As filed with the Securities and Exchange Commission on ___________, 1996
Securities Act File No. 33-_______
Investment Company Act File No. 811-____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. [ ]
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1940 [X]
AMENDMENT NO. [ ]
KHAN FUNDS
(Exact name of registrant as specified in Charter)
714 FM 1960 West Suite 201
Houston Texas 77090
(Address of Principal Executive Office)
Registrant's Telephone Number (Including Area Code) 1-800-838-5986
Sardar A. D. Khan
Khan Funds
714 FM 1960 West Suite 201
Houston Texas 77090
(Name and address of agent for service of process)
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933 or until the Registration Statement shall become effective on such
date as this Commission, acting pursuant to said Section 8(a), may determine.
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 has
elected to register an indefinite number of shares of beneficial interest ,
$.001. The amount of the registration fee is $ 500.00. A Rule 24f-s Notice for
the Registrant's fiscal year ending June 30, 1997 will be filed with the
Commission on or before August 29, 1997.
===========================================================
KHAN FUNDS
Form N-1A
Cross Reference Sheet
<TABLE>
<CAPTION>
ITEM NO. ITEM LOCATION IN PROSPECTUS
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PART A
- ------
<S> <C> <C>
1. Cover page Cover page
2. Synopsis Expense Table
3. Condensed Financial Information Not Applicable
4. General Description of Registrant "General Information"; "Management"; "Investment
Objectives, Policies and Techniques";
5. Management of the Fund "Management"; "General Information"
5A Management's Discussion of Not Applicable
Fund Performance
6. Capital Stock and Other Securities "General Information"; "Dividends, Capital Gains, and
Taxes"
7. Purchase of Securities Being Offered "Your Account"
8. Redemption or Repurchase "Your Account"
9. Pending Legal Proceedings Not Applicable
PART B LOCATION IN STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents "Table of Contents"
12. General Information and History Not Applicable
13. Investment Objectives and Policies "Investment Objectives and Policies"; "Investment
Restrictions"; "Other Securities and Investment
Techniques"
14. Management of Fund "Management"
15. Control Persons and Principal
Holders of Securities "General Information"
16. Investment Advisory and
Other Services "Management"; Distribution Arrangements"; "General
Information".
17. Brokerage Allocation "Portfolio Transactions and Brokerage"
18. Capital Stock and other Securities "General Information".
19. Purchase, Redemption and Pricing
of Securities Being Offered "Net Asset Value"; "Redemptions"
20. Tax Status "Taxation"; "Dividends and Distributions"
21. Underwriters Not Applicable
22. Calculation of Performance Data "Performance Information"
23. Financial Statements "Financial Statements"
</TABLE>
PART C
The information required to be included in Part C is set forth under the
appropriate item, so numbered, in part C to the Registration Statement.
KHAN FUNDS
KHAN GROWTH FUND
714 FM 1960 WEST SUITE 201
HOUSTON, TEXAS 77090
1-800-838-5986
PROSPECTUS
_____________, 1996
- --------------------------------------------------------------------------------
This Prospectus offers shares of the Khan Growth Fund (the "Fund"), a portfolio
or series of Khan Funds, an open-end management investment company (the
"Trust"). The Fund seeks long-term capital growth, consistent with the
preservation of capital, by investing primarily in the common stock of large
capitalization U.S. and foreign companies (I.E., companies having a market
capitalization exceeding $1 billion). Current income is a secondary objective of
the Fund. Khan Investment Inc. serves as investment advisor to the Fund.
THIS PROSPECTUS DESCRIBES CONCISELY THE INFORMATION ABOUT THE FUND THAT YOU
SHOULD KNOW BEFORE INVESTING. PLEASE READ IT CAREFULLY AND RETAIN IT FOR FUTURE
REFERENCE.
A Statement of Additional Information dated ______, 1996 has been filed with the
Securities and Exchange Commission, and is incorporated herein by reference (is
legally considered a part of this prospectus). The Statement of Additional
Information is available free upon request by writing to Khan Fund or calling
1-800-838-5986
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.
714 FM 1960 WEST SUITE 201 HOUSTON TEXAS, 77090
PHONE 713-444-7111 FAX 713-444-3417
TABLE OF CONTENTS
Expenses.....................................................................
Shareholder Transaction Expenses.........................................
Annual Fund Operating Expenses...........................................
Understanding Expenses...................................................
Investment Objectives, Policies and Techniques...............................
Investment Objectives....................................................
Management Policies......................................................
Investment Techniques....................................................
Risk Factors.............................................................
Management...................................................................
The Advisor..............................................................
The Distributor..........................................................
The Custodian and Transfer Agent.........................................
Your Account.................................................................
Ways to Set Up Your Account..............................................
How to Sell Shares.......................................................
Shareholder and Account Policies.........................................
Dividends, Capital Gains, and Taxes..........................................
Understanding Distributions..............................................
Distribution Options.....................................................
Taxes....................................................................
Performance Information......................................................
General Information..........................................................
MINIMUM INVESTMENT
To open an account $1,000
To add to an account $100
Minimum account balance $1,000
-2-
PROSPECTUS
KHAN GROWTH FUND
_____, 1996
============================================================================
Khan Growth Fund ("the Fund") is a series of Khan Funds, an open-end,
management investment company which was formed under Delaware law in 1996 as a
business trust (the "Trust"). Each share of the Fund has one vote. All shares of
the Fund participate equally in dividends and other distributions declared by
the board of trustees, and all shares of the Fund have equal rights in the event
of liquidation of the Fund. Shares of the Fund have no preemptive, conversion or
subscription rights.
The Trust is governed by a board of a trustees which is responsible for
protecting the interests of the shareholders of the Fund. The trustees meet at
regular intervals to oversee the activities of the Fund, review contractual
arrangements with companies that provide services to the Fund, and review
performance. Non-affiliated trustees have been included on the board to
safeguard the interests of the Fund's shareholders.
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. The Fund pays an annual management fee to Khan Investment
Inc., for managing its investments and business affairs, of (i) 1% of its
average daily net assets up to $500 million; (ii) .975% of its average daily net
assets from $500 to $750 million; (iii) .950% of its average daily net assets
from $750 million to $1 billion and (iv) .925% of its average daily net assets
over $1 billion.
While the management fee is a significant component of the Fund's annual
operating costs, the Fund has other expenses as well. The Fund pays the fees of
its custodian, auditors, fund accountants, independent accountants, and lawyers.
It also pays other expenses such as the cost of compliance with federal and
state laws, proxy solicitations, shareholder reports, taxes, insurance premiums,
and the fees of trustees who are not "interested persons" of the Fund or Khan
Investment Inc., as that term is defined in the Investment Company Act of 1940,
the federal securities law that governs the regulation of investment companies
(the "Investment Company Act").
-3-
SHAREHOLDER TRANSACTION EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell
shares of the Fund.
Maximum sales charge on purchases and reinvested dividends..............None
Deferred sales charge on redemptions....................................None
Redemption fee..........................................................None
ANNUAL FUND OPERATING EXPENSES
The Fund pays its own operating expenses, including a management fee to Khan
Investment Inc. The Fund also incurs other expenses for services such as
maintaining shareholder records and furnishing shareholder statements and
reports. The Fund's expenses are factored into its share price and dividends,
are subtracted from the share price daily, and are not charged directly to
shareholder accounts. The Fund expects to incur the following expenses at the
following annualized rates during its first fiscal year.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS).
Management fee..........................................................0.75%
12b-1 fee...............................................................0.25%
Other expenses (other expense reimbursements)...........................1.00%
Total operating expenses................................................2.00%
Khan Investment Inc. has voluntarily undertaken to reimburse the Fund for
any ordinary operating expenses in excess of 2% of average net assets annually
through June 30, 1997. Any reduction is subject to reimbursement by the Fund
within the following three years, provided that the Fund is able to effect such
reimbursement while remaining within the expense limitation. During its first
fiscal year, the Fund expects to incur expenses at the annualized rate of ____%
of average net assets.
UNDERSTANDING EXPENSES
Operating a mutual fund requires paying for portfolio management,
shareholder statements, tax reporting, and other services. These costs are paid
from the Fund's assets; any quoted share price or return is after expenses.
EXAMPLE:
Let's say, hypothetically, that the Fund's annual return is 5% and that its
operating expenses are exactly as shown above. For every $1,000 you invested,
here's how much you would have paid in total expenses if you closed your account
after the number of years indicated:
After 1 year.......................................................$
After 3 years .....................................................$
The purpose of the expense table is to help an investor understand the costs
and expenses associated with investing in the Fund. This example illustrates the
effect of expenses, but is not meant to suggest actual or expected costs or
returns, all of which may be more or less than those shown in the example.
Because the Fund is new, the above amounts are estimates. Actual investment
returns and operating expenses may be more or less than those shown.
-4-
INVESTMENT OBJECTIVES, POLICIES AND TECHNIQUES
INVESTMENT OBJECTIVES
The Fund's primary objective is to provide you with long-term capital growth
consistent with the preservation of capital. Current income is a secondary
objective. The Fund's investment objectives cannot be changed without approval
by the holders of a majority (as defined in the Investment Company Act) of the
Fund's outstanding voting shares. The Fund commenced operation as of the date of
this Prospectus and has no operating history. There can be no assurance that the
Fund's investment objectives will be achieved.
MANAGEMENT POLICIES
During periods which the Fund's investment advisor, Khan Investment Inc.
(the "Advisor"), judges to be of market strength, the Fund acts aggressively to
increase shareholders' capital by investing principally in common stocks of
domestic and foreign issuers, including common stocks with warrants attached,
and debt securities of the United States and foreign governments.
The Fund seeks investment opportunities generally in equity securities of
larger capitalization companies (those with market capitalization exceeding $1
billion which the Fund's Advisor believes have the potential to experience above
average and predictable earnings growth. The Advisor seeks to identify those
foreign and domestic issuers which it considers undervalued by the stock market
in terms of current earnings, assets or growth prospects. These companies will
include those that Advisor believes have new or innovative products, services or
processes which can enhance prospects for growth in future earnings. Other than
in periods of anticipated market weakness, the Fund invests at least 80% of the
value of its net assets in common stocks.
During normal market conditions, the Fund may invest up to 20% of the value
of its net assets in debt securities of the United States and its agencies and
instrumentalities, and of foreign governments, with initial maturities of more
than one year. All debt securities held by the Fund will be rated investment
grade at the time of purchase by an established rating agency (e.g. AAA, AA, A
or BBB by Standard & Poor's Corporation) or, if unrated, will be determined to
be of comparable qualify by the Advisor.
In periods of anticipated market weakness, the Fund may adopt a temporary
defensive posture to preserve shareholders' capital by investing the Fund's
assets in securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, certificates of deposit, time deposits, bankers'
acceptances and other short-term debt obligations issued by domestic banks,
foreign subsidiaries of domestic banks, foreign branches of domestic banks,
domestic and foreign branches of foreign banks, domestic savings and loan
associations and other banking institutions, or investment grade corporate
bonds. When market conditions warrant, all of the Fund's assets can be so
invested.
The Fund may invest up to 10% of the value of its net assets in securities
of foreign governments and foreign companies which are not publicly traded in
the United States. The Fund may invest up to 2% of the value of its net assets
in warrants to purchase securities in which the Fund may invest; warrants
acquired by the Fund in units with other securities or attached to other
securities are not included in this 2% restriction.
INVESTMENT TECHNIQUES
In connection with its investment objectives and policies, the Fund may
employ, among others, the following investment techniques which may involve
certain risks.
-5-
COVERED CALL OPTIONS - The Fund may purchase put and call options on securities
in which it may invest. In addition, to earn additional income on its investment
securities, the Fund may sell (write) covered call option contracts on
securities it owns to the extent of 20% of the value of its net assets at the
time such option contracts are written. A put option gives the purchaser of the
option the right to sell, and obligates the writer to purchase, the underlying
security at the exercise price at any time during the option period. A call
option gives the purchaser of the option the right to buy, and obligates the
writer to sell, the underlying security at the exercise price at any time during
the option period. A covered call option sold by the Fund, which is a call
option with respect to which the Fund owns the underlying security, exposes the
Fund during the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying security or obligates the
Fund to hold a security which might otherwise have been sold to protect against
depreciation in the market price of the security.
FUTURES CONTRACTS - The Fund may buy and sell stock index futures contracts and
options on such contracts as a hedge against changes in market prices. A futures
contract obligates the seller of the contract to deliver and the purchaser of
the contract to take delivery of the type of financial instrument called for in
the contract at a specified price. Like stock index options, stock index futures
contracts are settled in cash. Like stock index options, futures contracts and
related options are subject to the risk that the Advisor does not predict
correctly movements in the direction of the stock market generally, exchange
limitations on daily price fluctuations, trading interruptions, and the
inability to close out positions.
MORTGAGE-BACKED SECURITIES - The Fund may invest in certificates issued by the
Government National Mortgage Association ("GNMA") as a short-term investment.
GNMA certificates are mortgage-backed securities representing part ownership of
a pool of mortgage loans, which are issued by lenders such as mortgage bankers,
commercial banks and savings associations, and are either insured by the Federal
Housing Administration or the Veterans Administration. A pool of these mortgages
is assembled and, after being approved by GNMA, is offered to investors through
securities dealers. The timely payment of interest and principal on each
mortgage is guaranteed by GNMA and backed by the full faith and credit of the
U.S. Government. Principal is paid back monthly by the borrower over the term of
the loan rather than returned in a lump sum at maturity.
SHORT SALES - The Fund is authorized to make short sales of securities it owns
or has the right to acquire at no added cost (referred to as short sales
"against the box"). The Fund will use this technique to hedge against market
risks when the Advisor believes that the price of a portfolio security may
decline. As a matter of operating policy, the Fund will not make such short
sales or maintain a short position if to do so could require collateral deposits
and segregation of assets aggregating more than 5% of the value of its net
assets.
FOREIGN CURRENCY TRANSACTIONS - The Fund may engage in currency exchange
transactions to protect against uncertainty in the level of future exchange
rates in connection with hedging and other non-speculative strategies involving
either specific settlement transactions or portfolio positions. The Fund will
conduct its currency exchange transactions either on a spot (i.e., cash) basis
at the rate prevailing in the currency exchange market, or by entering into
forward contracts to purchase or sell currencies. A forward currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date, which must be more than two days from the date of the contract, at
a price set at the time of the contract. Transaction hedging is the purchase or
sale of forward currency with respect to specific receivable or payable of the
Fund generally arising in connection with the purchase or sale of its portfolio
securities. Position hedging is the sale of forward currency with respect to
portfolio security positions denominated or quoted in the currency. These
contracts are entered into in the interbank market conducted directly between
currency traders (typically commercial banks or other financial institutions)
and their customers.
-6-
LENDING PORTFOLIO SECURITIES - From time to time, the Fund may lend its
portfolio securities to brokers, dealers and other financial institutions
needing to borrow securities to complete certain transactions. Such loans may
not exceed 33-1/3% of the value of the Fund's total assets. In connection with
such loans, the Fund will receive collateral consisting of cash, U.S. Government
securities or irrevocable letters of credit issued by domestic financial
institutions which will be maintained at all times in an amount equal to at
least 100% of the current market value of the loaned securities. The Fund can
increase its income through the investment of such collateral. The Fund
continues to be entitled to payments in amounts equal to the interest, dividends
or other distributions payable on the loaned security, and receives interest on
the amount of the loan. Such loans will be terminable at any time upon specified
notice. The Fund might experience risk of loss if the institution with which it
has engaged in a portfolio loan transaction breaches its agreement with the
Fund.
BORROWING MONEY - As a fundamental policy, the Fund is permitted to borrow to
the extent permitted under the Investment Company Act. However, the Fund
currently intends to borrow money only for temporary or emergency (not
leveraging) purposes, in an amount up to 15% of the value of the Fund's total
assets (including the amount borrowed) less liabilities (not including the
amount borrowed) at the time the borrowing is made. While borrowings exceed 5%
of the Fund's total assets, the Fund will not make any additional investments.
ILLIQUID SECURITIES - The Fund may invest up to 15% of the value of its net
assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Fund's investment objectives.
Such securities may include securities that are not readily marketable, such as
certain securities that are subject to legal or contractual restrictions on
resale, repurchase agreements providing for settlement in more than seven days
after notice, and certain options traded in the over-the counter market and
securities used to cover such options. As to these securities, the Fund is
subject to a risk that should the Fund desire to sell them when a ready buyer is
not available at a price the Fund deems representative of their value, the value
of the Fund's net assets could be adversely affected.
REPURCHASE AGREEMENTS - The Fund may enter into repurchase agreements, which
involve the acquisition by the Fund of an underlying debt instrument, subject to
an obligation of the seller to repurchase, and the Fund to resell, the
instrument at a fixed price, usually not more than one week after its purchase.
Certain costs may be incurred by the Fund in connection with the sale of
securities if the seller does not repurchase them in accordance with the
repurchase agreement. In addition, if bankruptcy proceedings are commenced with
respect to the seller of the securities, realization on the securities by the
Fund may be delayed or limited.
