As filed with the Securities and Exchange Commission on December 17, 1997
Registration Nos. 811-8437 and 333-37711
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. 2 [X]
Post-Effective Amendment No. __ [ ]
and
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 2 [X]
(Check appropriate box or boxes)
-----------
UNDISCOVERED MANAGERS FUNDS
(Exact name of registrant as specified in charter)
Plaza of the Americas
700 North Pearl Street
Dallas, Texas 75201
Registrant's telephone number, including area code: (214) 999-7200
Name and address
of agent for service with a copy to:
Mark P. Hurley John M. Loder, Esq.
Undiscovered Managers, LLC Ropes & Gray
Plaza of the Americas One International Place
700 North Pearl Street Boston, MA 02110
Dallas, Texas 75201
-----------
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.
DECLARATION PURSUANT TO RULE 24f-2
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
registrant has registered an indefinite number or amount of its shares of
beneficial interest under the Securities Act of 1933.
<PAGE>
UNDISCOVERED MANAGERS FUNDS
Cross Reference Sheet
Items required by Form N-1A
PART A
<TABLE>
<CAPTION>
Item No. Registration Statement Caption Caption in Prospectus
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Summary of Expenses
3. Condensed Financial Information Not Applicable
4. General Description of Registrant Cover Page; The Funds; More Information About the
Funds' Investments and Risk Considerations; The Trust
5. Management of the Fund Cover Page; The Funds; Management of the Funds;
The Trust; Portfolio Transactions; Back Cover
5A. Management's Discussion of Fund Not Applicable
Performance
6. Capital Stock and Other Securities Shareholder Services; How to Redeem Shares;
Dividends, Capital Gain Distributions and Taxes; The
Trust
7. Purchase of Securities Being Offered How to Purchase Shares; Shareholder Services
8. Redemption or Repurchase How to Redeem Shares
9. Pending Legal Proceedings Not Applicable
</TABLE>
-2-
<PAGE>
PART B
<TABLE>
<CAPTION>
Item No. Registration Statement Caption Caption in Prospectus
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Not Applicable
13. Investment Objectives and Policies Investment Objectives, Policies and Restrictions
14. Management of the Fund Management of the Trust
15. Control Persons and Principal Holders of Ownership of Shares of the Funds
Securities
16. Investment Advisory and Other Services Investment Advisory and Other Services; Management
of the Funds (Prospectus)
17. Brokerage Allocation and Other Practices Portfolio Transactions and Brokerage; Portfolio
Transactions (Prospectus)
18. Capital Stock and Other Securities How to Redeem Shares (Prospectus); Redemptions;
Dividends, Capital Gain Distributions and Taxes
(Prospectus); Income Dividends, Capital Gain
Distributions and Tax Status
19. Purchase, Redemption and Pricing of How to Purchase Shares (Prospectus); How to Buy
Securities Being Offered Shares; Shareholder Services; How to Redeem Shares
(Prospectus); Redemptions; Net Asset Value
20. Tax Status Dividends, Capital Gain Distributions and Taxes
(Prospectus); Income Dividends, Capital Gain
Distributions and Tax Status
21. Underwriters Not Applicable
22. Calculations of Performance Data Not Applicable
23. Financial Statements Not Applicable
</TABLE>
-3-
<PAGE>
PART C
The information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of the Registration Statement.
-4-
<PAGE>
UNDISCOVERED MANAGERS FUNDS
-----------------------------
INSTITUTIONAL CLASS
PROSPECTUS
December ___, 1997
<PAGE>
-----------------------------
UNDISCOVERED MANAGERS FUNDS
-----------------------------
Plaza of the Americas
700 North Pearl Street
Dallas, Texas 75201
1-888-242-3514
Undiscovered Managers Funds
Institutional Class shares of:
Undiscovered Managers All Cap Value Fund
Undiscovered Managers Behavioral Growth Fund
Undiscovered Managers Core Equity Fund
Undiscovered Managers Hidden Value Fund
Undiscovered Managers REIT Fund
Undiscovered Managers Small Cap Value Fund
Undiscovered Managers Special Small Cap Fund
-2-
<PAGE>
SUBJECT TO COMPLETION
Preliminary Prospectus Dated December ____, 1997
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of such state.
Prospectus December ___, 1997
Undiscovered Managers Funds
Undiscovered Managers Funds (the "Trust") is a registered open-end
management investment company with seven separately managed, no-load portfolios
(each a "Fund" and collectively, the "Funds"). Undiscovered Managers, LLC
("Undiscovered Managers") is the investment adviser of the Funds. Each Fund's
portfolio is managed by a sub-adviser selected by Undiscovered Managers for its
experience managing a portfolio of this kind:
o Undiscovered Managers All Cap Value Fund (the "All Cap Value Fund") is managed
by E.R. Taylor Investments, Inc.
o Undiscovered Managers Behavioral Growth Fund (the "Behavioral Growth Fund")
is managed by RJF Asset Management, Inc.
o Undiscovered Managers Core Equity Fund (the "Core Equity Fund") is managed by
Waite & Associates L.L.C.
o Undiscovered Managers Hidden Value Fund (the "Hidden Value Fund") is managed
by J.L. Kaplan Associates, LLC.
o Undiscovered Managers Small Cap Value Fund (the "Small Cap Value Fund") is
managed by J.L. Kaplan Associates, LLC.
o Undiscovered Managers Special Small Cap Fund (the "Special Small Cap Fund") is
managed by Kestrel Investment Management Corporation.
o Undiscovered Managers REIT Fund (the "REIT Fund") is managed by Bay Isle
Financial Corporation.
-3-
<PAGE>
Each Fund's investment objective is long-term growth of capital, except
for the Behavioral Growth Fund, which has the investment objective of growth of
capital, and the REIT Fund, which has the investment objective of high total
investment return. In seeking to achieve its objective, each Fund invests
primarily in equity securities of U.S. companies. There can be no assurance that
the Funds will achieve their investment objectives.
Each Fund currently offers one class of shares -- the Institutional
Class. This Prospectus concisely describes the information that an investor
should know before investing in each Fund. Please read it carefully and keep it
for future reference. A Statement of Additional Information dated December ___,
1997, is available free of charge. Write to Undiscovered Managers, LLC, Plaza of
the Americas, 700 North Pearl Street, Dallas, Texas 75201, or call
toll free at 1-888-242-3514. The Statement of Additional Information, which
contains more detailed information about the Funds, has been filed with the
Securities and Exchange Commission (the "SEC") and is incorporated by reference
into this Prospectus.
For more information about establishing an account, or any other
information about the Funds, call 1-888-242-3514.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-4-
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY OF EXPENSES............................................................6
THE FUNDS......................................................................8
MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS
AND RISK CONSIDERATIONS..............................................12
MANAGEMENT OF THE FUNDS.......................................................16
PORTFOLIO TRANSACTIONS........................................................19
HOW TO PURCHASE SHARES........................................................21
SHAREHOLDER SERVICES..........................................................23
HOW TO REDEEM SHARES..........................................................24
CALCULATION OF PERFORMANCE INFORMATION........................................25
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES...............................25
THE TRUST.....................................................................26
-5-
<PAGE>
SUMMARY OF EXPENSES
The following information is provided to assist an investor in
understanding the various expenses that an investor in a Fund will bear
indirectly. Since the Funds had not commenced operations as of the date of this
Prospectus, the information about each Fund shown below is based on annualized
projected expenses of the Institutional Class shares for the 1998 fiscal year.
The information below should not be considered a representation of past or
future expenses, as actual expenses may be greater or less than those shown. The
examples show the cumulative expenses attributable to a hypothetical $1,000
investment over specified periods, assuming the 5% annual return required under
federal regulations.
<TABLE>
<CAPTION>
All Behavioral Core Hidden
Cap Value Growth Equity Value
Fund Fund Fund Fund
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on
Purchases (as % of offering price)............... none none none none
Maximum Sales Load Imposed on
Reinvested Dividends (as % of offering
price)........................................... none none none none
Maximum Deferred Sales Load (as % of
original purchase price or redemption
proceeds as applicable)........................... none none none none
Redemption Fees.................................... none none none none
Exchange Fees...................................... none none none none
Annual Operating Expenses
(as a percentage of average net assets):
Management Fees................................... 0.74% 0.95% 0.74% 0.95%
12b-1 Fees........................................ none none none none
Other Operating Expenses (after expense
reimbursements)................................. 0.25% 0.35% 0.25% 0.35%
Total Operating Expenses (after expense
reimbursements)................................. 0.99% 1.30% 0.99% 1.30%
Example(1):
An investor would pay the following
expenses on a $1,000 investment assuming
a 5% annual return (with or without a
redemption at the end of each time
period):
One Year........................................... $10 $13 $10 $13
Three Years........................................ $32 $41 $32 $41
</TABLE>
- --------------------
(1) Under SEC rules, newly-organized funds, such as the Funds, are required to
show expenses in an example for one- and three-year periods only.
-6-
<PAGE>
<TABLE>
<CAPTION>
Small Special
REIT Cap Value Small
Fund Fund Cap Fund
---- ---- --------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases (as
% of offering price)................................... none none none
Maximum Sales Load Imposed on Reinvested
Dividends (as % of offering price)..................... none none none
Deferred Sales Load (as % of original purchase
price or redemption proceeds as applicable)............ none none none
Redemption Fees.......................................... none none none
Exchange Fees............................................ none none none
Annual Operating Expenses
(as a percentage of average net assets):
Management Fees........................................... 1.05% 1.05% 1.15% for the first year;
thereafter, fees will vary
from 0.65% to 1.65% based
on the investment performance
of the Fund relative to a
benchmark.*
12b-1 Fees................................................ none none none
Other Operating Expenses (after expense
reimbursements)......................................... 0.35% 0.35% 0.55%
Total Operating Expenses (after expense
reimbursements)......................................... 1.40% 1.40% 1.70% for the first year;
thereafter, expenses will vary
from 1.20% to 2.20% based on,
among other things, the
investment performance of the
Fund relative to a benchmark.*
Example(1):
An investor would pay the following expenses on a $1,000
investment assuming a 5% annual return (with or without
a redemption at the end of each time period):
One Year................................................... $14 $14 $17
Three Years................................................ $44 $44 $38-69*
</TABLE>
- --------------------
*The advisory fee rate for the Special Small Cap Fund will vary depending on the
investment performance of the Fund. In particular, the applicable fee rate is
determined by adding to (or subtracting from) 1.15% one-fifth of the number of
basis points by which the total return of the Fund during the one-year period
ending at the end of a quarter exceeds (or falls short of) the sum of (1) the
total return of the Russell 2000 Index during the one-year period ending at the
end of such quarter plus (2) one hundred fifty (150) basis points. The advisory
fee rate will not exceed the annual rate of 1.65% nor be less than the annual
rate of 0.65%. The Russell 2000 Index is composed of the common stocks of the
2000 smallest of the 3000 largest publicly-traded U.S. companies, measured by
market capitalization. See "Management of the Funds--Advisory and Sub-Advisory
Fees."
(1) Under SEC rules, newly-organized funds, such as the Funds, are required to
show expenses in an example for one- and three-year periods only.
Other Operating Expenses are based on estimated amounts for the 1998
fiscal year after giving effect to voluntary expense limitations. Undiscovered
Managers, the Funds' investment adviser, has voluntarily agreed, for an
indefinite period, to limit each Fund's Total Operating Expenses to the
percentages of net assets shown above, subject to later reimbursement by the
Funds in certain circumstances. Without this agreement, estimated Other
Operating Expenses and Total Operating Expenses would be 2.20% and 3.04%,
respectively, for the All Cap Value Fund, 2.20% and 3.15%, respectively, for the
Behavioral Growth Fund, 2.21% and 3.05%, respectively, for the Core Equity Fund,
2.24% and 3.19%, respectively, for the Hidden Value Fund, 2.28% and 3.33%,
respectively, for the REIT Fund, 2.28% and 3.33%, respectively, for the Small
Cap Value Fund, and 2.27% and 3.42%, respectively, for the Special Small Cap
Fund. See "Management of the Funds--Advisory and Sub-Advisory Fees."
-7-
<PAGE>
THE FUNDS
The following sections present information about the investment
objective, policies and strategies, sub-adviser and portfolio manager(s) for
each Fund. The sections also present information about the investment
performance of accounts managed by certain of the Funds' sub-advisers. THE
INFORMATION PROVIDED DOES NOT REPRESENT THE PERFORMANCE OF THE FUNDS. THE FUNDS
ARE NEWLY-ORGANIZED AND HAVE NO PERFORMANCE RECORD OF THEIR OWN. THE FOLLOWING
INFORMATION SHOULD NOT BE CONSIDERED A PREDICTION OF FUTURE PERFORMANCE OF ANY
OF THE FUNDS. EACH FUND'S PERFORMANCE MAY BE HIGHER OR LOWER THAN THAT SHOWN
BELOW. FOR MORE INFORMATION ABOUT THE PERFORMANCE DATA, SEE "ALL FUNDS--PAST
PERFORMANCE OF CERTAIN SUB-ADVISERS" BELOW.
All Cap Value Fund
The All Cap Value Fund's investment objective is long-term growth of
capital.
The Fund seeks to achieve its objective by investing in common stocks
of companies of any market capitalization (small-, mid- or large-cap) that its
sub-adviser believes are undervalued and therefore offer above-average potential
for capital growth. In selecting these stocks, the sub-adviser will consider,
among other things, the issuer's cash flow, price-to-book ratio, return on
capital, balance sheets, and management. The Fund will ordinarily remain
substantially fully invested in common stocks.
E.R. Taylor Investments, Inc. ("E.R. Taylor") is the sub-adviser to the
Fund. E.R. Taylor, 46 South Main Street, Suite 4, Concord, New Hampshire, was
founded in 1983, and serves as an investment adviser to endowment funds,
charitable organizations and other institutional and individual investors. E.R.
Taylor's philosophy is to invest in undervalued, quality companies where
management uses cash flow to build shareholder value.
Investment decisions for the Fund are made by E.R. Taylor's Investment
Committee, which consists of six investment professionals. Sherwood T. Small,
President of E.R. Taylor, is the chairman of the Investment Committee. Mr.
Small has served as President of E.R. Taylor since 1992.
The gross investment performance of discretionary, fee-paying accounts
managed by E.R. Taylor with investment objectives substantially similar to that
of the All Cap Value Fund for the period from October 1, 1992 to September 30,
1997 has been attested to by KPMG Peat Marwick LLP for use in connection with
the registration statement of the Trust under the Securities Act of 1933 (the
"Securities Act"), in accordance with standards established by the Association
for Investment Management and Research. This investment performance has been
adjusted for estimated net fees and expenses of the All Cap Value Fund and the
resulting net performance is presented in the table below.
The information provided does not represent the performance of the All
Cap Value Fund, which is newly-organized and has no performance record of its
own. The following information should not be considered a prediction of future
performance of the All Cap Value Fund. The All Cap Value Fund's performance may
be higher or lower than that shown below. For more information about the
performance data, see "All Funds--Past Performance of Certain Sub-Advisers"
below.
- --------------------------------------------------------------------------------
Accounts*(%) S&P 500(%)
- --------------------------------------------------------------------------------
10/1/96 - 9/30/97 43.6 40.45
- --------------------------------------------------------------------------------
10/1/95 - 9/30/96 21.3 20.34
- --------------------------------------------------------------------------------
10/1/94 - 9/30/95 26.4 29.75
- --------------------------------------------------------------------------------
10/1/93 - 9/30/94 3.8 3.57
- --------------------------------------------------------------------------------
10/1/92 - 9/30/93 12.1 13.0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Accounts*(%) S&P 500(%)
- --------------------------------------------------------------------------------
Average Annual Returns
- --------------------------------------------------------------------------------
1 Year 43.6 40.45
- --------------------------------------------------------------------------------
3 Years 30.1 29.92
- --------------------------------------------------------------------------------
5 Years 20.7 20.77
- --------------------------------------------------------------------------------
Cumulative Returns
- --------------------------------------------------------------------------------
1 Year 43.6 40.45
- --------------------------------------------------------------------------------
3 Years 120.2 119.29
- --------------------------------------------------------------------------------
5 years 156.3 156.92
- --------------------------------------------------------------------------------
* The performance information for accounts managed by E.R. Taylor represents
non-taxable portfolios with a beginning market value greater than E.R. Taylor's
minimum account size (currently $500,000) which have been under management with
E.R. Taylor for at least one full quarter.
Behavioral Growth Fund
The Behavioral Growth Fund's investment objective is growth
of capital.
The Fund seeks to achieve its objective by investing primarily in
common stocks of U.S. companies that the Fund's sub-adviser believes have growth
characteristics. In selecting stocks for the Fund, the sub-adviser applies
principles based on behavioral studies. The sub-adviser believes that behavioral
biases on the part of investors may cause the market to under-react to new,
positive information concerning a company. The sub-adviser analyzes companies
that have recently announced higher than expected earnings, and seeks to
determine whether the market value of the company's stock fully reflects the
sub-adviser's expectations as to the company's future earnings and growth
prospects. The Fund invests in stocks with market capitalization of $150 million
or more. The sub-adviser expects that the median market capitalization of stocks
held by the Fund will ordinarily be approximately $1 billion, and that the
average market capitalization will be between $1.5 and $2 billion, but the
median and average capitalizations could be significantly higher or lower. The
Fund will ordinarily remain substantially fully invested in common stocks.
RJF Asset Management, Inc. ("RJF Management") is the sub-adviser to the
Fund. RJF Management, 1300 S. El Camino Real, Suite 504, San Mateo, California
was founded in 1993, and currently serves as an investment adviser to pension
and profit sharing plans, academic institutions and other institutional
investors.
-8-
<PAGE>
Russell J. Fuller and Frederick W. Stanske have day-to-day
responsibility for the management of the Fund's portfolio. Mr. Fuller founded
RJF Management and has served as its President since 1993. He was a Vice
President of Strategic Development of Concord Capital Management from 1990 to
1993, and a Professor of Finance and Chair of the Department of Finance at
Washington State University from 1984 to 1990. Mr. Stanske joined RJF Management
in 1996, having previously been employed as a Securities Analyst at Farmers
Insurance Group from 1987 to 1989 and as Vice President and Research Analyst at
Fisher Investments from 1989 to 1996.
Core Equity Fund
The Core Equity Fund's investment objective is long-term growth of
capital.
The Fund seeks to achieve its objective by investing substantially all
of its assets in common stocks of well-established, high-quality U.S. companies.
Although the common stocks in which the Fund invests will typically have larger
market capitalization, the Fund may invest in stocks with capitalization as low
as $1 billion. In selecting investments for the Fund, the Fund's sub-adviser
will consider, among other things, its expectations as to the relative
performance of various sectors of the economy and the relative growth prospects
of different companies within such sectors. Under normal market conditions, the
Fund will ordinarily be substantially fully invested in common stocks of U.S.
companies.
Waite & Associates L.L.C. ("Waite & Associates") is the Fund's
sub-adviser. Waite & Associates, 601 South Figueroa Street, Los Angeles,
California, is the successor to Waite & Associates, an investment advisory firm
founded in 1978. Leslie A. Waite and Diana L. Calhoun have day-to-day
responsibility for the management of the Fund's portfolio. Mr. Waite founded
Waite & Associates' predecessor firm in 1978 and has served as its President and
Chief Investment Officer since then. Ms. Calhoun joined the firm in 1981 and
holds the positions of Managing Director and Senior Portfolio Manager.
The gross investment performance of discretionary, fee-paying accounts
managed by Waite and Associates and its predecessor with investment objectives
substantially similar to that of the Core Equity Fund for the period from
October 1, 1992 to September 30, 1997 has been attested to by KPMG Peat Marwick
LLP for use in connection with the registration statement of the Trust under the
Securities Act, in accordance with standards established by the Association for
Investment Management and Research. This investment performance has been
adjusted for estimated net fees and expenses of the Core Equity Fund and the
resulting net performance is presented in the table below.
The information provided does not represent the performance of the Core
Equity Fund, which is newly-organized and has no performance record of its own.
The following information should not be considered a prediction of future
performance of the Core Equity Fund. The Core Equity Fund's performance may be
higher or lower than that shown below. For more information about the
performance data, see "All Funds--Past Performance of Certain Sub-Advisers"
below.
- --------------------------------------------------------------------------------
Accounts(%) S&P 500(%)
- --------------------------------------------------------------------------------
10/1/96 - 9/30/97 43.5 40.45
- --------------------------------------------------------------------------------
10/1/95 - 9/30/96 24.0 20.34
- --------------------------------------------------------------------------------
10/1/94 - 9/30/95 32.7 29.75
- --------------------------------------------------------------------------------
10/1/93 - 9/30/94 (0.2) 3.57
- --------------------------------------------------------------------------------
10/1/92 - 9/30/93 17.4 13.0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Accounts(%) S&P 500(%)
- --------------------------------------------------------------------------------
Average Annual Returns
- --------------------------------------------------------------------------------
1 Year 43.5 40.45
- --------------------------------------------------------------------------------
3 Years 33.2 29.92
- --------------------------------------------------------------------------------
5 Years 22.6 20.77
- --------------------------------------------------------------------------------
Cumulative Returns
- --------------------------------------------------------------------------------
1 Year 43.5 40.45
- --------------------------------------------------------------------------------
3 Years 136.2 119.29
- --------------------------------------------------------------------------------
5 Years 176.7 156.92
- --------------------------------------------------------------------------------
-9-
<PAGE>
Hidden Value Fund
The Hidden Value Fund's investment objective is long-term growth of
capital.
The Fund seeks to achieve its objective by investing primarily in
common stocks of companies that the Fund's sub-adviser considers to be
undervalued at the time of purchase and to have the potential for long-term
capital appreciation. The sub-adviser believes the value of certain stocks will
tend to be "hidden" from the market for reasons including the coverage of
certain companies by relatively few securities analysts. The sub-adviser expects
that the median market capitalization of stocks held by the Fund will ordinarily
range from $800 million to $5 billion. In selecting stocks for the Fund, the
sub-adviser will consider, among other things, the issuer's earning power and
the relative value of the issuer's assets. Under normal market conditions, the
Fund will invest at least 65% of its total assets in common stocks.
J.L. Kaplan Associates, LLC ("Kaplan Associates") is the sub-adviser to
the Fund. Kaplan Associates, 75 Park Plaza, 4th Floor, Boston, Massachusetts, is
the successor to J.L. Kaplan Associates, an investment advisory firm founded in
1976. Kaplan Associates serves as an investment adviser to pension and profit
sharing plans, trusts, charitable organizations and other institutional and
private investors. Kaplan Associates believes that a stock can be a good value
either by virtue of exceptional earning power or because such stock sells at a
substantial discount to its asset base.
James L. Kaplan and Paul Weisman have day-to-day responsibility for
managing the Fund's portfolio. Mr. Kaplan has been the principal of Kaplan
Associates since founding the firm in 1976. From 1972 to 1984, he was Associate
Professor of Mathematics at Boston University. Mr. Weisman has been a portfolio
manager at Kaplan Associates since 1986. From 1984 to 1986, Mr. Weisman was an
investment analyst at Delphi Management, Inc.
The gross investment performance of discretionary, fee-paying accounts
managed by J.L. Kaplan Associates with investment objectives substantially
similar to that of the Hidden Value Fund for the period from October 1, 1992 to
September 30, 1997 has been attested to by Deloitte & Touche LLP for use in
connection with the registration statement of the Trust under the Securities
Act. This investment performance has been adjusted for estimated net fees and
expenses of the Hidden Value Fund and the resulting net performance is presented
in the table below.
The information provided does not represent the performance of the
Hidden Value Fund, which is newly-organized and has no performance record of its
own. The following information should not be considered a prediction of future
performance of the Hidden Value Fund. The Hidden Value Fund's performance may be
higher or lower than that shown below. For more information about the
performance data, see "All Funds--Past Performance of Certain Sub-Advisers"
below.
- --------------------------------------------------------------------------------
Mid Cap Equity Accounts*(%) S&P 500(%)
- --------------------------------------------------------------------------------
10/1/96 - 9/30/97 43.83 40.45
- --------------------------------------------------------------------------------
10/1/95 - 9/30/96 27.03 20.34
- --------------------------------------------------------------------------------
10/1/94 - 9/30/95 26.22 29.75
- --------------------------------------------------------------------------------
10/1/93 - 9/30/94 11.50 3.57
- --------------------------------------------------------------------------------
10/1/92 - 9/30/93 14.45 13.0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Mid Cap Equity Accounts*(%) S&P 500(%)
- --------------------------------------------------------------------------------
Average Annual Returns
- --------------------------------------------------------------------------------
1 Year 43.83 40.45
- --------------------------------------------------------------------------------
3 Years 32.12 29.92
- --------------------------------------------------------------------------------
5 Years 24.10 20.77
- --------------------------------------------------------------------------------
Cumulative Returns
- --------------------------------------------------------------------------------
1 Year 43.83 40.45
- --------------------------------------------------------------------------------
3 Years 130.62 119.29
- --------------------------------------------------------------------------------
5 Years 194.31 156.92
- --------------------------------------------------------------------------------
* The performance information for accounts managed by Kaplan Associates
represents the average quarterly returns for Accounts with assets in excess of
$250,000.
Small Cap Value Fund
The Small Cap Value Fund's investment objective is long-term growth of
capital.
The Fund seeks to achieve its objective by investing primarily in
common stocks of companies with a market float of $1.2 billion or less that the
Fund's sub-adviser considers to be undervalued at the time of purchase and to
have the potential for long-term capital appreciation. (Market float is the
total value of all the outstanding shares of a company that are registered for
public trading and does not include shares held by company founders or other
insiders that are not freely resalable.) In selecting stocks for the Fund, the
Fund's sub-adviser will consider, among other things, the issuer's earning
power and the relative value of the issuer's assets. Under normal market
conditions, the Fund will invest at least 65% of its total assets in common
stocks of companies with a market float of $1.2 billion or less.
The Fund's sub-adviser is Kaplan Associates, and James L. Kaplan and
Paul Weisman have day-to-day responsibility for managing the Fund's portfolio.
For more information about Kaplan Associates and Messrs. Kaplan and Weisman, see
"Hidden Value Fund" above.
The gross investment performance of discretionary, fee-paying accounts
managed by J.L. Kaplan Associates with investment objectives substantially
similar to that of the Small Cap Value Fund for the period from October 1, 1992
to September 30, 1997 has been attested to by Deloitte & Touche LLP for use in
connection with the registration statement of the Trust under the Securities
Act. This investment performance has been adjusted for estimated net fees and
expenses of the Small Cap Value Fund and the resulting net performance is
presented in the table below.
The information provided does not represent the performance of the
Small Cap Value Fund, which is newly-organized and has no performance record of
its own. The following information should not be considered a prediction of
future performance of the Small Cap Value Fund. The Small Cap Value Fund's
performance may be higher or lower than that shown below. For more information
about the performance data, see "All Funds--Past Performance of Certain
Sub-Advisers" below.
- --------------------------------------------------------------------------------
Small Cap Equity Accounts*(%) Russell 2000(%)
- --------------------------------------------------------------------------------
10/1/96 - 9/30/97 53.45 33.18
- --------------------------------------------------------------------------------
10/1/95 - 9/30/96 25.39 13.16
- --------------------------------------------------------------------------------
10/1/94 - 9/30/95 24.42 23.36
- --------------------------------------------------------------------------------
10/1/93 - 9/30/94 8.90 2.60
- --------------------------------------------------------------------------------
10/1/92 - 9/30/93 12.02 33.14
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Small Cap Equity Accounts*(%) Russell 2000(%)
- --------------------------------------------------------------------------------
Average Annual Returns
- --------------------------------------------------------------------------------
1 Year 53.45 33.18
- --------------------------------------------------------------------------------
3 Years 33.78 22.96
- --------------------------------------------------------------------------------
5 Years 23.90 20.51
- --------------------------------------------------------------------------------
Cumulative Returns
- --------------------------------------------------------------------------------
1 Year 53.45 33.18
- --------------------------------------------------------------------------------
3 Years 139.41 85.91
- --------------------------------------------------------------------------------
5 Years 192.04 154.16
- --------------------------------------------------------------------------------
* The performance information for accounts managed by Kaplan Associates
represents the average quarterly returns for Accounts with assets in excess of
$250,000.
Special Small Cap Fund
The Special Small Cap Fund's investment objective is long-term growth
of capital.
-10-
<PAGE>
The Fund seeks to achieve its objective by investing primarily in
common stocks of small cap U.S. companies that have one or more of the following
special characteristics: (1) the company has recently been spun off or divested
from a former parent company, (2) the company has announced or is conducting a
program to buy back its own stock, (3) the company has made or intends to make a
relatively significant sale of assets, or (4) the sub-adviser believes the
company is undervalued because of other special circumstances, such as
regulatory changes affecting its industry. Under normal market conditions, the
Fund invests at least 65% of its assets in stocks of companies in such special
situations with market capitalization of between $50 million and $1.2 billion.
Kestrel Investment Management Corporation ("Kestrel Management") is the
sub-adviser to the Fund. Kestrel Management, 1300 S. El Camino Real, Suite 502,
San Mateo, California, was founded in 1993, and serves as an investment adviser
for pension and profit sharing plans, trusts, charitable organizations, and
other institutional and individual investors.
David J. Steirman and Abbott J. Keller have day-to-day responsibility
for the management of the Fund. Messrs. Steirman and Keller have served as
President and Chief Investment Officer, respectively, of Kestrel Management
since founding the firm in 1993. Messrs. Steirman and Keller have worked
together in the investment management business for nearly twenty years, having
served from 1981 to 1993 as vice president and investment strategist,
respectively, at Concord Capital Management, and having both been employed
before that at American National Bank of Chicago.
The gross investment performance of discretionary, fee-paying accounts
managed by Kestrel Management with investment objectives substantially similar
to that of the Special Small Cap Fund for the period from August 17, 1993 to
September 30, 1997 has been attested to by KPMG Peat Marwick LLP for use in
connection with the registration statement of the Trust under the Securities
Act, in accordance with standards established by the Association for Investment
Management and Research. This investment performance has been adjusted for
estimated net fees and expenses of the Special Small Cap Fund and the resulting
net performance is presented in the table below.
The information provided does not represent the performance of the
Special Small Cap Fund, which is newly-organized and has no performance record
of its own. The following information should not be considered a prediction of
future performance of the Special Small Cap Fund. The Special Small Cap Fund's
performance may be higher or lower than that shown below. For more information
about the performance data, see "All Funds--Past Performance of Certain
Sub-Advisers" below.
- --------------------------------------------------------------------------------
S&P Russell
Accounts(%) 500(%) 2000(%)
- --------------------------------------------------------------------------------
10/1/96 - 9/30/97 46.8 40.45 33.18
- --------------------------------------------------------------------------------
10/1/95 - 9/30/96 23.9 20.34 13.16
- --------------------------------------------------------------------------------
10/1/94 - 9/30/95 24.5 29.75 23.36
- --------------------------------------------------------------------------------
10/1/93 - 9/30/94 13.2 3.57 2.60
- --------------------------------------------------------------------------------
8/17/93* to 12/31/93 4.1 13.0 33.14
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
S&P Russell
Accounts(%) 500(%) 2000(%)
- --------------------------------------------------------------------------------
Average Annual Returns
- --------------------------------------------------------------------------------
1 Year 46.8 40.45 33.18
- --------------------------------------------------------------------------------
3 Years 31.3 29.92 22.96
- --------------------------------------------------------------------------------
Since 8/17/93* 25.1 20.77 20.51
- --------------------------------------------------------------------------------
Cumulative Returns
- --------------------------------------------------------------------------------
1 Year 46.8 40.45 33.18
- --------------------------------------------------------------------------------
3 Years 126.4 119.29 85.91
- --------------------------------------------------------------------------------
Since 8/17/93* 166.8 156.92 154.16
- --------------------------------------------------------------------------------
* 8/17/93 is the date of inception of Kestrel Management.
REIT Fund
The REIT Fund's investment objective is high total investment return
through a combination of capital appreciation and current income.
The Fund seeks to achieve its objective by investing substantially all
of its assets, and in any event in normal market conditions at least 65% of its
assets, in equity securities of real estate investment trusts ("REITs"),
including REITs with relatively small market capitalization. In selecting
investments for the Fund, the Fund's sub-adviser seeks to identify REITs that
have good management, strong balance sheets, above average growth in funds from
operations and that trade at a discount to their underlying value.
Bay Isle Financial Corporation ("Bay Isle") is the Fund's sub-adviser.
Bay Isle, 160 Sansome Street, San Francisco, California, was founded in 1986,
and serves an investment adviser to pension and profit sharing plans, trusts,
charitable organizations, and other institutional and individual investors.
William F.K. Schaff has day-to-day responsibility for the management of
the Fund's portfolio. He receives significant analytical assistance from Bay
Isle's chief REIT analyst, Ralph L. Block. Mr. Schaff has served as a portfolio
manager and Chief Investment Officer of Bay Isle since 1989. Mr. Block has
nearly 30 years' experience investing in REITs and is the author of a recent
book on REIT investing, The Essential REIT. Mr. Block has served as a REIT
analyst for Bay Isle since 1993. Mr. Block was also a Partner of the law firm of
Graven, Perry, Block, Brody & Qualls until 1995.
-11-
<PAGE>
All Funds
The Funds' Investments
In addition to the investments described above, each Fund may lend its
portfolio securities and enter into repurchase agreements. See "More Information
About the Funds' Investments and Risk Considerations" below.
Investment Policies
Except for investment policies that are identified as "fundamental,"
all of the investment policies of each Fund may be changed without a vote of
Fund shareholders.
Diversification
Each Fund is a "diversified" fund, as defined in the Investment Company
Act of 1940 (the "1940 Act"), except for the REIT and the Special Small Cap
Funds, which are "non-diversified." With respect to 75% of its assets, a
diversified fund may not invest more than 5% of its total assets in the
securities of any one issuer (except U.S. government securities) while the
remaining 25% of its total assets is not subject to such restriction. A
non-diversified fund is restricted with respect to 50% of its total assets from
investing more than 5% of its total assets in the securities of any one issuer
(except U.S. government securities), and with respect to the remaining 50% of
its total assets from investing more than 25% of its total assets in the
securities of any one issuer. A non-diversified fund may invest a greater
percentage of its total assets in securities of individual issuers, or may
invest in a smaller number of different issuers, than a diversified fund.
Accordingly, a non-diversified fund is more susceptible to risks associated with
particular issuers than a diversified fund.
Past Performance of Certain Sub-Advisers
As stated above, information about the investment performance of
accounts managed by certain of the Funds' sub-advisers is provided in the
sections above. Investment performance is shown on an annual return basis from
October 1, 1992 (or since inception of the applicable sub-adviser, if such
sub-adviser has been in existence less than five years) to September 30, 1997,
with returns for periods of less than one year not annualized; and on an average
annual return and cumulative return basis for one-, three- and five-year periods
(or since inception of the applicable sub-adviser, if such sub-adviser has been
in existence less than five years) ended September 30, 1997.
The information represents performance data furnished by certain of the
Funds' sub-advisers relating to accounts managed by them. In each case, the
relevant sub-adviser's accounts have investment objectives substantially similar
to that of the Fund(s) managed by that sub-adviser; were managed throughout the
periods shown using investment styles and strategies substantially similar
(although not necessarily identical) to that of the relevant Fund; and except as
noted above include all of the fully-discretionary, fee-paying equity accounts
managed by such sub-adviser during the periods shown using investment
objectives, policies and strategies substantially similar to that of the
relevant Fund. The returns are adjusted to give effect to the greater of the
level of (a) the actual expenses of the accounts or (b) the estimated annualized
expenses for the relevant Fund's first full fiscal year (or, in the case of
accounts managed by Kestrel Management, the pro forma expenses for each of the
years shown as such expenses would have varied based upon the investment
performance of the accounts). AS STATED ABOVE, THE PERFORMANCE INFORMATION DOES
NOT REPRESENT THE PERFORMANCE OF THE FUNDS. THE FUNDS ARE NEWLY ORGANIZED AND
HAVE NO PERFORMANCE RECORD OF THEIR OWN. THE PERFORMANCE INFORMATION SHOULD NOT
BE CONSIDERED A PREDICTION OF FUTURE PERFORMANCE OF ANY OF THE FUNDS. EACH
FUND'S PERFORMANCE MAY BE HIGHER OR LOWER THAN THAT SHOWN.
During the periods shown, the sub-adviser's accounts were managed by
the portfolio manager who will be responsible for the day-to-day portfolio
management of the Fund(s) managed by that sub-adviser.
The accounts are not subject to the same types of expenses to which
each of the Funds are subject, nor to the diversification requirements, specific
tax restrictions and investment limitations imposed on each of the Funds by the
1940 Act or the Internal Revenue Code of 1986 (the "Code"). The performance
results for the accounts shown above might have been less favorable had the
accounts been subject to these requirements, restrictions and limitations.
MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS
AND RISK CONSIDERATIONS
It is important to understand the following risks inherent in a Fund
before you invest.
Common Stocks and Other Equity Securities
Common stocks and similar equity securities are securities that
represent an ownership interest (or the right to acquire such an interest) in a
company and include securities exercisable for or convertible into common stocks
(e.g., warrants). While offering greater potential for long-term growth, common
stocks and similar equity securities are more volatile and more risky than some
other forms of investment. Therefore, the value of your investment in a Fund may
sometimes decrease instead of increase. Each Fund may invest in equity
securities of companies with relatively small market capitalization. Securities
of such companies may be more volatile than the securities of larger, more
established companies and the broad equity market indices. See "Small Companies"
below. Each Fund's investments may include securities traded "over-the-counter"
as well as those traded on a securities exchange. Some over-the-counter
securities may be more difficult to sell under some market conditions.
Convertible securities include other securities, such as warrants, that
provide an opportunity for equity participation. Because convertible securities
can be converted into equity securities, their values will normally increase or
decrease as the values of the underlying equity securities increase or decrease.
The movements in the prices of convertible
-12-
<PAGE>
securities, however, may be smaller than the movements in the value of the
underlying equity securities.
Small Companies
All of the Funds may invest in companies with relatively small market
capitalization, and several of the Funds will invest primarily in such
companies. See "The Funds" above.
Investments in companies with relatively small capitalization may
involve greater risk than is usually associated with stocks of larger companies.
These companies often have sales and earnings growth rates which exceed those of
companies with larger capitalization. Such growth rates may in turn be reflected
in more rapid share price appreciation. However, companies with smaller
capitalization often have limited product lines, markets or financial resources
and may be dependent upon a relatively small management group. The securities
may have limited marketability and may be subject to more abrupt or erratic
movements in price than securities of companies with larger capitalization or
market averages in general. The net asset value per share of Funds that invest
in companies with smaller capitalization therefore may fluctuate more widely
than market averages.
Repurchase Agreements
All of the Funds will normally invest at least 65% of their total
assets in common stocks. Any assets not invested in common stocks or other
equity securities will generally be held in the form of cash or in repurchase
agreements.
Under a repurchase agreement, a Fund buys securities from a seller,
usually a bank or brokerage firm, with the understanding that the seller will
repurchase the securities at a higher price at a later date. If the seller fails
to repurchase the securities, the Fund has rights to sell the securities to
third parties. Repurchase agreements can be regarded as loans by the Fund to the
seller, collateralized by the securities that are the subject of the agreement.
Repurchase agreements afford an opportunity for the Fund to earn a return on
available cash at relatively low credit risk, although the Fund may be subject
to various delays and risks of loss if the seller fails to meet its obligation
to repurchase.
The staff of the SEC is currently of the view that repurchase
agreements maturing in more than seven days are illiquid securities.
Loans of Securities
The Funds may lend their portfolio securities, provided that cash or
equivalent collateral equal to at least 100% of the market value of the
securities loaned is continuously maintained by the borrower with the Funds.
During the time securities are on loan, the borrower will pay the Fund an amount
equivalent to any dividends or interest paid on such securities, and the Fund
may invest the cash collateral and earn additional income, or it may receive an
agreed upon amount of interest income from the borrower who has delivered
equivalent collateral. These loans are subject to termination at the option of
the Fund or the
-13-
<PAGE>
borrower. A Fund may pay reasonable administrative and custodial fees in
connection with a loan and may pay a negotiated portion of the interest earned
on the cash or equivalent collateral to the borrower or placing broker. It is
not currently anticipated that any Fund will have on loan at any given time
securities totaling more than one-third of its net assets. A Fund runs the risk
that the counterparty to a loan transaction will default on its obligation and
that the value of the collateral received may be insufficient to cover the
securities loaned as a result of an increase in the value of the securities or
decline in the value of the collateral.
Real Estate Investment Trusts
The REIT Fund will invest primarily in shares of real estate investment
trusts ("REITs"). REITs pool investors' funds for investment primarily in income
producing real estate or real estate related loans or interests. Under the Code,
a REIT is not taxed on income it distributes to its shareholders if it complies
with several requirements relating to its organization, ownership, assets, and
income and a requirement that it generally distribute to its shareholders at
least 95% of its taxable income (other than net capital gains) for each taxable
year. REITs can generally be classified as Equity REITs, Mortgage REITs, and
Hybrid REITs. Equity REITs, which invest the majority of their assets directly
in real property, derive their income primarily from rents. Equity REITs can
also realize capital gains by selling properties that have appreciated in value.
Mortgage REITs, which invest the majority of their assets in real estate
mortgages, derive their income primarily from interest payments. Hybrid REITS
combine the characteristics of both Equity REITs and Mortgage REITs.
While the Fund will not invest in real estate directly, the Fund may be
subject to risks similar to those associated with the direct ownership of real
estate (in addition to securities markets risks) because of its policy of
concentration in the securities of companies in the real estate industry. These
risks include declines in the value of real estate, risks related to general and
local economic conditions, dependency on management skill, heavy cash flow
dependency, possible lack of availability of mortgage funds, overbuilding,
extended vacancies of properties, increased competition, increases in property
taxes and operating expenses, changes in zoning laws, losses due to costs
resulting from the clean-up of environmental problems, liability to third
parties for damages resulting from environmental problems, casualty or
condemnation losses, limitations on rents, changes in neighborhood values and in
the appeal of properties to tenants and changes in interest rates.
In addition to these risks, Equity REITs may be affected by changes in
the value of the underlying property owned by the trusts, while Mortgage REITs
may be affected by the quality of any credit they extend. Further, Equity REITs
and Mortgage REITs are dependent upon management skills and generally may not be
diversified. Equity REITs and Mortgage REITs are also subject to heavy cash flow
dependency, defaults by borrowers and self-liquidation. In addition, Equity
REITs and Mortgage REITs could possibly fail to qualify for tax-free
pass-through of income under the Code or to maintain their exemptions from
registration under the 1940 Act. The above factors may also adversely affect a
borrower's or a lessee's ability to meet its obligations to the REIT. In the
event of a default by a borrower or lessee, the REIT may experience delays in
enforcing its rights as a
-14-
<PAGE>
mortgagee or lessor and may incur substantial costs associated with protecting
its investments. In addition to the foregoing risks, certain "special purpose"
REITs in which the Fund invests may invest their assets in specific real estate
sectors, such as hotel REITs, nursing home REITs or warehouse REITs, and are
therefore subject to the risks associated with adverse developments in any such
sectors.
-15-
<PAGE>
MANAGEMENT OF THE FUNDS
Undiscovered Managers is the investment adviser of each Fund and has
responsibility for the management of the Funds' affairs, under the supervision
of the Trust's Board of Trustees. Each Fund's investment portfolio is managed on
a day-to-day basis by that Fund's sub-adviser, under the general oversight of
Undiscovered Managers and the Board of Trustees. Undiscovered Managers monitors
and evaluates each sub-adviser to assure that the sub-adviser is managing its
Fund consistently with the Fund's investment objective and restrictions and
applicable laws and guidelines. Undiscovered Managers does not, however,
determine what investments will be purchased or sold for a Fund.
Pursuant to an Administrative Services Agreement, Undiscovered Managers
has agreed to provide each Fund all administrative services, including but not
limited to corporate secretarial, treasury, blue sky and fund accounting
services. For these services, each Fund pays Undiscovered Managers a monthly
fee at the annual rate of .25% of the Fund's average net asset value.
Undiscovered Managers has entered into an agreement with First Data Investor
Services Group, Inc. ("First Data") to provide certain of the foregoing
administrative services. First Data has no responsibility with respect to the
oversight of any Fund's investment advisory services.
Undiscovered Managers was organized in 1997 and has no prior experience
managing mutual funds. The address of Undiscovered Managers is Plaza of the
Americas, 700 North Pearl Street, Dallas, Texas 75201. The President of
Undiscovered Managers, Mark P. Hurley, and AMRESCO, Inc., a publicly traded
corporation engaged in residential mortgage banking, commercial mortgage
banking, asset management and commercial finance, each own more than 25% of the
voting securities of Undiscovered Managers and therefore are regarded to control
Undiscovered Managers for purposes of the 1940 Act. Each of the sub-advisers is
regarded for purposes of the 1940 Act as being controlled by the following
persons, each of whom is a principal of the firm and owns more than 25% of the
voting securities of the firm: Sherwood T. Small (E.R. Taylor); Russell J.
Fuller (RJF Management); Leslie A. Waite (Waite & Associates); James L. Kaplan
(Kaplan Associates); David J. Steirman and Abbott J. Keller (Kestrel
Management); and Gary G. Pollock and William F.K. Schaff (Bay Isle). Except for
Bay Isle, none of the sub-advisers has prior experience managing a mutual fund.
The Bank of New York is the custodian for the Funds and First Data
Distributors, Inc. is the distributor for the Funds.
