U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
--
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
--
Pre-Effective Amendment No. 1
Post-Effective Amendment No.
and/or
--
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
--
Amendment No. 1
(Check appropriate box or boxes)
THE NEW YORK STATE OPPORTUNITY FUNDS
(Exact Name of Registrant as Specified in Charter)
4605 E. Genesee Street
DeWitt, New York 13214
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (315) 251-1101
Gregg A. Kidd
Pinnacle Advisors LLC
4605 E. Genesee Street
DeWitt, New York 13214
(Name and Address of Agent for Service)
Copies to:
Tina D. Hosking
Countrywide Fund Services, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
Approximate Date of Proposed Public Offering: As soon as practicable after
this Registration Statement becomes effective.
Registrant hereby declares its intention to register an indefinite
number of shares of beneficial interest pursuant to Rule 24f-2 under the
Investment Company Act of 1940.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine.
<PAGE>
THE NEW YORK STATE OPPORTUNITY FUNDS
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(A)
UNDER THE SECURITIES ACT OF 1933
PART A
Item No. Registration Statement Caption Caption in Prospectus
1. Cover Page Cover Page
2. Synopsis Expense Information
3. Condensed Financial Information Performance Information
4. General Description of Registrant Operation of the Fund;
Investment Objective,
Investment Policies and Risk
Considerations
5. Management of the Fund Operation of the Fund
6. Capital Stock and Other Securities Cover Page; Operation of the
Fund; Dividends and
Distributions; Taxes
7. Purchase of Securities Being Offered How to Purchase Shares;
Shareholder Services;
Distribution Plan;
Calculation of Share Price;
Application
8. Redemption or Repurchase How to Redeem Shares;
Shareholder Services;
Distribution Plan
9. Pending Legal Proceedings Inapplicable
PART B
Caption in Statement
of Additional
Item No. Registration Statement Caption Information
10. Cover Page Cover Page
11. Table of Contents Table of Contents
(i)
<PAGE>
12. General Information and History The Trust
13. Investment Objectives and Policies Definitions, Policies and
Risk Considerations; Quality
Ratings of Corporate Bonds
and Preferred Stocks;
Investment Limitations;
Securities Transactions;
Portfolio Turnover
14. Management of the Fund Trustees and Officers
15. Control Persons and Principal Holders Inapplicable
of Securities
16. Investment Advisory and Other Services The Investment Advisor;
Distribution Plan;
Custodian; Auditors;
Countrywide Fund Services,
Inc.
17. Brokerage Allocation and Other Securities Transactions
Practices
18. Capital Stock and Other Securities The Trust
19. Purchase, Redemption and Pricing of Calculation of Share
Securities Being Offered Price; Redemption in Kind
20. Tax Status Taxes
21. Underwriters The Underwriter
22. Calculation of Performance Data Historical Performance
Information
23. Financial Statements Statement of Assets and
Liabilities
PART C
The information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
(ii)
<PAGE>
PROSPECTUS
__________, 1997
NEW YORK EQUITY FUND
- --------------------------------------------------------------------------------
The investment objective of the NEW YORK EQUITY FUND (the "Fund") is to
provide long-term capital growth. The Fund will seek to obtain its investment
objective by investing primarily in the common stocks and other equity
securities of publicly-traded companies headquartered in the state of New York
and those companies having a significant presence in the state. While there is
no assurance that the Fund will achieve its investment objective, it endeavors
to do so by following the investment policies described in this Prospectus.
INVESTMENT ADVISOR
Pinnacle Advisors LLC
4605 E. Genesee Street
DeWitt, New York 13214
The New York Equity Fund is a non-diversified series of The New York
State Opportunity Funds, a registered open-end management investment company.
This Prospectus provides you with the basic information you should know before
investing. You should read it and keep it for future reference.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, AND ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY.
A Statement of Additional Information, dated __________, 1997,
containing additional information about the Fund, has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
Prospectus in its entirety. The Fund's address is 4605 E. Genesee Street,
DeWitt, New York 13214, and its telephone number is 1-888-899-8344. A copy of
the Statement of Additional Information may be obtained at no charge by calling
or writing the Fund.
TABLE OF CONTENTS
PROSPECTUS SUMMARY.............................................................
EXPENSE INFORMATION............................................................
INVESTMENT OBJECTIVE, INVESTMENT POLICIES......................................
AND RISK CONSIDERATIONS......................................................
HOW TO PURCHASE SHARES.........................................................
SHAREHOLDER SERVICES...........................................................
HOW TO REDEEM SHARES...........................................................
DIVIDENDS AND DISTRIBUTIONS....................................................
TAXES..........................................................................
OPERATION OF THE FUND..........................................................
DISTRIBUTION PLAN..............................................................
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE...........................
PERFORMANCE INFORMATION........................................................
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
PROSPECTUS SUMMARY
THE FUND. The New York Equity Fund (the "Fund") is a non-diversified series of
The New York State Opportunity Funds, a registered open-end management
investment company commonly known as a "mutual fund." The Fund's investment
objective is to provide long-term capital growth.
INVESTMENT APPROACH. In seeking to achieve the Fund's investment objective, the
Fund will invest primarily in the common stocks and other equity securities of
publicly-traded companies headquartered in the state of New York and those
companies having a significant presence in the state. Realization of current
income is not a significant investment consideration and any income realized
will be incidental to the Fund's objective. (See "Investment Objective,
Investment Policies and Risk Considerations.")
RISK FACTORS. The Fund's concentration in companies located in New York
generally will tie the performance of the Fund to the economic environment of
the state. There is no assurance that the demographic and economic
characteristics that the Advisor believes favor companies in New York will
continue in the future. The Fund's portfolio may include securities of smaller
companies, which are generally more volatile in price and less liquid than those
of larger companies. As a non-diversified fund, the Fund may invest greater than
5% of its total assets in the securities of one or more issuers. (See
"Investment Objective, Investment Policies and Risk Considerations.")
INVESTMENT ADVISOR. Pinnacle Advisors LLC (the "Advisor") serves as investment
advisor to the Fund. For its services, the Advisor receives compensation at an
annual rate equal to 1% of the average daily net assets of the Fund. Such fees
are reduced when the assets of the Fund exceed $100 million. The Advisor has
not previously provided investment advisory services to a registered
investment company. (See "Operation of the Fund.")
PURCHASE OF SHARES. Shares are offered at the net asset value next determined
after receipt of a purchase request by the Fund, plus a maximum 4.75% initial
sales charge. Shares are also subject to 12b-1 distribution fees at an annual
rate of up to .25% of the Fund's average daily net assets. Shares of the Fund
may be purchased at reduced sales charges or with no sales charge through
purchases described in "How to Purchase Shares" in this Prospectus. The minimum
initial investment in the Fund is $1,000 ($250 for IRA accounts). (See "How to
Purchase Shares" and "Distribution Plan.")
REDEMPTION OF SHARES. There is currently no charge for redemptions. Shares may
be redeemed at any time in which the Fund is open for business at the net asset
value next determined after receipt of a redemption request by the Fund.
(See "How to Redeem Shares.")
- 2 -
<PAGE>
DIVIDENDS AND DISTRIBUTIONS. Net investment income and net capital gains, if
any, are distributed annually. Shareholders will receive dividends and
distributions in additional Fund shares; however, shareholders may elect to
receive dividends and distributions in cash. (See "Dividends and
Distributions.")
MANAGEMENT. The Fund is a series of The New York State Opportunity Funds (the
"Trust"), the Board of Trustees of which is responsible for overall management
of the Trust and the Fund. The Trust has employed Countrywide Fund Services,
Inc. (the "Transfer Agent") to provide administration, accounting and transfer
agent services. (See "Operation of the Fund.")
UNDERWRITER. Pinnacle Investments, Inc. (the "Underwriter") serves as principal
underwriter for the Fund. For its services, the Underwriter receives commissions
on the sale of shares of the Fund consisting of the portion of the sales charge
remaining after the discounts it allows to securities dealers. (See "How to
Purchase Shares.")
- 3 -
<PAGE>
EXPENSE INFORMATION
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.75%
Deferred Sales Charge None
Sales Charge Imposed on Reinvested Dividends None
Redemption Fee None*
* A wire transfer fee is charged in the case of redemptions made by wire. Such
fee is subject to change and is currently $8. See "How to Redeem Shares."
ANNUAL FUND OPERATING EXPENSES:
(As a percentage of average net assets)
Management Fees 1.00%
12b-1 Fees(1) .25%
Other Expenses .73%
-----
Total Fund Operating Expenses 1.98%
=====
(1) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the National Association of
Securities Dealers.
EXAMPLE: You would pay the following expenses on a $1,000 investment, whether
or not you redeem at the end of the period, assuming 5% annual return:
1 Year $20
3 Years $62
The purpose of the foregoing table is to assist investors in the Fund in
understanding the various costs and expenses that they will bear directly or
indirectly. See "Operation of the Fund" for more information about the fees and
costs of operating the Fund. The percentages expressing "Other Expenses" are
based on estimated amounts for the current fiscal year. THE EXAMPLE SHOWN SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
IN THE FUTURE MAY BE GREATER OR LESS THAN THOSE SHOWN.
- 4 -
<PAGE>
INVESTMENT OBJECTIVE, INVESTMENT POLICIES
AND RISK CONSIDERATIONS
The investment objective of the Fund is to provide long-term capital
growth. The Fund will seek to obtain its investment objective by investing
primarily in common stocks and other equity securities of publicly-traded
companies headquartered in the state of New York, and those companies having a
significant presence in the state ("New York Securities"). Realization of
current income will not be a significant investment consideration, and any such
income realized should be considered incidental to the Fund's objective. Any
investment involves risk, and there can be no assurance that the Fund will
achieve its investment objective. The Fund's investment objective may not be
altered without the prior approval of a majority (as defined by the Investment
Company Act of 1940) of the Fund's shares. Investment policies of the Fund are
non-fundamental unless indicated otherwise and may be changed by a majority
approval of the Board of Trustees.
The Advisor believes that the demographic and economic characteristics
of New York, including population, employment, retail sales, personal income,
bank loans, bank deposits and residential construction are such that many
companies headquartered in the state, or having a significant presence in the
area by virtue of having a significant number of employees in the state, have a
greater than average potential for capital appreciation. If a company is not
headquartered in New York, the Advisor will consider such company as having a
"significant presence" in the state if such company employs 200 or more in its
operations within the state of New York.
INVESTMENT SELECTION. Through fundamental analysis the Advisor will
attempt to identify securities and groups of securities with potential for
capital appreciation. Under normal market conditions, at least 65% of the Fund's
total assets will be invested in New York Securities. The Advisor will generally
focus on common stocks and other equity securities of companies headquartered or
having a significant presence in New York. The Fund intends to remain fully
invested at all times. The Advisor intends to limit portfolio turnover in the
Fund to no more than 100%, believing that a long-term rather than a short-term
selection of investments is preferable.
The equity securities in which the Fund may invest include common
stocks, convertible preferred stocks, straight preferred stocks and convertible
bonds. Preferred stocks and bonds will be rated at the time of purchase in the
four highest grades assigned by Moody's Investors Service, Inc. (Aaa, Aa, A or
Baa) or Standard & Poor's Ratings Group (AAA, AA, A or BBB) or, if unrated, will
have been determined by the Advisor to be of
- 5 -
<PAGE>
comparable quality. Preferred stocks and bonds rated Baa or BBB have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to pay principal and interest or to
pay the preferred stock obligations than is the case with higher grade
securities. Subsequent to its purchase by the Fund, a security may cease to be
rated or its rating may be reduced to below Baa or BBB. The Advisor will
consider such an event to be relevant in its determination of whether the Fund
should continue to hold such security. The Fund may also invest in warrants or
rights to acquire equity securities other than those acquired in units or
attached to other securities.
The Fund's concentration in companies headquartered in or having a
significant presence in New York generally will tie the performance of the Fund
to the economic environment of the state and the surrounding area. There is no
assurance that the demographic and economic characteristics and other factors
that the Advisor believes favor companies in New York will continue in the
future. Moreover, the Fund's portfolio may include securities of smaller
companies and companies that are not nationally recognized. The prices of stocks
of such companies generally are more volatile than those of larger or more
mature companies, their securities are generally less liquid, and they are more
likely to be negatively affected by adverse economic or market conditions.
Moreover, because of its concentration, the Fund's portfolio may be invested in
a smaller number of companies than that of a general equity mutual fund. This
may result in investments by the Fund in a smaller number of industry sectors.
These limitations may also prevent the Advisor from using certain traditional
analytical measures employed to select investments and also exclude some
strategies that could offer superior performance or reduce fluctuations in the
values of such assets.
Under normal market conditions, at least 90% of the Fund's total assets
will be invested in equity securities (with at least 65% of the Fund's total
assets invested in New York Securities). Warrants and rights will be excluded
for purposes of this calculation. As a temporary defensive measure, however, the
Fund may invest up to 100% of its total assets in investment grade bonds, U.S.
Government Securities, repurchase agreements or money market instruments. When
the Fund invests in investment grade bonds, U.S. Government Securities or money
market instruments as a temporary defensive measure, it is not pursuing its
stated investment objective.
FACTORS TO CONSIDER. The Fund is not intended to be a complete
investment program and there can be no assurance that the Fund will achieve its
investment objective. The Fund's net asset value will be subject to market
fluctuation. The Fund is a non-diversified fund and therefore may invest more
than 5% of its total assets in the securities of one or more issuers. Because a
- 6 -
<PAGE>
relatively high percentage of the assets of the Fund may be invested in the
securities of a limited number of issuers, the value of shares of the Fund may
be more sensitive to any single economic, business, political or regulatory
occurrence than the value of shares of a diversified investment company. The
Fund may borrow using its assets as collateral, but only under certain limited
conditions. Borrowing, if done, would tend to exaggerate the effects of market
fluctuations on the Fund's net asset value until repaid. (See "Borrowing.")
OPTIONS. When the Advisor believes that individual portfolio securities
are approaching the Advisor's growth and price expectations, covered call
options (calls) may be written (sold) against such securities in a disciplined
approach to selling portfolio securities.
If the Fund writes a call, it receives a premium and agrees to sell the
underlying security to a purchaser of a corresponding call at a specified price
("strike price") by a future date ("exercise date"). To terminate its obligation
on a call the Fund has written, it may purchase a corresponding call in a
"closing purchase transaction". A profit or loss will be realized, depending
upon whether the price of the closing purchase transaction is more or less than
the premium (net of transaction costs) previously received on the call written.
The Fund may also realize a profit if the call it has written lapses
unexercised, in which case the Fund keeps the premium and retains the underlying
security as well. If a call written by the Fund is exercised, the Fund forgoes
any possible profit from an increase in the market price of the underlying
security over the exercise price plus the premium received. The Fund writes
options only for hedging purposes and not for speculation where the aggregate
value of the underlying obligations will not exceed 25% of the Fund's net
assets. If the Advisor is incorrect in its expectations and the market price of
a stock subject to a call option rises above the exercise price of the option,
the Fund will lose the opportunity for further appreciation of that security.
Profits on closing purchase transactions and premiums on lapsed calls
written are considered capital gains for financial reporting purposes and are
short term gains for federal income tax purposes. When short term gains are
distributed to shareholders, they are taxed as ordinary income. If the Fund
desires to enter into a closing purchase transaction, but there is no market
when it desires to do so, it would have to hold the securities underlying the
call until the call lapses or until the call is exercised.
- 7 -
<PAGE>
The Fund will only write options which are issued by the Options
Clearing Corporation and listed on a national securities exchange. Call writing
affects the Fund's portfolio turnover rate and the brokerage commissions it
pays. Commissions for options, which are normally higher than for general
securities transactions, are payable when writing calls and when purchasing
closing purchase transactions.
FOREIGN SECURITIES. Foreign securities investment presents special
considerations not typically associated with investments in domestic securities.
Foreign taxes may reduce income. Currency exchange rates and regulations may
cause fluctuations in the value of foreign securities. Foreign securities are
subject to different regulatory environments than in the United States and,
compared to the United States, there may be a lack of uniform accounting,
auditing and financial reporting standards, less volume and liquidity and more
volatility, less public information and less regulation of foreign issuers.
Countries have been known to expropriate or nationalize assets, and foreign
investments may be subject to political, financial or social instability or
adverse diplomatic developments. There may be difficulties in obtaining service
of process on foreign issuers and difficulties in enforcing judgments with
respect to claims under the U.S. securities laws against such issuers. Favorable
or unfavorable differences between U.S. and foreign economies could affect
foreign securities values. The U.S. Government has, in the past, discouraged
foreign investments by U.S. investors through taxation or other restrictions and
it is possible that such restrictions could be imposed again.
The Fund may invest in foreign issuers directly or though the
purchase of American Depository Receipts (ADRs). ADRs, which are traded
domestically, are receipts issued by a U.S. bank or trust company evidencing
ownership of securities of a foreign issuer. ADRs may be listed on a national
securities exchange or may trade in the over-the-counter market. The prices of
ADRs are denominated in U.S. dollars while the underlying security may be
denominated in a foreign currency. Direct investments in foreign securities will
generally be limited to foreign securities traded on foreign securities
exchanges.
Although the Fund is not limited in the amount of foreign securities
it may acquire, it is presently expected that the Fund will not invest more than
10% of its assets (as measured at the time of purchase) in direct investments in
foreign securities traded on foreign securities exchanges.
MONEY MARKET INSTRUMENTS. Money market instruments may be purchased
for temporary defensive purposes, in an amount up to 100% of the Fund's assets,
when the Advisor believes the prospect for capital appreciation in the equity
securities markets is not attractive. Money market instruments will typically
represent a portion of the Fund's portfolio, as funds awaiting investment, to
accumulate cash for anticipated purchases of portfolio securities
- 8 -
<PAGE>
and to provide for shareholder redemptions and operational expenses of the Fund.
Money market instruments mature in thirteen months or less from the date of
purchase and may include U.S. Government Securities (defined below) and
corporate debt securities (including those subject to repurchase agreements),
bankers' acceptances and certificates of deposit of domestic branches of U.S.
banks, and commercial paper (including variable amount demand master notes). At
the time of purchase, money market instruments will have a short-term rating in
the highest category from any nationally recognized statistical rating
organization ("NRSRO") or, if not rated, will have been issued by a corporation
having an outstanding unsecured debt issue rated in the three highest categories
of any NRSRO or, if not so rated, will be of equivalent quality in the Advisor's
opinion.
U.S. GOVERNMENT SECURITIES. The Fund also may invest for temporary
defensive purposes all or a portion of its assets in U.S. Government Securities,
which include direct obligations of the U.S. Treasury, securities guaranteed as
to interest and principal by the U.S. Government such as obligations of the
Government National Mortgage Association, as well as securities issued or
guaranteed as to interest and principal by U.S. Government authorities, agencies
and instrumentalities such as the Federal National Mortgage Association, the
Federal Home Loan Mortgage Corporation, the Federal Land Bank, the Federal Farm
Credit Banks, the Federal Home Loan Banks, the Student Loan Marketing
Association, the Small Business Administration, the Bank for Cooperatives, the
Federal Intermediate Bank, the Federal Financing Bank, the Resolution Funding
Corporation, the Financing Corporation of America and the Tennessee Valley
Authority. U.S. Government Securities may be acquired subject to repurchase
agreements. While obligations of some U.S. Government sponsored entities are
supported by the full faith and credit of the U.S. Government, several are
supported by the right of the issuer to borrow from the U.S. Government, and
still others are supported only by the credit of the issuer itself. The
guarantee of the U.S. Government does not extend to the yield or value of the
U.S. Government Securities held by the Fund or to the Fund's shares.
BORROWING. The Fund may borrow, temporarily, up to 5% of its total
assets for extraordinary purposes and may increase this limit to 33.3% of its
total assets to meet redemption requests which might otherwise require untimely
disposition of portfolio holdings. To the extent the Fund borrows for these
purposes, the effects of market price fluctuations on portfolio net asset value
will be exaggerated. If, while such borrowing is in effect, the value of the
Fund's assets declines, the Fund would be forced to liquidate portfolio
securities when it is disadvantageous to do so. The Fund would incur interest
and other transaction costs in connection with such borrowing. The Fund will not
make any additional investments while its borrowings are outstanding.
- 9 -
<PAGE>
ILLIQUID INVESTMENTS. The Fund may invest up to 15% of its net assets
in illiquid securities. Illiquid securities are those that may not be sold or
disposed of in the ordinary course of business within seven days at
approximately the price at which they are valued. Under the supervision of the
Board of Trustees, the Advisor determines the liquidity of the Fund's
investments. The absence of a trading market can make it difficult to ascertain
a market value for illiquid investments. Disposing of illiquid securities before
maturity may be time consuming and expensive, and it may be difficult or
impossible for the Fund to sell illiquid securities promptly at an acceptable
price.
FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES. The Fund may purchase
when-issued securities and commit to purchase securities for a fixed price at a
future date beyond customary settlement time. The Fund is required to hold and
maintain, in a segregated account until the settlement date, cash, U.S.
Government Securities or high-grade debt obligations in an amount sufficient to
meet the purchase price. Purchasing securities on a when-issued or forward
commitment basis involves a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in value of the Fund's other assets. In addition, no income
accrues to the purchaser of when-issued securities during the period prior to
issuance. Although the Fund will generally purchase securities on a when-issued
or forward commitment basis with the intention of acquiring securities for its
portfolio, the Fund may dispose of a when-issued security or forward commitment
prior to settlement if the Advisor deems it appropriate to do so. The Fund may
realize short-term gains or losses upon such sales.
PORTFOLIO TURNOVER. The Fund sells portfolio securities, without
regard to the length of time they have been held, in order to take advantage of
new investment opportunities or changes in business fundamentals, or if price
targets have been met. Nevertheless, the Fund's annual portfolio turnover
generally is not expected to exceed 100%. The degree of portfolio activity
affects the brokerage costs of the Fund and may have an impact on the amount of
taxable distributions to shareholders.
REPURCHASE AGREEMENTS. The Fund may acquire U.S. Government
Securities or other high-grade debt securities subject to repurchase agreements.
A repurchase agreement transaction occurs when the Fund acquires a security and
simultaneously resells it to the vendor (normally a member bank of the Federal
Reserve or a registered Government Securities dealer) for delivery on an agreed
upon future date. The repurchase price exceeds the purchase price by an amount
which reflects an agreed upon market interest rate earned by the Fund effective
for the period of time during which the repurchase agreement is in
- 10 -
<PAGE>
effect. Delivery pursuant to the resale typically will occur within one to five
days of the purchase. The Fund's risk with respect to repurchase agreements is
limited to the ability of the vendor to pay the agreed upon sum upon the
delivery date; in the event of bankruptcy or other default by the vendor, there
may be possible delays and expenses in liquidating the instrument purchased,
decline in its value and loss of interest. Under guidelines issued by the
Trustees, the Advisor will carefully consider the creditworthiness of a vendor
during the term of the repurchase agreement. For purposes of the Investment
Company Act of 1940 (the "1940 Act"), a repurchase agreement is considered to be
a loan collateralized by the securities subject to the repurchase agreement. The
Fund will not enter into a repurchase agreement which will cause more than 15%
of its assets to be invested in repurchase agreements which extend beyond seven
days.
HOW TO PURCHASE SHARES
Your initial investment in the Fund ordinarily must be at least
$1,000 ($250 for tax-deferred retirement plans). You may purchase additional
shares through the Open Account Program described below. The Fund may, in the
Advisor's sole discretion, accept certain accounts with less than the stated
minimum initial investment. You may open an account and make an initial
investment through securities dealers having a sales agreement with the Fund's
principal underwriter, Pinnacle Investments, Inc. (the "Underwriter"). You may
also make a direct initial investment by sending a check and a completed account
application form to The New York State Opportunity Funds, P.O. Box 5354,
Cincinnati, Ohio 45201-5354. Checks should be made payable to "New York Equity
Fund". Third party checks will not be accepted. An account application is
included in this Prospectus.
Shares of the Fund are sold on a continuous basis at the public
offering price next determined after receipt of a purchase order by the Fund.
Purchase orders received by dealers prior to 4:00 p.m., Eastern time, on any
business day and transmitted to the Fund by 5:00 p.m., Eastern time, that day
are confirmed at the public offering price determined as of the close of the
regular session of trading on the New York Stock Exchange on that day. It is the
responsibility of dealers to transmit properly completed orders so that they
will be received by the Fund by 5:00 p.m., Eastern time. Dealers may charge a
fee for effecting purchase orders. Direct purchase orders received by the Fund
by 4:00 p.m., Eastern time, are confirmed at that day's public offering price.
Direct investments received by the Fund after 4:00 p.m., Eastern time, and
orders received from dealers after 5:00 p.m., Eastern time, are confirmed at the
public offering price next determined on the following business day.
The public offering price of the Fund's shares is the next determined
net asset value per share plus an initial sales charge as shown in the following
table.
- 11 -
<PAGE>
Dealer
Initial Sales Reallowance
Charge as % of: as % of
Public Net Public
Offering Amount Offering
Amount of Investment Price Invested Price
Less than $50,000 4.75% 4.99% 4.00%
$50,000 but less than $100,000 4.00 4.17 3.25
$100,000 but less than $250,000 3.25 3.36 2.75
$250,000 but less than $500,000 2.50 2.56 2.00
$500,000 but less than $1,000,000 1.50 1.52 1.00
$1,000,000 or more None None None
Under certain circumstances, the Underwriter may increase or decrease
the reallowance to dealers. Dealers engaged in the sale of shares of the Fund
may be deemed to be underwriters under the Securities Act of 1933. The
Underwriter retains the entire initial sales charge on all direct initial
investments in the Fund and on all investments in accounts with no designated
dealer of record.
