As filed with the Securities and Exchange Commission on February 15, 2000
Securities Act Registration No. 333-45509
Investment Company Act Registration No. 811-8535
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. __ [ ]
Post-Effective Amendment No. 1 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 6
LIGHT REVOLUTION FUND, INC.
(Exact Name of Registrant as Specified in Charter)
704 Court A
Tacoma, Washington 98402
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (888) 463-3957
Henry Hewitt
Light Index Investment Company
704 Court A
Tacoma, Washington 98402
(Name and Address of Agent for Service)
Copies to:
Scott A. Moehrke
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, Wisconsin 53202
Approximate date of proposed public offering: As
soon as practicable after this Registration Statement
becomes effective.
It is proposed that this filing will become
effective (check appropriate box):
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates
a new effective date for a previously filed post-
effective amendment.
<PAGE>
Prospectus
February 15, 2000
Light Revolution Fund, Inc.
LIGHT REVOLUTION FUND
704 Court A
Tacoma, Washington 98402
1-888-463-3957
The investment objective of the Light
Revolution Fund (the "Fund") is capital
appreciation. The Fund invests primarily in
common stocks of large capitalization companies in
the technology business engaged in the processing
or delivery of information. The Fund is a
convenient way for investors to participate in the
long-term growth potential of the information
revolution. Light Index Investment Company (the
"Adviser") is the investment adviser to the Fund.
The Fund is a long-term investment, intended to
complement your other investments.
This Prospectus contains important
information you should consider before you invest
in the Fund, including information about risks.
Please read it carefully and keep it for future
reference.
____________________
Neither the Securities and Exchange
Commission (the "SEC") nor any state securities
commission has approved or disapproved of the
securities offered by this Prospectus, nor has the
SEC or any state securities commission passed upon
the adequacy of this Prospectus. Any
representation to the contrary is a criminal
offense.
<PAGE>
TABLE OF CONTENTS
Page No.
HIGHLIGHTS 1
FEES AND EXPENSES OF THE FUND 2
INVESTMENT OBJECTIVE 3
HOW THE FUND INVESTS AND RELATED RISKS 3
FINANCIAL HIGHLIGHTS 5
FUND MANAGEMENT 5
HOW TO PURCHASE SHARES 6
HOW TO REDEEM SHARES 9
VALUATION OF FUND SHARES 11
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN 11
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX TREATMENT 11
ADDITIONAL INFORMATION 13
_____________________________
In deciding whether to invest in the Fund, you
should rely only on information in this Prospectus or
the Statement of Additional Information (the "SAI").
The Fund has not authorized others to provide
additional information. The Fund does not authorize
the use of this Prospectus in any state or jurisdiction
in which such offering may not legally be made.
Light Index and Light Revolution are trademarks of
the Light Index Investment Company.
<PAGE>
HIGHLIGHTS
What is the goal of the Fund?
The Fund's goal is capital appreciation. This
goal is sometimes referred to as the Fund's investment
objective. The Fund cannot guarantee that it will
achieve its goal. For more information, see
"Investment Objective" and "How the Fund Invests and
Related Risks."
What is the principal investment strategy of the Fund?
The Fund invests primarily in common stocks of
large capitalization companies in the technology
business engaged in the processing or delivery of
information. The Fund may also invest in other types
of securities in pursuing its investment objective. In
trying to achieve the Fund's goal, the Adviser focuses
on technology business securities which tend to be
growth-oriented investments, but uses a value-based
investment methodology to identify securities which the
Adviser believes are undervalued relative to their
intrinsic worth and possess characteristics which will
lead to a higher market price over time. This
investment methodology is based on the investment
methodology the Adviser uses to manage the Light Index.
The Light Index is a stock index which was developed
and is published by the Adviser. The companies which
the Adviser considers for inclusion in the Fund are
publicly-traded, large capitalization companies engaged
in the processing or delivery of information, which the
Adviser believes will lead the Light Revolution. The
Adviser created the term Light Revolution to describe
the transition of the world's economy from one based on
the ability to perform physical work with machines at
high speed to one based on the ability to process and
deliver information at the speed of light. These
companies may be in a variety of businesses including
computer hardware, computer software and
telecommunications, but may also be in financial
services or other businesses that may benefit from the
Light Revolution.
The Adviser will select particular companies for
purchase by the Fund based upon a review of various
attributes, including sales growth and research and
development expenditures. The Adviser will sell the
stock of particular companies for a variety of reasons
including a determination by the Adviser that a company
is no longer a leading firm in its segment of the
market. The Fund intends to be fully invested at all
times in common stocks and will normally invest at
least a majority of its assets in the common stocks of
large capitalization companies. The Fund intends to
identify common stocks with long-term capital
appreciation potential and to hold those stocks for
extended periods of time. As a result, the Fund should
have low portfolio turnover and capital gains
distributions. For more information, see "How the Fund
Invests and Related Risks."
What are the main risks of investing in the Fund?
The main risks of investing in the Fund are:
* Stock Market Risk: Stock funds like the Fund are subject to stock
market risks and significant fluctuations in
value. If the stock market declines in
value, the Fund is likely to decline in value.
Increases or decreases in the value of stocks are
generally greater than for bonds or other debt
investments.
* Stock Selection Risk: The stocks selected by the Adviser for purchase
by the Fund may decline in value or not increase
in value when the stock market in general is
rising.
* Liquidity Risk: The Adviser may not be able to sell stocks at
an optimal time or price.
* Volatility Risk: The Fund is subject to risk based on its focus
on investing in companies which the Adviser
expects to lead the Light Revolution. The
stocks of these companies may be subject to
greater volatility than the stock market in
general or may not correspond to
stock market movements in general.
You should be aware that you may lose money by
investing in the Fund. Because of the Fund's focus on
investing in companies expected to lead the Light
Revolution, it may not be a complete investment program
for the equity portion of your portfolio.
<PAGE>
Is the Fund an appropriate investment for me?
The Fund is suitable for long-term investors only.
The Fund is not a short-term investment vehicle. An
investment in the Fund may be appropriate if:
* your goal is capital appreciation;
* you want to allocate some portion of your long-
term investments to the technology business of
processing or delivering information;
* you do not require current income from this
investment; and
* you are willing to accept short-term to
intermediate-term fluctuations in investment value.
Because the Fund has been in operation for less than a
full calendar year, it has no annual returns history.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that
you may pay if you buy and hold shares of the Fund.
Shareholder Fees (fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases(1)
(as a percentage of offering price) 4.75%
Maximum deferred sales charge (load) imposed on redemptions
(as a percentage of amount redeemed) None
Redemption Fee
(as a percentage of amount redeemed) (2) None
Exchange Fee (3) $5.00
Annual Fund Operating Expenses (expenses that are deducted
from Fund assets)(4)
Management Fees(5) 1.00%
Distribution and Service (12b-1) Fees(6) 0.25%
Other Expenses(5) 19.49%
Total Annual Fund Operating Expenses(5) 20.74%
Fee Waiver/Expense Reimbursement(4) 18.74%
Net Expenses(4)(5) 2.00%
____________
(1) This sales charge is the maximum sales charge
applicable to purchases of shares. You may not
have to pay this sales charge because waivers and
reduced sales charges are available. See "How to
Purchase Shares."
(2) A fee of $12.00 is charged for each wire
redemption. See "How to Redeem Shares - In General."
(3) If you exchange shares of the Fund for shares of
the Firstar Money Market Fund, you will be charged a
$5.00 fee.
(4) Based on the period from June 29, 1999
(commencement of operations) to October 31, 1999.
Fund operating expenses are deducted from Fund
assets before computing the daily share price or
making distributions. As a result, they will not
appear on your account statement, but instead
reduce the amount of total return you receive.
(5) Until March 31, 2001, the Adviser has agreed to
waive its management fee and/or reimburse the
Fund's other expenses to the extent necessary to
ensure that the Fund's total annual operating
expenses, which include management and
administration fees, but which exclude interest,
taxes, brokerage commissions and other costs
incurred in connection with the purchase and sale
of portfolio securities, and extraordinary items,
do not exceed 2.00% of its average net assets.
After such date, the total annual operating expense
limitations may be terminated or revised at any
time. "Other expenses" are presented before any
such waivers or reimbursements. If such waivers
and reimbursements are included in the calculation
of "other expenses" (i.e., if actual "other
expenses" are shown), other expenses and total
annual operating expenses for the Fund are expected
to be 0.75% and 2.00%, respectively. Any waiver or
reimbursement covered by limits set forth in the
Expense Cap/Reimbursement Agreement is subject to
later adjustment to allow the Adviser to recoup
amounts waived or reimbursed, including initial
<PAGE>
organization costs of the Fund, to the extent
actual fees and expenses for a period are less than
the expense limitation cap, provided, however, that
the Adviser is only entitled to recoup such amounts
for a period of three years from the date such
amount was waived or reimbursed, and only to the
extent that actual fees and expenses for a period
are less than the expense limitation cap. For
additional information, see "Fund Management."
(6) Because Rule 12b-1 fees are paid out of the Fund's
assets on an on-going basis, over time these fees
will increase the cost of your investment and could
cost long-term investors of the Fund more than
other types of sales charges. For more
information, see "Distribution and Shareholder
Servicing Plan."
Example
The following Example is intended to help you
compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The Example
assumes that you invest $10,000 in the Fund, minus the
4.75% maximum sales charge, for the time periods
indicated and then redeem all of your shares at the end
of those periods. The Example also assumes that your
investment has a 5% return each year and that the
Fund's total annual operating expenses remain the same
each year. Please note that the one year number is
based on the Fund's net expenses resulting from the
expense cap agreement described above. Because the
Fund's expense cap agreement is not effective after
March 31, 2001, the three year number is based on the
Fund's expenses before any waivers or reimbursements.
Although your actual costs may be higher or lower,
based on these assumptions your costs would be as
follows:
1 Year 3 Years
$668 $4,123
INVESTMENT OBJECTIVE
The Fund's investment objective is capital appreciation.
HOW THE FUND INVESTS AND RELATED RISKS
The Fund seeks to achieve its investment objective
by investing primarily in common stocks of companies
with large market capitalizations in the technology
business engaged in the processing or delivery of
information. A large capitalization company would
typically have a market capitalization of at least $1
billion.
In trying to achieve the Fund's investment
objective, the Adviser focuses on technology business
securities which tend to be growth-oriented
investments, but uses a value-based investment
methodology to identify securities which the Adviser
believes are undervalued relative to their intrinsic
worth and possess characteristics which will lead to a
higher market price over time. This investment
methodology is based on the investment methodology
developed by the Adviser in creating and maintaining a
stock index entitled the Light Index. The Fund, like
the Light Index, will primarily be composed of the
common stocks of publicly-traded, large capitalization
companies engaged in the processing or delivery of
information selected from a group of companies which
the Adviser believes will lead the transition of the
world's economy from the Industrial Age to the
Information Age. The Industrial Age was an era
characterized by a rapid increase in productivity
brought about by the ability to perform physical work
with machines. Through the use of the steam engine and
other machines, natural resources and industrial
commodities such as coal, iron ore, lumber and oil were
brought to market at speeds never before possible. The
early years of that era came to be known as the
"Industrial Revolution." The Information Age is an era
characterized by a rapid increase in productivity
brought about by the ability to quickly process and
deliver information. Through the development and use
of the integrated circuit and related technologies,
information is processed and delivered to end users at
the speed of light when translated into "information
commodities" such as electrons, radio waves,
microwaves, and infrared and visible light. The
Adviser has characterized this era as the Light
Revolution.
The Adviser considers companies for purchase by
the Fund and inclusion in the Light Index from the
group of companies which it believes will lead the
Light Revolution. In making its decision, the Adviser
includes a particular company from this group based
upon its review of that company's attributes relative
to its current market value, such as:
* Strong sales growth;
* Substantial spending on research and development;
<PAGE>
* Increasing operating margins; and
* Growing market share.
The Adviser generally follows a value approach to
investing for the Fund. Accordingly, the Fund will
focus on securities that the Adviser believes are
undervalued relative to their intrinsic worth and
possess characteristics, such as those discussed above,
that the Adviser believes will lead to a higher market
price over time. Because of the Fund's focus on
companies expected to lead the Light Revolution, it may
not be a complete investment program for the equity
portion of your portfolio.
The Fund will invest primarily in common stocks.
Common stocks generally increase or decrease in value
based on the earnings of a company and on general
industry and market conditions. Because the Fund
invests a significant amount of its assets in common
stocks, it is likely to have greater fluctuations in
share price than a fund that invests a significant
portion of its assets in fixed-income securities.
Stock funds like the Fund are subject to stock market
risks and significant fluctuations in value. If the
stock market declines in value, the Fund is likely to
decline in value and such declines may not correspond
to the changes in value of the stock market overall.
For example, the Fund's decline in value may be greater
than that of the market as a whole. Changes in the
value of stocks have generally been greater than for
bonds or other fixed-income investments. The Fund's
portfolio itself is subject to the risk that the
Adviser may select stocks that decline in value or not
increase in value when the stock market in general is
rising. The technology business may be subject to
greater volatility than the stock market in general and
may not correspond to positive stock market movements
in general. In addition, the Adviser may not or may
not be able to sell stocks at an optimal time or price.
The Adviser has not previously acted as an investment
adviser to a mutual fund. Although not part of its
principal investment strategy, the Fund may
occasionally invest a limited portion of its assets in
futures contracts, options, options on futures, foreign
securities and illiquid securities. See the Fund's SAI
for additional information.
Although the Adviser intends to use an investment
methodology in managing the Fund based on the
investment methodology it uses in managing the Light
Index, the Fund is not an "index fund." Investors
should not expect the Fund to replicate the performance
or composition of the Light Index.
The Fund has no minimum holding period for its
investments and will sell securities whenever the
Adviser believes it is consistent with the Fund's
investment objective. The Fund typically sells a
security when the company shows deteriorating economic
fundamentals, falls short of the Adviser's expectations
or is no longer a leading firm in its segment of the
market, or when the Adviser finds a better security for
inclusion in the Fund. The Fund will attempt to
maximize investment returns. Potential tax
consequences to Fund shareholders will be a secondary
consideration when it sells securities. However, the
Fund seeks to identify common stocks of companies with
long-term capital appreciation potential and to hold
those common stocks for an extended period. As a
result, the Fund should have low portfolio turnover and
capital gains distributions. Investors may realize
taxable capital gains as a result of trading of the
Fund's assets and the Fund incurs transaction costs in
connection with buying and selling securities. Tax and
transaction costs lower the Fund's effective return for
investors.
The Fund intends to remain fully invested. The
Fund will not invest in cash reserves as part of a
temporary defensive strategy, such as lowering its
investment in common stocks, to protect against
potential stock market declines.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help
you understand the Fund's financial performance for the
period from June 29, 1999 (commencement of operations)
to October 31, 1999. Certain information reflects
financial results for a single Fund share. The total
returns in the table represent the rate that an
investor would have earned on an investment in the Fund
for the stated period (assuming reinvestment of all
dividends and distributions). This information has
been audited by PricewaterhouseCoopers LLP, whose
report, along with the Fund's financial statements, are
included in the Fund's annual report, which is
available upon request.
