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As filed with the Securities and Exchange Commission on September 27, 1996
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
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PLYMOUTH COMMERCIAL MORTGAGE FUND
(Exact name of registrant as specified in its charter)
DELAWARE 74-6439983
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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13333 BLANCO ROAD, SUITE 314 78216-7756
SAN ANTONIO, TEXAS
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(210) 493-3971
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Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
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(NONE) (NOT APPLICABLE)
Securities to be registered pursuant to Section 12(g) of the Act:
COMMON SHARES OF BENEFICIAL INTEREST, NO PAR VALUE
(Title of class)
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ITEM 1. BUSINESS.
THE COMPANY
ORGANIZATION
Plymouth Commercial Mortgage Fund (the "Company" or "Plymouth") was
organized as a business trust under the laws of the State of Delaware on
August 23, 1996. The Company is a closed-end management investment company.
Simultaneously with its initial filing of this registration statement for its
common shares of beneficial interest, no par value ("Shares"), pursuant to
section 12(g) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), the Company has also filed a "Notification of Election to Be Subject to
Sections 55 through 65 of the Investment Company Act of 1940" on Form N-54A
pursuant to section 54(a) of the Investment Company Act of 1940, as amended
(the "1940 Act"), to be regulated as a business development company (a "BDC")
under the 1940 Act. The Company may not change the nature of its business so
as to cease to be, or withdraw its election as, a BDC unless authorized by
"the vote of a majority of its outstanding voting securities" as defined in
the 1940 Act.
Plymouth's operations began on September __, 1996 with the
acquisition of all of the interests in SWF 1995 Limited Partnership, a Texas
limited partnership ("SWF-95"), through an offer made to SWF-95's investors to
exchange their equity and subordinated debt interests for Shares of Plymouth
(the "Exchange Offer"). SWF-95 was subsequently dissolved, and its assets are
now held directly either by the Company or by Plymouth REO, Inc., a Delaware
corporation ("REO Subsidiary"), a wholly-owned subsidiary of the Company.
For working capital purposes, the Company has arranged to borrow up
to $250,000 from SouthWest Federated Holding Company, Inc., a Delaware
corporation ("SouthWest Holding"), which is the sole parent of SouthWest
Federated, Inc., a Texas corporation ("SWFI"), the sole general partner of
SWF-95. As an incentive to make the loan, Plymouth also issued to SouthWest
Holding transferable warrants to purchase up to 200,000 Shares at $10 per
Share, which expire ten years from the date of issuance, and transferable
rights to subscribe to 50,000 Shares at the greater of net asset value or $10
per Share, which expire eight months from the date of issuance. Unlike the
rights to subscribe, which are exercisable immediately, the warrants become
exercisable upon the occurrence of certain conditions. Among these are a
condition that the Company raise a minimum of $10 million in new equity at a
price of at least $15 per Share and $20 per Share (in order to be able to
exercise warrants for 150,000 Shares and 50,000 Shares, respectively) within
three years after the consummation of the first sale of any class of newly
issued shares of beneficial interest in Plymouth for cash consideration
subsequent to the date of issuance of such warrants (the "Subsequent
Offering").
BUSINESS
The Company's investment objective is to achieve a high level of
current income. It will seek to achieve this objective by acquiring,
restructuring and collecting impaired loans primarily made to small businesses
and secured by commercial real estate. These loans typically are offered in
packages containing up to 20 individual loans through auctions that attract
buyers nationwide. Sellers include entities such as the Federal Deposit
Insurance Corporation (the "FDIC"), banks, savings and loans, insurance
companies and other institutions. The Company's investments in loan packages
will be directed by Emerald Advisers, Inc., a Delaware corporation (the
"Adviser"), the Company's investment adviser.
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Generally, a loan is considered impaired when based on current
information and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement unless the borrower receives material assistance. While several
types of impaired loans are available for purchase, Plymouth's portfolio will
be concentrated on impaired loans secured by commercial real estate. Because
these loans are secured, the cost to purchase such loans typically is higher
than for unsecured loans, but the opportunity to recover the cost and a profit
is usually more predictable. For both financial and regulatory reasons,
commercial banks, through the FDIC or directly, make these loans available in
packages which typically cost more than $1 million each. Quite often this
market for impaired loans offers creditors the only alternative to foreclosure.
Plymouth will purchase packages for an amount less than outstanding principal
and interest, and the Company intends to generate income by recovering more
than its cost in such packages through several resolution strategies including
debt forgiveness, revised terms and foreclosure (collectively, "resolve").
Typically an entire loan package can be resolved within 18 months of purchase.
Once a loan package is purchased, the borrowers are contacted with
the objective of confirming which manner of resolution is most appropriate.
If a borrower is able to repay or refinance the loan, then a price will be
negotiated that represents a discount to the contractual outstanding loan
balance and a premium to Plymouth's cost. Alternatively, should the borrower
not be able to fully repay a reduced amount, Plymouth's first objective will
be to restructure the loan to provide for monthly payments of principal and
interest. In the event a loan is restructured, it is the Company's intention
that the loan be sold to a third party after the borrower has established a
history of regular monthly payments. In the event a repayment or
restructuring of the loan is not possible, the collateral will be foreclosed
upon.
MANAGERIAL ASSISTANCE
The 1940 Act requires that a BDC "make available significant
managerial assistance" with respect to the issuers of notes representing at
least 70 percent of the value of the BDC's investment assets (i.e., its total
assets less "noninvestment assets necessary and appropriate to its operations
as a [BDC]"). In this regard, the 1940 Act defines "making available
significant managerial assistance" as "any arrangement whereby a [BDC],
through its directors, officers, employees, or general partners, offers to
provide, and, if accepted, does so provide, significant guidance and counsel
concerning the management, operations, or business objectives and policies of
a portfolio company."
Upon acquiring each newly purchased note, Plymouth will contact the
management of the small business borrower offering to assist the borrower
first by restructuring the loan and then by assisting the borrower to find a
third-party lender from which refinancing could be obtained.
SOURCES FOR THE ACQUISITION OF LOANS
Through previous business activity, the principals of the Adviser
have developed long-standing relationships with a large number of sellers of
impaired loans and intermediaries in various states who may or may not have a
contractual relationship with the Adviser. Any loan offered for sale to the
Company is evaluated by the Adviser using guidelines established by the
Company's board of trustees (the "Board of Trustees"). Loans are typically
offered in packages of up to 15 loans at sealed-bid auctions. If and when a
loan offered by an intermediary is purchased, the intermediary is typically
compensated by the seller of the loan.
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TEMPORARY INVESTMENTS
The Company intends to be fully invested at all times in impaired
loans. However, to the extent it has uninvested cash, it anticipates
investing such assets in U.S. government- or agency-issued or guaranteed
securities typically backed by the full faith and credit of the United States
or other high-grade short-term debt securities. The Board of Trustees will
establish policies for investment of uninvested cash that will emphasize low
risk and short-term maturities.
BORROWING
For the purpose of making investments and to take advantage of the
difference between favorable interest rates available from lenders and the
expected rates of return from purchased loans, the Company intends to borrow
from Comerica Bank-Texas, a state banking association ("Comerica"), in amounts
not to exceed the maximum amount permitted by the 1940 Act for a BDC ("Credit
Facility"). See "BDC Limitations."
The Credit Facility is secured by a perfected first security interest
in substantially all of the Company's assets. The interest rate is based upon
average borrowings under this facility. The interest rate on the Credit
Facility is prime plus 1.5% based on average outstanding borrowings of up to
$2.5 million for the previous quarter, prime plus 1.0% based upon average
outstandings of between $2.5 millon and $5.0 million for the previous quarter,
and prime plus 1/2% based upon average outstandings of more than $5.0 million
for the previous quarter. Comerica's prime rate was 8.25% on September 15,
1996. Terms of the Credit Facility include periodic third party appraisal of
the assets, a lock box for receipt of payments, custody by Comerica of primary
collateral, certain other fee payments, and loan covenants that may be
difficult to maintain at all times.
The Credit Facility allows the Company to borrow up to a maximum of
$2.5 million prior to completion of the Offering. The outstanding balance
owed by the Company to Comerica on September __, 1996 was $____________. Upon
completion of the Offering, the Company may increase its borrowings to $10.0
million. The Credit Facility expires on September __, 1998. The Company may
borrow up to 60% of the net cost of a note with base curtailments according to
the amount of time that Plymouth has held the loan, as shown in the schedule
below:
<TABLE>
<CAPTION>
Age of Note Receivable Maximum Advance
---------------------- ---------------
<S> <C>
0 to 6 months . . . . . . . . . . . . . . . . . . . . . 60% of net cost
6 to 9 months . . . . . . . . . . . . . . . . . . . . . 48% of net cost
9 to 12 months . . . . . . . . . . . . . . . . . . . . . 45% of net cost
12 to 15 months . . . . . . . . . . . . . . . . . . . . 42% of net cost
15 to 18 months . . . . . . . . . . . . . . . . . . . . 32% of net cost
18 to 21 months . . . . . . . . . . . . . . . . . . . . 24% of net cost
21 to 24 months . . . . . . . . . . . . . . . . . . . . 18% of net cost
after 24 months . . . . . . . . . . . . . . . . . . . . 0% of net cost
</TABLE>
The availability of borrowing under the Credit Facility is reduced as
the loan ages. Accordingly, if the Company is not successful in collecting a
loan within 24 months of purchase, the Credit Facility will not allow the
Company to borrow against that note. If the Company is not able to collect a
significant portion of notes purchased within 24 months, the Company may not
be able to reduce the Credit Facility to a level necessary to be in compliance
with this provision of the Credit Facility's loan agreement.
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The Company cannot purchase a loan or loans from any one borrower
where the cost exceeds $1.5 million, without prior approval from Comerica.
Additionally, non-mortgage secured notes and unsecured notes cannot exceed 10%
of the net cost of the Company's portfolio at any given time. The Company
will be required to pay a 0.75% commitment fee based on the average unused
portion of the facility, paid quarterly in arrears. All advances under the
Credit Facility are subject to Comerica's discretion and Comerica's continued
satisfaction with the Company's business and financial condition and
operations at all times during the duration of the facility, and no material
adverse change in the business, operations or condition (financial or
otherwise) of the Company having occurred. The terms of the Credit Facility
include numerous affirmative covenants and negative covenants that are
standard for loans of this nature but which may be difficult to comply with at
all times. A copy of the Credit Facility's loan agreement is available from
the Company upon request.
INVESTMENT ADVISER
Subject to the terms of an investment advisory agreement dated
September __, 1996 (the "Agreement"), and the supervision and control of its
Board of Trustees, the investments of the Company will be directed by the
Adviser. The Adviser currently has seven professionals and it expects to hire
additional professionals during the Company's first twelve months of
operation. The Adviser is registered with the SEC under the Investment
Advisers Act of 1940, as amended (the "Advisers Act"), and is located at 13333
Blanco Road, Suite 314, San Antonio, Texas 78216-7756.
OPERATIONS. The principals of the Adviser have extensive experience
in purchasing and resolving impaired loans. Since 1989, Robert R. Swendson,
the Adviser's president, and other personnel of the Adviser have been
acquiring and resolving impaired loans for several different entities,
including SWF-95. These entities have invested approximately $17 million to
purchase approximately $175 million in outstanding principal balance in a
variety of loan types and qualities. The difference between the amount
invested and the face amount of the loans reflects the deep discounts at which
impaired loans tend to be priced. Since 1989, Mr. Swendson has purchased
impaired loans with a wide range of quality. Initially, purchases focused on
unsecured loans, but as that market became more competitive and returns
declined, the focus changed to the purchase of impaired loans secured by
commercial real estate. In the past year, principals of the Adviser who were
employed by SWFI have purchased for several related entities, including
SWF-95, approximately $8 million in impaired loans principally secured by
commercial real estate, from which total collections of approximately $11
million are anticipated. Success is attributed to thorough due diligence prior
to making bids for loan packages, experienced and patient negotiations with
borrowers and careful monitoring of payments from individual borrowers.
Principals of the Adviser currently provide advice to Plymouth and
several other entities holding investments similar to those in which the
Company will invest. However, during the initial term of the Agreement which
extends for two years from the date of its execution, the Adviser has
committed to provide investment advice on new purchases solely to the Company.
These individuals will continue to collect and resolve existing investments of
the other entities, although it is anticipated that the majority of this
activity will be completed within 12 months.
OWNERSHIP. All of the shares of the Adviser are owned by Robert R.
Swendson, and the Adviser has outstanding no options, warrants or convertible
equity securities of any nature. It is anticipated that certain personnel of
the Adviser may be allowed at some point to participate in ownership of the
Adviser.
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INVESTMENT ADVISORY AGREEMENT. The Company will enter into an
investment advisory agreement with the Adviser immediately after completing
the Exchange Offer. By its terms, the Agreement initially will remain in
effect for two years and from year to year thereafter as long as it is
annually approved by the Board of Trustees, including a majority of the
Trustees who are not "interested persons" of the Company within the meaning of
the 1940 Act, or by vote of a majority of the outstanding voting securities of
the Company within the meaning of the 1940 Act. Pursuant to the Agreement,
the Adviser will direct the investments of the Company, subject to the
supervision, control and policies of the Company's Board of Trustees.
Specifically, the Adviser will identify, evaluate, resolve and monitor the
investments made by the Company.
Under the Agreement, the Company will be required to pay certain
expenses incurred by it in connection with its operation. In general, the
Company will pay all of its operating expenses, except those specifically
required to be borne by the Adviser under the Agreement. The latter includes
the cost of office space, telephone, equipment and personnel required to
satisfy its obligations under the Agreement. Expenses borne by the Company
include all expenses of any offering and sale by the Company of its Shares;
the fees and disbursements of the Company's outside legal counsel and
accountants and the custodian of its investments; fees and expenses incurred
in producing and effecting filings with federal and state securities
administrators; costs of communications to shareholders; fees and expenses of
members of the Company's Board of Trustees who are not directors, officers or
employees of the Adviser; premiums for the fidelity bond maintained by the
Company; and all costs related to portfolio investments including, without
limitation, financing costs, legal and accounting fees, other professional or
technical fees, related expenses incurred in acquiring, monitoring,
negotiating, maintaining, and effecting disposition of such investments (such
as, credit reports, title searches and delivery charges, property taxes,
insurance premiums, long-distance telephone charges, costs of specialized
consultants such as accountants or industry-specific technical experts, and
travel expenses), and expenses incurred in responding to any litigation
arising therefrom. The Company will pay the Adviser promptly for any expenses
required to be borne by the Company.
Pursuant to the Agreement, the Company will earn a monthly management
fee, payable on the 15th day of the following month, calculated at the annual
rate of 5.94% of the Company's invested assets and 0.48% of its cash and short
term investments. Asset values will be those established by the Board of
Trustees using generally accepted accounting practices. For purposes of
calculating the fee, invested assets at the end of each month will be defined
as the value of all the Company's assets as determined by the Board of
Trustees as of the end of the previous fiscal quarter minus cash, short-term
investments, intangible assets, and the amount of collections applied to the
carrying value of the loan portfolio since the end of the previous quarter,
plus the cost of loans purchased and capitalized items since the end of the
previous quarter. The percentage of assets being charged by the Adviser is
substantially higher than that paid by most investment companies because of
the efforts and resources associated with identifying, evaluating, purchasing,
renegotiating and collecting non-performing and sub-performing loans.
BDC LIMITATIONS
The Company is filing this registration statement for the Shares
under the 1934 Act in order to be eligible to make an election to be regulated
as a BDC pursuant to section 54 of the 1940 Act. Such an election is
necessary to obtain federal income tax treatment as a regulated investment
company and, thereby, maximize current income and capital gains to the
Company's shareholders. The election to be regulated as a BDC imposes certain
limitations upon the operations of the Company.
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Under the 1980 Amendments, a BDC may not acquire any asset other than
Qualifying Assets unless, at the time the acquisition is made, Qualifying
Assets represent at least 70% of the value of the BDC's total assets. The
principal categories of Qualifying Assets relevant to the business of the
Company are the following:
(1) Securities purchased in transactions not involving any public
offering from the issuer of such securities, which issuer is an eligible
portfolio company. An eligible portfolio company is defined in the 1980
Amendments as any issuer that:
(a) is organized under the laws of, and has its principal
place of business in, the United States;
(b) is not an investment company; and
(c) does not have any class of securities with respect to
which a broker may extend margin credit.
The Company may purchase the securities of a small business issuer
from a third party, if the issuer is unable to meet its current obligations as
they come due without material assistance other than conventional lending or
financing arrangements. The Company plans to purchase the non-performing
obligations of small business issuers from various third-party sources and
restructure these securities as described under Item 1, above.
(2) Cash, cash items, Government securities or high quality debt
securities maturing in one year or less from the time of investment.
In addition, a BDC must have been organized (and have its principal
place of business) in the United States for the purpose of making investments
in the types of securities described in (1) above and, in order to count the
securities as a Qualifying Asset for the purpose of the 70% test, the BDC must
make available to the issuer of the securities "significant managerial
assistance." Making available significant managerial assistance means, among
other things, any arrangement whereby the BDC, through its Trustees, officers
or employees, offers to provide and, if accepted, does so provide significant
guidance and counsel concerning the management, operations or business
objectives and policies.
With respect to the degree of leverage in its capital structure, a
BDC may not issue any class of senior security representing an indebtedness,
or sell any senior security representing an indebtedness of which it is the
issuer unless, immediately after such issuance or sale, it will have an "asset
coverage" of at least 200 percent. "Asset coverage" of a class of senior
security representing an indebtedness of an issuer means the ratio which the
value of the total assets of such issuer, less all liabilities and
indebtedness not represented by senior securities, bears to the aggregate
amount of senior securities representing indebtedness of such issuer.
Under the 1980 Amendments, once the Company has elected to be
regulated as a BDC, it may not change the nature of its business so as to
cease to be, or withdraw its election as, a BDC unless authorized by the vote
of a majority of the outstanding voting securities of the Company within the
meaning of the 1940 Act.