The Fund mails you confirmations of all purchases or redemptions of
Fund shares. Certificates representing shares are not issued. The Fund and the
Underwriter reserve the right to limit the amount of investments and to refuse
to sell to any person.
Investors should be aware that the Fund's account application contains
provisions in favor of the Fund, the Underwriter, the Transfer Agent and certain
of their affiliates, excluding such entities from certain liabilities
(including, among others, losses resulting from unauthorized shareholder
transactions) relating to the various services made available to investors.
Should an order to purchase shares be canceled because your check does
not clear, you will be responsible for any resulting losses or fees incurred by
the Fund or the Transfer Agent in the transaction.
OPEN ACCOUNT PROGRAM. Please direct inquiries concerning the services
described in this section to the Fund at the address or numbers listed below.
After an initial investment, all investors are considered participants
in the Open Account Program. The Open Account Program helps investors make
purchases of shares of the Fund over a period of years and permits the automatic
reinvestment of dividends and distributions of the Fund in additional shares.
Reinvestment of dividends and distributions in additional shares will be made
without an initial sales charge.
- 12 -
<PAGE>
Under the Open Account Program, you may purchase and add shares to your
account at any time either through your securities dealer or by sending a check
to The New York State Opportunity Funds, P.O. Box 5354, Cincinnati, Ohio
45201-5354. The check should be made payable to "New York Equity Fund".
Under the Open Account Program, you may also purchase shares of the
Fund by bank wire. Please telephone the Fund (Nationwide call toll-free
888-899-8344) for instructions. Your bank may impose a charge for sending your
wire. There is presently no fee for receipt of wired funds, but the Fund
reserves the right to charge shareholders for this service upon thirty days'
prior notice to shareholders.
Each additional purchase request must contain the name of your account
and your account number to permit proper crediting to your account. While there
is no minimum amount required for subsequent investments, the Fund reserves the
right to impose such requirement. All purchases under the Open Account Program
are made at the public offering price next determined after receipt of a
purchase order by the Fund. If a broker-dealer received concessions for selling
shares of the Fund to a current shareholder, such broker-dealer will receive the
concessions described above with respect to additional investments by the
shareholder.
REDUCED INITIAL SALES CHARGE. A "purchaser" (defined below) may use the
Right of Accumulation to combine the cost or current net asset value (whichever
is higher) of his existing Fund shares with the amount of his current purchases
in order to take advantage of the reduced initial sales charges set forth in the
table above. Purchases made pursuant to a Letter of Intent may also be eligible
for the reduced initial sales charges. The minimum initial investment under a
Letter of Intent is $10,000. Shareholders should contact the Fund for
information about the Right of Accumulation and Letter of Intent.
PURCHASES AT NET ASSET VALUE. You may purchase shares of the Fund at
net asset value when the payment for your investment represents the proceeds
from the redemption of shares of any other mutual fund which has an initial
sales charge. Your investment will qualify for this provision if the purchase
price of the shares of the other fund included an initial sales charge and the
redemption occurred within one year of the purchase of such shares and no more
than sixty days prior to your purchase of shares of the Fund. To make a purchase
at net asset value pursuant to this provision, you must submit photocopies of
the confirmations (or similar evidence) showing the purchase and redemption of
shares of the other fund. Your payment may be made with the redemption check
representing the proceeds of the shares redeemed, endorsed to the order of the
Fund. The redemption of
- 13 -
<PAGE>
shares of the other fund is, for federal income tax purposes, a sale on which
you may realize a gain or loss. These provisions may be modified or terminated
at any time. Contact your securities dealer or the Fund for further information.
Banks, bank trust departments and savings and loan associations, in
their fiduciary capacity or for their own accounts, may also purchase shares of
the Fund at net asset value. To the extent permitted by regulatory authorities,
a bank trust department may charge fees to clients for whose account it
purchases shares at net asset value. Federal and state credit unions may also
purchase shares at net asset value.
In addition, shares of the Fund may be purchased at net asset value by
broker-dealers who have a sales agreement with the Underwriter, and their
registered personnel and employees, including members of the immediate families
of such registered personnel and employees.
Clients of investment advisors and financial planners may also purchase
shares of the Fund at net asset value if their investment advisor or financial
planner has made arrangements to permit them to do so with the Fund and the
Underwriter. The investment advisor or financial planner must notify the Fund
that an investment qualifies as a purchase at net asset value.
Trustees, directors, officers and employees of the Fund, the Advisor,
the Underwriter or the Transfer Agent, including members of the immediate family
of such individuals and employee benefit plans established by such entities, may
also purchase shares of the Fund at net asset value.
ADDITIONAL INFORMATION. For purposes of determining the applicable
initial sales charge and for purposes of the Letter of Intent and Right of
Accumulation privileges, a purchaser includes an individual, his spouse and
their children under the age of 21, purchasing shares for his or their own
account; a trustee or other fiduciary purchasing shares for a single fiduciary
account although more than one beneficiary is involved; employees of a common
employer, provided that economies of scale are realized through remittances from
a single source and quarterly confirmation of such purchases; or an organized
group, provided that the purchases are made through a central administration, or
a single dealer, or by other means which result in economy of sales effort or
expense. Contact the Fund for additional information concerning purchases at net
asset value or at reduced initial sales charges.
- 14 -
<PAGE>
SHAREHOLDER SERVICES
Contact the Fund (Nationwide call toll-free 888-899-8344) for
additional information about the shareholder services described below.
Automatic Withdrawal Plan
If the shares in your account have a value of at least $5,000, you may
elect to receive, or may designate another person to receive, monthly or
quarterly payments in a specified amount of not less than $50 each. There is no
charge for this service. Purchases of additional shares of the Fund while the
plan is in effect are generally undesirable because an initial sales charge is
incurred whenever purchases are made.
Tax-Deferred Retirement Plans
Shares of the Fund are available for purchase in connection with the
following tax-deferred retirement plans:
-- Keogh Plans for self-employed individuals
-- Individual retirement account (IRA) plans for
individuals and their non-employed spouses
-- Qualified pension and profit-sharing plans for
employees, including those profit-sharing plans with a
401(k) provision
-- 403(b)(7) custodial accounts for employees of public school
systems, hospitals, colleges and other non-profit
organizations meeting certain requirements of the Internal
Revenue Code
Direct Deposit Plans
Shares of the Fund may be purchased through direct deposit plans
offered by certain employers and government agencies. These plans enable a
shareholder to have all or a portion of his or her payroll or social security
checks transferred automatically to purchase shares of the Fund.
Automatic Investment Plan
You may make automatic monthly investments in the Fund from your bank,
savings and loan or other depository institution account. The minimum initial
and subsequent investments must be $50 under the plan. The Fund pays the costs
associated with these transfers, but reserves the right, upon thirty days'
written notice, to make reasonable charges for this service. Your depository
institution may impose its own charge for debiting your account which would
reduce your return from an investment in the Fund.
- 15 -
<PAGE>
Reinvestment Privilege
If you have redeemed shares of the Fund, you may reinvest all or part
of the proceeds without any additional sales charge. This reinvestment must
occur within ninety days of the redemption and the privilege may only be
exercised once per year.
HOW TO REDEEM SHARES
You may redeem shares of the Fund on each day that the Fund is open for
business by sending a written request to the Fund. The request must state the
number of shares or the dollar amount to be redeemed and your account number.
The request must be signed exactly as your name appears on the Fund's account
records. If the shares to be redeemed have a value of $25,000 or more, your
signature must be guaranteed by any eligible guarantor institution, including
banks, brokers and dealers, municipal securities brokers and dealers, government
securities brokers and dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings associations.
You may also redeem shares by placing a wire redemption request through
a securities broker or dealer. Unaffiliated broker-dealers may impose a fee on
the shareholder for this service. You will receive the net asset value per share
next determined after receipt by the Fund or its agent of your wire redemption
request. It is the responsibility of broker-dealers to properly transmit wire
redemption orders.
If your instructions request a redemption by wire, you will be charged
an $8 processing fee. The Fund reserves the right, upon thirty days' written
notice, to change the processing fee. All charges will be deducted from your
account by redemption of shares in your account. Your bank or brokerage firm may
also impose a charge for processing the wire. In the event that wire transfer of
funds is impossible or impractical, the redemption proceeds will be sent by mail
to the designated account.
Redemption requests may direct that the proceeds be deposited directly
in your account with a commercial bank or other depository institution via an
Automated Clearing House (ACH) transaction. There is currently no charge for ACH
transactions. Contact the Fund for more information about ACH transactions.
Shares are redeemed at the net asset value per share next determined
after receipt by the Fund of a proper redemption request in the form described
above, less any applicable charges imposed by unaffiliated brokers, dealers or
your bank, as described herein. Payment is normally made within three business
- 16 -
<PAGE>
days after tender in such form, provided that payment in redemption of shares
purchased by check will be effected only after the check has been collected,
which may take up to fifteen days from the purchase date. To eliminate this
delay, you may purchase shares of the Fund by certified check or wire.
At the discretion of the Fund or the Transfer Agent, corporate
investors and other associations may be required to furnish an appropriate
certification authorizing redemptions to ensure proper authorization. The Fund
reserves the right to require you to close your account if at any time the value
of your shares is less than $1,000 (based on actual amounts invested including
any initial sales charge paid, unaffected by market fluctuations), or $250 in
the case of tax-deferred retirement plans, or such other minimum amount as the
Fund may determine from time to time. After notification to you of the Fund's
intention to close your account, you will be given thirty days to increase the
value of your account to the minimum amount.
The Fund reserves the right to suspend the right of redemption or to
postpone the date of payment for more than three business days under unusual
circumstances as determined by the Securities and Exchange Commission.
DIVIDENDS AND DISTRIBUTIONS
The Fund expects to distribute substantially all of its net investment
income, if any, on an annual basis. The Fund expects to distribute any net
realized long-term capital gains at least once each year. Management will
determine the timing and frequency of the distributions of any net realized
short-term capital gains.
Shareholders will receive dividends and distributions in additional
Fund shares; however, shareholders may elect to receive all or a portion of
their dividends and distributions in cash. The following options are available:
Share Option - income distributions and capital gains
distributions reinvested in additional shares.
Income Option - income distributions and short-term
capital gains distributions paid in cash;
long-term capital gains distributions reinvested
in additional shares.
Cash Option - income distributions and capital gains
distributions paid in cash.
- 17 -
<PAGE>
You should indicate your choice of option on your application. If no option is
selected, distributions will automatically be reinvested in
additional shares. All distributions will be based on the net asset value in
effect on the payable date.
If you choose to receive cash and the U.S. Postal Service cannot
deliver your checks or if your checks remain uncashed for six months, your
dividends may be reinvested in your account at the then-current net asset value
and thereafter may continue to be reinvested in such shares.
An investor who has received in cash any dividend or capital gains
distribution from the Fund may return the distribution within thirty days of the
distribution date to the Fund for reinvestment at the net asset value next
determined after its return. The investor or his dealer must notify the Fund
that a distribution is being reinvested pursuant to this provision.
TAXES
The Fund intends to qualify for the special tax treatment afforded a
"regulated investment company" under Subchapter M of the Internal Revenue Code
so that it does not pay federal taxes on income and capital gains distributed to
shareholders. The Fund intends to distribute substantially all of its net
investment income and any net realized capital gains to its shareholders.
Distributions of net investment income as well as from net realized short-term
capital gains, if any, are taxable as ordinary income. Dividends distributed by
the Fund from net investment income may be eligible, in whole or in part, for
the dividends received deduction available to corporations. Distributions of net
realized long-term capital gains are taxable as long-term capital gains
regardless of how long you have held your Fund shares. Redemptions of shares of
the Fund are taxable events on which a shareholder may realize a gain or loss.
The Fund will mail to each of its shareholders a statement indicating
the amount and federal income tax status of all distributions made during the
year. In addition to federal taxes, shareholders of the Fund may be subject to
state and local taxes on distributions. Shareholders should consult their tax
advisors about the tax effect of distributions and withdrawals from the Fund and
the use of the Automatic Withdrawal Plan. The tax consequences described in this
section apply whether distributions are taken in cash or reinvested in
additional shares.
- 18 -
<PAGE>
OPERATION OF THE FUND
The Fund is a non-diversified series of The New York State Opportunity
Funds, an open-end management investment company organized as a Massachusetts
business trust on November 20, 1996. The Board of Trustees supervises the
business activities of the Trust. Like other mutual funds, the Trust retains
various organizations to perform specialized services for the Fund.
The Trust retains Pinnacle Advisors LLC, 4605 E. Genesee Street,
DeWitt, New York (the "Advisor"), to manage the Fund's investments. The
controlling shareholders of the Advisor are Gregg A. Kidd and Patrick J. Dooley.
The Advisor has not previously provided investment advisory services to a
registered investment company. The Fund pays the Advisor a fee equal to the
annual rate of 1% of the average value of its daily net assets up to $100
million; .95% of such assets from $100 million to $200 million; and .85% of such
assets in excess of $200 million. As of the date of this Prospectus, the Advisor
is the sole shareholder of the Fund.
Mr. Kidd and Mr. Dooley are primarily responsible for the day-to-day
management of the Fund's portfolio. Mr. Kidd co-founded the Advisor with Mr.
Dooley in 1996. From March 1986 until September 1995, Mr. Kidd was a Vice
President of Smith Barney, Inc., a registered broker-dealer and investment
advisor. From July 1987 to May 1993, Mr. Dooley was a Principal of K&M
Management, an employee benefits firm. From May 1993 to February 1997, he was a
Vice President of QCI Asset Management, a registered investment advisor.
The Fund is responsible for the payment of all operating expenses,
including fees and expenses in connection with membership in investment company
organizations, brokerage fees and commissions, legal, auditing and accounting
expenses, expenses of registering shares under federal and state securities
laws, expenses related to the distribution of the Fund's shares (see
"Distribution Plan"), insurance expenses, taxes or governmental fees, fees and
expenses of the custodian, transfer agent and accounting and pricing agent of
the Fund, fees and expenses of members of the Board of Trustees who are not
interested persons of the Fund, the cost of preparing and distributing
prospectuses, statements, reports and other documents to shareholders, expenses
of shareholders' meetings and proxy solicitations, and such extraordinary or
non-recurring expenses as may arise, including litigation to which the Fund may
be a party and indemnification of the Fund's officers and Trustees with respect
thereto.
- 19 -
<PAGE>
Pinnacle Investments, Inc., 4605 E. Genesee Street, DeWitt, New York
(the "Underwriter"), an affiliate of the Advisor, serves as principal
underwriter for the Fund and, as such, is the exclusive agent for the
distribution of shares of the Fund. Mr. Gregg A. Kidd, a controlling shareholder
of the Advisor and President and a Trustee of the Trust, is the controlling
shareholder of the Underwriter.
The Trust has retained Countrywide Fund Services, Inc., P.O. Box 5354,
Cincinnati, Ohio (the "Transfer Agent") to serve as the Fund's transfer agent,
dividend paying agent and shareholder service agent.
The Transfer Agent also provides accounting and pricing services to the
Fund. The Transfer Agent receives a monthly fee from the Fund for calculating
daily net asset value per share and maintaining such books and records as are
necessary to enable it to perform its duties.
In addition, the Transfer Agent has been retained to provide
administrative services to the Fund. In this capacity, the Transfer Agent
supplies executive, administrative and regulatory services, supervises the
preparation of tax returns, and coordinates the preparation of reports to
shareholders and reports to and filings with the Securities and Exchange
Commission and state securities authorities. The Fund pays the Transfer Agent a
fee for these administrative services at the annual rate of .15% of the average
value of its daily net assets up to $25,000,000, .125% of such assets from
$25,000,000 to $50,000,000 and .1% of such assets in excess of $50,000,000;
provided, however, that the minimum fee is $1,000 per month.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc., and subject to its objective of seeking best
execution of portfolio transactions, the Advisor may give consideration to sales
of shares of the Fund as a factor in the selection of brokers and dealers to
execute portfolio transactions of the Fund. Subject to the requirements of the
1940 Act and procedures adopted by the Board of Trustees, the Fund may execute
portfolio transactions through any broker or dealer and pay brokerage
commissions to a broker (i) which is an affiliated person of the Fund, or (ii)
which is an affiliated person of such person, or (iii) an affiliated person of
which is an affiliated person of the Fund, the Advisor or the Underwriter.
Shares of the Fund have equal voting rights and liquidation rights.
When matters are submitted to shareholders for a vote, each shareholder is
entitled to one vote for each full share owned and fractional votes for
fractional shares owned. The Fund does not normally hold annual meetings of
shareholders. The Trustees shall promptly call and give notice of a meeting of
- 20 -
<PAGE>
shareholders for the purpose of voting upon the removal of any Trustee when
requested to do so in writing by shareholders holding 10% or more of the Fund's
outstanding shares. The Fund will comply with the provisions of Section 16(c) of
the Investment Company Act of 1940 in order to facilitate communications among
shareholders.
DISTRIBUTION PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a plan
of distribution (the "Plan") under which the Fund may directly incur or
reimburse the Underwriter for certain distribution-related expenses, including
payments to securities dealers and others who are engaged in the sale of shares
of the Fund and who may be advising investors regarding the purchase, sale or
retention of Fund shares; expenses of maintaining personnel who engage in or
support distribution of shares or who render shareholder support services not
otherwise provided by the Transfer Agent or the Fund; expenses of formulating
and implementing marketing and promotional activities, including direct mail
promotions and mass media advertising; expenses of preparing, printing and
distributing sales literature and prospectuses and statements of additional
information and reports for recipients other than existing shareholders of the
Fund; expenses of obtaining such information, analyses and reports with respect
to marketing and promotional activities as the Fund may, from time to time, deem
advisable; and any other expenses related to the distribution of the Fund's
shares.
The annual limitation for payment of expenses pursuant to the Plan is
.25% of the Fund's average daily net assets. In the event the Plan is terminated
by the Fund in accordance with its terms, the Fund will not be required to make
any payments for expenses incurred by the Underwriter after the date the Plan
terminates.
Pursuant to the Plan, the Fund may also make payments to banks or other
financial institutions that provide shareholder services and administer
shareholder accounts. The Glass-Steagall Act prohibits banks from engaging in
the business of underwriting, selling or distributing securities. Although the
scope of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or appropriate regulatory agencies, management of the Fund
believes that the Glass-Steagall Act should not preclude a bank from providing
such services. However, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law. If a
bank were prohibited from continuing to perform all or a part of such services,
management of the Fund believes that there would be no material impact on the
Fund or its shareholders. Banks may charge their customers fees for offering
these services to the extent permitted by applicable regulatory authorities, and
the overall return to those
- 21 -
<PAGE>
shareholders availing themselves of the bank services will be lower than to
those shareholders who do not. The Fund may from time to time purchase
securities issued by banks which provide such services; however, in selecting
investments for the Fund, no preference will be shown for such securities.
The National Association of Securities Dealers, in its Rules of Fair
Practice, places certain limitations on asset-based sales charges of mutual
funds. These Rules require fund-level accounting in which all sales charges
initial sales charge, 12b-1 fees or contingent deferred sales charge - terminate
when a percentage of gross sales is reached.
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
On each day that the Fund is open for business, the public offering
price (net asset value plus applicable initial sales charge) of the shares of
the Fund is determined as of the close of the regular session of trading on the
New York Stock Exchange, currently 4:00 p.m., Eastern time. The Fund is open for
business on each day the New York Stock Exchange is open for business and on any
other day when there is sufficient trading in the Fund's investments that its
net asset value might be materially affected. The net asset value per share of
the Fund is calculated by dividing the sum of the value of the securities held
by the Fund plus cash or other assets minus all liabilities (including estimated
accrued expenses) by the total number of shares outstanding of the Fund, rounded
to the nearest cent.
U.S. Government obligations are valued at their most recent bid prices
as obtained from one or more of the major market makers for such securities.
Other portfolio securities are valued as follows: (i) securities which are
traded on stock exchanges or are quoted by NASDAQ are valued at the last
reported sale price as of the close of the regular session of trading on the New
York Stock Exchange on the day the securities are being valued, or, if not
traded on a particular day, at the closing bid price, (ii) securities traded in
the over-the-counter market, and which are not quoted by NASDAQ, are valued at
the last sale price (or, if the last sale price is not readily available, at the
last bid price as quoted by brokers that make markets in the securities) as of
the close of the regular session of trading on the New York Stock Exchange on
the day the securities are being valued, (iii) securities which are traded both
in the over-the-counter market and on a stock exchange are valued according to
the broadest and most representative market, and (iv) securities (and other
assets) for which market quotations are not readily available are valued at
their fair value as determined in good faith in accordance with consistently
applied procedures established by and under the general supervision of the Board
of Trustees. The net asset value per share of the Fund will fluctuate with the
value of the securities it holds.
- 22 -
<PAGE>
PERFORMANCE INFORMATION
From time to time, the Fund may advertise its "average annual total
return." Average annual total return figures are based on historical earnings
and are not intended to indicate future performance.
The "average annual total return" of the Fund refers to the average
annual compounded rates of return over the most recent 1, 5 and 10 year periods
or, where the Fund has not been in operation for such period, over the life of
the Fund (which periods will be stated in the advertisement) that would equate
an initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment. The calculation of "average annual total
return" assumes the reinvestment of all dividends and distributions and the
deduction of the current maximum sales charge from the initial investment. The
Fun d may also advertise total return (a "nonstandardized quotation") which is
calculated differently from "average annual total return." A nonstandardized
quotation of total return may be a cumulative return which measures the
percentage change in the value of an account between the beginning and end of a
period, assuming no activity in the account other than reinvestment of dividends
and capital gains distributions. A nonstandardized quotation of total return may
also indicate average annual compounded rates of return over periods other than
those specified for "average annual total return." These nonstandardized returns
do not include the effect of the applicable initial sales charge which, if
included, would reduce total return. A nonstandardized quotation of total return
will always be accompanied by the Fund's "average annual total return" as
described above.
From time to time, the Fund may advertise its performance rankings as
published by recognized independent mutual fund statistical services such as
Lipper Analytical Services, Inc. ("Lipper"), or by publications of general
interest such as Forbes, Money, The Wall Street Journal, Business Week,
Barron's, Fortune or Morningstar Mutual Fund Values. The Fund may also compare
its performance to that of other selected mutual funds, averages of the other
mutual funds within its category as determined by Lipper, or recognized
indicators such as the Dow Jones Industrial Average and the Standard & Poor's
500 Stock Index. In connection with a ranking, the Fund may provide additional
information, such as the particular category of funds to which the ranking
relates, the number of funds in the category, the criteria upon which the
ranking is based, and the effect of fee waivers and/or expense reimbursements,
if any. The Fund may also present its performance and other investment
characteristics, such as volatility or a temporary defensive posture, in light
of the Advisor's view of current or past market conditions or historical trends.
- 23 -
<PAGE>
THE NEW YORK STATE OPPORTUNITY FUNDS
4605 E. Genesee Street
DeWitt, New York 13214
BOARD OF TRUSTEES
Patrick J. Dooley
Gregg A. Kidd
Joseph Masella
R. Earnie Seibert
Joseph E. Stanton
Mark E. Wadach
INVESTMENT ADVISOR
PINNACLE ADVISORS LLC
4605 E. Genesee Street
DeWitt, New York 13214
UNDERWRITER
PINNACLE INVESTMENTS, INC.
4605 E. Genesee Street
DeWitt, New York 13214
LEGAL COUNSEL
KRAMER, LEVIN, NAFTALIS & FRANKEL
919 Third Avenue 41st Floor
New York, New York 10022-3852
INDEPENDENT AUDITORS
MCGLADREY & PULLEN, LLP
555 Fifth Avenue
New York, New York 10017-2416
TRANSFER AGENT
COUNTRYWIDE FUND SERVICES, INC.
312 Walnut Street
P.O. Box 5354
Cincinnati, Ohio 45201-5354
Shareholder Services
Nationwide: (Toll-Free) 888-899-8344
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering contained in this Prospectus, and if given or made, such
information or representations must not be relied upon as being authorized by
the Fund. This Prospectus does not constitute an offer by the Fund to sell
shares in any State to any person to whom it is unlawful for the Fund to make
such offer in such State.
- 24 -
<PAGE>
NEW YORK EQUITY FUND ACCOUNT NO. 38 -___________________
Account Application (For Fund Use Only)
Please mail completed account application to FOR BROKER/DEALER USE ONLY
Countrywide Fund Services, Inc. Firm Name:______________________
P.O. Box 5354 Home Office Address:____________
Cincinnati, Ohio 45201-5354 Branch Address:_________________
Rep Name & No.:_________________
Rep Signature:__________________
Initial Investment of $______________ ($1,000 minimum).
o Check or draft enclosed payable to the New York Equity Fund.
o Bank Wire From: _____________________________________________________________
Account Name S.S. #/Tax I.D.#
_________________________________________________ _____________________________
Name of Individual, Corporation, Organization, (In case of custodial
or Minor, etc. account please list
minor's S.S.#)
_________________________________________________ Citizenship: o U.S.
Name of Joint Tenant, Partner, Custodian o Other________
Address Phone
_________________________________________________ ( )________________________
Street or P.O. Box Business Phone
_________________________________________________ ( )________________________
City State Zip Home Phone
Check Appropriate Box:o Individual o Joint Tenant(Right of Survivorship Presumed
o Partnership o Corporation o Trust o Custodial o Non-Profit o Other
Occupation and Employer Name/Address____________________________________________
Are you an associated person of an NASD member? o Yes o No
TAXPAYER IDENTIFICATION NUMBER -- Under penalties of perjury I certify that the
Taxpayer Identification Number listed above is my correct number. Check box if
appropriate:
o I am exempt from backup withholding under the provisions of section
3406(a)(1)(c) of the Internal Revenue Code; or I am not subject to backup
withholding because I have not been notified that I am subject to backup
withholding as a result of a failure to report all interest or dividends; or the
Internal Revenue Service has notified me that I am no longer subject to backup
withholding.
o I certify under penalties of perjury that a Taxpayer Identification Number has
not been issued to me and I have mailed or delivered an application to receive a
Taxpayer Identification Number to the Internal Revenue Service Center or Social
Security Administration Office. I understand that if I do not provide a Taxpayer
Identification Number within 60 days that 31% of all reportable payments will be
withheld until I provide a number.