Net Asset Value - Beginning of Period $10.00
Income from Investment Operations:
Net investment loss (0.04)
Net realized gain and unrealized appreciation 1.43
Total from investment operations 1.39
Net Asset Value - End of Period $11.39
Total Return(1)(2) 13.90%
Ratios and Supplemental Data:
Net assets, end of period (thousands) $1,448
Ratio of expenses to average net assets:
Before expense reimbursement(3) 20.74%
After expense reimbursement(3) 2.00%
Ratio of net investment loss to average net assets:
Before expense reimbursement(3) (19.85)%
After expense reimbursement(3) (1.11)%
Portfolio turnover rate 0.00%
___________________
(1) Not annualized.
(2) The total return calculation does not reflect
the maximum sales charge of 4.75%.
(3) Annualized.
FUND MANAGEMENT
Adviser
The Fund has entered into an Investment Advisory
Agreement with the Adviser under which the Adviser
manages the Fund's investments and business affairs,
subject to the supervision of the Fund's Board of
Directors. The Adviser, 704 Court A, Tacoma,
Washington 98402, is a Washington corporation and was
organized in 1997. The Adviser is controlled by Henry
Hewitt. Under the Investment Advisory Agreement, the
Fund pays the Adviser an annual management fee of 1.00%
of the Fund's average daily net assets. The advisory
fee is accrued daily and paid monthly. For the fiscal
year ended October 31, 1999, the Adviser waived its
management fee and reimbursed the Fund's other expenses
so that the Fund's total operating expenses (on an
annual basis) did not exceed 2.00% of its average daily
net assets. Until March 31, 2001, the Adviser has
agreed to continue to waive its management fee and/or
reimburse the Fund's other expenses to the extent
necessary to ensure that the Fund's total annual
operating expenses do not exceed 2.00% of its average
daily net assets. After such time, the Adviser may
voluntarily waive all or a portion of its management
fee and/or reimburse all or a portion of Fund operating
expenses. The Adviser will waive fees and/or reimburse
expenses on a monthly basis and the Adviser will pay
the Fund by reducing its fee. Any waivers or
reimbursements will have the effect of lowering the
overall expense ratio for the Fund and increasing its
overall return to investors at the time any such
amounts were waived and/or reimbursed. Any such waiver
or reimbursement covered by limits set forth under the
Expense Cap/Reimbursement Agreement is subject to later
adjustment during the term of
<PAGE>
the Investment Advisory
Agreement to allow the Adviser to recoup amounts waived
or reimbursed, including initial organization costs of
the Fund, provided, however, that the Adviser shall
only be entitled to recoup such amounts for a period of
three years from the date such amount was waived or
reimbursed, and only to the extent that actual fees and
expenses for a period are less than the expense
limitation cap.
Under the Investment Advisory Agreement, the
Adviser is responsible not only for management of the
Fund's assets, but also for portfolio transactions and
brokerage. The Adviser began advising mutual funds on
June 29, 1999, the commencement of the Fund's
operations. The Fund is the Adviser's only mutual fund
client.
Portfolio Manager. The Fund is managed by the following individual:
Henry Hewitt. President, Chief Executive Officer,
Director and majority shareholder of the Adviser, Mr.
Hewitt graduated from the University of Washington in
1975 and from Oxford University in 1978. He has been a
principal of Henry Hewitt Investment Co., a registered
investment adviser, since 1993 and has published a
monthly newsletter called The Light Revolution Herald
since September 1993. The Light Revolution Herald
examines current technological and financial
developments surrounding the companies which are
included in the Light Index. Mr. Hewitt is primarily
responsible for the day-to-day portfolio management of
the Fund.
Custodian
Firstar Bank, N.A. ("Firstar Bank"), Third Floor
615 East Michigan Street, Milwaukee, Wisconsin 53202
acts as custodian of the Fund's assets.
Transfer Agent and Administrator
Firstar Mutual Fund Services, LLC ("Firstar"),
Third Floor, 615 East Michigan Street, Milwaukee,
Wisconsin 53202 acts as transfer agent for the Fund
(the "Transfer Agent") and as the Fund's administrator.
Distributor
Provident Distributors, Inc., Four Falls Corporate
Center, 6th Floor, West Conshohocken, Pennsylvania
194282961, a registered broker-dealer and member of the
National Association of Securities Dealers, Inc., acts
as distributor of the Fund's shares (the
"Distributor").
HOW TO PURCHASE SHARES
Shares of the Fund may be purchased through any
dealer which has entered into a sales agreement with
the Distributor, in its capacity as principal
underwriter of shares of the Fund, or through the
Distributor directly. The Transfer Agent may also
accept purchase applications.
Payment for Fund shares should be made by check or
money order in U.S. dollars drawn on a U.S. bank,
savings and loan or credit union. The minimum initial
investment in the Fund is $5,000. Subsequent
investments of at least $500 may be made by mail or by
wire. For investors using the Automatic Investment
Plan, as described below, there is a $5,000 minimum
initial investment and subsequent investments must be
at least $500. These minimums may be changed or waived
by the Fund at any time. Shareholders will be given at
least 30 days' notice of any increase in the minimum
dollar amount of subsequent investments.
In order to relieve you of responsibility for the
safekeeping and delivery of stock certificates, the
Fund does not issue certificates.
Offering Price
Shares of the Fund are sold on a continual basis
at the next offering price (the "Offering Price"),
which is the sum of the net asset value per share next
computed following receipt of an order in proper form
(as described below under "Initial Investment" and
"Subsequent Investments") by a dealer, the Distributor
or the Transfer Agent, as the case may be, and the
sales charge as set forth below. Net asset value per
share is calculated once daily as of the close of
trading (currently 4:00 p.m., Eastern Standard Time) on
each day the New York Stock Exchange (the "NYSE") is
<PAGE>
open. See "Valuation of Fund Shares." No sales charge
is imposed on the reinvestment of dividends or capital
gains. The sales charge imposed on purchases of Fund
shares is as follows:
Total Sales Charge
Amount of As a As a
Your Investment Percentage Percentage
of Offering of Your
Price Investment
Less than $50,000 4.75% 4.99%
$50,000 - $99,999 4.00% 4.17%
$100,000 - $249,999 3.50% 3.63%
$250,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and over 0.00% 0.00%
Fund shares are also subject to Rule 12b-1 fees in
an aggregate amount of 0.25% of the average daily net
assets of the Fund. See "Distribution and Shareholder
Servicing Plan."
Sales Charge Waivers
The following investors may purchase shares of the
Fund at net asset value without the imposition of any
sales charge:
* certain retirement plans, such as profit-sharing,
pension and 401(k) plans;
* Keogh plans with at least $500,000 in net assets
and at least two plan participants;
* broker-dealers, investment advisers, financial
planners or other financial institutions ("Financial
Intermediaries") which have entered into an agreement
with the Distributor (or which are purchasing for
accounts linked to a master account of the Financial
Intermediary) which place trades for their own accounts
or the accounts of their clients and their employees
(for example, mutual fund "wrap" or asset allocation
programs or mutual fund "supermarket programs"). These
Financial Intermediaries may charge a management,
consulting or other fee for their services;
* registered investment advisers which exercise
discretionary investment authority with respect to the
purchase of Fund shares;
* financial institution trust departments;
* owners of private accounts managed by the Adviser;
* directors, officers and full-time employees of the
Fund, the Distributor, Firstar, legal counsel for the
Fund and affiliates of such companies (including the
Adviser) and spouses and family members of such
persons; and
* vendors or service providers of the Fund or the
Adviser.
Certain investors may purchase Fund shares at a
reduced sales charge. For additional information on
sales charge reductions, please see the SAI or call the
Fund at 1-888-463-3957.
Initial Investment - Minimum $5,000
You may purchase Fund shares by completing the
enclosed shareholder application and mailing it and a
check or money order payable to "Light Revolution Fund,
Inc." to your securities dealer, the Distributor or the
Transfer Agent, as the case may be. The minimum
initial investment is $5,000. If mailing to the
Distributor or Transfer Agent, please send the
application to the following address: Firstar Mutual
Fund Services, LLC, P.O. Box 701, Milwaukee, Wisconsin
53201-0701. In addition, overnight mail should be sent
to the following address: Light Revolution Fund,
<PAGE>
Inc., Firstar Mutual Fund Services, LLC, Third Floor, 615
East Michigan Street, Milwaukee, Wisconsin 53202. The
Fund does not consider the U.S. Postal Service or other
independent delivery services to be its agents.
Therefore, deposit in the mail or with such services,
or receipt at the Transfer Agent's post office box, of
purchase applications does not constitute receipt by
the Transfer Agent or the Fund. Do not send letters by
overnight courier to the post office box.
If the securities dealer through which you have
chosen to purchase Fund shares has not entered into a
sales agreement with the Distributor, such dealer may,
nevertheless, offer to place your order for the
purchase of Fund shares. Purchases made through such
dealers will be effected at the net asset value next
determined after receipt by the Fund of the dealer's
order to purchase shares. Such dealers may also charge
a transaction fee, as determined by the dealer. That
fee may be avoided if shares are purchased through a
dealer who has entered into a sales agreement with the
Distributor or through the Transfer Agent.
If your check does not clear, you will be charged
a $25 service fee. You will also be responsible for
any losses suffered by the Fund as a result. Neither
cash nor third-party checks will be accepted. All
applications to purchase Fund shares are subject to
acceptance by the Fund and are not binding until so
accepted. The Fund reserves the right to decline or
accept any purchase order application.
Wire Purchases
You may also purchase Fund shares by wire. The
following instructions should be followed when wiring
funds to the Transfer Agent for the purchase of Fund
shares:
Wire to: Firstar Bank, N.A.
ABA Number: 075000022
Credit: Firstar Mutual Fund Services, LLC
Account: 112-952-137
Further Credit: Light Revolution Fund,Inc.
(shareholder account number)
(shareholder name/account registration)
Please call 1-888-463-3957 prior to wiring any
funds to notify the Transfer Agent that the wire is
coming and to verify the proper wire instructions so
that the wire is properly applied when received. The
Fund is not responsible for the consequences of delays
resulting from the banking or Federal Reserve wire
system.
Telephone Purchases
The telephone purchase option allows investors to
make subsequent investments directly from a bank
checking or savings account. To establish the
telephone purchase option on your account, complete the
appropriate section in the shareholder application.
Only bank accounts held at domestic financial
institutions that are Automated Clearing House ("ACH")
members may be used for telephone transactions. This
option will become effective approximately 15 business
days after the application form is received by the
Transfer Agent. Purchases must be in amounts of $500
or more and may not be used for initial purchases of
the Fund's shares. To have Fund shares purchased at
the offering price determined at the close of regular
trading on a given date, the Transfer Agent must
receive both your purchase order and payment by
electronic funds transfer through the ACH system prior
to the close of regular trading on such date.
Subsequent investments may be made by calling 1-888-463-3957.
Purchasing Shares Through Financial Intermediaries
If you purchase shares through a financial
intermediary (such as a broker-dealer or a mutual fund
"supermarket program"), certain features of the Fund
relating to such transactions may not be available or
may be modified. In addition, certain operational
policies of the Fund, including those related to
settlement and dividend accrual, may vary from those
applicable to direct shareholders of the Fund and may
vary among intermediaries. You should consult your
financial intermediary for more information regarding
these matters. Certain financial intermediaries may
charge you transaction fees for their services. That
fee will be in addition to the sales charge payable by
you upon purchase of such shares and may be avoided if
shares are purchased through the Transfer Agent
<PAGE>
or through a dealer who has entered into a sales agreement
with the Distributor. In addition, if the financial
intermediary has entered into an agreement with the
Distributor, then the sales charge will not apply. The
Fund may compensate financial intermediaries for
assistance under the Fund's Distribution and
Shareholder Servicing Plan (i.e., Rule 12b-1 plan),
through payment of a portion of the sales charge or
otherwise.
Automatic Investment Plan - $5,000 Minimum
The Automatic Investment Plan ("AIP") allows you
to make regular, systematic investments in the Fund
from your bank checking, money market, savings or NOW
account. You must meet the Fund's minimum initial
investment of $5,000 before the AIP may be established.
Subsequent investments using the AIP must be at least
$500. To establish the AIP, complete the appropriate
section in the shareholder application. For additional
information on the AIP, please see the SAI.
Individual Retirement Accounts
You may invest in the Fund by establishing a tax-
sheltered individual retirement account ("IRA"). The
Fund offers the Traditional IRA, Roth IRA and Education
IRA. The minimum initial investment for Traditional
and Roth IRAs is $1,000, and the minimum initial
investment for Education IRAs is $500. For additional
information on IRA options, please see the SAI.
Subsequent Investments - Minimum $500
Additions to your account may be made by mail or
by wire. Any subsequent investment must be for at
least $500. When making an additional purchase by
mail, enclose a check payable to "Light Revolution
Fund, Inc." and the Additional Investment Form provided
on the lower portion of your account statement. To
make an additional purchase by wire, please call 1-888-
463-3957 for complete wiring instructions.
HOW TO REDEEM SHARES
In General
Investors may request redemption of part or all of
their Fund shares at any time at the next determined
net asset value. See "Valuation of Fund Shares." No
redemption request will become effective until a
redemption request is received in proper form (as
described below) by the Transfer Agent. An investor
should contact the Transfer Agent for further
information concerning redemption of Fund shares. The
Fund normally will mail your redemption proceeds the
next business day and, in any event, no later than
seven days after receipt of a redemption request in
good order. However, when a purchase has been made by
check, the Fund may hold payment on redemption proceeds
until it is reasonably satisfied that the check has
cleared, which may take up to 12 days. Redemptions may
be made by written request, telephone or wire. You may
also redeem Fund shares using the Fund's exchange
privilege, as discussed in the SAI.
Redemptions may also be made through brokers or
dealers. Such redemptions will be effected at the net
asset value next determined after receipt by the Fund
of the broker or dealer's instruction to redeem shares.
Some brokers or dealers may charge a fee in connection
with such redemptions.
Investors who have an Individual Retirement
Account must indicate on their redemption requests
whether or not federal income tax should be withheld.
Redemption requests failing to make an election will be
subject to withholding.
Your account may be terminated by the Fund on not
less than 30 days' notice if, at the time of any
redemption of shares in your account, the value of the
remaining shares in the account falls below $5,000.
Upon any such termination, a check for the proceeds of
redemption will be sent to you within seven days of the
redemption.
Written Redemption
For most redemption requests, an investor need
only furnish a written, unconditional request to redeem
his or her shares at net asset value to the Transfer
Agent: Firstar Mutual Fund Services, LLC, P.O. Box
701, Milwaukee, Wisconsin 53201-0701. Overnight mail
should be sent to Light Revolution Fund, Inc., Firstar
Mutual Fund Services,
<PAGE>
LLC, Third Floor, 615 East Michigan Street, Milwaukee,
Wisconsin 53202. Requests for redemption must (i) be signed
exactly as the shares are registered, including the signature
of each owner, and (ii) specify the number of shares or dollar
amount to be redeemed. Redemption proceeds made by written
redemption request may also be wired to a commercial
bank that you have authorized on your account
application. The Transfer Agent will charge a $12
service fee for wire transactions. Additional
documentation may be requested from corporations,
executors, administrators, trustees, guardians, agents
or attorneys-in-fact. The Fund does not consider the
U.S. Postal Service or other independent delivery
services to be its agents. Therefore, deposit in the
mail or with such services, or receipt at the Transfer
Agent's post office box of redemption requests does not
constitute receipt by the Transfer Agent or the Fund.
Do not send letters by overnight courier to the post
office box. Any written redemption requests received
within 15 days after an address change must be
accompanied by a signature guarantee.
