to vote as a single class separate from any other Shares, forty percent (40%) of
the Shares of each such Series (or classes) entitled to vote shall constitute a
quorum at a Shareholders's meeting of that Series. Any meeting of Shareholders
may be adjourned from time to time by a majority of the votes properly cast upon
the question of adjourning a meeting to another date and time, whether or not a
quorum is present, and the meeting may be held as adjourned within a reasonable
time after the date set for the original meeting without further notice. Subject
to the provisions of Article III, Section 6(d), when a quorum is present at any
meeting, a majority of the Shares voted shall decide any questions and a
plurality shall elect a Trustee, except when a larger vote is required by any
provision of this Declaration of Trust or the By-Laws or by applicable law.
Section 4. Action by Written Consent. Any action taken by
Shareholders may be taken without a meeting if Shareholders holding a majority
of the Shares entitled to vote on the matter (or such larger proportion thereof
as shall be required by any express provision of this Declaration of Trust or by
the By-Laws) and holding a majority (or such larger proportion as aforesaid) of
the Shares of any Series (or class) entitled to vote separately on the matter
consent to the action in writing and such written consents are filed with the
records of the meetings of Shareholders. Such
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consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
Section 5. Record Dates. For the purpose of determining the
Shareholders of any Series (or class) who are entitled to vote or act at any
meeting or any adjournment thereof, the Trustees may from time to time fix a
time, which shall be not more than ninety (90) days before the date of any
meeting of Shareholders, as the record date for determining the Shareholders of
such Series (or class) having the right to notice of and to vote at such meeting
and any adjournment thereof, and in such case only Shareholders of record on
such record date shall have such right, notwithstanding any transfer of shares
on the books of the Trust after the record date. For the purpose of determining
the Shareholders of any Series (or class) who are entitled to receive payment of
any dividend or of any other distribution, the Trustees may from time to time
fix a date, which shall be before the date for the payment of such dividend or
such other payment, as the record date for determining the Shareholders of such
Series (or class) having the right to receive such dividend or distribution.
Without fixing a record date the Trustees may for voting and/or distribution
purposes close the register or transfer books for one or more Series for all or
any part of the period between a record date and a meeting of Shareholders or
the payment of a distribution. Nothing in this Section shall be construed as
precluding the Trustees from setting different record dates for different Series
(or classes).
Section 6. Additional Provisions. The By-Laws may include
further provisions for Shareholders' votes and meetings and related matters.
ARTICLE VI
Net Asset Value, Distributions, and Redemptions
Section 1. Determination of Net Asset Value, Net Income, and
Distributions. Subject to Article III, Section 6 hereof, the Trustees, in their
absolute discretion, may prescribe and shall set forth in the By-Laws or in a
duly adopted vote of the Trustees such bases and time for determining the per
Share or net asset value of the Shares of any Series or net income attributable
to the Shares of any Series, or the declaration and payment of dividends and
distributions on the Shares of any Series, as they may deem necessary or
desirable.
Section 2. Redemptions and Repurchases. The Trust shall
purchase such Shares as are offered by any Shareholder for redemption, upon the
presentation of a proper instrument of transfer together with a request directed
to the Trust or a Person designated by the Trust that the Trust purchase such
Shares or in accordance with such other procedures for redemption as the
Trustees may from time to time authorize; and the Trust will pay
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therefor the net asset value thereof, in accordance with the ByLaws and
applicable law. Payment for said Shares shall be made by the Trust to the
Shareholder within seven days after the date on which the request is made in
proper form. The obligation set forth in this Section 2 is subject to the
provision that in the event that any time the New York Stock Exchange (the
"Exchange") is closed for other than weekends or holidays, or if permitted by
the Rules of the Commission during periods when trading on the Exchange is
restricted or during any emergency which makes it impracticable for the Trust to
dispose of the investments of the applicable Series or to determine fairly the
value of the net assets held with respect to such Series or during any other
period permitted by order of the Commission for the protection of investors,
such obligations may be suspended or postponed by the Trustees.
The redemption price may in any case or cases be paid wholly
or partly in kind if the Trustees determine that such payment is advisable in
the interest of the remaining Shareholders of the Series for which the Shares
are being redeemed. Subject to the foregoing, the fair value, selection and
quantity of securities or other property so paid or delivered as all or part of
the redemption price may be determined by or under authority of the Trustees. In
no case shall the Trust be liable for any delay of any corporation or other
Person in transferring securities selected for delivery as all or part of any
payment in kind.
Section 3. Redemptions at the Option of the Trust. The Trust
shall have the right at its option and at any time to redeem Shares of any
Shareholder at the net asset value thereof as described in Section 1 of this
Article VI: (i) if at such time such Shareholder owns Shares of any Series
having an aggregate net asset value of less than an amount determined from time
to time by the Trustees prior to the acquisition of said Shares; or (ii) to the
extent that such Shareholder owns Shares of a particular Series equal to or in
excess of a percentage of the outstanding Shares of that Series determined from
time to time by the Trustees; or (iii) to the extent that such Shareholder owns
Shares equal to or in excess of a percentage, determined from time to time by
the Trustees, of the outstanding Shares of the Trust or of any Series.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
Section 1. Compensation. The Trustees as such shall be
entitled to reasonable compensation from the Trust, and they may fix the amount
of such compensation. Nothing herein shall in any way prevent the employment of
any Trustee for advisory, management, legal, accounting, investment banking or
other services and payment for the same by the Trust.
Section 2. Indemnification and Limitation of Liability. The
Trustees shall not be responsible or liable in any event for
16
<PAGE>
any neglect or wrong-doing of any officer, agent, employee, Manager or Principal
Underwriter of the Trust, nor shall any Trustee be responsible for the act or
omission of any other Trustee, and the Trust out of its assets shall indemnify
and hold harmless each and every Trustee from and against any and all claims and
demands whatsoever arising out of or related to each Trustee's performance of
his duties as a Trustee of the Trust; provided that nothing herein contained
shall indemnify, hold harmless or protect any Trustee from or against any
liability to the Trust or any Shareholder to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
Every note, bond, contract, instrument, certificate or
undertaking and every other act or thing whatsoever issued, executed or done by
or on behalf of the Trust or the Trustees or any of them in connection with the
Trust shall be conclusively deemed to have been issued, executed or done only in
or with respect to their or his capacity as Trustees or Trustee, and such
Trustees or Trustee shall not be personally liable thereon.