DISTRIBUTIONS (If no election is checked the SHARE OPTION will be assigned.)
o Share Option -- Income distributions and capital gains distributions
automatically reinvested in additional shares.
o Income Option -- Income distributions and short term capital gains
distributions paid in cash, long term capital gains
distributions reinvested in additional shares.
o Cash Option -- Income distributions and capital gains distributions paid
in cash. (o By Check o By ACH - Please attach a voided
check.)
REDUCED SALES CHARGES
Right of Accumulation: I apply for Right of Accumulation subject to the Agent's
confirmation of the following holdings of the New York Equity Fund.
Account Number/Name Account Number/Name
______________________________________ ______________________________________
______________________________________ ______________________________________
Letter of Intent: (Complete the Right of Accumulation section if related
accounts are being applied to your Letter of Intent.)
o I agree to the Letter of Intent in the current Prospectus of the New York
Equity Fund. Although I am not obligated to purchase, and the Fund is not
obligated to sell, I intend to invest over a 13 month period beginning
______________________ 19 _______ (purchase date of not more than 90 days prior
to this Letter) an aggregate amount in the Fund at least equal to (check
appropriate box):
o $50,000 o $100,000 o $250,000 o $500,000 o $1,000,000
SIGNATURES
By signature below each investor certifies that he has received a copy of the
Fund's current Prospectus, that he is of legal age, and that he has full
authority and legal capacity for himself or the organization named below, to
make this investment and to use the options selected above. The investor
appoints Countrywide Fund Services, Inc. as his agent to enter orders for
shares, to receive dividends and distributions for automatic reinvestment in
additional shares of the Fund for credit to the investor's account and to
surrender for redemption shares held in the investor's account for payment of
service charges incurred by the investor. The investor further agrees that
Countrywide Fund Services, Inc. can cease to act as such agent upon ten days'
notice in writing to the investor at the address contained in this Application.
The investor hereby ratifies any instructions given pursuant to this Application
and for himself and his successors and assigns does hereby release the Fund,
Pinnacle Investments, Inc., Pinnacle Advisors LLC, Countrywide Fund Services,
Inc., and their respective officers, employees, agents and affiliates from any
and all liability in the performance of the acts instructed herein. The Internal
Revenue Service does not require your consent to any provision of this document
other than the certifications required to avoid backup withholding.
____________________________________ ___________________________________
Signature of Individual Owner, Signature of Joint Owner, if Any
Corporate Officer, Trustee, etc.
____________________________________ ___________________________________
Title of Corporate Officer, Date
Trustee, etc.
NOTE: Corporations, business trusts and other organizations
must complete the resolution form on the reverse side. Unless
otherwise specified, each joint owner shall have full authority
to act on behalf of the account.
<PAGE>
AUTOMATIC INVESTMENT PLAN (Complete for Investments into the Fund)
The Automatic Investment Plan is available for all established accounts of the
New York Equity Fund. There is no charge for this service, and it offers the
convenience of automatic investing on a regular basis. The minimum investment is
$50.00 per month. For an account that is opened by using this Plan, the minimum
initial and subsequent investments must be $50.00. Though a continuous program
of 12 monthly investments is recommended, the Plan may be discontinued by the
shareholder at any time.
Please invest $ _________ per month
in the New York Equity Fund ABA Routing Number_____________________
FI Account Number______________________
o Checking Account o Savings Account
_____________________________________
Name of Financial Institution (FI) Please make my automatic investment on:
o the last business day of each month
o the 15th day of each month
_____________________________________ o both the 15th and last business day
City State
X____________________________________ X______________________________________
(Signature of Depositor EXACTLY (Signature of Joint Tenant - if any)
as it appears on FI Records)
(Joint Signatures are required when bank account is in joint names. Please sign
exactly as signature appears on your FI's records.)
Please attach a voided check for the Automatic Investment Plan.
Indemnification to Depositor's Bank
In consideration of your participation in a plan which Countrywide Fund
Services, Inc. ("Countrywide") has put into effect, by which amounts, determined
by your depositor, payable to the Fund, for purchase of shares of the Fund, are
collected by Countrywide, Countrywide hereby agrees:
Countrywide will indemnify and hold you harmless from any liability to any
person or persons whatsoever arising out of the payment by you of any amount
drawn by the Fund to its own order on the account of your depositor or from any
liability to any person whatsoever arising out of the dishonor by you whether
with or without cause or intentionally or inadvertently, of any such amount.
Countrywide will defend, at its own cost and expense, any action which might be
brought against you by any person or persons whatsoever because of your actions
taken pursuant to the foregoing request or in any manner arising by reason of
your participation in this arrangement. Countrywide will refund to you any
amount erroneously paid by you to the Fund if the claim for the amount of such
erroneous payment is made by you within six (6) months from the date of such
erroneous payment; your participation in this arrangement and that of the Fund
may be terminated by thirty (30) days' written notice from either party to the
other.
AUTOMATIC WITHDRAWAL PLAN (Complete for Withdrawals from the Fund)
This is an authorization for you to withdraw $__________ from my mutual fund
account beginning the last business day of the month of ___________.
Please Indicate Withdrawal Schedule (Check One):
o Monthly -- Withdrawals will be made on the last business day of each month.
o Quarterly -- Withdrawals will be made on or about 3/31, 6/30, 9/30 and 12/31.
o Annually -- Please make withdrawals on the last business day
of the month of: ____________.
Please Select Payment Method (Check One):
o Check: Please mail a check for my withdrawal proceeds to the mailing address
on this account.
o ACH Transfer: Please send my withdrawal proceeds via ACH transfer to my bank
checking or savings account as indicated below. I understand that the
transfer will be completed in two to three business days and that there is no
charge.
o Bank Wire: Please send my withdrawal proceeds via bank wire, to the account
indicated below. I understand that the wire will be completed in one business
day and that there is an $8.00 fee.
Please attach a voided ______________________________________________
check for ACH or bank wire Bank Name Bank Address
______________________________________________
Bank ABA# Account # Account Name
o Send to special payee (other than applicant): Please mail a check for my
withdrawal proceeds to the mailing address below:
Name of payee___________________________________________________________________
Please send to:_________________________________________________________________
Street address City State Zip
RESOLUTIONS
(This Section to be completed by Corporations, Trusts, and Other Organizations)
RESOLVED: That this corporation or organization become a shareholder of the
New York Equity Fund (the Fund) and that
________________________________________________________________________________
is (are) hereby authorized to complete and execute the Application on behalf of
the corporation or organization and to take any action for it as may be
necessary or appropriate with respect to its shareholder account with the Fund,
and it is
FURTHER RESOLVED: That any one of the above noted officers is authorized to sign
any documents necessary or appropriate to appoint Countrywide Fund Services,
Inc. as redemption agent of the corporation or organization for shares of the
applicable series of the Fund, to establish or acknowledge terms and conditions
governing the redemption of said shares and to otherwise implement the
privileges elected on the Application.
Certificate
I hereby certify that the foregoing resolutions are in conformity with the
Charter and Bylaws or other empowering documents of the
________________________________________________________________________________
(Name of Organization)
incorporated or formed under the laws of________________________________________
(State)
and were adopted at a meeting of the Board of Directors or Trustees of the
organization or corporation duly called and held on ____________ at which a
quorum was present and acting throughout, and that the same are now in full
force and effect.
I further certify that the following is (are) duly elected officer(s) of the
corporation or organization, authorized to act in accordance with the foregoing
resolutions.
Name Title
____________________________________ ___________________________________
____________________________________ ___________________________________
____________________________________ ___________________________________
Witness my hand and seal of the corporation or organization this__________day
of___________________, 19______
____________________________________ ___________________________________
*Secretary-Clerk Other Authorized Officer
(if required)
*If the Secretary or other recording officer is authorized to act by the above
resolutions, this certificate must also be signed by another officer.
<PAGE>
THE NEW YORK STATE OPPORTUNITY FUNDS
STATEMENT OF ADDITIONAL INFORMATION
________, 1997
New York Equity Fund
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Prospectus of The New York State Opportunity
Funds dated ________, 1997. A copy of the Fund's Prospectus can be obtained by
writing the Fund at 312 Walnut Street, 21st Floor, Cincinnati, Ohio 45201-5354,
or by calling the Trust nationwide toll-free 888-899-8344.
- 1 -
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
The New York State Opportunity Funds
4605 E. Genesee Street
DeWitt, New York 13214
TABLE OF CONTENTS
PAGE
THE TRUST....................................................................3
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS................................3
QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS......................7
INVESTMENT LIMITATIONS.......................................................9
TRUSTEES AND OFFICERS.......................................................11
THE INVESTMENT ADVISOR......................................................13
THE UNDERWRITER. . . . .....................................................14
DISTRIBUTION PLAN. . . . ...................................................14
SECURITIES TRANSACTIONS.....................................................15
PORTFOLIO TURNOVER..........................................................17
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE........................17
OTHER PURCHASE INFORMATION..................................................18
TAXES.......................................................................19
REDEMPTION IN KIND..........................................................20
HISTORICAL PERFORMANCE INFORMATION..........................................20
CUSTODIAN...................................................................23
AUDITORS....................................................................23
COUNTRYWIDE FUND SERVICES, INC..............................................23
STATEMENT OF ASSETS AND LIABILITIES.........................................24
- 2 -
<PAGE>
THE TRUST
The New York State Opportunity Funds (the "Trust") was organized as a
Massachusetts business trust on November 20, 1996. The Trust currently offers
one series of shares to investors: the New York Equity Fund (the "Fund").
Each share of the Fund represents an equal proportionate interest in
the assets and liabilities belonging to the Fund with each other share of the
Fund and is entitled to such dividends and distributions out of the income
belonging to the Fund as are declared by the Trustees. The shares do not have
cumulative voting rights or any preemptive or conversion rights, and the
Trustees have the authority from time to time to divide or combine the shares of
the Fund into a greater or lesser number of shares so long as the proportionate
beneficial interest in the assets belonging to the Fund are in no way affected.
In case of any liquidation of the Fund, the holders of shares of the Fund being
liquidated will be entitled to receive as a class a distribution out of the
assets, net of the liabilities, belonging to the Fund. No shareholder is liable
to further calls or to assessment by the Fund without his express consent.
Under Massachusetts law, under certain circumstances, shareholders of a
Massachusetts business trust could be deemed to have the same type of personal
liability for the obligations of the Trust as does a partner of a partnership.
However, numerous investment companies registered under the Investment Company
Act of 1940 have been formed as Massachusetts business trusts and the Trust is
not aware of any instance where such result has occurred. In addition, the
Agreement and Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or the Trustees. The Agreement and Declaration of Trust also provides for the
indemnification out of the Trust property for all losses and expenses of any
shareholder held personally liable for the obligations of the Trust. Moreover,
it provides that the Trust will, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the Trust and satisfy
any judgment thereon. As a result, and particularly because the Trust assets are
readily marketable and ordinarily substantially exceed liabilities, management
believes that the risk of shareholder liability is slight and limited to
circumstances in which the Trust itself would be unable to meet its obligations.
Management believes that, in view of the above, the risk of personal liability
is remote.
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
A more detailed discussion of some of the terms used and investment
policies described in the Prospectus (see "Investment Objectives and Policies")
appears below:
- 3 -
<PAGE>
MAJORITY. As used in the Prospectus and this Statement of Additional
Information, the term "majority" of the outstanding shares of the Fund means the
lesser of (1) 67% or more of the Fund's outstanding shares present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented at such meeting or (2) more than 50% of the outstanding
shares of the Fund.
WRITING COVERED CALL OPTIONS. The writing of call options by the Fund
is subject to limitations established by each of the exchanges governing the
maximum number of options which may be written or held by a single investor or
group of investors acting in concert, regardless of whether the options were
written or purchased on the same or different exchanges or are held in one or
more accounts or through one or more different exchanges or through one or more
brokers. Therefore the number of calls the Fund may write (or purchase in
closing transactions) may be affected by options written or held by other
entities, including other clients of the Advisor. An exchange may order the
liquidation of positions found to be in violation of these limits and may impose
certain other sanctions.
The Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986. One of the requirements for
such qualification is that gains realized from the sale of securities held by
the Fund less than three months must comprise less than 30% of the Fund's gross
income. Due to this requirement, the Fund will limit the extent to which it
writes call options on investments held less than 3 months.
WARRANTS AND RIGHTS. Warrants are essentially options to purchase
equity securities at specific prices and are valid for a specific period of
time. Prices of warrants do not necessarily move in concert with the prices of
the underlying securities. Rights are similar to warrants but generally have a
short duration and are distributed directly by the issuer to its shareholders.
Rights and warrants have no voting rights, receive no dividends and have no
rights with respect to the assets of the issuer.
FOREIGN SECURITIES. The Fund may invest in foreign securities if the
Advisor believes such investment would be consistent with the Fund's investment
objective. The same factors would be considered in selecting foreign securities
as with domestic securities, as discussed in the Prospectus. Foreign securities
investment presents special considerations not typically associated with
investments in domestic securities. Foreign taxes may reduce income. Currency
exchange rates and regulations may cause fluctuation in the value of foreign
securities. Foreign securities are subject to different regulatory environments
than in the United States and, compared to the United States, there may be a
lack of uniform accounting, auditing and financial reporting standards, less
volume and
- 4 -
<PAGE>
liquidity and more volatility, less public information, and less regulation of
foreign issuers. Countries have been known to expropriate or nationalize assets,
and foreign investments may be subject to political, financial or social
instability or adverse diplomatic developments. There may be difficulties in
obtaining service of process on foreign issuers and difficulties in enforcing
judgments with respect to claims under the U.S. securities laws against such
issuers. Favorable or unfavorable differences between U.S. and foreign economies
could affect foreign securities values. The U.S. Government has, in the past,
discouraged certain foreign investments by U.S. investors through taxation or
other restrictions and it is possible that such restrictions could be imposed
again.
REPURCHASE AGREEMENTS. The Fund may acquire U.S. Government Securities
or other high-grade debt securities subject to repurchase agreements. A
repurchase transaction occurs when, at the time the Fund purchases a security
(normally a U.S. Treasury obligation), it also resells it to the vendor
(normally a member bank of the Federal Reserve System or a registered Government
Securities dealer) and must deliver the security (and/or securities substituted
for them under the repurchase agreement) to the vendor on an agreed upon date in
the future. Such securities, including any securities so substituted, are
referred to as the "Repurchase Securities." The repurchase price exceeds the
purchase price by an amount which reflects an agreed upon market interest rate
effective for the period of time during which the repurchase agreement is in
effect.
The majority of these transactions run day to day, and the delivery
pursuant to the resale typically will occur within one to five days of the
purchase. The Fund's risk is limited to the ability of the vendor to pay the
agreed upon sum upon the delivery date; in the event of bankruptcy or other
default by the vendor, there may be possible delays and expenses in liquidating
the instrument purchased, decline in its value and loss of interest. These risks
are minimized when the Fund holds a perfected security interest in the
Repurchase Securities and can therefore sell the instrument promptly. Under
guidelines issued by the Trustees, the Advisor will carefully consider the
creditworthiness of a vendor during the term of the repurchase agreement.
Repurchase agreements are considered as loans collateralized by the Repurchase
Securities, such agreements being defined as "loans" under the Investment
Company Act of 1940 (the "1940 Act"). The return on such "collateral" may be
more or less than that from the repurchase agreement. The market value of the
resold securities will be monitored so that the value of the "collateral" is at
all times as least equal to the value of the loan, including the accrued
interest earned thereon. All Repurchase Securities will be held by the Fund's
custodian either directly or through a securities depository.
- 5 -
<PAGE>
DESCRIPTION OF MONEY MARKET INSTRUMENTS. Money market instruments may
include U.S. Government Securities or corporate debt obligations (including
those subject to repurchase agreements) as described herein, provided that they
mature in thirteen months or less from the date of acquisition and are otherwise
eligible for purchase by the Fund. Money market instruments also may include
Bankers' Acceptances and Certificates of Deposit of domestic branches of U.S.
banks, Commercial Paper and Variable Amount Demand Master Notes ("Master
Notes"). BANKERS' ACCEPTANCES are time drafts drawn on and "accepted" by a bank,
which are the customary means of effecting payment for merchandise sold in
import-export transactions and are a source of financing used extensively in
international trade. When a bank "accepts" such a time draft, it assumes
liability for its payment. When the Fund acquires a Bankers' Acceptance, the
bank which "accepted" the time draft is liable for payment of interest and
principal when due. The Bankers' Acceptance, therefore, carries the full faith
and credit of such bank. A CERTIFICATE OF DEPOSIT ("CD") is an unsecured
interest-bearing debt obligation of a bank. CDs acquired by the Fund would
generally be in amounts of $100,000 or more. COMMERCIAL PAPER is an unsecured,
short term debt obligation of a bank, corporation or other borrower. Commercial
Paper maturity generally ranges from two to 270 days and is usually sold on a
discounted basis rather than as an interest-bearing instrument. The Fund will
invest in Commercial Paper only if it is rated in the highest rating category by
any nationally recognized statistical rating organization ("NRSRO") or, if not
rated, if the issuer has an outstanding unsecured debt issue rated in the three
highest categories by any NRSRO or, if not so rated, is of equivalent quality in
the Advisor's assessment. Commercial Paper may include Master Notes of the same
quality. MASTER NOTES are unsecured obligations which are redeemable upon demand
of the holder and which permit the investment of fluctuating amounts at varying
rates of interest. Master Notes are acquired by the Fund only through the Master
Note program of the Fund's custodian, acting as administrator thereof. The
Advisor will monitor, on a continuous basis, the earnings power, cash flow and
other liquidity ratios of the issuer of a Master Note held by the Fund.
FORWARD COMMITMENT AND WHEN-ISSUED SECURITIES. The Fund may purchase
securities on a when-issued basis or for settlement at a future date if the Fund
holds sufficient assets to meet the purchase price. In such purchase
transactions the Fund will not accrue interest on the purchased security until
the actual settlement. Similarly, if a security is sold for a forward date, the
Fund will accrue the interest until the settlement of the sale. When-issued
security purchases and forward commitments have a higher degree of risk of price
movement before settlement due to the extended time period between the execution
and settlement of the purchase or sale. As a result, the exposure to the
counterparty of the purchase or sale is increased. Although the Fund would
generally purchase securities on a forward commitment or when-issued basis with
the intention of taking
- 6 -
<PAGE>
delivery, the Fund may sell such a security prior to the settlement date if the
Advisor felt such action was appropriate. In such a case the Fund could incur a
short-term gain or loss.
UNSEASONED ISSUERS. The Fund may invest a portion of its assets in
small, unseasoned companies. While smaller companies generally have potential
for rapid growth, they often involve higher risks because they lack the
management experience, financial resources, product diversification and
competitive strengths of larger corporations. In addition, in many instances,
the securities of smaller companies are traded only over-the-counter or on a
regional securities exchange, and the frequency and volume of their trading is
substantially less than is typical of larger companies. Therefore, the
securities of smaller companies may be subject to wider price fluctuations. When
making large sales, the Fund may have to sell portfolio holdings at discounts
from quoted prices or may have to make a series of small sales over an extended
period of time. The Fund does not currently intend to invest more than 5% of its
net assets in the securities of unseasoned issuers.
QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS
The ratings of Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group for corporate bonds in which the Funds may invest are as follows:
Moody's Investors Service, Inc.
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
- 7 -
<PAGE>
Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Standard & Poor's Ratings Group
AAA - Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for bonds in this category than for bonds in higher rated categories.
The ratings of Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group for preferred stocks in which the Funds may invest are as follows:
Moody's Investors Service, Inc.
aaa - An issue which is rated aaa is considered to be a top- quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa - An issue which is rated aa is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
a - An issue which is rated a is considered to be an upper- medium
grade preferred stock. While risks are judged to be somewhat greater than in the
"aaa" and "aa" classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
- 8 -
<PAGE>
baa - An issue which is rated baa is considered to be medium grade,
neither highly protected nor poorly secured. Earnings and asset protection
appear adequate at present but may be questionable over any great length of
time.
Standard & Poor's Ratings Group
AAA - This is the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.
AA - A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A - An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the diverse
effects of changes in circumstances and economic conditions.
BBB - An issue rated BBB is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.
INVESTMENT LIMITATIONS
The Fund has adopted certain fundamental investment limitations
designed to reduce the risk of an investment in the Fund. These limitations may
not be changed without the affirmative vote of a majority of the outstanding
shares of the Fund.
Under these fundamental limitations, the Fund MAY NOT:
(1) Issue senior securities, borrow money or pledge its assets, except
that it may borrow from banks as a temporary measure (a) for
extraordinary or emergency purposes, in amounts not exceeding 5% of the
Fund's total assets, or (b) in order to meet redemption requests that
might otherwise require untimely disposition of portfolio securities
if, immediately after such borrowing, the value of the Fund's assets,
including all borrowings then outstanding, less its liabilities
(excluding all borrowings), is equal to at least 300% of the aggregate
amount of borrowings then outstanding, and may pledge its assets to
secure all such borrowings;
- 9 -
<PAGE>
(2) Underwrite securities issued by others except to the extent the Fund
may be deemed to be an underwriter under the federal securities laws in
connection with the disposition of portfolio securities;
(3) Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of
transactions);
(4) Make short sales of securities or maintain a short position, except
short sales "against the box." (A short sale is made by selling a
security the Fund does not own. A short sale is "against the box" to
the extent that the Fund contemporaneously owns or has the right to
obtain at no added cost securities identical to those sold short.);
(5) Make loans of money or securities, except that the Fund may invest in
repurchase agreements;
(6) Write, purchase or sell commodities, commodities contracts, futures
contracts or related options (except that the Fund may write covered
call options as described in the Prospectus); or
(7) Invest more than 25% of its total assets in the securities of issuers
in any particular industry. This restriction does not apply to
investment in securities of the United States Government, its agencies
or instrumentalities.
Percentage restrictions stated as an investment limitation apply at the
time of investment; if a later increase or decrease in percentage beyond the
specified limits results from a change in securities values or total assets, it
will not be considered a violation. However, in the case of the borrowing
limitation (limitation number 1, above), the Fund will, to the extent necessary,
reduce its existing borrowings to comply with the limitation.
While the Fund has reserved the right to make short sales "against the
box" (limitation number 4, above), the Advisor has no present intention of
engaging in such transactions at this time or during the coming year.
Other current investment policies of the Fund, which are not
fundamental and which may be changed by action of the Board of Trustees without
shareholder approval, are as follows:
(1) Invest for the purpose of exercising control or management of another
issuer; or
(2) Invest in interests in real estate, real estate mortgage loans, oil,
gas or other mineral exploration or development programs, except that
the Fund may invest in the securities of companies (other than those
which are not readily marketable) which own or deal in such things.
- 10 -
<PAGE>
TRUSTEES AND OFFICERS
The following is a list of the Trustees and executive officers of the
Trust. Each Trustee who is an "interested person" of the Trust, as defined by
the Investment Company Act of 1940, is indicated by an asterisk.
Estimated Annual
Compensation
Name Age Position Held From the Trust
*Gregg A. Kidd 35 President $
and Trustee 0
*Patrick Dooley 39 Trustee 0
+Joseph Masella 47 Trustee 3,000
+R. Earnie Seibert 42 Trustee 3,000
+Joseph E. Stanton 69 Trustee 3,000
+Mark E. Wadach 45 Trustee 3,000
Robert G. Dorsey 39 Vice President 0
Mark J. Seger 35 Treasurer 0
Tina D. Hosking 28 Secretary 0
John F. Splain 40 Asst. Secretary 0
* Mr. Kidd, as an affiliated person of the Advisor and the Underwriter,
and Mr. Dooley, as an affiliated person of the Advisor, are "interested
persons" within the meaning of Section 2(a)(19) of the 1940 Act.
+ Member of Audit Committee.
The principal occupations of the Trustees and executive officers of the
Trust during the past five years are set forth below:
GREGG A. KIDD, 4605 East Genesee Street, DeWitt, New York, is President
of Pinnacle Advisors LLC, the Trust's investment advisor. He is also the
President of Pinnacle Investments, Inc., the Trust's principal underwriter. He
previously was a Vice President of Smith Barney, Inc. (a registered
broker-dealer and investment advisor).
PATRICK J. DOOLEY, 4605 East Genesee Street, DeWitt, New York, is Vice
President of the Advisor. He previously was a Vice President of QCI Asset &
Management (a registered investment advisor) and a Principal of K&M Management
(an employee benefits firm).
JOSEPH MASELLA, One Unity Plaza at Franklin Square, Syracuse, New York,
is an officer and Director of Unity Life and a Director of Germantown Life (both
of which are insurance companies).
JOSEPH E. STANTON, 206 Lafayette Lane, Fayetteville, New York, is the
former owner of Stanton's (a grocery store).
- 11 -
<PAGE>
MARK E. WADACH, 1010 James Street, Syracuse, New York, is a Consultant
for Syracuse Securities (a real estate financing firm).
