SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
SEC File 333-14943 and 811-7881
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |_|
Pre-Effective Amendment No. 2 |X|
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Post-Effective Amendment No. ________ |_|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 2
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(Check appropriate box or boxes.)
Brazos Mutual Funds
(Exact Name of Registrant as Specified in Charter)
5949 Sherry Lane, Suite 1560
Dallas, Texas 75225
(Address of Principal Executive Offices) (Zip Code)
with a copy of communications to:
Audrey C. Talley, Esquire
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
Registrant's Telephone Number, including Area Code (214) 365-5200
John D. McStay, 5949 Sherry Lane, Suite 1560, Dallas, Texas 75225
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: Upon effective date of this
registration statement It is proposed that this filing will become effective
(check appropriate box)
|_| immediately upon filing pursuant to paragraph (b)
|_| on (date) pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(1)
|_| on (date) pursuant to paragraph (a)(1)
|_| 75 days after filing pursuant to paragraph (a)(2)
|_| on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
|_| This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Calculation of Registration Fee Under the Securities Act of 1933:
An indefinite number of securities is being registered under the Securities Act
of 1933 pursuant to Rule 24f-2 thereunder.
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TABLE OF CONTENTS
Part A INFORMATION REQUIRED IN A PROSPECTUS
Part B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Part C OTHER INFORMATION
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FORM N-1A CROSS REFERENCE
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PART A INFORMATION REQUIRED IN A PROSPECTUS
Form N-1A
Item Number Location in Prospectus
<S> <C>
Item 1. Cover Page............................................................. Cover Page
Item 2. Synopsis............................................................... Fund Expenses; Prospectus
Summary; Risk Factors
Item 3. Condensed Financial Information........................................ Financial Highlights (to be
added by amendment);
Performance Calculations
Item 4. General Description of Registrant...................................... Prospectus Summary; Risk
Factors; Investment
Objective; Investment
Policies; Other Investment
Policies; Investment
Limitations
Item 5. Management of the Fund................................................. Prospectus Summary;
Investment Adviser;
Administrative Services;
Portfolio Transactions
Item 5A. Management's Discussion of Fund Performance............................ To be provided in
Registrant's Annual Report
to Shareholders
Item 6. Capital Stock and other Securities..................................... Purchase of Shares;
Dividends, Capital Gains
Distributions and Taxes;
General Information
Item 7. Purchase of Securities Being Offered................................... Purchase of Shares;
Distributor; Shareholder
Services; Valuation of
Shares
Item 8. Redemption or Repurchase............................................... Redemption of Shares;
Shareholder Services
Item 9. Legal Proceedings...................................................... Not Applicable
PART B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Form N-1A Location in Statement
Item Number of Additional Information
Item 10. Cover Page.............................................................Cover Page
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Item 11. Table of Contents......................................................Cover Page; Table of
Contents
Item 12. General Information and History........................................General Information
Item 13. Investment Objectives and Policies.....................................Investment Objectives and
Policies; Investment
Limitations
Item 14. Management of the Registrant...........................................Management of the Fund;
Investment Adviser
Item 15. Control Persons and Principal Holders of Securities....................Management of the Fund
Item 16. Investment Advisory and Other Services.................................Investment Adviser
Item 17. Brokerage Allocation...................................................Portfolio Transactions
Item 18. Capital Stock and Other Securities.....................................General Information
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered..........................................................Purchase of Shares;
Redemption of Shares;
Shareholder Services
Item 20. Tax Status.............................................................General Information
Item 21. Underwriters...........................................................Management of the Fund
Item 22. Calculation of Performance Data........................................Performance Calculations
Item 23. Financial Statements...................................................Financial Statements (to be
supplied by amendment)
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PART C OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item so numbered in Part C to this Registration Statement.
Form N-1A
Item Number
Item 24. Financial Statements and Exhibits
Item 25. Persons Controlled by or Under Common Control
Item 26. Number of Holders of Securities
Item 27. Indemnification
Item 28. Business and Other Connections of Investment Adviser
Item 29. Principal Underwriters
Item 30. Location of Accounts and Records
Item 31. Management Services
Item 32. Undertakings
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BRAZOS/JMIC Small Cap Growth Portfolio
[INSERT PHONE NUMBER]
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PROSPECTUS
INVESTMENT OBJECTIVES
Brazos Mutual Funds (the "Fund") is an open-end, management investment
company known as a "mutual fund." The Fund consists of multiple series of shares
(known as "Portfolios") each of which has different investment objectives and
investment policies. The BRAZOS/JMIC Small Cap Growth Portfolio currently offers
only one class of shares. The securities offered in this Prospectus are shares
of one diversified, no-load Portfolio managed by John McStay Investment Counsel.
BRAZOS/JMIC Small Cap Growth Portfolio. The objective of the BRAZOS/JMIC Small
Cap Growth Portfolio (the "Portfolio") is to provide maximum capital
appreciation, consistent with reasonable risk to principal, by investing
primarily in small capitalization companies.
There can be no assurance that the Portfolio will meet its stated
objective.
ABOUT THIS PROSPECTUS
Keep this Prospectus for future reference. It contains information you
should know before you invest. A "Statement of Additional Information" ("SAI")
containing additional information about the Fund has been filed with the
Securities and Exchange Commission. Such Statement is dated ___________________,
1996 and has been incorporated by reference into this Prospectus. For a free
copy of the SAI write to the Fund or call the Fund's Administrator at the
telephone number above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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FUND EXPENSES
The following table illustrates expenses and fees a shareholder of the
Portfolio will incur. Additional transaction fees may be charged if a
broker-dealer or other financial intermediary deals with the Fund on your
behalf. Please see "Purchase of Shares" for further information.
Shareholder Transaction Expenses
Sales Load Imposed on Purchases.............................................NONE
Sales Load Imposed on Reinvested Dividends..................................NONE
Deferred Sales Load.........................................................NONE
Redemption Fees.............................................................NONE
Exchange Fees...............................................................NONE
The table below shows the expenses an investor in the Portfolio would
bear directly or indirectly. The expenses and fees listed are based on estimates
of the Portfolio's operating costs to be incurred during the fiscal period
ending September 30, 1997.
Annual Fund Operating Expenses
(As a Percentage of Average Net Assets)
Investment Advisory Fees (After Fee Waivers)............................. .90%
Administrative Fees...................................................... 0.10%
12b-1 Fees............................................................... NONE
Other Expenses (After Assumption of Expenses)............................ .42%
Total Operating Expenses (After Fee Waivers)............................. 1.35%o
The fees set forth above are estimated amounts for its first year of
operations assuming average daily net assets of $40 million.
o The Adviser has voluntarily agreed to waive a portion of its advisory fees and
to assume expenses otherwise payable by the Portfolio (if necessary) in order to
keep the expense ratio from exceeding 1.35% of its average daily net assets.
Absent such fee waivers and assumption of expenses, the Portfolio's total
operating expenses are estimated to be $________________. The Fund will not
reimburse the Adviser for any advisory fees that are waived or Portfolio
expenses that the Adviser may bear on behalf of a Portfolio.
The following example shows the expenses that a shareholder would pay
on a $1,000 investment over various time periods assuming (1) a 5% annual rate
of return and (2) redemption at the end of each time period. The Portfolio
charges a $12.00 redemption fee for wire redemptions.
1 Year 3 Years
BRAZOS/JMIC Small Cap Growth Portfolio................... $__ $__
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This example should not be considered a representation of past or
future expenses or performance. Actual expenses may be greater or lesser than
those shown.
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PROSPECTUS SUMMARY
INVESTMENT ADVISER
John McStay Investment Counsel (the "Adviser"), an investment
counseling firm founded in 1983, is the investment adviser to the Portfolio. The
Adviser currently manages approximately $2.0 billion in assets for institutional
clients and high net worth individuals. See "INVESTMENT ADVISER."
PURCHASE OF SHARES
Shares of the Portfolio are offered through Rodney Square Distributors,
Inc. (the "Distributor" or "RSD"). The shares are available to investors at net
asset value without a sales commission. Shares can be purchased by sending
investments directly to the Fund. The minimum initial investment is $10,000. The
minimum for subsequent investments is $1,000. Certain exceptions to the initial
or minimum investment amounts may be made by Fund officers. See "PURCHASE OF
SHARES."
DIVIDENDS AND DISTRIBUTIONS
The Portfolio will normally distribute substantially all of its net
investment income in annual dividends. It will also annually distribute any
realized net capital gains. Distributions will automatically be reinvested in
Portfolio shares unless an investor elects to receive cash distributions. See
"DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES."
REDEMPTIONS AND EXCHANGES
Shares of the Portfolio may be redeemed without cost at any time, at
the net asset value of the Portfolio next determined after receipt of the
redemption request. The redemption price may be more or less than the purchase
price. See "REDEMPTION OF SHARES."
ADMINISTRATIVE SERVICES
Rodney Square Management Corporation (the "Administrator" or "Rodney
Square"), is responsible for performing and overseeing administration, fund
accounting, dividend disbursing and transfer agent services for the Fund. See
"ADMINISTRATIVE SERVICES."
RISK FACTORS
Prospective investors should consider the following: (1) the small
capitalization corporations in which the Portfolio will invest are more
vulnerable to financial and other risks than larger corporations and the
securities of such small capitalization corporations may involve a higher degree
of risk and price volatility than investments in the general equity markets. (2)
The Portfolio may invest a portion of its assets in derivatives including
futures contracts and options. (See "FUTURES CONTRACTS AND OPTIONS.") (3) The
Portfolio may invest in securities of foreign issuers, which may be subject to
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additional risks. (See "FOREIGN SECURITIES.") (4) High rates of Portfolio
Turnover may result in additional cost and the realization of capital gains.
(See "PORTFOLIO Turnovers") (5) The Portfolio may use various investment
practices, including investing in repurchase agreements, when issued, forward
delivery and delayed settlement securities. (See "OTHER INVESTMENT POLICIES.").
INVESTMENT OBJECTIVE
The objective of the Portfolio is to provide maximum capital
appreciation, consistent with reasonable risk to principal, by investing
primarily in small capitalization companies. The Portfolio attempts to limit the
risk of decline in the value of its securities by following a stock selection
process that emphasizes the use of traditional fundamental security analysis and
valuation methods as described under "Investment Policies".
INVESTMENT POLICIES
The Portfolio will invest (under normal circumstances) at least 65% of
its total assets in equity securities of a diverse spectrum of companies which
have market capitalizations at the time of purchase from $40 million to $1.2
billion. The remaining 35% of the Portfolio's total assets may be invested in
equity securities of companies which have market capitalizations at the time of
purchase that are larger than $1.2 billion. The equity securities in which the
Portfolio will invest consist of common stocks and securities convertible into
common stocks, including convertible preferred stocks and convertible bonds, and
ADRs.
The Adviser selects companies based on their potential for strong
growth in revenue, earnings and cash flow, strong management, leading products
or services and potential for improvement. The list of potential investments is
further filtered by the use of traditional fundamental security analysis and
valuation methods including, but not limited to, analysis of relative returns on
capital and equity, reward to risk ratios and earnings per share growth rates
relative to price earnings ratios. The Adviser believes that many companies with
smaller capitalizations have greater potential than their larger counterparts to
deliver above-average revenue and earnings growth rates that may not have yet
been recognized by investors.
The Adviser expects that a majority of investments in the Portfolio
will be in U.S. based companies, however shares of foreign based companies may
be purchased if they meet the Portfolio's investment criteria. Under normal
circumstances, investments in foreign based companies will comprise no more than
15% of total portfolio assets. The Portfolio may invest up to 20% of its assets
at the time of purchase in securities of companies that have (with predecessors)
a continuous operating history of less than 3 years. Such investments may be
characterized as potentially possessing higher business risks as well as greater
stock market risks and price volatility. Such companies may face special risks
that their products or services may not prove to be commercially successful.
It is anticipated that cash reserves will represent a relatively small
percentage of total portfolio assets (less than 10% under most circumstances).
In unusual circumstances, or for temporary defensive purposes when market or
economic conditions warrant, the Portfolio may invest all or a portion of its
assets in short-term investments, cash and cash equivalents. When the Portfolio
is in a defensive position, it may not be pursuing its investment objective.
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OTHER INVESTMENT POLICIES
SHORT-TERM INVESTMENTS
Occasionally, the Portfolio may invest a portion of its assets in the
following money market instruments, consistent with the Portfolio's investment
policies.
(1) Time deposits, certificates of deposit (including marketable
variable rate certificates of deposit) and bankers'
acceptances issued by a commercial bank or savings and loan
association.
Time deposits are nonnegotiable deposits maintained in a banking
institution for a specified period of time (not longer than seven days) at a
stated interest rate. Time deposits maturing from two business days through
seven calendar days will not exceed 10% of the total assets of a Portfolio under
most circumstances.
Certificates of deposit are negotiable short-term obligations issued by
commercial banks or savings and loan associations collateralized by funds
deposited in the issuing institution. Variable rate certificates of deposit are
certificates of deposit on which the interest rate is periodically adjusted
prior to their stated maturity based upon a specified market rate. A bankers'
acceptance is a time draft drawn on a commercial bank by a borrower, usually in
connection with an international commercial transaction.
The Portfolio will not invest in any security issued by a commercial
bank unless (i) the bank has total assets of at least $1 billion, or the
equivalent in other currencies, (ii) in the case of U.S. banks, it is a member
of the Federal Deposit Insurance Corporation, and (iii) in the case of foreign
branches of U.S. banks, the security is, in the opinion of the Adviser, of an
investment quality comparable to other debt securities which may be purchased by
the Portfolio;
(2) Commercial paper rated A-1 or A-2 by S&P or Prime-1 or Prime-2
by Moody's or, if not rated, issued by a corporation having an
outstanding unsecured debt issue rated A or better by Moody's
or by S&P;
(3) Short-term corporate obligations rated A or better by Moody's
or by S&P;
(4) U.S. Government obligations including, bills, notes, bonds and
other debt securities issued by the U.S. Treasury. These are
direct obligations of the U.S. Treasury, supported by the full
faith and credit pledge of the U.S. Government and differ
mainly in interest rates, maturities and dates of issue;
(5) U.S. Government agency securities issued or guaranteed by U.S.
Government sponsored instrumentalities and Federal agencies;
and
(6) Repurchase agreements collateralized by securities listed
above.
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REPURCHASE AGREEMENTS
The Portfolio may invest in repurchase agreements collateralized by
U.S. Government securities. In addition, the Portfolio may invest in repurchase
agreements collateralized by certificates of deposit, and certain bankers'
acceptances and other securities outlined above under "Short-Term Investments."
In a repurchase agreement, a Portfolio buys a security and simultaneously
commits to sell that security back at an agreed upon price plus an agreed upon
market rate of interest. Under a repurchase agreement, the seller will be
required to maintain the value of the securities subject to the agreement at not
less than the repurchase price if such securities mature in one year or less, or
101% of the repurchase price if such securities mature in more than one year.
The use of repurchase agreements involves certain risks. While the
Fund's management acknowledges these risks, it is expected that they can be
controlled through stringent security selection criteria and careful monitoring
procedures.
LENDING OF SECURITIES
The Portfolio may lend its investment securities to qualified
institutional investors as a means of earning income. The Portfolio will not
loan securities to the extent that greater than one-third of its assets at fair
market value would be committed to loans. During the term of a loan, the
Portfolio is subject to a gain or loss depending on any increase or decrease in
the market price of the securities loaned. Lending of securities is subject to
review by the Fund's Board of Trustees. All relevant facts and circumstances,
including the creditworthiness of the broker, dealer or institution, will be
considered in making decisions about securities lending.
An investment company may pay reasonable negotiated fees in connection
with loaned securities so long as such fees are set forth in a written contract
and approved by its Board of Trustees. The Portfolio will continue to retain any
voting rights with respect to loaned securities. If a material event occurs
affecting an investment on a loan, the loan must be called and the securities
voted.
WHEN-ISSUED, FORWARD DELIVERY AND DELAYED SETTLEMENT SECURITIES
The Portfolio may purchase and sell securities on a "when-issued,"
"delayed settlement" or "forward delivery" basis. "When-issued" or "forward
delivery" refers to securities whose terms and indenture are available, and for
which a market exists, but which are not available for immediate delivery.
When-issued and forward delivery transactions may be expected to occur a month
or more before delivery is due. Delayed settlement is a term used to describe
settlement of a securities transaction in the secondary market which will occur
sometime in the future. No payment or delivery is made by a Portfolio until it
receives payment or delivery from the other party to any of the above
transactions. The Portfolio will maintain a separate account of cash, U.S.
Government securities, other high grade debt obligations or other liquid
securities at least equal to the value of purchase commitments until payment is
made. Such segregated securities will either mature or, if necessary, be sold on
or before the settlement date. Typically, no income accrues on securities
purchased on a delayed delivery basis prior to the time delivery is made,
although the Portfolio may earn income on securities it has deposited in a
segregated account.
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The Portfolio may engage in when-issued transactions to obtain what is
considered to be an advantageous price and yield at the time of the transaction.
When the Portfolio engages in when-issued or forward delivery transactions, it
does so to acquire securities consistent with its investment objective and
policies and not for the purpose of investment leverage.
PORTFOLIO TURNOVER
It is expected that the annual portfolio turnover rate for the
Portfolio will not exceed 300%. In addition to Portfolio trading costs, higher
rates of portfolio turnover may result in the realization of capital gains. See
"DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES" for information on taxation.
INVESTMENT COMPANIES
The Portfolio reserves the right to invest up to 10% of its total
assets, calculated at the time of investment, in securities of other open-end or
closed-end investment companies. No more than 5% of the investing Portfolio's
total assets may be invested in securities of any one investment company nor may
it acquire more than 3% of the voting securities of any investment company. The
Portfolio will indirectly bear its proportionate share of any management fees
paid by an investment company in which it invests in addition to the advisory
fee paid by the Portfolio.
FOREIGN INVESTMENTS
It is expected that generally, the Portfolio will invest in common
stocks of companies listed on foreign stock exchanges, but it may also invest in
stocks traded in the over-the-counter market. Common stocks for this purpose
also include securities having common stock characteristics such as rights and
warrants to purchase common stocks. The Portfolio may also invest in foreign
equity securities in the form of American Depositary Receipts (ADRs) and other
similar global instruments. ADRs (sponsored or unsponsored) are receipts
typically issued by a U.S. bank or trust company evidencing ownership of the
underlying foreign securities. Most ADRs are traded on a U.S. stock exchange.
Issuers of unsponsored ADRs are not contractually obligated to disclose material
information in the U.S. and, therefore, there may not be a correlation between
such information and the market value of the unsponsored ADR.
Investing in foreign companies may involve additional risks and
considerations which are not typically associated with investing in U.S.
companies. Since stocks of foreign companies are normally denominated in foreign
currencies, the Portfolio may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations, and may incur costs in
connection with conversions between various currencies.
As non-U.S. companies are not generally subject to uniform accounting,
auditing and financial reporting standards and practices comparable to those
applicable to U.S. companies, comparable information may not be readily
available about certain foreign companies. Securities of some non-U.S. companies
may be less liquid and more volatile than securities of comparable U.S.
companies. In addition,
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in certain foreign countries, there is the possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments which could affect U.S. investments in those countries.
FUTURES CONTRACTS AND OPTIONS
In order to remain fully invested and to reduce transaction costs, the
Portfolio may invest in appropriate futures contracts and options (also known as
derivatives). Because transaction costs associated with futures and options may
be lower than the costs of investing in stocks and bonds directly, it is
expected that use of index futures and options to facilitate cash flows may
reduce a Portfolio's overall transaction costs. The Portfolio may enter into
futures contracts provided that not more than 5% of the Portfolio's assets are
required as margin deposit to secure obligations under such contracts.
Futures and options can be volatile and involve various degrees and
types of risk. If the Portfolio judges market conditions incorrectly or employs
a strategy that does not correlate well with its investments, use of futures and
options contracts could result in a loss. The Portfolio could also suffer losses
if it is unable to liquidate its position due to an illiquid secondary market.
In the opinion of the Trustees of the Fund, the risk that the Portfolio will be
unable to close out a futures position or options contract will be minimized by
only entering into futures contracts or options transactions traded on national
exchanges and for which there appears to be a liquid secondary market.
RESTRICTED SECURITIES
The Portfolio may purchase restricted securities that are not
registered for sale to the general public but which are eligible for resale to
qualified institutional investors under Rule 144A of the Securities Act of 1933.
Under the supervision of the Fund's Board of Trustees, the Adviser determines
the liquidity of such investments by considering all relevant factors. Provided
that a dealer or institutional trading market in such securities exists, these
restricted securities are not treated as illiquid securities for purposes of a
Portfolio's investment limitations. A Portfolio will invest no more than 15% of
its net assets in illiquid securities. The prices realized from the sales of
these securities could be less than those originally paid by the Portfolio or
less than what would be considered the fair value of such securities.
Except as specified above and as described under "INVESTMENT
LIMITATIONS," the foregoing investment policies are not fundamental and the
Trustees may change such policies without an affirmative vote of a majority of
the outstanding voting securities of a Portfolio, as defined in the 1940 Act.
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INVESTMENT LIMITATIONS
The Portfolio will not:
(a) with respect to 75% of its assets, invest more than
5% of its total assets at the time of purchase in the
securities of any single issuer (other than
obligations issued or guaranteed as to principal and
interest by the government of the U.S. or any agency
or instrumentality thereof);
(b) with respect to 75% of its assets, purchase more than
10% of any class of the outstanding voting securities
of any issuer;
(c) acquire any securities of companies within one
industry if, as a result of such acquisition, more
than 25% of the value of the Portfolio's total assets
would be invested in securities of companies within
such industry; provided, however, that there shall be
no limitation on the purchase of obligations issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities, or instruments issued by U.S.
banks when a Portfolio adopts a temporary defensive
position;
(d) make loans except (i) by purchasing bonds, debentures
or similar obligations which are publicly
distributed, and (ii) by lending its portfolio
securities to banks, brokers, dealers and other
financial institutions so long as such loans are not
inconsistent with the 1940 Act or the rules and
regulations or interpretations of the SEC thereunder;
(e) borrow, except from banks and as a temporary measure
for extraordinary or emergency purposes and then, in
no event, in excess of 331/3% of the Portfolio's
gross assets valued at the lower of market or cost,
and a Portfolio may not purchase additional
securities when borrowings exceed 5% of total gross
assets; or
(f) pledge, mortgage or hypothecate any of its assets to
an extent greater than 331/3% of its total assets at
fair market value.
The investment limitations described here and certain of the investment
limitations in the SAI are fundamental policies and may be changed only with the
approval of the holders of a majority of the outstanding shares of the Portfolio
of the Fund. If a percentage limitation on investment or utilization of assets
as set forth above is adhered to at the time an investment is made, a later
change in percentage resulting from changes in the value or total cost of the
Portfolio's assets will not be considered a violation of the restriction.
PURCHASE OF SHARES
Shares of the Portfolio may be purchased without sales commission, at
the net asset value per share next determined after an order, including payment
in the manner described herein, is received and accepted
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by the Fund. (See "VALUATION OF SHARES.") The minimum initial investment
required is $10,000. Certain exceptions may be made by the officers of the Fund.
INITIAL INVESTMENTS
BY MAIL
o Complete and sign an Account Registration Form and
mail it together with a check, drawn on a U.S. bank,
made payable to Brazos Mutual Funds, to:
Brazos Mutual Funds
c/o Rodney Square Management Corporation
P.O. Box 8987
Wilmington, DE 19890
A purchase order sent by overnight mail should be sent to:
1100 North Market Street, 19th Floor
Wilmington, DE 19801
Payment for the purchase of shares received by mail will be credited to
your account at the net asset value per share of the Portfolio next determined
after receipt. Payment does not need to be converted into Federal Funds (moneys
credited to the Fund's Custodian Bank by a Federal Reserve Bank) before the Fund
will accept it for investment. Make certain that you specify the Portfolio in
which you wish to invest on the Account Registration Form.
BY WIRE
o As soon as possible, telephone Rodney Square at
__________________ and provide the account name, address,
telephone number, social security or taxpayer identification
number, Portfolio selected, amount being wired and the name of
the bank wiring the funds. An account number will then be
provided to you. Next,
o instruct your bank to wire the specified amount to:
RODNEY SQUARE MANAGEMENT CORPORATION
C/O WILMINGTON TRUST COMPANY
WILMINGTON, DE
ABA #_____
ATTENTION: Brazos Mutual Funds
REF: PORTFOLIO NAME ________________
DDA Acct. #_____
FURTHER CREDIT [SHAREHOLDER NAME AND ACCOUNT NUMBER]
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o Forward a completed Account Registration Form to the
Fund at the address shown on the form. Federal Funds
purchases will be accepted only on a day on which
both the New York Stock Exchange and the Custodian
Bank are open for business.
ADDITIONAL INVESTMENTS
Additional investments can be made at any time. The minimum additional
investment is $1,000. Shares can be purchased at net asset value by mailing a
check to the Fund c/o Rodney Square at the address above (payable to "Brazos
Mutual Funds") or by wiring money to the Fund using the instructions outlined
above. When making additional investments, be sure that: the account name and
number is identified on the check or wire and the Portfolio to be purchased is
specified.
Prior to wiring additional investments, notify the Fund by calling the
number on the cover of this prospectus. Mail orders should include, when
possible, the "Invest by Mail" stub which accompanies any Fund confirmation
statement.
OTHER PURCHASE INFORMATION
Investments received by 4 p.m. ET (the close of the New York Stock
Exchange ("NYSE")) will be invested at the price calculated after the NYSE
closes that day. Orders received after 4 p.m. ET will receive the price
calculated on the next business day. The Fund reserves the right, in its sole
discretion, to suspend the offering of shares of the Portfolio or reject
purchase orders when, in the judgment of management, such suspension or
rejection is in the best interest of the Fund. Purchases of shares will be made
in full and fractional shares of the Portfolio calculated to three decimal
places. Certificates for fractional shares will not be issued. Certificates for
whole shares will not be issued except at the written request of the
shareholder.
Shares of the Portfolio may be purchased by customers of broker-dealers
or other financial intermediaries ("Service Agents") which deal with the Fund on
behalf of their customers. Service Agents may impose additional or different
conditions on the purchase or redemption of Portfolio shares and may charge
transaction or other account fees. Each Service Agent is responsible for
transmitting to its customers a schedule of any such fees and information
regarding any additional or different purchase and redemption conditions.
Shareholders who are customers of Service Agents should consult their Service
Agent for information regarding these fees and conditions. Amounts paid to
Service Agents may include transaction fees and/or service fees paid by the Fund
from the Fund assets attributable to the Service Agent, and which would not be
imposed if shares of the Portfolio were purchased directly from the Fund or the
Distributor. The Service Agents may provide shareholder services to their
customers that are not available to a shareholder dealing directly with the
Fund. A salesperson and any other person entitled to receive compensation for
selling or servicing Portfolio shares may receive different compensation with
respect to one particular class of shares over another in the Fund.
Service Agents may enter confirmed purchase orders on behalf of their
customers. If shares of a Portfolio are purchased in this manner, the Service
Agent must receive the investment order before the close of trading on the NYSE
and transmit it to the Fund's Transfer Agent prior to the close of their
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<PAGE>
business day to receive that day's share price. Proper payment for the order
must be received by the Transfer Agent no later than the time when the Portfolio
is priced on the following business day. Service Agents are responsible to their
customers and the Fund for timely transmission of all subscription and
redemption requests, investment information, documentation and money.
IN-KIND PURCHASES
If accepted by the Fund, shares of the Portfolio may be purchased in
exchange for securities which are eligible for acquisition by the Portfolio, as
described in this Prospectus. Securities to be exchanged which are accepted by
the Fund will be valued as set forth under "VALUATION OF SHARES" at the time of
the next determination of net asset value after such acceptance. Shares issued
by a Portfolio in exchange for securities will be issued at net asset value
determined as of the same time. All dividends, interest, subscription, or other
rights pertaining to such securities shall become the property of the Portfolio
and must be delivered to the Fund by the investor upon receipt from the issuer.
Securities acquired through an in-kind purchase will be acquired for investment
and not for immediate resale.
The Fund will not accept securities in exchange for shares of a
Portfolio unless:
o at the time of the exchange, such securities are eligible to
be included in the Portfolio and current market quotations are
readily available for such securities;
o the investor represents and agrees that all securities offered
to be exchanged are not subject to any restrictions upon their
sale by the Portfolio under the Securities Act of 1933, or
otherwise; and
o the value of any such securities (except U.S. Government
securities) being exchanged together with other securities of
the same issuer owned by the Portfolio will not exceed 5% of
the net assets of the Portfolio immediately after the action.
Investors who are subject to Federal taxation upon exchange may realize
a gain or loss for Federal income tax purposes depending upon the cost of
securities or local currency exchanged. Investors interested in such exchanges
should contact the Adviser.
REDEMPTION OF SHARES
Shares of the Portfolio may be redeemed by mail or telephone, at any
time, without cost, at the net asset value of the Portfolio next determined
after receipt of the redemption request. Shareholders are charged a $12.00 fee
for redemptions by wire. Otherwise, there is no charge for redemptions. Any
redemption may be more or less than the purchase price of your shares depending
on the market value of the investment securities held by the Portfolio.
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<PAGE>
BY MAIL
The Portfolio will redeem its shares at the net asset value next
determined on the date the request is received in "good order." Address requests
for redemption to the Fund c/o Rodney Square Management Corporation, P.O. Box
8987, Wilmington, DE 19890. A request to redeem shares must include:
o share certificates, if issued;
o a letter of instruction or a stock assignment
specifying the number of shares or dollar amount to
be redeemed, signed by all registered owners of the
shares in the exact names in which they are
registered;
o any required signature guarantees (see "SIGNATURE
GUARANTEES"); and
o any other necessary legal documents, if required, in
the case of estates, trusts, guardianships,
custodianships, corporations, pension and profit
sharing plans and other organizations.
Shareholders who are uncertain of requirements for redemption should
contact Rodney Square at ------------.
BY TELEPHONE
In order to make a redemption request by telephone, you must:
o establish the telephone redemption privilege (and if
desired, the wire redemption privilege) by completing
appropriate sections of the Account Registration
Form; and
o call the Fund and instruct that the redemption
proceeds be mailed to you or wired to your bank.
The following tasks cannot be accomplished by telephone:
o changing the name of the commercial bank or the
account designated to receive redemption proceeds
(this can be accomplished only by a written request
signed by each shareholder, with each signature
guaranteed);
o redemption of certificated shares by telephone.
The Fund and the Fund's Transfer Agent will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine,
and they may be liable for any losses if they fail to do so. These procedures
include requiring the investor to provide certain personal identification at the
time an account is opened, as well as prior to effecting each transaction
requested by telephone. In addition, all telephone transaction requests will be
recorded and investors may be required to provide additional
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<PAGE>
telecopied written instructions of such transaction requests. The Fund or
Transfer Agent may be liable for any losses due to unauthorized or fraudulent
telephone instructions if the Fund or Transfer Agent does not employ the
procedures described above. Neither the Fund nor the Transfer Agent will be
responsible for any loss, liability, cost or expense for following instructions
received by telephone that it reasonably believes to be genuine.
Please contact Rodney Square at ________________ for further details.
SIGNATURE GUARANTEES
Signature guarantees are required for the following redemptions:
o redemptions where the proceeds are to be sent to someone other
than the registered shareowner(s);
o redemptions where the proceeds are to be sent to someplace
other than the registered address; or
o share transfer requests.
The purpose of signature guarantees is to verify the identity of the
party who has authorized a redemption. Signature guarantees will be accepted
from any eligible guarantor institution which participates in a signature
guarantee program. Eligible guarantor institutions include banks, brokers,
dealers, credit unions, national securities exchanges, registered securities
associations, clearing agencies and savings associations. Broker-dealers
guaranteeing signatures must be a member of a clearing corporation or maintain
net capital of at least $100,000. Credit unions must be authorized to issue
signature guarantees.
OTHER REDEMPTION INFORMATION
Normally, the Fund will make payment for all shares redeemed under
proper procedures within one business day of and no more than seven days after
receipt of the request. The Fund may suspend the right of redemption or postpone
the date at times when the NYSE is closed, or under any emergency circumstances
as determined by the SEC.
If the Fund's Board of Trustees determines that it would be detrimental
to the best interests of remaining shareholders of the Fund to make payment
wholly or partly in cash, the Fund may pay the redemption proceeds in whole or
in part by a distribution in-kind of liquid securities held by a Portfolio in
lieu of cash in conformity with applicable rules of the SEC. Investors may incur
brokerage charges on the sale of portfolio securities so received in payment of
redemptions.
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<PAGE>
SHAREHOLDER SERVICES
EXCHANGE PRIVILEGE
Shares of the Portfolio may be exchanged for shares of any other
Portfolio included in the Brazos Mutual Funds. Exchange requests should be made
by writing to the Fund c/o Rodney Square Management Corporation, P.O. Box 8987,
Wilmington, DE 19890 or calling _______________.
Any exchange will be based on the net asset values of the shares
involved. There is no sales commission or charge of any kind for an exchange.
Before making an exchange into a Portfolio, a shareholder should read its
Prospectus and consider the investment objectives of the Portfolio to be
purchased. Contact Rodney Square at __________________ for a copy of the
Prospectus for the Portfolio(s). Exchanges can only be made with Portfolios that
are registered for sale in a shareholder's state of residence. Exchange requests
may be made either by mail or telephone. Telephone exchanges will be accepted
only if the certificates for the shares to be exchanged have not been issued to
the shareholder and if the registration of the two accounts will be identical.
Requests for exchanges with other Portfolios received prior to 4 p.m. (ET) will
be processed as of the close of business on the same day. Requests received
after that time will be processed on the next business day. The Board of
Trustees may limit frequency and amount of exchanges permitted. For additional
information regarding responsibility for the authenticity of telephoned
instructions, see "REDEMPTION OF SHARES BY TELEPHONE" above. An exchange into
another Portfolio of the Fund is a sale of shares and may result in a capital
gain or loss for income tax purposes. The Fund may modify or terminate the
exchange privilege at any time.
TRANSFER OF REGISTRATION
You may transfer the registration of any of your Fund shares to another
person by writing to the Fund at the above address. As in the case of
redemptions, the written request must be received in good order before any
transfer can be made. (See "REDEMPTION OF SHARES" for a definition of "good
order.")
RETIREMENT PLANS
Shares of the Fund are available for use in certain tax-deferred plans
(such as Individual Retirement Accounts ("IRAs"), defined contribution, 401(k)
and 403(b)(7) plans).
Individual Retirement Accounts
Application forms and brochures for IRAs can be obtained from Rodney
Square by calling ---------------.
Wilmington Trust Company ("WTC") makes available its services as an IRA
custodian for each shareholder account that is established as an IRA. For these
services, WTC receives an annual fee of $10.00 per account, which fee is paid
directly to WTC by the IRA shareholder. If the fee is not paid by
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<PAGE>
the date due, shares of the Fund owned by the IRA will be redeemed automatically
for purposes of making the payment. In addition, a $10 fee is charged to
shareholders transferring out of a Fund IRA.
VALUATION OF SHARES
The net asset value of the Portfolio is determined by dividing the sum
of the total market value of the Portfolio's investments and other assets, less
any liabilities, by the total number of shares outstanding. Net asset value per
share of the Portfolio is determined as of the close of the NYSE on each day
that the NYSE is open for business.
The Portfolio uses the last quoted trading price as the market value
for equity securities. For listed securities, the Fund uses the price quoted by
the exchange on which the security is primarily traded. Unlisted securities and
listed securities which have not been traded on the valuation date or for which
market quotations are not readily available are valued at the average between
the last price asked and the last price bid. For valuation purposes, quotations
of foreign securities in a foreign currency are converted to U.S. dollar
equivalents based upon the latest available bid price of such currencies against
U.S. dollars quoted by any major bank or by a broker.
Bonds and other fixed income securities are valued according to the
broadest and most representative market which will ordinarily be the
over-the-counter market. Net asset value includes interest on fixed income
securities, which is accrued daily. Bonds and other fixed income securities may
be valued on the basis of prices provided by a pricing service when such prices
are believed to reflect the fair market value of such securities. Securities
purchased with remaining maturities of 60 days or less are valued at amortized
cost when the Board of Trustees determines that amortized cost reflects fair
value.
The value of other assets and securities for which no quotations are
readily available (including restricted securities) is determined in good faith
at fair value using methods determined by the Trustees.
PERFORMANCE CALCULATIONS
The Portfolio may advertise or quote total return data. Total return is
calculated on an average annual total return basis, and may also be calculated
on an aggregate total return basis, for various periods. Average annual total
return reflects the average annual percentage change in value of an investment
in a Portfolio over a period. Aggregate total return reflects the total
percentage change in value over a period. Both methods assume dividends and
capital gains distributions are reinvested in Portfolio shares.
The Portfolio's performance may be compared to data prepared by
independent services which monitor the performance of investment companies, data
reported in financial and industry publications, and various indices, all as
further described in the Portfolio's SAI.
The Portfolio will provide information about past performance together
with a comparison to an appropriate index in its Annual Report to Shareholders.
Following the end of the Portfolio's fiscal year, a free copy of the Portfolio's
Annual Report to Shareholders will be available upon request by writing or
calling the Fund at the address or phone number on the cover of this Prospectus.
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<PAGE>
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Portfolio will distribute annually to shareholders substantially
all of its net investment income, together with any net realized capital gains.
Dividends paid shortly after the purchase of shares by an investor, although in
effect a return of capital, are taxable to shareholders. The Portfolio's
dividends and capital gains distributions will be automatically reinvested in
additional shares of the Portfolio unless the Fund is notified in writing that
the shareholder elects to receive distributions in cash.
FEDERAL TAXES
The Portfolio intends to declare and pay dividend and capital gains
distributions so as to avoid imposition of the Federal Excise Tax. To do so, the
Portfolio expects to distribute an amount no less than:
o 98% of its calendar year ordinary income;
o 98% of its capital gains net income (the excess of
short and long-term capital gains over short and
long-term capital losses); and
o 100% of any undistributed ordinary or capital gain net income
from the prior year.
Dividends paid by a Portfolio from net investment income, either in
cash or reinvested in shares, will be taxable to shareholders as ordinary
income. Dividends paid from the Portfolio will generally qualify in part for the
70% dividends received deduction for corporations, but the portion of the
dividends so qualified depends on the ratio of the aggregate taxable qualifying
dividend income received by the Portfolio from domestic (U.S.) sources to the
total taxable income of the Portfolio, exclusive of long-term capital gains.
Distributions paid by a Portfolio from long-term capital gains, either
in cash or additional shares of the Portfolio (and regardless of the length of
time the shares in the Portfolio have been owned by the shareholder), are
taxable to shareholders as such. These distributions are not eligible for the
dividends received deduction. Shareholders are notified annually by the Fund as
to Federal tax status of dividends and distributions paid by a Portfolio.
Dividends and distributions may also be subject to state and local taxes.
Dividends declared in October, November, or December to shareholders on record
in such month will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of such calendar year, provided that the dividends
are paid before February 1 of the following year.
Redemptions of shares in a Portfolio are taxable events for Federal
income tax purposes.
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<PAGE>
STATE AND LOCAL TAXES
Shareholders may also be subject to state and local taxes on
distributions and redemptions. Shareholders should consult with their tax
advisers regarding the tax status of distributions in their state and locality.
INVESTMENT ADVISER
John McStay Investment Counsel is a limited partnership formed in 1983
and located at 5949 Sherry Lane, Suite 1560, Dallas, Texas 75225. The Adviser
provides investment management services to institutions and individuals. The
Adviser currently has approximately $2.0 billion in assets under management.
John D. McStay may be deemed to control the Adviser as a result of ownership of
a majority interest in John McStay & Associates ("JMA"), the general partner of
the Adviser. JMA owns a majority interest in the Adviser.
An investment policy committee is responsible for the day-to-day
management of the Portfolio's investments.
Under an Investment Advisory Agreement with the Fund, dated as of , the
Adviser manages the investment and reinvestment of the assets of the Portfolios.
The Adviser must adhere to the stated investment objectives and policies of the
Portfolios, and is subject to the control and supervision of the Fund's Board of
Trustees.
As compensation for its services as an Adviser, the Portfolio pays the
Adviser an annual fee, in monthly installments, of 0.90% of the Portfolio's
average daily net assets for the month.