CERTAIN FUNDAMENTAL POLICIES - The Fund may (i) borrow money to the extent
permitted under the Investment Company Act of 1940, which currently limits
borrowing to no more than 33-1/3% of the value of the Fund's total assets; (ii)
invest up to 5% of its total assets in the obligations of any issuer, except
that up to 25% of the value of the Fund's total assets may be invested without
regard to any such limitation and the Fund may invest in securities issued or
guaranteed by the U.S. Government, its without regard to any such limitation;
and (iii) invest up to 25% of its total assets in the securities of issuers in a
single industry, provided that, there shall be no such limitation on investments
in securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Notwithstanding any of the foregoing policies, and to the
extent permitted by the Investment Company Act, the Fund may invest all or
substantially all of its assets in an investment company with substantially the
same investment objectives as the Fund. This paragraph describes fundamental
policies that cannot be changed without approval by the holders of a majority
(as defined in the Investment Company Act) of the Fund's outstanding voting
shares. See "Investment Objectives and Policies--Investment Restrictions" in the
Fund's Statement of Additional Information for additional fundamental policies.
CERTAIN ADDITIONAL NON-FUNDAMENTAL POLICIES - The Fund may (i) purchase
securities of any company having less than three years' continuous operation
(including operations of any predecessor companies)
-7-
if such purchase does not cause the value of its investments in all such
companies to exceed 5% of the value of its total assets; (ii) pledge,
hypothecate, mortgage or otherwise encumber its assets, but only to secure
permitted borrowings; and (iii) invest up to 15% of the value of its net assets
in repurchase agreements providing for settlement in more than seven days after
notice and in other illiquid securities. This paragraph describes
non-fundamental policies that can be changed by the board of trustees without
shareholder approval. See "Investment Objectives and Policies--Investment
Restrictions" in the Fund's Statement of Additional Information for additional
non-fundamental policies.
RISK FACTORS
INVESTING IN FOREIGN SECURITIES - Foreign securities markets generally are not
as developed or efficient as those in the United States. Securities of some
foreign issuers are less liquid and more volatile than securities of comparable
U.S. issuers. Similarly, volume and liquidity in most foreign securities markets
are less than in the United States and, at times, volatility of price can be
greater than in the United States. Settlement of transactions in foreign markets
may be delayed or less frequent than in the U.S. The issuers of some foreign
securities may be subject to less stringent or different regulations than are
U.S. issuers. In addition, there may be less publicly available information
about non-U.S. issuers than is available for U.S. issuers, and non-U.S. issuers
are not generally subject to uniform accounting and financial reporting
standards, practices and requirements comparable to those applicable to U.S.
issuers.
Because stock certificates and other evidences of ownership of such
securities usually are held outside the United States, the Fund will be subject
to additional risks which include possible adverse political and economic
developments, possible seizure or nationalization of foreign deposits and
possible adoption of governmental restrictions which might adversely affect the
payment of principal, interest and dividends on the foreign securities or might
restrict the payment of principal, interest and dividends to investors located
outside the country of the issuer, whether as a result of currency blockage or
otherwise. Custodial expenses for a portfolio of non- U.S. securities generally
are higher than for a portfolio of U.S. securities.
Since foreign securities often are purchased with and payable in currencies
of foreign countries, the value of these assets as measured in U.S. dollars may
be affected favorably or unfavorably by changes in currency rates and exchange
control regulations. Some currency exchange costs may be incurred when the Fund
changes investments from one country to another.
Furthermore, some of these securities may be subject to brokerage taxes
levied by foreign governments, which have the effect of increasing the cost of
such investment and reducing the realized gain or increasing the realized loss
on such securities at the time of sale. Income received by the Fund from sources
within foreign countries may be reduced by withholding or other taxes imposed by
such countries. Tax conventions between certain countries and the United States,
however, may reduce or eliminate such taxes. All such taxes paid by the Fund
will reduce its net income available for distribution to shareholders.
Although the Fund's focus on investments in stocks of companies with large
market capitalizations will to some extent limit the foreign countries in which
the issuers of its portfolio securities are located, the Fund may invest in
companies organized in any country. Investments in securities issued by the
governments of emerging or developing countries, and of companies within those
countries, involves greater risks than other foreign investments. Investments in
emerging or developing markets involve exposure to economic and legal structures
that are generally less diverse and mature (and in some cases the absence of
developed legal structures governing private and foreign investments and private
property), and to political systems which can be expected to have less
stability, than those of more developed countries. The risks of investment in
such countries may include matters such as relatively unstable governments,
higher degrees of government involvement in the economy, the absence until
-8-
recently of capital market structures or market-oriented economies, economies
based on only a few industries, securities markets which trade only a small
number of securities, restrictions on foreign investment and stocks, and
significant foreign currency devaluations and fluctuations.
INVESTING IN DEBT SECURITIES - Debt obligations with longer maturities tend to
produce higher yields and are generally subject to potentially greater capital
appreciation and depreciation than obligations with shorter maturities and lower
yields. The market prices of debt obligations 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 return on such investments
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.
MORTGAGE-BACKED SECURITIES - Mortgage-backed securities are often subject to
more rapid repayment than their stated maturity dates would indicate as a result
of the pass-throughs or prepayments of principal on the underlying loans, which
may increase the volatility of such investments relative to similarly rated debt
securities. During periods of declining interest rates, prepayment of loans
underlying mortgage-backed securities can be expected to accelerate and thus
impair the Fund's ability to reinvest the returns of principal at comparable
yields. During periods of rising interest rates, reduced prepayment rates may
extend the average life of mortgage-backed securities and increase the Fund's
exposure to rising interest rates.
FOREIGN CURRENCY EXCHANGE - Currency exchange rates may fluctuate significantly
over short periods of time. They generally are determined by the forces of
supply and demand in the foreign exchange markets and the relative merits of
investments in different countries, actual or perceived changes in interest
rates and other complex factors, as seen from an international perspective.
Currency exchange rates also can be affected unpredictably by intervention by
U.S. or foreign governments or central banks, or the failure to intervene, or by
currency controls or political developments in the U.S. or abroad.
The foreign currency market offers less protection against defaults in the
forward trading of currencies than is available when trading in currencies
occurs on an exchange. Since a forward currency contract is not guaranteed by an
exchange or clearinghouse, a default on the contract would deprive the Fund of
unrealized profits or force the Fund to cover its commitments for purchase or
resale, if any, at the current market price.
OTHER INVESTMENT CONSIDERATIONS - The Fund's net asset value per share is not
fixed, and should be expected to fluctuate.
The Fund invests for long-term growth rather than short-term profits;
however, a limited amount of short-term trading can be expected in order to
maintain a flexible portfolio strategy. In addition, the possible need to
realize cash for redemption of Fund shares may make it necessary to sell
securities even though such sales would not otherwise be desirable from an
investment standpoint. Consequently, portfolio turnover may vary from year to
year, as well as within a year. Higher portfolio turnover rates are likely to
result in comparatively greater brokerage commissions than lower turnover rates.
Moreover, when extraordinary market conditions prevail, the Advisor's investment
strategy may shift rapidly, in which case higher turnover rates can be expected.
The amount of portfolio activity will not be a limiting factor when making
portfolio decisions. Under normal market conditions, the Fund's portfolio
turnover rate generally will be less than 100%. See "Portfolio Transactions" in
the Statement of Additional Information.
Investment decisions for the Fund are made independently from those of any
other accounts advised by the Advisor. However, if such other accounts are
prepared to invest in, or desire to dispose of,
-9-
securities of the type in which the Fund invests at the same time as the Fund,
available investments or opportunities for sales will be allocated equitably to
each. In some cases, this procedure may adversely affect the size of the
position obtained for or disposed of by the Fund or the price paid or received
by the Fund.
The Fund is newly organized and has no operating history.
RISKS AND RETURNS
Historically, stocks have shown greater growth than other types of
securities. In the short term, however, stock prices may fluctuate widely in
response to company, market or economic news. In addition the stock prices of
small companies often are more volatile than the stock prices of larger
companies. The Fund does not pursue income and is not by itself a balanced
investment plan. The Fund will seek to limit risk by selecting companies with
experienced management, positive cash flows and sustainable growth prospects and
diversifying its holdings, to avoid concentration in any one stock or industry.
Similarly, the values of the debt securities held by the Fund change as
interest rates fluctuate, with longer-term securities fluctuating more widely in
response to changes in interest rates than those of shorter-term securities. A
decline in interest rates usually produces an increase in the value of debt
securities, while an increase in interest rates generally reduces their value.
The interest rate on a debt obligation depends on a variety of factors,
including the general conditions of the money and bond markets, the size of a
particular offering, the maturity of the obligation, and economic and other
matters affecting the issuer.
The value of the Fund's investment and the return it generates vary from day
to day. Performance depends upon on the Advisor's skill in selecting individual
stocks, as well as general market and economic conditions. When you sell your
shares, they may be worth more or less than what you paid for them.
MANAGEMENT
THE ADVISOR
Khan Investment Inc., 714 FM 1960 West Suite 201 Houston, Texas 77090, acts
as the Advisor to the Fund. The Advisor is a Texas corporation that was
organized to act as the Fund's investment advisor. The advisor is controlled by
Sardar A. D. Khan, its President, who has extensive experience managing his own
investment portfolio utilizing the techniques used in managing the Fund. Dr.
Khan will be primarily responsible for managing the assets of the Fund and for
selecting the securities that the Fund will purchase and sell, although he may
be assisted by other employees who will provide him with research assistance.
The Advisor is newly organized and has no previous experience in managing a
registered investment company.
MANAGEMENT FEE - Subject to the direction and control of the Trustees and
consistent with the investment objectives and policies of the Fund, the Advisor
formulates and implements an investment program for the Fund, including
determining which securities should be bought and sold. The Advisor also
provides officers for the Fund. For its services, the Advisor receives a fee,
accrued daily and paid monthly, at the annual rate of 0.75% of the average daily
net assets of the Fund.
OPERATING EXPENSES - The Fund is responsible for paying its operating expenses,
including but not limited to management and administrative fees, legal and
auditing fees, fees and expenses of its custodian, accounting and shareholder
servicing fees, trustees fees, the cost of communicating with shareholders and
registration fees. In order to comply with regulation of the states in which
Fund's
-10-
shares are sold, the Advisor may be required to reduce its fees or reimburse the
Fund for its annual operating expenses which exceed any limit set by regulation.
In addition, the Advisor has voluntarily agreed to limit the Fund's operating
expenses to 2.00% of its average annual net assets through June 30, 1997. Any
reduction made by the Advisor in its fees or reimbursement of expenses is
subject to reimbursement by the Fund within the following three years, provided
that the Fund is able to effect such reimbursement while remaining within the
expense limitation. The Advisor will notify shareholders in the event it
determines not to maintain this voluntary limit.
THE DISTRIBUTOR
The Fund's Distributor is Khan Investment Inc., located at 714 FM 1960 West
Suite 201 Houston, Texas 77090.
The Trust has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act with respect to the Fund. Under the Plan, the Fund
compensates the Distributor for services rendered and costs incurred in
connection with distribution of shares of the Fund, at the annual rate of 0.25%
of the value of the Fund's average net assets. The Distribution Plan is a
"compensation plan," which means the distribution fees may exceed the
Distributor's actual expenses. There is no limit on the periods during which
unreimbursed expenses may be carried forward. However, the Fund does not pay
interest, carrying or other finance charges on any unreimbursed expenses of the
Distributor, and is not obligated to pay any unreimbursed expenses that may
exist at such time, if any, as the Distribution Plan terminates or is not
continued by the trustees.
THE ADMINISTRATOR
Khan Investment Inc. also acts as the Fund's Administrator, subject to the
direction and control of the Trustees. In this capacity, the Administrator is
responsible for providing bookkeeping and administrative services to the Fund.
For its services, the Administrator receives a fee, accrued daily and paid
monthly, at the annual rate of 0.25% of the average daily net assets of the
Fund.
THE CUSTODIAN AND TRANSFER AGENT
The River Oaks Trust Company, a subsidiary of Compass Bank, located at 2001
Kirby at San Felipe, P.O. Box 4886, Houston, Texas 77210, is the Fund's
Custodian ("Custodian"). The Fund acts as its own transfer agent.
YOUR ACCOUNT
The Fund provides shareholders with service 5 business days a week, 8 hours a
day. To reach the Fund, call 1-800-838-5986 between ____ a.m. and ____ p.m.
Central Time.
WAYS TO SET UP YOUR ACCOUNT
You may set up an account with the Fund in one of the following ways:
- --------------------------------------------------------------------------------
INDIVIDUAL OR JOINT OWNERSHIP -
FOR YOUR GENERAL INVESTMENT NEEDS
Individual accounts are owned by one person. Joint accounts can have two or more
own owners.
- --------------------------------------------------------------------------------
-11-
RETIREMENT -
TO DEFER TAXES ON YOUR RETIREMENT SAVINGS.
Retirement plans allow individuals to defer taxes on investment income and
capital gains. Contributions to these accounts may be tax deductible. Retirement
accounts require special applications.
* INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) allow anyone of legal age and under
70-1/2 with earned income to invest up to $2,000 per tax year. If your
spouse has (or elects to be treated as having) earned income of less than
$250 per year, you can invest up to a total of $2,250 in a "spousal IRA,"
which is split between you and your spouse so that neither of you has
invested more than $2,000.
* ROLLOVER IRAS retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
* SIMPLIFIED EMPLOYEE PENSION PLANS (SEP-IRAS) allow small business owners
or those with self- employment income to make tax-deductible contributions
of up to $22,500 per year for themselves and any eligible employees.
* OTHER RETIREMENT PLANS - The Fund may be included as an investment option
in other kinds of retirement plans, including Keogh or corporate profit
sharing and money purchase plans, 403(b) plans and 401(k) plans. The Fund
does not offer prototypes of these plans.
An IRA disclosure statement is delivered in advance of opening any IRA
account and contains information unique to retirement accounts. It also contains
a summary of the custodian fees which may be incurred for set-up and maintenance
of an IRA account.
- --------------------------------------------------------------------------------
GIFT OR TRANSFER TO A MINOR (UGMA, UTMA)
TO INVEST FOR A MINOR'S EDUCATION OR OTHER FUTURE NEEDS
These custodial accounts provide a way to give money to a minor. The account
application should include the child's social security number.
- --------------------------------------------------------------------------------
TRUST OR ESTABLISHED EMPLOYEE BENEFIT OR PROFIT-SHARING PLAN
FOR MONEY BEING INVESTED BY A TRUST, EMPLOYEE BENEFIT PLAN, OR PROFIT-SHARING
PLAN
The trust or plan must be established before an account can be opened. The
date of the trust or plan should be included on the new account application.
- --------------------------------------------------------------------------------
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS, INSTITUTIONS,
OR OTHER GROUPS
You will need to send a certified corporate resolution (indicating which
officers are authorized to act) with your application.
-12-
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:
* mailing a check or money order along with the form at the bottom of your
account statement, or a letter;
* moving money from your bank account by telephone provided you have elected
this privilege on your new account application;
* wiring money from your bank; or
* making automatic investments.
The Fund is a NO-LOAD FUND, which means you pay no sales commissions of any
kind. The price you pay for shares is the net asset value per share next
calculated after your investment is received and accepted. An order is
considered received when the application (for a new account) or information
identifying the account, and the money are received. See "Shareholder and
Account Policies" for information about share price. The Fund does not issue
share certificates.
MINIMUM INVESTMENTS
* To open the account $ 1000.00
* To add to an account $ 100.00
* Minimum balance $ 1000.00
Because it is very expensive for the Fund to maintain small accounts (and
that cost is borne by all shareholders), the Fund reserves the right to close
your account if the value is less than $1000. Before closing a small account,
the Fund will notify you and allow you at least 30 days to bring the value of
the account up to the minimum.
The following table summarizes the various ways to buy shares of the Fund,
either initially when an account is opened or subsequently:
-13-
- --------------------------------------------------------------------------------
MAIL
- --------------------------------------------------------------------------------
TO OPEN AN ACCOUNT: TO ADD TO AN ACCOUNT:
Complete and sign the new account app- Make your check or money order
lication. Make your check or money order payable to "Khan Funds". Put your
payable to "Khan Funds" account number on your check.
Mail to the address on the new account Mail your check and the form at the
application or for overnight delivery: bottom of your account statement
Khan Funds (or a letter) to the address on your
714 FM 1960 West Suite 201 account statement or for overnight
Houston Texas, 77090 delivery: Khan Funds - 714 FM 1960
West Suite 201 Houston Texas 77090
- --------------------------------------------------------------------------------
PHONE 1-800-838-5986
- --------------------------------------------------------------------------------
TO OPEN AN ACCOUNT: TO ADD TO AN ACCOUNT:
You may not open a new account by If you did not elect the telephone
phone. transaction option on your new account
application,
You may establish the complete the shareholder options form
telephone transaction option when to make investments by phone for
you open an account by electing amounts from $100 to $25,000.
the option on your new account
application.
- --------------------------------------------------------------------------------
WIRE
- --------------------------------------------------------------------------------
TO OPEN AN ACCOUNT: TO ADD TO AN ACCOUNT:
Call 1-800-838-5986 for instructions on Call 1-800-838-5986 for instructions
account by wire. on opening an adding to an account
by wire.
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN
- --------------------------------------------------------------------------------
TO OPEN AN ACCOUNT: TO ADD TO AN ACCOUNT:
If you sign up for the Automatic Sign up for the Automatic Investment
Investment Plan when you open your Plan on the shareholder options form
account, the minimum initial investment or call for instructions on how to
will be waived. Complete and sign the add to your existing account.
Automatic Investment Plan section of the
new account application.
----------------------------------------------
-14-
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. See "Shareholder and Account Policies" for more information about
share price.