R. EARNIE SEIBERT, 1929 Amnaste Lane, Marcellus, New York, is National
Sales Director of J.B. Hunt Transport Services, Inc. (a transportation company).
ROBERT G. DORSEY, 312 Walnut Street, Cincinnati, Ohio, is President and
Treasurer of Countrywide Fund Services, Inc. (a registered transfer agent) and
Treasurer of Countrywide Investments, Inc. (a registered broker-dealer and
investment adviser) and Countrywide Financial Services, Inc. (a financial
services company and parent of Countrywide Fund Services, Inc. and Countrywide
Investments, Inc. and a wholly-owned indirect subsidiary of Countrywide Credit
Industries, Inc.). He is also Vice President of Brundage, Story and Rose
Investment Trust, PRAGMA Investment Trust, Markman MultiFund Trust, Capitol
Square Funds, Dean Family of Funds and Maplewood Investment Trust and Assistant
Vice President of Fremont Mutual Funds, Inc., Schwartz Investment Trust, The
Tuscarora Investment Trust, Williamsburg Investment Trust and The Gannett Welsh
& Kotler Funds (all of which are registered investment companies).
MARK J. SEGER, C.P.A., 312 Walnut Street, Cincinnati, Ohio, is Vice
President of Countrywide Financial Services, Inc. and Countrywide Fund Services,
Inc. He is also Treasurer of Countrywide Investment Trust, Countrywide Tax Free
Trust, Countrywide Strategic Trust, Brundage, Story and Rose Investment Trust,
Markman MultiFund Trust, PRAGMA Investment Trust, Williamsburg Investment Trust,
Capitol Square Funds, Dean Family of Funds and Maplewood Investment Trust,
Assistant Treasurer of Schwartz Investment Trust, The Tuscarora Investment Trust
and The Gannett Welsh & Kotler Funds and Assistant Secretary of Fremont Mutual
Funds, Inc.
TINA D. HOSKING, 312 Walnut Street, Cincinnati, Ohio, is Counsel of
Countrywide Fund Services, Inc. She is also Secretary of Capitol Square Funds,
Dean Family of Funds and Assistant Secretary of PRAGMA Investment Trust and The
Gannett Welsh & Kotler Funds.
JOHN F. SPLAIN, 312 Walnut Street, Cincinnati, Ohio, is Secretary and
General Counsel of Countrywide Fund Services, Inc., Countrywide Investments,
Inc. and Countrywide Financial Services, Inc. He is also Secretary of
Countrywide Investment Trust, Countrywide Tax Free Trust, Countrywide Strategic
Trust, Brundage, Story and Rose Investment Trust, Markman MultiFund Trust, The
Tuscarora Investment Trust, Williamsburg Investment Trust, PRAGMA Investment
Trust, Capitol Square Funds and Maplewood Investment Trust and Assistant
Secretary of Schwartz Investment Trust, Fremont Mutual Funds, Inc., Dean Family
of Funds and The Gannett Welsh & Kotler Funds.
- 12 -
<PAGE>
Each non-interested Trustee will receive an annual retainer of $1,000
and a $500 fee for each Board meeting attended and will be reimbursed for travel
and other expenses incurred in the performance of their duties.
THE INVESTMENT ADVISOR
Pinnacle Advisors LLC (the "Advisor") is the Fund's investment manager.
Gregg A. Kidd and Patrick J. Dooley are the controlling shareholders of the
Advisor. Mr. Kidd and Mr. Dooley, by reason of such affiliation, may each
directly or indirectly receive benefits from the advisory fees paid to the
Advisor. Mr. Kidd is also the controlling shareholder of the Underwriter and
President of the Trust. Both Mr. Kidd and Mr. Dooley are Trustees of the Trust.
Under the terms of the advisory agreement between the Trust and the
Advisor, the Advisor manages the Fund's investments. The Fund pays the Advisor a
fee computed and accrued daily and paid monthly at an annual rate of 1% of its
average daily net assets up to $100 million, .95% of such assets from $100
million to $200 million and .85% of such assets in excess of $200 million.
The Fund is responsible for the payment of all expenses incurred in
connection with the organization, registration of shares and operations of the
Fund, including such extraordinary or non-recurring expenses as may arise, such
as litigation to which the Fund may be a party. The Fund may have an obligation
to indemnify the Trust's officers and Trustees with respect to such litigation,
except in instances of willful misfeasance, bad faith, gross negligence or
reckless disregard by such officers and Trustees in the performance of their
duties. The Advisor bears promotional expenses in connection with the
distribution of the Fund's shares to the extent that such expenses are not
assumed by the Fund under their plan of distribution (see below). The
compensation and expenses of any officer, Trustee or employee of the Trust who
is an officer, director, employee or stockholder of the Advisor are paid by the
Advisor.
By its terms, the Trust's advisory agreement will remain in force until
_________, 1999 and from year to year thereafter, subject to annual approval by
(a) the Board of Trustees or (b) a vote of the majority of the Fund's
outstanding voting securities; provided that in either event continuance is also
approved by a majority of the Trustees who are not interested persons of the
Trust, by a vote cast in person at a meeting called for the purpose of voting
such approval. The Trust's advisory agreement may be terminated at any time, on
sixty days' written notice, without the payment of any penalty, by the Board of
Trustees, by a vote of the majority of the Fund's outstanding voting securities,
or by the Advisor. The advisory agreement automatically terminates in the event
of its assignment, as defined by the 1940 Act and the rules thereunder.
- 13 -
<PAGE>
THE UNDERWRITER
Pinnacle Investments, Inc. (the "Underwriter") is the principal
underwriter of the Fund and, as such, is the exclusive agent for distribution of
shares of the Fund. The Underwriter is obligated to sell the shares on a best
efforts basis only against purchase orders for the shares. Shares of the Fund
are offered to the public on a continuous basis.
The Underwriter currently allows concessions to dealers who sell shares
of the Fund. The Underwriter receives that portion of the initial sales charge
which is not reallowed to the dealers who sell shares of the Fund. The
Underwriter retains the entire sales charge on all direct initial investments in
the Fund and on all investments in accounts with no designated dealer of record.
The Fund may compensate dealers, including the Underwriter and its
affiliates, based on the average balance of all accounts in the Fund for which
the dealer is designated as the party responsible for the account. See
"Distribution Plan" below.
By its terms, the Trust's underwriting agreement will remain in force
until _________, 1999 and from year to year thereafter, subject to annual
approval by (a) the Board of Trustees or (b) a vote of the majority of the
Fund's outstanding voting securities; provided that in either event continuance
is also approved by a majority of the Trustees who are not interested persons of
the Trust, by a vote cast in person at a meeting called for the purpose of
voting such approval. The Trust's underwriting agreement may be terminated at
any time, on sixty days' written notice, without the payment of any penalty, by
the Board of Trustees, by a vote of the majority of the Fund's outstanding
voting securities, or by the Advisor. The underwriting agreement automatically
terminates in the event of its assignment, as defined by the 1940 Act and the
rules thereunder.
DISTRIBUTION PLAN
As stated in the Prospectus, the Fund has adopted a plan of
distribution (the "Plan") pursuant to Rule 12b-1 under the 1940 Act which
permits the Fund to pay for expenses incurred in the distribution and promotion
of its shares, including but not limited to, the printing of prospectuses,
statements of additional information and reports used for sales purposes,
advertisements, expenses of preparation and printing of sales literature,
promotion, marketing and sales expenses, and other distribution-related
expenses, including any distribution fees paid to securities dealers or other
firms who have executed a distribution or service agreement with the Advisor.
The Plan expressly limits payment of the distribution expenses listed above in
any fiscal year to a maximum of .25% of the average daily net assets of the
Fund.
- 14 -
<PAGE>
The continuance of the Plan must be specifically approved at least
annually by a vote of the Trust's Board of Trustees and by a vote of the
Trustees who are not interested persons of the Trust and have no direct or
indirect financial interest in the Plan (the "Independent Trustees") at a
meeting called for the purpose of voting on such continuance. The Plan may be
terminated at any time by a vote of a majority of the Independent Trustees or by
a vote of the holders of a majority of the outstanding shares of the Fund. In
the event a Plan is terminated in accordance with its terms, the Fund will not
be required to make any payments for expenses incurred by the Advisor after the
termination date. The Plan may not be amended to increase materially the amount
to be spent for distribution without shareholder approval. All material
amendments to the Plan must be approved by a vote of the Trust's Board of
Trustees and by a vote of the Independent Trustees.
In approving the Plan, the Trustees determined, in the exercise of
their business judgment and in light of their fiduciary duties as Trustees, that
there is a reasonable likelihood that the Plan will benefit the Fund and its
shareholders. The Board of Trustees believes that expenditure of the Fund's
assets for distribution expenses under the Plan should assist in the growth of
the Fund which will benefit the Fund and its shareholders through increased
economies of scale, greater investment flexibility, greater portfolio
diversification and less chance of disruption of planned investment strategies.
The Plan will be renewed only if the Trustees make a similar determination for
each subsequent year of the Plan. There can be no assurance that the benefits
anticipated from the expenditure of the Fund's assets for distribution will be
realized. While the Plan is in effect, all amounts spent by the Fund pursuant to
the Plan and the purposes for which such expenditures were made must be reported
quarterly to the Board of Trustees for its review. In addition, the selection
and nomination of those Trustees who are not interested persons of the Trust are
committed to the discretion of the Independent Trustees during such period.
SECURITIES TRANSACTIONS
Decisions to buy and sell securities for the Fund and the placing of
the Fund's securities transactions and negotiation of commission rates where
applicable are made by the Advisor and are subject to review by the Board of
Trustees of the Trust. In the purchase and sale of portfolio securities, the
Advisor seeks best execution for the Fund, taking into account such factors as
price (including the applicable brokerage commission or dealer spread), the
execution capability, financial responsibility and responsiveness of the broker
or dealer and the brokerage and research services provided by the broker or
dealer. The Advisor generally seeks favorable prices and commission rates that
are reasonable in relation to the benefits received.
- 15 -
<PAGE>
Generally, the Fund attempts to deal directly with the dealers who make
a market in the securities involved unless better prices and execution are
available elsewhere. Such dealers usually act as principals for their own
account. On occasion, portfolio securities for the Fund may be purchased
directly from the issuer.
The Advisor is specifically authorized to select brokers who also
provide brokerage and research services to the Fund and/or other accounts over
which the Advisor exercises investment discretion and to pay such brokers a
commission in excess of the commission another broker would charge if the
Advisor determines in good faith that the commission is reasonable in relation
to the value of the brokerage and research services provided. The determination
may be viewed in terms of a particular transaction or the Advisor's overall
responsibilities with respect to the Fund and to accounts over which it
exercises investment discretion.
Research services include securities and economic analyses, reports on
issuers' financial conditions and future business prospects, newsletters and
opinions relating to interest trends, general advice on the relative merits of
possible investment securities for the Fund and statistical services and
information with respect to the availability of securities or purchasers or
sellers of securities. Although this information is useful to the Fund and the
Advisor, it is not possible to place a dollar value on it. Research services
furnished by brokers through whom the Fund effects securities transactions may
be used by the Advisor in servicing all of its accounts and not all such
services may be used by the Advisor in connection with the Fund.
The Fund has no obligation to deal with any broker or dealer in the
execution of securities transactions. However, the Advisor and other affiliates
of the Trust or the Advisor may effect securities transactions which are
executed on a national securities exchange or transactions in the
over-the-counter market conducted on an agency basis. The Fund will not effect
any brokerage transactions in its portfolio securities with the Advisor if such
transactions would be unfair or unreasonable to its shareholders.
Over-the-counter transactions will be placed either directly with principal
market makers or with broker-dealers. Although the Fund does not anticipate any
ongoing arrangements with other brokerage firms, brokerage business may be
transacted from time to time with other firms. Neither the Advisor nor
affiliates of the Trust or the Advisor will receive reciprocal brokerage
business as a result of the brokerage business transacted by the Fund with other
brokers.
- 16 -
<PAGE>
CODE OF ETHICS. The Trust and the Advisor have each adopted a Code of
Ethics under Rule 17j-1 of the Investment Company Act of 1940. The Code
significantly restricts the personal investing activities of all employees of
the Advisor and, as described below, imposes additional, more onerous,
restrictions on investment personnel of the Advisor. The Code requires that all
employees of the Advisor preclear any personal securities investment (with
limited exceptions, such as U.S. Government obligations). The preclearance
requirement and associated procedures are designed to identify any substantive
prohibition or limitation applicable to the proposed investment. In addition, no
employee may purchase or sell any security which at the time is being purchased
or sold (as the case may be), or to the knowledge of the employee is being
considered for purchase or sale, by the Fund. The substantive restrictions
applicable to investment personnel of the Advisor include a ban on acquiring any
securities in an initial public offering and a prohibition from profiting on
short-term trading in securities. Furthermore, the Code provides for trading
"blackout periods" which prohibit trading by investment personnel of the Advisor
within periods of trading by the Fund in the same (or equivalent) security.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate is calculated by dividing the lesser
of purchases or sales of portfolio securities for the fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund during the
fiscal year. High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Fund. The Advisor anticipates that the Fund's portfolio turnover rate normally
will not exceed 100%. A 100% turnover rate would occur if all of the Fund's
portfolio securities were replaced once within a one year period.
Generally, the Fund intends to invest for long-term purposes. However,
the rate of portfolio turnover will depend upon market and other conditions, and
it will not be a limiting factor when the Advisor believes that portfolio
changes are appropriate.
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
The share price (net asset value) and the public offering price (net
asset value plus applicable initial sales charge) of the shares of the Fund are
determined as of the close of the regular session of trading on the New York
Stock Exchange (currently 4:00 p.m., Eastern time), on each day the Trust is
open for business. The Trust is open for business on every day except Saturdays,
Sundays and the following holidays: New Year's Day, President's Day, Good
Friday, Memorial Day, Independence
- 17 -
<PAGE>
Day, Labor Day, Thanksgiving Day and Christmas Day. The Trust may also be open
for business on other days in which there is sufficient trading in the Fund's
portfolio securities that its net asset value might be materially affected. For
a description of the methods used to determine the share price and the public
offering price, see "Calculation of Share Price and Public Offering Price" in
the Prospectus.
OTHER PURCHASE INFORMATION
The Prospectus describes generally how to purchase shares of the Fund.
Additional information with respect to certain types of purchases of shares of
the Fund is set forth below.
Right of Accumulation. A "purchaser" (as defined in the Prospectus) of
shares of the Fund has the right to combine the cost or current net asset value
(whichever is higher) of his existing Fund shares with the amount of his current
purchases in order to take advantage of the reduced initial sales charges set
forth in the tables in the Prospectus. The purchaser or his dealer must notify
the Fund that an investment qualifies for a reduced initial sales charge. The
reduced sales charge will be granted upon confirmation of the purchaser's
holdings by the Fund.
Letter of Intent. The reduced initial sales charges set forth in the
tables in the Prospectus may also be available to any "purchaser" (as defined in
the Prospectus) of shares of the Fund who submits a Letter of Intent to the
Fund. The Letter must state an intention to invest in the Fund within a thirteen
month period a specified amount which, if made at one time, would qualify for a
reduced initial sales charge. A Letter of Intent may be submitted with a
purchase at the beginning of the thirteen month period or within ninety days of
the first purchase under the Letter of Intent. Upon acceptance of this Letter,
the purchaser becomes eligible for the reduced initial sales charge applicable
to the level of investment covered by such Letter of Intent as if the entire
amount were invested in a single transaction.
The Letter of Intent is not a binding obligation on the purchaser to
purchase, or the Fund to sell, the full amount indicated. During the term of a
Letter of Intent, shares representing 5% of the intended purchase will be held
in escrow. These shares will be released upon the completion of the intended
investment. If the Letter of Intent is not completed during the thirteen month
period, the applicable sales charge will be adjusted by the redemption of
sufficient shares held in escrow, depending upon the amount actually purchased
during the period. The minimum initial investment under a Letter of Intent is
$10,000.
- 18 -
<PAGE>
A ninety-day backdating period can be used to include earlier purchases
at the purchaser's cost (without a retroactive downward adjustment of the sales
charge). The thirteen month period would then begin on the date of the first
purchase during the ninety-day period. No retroactive adjustment will be made if
purchases exceed the amount indicated in the Letter of Intent. The purchaser or
his dealer must notify Countrywide Fund Services Inc. that an investment is
being made pursuant to an executed Letter of Intent.
Other Information. The Trust does not impose an initial sales charge or
imposes a reduced initial sales charge in connection with purchases of shares of
the Fund made under the reinvestment privilege or the purchases described in the
"Reduced Initial Sales Charge" or "Purchases at Net Asset Value" sections in the
Prospectus because such purchases require minimal sales effort by the Advisor.
Purchases described in the "Purchases at Net Asset Value" section may be made
for investment only, and the shares may not be resold except through redemption
by or on behalf of the Fund.
TAXES
The Prospectus describes generally the tax treatment of distributions
by the Fund. This section of the Statement of Additional Information includes
additional information concerning federal taxes.
The Fund intends to qualify for the special tax treatment afforded a
"regulated investment company" under Subchapter M of the Internal Revenue Code
so that it does not pay federal taxes on income and capital gains distributed to
shareholders. To so qualify the Fund must, among other things, (i) derive at
least 90% of its gross income in each taxable year from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities or foreign currency, or certain other income
(including but not limited to gains from options, futures and forward contracts)
derived with respect to its business of investing in stock, securities or
currencies; (ii) derive less than 30% of its gross income in each taxable year
from the sale or other disposition of the following assets held for less than
three months: (a) stock or securities, or (b) options, futures or forward
contracts not directly related to its principal business of investing in stock
or securities; and (iii) diversify its holdings so that at the end of each
quarter of its taxable year the following two conditions are met: (a) at least
50% of the value of the Fund's total assets is represented by cash, U.S.
Government securities, securities of other regulated investment companies and
other securities (for this purpose such other securities will qualify only if
the Fund's investment is limited in respect to any issuer to an
- 19 -
<PAGE>
amount not greater than 5% of the Fund's assets and 10% of the outstanding
voting securities of such issuer) and (b) not more than 25% of the value of the
Fund's assets is invested in securities of any one issuer (other than U.S.
Government securities or securities of other regulated investment companies).
The Fund's net realized capital gains from securities transactions will
be distributed only after reducing such gains by the amount of any available
capital loss carryforwards. Capital losses may be carried forward to offset any
capital gains for eight years, after which any undeducted capital loss remaining
is lost as a deduction.
A federal excise tax at the rate of 4% will be imposed on the excess,
if any, of the Fund's "required distribution" over actual distributions in any
calendar year. Generally, the "required distribution" is 98% of a Fund's
ordinary income for the calendar year plus 98% of its net capital gains
recognized during the one year period ending on October 31 of the calendar year
plus undistributed amounts from prior years. The Fund intends to make
distributions sufficient to avoid imposition of the excise tax.
The Trust is required to withhold and remit to the U.S. Treasury a
portion (31%) of dividend income on any account unless the shareholder provides
a taxpayer identification number and certifies that such number is correct and
that the shareholder is not subject to backup withholding.
REDEMPTION IN KIND
Under unusual circumstances, when the Board of Trustees deems it in the
best interests of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current value. If any such redemption in kind is to be made, the Fund intends to
make an election pursuant to Rule 18f-1 under the 1940 Act. This election will
require the Fund to redeem shares solely in cash up to the lesser of $250,000 or
1% of the net asset value of the Fund during any 90 day period for any one
shareholder. Should payment be made in securities, the redeeming shareholder
will generally incur brokerage costs in converting such securities to cash.
Portfolio securities which are issued in an in-kind redemption will be readily
marketable.
HISTORICAL PERFORMANCE INFORMATION
From time to time, the Fund may advertise average annual total return.
Average annual total return quotations will be computed by finding the average
annual compounded rates of return
- 20 -
<PAGE>
over 1, 5 and 10 year periods that would equate the initial amount invested to
the ending redeemable value, according to the following formula:
P (1 + T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 and 10 year periods at the end of the 1, 5 or
10 year periods (or fractional portion thereof)
The calculation of average annual total return assumes the reinvestment
of all dividends and distributions and the deduction of the current maximum
initial sales charge from the initial $1,000 payment. If the Fund has been in
existence less than one, five or ten years, the time period since the date of
the initial public offering of shares will be substituted for the periods
stated. The Fund may also advertise total return (a "nonstandardized quotation")
which is calculated differently from average annual total return. A
nonstandardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. This computation does not include
the effect of the applicable initial sales charge which, if included, would
reduce total return. A nonstandardized quotation may also indicate average
annual compounded rates of return without including the effect of the applicable
initial sales charge or over periods other than those specified for average
annual total return. A nonstandardized quotation of total return will always be
accompanied by the Fund's average annual total return as described above.
The Fund's performance may be compared in advertisements, sales
literature and other communications to the performance of other mutual funds
having similar objectives or to standardized indices or other measures of
investment performance. In particular, the Fund may compare its performance to
the S&P 500 Index, which is generally considered to be representative of the
performance of unmanaged common stocks that are publicly traded in the United
States securities markets. Comparative performance may also be expressed by
reference to a ranking prepared by a mutual fund monitoring service, such as
Lipper Analytical Services, Inc. or Morningstar, Inc., or by one or more
newspapers, newsletters or financial periodicals. Performance comparisons may be
useful to investors who wish to compare the Fund's past performance to that of
other mutual funds and investment products. Of course, past performance is not a
guarantee of future results.
- 21 -
<PAGE>
o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in net asset value over a
specific period of time.
o MORNINGSTAR, INC., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings
are effective for two weeks.
Investors may use such indices in addition to the Fund's Prospectus to
obtain a more complete view of the Fund's performance before investing. Of
course, when comparing the Fund's performance to any index, factors such as
composition of the index and prevailing market conditions should be considered
in assessing the significance of such comparisons. When comparing funds using
reporting services, or total return, investors should take into consideration
any relevant differences in funds such as permitted portfolio compositions and
methods used to value portfolio securities and compute offering price.
Advertisements and other sales literature for the Fund may quote total returns
that are calculated on non-standardized base periods. The total returns
represent the historic change in the value of an investment in the Fund based on
monthly reinvestment of dividends over a specified period of time.
From time to time the Fund may include in advertisements and other
communications information, charts, and illustrations relating to inflation and
the effects of inflation on the dollar, including the purchasing power of the
dollar at various rates of inflation. The Fund may also disclose from time to
time information about its portfolio allocation and holdings at a particular
date (including ratings of securities assigned by independent rating services
such as S&P and Moody's). The Fund may also depict the historical performance of
the securities in which the Fund may invest over periods reflecting a variety of
market or economic conditions either alone or in comparison with alternative
investments, performance indices of those investments, or economic indicators.
The Fund may also include in advertisements and in materials furnished to
present and prospective shareholders statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
to meet specific financial goals, such as saving for retirement, children's
education, or other future needs.
- 22 -
<PAGE>
CUSTODIAN
The Bank of New York, 90 Washington Street, New York, New York 10286,
has been retained to act as Custodian for the Fund's investments. The Bank of
New York acts as the Fund's depository, safekeeps its portfolio securities,
collects all income and other payments with respect thereto, disburses funds as
instructed and maintains records in connection with its duties.
AUDITORS
The firm of McGladrey & Pullen, LLP has been selected as independent
auditors for the Trust for the fiscal year ending March 31, 1998. McGladrey &
Pullen, LLP, 555 Fifth Avenue, New York, New York 10017-2416, performs an annual
audit of the Trust's financial statements and advises the Trust as to certain
accounting matters.
COUNTRYWIDE FUND SERVICES, INC.
The Trust's transfer agent, Countrywide Fund Services, Inc. (the
"Transfer Agent"), maintains the records of each shareholder's account, answers
shareholders' inquiries concerning their accounts, processes purchases and
redemptions of the Fund's shares, acts as dividend and distribution disbursing
agent and performs other shareholder service functions. The Transfer Agent
receives from the Fund for its services as transfer agent a fee payable monthly
at an annual rate of $17 per account, provided, however, that the minimum fee
received is $1,000 per month. In addition, the Fund pays out-of-pocket expenses,
including but not limited to, postage, envelopes, checks, drafts, forms,
reports, record storage and communication lines.
The Transfer Agent also provides accounting and pricing services to the
Fund. For calculating daily net asset value per share and maintaining such books
and records as are necessary to enable the Transfer Agent to perform its duties,
the Fund pays the Transfer Agent a fee in accordance with the following
schedule:
Average Monthly Net Assets Monthly Fee
$ 0 - $ 50,000,000 $2,000
$ 50,000,000 - 100,000,000 $2,500
$100,000,000 - 200,000,000 $3,000
Over 200,000,000 $4,000
In addition, the Fund pays all costs of external pricing services.
The Transfer Agent also provides administrative services to the Fund.
In this capacity, the Transfer Agent supplies non-investment related statistical
and research data, internal regulatory compliance services and executive and
administrative services. The Transfer Agent supervises the preparation of tax
- 23 -
<PAGE>
returns, reports to shareholders of the Fund, reports to and filings with the
Securities and Exchange Commission and state securities commissions, and
materials for meetings of the Board of Trustees. For the performance of these
administrative services, the Fund pays the Transfer Agent a fee at the annual
rate of .15% of the average value of its daily net assets up to $25,000,000,
.125% of such assets from $25,000,000 to $50,000,000 and .1% of such assets in
excess of $100,000,000, provided, however, that the minimum fee is $1,000 per
month.
STATEMENT OF ASSETS AND LIABILITIES
The Fund's Statement of Assets and Liabilities as of February 18, 1997,
which has been audited by McGladrey & Pullen, LLP, is attached to this Statement
of Additional Information.