The Adviser has voluntarily agreed to keep operating expenses from
exceeding 1.35% of average daily net assets. The Fund will not reimburse the
Adviser for any advisory fees that are waived or Portfolio expenses that the
Adviser may bear on behalf of a Portfolio.
The Adviser may compensate its affiliated companies for referring
investors to the Portfolios. The Adviser, or any of its affiliates, may, at its
own expense, compensate a Service Agent or other person for marketing,
shareholder servicing, record-keeping and/or other services performed with
respect to the Fund or a Portfolio. Payments made for any of these purposes may
be made from the paying entity's revenues, its profits or any other source
available to it. When such service arrangements are in effect, they are made
generally available to all qualified service providers.
ADVISER'S HISTORICAL PERFORMANCE
Set forth below are performance data provided by the Adviser pertaining
to the composite of all separately managed accounts of the Adviser that are
managed with substantially similar (although not necessarily identical)
objectives, policies and strategies as those of the Portfolio. The performance
data for the managed accounts is net of all fees and expenses. The investment
returns of the Portfolio may differ from those of the separately managed
accounts because such separately managed accounts may have fees
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<PAGE>
and expenses that differ from those of the Portfolio. Further, the separately
managed accounts are not subject to investment limitations, diversification
requirements and other restrictions imposed by the Investment Company Act of
1940 and Internal Revenue Code; such conditions, if applicable, may have lowered
the returns for the separately managed accounts. The results presented are not
intended to predict or suggest the return of the Portfolio or the return an
investor might achieve by investing in the Portfolio.
<TABLE>
<CAPTION>
John McStay Investment Counsel Small Capitalization Growth Portfolios
(Percentage Returns Net of Average Management Fees)
S&P MidCap
Calendar Years Institutional Equity Accounts 400 Index Russell 2000
<C> <C> <C> <C>
1987* 25.6% -2.0% -8.8%
1988* 24.5% 20.9% 24.9%
1989* 31.9% 35.6% 16.2%
1990* -4.0% -5.1% -19.5%
1991* 68.9% 50.1% 46.1%
1992* 8.7% 11.9% 18.4%
1993 15.3% 14.0% 18.9%
1994 -0.1% -3.6% -1.8%
1995 30.1% 30.9% 28.4%
Year to Date 34.9% 12.4% 10.8%
(9/30/96)
Annualized 22.7% 15.67% 12.16%
Cumulative 634.9% 313.59% 206.23%
Nine-Year Mean 22.7% 17.0% 13.6%
Value of $1 invested during
9 3/4years (1/1/87-9/30/96) $7.35 $4.14 $3.06
* Numbers are AIMR compliant from 1/1/93 forward; prior to that time all
accounts, without regard to dollar value were equally weighted in
determining composite performance.
Notes:
1. The annualized return is calculated from monthly data, allowing for
compounding. The formula used is in accordance with the acceptable
methods set forth by the Association for Investment Management
Research, The Bank Administration Institute, and the Investment Counsel
Association of America. Market value of the account was the sum of the
account's total assets, including cash, cash equivalents, short term
investments, and securities valued at current market prices.
2. The cumulative return means that $1 invested in the composite account
on January 1, 1987 had grown to 7.35 by 9/30/96.
3. The nine-year mean is the arithmetic average of the annual returns for
the years listed.
4. The S&P MidCap 400 and Russell 2000 are unmanaged indices which assume
reinvestment of dividends on securities in the index and are generally
considered representative of securities similar to those invested in by
the Adviser for the purpose of the composite performance numbers set
forth above. The S&P MidCap 400 Index is an unmanaged
capitalization-weighted index that measures
</TABLE>
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<PAGE>
the performance of the mid-range of the U.S. stock market. The Russell
2000 is composed of the 2000 smallest socks in the Russell 3000, a
market value weighted index of the 3,000 largest U.S. publicly traded
companies. The comparative indices are not adjusted to reflect expenses
or other fees reflected in the performance of a mutual fund as required
by the SEC.
5. The Adviser's average annual management fee over the nine-year period
(1987-1995) was 1% or 100 basis points. During the period, fees on the
Adviser's individual accounts ranged from 1% to 1 1/2% (100 basis
points to 150 basis points). Net returns to investors vary depending on
the management fee.
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<PAGE>
ADMINISTRATIVE SERVICES
Rodney Square Management Corporation, 1100 N. Market Street,
Wilmington, DE 19890-001, serves as Administrator, Transfer Agent and Dividend
Paying Agent of the Fund and also provides accounting services to the Fund.
As Administrator, Rodney Square supplies office facilities,
non-investment related statistical and research data, stationery and office
supplies, executive and administrative services, internal auditing and
regulatory compliance services. Rodney Square also assists in the preparation of
reports to shareholders, prepares proxy statements, updates prospectuses and
makes filings with the Securities and Exchange Commission and state securities
authorities. Rodney Square performs certain budgeting and financial reporting
and compliance monitoring activities. For the services provided as
Administrator, Rodney Square receives an annual fee from the Fund equal to the
greater of: (1) a minimum annual fee of $32,500 for each of the first two
single-class Portfolios plus $15,000 for any additional Portfolio, or second or
additional class of a Portfolio; or (2) an asset-based fee, equal to a
percentage of the average daily net assets of the Fund, on a Fund-wide basis,
according to the following schedule:
0.15% of the first $50 million in assets; plus
0.15% of assets between $50 million and $200 million; plus
0.07% of assets in excess of 200 million.
The Administrator's fee shall be payable monthly, as soon as practicable after
the last day of each month, based on the Fund's average daily net assets as
determined at the close of business on each business day throughout the month.
Rodney Square also serves as Transfer Agent and Dividend Paying Agent of the
Fund.
Rodney Square also serves as an Accounting Agent to the Fund. As
Accounting Agent, Rodney Square determines the Fund's net asset value per share
and provides accounting services to the Fund pursuant to an Accounting Services
Agreement with the Fund.
DISTRIBUTOR
Rodney Square Distributors, Inc., 1100 N. Market Street, Wilmington, DE
19890, has been engaged pursuant to a distribution agreement dated ___________,
1996, to assist in securing purchasers for shares of the Fund. RSD also
directly, or through its affiliates, provides investor support services. RSD
will receive no compensation for distribution of shares of the Fund, except for
reimbursement of out-of-pocket expenses.
Banking laws limit deposit-taking institutions and certain of their
affiliates from underwriting or distributing securities. RSD is an affiliate of
WTC, the Fund's custodian bank for its domestic assets. RSD believes that it may
perform the services contemplated by its agreement with the Fund without
violation of applicable banking laws or regulations. If RSD were prohibited from
performing these services, it is expected that the Board of Trustees would
consider entering into agreements with other entities. It is not expected that
shareholders would suffer any adverse financial consequences as a result of such
an occurrence.
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<PAGE>
PORTFOLIO TRANSACTIONS
The Investment Advisory Agreement authorizes the Adviser to select the
brokers or dealers that will execute the purchases and sales of investment
securities for the Portfolio. The Agreement directs the Adviser to use its best
efforts to obtain the best available price and most favorable execution for all
transactions of the Portfolio. The Adviser may buy and sell securities for the
account of the portfolio through the Adviser's affiliated broker-dealer. In such
instances, the affiliated broker-dealer will complete transactions pursuant to
procedures designed to ensure that charges for the transactions do not exceed
usual and customary levels obtainable from other, unaffiliated broker-dealers.
Such transactions and the procedures are supervised by the Fund's Board of
Trustees. It is understood that the affiliated broker-dealer will not be
utilized in situations where, in the Adviser's judgment, the brokerage services
of another security firm would be in the best interest of the Portfolio. If
consistent with the interests of the Portfolio, the Adviser may select brokers
on the basis of research, statistical and pricing services these brokers provide
to the Portfolio. Information and research received from such brokers will be in
addition to, and not in lieu of, the services required to be performed by the
Adviser under the Investment Advisory Agreement. Such brokers may be paid a
higher commission than that which another qualified broker would have charged
for effecting the same transaction, provided that such commissions are paid in
compliance with the Securities Exchange Act of 1934, as amended, and that the
Adviser determines in good faith that the commission is reasonable in terms
either of the transaction or the overall responsibility of the Adviser to the
Portfolio and the Adviser's other clients. Although not a typical practice, the
Adviser may place portfolio orders with qualified broker-dealers who refer
clients to the Adviser. If a purchase or sale of securities is consistent with
the investment policies of a Portfolio and one or more other clients served by
the Adviser is considered at or about the same time, transactions in such
securities will be allocated among the Portfolio and clients in a manner deemed
fair and reasonable by the Adviser. Although there is no specified formula for
allocating such transactions, the allocations are subject to periodic review by
the Funds Trustees.
GENERAL INFORMATION
DESCRIPTION OF SHARES AND VOTING RIGHTS
The Fund was organized as a Delaware Business Trust on October 24,
1996. The Trustees have the power to designate one or more series of shares of
beneficial interest and to classify or reclassify any unissued shares without
further action by shareholders. At its discretion, The Board of Trustees may
create additional Portfolios and classes of shares.
The shares of each Portfolio are fully paid and nonassessable, have no
preference as to conversion, exchange, dividends, retirement or other features
and have no pre-emptive rights. They have noncumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election of
Trustees can elect 100% of the Trustees. A shareholder is entitled to one vote
for each full share held (and a fractional vote for each fractional share held),
then standing in his name on the books of the Fund.
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<PAGE>
Annual meetings will not be held except as required by the 1940 Act and
other applicable laws. The Fund has undertaken that its Trustees will call a
meeting of shareholders if such a meeting is requested in writing by the holders
of not less than 10% of the outstanding shares of the Fund. The Fund will assist
shareholder communications in such matters.
CUSTODIAN
Wilmington Trust Company, Rodney Square North, 1100 North Market
Street, Wilmington, DE 19890-0001, serves as Custodian of the Fund's assets.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., 2400 Eleven Penn Center, Philadelphia, PA
19103, is the independent accountants for the Fund.
REPORTS
Shareholders receive unaudited semi-annual financial statements and
annual financial statements audited by Coopers & Lybrand L.L.P.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be made by contacting the Fund c/o Rodney
Square Management Corporation, P.O. Box 8987, Wilmington, DE 19890, or by
calling the telephone number listed on the cover of this Prospectus.
LITIGATION
The Fund is not involved in any litigation.
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<PAGE>
PROSPECTUS
Dated
Investment Adviser
JOHN MCSTAY INVESTMENT COUNSEL
5949 Sherry Lane
Suite 1560
Dallas, TX 75225
Distributor
TABLE OF CONTENTS
Fund Expenses........................................................
Prospectus Summary...................................................
Risk Factors ........................................................
Investment Objective.................................................
Investment Policies..................................................
Other Investment Policies............................................
Investment Limitations...............................................
Purchase of Shares...................................................
Redemption of Shares.................................................
Shareholder Services.................................................
Valuation of Shares..................................................
Performance Calculations.............................................
Dividends, Capital Gains Distribution and Taxes......................
Investment Adviser...................................................
Administrative Services..............................................
Distributor..........................................................
Portfolio Transactions...............................................
General Information..................................................
No person has been authorized to give any information or to make any
representations not contained in this Prospectus, or in the Fund's Statement of
Additional Information, in connection with the offering made by this Prospectus
and, if given or made, such information or its representations must not be
relied upon as having been authorized by the Fund. This Prospectus does not
constitute an offering by the Fund in any jurisdiction in which such offering
may not lawfully be made.
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<PAGE>
BRAZOS/JMIC Real Estate Securities Portfolio
[INSERT PHONE NUMBER]
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PROSPECTUS
INVESTMENT OBJECTIVES
Brazos Mutual Funds (the "Fund") is an open-end, management investment
company known as a "mutual fund." The Fund consists of multiple series of shares
(known as "Portfolios") each of which has different investment objectives and
investment policies. The BRAZOS/JMIC Real Estate Securities Portfolio currently
offers only one class of shares. The securities offered in this Prospectus are
shares of one diversified, no-load Portfolio managed by John McStay Investment
Counsel.
BRAZOS/JMIC Real Estate Securities Portfolio. The objective of the BRAZOS/JMIC
Real Estate Securities Portfolio (the "Portfolio") is to provide a balance of
income and appreciation (with reasonable risk to principal) by investing
primarily in equity securities of companies which are principally engaged in the
real estate industry.
There can be no assurance that the Portfolio will meet its stated
objective.
ABOUT THIS PROSPECTUS
Keep this Prospectus for future reference. It contains information you
should know before you invest. A "Statement of Additional Information" ("SAI")
containing additional information about the Fund has been filed with the
Securities and Exchange Commission. Such Statement is dated _________________
1996 and has been incorporated by reference into this Prospectus. For a free
copy of the SAI write to the Fund or call the Fund's Administrator at the
telephone number above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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FUND EXPENSES
The following table illustrates expenses and fees a shareholder of the
Portfolio will incur. Additional transaction fees may be charged if a
broker-dealer or other financial intermediary deals with the Fund on your
behalf. Please see "Purchase of Shares" for further information.
Shareholder Transaction Expenses
Sales Load Imposed on Purchases...................... NONE
Sales Load Imposed on Reinvested Dividends........... NONE
Deferred Sales Load.................................. NONE
Redemption Fees...................................... 1%*
Exchange Fees........................................ NONE
* Shares held 90 days or more may be redeemed without cost. Shares held
less than 90 days are subject to a 1% redemption fee which is retained
by the Fund for the benefit of the remaining shareholders. The fee is
intended to encourage long-term investment in the Portfolio to avoid
transaction and other expenses caused by early redemption, and to
facilitate portfolio management.
The table below shows the expenses an investor in the Portfolio would
bear directly or indirectly. The expenses and fees listed are based on estimates
of the Portfolio's operating costs to be incurred during the fiscal period
ending September 30, 1997.
Annual Fund Operating Expenses
(As a Percentage of average Net Assets)
Investment Advisory Fees (After Fee Waivers)......... .90%
Administrative Fees.................................. 0.15%
12b-1 Fees........................................... NONE
Other Expenses (After Assumption of Expenses)........ .55%
Advisory Fees Waived................................. .35%
Total Operating Expenses (After Fee Waivers)......... 1.25%*
The fees set forth above are estimated amounts for its first year of
operations assuming average daily net assets of $20 million.
* The Adviser has voluntarily agreed to waive a portion of its advisory
fees and to assume expenses otherwise payable by the Portfolio (if
necessary) in order to keep the expense ratio from exceeding 1.25% of
its average daily net assets. If it were not for the fee waiver, the
Portfolio's total annual operating expenses would be 1.60% of average
daily net assets. The Fund will not reimburse the Adviser for any
advisory fees that are waived or Portfolio expenses that the Adviser
may bear on behalf of a Portfolio.
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The following example shows the expenses that a shareholder would pay
on a $1,000 investment over various time periods assuming (1) a 5% annual rate
of return and (2) redemption at the end of each time period. The Portfolio does
not charge the 1% redemption fee if shares are held for at least 90 days.
The Portfolio charges a $12.00 redemption fee on all wire redemptions.
1 Year 3 Years
BRAZOS/JMIC Real Estate Securities Portfolio........ $13 $40
This example should not be considered a representation of past or
future expenses or performance. Actual expenses may be greater or lesser than
those shown.
PROSPECTUS SUMMARY
INVESTMENT ADVISER
John McStay Investment Counsel (the "Adviser"), an investment
counseling firm founded in 1983, is the investment adviser to the Portfolio. The
Adviser currently manages approximately $2 billion in assets for institutional
clients and high net worth individuals. See "INVESTMENT ADVISER."
PURCHASE OF SHARES
Shares of the Portfolio are offered through Rodney Square Distributors,
Inc. (the "Distributor" or "RSD"). The shares are available to investors at net
asset value without a sales commission. Shares can be purchased by sending
investments directly to the Fund. The minimum initial investment is $10,000. The
minimum for subsequent investments is $1,000. Certain exceptions to the initial
or minimum investment amounts may be made by Fund officers. See "PURCHASE OF
SHARES."
DIVIDENDS AND DISTRIBUTIONS
The Portfolio will normally distribute substantially all of its net
investment income in quarterly dividends. It will also annually distribute any
realized net capital gains. Distributions will automatically be reinvested in
Portfolio shares unless an investor elects to receive cash distributions. See
"DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES."
REDEMPTIONS AND EXCHANGES
Shares of the Portfolio may be redeemed at any time, at the net asset
value of the Portfolio next determined after receipt of the redemption request.
Shares held 90 days or more may be redeemed without additional fees. Shares held
less than 90 days are subject to a 1% redemption fee. The redemption price may
be more or less than the purchase price. See "REDEMPTION OF SHARES."
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ADMINISTRATIVE SERVICES
Rodney Square Management Corporation (the "Administrator" or "Rodney
Square"), is responsible for performing and overseeing administration, fund
accounting, dividend disbursing and transfer account services for the Fund. See
"ADMINISTRATIVE SERVICES."
RISK FACTORS
Prospective investors should consider the following:
Because the Fund invests primarily in the real estate industry, it
could conceivably own real estate directly as a result of a default on debt
securities it owns. If the Fund has rental income or income from the disposition
of real property, the receipt of such income may adversely affect its ability to
retain its tax status as a regulated investment company. The Portfolio's
investments may be subject to certain risks associated with the direct ownership
of real estate. These risks include: declines in the value of real estate, risks
related to general and local economic conditions, overbuilding, possible
geographic concentration and increased competition, increases in property taxes
and operating expenses, and variations in rental income. Generally, increases in
interest rates will decrease the value of high yielding securities and increase
the costs of obtaining financing, which could decrease the value of the
portfolio's investments. The Portfolio's share price, yield and total returns
fluctuate, and your investment may be worth more or less than your original cost
when you redeem your shares.
In addition, equity real estate investment trusts may be affected by
changes in the value of the underlying property owned by the trusts, while
mortgage real estate investment trusts may be affected by the quality of credit
extended. Equity and mortgage real estate investment trusts are dependent upon
management skill, are not diversified and are subject to the risks of financing
projects. Such trusts are also subject to heavy cash flow dependency, defaults
by borrowers, self liquidation and the possibility of failing to qualify for
tax-free pass-through of income under the Internal Revenue Code and to maintain
exemption from the Investment Company Act of 1940. Changes in interest rates may
also affect the value of the debt securities in the Fund's portfolio. By
investing in real estate investment trusts indirectly through the Fund, a
Shareholder will bear not only his proportionate share of the expenses of the
Fund, but also, indirectly, similar expenses of the real estate investment
trusts.
INVESTMENT OBJECTIVE
The objective of the Portfolio is to provide a balance of income and
appreciation (with reasonable risk to principal) by investing primarily in
equity securities of companies which are principally engaged in the real estate
industry.
INVESTMENT POLICIES
Under normal circumstances, the Portfolio will invest at least 65% of
its total assets in equity securities of companies which are principally engaged
in the real estate industry. The equity securities in which the Portfolio will
invest consist of common stocks and securities convertible into common stocks,
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including convertible preferred stocks and convertible bonds. The Portfolio is
considered to be concentrated in the real estate industry since it will invest
more than 25% of its assets in such industry.
A company is "principally engaged in the real estate industry" if at
least 50% of its assets (marked- to-market) gross income or net profits are
attributable to ownership, construction, management or sale of residential,
commercial or industrial real estate. Real estate industry companies include:
equity real estate investment trusts, which pool investors' funds for investment
primarily in commercial real estate properties; mortgage real estate investment
trusts, which invest pooled funds principally in real estate related loans such
as construction, development and long-term mortgage loans, brokers or real
estate developers; hybrid real estate investment trusts, which hold properties
and mortgages; and issuers with substantial real estate holdings such as paper
and lumber producers and hotel and entertainment companies.
The Portfolio may invest up to 20% of its total assets at the time of
purchase in securities of companies that have (with predecessors) a continuous
operating history of less than 3 years. Such investments may be characterized as
potentially possessing higher business risks as well as greater stock market
risks and price volatility. Such companies may face special risks that their
products or services may not prove to be commercially successful. There is no
limitation on the operating history of real estate investment trusts.
The Adviser selects companies based on their strong cash flow, strong
management, dividend yield, dividend growth potential and financial strength.
The list of potential investments is further filtered by the use of traditional
fundamental security analysis and valuation methods including, but not limited
to, analysis of relative returns on capital and equity, reward to risk ratios
and earnings and cash flow per share growth rates relative to valuation
measures.
It is anticipated that cash reserves will represent a relatively small
percentage of total portfolio assets (less than 10% under most circumstances).
In unusual circumstances, or for temporary defensive purposes when market or
economic conditions warrant, the Portfolio may invest all or a portion of its
assets in short-term investments, cash and cash equivalents. When the Portfolio
is in a defensive position, it may not be pursuing its investment objective.
OTHER INVESTMENT POLICIES
SHORT-TERM INVESTMENTS
Occasionally, the Portfolio may invest a portion of its assets in the
following money market instruments, consistent with the Portfolio's investment
policies.
(1) Time deposits, certificates of deposit (including marketable
variable rate certificates of deposit) and bankers'
acceptances issued by a commercial bank or savings and loan
association.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time (not longer than seven days) at a
stated interest rate. Time deposits maturing from two business
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days through seven calendar days will not exceed 10% of the total assets of a
Portfolio under most circumstances.
Certificates of deposit are negotiable short-term obligations issued by
commercial banks or savings and loan associations collateralized by funds
deposited in the issuing institution. Variable rate certificates of deposit are
certificates of deposit on which the interest rate is periodically adjusted
prior to their stated maturity based upon a specified market rate. A bankers'
acceptance is a time draft drawn on a commercial bank by a borrower, usually in
connection with an international commercial transaction.
The Portfolio will not invest in any security issued by a commercial
bank unless (i) the bank has total assets of at least $1 billion, or the
equivalent in other currencies, (ii) in the case of U.S. banks, it is a member
of the Federal Deposit Insurance Corporation, and (iii) in the case of foreign
branches of U.S. banks, the security is, in the opinion of the Adviser, of an
investment quality comparable to other debt securities which may be purchased by
the Portfolio;
(2) Commercial paper rated A-1 or A-2 by S&P or Prime-1 or Prime-2
by Moody's or, if not rated, issued by a corporation having an
outstanding unsecured debt issue rated A or better by Moody's
or by S&P;
(3) Short-term corporate obligations rated A or better by Moody's
or by S&P;
(4) U.S. Government obligations including bills, notes, bonds and
other debt securities issued by the U.S. Treasury. These are
direct obligations of the U.S. Treasury, supported by the full
faith and credit pledge of the U.S. Government and differ
mainly in interest rates, maturities and dates of issue;
(5) U.S. Government agency securities issued or guaranteed by U.S.
Government sponsored instrumentalities and Federal agencies;
and
(6) Repurchase agreements collateralized by securities listed
above.
REPURCHASE AGREEMENTS
The Portfolio may invest in repurchase agreements collateralized by
U.S. Government securities. In addition, the Portfolio may invest in repurchase
agreements collateralized by certificates of deposit and certain bankers'
acceptances and other securities outlined above under "Short-Term Investments."
In a repurchase agreement, a Portfolio buys a security and simultaneously
commits to sell that security back at an agreed upon price plus an agreed upon
market rate of interest. Under a repurchase agreement the seller will be
required to maintain the value of the securities subject to the agreement at not
less than the repurchase price if such securities mature in one year or less or
101% of the repurchase price if such securities mature in more than one year.
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The use of repurchase agreements involves certain risks. While the
Fund's management acknowledges these risks, it is expected that they can be
controlled through stringent security selection criteria and careful monitoring
procedures.
LENDING OF SECURITIES
Each Portfolio may lend its investment securities to qualified
institutional investors as a means of earning income. A Portfolio will not loan
securities to the extent that greater than one-third of its assets at fair
market value would be committed to loans. During the term of a loan, the
Portfolio is subject to a gain or loss depending on any increase or decrease in
the market price of the securities loaned. Lending of securities is subject to
review by the Fund's Board of Trustees. All relevant facts and circumstances,
including the creditworthiness of the broker, dealer or institution, will be
considered in making decisions about securities lending.
An investment company may pay reasonable negotiated fees in connection
with loaned securities so long as such fees are set forth in a written contract
and approved by its Board of Trustees. The Portfolio will continue to retain any
voting rights with respect to loaned securities. If a material event occurs
affecting an investment on a loan, the loan must be called and the securities
voted.
WHEN-ISSUED, FORWARD DELIVERY AND DELAYED SETTLEMENT SECURITIES
The Portfolio may purchase and sell securities on a "when-issued,"
"delayed settlement" or "forward delivery" basis. "When-issued" or "forward
delivery" refers to securities whose terms and indenture are available, and for
which a market exists, but which are not available for immediate delivery.
When-issued and forward delivery transactions may be expected to occur a month
or more before delivery is due. Delayed settlement is a term used to describe
settlement of a securities transaction in the secondary market which will occur
sometime in the future. No payment or delivery is made by a Portfolio until it
receives payment or delivery from the other party to any of the above
transactions. The Portfolio will maintain a separate account of cash, U.S.
Government securities, other high grade debt obligations or other liquid
securities at least equal to the value of purchase commitments until payment is
made. Such segregated securities will either mature or, if necessary, be sold on
or before the settlement date. Typically, no income accrues on securities
purchased on a delayed delivery basis prior to the time delivery is made,
although the Portfolio may earn income on securities it has deposited in a
segregated account.
The Portfolio may engage in when-issued transactions to obtain what is
considered to be an advantageous price and yield at the time of the transaction.
When the Portfolio engages in when-issued or forward delivery transactions, it
does so to acquire securities consistent with its investment objective and
policies -- not for investment leverage.
PORTFOLIO TURNOVER
It is expected that the annual portfolio turnover rate for the
Portfolio will not exceed 300%. In addition to the Portfolio trading costs,
higher rates of portfolio turnover may result in the realization of
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capital gains. See "DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES" for
information on taxation.
INVESTMENT COMPANIES
The Portfolio reserves the right to invest up to 10% of its total
assets, calculated at the time of investment, in securities of other open-end or
closed-end investment companies. No more than 5% of the investing the
Portfolio's total assets may be invested in securities of any one investment
company nor may it acquire more than 3% of the voting securities of any
investment company. The Portfolio will indirectly bear its proportionate share
of any management fees paid by an investment company in which it invests in
addition to the advisory fee paid by the Portfolio.
FUTURES CONTRACTS AND OPTIONS
In order to remain fully invested and to reduce transaction costs, the
Portfolio may invest in appropriate futures contracts and options (also known as
derivatives). Because transaction costs associated with futures and options may
be lower than the costs of investing in stocks and bonds directly, it is
expected that use of index futures and options to facilitate cash flows may
reduce a Portfolios overall transaction costs. The Portfolio may enter into
futures contracts provided that not more than 5% of the Portfolio's assets are
required as margin deposit to secure obligations under such contracts.
Futures and options can be volatile and involve various degrees and
types of risk. If the Portfolio judges market conditions incorrectly or employs
a strategy that does not correlate well with its investments, use of futures and
options contracts could result in a loss. The Portfolio could also suffer losses
if it is unable to liquidate its position due to an illiquid secondary market.
In the opinion of the Trustees of the Fund, the risk that the Portfolio will be
unable to close out a futures position or options contract will be minimized by
only entering into futures contracts or options transactions traded on national
exchanges and for which there appears to be a liquid secondary market.
RESTRICTED SECURITIES
The Portfolio may purchase restricted securities that are not
registered for sale to the general public but which are eligible for resale to
qualified institutional investors under Rule 144A of the Securities Act of 1933.
Under the supervision of the Fund's Board of Trustees, the Adviser determines
the liquidity of such investments by considering all relevant factors. Provided
that a dealer or institutional trading market in such securities exists, these
restricted securities are not treated as illiquid securities for purposes of a
Portfolio's investment limitations. A Portfolio will invest no more than 15% of
its net assets in illiquid securities. The prices realized from the sales of
these securities could be less than those originally paid by the Portfolio or
less than what would be considered the fair value of such securities.
COMPANIES WITH LIMITED OPERATING HISTORIES
The Fund's portfolio may include securities of companies which have
limited operating histories and may not yet be profitable. The investments in
such companies offer opportunities for capital gains, but
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entail significant risks including, but not limited to, the volatility of the
stock price and the viability of the firm's operations. The Fund will not invest
in companies which together with predecessors have operating histories of less
than three years if immediately thereafter and as a result of such investment
the value of the Fund's holdings of such securities (other than securities of
companies principally engaged in the real estate industry) exceeds 20% of the
value of the Fund's total assets. Although not an investment policy of the Fund,
it is anticipated that under normal circumstances, approximately 10% to 15% of
the companies principally engaged in the real estate industry in which the Fund
invests will have operating histories of less than three years.
Except as specified above and as described under "INVESTMENT
LIMITATIONS," the foregoing investment policies are not fundamental and the
Trustees may change such policies without an affirmative vote of a majority of
the outstanding voting securities of a Portfolio, as defined in the 1940 Act.
INVESTMENT LIMITATIONS
The Portfolio will not:
(a) with respect to 75% of its assets, invest more than 5% of its
total assets at the time of purchase in the securities of any
single issuer (other than obligations issued or guaranteed as
to principal and interest by the government of the U.S. or any
agency or instrumentality thereof;
(b) with respect to 75% of its assets, purchase more than 10% of
any class of the outstanding voting securities of any issuer;
(c) make loans except (i) by purchasing bonds, debentures or
similar obligations which are publicly distributed, and (ii)
by lending its portfolio securities to banks, brokers, dealers
and other financial institutions so long as such loans are not
inconsistent with the 1940 Act or the rules and regulations or
interpretations of the SEC thereunder;
(d) borrow, except from banks and as a temporary measure for
extraordinary or emergency purposes and then, in no event in
excess of 331/3% of the Portfolio's gross assets valued at the
lower of market or cost, and a Portfolio may not purchase
additional securities when borrowings exceed 5% of total gross
assets; or
(e) pledge, mortgage or hypothecate any of its assets to an extent
greater than 331/3% of its total assets at fair market value.
The investment limitations described here and certain of the investment
limitations in the Statement of Additional Information are fundamental policies
and may be changed only with the approval of the holders of a majority of the
outstanding shares of the Portfolio. If a percentage limitation on investment or
utilization of assets as set forth above is adhered to at the time an investment
is made, a later change in percentage resulting from changes in the value or
total cost of the Portfolio's assets will not be considered a violation of the
restriction.
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PURCHASE OF SHARES
Shares of the Portfolio may be purchased without sales commission, at
the net asset value per share next determined after an order, including payment
in the manner described herein, is received and accepted by the Fund. (See
"VALUATION OF SHARES.") The minimum initial investment required is $10,000.
Certain exceptions may be made by the officers of the Fund.
INITIAL INVESTMENTS
BY MAIL
o Complete and sign an Account Registration Form and
mail it together with a check, drawn on a U.S. bank,
made payable to Brazos Mutual Funds, to:
Brazos Mutual Funds
c/o Rodney Square Management Corporation
P.O. Box 8987
Wilmington, DE 19890
A purchase order sent by overnight mail should be sent to:
1100 North Market Street, 19th Floor
Wilmington, DE 19801
Payment for the purchase of shares received by mail will be credited to
your account at the net asset value per share of the Portfolio next determined
after receipt. Payment does not need to be converted into Federal Funds (moneys
credited to the Fund's Custodian Bank by a Federal Reserve Bank) before the Fund
will accept it for investment. Make certain that you specify the Portfolio in
which you wish to invest on the Account Registration Form.
BY WIRE
o As soon as possible, telephone Rodney Square at
__________________ and provide the account name, address,
telephone number, social security or taxpayer identification
number, Portfolio selected, amount being wired and the name of
the bank wiring the funds. An account number will then be
provided to you. Next,
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o instruct your bank to wire the specified amount to:
RODNEY SQUARE MANAGEMENT CORPORATION
C/O WILMINGTON TRUST COMPANY
WILMINGTON, DE
ABA #_____
ATTENTION: Brazos Mutual Funds
REF: PORTFOLIO NAME ________________
DDA Acct. #_____
FURTHER CREDIT [SHAREHOLDER NAME AND ACCOUNT NUMBER]
o Forward a completed Account Registration Form to the Fund at the
address shown on the form. Federal Funds purchases will be accepted
only on a day on which both the New York Stock Exchange and the
Custodian Bank are open for business.
ADDITIONAL INVESTMENTS
Additional investments can be made at any time. The minimum additional
investment is $1,000. Shares can be purchased at net asset value by mailing a
check to the Fund c/o Rodney Square at the address above (payable to "Brazos
Mutual Funds") or by wiring money to the Fund using the instructions outlined
above. When making additional investments, be sure that: the account name and
number is identified on the check or wire and the Portfolio to be purchased is
specified.
Prior to wiring additional investments, notify the Fund by calling the
number on the cover of this prospectus. Mail orders should include, when
possible, the "Invest by Mail" stub which accompanies any Fund confirmation
statement.
OTHER PURCHASE INFORMATION
Investments received by 4 p.m. ET (the close of the New York Stock
Exchange ("NYSE")) will be invested at the price calculated after the NYSE
closes that day. Orders received after 4 p.m. ET will receive the price
calculated on the next business day. The Fund reserves the right, in its sole
discretion, to suspend the offering of shares of the Portfolio or reject
purchase orders when, in the judgment of management such suspension or rejection
is in the best interest of the Fund. Purchases of shares will be made in full
and fractional shares of the Portfolio calculated to three decimal places.
Certificates for fractional shares will not be issued. Certificates for whole
shares will not be issued except at the written request of the shareholder.
Shares of the Portfolio may be purchased by customers of broker-dealers
or other financial intermediaries ("Service Agents") which deal with the Fund on
behalf of their customers. Service Agents may impose additional or different
conditions on the purchase or redemption of Portfolio shares and may charge
transaction or other account fees. Each Service Agent is responsible for
transmitting to its customers a schedule of any such fees and information
regarding any additional or different purchase and redemption conditions.
Shareholders who are customers of Service Agents should consult their Service
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Agent for information regarding these fees and conditions. Amounts paid to
Service Agents may include transaction fees and/or service fees paid by the Fund
from the Fund assets attributable to the Service Agent and which would not be
imposed if shares of the Portfolio were purchased directly from the Fund or the
Distributor. The Service Agents may provide shareholder services to their
customers that are not available to a shareholder dealing directly with the
Fund. A salesperson and any other person entitled to receive compensation for
selling or servicing Portfolio shares may receive different compensation with
respect to one particular class of shares over another in the Fund.
Service Agents may enter confirmed purchase orders on behalf of their
customers. If shares of a Portfolio are purchased in this manner, the Service
Agent must receive the investment order before the close of trading on the NYSE
and transmit it to the Fund's Transfer Agent prior to the close of their
business day to receive that day's share price. Proper payment for the order
must be received by the Transfer Agent no later than the time when the Portfolio
is priced on the following business day. Service Agents are responsible to their
customers and the Fund for timely transmission of all subscription and
redemption requests, investment information, documentation and money.
IN-KIND PURCHASES
If accepted by the Fund, shares of the Portfolio may be purchased in
exchange for securities which are eligible for acquisition by the Portfolio, as
described in this Prospectus. Securities to be exchanged which are accepted by
the Fund will be valued as set forth under "VALUATION OF SHARES" at the time of
the next determination of net asset value after such acceptance. Shares issued
by a Portfolio in exchange for securities will be issued at net asset value
determined as of the same time. All dividends, interest, subscription, or other
rights pertaining to such securities shall become the property of the Portfolio
and must be delivered to the Fund by the investor upon receipt from the issuer.
Securities acquired through an in-kind purchase will be acquired for investment
and not for immediate resale.
The Fund will not accept securities in exchange for shares of the
Portfolio unless:
o at the time of the exchange, such securities are eligible to
be included in the Portfolio and current market quotations are
readily available for such securities;
o the investor represents and agrees that all securities offered
to be exchanged are not subject to any restrictions upon their
sale by the Portfolio under the Securities Act of 1933, or
otherwise; and
o the value of any such securities (except U.S. Government
securities) being exchanged together with other securities of
the same issuer owned by the Portfolio will not exceed 5% of
the net assets of the Portfolio immediately after the
transaction.
Investors who are subject to Federal taxation upon exchange may realize
a gain or loss for Federal income tax purposes depending upon the cost of
securities or local currency exchanged. Investors interested in such exchanges
should contact the Adviser.
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REDEMPTION OF SHARES
Shares of the Portfolio may be redeemed by mail or telephone, at any
time, at the net asset value of the Portfolio next determined after receipt of
the redemption request. Any redemption may be more or less than the purchase
price of your shares depending on the market value of the investment securities
held by the Portfolio. Shares held 90 days or more may be redeemed without cost
except for a $12 fee charged to shareholders for wire redemptions. Shares held
less than 90 days will be subject to a 1% redemption fee which is retained by
the Fund for the benefit of the remaining shareholders and is intended to
encourage long-term investment in the Portfolio to avoid transaction and other
expenses caused by early redemption and to facilitate portfolio management.
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BY MAIL
The Portfolio will redeem its shares at the net asset value next
determined on the date the request is received in "good order." Address requests
for redemption to Rodney Square at P.O. Box 8987, Wilmington, DE 19890. A
request to redeem shares must include:
o share certificates, if issued;
o a letter of instruction or a stock assignment specifying the
number of shares or dollar amount to be redeemed, signed by
all registered owners of the shares in the exact names in
which they are registered;
o any required signature guarantees (see "SIGNATURE
GUARANTEES"); and
o any other necessary legal documents, if required, in the case
of estates, trusts, guardianships, custodianships,
corporations, pension and profit sharing plans and other
organizations.
Shareholders who are uncertain of requirements for redemption should
contact Rodney Square by calling _________________.
BY TELEPHONE
In order to make a redemption request by telephone, you must:
o establish the telephone redemption privilege (and if desired,
the wire redemption privilege) by completing appropriate
sections of the Account Registration Form; and
o call the Fund and instruct that the redemption proceeds be
mailed to you or wired to your bank.
The following tasks cannot be accomplished by telephone:
o changing the name of the commercial bank or the account
designated to receive redemption proceeds (this can be
accomplished only by a written request signed by each
shareholder, with each signature guaranteed);
o redemption of certificated shares by telephone.
The Fund and the Fund's Transfer Agent will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine,
and they may be liable for any losses if they fail to do so. These procedures
include requiring the investor to provide certain personal identification at the
time an account is opened, as well as prior to effecting each transaction
requested by telephone. In addition, all telephone transaction requests will be
recorded and investors may be required to provide additional telecopied written
instructions of such transaction requests. The Fund or Transfer Agent may be
liable for
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any losses due to unauthorized or fraudulent telephone instructions if the Fund
or Transfer Agent does not employ the procedures described above. Neither the
Fund nor the Transfer Agent will be responsible for any loss, liability, cost or
expense for following instructions received by telephone that it reasonably
believes to be genuine.
Please contact Rodney Square at ______________________ for further
details.
SIGNATURE GUARANTEES
Signature guarantees are required for the following redemptions:
o redemptions where the proceeds are to be sent to someone other
than the registered shareowner(s);
o redemptions where the proceeds are to be sent to someplace
other than the registered address; or
o share transfer requests.
The purpose of signature guarantees is to verify the identity of the
party who has authorized a redemption. Signature guarantees will be accepted
from any eligible guarantor institution which participates in a signature
guarantee program. Eligible guarantor institutions include banks, brokers,
dealers, credit unions, national securities exchanges, registered securities
associations, clearing agencies and savings associations. Broker-dealers
guaranteeing signatures must be a member of a clearing corporation or maintain
net capital of at least $100,000. Credit unions must be authorized to issue
signature guarantees.
OTHER REDEMPTION INFORMATION
Normally, the Fund will make payment for all shares redeemed under
proper procedures within one business day of and no more than seven days after
receipt of the request. The Fund may suspend the right of redemption or postpone
the date at times when the NYSE is closed, or under any emergency circumstances
as determined by the SEC.
If the Fund's Board of Trustees determines that it would be detrimental
to the best interests of remaining shareholders of the Fund to make payment
wholly or partly in cash, the Fund may pay the redemption proceeds in whole or
in part by a distribution in-kind of liquid securities held by a Portfolio in
lieu of cash in conformity with applicable rules of the SEC. Investors may incur
brokerage charges on the sale of portfolio securities so received in payment of
redemptions.