Section 3. Trustee's Good Faith Action, Expert Advice, No Bond
or Surety. The exercise by the Trustees of their powers and discretions
hereunder shall be binding upon everyone interested. A Trustee shall be liable
to the Trust and to any Shareholder solely for his own willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee, and shall not be liable for errors of judgment
or mistakes of fact or law. The Trustees may take advice of counsel or other
experts with respect to the meaning and operation of this Declaration of Trust,
and shall be under no liability for any act or omission in accordance with such
advice nor for failing to follow such advice. The Trustees shall not be required
to give any bond as such, nor any surety if a bond is required.
Section 4. Insurance. The Trustees shall be entitled and
empowered to the fullest extent permitted by law to purchase with Trust assets
insurance for liability and for all expenses reasonably incurred or paid or
expected to be paid by a Trustee or officer in connection with any claim,
action, suit or proceeding in which he becomes involved by virtue of his
capacity or former capacity with the Trust.
ARTICLE VIII
Miscellaneous
Section 1. Liability of Third Persons Dealing with Trustees.
No Person dealing with the Trustees shall be bound to make any inquiry
concerning the validity of any transaction made or to be made by the Trustees or
to see to the application of any payments made or property transferred to the
Trust or upon its
17
<PAGE>
order.
Section 2. Termination of Trust or Series. Unless terminated
as provided herein, the Trust shall continue without limitation of time. The
Trust may be terminated at any time by vote of a majority of the Shares of each
Series entitled to vote, voting separately by Series, or by the Trustees by
written notice to the Shareholders. Any Series may be terminated at any time by
vote of a majority of the Shares of that Series or by the Trustees by written
notice to the Shareholders of that Series.
Upon termination of the Trust (or any Series, as the case may
be), after paying or otherwise providing for all charges, taxes, expenses and
liabilities held, severally, with respect to each Series (or the applicable
Series, as the case may be), whether due or accrued or anticipated as may be
determined by the Trustees, the Trust shall, in accordance with such procedures
as the Trustees consider appropriate, reduce the remaining assets held,
severally, with respect to each Series (or the applicable Series, as the case
may be), to distributable form in cash or shares or other securities, or any
combination thereof, and distribute the proceeds held with respect to each
Series (or the applicable Series, as the case may be), to the Shareholders of
that Series, as a Series, ratably according to the number of Shares of that
Series held by the several Shareholders on the date of termination.
Section 3. Merger and Consolidation. the Trustees may cause
(i) the Trust or one or more of its Series to the extent consistent with
applicable law to be merged into or consolidated with another Trust or company,
(ii) the Shares of the Trust or any Series to be converted into beneficial
interests in another business trust (or series thereof) created pursuant to this
Section 3 of Article VIII, or (iii) the Shares to be exchanged under or pursuant
to any state or federal statute to the extent permitted by law. Such merger or
consolidation, Share conversion or Share exchange must be authorized by vote of
a majority of the outstanding Shares of the Trust, as a whole, or any affected
Series, as may be applicable; provided that in all respects not governed by
statute or applicable law, the Trustees shall have power to prescribe the
procedure necessary or appropriate to accomplish a sale of assets, merger or
consolidation including the power to create one or more separate business trusts
to which all or any part of the assets, liabilities, profits or losses of the
Trust may be transferred and to provide for the conversion of Shares of the
Trust or any Series into beneficial interests in such separate business trust or
trusts (or series thereof).
Section 4. Amendments. This Declaration of Trust may be
restated and/or amended at any time by an instrument in writing signed by a
majority of the then Trustees and, if required, by approval of such amendment by
Shareholders in accordance with Article V, Section 3 hereof. Any such
restatement and/or amendment hereto shall be effective immediately upon
execution and approval. The Certificate of Trust of the Trust may be restated
and/or
18
<PAGE>
amended by a similar procedure, and any such restatement and/or amendment shall
be effective immediately upon filing with the Office of the Secretary of State
of the State of Delaware or upon such future date as may be stated therein.
Section 5. Filing of Copies, References, Headings. The
original or a copy of this instrument and of each restatement and/or amendment
hereto shall be kept at the office of the Trust where it may be inspected by any
Shareholder. Anyone dealing with the Trust may rely on a certificate by an
officer of the Trust as to whether or not any such restatements and/or
amendments have been made and as to any matters in connection with the Trust
hereunder; and, with the same effect as if it were the original, may rely on a
copy certified by an officer of the Trust to be a copy of this instrument or of
any such restatements and/or amendments. In this instrument and in any such
restatements and/or amendment, references to this instrument, and all
expressions like "herein", "hereof" and "hereunder", shall be deemed to refer to
this instrument as amended or affected by any such restatements and/or
amendments. Headings are placed herein for convenience of reference only and
shall not be taken as a part hereof or control or affect the meaning,
construction or effect of this instrument. Whenever the singular number is used
herein, the same shall include the plural; and the neuter, masculine and
feminine genders shall include each other, as applicable. This instrument may be
executed in any number of counterparts each of which shall be deemed an
original.
Section 6. Applicable Law. This Agreement and Declaration of
Trust is created under and is to be governed by and construed and administered
according to the laws of the State of Delaware and the Delaware Business Trust
Act, as amended from time to time (the "Act"). The Trust shall be a Delaware
business trust pursuant to such Act, and without limiting the provisions hereof,
the Trust may exercise all powers which are ordinarily exercised by such a
business trust.
Section 7. Provisions in Conflict with Law or
Regulations.
(a) The provisions of the Declaration of Trust are
severable, and if the Trustees shall determine, with the advice of counsel, that
any of such provisions is in conflict with the 1940 Act, the regulated
investment company provisions of the Internal Revenue Code or with other
applicable laws and regulations, the conflicting provision shall be deemed never
to have constituted a part of the Declaration of Trust; provided, however, that
such determination shall not affect any of the remaining provisions of the
Declaration of Trust or render invalid or improper any action taken or omitted
prior to such determination.
(b) If any provision of the Declaration of Trust
shall be held invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision
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<PAGE>
in such jurisdiction and shall not in any manner affect such provision in any
other jurisdiction or any other provision of the Declaration of Trust in any
jurisdiction.
Section 8. Business Trust Only. It is the intention of the
Trustees to create a business trust pursuant to the Delaware Business Trust Act,
as amended from time to time (the "Act"), and thereby to create only the
relationship of trustee and beneficial owners within the meaning of such Act
between the Trustees and each Shareholder. It is not the intention of the
Trustees to create a general partnership, limited partnership, joint stock
association, corporation, bailment, or any form of legal relationship other than
a business trust pursuant to such Act. Nothing in this Declaration of Trust
shall be construed to make the Shareholders, either by themselves or with the
Trustees, partners or members of a joint stock association.