Advisory and Sub-Advisory Fees
Each Fund pays Undiscovered Managers a management fee at the following
annual percentage rates of the Fund's daily net assets:
-16-
<PAGE>
-----------------------------------------------
Fund Fee Rate
-----------------------------------------------
All Cap Value Fund 0.74%
-----------------------------------------------
Behavioral Growth Fund 0.95%
-----------------------------------------------
Core Equity Fund 0.74%
-----------------------------------------------
Hidden Value Fund 0.95%
-----------------------------------------------
REIT Fund 1.05%
-----------------------------------------------
Small Cap Value Fund 1.05%
-----------------------------------------------
Special Small Cap Fund 0.65-1.65%*
-----------------------------------------------
*The advisory fee rate for the Special Small Cap Fund will vary depending on the
investment performance of the Fund. In particular, the applicable fee rate is
determined by adding to (or subtracting from) 1.15% one-fifth of the number of
basis points by which the total return of the Fund during the one-year period
ending at the end of a quarter exceeds (or falls short of) the sum of (1) the
total return of the Russell 2000 Index during the one-year period ending at the
end of such quarter plus (2) one hundred fifty (150) basis points. The advisory
fee rate will not exceed the annual rate of 1.65% nor be less than the annual
rate of 0.65%. Until the end of the first calendar quarter ending on or after
the 364th day following the commencement of the Fund's operations, the annual
fee rate shall be 1.15%. The Russell 2000 Index is composed of the common stocks
of the 2000 smallest of the 3000 largest publicly-traded U.S. companies,
measured by market capitalization. The Fund uses the Russell 2000 Index as the
standard of performance comparison because that index is well known to investors
and is commonly regarded as representative of the performance of United States
smaller capitalization stocks. The sponsor of the Russell 2000 Index does not
sponsor and is not in any other way affiliated with the Fund.
As described above, the advisory fee rate for the Special Small Cap
Fund will vary depending on the investment performance of the Fund. The
following table provides information concerning a range of potential advisory
fee rates for the Special Small Cap Fund. For illustrative purposes only, it has
been assumed that the total return of the Russell 2000 Index during the one-year
period ending at the end of the hypothetical quarter reflected below equals ten
percent (10%). The following performance figures should not be considered a
prediction of the Fund's future performance. The Fund's performance may be
higher or lower than that shown.
Special
Small Cap
Fund Russell 2000 Fulcrum Fee
Total Return Index Percentage
9% 10% .65%*
10% 10% .85%
11.5% 10% 1.15%
13% 10% 1.45%
14% 10% 1.65%**
* Minimum advisory fee rate even if Total Return for the Fund for the
hypothetical period was less than 9%.
** Maximum advisory fee rate even if Total Return for the Fund for the
hypothetical period exceeded 14%.
-17-
<PAGE>
Undiscovered Managers pays each Fund's sub-adviser a sub-advisory fee at the
following annual percentage rates of the specified levels of the Fund's average
daily net assets:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Fund Sub-adviser Fee Rate as % of Fund's Net
Assets
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
All Cap Value Fund E.R. Taylor 0.40% of the first $200 million
------------------------------------------
0.35% of the next $100 million
------------------------------------------
0.30% of assets in excess of $300
million
- ------------------------------------------------------------------------------------------------
Behavioral Growth Fund RJF Management 0.60% of the first $200 million
------------------------------------------
0.55% of the next $100 million
------------------------------------------
0.50% of assets in excess of $300
million
- ------------------------------------------------------------------------------------------------
Core Equity Fund Waite & 0.40% of the first $200 million
Associates ------------------------------------------
0.35% of the next $100 million
------------------------------------------
0.30% of assets in excess of $300
million
- ------------------------------------------------------------------------------------------------
Hidden Value Fund Kaplan 0.60% of the first $200 million
Associates ------------------------------------------
0.55% of the next $100 million
------------------------------------------
0.50% of assets in excess of $300
million
- ------------------------------------------------------------------------------------------------
REIT Fund Bay Isle 0.70% of the first $200 million
------------------------------------------
0.65% of the next $100 million
------------------------------------------
0.60% of assets in excess of $300
million
- ------------------------------------------------------------------------------------------------
Small Cap Value Fund Kaplan 0.70% of the first $200 million
Associates ------------------------------------------
0.65% of the next $100 million
------------------------------------------
0.60% of assets in excess of $300
million
- ------------------------------------------------------------------------------------------------
Special Small Cap Fund Kestrel 0.30% - of all assets
Management 1.30%*
- ------------------------------------------------------------------------------------------------
</TABLE>
*The sub-advisory fee rate for the Special Small Cap Fund will vary depending on
the investment performance of the Fund. In particular, the applicable fee rate
is determined by adding to (or subtracting from) 0.80% one-fifth of the number
of basis points by which the total return of the Fund during the one-year period
ending at the end of a quarter exceeds (or falls short of) the sum of (1) the
total return of the Russell 2000 Index during the one-year period ending at the
end of such quarter plus (2) one hundred fifty (150) basis points. The
sub-advisory fee rate
-18-
<PAGE>
will not exceed the annual rate of 1.30% nor be less than the annual rate of
0.30%. Until the end of the first calendar quarter ending on or after the 364th
day following the commencement of the Fund's operations, the annual fee rate
shall be 0.80%. For more information about the Russell 2000 Index, see the
footnote to the Funds' Advisory Fee Table above.
The Trust intends to apply for an exemptive order from the Securities
and Exchange Commission to permit Undiscovered Managers, subject to the approval
of the Trust's Board of Trustees and certain other conditions, to enter into
sub-advisory agreements with sub-advisers other than the current sub-adviser of
any Fund without obtaining shareholder approval. The exemptive request will also
seek to permit, without obtaining shareholder approval, the terms of an existing
sub-advisory agreement to be changed or the employment of an existing
sub-adviser to be continued after events that would otherwise cause an automatic
termination of a sub-advisory agreement when such changes or continuation are
approved by the Trust's Board of Trustees. This Prospectus would be revised and
shareholders notified if the sub-adviser of any Fund is changed.
Other Fund Expenses
In addition to the investment advisory fee, each Fund pays all expenses
not expressly assumed by Undiscovered Managers, including taxes, brokerage
commissions, fees and expenses of registering and qualifying the Fund's shares
under federal and state securities laws, fees of the Fund's custodian, transfer
agent, independent accountants and legal counsel, expenses of shareholders' and
Trustees' meetings, expenses of preparing, printing and mailing prospectuses to
existing shareholders and fees of Trustees who are not directors, officers or
employees of Undiscovered Managers.
Undiscovered Managers has voluntarily agreed, for an indefinite period,
to pay the expenses of each Fund in excess of the following annual percentage
rates of the average daily net assets of the Institutional Class shares of each
Fund, subject to the obligation of the Fund to repay Undiscovered Managers such
expenses in future years, if any, when the Fund's expenses fall below the stated
percentage rate, but only to the extent that such repayment would not cause the
Fund's expenses in any such future year to exceed the stated percentage rate,
and provided that the Funds are not obligated to repay any such expenses more
than two years after the end of the fiscal year in which they were incurred:
0.99% for the All Cap Value Fund and the Core Equity Fund; 1.30% for the
Behavioral Growth Fund and the Hidden Value Fund; 1.4% for the REIT Fund and the
Small Cap Value Fund; and, for the Special Small Cap Fund, the sum of 0.55% plus
the advisory fee rate for the Fund for the year in question. Undiscovered
Managers may change or terminate these voluntary arrangements at any time, but
the Funds' Prospectus would be supplemented to describe the change.
PORTFOLIO TRANSACTIONS
In addition to selecting portfolio investments for the Fund(s) it
manages, each sub-adviser selects brokers or dealers to execute securities
purchases and sales for the Fund's account. Each sub-adviser selects only
brokers or dealers which it believes are financially responsible, will provide
efficient and effective services in executing, clearing and settling an order
and will charge commission rates which, when combined with the quality of the
-19-
<PAGE>
foregoing services, will produce best price and execution for the transaction.
This does not necessarily mean that the lowest available brokerage commission
will be paid. However, the commissions are believed to be competitive with
generally prevailing rates. Each sub-adviser will use its best efforts to obtain
information as to the general level of commission rates being charged by the
brokerage community from time to time and will evaluate the overall
reasonableness of brokerage commissions paid on transactions by reference to
such data. In making such evaluation, all factors affecting liquidity and
execution of the order, as well as the amount of the capital commitment by the
broker in connection with the order, are taken into account. The Funds will not
pay a broker a commission at a higher rate than otherwise available for the same
transaction in recognition of the value of research services provided by the
broker or in recognition of the value of any other services provided by the
broker which do not contribute to the best price and execution of the
transaction.
A sub-adviser's receipt of research services from brokers may sometimes
be a factor in its selection of a broker that it believes will provide best
price and execution for a transaction. These research services include not only
a wide variety of reports on such matters as economic and political
developments, industries, companies, securities, portfolio strategy, account
performance, daily prices of securities, stock and bond market conditions and
projections, asset allocation and portfolio structure, but also meetings with
management representatives of issuers and with other analysts and specialists.
Although it is in many cases not possible to assign an exact dollar value to
these services, they may, to the extent used, tend to reduce the sub-adviser's
expenses. Such services may be used by a sub-adviser in managing other client
accounts and in some cases may not be used with respect to the Funds. Receipt of
services or products other than research from brokers is not a factor in the
selection of brokers. Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., and subject to seeking best price and
execution, purchases of shares of a Fund by customers of broker-dealers may be
considered as a factor in the selection of broker-dealers to execute the Fund's
securities transactions.
A sub-adviser may cause a Fund to pay a broker-dealer that provides
brokerage and research services to the sub-adviser an amount of commission for
effecting a securities transaction for that Fund in excess of the amount another
broker-dealer would have charged for effecting that transaction. The sub-adviser
must determine in good faith that such greater commission is reasonable in
relation to the value of the brokerage and research services provided by the
executing broker-dealer viewed in terms of that particular transaction or the
sub-adviser's overall responsibilities to the Fund and its other clients. The
sub-advisers currently have no intention of executing transactions on such
basis. The sub-adviser's authority to cause a Fund to pay greater commissions is
also subject to such policies as the Trustees of the Trust may adopt from time
to time.
It is not possible to predict the Funds' portfolio turnover rates with
certainty. Each Fund's sub-adviser has indicated, however, that it does not
expect that the annual portfolio turnover rate of the Fund(s) it manages would
normally exceed the following rates: 50% for the All Cap Value, Core Equity and
REIT Funds; 75% for the Small Cap Value, Hidden Value and Special Small Cap
Funds; and 200% for the Behavioral Growth Fund. Any Fund's portfolio turnover
rate in any year could be significantly higher or lower than these estimates.
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<PAGE>
Higher levels of portfolio turnover may result in higher transactions costs and
higher levels of taxable realized capital gains.
HOW TO PURCHASE SHARES
An investor may make an initial purchase of shares of any Fund by
submitting a completed application form and payment to:
Undiscovered Managers Funds
4400 Computer Drive
P.O. Box 5181
Westboro, MA 01581
The minimum initial investment for the Institutional Class of each
Fund's shares is $250,000 in that Fund. A minimum investment of $10,000 applies
to the Trustees of the Trust, investment advisory clients of the sub-advisers
(and their directors, officers and employees), and employees of Undiscovered
Managers and the parents, spouses and children of the foregoing. The minimum
investment may be waived by Undiscovered Managers in its sole discretion and
will be waived for any new shareholder in Undiscovered Managers Funds who
initially invests less than $250,000 but signs a letter of intent stating the
shareholder's intention to bring his or her balance to $250,000 within six
months after the initial purchase. For investors who purchase through a
financial intermediary and hold their shares through an omnibus account with
that financial intermediary, the minimum initial investment applies to the
omnibus account, and not to the investors individually. Undiscovered Managers
reserves the right to redeem the accounts at net asset value of shareholders
that have signed a letter of intent but fail to meet the minimum investment
within the specified time or to waive any minimum investment in its sole
discretion. Subsequent investments must be at least $50,000.
If the balance in a shareholder's account with a Fund is less than a
minimum amount set by the Trustees of the Trust from time to time (currently
$___________ for all accounts), that Fund may close the account and send the
proceeds to the Shareholder. Shareholders who are affected by this policy will
be notified of the Fund's intention to close the account and will have 60 days
immediately following the notice to bring the account up to the minimum. The
minimum does not apply to automatic investment plans or accounts that have
fallen below the minimum solely because of fluctuations in a Fund's net asset
value per share.
Shares of any Fund may be purchased by (i) cash, (ii) exchanging
securities on deposit with a custodian acceptable to Undiscovered Managers or
(iii) any combination of such securities and cash. Purchase of shares of the
Fund in exchange for securities is subject in each case to the determination by
Undiscovered Managers that the securities to be exchanged are acceptable for
purchase by the Fund. In all cases Undiscovered Managers reserves the right to
reject any securities that are proposed for exchange. Securities accepted by
Undiscovered Managers in exchange for Fund shares will be valued in the same
manner as the Fund's assets as described below as of the time of the Fund's next
determination of net asset value after such acceptance. All dividends and
subscription or other rights which are reflected in the market price of accepted
securities at the time of valuation become the property of the Fund and must be
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<PAGE>
delivered to the Fund upon receipt by the investor from the issuer. Generally, a
gain or loss for federal income tax purposes would be realized upon the exchange
of securities by an investor that is subject to federal income taxation,
depending upon the investor's basis in the securities tendered. An investor who
wishes to purchase shares by exchanging securities should obtain instructions by
calling 1-888-242-3514.
Undiscovered Managers will not approve the acceptance of securities in
exchange for shares of any Fund unless (1) Undiscovered Managers and the
applicable sub-adviser in their discretion, believes the securities are
appropriate investments for the Fund; (2) the investor represents and agrees
that all securities offered to the Fund can be resold by the Fund without
restriction under the Securities Act or otherwise; and (3) the securities are
eligible to be acquired under the Fund's investment policies and restrictions.
No investor owning 5% or more of Fund's shares may purchase additional shares of
that fund by an exchange of securities.
All purchases made by check should be in U.S. dollars and made payable
to Undiscovered Managers Funds or First Data. Third party checks will not be
accepted. When purchases are made by check redemption proceeds will not be sent
until the check paying for the investment has cleared, which may take up to 15
calendar days.
Upon acceptance of an investor's order, First Data opens an account,
applies the payment to the purchase of full and fractional Fund shares and mails
a statement of the account confirming the transaction.
After an account has been established, an investor may send subsequent
investments at any time directly to First Data at the above address. The
remittance must be accompanied by either the account identification slip
detached from a statement of account or a note containing sufficient information
to identify the account, i.e., the Fund name and the investor's account number
or name and social security number.
Subsequent investments can also be made by federal funds wire.
Investors should instruct their banks to wire federal funds to Boston Safe
Deposit & Trust Company, ABA #011001234. The text of the wire should read as
follows:
Boston Safe Deposit & Trust Company
ABA #011001234
Account #145483
FOB: Shareholder Name and Account Number
FOR: Undiscovered Managers Funds
A bank may charge a fee for transmitting funds by wire.
Each Fund and the Distributor reserve the right to reject any purchase
order, including orders in connection with exchanges, for any reason which the
Fund or the Distributor in its sole discretion deems appropriate. Although the
Funds do not presently anticipate that they will do so, each Fund reserves the
right to suspend or change the terms of the offering of its shares.
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<PAGE>
Except as stated below, the price an investor pays will be the per
share net asset value next calculated after a proper investment order is
received by the Trust's transfer or other agent or sub-agent. Shares of each
Fund are sold with no sales charge. The net asset value of each Fund's shares is
calculated once daily as of the close of regular trading on the New York Stock
Exchange on each day the Exchange is open for trading, by dividing the Fund's
net assets by the number of shares outstanding. Portfolio securities are valued
at their market value as more fully described in the Statement of Additional
Information.
The Distributor may accept telephone orders from broker-dealers who
have been previously approved by the Distributor. It is the responsibility of
such broker-dealers to promptly forward purchase or redemption orders to the
Distributor. Although there is no sales charge imposed by the Fund or the
Distributor, broker-dealers may charge the investor a transaction-based fee or
other fee for their services at either the time of purchase or the time of
redemption. Such charges may vary among broker-dealers but in all cases will be
retained by the broker-dealers and not remitted to the Fund.
SHAREHOLDER SERVICES
The Funds offer the following shareholder services, which are more
fully described in the Statement of Additional Information. Explanations and
forms are available from First Data. Telephone redemption and exchange
privileges will be established automatically when an investor opens an account
unless an investor elects on the application to decline the privileges. Other
privileges must be specifically elected. A signature guarantee will be required
to establish a privilege after an account is opened.
Free Exchange Privilege. Institutional Class shares of any Fund may be
exchanged for shares of the Institutional Class of any other Fund. Exchanges may
be made by written instructions or by telephone, unless an investor elected on
the application to decline telephone exchange privileges. The exchange privilege
should not be viewed as a means for taking advantage of short-term swings in the
market, and the Funds reserve the right to terminate or limit the privilege of
any shareholder who makes more than four exchanges in any calendar year. The
Funds may terminate or change the terms of the exchange privilege at any time,
upon 60 days' notice to shareholders.
Retirement Plans. The Funds' Institutional Class shares may be
purchased by all types of tax-deferred retirement plans. The Distributor makes
available retirement plan forms for IRAs.
Systematic Withdrawal Plan. If the value of an account is at least
$25,000, an investor may have periodic cash withdrawals automatically paid to
the investor or any person designated by the investor.
Automatic Investment Plan. Voluntary monthly investments of at least
$1,000 may be made automatically by pre-authorized withdrawals from an
investor's checking account.
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<PAGE>
HOW TO REDEEM SHARES
An investor can redeem shares by sending a written request to First
Data at 4400 Computer Drive, P.O. Box 5181, Westboro, MA 01581, Attn:
Undiscovered Managers Funds. As described below, an investor may also redeem
shares by calling Undiscovered Managers at 1-888-242-3514. Proceeds resulting
from a written or telephone redemption request can be wired to an investor's
bank account or sent by check in the name of the registered owners to their
record address.
The written request must include the name of the Fund, the account
number, the exact name(s) in which the shares are registered, and the number of
shares or the dollar amount to be redeemed. All owners of the shares must sign
the request in the exact names in which the shares are registered (this appears
on an investor's confirmation statement) and should indicate any special
capacity in which they are signing (such as trustee or custodian or on behalf of
a partnership, corporation or other entity). Investors requesting that
redemption proceeds be wired to their bank accounts must provide specific wire
instructions.
If (1) an investor is redeeming shares worth more than $50,000, (2) an
investor is requesting that the proceeds check be made out to someone other than
the registered owners or be sent to an address other than the record address,
(3) the account registration has changed within the last 30 days or (4) an
investor is providing instructions to wire the proceeds to a bank account not
designated on the application, the investor must have his or her signature
guaranteed by an eligible guarantor. Eligible guarantors include commercial
banks, trust companies, savings associations, credit unions and brokerage firms
that are members of domestic securities exchanges. Before submitting the
redemption request, an investor should verify with the guarantor institution
that it is an eligible guarantor. Signature guarantees by notaries public are
not acceptable.
When an investor telephones a redemption request, the proceeds are
wired to the bank account previously chosen by the investor. A wire fee
(currently $5) will be deducted from the proceeds. A telephonic redemption
request must be received by Undiscovered Managers prior to the close of regular
trading on the New York Stock Exchange. If an investor telephones a request to
Undiscovered Managers after the Exchange closes or on a day when the Exchange is
not open for business, Undiscovered Managers cannot accept the request and a new
request will be necessary.
If an investor decides to change the bank account to which proceeds are
to be wired, an investor must send in this change on the Service Options Form
with a signature guarantee. Telephonic redemptions may only be made if an
investor's bank is a member of the Federal Reserve System or has a correspondent
bank that is a member of the System. Unless an investor indicates otherwise on
the account application, Undiscovered Managers will be authorized to act upon
redemption and exchange instructions received by telephone from the investor or
any person claiming to act as the investor's representative who can provide
Undiscovered Managers with the investor's account registration and address as it
appears on the records of the Trust. Undiscovered Managers
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<PAGE>
will employ these or other reasonable procedures to confirm that instructions
communicated by telephone are genuine; the Trust, First Data, the Distributor,
Undiscovered Managers and the sub-advisers will not be liable for any losses due
to unauthorized or fraudulent instructions if these or other reasonably
procedures are followed. For further information, consult Undiscovered Managers.
In times of heavy market activity, an investor who encounters difficulty in
placing a redemption or exchange order by telephone may wish to place the order
by mail as described above.
The redemption price will be the net asset value per share next
determined after the redemption request and any necessary special documentation
are received by First Data in proper form.
Proceeds resulting from a written redemption request will normally be
mailed to an investor within seven days after receipt of the investor's request,
if the request is in good order. Telephonic redemption proceeds will normally be
wired to an investor's bank on the first business day following receipt of a
proper redemption request. If an investor purchased shares by check and the
check was deposited less than fifteen days prior to the redemption request, the
Fund may withhold redemption proceeds until the check has cleared.
The Fund may suspend the right of redemption and may postpone payment
for more than seven days when the New York Stock Exchange is closed for other
than weekends or holidays, or if permitted by the rules of the SEC when trading
on the Exchange is restricted or during an emergency which makes it
impracticable for the Fund to dispose of its securities or to determine fairly
the value of its net assets, or during any other period permitted by the SEC for
the protection of investors.
CALCULATION OF PERFORMANCE INFORMATION
The Funds may include in advertising their "total return" for the one-,
five- and ten-year periods (or for the life of a Fund, if shorter) through the
most recent calendar quarter. These total returns represent the average annual
compounded rate of return on a hypothetical investment of $1,000 in a Fund.
Total return may also be presented for other periods and on a cumulative (in
addition to average annual) basis.
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
The Funds declare and pay their net investment income to shareholders
as dividends annually. Each Fund also distributes all of its net capital gains
realized from the sale of portfolio securities. Any capital gain distributions
are normally made annually, but may, to the extent permitted by law, be made
more frequently as deemed advisable by the Trustees of the Trust. The Trustees
may change the frequency with which the Funds declare or pay dividends.
Dividends and capital gain distributions will automatically be
reinvested in additional shares of the same Fund on the record date unless an
investor has elected to receive cash.
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<PAGE>
Each Fund intends to qualify as a regulated investment company under
the Code. As a regulated investment company, and provided that the Fund
distributes substantially all its net investment income to its shareholders, the
Fund itself will not pay any federal income tax on its distributed income and
gains.
Income dividends and short term capital gain distributions are taxable
as ordinary income whether distributed in cash or additional shares. Long-term
capital gain distributions from all Funds are taxable as long-term capital gains
whether distributed in cash or additional shares and regardless of how long an
investor has owned shares of a Fund. Pursuant to the Taxpayer Relief Act of
1997, long-term capital gains generally are subject to a maximum tax rate of 28%
or 20% depending upon the holding period in the portfolio investment generating
the distributed gains.
Each Fund is required to withhold 31% of any redemption proceeds
(including the value or shares exchanged) and all income dividends and capital
gain distributions it pays to the investor (1) if the investor does not provide
a correct, certified taxpayer identification number, (2) if the Fund is notified
that the investor has underreported income in the past, or (3) if an investor
fails to certify to the Fund that the investor is not subject to such
withholding.
Certain designated dividends from the Funds are expected to be eligible
for the dividends-received deduction for corporate shareholders (subject to a
holding period requirement). However, any distributions received by a Fund from
REITs will not qualify for the dividends-received deduction. A Fund's investment
in REIT securities may require such Fund to accrue and distribute income not yet
received. In order to generate sufficient cash to make the requisite
distributions, the Fund may be required to sell securities in its portfolio that
it otherwise would have continued to hold (including when it is not advantageous
to do so). A Fund's investment in REIT securities also may result in the Fund's
receipt of cash in excess of the REIT's earnings; if the Fund distributes such
amounts, such distribution could constitute a return of capital to Fund
shareholders for federal income tax purposes.
First Data will send each investor and the Internal Revenue Service an
annual statement detailing federal tax information, including information about
dividends and distributions paid to the investor during the preceding year. Be
sure to keep this statement as a permanent record. A fee may be charged for any
duplicate information that an investor requests.
NOTE: The foregoing summarizes certain tax consequences of investing
in the Funds. Before investing, an investor should consult his
or her own tax adviser for more information concerning the
federal, state and local tax consequences of investing in,
redeeming or exchanging Fund shares.
THE TRUST
Each Fund is a series of the Trust. The Trust was organized as a
Massachusetts business trust on September 29, 1997. The Trust is authorized to
issue an unlimited number of full and fractional shares of beneficial interest
in multiple series. Currently each Fund has only one class of shares. Each share
in a Fund has one vote, with fractional shares voting proportionally. All Trust
shares entitled to vote will vote together irrespective of series or sub-series
unless the rights of a particular series or sub-series would be adversely
affected by the vote, in which case a separate vote of that series or sub-series
will be required to decide the question. Shares are freely transferable, are
entitled to dividends as declared by the Trustees of the Trust, and, if a Fund
were liquidated, would receive the net assets of such Fund. Each Fund may
suspend the sale of shares at any time and may refuse any order to purchase
shares. The Trust does not generally hold regular shareholder meetings and will
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<PAGE>
do so only when required by law. Shareholders may remove the Trustees of the
Trust from office by votes cast at a shareholder meeting or by written consent.
-27-
<PAGE>
INVESTMENT ADVISER
Undiscovered Managers, LLC
Plaza of the Americas
700 North Pearl Street
Dallas, Texas 75201
DISTRIBUTOR
First Data Distributors, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
TRANSFER AGENT
First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
CUSTODIAN
The Bank of New York
48 Wall Street
New York, New York 10286
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, Massachusetts 02110
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP
125 Summer Street
Boston, Massachusetts 02110
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<PAGE>
UNDISCOVERED MANAGERS FUNDS
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
December __, 1997
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Statement of Additional Information shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall there be any sale
of these securities in any state in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities laws of
such state.
This Statement of Additional Information is not a prospectus. This
Statement of Additional Information relates to the Undiscovered Managers Funds
Prospectus dated December __, 1997, and should be read in conjunction therewith.
A copy of the Prospectus may be obtained from Undiscovered Managers Funds, Plaza
of the Americas, 700 North Pearl Street, Dallas, Texas 75201.
<PAGE>
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INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS............................1
MANAGEMENT OF THE TRUST.....................................................3
OWNERSHIP OF SHARES OF THE FUNDS............................................4
INVESTMENT ADVISORY AND OTHER SERVICES......................................5
PORTFOLIO TRANSACTIONS AND BROKERAGE........................................7
DESCRIPTION OF THE TRUST....................................................7
HOW TO BUY SHARES..........................................................10
NET ASSET VALUE............................................................11
SHAREHOLDER SERVICES.......................................................11
REDEMPTIONS................................................................13
INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS................14
CALCULATION OF TOTAL RETURN................................................17
PERFORMANCE COMPARISONS....................................................18
INDEPENDENT AUDITORS' REPORT...............................................21
APPENDIX A - PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION...............A-1
APPENDIX B - ADVERTISING AND PROMOTIONAL LITERATURE.......................B-1
<PAGE>
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INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
- --------------------------------------------------------------------------------
The investment objective and policies of each series (each a "Fund" and
collectively, the "Funds") of Undiscovered Managers Funds (the "Trust") are
summarized in the Prospectus under "The Funds" and "More Information About the
Funds' Investments and Risk Considerations." The investment policies of each
Fund set forth in the Prospectus and in this Statement of Additional Information
may be changed by the Fund's adviser, subject to review and approval by the
Trust's Board of Trustees, without shareholder approval except that any Fund
policy explicitly identified as "fundamental" may not be changed without the
approval of the holders of a majority of the outstanding shares of the Fund
(which in the Prospectus and this Statement of Additional Information means the
lesser of (i) 67% of the shares of the Fund represented at a meeting at which
50% of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares).
The following investment restrictions are fundamental policies of each
Fund.
Each Fund will not:
1. Borrow money in excess of 33 1/3% of the value of its total assets (not
including the amount borrowed) at the time the borrowing is made.
2. Underwrite securities issued by other persons except to the extent that, in
connection with the disposition of its portfolio investments, it may be deemed
to be an underwriter under certain federal securities laws.
3. Purchase or sell real estate, although it may purchase securities of issuers
which deal in real estate, securities which are secured by interests in real
estate, and securities which represent interests in real estate, and it may
acquire and dispose of real estate or interests in real estate acquired through
the exercise of its rights as a holder of debt obligations secured by real
estate or interests therein.
4. Purchase or sell commodities or commodity contracts, except that the Fund may
purchase and sell financial futures contracts and options, and may enter into
swap agreements, foreign exchange contracts and other financial transactions not
involving physical commodities.
5. Make loans, except by purchase of debt obligations in which the Fund may
invest consistent with its investment policies, by entering into repurchase
agreements, or by lending its portfolio securities.
<PAGE>
6. Purchase securities (other than securities of the U.S. government, its
agencies or instrumentalities) if, as a result of such purchase, more than 25%
of the Fund's total assets would be invested in any one industry; except that
the REIT Fund will invest more than 25% of its total assets in securities issued
by real estate investment trusts (as defined in the Internal Revenue Code of
1986 (the "Code")).
7. Issue any class of securities which is senior to the Fund's shares of
beneficial interest, except for permitted borrowings.
Although the Funds are permitted to borrow money to a limited extent,
no Fund currently intends to do so.
In addition to the foregoing fundamental investment restrictions, it is
contrary to each Fund's present policy, which may be changed without shareholder
approval, to:
Invest in (a) securities which at the time of such investment are not
readily marketable, (b) securities restricted as to resale (excluding securities
determined by the Trustees of the Trust (or the person designated by the
Trustees to make such determinations) to be readily marketable), and (c)
repurchase agreements maturing in more than seven days, if, as a result, more
than 15% of the Fund's net assets (taken at current value) would be invested in
securities described in (a), (b) and (c) above.
All percentage limitations on investments will apply at the time of the
making of an investment (except for the non-fundamental restriction set forth in
the immediately preceding paragraph) and shall not be considered violated unless
an excess or deficiency occurs or exists immediately after and as a result of
such investment.
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<PAGE>
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MANAGEMENT OF THE TRUST
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The Trustees and officers of the Trust, their ages, addresses and
principal occupations during the past five years are as follows:
*MARK P. HURLEY (39) -- Trustee and President. President and Chief Executive
Officer of Undiscovered Managers, LLC since September, 1997; formerly Managing
Director of Merrill Lynch & Company from February, 1996 to January, 1997;
formerly Vice President of Goldman, Sachs & Co. from August, 1992 to February,
1996.
ROGER B. KEATING (36) -- Trustee. One Belmont Avenue, 11th Floor, Bala Cynwyd,
Pennsylvania 19004; Senior Vice President of Online Division of Comcast Cable
Communications since May, 1996; Area Vice President and General Manager of West
Florida area of Comcast Cable Communications from August, 1993 to May, 1996;
formerly Principal of Mercer Management Consulting from October, 1987 to August,
1993.
MATTHEW J. KILEY (35) -- Trustee. ARAMARK Tower, 1101 Market Street,
Philadelphia, Pennsylvania 19107; Executive Vice President of Sports and
Entertainment and Vice President of Global Food and Support Services at ARAMARK
Corp. since September, 1996; formerly Manager at McKinsey & Company from
January, 1990 to September 1996.
ROBERT P. SCHMERMUND (42) -- Trustee. 900 19th Street, N.W., Suite 400,
Washington, D.C. 20006; Communications Director of America's Community Bankers
since January, 1993; formerly Public Affairs Director of The Office of Thrift
Supervision from August, 1990 to December, 1992.
JOHN J. BURKE III (32) -- Treasurer. 4400 Computer Drive, Westboro, MA 01581;
Vice President of Fund Accounting and Portfolio Valuation Group at First Data
Investor Services Group, Inc.
MARY CHRIS SAYRE (34) -- Secretary. Office Manager of Undiscovered Managers, LLC
since October, 1997; formerly Assistant to Chairman and President and Special
Events Coordinator at Prentiss Properties Trust from February, 1997 to October,
1997; formerly Director of University Honors Program and Dedman College
Mentoring Program at Southern Methodist University from June, 1991 to February,
1997.
* Trustees who are "interested persons" (as defined in the Investment Company
Act of 1940) of the Trust or of the Trust's investment adviser, Undiscovered
Managers, LLC.
The address of each Trustee and officer of the Trust affiliated with
Undiscovered Managers, LLC ("Undiscovered Managers") is Plaza of the Americas,
700 North Pearl Street, Dallas, Texas 75201.
The Trust pays no compensation to its officers or to the Trustees
listed above who are officers or employees of Undiscovered Managers. Each
Trustee who is not an officer or employee of Undiscovered Managers is
compensated at the rate of $10,000 per annum. The Trust provides no pension or
retirement benefits to the Trustees but has adopted a deferred payment
arrangement under which each Trustee who is to receive fees from the Trust may
elect not to receive such fees on a current basis but to receive in a subsequent
period an amount equal to the value that such fees would have if they had been
invested in each Fund on the normal payment date for such fees. As a result of
this method of calculating the deferred payments, each Fund, upon making the
deferred payments, will be in the same financial position as if the fees had
been paid on the normal payment dates.
The following table estimates the amount of the compensation to be paid
(or deferred in lieu of current payment) by the Trust during its fiscal year
ending August 31, 1998 to the persons who are to serve as Trustees during such
period:
Aggregate Total Compensation
Compensation From Trust and
Person From Trust Fund Complex*
- ------ ----------- --------------
Mark P. Hurley $0 $0
Roger B. Keating $7,500 $7,500
Matthew J. Kiley $7,500 $7,500
Robert P. Schmermund $7,500 $7,500
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<PAGE>
* No Trustee receives any compensation from any mutual fund affiliated with
Undiscovered Managers, LLC, other than the Trust.
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OWNERSHIP OF SHARES OF THE FUNDS
- -------------------------------------------------------------------------------
As of December 16, 1997, Undiscovered Managers beneficially owned 100% of the
shares of Undiscovered Managers Small Cap Value Fund (the "Small Cap Value
Fund"), and therefore may be regarded to control such fund. Undiscovered
Managers is a limited liability company organized under the laws of Delaware
with two members, Mark P. Hurley and AMRESCO, INC., a publicly traded
corporation, each owning more than 25% of the voting securities of Undiscovered
Managers and therefore regarded to control Undiscovered Managers for purposes of
the Investment Company Act of 1940 (the "1940 Act"). As of such date no shares
of each of Undiscovered Managers All Cap Value Fund (the "All Cap Value Fund"),
Undiscovered Managers Behavioral Growth Fund (the "Behavioral Growth Fund"),
Undiscovered Managers Core Equity Fund (the "Core Equity Fund"), Undiscovered
Managers Hidden Value Fund (the "Hidden Value Fund"), Undiscovered Managers REIT
Fund (the "REIT Fund"), and Undiscovered Managers Special Small Cap Fund (the
"Special Small Cap Fund") were issued and outstanding.
-4-
<PAGE>
As of December 16, 1997 the Trustees and officers of the Trust did not
own beneficially any shares of the Funds.
- -------------------------------------------------------------------------------
INVESTMENT ADVISORY AND OTHER SERVICES
- -------------------------------------------------------------------------------
As described in the Prospectus, Undiscovered Managers is the investment
adviser of each Fund and has responsibility for the management of the Funds'
affairs, under the supervision of the Trust's Board of Trustees. Each Fund's
investment portfolio is managed on a day-to-day basis by that Fund's
sub-adviser, under the general oversight of Undiscovered Managers and the Board
of Trustees. See "Management of the Funds" in the Prospectus.
The Trust pays the compensation of its Trustees who are not officers or
employees of Undiscovered Managers; registration, filing and other fees in
connection with requirements of regulatory authorities; all charges and expenses
of its custodian and transfer agent; the charges and expenses of its independent
accountants; all brokerage commissions and transfer taxes in connection with
portfolio transactions; all taxes and fees payable to governmental agencies; the
cost of any certificates representing shares of the Funds; the expenses of
meetings of the shareholders and trustees of the Trust; the charges and expenses
of the Trust's legal counsel; interest on any borrowings by the Funds; the cost
of services, including services of counsel, required in connection with the
preparation of, and the cost of printing, the Trust's registration statements
and prospectuses, including amendments and revisions thereto, annual, semiannual
and other periodic reports of the Trust, and notices and proxy solicitation
material furnished to shareholders or regulatory authorities, to the extent that
any such materials relate to the Trust or its shareholders; and the Trust's
expenses of bookkeeping, accounting, auditing and financial reporting, including
related clerical expenses.
As described in the Prospectus, Undiscovered Managers has agreed to
certain additional, voluntary arrangements to limit each Fund's expenses. These
arrangements may be modified or terminated by Undiscovered Managers at any time.
Each Fund's advisory agreement and sub-advisory agreement provides that
it will continue in effect for two years from its date of execution and
thereafter from year to year if its continuance is approved at least annually
(i) by the Board of Trustees of the Trust or by vote of a majority of the
outstanding voting securities of the relevant Fund and (ii) by vote of a
majority of the Trustees who are not "interested persons" of the Trust,
Undiscovered Managers or the relevant sub-adviser, as that term is defined in
the 1940 Act, cast in person at a meeting called for the purpose of voting on
such approval. Any amendment to an advisory
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agreement must be approved by vote of a majority of the outstanding voting
securities of the relevant Fund and by vote of a majority of the Trustees who
are not interested persons, cast in person at a meeting called for the purpose
of voting on such approval. Any amendment to a sub-advisory agreement must be
approved by vote of a majority of the outstanding voting securities of the
relevant Fund and by vote of a majority of the Trustees who are not interested
persons, cast in person at a meeting called for the purpose of voting on such
approval, unless such approvals are no longer required by law.
The advisory agreement may be terminated without penalty by vote of the
Board of Trustees of the Trust or by vote of a majority of the outstanding
securities of the relevant Fund, upon sixty days' written notice, and by
Undiscovered Managers upon ninety days' written notice. The advisory agreement
shall automatically terminate in the event of its assignment. The advisory
agreement provides that Undiscovered Managers owns all rights to and control of
the name "Undiscovered Managers." The advisory agreement will automatically
terminate if the Trust or the Fund shall at any time be required by Undiscovered
Managers to eliminate all reference to the words "Undiscovered Managers" in the
name of the Trust or the Fund, unless the continuance of the agreement after
such change of name is approved by a majority of the outstanding voting
securities of the relevant Fund and by a majority of the Trustees who are not
interested persons of the Trust or Undiscovered Managers, cast in person at a
meeting called for the purpose of voting on such approval.
Each sub-advisory agreement may be terminated without penalty by
Undiscovered Managers, by vote of the Board of Trustees or by vote of a majority
of the outstanding voting securities of the relevant Fund, upon sixty days'
written notice, and each terminates automatically in the event of its assignment
and upon termination of the related advisory agreement. Certain of the
sub-advisory agreements may be terminated by the relevant sub-adviser in certain
circumstances.
Each advisory and sub-advisory agreement provides that Undiscovered
Managers or the applicable sub-adviser shall not be subject to any liability in
connection with the performance of its services thereunder in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties.
The Trust intends to apply for an exemptive order from the Securities
and Exchange Commission to permit Undiscovered Managers, subject to the approval
of the Trust's Board of Trustees and certain other conditions, to enter into
sub-advisory agreements with sub-advisers other than the current sub-adviser of
any Fund and amend sub-advisory agreements with sub-advisers without obtaining
shareholder approval. See "Management of the Funds" in the Prospectus.
Pursuant to an Administrative Services Agreement, Undiscovered Managers
has agreed to provide administrative services for each Fund. Undiscovered
Managers has entered into an agreement with First Data Investor Services Group,
Inc. ("First Data") for the provision of certain administrative services to the
Funds at Undiscovered Managers' expense. See "Management of the Funds" in the
Prospectus.
Custodial Arrangements. The Bank of New York (the "Custodian") is the
Trust's custodian. The Custodian holds in safekeeping certificated securities
and cash belonging to the Funds and, in such capacity, is the registered owner
of securities held in book entry form belonging
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to the Funds. Upon instruction, the Custodian receives and delivers cash and
securities of the Funds in connection with Fund transactions and collects all
dividends and other distributions made with respect to Fund portfolio
securities. The Custodian also maintains certain accounts and records of the
Funds.
Independent Accountants. The Funds' independent accountants are
Deloitte & Touche LLP. Deloitte & Touche LLP conducts an annual audit of the
Funds' financial statements, assists in the preparation of the Funds' federal
and state income tax returns and consults with the Funds as to matters of
accounting and federal and state income taxation.
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PORTFOLIO TRANSACTIONS AND BROKERAGE
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In placing orders for the purchase and sale of portfolio securities for
each Fund, each sub-adviser seeks the best price and execution. Each sub-adviser
has the ability to pay brokers or dealers commissions in excess of commissions
another broker or dealer would have charged for effecting such transaction on
the basis of receiving brokerage and research products and/or services. The
sub-advisers do not currently intend to effect transactions on such basis.
Transactions in unlisted securities are carried out through broker-dealers who
make the primary market for such securities unless, in the judgment of each
sub-adviser, a more favorable price can be obtained by carrying out such
transactions through other brokers or dealers. See "Portfolio Transactions" in
the Prospectus.
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DESCRIPTION OF THE TRUST
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The Trust, registered with the Securities and Exchange Commission (the
"SEC") as an open-end management investment company, is organized as a
Massachusetts business trust under the laws of Massachusetts by an Agreement and
Declaration of Trust dated September 29, 1997 (as amended, the "Declaration of
Trust").
The Declaration of Trust currently permits the Trustees to issue an
unlimited number of full and fractional shares of each series. Each share of
each Fund represents an equal proportionate interest in such Fund with each
other share of that Fund and is entitled to a proportionate interest in the
dividends and distributions from that Fund. The shares of each Fund do not have
any preemptive rights. Upon termination of any Fund, whether pursuant to
liquidation of the Trust or otherwise, shareholders of that Fund are entitled to
share pro rata in the net assets of that Fund available for distribution to
shareholders. The Declaration of Trust also permits the Trustees to charge
shareholders directly for custodial, transfer agency and servicing expenses.
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The assets received by each Fund for the issue or sale of its shares
and all income, earnings, profits, losses and proceeds therefrom, subject only
to the rights of creditors, are allocated to, and constitute the underlying
assets of, that Fund. The underlying assets are segregated and are charged with
the expenses with respect to that Fund and with a share of the general expenses
of the Trust. Any general expenses of the Trust that are not readily
identifiable as belonging to a particular Fund are allocated by or under the
direction of the Trustees in such manner as the Trustees determine to be fair
and equitable. While the expenses of the Trust are allocated to the separate
books of account of each Fund, certain expenses may be legally chargeable
against the assets of all Funds.
The Declaration of Trust also permits the Trustees, without shareholder
approval, to subdivide any series of shares or Fund into various sub-series of
shares with such dividend preferences and other rights as the Trustees may
designate. While the Trustees have no current intention to exercise this power,
it is intended to allow them to provide for an equitable allocation of the
impact of any future regulatory requirements which might affect various classes
of shareholders differently, or to permit shares of a series to be distributed
through more than one distribution channel, with the costs of the particular
means of distribution (or costs of related services) to be borne by the
shareholders who purchase through that means of distribution. The Trustees may
also, without shareholder approval, establish one or more additional separate
portfolios for investments in the Trust. Shareholders' investments in such an
additional portfolio would be evidenced by a separate series of shares (i.e., a
new "Fund").
The Declaration of Trust provides for the perpetual existence of the
Trust. The Trust or any Fund, however, may be terminated at any time by vote of
at least two-thirds of the outstanding shares of each Fund affected. The
Declaration of Trust further provides that the Trustees may also terminate the
Trust or any Fund upon written notice to the shareholders. As a matter of
policy, however, the Trustees will not terminate the Trust or any Fund without
submitting the matter to a vote of the shareholders of the Trust or the relevant
Fund.
Voting Rights
As summarized in the Prospectus, shareholders are entitled to one vote
for each full share held (with fractional votes for each fractional share held)
and may vote (to the extent provided in the Declaration of Trust) on the
election of Trustees and the termination of the Trust and on other matters
submitted to the vote of shareholders.
The Declaration of Trust provides that on any matter submitted to a
vote of all Trust shareholders, all Trust shares entitled to vote shall be voted
together irrespective of series or sub-series unless the rights of a particular
series or sub-series would be adversely affected by the vote, in which case a
separate vote of that series or sub-series shall be required to decide the
question. Also, a separate vote shall be held whenever required by the 1940 Act
or any rule thereunder. Rule 18f-2 under the 1940 Act provides in effect that a
class shall be deemed to be affected by a matter unless it is clear that the
interests of each class in the matter
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are substantially identical or that the matter does not affect any interest of
such class. On matters affecting an individual series, only shareholders of that
series are entitled to vote. Consistent with the current position of the SEC,
shareholders of all series vote together, irrespective of series, on the
election of Trustees and the selection of the Trust's independent accountants,
but shareholders of each series vote separately on other matters requiring
shareholder approval, such as certain changes in investment policies of that
series or the approval of the investment advisory agreement relating to that
series.