To sell shares in a regular (non-IRA) account, you may use any of the
methods described here. To sell shares in an IRA account, your request must be
made in writing. If you need an IRA distribution form, call us at
1-800-838-5986.
SELLING SHARES IN WRITING - Write a "letter of instruction" with:
* each owner's name and address,
* your account number,
* the dollar amount or number of shares to be redeemed, and
* the signature of each owner as it appears on the account.
Mail your letter to: Khan Funds 714 FM 1960 West, Suite 201 Houston Texas 77090.
CERTAIN REDEMPTION REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE, 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 applies:
* You wish to redeem more than $25,000 worth of shares; * You add/change
your name or add/remove an owner on your account; * You add/change the
beneficiary on your account;
* The check is being mailed to an address different from the address on your
account (record address);
* The check is being made payable to someone other than the account owner;
* When you add the telephone redemption option to your existing account; or
* If you transfer the ownership of your account.
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.
-15-
The following table summarizes the procedures for selling shares that you
own:
- --------------------------------------------------------------------------------
NOTE: SOME REDEMPTIONS REQUIRE SIGNATURE GUARANTEES. SEE PAGE ....
- --------------------------------------------------------------------------------
MAIL
- --------------------------------------------------------------------------------
SPECIAL REQUIREMENTS
Individual, Joint Owners, Sole The letter of instruction must be signed by
Proprietorships, all persons required to sign for account
UGMA, UTMA transactions, (usually, all owners of the
account) exactly as their names appear on
the account.
Trust The letter of instruction must include the
signatures of all trustees.
All Others Call 1-800-838-5986 for instructions.
- --------------------------------------------------------------------------------
PHONE 1-800-838-5986
- --------------------------------------------------------------------------------
All accounts except IRAs You automatically have the telephone
redemption option (which allows you to
redeem at least $500 and up to $25,000 worth
of shares per day by phone) unless you
declined it on your new account application.
If you declined the telephone redemption
option, call 1-800-838-5986 for instructions
on how to add it.
- --------------------------------------------------------------------------------
WIRE
- --------------------------------------------------------------------------------
All accounts except IRAs For a $5.00 fee, the Fund will transmit
payment by wire to a pre-authorized bank
account. Usually, the proceeds will arrive
at your bank the next business day.
- --------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWALS
- --------------------------------------------------------------------------------
All accounts except IRAs Sign up for systematic withdrawals
(distributions from your account at regular
intervals in specified dollar amounts of at
least $100) by calling 1-800-838-5986 for
instructions on how to add this option.
You must have $ 5,000 in your account before
you are eligible to sign up for this option.
If the amount in your account is not
sufficient to meet a withdrawal, the
remaining amount in the account will be
redeemed.
-16-
SHAREHOLDER AND ACCOUNT POLICIES
STATEMENTS AND REPORTS - Statements and reports that the Fund sends to you
include:
* Confirmation statements (after every transaction in your account or change
in your account registration);
* Account statements (quarterly);
* Annual and semi-annual reports with financial statements; and
* Year-end tax statements.
We recommend that you keep each quarterly account statement and, especially,
each calendar year-end statement with your other important financial papers
since you may need to refer to them at a later date for tax purposes. If you
need copies of current or preceding year statements, call 1-800-838-5986. Copies
of statements for earlier years are available and are subject to a $10
processing fee.
SHARE PRICE - The Fund is open for business each day the New York Stock Exchange
("NYSE") is open. The offering price (price to buy one share) and redemption
price (price to sell one share) is the Fund's net asset value per share
calculated at the next Closing Time after receipt and acceptance of your
purchase or redemption order. Closing Time is the time of the close of regular
session trading on the NYSE, which is usually 3:00 p.m. Central time, but is
sometimes earlier.
The Fund's net asset value per share is the value of a single share, and is
computed each 10th day the Fund is open for business at ___ p.m. Central time,
by adding up 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.
Fund securities and assets are valued primarily on the basis of market
quotations from the primary market in which they are traded or, if quotations
are not readily available, by a method that the board of trustees believes
accurately reflects a fair value. Values of foreign securities are translated
from the local currency into U.S. dollars using current exchange rates.
PURCHASES -
* All of your purchases must be made in U.S. dollars and checks must be
drawn on U.S. banks.
* The Fund does not accept cash, credit cards or third-party checks.
* If your check or telephone purchase order does not clear, your purchase
will be canceled and you will be liable for any losses or fees the Fund or
its transfer agent incurs.
* Your ability to make automatic investments and telephone purchases may be
immediately terminated if any item is unpaid by your financial
institution.
* The Fund reserves the right to reject any purchase order.
Certain financial institutions that have entered into sales agreements with the
Fund may enter confirmed purchase orders or redemption requests on behalf of
customers on an expedited basis, including orders 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. These institutions may impose charges
for their services, and those charges could constitute a significant portion of
a smaller account.
-17-
REDEMPTIONS -
* Normally, redemption proceeds will be mailed within seven business days after
receipt of the request for redemption.
* The Fund may withhold payment on redemptions recently purchased by check until
it is reasonably satisfied that the check has cleared, which can take up to
fifteen days.
* If you make a telephone redemption, the Fund will send payment for your
redemption in one of three ways: (i) by mail; (ii) by Electronic Fund Transfer
(EFT) to a preauthorized bank account; or (iii) to your bank account by wire
transfer. The cost of the wire (currently $5.00) will be deducted from the
payment. Your bank also may impose a fee for the incoming wire. Payment by EFT
will usually arrive at your bank within two banking days after your call.
Payment by wire is usually credited to your bank account on the next business
day after your call.
* Redemptions may be suspended or payment dates postponed on days when the NYSE
is closed (other than customary closings on weekends or holidays), when
trading on the NYSE is restricted, during an emergency when it may not be
reasonably practicable for the Fund to dispose of the securities it owns or
for the Fund's trustees to determine the fair value of the net assets of the
Fund, or as permitted by the SEC.
If the Fund sends you a check (paying for a redemption, systematic
withdrawal payment, or a dividend or capital gain distribution you elected to
receive in cash) and the check is returned "undeliverable" or remains uncashed
for six months, the check will be canceled and the proceeds will be reinvested
in the Fund at the net asset value per share on the date of cancellation. In
addition, after that six-month period, your systematic withdrawal payments will
be canceled and future withdrawals will be allowed only when requested, or your
cash election will automatically be changed and future dividends and
distributions will be reinvested in your account.
ACCOUNT REGISTRATION - Address changes for your account may be made by writing
us a letter or by calling us at 1-800-838-5986. The Fund will send a written
confirmation of the change to both your old and new addresses. No telephone
redemptions may be made for 60 days after a change of address by phone. During
those 60 days, a signature guarantee will be required for any written redemption
request, unless your change of address was made in writing with a signature
guarantee.
TELEPHONE TRANSACTIONS - You may initiate many transactions, including purchases
and redemptions, by telephone. The Fund will not be responsible for any losses
resulting from unauthorized transactions if it follows reasonable procedures
designed to verify the identity of the caller. Those procedures may include
recording the call, requesting additional information, and sending written
confirmation of telephone transactions. If the Fund fails to follow such
reasonable procedures, the Fund may be responsible for resulting losses.
You should verify the accuracy of telephone transactions immediately upon
receipt of your confirmation statement. If you are unable to reach the Fund by
phone (for example, during periods of unusual market activity), consider placing
your order by mail.
DIVIDENDS, CAPITAL GAINS, AND TAXES
The Fund intends to distribute substantially all of its net income and
capital gains to shareholders at least annually.
-18-
UNDERSTANDING DISTRIBUTIONS
As a shareholder, you are entitled to your share of the Fund's net income
and any gains realized on this disposition of its investments.
The Fund's income from dividends and interest, and any net realized
short-term gain, are paid to you as dividends. The Fund realizes long-term
capital gains whenever it sells securities held for more than one year for a
higher price than it paid for them. Net realized long-term gains are paid to you
as capital gain distributions.
DISTRIBUTION OPTIONS
When you open an account, specify on your new account application how you
want to receive your distributions. If you later want to change your
distribution option, you may do so either by a written request or by calling us
at 1-800-________. The Fund offers three distribution options:
* REINVESTMENT OPTION. Your dividends and capital gain distributions will be
automatically reinvested in additional shares of the Fund. If you do not
indicate a choice on your new account application, your distributions will be
reinvested automatically.
* INCOME-ONLY OPTION. Your capital gain distributions will be automatically
reinvested, but you will be sent a check for each dividend.
* CASH OPTION. You will be sent a check for all distributions.
FOR IRA ACCOUNTS, all distributions are automatically reinvested because payment
of distributions in cash would be a taxable distribution from your IRA, and
might be subject to income tax and penalties if you are under 59-1/2 years old.
If you are 59-1/2 or older, you may request payment of distributions in cash,
which might be subject to income tax.
When you reinvest any distributions, the reinvestment price is the Fund's
net asset value per share at the close of business on the reinvestment date. The
mailing of distribution checks will usually begin on the payment date, which is
usually one week after the ex-dividend date.
TAXES
As with any investment, you should consider how the return on your
investment in the Fund will be taxed. If your account is a tax deferred account
(for example, an IRA or an employee benefit plan account), the following tax
discussion does not apply. If your account is not a tax-deferred account,
however, you should be aware of the following tax rules:
TAXES ON DISTRIBUTIONS - Distributions are subject to federal income tax, and
also may be subject to state or local taxes. If you live outside the United
States, your distributions also could 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 in additional shares. However, distributions declared in
October, November or December and paid in January are taxable as if they were
received by you 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. At the end of the year, the Fund will send you
and the IRS a statement, called a Form 1099, showing the amount of each taxable
distribution you received in the previous calendar year.
-19-
TAXES ON TRANSACTIONS - When you redeem shares you will recognize a capital gain
or loss if there is a difference between the price of your shares at the time
you bought them (cost) and the price of your shares when you sell them.
Whenever you sell shares of the Fund, you will receive a confirmation
statement showing how many shares you sold and at what price. You also will
receive a year-end statement every January reporting, among other things, your
average cost basis in the shares you sold. This will allow you or your tax
preparer to determine whether a redemption resulted in a capital gain or loss
and the tax consequences of that gain or loss. However, be sure to keep your
regular account statements; the information they contain will be essential in
verifying the amount of your capital gains or losses.
FOREIGN INCOME TAXES - Investment income received by the Fund from sources
within foreign countries may be subject to foreign income taxes withheld at the
source. The Fund will not be eligible to make an election to permit you to claim
a foreign tax credit for your share of such taxes because it will not meet the
requirement of having more than 50% of its assets invested in stocks or
securities of foreign corporations. However, the Fund expects such taxes to be
deductible by it in computing its taxable income.
ADDITIONAL INFORMATION - 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 backup withholding for failing to report
income to the IRS. If you fail to comply with applicable IRS regulations,
including the certification procedures described above, the IRS can require the
Fund to withhold 31% of your taxable distributions and redemptions.
Additional information about taxes is set forth in the Statement of
Additional Information. Shareholders should consult their own advisers
concerning federal, state and local taxation of distributions from the Fund.
PERFORMANCE INFORMATION
From time to time, the Fund may publish its total return in advertisements
and communications to investors. Total return information will include the
Fund's average annual compounded rate of return over the four most recent
calendar quarters and, where applicable, over the most recent 5-year and 10-
year periods or over the period from the Fund's inception of operations (if
shorter). The Fund may also aggregate and advertise total return information
over different periods of time. The Fund's return will be based upon the value
of the shares acquired through a hypothetical $1,000 investment at the beginning
of the specified period and the net asset value of such shares at the end of the
period, assuming reinvestment of all distributions. Investors should note that
performance results of the Fund will fluctuate over time, and that presentation
of the Fund's total return for any prior period should not be considered as a
representation of what an investor's total return may be in any future period.
In addition to standardized return information as required by the SEC,
performance advertisements and sale literature may also include other total
return performance data ("non-standardized return"). Non-standardized return may
be quoted for the same or different periods as those for which standardized
return is quoted and may consist of aggregate or average annual percentage rates
of return, actual year by year rates, or any combination thereof. All data
included in performance advertisements will reflect past performance and will
not necessarily be indicative of future results. The Fund may also advertise
relative rankings by mutual fund ranking services, such as Lipper Analytical
Services, Inc. or Morningstar, Inc. The investment return and principal value of
an investment in the Fund will fluctuate over time. Consequently, an investor's
proceeds upon redeeming Fund shares may be more or less than this original cost
of the shares.
-20-
GENERAL INFORMATION
The Fund was organized as a Delaware business trust on ________________,
1996. The trustees have authority to issue an unlimited number of shares of
beneficial interest of separate series.
The Fund does not hold annual shareholder meetings. There normally will be
no meetings of shareholders to elect trustees unless fewer than a majority of
the trustees holding office have been elected by shareholders. Shareholders of
record holding at least two-thirds of the outstanding shares of the Fund may
remove a trustee by votes cast in person or by proxy at a meeting called for
that propose. The trustees are required to call a meeting of shareholders for
the purpose of voting upon the question of removal of any trustee when so
requested in writing by the shareholders of record owning at least 10% of the
Fund's outstanding shares. Each share of the Fund has equal voting rights. Each
share of the Fund is entitled to participate equally in dividends and
distributions and the proceeds of any liquidation.
This Prospectus is part of a Registration Statement that has been filed with
the Securities and Exchange Commission in Washington, D.C. under the Securities
Act of 1933.
No person has been authorized to give any information or to make any
representations in connection with the offer of Fund shares, other than as
contained in this Prospectus and the Fund's official sales literature.
Therefore, other information and representations must not be relied upon as
having been authorized by the Trust. This Prospectus does not constitute an
offer in any State in which, or to any person by whom, such offering may not
lawfully be made.
-21-
- ------------------------------------- -------------------------------------
INVESTMENT ADVISER
Khan Investment Inc.
714 FM 1960 West, Suite 201
Houston, Texas 77090
DISTRIBUTOR
Khan Investment Inc.
714 FM 1960 West, Suite 201 KHAN FUNDS
Houston, Texas 77090
Khan Growth Fund
CUSTODIAN
River Oaks Trust Company
2001 Kirby Drive
Houston, Texas 77002
TRANSFER AGENT PROSPECTUS
Khan Funds
714 FM 1960 West, Suite 201 _________, 1996
Houston, Texas 77090
AUDITORS
Coopers & Lybrand
1100 Louisiana Street
Houston, Texas 77002
Khan Investment Inc.
KHAN FUNDS Distributor
714 FM 1960 West, Suite 201 714 FM 1960 West, Suite 201
Houston, Texas 77090 Houston, Texas 77090
- ------------------------------------- -------------------------------------
-22-
KHAN FUNDS
STATEMENT OF ADDITIONAL INFORMATION
FOR
KHAN GROWTH FUND
, 1996
This Statement of Additional Information is not a prospectus, but contains
information in addition to and more detailed than that set forth in the
Prospectus for the Khan Growth Fund series (the "Fund") of Kahn Funds (the
"Trust"), and it should be read in conjunction with the Prospectus. Khan
Investment Inc. (the "Advisor") is the Advisor to the Fund. A copy of the
Prospectus may be obtained without charge by writing the Fund at 714 FM 1960
West Suite 201, Houston, Texas 77090, or by calling 1- 800-838-5986.
Cross-reference
TABLE OF CONTENTS page in Prospectus
Investment Objectives and Policies.. B-2
Investment Restrictions........... B-2
Securities and Investment Techniques. B-4
Management.......................... B-11
Trustees and Officers............. B-11
Advisory Agreement................ B-12
Administration Agreement.......... B-13
Distribution Arrangements........... B-13
Portfolio Transactions and Brokerage. B-13
Net Asset Value..................... B-15
Redemptions......................... B-15
Taxation............................ B-16
Dividends and Distributions......... B-17
Performance Information............. B-17
Financial Statements................ B-18
General Information................. B-18
B-23
INVESTMENT OBJECTIVES AND POLICIES
The Fund is a mutual fund whose investment objective is long-term capital
appreciation consistent with the preservation of capital. The Fund seeks to
achieve its objective by investing principally in equity securities of large
capitalization issuers. Current income is a secondary objective of the Fund.
There can be no assurance that the investment objectives of the Fund will be
achieved.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment policies and restrictions in
addition to the policies and restrictions discussed in the Prospectus.
FUNDAMENTAL POLICIES - The fundamental policies and restrictions listed below
cannot be changed without approval by the holders of a "majority of the
outstanding voting securities" of the Fund (which is defined in the Investment
Company Act of 1940 (the "Investment Company Act") to mean the lesser of (i) 67%
of the shares represented at a meeting at which more than 50% of the outstanding
shares are represented or (ii) more than 50% of the outstanding shares). As a
matter of fundamental policy, the Fund is diversified: I.E., at least 75% of the
value of its total assets is represented by cash and cash items (including
receivables), U.S. Government securities, securities of other investment
companies, and other securities limited for the purposes of this calculation in
respect of any one issuer to an amount not greater than 5% of the value of the
total assets of the Fund and not more than 10% of the outstanding voting
securities of such issuer.