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EMPLOYEES
The Company has no employees, as all of its officers are employed by,
and receive their cash compensation from, the Adviser for investment advisory
and other investment management services provided to the Company.
ITEM 2. FINANCIAL INFORMATION.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company has no historical performance for management to discuss
and analyze. The future success of the Company is highly uncertain and
depends upon the following factors, among others.
No Operating History or Investment Record. The Company is newly
organized and, with the exception of certain loans held by the Company or the
REO Subsidiary as a result of the consummation of the Exchange Offer, has not
yet purchased any loans nor has it identified any specific loans that it
proposes to purchase. Plymouth will commence operations only after the
Exchange Offer is completed and will not purchase any new loans until it
raises at least the minimum capital from the proposed Subsequent Offering.
Moreover, shareholders will not have the opportunity to individually evaluate
the economic, financial and other information that will be used by the Adviser
and the Board of Trustees in the selection, evaluation, structuring,
monitoring and disposition of loans. Accordingly, an investor in Shares of the
Company must rely upon the ability of the Adviser to identify, acquire,
restructure and collect loans consistent with the Company's investment
objective and policies. It is also expected that after completion of the
Subsequent Offering the Company may take up to two years to become fully
invested in loans.
Dependence on Management. The Company will be wholly dependent on
the diligence and skill of the Adviser for the selection, acquisition,
monitoring and collection of its loan investments. The management of the
Adviser, in turn, believes that the ability and experience of Robert R.
Swendson and Lon A. Critchfield are critical to its success. Neither of these
officers has an employment contract with the Adviser. The loss to the Adviser
of one or both of these officers could have a material adverse effect on the
Company's performance.
Leverage. The Company intends to borrow funds from, and issue senior
debt securities to, banks, insurance companies or other lenders up to the
limit permitted by the 1940 Act or other applicable laws or agreements. The
ability of the Company to achieve its investment objective depends in part on
its ability to obtain debt financing on favorable terms and there can be no
assurance that such debt financing can in fact be obtained. When such
borrowings are incurred, the lenders of these funds will have fixed dollar
claims on the Company's assets superior to the claims of the Company's
shareholders. Any increase in the value of the Company's loan investments
would cause shareholders' net asset value to increase more than it would had
the borrowings not been incurred. Decreases in the value of the loan
investments below their value at the time of acquisition, however, would cause
the shareholders' net asset value to decline more sharply than it would had
the borrowings not been incurred. Similarly, any increase in the Company's
rate of income in excess of interest payable on the borrowed funds would cause
its net income to increase more than it would without the leverage, while any
decrease in rate of income would cause net income to decline more
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than it would had the funds not been borrowed and invested. Additionally, the
Company's lenders may require the Company to comply with certain terms and
conditions that restrict the Company's ability to act. Failure to comply
could result in default and acceleration by the lender of the Company's debt
obligations. Additionally, these terms and conditions in certain
circumstances may prohibit the Company from making the distributions required
to comply with Subchapter M of the Code. Interest rates could also rise
significantly, thus increasing the cost of borrowed funds to the Company and
adversely affecting the financial return to shareholders.
Supply and Prices of Loan Packages. There is no assurance that the
Company will be the successful bidder for any loan packages. Additionally,
there is no guarantee that loans will continue to be offered for bid by the
FDIC or other financial entities. If the Company is unable to invest the
offering proceeds in loans, shareholders will have no opportunity to achieve a
return on their investment, the Company might be dissolved, and such funds as
are available, together with such earnings as may have been obtained thereon,
would be distributed to the shareholders in accordance with their respective
share ownership. This amount may be less than the value of the interests
originally exchanged by shareholders because of the expenses of both the
Exchange Offer and Subsequent Offering and operating expenses associated with
evaluating and bidding on loan packages.
Risks Regarding Restructuring of Impaired Loans. The Company's
anticipated business operations include the renegotiation or restructuring of
impaired loans that it may purchase or otherwise acquire. There can be no
assurance that the Company will be able to restructure such loans, that the
terms on which a borrower may be willing to restructure any such loan will be
acceptable to the Company, or that the borrower will not default on a
restructured loan. There also can be no assurance that other creditors will
not commence bankruptcy or insolvency proceedings against the borrower or that
borrowers will not seek protection from creditors, which may impose other
obstacles to, or delay substantially, any eventual loan restructuring that may
occur. Such delays or refusals to restructure loans on terms acceptable to the
Company may impact adversely the financial results of the Company. In the
event that any loan cannot be restructured, the Company may be required to
hold the loan and incur a loss upon default, or upon disposition of such loan
at a significant loss, as there is no established trading market in which such
loans are sold.
Subsequent Offering. For the Company to be of a size to operate
efficiently, total equity capitalization of approximately $10 million is
desirable. After the Exchange Offer, the Company expects to have about $2.0
million of equity capital. Through another private offering of newly issued
Shares (the "Subsequent Offering"), the Company intends to raise, on a best
efforts basis, a minimum of $8.0 million before expenses through the sale of
Shares at $10.00 per Share. The Subsequent Offering will not close until
Plymouth has received certain "no-action" relief from the SEC. If the
Subsequent Offering does not close, the Company may pursue one or more of a
number of options, including ceasing the purchasing of loans.
Requested SEC Relief. The Company has requested certain relief from
the SEC which would assure the Company that its operations are consistent with
the special requirements for BDCs under the 1940 Act. While the Company
believes that the requested relief will be granted, there is a possibility
that it may not. If the relief is not granted, the Company could not operate
as a BDC, and the Board of Trustees would be required to consider an alternate
course which may include a number of options, including ceasing the purchasing
of loans.
Non-registration/Illiquidity. There is no current market for the
Shares nor is one expected to develop in the near future. The Shares have not
been registered under the 1933 Act or registered or
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qualified under the securities or "blue sky" laws of any state. These Shares
are being exchanged in reliance on exemptions from registration under section
4(2) of the Securities Act, and no such registration or qualification is
contemplated. Non-registration makes the Shares extremely illiquid and
severely restricts the ability of a shareholder to dispose of Shares. Unless
the sale of the Shares should otherwise qualify for another exemption, if the
Company should fail to comply with the requirements of such exemption from
registration or qualification, the shareholders would have the right to
rescind their Exchange Offer of Shares if they so desired. A similar
situation may also be applicable with respect to the transaction exemption
from registration under many applicable "blue sky" laws. If a number of
shareholders were to seek rescission, the Company would face severe financial
demands which may adversely affect the Company as a whole and, thus, the
non-rescinding shareholders. The Company has no obligation or intention to
register the Shares or attempt to develop a trading market for the Shares.
Conflicts of Interest. The Adviser will be using the same personnel
and other resources concurrently to resolve the Company's loans and to resolve
loans for other companies in which the Company has no interest. The
shareholders will have to rely upon the Adviser to allocate its resources
fairly between loans in which the Company owns no interest and loans owned by
the Company.
Competition. Competition for loan purchases has increased and is
expected to continue to do so. Such increased competition may adversely
affect the timing and amount of loans purchased, the quality of loans that the
Company purchases, and the acquisition cost. Because of competition, the
Company may not be able to purchase any loans or alternatively may not be able
to purchase an amount of loans sufficient to invest all the proceeds from the
Subsequent Offering plus the contemplated borrowing. Such events will have a
material adverse effect on the financial return to investors.
Tax Risks. The Company intends to elect Subchapter M tax treatment
for federal income tax purposes in order to distribute the net income to
shareholders of the Company without being subject to taxation at the corporate
level. This treatment may not be available if the Company is unable to comply
with any of the requirements contained in Subchapter M of the Code.
Non-availability of Subchapter M tax treatment would have a material adverse
effect on the financial return to shareholders. Even if the Company does
qualify for purposes of Subchapter M tax treatment, it may be subject to a 4%
excise tax and to federal and state taxes based on income if it fails to make
certain distributions in a timely manner. In certain instances the Company
might also be required to recognize income for federal income tax purposes
without a corresponding amount of cash being received. In order to meet the
Subchapter M distribution requirements, the Company may have to sell assets
for a price lower than the optimal value.
Environmental Law Considerations. The various types of real estate
properties which secure the mortgage loans held by the Company (the "mortgaged
properties"), and the businesses that operate at those properties, are subject
to federal, state, and local environmental laws. These laws, and related
causes of action, could diminish the value of any mortgage property in the
event such property is discovered to be contaminated or otherwise in violation
of the environmental laws. As a general matter, the current owner and
operator of the property, and any individual or entity that formerly owned or
operated the property at the time contamination was occurring, may be held
responsible for cleaning up contamination on, or originating from, the
property. Persons or entities who hold a security interest generally are
exempted from this potential liability unless they become involved in
management of the property, either before or after a foreclosure, and are be
deemed "operators" for liability purposes. If the Company was deemed to be an
"operator" for liability purposes, the
- 9 -
<PAGE> 11
Company could be liable for cleanup costs on its properties, even if it did
not know of and was not responsible for the presence or release of the
hazardous or toxic substances. Moreover, liability may not be limited to the
value of the affected mortgaged property and may extend to the Company as a
whole. Furthermore, the value of a security interest in an affected property
may be impaired if environmental liabilities cause a borrower to become
insolvent, if environmental liabilities cause a diminution in the value of the
mortgaged property, or if environmental liabilities render foreclosure on a
property impractical as a remedy. Moreover, under the laws of some states,
contamination may give rise to a "Superfund lien" which may take priority over
a property's existing mortgage lien.
Risks Related to Advisory Fees. The Adviser's compensation will be
based on the asset values established by using generally accepted accounting
practices. For a BDC, these practices require that the Board of Directors
estimate the fair value for the Company's assets rather than using historical
cost. Because there is not expected to be an active market for the Company's
assets, the Board of Trustees will be required to use their best judgment.
This practice may result in the recognition of appreciation on loans or
foreclosed real estate where the Company has not received a corresponding
amount of cash or where there is not a corresponding amount of income
recognized for federal income tax purposes.
Risks of default, noncollection and loss. Loans to small businesses
involve a high risk of default. Impaired loans involve an even higher risk of
default if not restructured upon terms that place the restructured loan on a
performing basis and reduce the risk of default. The Company does not expect
that any of the loans that it proposes to acquire will benefit from any
government guarantees so that, in the event of default, the Company would have
to bear any loss.
Potential conflicts. For the purpose of acquiring and carrying the
impaired loans from the FDIC, banks or other financial institutions, in which
the Company's portfolio will be invested, the Company or an entity or entities
through which the Company anticipates acquiring such loans are expected to
borrow significant amounts of funds from SouthWest Federated Holding Company,
Inc. ("SouthWest Holding"), as well as banks or other institutional lenders.
Such borrowings will cause the Company or such entities to be leveraged and
will cause the lenders of those funds, which could include SouthWest Holding,
to have fixed dollar claims on the assets of the Company or such entities
superior to the claims of the Company and, ultimately, its shareholders. In
addition, SouthWest Holding is expected to loan amounts with which the Company
proposes to acquire loans for its investment portfolio. In view of the
foregoing, it is possible that the interests of SouthWest Holding in its
capacity as lender to the Company, may conflict with the interest of the
Company and its shareholders. Since the Advisers, which serves as the
investment adviser to the Company, is under common control with SouthWest
Holding, it may have conflicts of interest with respect to its management of
the investments and operations of the Company. The sole stockholder of the
Adviser is aware of this potential conflict of interest and has informed the
Company that it will take all reasonable steps to ensure that the Company's
interests will be protected.
Interest rate fluctuations. Since all loans proposed to be purchased
by the Company may be made at fixed rates of interest, the return on, and
value of, the Company's investment in such loans could decline in the event of
any increase in prevailing interest rates. Likewise, the return on, and value
of, the Company's investment in any restructured loans made at fixed rates of
interest could decline in the event of any increase in prevailing interest
rates. Any substantial increase in market rates of interest may result in
greater rates of prepayments or defaults on performing portfolio loans. As
the Company or any entity or entities through which the Company proposes to
acquire and hold
- 10 -
<PAGE> 12
such loans may incur significant levels of indebtedness, increases or
decreases in market rates of interest may adversely impact any return to the
Company.
TAX STATUS
The Company intends to elect to be treated as, and to qualify for
each taxable year as, a "regulated investment company" under Subchapter M of
the Code. If the Company qualifies as a regulated investment company and
distributes to shareholders annually in a timely manner at least 90% of its
"investment company taxable income," as defined in the Code (i.e., net
investment income, including accrued discount, and net short-term capital
gain) (the "90% distribution requirement"), it will not be subject to federal
income tax on the portion of its investment company taxable income and net
capital gain distributed to shareholders as required under the Code. In
addition, if the Company distributes in a timely manner 98% of its net capital
gain income for each one-year period, and distributes 98% of its net ordinary
income for each calendar year (as well as any income not distributed in prior
years), it will not be subject to the 4% nondeductible federal excise tax
imposed with respect to certain undistributed income of regulated investment
companies. If the Company qualifies as a regulated investment company as it
intends to do, it generally will endeavor to distribute to shareholders all of
its investment company taxable income and its net capital gain, if any, for
each taxable year so that the Company will not incur any federal income and
excise taxes on its earnings.
In order to qualify as a regulated investment company for federal
income tax purposes, the Company must, among other things: (a) derive in each
taxable year at least 90% of its gross income from dividends, interest, gains
from the sale of stock or securities, or other income derived with respect to
its business of investing in such stock or securities; (b) derive in each
taxable year less than 30% of its gross income from the sale of stock or
securities held for less than three months ("30% Limitation"); and (c)
diversify its holdings so that at the end of each quarter of the taxable year
(i) at least 50% of the value of the Company's assets consists of cash, cash
items, U.S. government securities and other securities if such other
securities of any one issuer do not represent more than 5% of the Company's
assets or 10% of the outstanding voting securities of the issuer, and (ii) no
more than 25% of the value of the Company's assets is invested in the
securities of one issuer (other than U.S. government securities and securities
of other regulated investment companies) or of two or more issuers that are
controlled (as determined under applicable Code rules) by the Company and are
engaged in the same or similar trades or businesses.
If the Company acquires or is deemed to have acquired debt
obligations that were issued originally at a discount or that otherwise are
treated under applicable tax rules as having original issue discount, it will
be required to include in income each year a portion of the original issue
discount that accrues over the life of the obligation regardless of whether
cash representing such income is received by the Company in the same taxable
year and to make distributions accordingly.
The Company is authorized to borrow funds and to sell assets in order
to satisfy its distribution requirements. However, under the 1940 Act, the
Company will not be permitted to borrow funds to make distributions to
shareholders unless certain asset coverage tests are met. Moreover, the
Company's ability to dispose of assets to meet its distribution requirements
may be limited by other requirements relating to its status as a regulated
investment company, including the 30% Limitation and the diversification
requirements. If the Company disposes of assets in order to meet its
distribution requirements, it may make such dispositions at times which, from
an investment standpoint, are disadvantageous.
- 11 -
<PAGE> 13
If the Company fails to satisfy the 90% distribution requirement or
otherwise fails to qualify as a regulated investment company in any taxable
year, it will be subject to tax in such year on all of its taxable income,
regardless of whether the Company makes any distributions to its shareholders.
In addition, in that case, all of the Company's distributions to its
shareholders will be characterized as ordinary income (to the extent of the
Company's current and accumulated earnings and profits). In contrast, as
explained below, if the Company qualifies as a regulated investment company, a
portion of its distributions may be characterized as long-term capital gain in
the hands of shareholders.
For any period during which the Company qualifies as a regulated
investment company for tax purposes, dividends to shareholders of the
Company's investment company taxable income will be taxable as ordinary income
to shareholders to the extent of the Company's current or accumulated earnings
and profits.
Distributions of the Company's net capital gain properly designated
by the Company as "capital gain dividends" will be taxable to shareholders as
long-term capital gain regardless of the shareholder's holding period for his,
her or its shares. To the extent the earnings of the Company represent
capital gains, the Company may designate a portion of its dividends as capital
gain dividends, which will be taxable as capital gain to shareholders.
ITEM 3. PROPERTIES.
Except for certain foreclosed-upon properties held by the REO
Subsidiary, the Company does not own or lease any physical properties or other
tangible assets. Its business premises are furnished to it by the Adviser.
[DESCRIPTIONS OF MATERIALLY IMPORTANT PROPERTIES, IF ANY, TO BE PROVIDED BY
AMENDMENT]
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
The following persons are each known to the Company to be the
beneficial owner of more than five percent of any class of the Company's
voting securities:
<TABLE>
<CAPTION>
=============================================================================================================
Amount and nature of Percent
Title of class Name and address of beneficial owner beneficial ownership (1) of class
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common shares of SouthWest Federated Holding Company, Inc. 70,697 Shares (3) 26.03 %
beneficial ("SouthWest Holding") (2)
interest, no par
value ("Shares") SouthWest Federated, Inc. ("SWFI") (2) 20,697 Shares 9.34 %
James R. Clifton (4) 60,000 Shares (5) 27.08 %
Mary Lacy Clifton (4) 16,160 Shares 7.29 %
Eddie W. Spalten 19,712 Shares 8.90 %
800 Wyoming Street
San Antonio, TX 78203
</TABLE>
- 12 -
<PAGE> 14
<TABLE>
<S> <C> <C>
Margaret Pace Willson 12,320 Shares 5.56 %
207 Terrell Road
San Antonio, TX 78209
Rhojcoamt Partnership, Ltd. (6) 12,320 Shares 5.56 %
Richard H. Oldfather (6) 12,320 Shares (7) 5.56 %
Janice C. Oldfather (6) 12,320 Shares (7) 5.56 %
</TABLE>
================================================================================
(1) Directly owned unless otherwise indicated.
(2) 13333 Blanco Road, Suite 314, San Antonio, TX 78216-7756.
(3) Includes 50,000 Shares that may be acquired under presently
exercisable subscription rights directly owned by SouthWest Holding
and 20,697 Shares directly owned by SWFI, a wholly-owned subsidiary
of SouthWest Holding. Does not include 200,000 Shares that may be
acquired upon exercise of certain conditional warrants.