20
<PAGE>
IN WITNESS WHEREOF, the Trustees named below do hereby make
and enter into this Declaration of Trust as of the 6th day of July, 1994.
Richard D. Burritt
----------------------------------
Richard D. Burritt
4455 E. Camelback Rd., Suite 261E
Phoenix, AZ 85018
Judith Wood-Swenson
----------------------------------
Judith Wood-Swenson
4455 E. Camelback Rd., Suite 261E
Phoenix, AZ 85018
Robert H. Wadsworth
----------------------------------
Robert H. Wadsworth
4455 E. Camelback Rd., Suite 261E
Phoenix, AZ 85018
THE PRINCIPAL PLACE OF BUSINESS OF THE TRUST IS
4 Orinda Way, Suite 230D
Orinda, CA 94563
21
BY-LAWS
-------
for the regulation, except as
otherwise provided by statute or the
Agreement and Declaration of Trust, of
MASTERS CONCENTRATED SELECT TRUST
a Delaware Business Trust
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
ARTICLE I Offices
-------
<S> <C> <C> <C>
1. Principal Office.................................................................... 1
2. Delaware Office..................................................................... 1
3. Other Offices....................................................................... 1
ARTICLE II Meetings of Shareholders
------------------------
1. Place of Meetings................................................................... 1
2. Call of Meeting..................................................................... 1
3. Notice of Shareholders' Meeting..................................................... 1
4. Manner of Giving Notice; Affidavit of Notice........................................ 2
5. Adjourned Meeting; Notice........................................................... 2
6. Voting.............................................................................. 3
7. Waiver of Notice of Consent by Absent
Shareholders........................................................................ 3
8. Shareholder Action by Written Consent Without a
Meeting............................................................................. 3
9. Record Date for Shareholder Notice, Voting and
Giving Consents..................................................................... 4
10. Proxies............................................................................. 4
11. Inspectors of Election.............................................................. 5
ARTICLE III Trustees
--------
1. Powers.............................................................................. 5
2. Number of Trustees.................................................................. 6
3. Vacancies........................................................................... 6
4. Place of Meetings and Meetings by Telephone......................................... 6
5. Regular Meetings.................................................................... 6
6. Special Meetings.................................................................... 6
7. Quorum.............................................................................. 7
8. Waiver of Notice.................................................................... 7
9. Adjournment......................................................................... 7
10. Notice of Adjournment............................................................... 7
11. Action Without a Meeting............................................................ 7
12. Fees and Compensation of Trustees................................................... 8
13. Delegation of Power to Other Trustees............................................... 8
ARTICLE IV Committees
----------
1. Committees of Trustees.............................................................. 8
2. Meetings and Action of Committees................................................... 9
ARTICLE V Officers
--------
1. Officers............................................................................ 9
2. Election of Officers................................................................ 9
3. Subordinate Officers................................................................ 9
4. Removal and Resignation of Officers................................................. 9
5. Vacancies in Offices................................................................ 10
6. Chairman of the Board............................................................... 10
7. President........................................................................... 11
</TABLE>
i
<PAGE>
<TABLE>
Page
----
<S> <C> <C> <C>
8. Vice Presidents..................................................................... 10
9. Secretary........................................................................... 10
10. Treasurer........................................................................... 11
ARTICLE VI Indemnification of Trustees, Officers
-------------------------------------
Employees and Other Agents
--------------------------
1. Agents, Proceedings and Expenses.................................................... 11
2. Actions Other than by Trust......................................................... 12
3. Actions by the Trust................................................................ 12
4. Exclusion and Indemnification....................................................... 12
5. Successful Defense by Agent......................................................... 13
6. Required Approval................................................................... 13
7. Advance of Expenses................................................................. 14
8. Other Contractual Rights............................................................ 14
9. Limitations......................................................................... 14
10. Insurance........................................................................... 14
11. Fiduciaries of Corporate Employee Benefit Plan...................................... 14
ARTICLE VII Records and Reports
-------------------
1. Maintenance and Inspection of Share Register........................................ 15
2. Maintenance and Inspection of By-Laws............................................... 15
3. Maintenance and Inspection of Other Records......................................... 15
4. Inspection by Trustees.............................................................. 15
5. Financial Statements................................................................ 15
ARTICLE VIII General Matters
---------------
1. Checks, Drafts, Evidence of Indebtedness............................................ 16
2. Contracts and Instruments; How Executed............................................. 16
3. Certificate of Shares............................................................... 16
4. Lost Certificates................................................................... 16
5. Representation of Shares of Other Entities
Held by Trust....................................................................... 17
6. Fiscal Year......................................................................... 17
ARTICLE IX Amendments
----------
1. Amendment by Shareholders........................................................... 17
2. Amendment by Trustees............................................................... 17
3. Incorporation by Reference into Agreement and
Declaration of Trust of the Trust................................................... 17
</TABLE>
ii
<PAGE>
BY-LAWS
OF
Masters Concentrated Select Trust
---------------------------------
A Delaware Business Trust
ARTICLE I
OFFICES
-------
Section 1. PRINCIPAL OFFICE. The Board of Trustees shall fix and, from
time to time, may change the location of the principal executive office of the
Masters Concentrated Select Trust (the "Trust") at any place within or outside
the State of Delaware.
Section 2. DELAWARE OFFICE. The Board of Trustees shall establish a
registered office in the State of Delaware and shall appoint as the Trust's
registered agent for service of process in the State of Delaware an individual
resident of the State of Delaware or a Delaware corporation or a corporation
authorized to transact business in the State of Delaware; in each case the
business office of such registered agent for service of process shall be
identical with the registered Delaware office of the Trust.
Section 3. OTHER OFFICES. The Board of Trustees may at any time
establish branch or subordinate offices at any place or places where the Trust
intends to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held at
any place designated by the Board of Trustees. In the absence of any such
designation, shareholders' meetings shall be held at the principal executive
office of the Trust.
Section 2. CALL OF MEETING. A meeting of the shareholders may be called
at any time by the Board of Trustees or by the Chairman of the Board or by the
President.
Section 3. NOTICE OF SHAREHOLDERS' MEETING. All notices of meetings of
shareholders shall be sent or otherwise given in accordance with Section 4 of
this Article II not less than seven (7) nor more than seventy-five (75) days
before the date of the meeting. The notice shall specify (i) the place, date and
hour of the meeting, and (ii) the general nature of the business to be
transacted. The notice of any meeting at which Trustees are to be elected also
shall include the name of any nominee or nominees whom at the time of the notice
are intended to be presented for election.