There will normally be no meetings of shareholders for the purpose of
electing Trustees except that, in accordance with the 1940 Act, (i) the Trust
will hold a shareholders' meeting for the election of Trustees at such time as
less than a majority of the Trustees holding office have been elected by
shareholders, and (ii) if, as a result of a vacancy on the Board of Trustees,
less than two-thirds of the Trustees holding office have been elected by the
shareholders, that vacancy may be filled only by a vote of the shareholders. In
addition, Trustees may be removed from office by a written consent signed by the
holders of two-thirds of the outstanding shares and filed with the Trust's
custodian or by a vote of the holders of two-thirds of the outstanding shares at
a meeting duly called for that purpose, which meeting shall be held upon the
written request of the holders of not less than 10% of the outstanding shares.
Upon written request by ten shareholders of record, who have been such
for at least six months preceding the date of such request and who hold shares
in the aggregate having a net asset value of at least one percent (1%) of the
outstanding shares, stating that such shareholders wish to communicate with the
other shareholders for the purpose of obtaining the signatures necessary to
demand a meeting to consider removal of a Trustee, the Trust has undertaken to
provide a list of shareholders or to disseminate appropriate materials (at the
expense of the requesting shareholders).
Except as set forth above, the Trustees shall continue to hold office
and may appoint successor Trustees. Voting rights are not cumulative.
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the Trust, except
(i) to change the Trust's name or to cure technical problems in the Declaration
of Trust and (ii) to establish, change or eliminate the par value of any shares
(currently all shares have no par value).
Shareholder and Trustee Liability
Under Massachusetts law shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund of
which they are shareholders. However, the Declaration of Trust disclaims
shareholder liability for acts or obligations of each Fund 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 Declaration of Trust
provides for indemnification out of assets of a Fund or assets attributable to
the particular class of a Fund for all loss and expense of any shareholder held
personally liable for the obligations of such Fund or such class. Thus, the risk
of a shareholder incurring
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financial loss on account of shareholder liability is considered remote since it
is limited to circumstances in which the disclaimer is inoperative and the Fund
itself would be unable to meet its obligations.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a Trustee against any liability to which the
Trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office. The By-Laws of the Trust provide for indemnification by the Trust of
the Trustees and officers of the Trust except with respect to any matter as to
which any such person is found after final adjudication in an action, suit or
proceeding not to have acted in good faith in the reasonable belief that such
action was in the best interests of the Trust. No officer or Trustee may be
indemnified against any liability to the Trust or the Trust's shareholders to
which such 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 his or her office.
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HOW TO BUY SHARES
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Subject to minimum initial investment requirements and certain other
conditions, an investor may make an initial purchase of shares of any Fund by
submitting a completed application form and payment to:
Undiscovered Managers Funds
4400 Computer Drive
P.O. Box 5181
Westboro, MA 01581
The procedures for purchasing shares of the Funds are summarized in "How to
Purchase Shares" in the Prospectus.
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NET ASSET VALUE
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The net asset value of the shares of each Fund is determined by
dividing that Fund's total net assets (the excess of its assets over its
liabilities) by the total number of shares of the Fund outstanding and rounding
to the nearest cent. Such determination is made as of the close of regular
trading on the New York Stock Exchange on each day on which that Exchange is
open for unrestricted trading, and no less frequently than once daily on each
day during which there is sufficient trading in a Fund's portfolio securities
that the value of that Fund's shares might be materially affected. During the 12
months following the date of this Statement of Additional Information, the New
York Stock Exchange is expected to be closed on the following weekdays: New
Year's Day, Presidents' Day, Martin Luther King, Jr. Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Equity
securities listed on an established securities exchange or on the Nasdaq
National Market System are normally valued at their last sale price on the
exchange where primarily traded or, if there is no reported sale during the day,
and in the case of over-the-counter securities not so listed, at the last bid
price. Other securities for which current market quotations are not readily
available (including restricted securities, if any) and all other assets are
taken at fair value as determined in good faith by the Board of Trustees,
although the actual calculations may be made by persons acting pursuant to the
direction of the Board.
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SHAREHOLDER SERVICES
- -------------------------------------------------------------------------------
Open Accounts
A shareholder's investment in any Fund is automatically credited to an
open account maintained for the shareholder by First Data. Following each
transaction in the account, a shareholder will receive an account statement
disclosing the current balance of shares owned and the details of recent
transactions in the account. After the close of each fiscal year First Data will
send each shareholder a statement providing federal tax information on dividends
and distributions paid to the shareholder during the year. This should be
retained as a permanent record. Shareholders will be charged a fee for duplicate
information.
The open account system permits the purchase of full and fractional
shares and, by making the issuance and delivery of certificates representing
shares unnecessary, eliminates the problems of handling and safekeeping
certificates, and the cost and inconvenience of replacing lost, stolen,
mutilated or destroyed certificates.
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The costs of maintaining the open account system are borne by the
Trust, and no direct charges are made to shareholders. Although the Trust has no
present intention of making such direct charges to shareholders, it reserves the
right to do so. Shareholders will receive prior notice before any such charges
are made.
Systematic Withdrawal Plan
A Systematic Withdrawal Plan, referred to in the Prospectus under
"Shareholder Services--Systematic Withdrawal Plan," provides for monthly,
quarterly, semiannual or annual withdrawal payments of $1000 or more from the
account of a shareholder provided that the account has a value of at least
$25,000 at the time the plan is established.
Payments will be made either to the shareholder or to any other person
designated by the shareholder. If payments are issued to an individual other
than the registered owner(s), a signature guarantee will be required on the Plan
application. Income dividends and capital gain distributions will be reinvested
at the net asset value determined as of the close of regular trading on the New
York Stock Exchange on the record date for the dividend or distribution.
Since withdrawal payments represent proceeds from liquidation of
shares, the shareholder should recognize that withdrawals may reduce and
possibly exhaust the value of the account, particularly in the event of a
decline in net asset value. Accordingly, the shareholder should consider whether
a Systematic Withdrawal Plan and the specified amounts to be withdrawn are
appropriate in the circumstances. The Trust makes no recommendations or
representations in this regard. It may be appropriate for the shareholder to
consult a tax adviser before establishing such a plan. See "Redemptions" and
"Income Dividends, Capital Gain Distributions and Tax Status" below for certain
information as to federal income taxes.
Exchange Privilege
Shareholders may redeem their shares of any Fund and have the proceeds
applied on the same day to purchase shares of any other Fund. The value of
shares exchanged must be at least $1,000 and all exchanges are subject to the
minimum investment requirement of the Fund into which the exchange is being
made. This option is summarized in the Prospectus under "Shareholder
Services--Free Exchange Privilege."
Exchanges may be effected by (1) making a telephone request by calling
1-888-242-3514, provided that a special authorization form is on file with First
Data, or (2) sending a written exchange request to First Data accompanied by an
account application for the appropriate Fund. The Trust reserves the right to
modify this exchange privilege without prior notice.
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<PAGE>
An exchange constitutes a sale of the shares for federal income tax
purposes on which the investor may realize a capital gain or loss.
IRAs
Under "Shareholder Services--Retirement Plans" the Prospectus refers to
IRAs established under a prototype plan made available by the Distributor. These
plans may be funded with shares of any Fund. All income dividends and capital
gain distributions of plan participants must be reinvested. Plan documents and
further information can be obtained from the Distributor.
Check with your financial or tax adviser as to the suitability of Fund
shares for your retirement plan.
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REDEMPTIONS
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The procedures for redemption of Fund shares are summarized in the
Prospectus under "How to Redeem Shares."
Except as noted below, signatures on redemption requests must be
guaranteed by commercial banks, trust companies, savings associations, credit
unions or brokerage firms that are members of domestic securities exchanges.
Signature guarantees by notaries public are not acceptable. However, as noted in
the Prospectus, a signature guarantee will not be required if the proceeds of
the redemption do not exceed $50,000 and the proceeds check is made payable to
the registered owner(s) and mailed to the record address.
If a shareholder selects the telephone redemption service in the manner
described in the next paragraph, Fund shares may be redeemed by making a
telephone call directly to Undiscovered Managers at 1-888-242-3514. When a
telephonic redemption request is received, the proceeds are wired to the bank
account previously chosen by the shareholder and a nominal wire fee (currently
$5.00) is deducted. Telephonic redemption requests must be received by
Undiscovered Managers prior to the close of regular trading on the New York
Stock Exchange on a day when the Exchange is open for business. Requests made
after that time or on a day when the New York Stock Exchange is not open for
business cannot be accepted by Undiscovered Managers and a new request will be
necessary.
In order to redeem shares by telephone, a shareholder must either
select this service when completing the Fund application or must do so
subsequently on the Service Options Form available from First Data. When
selecting the service, a shareholder must designate a bank account to which the
redemption proceeds should be wired. Any change in the bank account so
designated must be made by furnishing to First Data a completed Service Options
Form with a signature guarantee. Whenever the Service Options Form is used, the
shareholder's signature
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must be guaranteed as described above. Telephone redemptions may only be made if
an investor's bank is a member of the Federal Reserve System or has a
correspondent bank that is a member of the System. If the account is with a
savings bank, it must have only one correspondent bank that is a member of the
System. The Trust, Undiscovered Managers and First Data are not responsible for
the authenticity of withdrawal instructions received by telephone.
The redemption price will be the net asset value per share next
determined after the redemption request and any necessary special documentation
are received by First Data in proper form. Proceeds resulting from a written
redemption request will normally be mailed to you within seven days after
receipt of your request in good order. Telephonic redemption proceeds will
normally be wired on the first business day following receipt of a proper
redemption request. In those cases where you have recently purchased your shares
by check and your check was received less than fifteen days prior to the
redemption request, the Fund may withhold redemption proceeds until your check
has cleared.
Each Fund will normally redeem shares for cash; however, each Fund
reserves the right to pay the redemption price wholly or partly in kind if the
Board of Trustees of the Trust determines it to be advisable in the interest of
the remaining shareholders. If portfolio securities are distributed in lieu of
cash, the shareholder will normally incur brokerage commissions upon subsequent
disposition of any such securities. However, the Trust has elected to be
governed by Rule 18f-1 under the 1940 Act pursuant to which the Trust is
obligated to redeem shares solely in cash for any shareholder during any 90-day
period up to the lesser of $250,000 or 1% of the total net asset value of the
Trust at the beginning of such period.
A redemption constitutes a sale of shares for federal income tax
purposes on which the investor may realize a long- or short-term capital gain or
loss. See "Income Dividends, Capital Gain Distributions and Tax Status."
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INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS
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As described in the Prospectus under "Dividends, Capital Gain
Distributions and Taxes" it is the policy of each Fund to pay its shareholders,
as dividends, substantially all net investment income and to distribute annually
all net realized capital gains, if any, after offsetting any capital loss
carryovers.
Income dividends and capital gain distributions are payable in full and
fractional shares of the particular Fund based upon the net asset value
determined as of the close of regular trading on the New York Stock Exchange on
the record date for each dividend or distribution. Shareholders, however, may
elect to receive their income dividends or capital gain distributions, or both,
in cash. The election may be made at any time by submitting a written
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request directly to First Data. In order for a change to be in effect for any
dividend or distribution, it must be received by First Data on or before the
record date for such dividend or distribution.
As required by federal law, detailed federal tax information will be
furnished to each shareholder for each calendar year on or before January 31 of
the succeeding year.
Each Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Code and to qualify for the special tax
treatment accorded regulated investment companies and their shareholders. In
order so to qualify, the Fund must, among other things, (i) derive at least 90%
of its gross income from dividends, interest, payments with respect to certain
securities loans, gains from the sale of stock, securities or foreign
currencies, or other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; (ii) distribute with respect to each
taxable year at least 90% of the sum of its taxable net investment income, its
net tax-exempt income (if any), and the excess, if any, of net short-term
capital gains over net long-term capital losses for such year; and (iii) at the
end of each fiscal quarter maintain at least 50% of the value of its total
assets in cash, cash items (including receivables), government securities,
securities of other regulated investment companies, and other securities of
issuers which represent, with respect to each issuer, no more than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and with no more than 25% of the value of its total assets invested
in the securities (other than those of the U.S. government or other regulated
investment companies) of any one issuer or of two or more issuers which the Fund
controls and which are engaged in the same, similar or related trades and
businesses. If it qualifies for treatment as a regulated investment company, the
Fund will not be subject to federal income tax on income paid to its
shareholders in the form of dividends or capital gain distributions.
An excise tax at the rate of 4% will be imposed on the excess, if any,
of each Fund's "required distribution" over its actual distributions in any
calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its capital gain net income
recognized during the one-year period ending on October 31 plus undistributed
amounts from prior years. Each Fund intends to make distributions sufficient to
avoid imposition of the excise tax. Distributions declared by a Fund during
October, November or December to shareholders of record on a date in any such
month and paid by the Fund during the following January will be treated for
federal tax purposes as paid by the Fund and received by shareholders on
December 31 of the year in which declared.
Shareholders of each Fund will be subject to federal income taxes on
distributions made by the Fund whether received in cash or additional shares of
the Fund. Distributions by each Fund of net income and short-term capital gains,
if any, will be taxable to shareholders as ordinary income. Distributions of
long-term capital gains, if any, will be taxable to shareholders as long-term
capital gains, without regard to how long a shareholder has held
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<PAGE>
shares of the Fund. Pursuant to the Taxpayer Relief Act of 1997 (the "1997
Act"), dividends of long-term capital gains generally will be subject to a
maximum tax rate of 28% or 20% depending upon the holding period in the
portfolio investment generating the distributed gains.
Dividends and distributions on Fund shares received shortly after their
purchase, although in effect a return of capital, are subject to federal income
taxes.
In general, sales, redemptions and exchanges of each Fund's shares are
taxable events and, accordingly, shareholders may realize gains and losses on
these transactions. If shares have been held for more than one year, gain or
loss realized will be long-term capital gain or loss, provided the shareholder
holds the shares as a capital asset. Pursuant to the 1997 Act, long-term capital
gains generally will be subject to a maximum tax rate of 28% or 20% depending
upon the shareholder's holding period in Fund shares. If shares have been held
for one year or less, the gain or loss on the sale, redemption or exchange of
such shares will be treated as short-term capital gain. In general, if a
shareholder sells Fund shares at a loss within six months after purchasing the
shares, the loss will be treated as a long-term capital loss to the extent of
any long-term capital gain distributions received by the shareholder.
Furthermore, no loss will be allowed on the sale of Fund shares to the extent
the shareholder acquired other shares of the same Fund within 30 days prior to
the sale of the loss shares or 30 days after such sale.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and regulations currently in effect. For the complete
provisions, reference should be made to the pertinent Code sections and
regulations. The Code and regulations are subject to change by legislative or
administrative action.
Dividends and distributions also may be subject to state and local
taxes. Shareholders are urged to consult their tax advisers regarding specific
questions as to federal, state or local taxes.
The foregoing discussion relates solely to U.S. federal income tax law.
Non-U.S. investors should consult their tax advisers concerning the tax
consequences of ownership of shares of the Fund, including the possibility that
distributions may be subject to a 30% U.S. withholding tax (or a reduced rate of
withholding provided by treaty).
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CALCULATION OF TOTAL RETURN
- -------------------------------------------------------------------------------
Total Return with respect to a Fund is a measure of the change in value
of an investment in such Fund over the period covered, and assumes any dividends
or capital gains distributions are reinvested immediately, rather than paid to
the investor in cash. The formula for calculating total return includes four
steps: (1) adding to the total number of shares purchased through a hypothetical
$1,000 investment in the Fund all additional shares which would have been
purchased if all dividends and distributions paid or distributed during the
period had been immediately reinvested; (2) calculating the value of the
hypothetical initial investment of $1,000 as of the end of the period by
multiplying the total number of shares owned at the end of the period by the net
asset value per share on the last trading day of the period; (3) assuming
redemption at the end of the period; and (4) dividing the resulting account
value by the initial $1,000 investment.
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PERFORMANCE COMPARISONS
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Total Return. Each Fund may from time to time include its total return
information in advertisements or in information furnished to present or
prospective shareholders. Each Fund may from time to time include in
advertisements or information furnished to present or prospective shareholders
(i) the ranking of performance figures relative to such figures for groups of
mutual funds categorized by Lipper Analytical Services, Inc. or Micropal, Inc.
as having similar investment objectives, (ii) the rating assigned to the Fund by
Morningstar, Inc. based on the Fund's risk-adjusted performance relative to
other mutual funds in its broad investment class, and/or (iii) the ranking of
performance figures relative to such figures for mutual funds in its general
investment category as determined by CDA/Weisenberger's Management Results.
Lipper Analytical Services, Inc. ("Lipper") distributes mutual fund
rankings monthly. The rankings are based on total return performance calculated
by Lipper, generally reflecting changes in net asset value adjusted for
reinvestment of capital gains and income dividends. They do not reflect
deduction of any sales charges. Lipper rankings cover a variety of performance
periods, including year-to-date, 1-year, 5-year, and 10-year performance. Lipper
classifies mutual funds by investment objective and asset category.
Micropal, Inc. ("Micropal") distributes mutual fund rankings weekly and
monthly. The rankings are based upon performance calculated by Micropal,
generally reflecting changes in net asset value that can be adjusted for the
reinvestment of capital gains and dividends. If deemed appropriate by the user,
performance can also reflect deductions for sales charges. Micropal rankings
cover a variety of performance periods, including year-to-date, 1-year, 5-year
and 10-year performance. Micropal classifies mutual funds by investment
objective and asset category.
Morningstar, Inc. ("Morningstar") distributes mutual fund ratings twice
a month. The ratings are divided into five groups: highest, above average,
neutral, below average and lowest. They represent a fund's historical
risk/reward ratio relative to other funds in its broad investment class as
determined by Morningstar. Morningstar ratings cover a variety of performance
periods, including 3-year, 5-year, 10-year and overall performance. The
performance factor for the overall rating is a weighted-average return
performance (if available) reflecting deduction of expenses and sales charges.
Performance is adjusted using quantitative techniques to reflect the risk
profile of the fund. The ratings are derived from a purely quantitative system
that does not utilize the subjective criteria customarily employed by rating
agencies such as Standard & Poor's and Moody's Investors Service, Inc.
-18-
<PAGE>
CDA/Weisenberger's Management Results ("Weisenberger") publishes mutual
fund rankings and is distributed monthly. The rankings are based entirely on
total return calculated by Weisenberger for periods such as year-to-date,
1-year, 3-year, 5-year and 10-year. Mutual funds are ranked in general
categories (e.g., international bond, international equity, municipal bond, and
maximum capital gain). Weisenberger rankings do not reflect deduction of sales
charges or fees.
Performance information may also be used to compare the performance of
the Funds to certain widely acknowledged standards or indices for stock market
performance, such as those listed below.
Consumer Price Index. The Consumer Price Index, published by the U.S.
Bureau of Labor Statistics, is a statistical measure of changes, over time, in
the prices of goods and services in major expenditure groups.
Dow Jones Industrial Average. The Dow Jones Industrial Average is a
market value-weighted and unmanaged index of 30 large industrial stocks traded
on the New York Stock Exchange.
MSCI-EAFE Index. The MSCI-EAFE Index contains over 1000 stocks from 20
different countries with Japan (approximately 50%), United Kingdom, France and
Germany being the most heavily weighted.
MSCI-EAFE ex-Japan Index. The MSCI-EAFE ex-Japan Index consists of all
stocks contained in the MSCI-EAFE Index, other than stocks from Japan.
NAREIT Equity Index. The NAREIT Equity Index consists of all tax
qualified equity REITs listed on the New York Stock Exchange, American Stock
Exchange and NASDAQ National Market System.
Russell 2000 Index. The Russell 2000 Index is comprised of the 2000
smallest of the 3000 largest U.S.-domiciled corporations, ranked by market
capitalization.
Standard & Poor's/Barra Growth Index. The Standard & Poor's/Barra
Growth Index is constructed by ranking the securities in the S&P 500 by
price-to-book ratio and including the securities with the highest price-to-book
ratios that represent approximately half of the market capitalization of the S&P
500.
Standard & Poor's/Barra Value Index. The Standard & Poor's/Barra Value
Index is constructed by ranking the securities in the S&P 500 by price-to-book
ratio and including the securities with the lowest price-to-book ratios that
represent approximately half of the market capitalization of the S&P 500.
Standard & Poor's 500 Composite Stock Price Index (the "S&P 500"). The
S&P 500 is a market value-weighted and unmanaged index showing the changes in
the aggregate
-19-
<PAGE>
market value of 500 stocks relative to the base period 1941-43. The S&P 500 is
composed almost entirely of common stocks of companies listed on the New York
Stock Exchange, although the common stocks of a few companies listed on the
American Stock Exchange or traded over-the-counter are included. The 500
companies represented include 400 industrial, 60 transportation and 40 financial
services concerns. The S&P 500 represents about 80% of the market value of all
issues traded on the New York Stock Exchange. The S&P 500 is the most common
index for the overall U.S. stock market.
From time to time, articles about the Funds regarding performance,
rankings and other characteristics of the Funds may appear in publications
including, but not limited to, the publications included in Appendix A. In
particular, some or all of these publications may publish their own rankings or
performance reviews of mutual funds, including the Funds. References to or
reprints of such articles may be used in the Funds' promotional literature.
References to articles regarding personnel of the sub-advisers who have
portfolio management responsibility may also be used in the Funds' promotional
literature. For additional information about the Funds' advertising and
promotional literature, see Appendix B.
-20-
<PAGE>
EXPERTS
The statement of assets and liabilities of Undiscovered Managers Funds
as of December 16, 1997 appearing in this Statement of Additional Information
have been audited by Deloitte & Touche LLP, independent auditors, as set forth
in their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholder of
Undiscovered Managers Small Cap Value Fund
(one of the series comprising Undiscovered
Managers Funds)
We have audited the accompanying statement of assets and liabilities of
Undiscovered Managers Small Cap Value Fund (one of the series comprising
Undiscovered Managers Funds) as of December 16, 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 statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such statement of assets and liabilities presents fairly, in all
material respects, the financial position of Undiscovered Managers Small Cap
Value Fund series of Undiscovered Managers Funds as of December 16, 1997 in
conformity with generally accepted accounting principles.
December 17, 1997
-21-
<PAGE>
UNDISCOVERED MANAGERS SMALL CAP VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
December 16, 1997
ASSETS:
Cash $100,000
Deferred organization expenses (Note 2) 22,000
--------
Total assets 122,000
LIABILITIES -- Accrued organization expenses 22,000
--------
NET ASSETS (applicable to 8,000 shares of beneficial interest
issued and outstanding) $100,000
========
NET ASSET VALUE AND OFFERING PRICE PER SHARE $ 12.50
========
NOTES:
(1) Undiscovered Managers Funds, a Massachusetts business trust (the "Trust"),
established and designated the Undiscovered Managers Small Cap Value Fund
(the "Fund") as a separate series on December 4, 1997. The Fund has been
inactive since that date, except for matters relating to the Fund's
establishment, the designation and the registration under the Securities
Act of 1933 of the Fund's shares of beneficial interest ("Shares"), the
sale of Undiscovered Managers Small Cap Value Fund Shares ("Initial
Shares") to Undiscovered Managers, LLC.
(2) Organization expenses are being deferred and will be amortized on a
straight line basis over a period not to exceed five years, commencing on
the effective date of the Fund's initial offering of its shares. The amount
paid by the Fund on any withdrawal by the holder of the Initial Shares of
any of the respective initial interests will be reduced by a portion of any
unamortized organization expenses, determined by the proportion of the
amount of the initial interests withdrawn to the initial interests then
outstanding.
<PAGE>
APPENDIX A
PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION
ABC and affiliates Dow Jones News Service
Adam Smith's Money World Economist
America On Line FACS of the Week
Anchorage Daily News Fee Adviser
Atlanta Constitution Financial News Network
Atlanta Journal Financial Planning
Arizona Republic Financial Planning on Wall Street
Austin American Statesman Financial Research Corp.
Baltimore Sun Financial Services Week
Bank Investment Marketing Financial World
Barron's Fitch Insights
Bergen County Record (NJ) Forbes
Bloomberg Business News Fort Worth Star-Telegram
Bond Buyer Fortune
Boston Business Journal Fox Network and affiliates
Boston Globe Fund Action
Boston Herald Fund Decoder
Broker World Global Finance
Business Radio Network (the) Guarantor
Business Week Hartford Courant
CBS and affiliates Houston Chronicle
CDA Investment Technologies INC
CFO Indianapolis Star
Changing Times Individual Investor
Chicago Sun Times Institutional Investor
Chicago Tribune International Herald Tribune
Christian Science Monitor Internet
Christian Science Monitor News Service Investment Advisor
Cincinnati Enquirer Investment Company Institute
Cincinnati Post Investment Dealers Digest
CNBC Investment Profiles
CNN Investment Vision
Columbus Dispatch Investor's Daily
CompuServe IRA Reporter
Dallas Morning News Journal of Commerce
Dallas Times-Herald Kansas City Star
Denver Post KCMO (Kansas City)
Des Moines Register KOA-AM (Denver)
Detroit Free Press LA Times
Donoghues Money Fund Report Leckey, Andrew (syndicated column)
Dorman, Dan (syndicated column) Life Association News
A-1
<PAGE>
Lifetime Channel Seattle Post-Intelligencer
Miami Herald Seattle Times
Milwaukee Sentinel Securities Industry Management
Money Magazine Smart Money
Money Maker St. Louis Post Dispatch
Money Management Letter St. Petersburg Times
Morningstar Standard & Poor's Outlook
Mutual Fund Market News Standard & Poor's Stock Guide
Mutual Funds Magazine Stanger's Investment Advisor
National Public Radio Stockbroker's Register
National Underwriter Strategic Insight
NBC and affiliates Tampa Tribune
New England Business Time
New England Cable News Tobias, Andrew (syndicated column)
New Orleans Times-Picayune Toledo Blade
New York Daily News UP
New York Times US News and World Report
Newark Star Ledger USA Today
Newsday USA TV Network
Newsweek Value Line
Nightly Business Report Wall Street Journal
Orange County Register Wall Street Letter
Orlando Sentinel Wall Street Week
Palm Beach Post Washington Post
Pension World WBZ
Pensions and Investments WBZ-TV
Personal Investor WCVB-TV
Philadelphia Inquirer WEEI
Porter, Sylvia (syndicated column) WHDH
Portland Oregonian Worcester Telegram
Prodigy Public Broadcasting Service World Wide Web
Quinn, Jane Bryant (syndicated column) Worth Magazine
Registered Representative WRKO
Research Magazine
Resource
Reuters
Rocky Mountain News
Rukeyser's Business (syndicated column)
Sacramento Bee
San Diego Tribune
San Francisco Chronicle
San Francisco Examiner
San Jose Mercury
A-2
<PAGE>
APPENDIX B
ADVERTISING AND PROMOTIONAL LITERATURE
Undiscovered Managers Funds' advertising and promotional material may include,
but is not limited to, discussions of the following information:
o Undiscovered Managers Funds' participation in wrap fee and no
transaction fee programs
o Characteristics of the various sub-advisers, including the locations of
offices, investment practices and clients
o Specific and general investment philosophies, strategies, processes and
techniques
o Specific and general sources of information, economic models, forecasts
and data services utilized, consulted or considered in the course of
providing advisory or other services
o Industry conferences at which the various sub-advisers participate
o Current capitalization, levels of profitability and other financial
information
o Identification of portfolio managers, researchers, economists,
principals and other staff members and employees
o The specific credentials of the above individuals, including but not
limited to, previous employment, current and past positions, titles and
duties performed, industry experience, educational background and
degrees, awards and honors
o Specific identification of, and general reference to, current
individual, corporate and institutional clients, including pension and
profit sharing plans
o Current and historical statistics relating to:
-total dollar amount of assets managed
-Undiscovered Managers Funds' assets managed in total and by Fund
-the growth of assets
-asset types managed
References may be included in Undiscovered Managers Funds' advertising
and promotional literature about 401(k) and retirement plans that offer the
Funds. The information may include, but is not limited to:
o Specific and general references to industry statistics regarding 401(k)
and retirement
B-1
<PAGE>
plans including historical information and industry trends and
forecasts regarding the growth of assets, numbers or plans, funding
vehicles, participants, sponsors and other demographic data relating to
plans, participants and sponsors, third party and other administrators,
benefits consultants and firms with whom Undiscovered Managers Funds
may or may not have a relationship.
o Specific and general reference to comparative ratings, rankings and
other forms of evaluation as well as statistics regarding the Funds as
401(k) or retirement plan funding vehicles produced by industry
authorities, research organizations and publications.
B-2
<PAGE>
UNDISCOVERED MANAGERS FUNDS
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(A) (1) Statement of Assets and Liabilities -- included in the
Statement of Additional Information filed herewith.
(B) Exhibits
1. Amended and Restated Agreement and Declaration of
Trust of Undiscovered Managers Funds (the "Trust") is
filed herewith.
2. By-Laws of the Trust are filed herewith.
3. None.
4. None.
5. (a) Form of Management Agreement between the
Trust and Undiscovered Managers, LLC
("Undiscovered Managers") -- Incorporated by
reference to the Registrant's Registration
Statement on Form N-1A.
(b) Form of Sub-Advisory Agreements between
Undiscovered Managers and each sub-adviser
relating to each series of the Trust.
(i) Undiscovered Managers All Cap Value
Fund (the "All Cap Value Fund"):
E.R. Taylor Investments, Inc.
("E.R. Taylor") -- Incorporated by
reference to the Registrant's
Registration Statement on
Form N1-A.
(ii) Undiscovered Managers Behavioral
Growth Fund (the "Behavioral Growth
Fund"): RJF Asset Management, Inc.
("RJF Management") -- Incorporated
by reference to the Registrant's
Registration Statement on
Form N1-A.
(iii) Undiscovered Managers Core Equity
Fund (the "Core Equity Fund"):
Waite & Associates, L.L.C. ("Waite
& Associates") -- Incorporated by
reference to the Registrant's
Registration Statement on
Form N1-A.
(iv) Undiscovered Managers Hidden Value
Fund (the "Hidden Value Fund") and
Undiscovered Managers Small Cap
Value Fund (the "Small Cap Value
Fund"): J.L. Kaplan Associates, LLC
("Kaplan Associates") are filed
herewith.
(v) Undiscovered Managers REIT Fund
(the "REIT Fund"): Bay Isle
Financial Corporation ("Bay Isle")
-- Incorporated by
reference to the Registrant's
Registration Statement on
Form N1-A.
(vi) Undiscovered Managers Special Small
Cap Fund (the "Special Small Cap
Fund"): Kestrel Investment
Management Corporation ("Kestrel
Management") -- Incorporated by
reference to the Registrant's
Registration Statement on
Form N1-A.
6. Form of Distribution Agreement between the Trust and
First Data Distributors, Inc. is filed herewith.
-1-
<PAGE>
7. Form of Custodian Agreement between the Trust and
The Bank of New York is filed herewith.
8. (a) Form of Transfer Agency and Services
Agreement between the Trust and First Data
Investor Services Group, Inc. ("First
Data") is filed herewith.
(b) Form of Organizational Expense Reimbursement
Agreement between the Trust and Undiscovered
Managers is filed herewith.
(c) Form of Expense Deferral Agreement between
the Trust and Undiscovered Managers relating
to each series of the Trust is filed
herewith.
(d) Form of Administrative Services Agreement
between the Trust and Undiscovered Managers
is filed herewith.
(e) Form of Sub-Administration Agreement between
Undiscovered Managers and First Data is
filed herewith.
9. Opinion and Consent of Counsel is filed herewith.
10. Consents of Independent Accountants are filed
herewith.
(a) Consent of KPMG Peat Marwick LLP.
(b) Consent of Deloitte & Touche LLP.
11. None.
12. Investment Representation Letter is filed herewith.
13. None.
14. None.
15. None.
16. None.
17. None.
18. Powers of Attorney for each of Roger B. Keating,
Matthew J. Kiley and Robert P. Schmermund,
designating Mark P. Hurley, John J. Burke III, Mary
Chris Sayre and Neil Forrest, are filed herewith.
-2-
<PAGE>
Item 25. Persons Controlled by or Under Common Control with the Trust
None.
Item 26. Number of Holders of Securities
The following table sets forth the number of record holders of each
series of the Trust as of December __, 1997.
Title of Series Number of Record Holders
--------------- ------------------------
All Cap Value Fund 0
Behavioral Growth Fund 0
Core Equity Fund 0
Hidden Value Fund 0
REIT Fund 0
Small Cap Value Fund 1
Special Small Cap Fund 0
Item 27. Indemnification
Article VIII of the Trust's Agreement and Declaration of
Trust (Exhibit 1 hereto) and Article 4 of the Trust's
By-Laws (Exhibit 2 hereto) provides for indemnification of
its Trustees and officers. The effect of these provisions
is to provide indemnification for each of the Trust's
Trustees and officers against liabilities and counsel fees
reasonably incurred in connection with the defense of any
legal proceeding in which such Trustee or officer may be
involved by reason of being or having been a Trustee or
officer, except with respect to any matter as to which
such Trustee of officer shall have been adjudicated not to
have acted in good faith in the reasonable belief that
such Trustee's or officer's action was in the best
interest of the Trust, and except that no Trustee or
officer shall be indemnified against any liability to the
Trust or its shareholders to which such Trustee or officer
otherwise would be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such
Trustee's or officer's office.
-3-
<PAGE>
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted to
Trustees, officers and controlling persons of the Trust
pursuant to the foregoing provisions, or otherwise, the
Trust 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 Trust of expenses incurred or paid by a
Trustee, officer or controlling person of the Trust 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 Trust
will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such
indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
(a) Undiscovered Managers is the investment adviser to all series of the
Trust, and its business is summarized in "Management of the Funds" in
the Prospectus. Undiscovered Managers' Management Committee members and
officers have been engaged during the past two fiscal years in the
following businesses, professions, vocations or employments of a
substantial nature (former affiliations are marked with an asterisk):
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
Undiscovered Managers Other Affiliations Connection
- --------------------- ------------------ ----------
<S> <C> <C>
Mark P. Hurley *Merrill Lynch & Company Managing Director
President, Chief 250 Vesey Street
Executive World Financial Center
Officer and New York, New York 10281
Management
Committee Member *Goldman, Sachs & Co. Vice President
100 Crescent Court
Suite 1000
Dallas, Texas 75201
Robert L. Adair III AMRESCO, INC. President
Management Committee Plaza of the Americas
Member 700 North Pearl Street
Dallas, Texas 75201
Randolph E. Brown AMRESCO, INC. Senior Vice President
Management Committee
Member
Barry L. Edwards AMRESCO, INC. Executive Vice President
Management Committee and Chief Financial Officer
Member
Robert H. Lutz, Jr. Amresco Advisors, Inc. Director
Management Committee Plaza of the Americas
Member 700 North Pearl Street
Dallas, Texas 75201
Thomas F. O'Toole Principal Financial Securities Consultant; formerly
Management Committee Fountain Place Chairman, President and
Member 1445 Ross Avenue, Suite 2300 Chief Executive Officer
Dallas, Texas 75202
Harris Weinstein Covington & Burling Partner
Management Committee 1201 Pennsylvania Avenue
Member 8th Floor
Washington, D.C. 20004
</TABLE>
-4-
<PAGE>
(b) E.R. Taylor is the sub-adviser to the All Cap Value Fund, and its
business is summarized in "The Funds" and "Management of the Funds" in
the Prospectus. E.R. Taylor's directors and officers have been engaged
during the past two fiscal years in the following businesses,
professions, vocations or employments of a substantial nature:
Name and Office with Name and Address of Nature of
E.R. Taylor Other Affiliations Connection
----------- ------------------ ----------
Sherwood T. Small None None
President
Martha E. Cottrill None None
Vice President
Kenneth E. DeWitt None None
Vice President
John S. Tamagni Lazard Freres & Co. LLC Managing Director
Director One Rockefeller Plaza
New York, NY 10020
Salvatore J. Cozzolino None None
Director
C. Michael Hazard Westfield Capital CEO & Chairman
Director Management of the Board
One Financial Center
Boston, MA 02111
John C. Hou Prince Capital President
Director Management, LLC
240 Madison Avenue
New York, NY 10016
(c) RJF Management is the sub-adviser to the Behavioral Growth Fund, and
its business is summarized in "The Funds" and "Management of the Funds"
in the Prospectus. RJF Management's directors and officers have been
engaged during the past two fiscal years in the following businesses,
professions, vocations or employments of a substantial nature:
-5-
<PAGE>
Name and Office with Name and Address of Nature of
RJF Management Other Affiliations Connection
-------------- ------------------ ----------
Russell J. Fuller Fuller Partners, Ltd. General Partner
Director and President 1300 S. El Camino Real
Suite 504
San Mateo, CA 94402
Anne Fuller San Francisco Society of Education Director
Director Security Analysts
P.O. Box 27278
San Francisco, CA 94127
John L. Kling Fuller Partners, Ltd. General Partner
Vice President
Washington State Professor of Finance
University
Department of Finance
Todd Hall
483 College of Business
and Economics
Pullman, Washington 99164
Joanne S. Ott None None
Vice President
Frederick W. Stanske *Hexcel Corporation Director
Vice President 2 Stamford Plaza
Stamford, Connecticut 06901
(d) Waite & Associates is the sub-adviser to the Core Equity Fund and its
business is summarized in "The Funds" and "Management of the Funds" in
the Prospectus. Waite & Associates' officers have been engaged during
the past two fiscal years in the following businesses, professions,
vocations or employments of a substantial nature:
-6-
<PAGE>
Name and Office with Name and Address of Nature of
Waite & Associates Other Affiliations Connection
----------- ------------------ ----------
Leslie A. Waite None None
President
Peter D. Tamny None None
Managing Director
Peter C. Brockett None None
Managing Director
Patrick Westmoreland None None
Managing Director
(e) Kaplan Associates is the sub-adviser to the Hidden Value Fund and Small
Cap Value Fund and its business is summarized in "The Funds" and
"Management of the Funds" in the Prospectus. The following persons
affiliated with Kaplan Associates have been engaged during the past two
fiscal years in the following businesses, professions, vocations or
employments of a substantial nature:
Name and Office with Name and Address of Nature of
Kaplan Associates Other Affiliations Connection
----------- ------------------ ----------
James L. Kaplan None None
Member
Paul Weisman None None
Portfolio Manager
(f) Bay Isle is the sub-adviser to the REIT Fund, and its business is
summarized in "The Funds" and "Management of the Funds" in the
Prospectus. Bay Isle's directors and officers have been engaged during
the past two fiscal years in the following businesses, professions,
vocations or employments of a substantial nature (former affiliations
are marked with an asterisk):
-7-
<PAGE>
Name and Office with Name and Address of Nature of
Bay Isle Other Affiliations Connection
----------- ------------------ ----------
Gary Pollock None None
Director and President
William Schaff None None
Director and
Chief Investment Officer
Ralph L. Block *Graven, Perry, Block, Partner
Director Brody & Qualls
523 West 6th Street
Suite 1130
Los Angeles, CA 90014
(g) Kestrel Management is the sub-adviser to the Special Small Cap Fund,
and its business is summarized in "The Funds" and "Management of the
Funds" in the Prospectus. Kestrel Management's directors and officers
have been engaged during the past two fiscal years in the following
businesses, professions, vocations or employments of a substantial
nature:
Name and Office with Name and Address of Nature of
Kestrel Management Other Affiliations Connection
- ------------------ ------------------ ----------
Abbott J. Keller None None
Director and President
David J. Steirman None None
Director and
Chief Investment Officer
Item 29.
Not Applicable.
-8-
<PAGE>
Item 30. Location of Accounts and Records
Persons maintaining physical possession of 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 are the Trust's Secretary, Mary Chris Sayre; the
Trust's investment adviser, Undiscovered Managers; the Trust's
custodian, The Bank of New York; and the Trust's transfer
agent, First Data. The address of the Secretary and the
investment adviser is Plaza of the Americas, 700 North Pearl
Street, Dallas, Texas 75201; the address of the
custodian is 48 Wall Street, New York, New York 10286; and the
address of the transfer agent is 4400 Computer Drive,
Westboro, Massachusetts 01581.
Item 31. Management Services
None.
Item 32. Undertakings
(a) The undersigned Trust hereby undertakes to call a
meeting of shareholders for the purpose of voting on
the removal of a trustee or trustees when requested in
writing to do so by the holders of at least 10% of the
Trust's outstanding voting securities and in connection
with such meeting to comply with the provisions of
Section 16(c) of the Investment Company Act of 1940
relating to shareholder communications.
(b) The Trust hereby undertakes to furnish each person to
whom a prospectus is delivered with a copy of the
Trust's latest Annual Report to shareholders upon
request and without charge.
(c) The Trust hereby undertakes to file a post-effective
amendment to this Registration Statement on Form N-1A,
using financial statements which need not be certified,
within four to six months from the effective date of
this Registration Statement.
NOTICE
A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of State of The Commonwealth of Massachusetts and notice
is hereby given that this instrument is executed on behalf of the Trust by an
officer of the Trust as an officer and not individually and the obligations of
or arising out 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 Trust.
-9-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
Trust has duly caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Dallas and state of
Texas on the 17th day of December, 1997.
UNDISCOVERED MANAGERS FUNDS
By: /s/ Mark P. Hurley
------------------------------
Mark P. Hurley
Title: President
Pursuant to the Securities Act of 1933, this registration statement has
been signed below by the following persons in the capacities and on the dates
indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Mark P. Hurley President December 17, 1997
- ------------------------- and Trustee
Mark P. Hurley
/s/ * Trustee December 17, 1997
- ------------------------
Roger B. Keating
/s/ * Trustee December 17, 1997
- ------------------------
Matthew J. Kiley
/s/ * Trustee December 17, 1997
- ------------------------
Robert P. Schmermund
*Signed by Mark P. Hurley as Attorney-In-Fact
-10-
<PAGE>
UNDISCOVERED MANAGERS FUNDS
Index to Exhibits
Exhibit No.
-----------
Description
-----------
99.1 Amended and Restated Agreement and Declaration of Trust of
the Trust.
99.2 By-Laws of the Trust.
99.5(b) Form of Sub-Advisory Agreements between Undiscovered Managers
and Kaplan Associates relating to the following funds:
(1) Hidden Value Fund.
(2) Small Cap Value Fund.
99.6 Form of Distribution Agreement between the Trust and First
Data Distributors, Inc.
99.8 Form of Custodian Agreement between the Trust and The Bank
of New York.
99.9(a) Form of Transfer Agency and Services Agreement between the
Trust and First Data.
99.9(b) Form of Organizational Expense Reimbursement Agreement
between the Trust and Undiscovered Managers.
99.9(c) Form of Expense Deferral Agreement between the Trust and
Undiscovered Managers relating to each series of the Trust.
99.9(d) Form of Administrative Services Agreement between the Trust
and Undiscovered Managers.
99.9(e) Form of Sub-Administration Agreement between Undiscovered
Managers and First Data.
99.10 Opinion and Consent of Counsel.
99.11(a) Consent of KPMG Peat Marwick LLP.
99.11(b) Consent of Deloitte & Touche LLP.
99.13 Investment Representation Letter.
99.19 Powers of Attorney for each of Roger B. Keating, Matthew J.
Kiley and Robert P.Schmermund, designating Mark P. Hurley,
John J. Burke III, Mary Chris Sayre and Neil Forrest.
EXHIBIT 99.1:
-------------
AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST OF THE TRUST.
<PAGE>
UNDISCOVERED MANAGERS FUNDS
AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST
THIS AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST made this
3rd day of December, 1997 by the Trustees hereunder and by the holders of shares
of beneficial interest issued hereunder and to be issued hereunder as
hereinafter provided, amending and restating the Agreement and Declaration of
Trust dated September 29, 1997 (the "Original Declaration of Trust"):
WITNESSETH that
WHEREAS, this Trust has been formed to carry on the business of an
investment company; and
WHEREAS, the Trustees have agreed to manage all property coming into
their hands as trustees of a Massachusetts voluntary association with
transferable shares in accordance with the provisions hereinafter set forth;
NOW, THEREFORE, the Trustees hereby amend and restate the Original
Declaration of Trust to read in its entirety as follows and do hereby declare
that they will hold all cash, securities and other assets, which they may from
time to time acquire in any manner as Trustees hereunder, IN TRUST to manage and
dispose of the same upon the following terms and conditions for the benefit of
the holders from time to time of Shares in this Trust as hereinafter set forth.
ARTICLE I
Name and Definitions
Name
Section 1. This Trust shall be known as "Undiscovered Managers Funds",
and the Trustees shall conduct the business of the Trust under that name or any
other name as they may from time to time determine.
Definitions
Section 2. Whenever used herein, unless otherwise required by the
context or specifically provided:
(a) "Trust" refers to the Massachusetts business trust established by
this Agreement and Declaration of Trust, as amended from time to time;
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(b) "Trustees" refers to the Trustees of the Trust elected in
accordance with Article IV hereof;
(c) "Shares" means the equal proportionate transferable units of
interest into which the beneficial interest in the Trust shall be
divided from time to time or, if more than one series or class of
Shares is authorized by the Trustees, the equal proportionate
transferable units into which each series or class of Shares shall be
divided from time to time;
(d) "Shareholder" means a record owner of Shares;
(e) "1940 Act" refers to the Investment Company Act of 1940 and the
Rules and Regulations thereunder, all as amended from time to time;
(f) The terms "Affiliated Person", "Assignment", "Commission",
"Interested Person", "Principal Underwriter" and "Majority Shareholder
Vote" (the sixty-seven percent (67%) or fifty percent (50%) requirement
of the third sentence of Section 2(a)(42) of the 1940 Act, whichever
may be applicable) shall have the meanings given them in the 1940 Act;
(g) "Declaration of Trust" shall mean this Agreement and Declaration of
Trust, as amended or restated from time to time;
(h) "By-Laws" shall mean the By-Laws of the Trust, as amended from time
to time;
(i) "Series" or "Series of Shares" refers to the one or more separate
investment portfolios of the Trust into which the assets and
liabilities of the Trust may be divided and the Shares of the Trust
representing the beneficial interest of Shareholders in such respective
portfolios; and
(j) "Class" or "Class of Shares" refers to the division of Shares
representing any Series into two or more Classes as provided in Article
III, Section 1 hereof.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to provide investors a managed investment
primarily in securities, debt instruments and other instruments and rights of a
financial character and to carry on such other business as the Trustees may from
time to time determine pursuant to their authority under this Declaration of
Trust.