Telephone Redemption
Shares of the Fund may also be redeemed by calling
the Transfer Agent at 1-888-463-3957. Redemption
requests by telephone are available for redemptions of
$1,000 or more. Redemption requests for less than
$1,000 must be in writing. In order to use this
procedure, an investor must have previously elected
this option in writing, which election will be
reflected in the records of the Transfer Agent, and the
redemption proceeds must be mailed directly to the
investor or transmitted to the investor's predesignated
account via wire or ACH transfer. Funds sent via ACH
are automatically credited to your account within three
business days. The Transfer Agent will charge a $12
service fee for wire transactions. To change the
designated account, send a written request with
signature(s) guaranteed to the Transfer Agent. To
change the address, call the Transfer Agent or send a
written request with signature(s) guaranteed to the
Transfer Agent. Additional documentation may be
requested from corporations, executors, administrators,
trustees, guardians, agents or attorneys-in-fact. No
telephone redemption requests will be allowed within 15
days of such a change. The Fund reserves the right to
limit the number of telephone redemptions by an
investor. Once made, telephone redemptions may not be
modified or canceled.
The Transfer Agent will use reasonable procedures
to ensure that instructions received by telephone are
genuine. These procedures may include requiring some
form of personal identification prior to acting upon
telephone instructions, recording telephonic
transactions and/or sending written confirmation of
such transactions to investors. Assuming procedures
such as the above have been followed, neither the Fund
nor the Transfer Agent will be liable for any loss,
cost or expense for acting upon an investor's
instructions or for any unauthorized telephone
redemption. The Fund reserves the right to refuse a
telephone redemption request.
Redeeming Shares Through Financial Intermediaries
If you redeem shares through a financial
intermediary (such as a broker-dealer), such financial
intermediary may charge you transaction fees for their
services. You will not be charged such fees if you
redeem your Fund shares directly through the Fund
without the intervention of a financial intermediary.
Systematic Withdrawal Plan
The Systematic Withdrawal Plan ("SWP") allows you
to make automatic withdrawals from your account at
regular intervals. Redemptions for the purpose of
satisfying such withdrawals may reduce or even exhaust
your account. If the amount remaining in your account
is not sufficient to make an SWP payment, the remaining
amount will be redeemed and the SWP will be terminated.
Please see the SAI for more information.
Signature Guarantees
Signature guarantees are required for: (i)
redemption requests to be mailed or wired to a person
other than the registered owner(s) of the shares; (ii)
redemption requests to be mailed or wired to other than
the address that appears of record; and (iii) any
redemption request if a change of address has been
received by the Fund or the Transfer Agent within the
last 15 days. A signature guarantee may be obtained
from any eligible guarantor institution, as defined by
the SEC. These institutions include banks, saving
associations, credit unions, brokerage firms and
others. Please note that a notary public stamp or seal
is not acceptable.
<PAGE>
Redemption in Kind
The Fund has reserved the right to redeem in kind
(i.e., in securities) any redemption request during any
90-day period in excess of the lesser of: (i) $250,000
or (ii) 1% of the Fund's net asset value being
redeemed. Please see the SAI for more information.
Money Market Exchange
The Fund has established a program which permits
Fund shareholders to exchange Fund shares for shares of
the Firstar Money Market Fund. This exchange privilege
is a convenient way to buy shares in a money market
fund in order to respond to changes in your goals or in
market conditions. There is a $5 fee charged per
exchange. Please see the SAI for more information on
the exchange privilege.
VALUATION OF FUND SHARES
Net asset value for the Fund is calculated by
taking the value of the Fund's total assets, including
interest or dividends accrued, but not yet collected,
less all liabilities, and dividing by the total number
of shares outstanding. The result, rounded to the
nearest cent, is the net asset value per share. The
net asset value per share is determined as of the close
of regular trading (generally 4:00 p.m. Eastern
Standard Time) on each day the NYSE is open for
business. Net asset value is not determined on days
the NYSE is closed. The price at which a purchase
order or redemption request is effected is based on the
next calculation of net asset value after the order is
placed. The Fund's net asset value may not be
calculated on days during which the Fund receives no
orders to purchase shares and no shares are tendered
for redemption. In determining net asset value,
expenses are accrued and applied daily and investments
for which market quotations are readily available are
valued at market value. Any investments for which
market quotations are not readily available are valued
at fair value as determined in good faith by the Board
of Directors of the Fund.
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN
The Fund has adopted a plan pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended
(the "12b-1 Plan"), which authorizes it to pay the
Distributor and certain financial intermediaries (such
as broker-dealers) who assist in distributing Fund
shares or who provide shareholder services to Fund
shareholders a distribution and shareholder servicing
fee of up to 0.25% of its average daily net assets
(computed on an annual basis). To the extent fees are
paid under the 12b-1 Plan, the 12b-1 Plan has the
effect of increasing the Fund's expenses from what they
would otherwise be. Because Rule 12b-1 fees are paid
out of the Fund's net assets on an on-going basis, over
time these fees will increase the cost of your
investment and could cost long-term investors of the
Fund more than paying other types of sales charges.
The Fund currently intends to make payments under the
12b-1 Plan to the maximum extent allowable. For
additional information on the 12b-1 Plan, please see
the SAI.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX TREATMENT
For federal income tax purposes, all dividends
paid by the Fund and distributions of net realized
short-term capital gains are taxable as ordinary income
whether reinvested or received in cash unless you are
exempt from taxation or entitled to a tax deferral.
Distributions paid by a Fund from net realized long-
term capital gains, whether received in cash or
reinvested in additional shares, are taxable as a
capital gain. The capital gain holding period (and the
applicable tax rate) is determined by the length of
time the Fund has held the security and not the length
of time you have held shares in the Fund. The Fund
expects that, because of its investment objective, its
distributions will consist primarily of long- and short-
term capital gains. Investors are informed annually as
to the amount and nature of all dividends and capital
gains paid during the prior year. Such capital gains
and dividends may also be subject to state or local
taxes. If you are not required to pay taxes on your
income, you are generally not required to pay federal
income taxes on the amounts distributed to you.
The Fund intends to pay dividends and distribute
capital gains, if any, at least annually. When a
dividend or capital gain is distributed, the Fund's net
asset value decreases by the amount of the payment. If
you purchase shares shortly before a distribution, you
will be subject to income taxes on the distribution,
even though the value of your investment (plus cash
received, if any) remains the same. All dividends and
capital gains distributions will automatically be
reinvested in additional Fund shares at the then
prevailing net asset value unless an investor
<PAGE>
specifically requests that either dividends or capital
gains or both be paid in cash. An investor may change
an election by telephone, subject to certain
limitations, by calling the Transfer Agent at 1-888-463-3957.
Investors requesting to have dividends and/or
capital gains paid in cash may choose to have such
amounts mailed or sent via electronic funds transfer
("EFT"). Transfers via EFT generally take up to three
business days to reach the investor's bank account.
If an investor elects to receive distributions and
dividends by check and the post office cannot deliver
such check, or if such check remains uncashed for six
months, the Fund reserves the right to reinvest the
distribution check in the shareholder's account at the
Fund's then current net asset value per share and to
reinvest all subsequent distributions in shares of the
Fund.
If you do not furnish the Fund with your correct
social security number or taxpayer identification
number, the Fund is required by federal law to withhold
federal income tax from your distributions and
redemption proceeds at a rate of 31%.
An exchange of Fund shares for shares pursuant to
the Fund's exchange privilege is treated the same as an
ordinary sale and purchase for federal income tax
purposes and you will realize a capital gain or loss.
An exchange is not a tax-free transaction.
This section is not intended to be a full
discussion of federal income tax laws and the effect of
such laws on you. There may be other federal, state or
local tax considerations applicable to a particular
investor. You are urged to consult your own tax
advisor.
<PAGE>
ADDITIONAL INFORMATION
DIRECTORS CUSTODIAN
Henry Hewitt Firstar Bank, N.A.
Brian Hatch Third Floor
John Hewitt, Jr. 615 East Michigan Street
Tamsin Taylor Milwaukee, Wisconsin 53202
Robert Burnett
ADMINISTRATOR, TRANSFER AGENT
PRINCIPAL OFFICERS AND DIVIDEND-DISBURSING AGENT
Henry Hewitt, President Firstar Mutual Fund Services, LLC
Charles M. O'Herin, Vice President Third Floor
Treasurer and Secretary 615 East Michigan Street
Milwaukee, Wisconsin 53202
INVESTMENT ADVISER
INDEPENDENT ACCOUNTANTS
Light Index Investment Company
704 Court A PricewaterhouseCoopers LLP
Tacoma, Washington 98402 100 East Wisconsin Avenue, Suite 1500
Milwaukee, Wisconsin 53202
DISTRIBUTOR
LEGAL COUNSEL
Provident Distributors, Inc.
Four Falls Corporate Center, 6th Floor Godfrey & Kahn, S.C.
West Conshohocken, Pennsylvania 19428-2961 780 North Water Street
Milwaukee, Wisconsin 53202
The SAI for the Fund contains additional
information about the Fund. Additional information
about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the
Fund's annual report, you will find a discussion of the
market conditions and investment strategies that
significantly affected the Fund's performance during
its last fiscal year. The Fund's SAI, which is
incorporated by reference into this Prospectus, annual
reports and semi-annual reports are available without
charge upon request to the address or toll-free
telephone number noted on the cover page of this
Prospectus. These documents may also be obtained from
certain financial intermediaries, including the Fund's
Distributor, who purchase and sell Fund shares. To
request other information about the Fund or to make
shareholder inquiries you may call the toll-free
telephone number on the cover page of this Prospectus.
Information about the Fund (including the SAI) can
be reviewed and copied at the SEC's Public Reference
Room in Washington, D.C. Please call the SEC at
1-202-942-8090 for information relating to the
operation of the Public Reference Room. Other
information about the Fund is available on the EDGAR
database on the SEC's Internet site at
http://www.sec.gov or upon payment of a duplicating
fee, by electronic request at the following e-mail
address: [email protected], or by writing the Public
Reference Room of the SEC, Washington, D.C. 20549-0102.
The Fund's 1940 Act File Number is 811-8535.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Light Revolution Fund, Inc.
LIGHT REVOLUTION FUND
704 Court A
Tacoma, Washington 98402
(888) 463-3957
This Statement of Additional Information is not a
prospectus and should be read in conjunction with the
Prospectus of the Light Revolution Fund (the "Fund"),
dated February 15, 2000. The Fund is a series of Light
Revolution Fund, Inc. (the "Corporation").
A copy of the Prospectus is available without
charge upon request to the above-noted address or toll-
free telephone number. The Fund's audited financial
statements for the period ended October 31, 1999 are
incorporated herein by reference to its 1999 Annual
Report.
This Statement of Additional Information is dated February 15, 2000.
<PAGE>
TABLE OF CONTENTS
Page No.
FUND ORGANIZATION 1
INVESTMENT RESTRICTIONS 1
IMPLEMENTATION OF INVESTMENT OBJECTIVE 2
DIRECTORS AND OFFICERS 17
PRINCIPAL SHAREHOLDERS 19
INVESTMENT ADVISER 20
FUND TRANSACTIONS AND BROKERAGE 20
CUSTODIAN 21
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT 21
ADMINISTRATOR 22
DISTRIBUTOR AND PLAN OF DISTRIBUTION 22
PURCHASE, EXCHANGE AND PRICING OF SHARES 24
REDEMPTIONS IN KIND 27
TAXATION OF THE FUND 27
PERFORMANCE INFORMATION 27
INDEPENDENT ACCOUNTANTS 29
FINANCIAL STATEMENTS 29
APPENDIX A-1
In deciding whether to invest in the Fund, you
should rely on information in this Statement of
Additional Information and related Prospectus. The
Fund has not authorized others to provide additional
information. The Fund has not authorized the use of
this Statement of Additional Information in any state
or jurisdiction in which such offering may not legally
be made.
Light Index and Light Revolution are trademarks of
the Light Index Investment Company.
<PAGE>
FUND ORGANIZATION
The Corporation is an open-end, diversified,
management investment company, commonly referred to as
a mutual fund. The Fund is a series of common stock of
the Corporation, a Maryland company incorporated on
October 21, 1997. The Corporation is authorized to
issue shares of common stock in series and classes.
Each share of common stock of the Fund is entitled to
one vote, and each share is entitled to participate
equally in dividends and capital gain distributions and
in the assets of the Fund in the event of liquidation.
No certificates will be issued for shares held in your
account. You will, however, have full shareholder
rights. Generally, the Corporation will not hold
annual shareholders' meetings unless required by the
Investment Company Act of 1940, as amended (the "1940
Act") or Maryland law. Shareholders have certain
rights, including the right to call an annual meeting
upon a vote of 10% of the Corporation's outstanding
shares for the purpose of voting to remove one or more
directors or to transact any other business. The 1940
Act requires the Corporation to assist the shareholders
in calling such a meeting.
INVESTMENT RESTRICTIONS
The investment objective of the Fund is to seek
capital appreciation. The following are the Fund's
fundamental investment restrictions which cannot be
changed without the approval of a majority of the
Fund's outstanding voting securities. As used herein,
a "majority of the Fund's outstanding voting
securities" means the lesser of (i) 67% of the shares
of common stock of the Fund represented at a meeting at
which more than 50% of the outstanding shares are
present, or (ii) more than 50% of the outstanding
shares of common stock of the Fund.
The Fund:
1. May not with respect to 75% of its total assets,
purchase the securities of any issuer (except
securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities)
if, as a result, (i) more than 5% of the Fund's
total assets would be invested in the securities
of that issuer, or (ii) the Fund would hold more
than 10% of the outstanding voting securities of
that issuer.
2. May (i) borrow money from banks for temporary or
emergency purposes (but not for leveraging or the
purchase of investments) and (ii) make other
investments or engage in other transactions
permissible under the Investment Company Act of
1940, as amended (the "1940 Act"), which may
involve a borrowing, including borrowing through
reverse repurchase agreements, provided that the
combination of (i) and (ii) shall not exceed 33
1/3% of the value of the Fund's total assets
(including the amount borrowed), less the Fund's
liabilities (other than borrowings). If the
amount borrowed at any time exceeds 33 1/3% of the
Fund's total assets, the Fund will, within three
days thereafter (not including Sundays, holidays
and any longer permissible period), reduce the
amount of the borrowings such that the borrowings
do not exceed 33 1/3% of the Fund's total assets.
The Fund may also borrow money from other persons
to the extent permitted by applicable law.
3. May not issue senior securities, except as
permitted under the 1940 Act.
4. May not act as an underwriter of another issuer's
securities, except to the extent that the Fund may
be deemed to be an underwriter within the meaning
of the Securities Act of 1933, as amended (the
"Securities Act"), in connection with the purchase
and sale of portfolio securities.
5. May not purchase or sell physical commodities
unless acquired as a result of ownership of
securities or other instruments (but this
limitation shall not prevent the Fund from
purchasing or selling options, futures contracts
or other derivative instruments, or from investing
in securities or other instruments backed by
physical commodities).
6. May not make loans if, as a result, more than 33
1/3% of the Fund's total assets would be lent to
other persons, except through (i) purchases of
debt securities or other debt instruments, or (ii)
engaging in repurchase agreements.
7. May not purchase the securities of any issuer if,
as a result, more than 25% of the Fund's total
assets would be invested in the securities of
issuers, the principal business activities of
which are in the same industry. The Fund does not
consider all Light Revolution companies to be in
the same industry.