In addition, the Fund may not:
1. Issue senior securities, borrow money, or pledge its assets, except that
the Fund may borrow on an unsecured basis from banks for temporary or emergency
purposes or for the clearance of Fund 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;
2. Make short sales of securities or maintain a short position, except for
short sales against the box;
3. Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of Fund transactions;
4. Act as underwriter of securities, except to the extent the Fund may be
deemed to be an underwriter in connection with the sale of securities in its
investment portfolio;
5. 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), except that the Fund reserves the right to invest all of
its assets in shares of another investment company;
6. Purchase or sell real estate or interests in real estate or real estate
partnerships (although the Fund may purchase and sell securities which are
secured by real estate, securities of companies which invest or deal in real
estate, and securities issued by real estate investment trusts);
7. Purchase or sell commodities or commodity futures contracts, except that
the Fund may purchase and sell stock index futures contracts as described in the
Prospectus and in this Statement of Additional Information and to this extent
permitted under applicable federal and state laws and regulations;
B-24
8. Make loans, except for the purchase of debt securities consistent with
the investment objectives and policies of the Fund and except for repurchase
agreements;
9. Make investments for the purpose of exercising control or management;
10. Invest in oil and gas limited partnerships or oil, gas or mineral
leases.
OPERATING POLICIES - The Fund observes the following restrictions as a matter of
operating, but not fundamental, policy, which can be changed by the Board of
Trustees without shareholder approval.
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), except that each Fund reserves the right to
invest all of its assets in a class of voting securities of another investment
company;
2. Invest in securities of any issuer if any officer or trustee of the Trust
or any officer or director of the Advisor owns more than 1/2% of the outstanding
securities of such issuer, and such officers, trustees and directors who own
more than 1/2% own in the aggregate more than 5% of the outstanding securities
of such issuer;
3. Invest more than 10% of its assets in real estate investment trusts;
4. 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),
although the Fund does not have any present intention to invest in warrants;
5. 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 company, have been in continuous operation for fewer than three
years ("unseasoned securities");
6. Invest more than 10% of its assets in the securities of other investment
companies or purchase more than 3% of any other investment company's voting
securities or make any other investment in other investment companies except as
permitted by federal and state law, and except that the Fund reserves the right
to invest all of its assets in another investment company;
7. Invest more than 5% of its total assets in restricted securities, other
than restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 that have been determined to be liquid;
8. Invest more than 5% of its total assets in the aggregate in illiquid and
unseasoned securities;
9. Invest more than 15% of its total assets in the aggregate in unseasoned
securities, illiquid securities, and Rule 144A securities.
B-25
SECURITIES AND INVESTMENT TECHNIQUES
MONEY MARKET INSTRUMENTS - Certificates of deposit are negotiable certificates
evidencing the obligation of a bank to repay funds deposited with it for a
specified period of time. Time deposits are non-negotiable deposits maintained
in a banking institution for a specified period of time at a stated interest
rate. Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer; these instruments reflect the
obligation both of the bank and of the drawer to pay the full amount of the
instrument upon maturity.
U.S. GOVERNMENT SECURITIES - Securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities include U.S. Treasury
securities, which are backed by the full faith and credit of the U.S.
Government. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities, for example, Government National Mortgage Association
pass-through certificates, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal Home Loan banks, by the
right of the issuer to borrow from the U.S. Treasury; others, such as those
issued by the Federal National Mortgage Association, by the discretionary
authority of the U.S. Government to purchase certain obligations of the agency
or instrumentality; and others, such as those issued by the Student Loan
Marketing Association, only by the credit of the agency or instrumentality.
These securities bear fixed, floating or variable rates of interest. Principal
and interest may fluctuate based on generally recognized reference rates or the
relationship of rates. While the U.S. Government provides financial support to
such U.S. Government-sponsored agencies and instrumentalities, no assurance can
be given that it will always do so since it is not so obligated by law. The Fund
will invest in such securities only when it is satisfied that the credit risk
with respect to the issuer is minimal.
SOVEREIGN DEBT OBLIGATIONS - 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 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
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 in zero coupon securities issued by
the U.S. Treasury on up to 5% of its net assets. 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 the Advisor under guidelines
established by the Board of Trustees to be of comparable quality at the time of
the purchase
B-26
and rated instruments eligible for purchase by the Fund. In making such
determinations, the 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 if the issuer of
the instrument defaults 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 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.
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/servicers
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 the 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
B-27
the actual average life of the certificates. Accordingly, it is not possible to
predict accurately the average life of a particular pool.
WARRANTS - 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).
REPURCHASE AGREEMENTS - Repurchase agreements are transactions in which the Fund
purchases a security from a bank or recognized securities dealer and
simultaneously commits to resell that security to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to the
coupon rate or maturity of the purchased security. The purchaser maintains
custody of the underlying securities prior to their repurchase; thus, the
obligation of the bank or dealer to pay the repurchase price on the date agreed
to is, in effect, secured by such underlying securities. If the value of such
securities is less than the repurchase price, the other party to the agreement
will provide additional collateral so that at all times the collateral is at
least equal to the repurchase price.
Although repurchase agreements carry certain risks not associated with
direct investments in securities, the Fund intends to enter into repurchase
agreements only with banks and dealers believed by the Advisor to present
minimum credit risk in accordance with guidelines established by the Board of
Trustees. The Advisor will review and monitor the creditworthiness of such
institutions under the Board's general supervision. To the extent that the
proceeds from any sale of collateral upon a default in the obligation to
repurchase were less than the repurchase price, the purchaser would suffer a
loss. If the other party to the repurchase agreement petitions for bankruptcy or
otherwise becomes subject to bankruptcy or other liquidation proceedings, there
might be restrictions on the purchaser's ability to sell the collateral and the
purchaser could suffer a loss. However, with respect to financial institutions
whose bankruptcy or liquidation proceedings are subject to the U.S. Bankruptcy
Code, the Fund intends to comply with provisions under such Code that would
allow it immediately to resell the collateral.
WHEN-ISSUED SECURITIES - The Fund may from time to time purchase securities on a
"when-issued" basis. The price of such securities, which may be expressed in
yield terms, is fixed at the time the commitment to purchase is made, but
delivery and payment for when-issued securities take place at a later date.
Normally, the settlement date occurs within one month of the purchase; during
the period between purchase and settlement, no payment is made by the Fund to
the issuer and no interest accrues to the Fund. To the extent that assets of the
Fund are held in cash pending the settlement of a purchase of securities, the
Fund would earn no income. While when-issued securities may be sold prior to the
settlement date, the Fund intends to purchase such securities with the purpose
of actually acquiring them unless a sale appears desirable for investment
reasons. At the time the Fund makes the commitment to purchase a security on a
when-issued basis, it will record the transaction and reflect the value of the
security in determining its net asset value. The market value of when-issued
securities may be more or less than the purchase price. The Advisor does not
believe that a Fund's net asset value or income will be adversely affected by
the purchase of securities on a when-issued basis. The Fund will establish a
segregated account with the River Oaks Trust Company, the Fund's custodian (the
"Custodian"), in which it will maintain cash or liquid assets such as U.S.
Government securities or other high-grade debt obligations equal in value to
commitments for when-issued securities. Such segregated securities either will
mature or, if necessary, be sold on or before the settlement date.
B-28
RULE 144A SECURITIES - As noted in the Prospectus, the Fund may invest no more
than 5% of its net assets in securities that at the time of purchase have legal
or contractual restrictions on resale, are otherwise illiquid or do not have
readily available market quotations. 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,
securities which are otherwise not readily marketable such as over-the-counter,
(dealer traded) options, and repurchase agreements having a maturity of more
than seven days. Mutual funds do not typically hold a significant amount of
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, the Fund might not be able
to dispose of such securities promptly or at reasonable prices and might thereby
experience difficulty satisfying redemptions. The Fund might also have to
register such restricted securities in order to dispose of them, resulting in
additional expense and delay.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act of 1933,
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 accord with Rule 144A promulgated by the Securities and Exchange Commission,
the Advisor, pursuant to guidelines adopted by the Board of Trustees, may
determine that such securities, up to a limit of 5% of a Fund's total net
assets, are not illiquid notwithstanding their legal or contractual restrictions
on resale.
PUT AND CALL OPTIONS - As described in the Prospectus, the Fund may buy and sell
put and call options.
PURCHASING OPTIONS. By purchasing a put option, the Fund obtains the right (but
not the obligation) to sell the option's underlying instrument at a fixed
"strike" price. In return for this right, the Fund pays the current market price
for the option (known as the option premium). Options have various types of
underlying instruments, including specific securities, indices of securities
prices, and futures contracts. This Fund may terminate its position in a put
option it has purchased by allowing it to expire or by exercising the option. If
the option is allowed to expire, the Fund will lose the entire premium it paid.
If the Fund exercises the option, it completes the sale of the underlying
instrument at the strike price. The Fund may also terminate a put option
position by closing it out in the secondary market at its current price (i.e.,
by selling an option of the same series as the option purchased), if a liquid
secondary market exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price does
not fall enough to offset the cost of purchasing the option, a put option buyer
can expect to suffer a loss (limited to the amount of the premium paid, plus
related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price. A call option buyer typically attempts to participate in potential price
increases of the underlying instrument with risk limited to the cost of the
option if security prices fall. At the same time, the buyer can expect to suffer
a loss if the underlying prices do not rise sufficiently to offset the cost of
the option.
WRITING OPTIONS. When the Fund writes a call option, it takes the opposite side
of the transaction from the option's purchaser. In return for receipt of the
premium, the Fund assumes the obligation to sell or
B-29
deliver the option's underlying instrument, in return for the strike price, upon
exercise of the option. The Fund may seek to terminate its position in a call
option it writes before exercise by closing out the option in the secondary
market at its current price (i.e., by buying an option of the same series as the
option written). If the secondary market is not liquid for a call option the
Fund has written, however, the Fund must continue to be prepared to deliver the
underlying instrument in return for the strike price while the option is
outstanding, regardless of price changes, and must continue to segregate assets
to cover its position. The Fund will establish a segregated account with the
Custodian in which it will maintain the security underlying the option written,
or securities convertible into that security, or cash or liquid assets such as
U.S. Government securities or other high-grade debt obligations, equal in value
to commitments for options written.
Writing a call generally is a profitable strategy if the price of the
underlying security remains the same or falls. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in the underlying price
increases.
COMBINED POSITIONS. The Fund may purchase and write options in combination with
each other to adjust the risk and return characteristics of its overall
position. For example, the Fund may purchase a put option and write a call
option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial price
increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types of
exchange-traded options contracts, it is likely that the standardized contracts
available will not match the Fund's current or anticipated investments exactly.
The Fund may invest in options contracts based on securities with different
issuers, maturities, or other characteristics from the securities in which it
typically invests.
Options prices also can diverge from the prices of their underlying
instruments, even if the underlying instruments match the Fund's investments
well. Options prices are affected by such factors as current and anticipated
short-term interest rates, changes in volatility of the underlying instrument,
and the time remaining until expiration of the contract, which may not affect
the security prices the same way. Imperfect correlation also may result from:
differing levels of demand in the options markets and the securities markets,
structural differences in how options are traded, or imposition of daily price
fluctuation limits or trading halts. The Fund may purchase or sell options with
a greater or lesser value than the securities it wishes to hedge or intends to
purchase in order to attempt to compensate for differences in volatility between
the contract and the securities, although this may not be successful in all
cases. If price changes in the Fund's options positions are poorly correlated
with its other investments, the positions may fail to produce anticipated gains
or result in losses that are not offset by gains in other investments.
LIQUIDITY OF OPTIONS. There is no assurance a liquid secondary market will exist
for any particular options contract at any particular time. Options may have
relatively low trading volume and liquidity if their strike prices are not close
to the underlying instrument's current price. In addition, exchanges may
establish daily price fluctuation limits for options contracts, and may halt
trading if a contract's price moves upward or downward more than the limit in a
given day. On volatile trading days when the price fluctuation limit is reached
or a trading halt is imposed, it may be impossible for the Fund to enter into
new positions or close out existing positions. If the secondary market for a
contract is not liquid
B-30
because of price fluctuation limits or otherwise, it could prevent prompt
liquidation of unfavorable positions, and potentially could require the Fund to
continue to hold a position until delivery or expiration regardless of changes
in its value. As a result, the Fund's access to other assets held to cover its
options positions also could be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with respect
to the underlying instrument, expiration date, contract size, and strike price,
the terms of over-the-counter options, i.e., options not traded on exchanges
("OTC options"), generally are established through negotiation with the other
party to the option contract. While this type of arrangement allows the Fund
greater flexibility to tailor an option to its needs, OTC options generally
involve greater credit risk than exchange-traded options, which are guaranteed
by the clearing organization of the exchanges where they are traded. OTC options
are considered to be illiquid, since these options generally can be closed out
only by negotiation with the other party to the option.
STOCK INDEX OPTIONS. 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 on 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 an options transaction depends on movements in the level of
stock prices generally rather than movements in the price of a particular stock.
Accordingly, successful use of options on a stock index will be subject to the
Advisor's ability to predict correctly movements in the direction of the stock
market generally. Index prices may be distorted if trading in 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 positions it holds. It is the policy of the
Fund to engage in options transactions only with respect to an index which the
Advisor believes includes a sufficient number of stocks to minimize the
likelihood of a trading halt in the index.
FUTURES CONTRACTS - The Fund may buy and sell stock index futures contracts.
Such a futures contract is an agreement between two parties to buy and sell an
index of securities of companies included therein for a set price on a future
date. Futures contracts are traded on designated "contract markets" which,
through their clearing corporations, guarantee performance of the contracts. A
stock index futures contract does not require the physical delivery of
securities, but merely provides for profits and losses resulting from changes in
the market value of the contract to be credited or debited at the close of each
trading day to the respective accounts of the parties to the contract. On the
contract's expiration date, a final cash settlement occurs. Changes in the
market value of a particular stock index futures contract reflect changes in the
specified index of equity securities on which the future is based.
No price is paid or received by the Fund upon the purchase or sale of a
futures contract. When it enters into a 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 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 transaction. 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 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 an index futures contract and
the price of the underlying 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 an
index futures contract and the price of the
B-31
underlying 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 gain.
The Fund will engage in futures transactions only as a hedge against the
risk of unexpected changes in the values of securities held or intended to be
held by the Fund. As a general rule, the Fund will not purchase or sell futures,
if immediately thereafter, more than 25% of its net assets would be hedged. In
addition, the Fund will not purchase or sell futures or related options if,
immediately thereafter, the sum of the amount of initial 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.
RISKS OF FUTURES CONTRACTS. There are several risks related to the use of
futures contracts. In the event of an imperfect correlation between the index
and the portfolio position which is intended to be protected, the desired
protection may not be obtained and the Fund may be exposed to risk of loss. The
loss from investing in futures transactions is potentially unlimited. Further,
unanticipated changes in stock price movements may result in a poorer overall
performance for the Fund than if it had not entered into any futures on stock
indexes.
In addition, the market prices of futures contracts may be affected by
certain factors. First, 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
securities and futures markets. Second, from the point of view of speculators,
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.
Finally, positions in futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market for such futures.
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.
SHORT 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.
The Fund's decision to make a short sale "against the box" may be a
technique to hedge against market risks when the Investment Adviser 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.
B-32
The extent to which the Fund may enter into short sales transactions may be
limited by the Internal Revenue Code requirements for qualification of the Fund
as a regulated investment company.
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
its 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.
TRUSTEES AND OFFICERS
The trustees and officers of the Trust, and their business addresses and
principal occupations during the past five years are:
1. Sardar A. D. Khan*
714 FM 1960 West Suite 201, Houston Texas 77090 Trustee and President
Physician; President, Caring Physicians Network Inc.
Age 53
2. Shahwar D. Khan*
14022 Champions Hamlet Ct., Houston Texas 77069 Trustee and Chief
Financial Treasurer, Khan Investment Inc. Officer
Age 46
3. Shehzad D. Khan*
14022 Champions Hamlet Ct., Houston, Texas 77069 Trustee
Trainee Broker, Olde Discount Corporation
Age 22
4. Mushtaq R. Malik
6622 Gentle Bend, Houston, Texas 77069 Trustee
Senior Principal Engineer, Stone & Webster
Engineering Corp.
Age 55
5. Charles E. Moore
2504 Sand Shore Drive, Conroe, Texas 77304 Trustee
General Sales Manager, Landmark Chevrolet
Age 60
- --------------------------------------------------------------------------------
*Denotes "interested person" of the Trust as defined in the Investment
Company Act. Sardar A. D. Khan and Shahwar D. Kahn are married, and Shehzad D.
Khan is their son.
The Trust will pay a fee of $200 per meeting to the Trustees who are not
"interested persons" of the Fund, as that term is defined in the Investment
Company Act. These Trustees also receive a fee of $200 for any committee
meetings held on dates other than scheduled Board meeting dates, and are
reimbursed for any expenses incurred in attending Board or committee meetings.
B-33
ADVISORY AGREEMENT
Subject to the supervision of the Board of Trustees, investment management
and services are provided to the Fund by the Advisor, pursuant to an Investment
Advisory Agreement (the "Advisory Agreement"). Under the Advisory Agreement, the
Advisor provides a continuous investment program for the Fund and makes
decisions and places orders to buy, sell or hold particular securities. In
addition to the fees payable to the Advisor and the Administrator, the Fund 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 or the Administrator;
(v) legal and audit expenses; (vi) fees and expenses of the Custodian and any
shareholder service and transfer agents; (vii) fees and expenses for
registration or qualification of the Fund and its shares under federal and state
securities laws; (viii) expenses of preparing, printing and mailing reports and
notices and proxy materials 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 Fund and the legal
obligations with respect to which the Fund may have to indemnify the Trust's
officers and trustees; and (xii) amortization of organization costs.