- 24 -
<PAGE>
THE NEW YORK EQUITY FUND
OF
THE NEW YORK STATE OPPORTUNITY FUNDS
STATEMENT OF ASSETS AND LIABILITIES
AS OF
FEBRUARY 18, 1997
TOGETHER WITH
AUDITORS' REPORT
- 25 -
<PAGE>
McGLADREY & PULLEN, LLP
Certified Public Accountants and Consultants
INDEPENDENT AUDITOR'S REPORT
To the Trustees and Shareholders
New York Equity Fund:
We have audited the accompanying statement of assets and liabilities of
the New York Equity Fund, a series of New York Opportunity Funds Trust, as of
February 18, 1997. This financial statement is the responsibility of the Fund's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures related to the schedule. 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 New York Equity Fund
series of New York Opportunity Fund Trust as of February 18, 1997, in conformity
with generally accepted
accounting principles.
/s/ McGladrey & Pullen, LLP
New York, New York
February 25, 1997
- 26 -
<PAGE>
THE NEW YORK EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
AS OF FEBRUARY 18, 1997
ASSETS:
Cash $100,000
Organization costs (Note 2) 54,000
--------
Total assets 154,000
--------
LIABILITIES:
Accrued expenses (Note 2) 54,000
--------
Total liabilities 54,000
--------
Net assets for shares of
beneficial interest outstanding $100,000
========
Shares outstanding 10,000
========
Net asset value per share $ 10.00
========
The accompanying notes are an integral
part of this statement.
<PAGE>
THE NEW YORK EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
AS OF FEBRUARY 18, 1997
(1) The New York State Opportunity Funds (the Trust) is an open-end
management investment company established as an Massachusetts
business trust under a Declaration of Trust dated December 4,
1996. The Trust has established one fund series to date, The
New York Equity Fund (the Fund). The Trust has had no
operations except for the initial issuance of shares. On
February 18, 1997, 10,000 shares of the Fund were issued for
cash at $10.00 per share.
(2) Expenses incurred in connection with the organization of the
Fund and the initial offering of shares are estimated to be
$54,000, which includes $30,000 paid to MGF Service Corp.,
the Fund's administrator. These expenses have been paid by
Pinnacle Advisors LLC (the Adviser). Upon commencement of
the public offering of shares of the Fund, the Fund will
reimburse the Adviser for such expenses, with that amount
being capitalized and amortized on a straight-line basis over
five years. As of February 18, 1997, all outstanding shares
of the Fund were held by the Adviser, who purchased these
initial shares in order to provide the Trust with its
required capital. In the event the initial shares of the
Fund are redeemed by any holder thereof at any time prior to
the complete amortization of organizational expenses, the
redemption proceeds payable with respect to such shares will
be reduced by the pro rata share (based upon the portion of
the shares redeemed in relation to the initial
capitalization) of the unamortized deferred organizational
expenses as of the date of such redemption.
(3) Reference is made to the Prospectus and this Statement of
Additional Information for a description of the Management
Agreement, the Underwriting Agreement, the Distribution Expense
Plan, the Administration Agreement, tax aspects of the Fund and
the calculation of the net asset value of shares
of the Fund.
<PAGE>
THE NEW YORK STATE OPPORTUNITY FUNDS
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) (i) Financial Statements included in Part A:
None
(ii) Financial Statements included in Part B:
Statement of Assets and Liabilities, February 18,
1997
Notes to Financial Statement
Independent Auditor's Report
(b) Exhibits
(1) Agreement and Declaration of Trust*
(2) Bylaws*
(3) Inapplicable
(4) Inapplicable
(5) Form of Advisory Agreement with Pinnacle
Advisors LLC*
(6) Form of Underwriting Agreement with Pinnacle
Investments, Inc.*
(7) Inapplicable
(8) Form of Custody Agreement with The Bank of
New York
(9) (i) Form of Administration Agreement with
Countrywide Fund Services, Inc.*
(ii) Form of Accounting Services Agreement with
Countrywide Fund Services, Inc.*
(iii) Form of Transfer, Dividend Disbursing,
Shareholder Service and Plan Agency Agreement
with Countrywide Fund Services, Inc.*
(10) Opinion and Consent of Counsel
(11) Consent of Independent Auditors
- 1 -
<PAGE>
(12) Inapplicable
(13) Form of Agreement Relating to Initial
Capital*
(14) Inapplicable
(15) Form of Plan of Distribution Pursuant to Rule
12b-1*
(16) Inapplicable
(17) Financial Data Schedule
(18) Inapplicable
- --------------------------------------
* Incorporated by reference to the Trust's initial
registration statement on Form N-1A.
Item 25. Persons Controlled by or Under Common Control with
Registrant.
After commencement of the public offering of the Registrant's
shares, the Registrant expects that no person will be directly
or indirectly controlled by or under common control with the
Registrant.
Item 26. Number of Holders of Securities.
As of March 17, 1997, there are four holders of the shares of
beneficial interest of the Registrant.
Item 27. Indemnification
Article VI of the Registrant's Agreement and Declaration of
Trust provides for indemnification of officers and Trustees as
follows:
"Section 6.4 INDEMNIFICATION OF TRUSTEES, OFFICERS,
ETC. Subject to and except as otherwise provided in
the Securities Act of 1933, as amended, and the 1940
Act, the Trust shall indemnify each of its Trustees
and officers, including persons who serve at the
Trust's request as directors, officers or trustees of
another organization in which the Trust has any
interest as a shareholder, creditor or otherwise
(hereinafter referred to as a "Covered Person")
against all liabilities, including but not limited
- 2 -
<PAGE>
to amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and expenses,
including reasonable accountants' and counsel fees,
incurred by any Covered Person in connection with the
defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which
such Covered Person may be or may have been involved
as a party or otherwise or with which such person may
be or may have been threatened, while in office or
thereafter, by reason of being or having been such a
Trustee or officer, director or trustee, and except
that no Covered Person shall be indemnified against
any liability to the Trust or its Shareholders to
which such Covered Person would otherwise be subject
by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties
involved in the conduct of such Covered Person's
office (disabling conduct). Anything herein contained
to the contrary notwithstanding, no Covered Person
shall be indemnified for any liability to the Trust
or its shareholders to which such Covered Person
would otherwise be subject unless (1) a final
decision on the merits is made by a court or other
body before whom the proceeding was brought that the
Covered Person to be indemnified was not liable by
reason of disabling conduct or, (2) in the absence of
such a decision, a reasonable determination is made,
based upon a review of the facts, that the Covered
Person was not liable by reason of disabling conduct,
by (a) the vote of a majority of a quorum of Trustees
who are neither "interested persons" of the Company
as defined in the Investment Company Act of 1940 nor
parties to the proceeding ("disinterested, non-party
Trustees"), or (b) an independent legal counsel in a
written opinion.
Section 6.5 ADVANCES OF EXPENSES. The Trust shall
advance attorneys' fees or other expenses incurred by
a Covered Person in defending a proceeding, upon the
undertaking by or on behalf of the Covered Person to
repay the advance unless it is ultimately determined
that such Covered Person is entitled to
indemnification, so long as one of the following
conditions is met: (i) the Covered Person shall
provide security for his undertaking, (ii) the Trust
shall be insured
- 3 -
<PAGE>
against losses arising by reason of any lawful
advances, or (iii) a majority of a quorum of the
disinterested non-party Trustees of the Trust, or an
independent legal counsel in a written opinion, shall
determine, based on a review of readily available
facts (as opposed to full trial-type inquiry), that
there is reason to believe that the Covered Person
ultimately will be found entitled to indemnification.
Section 6.6 INDEMNIFICATION NOT EXCLUSIVE, ETC. The
right of indemnification provided by this Article VI
shall not be exclusive of or affect any other rights
to which any such Covered Person may be entitled. As
used in this Article VI, "Covered Person" shall
include such person's heirs, executors and
administrators; an "interested Covered Person" is one
against whom the action, suit or other proceeding in
question or another action, suit or other proceeding
on the same or similar grounds is then or has been
pending or threatened, and a "disinterested" person
is a person against whom none of such actions, suits
or other proceedings or another action, suit or other
proceeding on the same or similar grounds is then or
has been pending or threatened. Nothing contained in
this article shall affect any rights to
indemnification to which personnel of the Trust,
other than Trustees and officers, and other persons
may be entitled by contract or otherwise under law,
nor the power of the Trust to purchase and maintain
liability insurance on behalf of any such person."
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to Trustees, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the 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 Trustee, officer or controlling
person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such Trustee,
officer or controlling person in connection with the
securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent,
- 4 -
<PAGE>
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.
The Registrant expects to maintain a standard mutual fund and
investment advisory professional and directors and officers
liability policy. The policy will provide coverage to the
Registrant, its Trustees and officers, and Pinnacle Advisors
LLC (the "Advisor") and Pinnacle Investments, Inc., the
Trust's principal underwriter. Coverage under the policy will
include losses by reason of any act, error, omission,
misstatement, misleading statement, neglect or breach of duty.
The Advisory Agreement with the Advisor provides that the
Advisor shall not be liable for any action taken, omitted or
suffered to be taken by it in its reasonable judgment, in good
faith and believed by it to be authorized or within the
discretion or rights or powers conferred upon it by the
Advisory Agreement, or in accordance with (or in the absence
of) specific directions or instructions from the Trust,
provided, however, that such acts or omissions shall not have
resulted from the Advisor's willful misfeasance, bad faith or
gross negligence, a violation of the standard of care
established by and applicable to the Advisor in its actions
under the Advisory Agreement or breach of its duty or of its
obligations under the Advisory Agreement.
Item 28. Business and Other Connections of the Investment Adviser
(a) The Advisor is a registered investment advisor
organized in November, 1996 to provide investment
advisory services to the Registrant. The Adviser has
no other business of a substantial nature.
(b) The directors and officers of the Advisor and any
other business, profession, vocation or employment of
a substantial nature engaged in at any time during
the past two years:
(i) Gregg A. Kidd - President and Controlling
Shareholder of the Advisor.
President and a Trustee of the Registrant.
President of Pinnacle Investments, Inc.,
4605 E. Genesee Street, DeWitt, New York
13214, a registered broker-dealer and
Registrant's principal underwriter.
- 5 -
<PAGE>
Vice President of Smith Barney, Inc. until
September, 1995.
(ii) Patrick J. Dooley - A Vice President and
controlling shareholder of the Advisor.
A Trustee of the Registrant.
Formerly, Vice President of QCI Asset
Management, a money management firm.
Item 29. Principal Underwriters
(a) Inapplicable
(b) Position with Position with
Name Underwriter Registrant
Gregg A. Kidd President President and
Trustee
Daniel F. Raite Vice President None
The address of the above-named persons is 4605 E. Genesee
Street, DeWitt, New York 13214.
(c) Inapplicable
Item 30. Location of Accounts and Records
Accounts, books and other documents required to be maintained
by Section 31(a) of the Investment Company Act of 1940 and the
Rules promulgated thereunder will be maintained by the
Registrant at its offices located at 4605 E. Genesee Street,
DeWitt, New York 13214 as well as at the offices of the
Registrant's transfer agent located at 312 Walnut Street, 21st
Floor, Cincinnati, Ohio 45202.
Item 31. Management Services Not Discussed in Parts A or B
Inapplicable
Item 32. Undertakings
(a) Inapplicable
(b) The Registrant undertakes to file a post-effective
amendment, using financial statements which need not
be certified, within four to six months from the
effective date of this Registration Statement.
- 6 -
<PAGE>
(c) The Registrant undertakes to furnish each person to
whom a Prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders,
upon request and without charge.
(d) The Registrant undertakes to call a meeting of
shareholders, if requested to do so by holders of
at least 10% of the Fund's outstanding shares, for
the purpose of voting upon the question of removal
of a trustee or trustees and to assist in
communications with other shareholders as required
by Section 16(c) of the Investment Company Act of
1940.
- 7 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed below on its behalf by the undersigned, thereunto duly
authorized, in the City of DeWitt and State of New York, on the 20th day of
March, 1997.
THE NEW YORK STATE OPPORTUNITY FUNDS
By:/s/ Gregg A. Kidd
Gregg A. Kidd
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Gregg A. Kidd President March 20, 1997
Roderick H. Dillon, Jr. and Trustee
/s/ Mark J. Seger Treasurer March 20, 1997
Mark J. Seger
/s/ Patrick J. Dooley Trustee March 20, 1997
Patrick J. Dooley
Trustee By:/s/ Tina D. Hosking
Joseph Masella* Tina D. Hosking
Attorney-in-Fact*
March 20, 1997
Trustee
R. Earnie Seibert*
Trustee
Joseph E. Stanton*
Trustee
Mark E. Wadach*
<PAGE>
INDEX TO EXHIBITS
(1) Agreement and Declaration of Trust*
(2) Bylaws*
(3) Inapplicable
(4) Inapplicable
(5) Form of Advisory Agreement*
(6) Form of Underwriting Agreement*
(7) Inapplicable
(8) Form of Custody Agreement
(9)(i) Form of Administration Agreement*
(9)(ii) Form of Accounting Services Agreement*
(9)(iii) Form of Transfer, Dividend Disbursing, Shareholder
Service and Plan Agency Agreement*
(10) Opinion and Consent of Counsel
(11) Consent of Independent Auditors
(12) Inapplicable
(13) Form of Agreement Relating to Initial Capital*
(14) Inapplicable
(15) Form of Plan of Distribution Pursuant to Rule 12b-1*
(16) Inapplicable
(17) Financial Data Schedule
(18) Inapplicable
- ----------------------------
* Incorporated by reference to the Trust's initial
registration statement on Form N-1A.
CUSTODY AGREEMENT
Agreement made as of this day of , 1997,
between THE NEW YORK STATE OPPORTUNITY FUNDS, a Massachusetts
business trust organized and existing under the laws of the
Commonwealth of Massachusetts, having its principal office and
place of business at 4605 East Genesee Street, DeWitt, New
York 13214 (hereinafter called the "Fund"), and THE BANK OF
NEW YORK, a New York corporation authorized to do a banking
business, having its principal office and place of business at
48 Wall Street, New York, New York 10286 (hereinafter called
the "Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises
hereinafter set forth, the Fund and the Custodian agree as
follows:
ARTICLE I.
DEFINITIONS
Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the
following meanings:
1. "Book-Entry System" shall mean the Federal
Reserve/Treasury book-entry system for United States and
federal agency securities, its successor or successors and its
nominee or nominees.
2. "Call Option" shall mean an exchange traded option
with respect to Securities other than Stock Index Options,
Futures Contracts, and Futures Contract Options entitling the
holder, upon timely exercise and payment of the exercise
price, as specified therein, to purchase from the writer
thereof the specified underlying Securities.
3. "Certificate" shall mean any notice, instruction, or
other instrument in writing, authorized or required by this
Agreement to be given to the Custodian which is actually
received by the Custodian and signed on behalf of the Fund by
any two Officers, and the term Certificate shall also include
Instructions.
4. "Clearing Member" shall mean a registered
broker-dealer which is a clearing member under the rules of
<PAGE>
O.C.C. and a member of a national securities exchange
qualified to act as a custodian for an investment company, or
any broker-dealer reasonably believed by the Custodian to be
such a clearing member.
5. "Collateral Account" shall mean a segregated account
so denominated which is specifically allocated to a Series and
pledged to the Custodian as security for, and in consideration
of, the Custodian's issuance of (a) any Put Option guarantee
letter or similar document described in paragraph 8 of Article
V herein, or (b) any receipt described in Article V or VIII
herein.
6. "Covered Call Option" shall mean an exchange traded
option entitling the holder, upon timely exercise and payment
of the exercise price, as specified therein, to purchase from
the writer thereof the specified underlying Securities
(excluding Futures Contracts) which are owned by the writer
thereof and subject to appropriate restrictions.
7. "Depository" shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and
Exchange Commission, its successor or successors and its
nominee or nominees. The term "Depository" shall further mean
and include any other person authorized to act as a depository
under the Investment Company Act of 1940, its successor or
successors and its nominee or nominees, specifically identi-
fied in a certified copy of a resolution of the Fund's Board
of Trustees specifically approving deposits therein by the
Custodian.
8. "Financial Futures Contract" shall mean the firm
commitment to buy or sell fixed income securities including,
without limitation, U.S. Treasury Bills, U.S. Treasury Notes,
U.S. Treasury Bonds, domestic bank certificates of deposit,
and Eurodollar certificates of deposit, during a specified
month at an agreed upon price.
9. "Futures Contract" shall mean a Financial Futures
Contract and/or Stock Index Futures Contracts.
10. "Futures Contract Option" shall mean an option with
respect to a Futures Contract.
- 2 -
<PAGE>
11. "Instructions" shall mean instructions
communications transmitted by electronic or telecommunications
media including S.W.I.F.T., computer-to-computer interface,
dedicated transmission line, facsimile transmission (which may
be signed by an Officer or unsigned) and tested telex.
12. "Margin Account" shall mean a segregated account in
the name of a broker, dealer, futures commission merchant, or
a Clearing Member, or in the name of the Fund for the benefit
of a broker, dealer, futures commission merchant, or Clearing
Member, or otherwise, in accordance with an agreement between
the Fund, the Custodian and a broker, dealer, futures commis-
sion merchant or a Clearing Member (a "Margin Account Agree-
ment"), separate and distinct from the custody account, in
which certain Securities and/or money of the Fund shall be
deposited and withdrawn from time to time in connection with
such transactions as the Fund may from time to time
determine. Securities held in the Book-Entry System or the
Depository shall be deemed to have been deposited in, or
withdrawn from, a Margin Account upon the Custodian's effect-
ing an appropriate entry in its books and records.
13. "Money Market Security" shall be deemed to include,
without limitation, certain Reverse Repurchase Agreements,
debt obligations issued or guaranteed as to interest and
principal by the government of the United States or agencies
or instrumentalities thereof, any tax, bond or revenue
anticipation note issued by any state or municipal government
or public authority, commercial paper, certificates of deposit
and bankers' acceptances, repurchase agreements with respect
to the same and bank time deposits, where the purchase and
sale of such securities normally requires settlement in
federal funds on the same day as such purchase or sale.
14. "O.C.C." shall mean the Options Clearing Corpora-
tion, a clearing agency registered under Section 17A of the
Securities Exchange Act of 1934, its successor or successors,
and its nominee or nominees.
15. "Officers" shall be deemed to include the President,
any Vice President, the Secretary, the Treasurer, the
Controller, any Assistant Secretary, any Assistant Treasurer,
and any other person or persons, whether or not any such other
person is an officer of the Fund, duly authorized by the Board
of Trustees of the Fund to execute any Certificate,
instruction, notice or other instrument on behalf of the Fund
and listed in the Certificate annexed hereto as Appendix A or
such other Certificate as may be received by the Custodian
from time to time.
- 3 -
<PAGE>
16. "Option" shall mean a Call Option, Covered Call Op-
tion, Stock Index Option and/or a Put Option.
17. "Oral Instructions" shall mean verbal instructions
actually received by the Custodian from an Officer or from a
person reasonably believed by the Custodian to be an Officer.
18. "Put Option" shall mean an exchange traded option
with respect to Securities other than Stock Index Options,
Futures Contracts, and Futures Contract Options entitling the
holder, upon timely exercise and tender of the specified
underlying Securities, to sell such Securities to the writer
thereof for the exercise price.
19. "Reverse Repurchase Agreement" shall mean an agree-
ment pursuant to which the Fund sells Securities and agrees to
repurchase such Securities at a described or specified date
and price.
20. "Security" shall be deemed to include, without
limitation, Money Market Securities, Call Options, Put Op-
tions, Stock Index Options, Stock Index Futures Contracts,
Stock Index Futures Contract Options, Financial Futures
Contracts, Financial Futures Contract Options, Reverse
Repurchase Agreements, common stocks and other securities hav-
ing characteristics similar to common stocks, preferred
stocks, debt obligations issued by state or municipal govern-
ments and by public authorities, (including, without limita-
tion, general obligation bonds, revenue bonds, industrial
bonds and industrial development bonds), bonds, debentures,
notes, mortgages or other obligations, and any certificates,
receipts, warrants or other instruments representing rights to
receive, purchase, sell or subscribe for the same, or evidenc-
ing or representing any other rights or interest therein, or
any property or assets.
21. "Senior Security Account" shall mean an account
maintained and specifically allocated to a Series under the
terms of this Agreement as a segregated account, by recorda-
tion or otherwise, within the custody account in which certain
Securities and/or other assets of the Fund specifically al-
located to such Series shall be deposited and withdrawn from
time to time in accordance with Certificates received by the
Custodian in connection with such transactions as the Fund may
from time to time determine.
22. "Series" shall mean the various portfolios, if any,
of the Fund listed on Appendix B hereto as amended from time
to time.
23. "Shares" shall mean the shares of beneficial inter-
est of the Fund, each of which is, in the case of a Fund hav-
ing Series, allocated to a particular Series.
- 4 -
<PAGE>
24. "Stock Index Futures Contract" shall mean a
bilateral agreement pursuant to which the parties agree to
take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the value
of a particular stock index at the close of the last business
day of the contract and the price at which the futures
contract is originally struck.
25. "Stock Index Option" shall mean an exchange traded
option entitling the holder, upon timely exercise, to receive
an amount of cash determined by reference to the difference
between the exercise price and the value of the index on the
date of exercise.
ARTICLE II.
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the
Custodian as custodian of the Securities and moneys at any
time owned by the Fund during the period of this Agreement.
2. The Custodian hereby accepts appointment as such
custodian and agrees to perform the duties thereof as
hereinafter set forth.
ARTICLE III.
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this
Article and in Article VIII, the Fund will deliver or cause to
be delivered to the Custodian all Securities and all moneys
owned by it, at any time during the period of this Agreement,
and shall specify with respect to such Securities and money
the Series to which the same are specifically allocated. The
Custodian shall segregate, keep and maintain the assets of the
Series separate and apart. The Custodian will not be
responsible for any Securities and moneys not actually
received by it. The Custodian will be entitled to reverse any
credits made on the Fund's behalf where such credits have been
previously made and moneys are not finally collected. The
Fund shall deliver to the Custodian a certified resolution of
the Board of Trustees of the Fund, substantially in the form
of Exhibit A hereto, approving, authorizing and instructing
the Custodian on a continuous and on-going basis to deposit in
the Book-Entry System all Securities eligible for deposit
therein, regardless of the Series to which the same are
specifically allocated and to utilize the Book-Entry System to
the extent possible in connection with its performance
hereunder, including, without limitation, in connection with
settlements of purchases and sales of Securities, loans of
- 5 -
<PAGE>
Securities and deliveries and returns of Securities col-
lateral. Prior to a deposit of Securities specifically al-
located to a Series in the Depository, the Fund shall deliver
to the Custodian a certified resolution of the Board of
Trustees of the Fund, substantially in the form of Exhibit B
hereto, approving, authorizing and instructing the Custodian
on a continuous and ongoing basis until instructed to the
contrary by a Certificate actually received by the Custodian
to deposit in the Depository all Securities specifically al-
located to such Series eligible for deposit therein, and to
utilize the Depository to the extent possible with respect to
such Securities in connection with its performance hereunder,
including, without limitation, in connection with settlements
of purchases and sales of Securities, loans of Securities, and
deliveries and returns of Securities collateral. Securities
and moneys deposited in either the Book-Entry System or the
Depository will be represented in accounts which include only
assets held by the Custodian for customers, including, but not
limited to, accounts in which the Custodian acts in a
fiduciary or representative capacity and will be specifically
allocated on the Custodian's books to the separate account for
the applicable Series. Prior to the Custodian's accepting,
utilizing and acting with respect to Clearing Member confirma-
tions for Options and transactions in Options for a Series as
provided in this Agreement, the Custodian shall have received
a certified resolution of the Fund's Board of Trustees,
substantially in the form of Exhibit C hereto, approving,
authorizing and instructing the Custodian on a continuous and
on-going basis, until instructed to the contrary by a
Certificate actually received by the Custodian, to accept,
utilize and act in accordance with such confirmations as
provided in this Agreement with respect to such Series.
2. The Custodian shall establish and maintain separate
accounts, in the name of each Series, and shall credit to the
separate account for each Series all moneys received by it for
the account of the Fund with respect to such Series. Money
credited to a separate account for a Series shall be disbursed
by the Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Certificates setting forth the name
and address of the person to whom the payment is to be made,
the Series account from which payment is to be made and the
purpose for which payment is to be made; or
(c) In payment of the fees and in reimbursement of
the expenses and liabilities of the Custodian attributable to
such Series.
3. Promptly after the close of business on each day,
the Custodian shall furnish the Fund with confirmations and a
summary, on a per Series basis, of all transfers to or from
- 6 -
<PAGE>
the account of the Fund for a Series, either hereunder or with
any co-custodian or sub-custodian appointed in accordance with
this Agreement during said day. Where Securities are
transferred to the account of the Fund for a Series, the
Custodian shall also by book-entry or otherwise identify as
belonging to such Series a quantity of Securities in a
fungible bulk of Securities registered in the name of the
Custodian (or its nominee) or shown on the Custodian's account
on the books of the Book-Entry System or the Depository. At
least monthly and from time to time, the Custodian shall
furnish the Fund with a detailed statement, on a per Series
basis, of the Securities and moneys held by the Custodian for
the Fund.