<PAGE>
8. May not purchase or sell real estate unless
acquired as a result of ownership of securities or
other instruments (but this limitation shall not
prohibit the Fund from purchasing or selling
securities or other instruments backed by real
estate or of issuers engaged in real estate
activities).
The following are the Fund's non-fundamental
investment policies which may be changed by the Board
of Directors without shareholder approval.
The Fund may not:
1. Sell securities short, unless the Fund owns or has
the right to obtain securities equivalent in kind
and amount to the securities sold short, or unless
it covers such short sale as required by the
current rules and positions of the Securities and
Exchange Commission (the "SEC") or its staff, and
provided that transactions in options, futures
contracts, options on futures contracts, or other
derivative instruments are not deemed to
constitute selling securities short.
2. Purchase securities on margin, except that the
Fund may obtain such short-term credits as are
necessary for the clearance of transactions, and
provided that margin deposits in connection with
futures contracts, options on futures contracts,
or other derivative instruments shall not
constitute purchasing securities on margin.
3. Invest in illiquid securities if, as a result of
such investment, more than 15% of its net assets
would be invested in illiquid securities.
4. Purchase securities of other investment companies
except in compliance with the 1940 Act.
5. Engage in futures or options on futures
transactions which are impermissible pursuant to
Rule 4.5 under the Commodity Exchange Act (the
"CEA") and, in accordance with Rule 4.5, the Fund
will use futures or options on futures
transactions solely for bona fide hedging
transactions (within the meaning of the CEA);
provided, however, that the Fund may, in addition
to bona fide hedging transactions, use futures and
options on futures transactions if the aggregate
initial margin and premiums required to establish
such positions, less the amount by which any such
options positions are in the money (within the
meaning of the CEA), do not exceed 5% of the
Fund's net assets.
6. Make any loans other than loans of portfolio
securities, except through (i) purchases of debt
securities or other debt instruments, or (ii)
engaging in repurchase agreements.
7. Borrow money except from banks or through reverse
repurchase agreements, and will not purchase
securities when bank borrowings exceed 5% of its
total assets.
Except for the fundamental investment limitations
listed above and the Fund's investment objective, the
Fund's other investment policies are not fundamental
and may be changed with approval of the Corporation's
Board of Directors. Unless noted otherwise, if a
percentage restriction is adhered to at the time of
investment, a later increase or decrease in percentage
resulting from a change in the Fund's assets (i.e., due
to cash inflows or redemptions) or in the market value
of the investment or the Fund's assets will not
constitute a violation of that restriction.
The Fund anticipates that its portfolio turnover
rate will be approximately 10% for the fiscal year
ending October 31, 2000.
IMPLEMENTATION OF INVESTMENT OBJECTIVE
The following information supplements the
discussion of the Fund's investment objective and
strategy described in the Prospectus under the captions
"Investment Objective" and "How the Fund Invests and
Related Risks." The following represent strategies
that are not principal strategies of the Fund, but may
be used from time to time.
Derivative Instruments
In General. The Fund may invest up to 5% of its
respective net assets in derivative instruments.
Derivative instruments may be used for any lawful
purpose consistent with the Fund's investment objective
such as hedging or
<PAGE>
managing risk, but not for
speculation. Derivative instruments are commonly
defined to include securities or contracts whose value
depend on (or "derive" from) the value of one or more
other assets, such as securities, currencies, or
commodities. These "other assets" are commonly
referred to as "underlying assets."
A derivative instrument generally consists of, is
based upon, or exhibits characteristics similar to
options or forward contracts. Options and forward
contracts are considered to be the basic "building
blocks" of derivatives. For example, forward-based
derivatives include forward contracts, swap contracts,
as well as exchange-traded futures. Option-based
derivatives include privately negotiated, over-the-
counter (OTC) options (including caps, floors, collars,
and options on forward and swap contracts) and exchange-
traded options on futures. Diverse types of
derivatives may be created by combining options or
forward contracts in different ways, and by applying
these structures to a wide range of underlying assets.
An option is a contract in which the "holder" (the
buyer) pays a certain amount (the "premium") to the
"writer" (the seller) to obtain the right, but not the
obligation, to buy from the writer (in a "call") or
sell to the writer (in a "put") a specific asset at an
agreed upon price at or before a certain time. The
holder pays the premium at inception and has no further
financial obligation. The holder of an option-based
derivative generally will benefit from favorable
movements in the price of the underlying asset but is
not exposed to corresponding losses due to adverse
movements in the value of the underlying asset. The
writer of an option-based derivative generally will
receive fees or premiums but generally is exposed to
losses due to changes in the value of the underlying
asset.
A forward contract is a sales contract between a
buyer (holding the "long" position) and a seller
(holding the "short" position) for an asset with
delivery deferred until a future date. The buyer
agrees to pay a fixed price at the agreed future date
and the seller agrees to deliver the asset. The seller
hopes that the market price on the delivery date is
less than the agreed upon price, while the buyer hopes
for the contrary. The change in value of a forward-
based derivative generally is roughly proportional to
the change in value of the underlying asset.
Hedging. The Fund may use derivative instruments
to protect against possible adverse changes in the
market value of securities held in, or are anticipated
to be held in, the Fund's portfolio. Derivatives may
also be used by the Fund to "lock-in" gains in the
value of its portfolio securities. In addition,
derivatives may be used to hedge against price
movements in broad equity market sectors in which the
Fund has invested or expects to invest. Hedging
strategies, if successful, can reduce the risk of loss
by wholly or partially offsetting the negative effect
of unfavorable price movements in the investments being
hedged. However, hedging strategies can also reduce
the opportunity for gain by offsetting the positive
effect of favorable price movements in the hedged
investments.
Managing Risk. The Fund may also use derivative
instruments to manage the risks of the Fund's
portfolio. Risk management strategies include, but are
not limited to, facilitating the sale of portfolio
securities, managing the effective maturity or duration
of debt obligations in the Fund's portfolio,
establishing a position in the derivatives markets as a
substitute for buying or selling certain securities, or
creating or altering exposure to certain asset classes,
such as equity, debt, and foreign securities. The use
of derivative instruments may provide a less expensive,
more expedient or more specifically focused way for the
Fund to invest than "traditional" securities (i.e.,
stocks or bonds) would.
Exchange or OTC Derivatives. Derivative
instruments may be exchange-traded or traded in OTC
transactions between private parties. Exchange-traded
derivatives are standardized options and futures
contracts traded in an auction on the floor of a
regulated exchange. Exchange contracts are generally
liquid. The exchange clearinghouse is the counterparty
of every contract. Thus, each holder of an exchange
contract bears the credit risk of the clearinghouse
(and has the benefit of its financial strength) rather
than that of a particular counterparty. OTC
transactions are subject to additional risks, such as
the credit risk of the counterparty to the instrument,
and are less liquid than exchange-traded derivatives
since they often can only be closed out with the other
party to the transaction.
Risks and Special Considerations. The use of
derivative instruments involves risks and special
considerations as described below. Risks pertaining to
particular derivative instruments are described in the
sections that follow.
<PAGE>
(1) Market Risk. The primary risk of derivatives
is the same as the risk of the underlying assets;
namely, that the value of the underlying asset may go
up or down. Adverse movements in the value of an
underlying asset can expose the Fund to losses.
Derivative instruments may include elements of leverage
and, accordingly, the fluctuation of the value of the
derivative instrument in relation to the underlying
asset may be magnified. The successful use of
derivative instruments depends upon a variety of
factors, particularly the Adviser's ability to predict
movements of the securities, currencies, and
commodities markets, which requires different skills
than predicting changes in the prices of individual
securities. There can be no assurance that any
particular strategy adopted will succeed. A decision
to engage in a derivative transaction will reflect the
Adviser's judgment that the derivative transaction will
provide value to the Fund and its shareholders and is
consistent with the Fund's objectives, investment
limitations, and operating policies. In making such a
judgment, the Adviser will analyze the benefits and
risks of the derivative transaction and weigh them in
the context of the Fund's entire portfolio and
investment objective.
(2) Credit Risk. The Fund will be subject to the
risk that a loss may be sustained by the Fund as a
result of the failure of a counterparty to comply with
the terms of a derivative instrument. The counterparty
risk for exchange-traded derivative instruments is
generally less than for privately-negotiated or OTC
derivative instruments, since generally a clearing
agency, which is the issuer or counterparty to each
exchange-traded instrument, provides a guarantee of
performance. For privately-negotiated instruments,
there is no similar clearing agency guarantee. In all
transactions, the Fund will bear the risk that the
counterparty will default, and this could result in a
loss of the expected benefit of the derivative
transaction and possibly other losses to the Fund. The
Fund will enter into transactions in derivative
instruments only with counterparties that the Adviser
reasonably believes are capable of performing under the
contract.
(3) Correlation Risk. When a derivative
transaction is used to completely hedge another
position, changes in the market value of the combined
position (the derivative instrument plus the position
being hedged) result from an imperfect correlation
between the price movements of the two instruments.
With a perfect hedge, the value of the combined
position remains unchanged for any change in the price
of the underlying asset. With an imperfect hedge, the
value of the derivative instrument and its hedge are
not perfectly correlated. Correlation risk is the risk
that there might be imperfect correlation, or even no
correlation, between price movements of an instrument
and price movements of investments being hedged. For
example, if the value of a derivative instrument used
in a short hedge (such as writing a call option, buying
a put option, or selling a futures contract) increased
by less than the decline in value of the hedged
investments, the hedge would not be perfectly
correlated. Such a lack of correlation might occur due
to factors unrelated to the value of the investments
being hedged, such as speculative or other pressures on
the markets in which these instruments are traded. The
effectiveness of hedges using instruments on indices
will depend, in part, on the degree of correlation
between price movements in the index and price
movements in the investments being hedged.
(4) Liquidity Risk. Derivatives are also subject
to liquidity risk. Liquidity risk is the risk that a
derivative instrument cannot be sold, closed out, or
replaced quickly at or very close to its fundamental
value. Generally, exchange contracts are very liquid
because the exchange clearinghouse is the counterparty
of every contract. OTC transactions are less liquid
than exchange-traded derivatives since they often can
only be closed out with the other party to the
transaction. The Fund might be required by applicable
regulatory requirement to maintain assets as "cover,"
maintain segregated accounts, and/or make margin
payments when it takes positions in derivative
instruments involving obligations to third parties
(i.e., instruments other than purchased options). If
the Fund is unable to close out its positions in such
instruments, it might be required to continue to
maintain such assets or accounts or make such payments
until the position expired, matured, or is closed out.
The requirements might impair the Fund's ability to
sell a portfolio security or make an investment at a
time when it would otherwise be favorable to do so, or
require that the Fund sell a portfolio security at a
disadvantageous time. The Fund's ability to sell or
close out a position in an instrument prior to
expiration or maturity depends on the existence of a
liquid secondary market or, in the absence of such a
market, the ability and willingness of the counterparty
to enter into a transaction closing out the position.
Therefore, there is no assurance that any derivatives
position can be sold or closed out at a time and price
that is favorable to the Fund.
(5) Legal Risk. Legal risk is the risk of loss
caused by the legal unenforceability of a party's
obligations under the derivative. While a party
seeking price certainty agrees to surrender the
potential upside in exchange for downside protection,
the party taking the risk is looking for a positive
payoff. Despite this voluntary assumption of
<PAGE>
risk, a counterparty that has lost money in a derivative
transaction may try to avoid payment by exploiting
various legal uncertainties about certain derivative
products.
(6) Systemic or "Interconnection" Risk.
Interconnection risk is the risk that a disruption in
the financial markets will cause difficulties for all
market participants. In other words, a disruption in
one market will spill over into other markets, perhaps
creating a chain reaction. Much of the OTC derivatives
market takes place among the OTC dealers themselves,
thus creating a large interconnected web of financial
obligations. This interconnectedness raises the
possibility that a default by one large dealer could
create losses for other dealers and destabilize the
entire market for OTC derivative instruments.
General Limitations. The use of derivative
instruments is subject to applicable regulations of the
SEC, the several options and futures exchanges upon
which they may be traded, and the Commodity Futures
Trading Commission ("CFTC").
The Corporation has filed a notice of eligibility
for exclusion from the definition of the term
"commodity pool operator" with the CFTC and the
National Futures Association, which regulate trading in
the futures markets. In accordance with Rule 4.5 of
the regulations under the CEA, the notice of
eligibility for the Fund includes representations that
the Fund will use futures contracts and related options
solely for bona fide hedging purposes within the
meaning of CFTC regulations, provided that the Fund may
hold other positions in futures contracts and related
options that do not qualify as a bona fide hedging
position if the aggregate initial margin deposits and
premiums required to establish these positions, less
the amount by which any such futures contracts and
related options positions are "in the money," do not
exceed 5% of the Fund's net assets. To the extent the
Fund were to engage in derivative transactions, it will
limit such transactions to no more than 5% of its net
assets.
The SEC has identified certain trading practices
involving derivative instruments that involve the
potential for leveraging the Fund's assets in a manner
that raises issues under the 1940 Act. In order to
limit the potential for the leveraging of the Fund's
assets, as defined under the 1940 Act, the SEC has
stated that the Fund may use coverage or the
segregation of the Fund's assets. The Fund will also
set aside permissible liquid assets in a segregated
custodial account if required to do so by SEC and CFTC
regulations. Assets used as cover or held in a
segregated account cannot be sold while the derivative
position is open, unless they are replaced with similar
assets. As a result, the commitment of a large portion
of the Fund's assets to segregated accounts could
impede portfolio management or the Fund's ability to
meet redemption requests or other current obligations.
In some cases the Fund may be required to maintain
or limit exposure to a specified percentage of its
assets to a particular asset class. In such cases,
when the Fund uses a derivative instrument to increase
or decrease exposure to an asset class and is required
by applicable SEC guidelines to set aside liquid assets
in a segregated account to secure its obligations under
the derivative instruments, the Adviser may, where
reasonable in light of the circumstances, measure
compliance with the applicable percentage by reference
to the nature of the economic exposure created through
the use of the derivative instrument and not by
reference to the nature of the exposure arising from
the assets set aside in the segregated account (unless
another interpretation is specified by applicable
regulatory requirements).
Options. The Fund may use options for any lawful
purpose consistent with the Fund's investment objective
such as hedging or managing risk but not for
speculation. An option is a contract in which the
"holder" (the buyer) pays a certain amount (the
"premium") to the "writer" (the seller) to obtain the
right, but not the obligation, to buy from the writer
(in a "call") or sell to the writer (in a "put") a
specific asset at an agreed upon price (the "strike
price" or "exercise price") at or before a certain time
(the "expiration date"). The holder pays the premium
at inception and has no further financial obligation.
The holder of an option will benefit from favorable
movements in the price of the underlying asset but is
not exposed to corresponding losses due to adverse
movements in the value of the underlying asset. The
writer of an option will receive fees or premiums but
is exposed to losses due to changes in the value of the
underlying asset. The Fund may purchase (buy) or write
(sell) put and call options on assets, such as
securities, currencies, commodities, and indices of
debt and equity securities ("underlying assets") and
enter into closing transactions with respect to such
options to terminate an existing position. Options
used by the Fund may include European, American, and
Bermuda style options. If an option is exercisable
only at maturity, it is a "European" option; if it is
also exercisable prior to maturity, it is an "American"
option. If it is exercisable only at certain times, it
is a "Bermuda" option.