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<PAGE>
SHAREHOLDER SERVICES
EXCHANGE PRIVILEGE
Shares of the Portfolio may be exchanged for shares of any other
Portfolio included in the Brazos Mutual Funds. Exchange requests should be made
by writing to the Fund c/o Rodney Square Management Corporation, P.O. Box 8987,
Wilmington, DE 19890 or calling ___________________.
Any exchange will be based on the net asset values of the shares
involved. There is no sales commission or charge of any kind for an exchange.
Before making an exchange into a Portfolio, a shareholder should read its
Prospectus and consider the investment objectives of the Portfolio to be
purchased. Contact Rodney Square at _____________________ for a copy of the
Prospectus for the Portfolio(s). Exchanges can only be made with Portfolios that
are registered for sale in a shareholder's state of residence. Exchange requests
may be made either by mail or telephone. Telephone exchanges will be accepted
only if the certificates for the shares to be exchanged have not been issued to
the shareholder and if the registration of the two accounts will be identical.
Requests for exchanges with other Portfolios received prior to 4 p.m. (ET) will
be processed as of the close of business on the same day. Requests received
after that time will be processed on the next business day. The Board of
Trustees may limit frequency and amount of exchanges permitted. For additional
information regarding responsibility for the authenticity of telephoned
instructions, see "REDEMPTION OF SHARES-BY TELEPHONE" above. An exchange into
another Portfolio of the Fund is a sale of shares and may result in a capital
gain or loss for income tax purposes. The Fund may modify or terminate the
exchange privilege at any time.
TRANSFER OF REGISTRATION
You may transfer the registration of any of your Fund shares to another
person by writing to the Fund at the above address. As in the case of
redemptions, the written request must be received in good order before any
transfer can be made. (See "REDEMPTION OF SHARES" for a definition of "good
order.")
RETIREMENT PLANS
Shares of the Fund are available for use in certain tax-deferred plans
(such as Individual Retirement Accounts ("IRAs"), defined contribution, 401(k)
and 403(b)(7) plans).
Individual Retirement Accounts
Application forms and brochures for IRAs can be obtained from Rodney
Square by calling ---------------.
WTC makes available its services as an IRA custodian for each
shareholder account that is established as an IRA. For these services, WTC
receives an annual fee of $10.00 per account, which fee is paid directly to WTC
by the IRA shareholder. If the fee is not paid by the date due, shares of the
Fund
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<PAGE>
owned by the IRA will be redeemed automatically for purposes of making the
payment. In addition, a $10 fee will be charged to shareholders transferring out
of a Fund IRA.
VALUATION OF SHARES
The net asset value of the Portfolio is determined by dividing the sum
of the total market value of the Portfolio's investments and other assets, less
any liabilities, by the total number of shares outstanding. Net asset value per
share of the Portfolio is determined as of the close of the NYSE on each day
that the NYSE is open for business.
Equity securities listed on a United States securities exchange for
which market quotations are readily available are valued at the last quoted sale
price on the day the valuation is made. Price information on listed securities
is taken from the exchange where the security is primarily traded. Unlisted
equity securities are valued at the last quoted sale price on the day the
valuation is made. Listed and unlisted securities not traded on the valuation
date for which market quotations are readily available are valued at the average
between the latest available bid and asked price at the close of the NYSE on
each day that the NYSE is open for business.
Bonds and other fixed income securities are valued according to the
broadest and most representative market which will ordinarily be the
over-the-counter market. Net asset value includes interest on fixed income
securities, which is accrued daily. Bonds and other fixed income securities may
be valued on the basis of prices provided by a pricing service when such prices
are believed to reflect the fair market value of such securities. Securities
purchased with remaining maturities of 60 days or less are valued at amortized
cost when the Board of Trustees determines that amortized cost reflects fair
value.
The value of other assets and securities for which no quotations are
readily available (including restricted securities) is determined in good faith
at fair value using methods determined by the Trustees.
PERFORMANCE CALCULATIONS
The Portfolio may advertise or quote total return data. Total return is
calculated on an average annual total return basis, and may also be calculated
on an aggregate total return basis, for various periods. Average annual total
return reflects the average annual percentage change in value of an investment
in a Portfolio over a period. Aggregate total return reflects the total
percentage change in value over a period. Both methods assume dividends and
capital gains distributions are reinvested in Portfolio shares.
The Portfolio's performance may be compared to data prepared by
independent services which monitor the performance of investment companies, data
reported in financial and industry publications, and various indices, all as
further described in the Portfolio's SAI.
The Portfolio will provide information about past performance together
with a comparison to an appropriate index in its Annual Report to Shareholders.
Following the end of the Portfolio's fiscal year, a free copy of the Portfolio's
Annual Report to Shareholders will be available upon request by writing or
calling the Fund at the address or phone number on the cover of this Prospectus.
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<PAGE>
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Portfolio will normally distribute substantially all of its net
investment income to shareholders in quarterly dividends. If any net capital
gains are realized, the Portfolio will normally distribute them with the last
dividend for the fiscal year. Dividends paid shortly after the purchase of
shares by an investor, although in effect a return of capital, are taxable to
shareholders. The Portfolio's dividends and capital gains distributions will be
automatically reinvested in additional shares of the Portfolio unless the Fund
is notified in writing that the shareholder elects to receive distributions in
cash.
FEDERAL TAXES
The Portfolio intends to declare and pay dividend and capital gains
distributions so as to avoid imposition of the Federal Excise Tax. To do so, the
Portfolio expects to distribute an amount no less than:
o 98% of its calendar year ordinary income;
o 98% of its capital gains net income (the excess of short and
long-term capital gains over short and long-term capital
losses) for the one-year period ending October 31; and
o 100% of any undistributed ordinary or capital gain net income
from the prior year.
Dividends paid by a Portfolio from net investment income, either in
cash or reinvested in shares, will be taxable to shareholders as ordinary
income. Dividends paid from the Portfolio will generally qualify in part for the
70% dividends received deduction for corporations, but the portion of the
dividends so qualified depends on the ratio of the aggregate taxable qualifying
dividend income received by the Portfolio from domestic (U.S.) sources to the
total taxable income of the Portfolio, exclusive of long-term capital gains.
Distributions paid by a Portfolio from long-term capital gains, either
in cash or additional shares of the Portfolio (and regardless of the length of
time the shares in the Portfolio have been owned by the shareholder), are
taxable to shareholders as such. These distributions are not eligible for the
dividends received deduction. Shareholders are notified annually by the Fund as
to Federal tax status of dividends and distributions paid by a Portfolio.
Dividends and distributions may also be subject to state and local taxes.
Dividends declared in October, November, or December to shareholders on record
in such month will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of such calendar year, provided that the dividends
are paid before February 1 of the following year.
Redemptions of shares in a Portfolio are taxable events for Federal
income tax purposes.
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<PAGE>
STATE AND LOCAL TAXES
Shareholders may also be subject to state and local taxes on
distributions and redemptions. Shareholders should consult with their tax
advisers regarding the tax status of distributions in their state and locality.
INVESTMENT ADVISER
John McStay Investment Counsel is a limited partnership formed in 1983
and located at 5949 Sherry Lane, Suite 1560, Dallas, Texas 75225. The Adviser
provides investment management services to institutions and individuals. The
Adviser currently has approximately $2 billion in assets under management. John
D. McStay may be deemed to control the Adviser as a result of ownership of a
majority interest in John McStay & Associates ("JMA"), the general partner of
the Adviser. JMA owns a majority interest in the Adviser.
An investment policy committee is responsible for the day-to-day
management of the Portfolio's investments.
Under an Investment Advisory Agreement with the Fund, dated as of
______________, the Adviser manages the investment and reinvestment of the
assets of the Portfolios. The Adviser must adhere to the stated investment
objectives and policies of the Portfolios, and is subject to the control and
supervision of the Fund's Board of Trustees.
As compensation for its services as an Adviser, the Portfolio pays the
Adviser an annual fee, in monthly installments, of .90% of the Portfolio's
average daily net assets for the month. The Adviser has voluntarily agreed to
keep operating expenses from exceeding 1.25% of average daily net assets. The
Fund will not reimburse the Adviser for any advisory fees that are waived or
Portfolio expenses that the Adviser may bear on behalf of a Portfolio.
The Adviser may compensate its affiliated companies for referring
investors to the Portfolios. The Adviser, or any of its affiliates, may, at its
own expense, compensate a Service Agent or other person for marketing,
shareholder servicing, record-keeping and/or other services performed with
respect to the Fund or a Portfolio. Payments made for any of these purposes may
be made from the paying entity's revenues, its profits or any other source
available to it. When such service arrangements are in effect, they are made
generally available to all qualified service providers.
ADVISER'S HISTORICAL PERFORMANCE
Set forth below are performance data provided by the Adviser pertaining
to the composite of separately managed accounts of the Adviser that are managed
with substantially similar (although not necessarily identical) objectives,
policies and strategies as those of the Portfolio. The investment returns of the
Portfolio may differ from those of the separately managed accounts because such
separately managed accounts may have fees and expenses that differ from those of
the Portfolio. Further, the separately managed accounts are not subject to
investment limitations, diversification requirements and other
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<PAGE>
restrictions imposed by the Investment Company Act of 1940 and Internal Revenue
Code; such conditions, if applicable, may have lowered the returns for the
separately managed accounts. The results presented are not intended to predict
or suggest the return of the Portfolio or the return an investor might achieve
by investing in the Portfolio.
<TABLE>
<CAPTION>
John McStay Investment Counsel Real Estate Securities Portfolio
(Percentage Returns Net of Average Management Fees)
Institutional NAREIT Wilshire
Calendar Year Equity Accounts Equity Index REIT Index
<C> <C> <C> <C>
1994 14.6% 3.2% 2.7%
1995 20.5% 15.3% 12.2%
Year to Date (9/30/96) 17.4% 13.8% 14.1%
Annualized 19.2% 11.7% 10.5%
Cumulative 62.1% 35.4% 31.5%
(Two)-Year Mean 17.6% 9.2% 7.5%
Value of $1 invested
during 2 3/4 years
(1/1/94-9/30/96) $1.62 $1.35 $1.32
Notes:
1. The annualized return is calculated from monthly data, allowing for
compounding. The formula used is in accordance with the methods set
forth by the Association for Investment Management Research, The Bank
Administration Institute, and the Investment Counsel Association of
America. Market Value of the account was the sum of the account's total
assets, including cash, cash equivalents, short term investments, and
securities valued at current market prices.
2. The cumulative return means that $1 invested in the composite account
on January 1, 1994 had grown to $1.62 by 9/30/96.
3. The two-year mean is the arithmetic average of the annual returns for
the years listed.
4. The NAREIT Equity Index and the Wilshire REIT Index are unmanaged
indices which assume reinvestment of dividends on securities in the
index and are generally considered representative of securities similar
to those invested in by the Adviser for the purpose of the composite
performance numbers set forth above. NAREIT Equity Index is a
compilation of market-weighted securities data collected from all
tax-qualified equity real estate investment trusts listed on the New
York and American Stock Exchanges and the NASDAQ. Wilshire REIT Index
is a market capitalization- weighted index of publicly traded real
estate securities. The comparative indices are not adjusted to reflect
expenses or other fees reflected in the performance of a mutual fund as
required by the SEC.
5. The Adviser's average annual management fee over the two-year period
(1994-1995) was .90% or 90 basis points. During the period, fees on the
Adviser's individual accounts ranged from .80% to 1% (80 basis points
to 100% basis points). Net returns to investors vary depending on the
management fee.
</TABLE>
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<PAGE>
ADMINISTRATIVE SERVICES
Rodney Square Management Corporation, 1100 N. Market Street,
Wilmington, DE 19890-001, serves as Administrator, Transfer Agent and Dividend
Paying Agent of the Fund and also provides accounting services to the Fund.
As Administrator, Rodney Square supplies office facilities,
non-investment related statistical and research data, stationery and office
supplies, executive and administrative services, internal auditing and
regulatory compliance services. Rodney Square also assists in the preparation of
reports to shareholders, prepares proxy statements, updates prospectuses and
makes filings with the Securities and Exchange Commission and state securities
authorities. Rodney Square performs certain budgeting and financial reporting
and compliance monitoring activities. For the services provided as
Administrator, Rodney Square receives an annual fee from the Fund equal to the
greater of: (1) a minimum annual fee of $32,500 for each of the first two
single-class Portfolios plus $15,000 for any additional Portfolio, or second or
additional class of a Portfolio; or (2) an asset-based fee, equal to a
percentage of the average daily net assets of the Fund, on a Fund-wide basis,
according to the following schedule:
0.15% of the first $50 million in assets; plus
0.15% of assets between $50 million and $200 million; plus
0.07% of assets in excess of 200 million.
The Administrator's fee shall be payable monthly, as soon as practicable after
the last day of each month, based on the Fund's average daily net assets as
determined at the close of business on each business day day throughout the
month. Rodney Square also serves as Transfer Agent and Dividend Paying Agent of
the Fund.
Rodney Square also serves as an Accounting Agent to the Fund. As
Accounting Agent, Rodney Square determines the Fund's net asset value per share
and provides accounting services to the Fund pursuant to an Accounting Services
Agreement with the Fund.
DISTRIBUTOR
Rodney Square Distributors, Inc., 1100 N. Market Street, Wilmington, DE
19890, has been engaged pursuant to a distribution agreement dated ___________,
1996, to assist in securing purchasers for shares of the Fund. RSD also
directly, or through its affiliates, provides investor support services. RSD
will receive no compensation for distribution of shares of the Fund, except for
reimbursement of out-of-pocket expenses.
Banking laws limit deposit-taking institutions and certain of their
affiliates from underwriting or distributing securities. RSD is an affiliate of
Wilmington Trust Company ("WTC"), the Fund's custodian bank for its domestic
assets. RSD believes that it may perform the services contemplated by its
agreement with the Fund without violation of applicable banking laws or
regulations. If RSD were prohibited from performing these services, it is
expected that the Board of Trustees would consider entering into agreements with
other entities. It is not expected that shareholders would suffer any adverse
financial consequences as a result of such an occurrence.
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<PAGE>
PORTFOLIO TRANSACTIONS
The Investment Advisory Agreement authorizes the Adviser to select the
brokers or dealers that will execute the purchases and sales of investment
securities for the Portfolio. The Agreement directs the Adviser to use its best
efforts to obtain the best available price and most favorable execution for all
transactions of the Portfolio. The Adviser may buy and sell securities for the
account of the portfolio through the Adviser's affiliated broker-dealer. In such
instances, the affiliated broker-dealer will complete transactions pursuant to
procedures designed to ensure that charges for the transactions do not exceed
usual and customary levels obtainable from other, unaffiliated broker-dealers.
Such transactions and the procedures are supervised by the Fund's Board of
Trustees. It is understood that the affiliated broker-dealer will not be
utilized in situations where, in the Adviser's judgment, the brokerage services
of another security firm would be in the best interest of the Portfolio. If
consistent with the interests of the Portfolio, the Adviser may select brokers
on the basis of research, statistical and pricing services these brokers provide
to the Portfolio. Information and research received from such brokers will be in
addition to, and not in lieu of, the services required to be performed by the
Adviser under the Investment Advisory Agreement. Such brokers may be paid a
higher commission than that which another qualified broker would have charged
for effecting the same transaction, provided that such commissions are paid in
compliance with the Securities Exchange Act of 1934, as amended, and that the
Adviser determines in good faith that the commission is reasonable in terms
either of the transaction or the overall responsibility of the Adviser to the
Portfolios and the Adviser's other clients. Although not a typical practice, the
Adviser may place portfolio orders with qualified broker-dealers who refer
clients to the Adviser. If a purchase or sale of securities is consistent with
the investment policies of a Portfolio and one or more other clients served by
the Adviser is considered at or about the same time, transactions in such
securities will be allocated among the Portfolio and clients in a manner deemed
fair and reasonable by the Adviser. Although there is no specified formula for
allocating such transactions, the allocations are subject to periodic review by
the Fund's Trustees.
GENERAL INFORMATION
DESCRIPTION OF SHARES AND VOTING RIGHTS
The Fund was organized as a Delaware Business Trust on October 24,
1996. The Trustees have the power to designate one or more series of shares of
beneficial interest and to classify or reclassify any unissued shares without
further action by shareholders. At its discretion, the Board of Trustees may
create additional Portfolios and classes of shares.
The shares of each Portfolio are fully paid and nonassessable, have no
preference as to conversion, exchange, dividends, retirement or other features
and have no pre-emptive rights. They have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election of
Trustees can elect 100% of the Trustees. A shareholder is entitled to one vote
for each full share held (and a fractional vote for each fractional share held),
then standing in his name on the books of the Fund.
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<PAGE>
Annual meetings will not be held except as required by the 1940 Act and
other applicable laws. The Fund has undertaken that its Trustees will call a
meeting of shareholders if such a meeting is requested in writing by the holders
of not less than 10% of the outstanding shares of the Fund. The Fund will assist
shareholder communications in such matters.
CUSTODIAN
Wilmington Trust Company, Rodney Square North, 1100 North Market
Street, Wilmington, DE 19890-0001, serves as Custodian of the Fund's assets.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., 2400 Eleven Penn Center, Philadelphia, PA
19103, is the independent accountants for the Fund.
REPORTS
Shareholders receive unaudited semi-annual financial statements and
annual financial statements audited by Coopers & Lybrand L.L.P..
SHAREHOLDER INQUIRIES
Shareholder inquiries may be made by contacting the Fund c/o Rodney
Square Management Corporation, P.O. Box 8987, Wilmington, DE 19890, or by
calling the telephone number listed on the cover of this Prospectus.
LITIGATION
The Fund is not involved in any litigation.
-23-
<PAGE>
PROSPECTUS
dated
Investment Adviser
JOHN MCSTAY INVESTMENT COUNSEL
5949 Sherry Lane
Suite 1560
Dallas, TX 75225
Distributor
TABLE OF CONTENTS
Fund Expenses...........................................................
Prospectus Summary......................................................
Risk Factors............................................................
Investment Objective ...................................................
Investment Policies ...................................................
Other Investment Policies...............................................
Investment Limitations..................................................
Purchase of Shares......................................................
Redemption of Shares....................................................
Shareholder Services....................................................
Valuation of Shares.....................................................
Performance Calculations................................................
Dividends, Capital Gains Distributions and Taxes........................
Investment Adviser......................................................
Advisers Historical Performance.........................................
Administrative Services.................................................
Distributor.............................................................
Portfolio Transactions..................................................
General Information.....................................................
No person has been authorized to give any information or to make any
representations not contained in this Prospectus, or in the Fund's Statement of
Additional Information, in connection with the offering made by this Prospectus
and, if given or made, such information or its representations must not be
relied upon as having been authorized by the Fund. This Prospectus does not
constitute an offering by the Fund in any jurisdiction in which such offering
may not lawfully be made.
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<PAGE>
PART B
BRAZOS/JMIC SMALL CAP GROWTH PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
___________________, 1996
This Statement is not a Prospectus but should be read in conjunction with the
Prospectus of the Brazos Mutual Funds (the "Fund") for the BRAZOS/JMIC Small Cap
Growth Portfolio Shares dated _________________, 1996. To obtain the Prospectus,
please call Rodney Square Management Corporation at ____________________:
[phone number]
Table of Contents
Page
Investment Objective and Policies.................................. 2
Purchase of Shares................................................. 6
Redemption of Shares............................................... 6
Shareholder Services............................................... 7
Investment Limitations............................................. 8
Management of the Fund............................................. 9
Investment Adviser................................................. 12
Portfolio Transactions............................................. 13
Performance Calculations........................................... 14
General Information................................................ 18
Financial Statements............................................... 20
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<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following policies supplement the investment objective and policies
of the BRAZOS/JMIC Small Cap Growth Portfolio as set forth in the Prospectus for
the Portfolio:
SECURITIES LENDING
The Portfolio may lend its investment securities to qualified
institutional investors who need to borrow securities in order to complete
certain transactions, such as covering short sales, avoiding failures to deliver
securities or completing arbitrage operations. By lending its investment
securities, the Portfolio attempts to increase its income through the receipt of
interest on the loan. Any gain or loss in the market price of the securities
loaned that might occur during the term of the loan would be for the account of
the Portfolio. The Portfolio may lend its investment securities to qualified
brokers, dealers, domestic and foreign banks or other financial institutions, so
long as the terms, the structure and the aggregate amount of such loans are not
inconsistent with the Investment Company Act of 1940, as amended, (the "1940
Act") or the Rules and Regulations or interpretations of the Securities and
Exchange Commission (the "Commission") thereunder, which currently require that
(a) the borrower pledge and maintain with the Portfolio collateral consisting of
cash, an irrevocable letter of credit issued by a domestic U.S. bank or
securities issued or guaranteed by the United States Government having a value
at all times not less than 100% of the value of the securities loaned, (b) the
borrower add to such collateral whenever the price of the securities loaned
rises (i.e., the borrower "marks to the market" on a daily basis), (c) the loan
be made subject to termination by the Portfolio at any time, and (d) the
Portfolio receives reasonable interest on the loan (which may include the
Portfolio investing any cash collateral in interest bearing short-term
investments). All relevant facts and circumstances, including the
creditworthiness of the broker, dealer or institution, will be considered in
making decisions with respect to the lending of securities, subject to review by
the Board of Trustees.
At the present time, the Staff of the Commission does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities so long as such fees are set forth in a written contract and approved
by the investment company's Board of Trustees. The Portfolio will continue to
retain any voting rights with respect to the loaned securities. If a material
event occurs affecting an investment on a loan, the loan must be called and the
securities voted.
HEDGING STRATEGIES
The Portfolio may engage in various portfolio strategies to hedge
against adverse movements in the equity markets. The Portfolio may write (i.e.,
sell) covered call options on its portfolio securities, purchase put and call
options on securities and engage in transactions in related options on futures.
Each of these portfolio strategies is described below.
FUTURES CONTRACTS
The Portfolio may enter into futures contracts. Futures contracts
provide for the future sale by one party and purchase by another party of a
specified amount of a specific security at a specified future time and at a
specified price. Futures contracts which are standardized as to maturity date
and underlying financial instrument are traded on national futures exchanges.
Futures exchanges and trading are regulated
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<PAGE>
under the Commodity Exchange Act by the Commodity Futures Trading Commission
("CFTC"), a U.S. Government agency.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by trading an opposite position ("buying" a
contract which has previously been "sold" or "selling" a contract previously
"purchased") in an identical contract to terminate the position. Brokerage
commissions are incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in
cash or acceptable securities with a broker or custodian to initiate and
maintain open positions in futures contracts. A margin deposit is intended to
assure completion of the contract (delivery or acceptance of the underlying
security) if it is not terminated prior to the specified delivery date. Minimal
initial margin requirements are established by the futures exchange and may be
changed. Brokers may establish deposit requirements which are higher than the
exchange minimums. Futures contracts are customarily purchased and sold on
margin that may range upward from less than 5% of the value of the contract
being traded. After a futures contract position is opened, the value of the
contract is marked to market daily. If the futures contract price changes to the
extent that the margin on deposit does not satisfy margin requirements, payment
of additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Portfolio
expects to earn interest income on its margin deposits.
Traders in futures contracts may be broadly classified as either
"hedgers" or "speculators". Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the securities underlying the futures contracts which they trade and use
futures contracts with the expectation of realizing profits from a fluctuation
in interest rates.
Regulations of the CFTC applicable to the Fund require that all of its
futures transactions constitute bona fide straddles or that the Fund's commodity
futures and option positions be for other purposes, to the extent that the
aggregate initial margins and premiums required to establish such non-hedging
positions do not exceed five percent of the liquidation value of the Portfolio.
The Portfolio will only sell futures contracts to protect securities it owns
against price declines or purchase contracts to protect against an increase in
the price of securities it intends to purchase. As evidence of this hedging
interest, the Portfolio expects that approximately 75% of its futures contracts
purchases will be "completed", that is, equivalent amounts of related securities
will have been purchased or will be purchased by the Portfolio on the settlement
date of the futures contracts.
Although techniques other than the sale and purchase of futures
contracts could be used to control the Portfolios exposure to market
fluctuations, the use of futures contracts may be a more effective means of
hedging this exposure. While the Portfolio will incur commission expenses in
both opening and closing
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<PAGE>
out futures positions, these costs are lower than transaction costs incurred in
the purchase and sale of the underlying securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS
The Portfolio will not enter into futures contract transactions to the
extent that, immediately thereafter, the sum of its initial margin deposits on
open contracts exceeds 5% of the market value of its total assets. In addition,
the Portfolio will not enter into futures contracts to the extent that its
outstanding obligations to purchase securities under these contracts would
exceed 20% of its total assets.
RISK FACTORS IN FUTURES TRANSACTIONS
The Portfolio will minimize the risk that it will be unable to close
out a futures position by only entering into futures which are traded on
national futures exchanges and for which there appears to be a liquid secondary
market. However, there can be no assurance that a liquid secondary market will
exist for a particular futures contract at any given time. Thus, it may not be
possible to close a futures position. In the event of adverse price movements,
the Portfolio would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if the Portfolio has
insufficient cash, it may have to sell securities to meet daily margin
requirements at a time when it may be disadvantageous to do so. In addition, the
Portfolio may be required to make delivery of the instruments underlying futures
contracts it holds. The inability to close futures positions also could have an
adverse impact on the Portfolio's ability to effectively hedge.
The risk of loss in trading futures contracts in some strategies can be
substantial due both to the low margin deposits required and the extremely high
degree of leverage involved in futures pricing. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss (as well as gain) to the investor. For example, if at the time of purchase,
10% of the value of the futures contract is deposited as margin, a subsequent
10% decrease in the value of the futures contract would result in a total loss
of the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in excess of the amount
invested in the contract. However, because the futures strategies of the
Portfolio are engaged in only for hedging purposes, the Adviser does not believe
that the Portfolio is subject to the risks of loss frequently associated with
futures transactions. The Portfolio would presumably have sustained comparable
losses if, instead of the futures contract, it had invested in the underlying
financial instrument and sold it after the decline.
Utilization of futures transactions by the Portfolio does involve the
risk of imperfect or no correlation where the securities underlying the futures
contracts have different maturities than the portfolio securities being hedged.
It is also possible that the Portfolio could lose money on futures contracts and
also experience a decline in value of portfolio securities. There is also the
risk of loss by the Portfolio of margin deposits in the event of bankruptcy of a
broker with whom the Portfolio has an open position in a futures contract or
related option.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract
-4-
<PAGE>
may vary either up or down from the previous day's settlement price at the end
of a trading session. Once the daily limit has been reached in a particular type
of contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and,
therefore, does not limit potential losses because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
Futures contracts may be traded on foreign exchanges. Such transactions
are subject to the risks of governmental actions affecting trading in or the
prices of the securities. The value of such positions also could be adversely
affected by (i) other complex foreign political and economic factors, (ii)
lesser availability than in the United States of data on which to make trading
decisions, (iii) delays in the Portfolio's ability to act upon economic events
occurring in foreign markets during non-business hours in the United States,
(iv) the imposition of different exercise and settlement terms and procedures
and margin requirements than in the United States, and (v) lesser trading
volume.
OPTIONS
The Portfolio may purchase and sell put and call options on securities
and futures contracts for hedging purposes. Investments in options involve some
of the same considerations that are involved in connection with investments in
futures contracts (e.g., the existence of a liquid secondary market). In
addition, the purchase of an option also entails the risk that changes in the
value of the underlying security or contract will not be fully reflected in the
value of the option purchased. Depending on the pricing of the option compared
to either the futures contract on which it is based or the price of the
securities being hedged, an option may or may not be less risky than ownership
of the futures contract or such securities. In general, the market prices of
options can be expected to be more volatile than the market prices on the
underlying futures contract or securities.
WRITING COVERED CALL OPTIONS
The principal reason for writing call options is to attempt to realize,
through the receipt of premiums, a greater return than would be realized on
securities alone. By writing covered call options, the Portfolio gives up the
opportunity, while the option is in effect, to profit from any price increase in
the underlying security above the option exercise price. In addition, the
Portfolio's ability to sell the underlying security will be limited while the
option is in effect unless the Portfolio effects a closing purchase transaction.
A closing purchase transaction cancels out the Portfolio's position as the
writer of an option by means of an offsetting purchase of an identical option
prior to the expiration of the option it has written. Covered call options serve
as a partial hedge against the price of the underlying security declining. The
Portfolio writes only covered options, which means that so long as the Portfolio
is obligated as the writer of the option it will, in a segregated account with
its custodian, maintain cash, U.S. government securities, other high grade
liquid debt securities or other liquid securities denominated in U.S. dollars
with a value equal to or greater than the exercise price of the underlying
securities.
PURCHASING OPTIONS
The amount of any appreciation in the value of the underlying security
subject to a put will be partially offset by the amount of the premium paid for
the put option and any related transaction costs.
-5-
<PAGE>
Prior to its expiration, a put option may be sold in a closing sale transaction
and profit or loss from a sale will depend on whether the amount received is
more or less than the premium paid for the put option plus the related
transaction costs. A closing sale transaction cancels out the Portfolio's
position as purchaser of an option by means of an offsetting sale of an
identical option prior to the expiration of the option it has purchased. In
certain circumstances, the Portfolio may purchase call options on securities
held in its investment portfolio on which it has written call options or on
securities which it intends to purchase.
PURCHASE OF SHARES
Shares of the Portfolio may be purchased without sales commission at
the net asset value per share next determined after an order is received in
proper form and accepted by the Fund. The minimum initial investment required
for the Portfolio is $10,000 with certain exceptions as may be determined from
time to time by the officers of the Fund. An order received in proper form prior
to the 4:00 p.m. close of the New York Stock Exchange (the "NYSE") will be
executed at the price computed on the date of receipt; and an order received not
in proper form or after the 4:00 p.m. close of the NYSE will be executed at the
price computed on the next day the NYSE is open after proper receipt. The NYSE
will be closed on the following days: Thanksgiving Day, November 28, 1996;
Christmas Day, December 25, 1996; New Year's Day, January 1, 1997; President's
Day, February 17, 1997; Good Friday, March 28, 1997; Memorial Day, May 26, 1997;
Independence Day, July 4, 1997; and Labor Day, September 1, 1997.
The Portfolio reserves the right in its sole discretion (1) to suspend
the offering of its shares, (2) to reject purchase orders when in the judgment
of management such rejection is in the best interests of the Fund, and (3) to
reduce or waive the minimum for initial and subsequent investment for certain
fiduciary accounts such as employee benefit plans or under circumstances where
certain economies can be achieved in sales of the Portfolio's shares.
REDEMPTION OF SHARES
The Portfolio may suspend redemption privileges or postpone the date of
payment (1) during any period that the Exchange is closed or trading on the
Exchange is restricted as determined by the Commission, (2) during any period
when an emergency exists as defined by the rules of the Commission as a result
of which it is not reasonably practicable for the Portfolio to dispose of
securities owned by it or to fairly determine the value of its assets, and (3)
for such other periods as the Commission may permit. The Fund has made an
election with the Commission to pay in cash all redemptions requested by any
shareholder of record limited in amount during any 90-day period to the lesser
of $250,000 or 1% of the net assets of the Fund at the beginning of such period.
Such commitment is irrevocable without the prior approval of the Commission.
Redemptions in excess of the above limits may be paid, in whole or in part, in
investment securities or in cash as the Board of Trustees may deem advisable;
however, payment will be made wholly in cash unless the Board of Trustees
believe that economic or market conditions exist which would make such a
practice detrimental to the best interests of the Fund. If redemptions are paid
in investment securities, such securities will be valued as set forth in the
Prospectus under "How Share Prices are Determined," and a redeeming shareholder
would normally incur brokerage expenses if those securities were converted to
cash.
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<PAGE>
No charge is made by the Portfolio for redemptions. Any redemption may
be more or less than the shareholder's initial cost depending on the market
value of the securities held by the Portfolio.
SIGNATURE GUARANTEES
To protect your account, the Fund and Rodney Square Management
Corporation (the "Administrator") from fraud, signature guarantees are required
for certain redemptions. Signature guarantees are required for (1) redemptions
where the proceeds are to be sent to someone other than the registered
shareowner(s) or the registered address or (2) share transfer requests. The
purpose of signature guarantees is to verify the identity of the party who has
authorized a redemption.
Signatures must be guaranteed by an "eligible guarantor institution" as
defined in Rule 17Ad-15 under the Securities Exchange Act of 1934. Eligible
guarantor institutions include banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies and
savings associations. A complete definition of eligible guarantor institution is
available from the Administrator. Broker-dealers guaranteeing signatures must be
a member of a clearing corporation or maintain net capital of at least $100,000.
Credit unions must be authorized to issue signature guarantees. Signature
guarantees will be accepted from any eligible guarantor institution which
participates in a signature guarantee program.
The signature guarantee must appear either: (1) on the written request
for redemption; (2) on a separate instrument for assignment ("stock power")
which should specify the total number of shares to be redeemed; or (3) on all
stock certificates tendered for redemption and, if shares held by the Fund are
also being redeemed, on the letter or stock power.
SHAREHOLDER SERVICES
The following supplements the shareholder services information set
forth in the BRAZOS/JMIC Small Cap Growth Portfolio's Prospectus:
EXCHANGE PRIVILEGE
Shares of the BRAZOS/JMIC Small Cap Growth Portfolio may be exchanged
for shares of any Portfolio included within the Brazos Mutual Funds. Exchange
requests should be made by calling _______________ or by writing to Brazos
Mutual Funds, c/o Rodney Square Management Corporation, 1100 North Market
Street, 3rd Floor, Wilmington, DE 19890. The exchange privilege is only
available with respect to Portfolios that are registered for sale in the
shareholder's state of residence.
Any such exchange will be based on the respective net asset values of
the shares involved. There is no sales commission or charge of any kind. Before
making an exchange into a Portfolio, a shareholder should read its Prospectus
and consider the investment objectives of the Portfolio to be purchased. You may
obtain a Prospectus for the Portfolio(s) you are interested in by calling the
Administrator at -------------.
Exchange requests may be made either by mail or telephone. Telephone
exchanges will be accepted only if the certificates for the shares to be
exchanged are held by the Fund for the account of the shareholder and the
registration of the two accounts will be identical. Requests for exchanges
received
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<PAGE>
prior to 4:00 p.m. (Eastern Time) will be processed as of the close of business
on the same day. Requests received after 4:00 p.m. will be processed on the next
business day. Neither the Fund nor the Administrator will be responsible for the
authenticity of the exchange instructions received by telephone. Exchanges may
also be subject to limitations as to amounts or frequency, and to other
restrictions established by the Board of Trustees to assure that such exchanges
do not disadvantage the Fund and its shareholders.
For Federal income tax purposes an exchange between Portfolios is a
taxable event, and, accordingly, a capital gain or loss may be realized. In a
revenue ruling relating to circumstances similar to the Fund's, an exchange
between series of a Fund was also deemed to be a taxable event. It is likely,
therefore, that a capital gain or loss would be realized on an exchange between
Portfolios; you may want to consult your tax adviser for further information in
this regard. The exchange privilege may be modified or terminated at any time.
TRANSFER OF SHARES
Shareholders may transfer shares of the Portfolio to another person by
making a written request to the Fund. The request should clearly identify the
account and number of shares to be transferred, and include the signature of all
registered owners and all stock certificates, if any, which are subject to the
transfer. The signature on the letter of request, the stock certificate or any
stock power must be guaranteed in the same manner as described under "Redemption
of Shares." As in the case of redemptions, the written request must be received
in good order before any transfer can be made.
INVESTMENT LIMITATIONS
The following limitations supplement those set forth in the Prospectus.
Whenever an investment limitation sets forth a percentage limitation on
investment or utilization of assets, such limitation shall be determined
immediately after and as a result of the Portfolio's acquisition of such
security or other asset. Accordingly, any later increase or decrease resulting
from a change in values, net assets or other circumstances will not be
considered when determining whether the investment complies with the Portfolio's
investment limitations. Investment limitations (1), (2), (3) and (4) are
classified as fundamental. The Portfolio's fundamental investment limitations
cannot be changed without approval by a "majority of the outstanding shares" (as
defined in the 1940 Act) of the Portfolio. The Portfolio will not:
(1) invest in physical commodities or contracts on physical
commodities;
(2) purchase or sell real estate or real estate limited
partnerships, although it may purchase and sell securities of
companies which deal in real estate and may purchase and sell
securities which are secured by interests in real estate;
(3) make loans except (i) by purchasing debt securities in
accordance with its investment objectives and (ii) by lending
its portfolio securities to banks, brokers, dealers and other
financial institutions so long as such loans are not
inconsistent with the 1940 Act or the rules and regulations or
interpretations of the Commission thereunder;
-8-
<PAGE>
(4) underwrite the securities of other issuers;
(5) invest in futures and/or options on futures unless (i) not
more than 5% of the Portfolio's assets are required as deposit
to secure obligations under such futures and/or options on
futures contracts provided, however, that in the case of an
option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in computing such 5% and
(ii) not more than 20% of the Portfolio's assets are invested
in futures and options;
(6) purchase on margin or sell short except as specified in (5)
above;
(7) invest more than an aggregate of 15% of the net assets of the
Portfolio, determined at the time of investment, in securities
subject to legal or contractual restrictions on resale or
securities for which there are no readily available markets;
(8) issue senior securities, as defined in the 1940 Act, except
that this restriction shall not be deemed to prohibit the
Portfolio from (i) making any permitted borrowings, mortgages
or pledges, or (ii) entering into options, futures or
repurchase transactions.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The Officers of the Fund manage its day-to-day operations and are
responsible to the Fund's Board of Trustees. The Trustees set broad policies for
the Fund and elect its Officers. The following is a list of the Trustees and
Officers of the Fund and a brief statement of their present positions and
principal occupations during the past five years:
*Daniel Hockenbrough Trustee, President and Treasurer of the Fund;
5949 Sherry Lane, Suite 1560 Since August 1996, Business Manager of John
Dallas, Texas 75225 McStay Investment Counsel. Formerly, Chief
Age 37 Financial Officer of Waugh Enterprises,
Inc. from November 1995 until August 1996;
Assistant Controller of Hicks, Muse, Tate &
Furst Incorporated from December 1992 to
November 1995; and Senior Associate at
Coopers & Lybrand prior to December 1992.
John H. Massey Trustee of the Fund; Private Investor and a
4004 Windsor Avenue Director of The Paragon Group, Inc.,
Dallas, Texas 75205 Chancellor Broadcasting, Inc., Bank of the
Age 57 Southwest, Columbine JDS Systems, Inc. and
FSW Holdings, Inc. Until 1996, Chairman of
the Board and Chief Executive Officer of Life
Partners Group, Inc.
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<PAGE>
David M. Reichert Trustee of the Fund; Private Investor;
7415 Stonecrest Drive formerly Senior Vice President of Moffet
Dallas, Texas 75240 Capital Management, an investment counseling
Age 57 firm, from January 1995 until June 1996 and
Senior Vice President and Portfolio Manager
of American Capital Asset Management, a
mutual fund management company, from April
1989 to July 1994.
*Tricia A. Hundley Vice President, Secretary and Compliance
5949 Sherry Lane, Suite 1560 Officer of the Fund; Partner of John McStay
Dallas, Texas 75225 Investment Counsel since 1987.
Age 46
*This person is deemed to be an "interested person" of the Fund as that term is
defined in the 1940 Act.
REMUNERATION OF TRUSTEES AND OFFICERS
The Fund pays each Trustee, who is not also an officer or affiliated
person, a $500 quarterly retainer fee per active Portfolio which currently
amounts to $1,000 per quarter. In addition, each unaffiliated Trustee receives a
$500 meeting fee which is aggregated for all the Trustees and allocated
proportionately among the Portfolios of the Fund, and reimbursement for travel
and other expenses incurred while attending Board meetings. Trustees who are
also officers or affiliated persons receive no remuneration for their service as
Trustees. The Fund's officers and employees are paid by either the Adviser or
the Administrator and receive no compensation from the Fund. The following table
shows aggregate compensation to be paid to each of the Fund's Trustees by the
Fund in the fiscal year ending September 30, 1997.
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<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Person Aggregate Pension or Estimated Annual Total Compensation
Position Compensation Retirement Benefits Benefits Upon from Registrant and
From Registrant Accrued as Part of Retirement Fund Complex Paid
Fund Expenses to Trustees
<S> <C> <C> <C> <C>
Daniel Hockenbrough -0- -0- -0- -0-
Director
John H. Massey $1,000 -0- -0- $6,000
Director
David M. Reichert $1,000 -0- -0- $6,000
Director
</TABLE>
PRINCIPAL HOLDERS OF SECURITIES
As of December 31, 1996, the following persons or organizations held of
record 5% or more of the shares of the Portfolio: John McStay Investment
Counsel.