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ARTICLE III
Shares
Division of Beneficial Interest
Section 1. The Shares of the Trust shall be issued in one or more
Series as the Trustees may, without shareholder approval, authorize. Each Series
shall be preferred over all other Series in respect of the assets specifically
allocated to that Series within the meaning of the 1940 Act and shall represent
a separate investment portfolio of the Trust. The beneficial interest in each
Series shall at all times be divided into Shares, without par value, each of
which shall, except as provided in the following sentence, represent an equal
proportionate interest in the Series with each other Share of the same Series,
none having priority or preference over another. The Trustees may, without
Shareholder approval, divide the Shares of any Series into two or more Classes,
Shares of each such Class having such preferences and special or relative rights
and privileges (including conversion rights, if any) as the Trustees may
determine or as shall be set forth in the By-Laws. The number of Shares
authorized shall be unlimited. The Trustees may from time to time divide or
combine the Shares of any Series or Class into a greater or lesser number
without thereby changing the proportionate beneficial interest in the Series or
Class.
Ownership of Shares
Section 2. The ownership of Shares shall be recorded on the books of
the Trust or a transfer or similar agent. No certificates certifying the
ownership of Shares shall be issued except as the Trustees may otherwise
determine from time to time. The Trustees may make such rules as they consider
appropriate for the issuance of Share certificates, the transfer of Shares and
similar matters. The record books of the Trust as kept by the Trust or any
transfer or similar agent, as the case may be, shall be conclusive as to who are
the Shareholders of each Series and Class and as to the number of Shares of each
Series and Class held from time to time by each Shareholder.
Investment in the Trust
Section 3. The Trustees shall accept investments in the Trust from such
persons and on such terms and for such consideration, which may consist of cash
or tangible or intangible property or a combination thereof, as they or the
By-Laws from time to time authorize.
All consideration received by the Trust for the issue or sale of Shares
of each Series, together with all income, earnings, profits and proceeds
thereof, including any proceeds derived from the sale, exchange or liquidation
thereof, and any funds or payments derived from any reinvestment of such
proceeds in whatever form the same
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may be, shall irrevocably belong to the Series of Shares with respect to which
the same were received by the Trust for all purposes, subject only to the rights
of creditors, and shall be so handled upon the books of account of the Trust and
are herein referred to as "assets of" such Series.
No Preemptive Rights
Section 4. Shareholders shall have no preemptive or other right to
subscribe to any additional Shares or other securities issued by the Trust.
Derivative Claims
Section 5. No Shareholder shall have the right to bring or maintain any
court action, proceeding or claim on behalf of the Trust or any Series without
first making demand on the Trustees requesting the Trustees to bring or maintain
such action, proceeding or claim. Such demand shall be excused only when the
plaintiff makes a specific showing that irreparable injury to the Trust or
Series would otherwise result. Such demand shall be mailed to the Secretary of
the Trust at the Trust's principal office and shall set forth in reasonable
detail the nature of the proposed court action, proceeding or claim and the
essential facts relied upon by the Shareholder to support the allegations made
in the demand. The Trustees shall consider such demand within 45 days of its
receipt by the Trust. In their sole discretion, the Trustees may submit the
matter to a vote of Shareholders of the Trust or Series, as appropriate. Any
decision by the Trustees to bring, maintain or settle (or not to bring, maintain
or settle) such court action, proceeding or claim, or to submit the matter to a
vote of Shareholders, shall be made by the Trustees in their business judgment
and shall be binding upon the Shareholders. Any decision by the Trustees to
bring or maintain a court action, proceeding or suit on behalf of the Trust or a
Series shall be subject to the right of the Shareholders under Article V,
Section 1 hereof to vote on whether or not such court action, proceeding or suit
should or should not be brought or maintained.
Status of Shares and Limitation of Personal Liability
Section 6. Shares shall be deemed to be personal property giving only
the rights provided in this Declaration of Trust or the By-Laws. Every
Shareholder by virtue of having become a Shareholder shall be held to have
expressly assented and agreed to the terms of this Declaration of Trust and the
By-Laws and to have become a party hereto. The death of a Shareholder during the
continuance of the Trust shall not operate to terminate the same nor entitle the
representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but such
representative shall be entitled only to the rights of said decedent under this
Declaration of Trust. Ownership of Shares shall not entitle the Shareholder to
any title in or to the whole or any part of the Trust property or right to call
for a partition or
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division of the same or for an accounting, nor shall the ownership of Shares
constitute the Shareholders partners. Neither the Trust nor the Trustees, nor
any officer, employee or agent of the Trust, shall have any power to bind
personally any Shareholder, nor except as specifically provided in this
Declaration of Trust to call upon any Shareholder for the payment of any sum of
money or assessment whatsoever other than such as the Shareholder may at any
time personally agree to pay.
ARTICLE IV
The Trustees
Election, Tenure and Removal
Section 1. The Trustees may fix the number of Trustees, fill vacancies
in the Trustees, including vacancies arising from an increase in the number of
Trustees, or remove Trustees with or without cause. Each Trustee shall serve
during the continued lifetime of the Trust until he or she dies, resigns or is
removed, or, if sooner, until the next meeting of Shareholders called for the
purpose of electing Trustees and until the election and qualification of his or
her successor. Any Trustee may resign at any time by written instrument signed
by him or her and delivered to any officer of the Trust or to a meeting of the
Trustees. Such resignation shall be effective upon receipt unless specified to
be effective at some other time. Except to the extent expressly provided in a
written agreement with the Trust, no Trustee resigning and no Trustee removed
shall have any right to any compensation for any period following his or her
resignation or removal, or any right to damages on account of such removal. The
Shareholders may fix the number of Trustees and elect Trustees at any meeting of
Shareholders called by the Trustees for that purpose and to the extent required
by applicable law, including paragraphs (a) and (b) of Section 16 of the 1940
Act.
No natural person shall serve as Trustee after the holders of record of
not less than two-thirds of the outstanding Shares have declared that such
Trustee be removed from that office either by declaration in writing filed with
the Trust's custodian or by votes cast in person or by proxy at a meeting called
for the purpose. The Trustees shall promptly call a meeting of Shareholders for
the purpose of voting upon the question of removal of any Trustee when requested
to do so in writing by the record holders of not less than ten percent (10%) of
the outstanding Shares.
Whenever ten or more Shareholders of record, who have been such for at
least six months preceding the date of application and who hold Shares in the
aggregate having a net asset value of at least one percent (1%) of the
outstanding Shares, shall apply to the Trustees in writing, stating that they
wish to communicate with other Shareholders with a view to obtaining signatures
to request a meeting pursuant to this Section and accompanied by a form of
communication and request which they wish to transmit, the Trustees shall within
five business days after receipt of such application either (a) afford
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to such applicants access to a list of the names and addresses of all
Shareholders as recorded on the books of the Trust; or (b) inform such
applicants as to the approximate cost of mailing to all Shareholders the
proposed communication and form of request. If the Trustees elect to follow the
course specified in clause (b), the Trustees, upon the written request of such
applicants, accompanied by a tender of the material to be mailed and of the
reasonable expenses of mailing, shall, with reasonable promptness, mail such
material to all Shareholders of record at their addresses as recorded on the
books of the Trust, unless within five business days after such tender the
Trustees shall mail to such applicants and file with the Commission, together
with a copy of the material proposed to be mailed, a written statement signed by
at least a majority of the Trustees to the effect that in their opinion either
such material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or would be
in violation of applicable law, and specifying the basis of such opinion. If the
Commission shall enter an order refusing to sustain any of the objections
specified in the written statement so filed, or if, after the entry of an order
sustaining one or more of such objections, the Commission shall find, after
notice and opportunity for hearing, that all objections so sustained have been
met, and shall enter an order so declaring, the Trustees shall mail copies of
such material to all Shareholders with reasonable promptness after the entry of
such order and the renewal of such tender.
Effect of Death, Resignation, etc. of a Trustee
Section 2. The death, declination, resignation, retirement, removal or
incapacity of the Trustees, or any one of them, shall not operate to annul the
Trust or to revoke any existing agency created pursuant to the terms of this
Declaration of Trust.
Powers
Section 3. Subject to the provisions of this Declaration of Trust, the
business of the Trust shall be managed by the Trustees, and they shall have all
powers necessary or convenient to carry out that responsibility. Without
limiting the foregoing, the Trustees may adopt By-Laws not inconsistent with
this Declaration of Trust providing for the regulation and management of the
affairs of the Trust and may amend and repeal them to the extent that such
By-Laws do not reserve that right to the Shareholders; they may fill vacancies,
including vacancies caused by enlargement of their number, and may remove
Trustees with or without cause; they may elect and remove, with or without
cause, such officers and appoint and terminate such agents as they consider
appropriate; they may appoint from their own number, and terminate, any one or
more committees consisting of two or more Trustees, including an executive
committee which may, when the Trustees are not in session, exercise some or all
of the power and authority of the Trustees as the Trustees may determine; they
may employ one or more custodians of the assets of the Trust and may authorize
such custodians to employ subcustodians and to deposit all or any part of such
assets in a system or systems for the central handling of
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securities or with a Federal Reserve Bank, retain a transfer agent or a
Shareholder servicing agent, or both, provide for the distribution of Shares by
the Trust, through one or more principal underwriters or otherwise, set record
dates for the determination of Shareholders with respect to various matters, and
in general delegate such authority as they consider desirable to any officer of
the Trust, to any committee of the Trustees and to any agent or employee of the
Trust or to any such custodian or underwriter.
Without limiting the foregoing, the Trustees shall have power and
authority:
(a) To invest and reinvest cash, and to hold cash uninvested;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease,
write options with respect to or otherwise deal in any property rights
relating to any or all of the assets of the Trust;
(c) To act as a distributor of shares and as underwriter of, or broker
or dealer in, securities and other property;
(d) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and
deliver proxies or powers of attorney to such person or persons as the
Trustees shall deem proper, granting to such person or persons such
power and discretion with relation to securities or property as the
Trustees shall deem proper;
(e) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities;
(f) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form, or in
the name of the Trustees or of the Trust or in the name of a custodian,
subcustodian or other depositary or a nominee or nominees or otherwise;
(g) To allocate assets, liabilities, income and expenses of the Trust
to a particular Series of Shares or to apportion the same among two or
more Series, provided that any liabilities or expenses incurred by a
particular Series of Shares shall be payable solely out of the assets
of that Series; and, to the extent necessary or appropriate to give
effect to the preferences and special or relative rights and privileges
of any Classes of Shares, to allocate assets, liabilities, income and
expenses of a Series to a particular Class of Shares of that Series or
to apportion the same among two or more Classes of Shares of that
Series;
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(h) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer, any security of
which is or was held in the Trust; to consent to any contract, lease,
mortgage, purchase or sale of property by such corporation or issuer;
and to pay calls or subscriptions with respect to any security held in
the Trust;
(i) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to
deposit any security with, or transfer any security to, any such
committee, depositary or trustee, and to delegate to them such power
and authority with relation to any security (whether or not so
deposited or transferred) as the Trustees shall deem proper, and to
agree to pay, and to pay, such portion of the expenses and compensation
of such committee, depositary or trustee as the Trustees shall deem
proper;
(j) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including but not
limited to claims for taxes;
(k) To enter into joint ventures, general or limited partnerships and
any other combinations or associations;
(l) To borrow funds or other property;
(m) To endorse or guarantee the payment of any notes or other
obligations of any person; to make contracts of guaranty or suretyship,
or otherwise assume liability for payment thereof; and to mortgage and
pledge the Trust property or any part thereof to secure any of or all
such obligations;
(n) To purchase and pay for entirely out of Trust property such
insurance as they may deem necessary or appropriate for the conduct of
the Trust's business, including, without limitation, insurance policies
insuring the assets of the Trust and payment of distributions and
principal on its portfolio investments, and insurance policies insuring
the Shareholders, Trustees, officers, employees, agents, investment
advisers or managers, principal underwriters or independent contractors
of the Trust individually against all claims and liabilities of every
nature arising by reason of holding or having held any such office or
position, or by reason of any action alleged to have been taken or
omitted by any such person as Shareholder, Trustee, officer, employee,
agent, investment adviser or manager, principal underwriter or
independent contractor, including any action taken or omitted that may
be determined to constitute negligence,
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whether or not the Trust would have the power to indemnify such person
against such liability;
(o) To pay pensions as deemed appropriate by the Trustees, and to
adopt, establish and carry out pension, profit-sharing, share bonus,
share purchase, savings, thrift and other retirement, incentive and
benefit plans, trusts and provisions, including the purchasing of life
insurance and annuity contracts as a means of providing such retirement
and other benefits, for any or all of the Trustees, officers, employees
and agents of the Trust; and
(p) To engage in any other lawful act or activity in which corporations
organized under the Massachusetts Business Corporation Act may engage.
The Trustees shall not in any way be bound or limited by any present or
future law or custom in regard to investments by trustees. The Trustees shall
not be required to obtain any court order to deal with any assets of the Trust
or take any other action hereunder.
Except as otherwise provided herein or from time to time in the
By-Laws, any action to be taken by the Trustees may be taken (A) by a majority
of the Trustees present at a meeting of the Trustees (a quorum being present),
within or without Massachusetts, including any meeting held by means of a
conference telephone or other communications equipment by means of which all
persons participating in the meeting can hear each other at the same time
(participation by which means shall for all purposes constitute presence in
person at a meeting), or (B) by written consents of a majority of the Trustees
then in office (which written consents shall be filed with the records of the
meetings of the Trustees and shall be treated for all purposes as a vote taken
at a meeting of Trustees).
Payment of Expenses by Trust and by Shareholders
Section 4. The Trustees are authorized to pay or to cause to be paid
out of the principal or income of the Trust, or partly out of principal and
partly out of income, as they deem fair, all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with the Trust, in connection with
the management thereof, or in connection with the financing of the sale of
Shares, including, but not limited to, the Trustees' compensation and such
expenses and charges for the services of the Trust's officers, employees, any
investment adviser, manager or sub-adviser, principal underwriter, auditor,
counsel, custodian, transfer agent, shareholder servicing agent, and such other
agents or independent contractors and such other expenses and charges as the
Trustees may deem necessary or proper to incur, provided, however, that all
expenses, fees, charges, taxes and liabilities incurred by or arising in
connection with a particular Series of Shares, as determined by the Trustees,
shall be payable solely out of the assets of that
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Series and may, as the Trustees from time to time may determine, be allocated to
a particular Class of Shares of a Series or apportioned among two or more
Classes of Shares of a Series.
The Trustees shall have the power, as frequently as they may determine,
to cause each Shareholder, or each Shareholder of any particular Series or
Class, to pay directly, in advance or arrears, for charges of the Trust's
custodian or transfer, shareholder servicing or similar agent, an amount fixed
from time to time by the Trustees, by setting off such charges due from such
Shareholder from declared but unpaid dividends owed such Shareholder and/or by
reducing the number of Shares in the account of such Shareholder by that number
of full and/or fractional Shares which represents the outstanding amount of such
charges due from such Shareholder.
Ownership of Assets of the Trust
Section 5. Title to all of the assets of each Series of Shares and of
the Trust shall at all times be considered as vested in the Trustees.
Advisory, Management and Distribution
Section 6. The Trustees may, at any time and from time to time,
contract for exclusive or nonexclusive advisory and/or management services with
any corporation, trust, association or other organization (the "Manager"), every
such contract to comply with such requirements and restrictions as may be set
forth in the By-Laws; and any such contract may provide for one or more
sub-advisers who shall perform all or part of the obligations of the Manager
under such contract and may contain such other terms interpretive of or in
addition to said requirements and restrictions as the Trustees may determine,
including, without limitation, authority to determine from time to time what
investments shall be purchased, held, sold or exchanged and what portion, if
any, of the assets of the Trust shall be held uninvested and to make changes in
the Trust's investments. The Trustees may also, at any time and from time to
time, contract with the Manager or any other corporation, trust, association or
other organization, appointing it exclusive or nonexclusive distributor or
principal underwriter for the Shares, every such contract to comply with such
requirements and restrictions as may be set forth in the By-Laws; and any such
contract may contain such other terms interpretive of or in addition to said
requirements and restrictions as the Trustees may determine.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
adviser, principal underwriter, distributor or affiliate or agent of or
for any corporation, trust, association or other organization, or of or
for any
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parent or affiliate of any organization, with which an advisory or
management contract, or principal underwriter's or distributor's
contract, or transfer, shareholder servicing or other agency contract
may have been or may hereafter be made, or that any such organization,
or any parent or affiliate thereof, is a Shareholder or has an interest
in the Trust, or that
(ii) any corporation, trust, association or other organization with
which an advisory or management contract, principal underwriter's or
distributor's contract, or transfer, shareholder servicing or other
agency contract may have been or may hereafter be made also has an
advisory or management contract, principal underwriter's or
distributor's contract, or transfer, shareholder servicing or other
agency contract with one or more other corporations, trusts,
associations or other organizations, or has other business or interests
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.
ARTICLE V
Shareholders' Voting Powers and Meetings
Voting Powers
Section 1. The Shareholders shall have power to vote only (i) for the
election of Trustees as provided in Article IV, Section 1 of this Declaration of
Trust, provided, however, that no meeting of Shareholders is required to be
called for the purpose of electing Trustees unless and until such time as less
than a majority of the Trustees have been elected by the Shareholders, (ii) with
respect to any Manager or Sub-Adviser as provided in Article IV, Section 6 of
this Declaration of Trust to the extent required by the 1940 Act, (iii) with
respect to any termination of this Trust to the extent and as provided in
Article IX, Section 5 of this Declaration of Trust, (iv) with respect to any
amendment of this Declaration of Trust to the extent and as provided in Article
IX, Section 8 of this Declaration of Trust, (v) to the same extent as the
stockholders of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust or the Shareholders,
and (vi) with respect to such additional matters relating to the Trust as may be
required by law, this Declaration of Trust, the By-Laws or any registration of
the Trust with the Commission (or any successor agency) or any state, or as the
Trustees may consider necessary or desirable. Each whole Share shall be entitled
to one vote as to any matter on which it is entitled to vote and each fractional
Share shall be entitled to a proportionate fractional vote. On any matter
submitted to a vote of Shareholders, all Shares of the Trust then entitled to
vote shall, except as
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otherwise provided in the By-Laws, be voted in the aggregate as a single class
without regard to Series or Classes of Shares, except that (1) when required by
the 1940 Act or when the Trustees shall have determined that the matter affects
one or more Series or Classes of Shares materially differently, Shares shall be
voted by individual Series or Class and (2) when the matter affects only the
interests of one or more Series or Classes, only Shareholders of such Series or
Classes shall be entitled to vote thereon. There shall be no cumulative voting
in the election of Trustees. Shares may be voted in person or by proxy. A proxy
with respect to Shares held in the name of two or more persons shall be valid if
executed by any one of them unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any one of them. A
proxy purporting to be executed by or on behalf of a Shareholder shall be deemed
valid unless challenged at or prior to its exercise and the burden of proving
invalidity shall rest on the challenger. Until Shares are issued, the Trustees
may exercise all rights of Shareholders and may take any action permitted or
required of the Shareholders by law, this Declaration of Trust or the By-Laws.
Meetings
Section 2. Meetings of the Shareholders may be called by the Trustees
for the purpose of electing Trustees as provided in Article IV, Section 1 of
this Declaration of Trust and for such other purposes as may be prescribed by
law, by this Declaration of Trust or by the By-Laws. Meetings of the
Shareholders may also be called by the Trustees from time to time for the
purpose of taking action upon any other matter deemed by the Trustees to be
necessary or desirable. A meeting of Shareholders may be held at any place
designated by the Trustees. Written notice of any meeting of Shareholders shall
be given or caused to be given by the Trustees by mailing such notice at least
seven days before such meeting, postage prepaid, stating the time and place of
the meeting, to each Shareholder entitled to vote at such meeting at the
Shareholder's address as it appears on the records of the Trust. Whenever notice
of a meeting is required to be given to a Shareholder under this Declaration of
Trust or the By-Laws, a written waiver thereof, executed before or after the
meeting by such Shareholder or his or her attorney thereunto authorized and
filed with the records of the meeting, shall be deemed equivalent to such
notice.
Quorum and Required Vote
Section 3. Forty percent (40%) of the Shares entitled to vote shall
constitute a quorum for the transaction of business at a Shareholders' meeting,
except that where any provision of law or of this Declaration of Trust or the
By-Laws requires that holders of any Series or Class shall vote as a Series or
Class, then forty percent (40%) of the aggregate number of Shares of that Series
or Class entitled to vote shall be necessary to constitute a quorum for the
transaction of business by that Series or Class. Any lesser number shall be
sufficient for adjournments. Any adjourned session or sessions may be
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held, within a reasonable time after the date set for the original meeting,
without the necessity of further notice. Except when a larger vote is required
by any provision of law or this Declaration of Trust or the By-Laws, a majority
of the Shares voted shall decide any questions and a plurality shall elect a
Trustee, provided that where any provision of law or of this Declaration of
Trust or the By-Laws requires that the holders of any Series or Class shall vote
as a Series or Class, then a majority of the Shares of that Series or Class
voted on the matter (or a plurality with respect to the election of a Trustee)
shall decide that matter insofar as that Series or Class is concerned.
Action by Written Consent
Section 4. Any action taken by Shareholders may be taken without a
meeting if Shareholders holding a majority of the Shares entitled to vote on the
matter (or such larger proportion thereof as shall be required by any express
provision of law or this Declaration of Trust or the By-Laws) or, as applicable,
holding a majority (or such larger proportion as aforesaid) of the Shares of any
Series or Class entitled to vote separately on the matter consent to the action
in writing and such written consents are filed with the records of the meetings
of Shareholders. Such consent shall be treated for all purposes as a vote taken
at a meeting of Shareholders.
Additional Provisions
Section 5. The By-Laws may include further provisions for Shareholders'
votes and meetings and related matters.
ARTICLE VI
Distributions, Redemptions and Repurchases
Distributions
Section 1. The Trustees may each year, or more frequently if they so
determine in their sole discretion, distribute to the Shareholders of each
Series out of the assets of such Series such amounts as the Trustees may
determine. Any such distribution to the Shareholders of a particular Series
shall be made to said Shareholders pro rata in proportion to the number of
Shares of such Series held by each of them, except to the extent otherwise
required or permitted by the preferences and special or relative rights and
privileges of any Classes of Shares of that Series, and any distribution to the
Shareholders of a particular Class of Shares shall be made to such Shareholders
pro rata in proportion to the number of Shares of such Class held by each of
them. Such distributions shall be made in cash, Shares or other property, or a
combination thereof, as determined by the Trustees. Any such distribution paid
in Shares will be paid at the net asset value thereof as determined in
accordance with the By-Laws.
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Redemptions and Repurchases
Section 2. The Trust shall purchase such Shares as are offered by any
Shareholder for redemption, upon the presentation of any certificate for the
Shares to be purchased, a proper instrument of transfer and a request directed
to the Trust or a person designated by the Trust that the Trust purchase such
Shares, or in accordance with such other procedures for redemption as the
Trustees may from time to time authorize; and the Trust will pay therefor the
net asset value thereof, as next determined in accordance with the By-Laws, less
any redemption charge or fee as the Trustees may from time to time authorize.
Except as otherwise provided from time to time in the prospectus of the Trust
relating to the particular Class or Series of Shares, or as the Trustees may
otherwise determine, payment for said Shares shall be made by the Trust to the
Shareholder within seven days after the date on which the request is made. The
Trust may also purchase or repurchase Shares at a price not exceeding the net
asset value of such Shares in effect when the purchase or repurchase or any
contract to purchase or repurchase is made.
Redemptions at the Option of the Trust
Section 3. The Trust shall have the right at its option and at any time
to redeem Shares of any Shareholder at the net asset value thereof as determined
in accordance with the By-Laws: (i) if at such time such Shareholder owns fewer
Shares than, or Shares having an aggregate net asset value of less than, an
amount determined from time to time by the Trustees; or (ii) to the extent that
such Shareholder owns Shares of a particular Series or Class of Shares equal to
or in excess of a percentage of the outstanding Shares of that Series or Class
determined from time to time by the Trustees; or (iii) to the extent that such
Shareholder owns Shares of the Trust representing a percentage equal to or in
excess of such percentage of the aggregate number of outstanding Shares of the
Trust or the aggregate net asset value of the Trust determined from time to time
by the Trustees.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
Compensation
Section 1. The Trustees as such shall be entitled to reasonable
compensation from the Trust; they may fix the amount of their compensation.
Nothing herein shall in any way prevent the employment of any Trustee for
advisory, management, legal, accounting, investment banking, underwriting,
brokerage or other services and payment for the same by the Trust.
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<PAGE>
Limitation of Liability
Section 2. The Trustees shall not be responsible or liable in any event
for any neglect or wrongdoing of any officer, agent, employee, Manager or
principal underwriter of the Trust, nor shall any Trustee be responsible for the
act or omission of any other Trustee, but nothing herein contained shall protect
any Trustee against any liability to which he or she would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever issued, executed or done by or on behalf of
the Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been issued, executed or done only in or with
respect to their or his or her capacity as Trustees or Trustee, and such
Trustees or Trustee shall not be personally liable thereon.
ARTICLE VIII
Indemnification
Trustees, Officers, etc.
Section 1. The By-Laws may include provisions whereby the Trust may
provide indemnity to 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
(each such Trustee, officer or person hereinafter referred to as a "Covered
Person"), against all liabilities and expenses, including but not limited to
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees reasonably 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 Covered Person may be or may have
been threatened, while in office or thereafter, by reason of being or having
been such a Covered Person. Any indemnity provided to Covered Persons by the
By-Laws may, if the By-Laws so provide, be in addition to any other indemnity to
which such persons may be entitled by law, contract or otherwise.
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<PAGE>
ARTICLE IX
Miscellaneous
Trustees, Shareholders etc. Not Personally Liable; Notice
Section 1. All persons extending credit to, contracting with or having
any claim against the Trust or any Series or Class shall look only to the assets
of the Trust, or, to the extent that the liability relates to assets of a
particular Series or Class, only to the assets belonging to the relevant Series
or attributable to the relevant Class, for payment under such credit, contract
or claim, and neither the Shareholders nor the Trustees, nor any of the Trust's
officers, employees or agents, whether past, present or future, shall be
personally liable therefor. Nothing in this Declaration of Trust shall protect
any Trustee against any liability to which such Trustee would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office of
Trustee.
Every note, bond, contract, instrument, certificate or undertaking made
or issued on behalf of the Trust by the Trustees, by any officer or officers or
otherwise shall give notice that this Declaration of Trust is on file with the
Secretary of The Commonwealth of Massachusetts and shall recite that the same
was executed or made by or on behalf of the Trust or by them as Trustee or
Trustees or as officer or officers or otherwise and not individually and that
the obligations of such instrument are not binding upon any of them or the
Shareholders individually but are binding only upon the assets and property of
the Trust or upon the assets belonging to the Series or attributable to the
Class for the benefit of which the Trustees have caused the note, bond,
contract, instrument, certificate or undertaking to be made or issued, and may
contain such further recital as he or she or they may deem appropriate, but the
omission of any such recital shall not operate to bind any Trustee or Trustees
or officer or officers or Shareholders or any other person individually.
Shareholders
Section 2. In case any Shareholder or former Shareholder shall be held
to be personally liable solely by reason of his or her being or having been a
Shareholder of the Trust or of a particular Series or Class and not because of
his or her acts or omissions or for some other reason, the Shareholder or former
Shareholder (or his or her heirs, executors, administrators or other legal
representatives or, in the case of a corporation or other entity, its corporate
or other general successor) shall be entitled out of the assets of the Series
(or attributable to the Class) of which he or she is a Shareholder or former
Shareholder to be held harmless from and indemnified against all loss and
expense arising from such liability.
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<PAGE>
Trustee's Good Faith Action, Expert Advice, No Bond or Surety
Section 3. The exercise by the Trustees of their powers and discretions
hereunder shall be binding upon everyone interested. A Trustee shall be liable
for his or her own willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee, and
for nothing else, and shall not be liable for the errors of judgment or mistakes
of fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust, and shall be
under no liability for any act or omission in accordance with such advice or for
failing to follow such advice. The Trustees as such shall not be required to
give any bond as such nor any surety if a bond is required.
Liability of Third Persons Dealing with Trustees
Section 4. No person dealing with the Trustees shall be bound to make
any inquiry concerning the validity of any transaction made or to be made by the
Trustees or to see to the application of any payments made or property
transferred to the Trust or upon its order.
Duration and Termination of Trust
Section 5. Unless terminated as provided herein, the Trust shall
continue without limitation of time. The Trust may be terminated at any time by
vote of Shareholders holding at least sixty-six and two-thirds percent (66 2/3%)
of the Shares entitled to vote, or by the Trustees by written notice to the
Shareholders. Any Series or Class of Shares may be terminated at any time by
vote of Shareholders holding at least sixty-six and two-thirds percent (66 2/3%)
of the Shares of such Series or Class entitled to vote, or by the Trustees by
written notice to the Shareholders of such Series or Class. Upon termination of
the Trust or of any one or more Series or Classes of Shares, after paying or
otherwise providing for all charges, taxes, expenses and liabilities, whether
due or accrued or anticipated, of the Trust or of the particular Series or Class
as may be determined by the Trustees, the Trust shall in accordance with such
procedures as the Trustees consider appropriate reduce the remaining assets to
distributable form in cash or shares or other property, or any combination
thereof, and distribute the proceeds to the Shareholders of the Series involved,
ratably according to the number of Shares of such Series held by the several
Shareholders of such Series on the date of termination, except to the extent
otherwise required or permitted by the preferences and special or relative
rights and privileges of any Classes of Shares of that Series, provided that any
distribution to the Shareholders of a particular Class of Shares shall be made
to such Shareholders pro rata in proportion to the number of Shares of such
Class held by each of them.
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<PAGE>
Filing and Copies, References, Headings
Section 6. The original or a copy of this instrument and of each
amendment hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. A copy of this instrument and of each amendment
hereto shall be filed by the Trust with the Secretary of The Commonwealth of
Massachusetts and with the Boston City Clerk, as well as any other governmental
office where such filing may from time to time be required. Anyone dealing with
the Trust may rely on a certificate by an officer of the Trust as to whether or
not any such amendments have been made and as to any matters in connection with
the Trust hereunder, and, with the same effect as if it were the original, may
rely on a copy certified by an officer of the Trust to be a copy of this
instrument or of any such amendments. In this instrument and in any such
amendment, references to this instrument and all expressions like "herein",
"hereof" and "hereunder" shall be deemed to refer to this instrument as amended
or affected by any such amendments. Headings are placed herein for convenience
of reference only and shall not be taken as a part hereof or control or affect
the meaning, construction or effect of this instrument. This instrument may be
executed in any number of counterparts each of which shall be deemed an
original.
Applicable Law
Section 7. This Declaration of Trust is made in The Commonwealth of
Massachusetts, and it is created under and is to be governed by and construed
and administered according to the laws of said Commonwealth. The Trust shall be
of the type commonly called a Massachusetts business trust and, without limiting
the provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
Amendments
Section 8. This Declaration of Trust may be amended at any time by an
instrument in writing signed by a majority of the then Trustees when authorized
to do so by vote of Shareholders holding a majority of the Shares entitled to
vote, except that an amendment which in the determination of the Trustees shall
affect the holders of one or more Series or Classes of Shares but not the
holders of all outstanding Series and Classes shall be authorized by vote of the
Shareholders holding a majority of the Shares entitled to vote of each Series
and Class affected and no vote of Shareholders of a Series or Class not affected
shall be required. Amendments having the purpose of changing the name of the
Trust, of establishing, changing or eliminating the par value of any Shares or
of supplying any omission, curing any ambiguity or curing, correcting or
supplementing any defective or inconsistent provision contained herein shall not
require authorization by vote of any Shareholders.
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<PAGE>
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
in the City of Dallas, Texas for himself and his assigns, as of the day and year
first above written.
/s/ Mark P. Hurley
-------------------------------
Mark P. Hurley
THE STATE OF TEXAS
Dallas, ss. Dallas, Texas, 1997
Then personally appeared the above named Mark P. Hurley and
acknowledged the foregoing instrument to be his free act and deed, before me,
/s/ Brenda Mitchell
-------------------------------
Notary Public
My Commission Expires: 10/28/2001
Trustee: Mark P. Hurley
4121 Caruth Boulevard
Dallas, Texas 75225
Trust Address: Plaza of the Americas
700 North Pearl Street
Dallas, Texas 75201
EXHIBIT 99.2:
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BY-LAWS OF THE TRUST.
<PAGE>
BY-LAWS
OF
UNDISCOVERED MANAGERS FUNDS
ARTICLE 1
Agreement and Declaration
of Trust and Principal Office
1.1 Agreement and Declaration of Trust. These By-Laws shall be subject to the
Agreement and Declaration of Trust, as from time to time in effect (the
"Declaration of Trust"), of Undiscovered Managers Funds (the "Trust"), the
Massachusetts business trust established by the Declaration of Trust.
1.2 Principal Office of the Trust. The principal office of the Trust shall be
located in Dallas, Texas.
ARTICLE 2
Meetings of Trustees
2.1 Regular Meetings. Regular meetings of the Trustees may be held without call
or notice at such places and at such times as the Trustees may from time to time
determine, provided that notice of the first regular meeting following any such
determination shall be given to absent Trustees.
2.2 Special Meetings. Special meetings of the Trustees may be held, at any time
and at any place designated in the call of the meeting, when called by the
Chairman of the Board, if any, the President or the Treasurer or by two or more
Trustees, sufficient notice thereof being given to each Trustee by the Secretary
or an Assistant Secretary or by the officer or the Trustees calling the meeting.
2.3 Notice. It shall be sufficient notice to a Trustee of a special meeting to
send notice by mail at least forty-eight hours or by telegram at least
twenty-four hours before the meeting addressed to the Trustee at his or her
usual or last known business or residence address or to give notice to him or
her in person or by telephone at least twenty-four hours before the meeting.
Notice of a meeting need not be given (a) to any Trustee if a written waiver of
notice, executed by him before or after the meeting, is filed with the records
of the meeting; or (b) to any Trustee who attends the meeting without protesting
prior thereto or at its commencement the lack of notice to him or her. Neither
notice of a meeting nor a waiver of a notice need specify the purposes of the
meeting.
2.4 Quorum. At any meeting of the Trustees a majority of the Trustees then in
office shall constitute a quorum. Any meeting may be adjourned from time to time
by a majority of the
<PAGE>
votes cast upon the question, whether or not a quorum is present, and the
meeting may be held as adjourned without further notice.
ARTICLE 3
Officers
3.1 Enumeration; Qualification. The officers of the Trust shall be a President,
a Treasurer, a Secretary, and such other officers, if any, as the Trustees from
time to time may in their discretion elect. The Trust may also have such agents
as the Trustees may appoint from time to time in their discretion. If a Chairman
of the Board is elected, he or she shall be a Trustee and may but need not be a
shareholder; and any other officer may be but none need be a Trustee or
shareholder. Any two or more offices may be held by the same person.
3.2 Election and Tenure. The President, the Treasurer, the Secretary and such
other officers as the Trustees may in their discretion from time to time elect
shall each be elected by the Trustees to serve until his or her successor is
elected or qualified, or until he or she sooner dies, resigns, is removed or
becomes disqualified. Each officer shall hold office and each agent shall retain
authority at the pleasure of the Trustees.
3.3 Powers. Subject to the other provisions of these By-Laws, each officer shall
have, in addition to the duties and powers herein and in the Declaration of
Trust set forth, such duties and powers as are commonly incident to the office
occupied by him or her as if the Trust were organized as a Massachusetts
business corporation and such other duties and powers as the Trustees may from
time to time designate.
3.4 President and Vice Presidents. The President shall have the duties and
powers specified in these By-Laws and shall have such other duties and powers as
may be determined by the Trustees. Any Vice Presidents shall have such duties
and powers as shall be designated from time to time by the Trustees.
3.5 Chief Executive Officer. The Chief Executive Officer of the Trust shall be
the Chairman of the Board, the President or such other officer as is designated
by the Trustees and shall, subject to the control of the Trustees, have general
charge and supervision of the business of the Trust and, except as the Trustees
shall otherwise determine, preside at all meetings of the shareholders and of
the Trustees. If no such designation is made, the President shall be the Chief
Executive Officer.
3.6 Chairman of the Board. If a Chairman of the Board of Trustees is elected, he
or she shall have the duties and powers specified in these By-Laws and shall
have such other duties and powers as may be determined by the Trustees.
3.7 Treasurer. The Treasurer shall be the chief financial and accounting officer
of the Trust, and shall, subject to the provisions of the Declaration of Trust
and to any arrangement made
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<PAGE>
by the Trustees with a custodian, investment adviser or manager or transfer,
shareholder servicing or similar agent, be in charge of the valuable papers,
books of account and accounting records of the Trust, and shall have such other
duties and powers as may be designated from time to time by the Trustees or by
the President.
3.8 Secretary. The Secretary shall record all proceedings of the Shareholders
and the Trustees in books to be kept therefor, which books or a copy thereof
shall be kept at the principal office of the Trust. In the absence of the
Secretary from any meeting of the Shareholders or Trustees, an assistant
Secretary or, if there be none or if he or she is absent, a temporary clerk
chosen at such meeting shall record the proceedings thereof in the aforesaid
books.
3.9 Resignations and Removals. Any officer may resign at any time by written
instrument signed by him or her and delivered to the President or the Secretary
or to a meeting of the Trustees. Such resignation shall be effective upon
receipt unless specified to be effective at some other time. The Trustees may
remove any officer with or without cause. Except to the extent expressly
provided in a written agreement with the Trust, no officer resigning and no
officer removed shall have any right to any compensation for any period
following his or her resignation or removal, or any right to damages on account
of such removal.
ARTICLE 4
Indemnification
4.1 Trustees, Officers, etc. 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) (each such Trustee, officer or person
hereinafter referred to as a "Covered Person") against all liabilities and
expenses, including but not limited to amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and counsel fees reasonably
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 any
alleged act or omission as a Trustee or officer or by reason of his or her being
or having been such a Trustee or officer, except with respect to any matter as
to which such Covered Person shall have been finally adjudicated in any such
action, suit or other proceeding not to have acted in good faith in the
reasonable belief that such Covered Person's action was in the best interest of
the Trust, 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. Expenses, including counsel fees so incurred by any
such Covered Person, may be paid from time to time by the Trust in advance of
the final disposition of any such action, suit or proceeding on the condition
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<PAGE>
that the amounts so paid shall be repaid to the Trust if it is ultimately
determined that indemnification of such expenses is not authorized under this
Article.
4.2 Compromise Payment. As to any matter disposed of by a compromise payment by
any such Covered Person referred to in Section 4.1 above, pursuant to a consent
decree or otherwise, no such indemnification either for said payment or for any
other expenses shall be provided unless such compromise shall be approved as in
the best interests of the Trust, after notice that it involved such
indemnification, (a) by a disinterested majority of the Trustees then in office;
or (b) by a majority of the disinterested Trustees then in office; or (c) by any
disinterested person or persons to whom the question may be referred by the
Trustees; or (d) by vote of Shareholders holding a majority of the Shares
entitled to vote thereon, exclusive of any Shares beneficially owned by any
interested Covered Person; provided, however, that such indemnification would
not protect such person against any liability to the Trust or its Shareholders
to which such 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 office. Approval by the Trustees pursuant to clause
(a) or (b) or by any disinterested person or persons pursuant to clause (c) of
this Section shall not prevent the recovery from any Covered Person of any
amount paid as indemnification to such Covered Person in accordance with any of
such clauses if such Covered Person is subsequently adjudicated by a court of
competent jurisdiction not to have acted in good faith in the reasonable belief
that such Covered Person's action was in the best interests of the Trust or to
have been liable to the Trust or its Shareholders 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.
4.3 Indemnification Not Exclusive. The right of indemnification hereby provided
shall not be exclusive of or affect any other rights to which any such Covered
Person may be entitled. As used in this Article 4, the term "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; and a "disinterested Trustee" or
"disinterested person" is a Trustee or 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. 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, or the power of the Trust to purchase and
maintain liability insurance on behalf of any such person.
ARTICLE 5
Reports
5.1 General. The Trustees and officers shall render reports at the time and in
the manner required by the Declaration of Trust or any applicable law. Officers
shall render such
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<PAGE>
additional reports as they may deem desirable or from time to time as may be
required by the Trustees.
ARTICLE 6
Fiscal Year
6.1 General. Except as otherwise provided from time to time by the Trustees, the
fiscal year of the Trust shall end on October 31 in each year.
ARTICLE 7
Seal
7.1 General. The seal of the Trust shall consist of a flat-faced die with the
word "Massachusetts", together with the name of the Trust and the year of its
organization cut or engraved thereon. Unless otherwise required by the Trustees,
it shall not be necessary to place the seal on, and its absence shall not impair
the validity of, any document, instrument or other paper executed and delivered
by or on behalf of the Trust.
ARTICLE 8
Execution of Papers
8.1 General. Except as the Trustees, generally or in particular cases, may have
authorized the execution thereof in some other manner, all checks, notes, drafts
and other obligations and all registration statements and amendments thereto and
all applications and amendments thereto to the Securities and Exchange
Commission shall be signed by any of the President, any Vice-President, the
Treasurer or any of such other officers or agents as shall be designated for
that purpose by a vote of the Trustees.
ARTICLE 9
Issuance of Share Certificates
9.1 Share Certificates. In lieu of issuing certificates for shares, the Trustees
or the transfer agent may either issue receipts therefor or may keep accounts
upon the books of the Trust for the record holders of such shares, who shall in
either case be deemed, for all purposes hereunder, to be the holders of
certificates for such shares as if they had accepted such certificates and shall
be held to have expressly assented and agreed to the terms of this Article 9.
The Trustees may at any time authorize the issuance of share certificates. In
that event, each shareholder shall be entitled to a certificate stating the
number of shares owned by him or her, in such form as shall be prescribed from
time to time by the Trustees. Such certificates shall be signed by the President
or any Vice-President and by the Treasurer or any Assistant Treasurer. Such
signatures may be facsimile if the certificate is signed by a transfer agent, or
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<PAGE>
by a registrar, other than a Trustee, officer or employee of the Trust. In case
any officer who has signed or whose facsimile signature has been placed on such
certificate shall cease to be such officer before such certificate is issued, it
may be issued by the Trust with the same effect as if he or she were such
officer at the time of its issue.
9.2 Loss of Certificates. In case of the alleged loss or destruction or the
mutilation of a share certificate, a duplicate certificate may be issued in
place thereof, upon such terms as the Trustees shall prescribe.
9.3 Issuance of New Certificates to Pledgee. A pledgee of shares transferred as
collateral security shall be entitled to a new certificate if the instrument of
transfer substantially describes the debt or duty that is intended to be secured
thereby. Such new certificate shall express on its face that it is held as
collateral security, and the name of the pledgor shall be stated thereon, who
alone shall be liable as a shareholder and entitled to vote thereon.
9.4 Discontinuance of Issuance of Certificates. The Trustees may at any time
discontinue the issuance of share certificates and may, by written notice to
each shareholder, require the surrender of share certificates to the Trust for
cancellation. Such surrender and cancellation shall not effect the ownership of
shares in the Trust.
ARTICLE 10
Provisions Relating to the Conduct of the Trust's Business
10.1 Determination of Net Asset Value Per Share. Net asset value per share of
each series or class of shares of the Trust shall be determined at the times and
in the manner specified from time to time by the Trustees.
ARTICLE 11
Shareholders' Voting Powers and Meetings
11.1 Record Dates. For the purpose of determining the shareholders who are
entitled to vote or act at any meeting or any adjournment thereof, or who are
entitled to receive payment of any dividend or of any other distribution, the
Trustees may from time to time fix a time, which shall be not more than 90 days
before the date of any meeting of shareholders or the date for the payment of
any dividend or of any other distribution, as the record date for determining
the shareholders having the right to notice of and to vote at such meeting and
any adjournment thereof or the right to receive such dividend or distribution,
and in such case only shareholders of record on such record date shall have such
right notwithstanding any transfer of shares on the books of the Trust after the
record date; or without fixing such record date the Trustees may for any of such
purposes close the register or transfer books for all or any part of such
period.
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<PAGE>
ARTICLE 12
Amendments to the By-Laws
12.1 General. These By-Laws may be amended or repealed, in whole or in part, by
a majority of the Trustees then in office at any meeting of the Trustees.
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EXHIBIT 99.5(b)(1):
-------------------
FORM OF SUB-ADVISORY AGREEMENT BETWEEN UNDISCOVERED MANAGERS AND KAPLAN
ASSOCIATES RELATING TO THE HIDDEN VALUE FUND.
<PAGE>
UNDISCOVERED MANAGERS FUNDS
SUB-ADVISORY AGREEMENT
(Hidden Value Fund)
This Sub-Advisory Agreement (this "Agreement") is entered into as of
__________, 1997 by and between Undiscovered Managers, LLC, a Delaware limited
liability company (the "Manager") and J.L. Kaplan Associates, LLC (the
"Sub-Adviser").