Under the Advisory Agreement, the Advisor and its officers, directors,
agents, employees, controlling persons, shareholders and other affiliates will
not be liable to the Fund for any error of judgment by the Advisor or any loss
sustained by the Fund, 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 Investment Company Act) or of willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. In
addition, the Fund will indemnify the Advisor and such other persons from any
such liability to the extent permitted by applicable law.
The Advisory Agreement with respect to the Fund will remain in effect for
two years from its execution. Thereafter, if not terminated, it will continue
automatically for successive annual periods, provided that such continuance is
specifically approved at least annually (i) by a majority vote of the Trustees
who are not parties to the Agreement or "interested persons" of the Fund as
defined in the Investment Company Act, cast in person at a meeting called for
the purpose of voting on such approval, or (ii) by vote of a majority of the
outstanding voting securities of the Fund.
The Advisory Agreement is terminable by vote of the Board of Trustees or by
the holders of a majority of the outstanding voting securities of the Fund at
any time without penalty, on 60 days written notice to the Advisor. The Advisory
Agreement also may be terminated by the Advisor on 60 days written notice to the
Fund. The Advisory Agreement terminates automatically upon its assignment (as
defined in the Investment Company Act).
B-34
ADMINISTRATION AGREEMENT
Khan Investment Inc. serves as administrator for the Funds
("Administrator"), subject to the overall supervision of the Trustees, pursuant
to an Administration Agreement executed between the Fund and the Administrator.
Under the terms of the Administration Agreement, the Administrator is
responsible for providing such services as the Trustees may reasonably request,
including but not limited to (i) maintaining the Fund's books and records (other
than financial or accounting books and records maintained by any custodian,
transfer agent or accounting services agent); (ii) overseeing the Fund's
insurance relationships; (iii) preparing for the Fund (or assisting counsel
and/or auditors in the preparation of) all required tax returns, proxy
statements and reports to the Fund's shareholders and trustees and reports to
and other filings with the Securities and Exchange Commission and any other
governmental agency; (iv) preparing such applications and reports as may be
necessary to register or maintain the Fund's registration and/or the
registration of the shares of the Fund under the blue sky laws of the various
states; (v) responding to all inquiries or other communications of shareholders;
(vi) overseeing all relationships between the Fund other service providers, such
as the Fund's Custodian; and (vii) authorizing and directing any of the
Administrator's directors, officers and employees who may be elected as trustees
or officers of the Trust to serve in the capacities in which they are elected.
Under the terms of the Administration Agreement, the Fund will pay
the Administrator an annual fee, payable monthly, equal to 0.25% of the average
daily net assets of the Fund.
DISTRIBUTION ARRANGEMENTS
As described in the Prospectus, under the Distribution Plan adopted by the
Trustees with respect to the shares, the Fund pays the Distributor monthly
distribution fees at the annual rate of 0.25% of the average daily net assets of
the Fund.
Among other things the Plan provides that (1) the Distributor will submit to
the trustees at least quarterly, and the trustees will review, reports regarding
all amounts expended under the Plan and the purposes for which such expenditures
were made; (2) the Plan will continue in effect only so long as it as approved
at least annually, and any material amendment thereto is approved, by the
trustees, including those trustees who are not "interested persons" of the Fund
and who have no direct or indirect financial interest in the Plan or any
agreement related thereto, acting in person at a meeting called for that
purpose; (3) the Plan may be terminated at any time by such trustees or by a
vote of a majority of the outstanding shares of the Fund; (4) payments by the
Fund under the Plan shall not be materially increased without the affirmative
vote of the holders of a majority of the outstanding shares of the Fund; and (5)
while the Plan remains in effect, the selection and nomination of the trustees
who are not "interested persons" of the Fund shall be committed to the
discretion of such trustees.
PORTFOLIO TRANSACTIONS AND BROKERAGE
In all purchases and sales of securities for the Fund, the primary
consideration is to obtain the most favorable price and execution available.
Pursuant to the Advisory Agreement, the Advisor determines which securities are
to be purchased and sold by the Fund and which broker-dealers are eligible to
execute portfolio transactions, subject to the instructions of and review by the
Trust's Board of Trustees.
Purchases of portfolio securities may be made directly from issuers or from
underwriters. Where possible, purchase and sale transactions are effected
through dealers (including banks) which specialize in the types of securities
which the Fund will be holding, unless better executions are available
B-35
elsewhere. Dealers and underwriters usually act as principals for their own
accounts. Purchases from underwriters include a commission paid by the issuer to
the underwriter and purchases from dealers include the spread between the bid
and the asked price.
In placing portfolio transactions, the Advisor uses its best efforts to
choose a broker-dealer capable of providing the services necessary to obtain the
most favorable price and execution available. The full range and quality of
services available are considered in making these determinations, such as the
size of the order, the difficulty of execution, the operational facilities of
the firm involved, the firm's risk in positioning a block of securities, and
other factors.
In those instances where it is reasonably determined that more than one
broker-dealer can offer the services needed to obtain the most favorable price
and execution available and the transaction involves a brokerage commission,
consideration may be given to those broker-dealers which furnish or supply
research and statistical information to the Advisor that it may lawfully and
appropriately use in its investment advisory capacity for the Fund and for other
accounts, as well as provide other services in addition to execution services.
The Advisor considers such information, which is in addition to, and not in lieu
of, the services required to be performed by it under the Advising Agreement, to
be useful in varying degrees, but of indeterminable value. The Board of Trustees
reviews brokerage allocations, where services other than best price/execution
capabilities are a factor, to ensure that the other services provided meet the
tests outlined above and produce a benefit to the Fund.
The placement of portfolio transactions with broker-dealers who sell shares
of the Fund is subject to rules adopted by the National Association of
Securities Dealers, Inc. ("NASD"). Provided the Advisor is satisfied that the
Fund is receiving the most favorable price and execution available, the Advisor
may also consider the sale of the Fund's shares as a factor in the selection of
broker-dealers to execute its portfolio transactions.
Investment decisions for the Fund are made independently from those of other
client accounts of the Advisor. Nevertheless, it is possible that at times the
same securities will be acceptable for the Fund and for one or more of such
other client accounts. 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, to the
extent any such client accounts and the Fund seek to sell the same security at
the same time, 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 as would
otherwise be the case. 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 the Fund and
all such client accounts in a manner deemed equitable by the Advisor, taking
into account the respective sizes of the accounts, the amount being purchased or
sold and other factors deemed relevant by the Advisor. 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, the Advisor believes 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 broker-dealers in
accordance with any formula, nor does it effect securities transactions through
such broker-dealers solely for selling shares of the Fund. However, as stated
above, broker-dealers who execute transactions for the Fund may from time to
time effect purchases of shares of the Fund for their customers.
NET ASSET VALUE
B-36
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 ("Exchange"), normally
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.
Options and futures contracts which are traded on exchanges are valued at
their last sale or settlement price as of the close of such exchanges or, if no
sales are reported, at the mean between the last reported bid and asked prices.
However, if an exchange closes later than the New York Stock Exchange, the
options or futures traded on it are valued based on the sales price, or the mean
between bid and asked prices, as the case may be, as of the close of the
Exchange.
Trading in securities in foreign securities markets is normally completed
well before the close of the Exchange. In addition, foreign securities trading
may not take place on all days on which the Exchange is open for trading, and
may occur in certain foreign markets on days on the Fund's net asset value is
not calculated. Events affecting the values of portfolio securities that occur
between the time their prices are determined and the close of the Exchange will
not be reflected in the calculation of net asset value unless the Board of
Trustees determines that the particular event would materially affect net asset
value, in which case an adjustment will be made. Assets or liabilities expressed
in foreign currencies are translated, in determining net asset value, into U.S.
dollars based on the spot exchange rates at 1:00 p.m., Eastern time, or at such
other rates as the Advisor may determine to be appropriate.
The Fund may use a pricing service approved by the Board of Trustees. Prices
provided by such a service represent evaluations of the mean between current bid
and asked prices, may be determined without exclusive reliance on quoted prices,
and may reflect appropriate factors such as institution-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
individual trading characteristics, indications of values from dealers and other
market data. Such services also may use electronic data processing techniques
and/or a matrix system to determine valuations.
Securities and other assets for which market quotations are not readily
available, or for which the Board of Trustees or its designate determines the
foregoing methods do not accurately reflect current market value, are valued at
fair value as determined in good faith by or under the direction of the Board of
Trustees. Such valuations and procedures, as well as any pricing services, are
reviewed periodically by the Board of Trustees.
REDEMPTIONS
The Fund intends to pay cash (U.S. dollars) for all shares redeemed, but,
under abnormal conditions which make payment in cash unwise, the Fund may make
payment partly in readily marketable securities with a current market value
equal to the redemption price. Although the Fund does not anticipate that it
will make any part of a redemption payment in securities, if such payment were
made, an investor may incur brokerage costs in converting such securities to
cash. The Fund has elected to be governed by the provisions of Rule 18f-1 under
the 1940 Act, which contains a formula for determining the minimum redemption
amounts that must be paid in cash.
B-37
TAXATION
The Fund intends to qualify for treatment as a regulated investment company
("RIC") under Subchapter M of the Internal Revenue Code (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.
The Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and capital gain net income for the one-year
period ending on December 31 of that year, plus certain other amounts.
Dividends and interest received by the Fund may give rise to withholding and
other taxes imposed by foreign countries. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes. Shareholders may be
able to claim U.S. foreign tax credits with respect to such taxes subject to
provisions and limitations contained in the Code. For example, certain
retirement accounts cannot claim foreign tax credits on investments in foreign
securities held by the Fund. If more than 50% in value of the Fund's total
assets at the close of its taxable year consists of securities of foreign
corporations, the Fund will be eligible, and intends, to file an election with
the Internal Revenue Service pursuant to which shareholders of the Fund will be
required to include their proportionate share of such withholding taxes in their
U.S. income tax returns as gross income, treat such proportionate share as taxes
paid by them, and deduct such proportionate share in computing their taxable
incomes or, alternatively, use them as foreign tax credits against their U.S.
income taxes. No deductions for foreign taxes, however, may be claimed by
noncorporate shareholders who do not itemize deductions. A shareholder that is a
nonresident alien individual or foreign corporation may be subject to U.S.
withholding tax on the income resulting from the Fund's election described in
this paragraph but may not be able to claim a credit or deduction against such
U.S. tax for the foreign taxes treated as having been paid by such shareholder.
The Fund will report annually to its shareholders the amount per share of such
withholding taxes.
B-38
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:
P(1 + T)n = 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.
The time periods used in advertising will be 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. Any
performance information used in advertising and sales literature will include
information based on this formula for the most recent one, five and ten year
periods, or for the life of the Fund, if less.
OTHER PERFORMANCE 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"), Morningstar, Inc. ("Morningstar") 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, CDA or Morningstar. Advertising and promotional
materials also may refer to discussions of the Fund and comparative mutual fund
data and ratings reported in independent
B-39
periodicals including, but not limited to, The Wall Street Journal, Money
Magazine, Forbes, Business Week, Financial World and Barron's.
FINANCIAL STATEMENTS
A Statement of Assets and Liabilities of the Fund as of _______,
1996, is included in Appendix A to this Statement of Additional Information.
Such Statement has been audited by the Fund's independent accountants, Coopers &
Lybrand, L.L.P., whose report thereon also appears in Appendix A. Such Financial
Statement has been included herein in reliance upon such report given upon their
authority as experts in accounting and auditing.
GENERAL INFORMATION
REGISTRATION STATEMENT
The Registration Statement of the Trust, including the Fund's
Prospectus, the Statement of Additional Information and the exhibits filed
therewith, may be examined at the office of the Securities and Exchange
Commission in Washington, D.C. Statements contained in the Fund's Prospectus or
the Statement of Additional Information as to the contents of any contract or
other document referred to herein or in the Prospectus are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
OTHER INFORMATION
As used in the Prospectus and in this Statement of Additional
Information, the term "majority," when referring to approvals to be obtained
from shareholders of the Fund, means the vote of the lesser of (i) 67% of the
shares of the Fund represented at a meeting of the holders of more than 50% of
the outstanding shares of the Fund are present in person or by proxy, or (ii)
more than 50% of the outstanding shares of the Fund.
As of the date of this Prospectus, all of the outstanding shares of
the Fund are held by ____________________________.
The Trust will dispense with annual meetings of shareholders in any
year in which it is not required to elect Trustees under the Investment Company
Act. However, the Trust undertakes to hold a special meeting of its shareholders
for the purpose of voting on the question of removal of a Trustee or Trustees if
requested in writing by the holders of at least 10% of the Trust's outstanding
voting securities, and to assist in communicating with other shareholders as
required by Section 16(c) of the Investment Company Act.
B-40
PART C
OTHER INFORMATION
Item 24 Financial Statements and Exhibits
(a) Financial Statements
(To be filed by amendment)
(b) Exhibits
(1.1) Certificate of Trust
(1.2) Declaration of Trust
(2) By-Laws
(3) Not Applicable
(4) Not Applicable
(5) Form of Investment Advisory Agreement
(6) Form of Distribution Agreement
(7) Not applicable
(8) Custodian Agreement*
(9) Form of Administration Agreement
(10) Opinion and consent of counsel*
(11) Consent of independent accountants*
(12) Not applicable
(13) Investment letter of initial investor*
(14) Individual Retirement Account forms*
(15) Plan of Distribution*
(16) Not Applicable
(17) Financial Data Schedule*
(18) Not Applicable
(19) Powers of Attorney
* To be filed by amendment
Item 25 Persons Controlled by or under Common Control with Registrant
None
Item 26 Number of Holders of Securities
None
Item 27 Indemnification
Article VII, Section 2 of Registrant's Declaration of Trust, filed
herewith as Exhibit 1, and Article VI of Registrant By-Laws, filed herewith as
Exhibit 2, provide for the indemnification of Registrant's trustees, officers,
employees and agents against liabilities incurred by them in connection with the
defense or disposition of any action or proceeding in which they may be involved
or with
C-41
which they may be threatened, while in office or thereafter, by reason of being
or having been in such office, except with respect to matters as to which it has
been determined that they acted with willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of their
office ("Disabling Conduct").
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such trustee, officer, or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
Item 28 Business and Other Connections of Investment Adviser
Sardar A.D. Khan, the President and controlling shareholder of Khan
Investment Inc., is a practicing physician and president of Caring Physician
Network Inc., a Texas based preferred provider organization.
Item 29 Principal Underwriters
(a) Khan Distributors Inc., a Texas corporation, acts as Distributor of
Registrant.
(b) The following information is furnished with respect to the officers and
directors of Khan Distributors Inc.
Name and Principal Position and Offices Position and Offices
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
Sardar A. D. Khan President Trustee and President
714 FM 1960 West Suite 201
Houston Texas 77090
Shehzad D. Khan Vice President Trustee
14022 Champions Hamlet Ct.
Houston Texas 77069
Shahwar D. Khan Treasurer Trustee
14022 Champions Hamlet Ct.
Houston Texas 77069
(c) Not applicable
C-42
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 Administrator and Custodian, as follows: the documents required to
be maintained by paragraphs (5), (6), (7), (10) and (11) of Rule 31a-l(b) are
maintained by the Registrant at 714 F.M. 1960 West, Suite 201, Houston, Texas
77090; the documents required to be maintained by paragraph (4) of Rule 31a-l(b)
are maintained by the Administrator at 714 F.M. 1960 West, Suite 201, Houston,
Texas 77090; and all other records are maintained by the Custodian at 2001 Kirby
at San Felipe, Houston, Texas 77210.
Item 31 Management Services
Not applicable
Item 32 Undertakings
The Registrant hereby undertakes, if requested to do so by the holders of at
least 10% of the Registrant's outstanding shares, to call a meeting of
shareholders for the purposes of voting upon the question of removal of a
Trustee and to assist in communications with other shareholders as required by
Section 16(c) of the Investment Company Act of 1940.
The Registrant hereby undertakes to file a post-effective amendment to the
Registration Statement, containing reasonably current financial statements which
need not be audited, within four to six months from the effective date of the
Registration Statement.
The Registrant hereby undertakes, in the event the information required by
Item 5A of Form N-1A is contained in an annual report to shareholders, to
furnish a copy of such latest report to shareholders to each person to whom a
prospectus is delivered, upon request and without charge.
C-43
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas on this ____ day of
September, 1996.
KHAN FUNDS
By /s/ S.A.D. KHAN
Sardar A. D. Khan, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the following dates.
/s/S.A.D. KHAN September __, 1996
- -------------------------------------------------------
Sardar A. D. Khan, Trustee and Principal
Executive Officer
/s/SHEHZAD D. KHAN September __, 1996
- -------------------------------------------------------
Shehzad D. Khan, Trustee
/s/SHAHWAR D. KHAN September __, 1996
- -------------------------------------------------------
Shahwar D. Khan, Trustee and Principal Financial
and Accounting Officer
*CHARLES E. MOORE September __, 1996
- -------------------------------------------------------
Charles E. Moore, Trustee
*MUSHTAQ R. MALIK September __, 1996
- -------------------------------------------------------
Mushtaq R. Malik, Trustee
*By /s/S.A.D. KHAN
- -------------------------------------------------------
Sardar A.D. Khan
Attorney-in-Fact
C-44
EXHIBIT INDEX
FORM N-1A REGISTRATION STATEMENT
KHAN FUNDS
EXHIBITS:
(1.1) Certificate of Trust
(1.2) Declaration of Trust
(2) By-Laws
(3) Not Applicable
(4) Not Applicable
(5) Form of Investment Advisory Agreement
(6) Form of Distribution Agreement
(7) Not applicable
(8) Custodian Agreement*
(9) Form of Administration Agreement
(10) Opinion and consent of counsel*
(11) Consent of independent accountants*
(12) Not applicable
(13) Investment letter of initial investor*
(14) Individual Retirement Account forms*
(15) Plan of Distribution*
(16) Not Applicable
(17) Financial Data Schedule*
(18) Not Applicable
(19) Powers of Attorney
* To be filed by amendment.