INVESTMENT ADVISER
ADVISORY FEES
As compensation for services rendered by John McStay Investment Counsel
(the "Adviser") under the Investment Advisory Agreement, the Portfolio pays the
Adviser an annual fee in monthly installments, calculated by applying the
following annual percentage rates to the Portfolio's average daily net assets
for the month:
BRAZOS/JMIC Small Cap Growth Portfolio...................... 0.90%
ADMINISTRATION FEES
In addition to the fees received for its services as Administrator to
the Fund, as set forth in the Prospectus under "ADMINISTRATIVE SERVICES," Rodney
Square receives fees from the Fund for providing transfer agency, accounting and
dividend disbursing services. Such fees are included in the calculation of
"Other Expenses" which appears under the caption heading "FUND EXPENSES" in the
Prospectus.
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<PAGE>
PORTFOLIO TRANSACTIONS
The Investment Advisory Agreement authorizes the Adviser to select the
brokers or dealers that will execute the purchases and sales of investment
securities for the Portfolio and directs the Adviser to use its best efforts to
obtain the best execution with respect to all transactions for the Portfolio.
The Adviser may, however, consistent with the interests of the Portfolio, select
brokers on the basis of the research, statistical and pricing services they
provide to the Portfolio. Information and research received from such brokers
will be in addition to, and not in lieu of, the services required to be
performed by the Adviser under the Investment Advisory Agreement. A commission
paid to such brokers may be higher than that which another qualified broker
would have charged for effecting the same transaction, provided that such
commissions are paid in compliance with the Securities Exchange Act of 1934, as
amended, and that the Adviser determines in good faith that such commission is
reasonable in terms either of the transaction or the overall responsibility of
the Adviser to the Portfolio and the Adviser's other clients.
It is not the Fund's practice to allocate brokerage or principal
business on the basis of sales of shares which may be made through broker-dealer
firms. However, the Adviser may place portfolio orders with qualified
broker-dealers who recommend the Portfolio or who act as agents in the purchase
of shares of the Portfolio for their clients.
Some securities considered for investment by the Portfolio may also be
appropriate for other clients served by the Adviser. If purchases or sales of
securities consistent with the investment policies of the Portfolio and one or
more of these other clients served by the Adviser is considered at or about the
same time, transactions in such securities will be allocated among the Portfolio
and clients in a manner deemed fair and reasonable by the Adviser. Although
there is no specified formula for allocating such transactions, the various
allocation methods used by the Adviser, and the results of such allocations, are
subject to periodic review by the Fund's Board of Trustees.
PERFORMANCE CALCULATIONS
PERFORMANCE
The Portfolio may from time to time quote various performance figures
to illustrate past performance. Performance quotations by investment companies
are subject to rules adopted by the Commission, which require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Fund be accompanied by
certain standardized performance information computed as required by the
Commission. Current yield and average annual compounded total return quotations
used by the Fund are based on the standardized methods of computing performance
mandated by the Commission. An explanation of those and other methods used to
compute or express performance follows.
YIELD
Current yield reflects the income per share earned by the Portfolio's
investment. The current yield of the Portfolio is determined by dividing the net
investment income per share earned during a 30-day base period by the maximum
offering price per share on the last day of the period and annualizing the
result. Expenses accrued for the period include any fees charged to all
shareholders during the base period.
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<PAGE>
This figure is obtained using the following formula:
6
Yield=2[(a-b=1) + 1]
---
cd
where:
a= dividends and interest earned during the period
b= expenses accrued for the period (net of reimbursements)
c= the average daily number of shares outstanding during the
period that were entitled to receive income distributions
d= the maximum offering price per share on the last day of the
period.
TOTAL RETURN
The average annual total return of the Portfolio is determined by
finding the average annual compounded rates of return over 1, 5 and 10 year
periods that would equate an initial hypothetical $1,000 investment to its
ending redeemable value. The calculation assumes that all dividends and
distributions are reinvested when paid. The quotation assumes the amount was
completely redeemed at the end of each 1, 5 and 10 year period and the deduction
of all applicable Fund expenses on an annual basis.
These figures will be calculated according to the following formula:
n
P(1+T) =ERV
where:
P= a hypothetical initial payment of $ 1,000
T= average annual total return
n= number of years
ERV= ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the 1, 5 or 10 year periods at the end of
the 1, 5 or 10 year periods (or fractional portion thereof).
COMPARISONS
To help investors better evaluate how an investment in the Portfolio
might satisfy their investment objective, advertisements regarding the Fund may
discuss various measures of Fund performance as reported by various financial
publications. Advertisements may also compare performance (as calculated above)
to performance as reported by other investments, indices and averages. The
following publications, indices and averages may be used:
(a) Dow Jones Composite Average or its component averages - an
unmanaged index composed of 30 blue-chip industrial
corporation stocks (Dow Jones Industrial Average), 15
utilities company stocks and 20 transportation stocks.
Comparisons of performance assume reinvestment of dividends.
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<PAGE>
(b) Standard & Poor's 500 Stock Index or its component indices -
an unmanaged index composed of 400 industrial stocks, 40
financial stocks, 40 utilities stocks and 20 transportation
stocks. Comparisons of performance assume reinvestment of
dividend.
(c) Standard & Poor's MidCap 400 Index - an unmanaged index
measuring the performance of non-S&P 500 stocks in the
mid-range sector of the U.S. stock market.
(d) The New York Stock Exchange composite or component indices -
unmanaged indices of all industrial, utilities, transportation
and finance stocks listed on the New York Stock Exchange.
(e) Wilshire 5000 Equity Index or its component indices -
represents the return on the market value of all common equity
securities for which daily pricing is available. Comparisons
of performance assume reinvestment of dividends.
(f) Lipper - Mutual Fund Performance Analysis and Lipper - Fixed
Income Fund Performance Analysis - measure total return and
average current yield for the mutual fund industry. Rank
individual mutual fund performance over specified time
periods, assuming reinvestment of all distributions, exclusive
of any applicable sales charges.
(g) Morgan Stanley Capital International EAFE Index and World
Index - respectively, arithmetic, market value-weighted
averages of the performance of over 900 securities listed on
the stock exchanges of countries in Europe, Australia and the
Far East, and over 1,400 securities listed on the stock
exchanges of these continents, including North America.
(h) Goldman Sachs 100 Convertible Bond Index - currently includes
67 bonds and 33 preferred. The original list of names was
generated by screening for convertible issues of 100 million
or greater in market capitalization. The index is priced
monthly.
(i) Salomon Brothers GNMA Index - includes pools of mortgages
originated by private lenders and guaranteed by the mortgage
pools of the Government National Mortgage Association.
(j) Salomon Brothers High Grade Corporate Bond Index - consists of
publicly issued, non-convertible corporate bonds rated AA or
AAA. It is a value-weighted, total return index, including
approximately 800 issues with maturities of 12 years or
greater.
(k) Salomon Brothers Broad Investment Grade Bond - is a
market-weighted index that contains approximately 4,700
individually priced investment grade corporate bonds rated BBB
or better, U.S. Treasury/agency issues and mortgage pass
through securities.
(l) Lehman Brothers Long-Term Treasury Bond - is composed of all
bonds covered by the Lehman Brothers Treasury Bond Index with
maturities of 10 years or greater.
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<PAGE>
(m) NASDAQ Industrial Index - is composed of more than 3,000
industrial issues. It is a value- weighted index calculated on
price change only and does not include income.
(n) Value Line - composed of over 1,600 stocks in the Value Line
Investment Survey.
(o) Russell 2000 - composed of the 2,000 smallest stocks in the
Russell 3000, a market value-weighted index of the 3,000
largest U.S. publicly-traded companies.
(p) Russell 2500 - composed of the 2,500 smallest stocks in the
Russell 3000, a market value-weighted index of the 3,000
largest U.S. publicly-traded companies.
(q) Composite Indices - 60% Standard & Poor's 500 Stock Index, 30%
Lehman Brothers Long- Term Treasury Bond and 10% U.S. Treasury
Bills; 70% Standard & Poor's 500 Stock Index and 30% NASDAQ
Industrial Index; 35% Standard & Poor's 500 Stock Index and
65% Salomon Brothers High Grade Bond Index; all stocks on the
NASDAQ system exclusive of those traded on an exchange, and
65% Standard & Poor's 500 Stock Index and 35% Salomon Brothers
High Grade Bond Index.
(r) CDA Mutual Fund Report published by CDA Investment
Technologies, Inc. - analyzes price, current yield, risk,
total return and average rate of return (average compounded
growth rate) over specified time periods for the mutual fund
industry.
(s) Mutual Fund Source Book published by Morningstar, Inc. -
analyzes price, yield, risk and total return for equity funds.
(t) Financial publications: Business Week, Changing Times,
Financial World, Forbes, Fortune, Money, Barron's, Consumer's
Digest, Financial Times, Global Investor, Wall Street Journal
and Weisenberger Investment Companies Service - publications
that rate fund performance over specified time periods.
(u) Consumer Price Index (or Cost of Living Index), published by
the U.S. Bureau of Labor Statistics - a statistical measure of
change over time in the price of goods and services in major
expenditure groups.
(v) Stocks, Bonds, Bills and Inflation, published by Ibbotson
Associates - historical measure of yield, price and total
return for common and small company stock, long-term
government bonds, U.S. Treasury bills and inflation.
(w) Savings and Loan Historical Interest Rates - as published by
the U.S. Savings & Loan League Fact Book.
(x) Lehman Brothers Government/Corporate Index - is a combination
of the Government and Corporate Bond Indices. The Government
Index includes public obligations of the U.S. Treasury, issues
of Government agencies, and corporate debt backed by the U.S.
-15-
<PAGE>
Government. The Corporate Bond Index includes fixed-rate
nonconvertible corporate debt. Also included are Yankee Bonds
and nonconvertible debt issued by or guaranteed by foreign or
international governments and agencies. All issues are
investment grade (BBB) or higher, with maturities of at least
one year and an outstanding par value of at least $100 million
for U.S. Government issues and $25 million for others. Any
security downgraded during the month is held in the index
until month-end and then removed. All returns are market value
weighted inclusive of accrued income.
(y) Lehman Brothers Intermediate Government/Corporate Index is an
unmanaged index composed of a combination of the Government
and Corporate Bond Indices. All issues are investment grade
(BBB) or higher, with maturities of one to ten years and an
outstanding par value of at least $100 million for U.S.
Government issues and $25 million for others. The Government
Index includes public obligations of the U.S. Treasury, issues
of Government agencies, and corporate debt backed by the U.S.
Government. The Corporate Bond Index includes fixed-rate
nonconvertible corporate debt. Also included are Yankee Bonds
and nonconvertible debt issued by or guaranteed by foreign or
international governments and agencies. Any security
downgraded during the month is held in the index until
month-end and then removed. All returns are market value
weighted inclusive of accrued income.
(z) Historical data supplied by the research departments of First
Boston Corporation; the J.P. Morgan companies; Salomon
Brothers; Merrill Lynch, Pierce, Fenner & Smith; Lehman
Brothers, Inc.; and Bloomberg L.P.
In assessing such comparisons of performance, an investor should keep
in mind that the composition of the investments in the reported indices and
averages is not identical to the composition of investments in the Portfolio,
that the averages are generally unmanaged, and that the items included in the
calculations of such averages may not be identical to the formula used by the
Portfolio to calculate its performance. In addition, there can be no assurance
that the Portfolio will continue this performance as compared to such other
averages.
GENERAL INFORMATION
DESCRIPTION OF SHARES AND VOTING RIGHTS
The Fund was organized as a Delaware business trust on October 24,
1996. The Fund's principal office is located at 5949 Sherry Lane, Dallas, Texas
75225; however, all investor correspondence should be directed to the Fund c/o
Rodney Square Management Corporation, P.O. Box 8987, Wilmington, DE 19890. The
Fund's Agreement and Declaration of Trust permits the Fund to issue an unlimited
number of shares of beneficial interest, without par value. The Trustees have
the power to designate one or more series ("Portfolios") or classes of shares of
beneficial interest without further action by shareholders.
On each matter submitted to a vote of the shareholders, each holder of
a share shall be entitled to one vote for each whole share and a fractional vote
for each fractional share standing in his or her name on the books of the Fund.
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In the event of liquidation of the Fund, the holders of the shares of
each Portfolio or any class thereof that has been established and designated
shall be entitled to receive, when and as declared by the Trustees, the excess
of the assets belonging to that Portfolio, or in the case of a class, belonging
to that Portfolio and allocable to that class, over the liabilities belonging to
that Portfolio or class. The assets so distributable to the holders of shares of
any particular Portfolio or class thereof shall be distributed to the holders in
proportion to the number of shares of that Portfolio or class thereof held by
them and recorded on the books of the Fund. The liquidation of any Portfolio or
class thereof may be authorized at any time by vote of a majority of the
Trustees then in office.
Shareholders have no pre-emptive or other rights to subscribe to any
additional shares or other securities issued by the Fund or any Portfolio,
except as the Trustees in their sole discretion shall have determined by
resolution.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Fund's policy is to distribute annually substantially all of the
Portfolio's net investment income, if any, together with any net realized
capital gains in the amount and at the times that will avoid both income
(including capital gains) taxes incurred and the imposition of the Federal
excise tax on undistributed income and capital gains. The amounts of any income
dividends or capital gains distributions cannot be predicted. See discussion
under "Dividends, Capital Gains Distributions and Taxes" in the Prospectus.
Any dividend or distribution paid shortly after the purchase of shares
of the Portfolio by an investor may have the effect of reducing the per share
net asset value of the Portfolio by the per share amount of the dividend or
distribution. Furthermore, such dividends or distributions, although in effect a
return of capital, are subject to income taxes as set forth in the Prospectus.
As set forth in the Prospectus, unless the shareholder elects otherwise
in writing, all dividend and capital gains distributions are automatically
received in additional shares of the respective Portfolio of the Fund at net
asset value (as of the business day following the record date). This will remain
in effect until the Fund is notified by the shareholder in writing at least
three days prior to the record date that either the Income Option (income
dividends in cash and capital gains distributions in additional shares at net
asset value) or the Cash Option (both income dividends and capital gains
distributions in cash) has been elected. An account statement is sent to
shareholders whenever an income dividend or capital gains distribution is paid.
Each Portfolio of the Fund will be treated as a separate entity (and
hence as a separate "regulated investment company") for Federal tax purposes.
Any net capital gains recognized by the Portfolio will be distributed to its
investors without need to offset (for Federal income tax purposes) such gains
against any net capital losses of another Portfolio.
FEDERAL TAXES
In order for the Portfolio to continue to qualify for Federal income
tax treatment as a regulated investment company under the Internal Revenue Code
of 1986, as amended (the "Code"), at least 90% of the Portfolio's gross income
for a taxable year must be derived from certain qualifying income, i.e.,
dividends, interest, income derived from loans of securities and gains from the
sale or other disposition of
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stock, securities or foreign currencies, or other related income, including
gains from options, futures and forward contracts, derived with respect to its
business investing in stock, securities or currencies. Any net gain realized
from the closing out of futures contracts will, therefore, generally be
qualifying income for purposes of the 90% requirement. Qualification as a
regulated investment company also requires that less than 30% of the Portfolio's
gross income be derived from the sale or other disposition of stock, securities,
options, futures or forward contracts (including certain foreign currencies not
directly related to the Fund's business of investing in stock or securities)
held less than three months. In order to avoid realizing excessive gains on
securities held for less than three months, the Portfolio may be required to
defer the closing out of futures contracts beyond the time when it would
otherwise be advantageous to do so. It is anticipated that unrealized gains on
futures contracts which have been open for less than three months as of the end
of the Portfolio's taxable year, and which are recognized for tax purposes, will
not be considered gains on securities held for less than three months for the
purposes of the 30% test.
Except for transactions the Portfolio has identified as hedging
transactions, the Portfolio is required for Federal income tax purposes to
recognize as income for the taxable year its net unrealized gains and losses on
forward currency and futures contracts as of the end of the taxable year as well
as those actually realized during the year. In most cases, any such gain or loss
recognized with respect to a regulated futures contract is considered to be 60%
long-term capital gain or loss and 40% short-term capital gain or loss without
regard to the holding period of the contract. Recognized gain or loss
attributable to a foreign currency forward contract is treated as 100% ordinary
income. Furthermore, foreign currency futures contracts which are intended to
hedge against a change in the value of securities held by the Portfolio may
affect the holding period of such securities and, consequently, the nature of
the gain or loss on such securities upon disposition.
The Portfolio will distribute to shareholders annually any net capital
gains which have been recognized for Federal income tax purposes (including
unrealized gains at the end of the Portfolio's taxable year) on futures
transactions. Such distribution will be combined with distributions of capital
gains realized on the Portfolio's other investments, and shareholders will be
advised on the nature of the payment.
CODE OF ETHICS
The Fund has adopted a Code of Ethics which restricts, to a certain
extent, personal transactions by access persons of the Fund and imposes certain
disclosure and reporting obligations.
FINANCIAL STATEMENTS
The Financial Statements for the Portfolio and selected per share data
and ratios and notes to the Financial Statements relating to corresponding
periods will be contained in this Statement of Additional Information.
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PART B
BRAZOS/JMIC REAL ESTATE SECURITIES PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
__________________________, 1996
This Statement is not a Prospectus but should be read in conjunction with the
Prospectus of the Brazos Mutual Funds (the "Fund") for the BRAZOS/JMIC Real
Estate Securities Portfolio Shares dated __________, 1996. To obtain the
Prospectus, please call Rodney Square Management Corporation at
[----------------]:
[phone number]
Table of Contents
Page
Investment Objective and Policies.................... 2
Purchase of Shares................................... 6
Redemption of Shares................................. 6
Shareholder Services................................. 7
Investment Limitations............................... 8
Management of the Fund............................... 9
Investment Adviser................................... 12
Portfolio Transactions............................... 13
Performance Calculations............................. 14
General Information.................................. 18
Financial Statements................................. 20
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INVESTMENT OBJECTIVE AND POLICIES
The following policies supplement the investment objective and policies
of the BRAZOS/JMIC Real Estate Securities Portfolio as set forth in the
Prospectus for the Portfolio:
SECURITIES LENDING
The Portfolio may lend its investment securities to qualified
institutional investors who need to borrow securities in order to complete
certain transactions, such as covering short sales, avoiding failures to deliver
securities or completing arbitrage operations. By lending its investment
securities, the Portfolio attempts to increase its income through the receipt of
interest on the loan. Any gain or loss in the market price of the securities
loaned that might occur during the term of the loan would be for the account of
the Portfolio. The Portfolio may lend its investment securities to qualified
brokers, dealers, domestic and foreign banks or other financial institutions, so
long as the terms, the structure and the aggregate amount of such loans are not
inconsistent with the Investment Company Act of 1940, as amended, (the "1940
Act") or the Rules and Regulations or interpretations of the Securities and
Exchange Commission (the "Commission") thereunder, which currently require that
(a) the borrower pledge and maintain with the Portfolio collateral consisting of
cash, an irrevocable letter of credit issued by a domestic U.S. bank or
securities issued or guaranteed by the United States Government having a value
at all times not less than 100% of the value of the securities loaned, (b) the
borrower add to such collateral whenever the price of the securities loaned
rises (i.e., the borrower "marks to the market" on a daily basis), (c) the loan
be made subject to termination by the Portfolio at any time, and (d) the
Portfolio receives reasonable interest on the loan (which may include the
Portfolio investing any cash collateral in interest bearing short-term
investments). All relevant facts and circumstances, including the
creditworthiness of the broker, dealer or institution, will be considered in
making decisions with respect to the lending of securities, subject to review by
the Board of Trustees.
At the present time, the Staff of the Commission does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities so long as such fees are set forth in a written contract and approved
by the investment company's Board of Trustees. The Portfolio will continue to
retain any voting rights with respect to the loaned securities. If a material
event occurs affecting an investment on a loan, the loan must be called and the
securities voted.
HEDGING STRATEGIES
The Portfolio may engage in various portfolio strategies to hedge
against adverse movements in the equity markets. The Portfolio may write (i.e.,
sell) covered call options on its portfolio securities, purchase put and call
options on securities and engage in transactions in related options on futures.
Each of these portfolio strategies is described below.
FUTURES CONTRACTS
The Portfolio may enter into futures contracts. Futures contracts
provide for the future sale by one party and purchase by another party of a
specified amount of a specific security at a specified future time and at a
specified price. Futures contracts which are standardized as to maturity date
and underlying financial instrument are traded on national futures exchanges.
Futures exchanges and trading are regulated
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under the Commodity Exchange Act by the Commodity Futures Trading Commission
("CFTC"), a U.S. Government agency.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by trading an opposite position ("buying" a
contract which has previously been "sold" or "selling" a contract previously
"purchased") in an identical contract to terminate the position. Brokerage
commissions are incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in
cash or acceptable securities with a broker or custodian to initiate and
maintain open positions in futures contracts. A margin deposit is intended to
assure completion of the contract (delivery or acceptance of the underlying
security) if it is not terminated prior to the specified delivery date. Minimal
initial margin requirements are established by the futures exchange and may be
changed. Brokers may establish deposit requirements which are higher than the
exchange minimums. Futures contracts are customarily purchased and sold on
margin that may range upward from less than 5% of the value of the contract
being traded. After a futures contract position is opened, the value of the
contract is marked to market daily. If the futures contract price changes to the
extent that the margin on deposit does not satisfy margin requirements, payment
of additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Portfolio
expects to earn interest income on its margin deposits.
Traders in futures contracts may be broadly classified as either
"hedgers" or "speculators". Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the securities underlying the futures contracts which they trade and use
futures contracts with the expectation of realizing profits from a fluctuation
in interest rates.
Regulations of the CFTC applicable to the Fund require that all of its
futures transactions constitute bona fide straddles or that the Fund's commodity
futures and option positions be for other purposes, to the extent that the
aggregate initial margins and premiums required to establish such non-hedging
positions do not exceed five percent of the liquidation value of the Portfolio.
The Portfolio will only sell futures contracts to protect securities it owns
against price declines or purchase contracts to protect against an increase in
the price of securities it intends to purchase. As evidence of this hedging
interest, the Portfolio expects that approximately 75% of its futures contracts
purchases will be "completed", that is, equivalent amounts of related securities
will have been purchased or will be purchased by the Portfolio on the settlement
date of the futures contracts.
Although techniques other than the sale and purchase of futures
contracts could be used to control the Portfolios exposure to market
fluctuations, the use of futures contracts may be a more effective means of
hedging this exposure. While the Portfolio will incur commission expenses in
both opening and closing
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out futures positions, these costs are lower than transaction costs incurred in
the purchase and sale of the underlying securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS
The Portfolio will not enter into futures contract transactions to the
extent that, immediately thereafter, the sum of its initial margin deposits on
open contracts exceeds 5% of the market value of its total assets. In addition,
the Portfolio will not enter into futures contracts to the extent that its
outstanding obligations to purchase securities under these contracts would
exceed 20% of its total assets.
RISK FACTORS IN FUTURES TRANSACTIONS
The Portfolio will minimize the risk that it will be unable to close
out a futures position by only entering into futures which are traded on
national futures exchanges and for which there appears to be a liquid secondary
market. However, there can be no assurance that a liquid secondary market will
exist for a particular futures contract at any given time. Thus, it may not be
possible to close a futures position. In the event of adverse price movements,
the Portfolio would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if the Portfolio has
insufficient cash, it may have to sell securities to meet daily margin
requirements at a time when it may be disadvantageous to do so. In addition, the
Portfolio may be required to make delivery of the instruments underlying futures
contracts it holds. The inability to close futures positions also could have an
adverse impact on the Portfolio's ability to effectively hedge.
The risk of loss in trading futures contracts in some strategies can be
substantial due both to the low margin deposits required and the extremely high
degree of leverage involved in futures pricing. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss (as well as gain) to the investor. For example, if at the time of purchase,
10% of the value of the futures contract is deposited as margin, a subsequent
10% decrease in the value of the futures contract would result in a total loss
of the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in excess of the amount
invested in the contract. However, because the futures strategies of the
Portfolio are engaged in only for hedging purposes, the Adviser does not believe
that the Portfolio is subject to the risks of loss frequently associated with
futures transactions. The Portfolio would presumably have sustained comparable
losses if, instead of the futures contract, it had invested in the underlying
financial instrument and sold it after the decline.
Utilization of futures transactions by the Portfolio does involve the
risk of imperfect or no correlation where the securities underlying the futures
contracts have different maturities than the portfolio securities being hedged.
It is also possible that the Portfolio could lose money on futures contracts and
also experience a decline in value of portfolio securities. There is also the
risk of loss by the Portfolio of margin deposits in the event of bankruptcy of a
broker with whom the Portfolio has an open position in a futures contract or
related option.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract
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may vary either up or down from the previous day's settlement price at the end
of a trading session. Once the daily limit has been reached in a particular type
of contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and,
therefore, does not limit potential losses because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
Futures contracts may be traded on foreign exchanges. Such transactions
are subject to the risks of governmental actions affecting trading in or the
prices of the securities. The value of such positions also could be adversely
affected by (i) other complex foreign political and economic factors, (ii)
lesser availability than in the United States of data on which to make trading
decisions, (iii) delays in the Portfolio's ability to act upon economic events
occurring in foreign markets during non-business hours in the United States,
(iv) the imposition of different exercise and settlement terms and procedures
and margin requirements than in the United States, and (v) lesser trading
volume.
OPTIONS
The Portfolio may purchase and sell put and call options on securities
and futures contracts for hedging purposes. Investments in options involve some
of the same considerations that are involved in connection with investments in
futures contracts (e.g., the existence of a liquid secondary market). In
addition, the purchase of an option also entails the risk that changes in the
value of the underlying security or contract will not be fully reflected in the
value of the option purchased. Depending on the pricing of the option compared
to either the futures contract on which it is based or the price of the
securities being hedged, an option may or may not be less risky than ownership
of the futures contract or such securities. In general, the market prices of
options can be expected to be more volatile than the market prices on the
underlying futures contract or securities.
WRITING COVERED CALL OPTIONS
The principal reason for writing call options is to attempt to realize,
through the receipt of premiums, a greater return than would be realized on
securities alone. By writing covered call options, the Portfolio gives up the
opportunity, while the option is in effect, to profit from any price increase in
the underlying security above the option exercise price. In addition, the
Portfolio's ability to sell the underlying security will be limited while the
option is in effect unless the Portfolio effects a closing purchase transaction.
A closing purchase transaction cancels out the Portfolio's position as the
writer of an option by means of an offsetting purchase of an identical option
prior to the expiration of the option it has written. Covered call options serve
as a partial hedge against the price of the underlying security declining. The
Portfolio writes only covered options, which means that so long as the Portfolio
is obligated as the writer of the option it will, in a segregated account with
its custodian, maintain cash, U.S. government securities, other high grade
liquid debt securities or other liquid securities denominated in U.S. dollars
with a value equal to or greater than the exercise price of the underlying
securities.
PURCHASING OPTIONS
The amount of any appreciation in the value of the underlying security
subject to a put will be partially offset by the amount of the premium paid for
the put option and any related transaction costs.
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Prior to its expiration, a put option may be sold in a closing sale transaction
and profit or loss from a sale will depend on whether the amount received is
more or less than the premium paid for the put option plus the related
transaction costs. A closing sale transaction cancels out the Portfolio's
position as purchaser of an option by means of an offsetting sale of an
identical option prior to the expiration of the option it has purchased. In
certain circumstances, the Portfolio may purchase call options on securities
held in its investment portfolio on which it has written call options or on
securities which it intends to purchase.
PURCHASE OF SHARES
Shares of the Portfolio may be purchased without sales commission at
the net asset value per share next determined after an order is received in
proper form and accepted by the Fund. The minimum initial investment required
for the Portfolio is $10,000 with certain exceptions as may be determined from
time to time by the officers of the Fund. An order received in proper form prior
to the 4:00 p.m. close of the New York Stock Exchange (the "NYSE") will be
executed at the price computed on the date of receipt; and an order received not
in proper form or after the 4:00 p.m. close of the NYSE will be executed at the
price computed on the next day the NYSE is open after proper receipt. The NYSE
will be closed on the following days: Thanksgiving Day, November 28, 1996;
Christmas Day, December 25, 1996; New Year's Day, January 1, 1997; President's
Day, February 17, 1997; Good Friday, March 28, 1997; Memorial Day, May 26, 1997;
Independence Day, July 4, 1997; and Labor Day, September 1, 1997.
The Portfolio reserves the right in its sole discretion (1) to suspend
the offering of its shares, (2) to reject purchase orders when in the judgment
of management such rejection is in the best interests of the Fund, and (3) to
reduce or waive the minimum for initial and subsequent investment for certain
fiduciary accounts such as employee benefit plans or under circumstances where
certain economies can be achieved in sales of the Portfolio's shares.
REDEMPTION OF SHARES
The Portfolio may suspend redemption privileges or postpone the date of
payment (1) during any period that the Exchange is closed or trading on the
Exchange is restricted as determined by the Commission, (2) during any period
when an emergency exists as defined by the rules of the Commission as a result
of which it is not reasonably practicable for the Portfolio to dispose of
securities owned by it or to fairly determine the value of its assets, and (3)
for such other periods as the Commission may permit. The Fund has made an
election with the Commission to pay in cash all redemptions requested by any
shareholder of record limited in amount during any 90-day period to the lesser
of $250,000 or 1% of the net assets of the Fund at the beginning of such period.
Such commitment is irrevocable without the prior approval of the Commission.
Redemptions in excess of the above limits may be paid, in whole or in part, in
investment securities or in cash as the Board of Trustees may deem advisable;
however, payment will be made wholly in cash unless the Board of Trustees
believe that economic or market conditions exist which would make such a
practice detrimental to the best interests of the Fund. If redemptions are paid
in investment securities, such securities will be valued as set forth in the
Prospectus under "How Share Prices are Determined," and a redeeming shareholder
would normally incur brokerage expenses if those securities were converted to
cash.
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No charge is made by the Portfolio for redemptions if shares are held
for at least 90 days. Shares held for less than 90 days will be subject to a 1%
redemption fee which is retained by the Fund for the benefit of the remaining
shareholders and is intended to encourage long-term investment in the Portfolio
to avoid transaction and other expenses caused by early redemption and to
facilitate portfolio management. Any redemption may be more or less than the
shareholder's initial cost depending on the market value of the securities held
by the Portfolio.
SIGNATURE GUARANTEES
To protect your account, the Fund and Rodney Square Management
Corporation (the "Administrator") from fraud, signature guarantees are required
for certain redemptions. Signature guarantees are required for (1) redemptions
where the proceeds are to be sent to someone other than the registered
shareowner(s) or the registered address or (2) share transfer requests. The
purpose of signature guarantees is to verify the identity of the party who has
authorized a redemption.
Signatures must be guaranteed by an "eligible guarantor institution" as
defined in Rule 17Ad-15 under the Securities Exchange Act of 1934. Eligible
guarantor institutions include banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies and
savings associations. A complete definition of eligible guarantor institution is
available from the Administrator. Broker-dealers guaranteeing signatures must be
a member of a clearing corporation or maintain net capital of at least $100,000.
Credit unions must be authorized to issue signature guarantees. Signature
guarantees will be accepted from any eligible guarantor institution which
participates in a signature guarantee program.
The signature guarantee must appear either: (1) on the written request
for redemption; (2) on a separate instrument for assignment ("stock power")
which should specify the total number of shares to be redeemed; or (3) on all
stock certificates tendered for redemption and, if shares held by the Fund are
also being redeemed, on the letter or stock power.
SHAREHOLDER SERVICES
The following supplements the shareholder services information set
forth in the BRAZOS/JMIC Real Estate Securities Portfolio's Prospectus:
EXCHANGE PRIVILEGE
Shares of the BRAZOS/JMIC Real Estate Securities Portfolio may be
exchanged for shares of any other Portfolio. Exchange requests should be made by
calling the Fund at _______________ or by writing to Brazos Mutual Funds, c/o
Rodney Square Management Corporation, 1100 North Market Street, 3rd Floor,
Wilmington, DE 19890. The exchange privilege is only available with respect to
Portfolios that are registered for sale in the shareholder's state of residence.
Any such exchange will be based on the respective net asset values of
the shares involved. There is no sales commission or charge of any kind. Before
making an exchange into a Portfolio, a shareholder should read its Prospectus
and consider the investment objectives of the Portfolio to be purchased. You may
obtain a Prospectus for the Portfolio(s) you are interested in by calling the
Administrator at ------------------.
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Exchange requests may be made either by mail or telephone. Telephone
exchanges will be accepted only if the certificates for the shares to be
exchanged are held by the Fund for the account of the shareholder and the
registration of the two accounts will be identical. Requests for exchanges
received prior to 4:00 p.m. (Eastern Time) will be processed as of the close of
business on the same day. Requests received after 4:00 p.m. will be processed on
the next business day. Neither the Fund nor the Administrator will be
responsible for the authenticity of the exchange instructions received by
telephone. Exchanges may also be subject to limitations as to amounts or
frequency, and to other restrictions established by the Board of Trustees to
assure that such exchanges do not disadvantage the Fund and its shareholders.
For Federal income tax purposes an exchange between Portfolios is a
taxable event, and, accordingly, a capital gain or loss may be realized. In a
revenue ruling relating to circumstances similar to the Fund's, an exchange
between series of a Fund was also deemed to be a taxable event. It is likely,
therefore, that a capital gain or loss would be realized on an exchange between
Portfolios; you may want to consult your tax adviser for further information in
this regard. The exchange privilege may be modified or terminated at any time.
TRANSFER OF SHARES
Shareholders may transfer shares of the Portfolio to another person by
making a written request to the Fund. The request should clearly identify the
account and number of shares to be transferred, and include the signature of all
registered owners and all stock certificates, if any, which are subject to the
transfer. The signature on the letter of request, the stock certificate or any
stock power must be guaranteed in the same manner as described under "Redemption
of Shares." As in the case of redemptions, the written request must be received
in good order before any transfer can be made.
INVESTMENT LIMITATIONS
The following limitations supplement those set forth in the Prospectus.
Whenever an investment limitation sets forth a percentage limitation on
investment or utilization of assets, such limitation shall be determined
immediately after and as a result of the Portfolio's acquisition of such
security or other asset. Accordingly, any later increase or decrease resulting
from a change in values, net assets or other circumstances will not be
considered when determining whether the investment complies with the Portfolio's
investment limitations. Investment limitations (1), (2), (3) and (4) are
classified as fundamental. The Portfolio's fundamental investment limitations
cannot be changed without approval by a "majority of the outstanding shares" (as
defined in the 1940 Act) of the Portfolio. The Portfolio will not:
(1) invest in physical commodities or contracts on physical
commodities;
(2) purchase or sell real estate or real estate limited
partnerships, (although it may purchase and sell
mortgage-related securities and securities of companies which
deal in real estate or interests therein and may liquidate
real estate acquired as a result of default on a mortgage and
may purchase and sell securities which are secured by
interests in real estate, invest in marketable securities
issued by companies such as real estate investment trusts
which deal in
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real estate or interests therein and participation interests
in pools of real estate mortgage loans);
(3) make loans except (i) by purchasing debt securities in
accordance with its investment objectives and (ii) by lending
its portfolio securities to banks, brokers, dealers and other
financial institutions so long as such loans are not
inconsistent with the 1940 Act or the rules and regulations or
interpretations of the Commission thereunder;
(4) underwrite the securities of other issuers;
(5) invest in futures and/or options on futures unless (i) not
more than 5% of the Portfolio's assets are required as deposit
to secure obligations under such futures and/or options on
futures contracts provided, however, that in the case of an
option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in computing such 5% and
(ii) not more than 20% of the Portfolio's assets are invested
in futures and options;
(6) purchase on margin or sell short except as specified in (5)
above;
(7) invest more than an aggregate of 15% of the net assets of the
Portfolio, determined at the time of investment, in securities
subject to legal or contractual restrictions on resale or
securities for which there are no readily available markets;
(8) issue senior securities, as defined in the 1940 Act, except
that this restrictions shall not be deemed to prohibit the
Portfolio from (i) making any permitted borrowings, mortgages
or pledges, or (ii) entering into options, futures or
repurchase transactions.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The Officers of the Fund manage its day-to-day operations and are
responsible to the Fund's Board of Trustees. The Trustees set broad policies for
the Fund and elect its Officers. The following is a list of the Trustees and
Officers of the Fund and a brief statement of their present positions and
principal occupations during the past five years:
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*Daniel Hockenbrough Trustee, President and Treasurer of the Fund;
5949 Sherry Lane, Suite 1560 Since August 1996, Business Manager of John
Dallas, Texas 75225 McStay Investment Counsel. Formerly, Chief
Age 37 Financial Officer of Waugh Enterprises, Inc.
from November 1995 until August 1996;
Assistant Controller of Hicks, Muse, Tate &
Furst Incorporated from December 1992 to
November 1995; and Senior Associate at
Coopers & Lybrand prior to December 1992.
John H. Massey Trustee of the Fund; Private Investor and a
4004 Windsor Avenue Director of The Paragon Group, Inc.,
Dallas, Texas 75205 Chancellor Broadcasting, Inc., Bank of the
Age 57 Southwest, Columbine JDS Systems, Inc. and
FSW Holdings, Inc. Until 1996, Chairman of
the Board and Chief Executive Officer of Life
Partners Group, Inc.
David M. Reichert Trustee of the Fund; Private Investor;
7415 Stonecrest Drive formerly Senior Vice President of Moffet
Dallas, Texas 75240 Capital Management, an investment counseling
Age 57 firm, from January 1995 until June 1996 and
Senior Vice President and Portfolio Manager
of American Capital Asset Management, a
mutual fund management company, from April
1989 to July 1994.
*Tricia A. Hundley Vice President, Secretary and Compliance
5949 Sherry Lane, Suite 1560 Officer of the Fund; Partner of John McStay
Dallas, Texas 75225 Investment Counsel since 1987.
Age 46
*This person is deemed to be an "interested person" of the Fund as that term is
defined in the 1940 Act.
REMUNERATION OF TRUSTEES AND OFFICERS
The Fund pays each Trustee, who is not also an officer or affiliated
person, a $500 quarterly retainer fee per active Portfolio which currently
amounts to $1,000 per quarter. In addition, each unaffiliated Trustee receives a
$500 meeting fee which is aggregated for all the Trustees and allocated
proportionately among the Portfolios of the Fund and reimbursement for travel
and other expenses incurred while attending Board meetings. Trustees who are
also officers or affiliated persons receive no remuneration for their service as
Trustees. The Fund's officers and employees are paid by either the Adviser or
the Administrator and receive no compensation from the Fund. The following table
shows aggregate compensation to be paid to each of the Fund's Trustees by the
Fund in the fiscal year ending September 30, 1997.
-10-
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Person Aggregate Pension or Estimated Annual Total Compensation
Position Compensation Retirement Benefits Benefits Upon from Registrant and
From Registrant Accrued as Part of Retirement Fund Complex Paid
Fund Expenses to Trustees
<S> <C> <C> <C> <C>
Daniel Hockenbrough -0- -0- -0- -0-
Director
John H. Massey $1,000 -0- -0- $6,000
Director
David M. Reichert $1,000 -0- -0- $6,000
Director
</TABLE>
PRINCIPAL HOLDERS OF SECURITIES
As of December 31, 1996, the following persons or organizations held of
record 5% or more of the shares of the Portfolio: John McStay Investment
Counsel.
INVESTMENT ADVISER
ADVISORY FEES
As compensation for services rendered by John McStay Investment Counsel
(the "Adviser") under the Investment Advisory Agreement, the Portfolio pays the
Adviser an annual fee in monthly installments, calculated by applying the
following annual percentage rates to the Portfolio's average daily net assets
for the month:
BRAZOS/JMIC Real Estate Securities Portfolio........ 0.90%
ADMINISTRATION FEES
In addition to the fees received for its services as Administrator to
the Fund, as set forth in the Prospectus under "ADMINISTRATIVE SERVICES," Rodney
Square receives fees from the Fund for providing transfer agency, accounting and
dividend disbursing services. Such fees are included in the calculation of
"Other Expenses" which appears under the caption heading "FUND EXPENSES" in the
Prospectus.