WHEREAS, the Manager has entered into a Management Agreement dated
____________, 1997 (the "Management Agreement") with Undiscovered Managers Funds
(the "Trust"), pursuant to which the Manager provides portfolio management and
administrative services to the Hidden Value Fund of the Trust (the "Series");
WHEREAS, the Management Agreement provides that the Manager may
delegate any or all of its portfolio management responsibilities under the
Management Agreement to one or more sub-advisers; and
WHEREAS, the Manager desires to retain the Sub-Adviser to render
portfolio management services in the manner and on the terms set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
1. Sub-Advisory Services.
a. The Sub-Adviser shall, subject to the supervision of the
Manager and in cooperation with any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets of the
Series. The Sub-Adviser shall manage the Series in conformity with (1) the
investment objective, policies and restrictions of the Series set forth in the
Trust's prospectus and statement of additional information relating to the
Series, (2) any additional policies or guidelines established by the Manager or
by the Trust's trustees that have been furnished in writing to the Sub-Adviser
and (3) the provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the Code), all as
from time to time in effect (collectively, the "Policies"), and with all
applicable provisions of law, including without limitation all applicable
provisions of the Investment Company Act of 1940 (the "1940 Act") and the rules
and regulations thereunder. Subject to the foregoing, the Sub-Adviser is
authorized, in its discretion and without prior consultation with the Manager,
to buy, sell, lend and otherwise
<PAGE>
trade in any stocks, bonds and other securities and investment instruments on
behalf of the Series, without regard to the length of time the securities have
been held and the resulting rate of portfolio turnover or any tax
considerations; and the majority or the whole of the Series may be invested in
such proportions of stocks, bonds, other securities or investment instruments,
or cash, as the Sub-Adviser shall determine. Notwithstanding the foregoing
provisions of this Section 1.a, however, the Sub-Adviser shall, upon written
instructions from the Manager, effect such portfolio transactions for the Series
as the Manager shall determine are necessary in order for the Series to comply
with the Policies.
b. The Sub-Adviser shall furnish the Manager and the
Administrator monthly, quarterly and annual reports concerning portfolio
transactions and performance of the Series in such form as may be mutually
agreed upon, and agrees to review the Series and discuss the management of the
Series with representatives or agents of the Manager, the Administrator or the
Trust at their reasonable request. The Sub-Adviser shall permit all books and
records with respect to the Series to be inspected and audited by the Manager
and the Administrator at all reasonable times during normal business hours, upon
reasonable notice. The Sub-Adviser shall also provide the Manager, the
Administrator or the Trust with such other information and reports as may
reasonably be requested by the Manager, the Administrator or the Trust from time
to time, including without limitation all material as reasonably may be
requested by the trustees of the Trust pursuant to Section 15(c) of the 1940
Act.
c. The Sub-Adviser shall provide to the Manager a copy of the
Sub- Adviser's Form ADV as filed with the Securities and Exchange Commission and
as amended from time to time and a list of the persons whom the Sub-Adviser
wishes to have authorized to give written and/or oral instructions to custodians
of assets of the Series.
2. Obligations of the Manager.
a. The Manager shall provide (or cause the Trust's custodian
to provide) timely information to the Sub-Adviser regarding such matters as the
composition of assets in the Series, cash requirements and cash available for
investment in the Series, and all other information as may be reasonably
necessary for the Sub-Adviser to perform its responsibilities hereunder.
b. The Manager has furnished the Sub-Adviser a copy of the
prospectus and statement of additional information of the Series and agrees
during the continuance of this Agreement to furnish the Sub-Adviser copies of
any revisions or supplements thereto at, or, if practicable, before the time the
revisions or supplements become effective. The Manager agrees to furnish the
Sub-Adviser with minutes of meetings of the trustees of the Trust applicable to
the Series to the extent they may affect the duties of the Sub-Adviser, and with
copies of any financial statements or reports made by the Series to its
shareholders, and any
- 2-
<PAGE>
further materials or information which the Sub-Adviser may reasonably request to
enable it to perform its functions under this Agreement.
3. Custodian. The Manager shall provide the Sub-Adviser with a copy of
the Series' agreement with the custodian designated to hold the assets of the
Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is required by and taken in reliance
upon instructions given to the Custodian by a representative of the Sub-Adviser
properly authorized to give such instructions under the Custody Agreement. Any
assets added to the Series shall be delivered directly to the Custodian.
4. Expenses. Except for expenses specifically assumed or agreed to be
paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for
any expenses of the Manager or the Trust including, without limitation, (a)
interest and taxes, (b) brokerage commissions and other costs in connection with
the purchase or sale of securities or other investment instruments with respect
to the Series, and (c) custodian fees and expenses. The Sub-Adviser will pay or
arrange for payment of its own expenses incurred in furnishing the services to
be provided by it pursuant to this Agreement.
5. Purchase and Sale of Assets. Absent instructions from the Manager to
the contrary, the Sub-Adviser shall place all orders for the purchase and sale
of securities for the Series with brokers or dealers selected by the
Sub-Adviser, which may include brokers or dealers affiliated with the
Sub-Adviser, provided such orders comply with Rule 17e-1 under the 1940 Act in
all respects. To the extent consistent with applicable law, purchase or sell
orders for the Series may be aggregated with contemporaneous purchase or sell
orders of other clients of the Sub-Adviser. The Sub-Adviser shall use its best
efforts to obtain execution of transactions for the Series at prices which are
advantageous to the Series and at commission rates that are reasonable in
relation to the benefits received. However, the Sub-Adviser may select brokers
or dealers on the basis that they provide brokerage, research or other services
or products to the Series and/or other accounts serviced by the Sub-Adviser. To
the extent consistent with applicable law, the Sub-Adviser may pay a broker or
dealer an amount of commission for effecting a securities transaction in excess
of the amount of commission or dealer spread another broker or dealer would have
charged for effecting that transaction if the Sub-Adviser determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research products and/or services provided by such broker or
dealer. This determination with respect to brokerage and research services or
products may be viewed in terms of either that particular transaction or the
overall responsibilities that the Sub-Adviser and its affiliates have with
respect to the Series or to
- 3 -
<PAGE>
accounts over which they exercise investment discretion. Not all such services
or products need be used by the Sub-Adviser in managing the Series.
6. Compensation of the Sub-Adviser. As full compensation for all
services rendered, facilities furnished and expenses borne by the Sub-Adviser
hereunder, the Manager shall pay the Sub-Adviser compensation at the annual rate
of 0.60% of the first $200 million of the Series' average daily net assets,
0.55% of the next $100 million of such assets and 0.50% of such assets in excess
of $300 million. Such compensation shall be calculated and paid monthly in
arrears or at such other intervals, not less frequently than quarterly, as the
Manager is paid by the Series pursuant to the Management Agreement; provided
that, in the event of any termination of this Agreement before the end of any
such month or other interval, such compensation shall be calculated and paid
within ten business days following such termination. The Manager may from time
to time waive the compensation it is entitled to receive from the Trust;
however, any such waiver will have no effect on the Manager's obligation to pay
the Sub-Adviser the compensation provided for herein.
7. Non-Exclusivity. The Manager and the Series agree that the services
of the Sub- Adviser are not to be deemed exclusive and that the Sub-Adviser and
its affiliates are free to act as investment manager and provide other services
to various investment companies and other managed accounts, except as the
Sub-Adviser and the Manager may otherwise agree from time to time in writing
before or after the date hereof. This Agreement shall not in any way limit or
restrict the Sub-Adviser or any of its directors, officers, employees or agents
from buying, selling or trading any securities or other investment instruments
for its or their own account or for the account of others for whom it or they
may be acting. The Sub-Adviser shall have no obligation to acquire for the
Series a position in any investment that the Sub- Adviser or any of its
managers, members, officers, employees or agents holds, has acquired or is
acquiring for its or their own accounts or for the account of another client, so
long as it continues to be the policy and practice of the Sub-Adviser not to
favor or disfavor consistently or consciously any client or class of clients in
the allocation of investment opportunities, so that, to the extent practical,
such opportunities will be allocated among clients over a reasonable period of
time on a fair and equitable basis. The Manager and the Series recognize and
agree that the Sub-Adviser may provide advice to or take action with respect to
other clients, which advice or action, including the timing and nature of such
action, may differ from or be identical to advice given or action taken with
respect to the Series. The Sub- Adviser shall for all purposes hereof be deemed
to be an independent contractor and shall, unless otherwise provided or
authorized, have no authority to act for or represent the Trust or the Manager
in any way or otherwise be deemed an agent of the Trust or the Manager.
8. Liability. Except as may otherwise be provided by the 1940 Act or
other federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, employees or agents (the "Indemnified Parties") shall be subject to
any liability to the Manager, the Trust, the Series or any shareholder of the
Series for any error of judgment, any mistake of law or any loss arising out of
any investment or other act or omission in the course of, connected
- 4 -
<PAGE>
with, or arising out of any service to be rendered under this Agreement, except
by reason of willful misfeasance, bad faith or gross negligence in the
performance of the Sub-Adviser's duties or by reason of reckless disregard by
the Sub-Adviser of its obligations and duties.
9. Effective Date and Termination. This Agreement shall become
effective as of the date of its execution, and
a. unless otherwise terminated, this Agreement shall continue
in effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Trust or by vote of a majority of
the outstanding voting securities of the Series, and (ii) by vote of a majority
of the trustees of the Trust who are not interested persons of the Trust, the
Manager or the Sub-Adviser, cast in person at a meeting called for the purpose
of voting on such approval;
b. this Agreement may at any time be terminated on sixty days'
written notice to the Sub-Adviser by the Manager, by vote of the Board of
Trustees of the Trust or by vote of a majority of the outstanding voting
securities of the Series; and
c. this Agreement shall automatically terminate in the event
of its assignment.
Termination of this Agreement pursuant to this Section 9 shall be
without the payment of any penalty.
10. Amendment. This Agreement may be amended at any time by mutual
consent of the Manager and the Sub-Adviser, provided that, if required by law,
such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of the
trustees of the Trust who are not interested persons of the Trust, the Manager
or the Sub-Adviser, cast in person at a meeting called for the purpose of voting
on such approval.
11. Certain Definitions. For the purpose of this Agreement, the terms
"vote of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under the 1940 Act.
12. General.
a. If any term or provision of this Agreement or the
application thereof to any person or circumstances is held to be invalid or
unenforceable to any extent, the remainder of this Agreement or the application
of such provision to other persons or
- 5 -
<PAGE>
circumstances shall not be affected thereby and shall be enforced to the fullest
extent permitted by law.
b. This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts.
UNDISCOVERED MANAGERS, LLC
By:
------------------------
Mark P. Hurley
President
J.L. KAPLAN ASSOCIATES, LLC
By:
------------------------
James L. Kaplan
Member
- 6 -
EXHIBIT 99.5(b)(2):
-------------------
FORM OF SUB-ADVISORY AGREEMENT BETWEEN UNDISCOVERED MANAGERS AND KAPLAN
ASSOCIATES RELATING TO THE SMALL CAP VALUE FUND.
<PAGE>
UNDISCOVERED MANAGERS FUNDS
SUB-ADVISORY AGREEMENT
(Small Cap Value Fund)
This Sub-Advisory Agreement (this "Agreement") is entered into as of
__________, 1997 by and between Undiscovered Managers, LLC, a Delaware limited
liability company (the "Manager") and J.L. Kaplan Associates, LLC (the
"Sub-Adviser").
WHEREAS, the Manager has entered into a Management Agreement dated
____________, 1997 (the "Management Agreement") with Undiscovered Managers Funds
(the "Trust"), pursuant to which the Manager provides portfolio management and
administrative services to the Small Cap Value Fund of the Trust (the "Series");
WHEREAS, the Management Agreement provides that the Manager may delegate
any or all of its portfolio management responsibilities under the Management
Agreement to one or more sub-advisers; and
WHEREAS, the Manager desires to retain the Sub-Adviser to render portfolio
management services in the manner and on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
1. Sub-Advisory Services.
a. The Sub-Adviser shall, subject to the supervision of the
Manager and in cooperation with any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets of the
Series. The Sub-Adviser shall manage the Series in conformity with (1) the
investment objective, policies and restrictions of the Series set forth in the
Trust's prospectus and statement of additional information relating to the
Series, (2) any additional policies or guidelines established by the Manager or
by the Trust's trustees that have been furnished in writing to the Sub-Adviser
and (3) the provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the Code), all as
from time to time in effect (collectively, the "Policies"), and with all
applicable provisions of law, including without limitation all applicable
provisions of the Investment Company Act of 1940 (the "1940 Act") and the rules
and regulations thereunder. Subject to the foregoing, the Sub-Adviser is
authorized, in its discretion and without prior consultation with the Manager,
to buy, sell, lend and otherwise
<PAGE>
trade in any stocks, bonds and other securities and investment instruments on
behalf of the Series, without regard to the length of time the securities have
been held and the resulting rate of portfolio turnover or any tax
considerations; and the majority or the whole of the Series may be invested in
such proportions of stocks, bonds, other securities or investment instruments,
or cash, as the Sub-Adviser shall determine. Notwithstanding the foregoing
provisions of this Section 1.a, however, the Sub-Adviser shall, upon written
instructions from the Manager, effect such portfolio transactions for the Series
as the Manager shall determine are necessary in order for the Series to comply
with the Policies.
b. The Sub-Adviser shall furnish the Manager and the
Administrator monthly, quarterly and annual reports concerning portfolio
transactions and performance of the Series in such form as may be mutually
agreed upon, and agrees to review the Series and discuss the management of the
Series with representatives or agents of the Manager, the Administrator or the
Trust at their reasonable request. The Sub-Adviser shall permit all books and
records with respect to the Series to be inspected and audited by the Manager
and the Administrator at all reasonable times during normal business hours, upon
reasonable notice. The Sub-Adviser shall also provide the Manager, the
Administrator or the Trust with such other information and reports as may
reasonably be requested by the Manager, the Administrator or the Trust from time
to time, including without limitation all material as reasonably may be
requested by the trustees of the Trust pursuant to Section 15(c) of the 1940
Act.
c. The Sub-Adviser shall provide to the Manager a copy of the
Sub-Adviser's Form ADV as filed with the Securities and Exchange Commission and
as amended from time to time and a list of the persons whom the Sub-Adviser
wishes to have authorized to give written and/or oral instructions to custodians
of assets of the Series.
2. Obligations of the Manager.
a. The Manager shall provide (or cause the Trust's custodian
to provide) timely information to the Sub-Adviser regarding such matters as the
composition of assets in the Series, cash requirements and cash available for
investment in the Series, and all other information as may be reasonably
necessary for the Sub-Adviser to perform its responsibilities hereunder.
b. The Manager has furnished the Sub-Adviser a copy of the
prospectus and statement of additional information of the Series and agrees
during the continuance of this Agreement to furnish the Sub-Adviser copies of
any revisions or supplements thereto at, or, if practicable, before the time the
revisions or supplements become effective. The Manager agrees to furnish the
Sub-Adviser with minutes of meetings of the trustees of the Trust applicable to
the Series to the extent they may affect the duties of the Sub-Adviser, and with
copies of any financial statements or reports made by the Series to its
shareholders, and any
- 2-
<PAGE>
further materials or information which the Sub-Adviser may reasonably request to
enable it to perform its functions under this Agreement.
3. Custodian. The Manager shall provide the Sub-Adviser with a copy of
the Series' agreement with the custodian designated to hold the assets of the
Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is required by and taken in reliance
upon instructions given to the Custodian by a representative of the Sub-Adviser
properly authorized to give such instructions under the Custody Agreement. Any
assets added to the Series shall be delivered directly to the Custodian.
4. Expenses. Except for expenses specifically assumed or agreed to be
paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for
any expenses of the Manager or the Trust including, without limitation, (a)
interest and taxes, (b) brokerage commissions and other costs in connection with
the purchase or sale of securities or other investment instruments with respect
to the Series, and (c) custodian fees and expenses. The Sub-Adviser will pay or
arrange for payment of its own expenses incurred in furnishing the services to
be provided by it pursuant to this Agreement.
5. Purchase and Sale of Assets. Absent instructions from the Manager to
the contrary, the Sub-Adviser shall place all orders for the purchase and sale
of securities for the Series with brokers or dealers selected by the
Sub-Adviser, which may include brokers or dealers affiliated with the
Sub-Adviser, provided such orders comply with Rule 17e-1 under the 1940 Act in
all respects. To the extent consistent with applicable law, purchase or sell
orders for the Series may be aggregated with contemporaneous purchase or sell
orders of other clients of the Sub-Adviser. The Sub-Adviser shall use its best
efforts to obtain execution of transactions for the Series at prices which are
advantageous to the Series and at commission rates that are reasonable in
relation to the benefits received. However, the Sub-Adviser may select brokers
or dealers on the basis that they provide brokerage, research or other services
or products to the Series and/or other accounts serviced by the Sub-Adviser. To
the extent consistent with applicable law, the Sub-Adviser may pay a broker or
dealer an amount of commission for effecting a securities transaction in excess
of the amount of commission or dealer spread another broker or dealer would have
charged for effecting that transaction if the Sub-Adviser determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research products and/or services provided by such broker or
dealer. This determination with respect to brokerage and research services or
products may be viewed in terms of either that particular transaction or the
overall responsibilities that the Sub-Adviser and its affiliates have with
respect to the Series or to
- 3 -
<PAGE>
accounts over which they exercise investment discretion. Not all such services
or products need be used by the Sub-Adviser in managing the Series.
6. Compensation of the Sub-Adviser. As full compensation for all
services rendered, facilities furnished and expenses borne by the Sub-Adviser
hereunder, the Manager shall pay the Sub-Adviser compensation at the annual rate
of 0.70% of the first $200 million of the Series' average daily net assets,
0.65% of the next $100 million of such assets and 0.60% of such assets in excess
of $300 million. Such compensation shall be calculated and paid monthly in
arrears or at such other intervals, not less frequently than quarterly, as the
Manager is paid by the Series pursuant to the Management Agreement; provided
that, in the event of any termination of this Agreement before the end of any
such month or other interval, such compensation shall be calculated and paid
within ten business days following such termination. The Manager may from time
to time waive the compensation it is entitled to receive from the Trust;
however, any such waiver will have no effect on the Manager's obligation to pay
the Sub-Adviser the compensation provided for herein.
7. Non-Exclusivity. The Manager and the Series agree that the services
of the Sub- Adviser are not to be deemed exclusive and that the Sub-Adviser and
its affiliates are free to act as investment manager and provide other services
to various investment companies and other managed accounts, except as the
Sub-Adviser and the Manager may otherwise agree from time to time in writing
before or after the date hereof. This Agreement shall not in any way limit or
restrict the Sub-Adviser or any of its directors, officers, employees or agents
from buying, selling or trading any securities or other investment instruments
for its or their own account or for the account of others for whom it or they
may be acting. The Sub-Adviser shall have no obligation to acquire for the
Series a position in any investment that the Sub- Adviser or any of its
managers, members, officers, employees or agents holds, has acquired or is
acquiring for its or their own accounts or for the account of another client, so
long as it continues to be the policy and practice of the Sub-Adviser not to
favor or disfavor consistently or consciously any client or class of clients in
the allocation of investment opportunities, so that, to the extent practical,
such opportunities will be allocated among clients over a reasonable period of
time on a fair and equitable basis. The Manager and the Series recognize and
agree that the Sub-Adviser may provide advice to or take action with respect to
other clients, which advice or action, including the timing and nature of such
action, may differ from or be identical to advice given or action taken with
respect to the Series. The Sub- Adviser shall for all purposes hereof be deemed
to be an independent contractor and shall, unless otherwise provided or
authorized, have no authority to act for or represent the Trust or the Manager
in any way or otherwise be deemed an agent of the Trust or the Manager.
8. Liability. Except as may otherwise be provided by the 1940 Act or
other federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, employees or agents (the "Indemnified Parties") shall be subject to
any liability to the Manager, the Trust, the Series or any shareholder of the
Series for any error of judgment, any mistake of law or any loss arising out of
any investment or other act or omission in the course of, connected
- 4 -
<PAGE>
with, or arising out of any service to be rendered under this Agreement, except
by reason of willful misfeasance, bad faith or gross negligence in the
performance of the Sub-Adviser's duties or by reason of reckless disregard by
the Sub-Adviser of its obligations and duties.
9. Effective Date and Termination. This Agreement shall become
effective as of the date of its execution, and
a. unless otherwise terminated, this Agreement shall continue
in effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Trust or by vote of a majority of
the outstanding voting securities of the Series, and (ii) by vote of a majority
of the trustees of the Trust who are not interested persons of the Trust, the
Manager or the Sub-Adviser, cast in person at a meeting called for the purpose
of voting on such approval;
b. this Agreement may at any time be terminated on sixty days'
written notice to the Sub-Adviser by the Manager, by vote of the Board of
Trustees of the Trust or by vote of a majority of the outstanding voting
securities of the Series; and
c. this Agreement shall automatically terminate in the event
of its assignment.
Termination of this Agreement pursuant to this Section 9 shall be
without the payment of any penalty.
10. Amendment. This Agreement may be amended at any time by mutual
consent of the Manager and the Sub-Adviser, provided that, if required by law,
such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of the
trustees of the Trust who are not interested persons of the Trust, the Manager
or the Sub-Adviser, cast in person at a meeting called for the purpose of voting
on such approval.
11. Certain Definitions. For the purpose of this Agreement, the terms
"vote of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under the 1940 Act.
12. General.
a. If any term or provision of this Agreement or the
application thereof to any person or circumstances is held to be invalid or
unenforceable to any extent, the remainder of this Agreement or the application
of such provision to other persons or
- 5 -
<PAGE>
circumstances shall not be affected thereby and shall be enforced to the fullest
extent permitted by law.
b. This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts.
UNDISCOVERED MANAGERS, LLC
By:
-------------------------
Mark P. Hurley
President
J.L. KAPLAN ASSOCIATES, LLC
By:
-------------------------
James L. Kaplan
Member
- 6 -
EXHIBIT 99.6:
-------------
FORM OF DISTRIBUTION AGREEMENT BETWEEN THE TRUST
AND FIRST DATA DISTRIBUTORS, INC.
<PAGE>
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made as of this 12th day of December, 1997 (the
"Agreement") by and between Undiscovered Managers Funds, a Massachusetts
business trust (the "Company") and First Data Distributors, Inc.
(the "Distributor"), a Massachusetts corporation.
WHEREAS, the Company is, or prior to the effective date of this
Agreement will be, registered as a diversified, open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and is, or prior to the effective date of this Agreement will be, offering units
of beneficial interest (such units of all series are hereinafter called the
"Shares"), representing interests in investment portfolios of the Company
identified on Schedule A hereto (the "Funds") which are registered with the
Securities and Exchange Commission (the "SEC") pursuant to the Company's
Registration Statement on Form N-1A (the "Registration Statement"); and
WHEREAS, the Company desires to retain the Distributor as distributor
for the Funds to provide for the sale and distribution of the Shares of the
Funds identified on Schedule A and for such additional classes or series as the
Company may issue, and the Distributor is prepared to provide such services
commencing on the date the Company begins offering Shares to the public.
NOW THEREFORE, in consideration of the premises and mutual covenants
set forth herein and intending to be legally bound hereby the parties hereto
agree as follows:
1. Service as Distributor
1.1 The Distributor will act on behalf of the Company for the distribution of
the Shares covered by the Registration Statement under the Securities Act
of 1933, as amended (the "1933 Act"). The Distributor will have no
liability for payment for the purchase of Shares sold pursuant to this
Agreement or with respect to redemptions or repurchases of Shares.
1.2 The Distributor agrees to use efforts deemed appropriate by the Distributor
to solicit orders for the sale of the Shares and will undertake such
advertising and promotion as it believes reasonable in connection with such
solicitation. To the extent that the Distributor receives shareholder
services fees under any shareholder services plan adopted by the Company,
the Distributor agrees to furnish, and/or enter into arrangements with
others for the furnishing of, personal and/or account maintenance services
with respect to the relevant shareholders of the Company as may be required
pursuant to such plan. It is contemplated that the Distributor will enter
into sales or servicing agreements with securities dealers, financial
institutions and other industry professionals, such as investment advisers,
accountants and estate planning firms.
1.3 The Company understands that the Distributor is now, and may in the future
be, the distributor of the shares of several investment companies or series
(collectively, the "Investment Entities"), including Investment Entities
having investment objectives similar to those of the Company. The Company
further understands that investors and potential investors in the Company
may invest in shares of such other Investment
<PAGE>
Entities. The Company agrees that the Distributor's duties to such
Investment Entities shall not be deemed in conflict with its duties to the
Company under this Section 1.3.
1.4 The Distributor shall not utilize any materials in connection with the sale
or offering of Shares except the Company's prospectus and statement of
additional information and such other materials as the Company shall
provide or approve.
1.5 All activities by the Distributor and its employees, as distributor of the
Shares, shall comply with all applicable laws, rules and regulations,
including, without limitation, all rules and regulations made or adopted by
the SEC or the National Association of Securities Dealers.
1.6 The Distributor will transmit any orders received by it for purchase or
redemption of the Shares to the transfer agent for the Company on the same
business day that such orders are received by the Distributor.
1.7 Whenever in its judgment such action is warranted by unusual market,
economic or political conditions or abnormal circumstances of any kind, the
Company may decline to accept any orders for, or make any sales of, the
Shares until such time as the Company deems it advisable to accept such
orders and to make such sales, and the Company advises the Distributor
promptly of such determination.
1.8 The Company agrees to pay all costs and expenses in connection with the
registration of Shares under the Securities Act of 1933, as amended, and
all expenses in connection with maintaining facilities for the issue and
transfer of Shares and for supplying information, prices and other data to
be furnished by the Fund hereunder, and all expenses in connection with the
preparation and printing of the Fund's prospectuses and statements of
additional information for regulatory purposes and for distribution to
shareholders.
1.9 The Company agrees at its own expense to execute any and all documents and
to furnish any and all information and otherwise to take all actions that
may be reasonably necessary in connection with the qualification of the
Shares for sale in such states as the Distributor may designate. The
Company shall notify the Distributor in writing of the states in which the
Shares may be sold and shall notify the Distributor in writing of any
changes to the information contained in the previous notification.
1.10 The Company shall furnish from time to time, for use in connection with the
sale of the Shares, such information with respect to the Company and the
Shares as the Distributor may reasonably request; and the Company warrants
that the statements contained in any such information shall fairly show or
represent what they purport to show or represent. The Company shall also
furnish the Distributor upon request with: (a) audited annual statements
and unaudited semi-annual statements of a Fund's books and accounts
prepared by the Company, (b) quarterly earnings statements prepared by the
Company, (c) a monthly itemized list of the securities in the Funds, (d)
monthly balance sheets as soon as practicable after the end of each month,
and (e) from time to time such additional information regarding the
financial condition of the Company as the Distributor may reasonably
request.
2
<PAGE>
1.11 The Company represents to the Distributor that all Registration Statements
and prospectuses filed by the Company with the SEC under the 1933 Act with
respect to the Shares have been prepared in conformity with the
requirements of the 1933 Act and the rules and regulations of the SEC
thereunder. As used in this Agreement, the term "Registration Statement"
shall mean any Registration Statement and any prospectus and any statement
of additional information relating to the Company filed with the SEC and
any amendments or supplements thereto at any time filed with the SEC.
Except as to information included in the Registration Statement in reliance
upon information provided to the Company by the Distributor or any
affiliate of the Distributor expressly for use in the Registration
Statement, the Company represents and warrants to the Distributor that all
statements of fact contained in any Registration Statement will be true and
correct when such Registration Statement becomes effective; and that no
Registration Statement when such Registration Statement becomes effective
will include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading to a purchaser of the Shares. The Company
may but shall not be obligated to propose from time to time such amendment
or amendments to any Registration Statement and such supplement or
supplements to any prospectus as, in the light of future developments, may,
in the opinion of the Company's counsel, be necessary or advisable. The
Company shall promptly notify the Distributor of any advice given to it by
its counsel regarding the necessity or advisability of amending or
supplementing such Registration Statement. If the Company shall not propose
such amendment or amendments and/or supplement or supplements within
fifteen days after receipt by the Company of a written request from the
Distributor to do so, the Distributor may, at its option, terminate this
Agreement. The Company shall not file any amendment to any Registration
Statement or supplement to any prospectus without giving the Distributor
reasonable notice thereof in advance; provided, however, that nothing
contained in this Agreement shall in any way limit the Company's right to
file at any time such amendments to any Registration Statements and/or
supplements to any prospectus, of whatever character, as the Company may
deem advisable, such right being in all respects absolute and
unconditional.
1.12 The Company authorizes the Distributor to use any prospectus or statement
of additional information in the form furnished from time to time in
connection with the sale of the Shares. The Company agrees to indemnify and
hold harmless the Distributor, its officers, directors, and employees, and
any person who controls the Distributor within the meaning of Section 15 of
the 1933 Act, free and harmless (a) from and against any and all claims,
costs, expenses (including reasonable attorneys' fees) losses, damages,
charges, payments and liabilities of any sort or kind which the
Distributor, its officers, directors, employees or any such controlling
person may incur under the 1933 Act, under any other statute, at common law
or otherwise, arising out of or based upon: (i) any untrue statement, or
alleged untrue statement, of a material fact contained in the Company's
Registration Statement, prospectus, statement of additional information, or
sales literature (including amendments and supplements thereto), or (ii)
any omission, or alleged omission, to state a material fact required to be
stated in the Company's Registration Statement, prospectus, statement of
additional information or sales literature (including amendments or
supplements thereto), necessary to make the statements therein not
misleading, provided, however, that insofar as losses, claims, damages,
liabilities or expenses arise out of or are based upon any such untrue
statement or omission or alleged untrue statement or
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omission made in reliance on and in conformity with information furnished
to the Company by the Distributor or its affiliated persons for use in the
Company's Registration Statement, prospectus, or statement of additional
information or sales literature (including amendments or supplements
thereto), such indemnification is not applicable; and (b) from and against
any and all such claims, demands, liabilities and expenses (including such
costs and counsel fees) which you, your officers and directors, or such
controlling person, may incur in connection with this Agreement or the
Distributor's performance hereunder (but excluding such claims, demands,
liabilities and expenses (including such costs and counsel fees) arising
out of or based upon any untrue statement, or alleged untrue statement, of
a material fact contained in any registration statement or any prospectus
or arising out of or based upon any omission, or alleged omission, to state
a material fact required to be stated in either any registration statement
or any prospectus or necessary to make the statements in either thereof not
misleading), unless such claims, demands, liabilities and expenses
(including such costs and counsel fees) arise by reason of the
Distributor's willful misfeasance, bad faith or negligence in the
performance of the Distributor's duties hereunder. The Company acknowledges
and agrees that in the event that the Distributor, at the request of the
Company, is required to give indemnification comparable to that set forth
in clause (a) of this Section 1.12 to any broker-dealer selling Shares of
the Company and such broker-dealer shall make a claim for indemnification
against the Distributor, the Distributor shall make a similar claim for
indemnification against the Company.
1.13 The Distributor agrees to indemnify and hold harmless the Company, its
several officers and Trustees and each person, if any, who controls a Fund
within the meaning of Section 15 of the 1933 Act against any and all
claims, costs, expenses (including reasonable attorneys' fees), losses,
damages, charges, payments and liabilities of any sort or kind which the
Company, its officers, Trustees or any such controlling person may incur
under the 1933 Act, under any other statute, at common law or otherwise,
but only to the extent that such liability or expense incurred by the
Company, its officers or Trustees, or any controlling person resulting from
such claims or demands arose out of the acquisition of any Shares by any
person which may be based upon any untrue statement, or alleged untrue
statement, of a material fact contained in the Company's Registration
Statement, prospectus or statement of additional information (including
amendments and supplements thereto), or any omission, or alleged omission,
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, if such statement or omission was
made in reliance upon information furnished or confirmed in writing to the
Company by the Distributor or its affiliated persons (as defined in the
1940 Act).
1.14 In any case in which one party hereto (the "Indemnifying Party") may be
asked to indemnify or hold the other party hereto (the "Indemnified Party")
harmless, the Indemnified Party will notify the Indemnifying Party promptly
after identifying any situation which it believes presents or appears
likely to present a claim for indemnification (an "Indemnification Claim")
against the Indemnifying Party, although the failure to do so shall not
prevent recovery by the Indemnified Party, and shall keep the Indemnifying
Party advised with respect to all developments concerning such situation;
provided, however, that the failure to provide such notice shall not
materially adversely affect the Indemnifying Party. The Indemnifying Party
shall have the option to defend the
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Indemnified Party against any Indemnification Claim which may be the
subject of this indemnification, and, in the event that the Indemnifying
Party so elects, such defense shall be conducted by counsel chosen by the
Indemnifying Party and satisfactory to the Indemnified Party, and thereupon
the Indemnifying Party shall take over complete defense of the
Indemnification Claim and the Indemnified Party shall sustain no further
legal or other expenses in respect of such Indemnification Claim. The
Indemnified Party will not confess any Indemnification Claim or make any
compromise in any case in which the Indemnifying Party will be asked to
provide indemnification, except with the Indemnifying Party's prior written
consent. The obligations of the parties hereto under this Section 1.14 and
Section 3.1 shall survive the termination of this Agreement.
In the event that the Company is the Indemnifying Party and the
Indemnifying Party does not elect to assume the defense of any such suit,
or in case the Distributor reasonably does not approve of counsel chosen by
the Company, or in case there is a conflict of interest between the Company
or the Distributor, the Company will reimburse the Distributor, its
officers, directors and employees, or the controlling person or persons
named as defendant or defendants in such suit, for the fees and expenses of
any counsel retained by the Distributor or them. The Company's
indemnification agreement contained in this Section 1.14 and Section 3.1
and the Company's representations and warranties in this Agreement shall
remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Distributor, its officers,
directors and employees, or any controlling person, and shall survive the
delivery of any Shares. This agreement of indemnity will inure exclusively
to the Distributor's benefit, to the benefit of its several officers,
directors and employees, and their respective estates and to the benefit of
the controlling persons and their successors. The Company agrees promptly
to notify the Distributor of the commencement of any litigation or
proceedings against the Company or any of its officers or directors in
connection with the issue and sale of any Shares.
1.15 No Shares shall be offered by either the Distributor or the Company
under any of the provisions of this Agreement and no orders for the
purchase or sale of Shares hereunder shall be accepted by the Company if
and so long as effectiveness of the Registration Statement then in effect
or any necessary amendments thereto shall be suspended under any of the
provisions of the 1933 Act, or if and so long as a current prospectus as
required by Section 5(b)(2) of the 1933 Act is not on file with the SEC;
provided, however, that nothing contained in this Section 1.15 shall in any
way restrict or have any application to or bearing upon the Company's
obligation to redeem Shares tendered for redemption by any shareholder in
accordance with the provisions of the Company's Registration Statement,
Declaration of Trust, or bylaws.
1.16 The Company agrees to advise the Distributor as soon as reasonably
practical by a notice in writing delivered to the Distributor:
(a) of any request by the SEC for amendments to the Registration Statement,
prospectus or statement of additional information then in effect or for
additional information;
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(b) in the event of the issuance by the SEC of any stop order suspending
the effectiveness of the Registration Statement, prospectus or statement of
additional information then in effect or the initiation by service of
process on the Company of any proceeding for that purpose;
(c) of the happening of any event that makes untrue any statement of a
material fact made in the Registration Statement, prospectus or statement
of additional information then in effect or that requires the making of a
change in such Registration Statement, prospectus or statement of
additional information in order to make the statements therein not
misleading; and
(d) of all actions of the SEC with respect to any amendments to any
Registration Statement, prospectus or statement of additional information
which may from time to time be filed with the SEC.
For purposes of this section, informal requests by or acts of the Staff of
the SEC shall not be deemed actions of or requests by the SEC.
1.17 The Distributor agrees that, upon the request of the Company, the
Distributor will register with the NASD as representatives of the
Distributor certain individuals who may also be employees of Undiscovered
Managers LLC, the investment adviser of the Company, to perform sales
support and wholesaling activities for the Company; provided, however, that
the Distributor shall not be required to register any individual if the
Distributor reasonably believes that such registration would not be in
compliance with the rules and regulations of the NASD.
2. Term
2.1 This Agreement shall become effective on the date first written above and,
unless sooner terminated as provided herein, shall continue for an initial
two-year term and thereafter shall be renewed for successive one-year
terms, provided such continuance is specifically approved at least annually
by (i) the Company's Board of Trustees or (ii) by a vote of a majority (as
defined in the 1940 Act and Rule 18f-2 thereunder) of the outstanding
voting securities of the Company, provided that in either event the
continuance is also approved by a majority of the Trustees who are not
parties to this Agreement and who are not interested persons (as defined in
the 1940 Act) of any party to this Agreement, by vote cast in person at a
meeting called for the purpose of voting on such approval. This Agreement
is terminable without penalty, on at least sixty days' written notice, by
the Company's Board of Trustees, by vote of a majority (as defined in the
1940 Act and Rule 18f-2 thereunder) of the outstanding voting securities of
the Company, or by the Distributor. This Agreement will also terminate
automatically in the event of its assignment (as defined in the 1940 Act
and the rules thereunder).
2.2 In the event a termination notice is given by the Company, all expenses
associated with movement of records and materials and conversion thereof
will be borne by the Company.
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3. Limitation of Liability
3.1 The Distributor shall not be liable to the Company for any error of
judgment or mistake of law or for any loss suffered by the Company in
connection with the performance of its obligations and duties under this
Agreement, except a loss resulting from the Distributor's willful
misfeasance, bad faith or negligence in the performance of such obligations
and duties, or by reason of its reckless disregard thereof. The Company
will indemnify the Distributor against and hold it harmless from any and
all claims, costs, expenses (including reasonable attorneys' fees), losses,
damages, charges, payments and liabilities of any sort or kind which may be
asserted against the Distributor for which the Distributor may be held to
be liable in connection with this Agreement or the Distributor's
performance hereunder (a "Section 3.1 Claim"), unless such Section 3.1
Claim resulted from a negligent act or omission to act or bad faith by the
Distributor in the performance of its duties hereunder. The provisions of
Section 1.12 shall apply to any indemnification provided by the Company
pursuant to this Section 3.1. The obligations of the parties hereto under
this Section 3.1 shall survive termination of this Agreement.
3.2 Neither party may assert any cause of action against the other party under
this Agreement that accrued more than two (2) years prior to the filing of
the suit (or commencement of arbitration proceedings) alleging such cause
of action.
3.3 Each party shall have the duty to mitigate damages for which the other
party may become responsible.
3.4 NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT
SHALL THE DISTRIBUTOR, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE UNDER ANY THEORY OF
TORT, CONTRACT, STRICT LIABILITY OF OTHER LEGAL OR EQUITABLE THEORY FOR
LOST PROFITS, EXEMPLARY, PUNITIVE, SPECIAL, INCIDENTAL, INDIRECT OR
CONSEQUENTIAL DAMAGES, EACH OF WHICH IS HEREBY EXCLUDED BY AGREEMENT OF THE
PARTIES REGARDLESS OF WHETHER SUCH DAMAGES WERE FORESEEABLE OR WHETHER
EITHER PARTY OR ANY ENTITY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
4. EXCLUSION OF WARRANTIES
THIS IS A SERVICE AGREEMENT. EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, THE DISTRIBUTOR DISCLAIMS ALL OTHER REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, MADE TO THE COMPANY, A FUND OR ANY OTHER
PERSON, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES REGARDING QUALITY,
SUITABILITY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE
(IRRESPECTIVE OF ANY COURSE OF DEALING, CUSTOM OR USAGE OF TRADE) OF ANY
SERVICES OR ANY GOODS PROVIDED INCIDENTAL TO SERVICES PROVIDED UNDER THIS
AGREEMENT. THE DISTRIBUTOR DISCLAIMS ANY WARRANTY OF TITLE OR
NON-INFRINGEMENT EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT.
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5. Modifications and Waivers
No change, termination, modification, or waiver of any term or condition of
the Agreement shall be valid unless in writing signed by each party. No
such writing shall be effective as against the Distributor unless said
writing is executed by a Senior Vice President, Executive Vice President or
President of the Distributor. A party's waiver of a breach of any term or
condition in the Agreement shall not be deemed a waiver of any subsequent
breach of the same or another term or condition.
6. No Presumption Against Drafter
The Distributor and the Company have jointly participated in the
negotiation and drafting of this Agreement. The Agreement shall be
construed as if drafted jointly by the Company and the Distributor, and no
presumptions arise favoring any party by virtue of the authorship of any
provision of this Agreement.
7. Publicity
Neither the Distributor nor the Company shall release or publish news
releases, public announcements, advertising or other publicity relating to
this Agreement or to the transactions contemplated by it without prior
review and written approval of the other party; provided, however, that
either party may make such disclosures as are required by legal, accounting
or regulatory requirements after making reasonable efforts in the
circumstances to consult in advance with the other party.
8. Severability
The parties intend every provision of this Agreement to be severable. If a
court of competent jurisdiction determines that any term or provision is
illegal or invalid for any reason, the illegality or invalidity shall not
affect the validity of the remainder of this Agreement. In such case, the
parties shall in good faith modify or substitute such provision consistent
with the original intent of the parties. Without limiting the generality of
this paragraph, if a court determines that any remedy stated in this
Agreement has failed of its essential purpose, then all other provisions of
this Agreement, including the limitations on liability and exclusion of
damages, shall remain fully effective.
9. Force Majeure
No party shall be liable for any default or delay in the performance of its
obligations under this Agreement if and to the extent such default or delay
is caused, directly or indirectly, by (i) fire, flood, elements of nature
or other acts of God; (ii) any outbreak or escalation of hostilities, war,
riots or civil disorders in any country, (iii) any act or omission of the
other party or any governmental authority; (iv) any labor disputes (whether
or not the employees' demands are reasonable or within the party's power to
satisfy); or (v) nonperformance by a third party or any similar cause
beyond the reasonable control of such party, including without limitation,
failures or fluctuations in telecommunications or other equipment. In any
such event, the non-performing party shall be excused from any further
performance and observance of the obligations so
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affected only for so long as such circumstances prevail and such party
continues to use commercially reasonable efforts to recommence performance
or observance as soon as practicable.
10. Miscellaneous
10.1 Any notice or other instrument authorized or required by this Agreement to
be given in writing to the Company or the Distributor shall be sufficiently
given if addressed to the party and received by it at its office set forth
below or at such other place as it may from time to time designate in
writing.
To the Company:
Undiscovered Managers Funds
700 North Pearl Street
Plaza of the Americas
Dallas, TX 75201
Attention: Mark P. Hurley
To the Distributor:
First Data Distributors, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Attention: President
with a copy to the Distributor's Chief Legal Officer
10.2 The laws of the Commonwealth of Massachusetts, excluding the laws on
conflicts of laws, and the applicable provisions of the 1940 Act shall
govern the interpretation, validity, and enforcement of this Agreement. To
the extent the provisions of Massachusetts law or the provisions hereof
conflict with the 1940 Act, the 1940 Act shall control. All actions arising
from or related to this Agreement shall be brought in the state and federal
courts sitting in the City of Boston, and the Distributor and the Company
hereby submit themselves to the exclusive jurisdiction of those courts
10.3 This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original and which collectively shall be deemed to
constitute only one instrument.
10.4 The captions of this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
10.5 This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and is not intended to
confer upon any other person any rights or remedies hereunder.
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11. Confidentiality
11.1 The parties agree that the Proprietary Information (defined below) and the
contents of this Agreement (collectively "Confidential Information") are
confidential information of the parties and their respective licensers. The
Company and the Distributor shall exercise reasonable care to safeguard the
confidentiality of the Confidential Information of the other. The Company
and the Distributor may each use the Confidential Information only to
exercise its rights or perform its duties under this Agreement. The Company
and the Distributor shall not duplicate, sell or disclose to others the
Confidential Information of the other, in whole or in part, without the
prior written permission of the other party. The Company and the
Distributor may, however, disclose Confidential Information to its
employees who have a need to know the Confidential Information to perform
work for the other, provided that each shall use reasonable efforts to
ensure that the Confidential Information is not duplicated or disclosed by
its employees in breach of this Agreement. The Company and the Distributor
may also disclose the Confidential Information to independent contractors,
auditors and professional advisors, provided they first agree in writing to
be bound by the confidentiality obligations substantially similar to this
Section 11. Notwithstanding the previous sentence, in no event shall either
the Company or the Distributor disclose the Confidential Information to any
competitor of the other without specific, prior written consent.
11.2 Proprietary Information means:
(a) any data or information that is completely sensitive material, and not
generally known to the public, including, but not limited to, information
about product plans, marketing strategies, finance, operations, customer
relationships, customer profiles, sales estimates, business plans, and
internal performance results relating to the past, present or future
business activities of the Company or the Distributor, their respective
subsidiaries and affiliated companies and the customers, clients and
suppliers of any of them;
(b) any scientific or technical information, design, process, procedure,
formula, or improvement that is commercially valuable and secret in the
sense that its confidentiality affords the Company or the Distributor a
competitive advantage over its competitors: and
(c) all confidential or proprietary concepts, documentation, reports, data,
specifications, computer software, source code, object code, flow charts,
databases, inventions, know-how, show-how and trade secrets, whether or not
patentable or copyrightable.
11.3 Confidential Information includes, without limitation, all documents,
inventions, substances, engineering and laboratory notebooks, drawings,
diagrams, specifications, bills of material, equipment, prototypes and
models, and any other tangible manifestation of the foregoing of either
party which now exist or come into the control or possession of the other.