C-45
EXHIBIT 1.1
CERTIFICATE OF TRUST
OF
NICHOLAS-APPLEGATE SERIES TRUST
The undersigned, constituting the sole member of the Board of Trustees
of NICHOLAS-APPLEGATE SERIES TRUST (the "Trust"), in order to form a Delaware
business trust pursuant to Section 3810 of the Delaware Business Trust Act, does
hereby certify the following:
1. The name of the Delaware business trust is Khan Funds.
2. Prior to the issuance of beneficial interests, the Trust will become
a registered investment company under the Investment Company Act of 1940, as
amended.
3. Notice is hereby given that pursuant to Section 3804 of the Delaware
Business Trust Act, the debts, liabilities, obligations and expenses incurred,
contracted for or otherwise existing with respect to a particular series of the
Trust shall be enforceable against the assets of such series only and not
against the assets of the Trust generally.
4. The registered office of the Trust in Delaware is Khan Funds, c/o
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
County of New Castle, Wilmington, Delaware 19801.
5. The registered agent for service of process on the Trust is The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, County
of New Castle, Wilmington, Delaware 19801.
6. This Certificate of Trust shall be effective the date it is
filed with the Office of the Delaware Secretary of State.
IN WITNESS WHEREOF, the undersigned Trustee of NICHOLAS-APPLEGATE
SERIES TRUST has executed this Certificate as of the 30th day of August, 1996.
/s/ S.A.D. Khan
Sardar A.D. Khan
Trustee
EXHIBIT 1.2
AGREEMENT AND DECLARATION OF TRUST
OF
KHAN FUNDS
A Delaware Business Trust
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TABLE OF CONTENTS
ARTICLE I Name and Definitions
Page
l. Name..................................................................1
2. Definitions...........................................................1
(a) Trust........................................................1
(b) Trust Property...............................................1
(c) Trustees.....................................................1
(d) Shares.......................................................1
(e) Shareholder..................................................1
(f) Person.......................................................1
(g) 1940 Act.....................................................1
(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.......................................2
2. Ownership of Shares...................................................3
3. Investments in the Trust..............................................3
4. Status of Shares and Limitation of Personal Liability.................3
5. Power of Board of Trustees to Change Provisions Relating to
shares................................................................3
6. Establishment and Designation of Series...............................4
(a) Assets With Respect to a Particular Series.......................4
(b) Liabilities Held With Respect to a Particular Series.............4
(c) Dividends, Distributions, Redemptions, and Repurchases...........4
(d) Voting...........................................................5
(e) Equality.........................................................5
(f) Fractions........................................................5
(g) Exchange Privileges..............................................5
(h) Combination of Series............................................5
(i) Elimination of Series............................................5
7. Indemnification of Shareholders.......................................5
ARTICLE IV The Board of Trustees
1. Number, Election and Tenure...........................................6
2. Effect of Death, Resignation, etc. of a Trustee.......................6
3. Powers................................................................6
4. Payment of Expenses by the Trust......................................8
5. Payment of Expenses by Shareholders...................................9
6. Ownership of Assets of the Trust......................................9
7. Service Contracts.....................................................9
ARTICLE V Shareholders' Voting Powers and Meetings
1. Voting Powers........................................................10
2. Voting Power and Meetings............................................10
3. Quorum and Required Vote.............................................11
4. Action by Written Consent............................................11
5. Record Dates.........................................................11
6. Additional Provisions................................................11
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ARTICLE VI Net Asset Value, Distributions, and Redemptions
1. Determination of Net Asset Value, Net Income and Distributions.......12
2. Redemptions and Repurchases..........................................12
3. Redemptions at the Option of the Trust...............................12
ARTICLE VII Compensation and Limitation of Liability of Trustees
1.Compensation..........................................................13
2. Indemnification and Limitation of Liability..........................13
3. Trustee's Good Faith Action, Expert Advice, No Bond or Surety........13
4. Insurance............................................................13
ARTICLE VIII Miscellaneous
1. Liability of Third Persons Dealing with Trustees.....................13
2. Termination of Trust or Series.......................................14
3. Merger and Consolidation.............................................14
4. Amendments...........................................................14
5. Filing of Copies, References, Headings...............................14
6. Applicable Law.......................................................15
7. Provisions in Conflict with Law or Regulations.......................15
8. Business Trust Only..................................................15
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AGREEMENT AND DECLARATION OF TRUST
OF
KHAN FUNDS
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 KHAN FUNDS 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;
(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;
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(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, which are 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.
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 Series (or class) from the assets held with respect to such Series
according to the number of Shares of such Series (or class) 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.
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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) 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 shall entitle 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 amendment to
this Declaration of Trust
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which would adversely affect to a material degree the rights and preferences of
the Shares of any Series (or class).
Subject to the foregoing paragraph of this Section 5, 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.
Section 6. ESTABLISHMENT AND DESIGNATION OF SERIES. The establishment
and designation of any Series (or class) of Shares shall be effective upon the
adoption by a majority of the then Trustees of 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 (or class),
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 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 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
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has been allocated to any particular Series, shall look only to the assets of
that particular Series for payment of such credit, claim, or contract.
(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. Notwithstanding the
foregoing provisions of this Section, however: (i) 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; and (ii) 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 (or class)
shall represent an equal proportionate interest in the assets held with respect
to that Series (or class) subject to the liabilities held with respect to that
Series (or class) and such rights and preferences as may have been established
and designated with respect to classes of Shares within such Series (or class),
and each Share of any particular Series (or class) shall be equal to each other
Share of that Series (or class).
(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.
(g) EXCHANGE PRIVILEGE. The Trustees shall have the authority to
provide that the holders of Shares of any Series (or class) shall have the right
to exchange said Shares for Shares of one or more other Series (or class) 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 (or class) unless
otherwise required by applicable law, to combine the assets and liabilities held
with respect to any two or more Series (or
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classes) into assets and liabilities held with respect to a single Series (or
class).
(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 of any Series, 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
such Series 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 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
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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 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
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 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, 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
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the Unites States and the District of Columbia and any political subdivision,
agency, or instrumentality thereof, any foreign government, any political
subdivision of the U.S. Government or any foreign government, or any
international instrumentality, by any bank or savings institution, by any
corporation or organization organized under the laws of the United States or of
any state, territory, or possession thereof, 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;
(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, depository, voting trustee or otherwise, and in that connection to
deposit any security with, or transfer any security to, any such committee,
depository 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, depository 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 combinations or associations;
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(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 of the Trust, 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, 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 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, without limitation, 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
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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 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 non-exclusive 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 non-exclusive 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 or
classes. 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 or classes, as the Trustees determine to be
in the best interests of the Trust and the applicable Series or classes.
(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
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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 l. 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 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. Meetings of the Shareholders shall be called by any Trustee upon
written request of Shareholders holding, in the aggregate, not less than 10% of
the Shares, such request specifying the purpose or purposes for which such
meeting is to be called. 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
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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,
thirty percent (30%) 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, thirty percent (30%) of the
Shares of each such Series (or classes) entitled to vote shall constitute a
quorum at a Shareholder'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 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).
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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 resolution 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 shall pay therefor the net asset value
thereof, in accordance with the By-Laws 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 (except that payment for
recently purchased shares may be delayed up to fifteen days until any purchase
check has been honored). The obligation set forth in this Section 2 is subject
to the provision that such obligations may be suspended or postponed by the
Trustees 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.
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 of 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 the 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
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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.
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 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 by 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.
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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 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, 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, 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 amended by a similar
procedure, and any such restatement and/or amendment shall be effective
immediately upon
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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 restatement 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 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 with in 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
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make the Shareholders, either by themselves or with the Trustees, partners or
members of a joint stock association.
IN WITNESS WHEREOF, the Trustees named below do hereby make and enter
into this Declaration of Trust as of the 1st day of September, 1996.
/s/S.A.D. KHAN
Name: Sardar A.D. Khan
Address: 714 F.M. 1960 West, Suite 201
Houston, Texas 77090
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EXHIBIT 2
BY-LAWS
for the regulation, except as
otherwise provided by statute or the
Agreement and Declaration of Trust, of
KHAN FUNDS, a Delaware Business Trust
<PAGE>
TABLE OF ARTICLES
Page
ARTICLE I Offices
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..................1-2
5. Adjourned Meeting; Notice.......................................2
6. Voting..........................................................2
7. Waiver of Notice of Consent by Absent Shareholders..............2
8. Shareholder Action by Written Consent Without a Meeting.........3
9. Record Date for Shareholder Notice, Voting and Giving
Consents........................................................3
10. Proxies.........................................................3
11. Inspectors of Election..........................................4
ARTICLE III Trustees
1. Powers..........................................................4
2. Number of Trustees..............................................4
3. Vacancies.......................................................5
4. Place of Meetings and Meetings by Telephone.....................5
5. Regular Meetings................................................5
6. Special Meetings................................................5
7. Quorum..........................................................5
8. Waiver of Notice................................................6
9. Adjournment.....................................................6
10 Notice of Adjournment...........................................6
11. Action Without a Meeting........................................6
12. Fees and Compensation of Trustees...............................6
13. Delegation of Power to Other Trustees...........................6
ARTICLE IV Committees
1. Committees of Trustees..........................................6
2. Meetings and Action of Committees...............................7
ARTICLE V Officers
1. Officers........................................................7
2. Election of Officers............................................7
3. Subordinate Officers............................................8
4. Removal and Resignation of Officers.............................8
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Page
5. Vacancies in Offices............................................8
6. Chairman of the Board...........................................8
7. President.......................................................8
8. Vice Presidents.................................................8
9. Secretary.......................................................8
10. Treasurer.......................................................9
ARTICLE VI Indemnification of Trustees, Officers Employees and Other
Agents
1. Agents, Proceedings and Expenses................................9
2. Actions Other than by Trust.....................................9
3. Actions by the Trust...........................................10
4. Exclusion and Indemnification..................................10
5. Successful Defense by Agent....................................10
6. Required Approval..............................................11
7. Advance of Expenses............................................11
8. Other Contractual Rights.......................................11
9. Limitations....................................................11
10. Insurance......................................................11
11. Fiduciaries of Corporate Employee Benefit Plan.................12
ARTICLE VII Records and Reports
1. Maintenance and Inspection of Share Register...................12
2. Maintenance and Inspection of By-Laws..........................12
3. Maintenance and Inspection of Other Records....................12
4. Inspection by Trustees.........................................12
5. Financial Statements...........................................12
ARTICLE VIII General Matters
1. Checks, Drafts, Evidence of Indebtedness.......................13
2. Contracts and Instruments; How Executed........................13
3. Representation of Shares of Other Entities Held by Trust.......13
4. Fiscal Year....................................................13
ARTICLE IX Amendments
1. Amendment by Shareholders......................................13
2. Amendment by Trustees..........................................13
3. Incorporation by Reference into Agreement and
Declaration of Trust of the Trust..............................13
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BY-LAWS
OF
KHAN FUNDS
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
Khan Fund (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 who at the time of the notice
are intended to be presented for election.
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
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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.
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
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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' 8 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 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.
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(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 shareholders
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 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;
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(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.
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 on the Board of Trustees may be filled
by majority vote 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 purpose 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 on 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-1 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 Trustees who are not "interested
persons" of the Trust.
Section 4. PLACE OF MEETINGS AND MEETING 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
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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 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 at
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 proceedings of the Board of Trustees.
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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,
employees 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;
(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
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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 or 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 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
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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.
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
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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 depositories 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 ByLaws.
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 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 person is or was an agent of
this Trust, against expenses actually and reasonably
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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 of any person 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 is not entitled
to indemnification, together with at least one of the following as a condition
to the advance: (i) security for the undertaking; (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 (as
defined in the Investment Company Act of 1940), 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 that:
(a) 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) 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 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.
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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 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.
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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. 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, trust, or other entity,
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 4. 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 in reference to the Agreement and Declaration of Trust of the
Trust.
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EXHIBIT 5
KHAN FUNDS
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT is made as of the _____ day of
_______________, 1996, by and between KHAN FUNDS (the "Trust"), a trust
organized under the laws of the State of Delaware, and KHAN INVESTMENT INC. (the
"Advisor"), a Texas corporation.
In consideration of the mutual promises and agreements herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, it is hereby agreed by and between the parties hereto as follows:
1. IN GENERAL
(a) The Trust hereby appoints the Advisor to act as investment
adviser to the Khan Growth Fund series of the Trust (the "Fund"). The Advisor
agrees, all as more fully set forth herein, to provide professional investment
management with respect to the investment of the assets of the Fund and to
supervise and arrange the purchase and sale of securities held in the portfolio
of the Fund.
(b) In the event that the Trust establishes one or more series
other than the Fund with respect to which it desires to retain the Advisor to
serve as investment adviser hereunder, it will notify the Advisor in writing. If
the Advisor is willing to render such services under this Agreement it will so
notify the Trust in writing, whereupon such series will become a "Fund" and will
be subject to the provisions of this Agreement to the same extent as the initial
Fund except to the extent that such provisions (including those relating to the
compensation payable by the Fund to the Advisor) are modified with respect to
such Fund in writing by the Trust and the Advisor at the time.
2. MANAGEMENT OF THE TRUST
(a) Subject to the succeeding provisions of this section and
subject to the direction and control of the Board of Trustees of the Trust, the
Advisor shall decide what securities shall be purchased or sold by the Fund and
when, and shall arrange for the purchase and the sale of securities held in the
portfolios of the Fund by placing purchase and sale orders for the Fund.
(b) Any investment purchases or sales made by the Advisor shall
at all times conform to, and be in accordance with, any requirements imposed
by: (i)
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the provisions of the Investment Company Act of 1940 (the "Act") and of any
rules or regulations in force thereunder; (ii) any other applicable provisions
of law; (iii) the provisions of the Agreement and Declaration of Trust and
By-Laws of the Trust as amended from time to time; (iv) any policies and
determinations of the Board of Trustees of the Trust; and (v) the fundamental
policies of the Fund, as reflected in its registration statement under the Act,
or as amended by the shareholders of the Fund.
(c) The Advisor shall give the Trust the benefit of its best
judgment and effort in rendering services hereunder. In the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of obligations or
duties hereunder ("disabling conduct") on the part of the Advisor (and its
officers, directors, agents, employees, controlling persons, shareholders and
any other person or entity affiliated with the Advisor), the Advisor shall not
be subject to liability to the Trust or to any shareholder of the Trust for any
act or omission in the course of, or connected with, rendering services
hereunder, including, without limitation, any error of judgment or mistake of
law, or for any loss suffered by any of them in connection with the matters to
which this Agreement relates, except to the extent specified in Section 36(b) of
the Act concerning loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services. Except for such disabling conduct,
the Trust shall indemnify the Advisor (and its officers, directors, agents,
employees, controlling persons, shareholders and any other person or entity
affiliated with the Advisor) from any liability arising from the Advisor's
conduct under this Agreement to the extent permitted by the Agreement and
Declaration of Trust and applicable law.
(d) Nothing in this Agreement shall prevent the Advisor or any
affiliated person (as defined in the Act) of the Advisor from acting as
investment adviser, manager and/or principal underwriter for any other person,
firm or corporation and shall not in any way limit or restrict the Advisor or
any such affiliated person from buying, selling or trading any securities for
its or their own accounts or the accounts of others for whom it or they may be
acting; provided, however, that the Advisor expressly represents that it will
undertake no activities which, in its judgment, will adversely affect the
performance of its obligations to the Trust under this Agreement.
(e) The Advisor shall have no responsibility or liability for the
accuracy or completeness of the Trust's Registration Statement under the Act
except for information supplied by the Advisor for inclusion therein.
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3. BROKER-DEALER RELATIONSHIPS
In connection with its duties set forth in Section 2 (a) of this
Agreement to arrange for the purchase and the sale of securities held by the
Fund by placing purchase and sale orders for the Trust, the Advisor shall select
such broker-dealers ("brokers") as shall, in the Advisor's judgment, implement
the policy of the Trust to achieve "best execution", I.E., prompt and efficient
execution at the most favorable securities price. In making such selection, the
Advisor is authorized to consider the reliability, integrity and financial
condition of the broker. The Advisor is also authorized to consider whether the
broker provides brokerage and/or research services to the Trust and/or other
accounts of the Advisor. The commissions paid to any such broker may be higher
than another broker would have charged if a good faith determination is made by
the Advisor that the commission is reasonable in relation to the services
provided, viewed in terms of either that particular transaction or the Advisor's
overall responsibilities to the accounts as to which it exercises investment
discretion. The Advisor shall use its judgment in determining that the amounts
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. To demonstrate that such determinations were in good faith, and
to show the overall reasonableness of commissions paid, the Advisor shall be
prepared to show that commissions paid (i) were for purposes contemplated by
this Agreement; (ii) provide lawful and appropriate assistance to the Advisor in
the performance of its decision-making responsibilities; and (iii) were within a
reasonable range as compared to the rates charged by qualified brokers to other
institutional investors as such rates may become known from available
information. The Trust recognizes that, on any particular transaction, a higher
than usual commission may be paid due to the difficulty of the transaction in
question. The Advisor also is authorized to consider sales of shares of the
Trust as a factor in the selection of brokers to execute brokerage and principal
transactions, subject to the requirements of "best execution", as defined above.