<PAGE>
The Fund may purchase (buy) and write (sell) put
and call options and enter into closing transactions
with respect to such options to terminate an existing
position. The purchase of call options serves as a
long hedge, and the purchase of put options serves as a
short hedge. Writing put or call options can enable
the Fund to enhance income by reason of the premiums
paid by the purchaser of such options. Writing call
options serves as a limited short hedge because
declines in the value of the hedged investment would be
offset to the extent of the premium received for
writing the option. However, if the security
appreciates to a price higher than the exercise price
of the call option, it can be expected that the option
will be exercised and the Fund will be obligated to
sell the security at less than its market value or will
be obligated to purchase the security at a price
greater than that at which the security must be sold
under the option. All or a portion of any assets used
as cover for OTC options written by the Fund would be
considered illiquid to the extent described under
"Implementation of Investment Objective Illiquid
Securities." Writing put options serves as a limited
long hedge because increases in the value of the hedged
investment would be offset to the extent of the premium
received for writing the option. However, if the
security depreciates to a price lower than the exercise
price of the put option, it can be expected that the
put option will be exercised and the Fund will be
obligated to purchase the security at more than its
market value.
The value of an option position will reflect,
among other things, the historical price volatility of
the underlying investment, the current market value of
the underlying investment, the time remaining until
expiration, the relationship of the exercise price to
the market price of the underlying investment, and
general market conditions.
The Fund may effectively terminate its right or
obligation under an option by entering into a closing
transaction. For example, the Fund may terminate its
obligation under a call or put option that it had
written by purchasing an identical call or put option;
this is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put
or call option it had purchased by writing an identical
put or call option; this is known as a closing sale
transaction. Closing transactions permit the Fund to
realize the profit or limit the loss on an option
position prior to its exercise or expiration.
The Fund may purchase or write both exchange-
traded and OTC options. Exchange-traded options are
issued by a clearing organization affiliated with the
exchange on which the option is listed that, in effect,
guarantees completion of every exchange-traded option
transaction. In contrast, OTC options are contracts
between the Fund and the other party to the transaction
("counterparty") (usually a securities dealer or a
bank) with no clearing organization guarantee. Thus,
when the Fund purchases or writes an OTC option, it
relies on the counterparty to make or take delivery of
the underlying investment upon exercise of the option.
Failure by the counterparty to do so would result in
the loss of any premium paid by the Fund as well as the
loss of any expected benefit of the transaction.
The Fund's ability to establish and close out
positions in exchange-listed options depends on the
existence of a liquid market. The Fund intends to
purchase or write only those exchange-traded options
for which there appears to be a liquid secondary
market. However, there can be no assurance that such a
market will exist at any particular time. Closing
transactions can be made for OTC options only by
negotiating directly with the counterparty, or by a
transaction in the secondary market if any such market
exists. Although the Fund will enter into OTC options
only with counterparties that are expected to be
capable of entering into closing transactions with the
Fund, there is no assurance that the Fund will in fact
be able to close out an OTC option at a favorable price
prior to expiration. In the event of insolvency of the
counterparty, the Fund might be unable to close out an
OTC option position at any time prior to its
expiration. If the Fund were unable to effect a
closing transaction for an option it had purchased, it
would have to exercise the option to realize any
profit.
The Fund may engage in options transactions on
indices in much the same manner as the options on
securities discussed above, except the index options
may serve as a hedge against overall fluctuations in
the securities market in general.
The writing and purchasing of options is a highly
specialized activity that involves investment
techniques and risks different from those associated
with ordinary portfolio securities transactions.
Imperfect correlation between the options and
securities markets may detract from the effectiveness
of attempted hedging.
Stock Index Options. The Fund may (i) purchase
stock index options for any purpose, (ii) sell stock
index options in order to close out existing positions,
and/or (iii) write covered options on stock indexes for
hedging purposes. Stock index options are put options
and call options on various stock indexes. In most
respects, they are
<PAGE>
identical to listed options on
common stocks. The primary difference between stock
options and index options occurs when index options are
exercised. In the case of stock options, the
underlying security, common stock, is delivered.
However, upon the exercise of an index option,
settlement does not occur by delivery of the securities
comprising the index. The option holder who exercises
the index option receives an amount of cash if the
closing level of the stock index upon which the option
is based is greater than, in the case of a call, or
less than, in the case of a put, the exercise price of
the option. This amount of cash is equal to the
difference between the closing price of the stock index
and the exercise price of the option expressed in
dollars times a specified multiple.
A stock index fluctuates with changes in the
market values of the stocks included in the index. For
example, some stock indexes are based on a broad market
index, such as the Standard & Poor's 500 Stock Index or
the Value Line Composite Index or a narrower market
index, such as the Standard & Poor's 100 Stock Index.
An index may also be based on an industry or market
segment, such as the AMEX Oil and Gas Index or the
Computer and Business Equipment Index. Options on
stock indexes are currently traded on the following
exchanges: the Chicago Board of Options Exchange, the
New York Stock Exchange, the American Stock Exchange,
the Pacific Stock Exchange, and the Philadelphia Stock
Exchange.
The Fund's use of stock index options is subject
to certain risks. Successful use by the Fund of
options on stock indexes will be subject to the ability
of the Adviser to correctly predict movements in the
stock market. This requires different skills and
techniques than predicting changes in the prices of
individual securities. In addition, the Fund's ability
to effectively hedge all or a portion of the securities
in its portfolio, in anticipation of or during a market
decline through transactions in put options on stock
indexes, depends on the degree to which price movements
in the underlying index correlate with the price
movements of the securities held by the Fund. Inasmuch
as the Fund's securities will not duplicate the
components of an index, the correlation will not be
perfect. Consequently, the Fund will bear the risk
that the prices of its securities being hedged will not
move in the same amount as the prices of its put
options on the stock indexes. It is also possible that
there may be a negative correlation between the index
and the Fund's securities which would result in a loss
on both such securities and the options on stock
indexes acquired by the Fund.
The hours of trading for options may not conform
to the hours during which the underlying securities are
traded. To the extent that the options markets close
before the markets for the underlying securities,
significant price and rate movements can take place in
the underlying markets that cannot be reflected in the
options markets. The purchase of options is a highly
specialized activity which involves investment
techniques and risks different from those associated
with ordinary portfolio securities transactions. The
purchase of stock index options involves the risk that
the premium and transaction costs paid by the Fund in
purchasing an option will be lost as a result of
unanticipated movements in prices of the securities
comprising the stock index on which the option is
based.
Spread Transactions. The Fund may use spread
transactions for any lawful purpose consistent with the
Fund's investment objective such as hedging or managing
risk, but not for speculation. The Fund may purchase
covered spread options from securities dealers. Such
covered spread options are not presently exchange-
listed or exchange-traded. The purchase of a spread
option gives the Fund the right to put, or sell, a
security that it owns at a fixed dollar spread or fixed
yield spread in relationship to another security that
the Fund does not own, but which is used as a
benchmark. The risk to the Fund in purchasing covered
spread options is the cost of the premium paid for the
spread option and any transaction costs. In addition,
there is no assurance that closing transactions will be
available. The purchase of spread options will be used
to protect the Fund against adverse changes in
prevailing credit quality spreads, i.e., the yield
spread between high quality and lower quality
securities. Such protection is only provided during
the life of the spread option.
Futures Contracts. The Fund may use futures
contracts for any lawful purpose consistent with the
Fund's investment objective such as hedging and
managing risk but not for speculation. The Fund may
enter into futures contracts, including interest rate,
index, and currency futures. The Fund may also
purchase put and call options, and write covered put
and call options, on futures in which it is allowed to
invest. The purchase of futures or call options
thereon can serve as a long hedge, and the sale of
futures or the purchase of put options thereon can
serve as a short hedge. Writing covered call options
on futures contracts can serve as a limited short
hedge, and writing covered put options on futures
contracts can serve as a limited long hedge, using a
strategy similar to that used for writing covered
options in securities. The Fund's hedging may include
purchases of futures as an offset against the effect of
expected
<PAGE>
increases in currency exchange rates and
securities prices and sales of futures as an offset
against the effect of expected declines in currency
exchange rates and securities prices.
To the extent required by regulatory authorities,
the Fund may enter into futures contracts that are
traded on national futures exchanges and are
standardized as to maturity date and underlying
financial instrument. Futures exchanges and trading
are regulated under the CEA by the CFTC. Although
techniques other than sales and purchases of futures
contracts could be used to reduce the Fund's exposure
to market, currency, or interest rate fluctuations, the
Fund may be able to hedge its exposure more effectively
and perhaps at a lower cost through using futures
contracts.
An interest rate futures contract provides for the
future sale by one party and purchase by another party
of a specified amount of a specific financial
instrument (e.g., debt security) or currency for a
specified price at a designated date, time, and place.
An index futures contract is an agreement pursuant to
which the parties agree to take or make delivery of an
amount of cash equal to the difference between the
value of the index at the close of the last trading day
of the contract and the price at which the index
futures contract was originally written. Transaction
costs are incurred when a futures contract is bought or
sold and margin deposits must be maintained. A futures
contract may be satisfied by delivery or purchase, as
the case may be, of the instrument or the currency or
by payment of the change in the cash value of the
index. More commonly, futures contracts are closed out
prior to delivery by entering into an offsetting
transaction in a matching futures contract. Although
the value of an index might be a function of the value
of certain specified securities, no physical delivery
of those securities is made. If the offsetting
purchase price is less than the original sale price,
the Fund realizes a gain; if it is more, the Fund
realizes a loss. Conversely, if the offsetting sale
price is more than the original purchase price, the
Fund realizes a gain; if it is less, the Fund realizes
a loss. The transaction costs must also be included in
these calculations. There can be no assurance,
however, that the Fund will be able to enter into an
offsetting transaction with respect to a particular
futures contract at a particular time. If the Fund is
not able to enter into an offsetting transaction, the
Fund will continue to be required to maintain the
margin deposits on the futures contract.
No price is paid by the Fund upon entering into a
futures contract. Instead, at the inception of a
futures contract, the Fund is required to deposit in a
segregated account with its custodian, in the name of
the futures broker through whom the transaction was
effected, "initial margin," consisting of cash, U.S.
government securities or other liquid, high-grade debt
obligations, in an amount generally equal to 10% or
less of the contract value. Margin must also be
deposited when writing a call or put option on a
futures contract, in accordance with applicable
exchange rules. Unlike margin in securities
transactions, initial margin on futures contracts does
not represent a borrowing, but rather is in the nature
of a performance bond or good-faith deposit that is
returned to the Fund at the termination of the
transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as
periods of high volatility, the Fund may be required by
an exchange to increase the level of its initial margin
payment, and initial margin requirements might be
increased generally in the future by regulatory action.
Subsequent "variation margin" payments are made to
and from the futures broker daily as the value of the
futures position varies, a process known as "marking to
market." Variation margin does not involve borrowing,
but rather represents a daily settlement of the Fund's
obligations to or from a futures broker. When the Fund
purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast,
when the Fund purchases or sells a futures contract or
writes a call or put option thereon, it is subject to
daily variation margin calls that could be substantial
in the event of adverse price movements. If the Fund
has insufficient cash to meet daily variation margin
requirements, it might need to sell securities at a
time when such sales are disadvantageous. Purchasers
and sellers of futures positions and options on futures
can enter into offsetting closing transactions by
selling or purchasing, respectively, an instrument
identical to the instrument held or written. Positions
in futures and options on futures may be closed only on
an exchange or board of trade that provides a secondary
market. The Fund intends to enter into futures
transactions only on exchanges or boards of trade where
there appears to be a liquid secondary market.
However, there can be no assurance that such a market
will exist for a particular contract at a particular
time.
Under certain circumstances, futures exchanges may
establish daily limits on the amount that the price of
a future or option on a futures contract can vary from
the previous day's settlement price; once that limit is
reached, no trades may be made that day at a price
beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily
limit for several consecutive days with little or no
trading, thereby preventing liquidation of unfavorable
positions.
<PAGE>
If the Fund were unable to liquidate a futures or
option on a futures contract position due to the
absence of a liquid secondary market or the imposition
of price limits, it could incur substantial losses.
The Fund would continue to be subject to market risk
with respect to the position. In addition, except in
the case of purchased options, the Fund would continue
to be required to make daily variation margin payments
and might be required to maintain the position being
hedged by the future or option or to maintain certain
liquid securities in a segregated account.
Certain characteristics of the futures market
might increase the risk that movements in the prices of
futures contracts or options on futures contracts might
not correlate perfectly with movements in the prices of
the investments being hedged. For example, all
participants in the futures and options on futures
contracts markets are subject to daily variation margin
calls and might be compelled to liquidate futures or
options on futures contracts positions whose prices are
moving unfavorably to avoid being subject to further
calls. These liquidations could increase the price
volatility of the instruments and distort the normal
price relationship between the futures or options and
the investments being hedged. Also, because initial
margin deposit requirements in the futures markets are
less onerous than margin requirements in the securities
markets, there might be increased participation by
speculators in the future markets. This participation
also might cause temporary price distortions. In
addition, activities of large traders in both the
futures and securities markets involving arbitrage,
"program trading," and other investment strategies
might result in temporary price distortions.
Options on Futures. The Fund may also purchase or
write put and call options on futures contracts and
enter into closing transactions with respect to such
options to terminate an existing position. A futures
option gives the holder the right, in return for the
premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified
exercise price prior to the expiration of the option.
Upon exercise of a call option, the holder acquires a
long position in the futures contract and the writer is
assigned the opposite short position. In the case of a
put option, the opposite is true. Prior to exercise or
expiration, a futures option may be closed out by an
offsetting purchase or sale of a futures option of the
same series.
The Fund may use options on futures contracts in
connection with hedging strategies. Generally, these
strategies would be employed under the same market and
market sector conditions in which the Fund uses put and
call options on securities or indexes. The purchase of
put options on futures contracts is analogous to the
purchase of puts on securities or indexes so as to
hedge the Fund's securities holdings against the risk
of declining market prices. The writing of a call
option or the purchasing of a put option on a futures
contract constitutes a partial hedge against declining
prices of the securities which are deliverable upon
exercise of the futures contract. If the futures price
at expiration of a written call option is below the
exercise price, the Fund will retain the full amount of
the option premium which provides a partial hedge
against any decline that may have occurred in the
Fund's holdings of securities. If the futures price
when the option is exercised is above the exercise
price, however, the Fund will incur a loss, which may
be offset, in whole or in part, by the increase in the
value of the securities held by the Fund that were
being hedged. Writing a put option or purchasing a
call option on a futures contract serves as a partial
hedge against an increase in the value of the
securities the Fund intends to acquire.
As with investments in futures contracts, the Fund
is required to deposit and maintain margin with respect
to put and call options on futures contracts written by
it. Such margin deposits will vary depending on the
nature of the underlying futures contract (and the
related initial margin requirements), the current
market value of the option, and other futures positions
held by the Fund. The Fund will set aside in a
segregated account at the Fund's custodian liquid
assets, such as cash, U.S. government securities or
other high grade liquid debt obligations equal in value
to the amount due on the underlying obligation. Such
segregated assets will be marked to market daily, and
additional assets will be placed in the segregated
account whenever the total value of the segregated
account falls below the amount due on the underlying
obligation.