11.4 The Company acknowledges that breach of the restrictions on use,
dissemination or disclosure of any Confidential Information would result in
immediate and irreparable
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harm, and money damages would be inadequate to compensate the Distributor
for that harm. The Distributor shall be entitled to equitable relief, in
addition to all other available remedies, to redress any such breach.
11.5 The obligations of confidentiality and restriction on use herein shall not
apply to any Confidential Information that a party proves:
(a) Was in the public domain prior to the date of this Agreement or
subsequently came into the public domain through no fault of such party; or
(b) Was lawfully received by the party from a third party free of any
obligation of confidence to such third party; or
(c) Was already in the possession of the party prior to receipt thereof,
directly or indirectly, from the other party; or
(d) Is required to be disclosed in a judicial or administrative proceeding
after all reasonable legal remedies for maintaining such information in
confidence have been exhausted including, but not limited to, giving the
other party as much advance notice of the possibility of such disclosure as
practical so the other party may attempt to stop such disclosure or obtain
a protective order concerning such disclosure; or
(e) Is subsequently and independently developed by employees, consultants
or agents of the party without reference to the Confidential Information
disclosed under this Agreement.
12. Director/Trustee Liability
The Company and the Distributor agree that the obligations of the Company
under the Agreement shall not be binding upon any of the Trustees,
shareholders, nominees, officers, employees or agents, whether past,
present or future, of the Company individually, but are binding only upon
the assets and property of the Company, as provided in the Declaration of
Trust. The execution and delivery of this Agreement have been authorized by
the Trustees of the Company, and signed by an authorized officer of the
Company, acting as such, and neither such authorization by such Trustees
nor such execution and delivery by such officer shall be deemed to have
been made by any of them or any shareholder of the Company individually or
to impose any liability on any of them or any shareholder of the Company
personally, but shall bind only the assets and property of the Company as
provided in the Declaration of Trust.
13. Entire Agreement
This Agreement, including all Schedules hereto, constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous proposals, agreements, contracts,
representations, and understandings, whether written or oral, between the
parties with respect to the subject matter hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
UNDISCOVERED MANAGERS FUNDS
By:_________________________
Name:_______________________
Title:________________________
FIRST DATA DISTRIBUTORS, INC.
By:_________________________
Name:_______________________
Title:________________________
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SCHEDULE A
to the Distribution Agreement
between Undiscovered Managers Funds and
First Data Distributors, Inc.
Name of Funds
Undiscovered Managers All Cap Fund
Undiscovered Managers Behavioral Growth Fund
Undiscovered Managers Core Equity Fund
Undiscovered Managers Hidden Value Fund
Undiscovered Managers REIT Fund
Undiscovered Managers Small Cap Value Fund
Undiscovered Manages Special Small Cap Fund
A-1
EXHIBIT 99.8:
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FORM OF CUSTODIAN AGREEMENT BETWEEN THE TRUST AND THE BANK OF NEW YORK.
<PAGE>
DRAFT OF 12/16/97
CUSTODY AGREEMENT
Agreement made as of this day of December, 1997, between
Undiscovered Managers 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
700 North Pearl Street, Plaza of the Americas, Dallas, Texas 75201
(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. "Authorized Persons" shall be deemed to include any person,
whether or not such person is an officer or employee 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.
2. "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.
3. "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.
<PAGE>
4. "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 Authorized Persons, and
the term Certificate shall also include Instructions.
5. "Clearing Member" shall mean a registered broker-dealer which
is a clearing member under the rules of 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.
6. "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.
7. "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.
8. "Composite Currency Unit" shall mean the European Currency
Unit or any other composite unit consisting of the aggregate of
specified amounts of specified Currencies as such unit may be
constituted from time to time.
9. "Currency" shall mean money denominated in a lawful currency
of any country or the European Currency Unit.
10. "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 identified in a certified copy of a resolution
of the Fund's Board of Trustees specifically approving deposits
therein by the Custodian.
11. "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.
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12. "Futures Contract" shall mean a Financial Futures Contract
and/or Stock Index Futures Contracts.
13. "Futures Contract Option" shall mean an option with respect
to a Futures Contract.
14. "FX Transaction" shall mean any transaction for the purchase
by one party of an agreed amount in one Currency against the sale by
it to the other party of an agreed amount in another Currency.
15. "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 Authorized
Person or unsigned) and tested telex.
16. "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 commission merchant or a
Clearing Member (a "Margin Account Agreement"), 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 effecting an appropriate entry in
its books and records.
17. "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.
18. "O.C.C." shall mean the Options Clearing Corporation, a
clearing agency registered under Section 17A of the Securities
Exchange Act of 1934, its successor or successors, and its nominee or
nominees.
19. "Option" shall mean a Call Option, Covered Call Option,
Stock Index Option and/or a Put Option.
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20. "Oral Instructions" shall mean verbal instructions actually
received by the Custodian from an Authorized Person or from a person
reasonably believed by the Custodian to be an Authorized Person.
21. "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.
22. "Reverse Repurchase Agreement" shall mean an agreement
pursuant to which the Fund sells Securities and agrees to repurchase
such Securities at a described or specified date and price.
23. "Security" shall be deemed to include, without limitation,
Money Market Securities, Call Options, Put Options, 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 having characteristics similar to common stocks, preferred
stocks, debt obligations issued by state or municipal governments and
by public authorities (including, without limitation, 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 evidencing or representing any other
rights or interest therein, or any property or assets.
24. "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 recordation or otherwise,
within the custody account in which certain Securities and/or other
assets of the Fund specifically allocated 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.
25. "Series" shall mean the various portfolios, if any, of the
Fund listed on Appendix B hereto as amended from time to time.
26. "Shares" shall mean the shares of beneficial interest of the
Fund, each of which is, in the case of a Fund having Series,
allocated to a particular Series.
27. "Stock Index Futures Contract" shall mean a bilateral
agreement pursuant to which the parties agree to
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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.
28. "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 money 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 money 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 money 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 money is 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 Securities and deliveries
and returns of Securities collateral. Prior to a deposit of
Securities specifically allocated to a Series in
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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 allocated 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 money 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 confirmations 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 money 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 the account of the
Fund for a Series, either hereunder or with any co-custodian or
sub-custodian appointed in accordance with
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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 money 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 Custodian without the prior notification or consent of the
Fund;
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(c) present for payment and collect the amount payable upon
all Securities which mature;
(d) surrender Securities in temporary form for definitive
Securities;
(e) execute, as custodian, any necessary declarations or
certificates of ownership under the Internal Revenue Code of 1986, as
amended or the laws or regulations of any other taxing authority now
or hereafter in effect;
(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; and
(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 Agreement 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, authorizations, 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 connection 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 in connection
with the reorganization, refinancing, merger, consolidation,
recapitalization or sale of assets of any
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<PAGE>
corporation, and receive and hold hereunder specifically allocated 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 payable 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 possession 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, Options, or Futures Contract Options by
making payments or deliveries specified in Certificates received by
the Custodian in connection with any such purchase, sale, writing,
settlement 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 commission 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 notwithstanding 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 the
delivery to the Custodian of such instrument or such certificate, and
deliver any Futures Contract, Option or
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<PAGE>
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 money 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, as the case
may be.
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 any; and (h) the name of the broker to whom the Securities
are
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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, as the
case may be.
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 Clearing 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 money 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 payable 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 Option, 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
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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 specifying 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 money 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 specifying 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 Option 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 allocated; (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
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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 Options 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
Option.
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 issuer 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 payable 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 specifying 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
Securities, 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 Securities 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
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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 specifying: (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 allocated 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 Account. 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 money 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 Securities,
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
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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 Option: (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 (g) the amount of
cash and/or the amount and kind of Securities, if any, to be
withdrawn from the Collateral Account 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 money 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 position 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,
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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 of 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 Account
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 Securities, 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 Account in accordance with the
terms and conditions of the Margin Account Agreement. 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 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 Agreement.
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(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 accordance with the terms and conditions of the
Margin Account Agreement.
5. Notwithstanding any other provision in this Agreement to the
contrary, the Custodian shall deliver cash and Securities to a
futures commission merchant upon receipt of a Certificate from the
Fund specifying: (a) the name of the futures commission merchant; (b)
the specific cash and Securities to be delivered; (c) the date of
such delivery; and (d) the date of the agreement between the Fund and
such futures commission merchant entered pursuant to Rule 17f-6 under
the Investment Company Act 1940, as amended. Each delivery of such a
Certificate by the Fund shall constitute (x) a representation and
warranty by the Fund that the Rule 17f-6 agreement has been duly
authorized, executed and delivered by the Fund and the futures
commission merchant and complies with Rule 17f-6, and (y) an
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agreement by the Fund that the Custodian shall not be liable for the
acts or omissions of any such futures commission merchant.
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; (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 money
specifically allocated 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 Option
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 payable
to the Fund upon such sale; and (h) the name of the broker or 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 Option 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)
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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 Securities to be deposited in the
Senior Security Account for such Series. The Custodian shall make,
out of the money and Securities 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, 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.
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; (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 money 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
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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 allocated; (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 commission 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 money and Securities
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 Option described
in this Article in order to liquidate its position as a writer of
such Futures Contract Option, the Fund shall promptly deliver to the
Custodian a Certificate specifying 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
withdrawals, 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 Option 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
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paragraph 3 of Article III herein and, (b) make such withdrawals 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 accordance 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.
10. Notwithstanding any other provision in this Agreement to the
contrary, the Custodian shall deliver cash and Securities to a future
commission merchant upon receipt of a Certificate from the Fund
specifying: (a) the name of the future commission merchant; (b) the
specific cash and Securities to be delivered; (c) the date of such
delivery; and (d) the date of the agreement between the Fund and such
future commission merchant entered pursuant to Rule 17f-6 under the
Investment Company Act 1940, as amended. Each delivery of such a
Certificate by the Fund shall constitute (x) a representation and
warranty by the Fund that the Rule 17f-6 agreement has been duly
authorized, executed and delivered by the Fund and the future
commission merchant and complies with Rule 17f-6, and (y) an
agreement by the Fund that the Custodian shall not be liable for the
acts or omissions of any such future commission merchant.
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 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
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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 money 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 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
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Security Account, specified in such Certificate or Oral Instructions.
2. Upon the termination of a Reverse Repurchase Agreement
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 termination; (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 Securities 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 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 collateral 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.
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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 Securities: (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 money 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 Custodian into, or
withdrawn from, a Senior Securities Account, 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
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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 business 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 Account specifying the amount of cash
and/or the amount and kind of Securities held therein. No later than
the close of business next succeeding the delivery to the Fund of
such statement, 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 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
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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 money held for the account of each Series the total
amount payable to the Fund's 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 allocated to the separate
account in the name of such Series.
2. Upon receipt of such money from the Fund's, the Custodian
shall credit such money to the separate account in the name of the
Series for which such money was received.
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
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(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
money 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 money
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
money 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 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, security
interest, and security entitlement in and to any property including
any
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investment property or any financial asset 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
borrowing, 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 borrowing,
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 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 collateral 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
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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 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
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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 of
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 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
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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.
DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY
OF ANY SERIES HELD OUTSIDE OF THE UNITED STATES
1. The Custodian is authorized and instructed to employ, as
sub-custodian for each Series' Foreign Securities (as such term is
defined in paragraph (c)(1) of Rule 17f-5 under the Investment
Company Act of 1940, as amended) and other assets, the foreign
banking institutions and foreign securities depositories and clearing
agencies designated on Schedule I hereto ("Foreign Sub-Custodians")
to carry out their respective responsibilities in accordance with the
terms of the sub-custodian agreement between each such Foreign Sub-
Custodian and the Custodian, copies of which have been previously
delivered to the Fund and receipt of which is hereby acknowledged
(each such agreement, a "Foreign Sub- Custodian Agreement"). Upon
receipt of a Certificate, together with a certified resolution
substantially in the form attached as Exhibit E of the Fund's Board
of Trustees, the Fund may designate any additional foreign
sub-custodian with which the Custodian has an agreement for such
entity to act as the Custodian's agent, as its sub-custodian and any
such additional foreign sub-custodian shall be deemed added to
Schedule I. Upon receipt of a Certificate from the Fund, the
Custodian shall cease the employment of any one or more Foreign
Sub-Custodians for maintaining custody of the Fund's assets and such
Foreign Sub-Custodian shall be deemed deleted from Schedule I.
2. Each Foreign Sub-Custodian Agreement shall be substantially
in the form previously delivered to the Fund and will not be amended
in a way that materially adversely affects the Fund without the
Fund's prior written consent.
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<PAGE>
3. The Custodian shall identify on its books as belonging to
each Series of the Fund the Foreign Securities of such Series held by
each Foreign Sub-Custodian. At the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with respect
to any claims by the Fund or any Series against a Foreign
Sub-Custodian as a consequence of any loss, damage, cost, expense,
liability or claim sustained or incurred by the Fund or any Series if
and to the extent that the Fund or such Series has not been made
whole for any such loss, damage, cost, expense, liability or claim.
4. Upon request of the Fund, the Custodian will, consistent with
the terms of the applicable Foreign Sub- Custodian Agreement, use
reasonable efforts to arrange for the independent accountants of the
Fund to be afforded access to the books and records of any Foreign
Sub-Custodian insofar as such books and records relate to the
performance of such Foreign Sub-Custodian under its agreement with
the Custodian on behalf of the Fund.
5. The Custodian will supply to the Fund from time to time, as
mutually agreed upon, statements in respect of the securities and
other assets of each Series held by Foreign Sub-Custodians, including
but not limited to, an identification of entities having possession
of each Series' Foreign Securities and other assets, and advices or
notifications of any transfers of Foreign Securities to or from each
custodial account maintained by a Foreign Sub-Custodian for the
Custodian on behalf of the Series.
6. The Custodian shall transmit promptly to the Fund all
notices, reports or other written information received pertaining to
the Fund's Foreign Securities, including without limitation, notices
of corporate action, proxies and proxy solicitation materials.
7. Notwithstanding any provision of this Agreement to the
contrary, settlement and payment for securities received for the
account of any Series and delivery of securities maintained for the
account of such Series may be effected in accordance with the
customary or established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivery of
securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer.
8. Notwithstanding any other provision in this Agreement to the
contrary, with respect to any losses or damages arising out of or
relating to any actions or omissions of any Foreign Sub-Custodian the
sole responsibility and
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<PAGE>
liability of the Custodian shall be to take appropriate action at the
Fund's expense to recover such loss or damage from the Foreign
Sub-Custodian. It is expressly understood and agreed that the
Custodian's sole responsibility and liability shall be limited to
amounts so recovered from the Foreign Sub-Custodian.
ARTICLE XVII.
FX TRANSACTIONS
1. Whenever the Fund shall enter into an FX Transaction, the
Fund shall promptly deliver to the Custodian a Certificate or Oral
Instructions specifying with respect to such FX Transaction: (a) the
Series to which such FX Transaction is specifically allocated; (b)
the type and amount of Currency to be purchased by the Fund; (c) the
type and amount of Currency to be sold by the Fund; (d) the date on
which the Currency to be purchased is to be delivered; (e) the date
on which the Currency to be sold is to be delivered; and (f) the name
of the person from whom or through whom such currencies are to be
purchased and sold. Unless otherwise instructed by a Certificate or
Oral Instructions, the Custodian shall deliver, or shall instruct a
Foreign Sub-Custodian to deliver, the Currency to be sold on the
date on which such delivery is to be made, as set forth in the
Certificate, and shall receive, or instruct a Foreign Sub-Custodian
to receive, the Currency to be purchased on the date as set forth in
the Certificate.
2. Where the Currency to be sold is to be delivered on the same
day as the Currency to be purchased, as specified in the Certificate
or Oral Instructions, the Custodian or a Foreign Sub-Custodian may
arrange for such deliveries and receipts to be made in accordance
with the customs prevailing from time to time among brokers or
dealers in Currencies, and such receipt and delivery may not be
completed simultaneously. The Fund assumes all responsibility and
liability for all credit risks involved in connection with such
receipts and deliveries, which responsibility and liability shall
continue until the Currency to be received by the Fund has been
received in full.
3. Any FX Transaction effected by the Custodian in connection
with this Agreement may be entered with the Custodian, any office,
branch or subsidiary of The Bank of New York Company, Inc., or any
Foreign Sub-Custodian acting as principal or otherwise through
customary banking channels. The Fund may issue a standing Certificate
with respect to FX Transaction but the Custodian may establish rules
or limitations concerning any foreign exchange facility made
available to the Fund. The Fund shall bear all risks of investing in
Securities or holding Currency. Without limiting
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<PAGE>
the foregoing, the Fund shall bear the risks that rules or procedures
imposed by a Foreign Sub-Custodian or foreign depositories, exchange
controls, asset freezes or other laws, rules, regulations or orders
shall prohibit or impose burdens or costs on the transfer to, by or
for the account of the Fund of Securities or any cash held outside
the Fund's jurisdiction or denominated in Currency other than its
home jurisdiction or the conversion of cash from one Currency into
another currency. The Custodian shall not be obligated to substitute
another Currency for a Currency (including a Currency that is a
component of a Composite Currency Unit) whose transferability,
convertibility or availability has been affected by such law,
regulation, rule or procedure. Neither The Custodian nor any Foreign
Sub-Custodian shall be liable to the Fund for any loss resulting from
any of the foregoing events.
ARTICLE XVIII.
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,
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 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;
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(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 Securities, 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 obligation 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 termination 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, 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 payment.
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.
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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 held in the Depository, unless the Custodian
shall have actually received timely notice from the Depository
provided, however, that if receipt of notice is not timely the
Custodian shall promptly advise the Fund of such notice. 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 reasonable 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 obligation 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 obligation 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 satisfaction of reimbursement of its costs and
expenses in connection with any such action.
7. The Custodian may in addition to the employment of Foreign
Sub-Custodians pursuant to Article XVI 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 money 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 obligation (a)
to ascertain whether any Securities at any time delivered to, or held
by it or by any Foreign Sub-Custodian,
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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 may be agreed upon from time to time between 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 allocated 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 Agreement. 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 reasonably believed by the Custodian to be provided by
Authorized Persons. 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 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 Authorized Person.
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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 accordance 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 representatives, 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 reasonable 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 accounting 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, 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. Subject to the foregoing provisions of this Agreement,
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
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among brokers or dealers in such Securities. When the Custodian is
instructed by the Fund in accordance with this Agreement 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.
16. The Custodian shall have no duties or responsibilities
whatsoever except such duties and responsibilities as are
specifically set forth in this Agreement, and no covenant or
obligation shall be implied in this Agreement against the Custodian.
ARTICLE XIX.
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 ninety (90) 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 $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 money 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
- 39 -
<PAGE>
by the Custodian of all Securities (other than Securities held in the
Book-Entry System which cannot be delivered to the Fund) and money
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 Agreement.
ARTICLE XX.
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed by two
of the present Authorized Persons of the Fund under its seal, setting
forth the names and the signatures of the present Authorized Persons.
The Fund agrees to furnish to the Custodian a new Certificate in
similar form in the event that any such present Authorized Person
ceases to be an Authorized Person or in the event that other or
additional Authorized Persons 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 Authorized Persons 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 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 to the attention of Mark
P. Hurley 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
- 40 -
<PAGE>
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 liabilities 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.
- 41 -
<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.
Undiscovered Manager Funds
[SEAL] By:
----------------------------
Name: Mark P. Hurley
Title: President
Attest:
-----------------------
THE BANK OF NEW YORK
[SEAL] By:
----------------------------
Name:
Title:
Attest:
-----------------------
- 42 -
<PAGE>
APPENDIX A
I, , President and
I, , of
Undiscovered Managers Funds, a Massachusetts business trust (the
"Fund"), do hereby certify that:
The following persons have been duly authorized in conformity
with the Fund's Declaration of Trust and By-Laws to execute any
Certificate, instruction, notice or other instrument on behalf of the
Fund, and the signatures set forth opposite their respective names
are their true and correct signatures:
Name Position Signature
-------------------- ------------------- -----------------
<PAGE>
APPENDIX B
SERIES
Undiscovered Managers All Cap Fund
Undiscovered Managers Behavioral Growth Fund
Undiscovered Managers Care Equity Fund
Undiscovered Managers Hidden Value Fund
Undiscovered Managers REIT Fund
Undiscovered Managers Small Cap Fund
Undiscovered Managers Special Small Cap 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 Undiscovered Managers 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 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 Undiscovered Managers 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 Undiscovered Managers 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 Agreement, 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 Undiscovered Managers 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 Undiscovered Managers 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 Agreement, 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 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 Undiscovered Managers 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 Undiscovered Managers 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 Agreement, 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 Undiscovered Managers 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 Undiscovered Managers 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 Authorized Persons 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 Undiscovered Managers Funds, as of the day of
, 1997.
------------------------------
[SEAL]
<PAGE>
EXHIBIT E
The undersigned, , hereby certifies
that he or she is the duly elected and acting
of Undiscovered Managers 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 maintenance of the Fund's assets in each
country listed in Schedule I hereto be, and hereby is, approved
by the Board of Trustees as consistent with the best interests
of the Fund and its shareholders; and further
RESOLVED, that the maintenance of the Fund's assets with
the foreign branches of The Bank of New York (the "Bank") listed
in Schedule I located in the countries specified therein, and
with the foreign sub-custodians and depositories listed in
Schedule I located in the countries specified therein be, and
hereby is, approved by the Board of Trustees as consistent with
the best interest of the Fund and its shareholders; and further
RESOLVED, that the Sub-Custodian Agreements presented to
this meeting between the Bank and each of the foreign
sub-custodians and depositories listed in Schedule I providing
for the maintenance of the Fund's assets with the applicable
entity, be and hereby are, approved by the Board of Trustees as
consistent with the best interests of the Fund and its
shareholders; and further
RESOLVED, that the appropriate officers of the Fund are
hereby authorized to place assets of the Fund with the
aforementioned foreign branches and foreign sub-custodians and
depositories as hereinabove provided; and further
RESOLVED, that the appropriate officers of the Fund, or any
of them, are authorized to do any and all other acts, in the
name of the Fund and on its behalf, as they, or any of them, may
determine to be necessary or desirable and proper in connection
with or in furtherance of the foregoing resolutions.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of Undiscovered Managers Funds, as of the day of
, 1997.
-----------------------------
[SEAL]
EXHIBIT 99.9(a):
----------------
FORM OF TRANSFER AGENCY AND SERVICES AGREEMENT BETWEEN THE TRUST AND FIRST DATA.
<PAGE>
TRANSFER AGENCY AND SERVICES AGREEMENT
THIS AGREEMENT, dated as of this 12th day of December, 1997 between UNDISCOVERED
MANAGERS FUNDS (the "Fund"), a Massachusetts business trust having its principal
place of business at 700 North Pearl Street, Plaza of the Americas, Dallas,
Texas 75201 and FIRST DATA INVESTOR SERVICES GROUP, INC. ("Investor Services
Group"), a Massachusetts corporation with principal offices at 4400 Computer
Drive, Westboro, Massachusetts 01581.
WITNESSETH
WHEREAS, the Fund is authorized to issue Shares in separate series,
with each such series representing interests in a separate portfolio of
securities or other assets.
WHEREAS, the Fund initially intends to offer Shares in those Portfolios
identified in the attached Exhibit 1, each such Portfolio, together with all
other Portfolios subsequently established by the Fund shall be subject to this
Agreement in accordance with Article 14;
WHEREAS, the Fund on behalf of the Portfolios, desires to appoint
Investor Services Group as its transfer agent, dividend disbursing agent and
agent in connection with certain other activities and Investor Services Group
desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the Fund and Investor Services Group agree as follows:
Article 1 Definitions.
1.1 Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, or other similar organizational
document as the case may be, of the Fund as the same may be amended
from time to time.
(b) "Authorized Person" shall be deemed to include (i) any
authorized officer of the Fund; or (ii) any person, whether or not such
person is an officer or employee of the Fund, duly authorized to give
Oral Instructions or Written Instructions on behalf of the Fund as
indicated in writing to Investor Services Group from time to time.
(c) "Board of Directors" shall mean the Board of Directors or
Board of Trustees of the Fund, as the case may be.
(d) "Commission" shall mean the Securities and Exchange
Commission.
(e) "Custodian" refers to any custodian or subcustodian of
securities and
<PAGE>
other property which the Fund may from time to time deposit, or cause
to be deposited or held under the name or account of such a custodian
pursuant to a Custodian Agreement.
(f) "1934 Act" shall mean the Securities Exchange Act of 1934
and the rules and regulations promulgated thereunder, all as amended
from time to time.
(g) "1940 Act" shall mean the Investment Company Act of 1940
and the rules and regulations promulgated thereunder, all as amended
from time to time.
(h) "Oral Instructions" shall mean instructions, other than
Written Instructions, actually received by Investor Services Group from
a person reasonably believed by Investor Services Group to be an
Authorized Person;
(i) "Portfolio" shall mean each separate series of shares
offered by the Fund representing interests in a separate portfolio of
securities and other assets;
(j) "Prospectus" shall mean the most recently dated Fund
Prospectus and Statement of Additional Information, including any
supplements thereto if any, which has become effective under the
Securities Act of 1933 and the 1940 Act.
(k) "Shares" refers collectively to such shares of capital
stock or beneficial interest, as the case may be, or class thereof, of
each respective Portfolio of the Fund as may be issued from time to
time.
(l) "Shareholder" shall mean a record owner of Shares of each
respective Portfolio of the Fund.
(m) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by Investor Services Group to be
an Authorized Person and actually received by Investor Services Group.
Written Instructions shall include manually executed originals and
authorized electronic transmissions, including telefacsimile of a
manually executed original or other process.
Article 2 Appointment of Investor Services Group.
The Fund, on behalf of the Portfolios, hereby appoints and constitutes
Investor Services Group as transfer agent and dividend disbursing agent for
Shares of each respective Portfolio of the Fund and as shareholder servicing
agent for the Fund and Investor Services Group hereby accepts such appointments
and agrees to perform the duties hereinafter set forth.
Article 3 Duties of Investor Services Group.
3.1 Investor Services Group shall be responsible for:
(a) Administering and/or performing the customary services of
a transfer
<PAGE>
agent; acting as service agent in connection with dividend and
distribution functions; and for performing shareholder account
functions in connection with the issuance, transfer and redemption or
repurchase (including coordination with the Custodian) of Shares of
each Portfolio, as more fully described in the written schedule of
Duties of Investor Services Group annexed hereto as Schedule A and
incorporated herein, and in accordance with the terms of the Prospectus
of the Fund on behalf of the applicable Portfolio, applicable law and
the procedures established from time to time between Investor Services
Group and the Fund.
(b) Recording the issuance of Shares and maintaining pursuant
to Rule 17Ad-10(e) of the 1934 Act a record of the total number of
Shares of each Portfolio which are authorized, based upon data provided
to it by the Fund, and issued and outstanding. Investor Services Group
shall provide the Fund on a regular basis with the total number of
Shares of each Portfolio which are authorized and issued and
outstanding and shall have no obligation, when recording the issuance
of Shares, to monitor the issuance of such Shares or to take cognizance
of any laws relating to the issue or sale of such Shares, which
functions shall be the sole responsibility of the Fund.
(c) In addition to providing the foregoing services, the Fund
hereby engages Investor Services Group as its exclusive service
provider with respect to the Print/Mail Services as set forth in
Schedule B for the fees also identified in Schedule B. Investor
Services Group agrees to perform the services and its obligations
subject to the terms and conditions of this Agreement.
(d) Notwithstanding any of the foregoing provisions of this
Agreement, Investor Services Group shall be under no duty or obligation
to inquire into, and shall not be liable for: (i) the legality of the
issuance or sale of any Shares or the sufficiency of the amount to be
received therefor; (ii) the legality of the redemption of any Shares,
or the propriety of the amount to be paid therefor; (iii) the legality
of the declaration of any dividend by the Board of Directors, or the
legality of the issuance of any Shares in payment of any dividend; or
(iv) the legality of any recapitalization or readjustment of the
Shares.
3.2 In addition, the Fund shall (i) identify to Investor Services Group
in writing those transactions and assets to be treated as exempt from blue sky
reporting for each State and (ii) verify the establishment of transactions for
each State on the system prior to activation and thereafter monitor the daily
activity for each State. The responsibility of Investor Services Group for the
Fund's blue sky State registration status is solely limited to the initial
establishment of transactions subject to blue sky compliance by the Fund and the
reporting of such transactions to the Fund as provided above.
3.3 In addition to the duties set forth herein, Investor Services Group
shall perform such other duties and functions, and shall be paid such amounts
therefor, as may from time to time be agreed upon in writing between the Fund
and Investor Services Group.
<PAGE>
Article 4 Recordkeeping and Other Information.
4.1 Investor Services Group shall create and maintain all records
required of it pursuant to its duties hereunder and as set forth in Schedule A
in accordance with all applicable laws, rules and regulations, including records
required by Section 31(a) of the 1940 Act. Where applicable, such records shall
be maintained by Investor Services Group for the periods and in the places
required by Rule 31a-2 under the 1940 Act.
4.2 To the extent required by Section 31 of the 1940 Act, Investor
Services Group agrees that all such records prepared or maintained by Investor
Services Group relating to the services to be performed by Investor Services
Group hereunder are the property of the Fund and will be preserved, maintained
and made available in accordance with such section, and will be surrendered
promptly to the Fund on and in accordance with the Fund's request.
4.3 In case of any requests or demands for the inspection of
Shareholder records of the Fund, Investor Services Group will endeavor to notify
the Fund of such request and secure Written Instructions as to the handling of
such request. Investor Services Group reserves the right, however, to exhibit
the Shareholder records to any person whenever it is advised by its counsel that
it may be held liable for the failure to comply with such request.
Article 5 Fund Instructions.
5.1 Investor Services Group will have no liability when acting upon
Written or Oral Instructions it reasonably believes to have been executed or
orally communicated by an Authorized Person and will not be held to have any
notice of any change of authority of any person until receipt of a Written
Instruction thereof from the Fund. Investor Services Group will also have no
liability when processing Share certificates which it reasonably believes to
bear the proper manual or facsimile signatures of the officers of the Fund and
the proper countersignature of Investor Services Group.
5.2 At any time, Investor Services Group may request Written
Instructions from the Fund and may seek advice from legal counsel for the Fund
with respect to any matter arising in connection with this Agreement, and it
shall not be liable for any action taken or not taken or suffered by it in good
faith in accordance with such Written Instructions or in accordance with the
opinion of counsel for the Fund. Written Instructions requested by Investor
Services Group will be provided by the Fund within a reasonable period of time.
5.3 Investor Services Group, its officers, agents or employees, shall
accept Oral Instructions or Written Instructions given to them by any person
representing or acting on behalf of the Fund only if said representative is an
Authorized Person. The Fund agrees that all Oral Instructions shall be followed
within one business day by confirming Written Instructions, and that the Fund's
failure to so confirm shall not impair in any respect Investor Services Group's
right to rely on Oral Instructions.
Article 6 Compensation.
<PAGE>
6.1 The Fund on behalf of each of the Portfolios will compensate
Investor Services Group for the performance of its obligations hereunder in
accordance with the fees set forth in the written Fee Schedule annexed hereto as
Schedule B and incorporated herein.
6.2 In addition to those fees set forth in Section 6.1 above, the Fund
on behalf of each of the Portfolios agrees to pay, and will be billed separately
for, out-of-pocket expenses incurred by Investor Services Group in the
performance of its duties hereunder. Out-of-pocket expenses shall include, but
shall not be limited to, the items specified in the written schedule of
out-of-pocket charges annexed hereto as Schedule C and incorporated herein.
Schedule C may be modified by written agreement between the parties. Unspecified
out-of-pocket expenses shall be limited to those out-of-pocket expenses
reasonably incurred by Investor Services Group in the performance of its
obligations hereunder.
6.3 The Fund on behalf of each of the Portfolios agrees to pay all fees
and out-of-pocket expenses to Investor Services Group by Federal Funds Wire
within fifteen (15) business days following the receipt of the respective
invoice. In addition, with respect to all fees under this Agreement, Investor
Services Group may charge a service fee on any past due invoiced amounts equal
to the lesser of (i) one and one half percent (1 1/2%) per month or (ii) the
highest interest rate legally permitted.
6.4 Any compensation and out-of-pocket expenses agreed to hereunder may
be adjusted from time to time by attaching to Schedule B or Schedule C, as the
case may be, a revised Schedule executed and dated by the parties hereto.
6.5 The Fund acknowledges that the fees that Investor Services Group
charges the Fund under this Agreement reflect the allocation of risk between the
parties, including the disclaimer of warranties in Section 9.3 and the
limitations on liability and exclusion of remedies in Article 12. Modifying the
allocation of risk from what is stated here would affect the fees that Investor
Services Group charges, and in consideration of those fees, the Fund agrees to
the stated allocation of risk.
Article 7 Documents.
In connection with the appointment of Investor Services Group, the Fund
shall, on or before the date this Agreement goes into effect, but in any case
within a reasonable period of time for Investor Services Group to prepare to
perform its duties hereunder, deliver or caused to be delivered to Investor
Services Group the documents set forth in the written schedule of Fund Documents
annexed hereto as Schedule D.
Article 8 Transfer Agent System.
8.1 Investor Services Group shall retain title to and ownership of any
and all data bases, computer programs, screen formats, report formats,
interactive design techniques, derivative works, inventions, discoveries,
patentable or copyrightable matters, concepts,
<PAGE>
expertise, patents, copyrights, trade secrets, and other related legal rights
utilized by Investor Services Group in connection with the services provided by
Investor Services Group to the Fund herein (the "Investor Services Group
System").
8.2 Investor Services Group hereby grants to the Fund a limited license
to the Investor Services Group System for the sole and limited purpose of having
Investor Services Group provide the services contemplated hereunder and nothing
contained in this Agreement shall be construed or interpreted otherwise and such
license shall immediately terminate with the termination of this Agreement.
8.3 In the event that the Fund, including any affiliate or agent of the
Fund or any third party acting on behalf of the Fund is provided with direct
access to the Investor Services Group System for either account inquiry or to
transmit transaction information, including but not limited to maintenance,
exchanges, purchases and redemptions, such direct access capability shall be
limited to direct entry to the Investor Services Group System by means of
on-line mainframe terminal entry or PC emulation of such mainframe terminal
entry and any other non-conforming method of transmission of information to the
Investor Services Group System is strictly prohibited without the prior written
consent of Investor Services Group.
Article 9 Representations and Warranties.
9.1 Investor Services Group represents and warrants to the Fund that:
(a) it is a corporation duly organized, existing and in good
standing under the laws of the Commonwealth of Massachusetts;
(b) it is empowered under applicable laws and by its Articles
of Incorporation and By-Laws to enter into and perform this Agreement;
(c) all requisite corporate proceedings have been taken to
authorize it to enter into this Agreement;
(d) it is duly registered with its appropriate regulatory
agency as a transfer agent and such registration will remain in effect
for the duration of this Agreement; and
(e) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
9.2 The Fund represents and warrants to Investor Services Group that:
(a) it is duly organized and existing under the laws of the
jurisdiction in which it is organized;
(b) it is empowered under applicable laws and by its Articles
of Incorporation and By-Laws to enter into this Agreement;
<PAGE>
(c) all corporate proceedings required by said Articles of
Incorporation, By-Laws and applicable laws have been taken to authorize
it to enter into this Agreement;
(d) a registration statement under the Securities Act of 1933,
as amended, and the 1940 Act on behalf of each of the Portfolios is, or
prior to the effectiveness of this Agreement will be, effective and
will remain effective, and all appropriate state securities law filings
have been made and will continue to be made, with respect to all Shares
of the Fund being offered for sale; and
(e) all outstanding Shares are validly issued, fully paid and
non-assessable and when Shares are hereafter issued in accordance with
the terms of the Fund's Articles of Incorporation and its Prospectus
with respect to each Portfolio, such Shares shall be validly issued,
fully paid and non-assessable.
9.3 THIS IS A SERVICE AGREEMENT. EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, INVESTOR SERVICES GROUP DISCLAIMS ALL OTHER REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, MADE TO THE FUND OR ANY OTHER PERSON, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTIES REGARDING QUALITY, SUITABILITY,
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE (IRRESPECTIVE OF
ANY COURSE OF DEALING, CUSTOM OR USAGE OF TRADE) OF ANY SERVICES OR ANY GOODS
PROVIDED INCIDENTAL TO SERVICES PROVIDED UNDER THIS AGREEMENT. INVESTOR SERVICES
GROUP DISCLAIMS ANY WARRANTY OF TITLE OR NON-INFRINGEMENT EXCEPT AS OTHERWISE
SET FORTH IN THIS AGREEMENT.
Article 10 Indemnification.
10.1 Investor Services Group shall not be responsible for and the Fund
on behalf of each Portfolio shall indemnify and hold Investor Services Group
harmless from and against any and all claims, costs, expenses (including
reasonable attorneys' fees), losses, damages, charges, payments and liabilities
of any sort or kind which may be asserted against Investor Services Group or for
which Investor Services Group may be held to be liable (a "Claim") arising out
of or attributable to any of the following:
(a) any actions of Investor Services Group required to be
taken pursuant to this Agreement unless such Claim resulted from a
negligent act or omission to act or bad faith by Investor Services
Group in the performance of its duties hereunder;
(b) Investor Services Group's reasonable reliance on, or
reasonable use of information, data, records and documents (including
but not limited to magnetic tapes, computer printouts, hard copies and
microfilm copies) received by Investor Services Group from the Fund, or
any authorized third party acting on behalf of the Fund, in the
performance of Investor Services Group's duties and obligations
hereunder;
<PAGE>
(c) the reliance on, or the implementation of, any Written or
Oral Instructions or any other instructions or requests of the Fund on
behalf of the applicable Portfolio;
(d) the offer or sales of shares in violation of any
requirement under the securities laws or regulations of any state that
such shares be registered in such state or in violation of any stop
order or other determination or ruling by any state with respect to the
offer or sale of such shares in such state; and
(e) the Fund's refusal or failure to comply with the terms of
this Agreement, or any Claim which arises out of the Fund's negligence
or misconduct or the breach of any representation or warranty of the
Fund made herein.
10.2 In any case in which the Fund may be asked to indemnify or hold
Investor Services Group harmless, Investor Services Group will notify the Fund
promptly after identifying any situation which it believes presents or appears
likely to present a claim for indemnification against the Fund although the
failure to do so shall not prevent recovery by Investor Services Group and shall
keep the Fund advised with respect to all developments concerning such
situation; provided that such failure shall not materially adversely affect the
Fund. The Fund shall have the option to defend Investor Services Group against
any Claim which may be the subject of this indemnification, and, in the event
that the Fund so elects, such defense shall be conducted by counsel chosen by
the Fund and satisfactory to Investor Services Group, and thereupon the Fund
shall take over complete defense of the Claim and Investor Services Group shall
sustain no further legal or other expenses in respect of such Claim. Investor
Services Group will not confess any Claim or make any compromise in any case in
which the Fund will be asked to provide indemnification, except with the Fund's
prior written consent. The obligations of the parties hereto under this Article
10 shall survive the termination of this Agreement.
10.3 Any claim for indemnification under this Agreement must be made
prior to the earlier of:
(a) one year after the Fund becomes aware of the event for
which indemnification is claimed; or
(b) one year after the earlier of the termination of this
Agreement or the expiration of the term of this Agreement.
10.4 Except for remedies that cannot be waived as a matter of law (and
injunctive or provisional relief), the provisions of this Article 10 shall be
Investor Services Group's sole and exclusive remedy for claims or other actions
or proceedings to which the Fund's indemnification obligations pursuant to this
Article 10 may apply.
Article 11 Standard of Care.
<PAGE>
11.1 Investor Services Group shall at all times act in good faith and
agrees to use its best efforts within commercially reasonable limits to ensure
the accuracy of all services performed under this Agreement, but assumes no
responsibility for loss or damage to the Fund unless said errors are caused by
Investor Services Group's own negligence, bad faith or willful misconduct or
that of its employees.
11.2 Neither party may assert any cause of action against the other
party under this Agreement that accrued more than two (2) years prior to the
filing of the suit (or commencement of arbitration proceedings) alleging such
cause of action.
11.3 Each party shall have the duty to mitigate damages for which the
other party may become responsible.
Article 12 Consequential Damages.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT
SHALL INVESTOR SERVICES GROUP, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE UNDER ANY THEORY OF
TORT, CONTRACT, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR LOST
PROFITS, EXEMPLARY, PUNITIVE, SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL
DAMAGES, EACH OF WHICH IS HEREBY EXCLUDED BY AGREEMENT OF THE PARTIES REGARDLESS
OF WHETHER SUCH DAMAGES WERE FORESEEABLE OR WHETHER EITHER PARTY OR ANY ENTITY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Article 13 Term and Termination.
13.1 This Agreement shall be effective on the date first written above
and shall continue for a period of five (5) years (the "Initial Term").
13.2 Upon the expiration of the Initial Term, this Agreement shall
automatically renew for successive terms of one (1) year ("Renewal Terms") each,
unless the Fund or Investor Services Group provides written notice to the other
of its intent not to renew. Such notice must be received not less than ninety
(90) days and not more than one-hundred eighty (180) days prior to the
expiration of the Initial Term or the then current Renewal Term.
13.3 In the event a termination notice is given by the Fund, all
expenses associated with movement of records and materials and conversion
thereof to a successor transfer agent will be borne by the Fund.
13.4 Notwithstanding anything contained in this Agreement to the
contrary, in the event that First Data Distributors, Inc. ("FDDI"), a
wholly-owned subsidiary of Investor Services Group, shall terminate a
Distribution Agreement between the Fund and FDDI dated as of December 12, 1997,
the Fund shall have the right to terminate this Agreement without penalty
<PAGE>
upon sixty (60) days prior written notice to Investor Services Group.
13.5 If a party hereto is guilty of a material failure to perform its
duties and obligations hereunder (a "Defaulting Party") the other party (the
"Non-Defaulting Party") may give written notice thereof to the Defaulting Party,
and if such material breach shall not have been remedied within thirty (30) days
after such written notice is given, then the Non-Defaulting Party may terminate
this Agreement by giving thirty (30) days written notice of such termination to
the Defaulting Party. If Investor Services Group is the Non-Defaulting Party,
its termination of this Agreement shall not constitute a waiver of any other
rights or remedies of Investor Services Group with respect to services performed
prior to such termination of rights of Investor Services Group to be reimbursed
for out-of-pocket expenses. In all cases, termination by the Non-Defaulting
Party shall not constitute a waiver by the Non-Defaulting Party of any other
rights it might have under this Agreement or otherwise against the Defaulting
Party.
13.6 Notwithstanding anything contained in this Agreement to the
contrary, in the event that this Agreement is terminated by the Fund and such
termination arises, either directly or indirectly as a result of the Fund's
dissolution or the Fund's acquisition of or consolidation or merger into or with
a mutual fund (the "New Fund") for which Investor Services Group does not
provide services substantially similar to those provided to the Fund hereunder,
prior to the effective date of such termination and the conversion of the Fund's
records to the New Fund, or its agent, the Fund shall pay to Investor Services
Group the fee set forth in Schedule B (the "Early Termination Fee").
13.7 Notwithstanding anything contained in this Agreement to the
contrary, the Fund shall have the right to terminate this Agreement upon ninety
(90) days written notice to Investor Services Group provided that, prior to the
effective date of such termination, the Fund shall pay to Investor Services
Group a penalty in an amount equal to the fees paid to Investor Services Group
by the Fund under this Agreement for the previous month annualized to reflect
one year's fee.
Article 14 Additional Portfolios
14.1 In the event that the Fund establishes one or more Portfolios in
addition to those identified in Exhibit 1, with respect to which the Fund
desires to have Investor Services Group render services as transfer agent under
the terms hereof, the Fund shall so notify Investor Services Group in writing,
and if Investor Services Group agrees in writing to provide such services,
Exhibit 1 shall be amended to include such additional Portfolios.
Article 15 Confidentiality.
15.1 The parties agree that the Proprietary Information (defined below)
and the contents of this Agreement (collectively "Confidential Information") are
confidential information of the parties and their respective licensors. The Fund
and Investor Services Group shall exercise at least the same degree of care, but
not less than reasonable care, to safeguard the confidentiality of the
Confidential Information of the other as it would exercise to protect its own
confidential
<PAGE>
information of a similar nature. The Fund and Investor Services Group shall not
duplicate, sell or disclose to others the Confidential Information of the other,
in whole or in part, without the prior written permission of the other party.
The Fund and Investor Services Group may, however, disclose Confidential
Information to their respective parent corporation, their respective affiliates,
their subsidiaries and affiliated companies and employees, provided that each
shall use reasonable efforts to ensure that the Confidential Information is not
duplicated or disclosed in breach of this Agreement. The Fund and Investor
Services Group may also disclose the Confidential Information to independent
contractors, auditors, and professional advisors, provided they first agree in
writing to be bound by the confidentiality obligations substantially similar to
this Section 15.1. Notwithstanding the previous sentence, in no event shall
either the Fund or Investor Services Group disclose the Confidential Information
to any competitor of the other without specific, prior written consent.
15.2 Proprietary Information means:
(a) any data or information that is competitively sensitive
material, and not generally known to the public, including, but not
limited to, information about product plans, marketing strategies,
finance, operations, customer relationships, customer profiles, sales
estimates, business plans, and internal performance results relating to
the past, present or future business activities of the Fund or Investor
Services Group, their respective subsidiaries and affiliated companies
and the customers, clients and suppliers of any of them;
(b) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable and
secret in the sense that its confidentiality affords the Fund or
Investor Services Group a competitive advantage over its competitors;
and
(c) all confidential or proprietary concepts, documentation,
reports, data, specifications, computer software, source code, object
code, flow charts, databases, inventions, know-how, show-how and trade
secrets, whether or not patentable or copyrightable.