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<PAGE>
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a Trustee has a direct or indirect financial
interest, (ii) an amendment of the Agreement and Declaration of Trust of the
Trust, (iii) a reorganization of the Trust, or (iv) a voluntary dissolution of
the Trust, the notice shall also state the general nature of that proposal.
Section 4. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any
meeting of shareholders shall be given either personally or by first-class mail
or telegraphic or other written communication, charges prepaid, addressed to the
shareholder at the address of that shareholder appearing on the books of the
Trust or its transfer agent or given by the shareholder to the Trust for the
purpose of notice. If no such address appears on the Trust's books or is given,
notice shall be deemed to have been given if sent to that shareholder by
first-class mail or telegraphic or other written communication to the Trust's
principal executive office, or if published at least once in a newspaper of
general circulation in the county where that office is located. Notice shall be
deemed to have been given at the time when delivered personally or deposited in
the mail or sent by telegram or other means of written communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the Trust is returned to the Trust by the
United States Postal Service marked to indicate that the Postal Service is
unable to deliver the notice to the shareholder at that address, all future
notices or reports shall be deemed to have been duly given without further
mailing if these shall be available to the shareholder on written demand of the
shareholder at the principal executive office of the Trust for a period of one
year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholder's meeting shall be executed by the Secretary, Assistant Secretary or
any transfer agent of the Trust giving the notice and shall be filed and
maintained in the minute book of the Trust.
Section 5. ADJOURNED MEETING; NOTICE. Any shareholder's meeting,
whether or not a quorum is present, may be adjourned from time to time by the
vote of the majority of the shares represented at that meeting, either in person
or by proxy.
When any meeting of shareholders is adjourned to another time or place,
notice need not be given of the adjourned meeting at which the adjournment is
taken, unless a new record date of the adjourned meeting is fixed or unless the
adjournment is for more than sixty (60) days from the date set for the original
meeting, in which case the Board of Trustees shall set a new record date. Notice
of any such adjourned meeting shall be given to each shareholder of record
entitled to vote at the adjourned meeting in accordance with the provisions of
Sections 3 and 4 of this Article II. At any adjourned meeting, the Trust may
transact any business which might have been transacted at the original meeting.
2
<PAGE>
Section 6. VOTING. The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of the
Agreement and Declaration of Trust of the Trust, as in effect at such time. The
shareholders' vote may be by voice vote or by ballot, provided, however, that
any election for Trustees must be by ballot if demanded by any shareholder
before the voting has begun. On any matter other than elections of Trustees, any
shareholder may vote part of the shares in favor of the proposal and refrain
from voting the remaining shares or vote them against the proposal, but if the
shareholder fails to specify the number of shares which the shareholder is
voting affirmatively, it will be conclusively presumed that the shareholder's
approving vote is with respect to the total shares that the shareholder is
entitled to vote on such proposal.
Section 7. WAIVER OF NOTICE BY CONSENT OF ABSENT SHAREHOLDERS. The
transactions of the meeting of shareholders, however called and noticed and
wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice if a quorum be present either in person or by proxy and
if either before or after the meeting, each person entitled to vote who was not
present in person or by proxy signs a written waiver of notice or a consent to a
holding of the meeting or an approval of the minutes. The waiver of notice or
consent need not specify either the business to be transacted or the purpose of
any meeting of shareholders.
Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
of the meeting if that objection is expressly made at the beginning of the
meeting.
Section 8. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any
action which may be taken at any meeting of shareholders may be taken without a
meeting and without prior notice if a consent in writing setting forth the
action so taken is signed by the holders of outstanding shares having not less
than the minimum number of votes that would be necessary to authorize or take
that action at a meeting at which all shares entitled to vote on that action
were present and voted. All such consents shall be filed with the Secretary of
the Trust and shall be maintained in the Trust's records. Any shareholder giving
a written consent or the shareholder's proxy holders or a transferee of the
shares or a personal representative of the shareholder or their respective proxy
holders may revoke the consent by a writing received by the Secretary of the
Trust before written consents of the number of shares required to authorize the
proposed action have been filed with the Secretary.
If the consents of all shareholders entitled to vote have not
3
<PAGE>
been solicited in writing and if the unanimous written consent of all such
shareholders shall not have been received, the Secretary shall give prompt
notice of the action approved by the shareholders without a meeting. This notice
shall be given in the manner specified in Section 4 of this Article II. In the
case of approval of (i) contracts or transactions in which a Trustee has a
direct or indirect financial interest, (ii) indemnification of agents of the
Trust, and (iii) a reorganization of the Trust, the notice shall be given at
least ten (10) days before the consummation of any action authorized by that
approval.
Section 9. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING AND GIVING
CONSENTS. For purposes of determining the shareholders entitled to notice of any
meeting or to vote or entitled to give consent to action without a meeting, the
Board of Trustees may fix in advance a record date which shall not be more than
ninety (90) days nor less than seven (7) days before the date of any such
meeting as provided in the Agreement and Declaration of Trust of the Trust.
If the Board of Trustees does not so fix a record date:
(a) The record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at
the close of business on the business day next preceding the
day on which notice is given or if notice is waived, at the
close of business on the business day next preceding the day
on which the meeting is held.
(b) The record date for determining shareholders entitled to give
consent to action in writing without a meeting, (i) when no
prior action by the Board of Trustees has been taken, shall be
the day on which the first written consent is given, or (ii)
when prior action of the Board of Trustees has been taken,
shall be at the close of business on the day on which the
Board of Trustees adopt the resolution relating to that action
or the seventy-fifth day before the date of such other action,
whichever is later.
Section 10. PROXIES. Every person entitled to vote for Trustees or on
any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the Secretary of the Trust. A proxy shall be deemed signed if the shareholder's
name is placed on the proxy (whether by manual signature, typewriting,
telegraphic transmission or otherwise) by the shareholder or the shareholder's
attorney-in-fact. A validly executed proxy which does not state that it is
irrevocable shall continue in full force and effect unless (i) revoked by the
person executing it before the vote pursuant to that proxy by a writing
delivered to the Trust stating that the proxy is revoked or by a subsequent
proxy executed by, or attendance at the meeting and voting in person by, the
person executing that proxy; or (ii) written notice of the death or
4
<PAGE>
incapacity of the maker of that proxy is received by the Trust before the vote
pursuant to that proxy is counted; provided however, that no proxy shall be
valid after the expiration of eleven (11) months from the date of the proxy
unless otherwise provided in the proxy.