The risks associated with the use of options on
futures contracts include the risk that a Fund may
close out its position as a writer of an option only if
a liquid secondary market exists for such options,
which cannot be assured. The Fund's successful use of
options on futures contracts depends on the Adviser's
ability to correctly predict the movement in prices of
futures contracts and the underlying instruments, which
may prove to be incorrect. In addition, there may be
imperfect correlation between the instruments being
hedged and the futures contract subject to the option.
For additional information, see "Futures Contracts."
<PAGE>
Foreign Currencies. The Fund may purchase and
sell foreign currency on a spot basis, and may use
currency-related derivatives instruments such as
options on foreign currencies, futures on foreign
currencies, options on futures on foreign currencies
and forward currency contracts (i.e., an obligation to
purchase or sell a specific currency at a specified
future date, which may be any fixed number of days from
the contract date agreed upon by the parties, at a
price set at the time the contract is entered into).
The Fund may use these instruments for hedging or any
other lawful purpose consistent with its investment
objective, including transaction hedging, anticipatory
hedging, cross hedging, proxy hedging, and position
hedging. The Fund's use of currency-related derivative
instruments will be directly related to the Fund's
current or anticipated portfolio securities, and the
Fund may engage in transactions in currency-related
derivative instruments as a means to protect against
some or all of the effects of adverse changes in
foreign currency exchange rates on its portfolio
investments. In general, if the currency in which a
portfolio investment is denominated appreciates against
the U.S. dollar, the dollar value of the security will
increase. Conversely, a decline in the exchange rate
of the currency would adversely effect the value of the
portfolio investment expressed in U.S. dollars.
For example, the Fund might use currency-related
derivative instruments to "lock in" a U.S. dollar price
for a portfolio investment, thereby enabling the Fund
to protect itself against a possible loss resulting
from an adverse change in the relationship between the
U.S. dollar and the subject foreign currency during the
period between the date the security is purchased or
sold and the date on which payment is made or received.
The Fund also might use currency-related derivative
instruments when the Adviser believes that one currency
may experience a substantial movement against another
currency, including the U.S. dollar, and it may use
currency-related derivative instruments to sell or buy
the amount of the former foreign currency,
approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign
currency. Alternatively, where appropriate, the Fund
may use currency-related derivative instruments to
hedge all or part of its foreign currency exposure
through the use of a basket of currencies or a proxy
currency where such currency or currencies act as an
effective proxy for other currencies. The use of this
basket hedging technique may be more efficient and
economical than using separate currency-related
derivative instruments for each currency exposure held
by the Fund. Furthermore, currency-related derivative
instruments may be used for short hedges - for example,
the Fund may sell a forward currency contract to lock
in the U.S. dollar equivalent of the proceeds from the
anticipated sale of a security denominated in a foreign
currency.
In addition, the Fund may use a currency-related
derivative instrument to shift exposure to foreign
currency fluctuations from one foreign country to
another foreign country where the Adviser believes that
the foreign currency exposure purchased will appreciate
relative to the U.S. dollar and thus better protect the
Fund against the expected decline in the foreign
currency exposure sold. For example, if the Fund owns
securities denominated in a foreign currency and the
Adviser believes that currency will decline, it might
enter into a forward contract to sell an appropriate
amount of the first foreign currency, with payment to
be made in a second foreign currency that the Adviser
believes would better protect the Fund against the
decline in the first security than would a U.S. dollar
exposure. Hedging transactions that use two foreign
currencies are sometimes referred to as "cross hedges."
The effective use of currency-related derivative
instruments by the Fund in a cross hedge is dependent
upon a correlation between price movements of the two
currency instruments and the underlying security
involved, and the use of two currencies magnifies the
risk that movements in the price of one instrument may
not correlate or may correlate unfavorably with the
foreign currency being hedged. Such a lack of
correlation might occur due to factors unrelated to the
value of the currency instruments used or investments
being hedged, such as speculative or other pressures on
the markets in which these instruments are traded.
The Fund also might seek to hedge against changes
in the value of a particular currency when no hedging
instruments on that currency are available or such
hedging instruments are more expensive than certain
other hedging instruments. In such cases, the Fund may
hedge against price movements in that currency by
entering into transactions using currency-related
derivative instruments on another foreign currency or a
basket of currencies, the values of which the Adviser
believes will have a high degree of positive
correlation to the value of the currency being hedged.
The risk that movements in the price of the hedging
instrument will not correlate perfectly with movements
in the price of the currency being hedged is magnified
when this strategy is used.
The use of currency-related derivative instruments
by the Fund involves a number of risks. The value of
currency-related derivative instruments depends on the
value of the underlying currency relative to the U.S.
dollar. Because foreign currency transactions
occurring in the interbank market might involve
substantially larger amounts than those involved in the
use of such derivative instruments, the Fund could be
disadvantaged by having to deal in the
<PAGE>
odd lot market
(generally consisting of transactions of less than $1
million) for the underlying foreign currencies at
prices that are less favorable than for round lots
(generally consisting of transactions of greater than
$1 million).
There is no systematic reporting of last sale
information for currencies or any regulatory
requirement that quotations available through dealers
or other market sources be firm or revised on a timely
basis. Quotation information generally is
representative of very large transactions in the
interbank market and thus might not reflect odd-lot
transactions where rates might be less favorable. The
interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options
or futures markets are closed while the markets for the
underlying currencies remain open, significant price
and rate movements might take place in the underlying
markets that cannot be reflected in the markets for the
derivative instruments until they re-open.
Settlement of transactions in currency-related
derivative instruments might be required to take place
within the country issuing the underlying currency.
Thus, the Fund might be required to accept or make
delivery of the underlying foreign currency in
accordance with any U.S. or foreign regulations
regarding the maintenance of foreign banking
arrangements by U.S. residents and might be required to
pay any fees, taxes and charges associated with such
delivery assessed in the issuing country.
When the Fund engages in a transaction in a
currency-related derivative instrument, it relies on
the counterparty to make or take delivery of the
underlying currency at the maturity of the contract or
otherwise complete the contract. In other words, the
Fund will be subject to the risk that it may sustain a
loss as a result of the failure of the counterparty to
comply with the terms of the transaction. The
counterparty risk for exchange-traded instruments is
generally less than for privately-negotiated or OTC
currency instruments, since generally a clearing
agency, which is the issuer or counterparty to each
instrument, provides a guarantee of performance. For
privately-negotiated instruments, there is no similar
clearing agency guarantee. In all transactions, the
Fund will bear the risk that the counterparty will
default, and this could result in a loss of the
expected benefit of the transaction and possibly other
losses to the Fund. The Fund will enter into
transactions in currency-related derivative instruments
only with counterparties that the Adviser reasonably
believes are capable of performing under the contract.
Purchasers and sellers of currency-related
derivative instruments may enter into offsetting
closing transactions by selling or purchasing,
respectively, an instrument identical to the instrument
purchased or sold. Secondary markets generally do not
exist for forward currency contracts, with the result
that closing transactions generally can be made for
forward currency contracts only by negotiating directly
with the counterparty. Thus, there can be no assurance
that the Fund will, in fact, be able to close out a
forward currency contract (or any other currency-
related derivative instrument) at a time and price
favorable to the Fund. In addition, in the event of
insolvency of the counterparty, the Fund might be
unable to close out a forward currency contract at any
time prior to maturity. In the case of an exchange-
traded instrument, the Fund will be able to close the
position out only on an exchange which provides a
market for the instruments. The ability to establish
and close out positions on an exchange is subject to
the maintenance of a liquid market, and there can be no
assurance that a liquid market will exist for any
instrument at any specific time. In the case of a
privately-negotiated instrument, the Fund will be able
to realize the value of the instrument only by entering
into a closing transaction with the issuer or finding a
third party buyer for the instrument. While the Fund
will enter into privately-negotiated transactions only
with entities who are expected to be capable of
entering into a closing transaction, there can be no
assurance that the Fund will, in fact, be able to enter
into such closing transactions.
The precise matching of currency-related
derivative instrument amounts and the value of the
portfolio securities involved generally will not be
possible because the value of such securities, measured
in the foreign currency, will change after the currency-
related derivative instrument position has been
established. Thus, the Fund might need to purchase or
sell foreign currencies in the spot (cash) market. The
projection of short-term currency market movements is
extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain.
Permissible foreign currency options will include
options traded primarily in the OTC market. Although
options on foreign currencies are traded primarily in
the OTC market, the Fund will normally purchase or sell
OTC options on foreign currency only when the Adviser
reasonably believes a liquid secondary market will
exist for a particular option at any specific time.
There will be a cost to the Fund of engaging in
transactions in currency-related derivative instruments
that will vary with factors such as the contract or
currency involved, the length of the contract period
and the market conditions
<PAGE>
then prevailing. In using
these instruments, the Fund may have to pay a fee or
commission or, in cases where the instruments are
entered into on a principal basis, foreign exchange
dealers or other counterparties will realize a profit
based on the difference ("spread") between the prices
at which they are buying and selling various
currencies. Thus, for example, a dealer may offer to
sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
When required by the SEC guidelines, the Fund will
set aside permissible liquid assets in segregated
accounts or otherwise cover its potential obligations
under currency-related derivatives instruments. To the
extent the Fund's assets are so set aside, they cannot
be sold while the corresponding currency position is
open, unless they are replaced with similar assets. As
a result, if a large portion of the Fund's assets are
so set aside, this could impede portfolio management or
the Fund's ability to meet redemption requests or other
current obligations.
The Adviser's decision to engage in a transaction
in a particular currency-related derivative instrument
will reflect the Adviser's judgment that the
transaction will provide value to the Fund and its
shareholders and is consistent with the Fund's
objectives and policies. In making such a judgment,
the Adviser will analyze the benefits and risks of the
transaction and weigh them in the context of the Fund's
entire portfolio and objectives. The effectiveness of
any transaction in a currency-related derivative
instrument is dependent on a variety of factors,
including the Adviser's skill in analyzing and
predicting currency values and upon a correlation
between price movements of the currency instrument and
the underlying security. There might be imperfect
correlation, or even no correlation, between price
movements of an instrument and price movements of
investments being hedged. Such a lack of correlation
might occur due to factors unrelated to the value of
the investments being hedged, such as speculative or
other pressures on the markets in which these
instruments are traded. In addition, the Fund's use of
currency-related derivative instruments is always
subject to the risk that the currency in question could
be devalued by the foreign government. In such a case,
any long currency positions would decline in value and
could adversely affect any hedging position maintained
by the Fund.
The Fund's dealing in currency-related derivative
instruments will generally be limited to the
transactions described above. However, the Fund
reserves the right to use currency-related derivatives
instruments for different purposes and under different
circumstances. Of course, the Fund is not required to
use currency-related derivatives instruments and will
not do so unless deemed appropriate by the Adviser. It
should also be realized that use of these instruments
does not eliminate, or protect against, price movements
in the Fund's securities that are attributable to other
(i.e., non-currency related) causes. Moreover, while
the use of currency-related derivatives instruments may
reduce the risk of loss due to a decline in the value
of a hedged currency, at the same time the use of these
instruments tends to limit any potential gain which may
result from an increase in the value of that currency.
Additional Derivative Instruments and Strategies.
In addition to the derivative instruments and
strategies described above, the Adviser expects to
discover additional derivative instruments and other
hedging or risk management techniques. The Adviser may
utilize these new derivative instruments and techniques
to the extent that they are consistent with the Fund's
investment objective and permitted by the Fund's
investment limitations, operating policies, and
applicable regulatory authorities.
Depositary Receipts and Foreign Securities
The Fund may invest up to 20% of its net assets in
foreign securities directly or by purchasing depositary
receipts, including American Depositary Receipts
("ADRs") and European Depositary Receipts ("EDRs") or
other securities convertible into securities or issuers
based in foreign countries. These securities may not
necessarily be denominated in the same currency as the
securities into which they may be converted.
Generally, ADRs, in registered form, are denominated in
U.S. dollars and are designed for use in the U.S.
securities markets, while EDRs, in bearer form, may be
denominated in other currencies and are designed for
use in European securities markets. ADRs are receipts
typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities.
EDRs are European receipts evidencing a similar
arrangement. For purposes of the Fund's investment
objectives, ADRs and EDRs are deemed to have the same
classification as the underlying securities they
represent. Thus, an ADR or EDR representing ownership
of common stock will be treated as common stock.
ADR facilities may be established as either
"unsponsored" or "sponsored." While ADRs issued under
these two types of facilities are in some respects
similar, there are distinctions between them relating
to the rights and
<PAGE>
obligations of ADR holders and the
practices of market participants. For example, a non-
sponsored depositary may not provide the same
shareholder information that a sponsored depositary is
required to provide under its contractual arrangements
with the issuer, including reliable financial
statements. Under the terms of most sponsored
arrangements, depositories agree to distribute notices
of shareholder meetings and voting instructions, and to
provide shareholder communications and other
information to the ADR holders at the request of the
issuer of the deposited securities.
Investments in securities of foreign issuers
involve risks which are in addition to the usual risks
inherent in domestic investments. In many countries
there is less publicly available information about
issuers than is available in the reports and ratings
published about companies in the United States.
Additionally, foreign countries are not subject to
uniform accounting, auditing and financial reporting
standards. Other risks inherent in foreign investments
include expropriation; confiscatory taxation;
withholding taxes on dividends or interest; less
extensive regulation of foreign brokers, securities
markets, and issuers; costs incurred in conversions
between currencies; possible delays in settlement in
foreign securities markets; limitations on the use or
transfer of assets (including suspension of the ability
to transfer currency from a given country); the
difficulty of enforcing obligations in other countries;
diplomatic developments; and political or social
instability. Foreign economies may differ favorably or
unfavorably from the U.S. economy in various respects
and many foreign securities are less liquid and their
prices are more volatile than comparable U.S.
securities. From time to time foreign securities may
be difficult to liquidate rapidly without adverse price
effects. Certain costs attributable to foreign
investing, such as custody charges and brokerage costs,
may be higher than those attributable to domestic
investment. The value of the Fund's assets denominated
in foreign currencies will increase or decrease in
response to fluctuations in the value of those foreign
currencies relative to the U.S. dollar. Currency
exchange rates can be volatile at times in response to
supply and demand in the currency exchange markets,
international balances of payments, governmental
intervention, speculation and other political and
economic conditions. In addition, a number of European
countries have entered into the European Monetary Union
("EMU"), an economic and monetary union which will
result in a single currency and a single monetary
policy for all EMU countries beginning January 1, 1999.
The EMU may have adverse effects on foreign securities
if it is not implemented as planned or if one or more
countries withdraws from the EMU. The EMU may also
have adverse effects on foreign securities if portfolio
management software used by the Adviser or the
accounting and trading systems used by the Fund do not
recognize the Euro, the new currency adopted by the
EMU. In the Euro's infancy, investment advisers, like
the Adviser, will be unfamiliar with new indices and
benchmarks for EMU countries and companies.
Foreign Investment Companies
Some of the countries in which the Fund may invest
may not permit direct investment by outside investors.
Investments in such countries may only be permitted
through foreign government-approved or -authorized
investment vehicles, which may include other investment
companies. Investing through such vehicles may involve
frequent or layered fees or expenses and may also be
subject to limitation under the 1940 Act. Under the
1940 Act, the Fund may invest up to 10% of its assets
in shares of investment companies and up to 5% of its
assets in any one investment company as long as the
investment does not represent more than 3% of the
voting stock of the acquired investment company.