-11-
<PAGE>
PORTFOLIO TRANSACTIONS
The Investment Advisory Agreement authorizes the Adviser to select the
brokers or dealers that will execute the purchases and sales of investment
securities for the Portfolio and directs the Adviser to use its best efforts to
obtain the best execution with respect to all transactions for the Portfolio.
The Adviser may, however, consistent with the interests of the Portfolio, select
brokers on the basis of the research, statistical and pricing services they
provide to the Portfolio. Information and research received from such brokers
will be in addition to, and not in lieu of, the services required to be
performed by the Adviser under the Investment Advisory Agreement. A commission
paid to such brokers may be higher than that which another qualified broker
would have charged for effecting the same transaction, provided that such
commissions are paid in compliance with the Securities Exchange Act of 1934, as
amended, and that the Adviser determines in good faith that such commission is
reasonable in terms either of the transaction or the overall responsibility of
the Adviser to the Portfolio and the Adviser's other clients.
It is not the Fund's practice to allocate brokerage or principal
business on the basis of sales of shares which may be made through broker-dealer
firms. However, the Adviser may place portfolio orders with qualified
broker-dealers who recommend the Portfolio or who act as agents in the purchase
of shares of the Portfolio for their clients.
Some securities considered for investment by the Portfolio may also be
appropriate for other clients served by the Adviser. If purchases or sales of
securities consistent with the investment policies of the Portfolio and one or
more of these other clients served by the Adviser is considered at or about the
same time, transactions in such securities will be allocated among the Portfolio
and clients in a manner deemed fair and reasonable by the Adviser. Although
there is no specified formula for allocating such transactions, the various
allocation methods used by the Adviser, and the results of such allocations, are
subject to periodic review by the Fund's Board of Trustees.
PERFORMANCE CALCULATIONS
PERFORMANCE
The Portfolio may from time to time quote various performance figures
to illustrate past performance. Performance quotations by investment companies
are subject to rules adopted by the Commission, which require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Fund be accompanied by
certain standardized performance information computed as required by the
Commission. Current yield and average annual compounded total return quotations
used by the Fund are based on the standardized methods of computing performance
mandated by the Commission. An explanation of those and other methods used to
compute or express performance follows.
YIELD
-12-
<PAGE>
Current yield reflects the income per share earned by the Portfolio's
investment. The current yield of the Portfolio is determined by dividing the net
investment income per share earned during a 30-day base period by the maximum
offering price per share on the last day of the period and annualizing the
result. Expenses accrued for the period include any fees charged to all
shareholders during the base period.
This figure is obtained using the following formula:
6
Yield=2[(a-b=1) + 1]
cd
where:
a= dividends and interest earned during the period
b= expenses accrued for the period (net of reimbursements)
c= the average daily number of shares outstanding during the
period that were entitled to receive income distributions
d= the maximum offering price per share on the last day of the
period.
TOTAL RETURN
The average annual total return of the Portfolio is determined by
finding the average annual compounded rates of return over 1, 5 and 10 year
periods that would equate an initial hypothetical $1,000 investment to its
ending redeemable value. The calculation assumes that all dividends and
distributions are reinvested when paid. The quotation assumes the amount was
completely redeemed at the end of each 1, 5 and 10 year period and the deduction
of all applicable Fund expenses on an annual basis.
These figures will be calculated according to the following formula:
n
P(1+T) =ERV
where:
P= a hypothetical initial payment of $ 1,000
T= average annual total return
n= number of years
ERV= ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the 1, 5 or 10 year periods at the end of
the 1, 5 or 10 year periods (or fractional portion thereof).
COMPARISONS
To help investors better evaluate how an investment in the Portfolio
might satisfy their investment objective, advertisements regarding the Fund may
discuss various measures of Fund performance as reported by various financial
publications. Advertisements may also compare performance (as calculated above)
to performance as reported by other investments, indices and averages. The
following publications, indices and averages may be used:
(a) Dow Jones Composite Average or its component averages - an
unmanaged index composed of 30 blue-chip industrial
corporation stocks (Dow Jones Industrial Average), 15
utilities
-13-
<PAGE>
company stocks and 20 transportation stocks. Comparisons of
performance assume reinvestment of dividends.
(b) Standard & Poor's 500 Stock Index or its component indices -
an unmanaged index composed of 400 industrial stocks, 40
financial stocks, 40 utilities stocks and 20 transportation
stocks. Comparisons of performance assume reinvestment of
dividends.
(c) The New York Stock Exchange composite or component indices -
unmanaged indices of all industrial, utilities, transportation
and finance stocks listed on the New York Stock Exchange.
(d) Wilshire 5000 Equity Index or its component indices -
represents the return on the market value of all common equity
securities for which daily pricing is available. Comparisons
of performance assume reinvestment of dividends.
(e) Lipper - Mutual Fund Performance Analysis and Lipper - Fixed
Income Fund Performance Analysis - measure total return and
average current yield for the mutual fund industry. Rank
individual mutual fund performance over specified time
periods, assuming reinvestment of all distributions, exclusive
of any applicable sales charges.
(f) Morgan Stanley Capital International EAFE Index and World
Index - respectively, arithmetic, market value-weighted
averages of the performance of over 900 securities listed on
the stock exchanges of countries in Europe, Australia and the
Far East, and over 1,400 securities listed on the stock
exchanges of these continents, including North America.
(g) Goldman Sachs 100 Convertible Bond Index - currently includes
67 bonds and 33 preferred. The original list of names was
generated by screening for convertible issues of 100 million
or greater in market capitalization. The index is priced
monthly.
(h) Salomon Brothers GNMA Index - includes pools of mortgages
originated by private lenders and guaranteed by the mortgage
pools of the Government National Mortgage Association.
(i) Salomon Brothers High Grade Corporate Bond Index - consists of
publicly issued, non-convertible corporate bonds rated AA or
AAA. It is a value-weighted, total return index, including
approximately 800 issues with maturities of 12 years or
greater.
(j) Salomon Brothers Broad Investment Grade Bond - is a
market-weighted index that contains approximately 4,700
individually priced investment grade corporate bonds rated BBB
or better, U.S. Treasury/agency issues and mortgage pass
through securities.
(k) Lehman Brothers Long-Term Treasury Bond - is composed of all
bonds covered by the Lehman Brothers Treasury Bond Index with
maturities of 10 years or greater.
-14-
<PAGE>
(l) NASDAQ Industrial Index - is composed of more than 3,000
industrial issues. It is a value- weighted index calculated on
price change only and does not include income.
(m) Value Line - composed of over 1,600 stocks in the Value Line
Investment Survey.
(n) Russell 2000 - composed of the 2,000 smallest stocks in the
Russell 3000, a market value- weighted index of the 3,000
largest U.S. publicly-traded companies.
(o) Composite Indices - 60% Standard & Poor's 500 Stock Index, 30%
Lehman Brothers Long- Term Treasury Bond and 10% U.S. Treasury
Bills; 70% Standard & Poor's 500 Stock Index and 30% NASDAQ
Industrial Index; 35% Standard & Poor's 500 Stock Index and
65% Salomon Brothers High Grade Bond Index; all stocks on the
NASDAQ system exclusive of those traded on an exchange, and
65% Standard & Poor's 500 Stock Index and 35% Salomon Brothers
High Grade Bond Index.
(p) CDA Mutual Fund Report published by CDA Investment
Technologies, Inc. - analyzes price, current yield, risk,
total return and average rate of return (average compounded
growth rate) over specified time periods for the mutual fund
industry.
(q) Mutual Fund Source Book published by Morningstar, Inc. -
analyzes price, yield, risk and total return for equity funds.
(r) Financial publications: Business Week, Changing Times,
Financial World, Forbes, Fortune, Money, Barron's, Consumer's
Digest, Financial Times, Global Investor, Wall Street Journal
and Weisenberger Investment Companies Service - publications
that rate fund performance over specified time periods.
(s) Consumer Price Index (or Cost of Living Index), published by
the U.S. Bureau of Labor Statistics - a statistical measure of
change over time in the price of goods and services in major
expenditure groups.
(t) Stocks, Bonds, Bills and Inflation, published by Ibbotson
Associates - historical measure of yield, price and total
return for common and small company stock, long-term
government bonds, U.S. Treasury bills and inflation.
(u) Savings and Loan Historical Interest Rates - as published
by the U.S. Savings & Loan League Fact Book.
(v) Lehman Brothers Government/Corporate Index - is a combination
of the Government and Corporate Bond Indices. The Government
Index includes public obligations of the U.S. Treasury, issues
of Government agencies, and corporate debt backed by the U.S.
Government. The Corporate Bond Index includes fixed-rate
nonconvertible corporate debt. Also included are Yankee Bonds
and nonconvertible debt issued by or guaranteed by foreign or
international governments and agencies. All issues are
investment grade (BBB) or higher,
-15-
<PAGE>
with maturities of at least one year and an outstanding par
value of at least $100 million for U.S. Government issues and
$25 million for others. Any security downgraded during the
month is held in the index until month-end and then removed.
All returns are market value weighted inclusive of accrued
income.
(w) Lehman Brothers Intermediate Government/Corporate Index is an
unmanaged index composed of a combination of the Government
and Corporate Bond Indices. All issues are investment grade
(BBB) or higher, with maturities of one to ten years and an
outstanding par value of at least $100 million for U.S.
Government issues and $25 million for others. The Government
Index includes public obligations of the U.S. Treasury, issues
of Government agencies, and corporate debt backed by the U.S.
Government. The Corporate Bond Index includes fixed-rate
nonconvertible corporate debt. Also included are Yankee Bonds
and nonconvertible debt issued by or guaranteed by foreign or
international governments and agencies. Any security
downgraded during the month is held in the index until
month-end and then removed. All returns are market value
weighted inclusive of accrued income.
(x) Historical data supplied by the research departments of First
Boston Corporation; the J.P. Morgan companies; Salomon
Brothers; Merrill Lynch, Pierce, Fenner & Smith; Lehman
Brothers, Inc.; and Bloomberg L.P.
(y) NAREIT Equity Index - A compilation of market-weighted
securities data collected from all tax-qualified equity real
estate investment trusts listed on the New York and American
Stock Exchanges and the NASDAQ. The index tracks performance,
as well as REIT assets, by property type and geographic
region.
(z) Wilshire Real Estate Securities Index, published by Wilshire
Associates-a market capitalization-weighted index of publicly
traded real estate securities, such as real estate investment
trusts, real estate operating companies and partnerships.
In assessing such comparisons of performance, an investor should keep
in mind that the composition of the investments in the reported indices and
averages is not identical to the composition of investments in the Portfolio,
that the averages are generally unmanaged, and that the items included in the
calculations of such averages may not be identical to the formula used by the
Portfolio to calculate its performance. In addition, there can be no assurance
that the Portfolio will continue this performance as compared to such other
averages.
GENERAL INFORMATION
DESCRIPTION OF SHARES AND VOTING RIGHTS
The Fund was organized as a Delaware business trust on October 24,
1996. The Fund's principal office is located at 5949 Sherry Lane, Suite 1560,
Dallas, Texas 75225; however, all investor correspondence should be directed to
the Fund c/o Rodney Square Management Corporation, 1100 North Market Street, 3rd
Floor, Wilmington, DE 19890. The Fund's Agreement and Declaration of Trust
permits the Fund to issue an unlimited number of shares of beneficial interest,
without par value. The
-16-
<PAGE>
Trustees have the power to designate one or more series ("Portfolios") or
classes of shares of beneficial interest without further action by shareholders.
On each matter submitted to a vote of the shareholders, each holder of
a share shall be entitled to one vote for each whole share and a fractional vote
for each fractional share standing in his or her name on the books of the Fund.
In the event of liquidation of the Fund, the holders of the shares of
each Portfolio or any class thereof that has been established and designated
shall be entitled to receive, when and as declared by the Trustees, the excess
of the assets belonging to that Portfolio, or in the case of a class, belonging
to that Portfolio and allocable to that class, over the liabilities belonging to
that Portfolio or class. The assets so distributable to the holders of shares of
any particular Portfolio or class thereof shall be distributed to the holders in
proportion to the number of shares of that Portfolio or class thereof held by
them and recorded on the books of the Fund. The liquidation of any Portfolio or
class thereof may be authorized at any time by vote of a majority of the
Trustees then in office.
Shareholders have no pre-emptive or other rights to subscribe to any
additional shares or other securities issued by the Fund or any Portfolio,
except as the Trustees in their sole discretion shall have determined by
resolution.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Fund's policy is to distribute substantially all of the Portfolio's
net investment income, if any, together with any net realized capital gains
annually in the amount and at the times that will avoid both income (including
capital gains) taxes incurred and the imposition of the Federal excise tax on
undistributed income and capital gains. The amounts of any income dividends or
capital gains distributions cannot be predicted. See discussion under
"Dividends, Capital Gains Distributions and Taxes" in the Prospectus.
Any dividend or distribution paid shortly after the purchase of shares
of the Portfolio by an investor may have the effect of reducing the per share
net asset value of the Portfolio by the per share amount of the dividend or
distribution. Furthermore, such dividends or distributions, although in effect a
return of capital, are subject to income taxes as set forth in the Prospectus.
As set forth in the Prospectus, unless the shareholder elects otherwise
in writing, all dividend and capital gains distributions are automatically
received in additional shares of the respective Portfolio of the Fund at net
asset value (as of the business day following the record date). This will remain
in effect until the Fund is notified by the shareholder in writing at least
three days prior to the record date that either the Income Option (income
dividends in cash and capital gains distributions in additional shares at net
asset value) or the Cash Option (both income dividends and capital gains
distributions in cash) has been elected. An account statement is sent to
shareholders whenever an income dividend or capital gains distribution is paid.
Each Portfolio of the Fund will be treated as a separate entity (and
hence as a separate "regulated investment company") for Federal tax purposes.
Any net capital gains recognized by the Portfolio will be
-17-
<PAGE>
distributed to its investors without need to offset (for Federal income tax
purposes) such gains against any net capital losses of another Portfolio.
FEDERAL TAXES
In order for the Portfolio to continue to qualify for Federal income
tax treatment as a regulated investment company under the Internal Revenue Code
of 1986, as amended (the "Code"), at least 90% of the Portfolio's gross income
for a taxable year must be derived from certain qualifying income, i.e.,
dividends, interest, income derived from loans of securities and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
related income, including gains from options, futures and forward contracts,
derived with respect to its business investing in stock, securities or
currencies. Any net gain realized from the closing out of futures contracts
will, therefore, generally be qualifying income for purposes of the 90%
requirement. Qualification as a regulated investment company also requires that
less than 30% of the Portfolio's gross income be derived from the sale or other
disposition of stock, securities, options, futures or forward contracts
(including certain foreign currencies not directly related to the Fund's
business of investing in stock or securities) held less than three months. In
order to avoid realizing excessive gains on securities held for less than three
months, the Portfolio may be required to defer the closing out of futures
contracts beyond the time when it would otherwise be advantageous to do so. It
is anticipated that unrealized gains on futures contracts which have been open
for less than three months as of the end of the Portfolio's taxable year, and
which are recognized for tax purposes, will not be considered gains on
securities held for less than three months for the purposes of the 30% test.
Except for transactions the Portfolio has identified as hedging
transactions, the Portfolio is required for Federal income tax purposes to
recognize as income for the taxable year its net unrealized gains and losses on
forward currency and futures contracts as of the end of the taxable year as well
as those actually realized during the year. In most cases, any such gain or loss
recognized with respect to a regulated futures contract is considered to be 60%
long-term capital gain or loss and 40% short-term capital gain or loss without
regard to the holding period of the contract. Recognized gain or loss
attributable to a foreign currency forward contract is treated as 100% ordinary
income. Furthermore, foreign currency futures contracts which are intended to
hedge against a change in the value of securities held by the Portfolio may
affect the holding period of such securities and, consequently, the nature of
the gain or loss on such securities upon disposition.
The Portfolio will distribute to shareholders annually any net capital
gains which have been recognized for Federal income tax purposes (including
unrealized gains at the end of the Portfolio's taxable year) on futures
transactions. Such distribution will be combined with distributions of capital
gains realized on the Portfolio's other investments, and shareholders will be
advised on the nature of the payment.
CODE OF ETHICS
The Fund has adopted a Code of Ethics which restricts, to a certain
extent, personal transactions by access persons of the Fund and imposes certain
disclosure and reporting obligations.
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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of Brazos Mutual Funds:
We have audited the accompanying Statement of Assets and Liabilities of Brazos
Mutual Funds (the "Fund") as of December 11, 1996. This financial statement is
the responsibility of the Fund's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Brazos Mutual Funds as of
December 11, 1996 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 16, 1996
-19-
<PAGE>
BRAZOS MUTUAL FUNDS
Statements of Assets and Liabilities
as of December 11, 1996
<TABLE>
<CAPTION>
BRAZOS/JMIC BRAZOS/JMIC
Small Cap Real Estate
Growth Portfolio Securities Portfolio
<S> <C> <C>
Assets:
Cash $ 50,000 $ 50,000
Deferred Organizational and Offering Costs 61,525 61,525
Total Assets 111,525 111,525
-------- --------
Liabilities:
Accrued Organizational and Offering Costs 61,525 61,525
Total Liabilities 61,525 61,525
------- --------
Net Assets $ 50,000 $ 50,000
======== ========
Net Asset Value, Redemption and Offering
Price Per Share (5,000 and 5,000
outstanding shares of beneficial
interest, no par value, unlimited
authorization, respectively) $10.00 $10.00
====== ======
The accompanying notes are an integral part of the financial statements.
</TABLE>
-20-
<PAGE>
BRAZOS MUTUAL FUNDS
Notes to Financial Statements
December 11, 1996
1. Organization:
Brazos Mutual Funds (the "Fund") was organized on October 24, 1996 as a
Delaware business trust. The Fund is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company consisting of shares of two series - BRAZOS/JMIC Small Cap
Growth Portfolio (the "Small Cap Portfolio") and BRAZOS/JMIC Real
Estate Securities Portfolio (the "Real Estate Securities Portfolio).
The Fund has not commenced operations except those related to
organizational matters and the sale of 5,000 Small Cap Portfolio shares
of beneficial interest and 5,000 Real Estate Securities Portfolio
shares of beneficial interest (collectively, the "initial shares") to
John McStay Investment Counsel (the "Adviser") on December 11, 1996.
2. Organizational Costs, Offering Costs and Transactions with Affiliates:
Organizational costs have been capitalized by the Fund and are being
amortized over sixty months commencing with operations. In the event
any of the initial shares of the Fund are redeemed by any holder
thereof during the period that the Fund is amortizing organizational
costs, the redemption proceeds payable to the holder thereof by the
Fund will be reduced by the unamortized organizational costs in the
same ratio as the number of initial shares being redeemed bears to the
number of initial shares outstanding at the time of redemption.
Offering costs, including initial registration costs, have been
deferred and will be charged to expense during the Fund's first year of
operation.
Certain trustees and officers of the Fund are also officers of the
Fund's Adviser. Such trustees and officers are paid no fees by the Fund
for serving as trustees or officers of the Fund.
-21-
<PAGE>
PART C
FORM N-1A
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial statements
Incorporated into Registrant's Statement of Additional
Information
(b) Exhibits:
(1) (a) Certificate of Trusto
(b) Agreement and Declaration of Trust*
(2) Bylaws*
(3) Not Applicable
(4) Not Applicable
(5) Investment Advisory Contract*
(6) Underwriting Contract and Selected Dealer Agreement
(7) Not Applicable
(8) Custodian Agreement
(9) Administration Agreement, Transfer Agency Agreement
and Accounting Services Agreement
(10) Opinion and Consent of Counsel (to be filed with
24f-2 Notice)
(11) Accountant's Consent
(12) Not Applicable
(13) Subscription Agreement
(14) Not Applicable
(15) Not Applicable
(16) Not Applicable
(17) Not Applicable
(18) Not Applicable
(19) Powers of Attorney
*Previously filed and incorporated by reference herein to N-1A
filed 12-2-96.
Item 25. Persons Controlled by or Under Common Control with Registrant
Registrant is not controlled by or under common control with any
person.
Item 26. Number of Holders of Securities
-1-
<PAGE>
As of December 11, 1996:
Number of
Title of Class Record Holders
Shares of Beneficial Interests of:
BRAZOS/JMIC Small/Emerging Growth Portfolio One
BRAZOS/JMIC Real Estate Securities Portfolio One
Item 27. Indemnification
Reference is made to Article VII of Registrant's Agreement and
Declaration of Trust, which is incorporated herein by reference.
Registrant hereby also makes the undertaking consistent with Rule
484 under the Securities Act of 1933, as amended.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, office or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
Reference is made to the caption "Investment Adviser" in the
Prospectuses constituting Part A of this Registration Statement
and "Investment Adviser" in Part B of this Registration Statement.
The information required by this Item 28 with respect to each
director, officer, or partner of the investment adviser of the
Registrant is incorporated by reference to the Form ADV filed by
the investment adviser listed below with the Securities and
Exchange Commission pursuant to the Investment Advisers Act of
1940, as amended, on the date and under the File number indicated:
John McStay Investment Counsel 3-31-96 SEC File No. 801-20244
Item 29. Principal Underwriters
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<PAGE>
(a) Investment Companies for which Rodney Square Distributors also
acts as principal underwriter:
The Rodney Square Fund
The Rodney Square Strategic Fixed-Income Fund
The Rodney Square Multi-Manager Fund
The Rodney Square Tax-Exempt Fund
Heitman Real Estate Fund
The HomeState Group
Kiewit Mutual Fund
1838 Investment Advisors Funds
The Olstein Funds
(b) Reference is made to the caption "Distributor" in the
Prospectuses constituting Part A of this Registration
Statement. The information required by this Item 29 with
respect to each director of the underwriter is incorporated by
reference to the Form BD filed by the Underwriter with the
Commission pursuant to the Securities Exchange Act of 1934, as
amended under the File Number indicated:
Rodney Square Distributors SEC File No. 8-37006
Item 30. Location of Accounts and Records
The books, accounts and other documents required by Section 31(a)
under the Investment Company Act of 1940, as amended, and the
rules promulgated thereunder will be maintained in the physical
possession of the Registrant, the Registrant's Adviser, the
Registrant's Transfer and Administrative Agent: Rodney Square
Management Corporation, and the Registrant's Custodian Bank:
Wilmington Trust Company.
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
Registrant hereby undertakes to file a post-effective amendment,
including reasonably current financial statements which need not
be certified, for each of the BRAZOS/JMIC Small/Emerging Growth
Portfolio and the BRAZOS/JMIC Real Estate Securities Portfolio,
within four to six months from the effective date of Registrant's
1933 Act Registration Statement.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
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Registrant hereby undertakes to call a meeting of shareholders for
the purpose of voting upon the question of the removal of a
Trustee or Trustees when requested in writing to do so by the
holders of at least 10% of the Registrant's outstanding shares and
in connection with such meeting to comply with the provisions of
Section 16(c) of the Investment Company Act of 1940, as amended,
relating to shareholder communications.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Pre-Effective Amendment No. 2 to the Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Dallas, and
State of Texas on the 16th day of December, 1996.
Brazos Mutual Funds
Registrant
By/S/ Daniel Hockenbrough*
Daniel Hockenbrough
President
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 2 to the Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.
/s/ Daniel Hockenbrough*
Daniel Hockenbrough Trustee, December 16, 1996
Chief Executive and
Financial Officer
/s/ John H. Massey*
John H. Massey Trustee December 16, 1996
/s/ David M. Reichert*
David M. Reichert Trustee December 16, 1996
*Pursuant to authority granted in a Power of Attorney
By: /s/ Audrey C. Talley
Audrey C. Talley
Attorney-in-Fact
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Exhibit Index
Item 24(b) Exhibits Page
(6) Distribution Agreement and Selected Dealer Agreement 2
(8) Custodian Agreement 17
(9) Administration, Transfer Agency and Accounting
Services Agreements 29
(11) Accountant's Consent 67
(13) Subscription Agreement 68
(19) Powers of Attorney and Secretary's Certificate 69
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Exhibit 24(b)(6)
DISTRIBUTION AGREEMENT
between
BRAZOS MUTUAL FUNDS
and
RODNEY SQUARE DISTRIBUTORS, INC.
THIS DISTRIBUTION AGREEMENT is made as of the ____ day of
_______________, 1996, between Brazos Mutual Funds, a Delaware business trust
(the "Trust"), having its principal place of business in Dallas, Texas, and
Rodney Square Distributors, Inc., a corporation organized under the laws of the
State of Delaware (the "Distributor"), having its principal place of business in
Wilmington, Delaware.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company,
and offers for sale one or more series ("Series") of shares of beneficial
interest;
WHEREAS, each share of a Series represents an undivided interest in the
assets, subject to the liabilities, allocated to that Series and each Series has
a separate investment objective and policies;
WHEREAS, at the present time, the Trust has established two Series, each
of which consisting of one class of shares, and the Trust may establish
additional Series and/or classes in the future; and
WHEREAS, the Trust desires to avail itself of the services of the
Distributor, with such assistance from its affiliates as the latter may provide;
and the Distributor is willing to furnish such services to the Trust with
respect to each of the Series listed on Schedule A to this Agreement (each a
"Fund" or collectively "Funds") on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the mutual promises and undertakings
herein contained, the parties agree as follows:
1. Sale of Shares. The Trust grants to the Distributor the right to sell
shares of beneficial interest in all Series of the Trust, now or
hereafter created (the "Shares"), on its behalf during the term of this
Agreement and subject to the registration requirements of the Securities
Act of 1933, as amended (the "1933 Act"), and of the laws governing the
sale of securities in various states (the "Blue Sky Laws") under the
following terms and conditions: the Distributor (i) shall have the right
to sell, as agent on behalf of the Trust, Shares authorized for issue and
registered under the 1933 Act; (ii) may sell Shares under offers of
exchange, if available, between and among the funds distributed by
Distributor and advised by Rodney Square Management Corporation or
Wilmington Trust Company; and (iii) shall sell such Shares only in
compliance with the terms set forth in the Trust's currently effective
registration statement. Distributor may enter into selling agreements
with selected dealers and others for the sale of Trust Shares, and will
act only on its own behalf as principal in entering into such selling
agreements.
2. Sale of Shares by the Trust. The rights granted to the Distributor shall
be non-exclusive in that the Trust reserves the right to sell its Shares
to investors on applications received and accepted by the Trust. Further,
the Trust reserves the right to issue Shares in connection with (a) the
merger or
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consolidation, or acquisition by the Trust through purchase or otherwise,
with any other investment company, trust or personal holding company; and
(b) a pro rata distribution directly to the holders of Shares in the
nature of a stock dividend or split-up.
3. Shares Covered by this Agreement. This Agreement shall apply to issued
Shares of all Series of the Trust, Shares of all Series of the Trust held
in its treasury in the event that in the discretion of the Trust treasury
Shares shall be sold, and Shares of all Series of the Trust repurchased
for resale.
4. Suspension of Sales. If and whenever the determination of net asset value
is suspended and until such suspension is terminated, no further orders
for Shares shall be processed by the Distributor except such
unconditional orders placed with the Distributor before it had knowledge
of the suspension. In addition, the Trust reserves the right to suspend
sales and the Distributor's authority to process orders for Shares on
behalf of the Trust if, in the judgment of the Trust, it is in the best
interests of the Trust to do so. Suspension will continue for such period
as may be determined by the Trust. In addition, the Distributor reserves
the right to reject any purchase order.
5. Solicitation of Sales. In consideration of these rights granted to the
Distributor, the Distributor agrees to use all reasonable efforts,
consistent with its other business, to secure purchasers for Shares of
the Trust. This shall not prevent the Distributor from entering into like
arrangements (including arrangements involving the payment of
underwriting commissions) with other issuers. Distributor agrees to use
all reasonable efforts to ensure that taxpayer identification numbers
provided for shareholders of the Trust are correct.
6. Authorized Representations. The Distributor is not authorized by the
Trust to give any information or to make any representations other than
those contained in the appropriate registration statements, Prospectuses
or Statements of Additional Information ("SAIs") filed with the
Securities and Exchange Commission under the 1933 Act (as those
registration statements, Prospectuses and SAIs may be amended from time
to time), or contained in shareholder reports or other material that may
be prepared by or on behalf of the Trust for the Distributor's use. This
shall not be construed to prevent the Distributor from preparing and
distributing, in compliance with applicable laws and regulations, sales
literature or other material as it may deem appropriate. Distributor will
furnish or cause to be furnished copies of such sales literature or other
material to the President of the Trust or his designee, and will provide
him with a reasonable opportunity to comment on the same. Distributor
agrees to take appropriate action to cease using such sales literature or
other material to which the Trust reasonably objects as promptly as
practicable after receipt of the objection.
7. Portfolio Securities. Portfolio securities of every Series of the Trust
may be bought or sold by or through the Distributor, and the Distributor
may participate directly or indirectly in brokerage commissions or
"spreads" for transactions in portfolio securities of any Series of the
Trust. However, all sums of money received by the Distributor as a result
of such purchases and sales or as a result of such participation must,
after reimbursement of actual expenses of the Distributor in connection
with such activity, be paid over by the Distributor to or for the benefit
of the applicable Series.
8. Registration of Shares. The Trust agrees that it will take all action
necessary to register Shares under the 1933 Act (subject to the necessary
approval, if any, of its shareholders) so that there will be available
for sale the number of Shares the Distributor may reasonably be expected
to sell. The
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<PAGE>
Trust shall furnish to the Distributor copies of all information,
financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Shares
of each series of the Trust.
9. Expenses, Compensation and Reimbursement
(a) The Trust shall pay all fees and expenses:
(i) in connection with the preparation, setting in type and
filing of any registration statement, Prospectus and SAI
under the 1933 Act, and any amendments thereto, for the
issue of its Shares;
(ii) in connection with the registration and qualification of
Shares for sale in the various states in which the Board of
Trustees (the "Trustees") of the Trust shall determine it
advisable to qualify such Shares for sale (including
registering the Trust or Series as a broker or dealer or
any officer of the Trust as agent or salesperson in any
state);
(iii) of preparing, setting in type, printing and mailing any
report or other communication to shareholders of the Trust
in their capacity as such; and
(iv) of preparing, setting in type, printing and mailing
Prospectuses, SAIs, and any supplements thereto, sent to
existing shareholders.
(b) The Distributor shall pay expenses of:
(i) printing and distributing Prospectuses, SAIs and reports
prepared for its use in connection with the offering of the
Shares for sale to the public;
(ii) any other literature used in connection with such offering;
and
(iii) advertising in connection with such offering.
(c) In addition to the services described above, Distributor will
provide services including assistance in the production of
marketing and advertising materials for the sale of Shares of the
Trust and their review for compliance with applicable regulatory
requirements; entering into dealer agreements with broker-dealers
to sell Shares of the Trust and monitoring their financial
strength and contractual compliance; and providing, directly or
through its affiliates, certain investor support services,
personal service, and the maintenance of shareholder accounts.
(d) In connection with the services to be provided by the Distributor
under this Agreement, the Distributor shall receive reimbursement
from the Trust's investment adviser for fees and expenses
previously agreed to by the Adviser (which may include, without
limitation, reimbursement for the expenses incurred pursuant to
Section 9(b) hereof).
10. Indemnification.
(a) The Trust agrees to indemnify and hold harmless the Distributor
and each of its directors and officers and each person, if any,
who controls the Distributor within the meaning of Section 15 of
the 1933 Act and/or Section 20(a) of the Securities Exchange Act
of 1934 (the "1934 Act") against any loss, liability, claim,
damages or expense (including the reasonable cost of investigating
or defending any alleged loss, liability, claim, damages, or
expense, and
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<PAGE>
reasonable counsel fees incurred in connection therewith) arising
by reason of any person acquiring any Shares, based upon the 1933
Act or any other statute or common law, alleging any wrongful act
of the Trust or any of its employees or representatives, or based
upon the grounds that the registration statements, Prospectuses,
SAIs, shareholder reports or other information filed or made
public by the Trust (as from time to time amended) included an
untrue statement of a material fact or omitted to state a material
fact required to be stated or necessary in order to make the
statements made therein not misleading. However, the Trust does
not agree to indemnify the Distributor or hold it harmless to the
extent that the statement or omission was made in reliance upon,
and in conformity with, information furnished to the Trust in
writing by or on behalf of the Distributor. In no case (i) is the
indemnity of the Trust in favor of the Distributor or any person
indemnified to be deemed to protect the Distributor or any person
against any liability to the Trust or its security holders to
which the Distributor or such person would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in
the performance of its duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement, or
(ii) is the Trust to be liable under its indemnity agreement
contained in this Section 10(a) with respect to any claim made
against the Distributor or any person indemnified unless the
Distributor or person, as the case may be, shall have notified the
Trust in writing of the claim within a reasonable time after the
summons or other first written notification giving information of
the nature of the claim shall have been served upon the
Distributor or any such person or after the Distributor or such
person shall have received notice of service on any designated
agent. However, failure to notify the Trust of any claim shall not
relieve the Trust from any liability which it may have to the
Distributor or any person against whom such action is brought
other than on account of its indemnity agreement contained in this
Section 10(a). The Trust shall be entitled to participate at its
own expense in the defense, or, if it so elects, to assume the
defense of any suit brought to enforce any claims, but if the
Trust elects to assume the defense, the defense shall be conducted
by counsel chosen by it and satisfactory to the Distributor, or
person or persons defendant or defendants in the suit. In the
event the Trust elects to assume the defense of any suit and
retain counsel, the Distributor, officers or directors or
controlling person(s) or defendant(s) in the suit shall bear the
fees and expenses of any additional counsel retained by them. If
the Trust does not elect to assume the defense of any suit, it
will reimburse the Distributor, officers or directors or
controlling person(s) or defendant(s) in the suit for the
reasonable fees and expenses of any counsel retained by them. The
Trust agrees to notify the Distributor promptly of the
commencement of any litigation or proceedings against it or any of
its officers or Trustees in connection with the issuance or sale
of any of the Shares.
(b) The Distributor also covenants and agrees that it will indemnify
and hold harmless the Trust and each of the members of its
Trustees and officers and each person, if any, who controls the
Trust within the meaning of Section 15 of the 1933 Act, against
any loss, liability, damages, claim or expense (including the
reasonable cost of investigating or defending any alleged loss,
liability, damages, claim or expense, and reasonable counsel fees
incurred in connection therewith) arising by reason of any person
acquiring any Shares, based upon the 1933 Act or any other statute
or common law, alleging any wrongful act of the Distributor or any
of its employees or representatives, or alleging that the
registration statements, Prospectuses, SAIs, shareholder reports
or other information filed or made public by the Trust (as from
time to time amended) included an untrue statement of a material
fact or
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<PAGE>
omitted to state a material fact required to be stated or
necessary in order to make the statements made therein not
misleading, insofar as the statement or omission was made in
reliance upon, and in conformity with, information furnished in
writing to the Trust by or on behalf of the Distributor. In no
case (i) is the indemnity of the Distributor in favor of the Trust
or any person indemnified to be deemed to protect the Trust or any
person against any liability to which the Trust or such person
would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of its duties, or by
reason of its reckless disregard of its obligations and duties
under this Agreement, or (ii) is the Distributor to be liable
under its indemnity agreement contained in this Section 10(b) with
respect to any claim made against the Trust or any person
indemnified unless the Trust or person, as the case may be, shall
have notified the Distributor in writing of the claim within a
reasonable time after the summons or other first written
notification giving information of the nature of the claim shall
have been served upon the Trust or any such person or after the
Trust or such person shall have received notice of service on any
designated agent. However, failure to notify the Distributor of
any claim shall not relieve the Distributor from any liability
which it may have to the Trust or any person against whom the
action is brought other than on account of its indemnity agreement
contained in this Section 10(b). In the case of any notice to the
Distributor, it shall be entitled to participate, at its own
expense, in the defense, or, if it so elects, to assume the
defense of any suit brought to enforce any claims, but if the
Distributor elects to assume the defense, the defense shall be
conducted by counsel chosen by it and satisfactory to the Trust,
to its officers and Trustees and to any controlling person(s) or
any defendants(s) in the suit. In the event the Distributor elects
to assume the defense of any suit and retain counsel, the Trust or
controlling person(s) or defendant(s) in the suit, shall bear the
fees and expenses of any additional counsel retained by them. If
the Distributor does not elect to assume the defense of any suit,
it will reimburse the Trust, its officers or Trustees, controlling
person(s) or defendant(s) in the suit, for the reasonable fees and
expenses of any counsel retained by them. The Distributor agrees
to notify the Trust promptly of the commencement of any litigation
or proceedings against it in connection with the issue and sale of
any of the Shares.
11. Effectiveness, Termination, etc. This Agreement shall become effective on
the day and year first written above, and unless terminated as herein
provided, shall continue in force for one (1) year from the date of its
execution, and thereafter from year to year, provided continuance after
the one (1) year period is approved at least annually by either (i) the
vote of a majority of the Trustees of the Trust, or by the vote of a
majority of the outstanding voting securities of the Trust, and (ii) the
vote of a majority of those Trustees of the Trust who are not interested
persons of the Trust, who have no direct or indirect financial interest
in the operation of any Rule 12b-1 Plan of the Trust or any agreements
related to any such Plan and who are not parties to this Agreement or
interested persons of any party, cast in person at a meeting called for
the purpose of voting on the approval. This Agreement shall automatically
terminate in the event of its assignment. As used in this Section 12, the
terms "vote of a majority of the outstanding voting securities,"
"assignment" and "interested person" shall have the respective meanings
specified in the 1940 Act and the rules enacted thereunder as now in
effect or as hereafter amended. In addition to termination by failure to
approve continuance or by assignment, this Agreement may at any time be
terminated without the payment of any penalty by vote of a majority of
the Trustees of the Trust who are not interested persons of the Trust and
who have no direct or indirect financial interest in the operation of any
Rule 12b-1 Plan of the Trust or any agreements related to any such Plan,
or by vote of a majority
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<PAGE>
of the outstanding voting securities of the Trust, on not more than sixty
(60) days' written notice to the Trust. This Agreement may be terminated
by the Distributor upon not less than sixty (60) days' prior written
notice to the Trust.
12. Notice. Any notice under this Agreement shall be given in writing
addressed and hand delivered or sent by registered or certified mail,
postage prepaid, to the other party to this Agreement at its principal
place of business.
13. Severability. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
14. Governing Law. To the extent that state law has not been preempted by the
provisions of any law of the United States heretofore or hereafter
enacted, as the same may be amended from time to time, this Agreement
shall be administered, construed and enforced according to the laws
(without regard, however, to laws as to conflicts of law) of the State of
Delaware.
15. Shareholder Liability. The Distributor is hereby expressly put on notice
of the limitation of shareholder liability as set forth in the Trust
Instrument of the Trust and agrees that obligations assumed by the Trust
pursuant to this Agreement shall be limited in all cases to the Trust and
its assets, and if the liability relates to one or more series, the
obligations hereunder shall be limited to the respective assets of such
series. The Distributor further agrees that it shall not seek
satisfaction of any such obligation from the shareholders or any
individual shareholder of a series of the Trust, nor from the Trustees or
any individual Trustee of the Trust.
16. Disputes; Arbitration thereof. Absent further written agreement of the
parties, any or all claims, disputes or other controversies ("disputes")
that may arise between the parties to and in connection with this
Agreement or any services or other obligations to be performed pursuant
to this Agreement or any aspect of the relationship between the parties
shall be resolved in the manner specified in paragraph 22 and "Schedule
B" of the parties' "Administration Agreement" of even date herewith.
17. Miscellaneous. Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the purposes
hereof. The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect. This Agreement
may be executed in two counterparts, each of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
BRAZOS MUTUAL FUNDS
By: _________________________________
Daniel Hockenbrough, President
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<PAGE>
RODNEY SQUARE DISTRIBUTORS, INC.
By: ________________________________
Jeffrey O. Stroble, President
Acknowledgment as to reimbursement with respect to
marketing expenses of Rodney Square Distributors, Inc. as
Distributor.
JOHN McSTAY, general partner and JOHN McSTAY & ASSOCIATES, general partner of
JOHN McSTAY INVESTMENT COUNSEL, as Investment Adviser
By: ________________
John McStay
Date:
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<PAGE>
RODNEY SQUARE DISTRIBUTORS, INC.