(4) 4830 Lakewood, Suite 5, Waco, TX 76710.
(5) Includes 50,000 Shares beneficially owned by five family trusts, for
the benefit of James R. Clifton's children, of which Mr. Clifton is the
sole trustee. Mr. Clifton disclaims beneficial ownership
of those Shares.
(6) 1100 NE Loop 410, #548, San Antonio, TX 78209.
(7) Includes 100% of the Shares beneficially owned by Rhojcoamt Partnership,
Ltd., a family limited partnership of which Richard H. Oldfather and
Janice C. Oldfather are the general partners. Mr. and Mrs. Oldfather
disclaim beneficial ownership of those Shares.
(b) SECURITY OWNERSHIP OF MANAGEMENT.
Beneficial ownership of each class of the Company's equity securities
by its Trustees and executive officers is as follows:
<TABLE>
<CAPTION>
=============================================================================================================
Amount and nature of Percent of
Title of class Name of beneficial owner beneficial ownership (1) class
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common shares of Robert R. Swendson 70,747 Shares (2) 26.05 %
beneficial
interest, no par James R. Clifton 60,000 Shares (3) 27.08 %
value ("Shares")
Ronald K. Calgaard 0 Shares *
Lon A. Critchfield 0 Shares *
Lawrence D. Krause 0 Shares *
John C. Mosher 0 Shares *
All Trustees and executive officers as a group 130,747 Shares (2)(3) 48.13 %
</TABLE>
================================================================================
* The percentage of Shares deemed beneficially owned does not exceed
one percent of the Shares deemed outstanding for this purpose.
(1) Directly owned unless otherwise indicated.
(2) Includes 100% of the Shares beneficially owned by SouthWest Holding,
the voting or disposition of which Robert R. Swendson may be deemed
to have the power to direct by virtue of his ownership of
approximately 46% of SouthWest Holding's common stock. Mr. Swendson
disclaims beneficial ownership of those Shares.
(3) Includes 50,000 Shares beneficially owned by five family trusts, for
the benefit of James R. Clifton's children, of which Mr. Clifton is the
sole trustee. Mr. Clifton disclaims beneficial ownership
of those Shares.
- 13 -
<PAGE> 15
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
BOARD OF TRUSTEES
The following persons hold the office of Trustee of the Company until
the first annual meeting of the Company's shareholders and until their
successors are elected and qualify. All of the Company's Trustees are subject
to election at each annual meeting.
<TABLE>
<CAPTION>
Position with
Name and Address Company Age Principal Occupations During Past Five Years
---------------- ------------- --- ---------------------------------------------
<S> <C> <C> <C>
Robert R. Swendson * Trustee, 52 Mr. Swendson, a founder of SouthWest Federated,
13333 Blanco Road, Suite 314 President and Inc. ("SWFI") (currently a wholly-owned
San Antonio, Texas Chief subsidiary of SouthWest Holding and the general
78216-7756 Executive partner of several partnerships) in 1989, is its
Officer largest shareholder. Mr. Swendson is President
and Chief Executive Officer of the Company, the
Adviser and SWFI.
James R. Clifton Trustee 46 Mr. Clifton is a founder of the Clifton Group, a
4830 Lakewood, Suite 5 private investment partnership formed in
Waco, Texas 76710 January 1996. From 1973 to January 1996, Mr.
Clifton worked for Behrens, Inc., a
family-owned (until 1994) distributor of
pharmaceuticals to independent pharmacies, in a
number of positions, serving from 1986 until his
departure as Executive Vice President, Chief
Operating Officer, and Director.
Ronald K. Calgaard Trustee 59 Dr. Calgaard is President of Trinity University,
715 Stadium Drive a post he has held since 1979. He also serves
San Antonio, Texas 78212 as a Director of Valero Energy Corporation, a
Trustee of Southwest Research Institute, a
member of the Advisory Board of the San Antonio
Spurs, and a Trustee of Texas Military
Institute.
</TABLE>
- --------------------
* "Interested person" of the Company as defined in the 1940 Act.
Robert R. Swendson owns 100% of the outstanding common stock of the
Adviser.
EXECUTIVE OFFICERS
Each of the following persons has been duly elected to and now holds
the office or offices of the Company set forth opposite his or her name to
serve at the pleasure of the Board of Trustees or until a successor is elected
and qualifies.
- 14 -
<PAGE> 16
<TABLE>
<CAPTION>
Position with
Name and Address Company Age Principal Occupations During Past Five Years
---------------- ------------- --- --------------------------------------------
<S> <C> <C> <C>
Robert R. Swendson Trustee, 52 Mr. Swendson, a founder of SouthWest Federated,
13333 Blanco Road, Suite 314 President and Inc. ("SWFI") (currently a wholly-owned subsidiary
San Antonio, TX 78216-7756 Chief of SouthWest Holding and the general partner of
Executive several partnerships) in 1989, is its largest
Officer shareholder. Mr. Swendson is President and Chief
Executive Officer of the Company, the Adviser and
SWFI.
Lon A. Critchfield Senior Vice 53 Mr. Critchfield joined SWFI in June 1995. From
President January 1994 to May of 1995, Mr. Critchfield was
Senior Vice President of General Financial Services
(a purchaser of debt). From January 1992 to April
1994, Mr. Critchfield was Senior Vice President of
Federal Services, Inc. (a purchaser of debt). From
March 1990 to April 1992, he was Senior Vice
President of Remington Investments (a purchaser of
debt).
Lawrence D. Krause Senior Vice 48 Mr. Krause joined SWFI in 1989 and has been the
President controller since that time.
John C. Mosher Vice President 28 Mr. Mosher joined SWFI in February 1996. Prior to
and Chief joining SWFI, Mr. Mosher was an associate at
Financial Duncan-Smith Co., an investment banking firm, from
Officer June 1993, and in retail sales prior to that date.
</TABLE>
ITEM 6. EXECUTIVE COMPENSATION.
Each member of the Board of Trustees who is not an officer of the
Company will receive a fee of $750 for each meeting of the Board of Trustees
that the Trustee attends. It is expected that the Board of Trustees will hold
at least four meetings per year. None of the Company's officers has been or
will hereafter be compensated by the Company for attending these meetings,
since all of them are compensated by the Adviser.
OPTIONS ON SHARES
The Company may determine in the future to issue options to purchase
newly issued Shares to officers of the Company or other individuals or
entities. Any issuance of such options must be authorized by the Company's
shareholders. The issuance of Shares of the Company pursuant to the exercise
of options could result in a dilution of the ownership interest and voting
power of then-existing shareholders.
- 15 -
<PAGE> 17
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) TRANSACTIONS WITH MANAGEMENT AND OTHERS.
[TO BE DESCRIBED BY AMENDMENT]
(b) CERTAIN BUSINESS RELATIONSHIPS.
The relationship between the Company and the Adviser is described
under the heading "Investment Adviser" in Item 1, above.
(c) INDEBTEDNESS OF MANAGEMENT.
(Not applicable)
(d) TRANSACTIONS WITH PROMOTERS.
[TO BE DESCRIBED BY AMENDMENT]
ITEM 8. LEGAL PROCEEDINGS.
The Company is not a party to, nor is any of its property the subject
of, any material pending legal proceedings other than ordinary routine
proceedings incidental to the business of the Company, including proceedings
involving SWF-95 from which the Company initially acquired substantially all
of its property. Such routine proceedings primarily consist of foreclosure
actions brought by SWF-95 or the Company pursuant to first mortgages and other
liens, to realize value from its security interests in real property and other
collateral underlying its portfolio loans. To the knowledge of the management
of the Company, there are no material legal proceedings contemplated or
threatened against it.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
There is no established public trading market for the Company's
common shares of beneficial interest (the "Shares").
DIVIDENDS
The Company intends to distribute substantially all of its net income
as calculated for federal income tax purposes. Shareholder distributions are
expected to be made in the month following the end of each fiscal quarter.
The Company's fiscal year will end on June 30 of each year. Subject to
declaration by the Board of Trustees, the Company intends on a quarterly
schedule to distribute: 25%
- 16 -
<PAGE> 18
of its net income for the first three months of each fiscal year; 50% of its
net income for the first six months of each fiscal year less the previous
distribution; 75% of its net income for the first nine months of each fiscal
year less both previous distributions; and 100% of its net income for each
fiscal year less all previous distributions.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
On September 3, 1996, the Company sold, for cash in the amount of $10
per share, 50 Shares to Robert R. Swendson for aggregate proceeds to the
Company of $500. The sale to Mr. Swendson, who is the President and Chief
Executive Officer of the Company and an "accredited investor" within the
meaning of Rule 501(a) under the Securities Act, was made pursuant to the
private placement exemption available under section 4(2) of the Securities
Act. On September __, 1996, the Company sold, in exchange for outstanding
securities of and other interests in SWF-95, 221,627 Shares to the general
partner, certain limited partners, and certain subordinated note holders of
SWF-95 pursuant to a confidential private placement memorandum (the "Exchange
Offer"). Following the effectiveness of this registration statement, the
Company intends to consummate sales to other accredited investors pursuant to
a subsequent confidential private placement memorandum (the "Subsequent
Offering"), both of which may be deemed to be part of the same private
placement for purposes of the Securities Act.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The Company is authorized to issue 1,750,000 common shares of
beneficial interest with no par value ("Shares"). All Shares have equal
rights as to earnings, assets, dividends and voting privileges and, when
issued, will be fully paid and nonassessable. Shares have no preemptive,
conversion or redemption rights and are freely transferable to the extent
applicable federal and state securities law requirements are met. In the
event of liquidation, each Share is entitled to its proportion of the
Company's assets after debts and expenses. Each Share is entitled to one vote
and does not have cumulative voting rights, which means that holders of a
minority of the Shares would, in that case, be unable to ensure the election
of any Trustee. The Company intends to hold annual shareholders' meetings.
The rights of holders of the Shares, as set forth in the Company's Declaration
of Trust, may be modified by amendment to the Declaration of Trust. The
Declaration of Trust may be amended at any time by an instrument in writing
signed by a majority of the Trustees then in office.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
SECTION 1. INDEMNIFICATION OF COVERED PERSONS. Subject to the
exceptions and limitations contained in Section 2, every person who is, or has
been, a Trustee, officer, employee, or agent of the Company, including persons
who serve at the request of the Company as directors, trustees, officers,
employees, or agents of another organization in which the Company has an
interest as a shareholder, creditor, or otherwise (hereinafter referred to as a
"Covered Person"), shall be indemnified by the Company to the fullest extent
permitted by law against liability and against all expenses reasonably incurred
or paid by him in connection with any claim, action, suit, or proceeding in
which he becomes
- 17 -
<PAGE> 19
involved as a party or otherwise by virtue of his being or having been such a
Trustee, director, officer, employee, or agent and against amounts paid or
incurred by him in settlement thereof.
SECTION 2. EXCEPTIONS. No indemnification shall be provided
hereunder to a Covered Person:
(a) For any liability to the Company or its shareholders arising out
of a final adjudication by the court or other body before which the proceeding
was brought that he engaged in willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office;
(b) With respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that his
action was in the best interests of the Company; or
(c) In the event of a settlement or other disposition not involving a
final adjudication (as provided in paragraph (a) or (b) of this Section 2) and
resulting in a payment by a Covered Person, unless there has been either a
determination that such Covered Person did not engage in willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in
the conduct of his office by the court or other body approving the settlement
or other disposition, or a reasonable determination, based on a review of
readily available facts (as opposed to a full trial-type inquiry), that he or
she did not engage in such conduct, such determination being made by: (i) a
vote of a majority of the disinterested trustees (as such term is defined in
Section 5) acting on the matter (provided that a majority of disinterested
trustees then in office act on the matter); or (ii) a written opinion of
independent legal counsel.
SECTION 3. RIGHTS OF INDEMNIFICATION. The rights of indemnification
herein provided may be insured against by policies maintained by the Company,
and shall be severable, shall not affect any other rights to which any Covered
Person may now or hereafter be entitled, shall continue as to a person who has
ceased to be a Covered Person, and shall inure to the benefit of the heirs,
executors, and administrators of such a person. Nothing contained herein
shall affect any rights to indemnification to which Trust personnel other than
Covered Persons may be entitled by contract or otherwise under law.
SECTION 4. EXPENSES OF INDEMNIFICATION. Expenses of preparation and
presentation of a defense to any claim, action, suit, or proceeding subject to
a claim for indemnification herein provided shall be advanced by the Company
prior to final disposition thereof upon receipt of an undertaking by or on
behalf of the recipient to repay such amount if it is ultimately determined
that he is not entitled to indemnification herein provided that either:
(a) Such undertaking is secured by a surety bond or some other
appropriate security or the Company shall be insured against losses arising
out of any such advances; or
(b) A majority of the disinterested trustees acting on the matter
(provided that a majority of the disinterested trustees then in office act on
the matter) or independent legal counsel in a written opinion shall determine,
based upon a review of the readily available facts (as opposed to the facts
available upon a full trial), that there is reason to believe that the
recipient ultimately will be found entitled to indemnification.
- 18 -
<PAGE> 20
SECTION 5. CERTAIN DEFINED TERMS RELATING TO INDEMNIFICATION. As
used herein, the following words shall have the meanings set forth below:
(a) A "disinterested trustee" is one (i) who is not an "interested
person" of the Company (including anyone, as such disinterested trustee, who
has been exempted from being an interested person by any rule, regulation, or
order of the Commission within the meaning of the 1940 Act), and (ii) against
whom none of such actions, suits, or other proceedings or another action, suit,
or other proceeding on the same or similar grounds is then or has been pending;
(b) "Claim," "action," "suit," or "proceeding" shall apply to all
claims, actions, suits, proceedings (civil, criminal, administrative, or
other, including appeals), actual or threatened; and
(c) "Liability" and "expenses" shall include without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines,
penalties, and other liabilities.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Audited Financial Statements:
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Statement of Assets and Liabilities--September 4, 1996 . . . . . . . . . . . . . . . . . . . 21
Notes to Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 22
Interim Financial Statements:
Statement of Assets and Liabilities--September 27, 1996 (unaudited). . . . . . . . .[BY AMENDMENT]
Notes to Statement of Assets and Liabilities (unaudited) . . . . . . . . . . . . . [BY AMENDMENT]
</TABLE>
- 19 -
<PAGE> 21
KPMG Peat Marwick LLP
112 East Pecan, Suite 2400
San Antonio, TX 78205-1505
Independent Auditors' Report
The Board of Trustees and Shareholder of
Plymouth Commercial Mortgage Fund:
We have audited the accompanying statement of assets and liabilities of
Plymouth Commercial Mortgage Fund as of September 4, 1996. This financial
statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement is free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets and
liabilities. Our procedures included confirmation of the cash held at
September 4, 1996 with the custodian bank. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of Plymouth
Commercial Mortgage Fund as of September 4, 1996, in conformity with generally
accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
September 12, 1996
- 20 -
<PAGE> 22
Plymouth Commercial Mortgage Fund
Statement of Assets and Liabilities
September 4, 1996
<TABLE>
<S> <C>
Assets
------
Cash $ 500
-----------
Total Assets 500
Liabilities
-----------
Liabilities -
Net Assets
Common shares of beneficial interest, no par value;
1,750,000 shares authorized; 50 shares issued and outstanding 500
-----------
Net Assets $ 500
===========
Net Asset Value per share $ 10.00
===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
- 21 -
<PAGE> 23
Plymouth Commercial Mortgage Fund
Notes to Statement of Assets and Liabilities
As of September 4, 1996
(1) ORGANIZATION
Plymouth Commercial Mortgage Fund (the Company) was organized under
the laws of Delaware on August 23, 1996 as a business trust that will
elect to operate as a business development company under Section 54
of the Investment Company Act of 1940. The Company has recently been
organized and currently has no operations. Once operations begin,
its business will consist of purchasing, restructuring, and selling
non-performing commercial mortgage loans.
The investment objective of the Company is to achieve a high level of
current income. To achieve that objective, the Company will purchase
impaired loans typically secured by commercial real estate. Sources
of loans include the FDIC, banks, insurance companies, and other
institutions. Impaired loans are typically offered in packages that
consist of loans of similar types, but which could vary in credit
quality. These loans are typically purchased at a discount to their
outstanding principal and interest balance. Once a loan package is
purchased, the objective will be to allow the borrower to refinance
the loan at a discount or to restructure the loan in such a manner as
to bring it to a performing status.
The Company intends to qualify to be treated as a "regulated
investment company" (RIC) under Subchapter M of the Internal Revenue
Code 1986, as amended (the "Code"). If the Company qualifies as a
regulated investment company and distributes to shareholders annually
in a timely manner at least 90% of its "investment company taxable
income," as defined by the Code (i.e., net investment income,
including accrued discount, and net short-term capital gain), it will
not be subject to federal income tax on the portion of its investment
company taxable income and net capital gain (net long term capital
gain in excess of net short-term capital loss) distributed to
shareholders as required under the Code. In addition, if the Company
distributes in a timely manner 98% of its net capital gain income for
each one-year period, and distributes 98% of its investment company
taxable income for each calendar year (as well as any income not
distributed in prior years), it will not be subject to the 4%
nondeductible federal excise tax imposed with respect to certain
undistributed income of regulated investment companies. If the
Company qualifies as a regulated investment company as it intends to
do, it generally will endeavor to distribute to shareholders all of
its investment company taxable income and its net capital gain, if
any, for each taxable year so that the Company will not incur income
and excise taxes on its earnings.
(Continued)
- 22 -
<PAGE> 24
Plymouth Commercial Mortgage Fund
The Company is currently offering to issue 293,897 of its common
shares of beneficial interest (Shares) in exchange for the conveyance
to the Company of the interests held by the general partner, limited
partners, and subordinated note holders of SWF 1995 Limited
Partnership, a Texas limited partnership ("SWF-1995"), through a
private placement offering (the "Exchange Offer"). The Exchange
Offer will terminate on September 16, 1996 unless extended for sixty
days. SouthWest Federated Holding Company, Inc., a Delaware
Corporation ("SouthWest Holding"), the parent company of SWF 1995
Limited Partnership's general partner, will pay the expenses of the
Company until the Exchange Offer is successful. The amounts paid by
SouthWest Holding will only become a liability to the Company if the
Exchange Offer is successful. The Exchange Offer will be considered
successful if at least 67% of SWF-1995's limited partnership
interests affirmatively participate.