Illiquid Securities
The Fund may invest up to 15% of its net assets in
illiquid securities (i.e., securities that are not
readily marketable). For purposes of this restriction,
illiquid securities include, but are not limited to,
restricted securities (securities the disposition of
which is restricted under the federal securities laws),
repurchase agreements with maturities in excess of
seven days, and other securities that are not readily
marketable. The Board of Directors of the Corporation,
or its delegate, has the ultimate authority to
determine, to the extent permissible under the federal
securities laws, which securities are liquid or
illiquid for purposes of this 15% limitation. Certain
securities exempt from registration or issued in
transactions exempt from registration under the
Securities Act, such as securities that may be resold
to institutional investors under Rule 144A under the
Securities Act, may be considered liquid under
guidelines adopted by the Board of Directors. However,
investing in securities which may be resold pursuant to
Rule 144A under the Securities Act could have the
effect of increasing the level of the Fund's
illiquidity to the extent that institutional investors
become, for a time, uninterested in purchasing such
securities.
The Board of Directors has delegated to the
Adviser the day-to-day determination of the liquidity
of any security, although it has retained oversight and
ultimate responsibility for such determinations.
Although no definitive
<PAGE>
liquidity criteria are used, the
Board of Directors has directed the Adviser to look to
such factors as (i) the nature of the market for a
security (including the institutional private resale
market), (ii) the terms of certain securities or other
instruments allowing for the disposition to a third
party or the issuer thereof (e.g., certain repurchase
obligations and demand instruments), (iii) the
availability of market quotations (e.g., for securities
quoted in the PORTAL system), and (iv) other
permissible relevant factors.
Restricted securities may be sold only in
privately negotiated transactions or in a public
offering with respect to which a registration statement
is in effect under the Securities Act. Where
registration is required, the Fund may be obligated to
pay all or part of the registration expenses and a
considerable period may elapse between the time of the
decision to sell and the time the Fund may be permitted
to sell a security under an effective registration
statement. If, during such a period, adverse market
conditions were to develop, the Fund might obtain a
less favorable price than that which prevailed when it
decided to sell. Restricted securities will be priced
at fair value as determined in good faith by the Board
of Directors. If, through the appreciation of
restricted securities or the depreciation of
unrestricted securities, the Fund should be in a
position where more than 15% of the value of its net
assets are invested in illiquid securities, including
restricted securities which are not readily marketable
(except for Rule 144A securities deemed to be liquid by
the Adviser), the affected Fund will take such steps as
is deemed advisable, if any, to protect liquidity.
Short-Term Fixed Income Securities
The Fund intends to be fully invested at all times
and accordingly will only hold cash or short-term fixed
income securities to meet anticipated redemption
requests, pending investment and to pay expenses.
Short-term fixed income securities are defined to
include without limitation, the following:
1. U.S. government securities, including bills,
notes and bonds differing as to maturity and
rates of interest, which are either issued or
guaranteed by the U.S. Treasury or by U.S.
government agencies or instrumentalities.
U.S. government agency securities include
securities issued by: (a) the Federal
Housing Administration, Farmers Home
Administration, Export-Import Bank of the
United States, Small Business Administration
and the Government National Mortgage
Association, whose securities are supported
by the full faith and credit of the United
States; (b) the Federal Home Loan Banks,
Federal Intermediate Credit Banks and the
Tennessee Valley Authority, whose securities
are supported by the right of the agency to
borrow from the U.S. Treasury; (c) the
Federal National Mortgage Association, whose
securities are supported by the discretionary
authority of the U.S. government to purchase
certain obligations of the agency or
instrumentality; and (d) the Student Loan
Marketing Association, whose securities are
supported only by its credit. While the U.S.
government provides financial support to such
U.S. government-sponsored agencies or
instrumentalities, no assurance can be given
that it always will do so since it is not so
obligated by law. The U.S. government, its
agencies and instrumentalities do not
guarantee the market value of their
securities and consequently the value of such
securities may fluctuate.
2. Certificates of Deposit issued against funds
deposited in a bank or savings and loan
association. Such certificates are for a
definite period of time, earn a specified
rate of return and are normally negotiable.
If such certificates of deposit are non-
negotiable, they will be considered illiquid
securities and be subject to the Fund's
restriction on investments in illiquid
securities. Pursuant to the certificate of
deposit, the issuer agrees to pay the amount
deposited plus interest to the bearer of the
certificate on the date specified thereon.
Under current Federal Deposit Insurance
Corporation regulations, the maximum
insurance payable as to any one certificate
of deposit is $100,000; therefore,
certificates of deposit purchased by the Fund
may not be fully insured.
3. Bankers' acceptances which are short-term
credit instruments used to finance commercial
transactions. Generally, an acceptance is a
time draft drawn on a bank by an exporter or
an importer to obtain a stated amount of
funds to pay for specific merchandise. The
draft is then "accepted" by a bank that, in
effect, unconditionally guarantees to pay the
face value of the instrument on its maturity
date. The acceptance may then be held by the
accepting bank as an asset or it may be sold
in the secondary market at the going rate of
interest for a specific maturity.
<PAGE>
4. Repurchase agreements which involve purchases
of debt securities. In such an action, at
the time the Fund purchases the security, it
simultaneously agrees to resell and redeliver
the security to the seller, who also
simultaneously agrees to buy back the
security at a fixed price and time. This
assures a predetermined yield for the Fund
during its holding period since the resale
price is always greater than the purchase
price and reflects an agreed-upon market
rate. Such actions afford an opportunity for
the Fund to invest temporarily available
cash. The Fund may enter into repurchase
agreements only with respect to obligations
of the U.S. government, its agencies or
instrumentalities, certificates of deposit,
or bankers acceptances in which the Fund may
invest. Repurchase agreements may be
considered loans to the seller,
collateralized by the underlying securities.
The risk to the Fund is limited to the
ability of the seller to pay the agreed-upon
sum on the repurchase date. In the event of
default, the repurchase agreement provides
that the affected Fund is entitled to sell
the underlying collateral. However, if the
value of the collateral declines after the
agreement is entered into, and if the seller
defaults under a repurchase agreement when
the value of the underlying collateral is
less than the repurchase price, the Fund
could incur a loss of both principal and
interest. The Adviser monitors the value of
the collateral at the time the transaction is
entered into and at all times during the term
of the repurchase agreement. The Adviser does
so in an effort to determine that the value
of the collateral always equals or exceeds
the agreed-upon repurchase price to be paid
to the Fund. If the seller were to be
subject to a federal bankruptcy proceeding,
the ability of a Fund to liquidate the
collateral could be delayed or impaired
because of certain provisions of the
bankruptcy laws.
5. Bank time deposits, which are monies kept on
deposit with banks or savings and loan
associations for a stated period of time at a
fixed rate of interest. There may be
penalties for the early withdrawal of such
time deposits, in which case the yields of
these investments will be reduced.
6. Commercial paper, which consists of short-
term unsecured promissory notes, including
variable rate master demand notes issued by
corporations to finance their current
operations. Master demand notes are direct
lending arrangements between the Fund and a
corporation. There is no secondary market
for the notes. However, they are redeemable
by the Fund at any time. The Adviser will
consider the financial condition of the
corporation (e.g., earning power, cash flow
and liquidity ratios) and will continuously
monitor the corporation's ability to meet all
of its financial obligations, because the
Fund's liquidity might be impaired if the
corporation were unable to pay principal and
interest on demand. Investments in
commercial paper will be limited to
commercial paper rated in the two highest
categories by a major rating agency or
unrated commercial paper which is, in the
opinion of the Adviser, of comparable
quality.
Repurchase Agreements
The Fund may enter into repurchase agreements with
certain banks or non-bank dealers. In a repurchase
agreement, the Fund buys a security at one price, and
at the time of sale, the seller agrees to repurchase
the obligation at a mutually agreed upon time and price
(usually within seven days). The repurchase agreement,
thereby, determines the yield during the purchaser's
holding period, while the seller's obligation to
repurchase is secured by the value of the underlying
security. The Adviser will monitor, on an ongoing
basis, the value of the underlying securities to ensure
that the value always equals or exceeds the repurchase
price plus accrued interest. Repurchase agreements
could involve certain risks in the event of a default
or insolvency of the other party to the agreement,
including possible delays or restrictions upon the
Fund's ability to dispose of the underlying securities.
Although no definitive creditworthiness criteria are
used, the Adviser reviews the creditworthiness of the
banks and non-bank dealers with which the Fund enters
into repurchase agreements to evaluate those risks.
Lending Portfolio Securities
The Fund may lend portfolio securities with a
value not exceeding 33 1/3% of the Fund's total assets
to brokers or dealers, banks or other institutional
borrowers of securities as a means of earning income.
In return, the Fund will receive collateral in cash or
money market instruments. Such collateral will be
maintained at all times in an amount equal to at least
100% of the current market value of the loaned
securities. The purpose of such securities lending is
to permit the borrower to use such securities for
delivery to purchasers when such borrower has sold
short. The Fund will continue to receive the
equivalent of the interest or dividends paid by the
issuer of the securities lent, and
<PAGE>
the Fund may also
receive interest on the investment of collateral, or a
fee from the borrower as compensation for the loan.
The Fund may pay reasonable custodial and
administrative fees in connection with the loan. The
Fund will retain the right to call, upon notice, lent
securities. While there may be delays in recovery or
even a loss of right in collateral should the borrower
fail financially, the Fund's investment adviser will
review the credit worthiness of the entities to which
such loans are made to evaluate those risks. Although
the Fund is authorized to lend securities, the Fund
does not presently intend to engage in lending.
Borrowing
The Fund is authorized to borrow money from banks
and make other investments or engage in other
transactions permissible under the 1940 Act which may
be considered a borrowing (such as reverse repurchase
agreements), provided that the amount borrowed may not
exceed 33 1/3% of the value of the Fund's net assets.
The Fund's borrowings create an opportunity for greater
return to the Fund and, ultimately, the Fund's
shareholders, but at the same time increase exposure to
losses. In addition, interest payments and fees paid
by the Fund on any borrowings may offset or exceed the
return earned on borrowed funds. The Fund currently
intends to borrow money only for temporary,
extraordinary or emergency purposes.
Reverse Repurchase Agreements
The Fund may, with respect to up to 5% of its net
assets, engage in reverse repurchase agreements. In a
reverse repurchase agreement, the Fund would sell a
security and enter into an agreement to repurchase the
security at a specified future date and price. The
Fund generally retains the right to interest and
principal payments on the security. Since the Fund
receives cash upon entering into a reverse repurchase
agreement, it may be considered a borrowing. When
required by guidelines of the SEC, the Fund will set
aside permissible liquid assets in a segregated account
to secure its obligations to repurchase the security.
Convertible Securities
The Fund may invest in convertible securities,
which are bonds, debentures, notes, preferred stocks,
or other securities that may be converted into or
exchanged for a specified amount of common stock or
warrants of the same or a different company within a
particular period of time at a specified price or
formula. A convertible security entitles the holder to
receive interest normally paid or accrued on debt or
the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted,
or exchanged. Convertible securities have unique
investment characteristics in that they generally (i)
have higher yields than common stocks, but lower yields
than comparable non-convertible securities, (ii) are
less subject to fluctuation in value than the
underlying stock (or warrant) since they have fixed
income characteristics, and (iii) provide the potential
for capital appreciation if the market price of the
underlying common stock (or warrant) increases. A
convertible security may be subject to redemption at
the option of the issuer at a price established in the
convertible security's governing instrument. If a
convertible security held by the Fund is called for
redemption, the Fund will be required to permit the
issuer to redeem the security, convert it into the
underlying common stock (or warrant), or sell it to a
third party.
Warrants
The Fund may invest in warrants, valued at the
lower of cost or market value, if, after giving effect
thereto, not more than 5% of its net assets will be
invested in warrants other than warrants acquired in
units or attached to other securities. Warrants are
options to purchase equity securities at a specific
price for a specific period of time. They do not
represent ownership of the securities but only the
right to buy them. Investing in warrants is purely
speculative in that they have no voting rights, pay no
dividends and have no rights with respect to the assets
of the corporation issuing them. In addition, the
value of a warrant does not necessarily change with the
value of the underlying securities, and a warrant
ceases to have value if it is not exercised prior to
its expiration date.
Short Sales Against the Box
The Fund may sell securities short against the box
to hedge unrealized gains on portfolio securities.
Selling securities short against the box involves
selling a security that the Fund owns or has the right
to acquire, for delivery at
<PAGE>
a specified date in the
future. If the Fund sells securities short against the
box, it may protect unrealized gains, but will lose the
opportunity to profit on such securities if the price
rises.
When-Issued Securities
The Fund may from time to time invest up to 5% of
its net assets in securities purchased on a "when-
issued" basis. The price of securities purchased on a
when-issued basis is fixed at the time the commitment
to purchase is made, but delivery and payment for the
securities take place at a later date. Normally, the
settlement date occurs within 45 days of the purchase.
During the period between the purchase and settlement,
no payment is made by the Fund to the issuer, no
interest is accrued on debt securities and no dividend
income is earned on equity securities. Forward
commitments involve a risk of loss if the value of the
security to be purchased declines prior to the
settlement date, which risk is in addition to the risk
of decline in value of the Fund's other assets. While
when-issued securities may be sold prior to the
settlement date, the Fund intends to purchase such
securities with the purpose of actually acquiring them.
At the time the Fund makes the commitment to purchase a
security on a when-issued basis, it will record the
transaction and reflect the value of the security in
determining its net asset value. The Fund does not
believe that its net asset value will be adversely
affected by its purchases of securities on a when-
issued basis.
The Fund will maintain cash and marketable
securities equal in value to commitments for when-
issued securities. Such segregated securities either
will mature or, if necessary, be sold on or before the
settlement date. When the time comes to pay for when-
issued securities, the Fund will meet its obligations
from then available cash flow, sale of the securities
held in the separate account, described above, sale of
other securities or, although it would not normally
expect to do so, from the sale of the when-issued
securities themselves (which may have a market value
greater or less than the Fund's payment obligation).
Unseasoned Companies
The Fund may invest up to 5% of its total assets
in unseasoned companies, which are companies with less
than three years of continuous operation. While
smaller companies generally have potential for rapid
growth, they often involve higher risks because they
lack the management experience, financial resources,
product diversification and competitive strengths of
larger corporations. In addition, in many instances,
the securities of smaller companies are traded only
over-the-counter or on regional securities exchanges,
and the frequency and volume of their trading is
substantially less than is typical of larger companies.
Therefore, the securities of these companies may be
subject to wider price fluctuations. When making large
sales, the Fund may have to sell portfolio holdings of
these companies at discounts from quoted prices or may
have to make a series of smaller sales over an extended
period of time due to the trading volume in smaller
company securities.
Concentration
The Fund has adopted a fundamental investment
policy which prohibits the Fund from investing more
than 25% of its assets in the securities of companies
in any one industry. An industry is defined as a
business-line subsector of a stock-market sector.
While the Fund may be heavily invested in a single
market sector like technology or health care, for
example, it will not invest more than 25% of its assets
in securities of companies in any one industry or
subsector. Technology industries or subsectors include
networking, telecommunications, software,
semiconductors, and voice-processing business lines.
Health care industries or subsectors include medical
devices and information systems business lines. The
Fund does not consider all Light Revolution companies
to be in the same industry.
DIRECTORS AND OFFICERS
Under the laws of the State of Maryland, the Board
of Directors of the Corporation is responsible for
managing its business and affairs. The directors and
officers of the Corporation, together with information
as to their principal business occupations during the
last five years, and other information, are shown
below. Each director who is deemed an "interested
person," as defined in the 1940 Act, is indicated by an
asterisk (*).