SELECTED DEALER AGREEMENT FOR NON-PROPRIETARY FUNDS
THIS SELECTED DEALER AGREEMENT is made as of the _____ day of
_______________, 1996, between Rodney Square Distributors, Inc. ("RSD") and the
broker-dealer listed in Schedule B ("BD").
WHEREAS, each company listed on Schedule A hereof (each a "Fund" and
collectively, the "Funds") is registered under the Investment Company Act of
1940 (the "1940 Act"), as amended as an open-end management investment company
and each Fund is authorized to issue one or more series of shares of common
stock or beneficial interest, as the case may be ("Shares");
WHEREAS, RSD is the exclusive distributor of the Shares pursuant to
certain agreement(s) with the (respective) Fund(s); and
WHEREAS, BD desires to serve as a selected dealer for the Shares;
NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed among the parties as follows:
1. Purchase of Shares. BD may, from time to times purchase Shares from RSD
in accordance with the terms of this Agreement. In connection with each
such purchase, BD shall act as principal for its own account; BD shall
have no authority to act as agent for RSD or any of the Funds. BD
agrees that it shall purchase Shares only from RSD, either directly or
through a securities dealer, such as Fund/Serv ("Clearing Broker") with
which BD and RSD have established clearing arrangements. BD agrees to
purchase Shares of the Funds only in transactions contemplating the
simultaneous resale of such Shares to investors and in no event shall
BD place orders for Shares unless it has already received customers
orders to purchase Shares at the applicable Public Offering Price.
2. Acceptance of Purchase Orders. Orders received from BD for the purchase
of Shares ("Purchase Orders") shall be accepted by RSD only at the
price ("Public Offering Price") set forth in the then effective
prospectus used in connection with the sale of such shares (the
"Prospectus"). Purchase Orders shall be handled in accordance with such
oral or written instructions that RSD may forward to BD from time to
time and shall be subject to procedures relating to the purchase of
Shares disclosed in the Prospectus. Purchase Orders for Shares of the
"Money Market Funds" as listed in Schedule A must be received together
with full payment in Federal Funds. Payment for Shares of the "Load
Funds" as listed in Schedule A must be received by RSD within three
business days after receipt of the Purchase Order. RSD reserves the
right, from time to time and in our sole discretion, to limit the
aggregate orders for Shares of the Load Funds placed by BD for which
payment has not yet been received. In addition, all orders are subject
to acceptance or rejection by RSD or the relevant Fund in the sole
discretion of either. Purchase Orders shall be subject to receipt by
the Funds' Transfer Agent of all required documents in proper form and
to the minimum initial and subsequent purchase requirements set forth
in the Prospectus.
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<PAGE>
3. Dealer Reallowance. BD shall receive compensation in connection with
the sale of Shares of Load Funds in the form of dealer reallowances at
the percentage of the Public Offering Price applicable to Shares
purchased by BD, specified in the Prospectus. It is understood that the
Public Offering Price may reflect variations in sales charges, if any,
applicable to the sales of such Shares in accordance with certain
purchase plans set forth in such Prospectus. BD agrees that it will
apply any such variations uniformly to all offerees in accordance with
the provisions of the Prospectus and will not combine customer orders
to reach "breakpoints" established in the Prospectus unless expressly
permitted by the Prospectus or in writing by RSD or withhold any
customer order so as to profit therefrom. BD agrees and understands
that dealer reallowances will be paid based upon the schedule set forth
in the Prospectus and that, in accordance with such schedule, dealer
reallowances will be lower in the case of purchases to which reduced
sales charges apply. However, where the reduced sales charge is in
connection with a letter of intent, adjustment to a higher dealer
reallowance will be made to reflect actual purchases by the investor if
investor should fail to fulfill the letter of intent. No dealer
reallowances shall be payable in respect of Load Fund Shares purchased
through reinvestment of dividends or distributions or with respect to
Load Fund Shares purchased in exchange for other Shares unless
specifically set forth in the Prospectus. If any Load Fund Shares sold
to BD under the terms of this Agreement are tendered for redemption or
repurchase within seven business days after the date of confirmation to
BD of its purchase order therefor, BD agrees to pay forthwith to RSD
the full amount of the dealer reallowance on the original sale.
4. Redemptions, Repurchases and Exchanges. Orders for the redemption or
repurchase of Shares ("Redemption Orders") as well as exchange requests
shall be handled in accordance with procedures set forth in the
Prospectus and, to the extent consistent with the Prospectus, oral or
written instruction forwarded to BD by RSD from time to time. RSD will,
upon request assist BD in processing Redemption Orders and exchange
requests. All such orders and requests are subject to the timely
receipt by the Funds' Transfer Agent of all required documents in good
order. If such documents are not received within a reasonable time
after the order or request is placed, it will be subject to
cancellation, in which case BD agrees to be responsible for any
resulting loss incurred by RSD or the Funds.
5. Compliance with Securities Laws. BD shall not offer or sell any Shares
except under circumstances that will result in compliance with the
applicable federal and state securities laws. In connection with sales
and offers to sell Shares, BD will furnish or cause to be furnished to
each person to whom any such sale or offer is made, at or prior to the
time of offering or sale, a copy of the Prospectus and, if requested,
the related statement of additional information ("SAI"). RSD shall,
upon request, supply BD with reasonable quantities of Prospectuses and
SAIs for its use in connection with the offer and sale of the Shares.
BD shall will not furnish to any person any information in connection
with the sale of Shares that is inconsistent in any respect with the
information contained in such Prospectus or SAI.
RSD shall, from time to time, inform BD as to the states and
jurisdictions in which RSD believes the Shares have been qualified for
sale under, or are exempt from the requirements of, the respective
securities laws of such states and jurisdictions. BD agree that it will
not offer or sell Shares in any state or jurisdiction in which such
Shares are not registered, unless any such offer or sale is made in a
transaction that qualifies for an exemption from such registration. BD
agrees to indemnify RSD and the Fund(s) against any claim, liability,
expense or loss in any way arising
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out of any sale or exchange of Shares by BD in any state or
jurisdiction in which Shares are not so registered or qualified.
BD hereby agrees to maintain all records required by law relating to
transactions on the Shares, and upon the request of RSD, or of the
Funds, promptly make such of these records available to RSD or the
Funds' Administrator as are requested. In addition BD hereby agrees to
establish appropriate procedures and reporting forms and/or mechanisms
and schedules in conjunction with RSD and the Funds' Administrator, to
enable the Funds to identify the location, type of, and sales to all
accounts opened and maintained by BD's customers or by BD on behalf of
BD's customers.
BD hereby agrees to abide by the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. (the "NASD") and all applicable
federal and state laws. Reference is specifically made to Section 26 of
Article III of such Rules, which Section is incorporated herein by
reference. RSD assumes no responsibility in connection with the
registration of the BD under the laws of the various states or under
federal law or BD's qualification under any such law to offer or sell
Shares. BD agrees to indemnify RSD and the Fund(s) against any claim,
liability, expense or loss in any way arising out of any sale or
exchange of Shares by BD in any state or jurisdiction in which BD is
not so registered or qualified.
The signing of this Agreement and the purchase of Shares pursuant
hereto is a representation to RSD that BD is a member in good standing
of the NASD and a properly registered broker-dealer under the 1934 Act.
This Agreement shall terminate automatically in the event of BD ceases
to be a member in good standing of the NASD or upon the occurrence of
any event adversely affecting BD's registration as a broker-dealer
under the 1934 Act
BD represents and warrants that it is a member of the Securities
Investor Protection Corporation (SIPC) in good standing and agrees to
notify RSD of any changes in BD's status with the SIPC. Notwithstanding
the aforementioned, BD agrees to make a notation on all confirmations
for transaction stating that it is not a member of the SIPC as required
by Rule 10b-10 of the 1934 Act.
6. Use of Sales Materials. BD shall not use any advertising or sales
materials of any kind relating to the Funds or using the name of the
Funds or RSD or any affiliate of either unless such material is
provided to BD by RSD or unless BD has obtained the prior written
consent of RSD. Neither BD nor any other person is authorized to make
any representation in connection with the offer and sale of the Shares
except those contained in the Prospectus and SAI or as expressly
authorized in writing by RSD. If BD should make any such unauthorized
representation, or use, or cause others to use, advertising or sales
material not provided to BD by RSD or without RSD's prior approval, BD
shall indemnify RSD and the (relevant) Fund from and against any and
all claims, liability, expense or losses in any way arising out of or
in any way connected with such representation.
7. Confirmations. BD agrees to send confirmations of orders to its
customers as required by Rule 10b-10 of the Securities Exchange Act of
1934 (the "1934 Act") and agrees to pay any costs in connection
therewith. BD agrees to use all reasonable efforts to ensure that
taxpayer identification numbers provided by it on behalf of investors
are correct.
-11-
<PAGE>
8. Suspension of Sales; Amendments. RSD shall have full authority to take
such action as it may deem advisable in respect of all matters
pertaining to the continuous offering of Shares; in particular and
without limitation, the right in its discretion and without notice to
BD to suspend sales or withdraw the offering of Shares. Upon notice to
BD, RSD may amend this Agreement and BD agrees that any Purchase Order
placed by it after notice of any amendment to this Agreement has been
sent to BD shall constitute its agreement to such amendment.
9. Distribution Fees Pursuant to Rule 12b-1 Plans. BD shall be entitled to
receive distribution fees in connection with its sales and promotional
efforts hereunder in accordance with any Plan of Distribution adopted
by the Fund. Such fees shall be payable in the amounts and in the
manner set forth in Schedule C to this agreement, which Schedule is
expressly incorporated herein.
10. No Agency Created. Nothing in this Agreement shall be deemed or
construed to make BD an employee, agent, representative or partner of
any of the Funds or of RSD, and BD is not authorized to act for RSD or
for any Fund or to make any representations on RSD's or the Funds'
behalf. BD acknowledges that this Agreement is not exclusive and that
RSD may enter into similar arrangement with others. BD and RSD agree
that each will be responsible for its own expenses in connection with
its activities hereunder and each will be responsible for complying
with the federal and state laws governing the operation of their
respective business and the NASD Rules.
11. Termination and Assignment. This Agreement shall also be terminable
without penalty upon thirty (30) days' written notice to RSD by BD and
upon ten (10) days' written notice to BD by RSD; provided, however,
that any termination of this Agreement by operation of this Section 11
shall not affect any unpaid obligations under Sections 2, 3 or 9 of
this Agreement or the liability, indemnity and legal fee provisions of
Sections 5, 6, 12 and 17 of this Agreement. This Agreement shall not be
assignable by any of the parties hereto. Nothing in this Agreement is
intended to confer upon any person other than the parties hereto and
their successors, any rights or remedies under or by reason of this
Agreement, other than those expressly set forth herein.
12. Legal Fees. If any claims are asserted against RSD or the Funds
regarding claims to which BD has indemnified these parties herein, the
parties shall have the right to engage in their own defense, including
the selection and engagement of counsel of their choosing and all costs
of such defense shall be borne by BD.
13. Notice. Any notice required or permitted to be given by either party to
the other shall be deemed sufficient if sent by registered or certified
mail, postage prepaid, addressed by the party giving notice to the
other party at the last address furnished by the other party to the
party giving notice: if to RSD, at 1100 N. Market Street, Wilmington,
Delaware, 19890; if to BD at the address listed on Schedule B.
14. Severability. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby. This Agreement
constitutes the entire agreement between the parties and supersedes all
prior agreements.
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<PAGE>
15. Governing Law. To the extent that state law has not been preempted by
the provisions of any law of the United States heretofore or hereafter
enacted, as the same may be amended from time to time, this Agreement
shall be administered, construed and enforced according to the laws
(without regard, however, to laws as to conflicts of law) of the State
of Delaware.
16. Miscellaneous. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the
purposes hereof. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of
the provisions hereof or otherwise affect their construction or effect.
17. Clearing Brokers. RSD acknowledges that BD may utilize the services of
one or more Clearing Brokers with respect to purchases of Shares by
BD's customers. BD acknowledges that this agreements authorizes only
it, and not any Clearing Broker employed by BD, to offer or sell Shares
under this Agreement. RSD agrees to accept Purchase Orders from any
Clearing Broker that BD identifies to RSD in writing as authorized to
place orders on BD's behalf, provided that BD agrees that RSD and the
Funds shall be entitled to treat such orders as though they had been
placed by BD directly. In addition, except where the context otherwise
requires, references in this Agreement to BD shall be deemed to include
references to any Clearing Broker employed by BD. BD agrees to cause
any such Clearing Broker to abide by BD's obligations and agreements
under this Agreement, and that BD's agreement with any such Clearing
Broker will reflect the Clearing Broker's obligation to abide by such
obligations and agreements. Neither RSD nor the Funds shall be liable
hereunder to BD or to any Clearing Broker for any claim, liability,
expense or loss in any way arising from BD's arrangements with such
Clearing Broker, and BD agrees to hold RSD and the Funds harmless from
and against any claim, liability, expense or loss in any way arising
from the activities of the Clearing Broker in connection with Purchase
Orders, Redemption Orders or exchange requests initiated by BD.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
RODNEY SQUARE DISTRIBUTORS, INC.
By: _____________________________
Jeffrey O. Stroble, President
PEMBROOK SECURITIES, INC.
By: _____________________________
(Name,Title)
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<PAGE>
RODNEY SQUARE DISTRIBUTORS, INC.
SELECTED DEALER AGREEMENT FOR NON-PROPRIETARY FUNDS
SCHEDULE A
No Load Funds
BRAZOS/JMIC Small/Emerging Growth Portfolio
BRAZOS/JMIC Real Estate Securities Portfolio
Load Funds
None
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<PAGE>
RODNEY SQUARE DISTRIBUTORS, INC.
SELECTED DEALER AGREEMENT FOR NON-PROPRIETARY FUNDS
SCHEDULE B
Pembrook Securities, Inc.
Address: 5949 Sherry Lane, Suite 1560
Dallas, Texas 75225
Attn:
Phone:
Fax:
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<PAGE>
RODNEY SQUARE DISTRIBUTORS, INC.
SELECTED DEALER AGREEMENT FOR NON-PROPRIETARY FUNDS
SCHEDULE C
Set forth below is a table of total sales charges or underwriting commissions
and dealer concessions for the load funds. The Distributor may provide
additional compensation to dealers in connection with sales of shares of the
Fund(s).
-16-
Exhibit 24(b)(8)
CUSTODY AGREEMENT
This Agreement is made as of the _____ day of _____________, 19__,
between Brazos Mutual Funds, a business trust organized under the laws of
Delaware (the "Trust"), having its principal place of business in Wilmington,
Delaware, and Wilmington Trust Company, a Delaware corporation (the
"Custodian"), having its principal place of business in Wilmington, Delaware.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company
and offers for public sale one or more distinct series of shares of beneficial
interest (each series, a "Fund" and collectively, the "Funds"), par value
$_________ per share, each Fund corresponding to a distinct portfolio;
WHEREAS, each share of beneficial interest (collectively, "Shares") of
a Fund represents an undivided interest in the assets of that Fund, subject to
the liabilities of that Fund, as more fully described in the Declaration of
Trust pursuant to which the Trust is created and governed;
WHEREAS, the Trust desires to employ the Custodian to provide custody
services; and
WHEREAS, the Custodian is willing to furnish custody services to the
Trust on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound, the parties agree as
follows:
I. Employment of Custodian; Property of the Trust to be Held by the
Custodian
The Trust hereby employs the Custodian as the custodian of its assets.
The Trust agrees to deliver to the Custodian substantially all securities and
cash owned by it on behalf of the Fund(s) from time to time, and substantially
all income, principal, capital distributions or other payments received by it
with respect to such securities, and the cash consideration received for the
issuance and sale of Shares of the Trust from time to time. The Custodian will
not be responsible for any property of the Trust not delivered to the Custodian.
II. Duties of the Custodian with Respect to Property of the Trust Held by
the Custodian
A. Holding Securities
The Custodian will hold, earmark and physically segregate for the
account of each Fund all non-cash property, including all securities owned by
the Trust on behalf of the Fund(s), other than securities maintained pursuant to
Article II, Section J hereof in a clearing agency which acts as a securities
depository or in an authorized book-entry system authorized by the U.S.
Department of the Treasury, collectively referred to herein as a "Securities
System."
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<PAGE>
B. Delivery of Securities
The Custodian will deliver securities held by the Custodian or in a
Securities System account only upon receipt of proper instructions, which may be
continuing instructions, and only in the following cases:
1. Upon sale of such securities for the account of each Fund and
receipt of payment therefor;
2. Upon receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Trust
with respect to any Fund;
3. In the case of a sale effected through a Securities System, in
accordance with the provisions of Article II, Section J
hereof;
4. To the depository agent in connection with tenders or other
similar offers for securities of each Fund;
5. To the issuer thereof, or its agent, when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6. To the issuer thereof, or its agent, for registration or
re-registration pursuant to the provisions of Article II,
Section C hereof; or for exchange for a different number of
certificates or other evidence representing the same aggregate
face amount or number of units; provided that, in any such
case, the new securities are to be delivered to the Custodian;
7. To the broker selling such securities for examination in
accordance with the "street delivery" custom; provided that
the Custodian will maintain procedures to ensure prompt return
to the Custodian by the broker in the event the broker elects
not to accept such securities;
8. For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer or pursuant to
provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered
to the Custodian;
9. In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10. For delivery in connection with any loans of securities made
by the Trust on behalf of any Fund, but only against receipt
of adequate collateral, as agreed upon from time to time by
the Custodian and the Trust, which may be in the form of cash
or obligations issued by the United States government, its
agencies or instrumentalities;
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<PAGE>
11. For delivery as security in connection with any borrowing by
the Trust on behalf of any Fund requiring a pledge of assets
by the Trust on behalf of that Fund against receipt of amounts
borrowed;
12. Upon receipt of instructions from the transfer agent for the
Trust (the "Transfer Agent") for delivery to the Transfer
Agent or to holders of Shares in connection with distributions
in kind in satisfaction of requests by holders of Shares for
repurchase or redemption; and
13. For any other proper corporate purposes, but only upon receipt
of, in addition to proper instructions, a certified copy of a
resolution of the Board of Trustees signed by an officer of
the Trust and certified by the Secretary or an Assistant
Secretary, specifying the securities to be delivered, setting
forth the purpose for which such delivery is to be made,
declaring such purposes to be proper corporate purposes, and
naming the persons to whom delivery of such securities will be
made.
C. Registration of Securities
Securities held by the Custodian (other than bearer securities) will be
registered in the name of the Trust on behalf of the Fund(s), or in the name of
any nominee of the Trust, the Custodian or any Securities System, or in the name
or nominee name of any agent or sub-custodian appointed pursuant to Article II,
Section I hereof, provided that the Custodian will maintain a mechanism for
identifying all securities belonging to each Fund, wherever held or registered.
All securities accepted by the Custodian on behalf of the Trust for the Fund(s)
hereunder will be in "street name" or other good delivery form.
D. Bank Accounts
If requested by the Trust, the Custodian will open and maintain a
separate bank account or accounts in the name of the Trust, subject only to
draft or order by the Custodian acting pursuant to the terms of this Agreement,
and will hold in such account or accounts, subject to the provisions hereof, all
cash received by it from or for the account of the Fund(s), other than cash
maintained by the Trust in a bank account established and used in accordance
with Rule 17f-3 under the 1940 Act.
E. Payment for Shares
The Custodian will receive from the distributor of the Shares of the
Fund(s) or from the Transfer Agent and deposit into each Fund's custody account
payments received for Shares of such Fund issued or sold from time to time by
the Trust. The Custodian will provide timely notification to the Trust and the
Transfer Agent of any receipt by it of cash payments for Shares of the Fund(s).
F. Collection of Income and Other Payments
The Custodian will collect on a timely basis all income and other
payments with respect to securities held hereunder to which the Trust and each
of the Fund(s) will be entitled by law or pursuant to custom in the securities
business, and will credit such income and other payments, as collected, to each
Fund's custody account.
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<PAGE>
G. Payment of Trust Moneys
Upon receipt of proper instructions, which may be continuing
instructions, the Custodian will pay out moneys of the Trust on behalf of the
Fund(s) in the following cases only:
1. Upon the purchase of securities for the account of each Fund,
but only (a) against the delivery of such securities to the
Custodian (or any bank, banking firm or trust company doing
business in the United States or abroad which is qualified
under the 1940 Act to act as a custodian and has been
designated by the Trust or by the Custodian as its agent for
this purpose); (b) in the case of a purchase effected through
a Securities System, in accordance with the conditions set
forth in Article II, Section J hereof or; (c) in the case of
repurchase agreements entered into between the Trust on behalf
of the Fund and the Custodian, or another bank, (i) against
delivery of securities either in certificate form or through
an entry crediting the Custodian's account at the Federal
Reserve Bank with such securities and with an indication on
the books of the Custodian that such securities are held for
the benefit of the Fund, and (ii) against delivery of the
receipt evidencing purchase by the Trust on behalf of the Fund
of securities owned by the Custodian or other bank along with
written evidence of the agreement by the Custodian or other
bank to repurchase such securities from the Trust on behalf of
the Fund;
2. In connection with conversion, exchange or surrender of
securities owned by the Trust on behalf of any Fund as set
forth in Article II, Section B hereof;
3. For the redemption or repurchase of Shares as set forth in
Article II, Section H hereof;
4. For the payment of any expense or liability incurred by the
Trust with respect to the Fund(s), including, but not limited
to, the following payments for the account of the Fund(s):
interest, dividend disbursements, taxes, trade association
dues, advisory, administration, accounting, transfer agent and
legal fees, and operating expenses allocated to the Trust or
the Fund(s) whether or not such expenses are to be in whole or
part capitalized or treated as deferred expenses;
5. For the payment of any dividend declared on behalf of the
Fund(s) pursuant to the governing documents of the Trust; and
6. For any other proper corporate purposes, but only upon receipt
of, in addition to proper instructions, a certified copy of a
resolution of the Board of Trustees of the Trust signed by an
officer of the Trust and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be
made, declaring such purpose to be a proper corporate purpose,
and naming the person or persons to whom such payment is to be
made.
H. Payments for Repurchase or Redemptions of Shares of the Fund(s)
From such funds as may be available, the Custodian will, upon receipt
of instructions from the Transfer Agent, make funds available for payment to
holders of Shares of the Fund(s) who have delivered to the Transfer Agent a
request for redemption or repurchase of their Shares. In connection
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<PAGE>
with the redemption or repurchase of Shares, the Custodian is authorized upon
receipt of instructions from the Transfer Agent to wire funds to a commercial
bank designated by the redeeming shareholders.
I. Appointment of Agents
The Custodian may at any time in its discretion appoint, but only in
accordance with an applicable vote by the Board of Trustees of the Trust, any
bank or trust company, which is qualified under the 1940 Act to act as a
custodian, as its agent or sub-custodian to carry out such of the provisions of
this Article II as the Custodian may from time to time direct; provided that the
appointment of any such agent or sub-custodian will not relieve the Custodian of
any of its responsibilities or liabilities hereunder. The Custodian is hereby
authorized to deposit, arrange for deposit and/or maintain foreign securities
owned by the Trust on behalf of the Fund(s) with the Custodian's agent Bankers
Trust Company or with the subcustodians or agents of the Custodian's agent.
J. Deposit of Trust Assets in Securities Systems
The Custodian may deposit and/or maintain securities owned by the Trust
on behalf of the Fund(s) in a clearing agency registered with the Securities and
Exchange Commission (the "SEC") under Section 17A of the Securities Exchange Act
of 1934, which acts as a securities depository, or in the book-entry system
authorized by the U.S. Department of the Treasury and certain federal agencies
(collectively referred to herein as a "Securities System") in accordance with
applicable Federal Reserve Board and SEC rules and regulations, if any, and
subject to the following provisions:
1. The Custodian may keep securities owned by the Trust on behalf
of the Fund(s) in a Securities System provided that such
securities are represented in an account ("Account") of the
Custodian in the Securities System which will not include any
assets of the Custodian other than assets held as a fiduciary,
custodian, or otherwise for customers;
2. The records of the Custodian with respect to securities owned
by the Trust on behalf of the Fund(s) which are maintained in
a Securities System will identify by book-entry those
securities belonging to the Fund(s);
3. The Custodian will pay for securities purchased for the
account of the Fund(s) upon (i) receipt of advice from the
Securities System that such securities have been transferred
to the Account, and (ii) the making of an entry on the records
of the Custodian to reflect such payment and transfer for the
account of the Fund(s). The Custodian will transfer securities
sold for the account of the Fund(s) upon (i) receipt of advice
from the Securities System that payment for such securities
has been transferred to the Account, and (ii) the making of an
entry on the records of the Custodian to reflect such transfer
and payment for the account of the Fund(s). The Custodian will
furnish the Trust a monthly account statement showing
confirmation of each transfer to or from the account of the
Fund(s) and each day's transactions in the Securities System
for the account of the Fund(s);
4. The book-entry system of the Federal Reserve System authorized
by the U.S. Department of the Treasury and the Depository
Trust Company, a clearing agency
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<PAGE>
registered with the SEC, each are hereby specifically approved
as a Securities System, provided that any changes in these
arrangements shall be subject to the approval of the Board of
Trustees of the Trust; and
5. The Custodian will be liable to the Trust on behalf of any
Fund for any direct loss or damage to the Trust on behalf of
any Fund resulting from use of the Securities System to the
extent caused by the gross negligence, misfeasance or
misconduct of the Custodian or any of its agents or of any of
its or their employees. In no event will the Custodian be
liable for any indirect, special, consequential or punitive
damages.
K. Segregated Accounts for Futures Commission Merchants
The Custodian may enter into separate custodial agreements with various
Futures Commission Merchants ("FCM's") which the Trust uses (each an "FCM
agreement"), pursuant to which the Trust's margin deposits made on behalf of the
Fund(s) in certain transactions involving futures contracts and options on
futures contracts will be held by the Custodian in accounts (each an "FCM
account") subject to the disposition by the FCM involved in such contracts in
accordance with the customer contract between FCM and the Trust ("FCM
contract"), SEC rules governing such segregated accounts, Commodities Futures
Trading Commission ("CFTC") rules and the rules of applicable securities or
commodities exchanges. Such custodial agreements will only be entered into upon
receipt of written instructions from the Trust which state that (a) an agreement
between the FCM and the Trust has been entered into, and (b) the Trust is in
compliance with all the rules and regulations of the CFTC. Transfers of initial
margin will be made into an FCM account only upon written instructions;
transfers of premium and variation margin may be made into an FCM account
pursuant to oral instructions. Transfers of funds from an FCM account to the FCM
for which the Custodian holds such an account may only occur upon certification
by the FCM to the Custodian that pursuant to the FCM agreement and the FCM
contract, all conditions precedent to its right to give the Custodian such
instructions have been satisfied.
L. Ownership Certificates for Tax Purposes
The Custodian will execute ownership and other certificates and
affidavits for all federal and state tax purposes in connection with receipt of
income or other payments with respect to securities of the Fund(s) held by it
and in connection with transfers of securities of the Fund(s).
M. Proxies
The Custodian will cause to be promptly executed by the registered
holder of such securities, if the securities are registered otherwise than in
the name of the Trust on behalf of the Fund(s) or a nominee of the Trust, all
proxies, without indication of the manner in which such proxies are to be voted,
and will promptly deliver to the Trust's investment advisor for the Fund(s) (the
"Advisor") such proxies, all proxy soliciting materials and all notices relating
to such securities.
N. Communications Relating to Securities of the Fund(s)
The Custodian will transmit promptly to the Advisor of that Fund all
written information (including, without limitation, pendency of calls and
maturities of securities and expirations of rights in connection therewith)
received by the Custodian from issuers of the securities being held for the
Fund(s). With respect to tender or exchange offers, the Custodian will transmit
promptly to the
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Advisor all written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or its agents)
making the tender or exchange offer. If the Advisor desires to take action with
respect to any tender offer, exchange offer or any other similar transaction,
the Advisor will notify the Custodian at least five business days prior to the
date on which the Custodian is to take such action.
O. Proper Instructions
"Proper Instructions" as used herein mean a writing signed or initialed
by one or more person or persons in such manner as the Board of Trustees will
have authorized from time to time. Each writing will set forth the transaction
involved, including a specific statement of the purpose for which such action is
requested. Oral instructions will be considered proper instructions if the
Custodian reasonably believes them to have been given by a person authorized to
give such instructions with respect to the transaction involved. The Trust will
cause all oral instructions to be confirmed promptly in writing. Upon receipt of
a certificate of the Secretary or an Assistant Secretary as to the authorization
by the Board of Trustees of the Trust accompanied by a detailed description of
procedures approved by the Board of Trustees, proper instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Trustees and the Custodian are satisfied that
such procedures afford adequate safeguards for the assets of the Trust.
P. Actions Permitted Without Express Authority
The Custodian may, in its discretion, without express authority from
the Trust:
1. make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Agreement, provided that all such payments
will be accounted for to the Trust;
2. surrender securities in temporary form for securities in
definitive form;
3. endorse for collection, in the name of the Trust on behalf of
the Fund(s), checks, drafts and other negotiable instruments;
and
4. in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Trust, except as otherwise directed by the Trust or the
Board of Trustees of the Trust.
Q. Evidence of Authority
The Custodian will be protected in acting upon any instruction, notice,
request, consent, certificate or other instrument or paper reasonably believed
by it to be genuine and to have been properly executed by or on behalf of the
Trust. The Custodian may receive and accept a certified copy of a vote of the
Board of Trustees of the Trust as conclusive evidence (a) of the authority of
any person to act in accordance with such vote, or (b) of any determination or
of any action by the Board of Trustees as described in such vote, and such vote
may be considered as in full force and effect until receipt by the Custodian of
written notice to the contrary.
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III. Duties of Custodian with Respect to Books of Account
The Custodian will cooperate with and supply to the entity or entities
appointed to keep the books of account of the Trust such information in the
possession of the Custodian as is reasonably necessary to the maintenance of the
books of account of the Trust.
IV. Records
The Custodian will create and maintain all records relating to its
activities and obligations under this Agreement in such manner as will meet the
obligations of the Trust under the 1940 Act, including, without limitation,
Section 31 thereof and Rules 31a-1 and 31a-2 thereunder. All such records will
be property of the Trust and will at all times during the regular business hours
of the Custodian be open for inspection by duly authorized officers, employees
or agents of the Trust and employees and agents of the SEC. The Custodian will,
upon request, provide the Trust with a tabulation of securities held by the
Custodian on behalf of the Fund(s), and will, upon request, and for such
compensation as will be agreed upon between the Trust and the Custodian, include
certificate numbers in such tabulations.
V. Opinion of Trust's Independent Accountant
The Custodian will take all reasonable action, as the Trust may from
time to time request, to obtain from year to year favorable opinions from the
Trust's independent accountants with respect to its activities hereunder in
connection with the preparation of the Trust's Form N-1A, Form N-SAR or other
annual or semiannual reports to the SEC and with respect to any other
requirements of the SEC.
VI. Reports to Trust by Auditors
The Custodian will provide the Trust, at such times as the Trust may
reasonably request, with reports by its internal or independent auditors on the
accounting system, internal accounting controls and procedures for safeguarding
securities, including reports available on securities deposited and/or
maintained in a Securities System, relating to the services provided by the
Custodian under this Agreement. Such reports will be of sufficient scope and in
sufficient detail as may reasonably be required by the Trust to provide
reasonable assurance that any material inadequacies would be disclosed, will
state in detail material inadequacies disclosed by such examination, and if
there are no such inadequacies, will so state.
VII. Compensation of Custodian
For the normal services the Custodian provides under this Custody
Agreement, the Custodian will be entitled to reasonable compensation as agreed
to between the Trust and the Custodian from time to time. Until agreed
otherwise, the compensation will be as set forth on Schedule A attached hereto
and made part hereof, as such Schedule may be amended from time to time. The fee
set forth in Schedule A hereto is subject to an annual review and adjustment
process. In the event the Custodian provides any extraordinary services
hereunder, it will be entitled to additional reasonable compensation.
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VIII. Responsibility of Custodian/Indemnification
So long as and to the extent that it has exercised reasonable care, the
Custodian will not be responsible for the title, validity or genuineness of any
property or evidence of title thereto received by it or delivered by it pursuant
to this Agreement and will be held harmless in acting upon any notice, request,
consent, certificate or other instrument reasonably believed by it to be genuine
and to be signed by the proper party or parties.
The Custodian will be entitled to rely on and may act upon advice of
counsel (who may be counsel for the Trust) on all matters, and will be without
liability for any action reasonably taken or omitted pursuant to such advice.
The Custodian will exercise reasonable care in carrying out the
provisions of this Agreement and shall be without liability for any action taken
or omitted by it in good faith and without negligence. The Trust will indemnify
the Custodian and hold it harmless from and against all claims, liabilities, and
expenses (including attorneys' fees) which the Custodian may suffer or incur on
account of being Custodian hereunder, except to the extent such claims,
liabilities and expenses are caused by the Custodian's own gross negligence or
bad faith. Notwithstanding the foregoing, nothing contained in this paragraph is
intended to nor will it be construed to modify the standards of care and
responsibility set forth in Article II, Section I hereof with respect to
sub-custodians and in Article II, Section J(5) hereof with respect to the
Securities System.
If the Trust requires the Custodian to take any action, which involves
the payment of money or which may, in the reasonable opinion of the Custodian,
result in liability or expense to the Custodian or its nominee, the Trust, as a
prerequisite to requiring the Custodian to take such action, will provide
indemnity to the Custodian in an amount and form satisfactory to it.
IX. Effective Period; Termination; Amendment
This Agreement will become effective as of the date hereof and remain
effective until terminated as provided herein. This Agreement may be amended at
any time only by written instrument signed by both parties. This Agreement may
be terminated at any time on ninety (90) days' written notice by either party;
provided that the Trust will not amend or terminate the Agreement in
contravention of any applicable federal or state regulations, or any provision
of the governing documents of the Trust, and further provided, that the Trust
may at any time by action of its Board of Trustees immediately terminate this
Agreement in the event of the appointment of a conservator or receiver for the
Custodian by the applicable federal regulator or upon the happening of a like
event at the direction of an appropriate regulatory agency or court of competent
jurisdiction. Upon termination of this Agreement, the Trust will pay to the
Custodian any fees incurred as a result of the termination transfer of assets,
and reimburse the Custodian for all costs, expenses and disbursements that are
due as of the date of such termination.
X. Successor Custodian
If a successor custodian is appointed by the Board of Trustees of the
Trust, the Custodian will, upon termination, deliver to such successor custodian
at the office of the Custodian, duly endorsed and in the form for transfer, all
securities and other assets of the Trust then held by it hereunder. The
Custodian will also deliver to such successor custodian copies of such books and
records relating to the Trust as the Trust and Custodian may mutually agree.
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In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees has been delivered to the
Custodian on or before the date when such termination will become effective,
then the Custodian will have the right to petition a court of competent
jurisdiction for the appointment of a successor custodian, which shall be a bank
or trust company doing business in the state in which either the principal place
of business of the Trust or the Custodian is located and having an aggregate
capital, surplus, and undivided profits of not less than $25,000,000.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Trust to procure the certified copy of vote referred to, or of
the Board of Trustees to appoint a successor custodian, the Custodian will be
entitled to fair compensation for its services during such period as the
Custodian and retain possession of such securities, funds and other properties
and the provisions of this Agreement relating to the duties and obligations of
the Custodian will remain in full force and effect.
XI. Interpretive and Additional Provisions
In connection with the operation of this Agreement, the Custodian and
the Trust may from time to time agree on such provisions interpretive of, or in
addition to, the provisions of this Agreement as may in their joint opinion be
consistent with the general tenor of this Agreement. Any such interpretive or
additional provisions will be in writing signed by both parties, provided that
no such interpretive or additional provisions will contravene any applicable
federal or state regulations or any provision of the governing documents of the
Trust. No interpretive or additional provisions made as provided in the
preceding sentence will be deemed to be an amendment of this Agreement.
XII. Delaware Law to Apply
This Agreement will be deemed to be a contract made in Delaware and
governed by the internal laws of the State of Delaware without giving effect to
the principles of conflicts of law thereof. If any provision of this Agreement
will be held or made invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement will not be affected thereby. This Agreement
will be binding and will inure to the benefit of the parties hereto and their
respective successors.
XIII. Disputes; Arbitration thereof.
Absent further written agreement of the parties, any or all claims,
disputes or other controversies ("disputes") that may arise between the parties
to and in connection with this Agreement or any services or other obligations to
be performed pursuant to this Agreement or any aspect of the relationship
between the parties shall be resolved in the manner specified in paragraph 22
and "Schedule B" of the parties' "Administration Agreement" of even date
herewith.
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IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and on behalf by its duly authorized representative and
its seal to be hereunder affixed as of the date first written above.
[SEAL] BRAZOS MUTUAL FUNDS
By: ____________________________
Daniel Hockenbrough, President
[SEAL] WILMINGTON TRUST COMPANY
By: ____________________________
(___________), Vice President
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SCHEDULE A
BRAZOS MUTUAL FUNDS
FEE SCHEDULE
For the services Custodian provides under this Custody Agreement, the
Trust, on behalf of the Fund(s) listed below, agrees to pay to the Custodian a
fee per Fund, payable monthly, expressed as follows:
Name of Fund(s) FEE SCHEDULE
Brazos/JMIC Small/Emerging An annual fee based upon the average daily net
Growth Portfolio asset value as follows:
Brazos/JMIC Real Estate
Securities Portfolio .020% on the first $50 million,
.015% on the next $50 million, and
.012% on the assets in excess of $100 million,
subject to a minimum fee of $400 per month,
plus, $15 per purchase, sale or maturity of a
portfolio security,
plus, $7 for each incoming wire of funds and
$12 for each outgoing wire of funds,
plus any out-of-pocket expenses.
Note: For the first three months of this Agreement, Custodian has agreed to
waive 50% of the monthly fees otherwise payable to it under the above-referenced
Fee Schedule.
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Exhibit 24(b)(9)
ADMINISTRATION AGREEMENT
between
BRAZOS MUTUAL FUNDS
and
RODNEY SQUARE MANAGEMENT CORPORATION
THIS ADMINISTRATION AGREEMENT is made as of the ___ day of
____________, 1996, between Brazos Mutual Funds, a Delaware business trust (the
"Trust"), having its principal place of business in Wilmington, Delaware, and
Rodney Square Management Corporation, a Delaware corporation ("Rodney Square"),
having its principal place of business in Wilmington, Delaware.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended ("1940 Act"), as an open-end management investment company and
offers for public sale one or more series of shares of beneficial interest
("Series");
WHEREAS, each share of a Series represents an undivided interest in the
assets, subject to the liabilities, allocated to that Series;
WHEREAS, at the present time, the Trust has established two Series,
each consisting of one class of shares, and the Trust may establish additional
Series and/or classes in the future; and
WHEREAS, the Trust desires to avail itself of the services of Rodney
Square and to have Rodney Square provide certain administrative services; and
Rodney Square is willing to furnish such services to the Trust with respect to
each Series listed on Schedule A to this Agreement (each a "Fund" and
collectively the "Funds") on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties agree as follows:
1. Appointment. The Trust hereby appoints and employs Rodney Square as
agent to perform the services described in this Agreement for the Trust such
appointment to take effect at the close of business on the date first written
above. Rodney Square shall act under such appointment and perform the
obligations thereof upon the terms and conditions hereinafter set forth and in
accordance with the principles of principal and agent enunciated by applicable
common law.
2. Documents. The Trust has furnished Rodney Square copies of the Trust's
Agreement and Declaration of Trust, By-Laws, Advisory Agreement, Distribution
Agreement, Accounting Services Agreement, Custody Agreement, Transfer Agency
Agreement, Shareholder Servicing Plan and Agreement, most recent Registration
Statement on Form N-1A, current Prospectus and Statement of Additional
Information (the "SAI") and all forms relating to the plan, program or service
offered by the Trust. The Trust shall furnish promptly to Rodney Square a copy
of any amendment or supplement to the above-mentioned documents. The Trust shall
furnish promptly to Rodney Square any additional documents necessary for it to
perform its functions hereunder or such other documents as Rodney Square shall
request.