For working capital purposes, the Company will arrange to borrow up
to $250,000 from SouthWest Holding. As an incentive to make the
loan, the Company will issue to SouthWest Holding transferable
warrants to purchase up to 200,000 Shares at $10 per share, which
expire ten years from the date of issuance, and transferable rights
to subscribe to 50,000 shares at the greater of net asset value or
$10 per share, which expire eight months from the date of issuance.
Unlike the rights to subscribe, which will become exercisable upon
issuance, the warrants will become exercisable upon the occurrence of
certain conditions. Among these is a condition that the Company
raise a minimum of $10 million in new equity at a price of at least
$15 per Share and $20 per Share (in order to be able to exercise
warrants for 150,000 Shares and 50,000 Shares, respectively) within
three years after the consummation of the first sale of any class of
newly issued shares of beneficial interest in the Company for cash
consideration subsequent to the date of issuance of such warrants.
Following the closing of the Exchange Offer, the Company intends to
initiate another private offering of Shares for a minimum of 800,000
Shares and a maximum of 1,100,000 Shares at $10.00 per Share (the
"Subsequent Offering"). The proceeds from the sale of Shares will be
invested in accordance with the Company's investment objectives and
policies.
(2) INVESTMENT ADVISORY AGREEMENT
The Company proposes to enter into an Investment Advisory Agreement
(the Agreement) with Emerald Advisers, Inc., a Delaware Corporation
(the "Adviser"), a registered investment adviser under the Investment
Advisers Act of 1940, as amended. The Adviser is wholly owned by
Robert R. Swendson who is also the primary shareholder of SouthWest
Holding. The Agreement would remain in effect for two years from its
date of execution and thereafter from year to year as long as such
continuance is specifically approved at least annually by the Board
of Trustees, including a majority of its members casting their votes
in person who are not interested persons of the Company at a meeting
called for the purpose of
(Continued)
- 23 -
<PAGE> 25
Plymouth Commercial Mortgage Fund
voting on such approval, or by vote of a majority of the outstanding
voting securities of the Company. The Agreement can be terminated by
the Company at any time, without payment of any penalty, on sixty
days written notice to the Adviser if the decision to terminate has
been made by the Board of Trustees or by vote of a majority of the
outstanding voting securities of the Company. The Agreement will
terminate automatically in the event of its assignment.
Under the Agreement, the Adviser will manage the investments of the
Company, subject to the supervision and control of the Company's
Board of Trustees. Specifically, the Adviser will identify, evaluate,
structure, close and monitor the investments made by the Company.
The Adviser will be required to pay all expenses incurred by it in
rendering its services. Generally, these expenses include the cost
of office space, telephone service, equipment and personnel required
to perform its obligations under the Agreement. The Company will be
required to pay its operating expenses and reimburse the Adviser
promptly for expenses which the Adviser may pay on the Company's
behalf, except those specifically required to be borne by the Adviser
under the Agreement. Without limitation, such expenses will include
all expenses of any offering and sale by the Company of its shares;
the fees and disbursements of the Company's counsel, accountants, and
custodian; fees and expenses incurred in producing and effecting
filings with federal and state securities administrators; costs of
the Company's periodic reports to and other communications with the
Company's shareholders; fees and expenses of members of the Company's
Board of Trustees who are not directors, officers or employees of the
Adviser; premiums for the fidelity bond maintained by the Company;
all costs related to portfolio investments, including without
limitation financing costs, legal and accounting fees, expenses
related to protecting or maintaining the value of the loan portfolio
or its underlying collateral, and other professional or technical
fees and expenses (e.g., credit reports, title searches and delivery
charges, property taxes, insurance premiums, long-distance telephone
charges, costs of specialized consultants such as accountants or
industry-specific technical experts, and travel expenses) incurred in
acquiring, monitoring, negotiating, working-out, and effecting
disposition of such investments, as well as responding to any
litigation arising therefrom; and all expenses related to any
borrowings by the Company.
During the term of this agreement, the Company will pay to the
Adviser, on the 15th day of each month: (a) a fee calculated at an
effective annual rate of 5.94% of the Company's invested assets as of
the end of the previous month; and (b) a fee calculated at an
effective annual rate of 0.48% of the Company's cash and short-term
investments as of the end of the previous month. For purposes of
calculating the fee to be paid on a monthly basis, "invested assets"
means the
(Continued)
- 24 -
<PAGE> 26
Plymouth Commercial Mortgage Fund
asset value as determined by the Board as of the end of the previous
fiscal quarter minus cash, short-term investments, intangible assets,
and the amount of collections applied to the carrying value of the
loan portfolio since the end of the previous quarter, plus the cost
of loans purchased and capitalized advances to protect portfolio
investments or underlying collateral since the end of the previous
quarter. The fee paid on a monthly basis will be ratified on a
quarterly basis by the Board.
(3) NET ASSETS (SHAREHOLDER'S EQUITY)
The Company has 1,750,000 Shares authorized with no par value. All
Shares have equal rights as to earnings, assets, dividends and voting
privileges. As of September 4, 1996, there are 50 Shares issued and
outstanding.
- 25 -
<PAGE> 27
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS.
Audited Financial Statements:
Independent Auditors' Report
Statement of Assets and Liabilities--September 4, 1996
Notes to Statement of Assets and Liabilities
Interim Financial Statements:
Statement of Assets and Liabilities--September 27, 1996
(unaudited) [BY AMENDMENT]
Notes to Statement of Assets and Liabilities (unaudited)
[BY AMENDMENT]
(b) EXHIBITS.
(3)(i) (A) Certificate of Trust of the Company, as filed
August 23, 1996 *
(B) Declaration of Trust of the Company, dated August 23, 1996 *
(3)(ii) Bylaws of the Company, dated September 3, 1996 *
(4) (A) Loan Agreement between Comerica Bank-Texas and
the Company, dated September __, 1996 **
(B) Agreement to furnish to the Commission upon request a
copy of Subordinated Note Agreement between the
Company and SouthWest Federated Holding Company, Inc.,
dated September __, 1996 **
(10) (A) Investment Advisory Agreement by and between the
Company and Emerald Advisers, Inc., dated
September __, 1996 **
(B) Custodial Agreement by and between Comerica Bank-Texas
and the Company, dated September __, 1996 **
(21) Legal name, jurisdiction of organization, and
doing-business-as name of each subsidiary of the Company **
- ------------------------
* Filed herewith.
** To be filed by amendment.
- 26 -
<PAGE> 28
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
PLYMOUTH COMMERCIAL MORTGAGE FUND
/s/ John C. Mosher
Date: September 16, 1996 By:
-------------------------------------
John C. Mosher
Vice President and Chief Financial
Officer
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ---------------------------------
<S> <C>
(3)(i)(A) Certificate of Trust of the Company, as filed August 23, 1996
(3)(i)(B) Declaration of Trust of the Company, dated August 23, 1996
(3)(ii) Bylaws of the Company, dated September 3, 1996
</TABLE>
<PAGE> 1
CERTIFICATE OF TRUST
OF
PLYMOUTH COMMERCIAL MORTGAGE FUND
This Certificate of Trust ("Certificate") is filed in accordance with
the provisions of the Delaware Business Trust Act (Del. Code Ann. tit.12,
Section 3801 et seq.) and sets forth the following:
1. The name of the business trust (the "Trust") is:
PLYMOUTH COMMERCIAL MORTGAGE FUND
2. The name and business address of a trustee of the Trust (a
"Trustee") having its principal place of business in the State
of Delaware are:
PNC BANK, DELAWARE, a Delaware banking corporation
222 Delaware Avenue, 17th Floor
Wilmington, Delaware 19801
3. This Certificate shall be effective upon filing.
* * *
IN WITNESS WHEREOF, the undersigned, being all of the initial
Trustees, have executed this Certificate on this 22nd day of August, 1996.
ROBERT R. SWENDSON, solely as Trustee
and not in his individual capacity
/s/ Robert R. Swendson
----------------------------------------
PNC BANK, DELAWARE, a Delaware banking
corporation, solely as Trustee and not
in its individual capacity
/s/ M.B. McCarthy
By:
-------------------------------------
Name: Michael B. McCarthy
Title: Vice President
<PAGE> 1
DECLARATION OF TRUST
OF
PLYMOUTH COMMERCIAL MORTGAGE FUND
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 Name and Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 Nature and Purpose of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1. Nature of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2. Federal Income Tax Consequences of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3. Purpose of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4. Interpretation of Declaration of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4.1. Governing Instrument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4.2. No Waiver of Compliance with Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4.3. Power of the Trustees Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 3 Shares of Beneficial Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.1. Shares of Beneficial Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2. Number of Authorized Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.3. Ownership and Certification of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.4. Status of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.4.1. Fully Paid and Non-assessable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.4.2. Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.4.3. Party to Declaration of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.4.4. Death of Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.4.5. Title to Trust; Right to Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.5. Determination of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.6. Shares Held by Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.7. Shares Held by Persons Related to Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.8. Preemptive and Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.9. Classes of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.9.1. Classification of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.9.2. Establishment and Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.9.3. Conversion Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.9.4. Rights and Preferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.9.4.1. Treatment of Particular Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.9.4.2. Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.9.4.3. Redemption by Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.9.4.4. Prevention of Personal Holding Company Status . . . . . . . . . . . . . . . . . . . . . 7
3.9.4.5. Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.9.4.6. Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.9.4.7. Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 4 Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.1. Management of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2. Trustees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2.1. Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2.2. Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2.3. Term and Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.3. Resident Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.3.1. Initial Resident Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.3.2. Term and Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
4.3.3. Powers of Resident Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.4. Composition of the Board of Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.5. Resignation and Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.6. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.7. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.8. Ownership of Assets of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.9. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.9.1. Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.9.2. Officers, Agents, and Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.9.3. Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.9.4. Advisers, Administrators, Depositories, and Custodians . . . . . . . . . . . . . . . . . . . . . . 11
4.9.5. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.9.6. Delegation of Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.9.7. Suspension of Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.10. Certain Additional Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.10.1. Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.10.2. Disposition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.10.3. Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.10.4. Subscription . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.10.5. Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.10.6. Form of Holding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.10.7. Reorganization, Consolidation, or Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.10.8. Compromise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.10.9. Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.10.10. Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.10.11. Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.10.12. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.10.13. Pensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.11. Vote of Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.11.1. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.11.2. Required Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.11.3. Consent in Lieu of a Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 5 Service Providers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.1. Investment Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.2. Underwriter and Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.3. Custodians . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.4. Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.5. Other Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.6. Parties to Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 6 Shareholders' Powers and Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.1. Management Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.2. Voting Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.2.1. Matters Requiring Shareholders Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.2.2. Separate Voting by Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.2.3. Number of Votes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.2.4. Cumulative Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.2.5. Voting of Shares; Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.2.6. Actions Prior to the Issuance of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.3. Meetings of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
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<TABLE>
<S> <C>
6.3.1. Annual or Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.3.2. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.3.3. Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.3.4. Call of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.4. Record Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.5. Quorum and Required Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.6. Adjournments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.7. Actions by Written Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.8. Inspection of Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.9. Additional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 7 Limitation of Liability and Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.1. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.1.1. Definition of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.1.2. General Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.1.3. Notice of Limited Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.1.4. Liability Limited to Assets of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.2. Liability of Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.2.1. Liability for Own Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.2.2. Liability for Actions of Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.2.3. Advice of Experts and Reports of Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.2.4. Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.2.5. Declaration of Trust Governs Issues of Liability . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.3. Liability of Third Persons Dealing with Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.4. Liability of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.4.1. Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.4.2. Indemnification of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.5. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.5.1. Indemnification of Covered Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.5.2. Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.5.3. Rights of Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.5.4. Expenses of Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.5.5. Certain Defined Terms Relating to Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 8 Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.1. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.2. Administration/Selection of Arbitrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.3. Situs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.4. Basis of Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.5. Discovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.6. Limitation of Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.7. Conclusiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.8. Mediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.9. Selection of Mediator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.10. Fees of ADR Neutrals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 9 Termination or Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.1. Termination of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.1.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.1.2. Distribution of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
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<TABLE>
<S> <C>
9.1.3. Certificate of Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.2. Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.3. Merger or Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.3.1. Authority to Merge or Consolidate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.3.2. No Shareholder Approval Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.3.3. Subsequent Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.3.4. Certificate of Merger or Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 10 Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.1. Certified Copies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.2. Certain Internal References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.3. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.4. Resolution of Ambiguities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.5. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.5.1. Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.5.2. Certificate of Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.5.3. Prohibited Retrospective Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.6. Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.7. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.8. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
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<PAGE> 6
DECLARATION OF TRUST
OF
PLYMOUTH COMMERCIAL MORTGAGE FUND
This DECLARATION OF TRUST is made as of this day, August 23, 1996 by
the Trustee hereunder.
WHEREAS, the Trustee desires to establish a trust for the purpose of
carrying on the business of investing in securities and other financial
instruments; and
WHEREAS, in furtherance of such purpose, the Trustee and any successor
Trustees elected in accordance with Article 4 hereof are acquiring and may
hereafter acquire assets which they will hold and manage as trustees of a
Delaware business trust in accordance with the provisions hereinafter set
forth; and
WHEREAS, this Trust is authorized to issue its shares of beneficial
interest in one or more separate classes, all in accordance with the provisions
set forth in this Declaration of Trust;
NOW, THEREFORE, the Trustee hereby declares that the Trustee and any
successor Trustees will hold in trust all cash, securities, and other assets
which they may from time to time acquire in any manner as Trustees hereunder,
and that they will manage and dispose of the same upon the following terms and
conditions for the benefit of the holders of shares of beneficial interest in
this Trust as hereinafter set forth.
ARTICLE 1
NAME AND DEFINITIONS
SECTION 1.1. NAME. This Trust shall be known as the "Plymouth
Commercial Mortgage Fund" and the Trustees shall conduct the business of the
Trust under that name or any other name or names as they may from time to time
determine.
SECTION 1.2. DEFINITIONS. Whenever used herein, unless otherwise
required by the context or specifically provided below:
(a) The "Trust" shall mean the Delaware business trust established by
this Declaration of Trust, as amended from time to time;
(b) "Trustee" or "Trustees" shall mean each signatory to this
Declaration of Trust so long as such signatory shall continue in office in
accordance with the terms hereof, and all other individuals who at the time in
question have been duly elected or appointed and qualified in accordance with
Article 4 hereof and are then in office, except that such terms shall not
include a Resident Trustee, as described in Section 4.3, unless otherwise
indicated;
<PAGE> 7
(c) "Shares" shall mean the shares of beneficial interest in the Trust
described in Article 3 hereof and shall include fractional and whole Shares;
(d) "Shareholder" shall mean a beneficial owner of Shares, except that
with regard to Shares owned by trusts, "Shareholder" shall mean the trust;
(e) The "1940 Act" refers to the Investment Company Act of 1940 (and
any successor statute) and the rules and regulations thereunder, all as amended
from time to time;
(f) "Person," "Interested Person," and "Principal Underwriter" shall
have the meanings given them in the 1940 Act;
(g) "Commission" shall mean the United States Securities and Exchange
Commission (or any successor agency thereto);
(h) "Declaration of Trust" or "Declaration" shall mean this
Declaration of Trust as amended or restated from time to time;
(i) "Bylaws" shall mean the Bylaws of the Trust as amended from time
to time;
(j) The "DBTA" refers to the Delaware Business Trust Act, Chapter 38
of Title 12 of the Delaware Code (and any successor statute), as amended from
time to time; and
(k) The "Code" refers to the Internal Revenue Code of 1986 (and any
successor statute) and the rules and regulations thereunder, all as amended
from time to time.
ARTICLE 2
NATURE AND PURPOSE OF TRUST
SECTION 2.1. NATURE OF TRUST. The Trust is a business trust of the
type referred to in the DBTA. The Trustees shall file a certificate of trust
in accordance with Section 3810 of the DBTA. The Trust is not intended to be,
shall not be deemed to be, and shall not be treated as, a general or a limited
partnership, joint venture, corporation, or joint stock company, nor shall the
Trustees or Shareholders or any of them for any purpose be deemed to be, or be
treated in any way whatsoever as though they were, liable or responsible
hereunder as partners or joint venturers.
SECTION 2.2. FEDERAL INCOME TAX CONSEQUENCES OF THE TRUST. It is
intended that the Trust be treated as an association taxable as a corporation
for federal income tax purposes. No person shall take any action inconsistent
with such classification. Without limiting the generality of the
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<PAGE> 8
foregoing, if final regulations are adopted that permit unincorporated entities
to elect their classification for federal income tax purposes, the Trust may
affirmatively elect "association" status.
SECTION 2.3. PURPOSE OF TRUST. The purpose of the Trust is to engage
in, operate, and carry on the business of investing in securities and other
financial instruments as a closed-end management investment company or in such
other form that the Trustees may determine to be appropriate and to do any and
all acts or things as are necessary, convenient, appropriate, incidental, or
customary in connection therewith.
SECTION 2.4. INTERPRETATION OF DECLARATION OF TRUST.
SECTION 2.4.1. GOVERNING INSTRUMENT. This Declaration of
Trust shall be the governing instrument of the Trust and shall be governed by
and construed according to the laws of the State of Delaware.
SECTION 2.4.2. NO WAIVER OF COMPLIANCE WITH APPLICABLE LAW.
No provision of this Declaration shall be effective to require a waiver of
compliance with any provision of the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, or the 1940 Act, or of any valid
rule, regulation, or order of the Commission thereunder.
SECTION 2.4.3. POWER OF THE TRUSTEES GENERALLY. Except as
otherwise set forth herein, the Trustees may exercise all powers of trustees
under the DBTA on behalf of the Trust.