15.3 Confidential Information includes, without limitation, all
documents, inventions, substances, engineering and laboratory notebooks,
drawings, diagrams, specifications, bills of material, equipment, prototypes and
models, and any other tangible manifestation of the foregoing of either party
which now exist or come into the control or possession of the other.
15.4 The obligations of confidentiality and restriction on use herein
shall not apply to any Confidential Information that a party proves:
(a) Was in the public domain prior to the date of this
Agreement or subsequently came into the public domain through no fault
of such party; or
(b) Was lawfully received by the party from a third party free
of any
<PAGE>
obligation of confidence to such third party; or
(c) Was already in the possession of the party prior to
receipt thereof, directly or indirectly, from the other party; or
(d) Is required to be disclosed in a judicial or
administrative proceeding after all reasonable legal remedies for
maintaining such information in confidence have been exhausted
including, but not limited to, giving the other party as much advance
notice of the possibility of such disclosure as practical so the other
party may attempt to stop such disclosure or obtain a protective order
concerning such disclosure; or
(f) Is subsequently and independently developed by employees,
consultants or agents of the party without reference to the
Confidential Information disclosed under this Agreement.
Article 16 Force Majeure.
No party shall be liable for any default or delay in the performance of
its obligations under this Agreement if and to the extent such default or delay
is caused, directly or indirectly, by (i) fire, flood, elements of nature or
other acts of God; (ii) any outbreak or escalation of hostilities, war, riots or
civil disorders in any country, (iii) any act or omission of the other party or
any governmental authority; (iv) any labor disputes (whether or not the
employees' demands are reasonable or within the party's power to satisfy); or
(v) nonperformance by a third party or any similar cause beyond the reasonable
control of such party, including without limitation, failures or fluctuations in
telecommunications or other equipment. In any such event, the non-performing
party shall be excused from any further performance and observance of the
obligations so affected only for as long as such circumstances prevail and such
party continues to use commercially reasonable efforts to recommence performance
or observance as soon as practicable.
Article 17 Assignment and Subcontracting.
This Agreement, its benefits and obligations shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned or otherwise transferred
by either party hereto, without the prior written consent of the other party,
which consent shall not be unreasonably withheld; provided, however, that
Investor Services Group may, in its sole discretion, assign all its right, title
and interest in this Agreement to an affiliate, parent or subsidiary, or to the
purchaser of substantially all of its business. Investor Services Group may, in
its sole discretion, engage subcontractors to perform any of the obligations
contained in this Agreement to be performed by Investor Services Group;
provided, however, that Investor Services Group may not engage subcontractors to
perform the obligations contained in this Agreement to be performed by Investor
Services Group without the prior written consent of the Fund.
Article 18 Arbitration.
<PAGE>
18.1 Any claim or controversy arising out of or relating to this
Agreement, or breach hereof, shall be settled by arbitration administered by the
American Arbitration Association in Boston, Massachusetts in accordance with its
applicable rules, except that the Federal Rules of Evidence and the Federal
Rules of Civil Procedure with respect to the discovery process shall apply.
18.2 The parties hereby agree that judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction.
18.3 The parties acknowledge and agree that the performance of the
obligations under this Agreement necessitates the use of instrumentalities of
interstate commerce and, notwithstanding other general choice of law provisions
in this Agreement, the parties agree that the Federal Arbitration Act shall
govern and control with respect to the provisions of this Article 18.
Article 19 Notice.
Any notice or other instrument authorized or required by this Agreement
to be given in writing to the Fund or Investor Services Group, shall be
sufficiently given if addressed to that party and received by it at its office
set forth below or at such other place as it may from time to time designate in
writing.
To the Fund:
Undiscovered Managers Funds
700 North Pearl Street
Plaza of the Americas
Dallas, TX 75201
Attention: Mark P. Hurley
To Investor Services Group:
First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Attention: President
with a copy to Investor Services Group's General Counsel
Article 20 Governing Law/Venue.
The laws of the Commonwealth of Massachusetts, excluding the laws on
conflicts of laws, shall govern the interpretation, validity, and enforcement of
this agreement. All actions arising from or related to this Agreement shall be
brought in the state and federal courts sitting in
<PAGE>
the City of Boston, and Investor Services Group and Client hereby submit
themselves to the exclusive jurisdiction of those courts.
Article 21 Counterparts.
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.
Article 22 Captions.
The captions of this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
Article 23 Publicity.
Neither Investor Services Group nor the Fund shall release or publish
news releases, public announcements, advertising or other publicity relating to
this Agreement or to the transactions contemplated by it without the prior
review and written approval of the other party; provided, however, that either
party may make such disclosures as are required by legal, accounting or
regulatory requirements after making reasonable efforts in the circumstances to
consult in advance with the other party.
Article 24 Relationship of Parties/Non-Solicitation.
24.1 The parties agree that they are independent contractors and not
partners or co-venturers and nothing contained herein shall be interpreted or
construed otherwise.
24.2 During the term of this Agreement and for one (1) year afterward,
the Fund shall not recruit, solicit, employ or engage, for the Fund or others,
Investor Services Group's employees.
Article 25 Entire Agreement; Severability.
25.1 This Agreement, including Schedules, Addenda, and Exhibits hereto,
constitutes the entire Agreement between the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous proposals,
agreements, contracts, representations, and understandings, whether written or
oral, between the parties with respect to the subject matter hereof. No change,
termination, modification, or waiver of any term or condition of the Agreement
shall be valid unless in writing signed by each party. No such writing shall be
effective as against Investor Services Group unless said writing is executed by
a Senior Vice President, Executive Vice President, or President of Investor
Services Group. A party's waiver of a breach of any term or condition in the
Agreement shall not be deemed a waiver of any subsequent breach of the same or
another term or condition.
25.2 The parties intend every provision of this Agreement to be
severable. If a court of
<PAGE>
competent jurisdiction determines that any term or provision is illegal or
invalid for any reason, the illegality or invalidity shall not affect the
validity of the remainder of this Agreement. In such case, the parties shall in
good faith modify or substitute such provision consistent with the original
intent of the parties. Without limiting the generality of this paragraph, if a
court determines that any remedy stated in this Agreement has failed of its
essential purpose, then all other provisions of this Agreement, including the
limitations on liability and exclusion of damages, shall remain fully effective.
Article 26 Miscellaneous.
The Fund and Investor Services Group agree that the obligations of the
Fund under the Agreement shall not be binding upon any of the Board of
Directors, shareholders, nominees, officers, employees or agents, whether past,
present or future, of the Fund individually, but are binding only upon the
assets and property of the Fund, as provided in the Articles of Incorporation.
The execution and delivery of this Agreement have been authorized by the Board
of Directors of the Fund, and signed by an authorized officer of the Fund,
acting as such, and neither such authorization by such Board of Directors nor
such execution and delivery by such officer shall be deemed to have been made by
any of them or any shareholder of the Fund individually or to impose any
liability on any of them or any shareholder of the Fund personally, but shall
bind only the assets and property of the Fund as provided in the Articles of
Incorporation.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, as of the day and year first above
written.
UNDISCOVERED MANAGERS FUNDS
By:________________________________________
Title:_____________________________________
FIRST DATA INVESTOR SERVICES GROUP, INC.
By:________________________________________
Title:_____________________________________
<PAGE>
Exhibit 1
LIST OF PORTFOLIOS
Undiscovered Managers All Cap Fund
Undiscovered Managers Behavioral Growth Fund
Undiscovered Managers Core Equity Fund
Undiscovered Managers Hidden Value Fund
Undiscovered Managers REIT Fund
Undiscovered Managers Small Cap Value Fund
Undiscovered Managers Special Small Cap Fund
<PAGE>
Schedule A
DUTIES OF INVESTOR SERVICES GROUP
1. Shareholder Information. Investor Services Group shall maintain a
record of the number of Shares held by each Shareholder of record which shall
include name, address, taxpayer identification and which shall indicate whether
such Shares are held in certificates or uncertificated form.
2. Shareholder Services. Investor Services Group shall provide the
following shareholder services to the Fund: (i) respond as appropriate to all
inquiries and communications from Shareholders relating to Shareholder accounts
with respect to its duties hereunder and as may be from time to time mutually
agreed upon between Investor Services Group and the Fund; (ii) issue customer
statements on scheduled cycles, providing duplicate second and third party
copies if required; (iii) issue periodic statements to shareholders; (iv) make
information available to appropriate shareholder servicing personnel and other
remote access units, if applicable, regarding trade date, share price, current
holdings, yields and dividend information; and (v) produce detailed history of
transactions through duplicate or special order statements upon request.
3. Share Certificates.
(a) At the expense of the Fund, the Fund shall supply Investor
Services Group with an adequate supply of blank share certificates to meet
Investor Services Group requirements therefor. Such Share certificates shall be
properly signed by facsimile. The Fund agrees that, notwithstanding the death,
resignation, or removal of any officer of the Fund whose signature appears on
such certificates, Investor Services Group or its agent may continue to
countersign certificates which bear such signatures until otherwise directed by
Written Instructions.
(b) Investor Services Group shall issue replacement Share
certificates in lieu of certificates which have been lost, stolen or destroyed,
upon receipt by Investor Services Group of properly executed affidavits and lost
certificate bonds, in form satisfactory to Investor Services Group, with the
Fund and Investor Services Group as obligees under the bond.
(c) Investor Services Group shall also maintain a record of
each certificate issued, the number of Shares represented thereby and the
Shareholder of record. With respect to Shares held in open accounts or
uncertificated form (i.e., no certificate being issued with respect thereto)
Investor Services Group shall maintain comparable records of the Shareholders
thereof, including their names, addresses and taxpayer identification. Investor
Services Group shall further maintain a stop transfer record on lost and/or
replaced certificates.
4. Mailing Communications to Shareholders; Proxy Materials. Investor
Services Group will address and mail to Shareholders of the Fund all reports to
Shareholders, dividend and distribution notices and proxy material for the
Fund's meetings of Shareholders. In
<PAGE>
connection with meetings of Shareholders, Investor Services Group will prepare
Shareholder lists, mail and certify as to the mailing of proxy materials,
process and tabulate returned proxy cards, report on proxies voted prior to
meetings, act as inspector of election at meetings and certify Shares voted at
meetings.
5. Sales of Shares.
(a) Investor Services Group shall not be required to issue any
Shares of the Fund where it has received a Written Instruction from the Fund or
official notice from any appropriate authority that the sale of the Shares of
the Fund has been suspended or discontinued. The existence of such Written
Instructions or such official notice shall be conclusive evidence of the right
of Investor Services Group to rely on such Written Instructions or official
notice.
(b) In the event that any check or other order for the payment
of money is returned unpaid for any reason, Investor Services Group will: (i)
give prompt notice of such return to the Fund or its designee; (ii) place a stop
transfer order against all Shares issued as a result of such check or order; and
(iii) take such actions as Investor Services Group may from time to time deem
appropriate.
6. Transfer and Repurchase.
(a) Investor Services Group shall process all requests to
transfer or redeem Shares in accordance with the transfer or repurchase
procedures set forth in the Fund's Prospectus.
(b) Investor Services Group will transfer or repurchase Shares
upon receipt of Oral or Written Instructions or otherwise pursuant to the
Prospectus and Share certificates, if any, properly endorsed for transfer or
redemption, accompanied by such documents as Investor Services Group reasonably
may deem necessary.
(c) Investor Services Group reserves the right to refuse to
transfer or repurchase Shares until it is satisfied that the endorsement on the
instructions is valid and genuine. Investor Services Group also reserves the
right to refuse to transfer or repurchase Shares until it is satisfied that the
requested transfer or repurchase is legally authorized, and it shall incur no
liability for the refusal, in good faith, to make transfers or repurchases which
Investor Services Group, in its good judgment, deems improper or unauthorized,
or until it is reasonably satisfied that there is no basis to any claims adverse
to such transfer or repurchase.
(d) When Shares are redeemed, Investor Services Group shall,
upon receipt of the instructions and documents in proper form, deliver to the
Custodian and the Fund or its designee a notification setting forth the number
of Shares to be repurchased. Such repurchased shares shall be reflected on
appropriate accounts maintained by Investor Services Group reflecting
outstanding Shares of the Fund and Shares attributed to individual accounts.
(e) Investor Services Group shall, upon receipt of the monies
provided to it by
<PAGE>
the Custodian for the repurchase of Shares, pay such monies as are received from
the Custodian, all in accordance with the procedures described in the Written
Instructions received by Investor Services Group from the Fund.
(f) Investor Services Group shall not process or effect any
repurchase with respect to Shares of the Fund after receipt by Investor Services
Group or its agent of notification of the suspension of the determination of the
net asset value of the Fund.
7. Dividends.
(a) If Investor Services Group does not receive sufficient
cash from the Fund to make total dividend and/or distribution payments to all
Shareholders of the Fund as of the record date, Investor Services Group will,
upon notifying the Fund, withhold payment to all Shareholders of record as of
the record date until sufficient cash is provided to Investor Services Group.
(b) Investor Services Group shall process dividend payments,
including the purchase of new shares through dividend reinvestment.
8. Miscellaneous.
(a) In addition to and neither in lieu nor in contravention of
the services set forth above, Investor Services Group shall: (i) perform all the
customary services of a transfer agent, registrar, dividend disbursing agent and
agent of the dividend reinvestment and cash purchase plan as described herein
consistent with those requirements in effect as at the date of this Agreement;
(ii) calculate fees due under 12b-1 plans for distribution and marketing
expenses; and (iii) provide toll-free lines for direct shareholder use and
customer liaison staff with on-line inquiry capacity, as requested by the Fund.
The detailed definition, frequency, limitations and associated costs (if any)
set out in the attached fee schedule include but are not limited to: maintaining
all Shareholder accounts, preparing Shareholder meeting lists, mailing proxies,
tabulating proxies, mailing Shareholder reports to current Shareholders,
withholding taxes on U.S. resident and non-resident alien accounts where
applicable, preparing and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect to dividends and distributions by
federal authorities for all Shareholders.
<PAGE>
Schedule B
FEE SCHEDULE
1. Standard Fees
Open accounts: $16.00 per account per year
Closed accounts: $3.00 per account per year
Monthly minimum: $2,000 per class per Portfolio
Annual minimum: $24,000 per class per Portfolio
After the one year anniversary of the effective date of this Agreement, Investor
Services Group may adjust the above fees once per calendar year, upon thirty
(30) days prior written notice, in an amount not to exceed the cumulative
percentage increase in the Consumer Price Index for All Urban Consumers (CPI-U)
U.S. City Average, All items (unadjusted) - (1982-84=100), published by the U.S.
Department of Labor since the last such adjustment in the Client's monthly fees
(or the Effective Date absent a prior such adjustment).
2. Programming Costs
(a) Dedicated Team:
Programmer $100,000 per annum
Business Systems Analyst $ 85,000 per annum
Tester $ 65,000 per annum
(b) System Enhancements (Non Dedicated Team):
Programmer $135.00 per hour
The above rates are subject to an annual 5% increase after the one year
anniversary of the effective date of this Agreement.
3. Early Termination Fee.
The Early Termination Fee referred to in Section 13.5 shall be an amount equal
to the fees paid to Investor Services Group by the Fund under this Agreement for
the previous month annualized to reflect one year's fee.
4. Print/Mail Fees.
Implementation Fee $5,000
<PAGE>
<TABLE>
<S> <C>
Testing Application or Data Requirements $2.50/fax to client or record keeper
Work Order $15.00 per work order
Daily Work (Confirms)
Hand $71/M with $75.00 minimum
$0.07/each insert (up to 3 inserts at no
charge)
Machine $42/M with $50.00 minimum
$0.01/each insert (up to 3 inserts at no
charge)
Daily Checks
Hand $91/M with $100.00 minimum daily
$0.08/each insert (up to 3 inserts at no
charge)
Machine $52/M with $75.00 minimum daily
$0.01/each insert (up to 3 inserts at no
charge)
There is a $2.50 charge for each Form 3606 sent.
Statements
Hand $78/M with $75.00 minimum
$0.08/each insert (up to 3 inserts at no
charge)
$125/M for intelligent inserting
Machine $52/M with $75.00 minimum
$0.01/each insert (up to 3 inserts at no
charge)
$58/M for intelligent inserting
Periodic Checks
Hand $91/M with $100.00 minimum
$0.08/each insert (up to 3 inserts at no
charge)
Machine $52/M with $100.00 minimum
$0.01/each insert (up to 3 inserts at no
charge)
<PAGE>
12b-1/Dealer Commission
Checks/Statements $0.78/each envelope with $100.00 minimum
Spac Reports/Group Statements $78/M with $75.00 minimum
Listbills $0.78 per envelope with $75.00 minimum
Printing Charges $0.08/confirm/statement/page
$0.10/check
Folding (Machine) $18/M
Folding (Hand) $12 each
Presort Charge $0.277 postage rate
$0.035/piece
Courier Charge $15.00 for each on call courier trip/
or actual cost for on demand
Overnight Charge $3.50/package service charge plus
Federal Express/Airborne charge
Inventory Charge $20.00 for each inventory location as of
the 15th of the month
Hourly Work: Special Projects,
Opening Envelopes, etc. $24.00/hour
Special Pulls $2.50 per account pull
Boxes/Envelopes
Shipping Boxes $0.85 each
Oversized Envelopes $0.45 each
Forms Development/Programming Fee $100.00/hour
Cutting Charges $10.00/M
</TABLE>
<PAGE>
Schedule C
OUT-OF-POCKET EXPENSES
The Fund shall reimburse Investor Services Group monthly for applicable
out-of-pocket expenses, including, but not limited to the following items:
- -------------------------------------------------------------------------------
Microfiche/microfilm production Charges are $0.006 per image, $0.30 per fiche
page. We are migrating to COLD storage, and
these costs will soon be not applicable.
- -------------------------------------------------------------------------------
Magnetic media tapes and freight Magnetic tapes can be used for various
reasons. For instance, tapes are created with
shareholder names and addresses to be used
for shareholder mailings. Also, tapes can be
created from the shareholder data base for
marketing projects. The costs of these will
vary by project.
- -------------------------------------------------------------------------------
Printing costs, including Costs incurred from outside vendor for
certificates, envelopes, checks printing stock. Will work with you to
and stationery determine your needs, and will get estimates
approved by you. Since most accounts will be
supported by brokers etc. who will statement
their own accounts, these costs should be
minimal.
- -------------------------------------------------------------------------------
Postage US Postal Service fees to mail statements,
confirms, checks etc. to shareholders.
- -------------------------------------------------------------------------------
Due diligence mailings Expenses include the cost of printing,
inserting and postage for required IRS
shareholder mailings: W9, B-notice, W8, Date
of Birth, and TEFRA. Costs vary by project,
but the following is a rough estimate:
printing 0.06/page, inserting 0.10/page
(minimums of approximately $50 - $100 per job
apply). Postage is usually 1 ounce/$0.32
rate.
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
Telephone and communication Applicable for:
costs, including all lease, 1.) Line charges associated with 800 number,
maintenance and line costs if such 800 number is provided. These costs
range from $0.07 to $0.09 per minute.
2.) Line charges associated with remote
access to our systems. Costs are dependent
upon method of access to Investor Services
Group's system(s).
- -------------------------------------------------------------------------------
Ad hoc/Customized reports Systems work for any special reporting needs
you may have is $135/ person hour. These
costs are approved by the Fund prior to work
being done.
- -------------------------------------------------------------------------------
Proxy solicitations, mailings Costs vary by project, and are bid as such.
and tabulations
- -------------------------------------------------------------------------------
Daily and distribution advice Not applicable
mailings
- -------------------------------------------------------------------------------
Terminals, communication lines, Only applicable if the Fund is interested in
printers and other equipment and remote access to our systems. Charges are
any expenses incurred in then dependent upon method of access to
connection with such terminals Investor Services Group's system(s). If you
and lines. want full access to all systems on a direct
line basis, this can be expensive. One client
has paid approximately $20,000 for the
hardware necessary and their ongoing fee for
the line is $1,700. Dial up to the transfer
agency only system is far cheaper, $100 for
the software.
- -------------------------------------------------------------------------------
Duplicating services If we have to use a service to produce large
quantities of materials, such as for a Board
meeting, we will pass along the charges to
you. This rarely happens, and when it does,
the charges are small.
- -------------------------------------------------------------------------------
Print/mail charges See attached fee schedule. Given that we will
not produce many confirms, statements etc.,
this should not be very costly.
- -------------------------------------------------------------------------------
Courier services If at your request, we need to courier, or
overnight, mail, we will pass along the
charges from the overnight service.
- -------------------------------------------------------------------------------
Incoming and outgoing wire $6 per incoming wire. $8 per outgoing wire.
charges
- -------------------------------------------------------------------------------
Charges for check clearance Charged through bank services (Boston Safe
Deposit and Trust). Currently estimated at
$0.12 each.
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
Overtime, as approved by Fund If the Fund wants special programs (for
example telephone calling or mailing
programs) that require non-exempt Investor
Services Group employees to work overtime, we
will pass along those costs.
- -------------------------------------------------------------------------------
Temporary staff, as approved by If any program requires Investor Services
Fund Group to hire temporary staff, we will pass
those costs along to you.
- -------------------------------------------------------------------------------
Record retention, retrieval and Costs dependent upon arrangement with archive
destruction costs, including, but vendor. Typical cost estimated at $0.13 per
not limited to exit fees charged archive carton per month, for retention, and
by third party record keeping $50 retrieval charge. Most information is on
vendors. image, and we do not need to retrieve from
archives. However, we still retain all hard
copy records.
- -------------------------------------------------------------------------------
Third party audit reviews. Clients share pro-rata in the cost of
preparing a SAS-70 (transfer agent). The cost
is $0.10 per account. Which is more than
off-set the reduced audit fees charged to the
fund.
- -------------------------------------------------------------------------------
Ad hoc SQL time SQL is a reporting system that allows
Investor Services Group clients to run their
own queries and reports off of the transfer
agent system. The cost for running these
reports is charged back at $1,000 per CPU
hour (computer processing usage). Most adhocs
take very few minutes to run.
- -------------------------------------------------------------------------------
Fund Insurance Cost of Fidelity Bond and Errors and Omission
policy for the Fund. Costs dependent upon
number and size of portfolios. For a fund
complex with 8 portfolios, the budgeted
insurance expense is $42,877.
- -------------------------------------------------------------------------------
Such other miscellaneous expenses Costs will vary and will be discussed with
reasonably incurred by Investor you.
Services Group in performing its
duties and responsibilities
under this Agreement.
- -------------------------------------------------------------------------------
Delivery costs of Board meeting Dependent upon number of members in Board
materials and other materials to and their location.
the Board of Directors and service
providers (including overnight
or other courier services)
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
Telecommunications charges Costs for long distance phone and fax calls
(including fax) with respect to are dependent upon number of members in Board
communications with the Board of and their location.
Directors, officers and service
providers.
- -------------------------------------------------------------------------------
Duplicating charges with respect If volumes are large enough that we have to
to filings with federal and state use an outside service, costs will be passed
authorities and board meeting back to the Fund. (For example, cost of
materials copying N1A filings for each state)
- -------------------------------------------------------------------------------
Travel to and from board meeting Expenses for our attorney, who is required to
and other meetings with Fund attend board meetings, will be billed back to
management the Fund. Expenses for other employees of
Investor Services Group will not be.
- -------------------------------------------------------------------------------
Pricing services We use a variety of outside vendors.
Currently charged at $0.10 per equity, $0.50
per bond, $0.50 per money instrument and
$1.00 other (REIT).
- -------------------------------------------------------------------------------
Forms and supplies for the Costs of binders, duplication, mailing etc.
preparation of Board meetings for Board books will be passed back to the
and other meetings with fund Fund.
management
- -------------------------------------------------------------------------------
Vendor set-up charges for blue One time charge of $4,000 to develop
sky services interface between transfer agent system and
blue sky system.
- -------------------------------------------------------------------------------
Customized programming requests Usually for custom reports. Billed at
$135/hour
- -------------------------------------------------------------------------------
Blue sky filing or registration Fees charged by states will be passed back to
fees the Fund. Estimates above. Assuming 7
portfolios, one class of shares, one
prospectus, and registrations for all 50
states, blue sky costs range from $110,790 to
$209,400 depending on registration amounts.
- -------------------------------------------------------------------------------
Costs of SAS-70 Clients share pro-rata in the cost of
preparing an Investor Services Group SAS-70
(fund accounting). Currently estimated at
$300 per fund.
- -------------------------------------------------------------------------------
COLD storage costs Digital storage of shareholder documentation
and systems reports. Alternative to
microfilm/microfiche. Costs are $0.008 per
page.
- -------------------------------------------------------------------------------
Document retrieval costs Dependent upon storage facility.
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
Vendor pricing comparison Occurs when advisor requests additional price
information on a security from second pricing
vendor. Costs for this will vary depending
upon type of security, number of securities,
and number of days needed.
- -------------------------------------------------------------------------------
Manual pricing. In the event that either the advisor does not
accept a vendors price on a security, or a
price for a security is unavailable from
pricing vendor, an additional cost may be
incurred to get price from independent
broker.
- -------------------------------------------------------------------------------
The Fund agrees that postage and mailing expenses will be paid on the
day of or prior to mailing as agreed with Investor Services Group. In addition,
the Fund will promptly reimburse Investor Services Group for any other
unscheduled expenses incurred by Investor Services Group whenever the Fund and
Investor Services Group mutually agree that such expenses are not otherwise
properly borne by Investor Services Group as part of its duties and obligations
under the Agreement.
<PAGE>
Schedule D
FUND DOCUMENTS
Certified copy of the Articles of Incorporation of the Fund, as amended
Certified copy of the By-laws of the Fund, as amended
Copy of the resolution of the Board of Directors authorizing the
execution and delivery of this Agreement
Specimens of the certificates for Shares of the Fund, if applicable, in
the form approved by the Board of Directors of the Fund, with a
certificate of the Secretary of the Fund as to such approval
All account application forms and other documents relating to
Shareholder accounts or to any plan, program or service offered by
the Fund
EXHIBIT 99.9(b):
----------------
FORM OF ORGANIZATIONAL EXPENSE REIMBURSEMENT AGREEMENT
BETWEEN THE TRUST AND UNDISCOVERED MANAGERS.
<PAGE>
ORGANIZATIONAL EXPENSE
REIMBURSEMENT AGREEMENT
This Agreement is made and entered into this ___ day of December, 1997,
by and between Undiscovered Managers Funds, a Massachusetts business trust (the
"Trust"), and Undiscovered Managers, LLC, a Delaware limited liability company
("Undiscovered Managers").
WITNESSETH:
WHEREAS, the Trust is in the process of registering as an open-end
management investment company under the Investment Company Act of 1940;
WHEREAS, there have been and will be certain organizational expenses
incurred as a part of such registration, which are properly expenses of the
Trust, that have been and will in the future be paid by Undiscovered Managers by
reason of the fact that the Trust was not or will not be capitalized when such
expenses otherwise became or become due and payable;
WHEREAS, such organizational expenses include expenses necessary to
organize and establish the Trust and to create the necessary relationships and
legal qualifications to enable it to commence business and operations,
including, but not by way of limitation, such expenses as outside legal counsel
fees, fees and taxes imposed by The Commonwealth of Massachusetts on
Massachusetts business trusts, independent public accountant fees and state blue
sky filing and registration fees (such expenses being hereinafter referred to as
"Organizational Expenses"):
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed as follows:
1. After the issuance and sale of shares of beneficial interest of the
Trust to the public, the Trust shall reimburse and pay to Undiscovered Managers
the amounts expended by Undiscovered Managers for Organizational Expenses for
the Trust.
2. Such reimbursement shall be paid by the Trust to Undiscovered
Managers upon demand, without interest, and in no event later than five years
from the commencement of operations of the Trust. Upon demand for payment,
Undiscovered Managers shall present copies of invoices or receipts, and copies
of cancelled checks or other evidence of payment by Undiscovered Managers, of
the Organizational Expenses for which it is demanding reimbursement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Organizational Expense Reimbursement Agreement as of the day and year first
above written.
UNDISCOVERED MANAGERS FUNDS
-----------------------------
By:
Title:
UNDISCOVERED MANAGERS, LLC
-----------------------------
By:
Title:
EXHIBIT 99.9(c):
----------------
FORM OF EXPENSE DEFERRAL AGREEMENT BETWEEN THE TRUST AND UNDISCOVERED MANAGERS
RELATING TO EACH SERIES OF THE TRUST.
<PAGE>
EXPENSE DEFERRAL AGREEMENT
THIS AGREEMENT dated as of December __, 1997 is made and entered into
by and between Undiscovered Managers Funds, a Massachusetts business trust (the
"Trust"), on behalf of its [Name of Fund] series (the "Series"), and
Undiscovered Managers, LLC, a Delaware limited liability company (the
"Manager").
WHEREAS, the Manager has been appointed the investment adviser of the
Series pursuant to a Management Agreement dated December __, 1997 between the
Trust and the Manager relating to the Series (the "Management Agreement"); and
WHEREAS, the Trust and the Manager desire to enter into the
arrangements described herein relating to certain expenses of the Series;
NOW, THEREFORE, the Trust and the Manager hereby agree as follows:
1. Until further notice from the Manager to the Trust, the Manager
agrees, subject to Section 2 hereof, to reduce the fees payable to it under the
Management Agreement (but not below zero) to the extent necessary to limit the
operating expenses of the Series (exclusive of brokerage costs, interest, taxes
and extraordinary expenses) to the annual rate (as a percentage of the average
daily net assets of the Series) of [_______] percent.
2. The Series agrees to pay to the Manager the amount of fees that, but
for Section 1 hereof, would have been payable by the Series to the Manager
pursuant to the Management Agreement ("Deferred Fees"), subject to the
limitations provided in this Section 2. Such repayment shall be made monthly,
but only if the operating expenses of the Series (exclusive of brokerage costs,
interest, taxes and extraordinary expenses), without regard to such repayment,
are at an annual rate (as a percentage of the average daily net assets of the
Series) of less than [________] percent. Furthermore, the amount of Deferred
Fees paid by the Series in any month shall be limited so that the sum of (a) the
amount of such payment and (b) the other operating expenses of the Series
(exclusive of brokerage costs, interest, taxes and extraordinary expenses) do
not exceed the foregoing annual percentage rates.
Deferred Fees with respect to any fiscal year of the Trust shall not be
payable by the Series to the extent that the amounts payable by the Series
pursuant to the immediately preceding two sentences during the period ending two
years after the end of such fiscal year are not sufficient to pay such Deferred
Fees. In no event will the Series be obligated to pay any fees waived or
deferred by the Manager with respect to any other series of the Trust.
<PAGE>
3. The Manager may by notice in writing to the Trust terminate, in
whole or in part, its obligation under Section 1 to reduce its fees with respect
to the Series in any period following the date specified in such notice (or
change the percentage specified in Section 1), but no such change shall affect
the obligation (including the amount of the obligation) of the Series to repay
amounts of Deferred Fees with respect to periods prior to the date specified in
such notice.
4. A copy of the Agreement and Declaration of Trust establishing the
Trust is on file with the Secretary of The Commonwealth of Massachusetts, and
notice is hereby given that this Agreement is executed with respect to the
Series on behalf of the Trust by an officer of the Trust as an officer and not
individually and that the obligations of or arising out of this Agreement are
not binding upon any of the trustees, officers or shareholders individually but
are binding only upon the assets and property belonging to the Series.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
UNDISCOVERED MANAGERS FUNDS
By ____________________________
Mark P. Hurley, President
UNDISCOVERED MANAGERS, LLC
By __________________________
Mark P. Hurley, President and CEO
EXHIBIT 99.9(d):
----------------
FORM OF ADMINISTRATIVE SERVICES AGREEMENT
BETWEEN THE TRUST AND UNDISCOVERED MANAGERS.
<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT dated as of December __, 1997 is
made and entered into by and between Undiscovered Managers, LLC, a Delaware
limited liability company ("Undiscovered Managers"), and Undiscovered Managers
Funds, a Massachusetts business trust (the "Fund").
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund desires to retain Undiscovered Managers to render
certain administrative services with respect to each investment portfolio listed
in Schedule A hereto, as the same may be amended from time to time by the
parties hereto (collectively, the "Portfolios"), and Undiscovered Managers is
willing to render such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Undiscovered Managers, at its expense, will furnish all
administrative services to the Fund, including but not limited to corporate
secretarial, treasury, blue sky services, and fund accounting services. In its
provision of such administrative services, Undiscovered Managers, among other
things, will provide: (i) suitable office space for the Fund, (ii) all necessary
administrative facilities and equipment, and (iii) bookkeeping and clerical
personnel necessary for the efficient conduct of the affairs of the Fund.
2. The Fund hereby appoints Undiscovered Managers to act as its
administrator, and will pay to Undiscovered Managers as compensation for the
services rendered and for the facilities furnished by Undiscovered Managers, a
fee computed and paid monthly at the annual rate of .25% of the average net
asset value of the Fund. Such average net asset value shall be determined by
taking an average of all the determinations of such net asset value during such
month at the close of business on each business day during such month while this
Agreement is in effect.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their officers hereunto duly authorized all as of the day and year
first above written.
UNDISCOVERED MANAGERS FUNDS
By ______________________________
Mark P. Hurley, President
UNDISCOVERED MANAGERS, LLC
By ______________________________
Mark P. Hurley, President and CEO
EXHIBIT 99.9(e):
----------------
FORM OF SUB-ADMINISTRATION AGREEMENT
BETWEEN UNDISCOVERED MANAGERS AND FIRST DATA.
<PAGE>
SUB-ADMINISTRATION AGREEMENT
THIS SUB-ADMINISTRATION AGREEMENT, dated as of this 12th day of December,
1997, the "Agreement"), between FIRST DATA INVESTOR SERVICES GROUP, INC., a
Massachusetts corporation ("Investor Services Group"), and UNDISCOVERED
MANAGERS, LLC, a limited liability company organized under the laws of Delaware
(the "Administrator").
WHEREAS, the Administrator provides administration services to Undiscovered
Managers Funds (the "Fund"), an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Administrator desires to retain Investor Services Group to
render certain administrative services with respect to each investment portfolio
listed in Schedule A hereto, as the same may be amended from time to time by the
parties hereto (collectively, the "Portfolios"), and Investor Services Group is
willing to render such services;
WITNESSETH:
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
Article 1 Definitions.
-----------
1.1 Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, or other similar organizational
document as the case may be, of the Fund as the same may be amended from
time to time.
(b) "Authorized Person" shall be deemed to include (i) any authorized
officer of the Administrator; or (ii) any person, whether or not such
person is an officer or employee of the Administrator, duly authorized to
give Oral Instructions or Written Instructions on behalf of the
Administrator as indicated in writing to Investor Services Group from time
to time.
(c) "Board Members" shall mean the Directors or Trustees of the
governing body of the Fund, as the case may be.
(d) "Board of Directors" shall mean the Board of Directors or Board of
Trustees of the Fund, as the case may be.
(e) "Commission" shall mean the Securities and Exchange Commission.
-1-
<PAGE>
(f) "Custodian" refers to any custodian or subcustodian of securities
and other property which the Fund may from time to time deposit, or cause
to be deposited or held under the name or account of such a custodian
pursuant to a Custody Agreement.
(g) "1933 Act" shall mean the Securities Act of 1933 and the rules and
regulations promulgated thereunder, all as amended from time to time.
(h) "1940 Act" shall mean the Investment Company Act of 1940 and the
rules and regulations promulgated thereunder, all as amended from time to
time.
(i) "Oral Instructions" shall mean instructions, other than Written
Instructions, actually received by Investor Services Group from a person
reasonably believed by Investor Services Group to be an Authorized Person.
(j) "Portfolio" shall mean each separate series of shares offered by
the Fund representing interests in a separate portfolio of securities and
other assets.
(k) "Prospectus" shall mean the most recently dated Fund Prospectus and
Statement of Additional Information, including any supplements thereto if
any, which has become effective under the 1933 Act and the 1940 Act.
(l) "Shares" refers collectively to such shares of capital stock or
beneficial interest, as the case may be, or class thereof, of each
respective Portfolio of the Fund as may be issued from time to time.
(m) "Shareholder" shall mean a record owner of Shares of each
respective Portfolio of the Fund.
(n) "Written Instructions" shall mean a written communication signed by
a person reasonably believed by Investor Services Group to be an Authorized
Person and actually received by Investor Services Group. Written
Instructions shall include manually executed originals and authorized
electronic transmissions, including telefacsimile of a manually executed
original or other process.
Article 2 Appointment of Investor Services Group.
--------------------------------------
The Administrator hereby appoints Investor Services Group to act as
Sub-Administrator of the Fund on the terms set forth in this Agreement. Investor
Services Group accepts such appointment and agrees to render the services herein
set forth for the compensation herein provided.
Article 3 Duties of Investor Services Group.
---------------------------------
3.1 Investor Services Group shall be responsible for the following:
performing the customary services of an administrator, including corporate
secretarial, treasury and blue sky
-2-
<PAGE>
services, and fund accounting agent for the Fund, including without limitation
the services more fully described in the written schedule of Duties of Investor
Services Group annexed hereto as Schedule B and incorporated herein, and subject
to the supervision and direction of the Administrator.
3.2 In performing its duties under this Agreement, Investor Services Group:
(a) will act in accordance with the Articles of Incorporation, By-Laws and
Prospectuses of the Fund and with the Oral Instructions and Written Instructions
of the Administrator and will conform to and comply with the requirements of the
1940 Act and all other applicable federal or state laws and regulations; and (b)
will consult with legal counsel to the Fund, as necessary and appropriate.
Furthermore, Investor Services Group shall not have or be required to have any
authority to supervise the investment or reinvestment of the securities or other
properties which comprise the assets of the Fund or any of its Portfolios and
shall not provide any investment advisory services to the Fund or any of its
Portfolios.
3.3 Investor Services Group agrees to provide the services set forth herein
in accordance with the Performance Standards annexed hereto as Exhibit 1 of
Schedule B and incorporated herein (the "Performance Standards"). Such
Performance Standards may be amended from time to time by the parties.
3.4 In addition to the duties set forth herein, Investor Services Group
shall perform such other duties and functions, and shall be paid such amounts
therefor, as may from time to time be agreed upon in writing between the
Administrator and Investor Services Group.
Article 4 Recordkeeping and Other Information.
-----------------------------------
4.1 Investor Services Group shall create and maintain all records required
of it pursuant to its duties hereunder and as set forth in Schedule B in
accordance with all applicable laws, rules and regulations, including records
required by Section 31(a) of the 1940 Act. Where applicable, such records shall
be maintained by Investor Services Group for the periods and in the places
required by Rule 31a-2 under the 1940 Act.
4.2 To the extent required by Section 31 of the 1940 Act, Investor Services
Group agrees that all such records prepared or maintained by Investor Services
Group relating to the services to be performed by Investor Services Group
hereunder are the property of the Fund and will be preserved, maintained and
made available in accordance with such section, and will be surrendered promptly
to the Fund on and in accordance with the Administrator's request.
Article 5 Administrator Instructions.
--------------------------
5.1 Investor Services Group will have no liability when acting upon Written
or Oral Instructions believed to have been executed or orally communicated by an
Authorized Person and will not be held to have any notice of any change of
authority of any person until receipt of a Written Instruction thereof from the
Administrator.
-3-
<PAGE>
5.2 At any time, Investor Services Group may request Written Instructions
from the Administrator and may seek advice from legal counsel for the Fund, with
respect to any matter arising in connection with this Agreement, and it shall
not be liable for any action taken or not taken or suffered by it in good faith
in accordance with such Written Instructions or in accordance with the opinion
of counsel for the Fund. Written Instructions requested by Investor Services
Group will be provided by the Administrator within a reasonable period of time.
5.3 Investor Services Group, its officers, agents or employees, shall
accept Oral Instructions or Written Instructions given to them by any person
representing or acting on behalf of the Administrator only if said
representative is an Authorized Person. The Administrator agrees that all Oral
Instructions shall be followed within one business day by confirming Written
Instructions, and that the Administrator's failure to so confirm shall not
impair in any respect Investor Services Group's right to rely on Oral
Instructions.
Article 6 Compensation.
------------
6.1 Investor Services Group will from time to time employ or associate with
itself such person or persons as Investor Services Group may believe to be
particularly suited to assist it in performing services under this Agreement.
Such person or persons may be officers and employees who are employed by both
Investor Services Group and the Administrator. The compensation of such person
or persons shall be paid by Investor Services Group and no obligation shall be
incurred on behalf of the Administrator in such respect.
6.2 Investor Services Group shall not be required to pay any of the
following expenses incurred by the Administrator or the Fund: membership dues in
the Investment Company Institute or any similar organization; investment
advisory expenses; costs of printing and mailing stock certificates,
prospectuses, reports and notices; interest on borrowed money; brokerage
commissions; stock exchange listing fees; taxes and fees payable to Federal,
state and other governmental agencies; fees of Board Members of the Fund who are
not affiliated with Investor Services Group; outside auditing expenses; outside
legal expenses; Blue Sky registration or filing fees; or other expenses not
specified in this Section 6.2 which may be properly payable by the Fund.
6.3 The Administrator will compensate Investor Services Group for the
performance of its obligations hereunder in accordance with the fees set forth
in the written Fee Schedule annexed hereto as Schedule C and incorporated
herein.
6.4 In addition to those fees set forth in Section 6.3 above, the
Administrator agrees to pay, and will be billed separately for, out-of-pocket
expenses incurred by Investor Services Group in the performance of its duties
hereunder. Out-of-pocket expenses shall include, but shall not be limited to,
the items specified in the written schedule of out-of-pocket charges annexed
hereto as Schedule D and incorporated herein. Schedule D may be modified by
written agreement between the parties. Unspecified out-of-pocket expenses shall
be limited to those out-of-pocket expenses reasonably incurred by Investor
Services Group in the performance of its obligations hereunder.
-4-
<PAGE>
6.5 Investor Services Group will bill the Administrator as soon as
practicable after the end of each calendar month, and said billings will be
detailed in accordance with the out-of-pocket schedule. The Administrator will
pay to Investor Services Group the amount of such billing by Federal Funds Wire
within fifteen (15) business days after the Administrator's receipt of said
bill. In addition, Investor Services Group may charge a service fee on any past
due invoiced amounts equal to the lesser of (a) one and one half percent
(1-1/2%) per month or (b) the highest interest rate legally permitted.
6.6 Any compensation and out-of pocket expenses agreed to hereunder may be
adjusted from time to time by attaching to Schedule C or Schedule D, as the case
may be, a revised Schedule executed and dated by the parties hereto.
6.7 The Administrator acknowledges that the fees that Investor Services
Group charges the Administrator under this Agreement reflect the allocation of
risk between the parties, including the disclaimer of warranties in Section 9.3
and the limitations on liability and exclusion of remedies in Article 12.
Modifying the allocation of risk from what is stated here would affect the fees
that Investor Services Group charges, and in consideration of those fees, the
Administrator agrees to the stated allocation of risk.
Article 7 Documents.
----------
In connection with the appointment of Investor Services Group, the
Administrator shall, on or before the date this Agreement goes into effect, but
in any case within a reasonable period of time for Investor Services Group to
prepare to perform its duties hereunder, deliver or caused to be delivered to
Investor Services Group the documents set forth in the written schedule of Fund
Documents annexed hereto as Schedule E.
Article 8 Fund Accounting System.
----------------------
8.1 Investor Services Group shall retain title to and ownership of any and
all data bases, computer programs, screen formats, report formats, interactive
design techniques, derivative works, inventions, discoveries, patentable or
copyrightable matters, concepts, expertise, patents, copyrights, trade secrets,
and other related legal rights utilized by Investor Services Group in connection
with the services provided by Investor Services Group to the Administrator
herein (the "Investor Services Group System").
8.2 Investor Services Group hereby grants to the Administrator a limited
license to the Investor Services Group System for the sole and limited purpose
of having Investor Services Group provide the services contemplated hereunder
and nothing contained in this Agreement shall be construed or interpreted
otherwise and such license shall immediately terminate with the termination of
this Agreement.
8.3 In the event that the Administrator, including any affiliate or agent
of the Administrator or any third party acting on behalf of the Administrator is
provided with direct
-5-
<PAGE>
access to the Investor Services Group System, such direct access capability
shall be limited to direct entry to the Investor Services Group System by means
of on-line mainframe terminal entry or PC emulation of such mainframe terminal
entry and any other non-conforming method of transmission of information to the
Investor Services Group System is strictly prohibited without the prior written
consent of Investor Services Group.
Article 9 Representations and Warranties.
------------------------------
9.1 Investor Services Group represents and warrants to the Administrator
that:
(a) it is a corporation duly organized, existing and in good standing
under the laws of the Commonwealth of Massachusetts;
(b) it is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement;
(c) all requisite corporate proceedings have been taken to authorize
it to enter into this Agreement; and
(d) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations
under this Agreement.
9.2 The Administrator represents and warrants to Investor Services Group
that:
(a) it is duly organized, existing and in good standing under the laws
of the jurisdiction in which it is organized;
(b) it is empowered under applicable laws and by its articles of
incorporation and by-laws to enter into this Agreement;
(c) all corporate proceedings required by said articles of
incorporation, by-laws and applicable laws have been taken to authorize it
to enter into this Agreement; and
(d) a registration statement under the 1933 Act and the 1940 Act on
behalf of each of the Portfolios is currently, or prior to the effective
date of this Agreement will be, effective and will after becoming effective
remain effective.