4. ALLOCATION OF EXPENSES
The Advisor shall furnish the Trust, at the Advisor's expense, with all
office space and facilities, and equipment and clerical personnel necessary for
carrying out its duties under this Agreement. The Advisor shall also pay all
compensation of all Trustees, officers and employees of the Trust who are
affiliated persons of the Advisor. All costs and expenses not expressly assumed
by the Advisor under this Agreement shall be paid by the Trust, including, but
not limited to (i) interest and taxes; (ii) brokerage commissions; (iii)
insurance premiums; (iv) compensation and
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expenses of its Trustees other than those affiliated with the Advisor; (v) legal
and audit expenses; (vi) fees and expenses of the Trust's custodian, transfer
agent and accounting services agent; (vii) expenses incident to the issuance of
its shares, including issuance of shares on the payment of, or reinvestment of,
dividends; (viii) fees and expenses incident to the registration under Federal
or state securities laws of the Trust or its shares; (ix) expenses of preparing,
printing and mailing reports, notices, proxy material and prospectuses to
shareholders of the Trust; (x) all other expenses incidental to holding meetings
of the Trust's shareholders; (xi) dues or assessments of or contributions to the
Investment Company Institute or any successor or other industry association;
(xii) such non-recurring expenses as may arise, including litigation affecting
the Trust and the legal obligations which the Trust may have to indemnify its
officers and Trustees with respect thereto; (xiii) fees of the Trust's
Administrator and (xiii) the organization costs of the Trust.
5. COMPENSATION OF THE ADVISOR
(a) The Trust agrees to pay the Advisor and the Advisor agrees to
accept as full compensation for all services rendered to the Fund by the Advisor
as such, an annual management fee, payable monthly and computed on the value of
the net assets of the Fund as of the close of business each business day, at the
annual rate of 0.75% of such net assets of the Fund.
(b) In the event the expenses of the Fund (including the fees of
the Advisor and the Administrator and amortization of organization expenses, but
excluding interest, taxes, brokerage commissions, extraordinary expenses and
sales charges and distribution fees) for any fiscal year exceed the limits set
by applicable regulations of any state securities commission in any state where
the Fund's shares are registered or qualified for sale, the Advisor shall reduce
its fee by the amount of such excess. Any such reductions are subject to
readjustment during the year. The payment of the management fee at the end of
any month shall be reduced or postponed or, if necessary, a refund shall be made
to the Fund, so that at no time will there be any accrued but unpaid liability
under this expense limitation.
(c) In the event the Advisor voluntarily reimburses the Fund for
operating expenses of the Fund in excess of a percentage of the average daily
net assets of the Fund (the "Voluntary Limitation"), which Voluntary Limitation
is below the expense limitation for the Fund set forth in paragraph (b), then
any such reimbursement shall be repaid to the Advisor by the Fund, without
interest, at such later time or times within three years after such
reimbursement as it may be repaid without causing the aggregate operating
expense of the Fund to exceed the Voluntary Limitation; provided, however, that
upon termination of this Agreement with respect
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to the Fund, the Fund shall have no obligation to pay any such outstanding
repayments to the Advisor.
6. DURATION AND TERMINATION
(a) This Agreement shall go into effect on the date set forth
above and shall, unless terminated as hereinafter provided, continue in effect
until ______________________, 1998 and thereafter from year to year, but only so
long as such continuance is specifically approved at least annually by the
Trust's Board of Trustees, including the vote of a majority of the Trustees who
are not parties to this Agreement or "interested persons" (as defined in the
Act) of any such party cast in person at a meeting called for the purpose of
voting on such approval, or by the vote of the holders of a "majority" (as
defined interest) of the outstanding voting securities of the Fund.
(b) This Agreement may be terminated by the Advisor with respect
to the Fund at any time without penalty upon giving the Trust sixty (60) days'
written notice (which notice may be waived by the Trust) and may be terminated
by the Trust at any time with respect to the Fund without penalty upon giving
the Advisor sixty (60) days' written notice (which notice may be waived by the
Advisor), provided that such termination by the Trust shall be directed or
approved by the vote of a majority of all of its Trustees in office at the time
or by the vote of the holders of a majority (as defined in the Act) of the
voting securities of the Fund. This Agreement shall automatically terminate in
the event of its assignment (as defined in the Act).
7. RECORDS
(a) The Advisor shall maintain all books and records with respect
to the securities transactions of the Fund, keep books of account with respect
to such transactions, and furnish the Board with such periodic and special
reports as the Board may request.
(b) The Advisor shall treat confidentially and as proprietary
information of the Trust all records and other information relative to the Trust
and shareholders of the Trust ("Investors") or those persons or entities who
respond to inquiries concerning investment in the Trust, and shall not use such
records and information for any purpose other than performance of its
responsibilities and duties hereunder or under any other agreement with the
Trust except after prior notification to and approval in writing by the Trust,
which approval will not be unreasonably withheld and may not be withheld where
the Advisor may be exposed to civil or criminal contempt proceedings for failure
to comply, when requested to divulge such
-5-
information by duly constituted authorities, or when so requested by the Trust.
Nothing contained herein, however, shall prohibit the Advisor from advertising
to or soliciting the public generally with respect to other products or
services, including, but not limited to, any advertising or marketing via radio,
television, newspapers, magazines or direct mail solicitation, regardless of
whether such advertisement or solicitation may coincidentally include prior or
present Investors or those persons or entities who have responded to inquiries
regarding the Trust.
(c) In compliance with the requirements of Rule 31a-3 under the
1940 Act, the Advisor agrees that all records which it maintains for the Trust
are the property of the Trust and further agrees to surrender promptly to the
Trust any such records upon the Trust's request. In addition, the Advisor agrees
to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the
records required to be maintained by Rule 31a-1 under the 1940 Act.
8. REPRESENTATIONS AND WARRANTIES
(a) The Trust represents and warrants to the Advisor that: (i) it
is a business trust duly organized and existing and in good standing under the
laws of the State of Delaware and is duly qualified to conduct its business in
the State of Delaware and in such other jurisdictions wherein the nature of its
activities or its properties owned or leased makes such qualification necessary;
(ii) it is a registered open-end management investment company under the 1940
Act; (iii) a registration statement on Form N-1A under the Securities Act of
1933, as amended, on behalf of the Fund is currently effective and will remain
effective, and appropriate state securities law filings have been made and will
continue to be made, with respect to all shares of the Fund being offered for
sale; (iv) it is empowered under applicable laws and by its Declaration of Trust
and Bylaws to enter into and perform this Agreement; and (v) all requisite trust
proceedings have been taken to authorize it to enter into and perform this
Agreement.
(b) The Advisor represents and warrants to the Trust that: (i) it
is a corporation duly organized and existing and in good standing under the laws
of the State of Texas and is duly qualified to conduct its business in the State
of Texas and in such other jurisdictions wherein the nature of its activities or
its properties owned or leased makes such qualification necessary; (ii) it is
empowered under applicable laws and by its charter documents to enter into and
perform this Agreement; (iii) all requisite corporate proceedings have been
taken to authorize it to enter into and perform this Agreement; and (iv) it is a
registered investment adviser under the Investment Advisers Act of 1940 and
applicable state laws.
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9. MISCELLANEOUS
(a) This Agreement constitutes the entire agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the subject matter hereof. No provision of this
Agreement may be changed, waived, discharged or terminated orally, but only by
an instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought. No amendment of this
Agreement will be effective as to a particular Fund until approved by vote of a
majority of the outstanding voting securities of such Fund, except as permitted
by the Act.
(b) No Trustee, officer, employee or agent of the Trust shall be
subject to any personal liability whatsoever, in his or her official or
individual capacity, to any person, including the Advisor, other than the Trust
or its shareholders, in connection with the property or affairs of the Trust,
save only that arising from his or her bad faith, willful misfeasance, gross
negligence or reckless disregard of his or her duty to such person; and all such
persons shall look solely to the Trust property for satisfaction of claims of
any nature against a Trustee, officer, employee or agent of the Trust arising in
connection with the affairs of the Trust. Moreover, the debts, liabilities,
obligations and expenses incurred, contracted for or otherwise existing with
respect to a Fund shall be enforceable against the assets and property of such
Fund only, and not against the assets and property of any other series of the
Trust.
(c) This Agreement will be binding upon and will inure to the
benefit of the parties hereto and their respective successors and will be
governed by the internal laws, and not the law of conflicts of laws, of the
state of Texas; provided that nothing herein will be construed in a manner
inconsistent with the Act, the
-7-
Investment Advisers Act of 1940, as amended, or any rule or regulation of the
Securities and Exchange Commission thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by duly authorized persons as of the day and year first above written.
KHAN FUNDS
By_________________________________________
Title______________________________________
KHAN INVESTMENT INC.
___________________________________________
Title______________________________________
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KHAN FUNDS EXHIBIT 6
DISTRIBUTION AGREEMENT
This Distribution Agreement is made as of the ........ day of
................, 1996, between KHAN FUNDS, a Delaware business trust, (the
"Trust"), and KHAN INVESTMENT INC., a Texas corporation (the
"Distributor").
WHEREAS, the Trust proposes to engage in business as an open-end
management investment company and is registered as such under the Investment
Company Act of 1940 (the "1940 Act"), and it is in the interest of the Trust to
offer its shares for sale continuously; and
WHEREAS, the Distributor is registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended (the "1934 Act" ), and is a member
in good standing of the National Association of Securities Dealers, Inc. (the
"NASD"); and
WHEREAS, the Trust and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of the shares of capital
stock of all series of shares of the Trust (the Shares"), to commence after the
effectiveness of its initial registration statement filed pursuant to the
Securities Act of 1933, as amended (the "1933 Act" ), and the 1940 Act.
NOW, THEREFORE, the parties agree as follows:
1. APPOINTMENT OF DISTRIBUTOR. The Trust hereby appoints the
Distributor as its exclusive agent to sell and to arrange for the sale of the
Shares, on the terms and for the period set forth in this Agreement, and the
Distributor hereby accepts such appointment and agrees to act hereunder directly
and/or through the Trust's transfer agent in the manner set forth in the
Prospectus (as defined below). It is understood and agreed that the services of
the Distributor hereunder are not exclusive, and the Distributor may act as
principal underwriter for the shares of any other registered investment company.
2. SERVICES AND DUTIES OF THE DISTRIBUTOR.
(a) SALE OF SHARES. The Distributor agrees to devote
reasonable time and effort to effect sales of the Shares, as agent for the
Trust, from time to time during the term of this Agreement upon the terms
described in the Trust's Prospectus. As used in this Agreement, the term
"Prospectus" shall mean the prospectus (or prospectuses) and statement of
additional information included as part of the Trust's Registration Statement,
as such prospectus (or prospectuses) and statement of
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additional information may be amended or supplemented from time to time, and the
term "Registration Statement" shall mean the Registration Statement most
recently filed from time to time by the Trust with the Securities and Exchange
Commission and effective under the 1933 Act and the 1940 Act, as such
Registration Statement is amended by any amendments thereto at the time in
effect.
(b) RECEIPT AND TRANSMISSION OF ORDERS. Upon commencement
of the Trust's operations, the Distributor shall hold itself available to
receive orders, satisfactory to the Distributor, for the purchase of the Shares
and shall accept such orders and transmit such orders and funds received by it
in payment for such Shares as are so accepted to the Trust's transfer agent or
custodian, as appropriate, as promptly as practicable. Purchase orders shall be
deemed effective at the time and in the manner set forth in the Prospectus.
(c) OFFERING PRICE. The offering price of the Shares shall
be the net asset value per share of the Trust. The Trust shall furnish the
Distributor, with all possible promptness, with each computation of net asset
value.
3. DUTIES OF THE TRUST.
(a) MAINTENANCE OF FEDERAL REGISTRATION. The Trust shall,
at its expense, take from time to time all necessary action and such steps,
including payment of the related filing fees, as may be necessary to register
and maintain registration of a sufficient number of Shares under the 1933 Act.
The Trust shall file from time to time such amendments, reports and other
documents as may be necessary in order that there shall be no untrue statement
of a material fact in a Registration Statement or Prospectus, or necessary in
order that there shall be no omission to state a material fact in the
Registration Statement or Prospectus which omission would make the statements
therein misleading.
(b) MAINTENANCE OF "BLUE SKY" QUALIFICATIONS. The Trust
shall, at its expense, use its best efforts to qualify and maintain the
qualification of an appropriate number of Shares for sale under the securities
laws of such states as the Distributor and the Trust may approve, and, if
necessary or appropriate in connection therewith, to qualify and maintain the
qualification of the Trust as a broker or dealer in such states; provided that
the Trust shall not be required to amend its Declaration of Trust or By-Laws to
comply with the laws of any state, to maintain an office in any state, to change
the terms of the offering of the Shares in any state from the terms set forth in
its Prospectus, to qualify as a foreign corporation in any state or to consent
to service of process in any state other than with respect to claims arising out
of the offering and sale of the Shares. The Distributor shall furnish such
information and other material relating to its affairs and activities as may be
required by the Trust in connection with such qualifications.
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(c) COPIES OF REPORTS AND PROSPECTUS. The Trust shall, at
its expense, keep the Distributor fully informed with regard to its affairs and
in connection therewith shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Shares,
including such reasonable number of copies of its Prospectus and annual and
interim reports as the Distributor may request, and shall cooperate fully in the
efforts of the Distributor to sell and arrange for the sale of the Shares and in
the performance of the Distributor under this Agreement.
4. CONFORMITY WITH APPLICABLE LAW AND RULES. In selling
Shares hereunder the Distributor shall conform in all respects with the laws of
the United States and of any state in which Shares may be offered, and with
applicable rules and regulations of the NASD.
5. INDEPENDENT CONTRACTOR. In performing its duties
hereunder, the Distributor shall be an independent contractor and neither the
Distributor, nor any of its officers, directors, employees, or representatives,
is or shall be an employee of the Trust in the performance of the Distributor's
duties hereunder. The Distributor shall be responsible for its own conduct and
the employment, control, and conduct of its agents and employees and for injury
to such agents or employees or to others through its agents or employees. The
Distributor assumes full responsibility for its agents and employees under
applicable statutes and agrees to pay all employee taxes thereunder.
6. INDEMNIFICATION.
(a) INDEMNIFICATION OF TRUST. The Distributor shall
indemnify and hold harmless the Trust and each of its present or former
Trustees, officers, employees and representatives, and each person, if any, who
controls or previously controlled the Trust within the meaning of Section 15 of
the 1933 Act, against any and all losses, liabilities, damages, claims or
expenses (including the reasonable costs of investigating or defending any
alleged loss, liability, damage, claim or expense and reasonable legal counsel
fees incurred in connection therewith) to which the Trust or any such person may
become subject under the 1933 Act, under any other statute, at common law, or
otherwise, arising out of the acquisition of any Shares by any person which (i)
may be based upon any wrongful act by the Distributor or any of the
Distributor's directors, officers, employees or representatives, or (ii) may be
based upon any untrue statement or alleged untrue statement of a material fact
contained in a Registration Statement, Prospectus, shareholder report or other
information covering Shares filed or made public by the Trust or any amendment
thereof or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
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make the statements therein not misleading, if such statement or omission was
made in reliance upon information furnished to the Trust by the Distributor. In
no case (i) is the Distributor's indemnity in favor of the Trust, or any person
indemnified, to be deemed to protect the Trust or such indemnified person
against any liability to which the Trust or such person would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence in the
performance of his duties or by reason of his reckless disregard of his
obligations and duties under this Agreement or (ii) is the Distributor to be
liable under its indemnity agreement contained in this paragraph with respect to
any claim made against the Trust or any person indemnified unless the Trust or
such person, as the case may be, shall have notified the Distributor in writing
of the claim within a reasonable time after the summons or other first written
notification giving information of the nature of the claim shall have been
served upon the Trust or upon such person (or after the Trust or such person
shall have received notice of such service on any designated agent). However,
failure to notify the Distributor of any such claim shall not relieve the
Distributor from any liability which the Distributor may have to the Trust or
any person against whom such action is brought otherwise than on account of the
Distributor's indemnity agreement contained in this paragraph.
The Distributor shall be entitled to participate, at its
own expense, in the defense, or, if the Distributor so elects, to assume the
defense, of any suit brought to enforce any such claim, but, if the Distributor
elects to assume the defense, such defense shall be conducted by legal counsel
chosen by the Distributor and satisfactory to the Trust or to the persons
indemnified pursuant to the foregoing paragraph. In the event that the
Distributor elects to assume the defense of any such suit and retain such legal
counsel, the Trust, or the persons indemnified pursuant to the foregoing
paragraph, shall bear the fees and expenses of any additional legal counsel
retained by them. If the Distributor does not elect to assume the defense of any
such suit, the Distributor shall reimburse the Trust and the persons indemnified
pursuant to the foregoing paragraph for the reasonable fees and expenses of any
legal counsel retained by them. The Distributor shall promptly notify the Trust
of the commencement of any litigation or proceedings against it or any of its
officers, employees or representatives in connection with the issue or sale of
any Shares.