ARTICLE 3
SHARES OF BENEFICIAL INTEREST
SECTION 3.1. SHARES OF BENEFICIAL INTEREST. The beneficial interests
in the Trust shall be divided into Shares, all without par value and of one
class, but the Trustees shall have the authority from time to time to divide
the Shares into two (2) or more separate and distinct classes of Shares as
provided in Section 3.9 of this Article 3.
SECTION 3.2. NUMBER OF AUTHORIZED SHARES. The Trustees are
authorized to issue an unlimited number of Shares. The Trustees may issue
Shares for such consideration and on such terms as they may determine (or for
no consideration if pursuant to a Share dividend or split), all without action
or approval of the Shareholders.
SECTION 3.3. OWNERSHIP AND CERTIFICATION OF SHARES. The Secretary of
the Trust, or the Trust's transfer or similar agent, shall record the ownership
and transfer of Shares separately on
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<PAGE> 9
the record books of the Trust. The record books of the Trust, as kept by the
Secretary of the Trust or any transfer or similar agent, shall contain the name
and address of and the number of Shares held by each Shareholder, and such
record books shall be conclusive as to who are the holders of Shares and as to
the number of Shares held from time to time by such Shareholders. No
certificates certifying the ownership of Shares shall be issued except as the
Trustees may otherwise determine from time to time. The Trustees may make such
rules as they consider appropriate for the issuance of share certificates,
transfer of Shares, and similar matters for the Trust and each class.
SECTION 3.4. STATUS OF SHARES.
SECTION 3.4.1. FULLY PAID AND NON-ASSESSABLE. All Shares
when issued on the terms determined by the Trustees shall be fully paid and
non-assessable.
SECTION 3.4.2. PERSONAL PROPERTY. Shares shall be deemed to
be personal property giving only the rights provided in this Declaration of
Trust.
SECTION 3.4.3. PARTY TO DECLARATION OF TRUST. Every Person
by virtue of having become registered as a Shareholder shall be held to have
expressly assented and agreed to the terms of this Declaration of Trust and to
have become a party thereto.
SECTION 3.4.4. DEATH OF SHAREHOLDER. The death of a
Shareholder during the continuance 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. The representative shall be entitled to the same rights as the
decedent under this Trust.
SECTION 3.4.5. TITLE TO TRUST; RIGHT TO ACCOUNTING.
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.
SECTION 3.5. DETERMINATION OF SHAREHOLDERS. The Trustees may from
time to time close the transfer books or establish record dates and times for
the purposes of determining the Shareholders entitled to be treated as such, to
the extent provided or referred to in Section 6.4.
SECTION 3.6. SHARES HELD BY TRUST. The Trustees may hold as treasury
shares, reissue for such consideration and on such terms as they may determine,
or cancel, at their discretion from time to time, any Shares of any class
reacquired by the Trust.
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<PAGE> 10
SECTION 3.7. SHARES HELD BY PERSONS RELATED TO TRUST. Any Trustee,
officer, or other agent of the Trust, and any organization in which any such
person is interested may acquire, own, hold, and dispose of Shares to the same
extent as if such person were not a Trustee, officer, or other agent of the
Trust; and the Trust may issue and sell or cause to be issued and sold and may
purchase Shares from any such person or any such organization subject only to
the general limitations, restrictions, or other provisions applicable to the
sale or purchase of such Shares generally.
SECTION 3.8. PREEMPTIVE AND APPRAISAL RIGHTS. Shareholders shall
not, as Shareholders, have any right to acquire, purchase, or subscribe for any
Shares or other securities of the Trust which it may hereafter issue or sell,
other than such right, if any, as the Trustees in their discretion may
determine. Shareholders shall have no appraisal rights with respect to their
Shares and, except as otherwise determined by resolution of the Trustees in
their sole discretion, shall have no exchange or conversion rights with respect
to their Shares. No action may be brought by a Shareholder on behalf of the
Trust unless Shareholders owning no less than a majority of the then
outstanding Shares join in the bringing of such action. A Shareholder shall
not be entitled to participate in a derivative or class action lawsuit on
behalf of any other class of Shares or on behalf of the Shareholders of any
other class of Shares of the Trust other than the class of Shares owned by such
Shareholder.
SECTION 3.9. CLASSES OF SHARES.
SECTION 3.9.1. CLASSIFICATION OF SHARES. The Trustees may
classify or reclassify any unissued Shares or any Shares previously issued and
reacquired of any class into one or more classes that may be established and
designated from time to time.
SECTION 3.9.2. ESTABLISHMENT AND DESIGNATION. The Trustees
shall have exclusive power without the requirement of Shareholder approval to
establish and designate separate and distinct classes of Shares. The
establishment and designation of any class shall be effective upon the
execution by a majority of the Trustees of an instrument setting forth such
establishment and designation and the relative rights and preferences of the
Shares of such class, or as otherwise provided in such instrument. Each such
instrument shall have the status of an amendment to this Declaration of Trust.
SECTION 3.9.3. CONVERSION RIGHTS. Subject to compliance with
the requirements of the 1940 Act, the Trustees shall have the authority to
provide that holders of Shares of any class shall have the right to convert
such Shares into Shares of one or more other classes in accordance with such
requirements and procedures as may be established by the Trustees.
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<PAGE> 11
SECTION 3.9.4. RIGHTS AND PREFERENCES. The Trustees shall
have exclusive power without the requirement of Shareholder approval to fix and
determine the relative rights and preferences as between the Shares of the
separate classes. The initial class and any further classes that may from time
to time be established and designated by the Trustees shall (unless the
Trustees otherwise determine with respect to some further class at the time of
establishing and designating the same) have relative rights and preferences as
set forth in this Section 3.9.4.
SECTION 3.9.4.1. TREATMENT OF PARTICULAR ITEMS. The
Trustees shall have full discretion, to the extent consistent with the 1940 Act
and consistent with generally accepted accounting principles, 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.
SECTION 3.9.4.2. DIVIDENDS. Dividends and
distributions on Shares of a particular class may be paid with such frequency,
in such form, and in such amount as the Trustees may determine by resolution
adopted from time to time or pursuant to a standing resolution or resolutions
adopted only once or with such frequency as the Trustees may determine. All
dividends and distributions on Shares of a particular class shall be
distributed pro rata to the holders of Shares of that class in proportion to
the number of Shares of that class held by such holders at the date and time of
record established for the payment of such dividends or distributions, except
that in connection with any dividend or distribution program or procedure the
Trustees may determine that no dividend or distribution shall be payable on
Shares as to which the Shareholder's purchase order and/or payment have not
been received by the time or times established by the Trustees under such
Program or procedure. Such dividends and distributions may be made in cash,
property, or additional Shares of that class, or a combination thereof, as
determined by the Trustees or pursuant to any program that the Trustees may
have in effect at the time for the election by each Shareholder of the mode of
the making of such dividend or distribution to that Shareholder. Any such
dividend or distribution paid in Shares will be paid at the net asset value
thereof.
SECTION 3.9.4.3. REDEMPTION BY TRUST. To the extent
permitted by the 1940 Act or other applicable law, the Trustees may cause the
Trust to redeem at net asset value the Shares of any class held by a
Shareholder upon such conditions as may from time to time be determined by the
Trustees. Upon redemption of Shares pursuant to this Section 3.9.4.3, the
Trust shall promptly cause payment of the full redemption price to be made to
such Shareholder for Shares so redeemed.
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<PAGE> 12
SECTION 3.9.4.4. PREVENTION OF PERSONAL HOLDING
COMPANY STATUS. The Trust may reject any purchase order, refuse to transfer
any Shares, and compel the redemption of Shares if, in its opinion, any such
rejection, refusal, or redemption would prevent the Trust from becoming a
personal holding company as defined by the Code.
SECTION 3.9.4.5. NET ASSET VALUE. The net asset
value per Share of Common Stock shall be determined in accordance with the
methods and procedures established by the Trustees from time to time.
SECTION 3.9.4.6. TRANSFER OF SHARES. Subject to
compliance with the applicable restrictions under the Securities Act of 1933,
as amended, the Securities Exchange Act of 1934, as amended, the 1940 Act, or
any valid rule, regulation, or order of the Commission thereunder, any
Shareholder generally may sell, transfer, or assign all or any of its Shares
without the consent of any other person, and the transferee of such Shares,
upon agreeing to be bound by the provisions of this Agreement, shall become
entitled to all of the rights such selling Shareholder enjoyed with respect to
such Shares. Transfers of Shares, however, may be subject to such restrictions
as may be determined from time to time by the Trustees.
SECTION 3.9.4.7. FRACTIONAL SHARES. Any fractional
Share of any class, if any such fractional Share is outstanding, shall carry
proportionately all the rights and obligations of a whole Share of that class,
including rights and obligations with respect to voting, receipt of dividends
and distributions, redemption of Shares, and liquidation of the Trust.
ARTICLE 4
TRUSTEES
SECTION 4.1. MANAGEMENT OF THE TRUST. The business and affairs of
the Trust shall be managed by the Trustees, and they shall have all powers
necessary and desirable to carry out that responsibility, including those
specifically set forth in Sections 4.9 and 4.10 herein.
SECTION 4.2. TRUSTEES.
SECTION 4.2.1. QUALIFICATION. Each Trustee shall be a
natural person. A Trustee need not be a Shareholder, a citizen of the United
States, or a resident of the State of Delaware.
SECTION 4.2.2. NUMBER. By the vote or consent of a majority
of the Trustees then in office, the Trustees may fix the number of Trustees at
a number not less than one (1) nor more than ten (10). No decrease in the
number of Trustees shall have
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<PAGE> 13
the effect of removing any Trustee from office prior to the expiration of his
or her term, but the number of Trustees may be decreased in conjunction with
the removal of a Trustee pursuant to Section 4.6.
SECTION 4.2.3. TERM AND ELECTION. Each Trustee shall hold
office until the next meeting of Shareholders called for the purpose of
considering the election or re-election of such Trustee or of a successor to
such Trustee, and until his or her successor is elected and qualified, and any
Trustee who is appointed by the Trustees in the interim to fill a vacancy as
provided hereunder shall have the same remaining term as that of his or her
predecessor, if any, or such term as the Trustees may determine.
SECTION 4.3. RESIDENT TRUSTEE.
SECTION 4.3.1. INITIAL RESIDENT TRUSTEE. There shall be one
(1) Resident Trustee. The initial Resident Trustee shall be: PNC Bank,
Delaware (the "Resident Trustee"). The term "Trustee," as used in this
agreement, shall not include a Resident Trustee, unless otherwise indicated.
The status of a Resident Trustee shall be governed solely by the terms of this
Section 4.3.
SECTION 4.3.2. TERM AND SELECTION. The Resident Trustee
shall serve until such time as a successor is appointed by the Trustees or as
otherwise may be required by applicable law. Notwithstanding the foregoing,
the Resident Trustee may resign at any time upon the giving of at least sixty
(60) days advance written notice to the Trustees; provided, however, that such
resignation shall not become effective unless and until a successor Resident
Trustee shall have been appointed by the Trustees. If the Trustees do not act
within such sixty (60) day period, the Resident Trustee may apply to the Court
of Chancery of the State of Delaware for the appointment of a successor
Resident Trustee.
SECTION 4.3.3. POWERS OF RESIDENT TRUSTEE. The Resident
Trustee shall constitute the "Trustee in State" required pursuant to Section
3807(a) of the DBTA, shall have only the rights, obligations, and liabilities
specifically provided for in the Declaration of Trust and the DBTA, and shall
have no implied rights, obligations, and liabilities with respect to the
affairs of the Trust. Notwithstanding any other provision contained herein,
unless specifically directed by the Trustees and consented to by the Resident
Trustee, the Resident Trustee shall not participate in any decisions relating
to, or possess any authority independently to manage or control, the business
of the Trust, nor shall the Resident Trustee be a member of the Board of
Trustees. In no event shall the Resident Trustee have any liability for the
acts or omissions of the Trustees. Upon
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direction by the Trustees, the Resident Trustee shall have the power and
authority to execute, deliver, acknowledge, and file all necessary documents
and to maintain all necessary records of the Trust as required by the DBTA.
The Resident Trustee shall provide prompt notice to the Trustees of its
performance of any of the foregoing. The Trustees shall reasonably keep the
Resident Trustee informed of any actions taken by the Trustees with respect to
the Trust that affect the rights, obligations, or liabilities of the Resident
Trustee under the DBTA.
SECTION 4.3.4. COMPENSATION OF RESIDENT TRUSTEE. The
Resident Trustee shall be entitled to receive from the Trust reasonable
compensation for its services hereunder, as shall be agreed to from time to
time by the Trust and the Resident Trustee, and shall be reimbursed for
extraordinary expenses including liabilities, costs, judgments, and reasonable
attorney fees as incurred.
SECTION 4.4. COMPOSITION OF THE BOARD OF TRUSTEES. No election or
appointment of any Trustee shall take effect if such election or appointment
would cause the number of Trustees who are Interested Persons to exceed the
number permitted under the 1940 Act.
SECTION 4.5. RESIGNATION AND RETIREMENT. Any Trustee may resign or
retire as a Trustee (without need for prior or subsequent accounting) by an
instrument in writing signed by such Trustee and delivered or mailed to the
Chairman, if any, the President, or the Secretary of the Trust. Such
resignation or retirement shall be effective upon such delivery, or at a later
date according to the terms of the instrument.
SECTION 4.6. REMOVAL. Any Trustee may be removed with or without
cause at any time: (1) by written instrument signed by two-thirds (2/3) of the
number of Trustees in office prior to such removal, specifying the date upon
which such removal shall become effective, or (2) by a declaration in writing
or by the affirmative vote (cast in person or by proxy at any meeting called
for that purpose) of Shareholders holding not less than two-thirds (2/3) of
Shares outstanding.
SECTION 4.7. VACANCIES. Any vacancy or anticipated vacancy resulting
for any reason, including without limitation the death, resignation,
retirement, removal, or incapacity of any of the Trustees, or resulting from an
increase in the number of Trustees may (but need not unless required by the
1940 Act) be filled by a majority of the Trustees then in office, subject to
the provisions of Section 16 of the 1940 Act, through the appointment in
writing of such other person as such remaining Trustees in their discretion
shall determine. The appointment shall be effective upon the written
acceptance of the person named therein to serve as a trustee and agreement by
such person to be bound by
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the provisions of this Declaration of Trust, except that any such appointment
in anticipation of a vacancy occurring by reason of the resignation,
retirement, or increase in number of Trustees to be effective at a later date
shall become effective only at or after the effective date of such resignation,
retirement, or increase in number of Trustees.
SECTION 4.8. OWNERSHIP OF ASSETS OF THE TRUST. The assets of the
Trust shall be held separate and apart from any assets now or hereafter held in
any capacity other than as Trustee hereunder by the Trustees or any successor
Trustees. Legal title to all the Trust property shall be vested in the Trust
as a separate legal entity under the DBTA, except that the Trustees shall have
the 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 any other Person on
behalf of the Trust on such terms as the Trustees may determine. In the event
that title to any part of the Trust property is vested in one or more Trustees,
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 his or her
due election and qualification. Upon the resignation, removal, or death of a
Trustee he or she 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. To the extent permitted by law, such vesting and cessation of title
shall be effective whether or not conveyancing documents have been executed and
delivered. No Shareholder shall be deemed to have a severable ownership in any
individual asset of the Trust or any right of partition or possession thereof.
SECTION 4.9. POWERS. Subject to the provisions of this Declaration
of Trust, the business of the Trust shall be managed by the Trustees, and they
shall have all powers necessary or convenient to carry out that responsibility
and the purpose of the Trust including, but not limited to, those enumerated in
this Section 4.9.
SECTION 4.9.1. BYLAWS. The Trustees may adopt Bylaws not
inconsistent with this Declaration of Trust providing for the conduct of the
business and affairs of the Trust and may amend and repeal them to the extent
that such Bylaws do not reserve that right to the Shareholders.
SECTION 4.9.2. OFFICERS, AGENTS, AND EMPLOYEES. The Trustees
may, as they consider appropriate, elect and remove officers and appoint and
terminate agents and consultants and hire and terminate employees, any one or
more of the foregoing of whom may be a Trustee, and may provide for the
compensation of all of the foregoing.
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SECTION 4.9.3. COMMITTEES. The Trustees may appoint from
their own number, and terminate, any one or more committees consisting of two
or more Trustees, including without implied limitation an executive committee,
which may, when the Trustees are not in session (but subject to the 1940 Act),
exercise some or all of the power and authority of the Trustees as the Trustees
may determine.
SECTION 4.9.4. ADVISERS, ADMINISTRATORS, DEPOSITORIES, AND
CUSTODIANS. The Trustees may, in accordance with Article 5, employ one or more
advisers, administrators, depositories, custodians, and other persons, and may
authorize any depository or custodian to employ subcustodians or agents and to
deposit all or any part of such assets in a system or systems for the central
handling of securities and debt instruments, retain transfer, dividend,
accounting, or Shareholder servicing agents, or any of the foregoing, provide
for the distribution of Shares by the Trust through one or more distributors,
principal underwriters, or otherwise, and set record dates or times for the
determination of Shareholders.
SECTION 4.9.5. COMPENSATION. The Trustees may compensate or
provide for the compensation of the Trustees, officers, advisers,
administrators, custodians, other agents, consultants, and employees of the
Trust or the Trustees on such terms as they deem appropriate.
SECTION 4.9.6. DELEGATION OF AUTHORITY. In general, the
Trustees may delegate to any officer of the Trust, to any committee of the
Trustees, and to any employee, adviser, administrator, distributor, depository,
custodian, transfer and dividend disbursing agent, or any other agent or
consultant of the Trust such authority, powers, functions, and duties as they
consider desirable or appropriate for the conduct of the business and affairs
of the Trust, including without implied limitation, the power and authority to
act in the name of the Trust and of the Trustees, to sign documents, and to act
as attorney-in-fact for the Trustees.
SECTION 4.9.7. SUSPENSION OF SALES. The Trustees shall have
the authority to suspend or terminate the sales of Shares of any class at any
time or for such periods as the Trustees may from time to time decide.