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3. Administrative Services. Subject to the direction and control of the
Board of Trustees of the Trust (the "Trustees") and to the extent not otherwise
the responsibility of, or provided by, the Trust or other supply agents of the
Trust, Rodney Square shall provide the following administrative services to the
Trust:
a. Supply:
(i) office facilities (which may be in Rodney Square's or its
affiliates' own offices);
(ii) non-investment related statistical and research data;
(iii) executive and administrative services;
(iv) stationery and office supplies at Trust expense; and
(v) corporate secretarial services, such as the preparation and
distribution of materials at Trust expense for meetings of the Board
of Trustee or shareholders;
b. Prepare, file, coordinate printing and mailing of, if necessary, reports
to shareholders of the Trust and reports with the Securities and Exchange
Commission (the "SEC") and state securities authorities, including
preliminary and definitive proxy materials, post-effective amendments to
the Trust's registration statement, Rule 24f-2 Notices, Form N-SAR filings
and Prospectus supplements;
c. Monitor each Fund's compliance with the investment restrictions and
limitations imposed by the 1940 Act, state securities laws and applicable
regulations thereunder, the fundamental and non-fundamental investment
policies and limitations set forth in the Prospectus and SAI, and the
investment restrictions and limitations necessary for each Fund to qualify
as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), or any successor statute;
d. Monitor sales of each Fund's shares and ensure that such shares are
properly registered, as required, with the SEC and applicable state
authorities;
e. Recommend dividend declarations to the Board, prepare and distribute to
appropriate parties notices announcing the declaration of dividends and
other distributions to shareholders;
f. Prepare financial statements and footnotes and other financial
information with such frequency and in such format as are required to be
included in reports to shareholders, tax authorities, the Trust's Board of
Trustees, performance reporting companies, Trust auditors and the SEC;
g. Review sales literature and file such with regulatory authorities, as
necessary;
h. Provide information regarding material developments in state securities
regulation;
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i. Provide personnel to serve as officers of the Trust if so elected by the
Board of Trustees and attend Board meetings to present materials for Board
review.
j. Review the impact of current day's activity on a per share basis, review
the change in market value of securities, and review yields for
reasonableness.
k. Timely follow-up and resolution of all open issues with all applicable
internal units; and
l. Maintain awareness of all applicable regulatory and operational service
issues and recommended dispositions.
4. Expenses of the Trust. The Trust agrees that it will pay all its
expenses, other than those expressly stated to be payable by Rodney Square
hereunder, which expenses payable by the Trust shall include, without
limitation:
a. Fees payable for investment advisory services provided by the Trust's
Investment Adviser;
b. Fees payable for services provided by the Trust's independent public
accountants;
c. Fees payable for accounting services;
d. Fees payable for transfer agency services;
e. Fees payable for custodial services;
f. The cost of obtaining quotations for calculating the value of the assets
of each Fund;
g. Taxes levied against the Trust or any Fund;
h. Brokerage fees, mark-ups and commissions in connection with the purchase
and sale of portfolio securities;
i. Costs, including the interest expense of borrowing money;
j. Costs and/or fees incident to holding meetings of the Board of Trustees
and shareholders, preparation (including typesetting, printing and EDGAR
filing charges) and mailing of prospectuses, reports and proxy materials to
the existing shareholders of the Trust, filing of reports with regulatory
bodies, maintenance of the Trust's
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corporate existence, and registration of Trust shares with federal and
state securities authorities;
k. Legal fees and expenses;
l. Costs of printing share certificates representing shares of the Trust;
m. Fees payable to, and expenses of, members of the Board of Trustees who
are not "interested persons" of the Trust;
n. Out-of-pocket expenses incurred in connection with the provision of
administration, accounting, custodial and transfer agency services;
o. Premiums payable on the fidelity bond required by Section 17(g) of the
1940 Act, and premiums payable on any other insurance policies related to
the Trust's business and the investment activities of its Funds;
p. Rule 12b-1 fees, if any;
q. Shareholder service fees, if any;
r. Fees, voluntary assessments and other expenses incurred in connection
with the Trust's membership in investment company organizations; and
s. Such non-recurring expenses as may arise, including expenses in
connection with legal actions, suits or proceedings to which the Trust is a
party, and the legal obligation which the Trust may have to indemnify its
Trustees and officers with respect thereto.
Except as otherwise agreed by Rodney Square, Rodney Square will not
reimburse the Trust for (or have deducted from its fees payable under this
Agreement) any expenses in excess of any expense limitations imposed by state
securities commissions having jurisdiction over the sale of Fund shares.
5. Recordkeeping and Other Information. Rodney Square shall create and
maintain all necessary records in accordance with all applicable laws, rules and
regulations, including, but not limited to, records required by Section 31(a) of
the 1940 Act and the rules thereunder, as the same may be amended from time to
time, pertaining to the various functions (described above) performed by it and
not otherwise created and maintained by another party pursuant to contract with
the Trust. All records shall be the property of the Trust at all times and shall
be available for inspection and use by the Trust. Where applicable, such records
shall be maintained by Rodney Square for the periods and in the places required
by Rule 31a-2 under the 1940 Act.
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6. Audit, Inspection and Visitation. Rodney Square shall make available
during regular business hours all records and other data created and maintained
pursuant to the foregoing provisions of this Agreement for reasonable audit and
inspection by the Trust, any person retained by the Trust or any regulatory
agency having authority over the Trust.
7. Appointment of Agents. Rodney Square may at any time or times, in its
discretion, appoint (and may at any time remove) other parties as its agent to
carry out such of the provisions of this Agreement as Rodney Square may from
time to time direct; provided, however, that the appointment of any such agent
shall not relieve Rodney Square of any of its responsibilities or liabilities
hereunder.
8. Right to Receive Advice.
a. Advice of Trust. If Rodney Square shall be in doubt as to any action to
be taken or omitted by it, it may request, and shall receive, from the
Trust directions or advice, including oral or written instructions where
appropriate.
b. Advice of Counsel. If Rodney Square shall be in doubt as to any question
of law involved in any action to be taken or omitted by Rodney Square, it
may request advice at the Trust's expense from counsel of its own choosing
(who in the first instance shall be the regularly retained counsel for the
Trust but, as to non-routine matters, may be the regularly retained counsel
of Rodney Square, at the option of Rodney Square).
c. Conflicting Advice. In case of conflict between oral and written
instructions received by Rodney Square, Rodney Square shall be entitled to
rely on and follow written instructions alone. In case of conflict between
advice received under (a) and (b) above, Rodney Square shall be entitled to
rely on and follow advice obtained in accordance with (b) above.
d. Protection of Rodney Square. Rodney Square shall be protected in any
action or inaction which it takes in reliance on any directions, advice or
oral or written Instructions received pursuant to subsections (a) or (b) of
this Section which Rodney Square, after receipt of any such directions,
advice or oral or written instructions, in good faith believes to be
consistent with such directions, advice or oral or written instructions, as
the case may be. However, nothing in this Section shall be construed as
imposing upon Rodney Square any obligation (i) to seek such direction,
advice or oral or written instructions, or (ii) to act in accordance with
such directions, advice or oral or written instructions when received,
unless, under the terms of another provision of this Agreement, the same is
a condition to Rodney Square's properly taking or omitting to take such
action.
9. Compliance with Governmental Rules and Regulations. Except as otherwise
provided herein, the Trust assumes full responsibility for ensuring that the
Trust complies with all applicable requirements of the Securities Act of 1933,
as amended (the "1933 Act"), the Securities Exchange Act of 1934, as amended
(the "1934 Act"), the 1940 Act, the Commodity Exchange Act and any
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<PAGE>
laws, rules and regulations of governmental authorities having jurisdiction over
the Trust and its operations.
10. Compensation. For the performance of its obligations under this
Agreement, each Fund shall pay Rodney Square an administration fee with respect
to each Fund in accordance with the fee arrangements described in Schedule A
attached hereto, as such schedule may be amended from time to time.
11. Use of Rodney Square's Name. The Trust shall not use the name of Rodney
Square or any of its affiliates in any Prospectus, SAI, sales literature or
other material relating to the Trust in a manner not approved prior thereto in
writing by Rodney Square; provided, however, that Rodney Square shall approve
all uses of its and its affiliates' names that merely refer in accurate terms to
their appointments hereunder or that are required by the SEC or a state
securities commission; and further provided, that in no event shall such
approval be unreasonably withheld.
12. Use of Trust's Name. Neither Rodney Square nor any of its affiliates
shall use the name of the Trust or material relating to the Trust on any forms
(including any checks, bank drafts or bank statements) for other than internal
use in a manner not approved prior thereto by the Trust; provided, however, that
the Trust shall approve all uses of its name that merely refer in accurate terms
to the appointment of Rodney Square hereunder or that are required by the SEC or
a state securities commission; and further provided, that in no event shall such
approval be unreasonably withheld.
13. Liability of Rodney Square or Affiliates. Neither Rodney Square nor any
officer, director, or employee of Rodney Square, nor any person who controls
Rodney Square within the meaning of Section 15 of the 1933 Act or Section 20(a)
of the 1934 Act (collectively, "Rodney Square Affiliates") shall be liable for
any error of judgment or mistake of law or for any loss suffered by the Trust in
connection with the matters to which this Agreement relates, except to the
extent of a loss resulting from willful misfeasance, bad faith, negligence or
reckless disregard of such person's obligations and duties under this Agreement.
Any person, even though also an officer, director, employee or agent of Rodney
Square or any of its affiliates who may be or become an officer or director of
the Trust, shall be deemed, when rendering services to the Trust as such officer
or acting on any business of the Trust in such capacity (other than services or
business in connection with Rodney Square's duties under this Agreement), to be
rendering such services to or acting solely for the Trust and not as an officer,
director, employee or agent or one under the control or direction of Rodney
Square or any of its affiliates, even though paid by one of those entities.
14. Indemnification.
a. The Trust agrees to indemnify and hold harmless Rodney Square and any
person who is a Rodney Square Affiliate from all taxes, charges, expenses,
assessments, claims and liabilities including, without limitation,
liabilities arising under the 1933 Act, the 1934 Act or the 1940 Act and
any applicable state or foreign securities laws, and amendments thereto
(the "Securities Laws"), and expenses, including without limitation
reasonable attorneys' fees and disbursements, arising directly or
indirectly from any action or omission to act which Rodney Square takes (i)
at the request of or on the direction of or in reliance on the advice of
the Trust or
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<PAGE>
(ii) upon oral or written instructions. Neither Rodney Square nor any
Rodney Square Affiliate shall be indemnified against any liability (or any
expenses incident to such liability) arising out of Rodney Square's or any
such affiliate's own willful misfeasance, bad faith, negligence or reckless
disregard of its duties and obligations under this Agreement.
b. Rodney Square agrees to indemnify and hold harmless the Trust from all
taxes, charges, expenses, assessments, claims and liabilities arising from
Rodney Square's obligations pursuant to this Agreement (including, without
limitation, liabilities arising under the Securities Laws) and expenses,
including (without limitation) reasonable attorneys' fees and disbursements
arising directly or indirectly out of Rodney Square's or its directors',
officers', employees', agents' and representatives own willful misfeasance,
bad faith, negligence or reckless disregard of its duties and obligations
under this Agreement.
c. In order that the indemnification provisions contained in this Section
14 shall apply, upon the assertion of a claim for which either party may be
required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The
party who may be required to indemnify shall have the option to participate
with the party seeking indemnification in the defense of such claim. The
party seeking indemnification shall in no case confess any claim or make
any compromise in any case in which the other party may be required to
indemnify it except with the other party's prior written consent.
15. Responsibility of Rodney Square. In the performance of its duties
hereunder, Rodney Square shall be obligated to exercise due care and diligence
and to act in good faith and to use its best efforts within reasonable limits in
performing services provided for under this Agreement. Rodney Square shall be
under no duty to take any action on behalf of the Trust except as specifically
set forth or as may be specifically agreed to by Rodney Square in writing.
Without limiting the generality of the foregoing or of any other provision of
this Agreement, Rodney Square in connection with its duties under this Agreement
shall not be under any duty or obligation to inquire into and shall not be
liable for or in respect of (i) the validity or invalidity or authority or lack
thereof of any oral or written instruction, notice or other instrument which
conforms to the applicable requirements of this Agreement, and which Rodney
Square reasonably believes to be genuine; or (ii) delays or errors or loss of
data occurring by reason of circumstances beyond Rodney Square's control,
including acts of civil or military authority, national emergencies, fire, flood
or catastrophe, acts of God, insurrection, war, riots or failure of the mails,
transportation, communication or power supply, in which circumstances Rodney
Square shall take reasonable actions to minimize loss of data therefore.
16. Duration, Termination, etc. The provisions of this Agreement may not be
changed, waived, discharged or terminated orally, but only by written instrument
that shall make specific reference to this Agreement and that shall be signed by
the party against which enforcement of such change, waiver, discharge or
termination is sought.
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This Agreement shall become effective as of the day and year first
written above, and unless terminated as therein provided, shall continue in
force for twelve (12) months from the date of its execution and thereafter from
year to year, provided continuance after the initial twelve (12) month period is
approved at least annually by a vote of the Trustees of the Trust. This
Agreement may at any time be terminated on ninety (90) days' advance written
notice given to Rodney Square or by Rodney Square on six (6) months' advance
written notice given to the Trust; provided, however, that this Agreement may be
terminated immediately at any time for cause, either by the Trust or by Rodney
Square, in the event that such cause shall have remained unremedied for sixty
(60) days or more after receipt of written specification of such cause. Any such
termination shall not affect the rights and obligations of the parties under
Sections 13 and 14 hereof.
In the event that the Trust designates a successor to any of Rodney
Square's obligations hereunder, Rodney Square shall, at the expense and
direction of the Trust, transfer to such successor all relevant books, records
and other data established or maintained by Rodney Square under the foregoing
provisions.
17. Amendments. This Agreement or any part hereof may be changed or waived
only by an instrument in writing signed by the party against which enforcement
of such change or waiver is sought.
Rodney Square and the Trust shall regularly consult with each other
regarding Rodney Square's performance of its obligations and its compensation
under the foregoing provisions. In connection therewith, the Trust shall submit
to Rodney Square, at a reasonable time in advance of filing with the SEC, copies
of any amended or supplemented registration statement of the Trust (including
exhibits) under the 1933 Act and the 1940 Act, and, a reasonable time in advance
of their proposed use, copies of any amended or supplemented forms relating to
any plan, program or service offered by the Trust. Any change in such materials
that would require any change in Rodney Square's obligations under the foregoing
provisions shall be subject to the burdened party's approval, which shall not be
unreasonably withheld. In the event that a change in such documents or in the
procedures contained therein increases the cost to Rodney Square of performing
its obligations hereunder by more than an insubstantial amount, Rodney Square
shall be entitled to receive reasonable compensation therefore.
18. Notice. Any notice under this Agreement shall be given in writing
addressed and delivered or mailed, postage prepaid, to the other party to this
Agreement at its principal place of business.
19. Severability. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
20. Governing Law. To the extent that state law has not been preempted by
the provisions of any law of the United States heretofore or hereafter enacted,
as the same may be amended from time to time, this Agreement shall be
administered, construed and enforced according to the laws (without regard,
however, to laws as to conflicts of law) of the State of Delaware.
21. Shareholder Liability. Rodney Square is hereby expressly put on notice
of the limitation of shareholder liability as set forth in the Agreement and
Declaration of Trust of the Trust
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and agree that obligations assumed by the Trust under this Agreement shall be
limited in all cases to the Trust and its assets, and if the liability relates
to one or more Funds, the obligations hereunder shall be limited to the
respective assets of such Fund or Funds. Rodney Square further agrees that it
shall not seek satisfaction of any such obligations from the shareholders or any
individual shareholder of the Funds, nor from the Trustees or any individual
Trustee of the Trust.
22. Arbitration. Any or all claims, disputes or other controversies
("disputes") that may arise between the parties to and in connection with this
Agreement or any services or other obligations to be performed pursuant to this
Agreement or any aspect of the relationship between the parties shall be
resolved in accordance with the procedures specified in Schedule B to this
Agreement.
23. Miscellaneous. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof. The captions in this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or otherwise
affect their construction or effect. This Agreement may be executed in two
counterparts, each of which taken together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first written above.
BRAZOS MUTUAL FUNDS
By: _________________________________
Name, Title
RODNEY SQUARE MANAGEMENT
CORPORATION
By: _________________________________
Martin L. Klopping, President
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ADMINISTRATION AGREEMENT
SCHEDULE A
BRAZOS MUTUAL FUNDS
ANNUAL FEE
For services provided to Brazos Mutual Funds (the "Trust") pursuant to this
Administration Agreement, Rodney Square Management Corporation ("Rodney Square")
shall receive an annual fee equal to the greater of:
A. A minimum annual fee of $32,500 for each of the first two single-class
portfolios of the Trust, plus $15,000 for any such additional portfolio, or
second or additional class of a portfolio; or
B. an asset-based fee, calculated with reference to the average daily net assets
of the Trust, on a Trust-wide basis, according to the following schedule:
0.15% of the first $50 million in assets; plus
0.10% of assets between $50 million and $200 million; plus
0.7% of assets in excess of $200 million.
The foregoing fee shall be payable monthly, as soon as practicable after the
last day of each month, based on the Trust's combined average daily net assets
as determined at the close of business on each business day throughout the
month.
OUT-OF-POCKET EXPENSES
In addition to the foregoing fee, Rodney Square's reasonable out-of-pocket
expenses incurred in the performance of its responsibilities pursuant to this
Administration Agreement shall either be paid and advanced directly by the
Trust, or promptly reimbursed, upon billing, by the Trust.
SEVERANCE AND CONVERSION FEE
Upon termination, notice of termination, or non-renewal of the attached
Administration Agreement within the initial twelve (12) month term by the Trust
or the Trust's Board of Trustees, the parties hereby acknowledge and agree that
the Trust shall pay to Rodney Square, in consideration of Rodney Square's
severance and cooperation toward the Trust's conversion to a new service
provider, and not as a penalty:
A. A sum, with respect to each of the Trust's portfolios, sufficient to cause
Rodney Square to have received payment in full (notwithstanding any prior fee
waivers or reimbursements) as and as if Rodney Square had duly performed its
obligations pursuant to this Agreement for the full initial twelve (12) month
term thereof; plus
B. Rodney Square's out-of-pocket expenses to such date plus reasonable
out-of-pocket expenses incurred, at the Trust's request, in connection with the
Trust's conversion to a new service provider.
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ADMINISTRATION AGREEMENT
SCHEDULE B
BRAZOS MUTUAL FUNDS
Dispute resolution procedures
1. Any unresolved claims, disputes or controversies
("dispute(s)") that may arise between the parties to and in
connection with this Administration Agreement, or the
Accounting Services Agreement, Transfer Agency Agreement,
Custody Agreement or Distribution Agreement of even date with
this Administration Agreement or any services or other
obligations to be performed pursuant to such Agreements or any
aspect of the relationship between the parties shall be
settled and determined, absent further written agreement of
the parties, by arbitration and not by court litigation.
2. Any such arbitration proceedings shall be conducted before the
American Arbitration Association ("AAA") in accordance with
(a) the procedures stipulated within this Schedule and (b) the
Securities Arbitration Rules of the AAA (the "AAA Rules") in
effect at and as of the time when such resolution is sought.
In the event of a conflict between such procedures and the AAA
Rules, the procedures stipulated within this Schedule shall
control. Should any of such procedures be determined to be
invalid or otherwise unenforceable, all other such procedures
shall remain in effect and binding on the parties to the
fullest extent permitted by law.
3. Arbitration, regardless of the amount in dispute, shall be
conducted before a panel of three arbitrators to be selected
as provided in the AAA Rules. The parties stipulate and agree
that:
(a) To the extent permitted by the AAA Rules, the
arbitrators shall be selected from the mutual fund
industry.
(b) To the extent permitted by the AAA Rules, no
discovery is to be permitted in connection with the
arbitration unless expressly authorized by the
arbitration panel upon a showing of substantial need
by the party seeking discovery.
4. The arbitrators may not award non-monetary, injunctive or
equitable relief of any kind or sort whatsoever. Nor may the
arbitrators award punitive damages or damages of any kind or
sort not limited to and by the prevailing party's actual
damages.
5. Any issue concerning the extent to which any dispute is
subject to arbitration, or concerning the applicability,
interpretation or enforceability of these procedures
(including any contention that all or any part of these
procedures are invalid or unenforceable), shall be governed by
the Federal Arbitration Act and resolved by the arbitrators.
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6. All aspects of the arbitration shall be treated as
confidential. Neither the parties, their agents or
representatives, nor the arbitrators may disclose the
existence, content or results of the arbitration, except as
necessary to duly comply, in good faith, with legal or
regulatory requirements. Before making any such disclosure, a
party shall give written notice to the other party and shall
otherwise afford such other party a reasonable good-faith
opportunity to protect its interests in the premises.
7. The result of the arbitration will be binding on the parties,
in accordance with the AAA Rules, and judgment upon the
arbitrators' award may be entered in any court having
jurisdiction over the parties and the subject matter of such
award.
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TRANSFER AGENCY AGREEMENT
between
BRAZOS MUTUAL FUNDS
and
RODNEY SQUARE MANAGEMENT CORPORATION
THIS TRANSFER AGENCY AGREEMENT is made as of the ___ day of
_______________, 1996, between Brazos Mutual Funds, a Delaware business trust
(the "Trust"), having its principal place of business in Dallas, Texas, and
Rodney Square Management Corporation, a Delaware corporation ("Rodney Square"),
having its principal place of business in Wilmington, Delaware.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended ("1940 Act"), as an open-end management investment company and
offers for public sale distinct series of shares of beneficial interest
("Series");
WHEREAS, each share of a Series represents an undivided interest in the
assets, subject to the liabilities, allocated to that Series and each Series has
a separate investment objective and policies;
WHEREAS, at the present time, the Trust has established two Series, each
consisting of one class of shares, and the Trust may establish additional Series
and/or classes in the future; and
WHEREAS, the Trust desires to avail itself of the services of Rodney
Square to serve as the Trust's transfer agent and Rodney Square is willing to
furnish such services to the Trust with respect to each of the Series listed on
Schedule A to this Agreement (each a "Portfolio" or collectively the
"Portfolios") on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties agree as follows:
1. Appointments. The Trust hereby appoints Rodney Square as transfer agent,
registrar and dividend disbursing agent for the shares of beneficial
interest (the "Shares") in the Trust and as servicing agent in connection
with the disbursements of dividends and distributions and as
shareholders' servicing agent for the Trust, each such appointment to
take effect at the close of business on the day and year first written
above, and Rodney Square shall act as such and perform its obligations
thereof upon the terms and conditions hereafter set forth and in
accordance with the principles of principal and agent enunciated by
applicable common law.
2. Documents. The Trust has furnished Rodney Square with copies of the
Trust's Agreement and Declaration of Trust, By-Laws, Management
Agreement, Custodian Agreement, Distribution Agreement, Accounting
Services Agreement, Shareholder Servicing Agreements, most recent
Registration Statement on Form N-1A, current Prospectus and Statement of
Additional Information (the "SAI"), all forms relating to any plan,
program or service offered by the Trust and a certified copy of the
resolution of its Board of Trustees (the "Trustees") approving Rodney
Square's appointment hereunder and identifying and containing the
signatures of the Trust's officers authorized to issue Oral Instructions
and to sign Written Instructions, as hereinafter defined, on
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behalf of the Portfolio and to execute stock certificates representing
Shares. Subject to the provisions of Section 21 hereof, the Trust shall
furnish promptly to Rodney Square a copy of any amendment or supplement
to the above-listed documents. The Trust shall furnish to Rodney Square
any additional documents necessary for it to perform its functions
hereunder.
3. Definitions.
(a) Authorized Person. As used in this Agreement, the term "Authorized
Person" means any officer of the Trust and any other person, whether or
not any such person is an officer or employee of the Trust, duly
authorized by the Trustees of the Trust to give Oral and Written
Instructions on behalf of the Portfolio and certified by the Secretary or
Assistant Secretary of the Trust or any amendment thereto as may be
received by Rodney Square from time to time.
(b) Oral Instructions. As used in this Agreement, the term "Oral
Instructions" means oral instructions actually received by Rodney Square
from an Authorized Person or from a person reasonably believed by Rodney
Square to be an Authorized Person. The Trust agrees to deliver to Rodney
Square, at the time and in the manner specified in Section 4(b) of this
Agreement, Written Instructions confirming Oral Instructions.
(c) Written Instructions. As used in this Agreement, the term "Written
Instructions" means written instructions delivered by hand, mail, tested
telegram, cable, telex or facsimile sending device, and received by
Rodney Square and signed by an Authorized Person.
4. Instructions Consistent with Agreement and Declaration of Trust, etc.
(a) Unless otherwise provided in this Agreement, Rodney Square shall act
only upon Oral or Written Instructions. Although Rodney Square may know
of the provisions of the Agreement and Declaration of Trust and By-Laws
of the Trust, Rodney Square may assume that any Oral or Written
Instructions received hereunder are not in any way inconsistent with any
provisions of such Agreement and Declaration of Trust or By-Laws or any
vote, resolution or proceeding of the shareholders, or of the Trustees,
or of any committee thereof.
(b) Rodney Square shall be entitled to rely upon any Oral Instructions
and any Written Instructions actually received by Rodney Square pursuant
to this Agreement. The Trust agrees to forward to Rodney Square Written
Instructions confirming Oral Instructions in such manner that the Written
Instructions are received by Rodney Square by the close of business of
the same day that such Oral Instructions are given to Rodney Square. The
Trust agrees that the fact that such confirming Written Instructions are
not received by Rodney Square shall in no way affect the validity of the
transactions or enforceability of the transactions authorized by such
Oral Instructions. The Trust agrees that Rodney Square shall incur no
liability to the Trust in acting upon Oral Instructions given to Rodney
Square hereunder concerning such transactions, provided such instructions
reasonably appear to have been received from an Authorized Person.
5. Transactions Not Requiring Instructions. In the absence of contrary
Written Instructions, Rodney Square is authorized to take the following
actions:
(a) Issuance of Shares. Upon receipt of a purchase order from the
Distributor, as defined in the Distribution Agreement between the Trust
and Rodney Square Distributors, Inc. or a
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prospective shareholder for the purchase of Shares and sufficient
information to enable Rodney Square to establish a shareholder account or
to issue Shares to an existing shareholder account, and after
confirmation of receipt or crediting of Federal funds for such order from
Rodney Square's designated bank, Rodney Square shall issue and credit the
account of the investor or other record holder with Shares in the manner
described in the Prospectus. Rodney Square shall deposit all checks
received from prospective shareholders into an account on behalf of the
Trust, and shall promptly transfer all Federal funds received from such
checks to the Custodian, as defined in the Custodian Agreement between
the Trust and Wilmington Trust Company. (References herein to "Custodian"
shall also be construed to refer to a "Sub-Custodian" if such appointment
has been made.) If so directed by the Distributor, the confirmation
supplied to the shareholder to mark such issuance will be accompanied by
a Prospectus.
(b) Transfer of Shares; Uncertificated Securities. Where a shareholder
does not hold a certificate representing the number of Shares in its
account and does provide Rodney Square with instructions for the transfer
of such Shares which include a signature guaranteed by a commercial bank,
trust company or member firm of a national securities exchange and such
other appropriate documentation to permit a transfer, then Rodney Square
shall register such Shares and shall deliver them pursuant to
instructions received from the transferor, pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"), and
the laws of the State of Delaware relating to the transfer of shares of
beneficial interest.
(c) Stock Certificates. If at any time the Portfolio issues stock
certificates, the following provisions will apply:
(i) The Trust will supply Rodney Square with a sufficient supply
of stock certificates representing Shares, in the form approved from
time to time by the Trustees of the Trust, and, from time to time,
shall replenish such supply upon request of Rodney Square. Such stock
certificates shall be properly signed, manually or by facsimile
signature, by the duly authorized officers of the Trust, and shall bear
the corporate seal or facsimile thereof of the Trust, and
notwithstanding the death, resignation or removal of any officer of the
Trust, such executed certificates bearing the manual or facsimile
signature of such officer shall remain valid and may be issued to
shareholders until Rodney Square is otherwise directed by Written
Instructions.
(ii) In the case of the loss or destruction of any certificate
representing Shares, no new certificate shall be issued in lieu
thereof, unless there shall first have been furnished an appropriate
bond of indemnity issued by the surety company approved by Rodney
Square.
(iii) Upon receipt of signed stock certificates, which shall be
in proper form for transfer, and upon cancellation or destruction
thereof, Rodney Square shall countersign, register and issue new
certificates for the same number of Shares and shall deliver them
pursuant to instructions received from the transferor, the rules and
regulations of the SEC, and the laws of the State of Delaware relating
to the transfer of shares of beneficial interest.
(iv) Upon receipt of the stock certificates, which shall be in
proper form for transfer, together with the shareholder's instructions
to hold such stock certificates for safekeeping, Rodney Square shall
reduce such Shares to uncertificated status, while
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retaining the appropriate registration in the name of the shareholder
upon the transfer books.
(v) Upon receipt of written instructions from a shareholder of
uncertificated securities for a certificate in the number of shares in
its account, Rodney Square will issue such stock certificates and
deliver them to the shareholder.
(d) Redemption of Shares. Upon receipt of a redemption order from the
Distributor or a shareholder, Rodney Square shall redeem the number of
Shares indicated thereon from the redeeming shareholder's account and
receive from the Trust's Custodian and disburse pursuant to the redeeming
shareholder's instructions the redemption proceeds therefor, or arrange
for direct payment of redemption proceeds by the Custodian to the
redeeming shareholder or as instructed by the shareholder, in accordance
with such procedures and controls as are mutually agreed upon from time
to time by and among the Trust, Rodney Square and the Trust's Custodian.
6. Authorized Issued and Outstanding Shares. The Trust agrees to notify
Rodney Square promptly of any change in the number of authorized Shares
and of any change in the number of Shares registered under the Securities
Act of 1933, as amended (the "1933 Act") or termination of the Trust's
declaration under Rule 24f-2 of the 1940 Act. The Trust has advised
Rodney Square, as of the date hereof, of the number of Shares (a) held in
any redemption or repurchase account, and (b) registered under the 1933
Act, as amended, which are unsold. In the event that the Trust shall
declare a stock dividend or a stock split, the Trust shall deliver to
Rodney Square a certificate, upon which Rodney Square shall be entitled
to rely for all purposes, certifying (a) the number of Shares involved,
(b) that all appropriate corporate action has been taken, and (c) that
any amendment to the Agreement and Declaration of Trust of the Trust
which may be required has been filed and is effective. Such certificate
shall be accompanied by an opinion of counsel to the Trust relating to
the legal adequacy and effect of the transaction.
7. Dividends and Distributions. The Trust shall furnish Rodney Square with
appropriate evidence of action by the Trust's Trustees authorizing the
declaration and payment of dividends and distributions as described in
the Prospectus. After deducting any amount required to be withheld by any
applicable tax laws, rules and regulations or other applicable laws,
rules and regulations, Rodney Square shall in accordance with the
instructions in proper form from a shareholder and the provisions of the
Agreement and Declaration of Trust and Prospectus, issue and credit the
account of the shareholder with Shares, or, if the shareholder so elects,
pay such dividends or distributions in cash to the shareholders in the
manner described in the Prospectus. In lieu of receiving from the Trust's
Custodian and paying to shareholders cash dividends or distributions,
Rodney Square may arrange for the direct payment of cash dividends and
distributions to shareholders by the Custodian, in accordance with such
procedures and controls as are mutually agreed upon from time to time by
and among the Trust, Rodney Square and the Trust's Custodian.
Rodney Square shall prepare, file with the Internal Revenue Service and
other appropriate taxing authorities, and address and mail to
shareholders such returns and information relating to dividends and
distributions paid by the Trust as are required to be so prepared, filed
and mailed by applicable laws, rules and regulations, or such substitute
form of notice as may from time to time be permitted or required by the
Internal Revenue Service. On behalf of the Portfolio, Rodney Square shall
mail certain requests for shareholders' certifications under penalties of
perjury and pay on a timely basis
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to the appropriate Federal authorities any taxes to be withheld on
dividends and distributions paid by the Portfolio, all as required by
applicable Federal tax laws and regulation.
In accordance with the Prospectus, resolutions of the Trust's Trustees
that are not inconsistent with this Agreement and are provided to Rodney
Square from time to time, and such procedures and controls as are
mutually agreed upon from time to time by and among the Trust, Rodney
Square and the Trust's Custodian, Rodney Square shall (a) arrange for
issuance of Shares obtained through transfers of funds from shareholders'
accounts at financial institutions; (b) arrange for the exchange of
Shares for shares of other eligible investment companies, when permitted
by the Prospectus.
8. Communications with Shareholders.
(a) Communications to Shareholders. Rodney Square will address and mail
all communications by the Portfolio to its shareholders, including
reports to shareholders, confirmations of purchases and sales of Shares,
monthly statements, dividend and distribution notices and proxy material
for its meetings of shareholders. Rodney Square will receive and tabulate
the proxy cards for the meetings of the shareholders of the Portfolio.
(b) Correspondence. Rodney Square will answer such correspondence from
shareholders, securities brokers and others relating to its duties
hereunder and such other correspondence as may from time to time be
mutually agreed upon between Rodney Square and the Trust.
9. Services to be Performed. Rodney Square shall be responsible for
administering and/or performing transfer agent functions, for acting as
service agent in connection with dividend and distribution functions and
for performing shareholder account administrative agent functions in
connection with the issuance, transfer and redemption or repurchase
(including coordination with the Trust's custodian bank in connection
with shareholder redemption by check) of the Trust's Shares as set forth
in Schedule B. The details of the operating standards and procedures to
be followed shall be determined from time to time by agreement between
Rodney Square and the Trust and may be expressed in written schedules
which shall constitute attachments to this Agreement.
10. Record Keeping and Other Information.
(a) Rodney Square shall maintain records of the accounts for each
Shareholder showing the items listed in Schedule C.
(b) Rodney Square shall create and maintain all necessary records in
accordance with all applicable laws, rules and regulations, including but
not limited to records required by Section 31(a) of the 1940 Act and the
rules thereunder, as the same may be amended from time to time, and those
records pertaining to the various functions performed by it hereunder.
All records shall be the property of the Trust at all times and shall be
available for inspection and use by the Trust. Where applicable, such
records shall be maintained by Rodney Square for the periods and in the
places required by Rule 31a-2 under the 1940 Act.
11. Audit, Inspection and Visitation. Rodney Square shall make available
during regular business hours all records and other data created and
maintained pursuant to this Agreement for reasonable audit and inspection
by the Trust or any person retained by the Trust. Upon reasonable notice
by the Trust, Rodney Square shall make available during regular business
hours its facilities and premises
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employed in connection with its performance of this Agreement for
reasonable visitation by the Trust, or any person retained by the Trust.
12. Compensation. Compensation for the transfer agent services and duties
performed pursuant to this Agreement will be paid by the Trust. Certain
other fees due and expenses incurred pursuant to this Agreement are
payable by the Trust or the shareholder on whose behalf the service is
performed and are provided in Schedule D hereto.
The Trust shall reimburse Rodney Square for all reasonable out-of-pocket
expenses incurred by Rodney Square or its agents in the performance of
its obligations hereunder. Such reimbursement for expenses incurred in
any calendar month shall be made on or before the tenth day of the next
succeeding month.
The term "out-of-pocket expenses" shall include, but not be limited to,
the following expenses incurred by Rodney Square in the performance of
its obligations hereunder: the cost of stationery and forms (including
but not limited to checks, proxy cards, and envelopes), the cost of
postage, the cost of insertion of non-standard size materials in mailing
envelopes and other special mailing preparation by outside firms, the
cost of first-class mailing insurance, the cost of external electronic
communications as approved by the Trustees (to include telephone and
telegraph equipment and an allocable portion of the cost of personnel
responsible for the maintenance of such equipment), toll charges, data
communications equipment and line charges and the cost of microfilming of
shareholder records (including both the cost of storage as well as
charges for access to such records). If Rodney Square shall undertake the
responsibility for microfilming shareholder records, it may be separately
compensated therefor in an amount agreed upon by the principal financial
officer of the Trust and Rodney Square, such amount not to exceed the
amount which would be paid to an outside firm for providing such
microfilming services.
13. Use of Rodney Square's Name. The Trust shall not use the name of Rodney
Square in any Prospectus, SAI, sales literature or other material
relating to the Trust in a manner not approved prior thereto, provided,
however, that Rodney Square shall approve all uses of its name which
merely refer in accurate terms to its appointments hereunder or which are
required by the SEC or a state securities commission and, provided
further, that in no event shall such approval be unreasonably withheld.
14. Use of Trust's Name. Rodney Square shall not use the name of the Trust or
the Portfolio of the Trust or material relating to the Trust or the
Portfolio on any checks, bank drafts, bank statements or forms for other
than internal use in a manner not approved prior thereto, provided,
however, that the Trust shall approve all uses of its name which merely
refer in accurate terms to the appointment of Rodney Square hereunder or
which are required by the SEC or a state securities commission, and,
provided, further, that in no event shall such approval be unreasonably
withheld.
15. Security. Rodney Square represents and warrants that, to the best of its
knowledge, the various procedures and systems which Rodney Square has
implemented with regard to safeguarding from loss or damage attributable
to fire, theft or any other cause (including provision for twenty-four
hours a day restricted access) the Trust's blank checks, records and
other data and Rodney Square's records, data, equipment, facilities and
other property used in the performance of its obligations hereunder are
adequate and that it will make such changes therein from time to time as
in its
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judgment are required for the secure performance of its obligations
hereunder. The parties shall review such systems and procedures on a
periodic basis.
16. Insurance. Rodney Square shall notify the Trust should any of its
insurance coverage be materially changed. Such notification shall include
the date of change and the reason or reasons therefor. Rodney Square
shall notify the Trust of any material claims against it, whether or not
they may be covered by insurance and shall notify the Trust from time to
time as may be appropriate of the total outstanding claims made by Rodney
Square under its insurance coverage.
17. Assignment of Duties to Others. Neither this Agreement nor any rights or
obligations hereunder may be assigned by Rodney Square without the
written consent of the Trust. Rodney Square may, however, at any time or
times in its discretion appoint (and may at any time remove) any other
bank or trust company, which is itself qualified under the Securities
Exchange Act of 1934, as amended (the "1934 Act") to act as a transfer
agent, as its agent to carry out such of the services to be performed
under this agreement as Rodney Square may from time to time direct;
provided, however, that the appointment of any agent shall not relieve
Rodney Square of any of its responsibilities or liabilities hereunder.
18. Indemnification.
(a) The Trust agrees to indemnify and hold harmless Rodney Square and any
officer, director, or employee of Rodney, nor any person who controls
Rodney Square within the meaning of Section 15 of the 1933 Act or Section
20(a) of the 1934 Act (collectively, "Rodney Square Affiliates") from all
taxes, charges, expenses, assessments, claims and liabilities including,
without limitation, liabilities arising under the 1933 Act, the 1934 Act
and any state and foreign securities laws, and amendments thereto (the
"Securities Laws"), and expenses, including without limitation reasonable
attorneys' fees and disbursements arising directly or indirectly from any
action or omission to act which Rodney Square takes (i) at the request of
or on the direction of or in reliance on the advice of the Trust or (ii)
upon Oral or Written Instructions. No Rodney Square Affiliate shall be
indemnified against any liability (or any expenses incident to such
liability) arising out of any such person's own willful misfeasance, bad
faith, negligence or reckless disregard of its duties and obligations
under this Agreement.
(b) Rodney Square agrees to indemnify and hold harmless the Trust from
all taxes, charges, expenses, assessments, claims and liabilities arising
from Rodney Square's obligations pursuant to this Agreement (including,
without limitation, liabilities arising under the Securities Laws, and
amendments thereto) and expenses, including (without limitation)
reasonable attorneys' fees and disbursements arising directly or
indirectly out of Rodney Square's or its nominees' own willful
misfeasance, bad faith, negligence or reckless disregard of its duties
and obligations under this Agreement.
(c) In order that the indemnification provisions contained in this
Section 18 shall apply, upon the assertion of a claim for which either
party may be required to indemnify the other, the party seeking
indemnification shall promptly notify the other party of such assertion,
and shall keep the other party advised with respect to all developments
concerning such claim. The party who may be required to indemnify shall
have the option to participate with the party seeking indemnification in
the defense of such claim. The party seeking indemnification shall in no
case confess any claim
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or make any compromise in any case in which the other party may be
required to indemnify it except with the other party's prior written
consent.