4. Except as otherwise provided in paragraph 7 of this
Article and in Article VIII, all Securities held by the
Custodian hereunder, which are issued or issuable only in
bearer form, except such Securities as are held in the
Book-Entry System, shall be held by the Custodian in that
form; all other Securities held hereunder may be registered in
the name of the Fund, in the name of any duly appointed
registered nominee of the Custodian as the Custodian may from
time to time determine, or in the name of the Book-Entry
System or the Depository or their successor or successors, or
their nominee or nominees. The Fund agrees to furnish to the
Custodian appropriate instruments to enable the Custodian to
hold or deliver in proper form for transfer, or to register in
the name of its registered nominee or in the name of the
Book-Entry System or the Depository any Securities which it
may hold hereunder and which may from time to time be
registered in the name of the Fund. The Custodian shall hold
all such Securities specifically allocated to a Series which
are not held in the Book-Entry System or in the Depository in
a separate account in the name of such Series physically
segregated at all times from those of any other person or
persons.
5. Except as otherwise provided in this Agreement and
unless otherwise instructed to the contrary by a Certificate,
the Custodian by itself, or through the use of the Book-Entry
System or the Depository with respect to Securities held
hereunder and therein deposited, shall with respect to all
Securities held for the Fund hereunder in accordance with
preceding paragraph 4:
(a) Collect all income, dividends and distributions
due or payable;
(b) Give notice to the Fund and present payment and
collect the amount payable upon such Securities which are
called, but only if either (i) the Custodian receives a
written notice of such call, or (ii) notice of such call
appears in one or more of the publications listed in Appendix
C annexed hereto, which may be amended at any time by the
- 7 -
<PAGE>
Custodian without the prior notification or consent of the
Fund;
(c) Present for payment and collect the amount pay-
able upon all Securities which mature;
(d) Surrender Securities in temporary form for
definitive Securities;
(e) Execute, as custodian, any necessary declara-
tions or certificates of ownership under the Federal Income
Tax Laws or the laws or regulations of any other taxing
authority now or hereafter in effect; and
(f) Hold directly, or through the Book-Entry System
or the Depository with respect to Securities therein
deposited, for the account of a Series, all rights and similar
securities issued with respect to any Securities held by the
Custodian for such Series hereunder.
(g) Deliver to the Fund all notices, proxies, proxy
soliciting materials, consents and other written information
(including, without limitation, notices of tender offers and
exchange offers, pendency of calls, maturities of Securities
and expiration of rights) relating to Securities held pursuant
to this Agrement which are actually received by the Custodian,
such proxies and other similar materials to be executed by the
registered owner (if Securities are registered otherwise than
in the name of the Fund), but without indicating the manner in
which proxies or consents are to be voted.
6. Upon receipt of a Certificate and not otherwise, the
Custodian, directly or through the use of the Book-Entry
System or the Depository, shall:
(a) Execute and deliver to such persons as may be
designated in such Certificate proxies, consents, authoriza-
tions, and any other instruments whereby the authority of the
Fund as owner of any Securities held by the Custodian
hereunder for the Series specified in such Certificate may be
exercised;
(b) Deliver any Securities held by the Custodian
hereunder for the Series specified in such Certificate in
exchange for other Securities or cash issued or paid in con-
nection with the liquidation, reorganization, refinancing,
merger, consolidation or recapitalization of any corporation,
or the exercise of any conversion privilege and receive and
hold hereunder specifically allocated to such Series any cash
or other Securities received in exchange;
(c) Deliver any Securities held by the Custodian
hereunder for the Series specified in such Certificate to any
protective committee, reorganization committee or other person
- 8 -
<PAGE>
in connection with the reorganization, refinancing, merger,
consolidation, recapitalization or sale of assets of any
corporation, and receive and hold hereunder specifically al-
located to such Series such certificates of deposit, interim
receipts or other instruments or documents as may be issued to
it to evidence such delivery;
(d) Make such transfers or exchanges of the assets
of the Series specified in such Certificate, and take such
other steps as shall be stated in such Certificate to be for
the purpose of effectuating any duly authorized plan of
liquidation, reorganization, merger, consolidation or
recapitalization of the Fund; and
(e) Present for payment and collect the amount pay-
able upon Securities not described in preceding paragraph 5(b)
of this Article which may be called as specified in the
Certificate.
7. Notwithstanding any provision elsewhere contained
herein, the Custodian shall not be required to obtain posses-
sion of any instrument or certificate representing any Futures
Contract, any Option, or any Futures Contract Option until
after it shall have determined, or shall have received a
Certificate from the Fund stating, that any such instruments
or certificates are available. The Fund shall deliver to the
Custodian such a Certificate no later than the business day
preceding the availability of any such instrument or
certificate. Prior to such availability, the Custodian shall
comply with Section 17(f) of the Investment Company Act of
1940, as amended, in connection with the purchase, sale,
settlement, closing out or writing of Futures Contracts, Op-
tions, or Futures Contract Options by making payments or
deliveries specified in Certificates received by the Custodian
in connection with any such purchase, sale, writing, settle-
ment or closing out upon its receipt from a broker, dealer, or
futures commission merchant of a statement or confirmation
reasonably believed by the Custodian to be in the form
customarily used by brokers, dealers, or future commission
merchants with respect to such Futures Contracts, Options, or
Futures Contract Options, as the case may be, confirming that
such Security is held by such broker, dealer or futures com-
mission merchant, in book-entry form or otherwise, in the name
of the Custodian (or any nominee of the Custodian) as
custodian for the Fund, provided, however, that notwithstand-
ing the foregoing, payments to or deliveries from the Margin
Account, and payments with respect to Securities to which a
Margin Account relates, shall be made in accordance with the
terms and conditions of the Margin Account Agreement.
Whenever any such instruments or certificates are available,
the Custodian shall, notwithstanding any provision in this
Agreement to the contrary, make payment for any Futures
Contract, Option, or Futures Contract Option for which such
instruments or such certificates are available only against
- 9 -
<PAGE>
the delivery to the Custodian of such instrument or such
certificate, and deliver any Futures Contract, Option or
Futures Contract Option for which such instruments or such
certificates are available only against receipt by the
Custodian of payment therefor. Any such instrument or
certificate delivered to the Custodian shall be held by the
Custodian hereunder in accordance with, and subject to, the
provisions of this Agreement.
ARTICLE IV.
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each purchase of Securities by the
Fund, other than a purchase of an Option, a Futures Contract,
or a Futures Contract Option, the Fund shall deliver to the
Custodian (i) with respect to each purchase of Securities
which are not Money Market Securities, a Certificate, and (ii)
with respect to each purchase of Money Market Securities, a
Certificate or Oral Instructions, specifying with respect to
each such purchase: (a) the Series to which such Securities
are to be specifically allocated; (b) the name of the issuer
and the title of the Securities; (c) the number of shares or
the principal amount purchased and accrued interest, if any;
(d) the date of purchase and settlement; (e) the purchase
price per unit; (f) the total amount payable upon such
purchase; (g) the name of the person from whom or the broker
through whom the purchase was made, and the name of the
clearing broker, if any; and (h) the name of the broker to
whom payment is to be made. The Custodian shall, upon receipt
of Securities purchased by or for the Fund, pay to the broker
specified in the Certificate out of the moneys held for the
account of such Series the total amount payable upon such
purchase, provided that the same conforms to the total amount
payable as set forth in such Certificate or Oral Instructions.
2. Promptly after each sale of Securities by the Fund,
other than a sale of any Option, Futures Contract, Futures
Contract Option, or any Reverse Repurchase Agreement, the Fund
shall deliver to the Custodian (i) with respect to each sale
of Securities which are not Money Market Securities, a
Certificate, and (ii) with respect to each sale of Money
Market Securities, a Certificate or Oral Instructions,
specifying with respect to each such sale: (a) the Series to
which such Securities were specifically allocated; (b) the
name of the issuer and the title of the Security; (c) the
number of shares or principal amount sold, and accrued
interest, if any; (d) the date of sale; (e) the sale price per
unit; (f) the total amount payable to the Fund upon such sale;
(g) the name of the broker through whom or the person to whom
the sale was made, and the name of the clearing broker, if
- 10 -
<PAGE>
any; and (h) the name of the broker to whom the Securities are
to be delivered. The Custodian shall deliver the Securities
specifically allocated to such Series to the broker specified
in the Certificate against payment of the total amount payable
to the Fund upon such sale, provided that the same conforms to
the total amount payable as set forth in such Certificate or
Oral Instructions.
ARTICLE V.
OPTIONS
1. Promptly after the purchase of any Option by the
Fund, the Fund shall deliver to the Custodian a Certificate
specifying with respect to each Option purchased: (a) the
Series to which such Option is specifically allocated; (b) the
type of Option (put or call); (c) the name of the issuer and
the title and number of shares subject to such Option or, in
the case of a Stock Index Option, the stock index to which
such Option relates and the number of Stock Index Options
purchased; (d) the expiration date; (e) the exercise price;
(f) the dates of purchase and settlement; (g) the total amount
payable by the Fund in connection with such purchase; (h) the
name of the Clearing Member through whom such Option was
purchased; and (i) the name of the broker to whom payment is
to be made. The Custodian shall pay, upon receipt of a Clear-
ing Member's statement confirming the purchase of such Option
held by such Clearing Member for the account of the Custodian
(or any duly appointed and registered nominee of the
Custodian) as custodian for the Fund, out of moneys held for
the account of the Series to which such Option is to be
specifically allocated, the total amount payable upon such
purchase to the Clearing Member through whom the purchase was
made, provided that the same conforms to the total amount pay-
able as set forth in such Certificate.
2. Promptly after the sale of any Option purchased by
the Fund pursuant to paragraph 1 hereof, the Fund shall
deliver to the Custodian a Certificate specifying with respect
to each such sale: (a) the Series to which such Option was
specifically allocated; (b) the type of Option (put or call);
(c) the name of the issuer and the title and number of shares
subject to such Option or, in the case of a Stock Index Op-
tion, the stock index to which such Option relates and the
number of Stock Index Options sold; (d) the date of sale; (e)
the sale price; (f) the date of settlement; (g) the total
amount payable to the Fund upon such sale; and (h) the name of
the Clearing Member through whom the sale was made. The
Custodian shall consent to the delivery of the Option sold by
the Clearing Member which previously supplied the confirmation
described in preceding paragraph 1 of this Article with
respect to such Option against payment to the Custodian of the
total amount payable to the Fund, provided that the same
- 11 -
<PAGE>
conforms to the total amount payable as set forth in such
Certificate.
3. Promptly after the exercise by the Fund of any Call
Option purchased by the Fund pursuant to paragraph 1 hereof,
the Fund shall deliver to the Custodian a Certificate specify-
ing with respect to such Call Option: (a) the Series to which
such Call Option was specifically allocated; (b) the name of
the issuer and the title and number of shares subject to the
Call Option; (c) the expiration date; (d) the date of exercise
and settlement; (e) the exercise price per share; (f) the
total amount to be paid by the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Call
Option was exercised. The Custodian shall, upon receipt of
the Securities underlying the Call Option which was exercised,
pay out of the moneys held for the account of the Series to
which such Call Option was specifically allocated the total
amount payable to the Clearing Member through whom the Call
Option was exercised, provided that the same conforms to the
total amount payable as set forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put
Option purchased by the Fund pursuant to paragraph 1 hereof,
the Fund shall deliver to the Custodian a Certificate specify-
ing with respect to such Put Option: (a) the Series to which
such Put Option was specifically allocated; (b) the name of
the issuer and the title and number of shares subject to the
Put Option; (c) the expiration date; (d) the date of exercise
and settlement; (e) the exercise price per share; (f) the
total amount to be paid to the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Put Op-
tion was exercised. The Custodian shall, upon receipt of the
amount payable upon the exercise of the Put Option, deliver or
direct the Depository to deliver the Securities specifically
allocated to such Series, provided the same conforms to the
amount payable to the Fund as set forth in such Certificate.
5. Promptly after the exercise by the Fund of any Stock
Index Option purchased by the Fund pursuant to paragraph 1
hereof, the Fund shall deliver to the Custodian a Certificate
specifying with respect to such Stock Index Option: (a) the
Series to which such Stock Index Option was specifically al-
located; (b) the type of Stock Index Option (put or call); (c)
the number of Options being exercised; (d) the stock index to
which such Option relates; (e) the expiration date; (f) the
exercise price; (g) the total amount to be received by the
Fund in connection with such exercise; and (h) the Clearing
Member from whom such payment is to be received.
6. Whenever the Fund writes a Covered Call Option, the
Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to such Covered Call Option: (a) the
Series for which such Covered Call Option was written; (b) the
name of the issuer and the title and number of shares for
- 12 -
<PAGE>
which the Covered Call Option was written and which underlie
the same; (c) the expiration date; (d) the exercise price; (e)
the premium to be received by the Fund; (f) the date such
Covered Call Option was written; and (g) the name of the
Clearing Member through whom the premium is to be received.
The Custodian shall deliver or cause to be delivered, in
exchange for receipt of the premium specified in the
Certificate with respect to such Covered Call Option, such
receipts as are required in accordance with the customs
prevailing among Clearing Members dealing in Covered Call Op-
tions and shall impose, or direct the Depository to impose,
upon the underlying Securities specified in the Certificate
specifically allocated to such Series such restrictions as may
be required by such receipts. Notwithstanding the foregoing,
the Custodian has the right, upon prior written notification
to the Fund, at any time to refuse to issue any receipts for
Securities in the possession of the Custodian and not
deposited with the Depository underlying a Covered Call Op-
tion.
7. Whenever a Covered Call Option written by the Fund
and described in the preceding paragraph of this Article is
exercised, the Fund shall promptly deliver to the Custodian a
Certificate instructing the Custodian to deliver, or to direct
the Depository to deliver, the Securities subject to such
Covered Call Option and specifying: (a) the Series for which
such Covered Call Option was written; (b) the name of the is-
suer and the title and number of shares subject to the Covered
Call Option; (c) the Clearing Member to whom the underlying
Securities are to be delivered; and (d) the total amount pay-
able to the Fund upon such delivery. Upon the return and/or
cancellation of any receipts delivered pursuant to paragraph 6
of this Article, the Custodian shall deliver, or direct the
Depository to deliver, the underlying Securities as specified
in the Certificate against payment of the amount to be
received as set forth in such Certificate.
8. Whenever the Fund writes a Put Option, the Fund
shall promptly deliver to the Custodian a Certificate specify-
ing with respect to such Put Option: (a) the Series for which
such Put Option was written; (b) the name of the issuer and
the title and number of shares for which the Put Option is
written and which underlie the same; (c) the expiration date;
(d) the exercise price; (e) the premium to be received by the
Fund; (f) the date such Put Option is written; (g) the name of
the Clearing Member through whom the premium is to be received
and to whom a Put Option guarantee letter is to be delivered;
(h) the amount of cash, and/or the amount and kind of Securi-
ties, if any, specifically allocated to such Series to be
deposited in the Senior Security Account for such Series; and
(i) the amount of cash and/or the amount and kind of Securi-
ties specifically allocated to such Series to be deposited
into the Collateral Account for such Series. The Custodian
shall, after making the deposits into the Collateral Account
- 13 -
<PAGE>
specified in the Certificate, issue a Put Option guarantee
letter substantially in the form utilized by the Custodian on
the date hereof, and deliver the same to the Clearing Member
specified in the Certificate against receipt of the premium
specified in said Certificate. Notwithstanding the foregoing,
the Custodian shall be under no obligation to issue any Put
Option guarantee letter or similar document if it is unable to
make any of the representations contained therein.
9. Whenever a Put Option written by the Fund and
described in the preceding paragraph is exercised, the Fund
shall promptly deliver to the Custodian a Certificate specify-
ing: (a) the Series to which such Put Option was written; (b)
the name of the issuer and title and number of shares subject
to the Put Option; (c) the Clearing Member from whom the
underlying Securities are to be received; (d) the total amount
payable by the Fund upon such delivery; (e) the amount of cash
and/or the amount and kind of Securities specifically al-
located to such Series to be withdrawn from the Collateral
Account for such Series and (f) the amount of cash and/or the
amount and kind of Securities, specifically allocated to such
Series, if any, to be withdrawn from the Senior Security Ac-
count. Upon the return and/or cancellation of any Put Option
guarantee letter or similar document issued by the Custodian
in connection with such Put Option, the Custodian shall pay
out of the moneys held for the account of the Series to which
such Put Option was specifically allocated the total amount
payable to the Clearing Member specified in the Certificate as
set forth in such Certificate against delivery of such Securi-
ties, and shall make the withdrawals specified in such
Certificate.
10. Whenever the Fund writes a Stock Index Option, the
Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to such Stock Index Option: (a) the
Series for which such Stock Index Option was written; (b)
whether such Stock Index Option is a put or a call; (c) the
number of options written; (d) the stock index to which such
Option relates; (e) the expiration date; (f) the exercise
price; (g) the Clearing Member through whom such Option was
written; (h) the premium to be received by the Fund; (i) the
amount of cash and/or the amount and kind of Securities, if
any, specifically allocated to such Series to be deposited in
the Senior Security Account for such Series; (j) the amount of
cash and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in the
Collateral Account for such Series; and (k) the amount of cash
and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in a Margin Account,
and the name in which such account is to be or has been
established. The Custodian shall, upon receipt of the premium
specified in the Certificate, make the deposits, if any, into
the Senior Security Account specified in the Certificate, and
either (1) deliver such receipts, if any, which the Custodian
- 14 -
<PAGE>
has specifically agreed to issue, which are in accordance with
the customs prevailing among Clearing Members in Stock Index
Options and make the deposits into the Collateral Account
specified in the Certificate, or (2) make the deposits into
the Margin Account specified in the Certificate.
11. Whenever a Stock Index Option written by the Fund
and described in the preceding paragraph of this Article is
exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying with respect to such Stock Index Op-
tion: (a) the Series for which such Stock Index Option was
written; (b) such information as may be necessary to identify
the Stock Index Option being exercised; (c) the Clearing
Member through whom such Stock Index Option is being
exercised; (d) the total amount payable upon such exercise,
and whether such amount is to be paid by or to the Fund; (e)
the amount of cash and/or amount and kind of Securities, if
any, to be withdrawn from the Margin Account; and (f) the
amount of cash and/or amount and kind of Securities, if any,
to be withdrawn from the Senior Security Account for such
Series; and the amount of cash and/or the amount and kind of
Securities, if any, to be withdrawn from the Collateral Ac-
count for such Series. Upon the return and/or cancellation of
the receipt, if any, delivered pursuant to the preceding
paragraph of this Article, the Custodian shall pay out of the
moneys held for the account of the Series to which such Stock
Index Option was specifically allocated to the Clearing Member
specified in the Certificate the total amount payable, if any,
as specified therein.
12. Whenever the Fund purchases any Option identical to
a previously written Option described in paragraphs, 6, 8 or
10 of this Article in a transaction expressly designated as a
"Closing Purchase Transaction" in order to liquidate its posi-
tion as a writer of an Option, the Fund shall promptly deliver
to the Custodian a Certificate specifying with respect to the
Option being purchased: (a) that the transaction is a Closing
Purchase Transaction; (b) the Series for which the Option was
written; (c) the name of the issuer and the title and number
of shares subject to the Option, or, in the case of a Stock
Index Option, the stock index to which such Option relates and
the number of Options held; (d) the exercise price; (e) the
premium to be paid by the Fund; (f) the expiration date; (g)
the type of Option (put or call); (h) the date of such
purchase; (i) the name of the Clearing Member to whom the
premium is to be paid; and (j) the amount of cash and/or the
amount and kind of Securities, if any, to be withdrawn from
the Collateral Account, a specified Margin Account, or the
Senior Security Account for such Series. Upon the Custodian's
payment of the premium and the return and/or cancellation of
any receipt issued pursuant to paragraphs 6, 8 or 10 of this
Article with respect to the Option being liquidated through
the Closing Purchase Transaction, the Custodian shall remove,
- 15 -
<PAGE>
or direct the Depository to remove, the previously imposed
restrictions on the Securities underlying the Call Option.
13. Upon the expiration, exercise or consummation of a
Closing Purchase Transaction with respect to any Option
purchased or written by the Fund and described in this
Article, the Custodian shall delete such Option from the
statements delivered to the Fund pursuant to paragraph 3
Article III herein, and upon the return and/or cancellation of
any receipts issued by the Custodian, shall make such
withdrawals from the Collateral Account, and the Margin Ac-
count and/or the Senior Security Account as may be specified
in a Certificate received in connection with such expiration,
exercise, or consummation.
ARTICLE VI.
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures
Contract, the Fund shall deliver to the Custodian a
Certificate specifying with respect to such Futures Contract,
(or with respect to any number of identical Futures
Contract(s)): (a) the Series for which the Futures Contract is
being entered; (b) the category of Futures Contract (the name
of the underlying stock index or financial instrument); (c)
the number of identical Futures Contracts entered into; (d)
the delivery or settlement date of the Futures Contract(s);
(e) the date the Futures Contract(s) was (were) entered into
and the maturity date; (f) whether the Fund is buying (going
long) or selling (going short) on such Futures Contract(s);
(g) the amount of cash and/or the amount and kind of Securi-
ties, if any, to be deposited in the Senior Security Account
for such Series; (h) the name of the broker, dealer, or
futures commission merchant through whom the Futures Contract
was entered into; and (i) the amount of fee or commission, if
any, to be paid and the name of the broker, dealer, or futures
commission merchant to whom such amount is to be paid. The
Custodian shall make the deposits, if any, to the Margin Ac-
count in accordance with the terms and conditions of the
Margin Account Agreement. The Custodian shall make payment
out of the moneys specifically allocated to such Series of the
fee or commission, if any, specified in the Certificate and
deposit in the Senior Security Account for such Series the
amount of cash and/or the amount and kind of Securities
specified in said Certificate.
2. (a) Any variation margin payment or similar payment
required to be made by the Fund to a broker, dealer, or
futures commission merchant with respect to an outstanding
Futures Contract, shall be made by the Custodian in accordance
with the terms and conditions of the Margin Account Agree-
ment.
- 16 -
<PAGE>
(b) Any variation margin payment or similar payment
from a broker, dealer, or futures commission merchant to the
Fund with respect to an outstanding Futures Contract, shall be
received and dealt with by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian
hereunder is retained by the Fund until delivery or settlement
is made on such Futures Contract, the Fund shall deliver to
the Custodian a Certificate specifying: (a) the Futures
Contract and the Series to which the same relates; (b) with
respect to a Stock Index Futures Contract, the total cash
settlement amount to be paid or received, and with respect to
a Financial Futures Contract, the Securities and/or amount of
cash to be delivered or received; (c) the broker, dealer, or
futures commission merchant to or from whom payment or
delivery is to be made or received; and (d) the amount of cash
and/or Securities to be withdrawn from the Senior Security
Account for such Series. The Custodian shall make the payment
or delivery specified in the Certificate, and delete such
Futures Contract from the statements delivered to the Fund
pursuant to paragraph 3 of Article III herein.
4. Whenever the Fund shall enter into a Futures
Contract to offset a Futures Contract held by the Custodian
hereunder, the Fund shall deliver to the Custodian a
Certificate specifying: (a) the items of information required
in a Certificate described in paragraph 1 of this Article, and
(b) the Futures Contract being offset. The Custodian shall
make payment out of the money specifically allocated to such
Series of the fee or commission, if any, specified in the
Certificate and delete the Futures Contract being offset from
the statements delivered to the Fund pursuant to paragraph 3
of Article III herein, and make such withdrawals from the
Senior Security Account for such Series as may be specified in
such Certificate. The withdrawals, if any, to be made from
the Margin Account shall be made by the Custodian in ac-
cordance with the terms and conditions of the Margin Account
Agreement.
ARTICLE VII.
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any Futures Contract
Option by the Fund, the Fund shall promptly deliver to the
Custodian a Certificate specifying with respect to such
Futures Contract Option: (a) the Series to which such Option
is specifically allocated; (b) the type of Futures Contract
Option (put or call); (c) the type of Futures Contract and
such other information as may be necessary to identify the
Futures Contract underlying the Futures Contract Option
purchased; (d) the expiration date; (e) the exercise price;
- 17 -
<PAGE>
(f) the dates of purchase and settlement; (g) the amount of
premium to be paid by the Fund upon such purchase; (h) the
name of the broker or futures commission merchant through whom
such option was purchased; and (i) the name of the broker, or
futures commission merchant, to whom payment is to be made.
The Custodian shall pay out of the moneys specifically al-
located to such Series, the total amount to be paid upon such
purchase to the broker or futures commissions merchant through
whom the purchase was made, provided that the same conforms to
the amount set forth in such Certificate.
2. Promptly after the sale of any Futures Contract Op-
tion purchased by the Fund pursuant to paragraph 1 hereof, the
Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to each such sale: (a) Series to which
such Futures Contract Option was specifically allocated; (b)
the type of Future Contract Option (put or call); (c) the type
of Futures Contract and such other information as may be
necessary to identify the Futures Contract underlying the
Futures Contract Option; (d) the date of sale; (e) the sale
price; (f) the date of settlement; (g) the total amount pay-
able to the Fund upon such sale; and (h) the name of the
broker of futures commission merchant through whom the sale
was made. The Custodian shall consent to the cancellation of
the Futures Contract Option being closed against payment to
the Custodian of the total amount payable to the Fund,
provided the same conforms to the total amount payable as set
forth in such Certificate.
3. Whenever a Futures Contract Option purchased by the
Fund pursuant to paragraph 1 is exercised by the Fund, the
Fund shall promptly deliver to the Custodian a Certificate
specifying: (a) the Series to which such Futures Contract Op-
tion was specifically allocated; (b) the particular Futures
Contract Option (put or call) being exercised; (c) the type of
Futures Contract underlying the Futures Contract Option; (d)
the date of exercise; (e) the name of the broker or futures
commission merchant through whom the Futures Contract Option
is exercised; (f) the net total amount, if any, payable by the
Fund; (g) the amount, if any, to be received by the Fund; and
(h) the amount of cash and/or the amount and kind of Securi-
ties to be deposited in the Senior Security Account for such
Series. The Custodian shall make, out of the moneys and
Securities specifically allocated to such Series, the pay-
ments, if any, and the deposits, if any, into the Senior
Security Account as specified in the Certificate. The
deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and condi-
tions of the Margin Account Agreement.