(b) INDEMNIFICATION OF THE DISTRIBUTOR. The Trust
shall indemnify and hold harmless the Distributor and each of its present or
former directors, officers, employees and representatives and each person, if
any, who controls the Distributor within the meaning of Section 15 of the 1933
Act, against any and all losses, liabilities, damages, claims or expenses
(including the reasonable costs of investigating or defending any alleged loss,
liability, damage, claim or expense and reasonable legal counsel fees incurred
in connection therewith) to which the Distributor or any such person may become
subject under the 1933 Act, under any
-4-
other statute, at common law, or otherwise, arising out of the acquisition of
any Shares by any person which (i) may be based upon any wrongful act by the
Trust or any of the Trust's Trustees, officers, employees or representatives
acting in such capacities, or (ii) may be based upon any untrue statement or
alleged untrue statement of a material fact contained in a Registration
Statement, Prospectus, shareholder report or other information covering Shares
filed or made public by the Trust, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, unless such statement or omission was made in reliance upon
information furnished to the Trust by the Distributor. In no case (i) shall the
Trust's indemnity in favor of the Distributor, or any person indemnified, be
deemed to protect the Distributor or such indemnified person against any
liability to which the Distributor or such person would otherwise be subject by
reason of willful misfeasance, bad faith, or gross negligence in the performance
of his duties or by reason of his reckless disregard of his obligations and
duties under this Agreement, or (ii) shall the Trust be liable under its
indemnity agreement contained in this Paragraph with respect to any claim made
against the Distributor or person indemnified unless the Distributor, or such
person, as the case may be, shall have notified the Trust in writing of the
claim within a reasonable time after the summons or other first written
notification giving information of the nature of the claim shall have been
served upon the Distributor or upon such person (or after the Distributor or
such person shall have received notice of such service on any designated agent).
However, failure to notify the Trust of any such claim shall not relieve the
Trust from any liability which the Trust may have to the Distributor or any
person against whom such action is brought otherwise than on account of the
Trust's indemnity agreement contained in this paragraph.
The Trust shall be entitled to participate, at its own expense,
in the defense, or, if the Trust so elects, to assume the defense of, any suit
brought to enforce any such claim, but if the Trust elects to assume the
defense, such defense shall be conducted by legal counsel chosen by the Trust
and satisfactory to the Distributor or to the persons indemnified pursuant to
the foregoing paragraph. In the event that the Trust elects to assume the
defense of any such suit and retain such legal counsel, the Distributor or the
persons indemnified pursuant to the foregoing paragraph shall bear the fees and
expenses of any additional legal counsel retained by them. If the Trust does not
elect to assume the defense of any such suit, the Trust shall reimburse the
Distributor and the persons indemnified pursuant to the foregoing paragraph for
the reasonable fees and expenses of any legal counsel retained by them. The
Trust shall promptly notify the Distributor of the commencement of any
litigation or proceedings against it or any of its directors, officers,
employees or representatives in connection with the issue or sale of any Shares.
-5-
7. AUTHORIZED REPRESENTATIONS. The Distributor is not authorized
by the Trust to give on behalf of the Trust any information or to make any
representations in connection with the sale of Shares other than the information
and representations contained in the Registration Statement or Prospectus or
contained in shareholder reports or other material that may be prepared by or on
behalf of the Trust for the Distributor's use. This shall not be construed to
prevent the Distributor from preparing and distributing tombstone ads and sales
literature or other material as it may deem appropriate. No person other than
the Distributor is authorized to act as principal underwriter (as such term is
defined in the 1940 Act) for the Trust.
8. TERM OF AGREEMENT. The term of this Agreement shall begin on
the date first above written, and unless sooner terminated as hereinafter
provided, this Agreement shall remain in effect
through............................. , 1998. Thereafter, this Agreement shall
continue in effect from year to year, subject to the termination provisions and
all other terms and conditions hereof, so long as such continuation shall be
specifically approved at least annually by the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Trust and, concurrently
with such approval by the Board of Trustees or prior to such approval by the
holders of the outstanding voting securities of the Trust, as the case may be,
by the vote, cast in person at a meeting called for the purpose of voting on
such approval, of a majority of the Trustees of the Trust who are not parties to
this Agreement or interested persons of any such party. The Distributor shall
furnish to the Trust, promptly upon its request, such information as may
reasonably be necessary to evaluate the terms of this Agreement or any
extension, renewal or amendment hereof.
9. AMENDMENT OR ASSIGNMENT OF AGREEMENT. This Agreement
constitutes the entire agreement of the parties with respect to the subject
matter hereof and may not be amended or assigned except as permitted by the 1940
Act.
10. TERMINATION OF AGREEMENT.
(a) This Agreement may be terminated by either party
hereto without the payment of any penalty, on not more than upon 60 days' nor
less than 30 days' prior notice in writing to the other party; provided, that in
the case of termination by the Trust such action shall have been authorized by
resolution of a majority of the Trustees of the Trust who are not parties to
this Agreement or interested persons of any such party, or by vote of a majority
of the outstanding voting securities of the Trust. This Agreement shall
automatically and immediately terminate in the event of its assignment.
-6-
11. MISCELLANEOUS.
(a) The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(b) Nothing herein contained shall be deemed to require
the Trust to take any action contrary to its Declaration of Trust or By-Laws, or
any applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of Trustees of the Trust
of responsibility for and control of the conduct of the affairs of the Trust. No
Trustee, officer, employee or agent of the Trust shall be subject to any
personal liability whatsoever, in his or her official or individual capacity, to
any person, including the Distributor, other than the Trust or its shareholders,
in connection with the property or affairs of the Trust, save only that arising
from his or her bad faith, willful misfeasance, gross negligence or reckless
disregard of his or her duty to such person; and all such persons shall look
solely to the Trust property for satisfaction of claims of any nature against a
Trustee, officer, employee or agent of the Trust property for satisfaction of
claims of any nature against a Trustee, officer, employee or agent of the Trust
arising in connection with the affairs of the Trust. Moreover, the debts,
liabilities, obligations and expenses incurred, contracted for or otherwise
existing with respect to a series of the Trust shall be enforceable against the
assets and property of such series only, and not against the assets and property
of any other series of the Trust.
12. DEFINITION OF TERMS. Any question of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the 1940 Act shall be resolved by reference to such
term or provision of the 1940 Act and to interpretations thereof, if any, by the
United States courts or, in the absence of any controlling decision of any such
court, by rules, regulations or orders of the Securities and Exchange Commission
validly issued pursuant to the 1940 Act. Specifically, the terms "vote of a
majority of the outstanding voting securities", "interested persons",
"assignment" and "affiliated person", as used in Paragraphs 8, 9 and 10 hereof,
shall have the meanings assigned to them by Section 2 (a) of the 1940 Act. In
addition, where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is modified by a rule, regulation or order of the
Securities and Exchange Commission, whether of special or of general
application, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
13. COMPLIANCE WITH SECURITIES LAWS. The Trust represents that it
is registered as an open-end management investment company under the 1940 Act,
-7-
and agrees that it will comply with all the provisions of the 1940 Act and of
the rules and regulations thereunder. The Trust and the Distributor each agree
to comply with all of the applicable terms and provisions of the 1940 Act, the
1933 Act and, subject to the provisions of Section 4(d), all applicable Blue Sky
laws. The Distributor agrees to comply with all of the applicable terms and
provisions of the 1934 Act and all rules of NASD.
14. NOTICES. Any notice required to be given pursuant to this
Agreement shall be deemed duly given if delivered or mailed by registered mail,
postage prepaid, to the Trust or the Distributor at 714 FM 1960 West Suite 201,
Houston, Texas 77090.
15. GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of the State of Texas, without reference to
principles of conflicts of law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized representatives and their respective seals to be
hereunto affixed, as of the day and year first above written.
KHAN FUND
By: ............................................................
KHAN INVESTMENT INC.
By: ............................................................
-8-
EXHIBIT 9
KHAN FUND
ADMINISTRATION AGREEMENT
THIS ADMINISTRATION AGREEMENT is made this........day
of........................, 1996, by and between KHAN FUNDS (the "Trust" ), a
trust organized under the laws of the State of Delaware, and KHAN INVESTMENT
INC. (the "Administrator"), a Texas corporation.
WITNESSETH:
In consideration of the mutual promises and agreements herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
1. IN GENERAL.
The Trust hereby appoints Khan Investment Inc. as Administrator, subject
to the overall supervision of the Board of Trustees of the Trust, for the period
and on the terms set forth in this Agreement. The Administrator hereby accepts
such appointment and agrees during such period to render the services herein
described and to assume the obligations set forth herein, for the compensation
herein provided.
2. DUTIES AND OBLIGATIONS OF THE ADMINISTRATOR.
(a) Subject to the direction and control of the Board of Trustees
of the Trust, the Administrator shall be responsible for providing such
administrative services as the Trustees may reasonably request, including but
not limited to (i) maintaining the Trust's books and records (other than
financial or accounting books and records maintained by any investment advisor,
custodian, transfer agent or accounting services agent); (ii) overseeing the
Trust's insurance relationships; (iii) preparing for the Trust (or assisting
counsel and/or auditors in the preparation of) all required tax returns, proxy
statements and reports to the Trust's shareholders and Trustees, and reports to
and other filings with the Securities and Exchange Commission and any other
governmental agency (the Trust agreeing to supply or cause to be supplied to the
Administrator all necessary financial and other information in connection with
the foregoing); (iv) preparing such applications and reports as may be necessary
to register or maintain the Trust's registration and/or the registration of the
shares of the Trust under the securities or "blue sky" laws of the various
states selected by the Trust (the Trust agreeing to pay all filing fees or ether
similar fees in connection therewith); (v) responding to all inquiries or other
communications of shareholders, if any, which are directed to the Administrator,
or if any such inquiry or communication is more properly to be responded to by
the Trust's custodian,
-1-
transfer agent or accounting services agent, overseeing their response thereto;
(vi) overseeing all relationships between the Trust and any custodians, transfer
agents and accounting services agents, including the negotiation of agreements
and the supervision of the performance of such agreements; and (vii) authorizing
and directing any of the Administrator's directors, officers and employees who
may be elected as Trustees or officers of the Trust to serve in the capacities
in which they are elected. All services to be furnished by the Administrator
under this Agreement may be furnished through the medium of any such directors,
officers or employees of the Administrator.
(b) In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties ("disabling conduct")
hereunder on the part of the Administrator (and its officers, directors, agents,
employees, controlling persons, shareholders and any other person or entity
affiliated with the Administrator) the Administrator shall not be subject to
liability to the Trust or to any shareholder of the Trust for any act or
omission in the course of, or connected with, rendering services hereunder,
including, without limitation, any error of judgment or mistake of law, or for
any loss suffered by any of them in connection with the matters to which this
Agreement relates, except to the extent specified in Section 36(b) of the
Investment Company Act of 1940 (the "Act") concerning loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation for
services. Except for such disabling conduct, the Trust shall indemnify the
Administrator (and its officers, directors, agents, employees, controlling
persons, shareholders and any other person or entity affiliated with the
Administrator) from any liability arising from the Administrator's conduct under
this Agreement to the extent permitted by the Trust's Declaration of Trust and
applicable law.
(c) The Administrator shall have no responsibility or liability
for the accuracy or completeness of the Trust's Registration Statement under the
Act except for information supplied by the Administrator for inclusion therein.
3. ALLOCATION OF EXPENSES.
The Administrator shall furnish the Trust, at the Administrator's
expense, with all office space and facilities, and equipment and clerical
personnel necessary for carrying out its duties under this Agreement. The
Administrator shall also pay all compensation of all Trustees, officers and
employees of the Trust who are affiliated persons of the Administrator. All
costs and expenses not expressly assumed by the Administrator under this
Agreement shall be paid by the Trust, including, but not limited to (i) interest
and taxes; (ii) brokerage fees and commissions; (iii) insurance premiums; (iv)
compensation and expenses of the Trust's Trustees other than those affiliated
with the Advisor or the Administrator; (v) legal and auditing fees and expenses;
(vi) fees and expenses of the Trust's custodian, transfer agent and accounting
services agent; (vii) expenses incident to the issuance of the Trust's shares,
-2-
including issuance on the payment of, or reinvestment of, dividends; (viii) fees
and expenses incident to the registration under Federal or state securities laws
of the Trust or its shares; (ix) expenses of preparing, printing and mailing
reports and notices and proxy material to shareholders of the Trust; (x) all
other expenses incidental to holding meetings of the Trust's shareholders; (xi)
dues or assessments of or contributions to the Investment Company Institute or
any successor; (xii) such non-recurring expenses as may arise, including
litigation affecting the Trust and the legal obligations which the Trust may
have to indemnify its officers and Trustees with respect thereto; and (xiii)
organization costs of the Trust.
4. COMPENSATION OF THE ADMINISTRATOR.
The Trust agrees to pay the Administrator and the Administrator agrees
to accept, as full compensation for all services rendered by the Administrator
as such, an annual fee, payable monthly, computed on the value of the net assets
of the Trust as of the close of business each business day at the annual rate of
0.25% of 1% of such net assets of the Trust.
5. DURATION AND TERMINATION.
(a) This Agreement shall become effective on the date set forth
above and shall remain in force for two years thereafter unless terminated
pursuant to the provisions of paragraph (b) hereof. This Agreement shall
continue in force from year to year after the initial two-year term, but only so
long as such continuance is specifically approved annually by the Trust's Board
of Trustees.
(b) This Agreement may be terminated by the Administrator at any
time without penalty upon giving the Trust not less than sixty (60) days'
written notice (which notice may be waived by the Trust), and may be terminated
by the Trust at any time without penalty upon giving the Administrator no less
than sixty (60) days' written notice (which notice may be waived by the
Administrator), provided that such termination by the Trust shall be directed or
approved by the vote of a majority of all of its Trustees in office at the time.
6. RECORDS.
(a) The Administrator shall maintain all books and records with
respect to the securities transactions of the Trust, keep books of account with
respect to the Trust and furnish the Board of Trustees of the Trust with such
periodic and special reports as the Board may request.
-3-
(b) The Administrator shall treat confidentially and as
proprietary information of the Trust all records and other information relative
to the Trust and shareholders of the Trust ("Investors") or those persons or
entities who respond to inquiries concerning investment in the Trust, and shall
not use such records and information for any purpose other than performance of
its responsibilities and duties hereunder or under any other agreement with the
Trust except after prior notification to and approval in writing by the Trust,
which approval will not be unreasonably withheld and may not be withheld where
the Administrator may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Trust.
(c) In compliance with the requirements of Rule 31a-3 under the
Investment Company Act of 1940, the Administrator agrees that all records which
it maintains for the Trust are the property of the Trust and further agrees to
surrender promptly to the Trust any such records upon the Trust's request. In
addition, the Advisor agrees to preserve for the periods prescribed by Rule
31a-2 under the 1940 Act the records required to be maintained by it under Rule
31a-1 under the Investment Company Act of 1940.
7. MISCELLANEOUS.
(a) This Agreement constitutes the entire agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the subject matter hereof. No provision of this
Agreement may be changed, waived, discharged or terminated orally, but only by
an instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
(b) No Trustee, officer, employee or agent of the Trust shall be
subject to any personal liability whatsoever, in his or her official or
individual capacity, to any person, including the Administrator, other than the
Trust or its shareholders, in connection with the property or affairs of the
Trust, save only that arising from his or her bad faith, willful misfeasance,
gross negligence or reckless disregard of his or her duty to such person; and
all such persons shall look solely to the Trust property for satisfaction of
claims of any nature against a Trustee, officer, employee or agent of the Trust
arising in connection with the affairs of the Trust. Moreover, the debts,
liabilities, obligations and expenses incurred, contracted for or otherwise
existing with respect to any series of the Trust shall be enforceable against
the assets and property of such series only, and not against the assets and
property of any other series of the Trust.
-4-
(c) This Agreement will be binding upon and will inure to the
benefit of the parties hereto and their respective successors and will be
governed by the internal laws, and not the law of conflicts of laws, of the
State of Texas; provided that nothing herein will be construed in a manner
inconsistent with the Investment Company Act of 1940, the Investment Advisers
Act of 1940, as amended, or any rule or regulation of the Securities and
Exchange Commission thereunder.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing
instrument to be executed by duly authorized persons as of the day and year
first above written.
KHAN FUNDS
By:............................................................
KHAN INVESTMENT INC.
By:............................................................
-5-
EXHIBIT 19
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints Sardar Khan and Shahwar Khan, and each of them acting alone, as his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement of Khan Funds, a Delaware
business trust, on Form N-1A under the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, and any or all amendments
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all said attorney-in-fact and agent may
lawfully do or cause to be done by virtue hereof.
DATED: September 1, 1996
/s/ CHARLES E. MOORE
Charles E. Moore
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints Sardar Khan and Shahwar Khan, and each of them acting alone, as his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement of Khan Funds, a Delaware
business trust, on Form N-1A under the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, and any or all amendments
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all said attorney-in-fact and agent may
lawfully do or cause to be done by virtue hereof.
DATED: September 1, 1996
/s/ SHEHZAD D. KHAN
Shehzad D. Khan
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints Sardar Khan and Shahwar Khan, and each of them acting alone, as his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement of Khan Funds, a Delaware
business trust, on Form N-1A under the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, and any or all amendments
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all said attorney-in-fact and agent may
lawfully do or cause to be done by virtue hereof.
DATED: September 1, 1996
/s /M.R. MALIK
M.R. Malik
<PAGE>
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