19. Responsibility of Rodney Square. In the performance of its duties under
this Agreement, Rodney Square shall be obligated to exercise due care and
diligence in the performance of its duties hereunder, to act in good
faith and to use its best efforts in performing services provided for
under this Agreement. Rodney Square shall not be under any duty to take
any action on behalf of the Trust except as specifically set forth herein
or as may be specifically agreed to by Rodney Square in writing. Neither
Rodney Square nor any officer, employees or director of Rodney Square
shall be liable for any error of judgment or mistake of law, or for any
loss suffered by the Trust in connection with the matters to which this
Agreement relates except to the extent such damages arise out of Rodney
Square's own negligence, bad faith, willful misfeasance, or reckless
disregard of obligations and duties under this Agreement.
Any person, even though also an officer, director, employee or agent of
Rodney Square or any of its affiliates who may be or become an officer or
director of the Trust, shall be deemed, when rendering services to the
Trust as such officer or acting on any business of the Trust in such
capacity (other than services or business in connection with Rodney
Square's duties under this Agreement), to be rendering such services to
or acting solely for the Trust and not as an officer, director, employee
or agent or one under the control or direction of Rodney Square or any of
its affiliates, even though paid by one of those entities. Rodney Square
shall not be liable or responsible for any acts or omissions of any
predecessor administrator or any other persons having responsibility for
matters to which this Agreement relates nor shall Rodney Square be
responsible for reviewing any such act or omissions.
Without limiting the generality of the foregoing or of any other
provision of this Agreement, Rodney Square, in connection with its duties
under this Agreement, shall not be under any duty or obligation to
inquire into and shall not be liable for (a) the validity or invalidity
or authority or lack thereof of any Oral or Written Instruction, notice
or other instrument which conforms to the applicable requirements of this
Agreement, and which Rodney Square reasonably believes to be genuine; or
(b) subject to the provisions of Section 20, delays or errors or loss of
data occurring by reason of circumstances beyond Rodney Square's control,
including acts of civil or military authority, national emergencies,
fire, flood or catastrophe, acts of God, insurrection, war, riots or
failure of the mails, transportation, communication or power supply.
20. Acts of God, etc. Rodney Square shall not be liable for delays or errors
occurring by reason of circumstances beyond its control, including but
not limited to acts of civil or military authority, national emergencies,
fire, flood or catastrophe, acts of God, insurrection, war, riots, or
failure of the mails, transportation, communication or power supply. In
the event of equipment breakdowns beyond its control, Rodney Square
shall, at no additional expense to the Trust, take reasonable steps to
minimize service interruptions. Rodney Square shall enter into and shall
maintain in effect with appropriate parties one or more agreements making
reasonable provision for emergency use of electronic data processing
equipment to the extent appropriate equipment is available.
21. Registration Statement Amendments. Rodney Square and the Trust shall
regularly consult with each other regarding Rodney Square's performance
of its obligations and its compensation hereunder. In connection
therewith, the Trust shall submit to Rodney Square at a reasonable time
in advance of filing with the SEC copies of any amended or supplemented
registration statements
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(including exhibits) under the 1933 Act, as amended, and the 1940 Act,
and a reasonable time in advance of their proposed use, copies of any
amended or supplemented forms relating to any plan, program or service
offered by the Trust. Any change in such material which would require any
change in Rodney Square's obligations hereunder shall be subject to
Rodney Square's approval, which shall not be unreasonably withheld. In
the event that such change materially increases the cost to Rodney Square
of performing its obligations hereunder, Rodney Square shall be entitled
to receive reasonable compensation therefor.
22. Duration, Termination, etc. Neither this Agreement nor any provisions
hereof may be changed, waived, discharged or terminated orally, but only
by written instrument which shall make specific reference to this
Agreement and which shall be signed by the party against which
enforcement of such change, waiver, discharge or termination is sought.
This Agreement shall become effective on the day and year first written
above, and shall continue in effect for twelve (12) months from the
effective date, and thereafter as the parties may mutually agree;
provided, however, that this Agreement may be terminated at any time by
six (6) months' written notice given by Rodney Square to the Trust or
ninety (90) days' written notice given by the Trust to Rodney Square; and
provided further that this Agreement may be terminated immediately at any
time for cause either by the Trust or by Rodney Square in the event that
such cause remains unremedied for a period of time not to exceed ninety
days after receipt of written specification of such cause. Any such
termination shall not affect the rights and obligations of the parties
under Sections 18 and 19 hereof.
In the event that the Trust designates a successor to any of Rodney
Square's obligations hereunder, Rodney Square shall, at the expense and
direction of the Trust, transfer to such successor a certified list of
the shareholders of the Trust (with name, address, and, if provided, tax
identification or Social Security number), a complete record of the
account of each shareholder, and all other relevant books, records and
other data established or maintained by Rodney Square hereunder. Rodney
Square shall be liable for any losses sustained by the Trust as a result
of Rodney Square's failure to accurately and promptly provide these
materials.
23. Registration as a Transfer Agent. Rodney Square represents that it is
currently registered with the appropriate Federal agency for the
registration of transfer agents, and that it will remain so registered
for the duration of this Agreement. Rodney Square agrees that it will
promptly notify the Trust in the event of any material change in its
status as a registered transfer agent. Should Rodney Square fail to be
registered with the Federal Deposit Insurance Corporation or any
successor regulatory authority as a transfer agent at any time during
this Agreement, the Trust may, on written notice to Rodney Square,
immediately terminate this Agreement.
24. Notice. Any notice under this Agreement shall be given in writing
addressed and delivered or mailed, postage prepaid, to the other party to
this Agreement at its principal place of business.
25. Severability. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
26. Governing Law. To the extent that state law has not been preempted by the
provisions of any law of the United States heretofore or hereafter
enacted, as the same may be amended from time to
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time, this Agreement shall be administered, construed and enforced
according to the laws of the State of Delaware.
27. Shareholder Liability. Rodney Square is hereby expressly put on notice of
the limitation of shareholder liability as set forth in the Agreement and
Declaration of Trust of the Trust and agrees that obligations assumed by
the Trust pursuant to this Agreement shall be limited in all cases to the
Trust and its assets. Rodney Square agrees that it shall not seek
satisfaction of any such obligation from the shareholders or any
individual shareholder of the Trust, nor from the Trustees or any
individual Trustee of the Trust.
28. Arbitration. Absent further written agreement of the parties, any or all
claims, disputes or other controversies ("disputes") that may arise
between the parties to and in connection with this Agreement or any
services or other obligations to be performed pursuant to this Agreement
or any aspect of the relationship between the parties shall be resolved
in the manner specified in paragraph 22 and "Schedule B" of the parties'
"Administration Agreement" of even date herewith.
29. Miscellaneous. Both parties agree to perform such further acts and
execute such further documents as are necessary to effectuate the
purposes hereof. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two counterparts, each of
which taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this agreement as of
the day and year first written above.
BRAZOS MUTUAL FUNDS
By: _____________________________
Daniel Hockenbrough, President
RODNEY SQUARE MANAGEMENT
CORPORATION
By: _____________________________
Martin L. Klopping, President
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SCHEDULE A
BRAZOS MUTUAL FUNDS
FUND LISTING
BRAZOS/JMIC Small/Cap Growth Portfolio
BRAZOS/JMIC Real Estate Securities Portfolio
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SCHEDULE B
BRAZOS MUTUAL FUNDS
Services to be Performed
Rodney Square Management Corporation ("Rodney Square") will perform the
following functions as transfer agent on an ongoing basis with respect to the
Portfolio:
(a) furnish state-by-state registration reports;
(b) calculate sales load or compensation payment and provide such
information;
(c) calculate dealer commissions;
(d) provide toll-free lines for direct shareholder use, plus customer liaison
staff with on-line inquiry capacity;
(e) mail duplicate confirmations to dealers of their clients' activity,
whether executed through the dealer or directly with Rodney Square;
(f) provide detail for underwriter or broker confirmations and other
participating dealer shareholder accounting, in accordance with such
procedures as may be agreed upon between the Trust and Rodney Square;
(g) provide shareholder lists and statistical information concerning accounts
of the Portfolio to the rust;
(h) provide timely notification of Portfolio activity and such other
information as may be agreed upon from time to time between Rodney Square
and the Portfolio or the Custodian, to the Trust or the Custodian; and
(i) solicit and tabulate proxies
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SCHEDULE C
BRAZOS MUTUAL FUNDS
Shareholder Records
Rodney Square Management Corporation ("Rodney Square") shall maintain records of
the accounts for each shareholder showing the following information:
(a) name, address and United States Tax Identification or Social Security
number;
(b) number of Shares held and number of Shares for which certificates, if
any, have been issued, including certificate numbers and denominations;
(c) historical information regarding the account of each shareholder,
including dividends and distributions paid and the date and price for all
transactions on a shareholder's account;
(d) any stop or restraining order placed against a shareholder's account;
(e) any correspondence relating to the current maintenance of a shareholder's
account;
(f) information with respect to withholdings; and,
(g) any information required in order for Rodney Square to perform any
calculations contemplated or required by this Agreement.
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SCHEDULE D
BRAZOS MUTUAL FUNDS
Fee Schedule
For the services Rodney Square provides under the Transfer Agency Agreement
attached hereto, Brazos Mutual Funds (the "Trust") agrees to pay Rodney Square a
fee for each class of shares for each portfolio for transfer agency services
equal to the following:
Fee per Annum
Type of Trust/Account per Account
Annual, Semi-Annual or Quarterly Dividend $15.00/year
Monthly Dividend $16.50/year
Daily Accrual Fund $18.00/year
subject to a $30,000 per annum minimum ($2,500 per month).
Checkwriting: $2.00 per account with checkwriting, per year
$0.15 per check (non-return)
$15.00 each - stop payment
$25.00 each - non-sufficient funds
$2.50 each check copy
This transfer agency fee shall be pro-rated and payable monthly as soon as
practicable after the last day of each month based on the average of the daily
net assets of each Portfolio, as determined at the close of business on each day
throughout the month.
Out of pocket expenses shall be reimbursed by the Trust to Rodney Square or paid
directly by the Trust. Such expenses include, but are not limited to, the
following:
Transaction Charges:
12b-1 Calculation - $.25 per account, per run
Exchange Fees - $5.00 per transaction
Wire fee for receipt or disbursement - $7.00 per wire receipt, $12.00 per
wire disbursement ACH transaction charges - $0.25 per transaction Lockbox
processing - $0.06 per transaction New Account Opening - $0.40 electronic
interface; paper application $3.50 per account Master/Omnibus Account -
$7.50 per broker call placed transaction
Additional Expenses:
a. Toll-free lines (if required)
b. Forms, envelopes, checks, checkbooks
c. Postage (bulk, pre-sort, first-class at current prevailing rates)
d. Hardware/phone lines for remote terminal(s) (if required)
e. Microfiche/Microfilm
f. Mailing fee - approximately $45.00 per 1,000 items
g. Cost of proxy solicitation, mailing and tabulation (if required)
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h. Certificate issuance - $5.00 per certificate
i. Record retention storage - $3.50 per cubic foot per month
j. Development/programming costs/special projects (i.e. ad hoc reports)
o Ad-hoc report set up $125 plus $0.012 per record passed
k. "B" notice mailing - $5.00 per item
l. Locating lost shareholders in anticipation of escheating - $7.50 per name
m. Labels - $0.12 per label ($75 minimum)
n. Commission Calculation - $0.25 per account
o. Reruns for incorrect NAV's, dividends or mil rates, late NAV's
p. Consolidated Statements - to be determined, time and materials
q. Fulfillment - $2.00 per call plus vendor handling and postage
r. Retroactive Record Dates for Dividends, Proxies, etc.
s. Conversion Expenses - to be determined, time and materials
Additional Expenses (paid by shareholder):
Direct IRA/Keogh processing $10.00 per account per annum
$10.00 per transfer out
Fund/SERV/Networking Charges
1. - FUND/SERV
Participation Fee $50.00 per month
CPU Access Fee $40.00 per month
Transaction Fee $ .50 per transaction
NSCC will deduct it's monthly fee on the 15th of each month from Rodney Square's
cash settlement that day. These charges will be included on the next month's
T/A bill as out-of-pocket expenses.
2. - Networking
Participation Fee $250.00 per month
CPU Access Fee $ 40.00 per month
Account Fee $ .045 per month on
monthly dividend funds
$ .030 per month on all
other dividend payables
Rodney Square System Access Charges for NSCC
1. - FUND/SERV
Base Facility Use Fee $500.00 per month
Transaction Fee $ .25 per transaction
Plus: out-of-pocket expenses for settlements, wire charges, NSCC pick-up
charges, etc.
2. - Networking
Base Facility Use Fee $500.00 per month
Matrix Level Charges:
Level 1, 2 or 4 $ .30 per account/month
Level 3 $ .10 per account/month
Payment
The above will be billed within the first five (5) business days of each month
and will be paid by wire within five (5) business days of receipt.
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SEVERANCE AND CONVERSION FEE
Upon the termination, notice of termination, or non-renewal of the attached
Transfer Agency Agreement within the initial twelve (12) month term by the Trust
or the Trust's Board of Trustees, the parties hereby acknowledge and agree that
the Trust shall pay to Rodney Square, in consideration of Rodney Square's
severance and cooperation toward the Trust's conversion to a new service
provider, and not as a penalty:
A. A sum, with respect to each of the Trust's portfolios, sufficient to cause
Rodney Square to have received payment in full (notwithstanding any prior fee
waivers or reimbursements) as and as if Rodney Square had duly performed its
obligations pursuant to this Agreement for the full initial twelve (12) month
them thereof; plus
B. Rodney Square's out-of-pocket expenses to such date plus reasonable
out-of-pocket expenses incurred, at the Trust's request, in connection with the
Trust's conversion to a new service provider.
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ACCOUNTING SERVICES AGREEMENT
between
BRAZOS MUTUAL FUNDS
and
RODNEY SQUARE MANAGEMENT CORPORATION
THIS ACCOUNTING SERVICES AGREEMENT is made as of the ____ day of
______________, 1996 between Brazos Mutual Funds, a Delaware business trust (the
"Trust") having its principal place of business in Dallas, Texas and Rodney
Square Management Corporation, a Delaware corporation ("Rodney Square") having
its principal place of business in Wilmington, Delaware.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "1940 Act") as an open-end, management investment company
and offers for public sale one or more series of shares of beneficial interest,
each of which may offer one or more classes of shares;
WHEREAS, each share of a series represents an undivided interest in the
assets, subject to the liabilities, allocated to that series;
WHEREAS, at the present time, the Trust has established two Series,
each consisting of one class of shares, and the Trust may establish additional
Series and/or classes in the future; and
WHEREAS, the Trust desires to avail itself of the services of Rodney
Square to provide certain accounting services; and Rodney Square is willing to
furnish such services to the Trust with respect to each of the series listed on
Appendix A to this Agreement (each a "Portfolio" or collectively the
"Portfolios") on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, the parties agree as follows:
1. Appointment. The Trust hereby appoints Rodney Square to provide
certain accounting services to the Trust for the period and on the terms set
forth in this Agreement. Rodney Square accepts such appointment and agrees to
furnish the services herein set forth in return for the compensation as provided
in Paragraph 12 of this Agreement. Rodney Square agrees to comply with all
relevant provisions of the 1940 Act and applicable rules and regulations
thereunder, and to remain open for business on any day on which the New York
Stock Exchange, the Federal Reserve Bank of Philadelphia and Wilmington Trust
Company are open for business. The Trust may from time to time issue separate
series or classes or classify and reclassify shares of such series or class.
Rodney Square shall identify to each such series or class property belonging to
such series or class and in such reports, confirmations and notices to the Trust
called for under this Agreement shall identify the series or class to which such
report, confirmation or notice pertains.
2. Documents. The Trust has furnished Rodney Square copies of the
Trust's Agreement and Declaration of Trust, By-Laws, Advisory Contract,
Distribution Agreement, Administration Agreement, Custody Agreement, Transfer
Agency Agreement, most recent Registration Statement on Form N-1A, current
Prospectus and Statement of Additional Information (the "SAI") and all forms
relating to any plan, program or service offered by the Trust. The Trust shall
furnish promptly to Rodney Square a copy of any amendment or supplement to the
above-mentioned documents. The Trust shall furnish promptly to
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Rodney Square any additional documents necessary for it to perform its functions
hereunder or such other documents as Rodney Square shall request.
3. Definitions.
(a) Authorized Person. As used in this Agreement, the term "Authorized
Person" means the President, Treasurer, Secretary and any Vice
President of the Trust and any other person, whether or not any such
person is an officer or employee of the Trust, duly authorized by the
Board of Trustees of the Trust to give Oral and Written Instructions on
behalf of the Trust and listed on Appendix B listing persons duly
authorized to give Oral and Written Instructions on behalf of the Trust
as may be received by Rodney Square from time to time.
(b) Oral Instructions. As used in this Agreement, the term "Oral
Instructions" means oral instructions actually received by Rodney
Square from an Authorized Person or from a person reasonably believed
by Rodney Square to be an Authorized Person. The Trust agrees to
deliver to Rodney Square, at the time and in the manner specified in
Paragraph 4(b) of this Agreement, Written Instructions confirming oral
Instructions.
(c) Written Instructions. As used in this Agreement, the term "Written
Instructions" means written instructions signed by two Authorized
Persons, and delivered by hand, mail, tested telegram, cable, telex or
facsimile sending device, and received by Rodney Square.
4. Instructions Consistent with Trust Instrument, etc.
(a) Unless otherwise provided in this Agreement, Rodney Square shall
act only upon Oral and Written Instructions. Although Rodney Square may
know of the provisions of the Trust Instrument and By-Laws of the
Trust, Rodney Square may assume that any Oral or Written Instructions
received hereunder are not in any way inconsistent with any provisions
of such Trust Instrument or By-Laws or any vote, resolution or
proceeding of the Shareholders, or of the Board of Trustees, or of any
committee thereof.
(b) Rodney Square shall be entitled to rely upon any Oral Instructions
and any Written Instructions actually received by Rodney Square
pursuant to this Agreement. The Trust agrees to forward to Rodney
Square Written Instructions confirming Oral Instructions in such manner
that the Written Instructions are received by Rodney Square, whether by
hand delivery, telex, facsimile sending device or otherwise, by the
close of business of the same day that such Oral Instructions are given
to Rodney Square. The Trust agrees that the fact that such confirming
Written Instructions are not received by Rodney Square shall in no way
affect the validity of the transactions or enforceability of the
transactions authorized by the Trust by giving Oral Instructions.
The Trust agrees that Rodney Square shall incur no liability to the
Trust in acting upon Oral Instructions given to Rodney Square hereunder
concerning such transactions, provided such instructions reasonably appear to
have been issued by an Authorized Person.
5. Services on a Continuing Basis.
(a) Rodney Square will perform the following accounting functions
on a daily basis:
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(i) Journalize each Portfolio's investment, capital share and income and
expense activities;
(ii) Verify investment buy/sell trade tickets when received from the Trust's
Investment Advisor ("Advisor") and transmit trades to the Trust's
custodian for proper settlement;
(iii) Maintain individual ledgers for investment securities;
(iv) Maintain historical tax lots for each security;
(v) Reconcile cash and investment balances of each Portfolio with the
Custodian, and provide the Advisor with the beginning cash
balance available for investment purposes;
(vi) Update the cash availability throughout the day as required by the
Advisor;
(vii) Post to and prepare each Portfolio's Statement of Assets and
Liabilities and the Statement of Operations;
(viii) Calculate expenses payable pursuant to the Portfolio's various
contractual obligations;
(ix) Control all disbursements from the Trust on behalf of each Portfolio
and authorize such disbursements upon Written Instructions;
(x) Calculate capital gains and losses;
(xi) Determine each Portfolio's net income;
(xii) Obtain security market quotes from services approved by the Advisor, or
if such quotes are unavailable, then obtain such prices from services
approved by the Advisor, and in either case calculate the market or
fair value of each Portfolio's investments;
(xiii) Transmit or mail a copy of the portfolio valuation to the Advisor;
(xiv) Compute the net asset value per share of each class of each Portfolio;
(xv) Compute the yield, total return and expense ratio of each class of
each Portfolio, and each Portfolio's portfolio turnover rate; and
(xvi) Monitor the expense accruals and notify Trust management of any
proposed adjustments.
(b) In addition, Rodney Square will:
(i) Prepare monthly financial statements, which will include without
limitation the following items:
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Cash Statement
Schedule of Capital Gains and Losses;
(ii) Prepare monthly security transactions listings;
(iii) Prepare quarterly broker security transactions summaries;
(iv) Supply various Trust, Portfolio and class statistical data as requested
on an ongoing basis;
(v) Assist in the preparation of support schedules necessary for completion
of Federal and state tax returns; prepare 1099-Misc's for Trustees, as
well as other non-corporate entities providing services to the
Portfolios.
(vi) Assist in the preparation and filing of the Trust's Semi-Annual
Reports with the SEC on Form N-SAR;
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(vii) Assist in the preparation and filing of the Trust's annual and semi-
annual shareholder reports and proxy statements;
(viii) Assist with the preparation of and Amendments to the Trust's
registration statements on Form N-1A and other filings relating to
the registration of shares; and
(ix) Monitor each Portfolio's status as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended.
(x) Communicate statistical data to the financial media (Donaghue, Lipper,
Morningstar, et al).
6. Records. Rodney Square shall keep all books and records with respect
to the Trust's books of account and records of the Trust's securities
transactions. The books and records pertaining to the Trust which are in the
possession of Rodney Square shall be the property of the Trust. Such books and
records shall be prepared and maintained as required by the 1940 Act and other
applicable securities laws and rules and regulations. The Trust, or the Trust's
authorized representatives, shall have access to such books and records at all
times during Rodney Square's normal business hours. Upon the reasonable request
of the Trust, copies of any such books and records shall be provided by Rodney
Square to the Trust or the Trust's authorized representative at the Trust's
expense.
7. Liaison With Accountants. Rodney Square shall act as liaison with
the Trust's independent public accountants and shall provide account analyses,
fiscal year summaries, and other audit related schedules. Rodney Square shall
take all reasonable action in the performance of its obligations under this
Agreement to assure that the necessary information is made available to such
accountants for the expression of their opinion, as such may be required by the
Trust from time to time.
8. Confidentiality. Rodney Square agrees on behalf of itself and its
employees to treat confidentially and as proprietary information of the Trust
all records and other information relative to the Trust and its prior, present
or potential Shareholders, and not to use such records and information for any
purpose other than performance of its responsibilities and duties hereunder,
except, after prior notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld and may not be withheld where Rodney
Square may be exposed to civil or criminal contempt proceedings for failure to
comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Trust.
9. Equipment Failures. In the event of equipment failures beyond Rodney
Square's control, Rodney Square shall, at no additional expense to the Trust,
take reasonable steps to minimize service interruptions but shall have no
liability with respect thereto. Rodney Square shall enter into and shall
maintain in effect with appropriate parties one or more agreements making
reasonable provision of emergency use of electronic data processing equipment to
the extent appropriate equipment is available.
10. Right to Receive Advice.
(a) Advice of Trust. If Rodney Square shall be in doubt as to any
action to be taken or omitted by it, it may request, and shall receive,
from the Trust directions or advice, including Oral or Written
Instructions where appropriate.
(b) Advice of Counsel. If Rodney Square shall be in doubt as to any
question of law involved in any action to be taken or omitted by Rodney
Square, it may request advice at the Trust's
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expense from counsel of its own choosing (who in the first instance
shall be the regularly retained counsel for the Trust but, as to
non-routine matters may be the regularly retained counsel of Rodney
Square, at the option of Rodney Square).
(c) Conflicting Advice. In case of conflict between Oral and Written
Instructions received by Rodney Square, Rodney Square shall be entitled
to rely on and follow Written Instructions alone. In case of conflict
between advice received from the Trust under (a) and (b) above, Rodney
Square shall be entitled to rely on and follow advice obtained in
accordance with (b) above.
(d) Protection of Rodney Square. Rodney Square shall be protected in
any action or inaction which it takes in reliance on any directions,
advice or Oral or Written Instructions received pursuant to subsections
(a) or (b) of this paragraph which Rodney Square, after receipt of any
such directions, advice or Oral or Written Instructions, in good faith
believes to be consistent with such directions, advice or Oral or
Written Instructions, as the case may be. However, nothing in this
paragraph shall be construed as imposing upon Rodney Square any
obligation (i) to seek such directions, advice or Oral or Written
Instructions, or (ii) to act in accordance with such directions, advice
or Oral or Written Instructions when received, unless, under the terms
of another provision of this Agreement, the same is a condition to
Rodney Square's properly taking or omitting to take such action.
11. Compliance with Governmental Rules and Regulations. The Trust
assumes full responsibility for ensuring that the Trust complies with all
applicable requirements of the Securities Act of 1933 ("1933 Act"), the
Securities Exchange Act of 1934, as amended ("1934 Act"), the 1940 Act, and any
laws, rules and regulations of governmental authorities having jurisdiction over
the Trust, subject to disclosure of pertinent facts to the Trust by Rodney
Square.
12. Compensation. For the performance of its obligations under this
Agreement, the Trust on behalf of each Portfolio, shall pay Rodney Square in
accordance with the fee arrangements described in Schedule A attached hereto, as
such schedule may be amended from time to time.
13. Indemnification. The Trust agrees to indemnify and hold harmless
Rodney Square and any officer, director, or employee of Rodney Square and any
person who controls Rodney Square within the meaning of Section 15 of the 1933
Act or Section 20(a) of the 1934 Act (collectively, "Rodney Square Affiliates")
from all taxes, charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the 1933 Act, the 1934
Act, the 1940 Act, and any other laws, rules and regulations of any governmental
authorities, all as or to be amended from time to time) and expenses, including
(without limitation) attorneys' fees and disbursements, arising directly or
indirectly from any action or thing which Rodney Square takes or does or omits
to take or do (i) at the request or on the direction of or in reliance on the
written advice of the Trust or (ii) upon Oral or Written Instructions, provided
that neither Rodney Square nor any of its nominees shall be indemnified against
any liability to the Trust or to its Shareholders (or any expenses incident to
such liability) arising out of Rodney Square's own willful misfeasance, bad
faith, negligence or reckless disregard of its duties and obligations
specifically described in this Agreement.
14. Responsibility of Rodney Square. In the performance of its duties
hereunder, Rodney Square shall be obligated to exercise due care and diligence
and to act in good faith and to use its best efforts within reasonable limits in
performing services provided for under this Agreement. Rodney Square shall be
under no duty to take any action on behalf of the Trust except as specifically
set herein or as may be specifically agreed to by Rodney Square in writing.
Neither Rodney Square nor any Rodney Square
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Affiliate shall be liable for any error of judgment or mistake of law, or for
any loss suffered by the Trust in connection with the matters to which this
Agreement relates except to the extent that such loss. arise out of Rodney
Square's own negligence, bad faith, willful misfeasance, or reckless disregard
of obligations and duties under this Agreement. Any person, even though also an
officer, director, employee or agent of Rodney Square or any of its affiliates
who may be or become an officer or director of the Trust, shall be deemed, when
rendering services to the Trust as such officer or acting on any business of the
Trust in such capacity (other than services or business in connection with
Rodney Square's duties under this Agreement), to be rendering such services to
or acting solely for the Trust and not as an officer, director, employee or
agent or one under the control or direction of Rodney Square or any of its
affiliates, even though paid by one of those entities. Rodney Square shall not
be liable or responsible for any acts or omissions of any predecessor
administrator or any other persons having responsibility for matters to which
this Agreement relates nor shall Rodney Square be responsible for reviewing any
such act or omissions.
Without limiting the generality of the foregoing or of any other
provision of this Agreement, Rodney Square in connection with its duties under
this Agreement shall not be under any duty or obligation to inquire into and
shall not be liable for or in respect of (i) the validity or invalidity or
authority or lack thereof of any Oral or Written Instruction, notice or other
instrument which conforms to the applicable requirements of this Agreement, and
which Rodney Square reasonably believes to be genuine; or (ii) delays or errors
or loss of data occurring by reason of circumstances beyond Rodney Square's
control, including acts of civil or military authority, national emergencies,
labor difficulties, fire, mechanical breakdown (except as provided in paragraph
9), flood or catastrophe, acts of God, insurrection, war, riots or failure of
the mails, transportation, communication or power supply.
15. Waiver, Discharge, Duration and Termination. The provisions of this
Agreement may not be waived, discharged or terminated orally, but only by
written instrument that shall make specific reference to this Agreement and that
shall be signed by the party against which enforcement of such change, waiver,
discharge or termination is sought.
This Agreement shall become effective as of the day and year first
written above, and unless terminated as herein provided, shall continue in force
for twelve (12) months from the date of its execution and thereafter, from year
to year, provided continuance after the twelve (12) month period is approved at
least annually by a vote of the Trustees of the Trust. This Agreement may at any
time be terminated on ninety (90) days' written notice given to Rodney Square or
by Rodney Square by six (6) months' written notice given to the Trust; provided,
however, that the foregoing provisions of this Agreement may be terminated
immediately at any time for cause either by the Trust or by Rodney Square in the
event that such cause shall have remained unremedied for sixty (60) days or more
after receipt of written specification of such cause. Any such termination shall
not affect the rights and obligations of the parties under Sections 13 and 14
hereof.
In the event that the Trust designates a successor to any of Rodney
Square's obligations hereunder, Rodney Square shall, at the expense and
direction of the Trust, transfer to such successor all relevant books, records
and other data established or maintained by Rodney Square under the foregoing
provisions.
16. Notices. Any notice under this Agreement shall be given in writing
addressed and delivered or mailed, postage prepaid, to the other party to this
Agreement at its principal place of business.
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17. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
18. Amendments. This Agreement or any part hereof may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
19. Delegation. On thirty (30) days' prior written notice to the Trust,
Rodney Square may assign all its rights and delegate its duties hereunder to any
wholly-owned direct or indirect subsidiary of Wilmington Trust Company, provided
that (i) the delegate agrees with Rodney Square to comply with all relevant
provisions of the 1940 Act and applicable rules and regulations; (ii) Rodney
Square shall remain responsible for the performance of all of its duties under
this Agreement; (iii) Rodney Square and such delegate shall promptly provide
such information as the Trust may request; and (iv) Rodney Square shall respond
to such questions as the Trust may ask, relative to the delegation, including
(without limitation) the capabilities of the delegate.
20. Arbitration. Absent further written agreement of the parties, any
or all claims, disputes or other controversies ("disputes") that may arise
between the parties to and in connection with this Agreement or any services or
other obligations to be performed pursuant to this Agreement or any aspect of
the relationship between the parties shall be resolved in the manner specified
in paragraph 22 and "Schedule B" of the parties' "Administration Agreement" of
even date herewith.
21. Miscellaneous.
(a) Each party agrees to perform such further acts and execute such
further documents as are necessary to effectuate the purposes hereof.
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect. This Agreement
may be executed in two counterparts, each of which, taken together,
shall constitute one and the same instrument.
(b) This Agreement embodies the entire agreement and understanding
between the parties thereto, and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the
parties hereto may embody in one or more separate documents their
agreement, if any, with respect to Oral and/or Written Instructions.
This Agreement shall be deemed to be a contract made in Delaware and
shall be administered, construed and enforced according to the laws
(without regard, however, to laws as to conflicts of law) of the State
of Delaware. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby. This Agreement shall
be binding and shall inure to the benefits of the parties hereto and
their respective successors.
(c) Rodney Square is hereby expressly put on notice of the limitation
of shareholder liability as set forth in the Trust Instrument of the
Trust and agree that obligations assumed by the Trust under this
Agreement shall be limited in all cases to the Trust and its assets,
and if the liability relates to one or more Portfolios, the obligations
hereunder shall be limited to the respective assets of such Portfolio
or Portfolios. Rodney Square further agrees that it shall not seek
satisfaction of any such obligations from the shareholders or any
individual shareholder of the Portfolios, nor from the Trustees or any
individual Trustee of the Trust.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first written
above.
BRAZOS MUTUAL FUNDS
By: ______________________________
Daniel Hockenbrough, President
RODNEY SQUARE MANAGEMENT
CORPORATION
By: ______________________________
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APPENDIX A
ACCOUNTING SERVICES AGREEMENT
BRAZOS MUTUAL FUNDS
PORTFOLIO LISTINGS AND FEE SCHEDULE
ANNUAL FEE
For services provided to Brazos Mutual Funds (the "Trust") pursuant to this
Accounting Services Agreement, Rodney Square Management Corporation ("Rodney
Square") shall receive an annual fee equal to the following:
A. For each domestic, single-class portfolio of the Trust, a $45,000
minimum annual fee for up to the first $50 million in assets, plus an
asset-based fee calculated, with reference to the average daily net
assets of each such portfolio, according to the following schedule:
0.03% of assets between $50 million and $100 million; plus
0.02% of assets in excess of $100 million.
B. For the second and each additional class of any domestic portfolio, a
$15,000 minimum annual fee for up to the first $50 million in assets
generated by the class, plus an asset-based fee calculated, with
reference to the average daily net assets generated by each such class,
according to the same schedule as in A. above.
The foregoing fee shall be payable monthly, as soon as practicable after the
last day of the month, based on the average daily net assets of each of the
Trust's portfolios as determined at the close of business on each business day
throughout the month.
OUT-OF-POCKET EXPENSES
In addition to the foregoing fee, Rodney Square's reasonable out-of-pocket
expenses incurred in the performance of its responsibilities pursuant to this
Accounting Services Agreement shall either be paid and advanced directly by the
Trust, or promptly reimbursed, upon billing, by the Trust.
SEVERANCE AND CONVERSION FEE
Upon the termination, notice of termination, or non-renewal of the attached
Accounting Services Agreement within the initial twelve (12) month term by the
Trust or the Trust's Board of Trustees, the parties hereby acknowledge and agree
that the Trust shall pay to Rodney Square, in consideration of Rodney Square's
severance and cooperation toward the Trust's conversion to a new service
provider, and not as a penalty:
A. A sum, with respect to each of the Trust's portfolios, sufficient to cause
Rodney Square to have received payment in full (notwithstanding any prior fee
waivers or reimbursements) as and as if Rodney Square had duly performed its
obligations pursuant to this Agreement for the full initial twelve (12) month
term thereof; plus
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B. Rodney Square's out-of-pocket expenses to such date plus reasonable
out-of-pocket expenses incurred, at the Trust's request, in connection with the
Trust's conversion to a new service provider.
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APPENDIX B
ACCOUNTING SERVICES AGREEMENT
BRAZOS MUTUAL FUNDS
AUTHORIZED PERSONS
The following persons have been duly authorized by the Board of Trustees to give
Oral and Written Instructions on behalf of the Portfolios:
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Exhibit 24(b)(11)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion of our report dated December 16, 1996 on our audit
of the Statement of Assets and Liabilities of Brazos Mutual Funds as of December
11, 1996 with respect to this Pre- Effective Amendment No. 2 to the Registration
Statement (No. 333-14943) under the Securities Act of 1933 on Form N-1A. We also
consent to the reference to our Firm under the headings "Independent
Accountants" and "Reports" in the Prospectuses.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 16, 1996
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Exhibit 24(b)(13)
SUBSCRIPTION AGREEMENT
John McStay Investment Counsel
5949 Sherry Lane, Suite 1560
Dallas, Texas 75225
December 11, 1996
Brazos Mutual Funds
5949 Sherry Lane, Suite 1560
Dallas, Texas 75225
Gentlemen:
John McStay Investment Counsel hereby agrees to purchase 10,000 shares
of beneficial interest (the "Shares") of BRAZOS MUTUAL FUNDS (the "Fund") at $10
per share for an aggregate of $100,000. Such purchase is allocated between the
Fund's two series of shares as follows: 5,000 shares of the BRAZOS/JMIC
Small/Emerging Growth Portfolio and 5,000 shares of the BRAZOS/JMIC Real Estate
Securities Portfolio. The Fund, by its acknowledgement below, acknowledges
receipt of funds in the amount of $100,000 in full payment of the Shares.
I further advise that in making this purchase, which represents the
initial capital of BRAZOS MUTUAL FUNDS, such purchase is for investment purposes
only and without any present intention of further distributing such shares or
presenting them for redemption or repurchase.
/s/John McStay
John D. McStay, General Partner
John McStay & Associates, General Partner
John McStay Investment Counsel
Attest: BRAZOS MUTUAL FUNDS
Adrianne Z. Davis By: Daniel Hockenbrough
Daniel Hockenbrough
President and Treasurer
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Exhibit 24(b)(19)
BRAZOS MUTUAL FUNDS
SECRETARY'S CERTIFICATE
The undersigned Secretary of Brazos Mutual Funds (the "Fund"),
does hereby certify that the Board of Trustees of the Fund, at a meeting held on
December 13, 1996, approved the following resolution:
RESOLVED, that a Power of Attorney, substantially in
the form of the Power of Attorney presented to this
Board, appointing Daniel Hockenbrough, Carl M. Rizzo
and Audrey C. Talley, each individually, as
attorney-in-fact for the purpose of filing documents
with the Securities and Exchange Commission, is
hereby approved.
IN WITNESS WHEREOF, I have set my hand this 13th day of
December, 1996.
/s/ Tricia Hundley
Tricia Hundley
Secretary
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POWER OF ATTORNEY
The undersigned hereby appoints each of Daniel Hockenbrough, Carl Rizzo
and Audrey Talley as attorney-in-fact and agent, each individually in all
capacities, to execute, and to file any of the documents referred to below
relating to the registration of Brazos Mutual Funds (the "Fund") as an
investment company under the Investment Company Act of 1940, as amended, (the
"Act") and the Fund's Registration Statement on Form N-1A under the Act and
under the Securities Act of 1933, including any and all amendments thereto,
covering the registration of the Fund as an investment company and the sale of
shares of the series of the Fund, including all exhibits and any and all
documents required to be filed with respect thereto with any regulatory
authority, including applications for exemptive order rulings. The undersigned
grants to said attorney full authority to do every act necessary to be done in
order to effectuate the same as fully, to all intents and purposes, as he could
do if personally present, thereby ratifying all that said attorney-in-fact and
agent may lawfully do or cause to be done by virtue hereof.
The undersigned hereby executes this Power of Attorney as of this 13th
day of December, 1996.
/s/ Daniel Hockenbrough
Name: Daniel Hockenbrough
Title: President and Director
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POWER OF ATTORNEY
The undersigned hereby appoints each of Daniel Hockenbrough, Carl Rizzo
and Audrey Talley as attorney-in-fact and agent, each individually in all
capacities, to execute, and to file any of the documents referred to below
relating to the registration of Brazos Mutual Funds (the "Fund") as an
investment company under the Investment Company Act of 1940, as amended, (the
"Act") and the Fund's Registration Statement on Form N-1A under the Act and
under the Securities Act of 1933, including any and all amendments thereto,
covering the registration of the Fund as an investment company and the sale of
shares of the series of the Fund, including all exhibits and any and all
documents required to be filed with respect thereto with any regulatory
authority, including applications for exemptive order rulings. The undersigned
grants to said attorney full authority to do every act necessary to be done in
order to effectuate the same as fully, to all intents and purposes, as he could
do if personally present, thereby ratifying all that said attorney-in-fact and
agent may lawfully do or cause to be done by virtue hereof.
The undersigned hereby executes this Power of Attorney as of this 13th
day of December, 1996.
/s/ David Reichert
Name: David Reichert
Title: Trustee
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POWER OF ATTORNEY
The undersigned hereby appoints each of Daniel Hockenbrough, Carl Rizzo
and Audrey Talley as attorney-in-fact and agent, each individually in all
capacities, to execute, and to file any of the documents referred to below
relating to the registration of Brazos Mutual Funds (the "Fund") as an
investment company under the Investment Company Act of 1940, as amended, (the
"Act") and the Fund's Registration Statement on Form N-1A under the Act and
under the Securities Act of 1933, including any and all amendments thereto,
covering the registration of the Fund as an investment company and the sale of
shares of the series of the Fund, including all exhibits and any and all
documents required to be filed with respect thereto with any regulatory
authority, including applications for exemptive order rulings. The undersigned
grants to said attorney full authority to do every act necessary to be done in
order to effectuate the same as fully, to all intents and purposes, as he could
do if personally present, thereby ratifying all that said attorney-in-fact and
agent may lawfully do or cause to be done by virtue hereof.
The undersigned hereby executes this Power of Attorney as of this 13th
day of December, 1996.
/s/ John Massey
Name: John Massey
Title: Trustee
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