SECTION 4.10. CERTAIN ADDITIONAL POWERS. Without limiting the
foregoing and to the extent not inconsistent with the 1940 Act, other
applicable law, and the fundamental policies and limitations of the applicable
class, the Trustees shall have power and authority for and on behalf of the
Trust and each separate class as enumerated in this Section 4.10.
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SECTION 4.10.1. INVESTMENTS. The Trustees shall have the
power to invest and reinvest cash and other property, and to hold cash or other
property uninvested without in any event being bound or limited by any present
or future law or custom in regard to investments by trustees.
SECTION 4.10.2. DISPOSITION OF ASSETS. The Trustees shall
have the power to sell, exchange, lend, pledge, mortgage, hypothecate, write
options on, and lease any or all of the assets of the Trust.
SECTION 4.10.3. OWNERSHIP. The Trustees shall have the power
to vote, give assent, or exercise any rights of ownership with respect to
securities or other 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 other property as the Trustees shall deem proper.
SECTION 4.10.4. SUBSCRIPTION. The Trustees shall have the
power to exercise powers and rights of subscription or otherwise which in any
manner arise out of ownership of securities.
SECTION 4.10.5. PAYMENT OF EXPENSES. The Trustees shall have
the power to pay or cause to be paid all expenses, fees, charges, taxes, and
liabilities incurred or arising in connection with the Trust or class thereof,
or in connection with the management thereof, including, but not limited to,
the Trustees' compensation and such expenses and charges for the Trust's
officers, employees, investment advisers, administrator, distributor, principal
underwriter, auditor, counsel, depository, custodian, transfer agent, dividend
disbursing agent, accounting agent, shareholder servicing agent, and such other
agents, consultants, and independent contractors and such other expenses and
charges as the Trustees may deem necessary or proper to incur.
SECTION 4.10.6. FORM OF HOLDING. The Trustees shall have the
power to hold any securities or other property in a form not indicating any
trust, whether in bearer, unregistered, or other negotiable form, or in the
name of the Trustees or of the Trust or in the name of a custodian,
subcustodian, or other depositary or a nominee or nominees or otherwise.
SECTION 4.10.7. REORGANIZATION, CONSOLIDATION, OR MERGER.
The Trustees shall have the power to consent to or participate in any plan for
the reorganization, consolidation, or merger of any corporation or issuer, any
security of which is or was held in the Trust, and to consent to any contract,
lease, mortgage, purchase, or sale of property by such corporation or
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issuer, and to pay calls or subscriptions with respect to any security held in
the Trust.
SECTION 4.10.8. COMPROMISE. The Trustees shall have the
power to arbitrate or otherwise adjust claims in favor of or against the Trust
or any class on any matter in controversy, including but not limited to claims
for taxes.
SECTION 4.10.9. PARTNERSHIPS. The Trustees shall have the
power to enter into joint ventures, general or limited partnerships, and any
other combinations or associations.
SECTION 4.10.10. BORROWING. The Trustees shall have the
power to borrow funds and to mortgage and pledge the assets of the Trust or any
part thereof to secure obligations arising in connection with such borrowing,
consistent with the provisions of the 1940 Act.
SECTION 4.10.11. GUARANTEES. The Trustees shall have the
power 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; and to mortgage and pledge the Trust property or
any part thereof to secure any of or all such obligations.
SECTION 4.10.12. INSURANCE. The Trustees shall have the
power to purchase and pay for entirely out of Trust property such insurance as
they may deem necessary or appropriate for the conduct of the business,
including, without limitation, insurance policies insuring the assets of the
Trust and payment of distributions and principal on its portfolio investments,
and insurance policies insuring the Shareholders, Trustees, officers,
employees, agents, consultants, investment advisers, managers, administrators,
distributors, principal underwriters, or independent contractors, or any
thereof (or any person connected therewith), of the Trust individually against
all claims and liabilities of every nature arising by reason of holding, being,
or having held any such office or position, or by reason of any action alleged
to have been taken or omitted by any such person in any such capacity,
including any action taken or omitted that may be determined to constitute
negligence, whether or not the Trust would have the power to indemnify such
person against such liability.
SECTION 4.10.13. PENSIONS. The Trustees shall have the power
to pay pensions for faithful service, as deemed appropriate by the Trustees,
and to adopt, establish, and carry out pension, profit-sharing, share bonus,
share purchase, savings, thrift, and other retirement, incentive, and benefit
plans, including the purchasing of life insurance and annuity contracts as a
means of providing such retirement and other
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benefits, for any or all of the Trustees, officers, employees, and agents of
the Trust.
SECTION 4.11. VOTE OF TRUSTEES.
SECTION 4.11.1. QUORUM. A majority of the Trustees then in
office being present in person or by proxy shall constitute a quorum.
SECTION 4.11.2. REQUIRED VOTE. Except as otherwise provided
by the 1940 Act or other applicable law, this Declaration of Trust, or the
Bylaws, any action to be taken by the Trustees on behalf of the Trust or any
class may be taken by a majority of the Trustees present at a meeting of
Trustees at which a quorum is present, including any meeting held by means of a
conference telephone or other communications equipment by means of which all
persons participating in the meeting can hear each other at the same time.
SECTION 4.11.3. CONSENT IN LIEU OF A MEETING. Except as
otherwise provided by the 1940 Act or other applicable law, the Trustees may,
by written consent of a majority of the Trustees then in office, take any
action which may have been taken at a meeting of the Trustees or any committee
thereof.
ARTICLE 5
SERVICE PROVIDERS
SECTION 5.1. INVESTMENT ADVISER. The Trust may enter into written
contracts with one or more persons to act as investment adviser or investment
subadviser to the Trust, and as such, to perform such functions as the Trustees
may deem reasonable and proper, including, without limitation, investment
advisory, management, research, valuation of assets, clerical, and
administrative functions, under such terms and conditions, and for such
compensation, as the Trustees may in their discretion deem advisable.
SECTION 5.2. UNDERWRITER AND TRANSFER AGENT. The Trust may enter
into written contracts with one or more persons to act as principal underwriter
or underwriter or distributor whereby the Trust may either agree to sell Shares
to the other party or parties to the contract or appoint such other party or
parties its sales agent or agents for such Shares and with such other
provisions as the Trustees may deem reasonable and proper, and the Trustees may
in their discretion from time to time enter into transfer agency, dividend
disbursement, and/or shareholder service contract(s), in each case with such
terms and conditions, and providing for such compensation, as the Trustees may
in their discretion deem advisable.
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SECTION 5.3. CUSTODIANS. The Trust may enter into written contracts
with one or more persons to act as custodian to perform such functions as the
Trustees may deem reasonable and proper, under such terms and conditions, and
for such compensation, as the Trustees may in their discretion deem advisable.
Each such custodian shall be a bank or trust company having an aggregate
capital, surplus, and undivided profits of at least one million dollars
($1,000,000).
SECTION 5.4. ADMINISTRATOR. The Trust may enter into written
contracts with one or more persons to act as an administrator to perform such
functions, including accounting functions, as the Trustees may deem reasonable
and proper, under such terms and conditions, and for such compensation, as the
Trustees may in their discretion deem advisable.
SECTION 5.5. OTHER CONTRACTS. The Trust may enter into such other
written contracts as the Trustees deem necessary and desirable, including
contracts with one or more persons for the coordination or supervision of
persons providing services to the Trust under one or more of the contracts
described in Sections 5.1, 5.2, 5.3, and 5.4.
SECTION 5.6. PARTIES TO CONTRACTS. Any contract of the character
described in Sections 5.1, 5.2, 5.3, 5.4, and 5.5 or in Article 7 hereof may be
entered into with any corporation, firm, partnership, trust, or association,
including, without limitation, the investment adviser, any investment
subadviser, or any affiliated person of the investment adviser or investment
subadviser, although one or more of the Trustees or officers of the Trust may
be an officer, director, trustee, shareholder, or member of such other party to
the contract, or may otherwise be interested in such contract, and no such
contract shall be invalidated or rendered voidable by reason of the existence
of any such relationship, nor shall any person holding such relationship be
liable merely by reason of such relationship for any loss or expense to the
Trust under or by reason of said contract or be accountable for any profit
realized directly or indirectly therefrom; provided, however, that the contract
when entered into was not inconsistent with the provisions of this Article 5,
Article 7, or the Bylaws. The same person (including a firm, corporation,
partnership, trust, or association) may provide more than one of the services
identified in this Article 5.
ARTICLE 6
SHAREHOLDERS' POWERS AND MEETINGS
SECTION 6.1. MANAGEMENT RESTRICTIONS. No Shareholder in his or her
capacity as such shall take part in the management or control of the business
of the Trust or transact any business in
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the name of the Trust. No Shareholder in his or her capacity as such shall
have the power or authority to bind the Trust or to sign any agreement or
document in the name of the Trust. No Shareholder in his or her capacity as
such shall have any power or authority with respect to the Trust except as
expressly provided by this Agreement. Notwithstanding the foregoing, the
Shareholders shall have the right to vote in accordance with and on the terms
set forth in Section 6.2.
SECTION 6.2. VOTING POWERS. The Shareholders shall have power to
vote only with respect to matters expressly enumerated in Section 6.2.1, or
with respect to such additional matters relating to the Trust as may be
required by the 1940 Act, this Declaration of Trust, the Bylaws, any
registration of the Trust with the Commission or any state, or as the Trustees
may otherwise deem necessary or desirable.
SECTION 6.2.1. MATTERS REQUIRING SHAREHOLDERS ACTION. Action
by the Shareholders shall be required as to the following matters:
(a) The election or removal of Trustees as provided in Sections 4.2.3
and 4.6;
(b) The approval of a contract with a third party provider of services
as to which Shareholder approval is required by the 1940 Act;
(c) The termination or reorganization of the Trust to the extent and
as provided in Sections 9.1 and 9.2;
(d) The amendment of this Declaration of Trust to the extent and as
provided in Section 10.5; and
(e) Any court action, proceeding, or claim brought or maintained
derivatively or as a class action on behalf of the Trust or the Shareholders of
the Trust; provided, however, that a Shareholder of a particular class shall
not be entitled to vote upon a derivative or class action on behalf of any
other class or Shareholder of any other class.
SECTION 6.2.2. SEPARATE VOTING BY CLASS. On any matter
submitted to a vote of the Shareholders, all Shares shall be voted separately
by class, except: (i) when required by the 1940 Act, Shares shall be voted in
the aggregate and not by individual class; and (ii) when the Trustees have
determined that the matter affects the interests of more than one class, then
the Shareholders of all such classes shall be entitled to vote thereon.
SECTION 6.2.3. NUMBER OF VOTES. On any matter submitted to a
vote of the Shareholders, each Shareholder shall
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be entitled to one vote for each Share standing in such Shareholder's name on
the books of the Trust which are entitled to vote on the matter.
SECTION 6.2.4. CUMULATIVE VOTING. There shall be no
cumulative voting in the election of Trustees.
SECTION 6.2.5. VOTING OF SHARES; PROXIES. Votes may be cast
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 the invalidity of a proxy shall rest on
the challenger.
SECTION 6.2.6. ACTIONS PRIOR TO THE ISSUANCE OF SHARES.
Until Shares are issued, the Trustees may exercise all rights of Shareholders
and may take any action required by law, this Declaration of Trust, or the
Bylaws to be taken by Shareholders.
SECTION 6.3. MEETINGS OF SHAREHOLDERS.
SECTION 6.3.1. ANNUAL OR REGULAR MEETINGS. Annual meetings
of stockholders shall be held at such date and time as shall be designated by
the Board of Directors and stated in the notice of the meeting. At such annual
meeting, the stockholders shall elect a Board of Directors by written ballot
and transact such other business as may properly come before the meeting.
SECTION 6.3.2. SPECIAL MEETINGS. Special meetings of
Shareholders may be called by the President of the Trust or the Trustees from
time to time for the purpose of taking action upon any matter requiring the
vote or authority of the Shareholders as herein provided or upon any other
matter upon which Shareholder approval is deemed by the Trustees to be
necessary or desirable. A special meeting shall be called by the Secretary of
the Trust upon (i) the request of a majority of the Trustees then in office, or
(ii) the written request of Shareholders entitled to cast at least ten percent
(10%) of all the votes entitled to be cast at such meeting, provided that (a)
such request shall state the purpose or purposes of the meeting and the matters
proposed to be acted upon at such meeting, and (b) the Shareholders requesting
such meeting shall have paid to the Trust the reasonably estimated cost of
preparing and mailing the notice thereof, which the Secretary shall determine
and specify to such Shareholders. Upon payment of these costs to the Trust,
the Secretary shall notify each Shareholder entitled to notice of the meeting.
Unless requested by Shareholders entitled to cast at least a majority of all
the votes entitled to be cast at such
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meeting, a special meeting need not be called to consider any matter which is
substantially the same as a matter voted on at any special meeting of
Shareholders held during the preceding twelve (12) months.
SECTION 6.3.3. NOTICE OF MEETINGS. Written notice of any
meeting of Shareholders shall be given or caused to be given by the Trustees by
mailing or transmitting such notice not less than ten (10) nor more than ninety
(90) days before such meeting, postage prepaid, stating the time, place, and
purpose of the meeting, to each Shareholder at the Shareholder's address as it
appears on the records of the Trust.
SECTION 6.3.4. CALL OF MEETINGS. The Trustees shall promptly
call and give notice of a meeting of Shareholders for the purpose of voting
upon removal of any Trustee of the Trust when requested to do so in accordance
with Section 6.3.2. For all other matters, the Trustees shall call or give
notice of a meeting within thirty (30) days after written application by
Shareholders entitled to cast at least ten percent (10%) of all the votes
entitled to be cast on the matter requesting a meeting be called.
SECTION 6.4. RECORD DATES. For the purpose of determining the
Shareholders who are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to participate in any dividend or distribution, or
for the purpose of any other action, the Trustees may from time to time close
the transfer books for such period, not exceeding thirty (30) days (except at
or in connection with the termination of the Trust), as the Trustees may
determine; or without closing the transfer books the Trustees may fix a date
and time not more than one hundred twenty (120) days prior to the date of any
meeting of Shareholders or other action as the date and time of record for the
determination of Shareholders entitled to vote at such meeting or any
adjournment thereof or to be treated as Shareholders of record for purposes of
such other action. Any Shareholder who was a Shareholder at the date and time
so fixed shall be entitled to vote at such meeting or any adjournment thereof
or to be treated as a Shareholder of record for purposes of such other action,
even though such Shareholder has since that date and time disposed of its
Shares, and no Shareholder becoming such after that date and time shall be so
entitled to vote at such meeting or any adjournment thereof or to be treated as
a Shareholder of record for purposes of such other action.
SECTION 6.5. QUORUM AND REQUIRED VOTE. Except as otherwise required
by the 1940 Act or other applicable law, this Declaration of Trust, or the
ByLaws, one-tenth (1/10) of the Shares entitled to vote in person or by proxy
shall be a quorum as to any particular matter; provided, however, that any
lesser number shall be sufficient for matters upon which the
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Shareholders vote at adjournments. Notwithstanding any provision of law
requiring the authorization of any matter by a greater proportion, any matter
upon which the Shareholders vote shall be approved by the affirmative vote of a
majority of the votes cast on such matter at a meeting of the Shareholders at
which a quorum is present, except that Trustees shall be elected by the
affirmative vote of a plurality of the votes cast at such a meeting.
SECTION 6.6. ADJOURNMENTS. Adjourned meetings may be held within a
reasonable time after the date set for the original meeting without the
necessity of further notice.
SECTION 6.7. ACTIONS BY WRITTEN CONSENT. Except as otherwise
required by the 1940 Act or other applicable law, this Declaration of Trust, or
the Bylaws, any action taken by Shareholders may be taken without a meeting if
a majority of Shareholders entitled to vote on the matter (or such larger
proportion thereof as shall be required by the 1940 Act or by any express
provision of this Declaration of Trust or the Bylaws) 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 6.8. INSPECTION OF RECORDS. The records of the Trust shall
be open to inspection by Shareholders to the same extent as is required for
stockholders of a Delaware business corporation under the Delaware General
Corporation Law.
SECTION 6.9. ADDITIONAL PROVISIONS. The Bylaws may include further
provisions for Shareholders' votes and meetings and related matters not
inconsistent with the provisions hereof.
ARTICLE 7
LIMITATION OF LIABILITY AND INDEMNIFICATION
SECTION 7.1. GENERAL PROVISIONS.
SECTION 7.1.1. DEFINITION OF TRUSTEE. For purposes of this
Article 7 only, references to "Trustee" shall be deemed to include within its
meaning the Resident Trustee.
SECTION 7.1.2. GENERAL LIMITATION OF LIABILITY. No personal
liability for any debt or obligation of the Trust shall attach to any Trustee
of the Trust. Without limiting the foregoing, a Trustee shall not be
responsible for or liable in any event for any neglect or wrongdoing of any
officer, agent, employee, investment adviser, subadviser, principal
underwriter, or custodian of the Trust, nor shall any Trustee be responsible or
liable for the act or omission of any other Trustee. Every
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note, bond, contract, instrument, certificate, Share, or undertaking and every
other act or thing whatsoever executed or done by or on behalf of the Trust or
the Trustees or any Trustee in connection with the Trust shall be conclusively
deemed to have been executed or done only in or with respect to their or his or
her capacity as Trustees or Trustee and neither such Trustees or Trustee nor
the Shareholders shall be personally liable thereon.
SECTION 7.1.3. NOTICE OF LIMITED LIABILITY. Every note,
bond, contract, instrument, certificate, or undertaking made or issued by the
Trustees or by any officers or officer shall recite that the same was executed
or made by or on behalf of the Trust by them as Trustees or Trustee or as
officers or officer and not individually and that the obligations of such
instrument are not binding upon any of them or the Shareholders individually
but are binding only upon the assets and property of the Trust, and may contain
such further recitals as they or he may deem appropriate, but the omission
thereof shall not operate to bind any Trustees or Trustee or officers or
officer or Shareholders or Shareholder individually.