4. Whenever the Fund writes a Futures Contract Option,
the Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to such Futures Contract Option: (a)
the Series for which such Futures Contract Option was written;
- 18 -
<PAGE>
(b) the type of Futures Contract Option (put or call); (c) the
type of Futures Contract and such other information as may be
necessary to identify the Futures Contract underlying the
Futures Contract Option; (d) the expiration date; (e) the
exercise price; (f) the premium to be received by the Fund;
(g) the name of the broker or futures commission merchant
through whom the premium is to be received; and (h) the amount
of cash and/or the amount and kind of Securities, if any, to
be deposited in the Senior Security Account for such Series.
The Custodian shall, upon receipt of the premium specified in
the Certificate, make out of the moneys and Securities
specifically allocated to such Series the deposits into the
Senior Security Account, if any, as specified in the
Certificate. The deposits, if any, to be made to the Margin
Account shall be made by the Custodian in accordance with the
terms and conditions of the Margin Account Agreement.
5. Whenever a Futures Contract Option written by the
Fund which is a call is exercised, the Fund shall promptly
deliver to the Custodian a Certificate specifying: (a) the
Series to which such Futures Contract Option was specifically
allocated; (b) the particular Futures Contract Option
exercised; (c) the type of Futures Contract underlying the
Futures Contract Option; (d) the name of the broker or futures
commission merchant through whom such Futures Contract Option
was exercised; (e) the net total amount, if any, payable to
the Fund upon such exercise; (f) the net total amount, if any,
payable by the Fund upon such exercise; and (g) the amount of
cash and/or the amount and kind of Securities to be deposited
in the Senior Security Account for such Series. The Custodian
shall, upon its receipt of the net total amount payable to the
Fund, if any, specified in such Certificate make the payments,
if any, and the deposits, if any, into the Senior Security
Account as specified in the Certificate. The deposits, if any,
to be made to the Margin Account shall be made by the
Custodian in accordance with the terms and conditions of the
Margin Account Agreement.
6. Whenever a Futures Contract Option which is written
by the Fund and which is a put is exercised, the Fund shall
promptly deliver to the Custodian a Certificate specifying:
(a) the Series to which such Option was specifically al-
located; (b) the particular Futures Contract Option exercised;
(c) the type of Futures Contract underlying such Futures
Contract Option; (d) the name of the broker or futures commis-
sion merchant through whom such Futures Contract Option is
exercised; (e) the net total amount, if any, payable to the
Fund upon such exercise; (f) the net total amount, if any,
payable by the Fund upon such exercise; and (g) the amount and
kind of Securities and/or cash to be withdrawn from or
deposited in, the Senior Security Account for such Series, if
any. The Custodian shall, upon its receipt of the net total
amount payable to the Fund, if any, specified in the
Certificate, make out of the moneys and Securities
- 19 -
<PAGE>
specifically allocated to such Series, the payments, if any,
and the deposits, if any, into the Senior Security Account as
specified in the Certificate. The deposits to and/or
withdrawals from the Margin Account, if any, shall be made by
the Custodian in accordance with the terms and conditions of
the Margin Account Agreement.
7. Whenever the Fund purchases any Futures Contract
Option identical to a previously written Futures Contract Op-
tion described in this Article in order to liquidate its posi-
tion as a writer of such Futures Contract Option, the Fund
shall promptly deliver to the Custodian a Certificate specify-
ing with respect to the Futures Contract Option being
purchased: (a) the Series to which such Option is specifically
allocated; (b) that the transaction is a closing transaction;
(c) the type of Future Contract and such other information as
may be necessary to identify the Futures Contract underlying
the Futures Option Contract; (d) the exercise price; (e) the
premium to be paid by the Fund; (f) the expiration date; (g)
the name of the broker or futures commission merchant to whom
the premium is to be paid; and (h) the amount of cash and/or
the amount and kind of Securities, if any, to be withdrawn
from the Senior Security Account for such Series. The
Custodian shall effect the withdrawals from the Senior
Security Account specified in the Certificate. The withdraw-
als, if any, to be made from the Margin Account shall be made
by the Custodian in accordance with the terms and conditions
of the Margin Account Agreement.
8. Upon the expiration, exercise, or consummation of a
closing transaction with respect to, any Futures Contract Op-
tion written or purchased by the Fund and described in this
Article, the Custodian shall (a) delete such Futures Contract
Option from the statements delivered to the Fund pursuant to
paragraph 3 of Article III herein and, (b) make such withdraw-
als from and/or in the case of an exercise such deposits into
the Senior Security Account as may be specified in a
Certificate. The deposits to and/or withdrawals from the
Margin Account, if any, shall be made by the Custodian in ac-
cordance with the terms and conditions of the Margin Account
Agreement.
9. Futures Contracts acquired by the Fund through the
exercise of a Futures Contract Option described in this
Article shall be subject to Article VI hereof.
ARTICLE VIII.
SHORT SALES
1. Promptly after any short sales by any Series of the
Fund, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series for which such short
- 20 -
<PAGE>
sale was made; (b) the name of the issuer and the title of the
Security; (c) the number of shares or principal amount sold,
and accrued interest or dividends, if any; (d) the dates of
the sale and settlement; (e) the sale price per unit; (f) the
total amount credited to the Fund upon such sale, if any, (g)
the amount of cash and/or the amount and kind of Securities,
if any, which are to be deposited in a Margin Account and the
name in which such Margin Account has been or is to be
established; (h) the amount of cash and/or the amount and kind
of Securities, if any, to be deposited in a Senior Security
Account, and (i) the name of the broker through whom such
short sale was made. The Custodian shall upon its receipt of
a statement from such broker confirming such sale and that the
total amount credited to the Fund upon such sale, if any, as
specified in the Certificate is held by such broker for the
account of the Custodian (or any nominee of the Custodian) as
custodian of the Fund, issue a receipt or make the deposits
into the Margin Account and the Senior Security Account
specified in the Certificate.
2. In connection with the closing-out of any short
sale, the Fund shall promptly deliver to the Custodian a
Certificate specifying with respect to each such closing out:
(a) the Series for which such transaction is being made; (b)
the name of the issuer and the title of the Security; (c) the
number of shares or the principal amount, and accrued interest
or dividends, if any, required to effect such closing-out to
be delivered to the broker; (d) the dates of closing-out and
settlement; (e) the purchase price per unit; (f) the net total
amount payable to the Fund upon such closing-out; (g) the net
total amount payable to the broker upon such closing-out; (h)
the amount of cash and the amount and kind of Securities to be
withdrawn, if any, from the Margin Account; (i) the amount of
cash and/or the amount and kind of Securities, if any, to be
withdrawn from the Senior Security Account; and (j) the name
of the broker through whom the Fund is effecting such
closing-out. The Custodian shall, upon receipt of the net
total amount payable to the Fund upon such closing-out, and
the return and/or cancellation of the receipts, if any, issued
by the Custodian with respect to the short sale being
closed-out, pay out of the moneys held for the account of the
Fund to the broker the net total amount payable to the broker,
and make the withdrawals from the Margin Account and the
Senior Security Account, as the same are specified in the
Certificate.
ARTICLE IX.
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase
Agreement with respect to Securities and money held by the
Custodian hereunder, the Fund shall deliver to the Custodian a
- 21 -
<PAGE>
Certificate, or in the event such Reverse Repurchase Agreement
is a Money Market Security, a Certificate or Oral Instructions
specifying: (a) the Series for which the Reverse Repurchase
Agreement is entered; (b) the total amount payable to the Fund
in connection with such Reverse Repurchase Agreement and
specifically allocated to such Series; (c) the broker or
dealer through or with whom the Reverse Repurchase Agreement
is entered; (d) the amount and kind of Securities to be
delivered by the Fund to such broker or dealer; (e) the date
of such Reverse Repurchase Agreement; and (f) the amount of
cash and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in a
Senior Security Account for such Series in connection with
such Reverse Repurchase Agreement. The Custodian shall, upon
receipt of the total amount payable to the Fund specified in
the Certificate or Oral Instructions make the delivery to the
broker or dealer, and the deposits, if any, to the Senior
Security Account, specified in such Certificate or Oral
Instructions.
2. Upon the termination of a Reverse Repurchase Agree-
ment described in preceding paragraph 1 of this Article, the
Fund shall promptly deliver a Certificate or, in the event
such Reverse Repurchase Agreement is a Money Market Security,
a Certificate or Oral Instructions to the Custodian
specifying: (a) the Reverse Repurchase Agreement being
terminated and the Series for which same was entered; (b) the
total amount payable by the Fund in connection with such
termination; (c) the amount and kind of Securities to be
received by the Fund and specifically allocated to such Series
in connection with such termination; (d) the date of termina-
tion; (e) the name of the broker or dealer with or through
whom the Reverse Repurchase Agreement is to be terminated; and
(f) the amount of cash and/or the amount and kind of Securi-
ties to be withdrawn from the Senior Securities Account for
such Series. The Custodian shall, upon receipt of the amount
and kind of Securities to be received by the Fund specified in
the Certificate or Oral Instructions, make the payment to the
broker or dealer, and the withdrawals, if any, from the Senior
Security Account, specified in such Certificate or Oral
Instructions.
ARTICLE X.
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities
specifically allocated to a Series held by the Custodian
hereunder, the Fund shall deliver or cause to be delivered to
the Custodian a Certificate specifying with respect to each
such loan: (a) the Series to which the loaned Securities are
specifically allocated; (b) the name of the issuer and the
title of the Securities, (c) the number of shares or the
- 22 -
<PAGE>
principal amount loaned, (d) the date of loan and delivery,
(e) the total amount to be delivered to the Custodian against
the loan of the Securities, including the amount of cash col-
lateral and the premium, if any, separately identified, and
(f) the name of the broker, dealer, or financial institution
to which the loan was made. The Custodian shall deliver the
Securities thus designated to the broker, dealer or financial
institution to which the loan was made upon receipt of the
total amount designated as to be delivered against the loan of
Securities. The Custodian may accept payment in connection
with a delivery otherwise than through the Book-Entry System
or Depository only in the form of a certified or bank
cashier's check payable to the order of the Fund or the
Custodian drawn on New York Clearing House funds and may
deliver Securities in accordance with the customs prevailing
among dealers in securities.
2. Promptly after each termination of the loan of
Securities by the Fund, the Fund shall deliver or cause to be
delivered to the Custodian a Certificate specifying with
respect to each such loan termination and return of Securi-
ties: (a) the Series to which the loaned Securities are
specifically allocated; (b) the name of the issuer and the
title of the Securities to be returned, (c) the number of
shares or the principal amount to be returned, (d) the date of
termination, (e) the total amount to be delivered by the
Custodian (including the cash collateral for such Securities
minus any offsetting credits as described in said
Certificate), and (f) the name of the broker, dealer, or
financial institution from which the Securities will be
returned. The Custodian shall receive all Securities returned
from the broker, dealer, or financial institution to which
such Securities were loaned and upon receipt thereof shall
pay, out of the moneys held for the account of the Fund, the
total amount payable upon such return of Securities as set
forth in the Certificate.
ARTICLE XI.
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such
deposits to, or withdrawals from, a Senior Security Account as
specified in a Certificate received by the Custodian. Such
Certificate shall specify the Series for which such deposit or
withdrawal is to be made and the amount of cash and/or the
amount and kind of Securities specifically allocated to such
Series to be deposited in, or withdrawn from, such Senior
Security Account for such Series. In the event that the Fund
fails to specify in a Certificate the Series, the name of the
issuer, the title and the number of shares or the principal
amount of any particular Securities to be deposited by the
- 23 -
<PAGE>
Custodian into, or withdrawn from, a Senior Securities Ac-
count, the Custodian shall be under no obligation to make any
such deposit or withdrawal and shall so notify the Fund.
2. The Custodian shall make deliveries or payments from
a Margin Account to the broker, dealer, futures commission
merchant or Clearing Member in whose name, or for whose
benefit, the account was established as specified in the
Margin Account Agreement.
3. Amounts received by the Custodian as payments or
distributions with respect to Securities deposited in any
Margin Account shall be dealt with in accordance with the
terms and conditions of the Margin Account Agreement.
4. The Custodian shall have a continuing lien and
security interest in and to any property at any time held by
the Custodian in any Collateral Account described herein. In
accordance with applicable law the Custodian may enforce its
lien and realize on any such property whenever the Custodian
has made payment or delivery pursuant to any Put Option
guarantee letter or similar document or any receipt issued
hereunder by the Custodian. In the event the Custodian should
realize on any such property net proceeds which are less than
the Custodian's obligations under any Put Option guarantee
letter or similar document or any receipt, such deficiency
shall be a debt owed the Custodian by the Fund within the
scope of Article XIV herein.
5. On each business day the Custodian shall furnish the
Fund with a statement with respect to each Margin Account in
which money or Securities are held specifying as of the close
of business on the previous business day: (a) the name of the
Margin Account; (b) the amount and kind of Securities held
therein; and (c) the amount of money held therein. The
Custodian shall make available upon request to any broker,
dealer, or futures commission merchant specified in the name
of a Margin Account a copy of the statement furnished the Fund
with respect to such Margin Account.
6. Promptly after the close of business on each busi-
ness day in which cash and/or Securities are maintained in a
Collateral Account for any Series, the Custodian shall furnish
the Fund with a statement with respect to such Collateral Ac-
count specifying the amount of cash and/or the amount and kind
of Securities held therein. No later than the close of busi-
ness next succeeding the delivery to the Fund of such state-
ment, the Fund shall furnish to the Custodian a Certificate
specifying the then market value of the Securities described
in such statement. In the event such then market value is
indicated to be less than the Custodian's obligation with
respect to any outstanding Put Option guarantee letter or
similar document, the Fund shall promptly specify in a
Certificate the additional cash and/or Securities to be
- 24 -
<PAGE>
deposited in such Collateral Account to eliminate such
deficiency.
ARTICLE XII.
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of
the resolution of the Board of Trustees of the Fund, certified
by the Secretary or any Assistant Secretary, either (i)
setting forth with respect to the Series specified therein the
date of the declaration of a dividend or distribution, the
date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined, the
amount payable per Share of such Series to the shareholders of
record as of that date and the total amount payable to the
Dividend Agent and any sub-dividend agent or co-dividend agent
of the Fund on the payment date, or (ii) authorizing with
respect to the Series specified therein the declaration of
dividends and distributions on a daily basis and authorizing
the Custodian to rely on Oral Instructions or a Certificate
setting forth the date of the declaration of such dividend or
distribution, the date of payment thereof, the record date as
of which shareholders entitled to payment shall be determined,
the amount payable per Share of such Series to the
shareholders of record as of that date and the total amount
payable to the Dividend Agent on the payment date.
2. Upon the payment date specified in such resolution,
Oral Instructions or Certificate, as the case may be, the
Custodian shall pay out of the moneys held for the account of
each Series the total amount payable to the Dividend Agent and
any sub-dividend agent or co-dividend agent of the Fund with
respect to such Series.
ARTICLE XIII.
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall
deliver to the Custodian a Certificate duly specifying:
(a) The Series, the number of Shares sold, trade
date, and price; and
(b) The amount of money to be received by the
Custodian for the sale of such Shares and specifically al-
located to the separate account in the name of such Series.
2. Upon receipt of such money from the Transfer Agent,
the Custodian shall credit such money to the separate account
in the name of the Series for which such money was received.
- 25 -
<PAGE>
3. Upon issuance of any Shares of any Series described
in the foregoing provisions of this Article, the Custodian
shall pay, out of the money held for the account of such
Series, all original issue or other taxes required to be paid
by the Fund in connection with such issuance upon the receipt
of a Certificate specifying the amount to be paid.
4. Except as provided hereinafter, whenever the Fund
desires the Custodian to make payment out of the money held by
the Custodian hereunder in connection with a redemption of any
Shares, it shall furnish to the Custodian a Certificate
specifying:
(a) The number and Series of Shares redeemed; and
(b) The amount to be paid for such Shares.
5. Upon receipt from the Transfer Agent of an advice
setting forth the Series and number of Shares received by the
Transfer Agent for redemption and that such Shares are in good
form for redemption, the Custodian shall make payment to the
Transfer Agent out of the moneys held in the separate account
in the name of the Series the total amount specified in the
Certificate issued pursuant to the foregoing paragraph 4 of
this Article.
6. Notwithstanding the above provisions regarding the
redemption of any Shares, whenever any Shares are redeemed
pursuant to any check redemption privilege which may from time
to time be offered by the Fund, the Custodian, unless
otherwise instructed by a Certificate, shall, upon receipt of
an advice from the Fund or its agent setting forth that the
redemption is in good form for redemption in accordance with
the check redemption procedure, honor the check presented as
part of such check redemption privilege out of the moneys held
in the separate account of the Series of the Shares being
redeemed.
ARTICLE XIV.
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian, should in its sole discretion
advance funds on behalf of any Series which results in an
overdraft because the moneys held by the Custodian in the
separate account for such Series shall be insufficient to pay
the total amount payable upon a purchase of Securities
specifically allocated to such Series, as set forth in a
Certificate or Oral Instructions, or which results in an
overdraft in the separate account of such Series for some
other reason, or if the Fund is for any other reason indebted
to the Custodian with respect to a Series, including any
indebtedness to The Bank of New York under the Fund's Cash
- 26 -
<PAGE>
Management and Related Services Agreement, (except a borrowing
for investment or for temporary or emergency purposes using
Securities as collateral pursuant to a separate agreement and
subject to the provisions of paragraph 2 of this Article),
such overdraft or indebtedness shall be deemed to be a loan
made by the Custodian to the Fund for such Series payable on
demand and shall bear interest from the date incurred at a
rate per annum (based on a 360-day year for the actual number
of days involved) equal to 1/2% over Custodian's prime
commercial lending rate in effect from time to time, such rate
to be adjusted on the effective date of any change in such
prime commercial lending rate but in no event to be less than
6% per annum. In addition, the Fund hereby agrees that the
Custodian shall have a continuing lien and security interest
in and to any property specifically allocated to such Series
at any time held by it for the benefit of such Series or in
which the Fund may have an interest which is then in the
Custodian's possession or control or in possession or control
of any third party acting in the Custodian's behalf. The Fund
authorizes the Custodian, in its sole discretion, at any time
to charge any such overdraft or indebtedness together with
interest due thereon against any balance of account standing
to such Series' credit on the Custodian's books. In addition,
the Fund hereby covenants that on each Business Day on which
either it intends to enter a Reverse Repurchase Agreement and/
or otherwise borrow from a third party, or which next succeeds
a Business Day on which at the close of business the Fund had
outstanding a Reverse Repurchase Agreement or such a borrow-
ing, it shall prior to 9 a.m., New York City time, advise the
Custodian, in writing, of each such borrowing, shall specify
the Series to which the same relates, and shall not incur any
indebtedness not so specified other than from the Custodian.
2. The Fund will cause to be delivered to the Custodian
by any bank (including, if the borrowing is pursuant to a
separate agreement, the Custodian) from which it borrows money
for investment or for temporary or emergency purposes using
Securities held by the Custodian hereunder as collateral for
such borrowings, a notice or undertaking in the form currently
employed by any such bank setting forth the amount which such
bank will loan to the Fund against delivery of a stated amount
of collateral. The Fund shall promptly deliver to the
Custodian a Certificate specifying with respect to each such
borrowing: (a) the Series to which such borrowing relates; (b)
the name of the bank, (c) the amount and terms of the borrow-
ing, which may be set forth by incorporating by reference an
attached promissory note, duly endorsed by the Fund, or other
loan agreement, (d) the time and date, if known, on which the
loan is to be entered into, (e) the date on which the loan
becomes due and payable, (f) the total amount payable to the
Fund on the borrowing date, (g) the market value of Securities
to be delivered as collateral for such loan, including the
name of the issuer, the title and the number of shares or the
principal amount of any particular Securities, and (h) a
- 27 -
<PAGE>
statement specifying whether such loan is for investment
purposes or for temporary or emergency purposes and that such
loan is in conformance with the Investment Company Act of 1940
and the Fund's prospectus. The Custodian shall deliver on the
borrowing date specified in a Certificate the specified col-
lateral and the executed promissory note, if any, against
delivery by the lending bank of the total amount of the loan
payable, provided that the same conforms to the total amount
payable as set forth in the Certificate. The Custodian may,
at the option of the lending bank, keep such collateral in its
possession, but such collateral shall be subject to all rights
therein given the lending bank by virtue of any promissory
note or loan agreement. The Custodian shall deliver such
Securities as additional collateral as may be specified in a
Certificate to collateralize further any transaction described
in this paragraph. The Fund shall cause all Securities
released from collateral status to be returned directly to the
Custodian, and the Custodian shall receive from time to time
such return of collateral as may be tendered to it. In the
event that the Fund fails to specify in a Certificate the
Series, the name of the issuer, the title and number of shares
or the principal amount of any particular Securities to be
delivered as collateral by the Custodian, the Custodian shall
not be under any obligation to deliver any Securities.
ARTICLE XV.
INSTRUCTIONS
1. With respect to any software provided by the
Custodian to a Fund in order for the Fund to transmit
Instructions to the Custodian (the "Software"), the Custodian
grants to such Fund a personal, nontransferable and
nonexclusive license to use the Software solely for the
purpose of transmitting Instructions to, and receiving
communications from, the Custodian in connection with its
account(s). The Fund agrees not to sell, reproduce, lease or
otherwise provide, directly or indirectly, the Software or any
portion thereof to any third party without the prior written
consent of the Custodian.
2. The Fund shall obtain and maintain at its own cost
and expense all equipment and services, including but not
limited to communications services, necessary for it to
utilize the Software and transmit Instructions to the
Custodian. The Custodian shall not be responsible for the
reliability, compatibility with the Software or availability
of any such equipment or services or the performance or
nonperformance by any nonparty to this Custody Agreement.
3. The Fund acknowledges that the Software, all data
bases made available to the Fund by utilizing the Software
(other than data bases relating solely to the assets of the
- 28 -
<PAGE>
Fund and transactions with respect thereto), and any
proprietary data, processes, information and documentation
(other than which are or become part of the public domain or
are legally required to be made available to the public)
(collectively, the "Information"), are the exclusive and
confidential property of the Custodian. The Fund shall keep
the Information confidential by using the same care and
discretion that the Fund uses with respect to its own
confidential property and trade secrets and shall neither make
nor permit any disclosure without the prior written consent of
the Custodian. Upon termination of this Agreement or the
Software license granted hereunder for any reason, the Fund
shall return to the Custodian all copies of the Information
which are in its possession or under its control or which the
Fund distributed to third parties.
4. The Custodian reserves the right to modify the
Software from time to time upon reasonable prior notice and
the Fund shall install new releases of the Software as the
Custodian may direct. The Fund agrees not to modify or
attempt to modify the Software without the Custodian's prior
written consent. The Fund acknowledges that any modifications
to the Software, whether by the Fund or the Custodian and
whether with or without the Custodian's consent, shall become
the property of the Custodian.
5. The Custodian makes no warranties or representations
of any kind with regard to the Software or the method(s) by
which the Fund may transmit Instructions to the Custodian,
express or implied, including but not limited to any implied
warranties or merchantability or fitness for a particular
purpose.
6. Where the method for transmitting Instructions by
the Fund involves an automatic systems acknowledgment by the
Custodian of its receipt of such Instructions, then in the
absence of such acknowledgment the Custodian shall not be
liable for any failure to act pursuant to such Instructions,
the Fund may not claim that such Instructions were received by
the Custodian, and the Fund shall deliver a Certificate by
some other means.
7. (a) The Fund agrees that where it delivers to the
Custodian Instructions hereunder, it shall be the Fund's sole
responsibility to ensure that only persons duly authorized by
the Fund transmit such Instructions to the Custodian. The
Fund will cause all persons transmitting Instructions to the
Custodian to treat applicable user and authorization codes,
passwords and authentication keys with extreme care, and
irrevocably authorizes the Custodian to act in accordance with
and rely upon Instructions received by it pursuant hereto.
(b) The Fund hereby represents, acknowledges and
agrees that it is fully informed of the protections and risks
- 29 -
<PAGE>
associated with the various methods of transmitting
Instructions to the Custodian and that there may be more
secure methods of transmitting instructions to the Custodian
than the method(s) selected by the Fund. The Fund hereby
agrees that the security procedures (if any) to be followed in
connection with the Fund's transmission of Instructions
provide to it a commercially reasonable degree of protection
in light of its particular needs and circumstances.
8. The Fund hereby presents, warrants and covenants to
the Custodian that this Agreement has been duly approved by a
resolution of its Board of Trustees, and that its transmission
of Instructions pursuant hereto shall at all times comply with
the Investment Company Act of 1940, as amended.
9. The Fund shall notify the Custodian of any errors,
omissions or interruptions in, or delay or unavailability of,
its ability to send Instructions as promptly as practicable,
and in any event within 24 hours after the earliest of (i)
discovery thereof, (ii) the Business Day on which discovery
should have occurred through the exercise of reasonable care
and (iii) in the case of any error, the date of actual receipt
of the earliest notice which reflects such error, it being
agreed that discovery and receipt of notice may only occur on
a business day. The Custodian shall promptly advise the Fund
whenever the Custodian learns of any errors, omissions or
interruption in, or delay or unavailability of, the Fund's
ability to send Instructions.