Section 11. INSPECTORS OF ELECTION. Before any meeting of shareholders,
the Board of Trustees may appoint any persons other than nominees for office to
act as inspectors of election at the meeting or its adjournment. If no
inspectors of election are so appointed, the chairman of the meeting may and on
the request of any shareholder or a shareholder's proxy shall, appoint
inspectors of election at the meeting. The number of inspectors shall be either
one (1) or three (3). If inspectors are appointed at a meeting on the request of
one or more shareholders or proxies, the holders of a majority of shares or
their proxies present at the meeting shall determine whether one (1) or three
(3) inspectors are to be appointed. If any person appointed as inspector fails
to appear or fails or refuses to act, the Chairman of the meeting may and on the
request of any shareholder or a shareholder's proxy, shall appoint a person to
fill the vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the voting
power of each, the shares represented at the meeting, the
existence of a quorum and the authenticity, validity and
effect of proxies;
(b) Receive votes, ballots or consents;
(c) Hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election
or vote with fairness to all shareholders.
ARTICLE III
TRUSTEES
--------
Section 1. POWERS. Subject to the applicable provisions of the
Agreement and Declaration of Trust of the Trust and these By-Laws relating to
action required to be approved by the shareholders or by the outstanding shares,
the business and affairs of the Trust shall be managed and all powers shall be
exercised by or under the direction of the Board of Trustees.
5
<PAGE>
Section 2. NUMBER OF TRUSTEES. The exact number of Trustees within the limits
specified in the Agreement and Declaration of Trust of the Trust shall be fixed
from time to time by a written instrument signed or a resolution approved at a
duly constituted meeting by a majority of the Board of Trustees.
Section 3. VACANCIES. Vacancies in the Board of Trustees may be filled
by a majority of the remaining Trustees, though less than a quorum, or by a sole
remaining Trustee, unless the Board of Trustees calls a meeting of shareholders
for the purposes of electing Trustees. In the event that at any time less than a
majority of the Trustees holding office at that time were so elected by the
holders of the outstanding voting securities of the Trust, the Board of Trustees
shall forthwith cause to be held as promptly as possible, and in any event
within sixty (60) days, a meeting of such holders for the purpose of electing
Trustees to fill any existing vacancies in the Board of Trustees, unless such
period is extended by order of the United States Securities and Exchange
Commission. Notwithstanding the above, whenever and for so long as the Trust is
a participant in or otherwise has in effect a Plan under which the Trust may be
deemed to bear expenses of distributing its shares as that practice is described
in Rule 12b-l under the Investment Company Act of 1940, then the selection and
nomination of the Trustees who are not interested persons of the Trust (as that
term is defined in the Investment Company Act of 1940) shall be, and is,
committed to the discretion of such disinterested Trustees.
Section 4. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. All meetings of
the Board of Trustees may be held at any place that has been designated from
time to time by resolution of the Board. In the absence of such a designation,
regular meetings shall be held at the principal executive office of the Trust.
Any meeting, regular or special, may be held by conference telephone or similar
communication equipment, so long as all Trustees participating in the meeting
can hear one another and all such Trustees shall be deemed to be present in
person at the meeting.
Section 5. REGULAR MEETINGS. Regular meetings of the Board of Trustees
shall be held without call at such time as shall from time to time be fixed by
the Board of Trustees. Such regular meetings may be held without notice.
Section 6. SPECIAL MEETINGS. Special meetings of the Board of Trustees
for any purpose or purposes may be called at any time by the Chairman of the
Board or the President or any Vice President or the Secretary or any two (2)
Trustees.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each Trustee or sent by first-class mail or
telegram, charges prepaid, addressed to each Trustee at that Trustee's address
as it is shown on the records of the Trust. In case the notice is mailed, it
shall be deposited in
6
<PAGE>
the United States mail at least seven (7) calendar days before the time of the
holding of the meeting. In case the notice is delivered personally or by
telephone or to the telegraph company or by express mail or similar service, it
shall be given at least forty-eight (48) hours before the time of the holding of
the meeting. Any oral notice given personally or by telephone may be
communicated either to the Trustee or to a person at the office of the Trustee
who the person giving the notice has reason to believe will promptly communicate
it to the Trustee. The notice need not specify the purpose of the meeting or the
place if the meeting is to be held at the principal executive office of the
Trust.
Section 7. QUORUM. A majority of the authorized number of Trustees
shall constitute a quorum for the transaction of business, except to adjourn as
provided in Section 10 of this Article III. Every act or decision done or made
by a majority of the Trustees present at a meeting duly held at which a quorum
is present shall be regarded as the act of the Board of Trustees, subject to the
provisions of the Agreement and Declaration of Trust of the Trust. A meeting at
which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of Trustees if any action taken is approved by a
least a majority of the required quorum for that meeting.
Section 8. WAIVER OF NOTICE. Notice of any meeting need not be given to
any Trustee who either before or after the meeting signs a written waiver of
notice, a consent to holding the meeting, or an approval of the minutes. The
waiver of notice or consent need not specify the purpose of the meeting. All
such waivers, consents, and approvals shall be filed with the records of the
Trust or made a part of the minutes of the meeting. Notice of a meeting shall
also be deemed given to any Trustee who attends the meeting without protesting
before or at its commencement the lack of notice to that Trustee.
Section 9. ADJOURNMENT. A majority of the Trustees present, whether or
not constituting a quorum, may adjourn any meeting to another time and place.
Section 10. NOTICE OF ADJOURNMENT. Notice of the time and place of
holding an adjourned meeting need not be given unless the meeting is adjourned
for more than forty-eight (48) hours, in which case notice of the time and place
shall be given before the time of the adjourned meeting in the manner specified
in Section 7 of this Article III to the Trustees who were present at the time of
the adjournment.
Section 11. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken by the Board of Trustees may be taken without a meeting if a
majority of the members of the Board of Trustees shall individually or
collectively consent in writing to that action. Such action by written consent
shall have the same force and effect as a majority vote of the Board of
Trustees. Such written consent or consents shall be filed with the minutes of
the
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proceedings of the Board of Trustees.
Section 12. FEES AND COMPENSATION OF TRUSTEES. Trustees and members of
committees may receive such compensation, if any, for their services and such
reimbursement of expenses as may be fixed or determined by resolution of the
Board of Trustees. This Section 12 shall not be construed to preclude any
Trustee from serving the Trust in any other capacity as an officer, agent,
employee, or otherwise and receiving compensation for those services.
Section 13. DELEGATION OF POWER TO OTHER TRUSTEES. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six (6) months
at any one time to any other Trustee or Trustees; provided that in no case shall
fewer than two (2) Trustees personally exercise the powers granted to the
Trustees under this Agreement and Declaration of Trust of the Trust except as
otherwise expressly provided herein or by resolution of the Board of Trustees.