SECTION 7.1.4. LIABILITY LIMITED TO ASSETS OF THE TRUST. All
persons extending credit to, contracting with or having any claim against the
Trust shall look only to the assets of the Trust, as appropriate, for payment
under such credit, contract, or claim, and neither the Shareholders nor the
Trustees nor any of the Trust's officers, employees, or agents, whether past,
present, or future, shall be personally liable therefor.
SECTION 7.2. LIABILITY OF TRUSTEES. The exercise by the Trustees of
their powers and discretion hereunder shall be binding upon the Trust, the
Shareholders, and any other person dealing with the Trust. The liability of
the Trustees, however, shall be limited by this Section 7.2.
SECTION 7.2.1. LIABILITY FOR OWN ACTIONS. A Trustee shall be
liable to the Trust or the Shareholders only 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 for nothing else, and shall not be
liable for errors of judgment or mistakes of fact or law.
SECTION 7.2.2. LIABILITY FOR ACTIONS OF OTHERS. The Trustees
shall not be responsible or liable in any event for any neglect or wrongdoing
of any officer, agent, employee, consultant, adviser, administrative
distributor, principal underwriter, custodian, transfer agent, dividend
disbursing agent, Shareholder servicing agent, or accounting agent of the
Trust, nor shall any Trustee be responsible for any act or omission of any
other Trustee.
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<PAGE> 26
SECTION 7.2.3. ADVICE OF EXPERTS AND REPORTS OF OTHERS. The
Trustees may take advice of counsel or other experts with respect to the
meaning and operation of this Declaration of Trust and their duties as Trustees
hereunder, and shall be under no liability for any act or omission in
accordance with such advice or for failing to follow such advice. In
discharging their duties, the Trustees, when acting in good faith, shall be
entitled to rely upon the books of account of the Trust and upon written
reports made to the Trustees by any officer appointed by them, any independent
public accountant and (with respect to the subject matter of the contract
involved) any officer, partner, or responsible employee of any other party to
any contract entered into hereunder.
SECTION 7.2.4. BOND. The Trustees shall not be required to
give any bond as such, nor any surety if a bond is required.
SECTION 7.2.5. DECLARATION OF TRUST GOVERNS ISSUES OF
LIABILITY. The provisions of this Declaration of Trust, to the extent that
they restrict the duties and liabilities of the Trustees otherwise existing at
law or in equity, are agreed by the Shareholders and all other Persons bound by
this Declaration of Trust to replace such other duties and liabilities of the
Trustees.
SECTION 7.3. 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 7.4. LIABILITY OF SHAREHOLDERS. Without limiting the
provisions of this Section 7.4 or the DBTA, the Shareholders shall be entitled
to the same limitation of personal liability extended to stockholders of
private corporations organized for profit under the General Corporation Law of
the State of Delaware.
SECTION 7.4.1. LIMITATION OF LIABILITY. No personal
liability for any debt or obligation of the Trust shall attach to any
Shareholder or former Shareholder of the Trust, and neither the Trustees, nor
any officer, employee, or agent of the Trust shall have any power to bind any
Shareholder personally or to call upon any Shareholder for the payment of any
sum of money or assessment whatsoever other than such as the Shareholder may at
any time personally agree to pay by way of subscription for any Shares or
otherwise.
SECTION 7.4.2. INDEMNIFICATION OF SHAREHOLDERS. In case any
Shareholder or former Shareholder of the Trust shall be
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<PAGE> 27
held to be personally liable solely by reason of being or having been a
Shareholder and not because of such Shareholder's acts or omissions or for some
other reason, the Shareholder or former Shareholder (or, in the case of a
natural person, his or her heirs, executors, administrators, or other legal
representatives or, in the case of a corporation or other entity, its corporate
or other general successor) shall be entitled out of the assets of the Trust to
be held harmless from and indemnified against all loss and expense arising from
such liability; provided, however, there shall be no liability or obligation of
the Trust arising hereunder to reimburse any Shareholder for taxes paid by
reason of such Shareholder's ownership of any Shares or for losses suffered by
reason of any changes in value of any Trust assets. The Trust shall, upon
request by the Shareholder or former Shareholder, assume the defense of any
claim made against the Shareholder for any act or obligation of the Trust and
satisfy any judgment thereon.
SECTION 7.5. INDEMNIFICATION.
SECTION 7.5.1. INDEMNIFICATION OF COVERED PERSONS. Subject
to the exceptions and limitations contained in Section 7.5.2, every person who
is, or has been, a Trustee, officer, employee, or agent of the Trust, including
persons who serve at the request of the Trust as directors, trustees, officers,
employees, or agents of another organization in which the Trust has an interest
as a shareholder, creditor, or otherwise (hereinafter referred to as a "Covered
Person"), shall be indemnified by the Trust to the fullest extent permitted by
law against liability and against all expenses reasonably incurred or paid by
him in connection with any claim, action, suit, or proceeding in which he
becomes involved as a party or otherwise by virtue of his being or having been
such a Trustee, director, officer, employee, or agent and against amounts paid
or incurred by him in settlement thereof.
SECTION 7.5.2. EXCEPTIONS. No indemnification shall be
provided hereunder to a Covered Person:
(a) For any liability to the Trust or its Shareholders arising out of
a final adjudication by the court or other body before which the proceeding was
brought that the Covered Person engaged in willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct
of his office;
(b) With respect to any matter as to which the Covered Person shall
have been finally adjudicated not to have acted in good faith in the reasonable
belief that his or her action was in the best interests of the Trust; or
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<PAGE> 28
(c) In the event of a settlement or other disposition not involving a
final adjudication (as provided in paragraph (a) or (b) of this Section 7.5.2)
and resulting in a payment by a Covered Person, unless there has been either a
determination that such Covered Person did not engage in willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in
the conduct of his office by the court or other body approving the settlement
or other disposition, or a reasonable determination, based on a review of
readily available facts (as opposed to a full trial-type inquiry), that he or
she did not engage in such conduct, such determination being made by: (i) a
vote of a majority of the Disinterested Trustees (as such term is defined in
Section 7.5.5) acting on the matter (provided that a majority of Disinterested
Trustees then in office act on the matter); or (ii) a written opinion of
independent legal counsel.
SECTION 7.5.3. RIGHTS OF INDEMNIFICATION. The rights of
indemnification herein provided may be insured against by policies maintained
by the Trust, and shall be severable, shall not affect any other rights to
which any Covered Person may now or hereafter be entitled, shall continue as to
a person who has ceased to be a Covered Person, and shall inure to the benefit
of the heirs, executors, and administrators of such a person. Nothing
contained herein shall affect any rights to indemnification to which Trust
personnel other than Covered Persons may be entitled by contract or otherwise
under law.
SECTION 7.5.4. EXPENSES OF INDEMNIFICATION. Expenses of
preparation and presentation of a defense to any claim, action, suit, or
proceeding subject to a claim for indemnification under this Section 7.5 shall
be advanced by the Trust prior to final disposition thereof upon receipt of an
undertaking by or on behalf of the recipient to repay such amount if it is
ultimately determined that he or she is not entitled to indemnification under
this Section 7.5, provided that either:
(a) Such undertaking is secured by a surety bond or some other
appropriate security or the Trust shall be insured against losses arising out
of any such advances; or
(b) A majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then in office act on
the matter) or independent legal counsel in a written opinion shall determine,
based upon a review of the readily available facts (as opposed to the facts
available upon a full trial), that there is reason to believe that the
recipient ultimately will be found entitled to indemnification.
SECTION 7.5.5. CERTAIN DEFINED TERMS RELATING TO
INDEMNIFICATION. As used in this Section 7.5, the following words shall have
the meanings set forth below:
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<PAGE> 29
(a) A "Disinterested Trustee" is one (i) who is not an Interested
Person of the Trust (including anyone, as such Disinterested Trustee, who has
been exempted from being an Interested Person by any rule, regulation, or order
of the Commission), and (ii) against whom none of such actions, suits, or other
proceedings or another action, suit, or other proceeding on the same or similar
grounds is then or has been pending;
(b) "Claim," "action," "suit," or "proceeding" shall apply to all
claims, actions, suits, proceedings (civil, criminal, administrative, or other,
including appeals), actual or threatened; and
(c) "Liability" and "expenses" shall include without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines,
penalties, and other liabilities.
ARTICLE 8
DISPUTE RESOLUTION
SECTION 8.1. ARBITRATION. To the extent permitted by applicable law,
all claims that (i) are among the corporation, its officers and directors, and
its shareholders, or any of them and (ii) arise out of or relate to their
relation to each other as officers, directors, and shareholders of the
Corporation, if not sooner settled by agreement, shall be finally settled by an
arbitrator or board of arbitrators (the "Board"). Subject to the provisions
contained below, the arbitration shall be conducted pursuant to the
then-applicable Commercial Arbitration Rules of the American Arbitration
Association ("AAA"). The Federal Arbitration Act (9 U.S.C. Section 1, et seq.)
shall govern this arbitration agreement.
SECTION 8.2. ADMINISTRATION/SELECTION OF ARBITRATOR. If the parties
can otherwise agree on an arbitrator, they may but need not use the
administrative services of the AAA. Even if they do not use the AAA's
administrative services, so far as applicable, the AAA's Commercial Arbitration
Rules shall still control. The arbitrator shall determine the applicability of
the rules if a dispute arises with respect thereto. Unless the parties
otherwise agree at the time, there shall be only one arbitrator. With or
without seeking prior agreement on an arbitrator, either party may at any time,
subject to paragraph 12.8 hereof, initiate arbitration through the AAA, and the
arbitrator(s) shall be appointed and the case shall be administered by the AAA
in accordance with its then-applicable rules.
SECTION 8.3. SITUS. All dispute resolution proceedings shall be
conducted in San Antonio, Texas.
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<PAGE> 30
SECTION 8.4. BASIS OF AWARD. Any arbitration award shall be based on
and accompanied by written findings of fact and conclusions of law, shall be
conclusive as to the facts so found, and shall be confirmable by a court of
competent jurisdiction if the award correctly applies the applicable
substantive laws. Settlement discussions prior to arbitration shall be
privileged to the same extent as in litigation, and no evidence of such
negotiations shall be admitted in the arbitration proceeding.
SECTION 8.5. DISCOVERY. To ensure a fair hearing, and consistent
with achieving the objective of an expeditious proceeding, the Board shall have
discretion to order prehearing exchange of information by the parties,
including, without limitation, production of requested documents, exchange of
summaries of testimony of proposed witnesses, and examination by deposition of
parties and third-party witnesses.
SECTION 8.6. LIMITATION OF AUTHORITY. The arbitrator(s) shall not
have the authority to award any remedy or relief that a court of the State of
Texas could not order or grant.
SECTION 8.7. CONCLUSIVENESS. For an arbitration award to be
conclusive, binding, and enforceable hereunder, the arbitration must follow the
arbitration procedures set forth herein. Judgment upon an award meeting the
requirements hereof may be entered by any court of competent jurisdiction.
SECTION 8.8. MEDIATION. As a condition precedent to any arbitration,
the disputants shall first submit in good faith to mediation. Laches, waiver,
and estoppel based upon any reasonable delay relating to attempts to mediate as
herein provided may not be asserted by any party. The mediation shall be
conducted in accordance with the Association of Attorney-Mediators, Inc. Rules
for Mediation. If a party makes a demand for mediation hereunder and another
fails or refuses to submit to mediation, then the demanding party may initiate
arbitration without any further mediation requirement but, regardless of
outcome, the party who failed or refused to mediate shall under no circumstance
recover its attorneys fees in any litigation or arbitration.
SECTION 8.9. SELECTION OF MEDIATOR. If the parties can otherwise
agree on a mediator, they may do so. With or without seeking prior agreement
on a mediator, either party may initiate mediation through the Professional
Attorney-Mediators (800-696-6964), the Association of Attorney-Mediators, Inc.
(800-280-1368), or the San Antonio Arbitration and Mediation Association
(210-277-4260), and any mediator selected in accordance to the rules and
procedures of any of those organizations shall be an acceptable mediator.
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<PAGE> 31
SECTION 8.10. FEES OF ADR NEUTRALS. All fees of ADR neutral shall
initially be borne equally between the parties. If the matter proceeds to
arbitration, the arbitrator(s) may disproportionately allocate the costs of the
arbitration to the party whose position in the arbitration was, in the view of
the arbitrator(s), unreasonable under the circumstances.
ARTICLE 9
TERMINATION OR REORGANIZATION
SECTION 9.1. TERMINATION OF TRUST. Unless terminated as provided
herein, the Trust designated and established pursuant to this Declaration of
Trust shall continue without limitation of time.
SECTION 9.1.1. TERMINATION. Subject to approval by the
affected Shareholders, the Trust or any class (and the establishment and
designation thereof) may be terminated by an instrument executed by a majority
of the Trustees then in office; provided, however, that no approval of affected
Shareholders is necessary if a majority of the trustees then in office
determines that the continuation of the Trust or class is not in the best
interests of the Trust, such class, or the affected Shareholders as a result of
factors or events adversely affecting the ability of the Trust or class to
conduct its business and operations in an economically viable manner.
SECTION 9.1.2. DISTRIBUTION OF ASSETS. Upon termination of
the Trust or class, after paying or otherwise providing for all charges, taxes,
expenses, and liabilities, whether due or accrued or anticipated, as may be
determined by the Trustees, the Trust shall, in accordance with such procedures
as the Trustees consider appropriate, reduce the remaining assets of the Trust
to distributable form in cash or other securities, or any combination thereof,
and distribute the proceeds to the affected Shareholders in the manner set
forth by resolution of the Trustees. To the extent permitted by the 1940 Act
or other applicable law, the Trustees may require affected Shareholders to
receive Shares of any remaining class in lieu of such proceeds.
SECTION 9.1.3. CERTIFICATE OF CANCELLATION. Upon termination
of the Trust, the Trustees shall file a certificate of cancellation in
accordance with Section 3810 of the DBTA.
SECTION 9.2. REORGANIZATION. The Trustees may sell, convey, merge,
and transfer the assets of the Trust to another trust, partnership,
association, or corporation organized under the laws of any state of the United
States or any other legal jurisdiction, to the extent permitted by applicable
law, in exchange for cash, shares, or other securities with such transfer
either (i) being made subject to, or with the assumption by the
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<PAGE> 32
transferee of, the liabilities belonging to the Trust, or (ii) not being made
subject to, or not with the assumption of, such liabilities. Following such
transfer, the Trustees shall distribute such cash, Shares, or other securities
among the Shareholders. If all of the assets of the Trust have been so
transferred, the Trust shall be terminated.
SECTION 9.3. MERGER OR CONSOLIDATION.
SECTION 9.3.1. AUTHORITY TO MERGE OR CONSOLIDATE. The Trust
may, either as the successor, survivor, or non-survivor, (i) consolidate with
one or more other trusts, partnerships, associations, or corporations organized
under the laws of the State of Delaware or any other state of the United
States, to form a new consolidated trust, partnership, association, or
corporation under the laws of which any one of the constituent entities is
organized, or (ii) merge into one or more other trusts, partnerships,
associations, or corporations organized under the laws of the State of Delaware
or any other state of the United States, or have one or more such trusts,
partnerships, associations, or corporations merged into it, any such
consolidation or merger to be upon such terms and conditions as are specified
in an agreement and plan of reorganization entered into by the Trust in
connection therewith. The terms "merge" or "merger" as used herein shall also
include the purchase or acquisition of any assets of any other trust,
partnership, association, or corporation which is an investment company
organized under the laws of the State of Delaware or any other state of the
United States.
SECTION 9.3.2. NO SHAREHOLDER APPROVAL REQUIRED. Any such
consolidation or merger shall not require the vote of the Shareholders affected
thereby, unless such vote is required by the 1940 Act or other applicable laws,
or unless such merger or consolidation would result in an amendment of this
Declaration of Trust which would otherwise require the approval of such
Shareholders.
SECTION 9.3.3. SUBSEQUENT AMENDMENTS. In accordance with
Section 3815(f) of DBTA, an agreement of merger or consolidation may effect any
amendment to this Declaration of Trust or the Bylaws or effect the adoption of
a new declaration of trust or Bylaws of the Trust if the Trust is the surviving
or resulting business trust.
SECTION 9.3.4. CERTIFICATE OF MERGER OR CONSOLIDATION. Upon
completion of the merger or consolidation, the Trustees shall file a
certificate of merger or consolidation in accordance with Section 3810 of the
DBTA.
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<PAGE> 33
ARTICLE 10
MISCELLANEOUS PROVISIONS
SECTION 10.1. CERTIFIED COPIES. The original or a copy of this
Declaration of Trust and of each amendment hereto shall be kept in the office
of the Trust where it may be inspected by any Shareholder. Anyone dealing with
the Trust may rely on a certificate by an officer or Trustee of the Trust as to
whether or not any such amendments have been made and as to any matters in
connection with the Trust hereunder, and with the same effect as if it were the
original, may rely on a copy certified by an officer or Trustee of the Trust to
be a copy of this Declaration of Trust or of any such amendments.
SECTION 10.2. CERTAIN INTERNAL REFERENCES. In this Declaration of
Trust or in any such amendment, references to this Declaration of Trust, and
all expressions like "herein," "hereof" and "hereunder," shall be deemed to
refer to this Declaration of Trust as a whole and as amended or affected by any
such amendment.
SECTION 10.3. HEADINGS. Headings are placed herein for convenience
of reference only, and in case of any conflict, the text of this instrument,
rather than the headings, shall control. This instrument may be executed in
any number of counterparts, each of which shall be deemed an original.
SECTION 10.4. RESOLUTION OF AMBIGUITIES. The Trustees may construe
any of the provisions of this Declaration insofar as the same may appear to be
ambiguous or inconsistent with any other provisions hereof, and any such
construction hereof by the Trustees in good faith shall be conclusive as to the
meaning to be given to such provisions. In construing this Declaration, the
presumption shall be in favor of a grant of power to the Trustees.
SECTION 10.5. AMENDMENTS.