ARTICLE XVI.
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, neither the Custodian
nor its nominee shall be liable for any loss or damage,
including counsel fees, resulting from its action or omission
to act or otherwise, either hereunder or under any Margin
Account Agreement, except for any such loss or damage arising
out of its own negligence or willful misconduct. In no event
shall the Custodian be liable to the Fund or any third party
for special, indirect or consequential damages or lost profits
or loss of business, arising under or in connection with this
Agreement, even if previously informed of the possibility of
such damages and regardless of the form of action. The
Custodian may, in good faith, with respect to questions of law
arising hereunder or under any Margin Account Agreement, apply
for and obtain the advice and opinion of counsel to the Fund
or of its own counsel, at the expense of the Fund, and shall
be fully protected with respect to anything done or omitted by
- 30 -
<PAGE>
it in good faith in conformity with such advice or opinion.
The Custodian shall be liable to the Fund for any loss or
damage resulting from the use of the Book-Entry System or any
Depository arising by reason of any negligence or willful
misconduct on the part of the Custodian or any of its
employees or agents.
2. Without limiting the generality of the foregoing,
the Custodian shall be under no obligation to inquire into,
and shall not be liable for:
(a) The validity of the issue of any Securities
purchased, sold, or written by or for the Fund, the legality
of the purchase, sale or writing thereof, or the propriety of
the amount paid or received therefor;
(b) The legality of the sale or redemption of any
Shares, or the propriety of the amount to be received or paid
therefor;
(c) The legality of the declaration or payment of
any dividend by the Fund;
(d) The legality of any borrowing by the Fund using
Securities as collateral;
(e) The legality of any loan of portfolio Securi-
ties, nor shall the Custodian be under any duty or obligation
to see to it that any cash collateral delivered to it by a
broker, dealer, or financial institution or held by it at any
time as a result of such loan of portfolio Securities of the
Fund is adequate collateral for the Fund against any loss it
might sustain as a result of such loan. The Custodian
specifically, but not by way of limitation, shall not be under
any duty or obligation periodically to check or notify the
Fund that the amount of such cash collateral held by it for
the Fund is sufficient collateral for the Fund, but such duty
or obligation shall be the sole responsibility of the Fund.
In addition, the Custodian shall be under no duty or obliga-
tion to see that any broker, dealer or financial institution
to which portfolio Securities of the Fund are lent pursuant to
Article X of this Agreement makes payment to it of any
dividends or interest which are payable to or for the account
of the Fund during the period of such loan or at the termina-
tion of such loan, provided, however, that the Custodian shall
promptly notify the Fund in the event that such dividends or
interest are not paid and received when due; or
(f) The sufficiency or value of any amounts of
money and/or Securities held in any Margin Account, Senior
Security Account or Collateral Account in connection with
transactions by the Fund. In addition, the Custodian shall be
under no duty or obligation to see that any broker, dealer,
- 31 -
<PAGE>
futures commission merchant or Clearing Member makes payment
to the Fund of any variation margin payment or similar payment
which the Fund may be entitled to receive from such broker,
dealer, futures commission merchant or Clearing Member, to see
that any payment received by the Custodian from any broker,
dealer, futures commission merchant or Clearing Member is the
amount the Fund is entitled to receive, or to notify the Fund
of the Custodian's receipt or non-receipt of any such pay-
ment.
3. The Custodian shall not be liable for, or considered
to be the Custodian of, any money, whether or not represented
by any check, draft, or other instrument for the payment of
money, received by it on behalf of the Fund until the
Custodian actually receives and collects such money directly
or by the final crediting of the account representing the
Fund's interest at the Book-Entry System or the Depository.
4. The Custodian shall have no responsibility and shall
not be liable for ascertaining or acting upon any calls,
conversions, exchange offers, tenders, interest rate changes
or similar matters relating to Securities unless notice of any
such matters appears in one or more of the publications listed
in Appendix C attached hereto. In no event shall the Custodian
have any responsibility or liability for the failure of the
Depository to collect, or for the late collection or late
crediting by the Depository of any amount payable upon
Securities deposited in the Depository which may mature or be
redeemed, retired, called or otherwise become payable.
However, upon receipt of a Certificate from the Fund of an
overdue amount on Securities held in the Depository the
Custodian shall make a claim against the Depository on behalf
of the Fund, except that the Custodian shall not be under any
obligation to appear in, prosecute or defend any action suit
or proceeding in respect to any Securities held by the
Depository which in its opinion may involve it in expense or
liability, unless indemnity satisfactory to it against all
expense and liability be furnished as often as may be
required.
5. The Custodian shall not be under any duty or obliga-
tion to take action to effect collection of any amount due to
the Fund from the Transfer Agent of the Fund nor to take any
action to effect payment or distribution by the Transfer Agent
of the Fund of any amount paid by the Custodian to the
Transfer Agent of the Fund in accordance with this Agreement.
6. The Custodian shall not be under any duty or obliga-
tion to take action to effect collection of any amount if the
Securities upon which such amount is payable are in default,
or if payment is refused after due demand or presentation,
unless and until (i) it shall be directed to take such action
by a Certificate and (ii) it shall be assured to its satisfac-
tion of reimbursement of its costs and expenses in connection
with any such action.
- 32 -
<PAGE>
7. The Custodian may appoint one or more banking
institutions as Depository or Depositories, as Sub-Custodian
or Sub-Custodians, or as Co-Custodian or Co-Custodians
including, but not limited to, banking institutions located in
foreign countries, of Securities and moneys at any time owned
by the Fund, upon such terms and conditions as may be approved
in a Certificate or contained in an agreement executed by the
Custodian, the Fund and the appointed institution.
8. The Custodian shall not be under any duty or obliga-
tion (a) to ascertain whether any Securities at any time
delivered to, or held by it for the account of the Fund and
specifically allocated to a Series are such as properly may be
held by the Fund or such Series under the provisions of its
then current prospectus, or (b) to ascertain whether any
transactions by the Fund, whether or not involving the
Custodian, are such transactions as may properly be engaged in
by the Fund.
9. The Custodian shall be entitled to receive and the
Fund agrees to pay to the Custodian all out-of-pocket expenses
and such compensation as set forth in Appendix D attached
hereto, which may be revised from time to time as agreed to by
the Custodian and the Fund. The Custodian may charge such
compensation and any expenses with respect to a Series
incurred by the Custodian in the performance of its duties
pursuant to such agreement against any money specifically al-
located to such Series. Unless and until the Fund instructs
the Custodian by a Certificate to apportion any loss, damage,
liability or expense among the Series in a specified manner,
the Custodian shall also be entitled to charge against any
money held by it for the account of a Series such Series' pro
rata share (based on such Series net asset value at the time
of the charge to the aggregate net asset value of all Series
at that time) of the amount of any loss, damage, liability or
expense, including counsel fees, for which it shall be
entitled to reimbursement under the provisions of this Agree-
ment. The expenses for which the Custodian shall be entitled
to reimbursement hereunder shall include, but are not limited
to, the expenses of sub-custodians and foreign branches of the
Custodian incurred in settling outside of New York City
transactions involving the purchase and sale of Securities of
the Fund.
10. The Custodian shall be entitled to rely upon any
Certificate, notice or other instrument in writing received by
the Custodian and reasonably believed by the Custodian to be a
Certificate. The Custodian shall be entitled to rely upon any
Oral Instructions actually received by the Custodian
hereinabove provided for. The Fund agrees to forward to the
Custodian a Certificate or facsimile thereof confirming such
Oral Instructions in such manner so that such Certificate or
facsimile thereof is received by the Custodian, whether by
- 33 -
<PAGE>
hand delivery, telecopier or other similar device, or
otherwise, by the close of business of the same day that such
Oral Instructions are given to the Custodian. The Fund agrees
that the fact that such confirming instructions are not
received, or that contrary instructions are received, by the
Custodian shall in no way affect the validity of the
transactions or enforceability of the transactions hereby
authorized by the Fund. The Fund agrees that the Custodian
shall incur no liability to the Fund in acting upon Oral
Instructions given to the Custodian hereunder concerning such
transactions provided such instructions reasonably appear to
have been received from an Officer.
11. The Custodian shall be entitled to rely upon any
instrument, instruction or notice received by the Custodian
and reasonably believed by the Custodian to be given in ac-
cordance with the terms and conditions of any Margin Account
Agreement. Without limiting the generality of the foregoing,
the Custodian shall be under no duty to inquire into, and
shall not be liable for, the accuracy of any statements or
representations contained in any such instrument or other
notice including, without limitation, any specification of any
amount to be paid to a broker, dealer, futures commission
merchant or Clearing Member.
12. The books and records pertaining to the Fund which
are in the possession of the Custodian shall be the property
of the Fund. Such books and records shall be prepared and
maintained as required by the Investment Company Act of 1940,
as amended, and other applicable securities laws and rules and
regulations. The Fund, or the Fund's authorized representa-
tives, shall have access to such books and records during the
Custodian's normal business hours. Upon the reasonable
request of the Fund, copies of any such books and records
shall be provided by the Custodian to the Fund or the Fund's
authorized representative, and the Fund shall reimburse the
Custodian its expenses of providing such copies. Upon reason-
able request of the Fund, the Custodian shall provide in hard
copy or on micro-film, whichever the Custodian elects, any
records included in any such delivery which are maintained by
the Custodian on a computer disc, or are similarly maintained,
and the Fund shall reimburse the Custodian for its expenses of
providing such hard copy or micro-film.
13. The Custodian shall provide the Fund with any report
obtained by the Custodian on the system of internal accounting
control of the Book-Entry System, the Depository or O.C.C.,
and with such reports on its own systems of internal account-
ing control as the Fund may reasonably request from time to
time.
14. The Fund agrees to indemnify the Custodian against
and save the Custodian harmless from all liability, claims,
- 34 -
<PAGE>
losses and demands whatsoever, including attorney's fees,
howsoever arising or incurred because of or in connection with
this Agreement, including the Custodian's payment or
non-payment of checks pursuant to paragraph 6 of Article XIII
as part of any check redemption privilege program of the Fund,
except for any such liability, claim, loss and demand arising
out of the Custodian's own negligence or willful misconduct.
15. The Custodian agrees to indemnify the Fund against
and save the Fund harmless from all liability, claims, losses
and demands whatsoever, including attorney's fees, howsoever
arising or incurred because of or in connection with this
Agreement, except for any such liability, claim, loss and
demand arising out of the Fund's own negligence or willful
misconduct.
16. Subject to the foregoing provisions of this Agree-
ment, including, without limitation, those contained in
Article XVI and XVII the Custodian may deliver and receive
Securities, and receipts with respect to such Securities, and
arrange for payments to be made and received by the Custodian
in accordance with the customs prevailing from time to time
among brokers or dealers in such Securities. When the
Custodian is instructed to deliver Securities against payment,
delivery of such Securities and receipt of payment therefor
may not be completed simultaneously. The Fund assumes all
responsibility and liability for all credit risks involved in
connection with the Custodian's delivery of Securities
pursuant to instructions of the Fund, which responsibility and
liability shall continue until final payment in full has been
received by the Custodian.
17. The Custodian shall have no duties or
responsibilities whatsoever except such duties and
responsibilities as are specifically set forth in this Agree-
ment, and no covenant or obligation shall be implied in this
Agreement against the Custodian.
ARTICLE XVII.
TERMINATION
1. Either of the parties hereto may terminate this
Agreement by giving to the other party a notice in writing
specifying the date of such termination, which shall be not
less than sixety (60) days after the date of giving of such
notice. In the event such notice is given by the Fund, it
shall be accompanied by a copy of a resolution of the Board of
Trustees of the Fund, certified by the Secretary or any
Assistant Secretary, electing to terminate this Agreement and
designating a successor custodian or custodians, each of which
shall be a bank or trust company having not less than
- 35 -
<PAGE>
$2,000,000 aggregate capital, surplus and undivided profits.
In the event such notice is given by the Custodian, the Fund
shall, on or before the termination date, deliver to the
Custodian a copy of a resolution of the Board of Trustees of
the Fund, certified by the Secretary or any Assistant
Secretary, designating a successor custodian or custodians. In
the absence of such designation by the Fund, the Custodian may
designate a successor custodian which shall be a bank or trust
company having not less than $2,000,000 aggregate capital,
surplus and undivided profits. Upon the date set forth in such
notice this Agreement shall terminate, and the Custodian shall
upon receipt of a notice of acceptance by the successor
custodian on that date deliver directly to the successor
custodian all Securities and moneys then owned by the Fund and
held by it as Custodian, after deducting all fees, expenses
and other amounts for the payment or reimbursement of which it
shall then be entitled.
2. If a successor custodian is not designated by the
Fund or the Custodian in accordance with the preceding
paragraph, the Fund shall upon the date specified in the
notice of termination of this Agreement and upon the delivery
by the Custodian of all Securities (other than Securities held
in the Book-Entry System which cannot be delivered to the
Fund) and moneys then owned by the Fund be deemed to be its
own custodian and the Custodian shall thereby be relieved of
all duties and responsibilities pursuant to this Agreement,
other than the duty with respect to Securities held in the
Book Entry System which cannot be delivered to the Fund to
hold such Securities hereunder in accordance with this Agree-
ment.
ARTICLE XVIII.
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed
by two of the present Officers of the Fund under its seal,
setting forth the names and the signatures of the present
Officers. The Fund agrees to furnish to the Custodian a new
Certificate in similar form in the event that any such present
Officer ceases to be an Officer or in the event that other or
additional Officers are elected or appointed. Until such new
Certificate shall be received, the Custodian shall be fully
protected in acting under the provisions of this Agreement
upon Oral Instructions or signatures of the Officers as set
forth in the last delivered Certificate.
2. Any notice or other instrument in writing,
authorized or required by this Agreement to be given to the
Custodian, shall be sufficiently given if addressed to the
Custodian and mailed or delivered to it at its offices at 90
- 36 -
<PAGE>
Washington Street, New York, New York 10286, or at such other
place as the Custodian may from time to time designate in
writing.
3. Any notice or other instrument in writing,
authorized or required by this Agreement to be given to the
Fund shall be sufficiently given if addressed to the Fund and
mailed or delivered to it at its office at the address for the
Fund first above written, or at such other place as the Fund
may from time to time designate in writing.
4. This Agreement may not be amended or modified in any
manner except by a written agreement executed by both parties
with the same formality as this Agreement and approved by a
resolution of the Board of Trustees of the Fund.
5. This Agreement shall extend to and shall be binding
upon the parties hereto, and their respective successors and
assigns; provided, however, that this Agreement shall not be
assignable by the Fund without the written consent of the
Custodian, or by the Custodian without the written consent of
the Fund, authorized or approved by a resolution of the Fund's
Board of Trustees.
6. This Agreement shall be construed in accordance with
the laws of the State of New York without giving effect to
conflict of laws principles thereof. Each party hereby
consents to the jurisdiction of a state or federal court
situated in New York City, New York in connection with any
dispute arising hereunder and hereby waives its right to trial
by jury.
7. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original,
but such counterparts shall, together, constitute only one
instrument.
8. A copy of the Declaration of Trust of the Fund is on
file with the Secretary of The Commonwealth of Massachusetts,
and notice is hereby given that this instrument is executed on
behalf of the Board of Trustees of the Fund as Trustees and
not individually and that the obligations of this instrument
are not binding upon any of the Trustees or shareholders
individually but are binding only upon the assets and property
of the Fund; provided, however, that the Declaration of Trust
of the Fund provides that the assets of a particular Series of
the Fund shall under no circumstances be charged with li-
abilities attributable to any other Series of the Fund and
that all persons extending credit to, or contracting with or
having any claim against a particular Series of the Fund shall
look only to the assets of that particular Series for payment
of such credit, contract or claim.
- 38 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective Officers,
thereunto duly authorized and their respective seals to be
hereunto affixed, as of the day and year first above written.
The New York State
Opportunity Funds
[SEAL] By:_______________________
Attest:
_______________________
THE BANK OF NEW YORK
[SEAL] By:_______________________
Name:
Title:
Attest:
_______________________
- 39 -
<PAGE>
APPENDIX A
I, , President and
I, , of THE NEW YORK
STATE OPPORTUNITY FUNDS, a Massachusetts business trust (the
"Fund"), do hereby certify that:
The following individuals serve in the following posi-
tions with the Fund and each has been duly elected or ap-
pointed by the Board of Trustees of the Fund to each such
position and qualified therefor in conformity with the Fund's
Declaration of Trust and By-Laws, and the signatures set forth
opposite their respective names are their true and correct
signatures:
Name Position Signature
____________________ ___________________ _________________
<PAGE>
APPENDIX B
PORTFOLIO LIST
NEW YORK EQUITY FUND
<PAGE>
APPENDIX C
I, , a Vice President
with THE BANK OF NEW YORK do hereby designate the following
publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
New York Times
Standard & Poor's Called Bond Record
Wall Street Journal
<PAGE>
EXHIBIT A
CERTIFICATION
The undersigned, , hereby certifies
that he or she is the duly elected and acting
of The New York State Opportunity Funds, a
Massachusetts business trust (the "Fund"), and further
certifies that the following resolution was adopted by the
Board of Trustees of the Fund at a meeting duly held on
, 1997, at which a quorum was at all times
present and that such resolution has not been modified or
rescinded and is in full force and effect as of the date
hereof.
RESOLVED, that The Bank of New York, as Custodian
pursuant to a Custody Agreement between The Bank of New
York and the Fund dated as of , 1996,
(the "Custody Agreement") is authorized and instructed on
a continuous and ongoing basis to deposit in the Book-
Entry System, as defined in the Custody Agreement, all
securities eligible for deposit therein, regardless of
the Series to which the same are specifically allocated,
and to utilize the Book-Entry System to the extent
possible in connection with its performance thereunder,
including, without limitation, in connection with
settlements of purchases and sales of securities, loans
of securities, and deliveries and returns of securities
collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of The New York State Opportunity Funds, as of the day
of , 1997.
[SEAL]
<PAGE>
EXHIBIT B
CERTIFICATION
The undersigned, , hereby certifies
that he or she is the duly elected and acting
of The New York State Opportunity Funds, a
Massachusetts business trust (the "Fund"), and further
certifies that the following resolution was adopted by the
Board of Trustees of the Fund at a meeting duly held on
, 1997, at which a quorum was at all times
present and that such resolution has not been modified or
rescinded and is in full force and effect as of the date
hereof.
RESOLVED, that The Bank of New York, as Custodian
pursuant to a Custody Agreement between The Bank of New
York and the Fund dated as of , 1997,
(the "Custody Agreement") is authorized and instructed on
a continuous and ongoing basis until such time as it
receives a Certificate, as defined in the Custody Agree-
ment, to the contrary to deposit in the Depository, as
defined in the Custody Agreement, all securities eligible
for deposit therein, regardless of the Series to which
the same are specifically allocated, and to utilize the
Depository to the extent possible in connection with its
performance thereunder, including, without limitation, in
connection with settlements of purchases and sales of
securities, loans of securities, and deliveries and
returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of The New York State Opportunity Funds, as of the day
of , 1997.
[SEAL]
<PAGE>
EXHIBIT B-1
CERTIFICATION
The undersigned, , hereby certifies
that he or she is the duly elected and acting
of The New York State Opportunity Funds, a
Massachusetts business trust (the "Fund"), and further
certifies that the following resolution was adopted by the
Board of Trustees of the Fund at a meeting duly held on
, 1997, at which a quorum was at all times
present and that such resolution has not been modified or
rescinded and is in full force and effect as of the date
hereof.
RESOLVED, that The Bank of New York, as Custodian
pursuant to a Custody Agreement between The Bank of New
York and the Fund dated as of , 1997,
(the "Custody Agreement") is authorized and instructed on
a continuous and ongoing basis until such time as it
receives a Certificate, as defined in the Custody Agree-
ment, to the contrary to deposit in the Participants
Trust Company as Depository, as defined in the Custody
Agreement, all securities eligible for deposit therein,
regardless of the Series to which the same are
specifically allocated, and to utilize the Participants
Trust Company to the extent possible in connection with
its performance thereunder, including, without limita-
tion, in connection with settlements of purchases and
sales of securities, loans of securities, and deliveries
and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of The New York State Opportunity Funds, as of the day
of , 1997.
[SEAL]
<PAGE>
EXHIBIT C
CERTIFICATION
The undersigned, , hereby
certifies that he or she is the duly elected and acting
of The New York State Opportunity Funds, a
Massachusetts business trust (the "Fund"), and further
certifies that the following resolution was adopted by the
Board of Trustees of the Fund at a meeting duly held on
, 1997, at which a quorum was at all
times present and that such resolution has not been modified
or rescinded and is in full force and effect as of the date
hereof.
RESOLVED, that The Bank of New York, as Custodian
pursuant to a Custody Agreement between The Bank of New
York and the Fund dated as of , 1997,
(the "Custody Agreement") is authorized and instructed on
a continuous and ongoing basis until such time as it
receives a Certificate, as defined in the Custody Agree-
ment, to the contrary, to accept, utilize and act with
respect to Clearing Member confirmations for Options and
transaction in Options, regardless of the Series to which
the same are specifically allocated, as such terms are
defined in the Custody Agreement, as provided in the
Custody Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of The New York State Opportunity Funds, as of the day
of , 1997.
[SEAL]
<PAGE>
EXHIBIT D
The undersigned, , hereby
certifies that he or she is the duly elected and acting
of The New York State Opportunity Funds,
a Massachusetts business trust (the "Fund"), further certifies
that the following resolutions were adopted by the Board of
Trustees of the Fund at a meeting duly held on
, 1997, at which a quorum was at all times
present and that such resolutions have not been modified or
rescinded and are in full force and effect as of the date
hereof.
RESOLVED, that The Bank of New York, as Custodian
pursuant to the Custody Agreement between The Bank of New
York and the Fund dated as of , 1997 (the
"Custody Agreement") is authorized and instructed on a
continuous and ongoing basis to act in accordance with,
and to rely on Instructions (as defined in the Custody
Agreement).
RESOLVED, that the Fund shall establish access codes
and grant use of such access codes only to Officers of
the Fund as defined in the Custody Agreement, shall
establish internal safekeeping procedures to safeguard
and protect the confidentiality and availability of user
and access codes, passwords and authentication keys, and
shall use Instructions only in a manner that does not
contravene the Investment Company Act of 1940, as
amended, or the rules and regulations thereunder.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of The New York State Opportunity Funds, as of the day
of , 1997.
[SEAL]
MGF
SERVICE CORP
March 20, 1997
The New York State Opportunity Funds
4605 E. Genesee Street
DeWitt, New York 13214
Gentlemen:
You have requested my opinion in connection with the registration by The New
York State Opportunity Funds, a Massachusetts business trust (the "Trust"), of
an indefinite number of shares of beneficial interest of the New York Equity
Fund of the Trust (the "Shares") authorized by the Trust's Agreement and
Declaration of Trust, to be filed with the Securities and Exchange Commission as
an exhibit to the Trust's registration statement on Form N-1A (File No.
333-17381), as amended (the "Registration Statement"), under the Securities Act
of 1933 and the Investment Company Act of 1940.
I have examined and relied upon originals or copies, certified or otherwise
identified to my satisfaction, of such records, agreements, documents and other
instruments and certificates or comparable documents of public officials and of
officers and representatives of the Trust, and I have made such inquiries of the
officers and representatives of the Trust, as I have deemed relevant and
necessary as the basis for the opinion hereinafter set forth.
In such examination, I have assumed, without independent verification, the
genuineness of all signatures (whether original or photostatic) and the
authenticity of all documents submitted to me as originals and the conformity to
authentic original documents of all documents submitted to me as certified or
photostatic copies. As to all questions of fact material to such opinion, I have
relied upon the certificates referred to hereinabove. I have assumed, without
independent verification, the accuracy of the relevant facts stated therein.
This letter expresses my opinion as to the provisions of the Trust's Agreement
and Declaration of Trust and the laws of the Commonwealth of Massachusetts
applying to business trusts generally, but does not extend to federal or state
securities or other laws.
MGF Service Corp.
a subsidiary of Leshner Financial, Inc.
312 Walnut Street / Cincinnati, Ohio 45202 / 513.629.2000 / 800.543.8721
<PAGE>
The New York State Opportunity Funds
March 20, 1997
Page Two
Based on the foregoing, and subject to the qualifications set forth herein, I am
of the opinion that the Shares have been duly and validly authorized, and, when
issued and delivered as described in the Registration Statement, will be fully
paid and nonassessable by the Trust.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement. In giving such consent, I do not thereby admit that I come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933 or under the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
Very truly yours,
/s/ Tina D. Hosking
Tina D. Hosking
Counsel
McGLADREY & PULLEN, LLP
Certified Public Accountants and Consultants
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated February 25, 1997 on
the financial statement of New York Equity Fund, a series of New York
Opportunity Fund Trust referred to therein, in Pre-Effective Amendment No. 1 to
the Registration Statement on Form N-1A, file No. 333-17381, as filed with the
Securities and Exchange Commission.
We also consent to the reference to our Firm in the Statement of
Additional Information under the caption "Auditors".
/s/McGladrey & Pullen, LLP
McGladrey & Pullen, LLP
New York, New York
February 25, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001027657
<NAME> THE NEW YORK STATE OPPORTUNITY FUNDS - NEW YORK EQUITY FUND
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> FEB-18-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 100,000
<OTHER-ITEMS-ASSETS> 54,000
<TOTAL-ASSETS> 154,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 54,000
<TOTAL-LIABILITIES> 54,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100,000
<SHARES-COMMON-STOCK> 10,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 100,000
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 100,000
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