Except where applicable law may require a Trustee to be present in person, a
Trustee represented by another Trustee pursuant to such power of attorney shall
be deemed to be present for purposes of establishing a quorum and satisfying the
required majority vote.
ARTICLE IV
COMMITTEES
----------
Section 1. COMMITTEES OF TRUSTEES. The Board of Trustees may by
resolution adopted by a majority of the authorized number of Trustees designate
one or more committees, each consisting of two (2) or more Trustees, to serve at
the pleasure of the Board. The Board may designate one or more Trustees as
alternate members of any committee who may replace any absent member at any
meeting of the committee. Any committee to the extent provided in the resolution
of the Board, shall have the authority of the Board, except with respect to:
(a) the approval of any action which under applicable law also
requires shareholders' approval or approval of the outstanding
shares, or requires approval by a majority of the entire Board
or certain members of said Board;
(b) the filling of vacancies on the Board of Trustees or in any
committee;
(c) the fixing of compensation of the Trustees for serving on the
Board of Trustees or on any committee;
(d) the amendment or repeal of the Agreement and Declaration of
Trust of the Trust or of the By-Laws or the adoption of new
By-Laws;
(e) the amendment or repeal of any resolution of the Board of
Trustees which by its express terms is not so amendable or
repealable;
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(f) a distribution to the shareholders of the Trust, except at a
rate or in a periodic amount or within a designated range
determined by the Board of Trustees; or
(g) the appointment of any other committees of the Board of
Trustees or the members of these committees.
Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of
committees shall be governed by and held and taken in accordance with the
provisions of Article III of these By-Laws, with such changes in the context
thereof as are necessary to substitute the committee and its members for the
Board of Trustees and its members, except that the time of regular meetings of
committees may be determined either by resolution of the Board of Trustees or by
resolution of the committee. Special meetings of committees may also be called
by resolution of the Board of Trustees. Alternate members shall be given notice
of meetings of committees and shall have the right to attend all meetings of
committees. The Board of Trustees may adopt rules for the government of any
committee not inconsistent with the provisions of these By-Laws.
ARTICLE V
OFFICERS
--------
Section 1. OFFICERS. The officers of the Trust shall be a President, a
Secretary, and a Treasurer. The Trust may also have, at the discretion of the
Board of Trustees, a Chairman of the Board, one or more Vice Presidents, one or
more Assistant Secretaries, one or more Assistant Treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 3 of
this Article V. Any number of offices may be held by the same person.
Section 2. ELECTION OF OFFICERS. The officers of the Trust, except such
officers as may be appointed in accordance with the provisions of Section 3 or
Section 5 of this Article V, shall be chosen by the Board of Trustees, and each
shall serve at the pleasure of the Board of Trustees, subject to the rights, if
any, of an officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The Board of Trustees may appoint and
may empower the President to appoint such other officers as the business of the
Trust may require, each of whom shall hold office for such period, have such
authority and perform such duties as are provided in these By-Laws or as the
Board of Trustees may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights,
if any, of an officer under any contract of employment, any officer may be
removed, either with or without cause, by the Board of Trustees at any regular
or special meeting of the Board of Trustees or by the principal executive
officer or by such other officer upon whom such power of removal may be
conferred by the
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Board of Trustees.
Any officer may resign at any time by giving written notice to the
Trust. Any resignation shall take effect at the date of the receipt of that
notice or at any later time specified in that notice; and unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Trust under any contract to which the officer is a party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office because of
death, resignation, removal, disqualification or other cause shall be filled in
the manner prescribed in these By-Laws for regular appointment to that office.
The President may make temporary appointments to a vacant office pending action
by the Board of Trustees.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an
Officer is elected, shall if present preside at meetings of the Board of
Trustees, shall be the Chief Executive Officer of the Trust and shall, subject
to the control of the Board of Trustees, have general supervision, direction and
control of the business and the Officers of the Trust and exercise and perform
such other powers and duties as may be from time to time assigned to him by the
Board of Trustees or prescribed by the By-Laws.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as
may be given by the Board of Trustees to the Chairman of the Board, if there be
such an officer, the President shall be the chief operating officer of the Trust
and shall, subject to the control of the Board of Trustees and the Chairman,
have general supervision, direction and control of the business and the officers
of the Trust. He shall preside at all meetings of the shareholders and in the
absence of the Chairman of the Board or if there be none, at all meetings of the
Board of Trustees. He shall have the general powers and duties of management
usually vested in the office of President of a corporation and shall have such
other powers and duties as may be prescribed by the Board of Trustees or these
By-Laws.
Section 8. VICE PRESIDENTS. In the absence or disability of the
President, the Vice Presidents, if any, in order of their rank as fixed by the
Board of Trustees or if not ranked, the Executive Vice President (who shall be
considered first ranked) and such other Vice Presidents as shall be designated
by the Board of Trustees, shall perform all the duties of the President and when
so acting shall have all powers of and be subject to all the restrictions upon
the President. The Vice Presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Trustees or the President or the Chairman of the Board or by these
By-Laws.
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Section 9. SECRETARY. The Secretary shall keep or cause to be kept at
the principal executive office of the Trust, or such other place as the Board of
Trustees may direct, a book of minutes of all meetings and actions of Trustees,
committees of Trustees and shareholders with the time and place of holding,
whether regular or special, and if special, how authorized, the notice given,
the names of those present at Trustees' meetings or committee meetings, the
number of shares present or represented at shareholders' meetings, and the
proceedings.
The Secretary shall keep or cause to be kept at the principal executive
office of the Trust or at the office of the Trust's transfer agent or registrar,
a share register or a duplicate share register showing the names of all
shareholders and their addresses, the number and classes of shares held by each,
the number and date of certificates issued for the same and the number and date
of cancellation of every certificate surrendered for cancellation.
The Secretary shall give or cause to be given notice of all meetings of
the shareholders and of the Board of Trustees required to be given by these
By-Laws or by applicable law and shall have such other powers and perform such
other duties as may be prescribed by the Board of Trustees or by these By-Laws.
Section 10. TREASURER. The Treasurer shall be the chief financial
officer and chief accounting officer of the Trust and shall keep and maintain or
cause to be kept and maintained adequate and correct books and records of
accounts of the properties and business transactions of the Trust, including
accounts of its assets, liabilities, receipts, disbursements, gains, losses,
capital, retained earnings and shares. The books of account shall at all
reasonable times be open to inspection by any Trustee.