SECTION 10.5.1. GENERALLY. Except as otherwise specifically
provided herein or as required by the 1940 Act or other applicable law, this
Declaration of Trust may be amended at any time by an instrument in writing
signed by a majority of the Trustees then in office.
SECTION 10.5.2. CERTIFICATE OF AMENDMENT. In the event of
any amendment to this Declaration of Trust which affects the certificate of
trust filed by the Trust in accordance with Section 2.1, the Trustees shall
file a certificate of amendment in accordance with Section 3810 of the DBTA.
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<PAGE> 34
SECTION 10.5.3. PROHIBITED RETROSPECTIVE AMENDMENTS. No
amendment of this declaration of Trust or repeal of any of its provisions shall
limit or eliminate the limitation of liability provided to Trustees and
officers hereunder with respect to any act or omission occurring prior to such
amendment or repeal.
SECTION 10.6. SIGNATURES. To the extent permitted by applicable law,
any instrument signed pursuant to a validly executed power of attorney shall be
deemed to have been signed by the Trustee or officer executing the power of
attorney.
SECTION 10.7. GOVERNING LAW. This Declaration of Trust is executed
and delivered with reference to DBTA and the laws of the State of Delaware by
all of the Trustees whose signatures appear below, and the rights of all
parties and the validity and construction of every provision hereof shall be
subject to and construed according to DBTA and the laws of the State of
Delaware (unless and to the extent otherwise provided for and/or preempted by
the 1940 Act or other applicable federal securities laws); provided, however,
that there shall not be applicable to the Trust, the Trustees, or this
Declaration of Trust (a) the provisions of Section 3540 of Title 12 of the
Delaware Code or (b) any provisions of the laws (statutory or common) of the
State of Delaware (other than the DBTA) pertaining to trusts which are
inconsistent with the rights, duties, powers, limitations or liabilities of the
Trustees set forth or referenced in this Declaration of Trust. All references
to sections of the DBTA or the 1940 Act, or any rules or regulations
thereunder, refer to such sections, rules, or regulations in effect as of the
date of this Declaration of Trust, or any successor sections, rules, or
regulations thereto.
SECTION 10.8. SEVERABILITY. The provisions of this Declaration of
Trust are severable, and if the Trustees shall determine, with the advice of
counsel, that any of such provision is in conflict with the 1940 Act, the DBTA,
or with other applicable laws and regulations, the conflicting provision shall
be deemed never to have constituted a part of this Declaration of Trust;
provided, however, that such determination shall not affect any of the
remaining provisions of this Declaration of Trust or render invalid or improper
any action taken or omitted prior to such determination. If any provision of
this 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 this Declaration
of Trust in any jurisdiction.
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<PAGE> 35
IN WITNESS WHEREOF, the undersigned, being the Trustee of the Trust,
has executed this Declaration of Trust as of the date first written above.
/s/ Robert R. Swendson
---------------------------------
Robert R. Swendson
<PAGE> 36
IN WITNESS WHEREOF, the undersigned, being the Resident Trustee of the
Trust, has executed this Declaration of Trust as of the date first written
above.
PNC BANK, DELAWARE, a Delaware
banking corporation, solely as
Resident Trustee and not in its
individual capacity
/s/ M. B. McCarthy
By:
------------------------------
Name: Michael B. McCarthy
Title: Vice President
<PAGE> 1
BYLAWS
OF
PLYMOUTH COMMERCIAL MORTGAGE FUND
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Principal Place of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 Meetings of the Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1. Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2.1. Time and Place . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2.2. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.3. Participation by Telephone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 3 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.1. Enumeration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.2. Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.3. Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.4. Term of Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.5. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.6. Titles and Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.6.1. Chairperson of the Board; President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.6.2. Vice President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.6.3. Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.6.4. Assistant Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.6.5. Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.6.6. Assistant Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.6.7. Temporary Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.7. Resignation, Retirement, and Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.8. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 4 Share Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.1. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.2. Receipts In Lieu of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.3. Future Issuance of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.4. Loss of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.5. Discontinuance of Issuance of Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 5 Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.1. Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.2. Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.3. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.4. Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.5. Execution of Papers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.6. Dealings with Trustees and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.6.1. Purchase and Redemption of Shares of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
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<TABLE>
<S> <C> <C>
5.6.2. Purchase and Sale of Other Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.7. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
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<PAGE> 4
BYLAWS
OF
PLYMOUTH COMMERCIAL MORTGAGE FUND
These BYLAWS, made as of this day, September 3, 1996, shall be subject
to the Declaration of Trust, as from time to time in effect, of the Plymouth
Commercial Mortgage Fund (the "Trust"), a Delaware business trust established
on August 23, 1996, by a declaration of trust (the "Declaration of Trust"). In
the event of any inconsistency between the terms hereof and the terms of the
Declaration of Trust, the terms of the Declaration of Trust shall control.
Capitalized terms are used as defined in the Declaration of Trust, except as
specifically defined herein.
ARTICLE 1
OFFICES
SECTION 1.1. PRINCIPAL PLACE OF BUSINESS. The principal place of
business of the Trust is 13333 Blanco Road, Suite 314, San Antonio, Texas
78216-7756.
SECTION 1.2. OTHER OFFICES. The Trustees may, at any time, establish
branch or subordinate offices at any place or places where the Trust intends to
do business.
ARTICLE 2
MEETINGS OF THE TRUSTEES
SECTION 2.1. REGULAR MEETINGS. Regular meetings of the Trustees may
be held without call or notice at such places and at such times as the Trustees
may from time to time determine, provided that notice of the first regular
meeting following any such determination shall be given to absent Trustees.
SECTION 2.2. SPECIAL MEETINGS. Special meetings of the Trustees may
be called by the Chairperson of the Board, the President, the Treasurer, or by
two or more Trustees.
SECTION 2.2.1. TIME AND PLACE. Special meetings may be held
at any time and at any place designated in the call of the meeting.
SECTION 2.2.2. NOTICE. Sufficient notice of the special
meeting must be given to each Trustee by the Secretary, an Assistant Secretary,
or the person or persons calling the meeting. Notice by First Class mail
addressed to a Trustee at his or her usual or last known business or residence
address, notice to such Trustee in person or by telephone at least twenty-four
hours before the special meeting, or notice by other means determined by the
Trustees shall be sufficient notice of the special meeting. Notice of a
special meeting need not be given to any Trustee if a written waiver of such
notice, executed by such Trustee before or after the meeting, is filed with the
records of the special meeting. Attendance by a
<PAGE> 5
Trustee at a special meeting shall be deemed to be an effective waiver of
notice of such special meeting, unless such Trustee protests the lack of notice
to him or her prior to or at the commencement of such special meeting. Neither
notice of a special meeting nor a written waiver of notice need specify the
purposes of the special meeting.
SECTION 2.3. PARTICIPATION BY TELEPHONE. One or more of the Trustees
may participate in a meeting of the Trustees or any committee thereof by means
of a conference telephone or similar communications or video equipment allowing
all persons participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at a meeting to
the extent permitted by the 1940 Act.
SECTION 2.4. VOTING. Additional requirements as to voting by
Trustees are set forth in Section 4.11 of the Declaration of Trust.
ARTICLE 3
OFFICERS
SECTION 3.1. ENUMERATION. The officers of the Trust shall be a
Chairperson of the Board, a President, a Treasurer, a Secretary, and such other
officers, including one or more Vice Presidents, Assistant Treasurers, and/or
Assistant Secretaries, as the Trustees from time to time may in their
discretion elect. The Trust may also have such agents as the Trustees from
time to time may in their discretion appoint.
SECTION 3.2. QUALIFICATION. The Chairperson of the Board shall be a
Trustee and may, but need not be, a shareholder. Any other officer may, but
need not be, a Trustee or shareholder. Any two or more offices may be held by
the same person except that the same person may not be both President and
Treasurer.
SECTION 3.3. ELECTION. The Chairperson of the Board, the President,
the Treasurer, and the Secretary shall be elected by the Trustees at the first
meeting of the Trustees, and shall thereafter be elected at each annual meeting
of the Trustees. Other officers, if any, may be elected or appointed by the
Trustees at any meeting of the Trustees or at any other time.
SECTION 3.4. TERM OF OFFICE. The Chairperson of the Board, the
President, the Treasurer, and the Secretary shall hold office until their
respective successors are chosen and qualified, or in each case until he or she
sooner dies, resigns, is removed, or becomes disqualified. Each other officer
shall hold office and each agent shall retain authority at the pleasure of the
Trustees.
SECTION 3.5. POWERS. Subject to the other provisions of these
Bylaws, each officer shall have, in addition to the duties and powers set forth
herein and in the Declaration of Trust, such duties and powers as are commonly
incident to the office occupied by such
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<PAGE> 6
officer as if the Trust were organized as a Delaware business corporation and
such other duties and powers as the Trustees may from time to time designate.
SECTION 3.6. TITLES AND DUTIES.
SECTION 3.6.1. CHAIRPERSON OF THE BOARD; PRESIDENT. Unless
the Trustees otherwise provide, the Chairperson of the Board, or, in the
absence of the Chairperson, the President, shall preside at all meetings of the
shareholders and of the Trustees. Unless the Trustees otherwise provide, the
President shall be the Chief Executive Officer of the Trust. The Chairperson
of the Board and the President shall each also perform such other duties and
have such other powers as the Board of Trustees may from time to time
prescribe.
SECTION 3.6.2. VICE PRESIDENT. In the absence of the
President or in the event of his or her inability or refusal to act, the Vice
President, or if there is more than one Vice President, the Vice Presidents in
their order of election or in such other order as determined by the Trustees,
shall perform the duties of the President, and when so acting shall have all
the powers of and be subject to all the restrictions upon the President. The
Vice Presidents shall also perform such other duties and have such other powers
as the Board of Trustees or the President may from time to time prescribe.
SECTION 3.6.3. TREASURER. The Treasurer shall be the chief
financial and accounting officer of the Trust, and shall, subject to the
provisions of the Declaration of Trust and to any arrangement made by the
Trustees with a custodian, investment adviser or manager, or transfer,
shareholder servicing or similar agent, be in charge of the valuable papers,
books of account, and accounting records of the Trust. The Treasurer shall
also perform such other duties and have such other powers as the Board of
Trustees or the President may from time to time prescribe.
SECTION 3.6.4. ASSISTANT TREASURER. In the absence of the
Treasurer or in the event of his or her inability or refusal to act, the
Assistant Treasurer, or if there is more than one, the Assistant Treasurers in
their order of election or in such other order as determined by the Trustees,
shall perform the duties of the Treasurer, and when so acting shall have all
the powers of and be subject to all the restrictions upon the Treasurer. The
Assistant Treasurers shall also perform such other duties and have such other
powers as the Board of Trustees or the President may from time to time
prescribe.
SECTION 3.6.5. SECRETARY. The Secretary shall record all
proceedings of the shareholders and the Trustees in books to be kept for such
purposes, which books or a copy thereof shall be kept at the principal office
of the Trust or at such other place as designated by the Trustees. The
Secretary shall also perform such other duties and have such other powers as
the Board of Trustees or the President may from time to time prescribe.
SECTION 3.6.6. ASSISTANT SECRETARY. In the absence of the
Secretary or in the event of his or her inability or refusal to act, the
Assistant Secretary, or if there is more than
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<PAGE> 7
one, the Assistant Secretaries in their order of election or in such other
order as determined by the Trustees, shall perform the duties of the Secretary,
and when so acting shall have all the powers of and be subject to all the
restrictions upon the Secretary. The Assistant Secretaries shall also perform
such other duties and have such other powers as the Board of Trustees or the
President may from time to time prescribe.
SECTION 3.6.7. TEMPORARY SECRETARY. In the absence of the
Secretary and all Assistant Secretaries from any meeting of the shareholders or
Trustees, the Trustees may appoint a temporary secretary at such meeting, who
shall perform the duties of the Secretary for the purposes of such meeting.
SECTION 3.7. RESIGNATION, RETIREMENT, AND REMOVAL. Any officer may
resign at any time by written instrument signed by him or her delivered to the
Chairperson of the Board, President, or Secretary or delivered to a meeting of
the Trustees. Such resignation shall be effective upon receipt unless
specified to be effective at some other time. The Trustees may remove any
officer elected by them with or without cause by the vote or written consent of
a majority of the Trustees then in office. To the extent that any officer or
Trustee of the Trust receives compensation from the Trust and except as may
otherwise be expressly provided in a written agreement with the Trust, no
Trustee or officer resigning and no officer removed shall have any right to any
compensation for any period following his or her resignation or removal, or any
right to damages on account of such removal.
SECTION 3.8. VACANCIES. Any vacancy or anticipated vacancy resulting
for any reason, including without limitation the death, resignation,
retirement, removal, or incapacity of the Chairperson of the Board, the
President, the Treasurer, or the Secretary may be filled by a majority of the
Trustees then in office through the appointment in writing of such other person
as such remaining Trustees in their discretion shall determine. The
appointment shall be effective upon the written acceptance of the person named
therein to serve as in the capacity named therein. Other vacancies may be
filled, if at all, by the Trustees at a meeting of the Trustees or at any other
time.
ARTICLE 4
SHARE CERTIFICATES
SECTION 4.1. GENERAL. No certificates certifying the ownership of
shares in the Trust are required to be issued, except as the Trustees may
otherwise determine from time to time.
SECTION 4.2. RECEIPTS IN LIEU OF CERTIFICATES. In lieu of issuing
certificates for shares, the Trustees or the transfer agent may either issue
receipts therefor or may keep accounts upon the books of the Trust for the
record holders of such shares in accordance with the Declaration of Trust, who
shall in either case be deemed, for all purposes hereunder, to be the holders
of certificates for such shares as if they had accepted such certificates and
shall be held to have expressly assented and agreed to the terms hereof.
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<PAGE> 8
SECTION 4.3. FUTURE ISSUANCE OF CERTIFICATES. The Trustees may at
any time authorize the issuance of share certificates to one or more
shareholders. Such certificate shall be in such form prescribed by the
Trustees, provided, however, that such certificate shall state the number of
shares it represents and shall be signed by the President or a Vice President
and by the Treasurer or Assistant Treasurer. Such signatures may be facsimiles
if the certificate is signed by a transfer agent or registrar who is not a
Trustee, officer, or employee of the Trust. In case any officer who has signed
such certificate or whose facsimile signature has been placed on such
certificate shall cease to be an officer before such certificate is issued, it
may be issued by the Trust with the same effect as if he or she were such
officer at the time of its issue.
SECTION 4.4. LOSS OF CERTIFICATES. In case of the alleged loss or
destruction or the mutilation of a share certificate, a duplicate certificate
may be issued in place thereof, upon such terms as the Trustees shall
prescribe.
SECTION 4.5. DISCONTINUANCE OF ISSUANCE OF CERTIFICATE. The Trustees
may at any time discontinue the issuance of share certificates and may, by
written notice to each shareholder holding a certificate, require the surrender
of share certificates to the Trust for cancellation. Such surrender and
cancellation shall not affect the ownership of shares in the Trust.
ARTICLE 5
MISCELLANEOUS PROVISIONS
SECTION 5.1. COMMITTEES. The Trustees, by vote of a majority of the
Trustees then in office, may elect from their number an Audit Committee,
Executive Committee, Nominating Committee, or any other committee, and may
delegate thereto some or all of their powers except those which by law, by the
Declaration of Trust, or by these Bylaws may not be delegated. Except as the
Trustees may otherwise determine, any such committee may make rules for the
conduct of its business, but unless otherwise provided by the Trustees or in
such rules, its business shall be conducted so far as possible in the same
manner as is provided by these Bylaws for the Trustees themselves. All members
of such committees shall hold such offices at the pleasure of the Trustees.
The Trustees may abolish any committee at any time. Any committee to which the
Trustees delegate any of their powers or duties shall keep records of its
meetings and shall report its actions to the Trustees. The Trustees shall have
power to rescind any action of any committee, but no such rescission shall have
retroactive effect.
SECTION 5.2. REPORTS. The Trustees and officers shall render reports
at the time and in the manner required by the Declaration of Trust or any
applicable law. Officers and committees shall render such additional reports
as they may deem desirable or as may from time to time be required by the
Trustees.
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<PAGE> 9
SECTION 5.3. FISCAL YEAR. The fiscal year of the Trust shall end on
December 31, or such other date as fixed by resolution of the Trustees.
SECTION 5.4. SEAL. No official seal of the Trust shall be required
to execute any instruments on behalf of the Trust in accordance with Section
5.5 herein.
SECTION 5.5. EXECUTION OF PAPERS. Except as the Trustees may
generally or in particular cases authorize the execution thereof in some other
manner, all deeds, leases, contracts, notes, and other obligations made by the
Trustees shall be signed by the President, any Vice President, Treasurer, any
Assistant Treasurer, Secretary, or any Assistant Secretary, or any officer
authorized to do so by the Trustees or any of the foregoing.
SECTION 5.6. DEALINGS WITH TRUSTEES AND OFFICERS.
SECTION 5.6.1. PURCHASE AND REDEMPTION OF SHARES OF THE
TRUST. Any Trustee, officer, or other agent of the Trust may acquire, own, and
dispose of Shares of the Trust to the same extent as if he were not a Trustee,
officer, or agent, and the Trustees may accept subscriptions to purchase or may
repurchase Shares from any firm or company in which any Trustee, officer, or
other agent of the Trust may have an interest.
SECTION 5.6.2. PURCHASE AND SALE OF OTHER SECURITIES. The
Trust shall not purchase any securities (other than Shares) from, or sell any
securities (other than Shares) to, any Trustee or officer of the Trust, or any
director, trustee, officer, or partner of any firm which acts as investment
adviser or principal underwriter for the Trust acting as principal, except to
the extent not prohibited by the 1940 Act or rules or regulations thereunder or
as permitted by appropriate order or written advice of the Commission.
SECTION 5.7. AMENDMENTS. Except as otherwise specifically provided
herein or as required by the 1940 Act or other applicable law, these Bylaws may
be amended or repealed, in whole or in part, by majority of the Trustees then
in office at any meeting of the Trustees, or by one or more writings signed by
such a majority.
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