9.3 THIS IS A SERVICE AGREEMENT. EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, INVESTOR SERVICES GROUP DISCLAIMS ALL OTHER REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, MADE TO THE COMPANY OR ANY OTHER PERSON,
INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES REGARDING QUALITY, SUITABILITY,
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE (IRRESPECTIVE OF
ANY COURSE OF DEALING, CUSTOM OR USAGE OF TRADE) OF ANY SERVICES OR ANY GOODS
PROVIDED INCIDENTAL TO SERVICES PROVIDED UNDER THIS AGREEMENT.
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<PAGE>
INVESTOR SERVICES GROUP DISCLAIMS ANY WARRANTY OF TITLE OR NON-INFRINGEMENT
EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT.
Article 10 Indemnification.
---------------
10.1 The Administrator shall indemnify and hold Investor Services Group
harmless from and against any and all claims, costs, expenses (including
reasonable attorneys' fees), losses, damages, charges, payments and liabilities
of any sort or kind which may be asserted against Investor Services Group or for
which Investor Services Group may be held to be liable in connection with this
Agreement or Investor Services Group's performance hereunder (a "Claim"), unless
such Claim resulted from a negligent act or omission to act or bad faith by
Investor Services Group in the performance of its duties hereunder.
10.2 Investor Services Group shall indemnify and hold the Administrator
harmless from and against any and all claims, costs, expenses (including
reasonable attorneys' fees), losses, damages, charges, payments and liabilities
of any sort or kind which may be asserted against the Administrator or for which
the Administrator may be held to be liable in connection with the improper or
unauthorized use of the Investor Services Group System (a "Claim") provided that
such Claim resulted from a negligent act or omission to act or bad faith by
Investor Services Group in the performance of its duties hereunder.
10.3 In any case in which one party (the "Indemnifying Party") may be asked
to indemnify or hold the other party (the "Indemnified Party") harmless, the
Indemnified Party will notify the Indemnifying Party promptly after identifying
any situation which it believes presents or appears likely to present a claim
for indemnification against the Indemnifying Party although the failure to do so
shall not prevent recovery by the Indemnified Party and shall keep the
Indemnifying Party advised with respect to all developments concerning such
situation; provided, however, that the failure to provide such notice shall not
materially adversely affect the Indemnifying Party. The Indemnifying Party shall
have the option to defend the Indemnified Party against any Claim which may be
the subject of this indemnification, and, in the event that the Indemnifying
Party so elects, such defense shall be conducted by counsel chosen by the
Indemnifying Party and satisfactory to the Indemnified Party, and thereupon the
Indemnifying Party shall take over complete defense of the Claim and the
Indemnified Party shall sustain no further legal or other expenses in respect of
such Claim. The Indemnified Party will not confess any Claim or make any
compromise in any case in which the Indemnifying Party will be asked to provide
indemnification, except with the Indemnifying Party's prior written consent. The
obligations of the parties hereto under this Article 10 shall survive the
termination of this Agreement.
10.4 Any claim for indemnification under this Agreement must be made prior
to the earlier of:
(a) one year after the Indemnifying Party becomes aware of the event
for which indemnification is claimed; or
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<PAGE>
(b) one year after the earlier of the termination of this Agreement or
the expiration of the term of this Agreement.
10.5 Except for remedies that cannot be waived as a matter of law (and
injunctive or provisional relief), the provisions of this Article 10 shall be
the Indemnified Party's sole and exclusive remedy for claims or other actions or
proceedings to which the Indemnifying Party's indemnification obligations
pursuant to this Article 10 may apply.
Article 11 Standard of Care.
----------------
11.1 Investor Services Group shall at all times act in good faith and
agrees to use its best efforts within commercially reasonable limits to ensure
the accuracy of all services performed under this Agreement, but assumes no
responsibility for loss or damage to the Administrator unless said errors are
caused by Investor Services Group's own negligence, bad faith or willful
misconduct or that of its employees.
11.2 Neither party may assert any cause of action against the other party
under this Agreement that accrued more than two (2) years prior to the filing of
the suit (or commencement of arbitration proceedings) alleging such cause of
action.
11.3 Each party shall have the duty to mitigate damages for which the
other party may become responsible.
Article 12 Consequential Damages.
---------------------
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT
SHALL INVESTOR SERVICES GROUP, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE UNDER ANY THEORY OF
TORT, CONTRACT, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR LOST
PROFITS, EXEMPLARY, PUNITIVE, SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL
DAMAGES, EACH OF WHICH IS HEREBY EXCLUDED BY AGREEMENT OF THE PARTIES REGARDLESS
OF WHETHER SUCH DAMAGES WERE FORESEEABLE OR WHETHER EITHER PARTY OR ANY ENTITY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Article 13 Term and Termination.
--------------------
13.1 This Agreement shall be effective on the date first written above and
shall continue for a period of five (5) years (the "Initial Term").
13.2 Upon the expiration of the Initial Term, this Agreement shall
automatically renew for successive terms of one (1) year ("Renewal Terms") each,
unless the Administrator or Investor Services Group provides written notice to
the other of its intent not to renew. Such notice must be received not less than
ninety (90) days and not more than one-hundred eighty (180) days prior to the
expiration of the Initial Term or the then current Renewal Term.
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<PAGE>
13.3 In the event a termination notice is given by the Administrator, all
expenses associated with movement of records and materials and conversion
thereof to a successor administrator will be borne by the Administrator.
13.4 Notwithstanding anything in this Agreement to the contrary, in the
event that First Data Distributors, Inc. ("FDDI"), a wholly-owned subsidiary of
Investor Services Group, shall terminate the Distribution Agreement between the
Fund and FDDI dated as of December 12, the Administrator shall have the right to
terminate this Agreement without penalty upon sixty (60) days prior written
notice to Investor Services Group.
13.5 If a party hereto is guilty of a material failure to perform its
duties and obligations hereunder (a "Defaulting Party") the other party (the
"Non-Defaulting Party") may give written notice thereof to the Defaulting Party,
and if such material breach shall not have been remedied within thirty (30) days
after such written notice is given, then the Non-Defaulting Party may terminate
this Agreement by giving thirty (30) days written notice of such termination to
the Defaulting Party. If Investor Services Group is the Non-Defaulting Party,
its termination of this Agreement shall not constitute a waiver of any other
rights or remedies of Investor Services Group with respect to services performed
prior to such termination of rights of Investor Services Group to be reimbursed
for out-of-pocket expenses. In all cases, termination by the Non-Defaulting
Party shall not constitute a waiver by the Non-Defaulting Party of any other
rights it might have under this Agreement or otherwise against the Defaulting
Party.
13.6 This Agreement may be terminated by the Administrator prior to the
expiration of the Initial Term or any Renewal Term in the event Investor
Services Group has failed to meet the Performance Standards, as set forth in
Exhibit 1 to Schedule B, in three months of any rolling six month period. The
Administrator will provide Investor Services Group with 60 days' notice in
writing after the third month of Investor Services Group's failure to meet the
Performance Standards if the Administrator intends to exercise this option under
this Section 13.5. Notwithstanding the foregoing, the Administrator's right
under this Section 13.5 shall not commence until ninety (90) days after Investor
Services Group has begun providing services under this Agreement.
13.7 Notwithstanding anything contained in this Agreement to the contrary,
in the event that this Agreement is terminated by the Administrator and such
termination arises, either directly or indirectly as a result of the Fund's
dissolution or the Fund's acquisition of or consolidation or merger into or with
a mutual fund (the "New Fund") for which Investor Services Group does not
provide services, either directly or indirectly, substantially similar to those
provided to the Fund hereunder, prior to the effective date of such termination
and the conversion of the Fund's records to the New Fund, or its agent, the
Administrator shall pay to Investor Services Group the fee set forth in Schedule
C (the "Early Termination Fee").
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<PAGE>
13.7 Notwithstanding anything contained in this Agreement to the contrary,
the Administrator shall have the right to terminate this Agreement upon ninety
(90) days written notice to Investor Services Group provided that, prior to the
effective date of such termination, the Administrator shall pay to Investor
Services Group a penalty in an amount equal to the fees paid to Investor
Services Group by the Administrator under this Agreement for the previous month
annualized to reflect one year's fee.
Article 14 Additional Portfolios.
---------------------
14.1 In the event that the Fund establishes one or more Portfolios in
addition to those identified in Schedule A, with respect to which the
Administrator desires to have Investor Services Group render services as
administrator under the terms hereof, the Administrator shall so notify Investor
Services Group in writing, and if Investor Services Group agrees in writing to
provide such services, Schedule A shall be amended to include such additional
Portfolios.
Article 15 Confidentiality.
---------------
15.1 The parties agree that the Proprietary Information (defined below) and
the contents of this Agreement (collectively "Confidential Information") are
confidential information of the parties and their respective licensors. The
Administrator and Investor Services Group shall exercise at least the same
degree of care, but not less than reasonable care, to safeguard the
confidentiality of the Confidential Information of the other as it would
exercise to protect its own confidential information of a similar nature. The
Administrator and Investor Services Group shall not duplicate, sell or disclose
to others the Confidential Information of the other, in whole or in part,
without the prior written permission of the other party. The Administrator and
Investor Services Group may, however, disclose Confidential Information to their
respective parent corporation, their respective affiliates, their subsidiaries
and affiliated companies and employees, provided that each shall use reasonable
efforts to ensure that the Confidential Information is not duplicated or
disclosed in breach of this Agreement. The Administrator and Investor Services
Group may also disclose the Confidential Information to independent contractors,
auditors, and professional advisors, provided they first agree in writing to be
bound by the confidentiality obligations substantially similar to this Section
15.1. Notwithstanding the previous sentence, in no event shall either the
Administrator or Investor Services Group disclose the Confidential Information
to any competitor of the other without specific, prior written consent.
15.2 Proprietary Information means:
(a) any data or information that is competitively sensitive material,
and not generally known to the public, including, but not limited to,
information about product plans, marketing strategies, finance, operations,
customer relationships, customer profiles, sales estimates, business plans,
and internal performance results relating to the past, present or future
business activities of the Administrator or Investor Services Group, their
respective subsidiaries and affiliated companies and the customers, clients
and suppliers of any of them;
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<PAGE>
(b) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable and secret
in the sense that its confidentiality affords the Administrator or Investor
Services Group a competitive advantage over its competitors; and
(c) all confidential or proprietary concepts, documentation, reports,
data, specifications, computer software, source code, object code, flow
charts, databases, inventions, know-how, show-how and trade secrets,
whether or not patentable or copyrightable.
15.3 Confidential Information includes, without limitation, all documents,
inventions, substances, engineering and laboratory notebooks, drawings,
diagrams, specifications, bills of material, equipment, prototypes and models,
and any other tangible manifestation of the foregoing of either party which now
exist or come into the control or possession of the other.
15.4 The obligations of confidentiality and restriction on use herein shall
not apply to any Confidential Information that a party proves:
(a) Was in the public domain prior to the date of this Agreement or
subsequently came into the public domain through no fault of such party; or
(b) Was lawfully received by the party from a third party free of any
obligation of confidence to such third party; or
(c) Was already in the possession of the party prior to receipt
thereof, directly or indirectly, from the other party; or
(d) Is required to be disclosed in a judicial or administrative
proceeding after all reasonable legal remedies for maintaining such
information in confidence have been exhausted including, but not limited
to, giving the other party as much advance notice of the possibility of
such disclosure as practical so the other party may attempt to stop such
disclosure or obtain a protective order concerning such disclosure; or
(e) Is subsequently and independently developed by employees,
consultants or agents of the party without reference to the Confidential
Information disclosed under this Agreement.
Article 16 Force Majeure.
-------------
No party shall be liable for any default or delay in the performance of its
obligations under this Agreement if and to the extent such default or delay is
caused, directly or indirectly, by (i) fire, flood, elements of nature or other
acts of God; (ii) any outbreak or escalation of hostilities, war, riots or civil
disorders in any country, (iii) any act or omission of the other party or any
governmental authority; (iv) any labor disputes (whether or not the employees'
demands are reasonable or within the party's power to satisfy); or (v)
nonperformance by a third party or
-11-
<PAGE>
any similar cause beyond the reasonable control of such party, including without
limitation, failures or fluctuations in telecommunications or other equipment.
In any such event, the non-performing party shall be excused from any further
performance and observance of the obligations so affected only for as long as
such circumstances prevail and such party continues to use commercially
reasonable efforts to recommence performance or observance as soon as
practicable.
Article 17 Assignment and Subcontracting.
-----------------------------
This Agreement, its benefits and obligations shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned or otherwise transferred
by either party hereto, without the prior written consent of the other party,
which consent shall not be unreasonably withheld; provided, however, that
Investor Services Group may, in its sole discretion, assign all its right, title
and interest in this Agreement to an affiliate, parent or subsidiary, or to the
purchaser of substantially all of its business. Investor Services Group may, in
its sole discretion, engage subcontractors to perform any of the obligations
contained in this Agreement to be performed by Investor Services Group;
provided, however, that Investor Services Group may not engage subcontractors to
perform the obligations contained in this Agreement to be performed by Investor
Services Group without the prior written consent of the Administrator.
Article 18 Arbitration.
-----------
18.1 Any claim or controversy arising out of or relating to this Agreement,
or breach hereof, shall be settled by arbitration administered by the American
Arbitration Association in Boston, Massachusetts in accordance with its
applicable rules, except that the Federal Rules of Evidence and the Federal
Rules of Civil Procedure with respect to the discovery process shall apply.
18.2 The parties hereby agree that judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction.
18.3 The parties acknowledge and agree that the performance of the
obligations under this Agreement necessitates the use of instrumentalities of
interstate commerce and, notwithstanding other general choice of law provisions
in this Agreement, the parties agree that the Federal Arbitration Act shall
govern and control with respect to the provisions of this Article 18.
Article 19 Notice.
------
Any notice or other instrument authorized or required by this Agreement to
be given in writing to the Administrator or Investor Services Group, shall be
sufficiently given if addressed to that party and received by it at its office
set forth below or at such other place as it may from time to time designate in
writing.
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<PAGE>
To the Administrator:
Undiscovered Managers, LLC
700 North Pearl Street
Plaza of the Americas
Dallas, TX 75201
Attention: Mark P. Hurley
To Investor Services Group:
First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Attention: President
with a copy to Investor Services Group's General Counsel
Article 20 Governing Law/Venue.
-------------------
The laws of the Commonwealth of Massachusetts, excluding the laws on
conflicts of laws, shall govern the interpretation, validity, and enforcement of
this agreement. All actions arising from or related to this Agreement shall be
brought in the state and federal courts sitting in the City of Boston, and
Investor Services Group and the Administrator hereby submit themselves to the
exclusive jurisdiction of those courts.
Article 21 Counterparts.
------------
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.
Article 22 Captions.
--------
The captions of this Agreement are included for convenience of reference
only and in no way define or limit any of the provisions hereof or otherwise
affect their construction or effect.
Article 23 Publicity.
---------
Neither Investor Services Group nor the Administrator shall release or
publish news releases, public announcements, advertising or other publicity
relating to this Agreement or to the transactions contemplated by it without the
prior review and written approval of the other party; provided, however, that
either party may make such disclosures as are required by legal, accounting or
regulatory requirements after making reasonable efforts in the circumstances to
consult in advance with the other party.
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<PAGE>
Article 24 Relationship of Parties/Non-Solicitation.
----------------------------------------
24.1 The parties agree that they are independent contractors and not
partners or co-venturers and nothing contained herein shall be interpreted or
construed otherwise.
24.2 During the term of this Agreement and for one (1) year afterward,
neither party shall recruit, solicit, employ or engage, for itself or others,
the other party's employees.
Article 25 Entire Agreement; Severability.
------------------------------
25.1 This Agreement, including Schedules, Addenda, and Exhibits hereto,
constitutes the entire Agreement between the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous proposals,
agreements, contracts, representations, and understandings, whether written or
oral, between the parties with respect to the subject matter hereof. No change,
termination, modification, or waiver of any term or condition of the Agreement
shall be valid unless in writing signed by each party. No such writing shall be
effective as against Investor Services Group unless said writing is executed by
a Senior Vice President, Executive Vice President, or President of Investor
Services Group. A party's waiver of a breach of any term or condition in the
Agreement shall not be deemed a waiver of any subsequent breach of the same or
another term or condition.
25.2 The parties intend every provision of this Agreement to be severable.
If a court of competent jurisdiction determines that any term or provision is
illegal or invalid for any reason, the illegality or invalidity shall not affect
the validity of the remainder of this Agreement. In such case, the parties shall
in good faith modify or substitute such provision consistent with the original
intent of the parties. Without limiting the generality of this paragraph, if a
court determines that any remedy stated in this Agreement has failed of its
essential purpose, then all other provisions of this Agreement, including the
limitations on liability and exclusion of damages, shall remain fully effective.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed and delivered by their duly authorized officers as of the date
first written above.
UNDISCOVERED MANAGERS, LLC
By: ________________________________________
Name: ______________________________________
Title: _____________________________________
FIRST DATA INVESTOR SERVICES GROUP, INC.
By: ________________________________________
Name: ______________________________________
Title: _____________________________________
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SCHEDULE A
----------
Undiscovered Managers All Cap Fund
Undiscovered Managers Behavioral Growth Fund
Undiscovered Managers Core Equity Fund
Undiscovered Managers Hidden Value Fund
Undiscovered Managers REIT Fund
Undiscovered Managers Small Cap Value Fund
Undiscovered Managers Special Small Cap Fund
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SCHEDULE B
----------
DUTIES OF INVESTOR SERVICES GROUP
(a) Maintaining office facilities (which may be in the offices of Investor
Services Group or a corporate affiliate) and furnishing corporate officers for
the Fund;
(b) Furnishing data processing services, clerical services, and executive
and administrative services and standard stationery and office supplies;
(c) Fund accounting and bookkeeping services (including the maintenance of
such accounts, books and records of the Fund as may be required by Section 31(a)
of the 1940 Act and the rules thereunder) as follows;
o Daily, Weekly, and Monthly Reporting
o Portfolio and General Ledger Accounting
o Daily Valuation of all Portfolio Securities
o Daily Valuation and NAV Calculation
o Comparison of NAV to market movement
o Review research of price tolerance/fluctuation report to
market movements and events
o Security trade processing
o Weekly cost monitoring along with market-to-market valuations
in accordance with Rule 2a-7
o Daily cash reconciliation with the custodian bank
o Daily updating of price and distribution rate information to
the Transfer Agent/Insurance Agent
o Daily support and report delivery to Portfolio Management
o Daily calculation of Portfolio advisor fees and waivers
o Daily calculation of distribution rates
o Daily maintenance of each Portfolio's general ledger including
expense accruals
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o Daily NAV per share notification to other vendors as required
o Calculation of 30-day SEC yields and total return
o Preparation of month-end reconciliation package
o Monthly reconciliation of Portfolio expense records
o Application of monthly pay down gain/loss
o Preparation of all annual and semi-annual audit work papers
o Calculation of performance data of the Fund and its Portfolios
for dissemination to information services covering the
investment company industry.
(d) Performing all functions ordinarily performed by the office of a
corporate treasurer, and furnishing the services and facilities ordinarily
incident thereto, as follows;
o Expense Accrual Monitoring
o Determination of Dividends
o Prepare materials for review by the Board, e.g., 2a-7,10f-3,
17a-7, 17e-1, Rule 144a
o Advising the Fund and its Board of Directors on matters
concerning the Fund and its affairs
o Provide Treasurer/Assistant Treasurer for the Fund
o Tax and Financial Counsel, including monitoring and advising
the Fund and the Portfolios on their regulated investment
company status under the Internal Revenue Code
(e) Preparing reports to the Fund's shareholders of record and the SEC
including, but not necessarily limited to, Annual Reports and Semi-Annual
Reports on Form N-SAR;
(f) Preparing and filing the Fund's tax returns and providing shareholder
tax information to the Fund's transfer agent;
(g) Assisting the Adviser, at the Adviser's request, in monitoring and
developing compliance procedures for the Fund which will include, among other
matters, procedures to assist the Adviser in monitoring compliance with each
Portfolio's investment objective, policies, restrictions, tax matters and
applicable laws and regulations;
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<PAGE>
(h) Supervising the Fund's transfer agent with respect to the payment of
dividends and other distributions to Shareholders;
(i) Examining and reviewing the operations and performance of the various
organizations providing services to the Fund or any Portfolio of the Fund,
including, without limitation, the Fund's investment adviser, distributor,
custodian, fund accountant, transfer agent, and independent public accountants,
and at the request of the Board of Directors, report to the Board on the
performance of such organizations;
(j) Assisting with the design, development and operation of the Portfolios,
including new classes, investment objectives, policies and structure;
(k) Furnishing advice and recommendations with respect to other aspects of
the business and affairs of the Portfolios as the Administrator and Investor
Services Group shall determine desirable;
(l) Performing "Blue Sky" compliance functions, as follows:
o Effecting and maintaining, as the case may be, the
registration of Shares of the Fund for sale under the
securities laws of the jurisdictions listed in the Written
Instructions of the Administrator, which instructions will
include the amount of Shares to be registered as well as the
warning threshold to be maintained. Investor Services Group
shall monitor the issuance of such Shares and take cognizance
of the applicable laws relating to the issue or sale of such
Shares.
o Filing with each appropriate jurisdiction the appropriate
materials relating to the Fund. The Administrator shall be
responsible for providing such materials to Investor Services
Group, and Investor Services Group shall make such filings
promptly after receiving such materials.
o Providing to the Administrator quarterly reports of sales
activity in each jurisdiction in accordance with the Written
Instructions of the Administrator. Sales will be reported by
shareholder residence. Trades through National Securities
Clearing Corporation and order clearance will be reported by
dealer state of residence. Trades by omnibus accounts will be
reported by trustee state of residence in accordance with the
Written Instructions of the Administrator outlining the
entities which are permitted to maintain omnibus positions
with the Fund.
o In the event sales of Shares in a particular jurisdiction
reach or exceed the warning levels provided in the Written
Instructions of the Administrator, Investor Services Group
will promptly notify the Administrator with a recommendation
of the amount of Shares to be registered in such jurisdiction
and the fee for such registration. Investor Services Group
will not register additional Shares in such
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<PAGE>
jurisdiction unless and until Investor Services Group shall
have received Written Instructions from the Administrator to
do so.
(m) Performing the functions ordinarily performed by the office of a
corporate secretary, and furnishing the services and facilities incident
thereto. Corporate secretarial services include the following:
o Assist in maintaining corporate records and good standing
status of Fund in its state of organization
o Provide Secretary/Assistant Secretary for Fund
o Develop and maintain calendar of annual and quarterly board
approvals and regulatory filings
o Prepare notice, agenda, memoranda, resolutions and background
materials for legal approval at quarterly board meetings;
attend meetings; make presentations where appropriate; prepare
minutes; follow up on issues
o Provide support for one special board meeting per year and
written consent votes where needed
(n) Performing the functions ordinarily performed by a mutual fund group's
legal department as follows:
o Prepare and file annual Post-Effective Amendment
o Prepare and file Rule 24e-2 and Rule 24f-2 Notices
o Review and file Form N-SAR
o Review, Edgarize and file Annual and Semi-Annual Financial
Reports
o Prepare prospectus supplements
o Communicate significant regulatory or legislative developments
to Fund management and directors and provide related planning
assistance where needed
o Consult with Fund management regarding portfolio compliance
and Fund corporate and regulatory issues as needed
o Maintain effective communication with outside counsel
o Coordinate the printing and mailing process with outside
printers for all shareholder publications
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<PAGE>
o Arrange D&O/E&O insurance and fidelity bond coverage for Fund
o Assist in monitoring Fund Code of Ethics reporting and provide
such reports to Adviser
o Assist in developing compliance guidelines and procedures to
improve overall compliance by Fund and service providers
o Prepare notice, agenda, memoranda and background materials for
special board meetings, make presentations where appropriate,
prepare minutes and follow up on issues
o Provide consultative legal services as needed
(o) Performing, in accordance with the Written Instructions of the
Administrator, the following Special Legal Services in accordance with the
pricing structure listed on the Fee Schedule attached to this Agreement as
Schedule C:
o Assist in managing SEC audits of the Fund
o Review sales material and advertising for Fund SEC and NASD
compliance
o Assist in Portfolio conversion
Coordinate time and responsibility schedules
Draft notice, agenda, memoranda, resolutions and
background materials for board approval
o Assist in new Portfolio start-up (to the extent requested)
Coordinate time and responsibility schedules
Prepare Fund corporate documents (MTA/by-laws)
Draft/file registration statement (including investment
objectives/policies and prospectuses)
Respond to and negotiate SEC comments
Draft notice, agenda and resolutions for organizational
meeting; attend board meeting; make presentations where
appropriate; prepare minutes and follow up on issues
o Prepare proxy material for special meetings (including fund
merger documents)
o Prepare PEA for special purposes (e.g., new funds or classes,
changes in advisory relationships, mergers, restructurings)
o Assist in extraordinary non-recurring projects
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Arrange CDSC financial programs
Prospectus simplification
Profile prospectuses
Exemptive order applications
-22-
<PAGE>
SCHEDULE C
----------
FEE SCHEDULE
For the services to be rendered, the facilities to be furnished and the
payments to be made by Investor Services Group, as provided for in this
Agreement, the Administrator will pay Investor Services Group on the first
business day of each month a fee for the previous month at the rates listed
below.
o Fund Accounting Fee:
Portfolio Size Annual Fee
-------------- ----------
Less than $50 million $30,000
$50 to $200 million $35,000
$200 to $500 million $50,000
$500 million to $1 billion $85,000
$1 billion and over $125,000
Each additional class (above 1) $2,500
o Fund Administration Fee:
Complex Size Annual Fee
------------ ----------
First $500 million 0.060%
Next $500 million 0.050%
Next $1.5 billion 0.045%
$2.5 billion and over 0.035%
Each additional class (above 1) $2,500
The Fund Administration Fee is based on the average aggregate net
assets of the Fund complex.
o The Early Termination Penalty referred to in Section 13.5
shall be an amount equal to the fees paid to Investor Services
Group by the Administrator under this Agreement for the
previous month annualized to reflect one year's fee.
o Investor Services Group shall be entitled to the following fee
for the performance of any Special Legal Services as described
in Schedule B in accordance with the Written Instructions of
the Administrator: $185 per hour subject to certain project
caps as may be agreed to by Investor Services Group and the
Administrator. Services and charges may vary based on volume.
o Investor Services Group shall be entitled to collect, as
applicable, all out-of-pocket fees described in Schedule D.
-23-
<PAGE>
SCHEDULE D
----------
OUT-OF-POCKET EXPENSES
Out-of-pocket expenses include, but are not limited to, the following:
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------
Microfiche/microfilm production Charges are $0.006 per image, $0.30 per
fiche page. We are migrating to COLD storage,
and these costs will soon be not applicable.
- ------------------------------------------------------------------------------------------------------------
Magnetic media tapes and freight Magnetic tapes can be used for various reasons. For
instance, tapes are created with shareholder names
and addresses to be used for shareholder mailings.
Also, tapes can be created from the shareholder
data base for marketing projects. The costs of
these will vary by project.
- ------------------------------------------------------------------------------------------------------------
Printing costs, including certificates, Costs incurred from outside vendor for printing
envelopes, checks and stationery stock. Will work with you to determine your needs,
and will get estimates approved by you. Since most
accounts will be supported by brokers etc. who will
statement their own accounts, these costs should be
minimal.
- ------------------------------------------------------------------------------------------------------------
Postage US Postal Service fees to mail statements,
confirms, checks etc. to shareholders.
- ------------------------------------------------------------------------------------------------------------
Due diligence mailings Expenses include the cost of printing, inserting
and postage for required IRS shareholder mailings:
W9, B-notice, W8, Date of Birth, and TEFRA. Costs
vary by project, but the following is a rough
estimate: printing 0.06/page, inserting 0.10/page
(minimums of approximately $50 - $100 per job
apply). Postage is usually 1 ounce/ $0.32 rate.
- ------------------------------------------------------------------------------------------------------------
Telephone and communication costs, including all Applicable for:
lease, maintenance and 1.) Line charges associated with 800
- ------------------------------------------------------------------------------------------------------------
-24-
<PAGE>
- ------------------------------------------------------------------------------------------------------------
line costs number, if such 800 number is provided. These
costs range from $0.07 to $0.09 per minute.
2.) Line charges associated with remote access to
our systems. Costs are dependent upon method of
access to Investor Services Group's system(s).
- ------------------------------------------------------------------------------------------------------------
Ad hoc/Customized reports Systems work for any special reporting needs
you may have is $135/person hour. These costs
are approved by the Fund prior to work being done.
- ------------------------------------------------------------------------------------------------------------
Proxy solicitations, mailings and tabulations Costs vary by project, and are bid
as such.
- ------------------------------------------------------------------------------------------------------------
Daily and distribution advice mailings Not applicable
- ------------------------------------------------------------------------------------------------------------
Terminals, communication lines, printers and other Only applicable if the Fund is interested in remote
equipment and any expenses incurred in connection access to our systems. Charges are then dependent
with such terminals and lines. upon method of access to Investor Services Group's
system(s). If you want full access to all
systems on a direct line basis, this can be
expensive. One client has paid approximately
$20,000 for the hardware necessary and their
ongoing fee for the line is $1,700. Dial up to the
transfer agency only system is far cheaper,
$100 for the software.
- ------------------------------------------------------------------------------------------------------------
Duplicating services If we have to use a service to produce large
quantities of materials, such as for a Board
meeting, we will pass along the charges to you.
This rarely happens, and when it does, the charges
are small.
- ------------------------------------------------------------------------------------------------------------
Print/mail charges See attached fee schedule. Given that we will not
produce many confirms, statements etc., this should
not be very costly.
- ------------------------------------------------------------------------------------------------------------
Courier services If at your request, we need to courier,
or overnight, mail, we will pass along
- ------------------------------------------------------------------------------------------------------------
-25-
<PAGE>
- ------------------------------------------------------------------------------------------------------------
the charges from the overnight
service.
- ------------------------------------------------------------------------------------------------------------
Incoming and outgoing wire charges $6 per incoming wire. $8 per outgoing wire.
- ------------------------------------------------------------------------------------------------------------
Charges for check clearance Charged through bank services (Boston Safe
Deposit and Trust). Currently estimated at
$0.12 each.
- ------------------------------------------------------------------------------------------------------------
Overtime, as approved by Fund If the Fund wants special programs (for example
telephone calling or mailing programs) that
require non-exempt Investor Services Group
employees to work overtime, we will pass along
those costs.
- ------------------------------------------------------------------------------------------------------------
Temporary staff, as approved by Fund If any program requires Investor Services Group to
hire temporary staff, we will pass those costs
along to you.
- ------------------------------------------------------------------------------------------------------------
Record retention, retrieval and Costs dependent upon arrangement with archive
destruction costs, including, but not vendor. Typical cost estimated at $0.13 per archive
limited to exit fees charged by carton per month, for retention, and $50 retrieval
third party record keeping vendors. charge. Most information is on image, and we do
not need to retrieve from archives. However, we
still retain all hard copy records.
- ------------------------------------------------------------------------------------------------------------
Third party audit reviews. Clients share pro-rata in the cost of preparing a
SAS-70 (transfer agent). The cost is $0.10 per
account. Which is more than off-set the reduced
audit fees charged to the fund.
- ------------------------------------------------------------------------------------------------------------
Ad hoc SQL time SQL is a reporting system that allows Investor
Services Group clients to run their own queries and
reports off of the transfer agent system. The cost
for running these reports is charged back at $1,000
per CPU hour (computer processing usage). Most
adhocs take very few minutes to run.
- ------------------------------------------------------------------------------------------------------------
Fund Insurance Cost of Fidelity Bond and Errors and Omission
policy for the Fund. Costs dependent upon number
and size of portfolios. For a fund complex with
- ------------------------------------------------------------------------------------------------------------
-26-
<PAGE>
- ------------------------------------------------------------------------------------------------------------
8 portfolios, the budgeted insurance expense is
$42,877.
- ------------------------------------------------------------------------------------------------------------
Such other miscellaneous expenses Costs will vary and will be discussed with you.
reasonably incurred by Investor
Services Group in performing its duties and
responsibilities under this Agreement.
- ------------------------------------------------------------------------------------------------------------
Delivery costs of Board meeting Dependent upon number of members in Board and their
materials and other materials to the location.
Board of Directors and service providers
(including overnight or other courier services)
- ------------------------------------------------------------------------------------------------------------
Telecommunications charges (including fax) with Costs for long distance phone and fax calls are
respect to communications with the Board of dependent upon number of members in Board and their
Directors, officers and service providers. location.
- ------------------------------------------------------------------------------------------------------------
Duplicating charges with respect to If volumes are large enough that we have to use an
filings with federal and state outside service, costs will be passed back to the
authorities and board meeting Fund. (For example, cost of copying N1A filings
materials for each state)
- ------------------------------------------------------------------------------------------------------------
Travel to and from board meeting Expenses for our attorney, who is required to
and other meetings with Fund management attend board meetings, will be billed back to the
Fund. Expenses for other employees of Investor
Services Group will not be.
- ------------------------------------------------------------------------------------------------------------
Pricing services We use a variety of outside vendors.
Currently charged at $0.10 per equity, $0.50
per bond, $0.50 per money instrument and $1.00
other (REIT).
- ------------------------------------------------------------------------------------------------------------
Forms and supplies for the preparation Costs of binders, duplication, mailing etc. for
of Board meetings and other meetings Board books will be passed back to the Fund.
with fund management
- ------------------------------------------------------------------------------------------------------------
Vendor set-up charges for blue One time charge of $4,000 to develop interface
sky services between transfer agent system and
blue sky system.
- ------------------------------------------------------------------------------------------------------------
Customized programming requests Usually for custom reports. Billed at $135/hour
- ------------------------------------------------------------------------------------------------------------
Blue sky filing or registration fees Fees charged by states will be passed back
to the Fund. Estimates above.
- ------------------------------------------------------------------------------------------------------------
-27-
<PAGE>
- ------------------------------------------------------------------------------------------------------------
Assuming 7 portfolios, one class of
shares, one prospectus, and registrations
for all 50 states, blue sky costs range from
$110,790 to $209,400 depending on registration
amounts.
- ------------------------------------------------------------------------------------------------------------
Costs of SAS-70 Clients share pro-rata in the cost of
preparing an Investor Services Group SAS-70
(fund accounting). Currently estimated at
$300 per fund.
- ------------------------------------------------------------------------------------------------------------
COLD storage costs Digital storage of shareholder documentation and
systems reports. Alternative to
microfilm/microfiche. Costs are $0.008 per page.
- ------------------------------------------------------------------------------------------------------------
Document retrieval costs Dependent upon storage facility.
- ------------------------------------------------------------------------------------------------------------
Vendor pricing comparison Occurs when advisor requests additional price
information on a security from second pricing
vendor. Costs for this will vary depending upon
type of security, number of securities, and number
of days needed.
- ------------------------------------------------------------------------------------------------------------
Manual pricing. In the event that either the advisor
does not accept a vendors price on a security, or a
price for a security is unavailable from pricing
vendor, an additional cost may be incurred to
get price from independent broker.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The Administrator agrees that postage and mailing expenses, if any,
will be paid on the day of or prior to mailing as agreed with Investor Services
Group. In addition, the Administrator will promptly reimburse Investor Services
Group for any other unscheduled expenses incurred by Investor Services Group
whenever the Administrator and Investor Services Group mutually agree that such
expenses are not otherwise properly borne by Investor Services Group as part of
its duties and obligations under the Agreement.
-28-
<PAGE>
SCHEDULE E
----------
FUND DOCUMENTS
o Certified copy of the Articles of Incorporation of the Fund,
as amended
o Certified copy of the By-laws of the Fund, as amended
o Specimens of the certificates for Shares of the Fund, if
applicable, in the form approved by the Board of Directors of
the Fund, with a certificate of the Secretary of the Fund as
to such approval
o All account application forms and other documents relating to
Shareholder accounts or to any plan, program or service
offered by the Fund
-29-
<PAGE>
EXHIBIT 1 TO SCHEDULE B
-----------------------
PERFORMANCE STANDARDS
Fund Accounting
o Investment advisors will be notified of their cash positions
by 9:30 a.m. EST daily
o Securities positions will be reconciled daily with custodian
o Fund share prices will be accurate assuming that pricing
received from pricing services and corporate actions from
custodian are accurate
o Daily bulletin will be released by 6:30 p.m. daily assuming
all independent prices are received from vendors
o Prices for all Portfolios will be submitted to NASDAQ by
deadline for publication in newspapers
The above-referenced standards will be adhered to at least 98% of the time
measured on a monthly basis.
Fund Administration
o All tax, compliance, fund reporting and regulatory deadlines
will be met and will be accurate
The above-referenced standard will be met 100% of the time.
o Investor Services Group's board materials will be mailed 10
days prior to the board meeting
o Investment advisors will be notified in advance at
pre-determined tolerances of potential compliance violations
o Fund expense budget and reimbursement analysis will be
completed and reviewed with the Fund monthly
The above-referenced standards will be adhered to at least 98% of the time
measured on a monthly basis.
-30-
EXHIBIT 99.10:
--------------
OPINION AND CONSENT OF COUNSEL.
<PAGE>
December 17, 1997
Undiscovered Managers Funds
Plaza of the Americas
700 North Pearl Street
Dallas, Texas 75201
Ladies and Gentlemen:
You have informed us that you propose to register under the Securities
Act of 1933, as amended (the "Act"), and offer and sell from time to time shares
of beneficial interest, without par value ("Shares"), of each of your
Undiscovered Managers All Cap Value Fund series, Undiscovered Managers
Behavioral Growth Fund series, Undiscovered Managers Core Equity Fund series,
Undiscovered Managers Hidden Value Fund series, Undiscovered Managers REIT Fund
series, Undiscovered Managers Small Cap Value Fund series and Undiscovered
Managers Special Small Cap Fund series (each such series, a "Series").
We are familiar with the action taken by the Trustees of Undiscovered
Managers Funds (the "Trust") to authorize the issue and sale to the public from
time to time of authorized and unissued Shares. We have examined the records of
action by the Trust's Trustees, its By-Laws and its Amended and Restated
Agreement and Declaration of Trust. We have examined such other documents as we
have deemed necessary for the purpose of this opinion.
Based on the foregoing, we are of the opinion that:
1. The beneficial interest of each Series is divided into an unlimited
number of Shares.
2. The issue and sale of the authorized but unissued Shares of each
Series has been duly authorized under Massachusetts law. Upon the original issue
and sale of any of such authorized but unissued Shares and upon receipt by the
Trust of the authorized consideration therefor in an amount not less than the
applicable net asset value, the Shares so issued will be validly issued, fully
paid and nonassessable by the Trust.
<PAGE>
Undiscovered Managers Funds December 17, 1997
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each note, bond, contract, instrument, certificate or undertaking entered into
or executed on behalf of the Trust by its Trustees or Officers. The Declaration
of Trust provides for indemnification out of the property of the particular
series for all loss and expense of any shareholder held personally liable solely
by reason of his being or having been a shareholder of that series. Thus, the
risk of a shareholder incurring financial loss on account of being a shareholder
of a series is limited to circumstances in which such series would be unable to
meet its obligations.
We understand that this opinion is to be used in connection with the
registration of an indefinite number of Shares for offering and sale pursuant to
the Act. We consent to the filing of this opinion with and as part of your
Registration Statement on Form N-lA (File No. 333- 37711) relating to such
offering and sale.
Very truly yours,
Ropes & Gray
-2-
EXHIBIT 99.11(a):
----------------
CONSENT OF KPMG PEAT MARWICK LLP.
<PAGE>
Consent of Independent Auditors
The Board of Trustees
Undiscovered Managers Funds:
We consent to the reference to our Firm under the captions "All Cap Value Fund",
"Core Equity Fund" and "Special Small Cap Fund", included under the heading "The
Funds" in the prospectus in registration statement (File No. 333-37711) on
Form N-1A.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Boston, Massachusetts
December 17, 1997
EXHIBIT 99.11(b):
----------------
CONSENT OF DELOITTE & TOUCHE LLP.
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Pre-Effective Amendment No. 2 to the Registration
Statement of Undiscovered Managers Funds (1933 Act File No. 333-37711) of our
report dated December 17, 1997, relating to Undiscovered Managers Small Cap
Value Fund, which report is included in the Statement of Additional Information,
which is part of such Registration Statement.
We also consent to the use of our name under the heading "The Fund" in the
Prospectus, and to the reference to us under the heading "Experts" in the
Statement of Additional Information, both of which are part of such Registration
Statement.
/s/ Deloitte & Touche LLP
December 17, 1997
Boston, Massachusetts
EXHIBIT 99.13:
-------------
INVESTMENT REPRESENTATION LETTER.
<PAGE>
UNDISCOVERED MANAGERS, LLC
Plaza of the Americas
700 North Pearl Street
Dallas, Texas 75201
December 16, 1997
Undiscovered Managers Funds
Plaza of the Americas
700 North Pearl Street
Dallas, Texas 75201
Gentlemen:
In connection with your sale to us today of 8,000 shares (the "Shares")
of beneficial interest in Undiscovered Managers Small Cap Value Fund (the
"Fund"), we understand that: (i) the Shares have not been registered under the
Securities Act of 1933, as amended (the "1933 Act"); (ii) your sale of the
Shares to us is in reliance on the sale being exempt under Section 4(2) of the
1933 Act as not involving any public offering; and (iii) in part, your reliance
on such exemption is predicated on our representation, which we hereby confirm,
that we are acquiring the Shares for investment and for our own account as the
sole beneficial owner hereof, and not with a view to or in connection with any
resale or distribution of any or all of the Shares or of any interest therein.
We hereby agree that we will not sell, assign or transfer the Shares or any
interest therein except upon repurchase or redemption by the Fund unless and
until the Shares have been registered under the 1933 Act or you have received an
opinion of your counsel indicating to your satisfaction that such sale,
assignment or transfer will not violate the provisions of the 1933 Act or any
rules and regulations promulgated thereunder.
<PAGE>
This letter is intended to take effect as an instrument under seal and
is delivered at Dallas, Texas as of the date above written.
Very truly yours,
UNDISCOVERED MANAGERS, LLC
By: /s/ Mark P. Hurley
---------------------------------
Mark P. Hurley, President and CEO
EXHIBIT 99.19:
--------------
POWERS OF ATTORNEY FOR EACH OF ROGER B. KEATING, MATTHEW J. KILEY AND ROBERT P.
SCHMERMUND, DESIGNATING MARK P. HURLEY, JOHN J. BURKE III, MARY CHRIS SAYRE AND
NEIL FORREST.
<PAGE>
POWER OF ATTORNEY
I, the undersigned Trustee of Undiscovered Managers Funds hereby
severally constitute and appoint Mark P. Hurley, John J. Burke III, Mary Chris
Sayre and Neil Forrest, and each of them singly, my true and lawful attorneys,
with full power to them and each of them, to sign for me, and in my name and in
the capacity indicated below, the Registration Statement on Form N-1A of
Undiscovered Managers Funds and any and all amendments (including post-effective
amendments) to said Registration Statement and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto my said attorneys, and each of
them acting alone, full power and authority to do and perform each and every act
and thing requisite or necessary to be done in the premises, as fully to all
intents and purposes as he might or could do in person, and hereby ratify and
confirm all that said attorneys or any of them may lawfully do or cause to be
done by virtue thereof.
WITNESS my hand and seal on the date set forth below.
Signature Title Date
/s/ Roger B. Keating
- -------------------------- Trustee December 4, 1997
Roger B. Keating
<PAGE>
POWER OF ATTORNEY
I, the undersigned Trustee of Undiscovered Managers Funds hereby
severally constitute and appoint Mark P. Hurley, John J. Burke III, Mary Chris
Sayre and Neil Forrest, and each of them singly, my true and lawful attorneys,
with full power to them and each of them, to sign for me, and in my name and in
the capacity indicated below, the Registration Statement on Form N-1A of
Undiscovered Managers Funds and any and all amendments (including post-effective
amendments) to said Registration Statement and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto my said attorneys, and each of
them acting alone, full power and authority to do and perform each and every act
and thing requisite or necessary to be done in the premises, as fully to all
intents and purposes as he might or could do in person, and hereby ratify and
confirm all that said attorneys or any of them may lawfully do or cause to be
done by virtue thereof.
WITNESS my hand and seal on the date set forth below.
Signature Title Date
/s/ Matthew J. Kiley
- -------------------------- Trustee December 4, 1997
Matthew J. Kiley
<PAGE>
POWER OF ATTORNEY
I, the undersigned Trustee of Undiscovered Managers Funds hereby
severally constitute and appoint Mark P. Hurley, John J. Burke III, Mary Chris
Sayre and Neil Forrest, and each of them singly, my true and lawful attorneys,
with full power to them and each of them, to sign for me, and in my name and in
the capacity indicated below, the Registration Statement on Form N-1A of
Undiscovered Managers Funds and any and all amendments (including post-effective
amendments) to said Registration Statement and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto my said attorneys, and each of
them acting alone, full power and authority to do and perform each and every act
and thing requisite or necessary to be done in the premises, as fully to all
intents and purposes as he might or could do in person, and hereby ratify and
confirm all that said attorneys or any of them may lawfully do or cause to be
done by virtue thereof.
WITNESS my hand and seal on the date set forth below.
Signature Title Date
/s/ Robert P. Schmermund
- -------------------------- Trustee December 4, 1997
Robert P. Schmermund