The Treasurer shall deposit all monies and other valuables in the name
and to the credit of the Trust with such depositaries as may be designated by
the Board of Trustees. He shall disburse the funds of the Trust as may be
ordered by the Board of Trustees, shall render to the President and Trustees,
whenever they request it, an account of all of his transactions as chief
financial officer and of the financial condition of the Trust and shall have
other powers and perform such other duties as may be prescribed by the Board of
Trustees or these By-Laws.
ARTICLE VI
INDEMNIFICATION OF TRUSTEES, OFFICERS,
--------------------------------------
EMPLOYEES AND OTHER AGENTS
--------------------------
Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the purpose of this
Article, "agent" means any person who is or was a Trustee, officer, employee or
other agent of this Trust or is or was serving at the request of this Trust as a
Trustee, director, officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise or was a
Trustee, director, officer, employee or agent of a foreign or
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domestic corporation which was a predecessor of another enterprise at the
request of such predecessor entity; "proceeding" means any threatened, pending
or completed action or proceeding, whether civil, criminal, administrative or
investigative; and "expenses" includes without limitation attorney's fees and
any expenses of establishing a right to indemnification under this Article.
Section 2. ACTIONS OTHER THAN BY TRUST. This Trust shall indemnify any
person who was or is a party or is threatened to be made a party to any
proceeding (other than an action by or in the right of this Trust) by reason of
the fact that such person is or was an agent of this Trust, against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with such proceeding, if it is determined that person acted in
good faith and reasonably believed:
(a) in the case of conduct in his official capacity as a Trustee
of the Trust, that his conduct was in the Trust's best
interests, and
(b) in all other cases, that his conduct was at least not opposed
to the Trust's best interests, and
(c) in the case of a criminal proceeding, that he had no
reasonable cause to believe the conduct of that person was
unlawful.
The termination of any proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent shall not of
itself create a presumption that the person did not act in good faith and in a
manner which the person reasonably believed to be in the best interests of this
Trust or that the person had reasonable cause to believe that the person's
conduct was unlawful.
Section 3. ACTIONS BY THE TRUST. This Trust shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action by or in the right of this Trust to procure a
judgment in its favor by reason of the fact that that person is or was an agent
of this Trust, against expenses actually and reasonably incurred by that person
in connection with the defense or settlement of that action if that person acted
in good faith, in a manner that person believed to be in the best interests of
this Trust and with such care, including reasonable inquiry, as an ordinarily
prudent person in a like position would use under similar circumstances.
Section 4. EXCLUSION OF INDEMNIFICATION. Notwithstanding any provision
to the contrary contained herein, there shall be no right to indemnification for
any liability arising by reason of willful misfeasance, bad faith, gross
negligence, or the reckless disregard of the duties involved in the conduct of
the agent's office with this Trust.
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No indemnification shall be made under Sections 2 or 3 of this Article:
(a) In respect of any claim, issue, or matter as to which that
person shall have been adjudged to be liable on the basis that
personal benefit was improperly received by him, whether or
not the benefit resulted from an action taken in the person's
official capacity; or
(b) In respect of any claim, issue or matter as to which that
person shall have been adjudged to be liable in the
performance of that person's duty to this Trust, unless and
only to the extent that the court in which that action was
brought shall determine upon application that in view of all
the circumstances of the case, that person was not liable by
reason of the disabling conduct set forth in the preceding
paragraph and is fairly and reasonably entitled to indemnity
for the expenses which the court shall determine; or
(c) of amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without court approval,
or of expenses incurred in defending a threatened or pending
action which is settled or otherwise disposed of without court
approval, unless the required approval set forth in Section 6
of this Article is obtained.
Section 5. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent of
this Trust has been successful on the merits in defense of any proceeding
referred to in Sections 2 or 3 of this Article or in defense of any claim, issue
or matter therein, before the court or other body before whom the proceeding was
brought, the agent shall be indemnified against expenses actually and reasonably
incurred by the agent in connection therewith, provided that the Board of
Trustees, including a majority who are disinterested, non-party Trustees, also
determines that based upon a review of the facts, the agent was not liable by
reason of the disabling conduct referred to in Section 4 of this Article.
Section 6. REQUIRED APPROVAL. Except as provided in Section 5 of this
Article, any indemnification under this Article shall be made by this Trust only
if authorized in the specific case on a determination that indemnification of
the agent is proper in the circumstances because the agent has met the
applicable standard of conduct set forth in Sections 2 or 3 of this Article and
is not prohibited from indemnification because of the disabling conduct set
forth in Section 4 of this Article, by:
(a) A majority vote of a quorum consisting of Trustees who are not
parties to the proceeding and are not interested persons of
the Trust (as defined in the Investment Company Act of 1940);
or
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(b) A written opinion by an independent legal counsel.
Section 7. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by this Trust before the final disposition of the
proceeding upon a written undertaking by or on behalf of the agent, to repay the
amount of the advance if it is ultimately determined that he or she is not
entitled to indemnification, together with at least one of the following as a
condition to the advance: (i) security for the undertaking; or (ii) the
existence of insurance protecting the Trust against losses arising by reason of
any lawful advances; or (iii) a determination by a majority of a quorum of
Trustees who are not parties to the proceeding and are not interested persons of
the Trust, or by an independent legal counsel in a written opinion, based on a
review of readily available facts that there is reason to believe that the agent
ultimately will be found entitled to indemnification. Determinations and
authorizations of payments under this Section must be made in the manner
specified in Section 6 of this Article for determining that the indemnification
is permissible.
Section 8. OTHER CONTRACTUAL RIGHTS. Nothing contained in this Article
shall affect any right to indemnification to which persons other than Trustees
and officers of this Trust or any subsidiary hereof may be entitled by contract
or otherwise.
Section 9. LIMITATIONS. No indemnification or advance shall be made
under this Article, except as provided in Sections 5 or 6 in any circumstances
where it appears:
(a) that it would be inconsistent with a provision of the
Agreement and Declaration of Trust of the Trust, a resolution
of the shareholders, or an agreement in effect at the time of
accrual of the alleged cause of action asserted in the
proceeding in which the expenses were incurred or other
amounts were paid which prohibits or otherwise limits
indemnification; or
(b) that it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
Section 10. INSURANCE. Upon and in the event of a determination by the
Board of Trustees of this Trust to purchase such insurance, this Trust shall
purchase and maintain insurance on behalf of any agent of this Trust against any
liability asserted against or incurred by the agent in such capacity or arising
out of the agent's status as such, but only to the extent that this Trust would
have the power to indemnify the agent against that liability under the
provisions of this Article and the Agreement and Declaration of Trust of the
Trust.
Section 11. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This Article does not
apply to any proceeding against any Trustee, investment manager or other
fiduciary of an employee benefit plan in that person's capacity as such, even
though that person may also
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be an agent of this Trust as defined in Section 1 of this Article. Nothing
contained in this Article shall limit any right to indemnification to which such
a Trustee, investment manager, or other fiduciary may be entitled by contract or
otherwise which shall be enforceable to the extent permitted by applicable law
other than this Article.
ARTICLE VII
RECORDS AND REPORTS
-------------------
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. This Trust
shall keep at its principal executive office or at the office of its transfer
agent or registrar, if either be appointed and as determined by resolution of
the Board of Trustees, a record of its shareholders, giving the names and
addresses of all shareholders and the number and series of shares held by each
shareholder.
Section 2. MAINTENANCE AND INSPECTION OF BY-LAWS. The Trust shall keep
at its principal executive office the original or a copy of these By-Laws as
amended to date, which shall be open to inspection by the shareholders at all
reasonable times during office hours.
Section 3. MAINTENANCE AND INSPECTION OF OTHER RECORDS. The accounting
books and records and minutes of proceedings of the shareholders and the Board
of Trustees and any committee or committees of the Board of Trustees shall be
kept at such place or places designated by the Board of Trustees or in the
absence of such designation, at the principal executive office of the Trust. The
minutes shall be kept in written form and the accounting books and records shall
be kept either in written form or in any other form capable of being converted
into written form. The minutes and accounting books and records shall be open to
inspection upon the written demand of any shareholder or holder of a voting
trust certificate at any reasonable time during usual business hours for a
purpose reasonably related to the holder's interests as a shareholder or as the
holder of a voting trust certificate. The inspection may be made in person or by
an agent or attorney and shall include the right to copy and make extracts.
Section 4. INSPECTION BY TRUSTEES. Every Trustee shall have the
absolute right at any reasonable time to inspect all books, records, and
documents of every kind and the physical properties of the Trust. This
inspection by a Trustee may be made in person or by an agent or attorney and the
right of inspection includes the right to copy and make extracts of documents.
Section 5. FINANCIAL STATEMENTS. A copy of any financial statements and
any income statement of the Trust for each quarterly period of each fiscal year
and accompanying balance sheet of the Trust as of the end of each such period
that has been prepared by the Trust shall be kept on file in the principal
executive office
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of the Trust for at least twelve (12) months and each such statement shall be
exhibited at all reasonable times to any shareholder demanding an examination of
any such statement or a copy shall be mailed to any such shareholder.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the Trust or the certificate of an authorized officer of
the Trust that the financial statements were prepared without audit from the
books and records of the Trust.
ARTICLE VIII
GENERAL MATTERS
---------------
Section 1. CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS. All checks,
drafts, or other orders for payment of money, notes or other evidences of
indebtedness issued in the name of or payable to the Trust shall be signed or
endorsed in such manner and by such person or persons as shall be designated
from time to time in accordance with the resolution of the Board of Trustees.
Section 2. CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The Board of
Trustees, except as otherwise provided in these By-Laws, may authorize any
officer or officers, agent or agents, to enter into any contract or execute any
instrument in the name of and on behalf of the Trust and this authority may be
general or confined to specific instances; and unless so authorized or ratified
by the Board of Trustees or within the agency power of an officer, no officer,
agent, or employee shall have any power or authority to bind the Trust by any
contract or engagement or to pledge its credit or to render it liable for any
purpose or for any amount.
Section 3. CERTIFICATES FOR SHARES. A certificate or certificates for
shares of beneficial interest in any series of the Trust may be issued to a
shareholder upon his request when such shares are fully paid. All certificates
shall be signed in the name of the Trust by the Chairman of the Board or the
President or Vice President and by the Treasurer or an Assistant Treasurer or
the Secretary or any Assistant Secretary, certifying the number of shares and
the series of shares owned by the shareholders. Any or all of the signatures on
the certificate may be facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed on a
certificate shall have ceased to be that officer, transfer agent, or registrar
before that certificate is issued, it may be issued by the Trust with the same
effect as if that person were an officer, transfer agent or registrar at the
date of issue. Notwithstanding the foregoing, the Trust may adopt and use a
system of issuance, recordation and transfer of its shares by electronic or
other means.
Section 4. LOST CERTIFICATES. Except as provided in this Section 4, no
new certificates for shares shall be issued to replace an old certificate unless
the latter is surrendered to the
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Trust and cancelled at the same time. The Board of Trustees may in case any
share certificate or certificate for any other security is lost, stolen, or
destroyed, authorize the issuance of a replacement certificate on such terms and
conditions as the Board of Trustees may require, including a provision for
indemnification of the Trust secured by a bond or other adequate security
sufficient to protect the Trust against any claim that may be made against it,
including any expense or liability on account of the alleged loss, theft, or
destruction of the certificate or the issuance of the replacement certificate.
Section 5. REPRESENTATION OF SHARES OF OTHER ENTITIES HELD BY TRUST.
The Chairman of the Board, the President or any Vice President or any other
person authorized by resolution of the Board of Trustees or by any of the
foregoing designated officers, is authorized to vote or represent on behalf of
the Trust any and all shares of any corporation, partnership, trusts, or other
entities, foreign or domestic, standing in the name of the Trust. The authority
granted may be exercised in person or by a proxy duly executed by such
designated person.
Section 6. FISCAL YEAR. The fiscal year of the Trust shall be fixed and
refixed or changed from time to time by resolution of the Trustees. The fiscal
year of the Trust shall be the taxable year of each Series of the Trust.
ARTICLE IX
AMENDMENTS
----------
Section 1. AMENDMENT BY SHAREHOLDERS. These By-Laws may be amended or
repealed by the affirmative vote or written consent of a majority of the
outstanding shares entitled to vote, except as otherwise provided by applicable
law or by the Agreement and Declaration of Trust of the Trust or these By-Laws.
Section 2. AMENDMENT BY TRUSTEES. Subject to the right of shareholders
as provided in Section 1 of this Article to adopt, amend or repeal By-Laws, and
except as otherwise provided by applicable law or by the Agreement and
Declaration of Trust of the Trust, these By-Laws may be adopted, amended, or
repealed by the Board of Trustees.
Section 3. INCORPORATION BY REFERENCE INTO AGREEMENT AND DECLARATION OF
TRUST OF THE TRUST. These By-Laws and any amendments thereto shall be
incorporated by reference to the Agreement and Declaration of Trust of the
Trust.
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