*Henry Hewitt, 47, created the Light Index. Mr.
Hewitt serves as President, Chief Executive Officer and
a Director of the Adviser, and as President and a
Director of the Corporation. He is responsible for the
day-to-day management of the Fund. An Oxford graduate,
he began working in the securities business in 1985 as
a broker for
<PAGE>
Merrill Lynch. He has been a registered
investment adviser since 1993 and has published a
monthly newsletter called The Light Revolution Herald
since September 1993. The Light Revolution Herald
examines current technological and financial
developments surrounding the companies which are
included in the Light Index.
*Brian Hatch, 58, a Director of the Corporation,
is currently a legislative advocate before the
California legislature, representing the California
Professional Firefighters and other clients. Mr. Hatch
was a founder of Working Assets Money Fund, an open end
investment company (money market fund) registered under
the 1940 Act, and a director of Working Assets Money
Fund from 1983 to 1992. Mr. Hatch was also a director
of Progressive Asset Management, Inc., a broker dealer,
from 1995 to 1997.
John Hewitt Jr., 71, a Director of the
Corporation, has been an investment adviser in Tacoma
since 1964. He is a Yale graduate and a retired Marine
Captain. Mr. Hewitt is Henry Hewitt's cousin.
Tamsin Taylor, 56, a Director of the Corporation,
is an independent consultant and has been a director of
Laird Norton Financial Group/Trust Co., a non-bank
trust company, since 1984.
Robert W. Burnett, 58, a Director of the
Corporation, has been a private investor since 1992.
From 1989 to 1992, Mr. Burnett served as the Vice
President of Engineering at Cisco Systems, Inc., which
builds equipment used to operate the Internet. Prior
thereto, Mr. Burnett held positions with ROLM Systems,
a division of IBM, which builds telecommunications
equipment, Fairchild Semiconductor, which designs
automation and digital equipment and the Stanford
Research Institute, which designs data base and
analysis software. Mr. Burnett graduated from Stanford
University in 1962.
Charles O'Herin serves as Secretary, Treasurer and
a Director of the Adviser, and as Vice President,
Secretary and Treasurer of the Corporation.
Mr. O'Herin is a retired Army officer and has been a
small business owner since 1990. Mr. O'Herin has over
25 years of experience developing, managing, defining
and reengineering high technology programs and
information management organizations and systems. He
is co-founder of New Definitions, a management
consulting firm designed to improve businesses, and co-
founder of Washington Online Services, an Internet
business consulting firm designed to help businesses
benefit from use of the Internet and electronic
commerce.
The address for the directors and officers of the
Corporation is Light Index Investment Company, 704
Court A, Tacoma, Washington 98402.
The Fund and the Adviser have adopted a code of
ethics under Rule 17j-1 of the 1940 Act which permits
personnel subject to the code of ethics to invest in
securities, including securities that may be purchased
or held by the Fund, subject to certain limitations.
Provident Distributors, Inc., the Fund's distributor,
has adopted a code of ethics which permits personnel
subject to the code of ethics to invest in securities,
including securities that may be purchased or held by
the Fund, subject to certain limitations.
As of December 31, 1999, officers and directors of
the Corporation beneficially owned 10,337 shares of
common stock of the Fund's then outstanding shares.
Directors and officers of the Corporation who are also
officers, directors, employees or shareholders of the
Adviser do not receive any remuneration from the Fund
for serving as directors or officers.
The following table provides information relating
to the compensation paid by the Fund to directors of
the Corporation for their services as such for the
period June 29, 1999 to October 31, 1999:
<PAGE>
Cash Other
Name Compensation(1) Compensatios Total
Henry Hewitt $ 0 $0 $ 0
Brian Hatch 0 0 0
Tamsin Taylor 1,000 0 1,000
John Hewitt, Jr. 1,000 0 1,000
Robert Burnett 500 0 500
All directors $2,500 $0 $2,500
as a group
(4 persons)
____________________
(1) Each director who is not deemed an "interested
person" as defined in the 1940 Act, receives $500 for
each Board of Directors meeting attended by such
person and reasonable expenses incurred in connection
therewith. The Board held two meetings during fiscal
1999 and each disinterested director received $1,000
for such time period from the Corporation, plus
reasonable expenses, except for Mr. Burnett who was
appointed in September 1999 and received $500 for
such time period. Estimated annual expenses are
expected to be $6,000.
Directors, officers and full-time employees of the
Corporation, the Distributor, Firstar Mutual Fund
Services, LLC, legal counsel for the Corporation and
affiliates of such companies (including the Adviser)
and spouses and family members of such persons may
purchase shares of the Fund at net asset value without
the imposition of any sales load. The Corporation has
decided to waive the sales load for these individuals
because sales of Fund shares to these individuals do
not require the selling efforts of brokers or other
financial intermediaries.
PRINCIPAL SHAREHOLDERS
As of December 31, 1999, the following persons
owned of record or beneficially or are known by the
Corporation to own of record or beneficially 5% or more
of the outstanding shares of the Fund:
Name and Address No. Shares Percentage
Mary E. Heller Trust 31,000 17.9%
93 Coghlan Lane
Atherton, California 94027-4063
Douglas M. Heller IRA 17,597 10.1%
93 Coghlan Lane
Atherton, California 94027-4063
Brad L. Skinner and Marie B. Skinner 10,000 5.8%
102 Oak Road
Orinda, California 94563-3348
Joseph S. Martinac 9,597 5.5%
401 East 15th Street
Tacoma, Washington 98421-1601
Based on the foregoing, as of January 10, 2000, no
person owned a controlling interest in the Corporation.
Shareholders with a controlling interest could effect
the outcome of proxy voting or the direction of
management of the Corporation.
<PAGE>
INVESTMENT ADVISER
Light Index Investment Company (the "Adviser") is
the investment adviser to the Fund. The Adviser is
controlled by Henry Hewitt.
The investment advisory agreement between the
Corporation and the Adviser dated as of May 15, 1999
(the "Advisory Agreement") is required to be approved
annually by the Board of Directors of the Corporation
or by vote of a majority of the Fund's outstanding
voting securities. Each annual renewal must also be
approved by the vote of a majority of the Corporation's
directors who are not parties to the Advisory Agreement
or interested persons of any such party, cast in person
at a meeting called for the purpose of voting on such
approval. The Advisory Agreement was approved by the
Board of Directors, including a majority of the
disinterested directors, on December 10, 1999. The
Advisory Agreement is terminable without penalty, on 60
days' written notice by the Board of Directors of the
Corporation, by vote of a majority of the Fund's
outstanding voting securities or by the Adviser, and
will terminate automatically in the event of its
assignment.
Under the terms of the Advisory Agreement, the
Adviser manages the Fund's investments and business
affairs, subject to the supervision of the
Corporation's Board of Directors. At its expense, the
Adviser provides office space and all necessary office
facilities, equipment and personnel for managing the
investments of the Fund. As compensation for its
services, the Fund pays the Adviser an annual
management fee of 1.00% of its average daily net
assets. The advisory fee is accrued daily and paid
monthly.
For the fiscal year ended October 31, 1999, the
Adviser waived its management fee and reimbursed the
Fund's other expenses so that the Fund's total
operating expenses (on an annual basis) did not exceed
2.00% of its average daily net assets. The Adviser has
agreed that until March 31, 2001, the Adviser will
waive its management fee and/or reimburse the Fund's
operating expenses to the extent necessary to ensure
that the total annual operating expenses for the Fund
do not exceed 2.00% of average daily net assets. After
such date, the Adviser may from time to time
voluntarily waive all or a portion of its fee and/or
reimburse expenses for the Fund. Any waiver of fees or
reimbursement of expenses will be made on a monthly
basis and, with respect to the latter, will be paid to
the Fund by reduction of the Adviser's fee. Any such
waiver and/or reimbursement covered by limits set forth
in the Expense Cap/Reimbursement Agreement is subject
to later adjustment during the term of the Advisory
Agreement to allow the Adviser to recoup amounts waived
and/or reimbursed, including initial organization costs
of the Fund, to the extent actual fees and expenses are
less than the expense limitation caps, provided,
however, that, the Adviser shall only be entitled to
recoup such amounts for a maximum period of three years
from the date such amount was waived or reimbursed.
For the period from June 29, 1999 to October 31, 1999,
the Adviser waived $4,142 of its management fee and
reimbursed $73,501 of the Fund's other expenses. If
the Adviser had not agreed to waive its management fee
and reimburse such expenses, the Adviser would have
received $4,142 from the Fund for its investment
advisory services.
FUND TRANSACTIONS AND BROKERAGE
Under the Advisory Agreement, the Adviser, in its
capacity as portfolio manager, is responsible for
decisions to buy and sell securities for the Fund and
for the placement of the Fund's securities business,
the negotiation of the commissions to be paid on such
transactions and the allocation of portfolio brokerage
business. The Adviser seeks to obtain the best
execution at the best security price available with
respect to each transaction. The best price to the
Fund means the best net price without regard to the mix
between purchase or sale price and commission, if any.
While the Adviser seeks reasonably competitive
commission rates, the Fund does not necessarily pay the
lowest available commission. Brokerage will not be
allocated based on the sale of the Fund's shares.
When the Adviser buys or sells the same security
for two or more advisory accounts, including the Fund,
the Adviser may place concurrent orders with a single
broker to be executed as a single, aggregated block in
order to facilitate orderly and efficient execution.
Whenever the Adviser does so, each advisory account on
whose behalf an order was placed will receive the
average price at which the block was executed and will
bear a proportionate share of all transaction costs,
based on the size of the advisory account's order.
While the Adviser believes combining orders for
advisory accounts will, over time, be advantageous to
all participants, in particular cases the average price
at which the block was executed could be less
advantageous to one particular advisory account than if
the advisory account had been the only account
effecting the transaction or had completed its
transaction before the other participants.
<PAGE>
Section 28(e) of the Securities Exchange Act of
1934, as amended ("Section 28(e)"), permits an
investment adviser, under certain circumstances, to
cause an account to pay a broker or dealer who supplies
brokerage and research services a commission for
effecting a transaction in excess of the amount of
commission another broker or dealer would have charged
for effecting the transaction. Brokerage and research
services include (a) furnishing advice as to the value
of securities, the advisability of investing,
purchasing or selling securities and the availability
of securities or purchasers or sellers of securities;
(b) furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts; and
(c) effecting securities transactions and performing
functions incidental thereto (such as clearance,
settlement and custody).
In selecting brokers or dealers, the Adviser
considers investment and market information and other
research, such as economic, securities and performance
measurement research provided by such brokers or
dealers and the quality and reliability of brokerage
services, including execution capability, performance
and financial responsibility. Accordingly, the
commissions charged by any such broker or dealer may be
greater than the amount another firm might charge if
the Adviser determines in good faith that the amount of
such commissions is reasonable in relation to the value
of the research information and brokerage services
provided by such broker or dealer to the Fund. The
Adviser believes that the research information received
in this manner provides the Fund with benefits by
supplementing the research otherwise available to the
Fund. Such higher commissions will not be paid by the
Fund unless (a) the Adviser determines in good faith
that the amount is reasonable in relation to the
services in terms of the particular transaction or in
terms of the Adviser's overall responsibilities with
respect to the accounts, including the Fund, as to
which it exercises investment discretion; (b) such
payment is made in compliance with the provisions of
Section 28(e) and other applicable state and federal
laws; and (c) in the opinion of the Adviser, the total
commissions paid by the Fund will be reasonable in
relation to the benefits to the Fund over the long
term.
The aggregate amount of brokerage commissions paid
by the Fund for the period June 29, 1999 to October 31,
1999 was $1,260. For the period June 29, 1999 to
October 31, 1999, the Fund paid no brokerage
commissions in transactions for which research services
were provided. During the period June 29, 1999 to
October 31, 1999, the Fund did not acquire any stock of
its regular brokers or dealers.
The Adviser places portfolio transactions for
other advisory accounts managed by the Adviser.
Research services furnished by firms through which the
Fund effects its securities transactions may be used by
the Adviser in servicing all of its accounts; not all
of such services may be used by the Adviser in
connection with the Fund. The Adviser believes it is
not possible to measure separately the benefits from
research services to each of the accounts (including
the Fund) managed by it. Because the volume and nature
of the trading activities of the accounts are not
uniform, the amount of commissions in excess of those
charged by another broker paid by each account for
brokerage and research services will vary. However,
the Adviser believes such costs to the Fund will not be
disproportionate to the benefits received by the Fund
on a continuing basis. The Adviser seeks to allocate
portfolio transactions equitably whenever concurrent
decisions are made to purchase or sell securities by
the Fund and another advisory account. In some cases,
this procedure could have an adverse effect on the
price or the amount of securities available to the
Fund. In making such allocations between the Fund and
other advisory accounts, the main factors considered by
the Adviser are the respective investment objectives,
the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for
investment and the size of investment commitments
generally held.
CUSTODIAN
As custodian of the Fund's assets, Firstar Bank,
N.A. ("Firstar Bank"), Third Floor, 615 East Michigan
Street, Milwaukee, Wisconsin 53202, has custody of all
securities and cash of the Fund, delivers and receives
payment for portfolio securities sold, receives and
pays for portfolio securities purchased, collects
income from investments and performs other duties, all
as directed by the officers of the Corporation.
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
Firstar Mutual Fund Services, LLC ("Firstar"),
Third Floor, 615 East Michigan Street, Milwaukee,
Wisconsin 53202, acts as transfer agent and dividend-
disbursing agent for the Fund. Firstar is compensated
based on an annual fee per open account of $16 (subject
to a minimum annual fee of $28,000) plus out-of-pocket
expenses, such as postage and printing expenses in
connection with shareholder communications. Firstar
also receives an annual fee per closed account of $16.
<PAGE>
From time to time, the Corporation, on behalf of
the Fund, directly or indirectly through arrangements
with the Adviser, the Distributor (as defined below) or
Firstar, may pay amounts to third parties that provide
transfer agent type services and other administrative
services relating to the Fund to persons who
beneficially have interests in the Fund, such as
participants in 401(k) plans. These services may
include, among other things, sub-accounting services,
transfer agent type activities, answering inquiries
relating to the Fund, transmitting proxy statements,
annual reports, updated prospectuses, other
communications regarding the Fund and related services
as the Fund or beneficial owners may reasonably
request. In such cases, the Fund will not pay fees
based on the number of beneficial owners at a rate that
is greater than the rate the Fund is currently paying
Firstar for providing these services to the Fund's
shareholders (i.e., $16 per account plus expenses).
ADMINISTRATOR
Pursuant to a Fund Administration Servicing
Agreement and a Fund Accounting Servicing Agreement,
Firstar also performs accounting and certain compliance
and tax reporting functions for the Corporation. For
these services, Firstar receives from the Corporation
out-of-pocket expenses plus the following aggregate
annual fees, computed daily and payable monthly, based
on the Fund's aggregate average net assets:
Administrative Services Fees
First $200 million of average net assets .07 of 1%*
Next $500 million of average net assets .06 of 1%
Average net assets in excess of $700 million .04 of 1%
_____________________________
* Subject to a minimum fee of $40,000.
Accounting Services Fees
First $40 million of average net assets $22,000
Next $200 million of average net assets .01 of 1%
Average net assets in excess of $240 million .005 of 1%
For the period from June 29, 1999 to October 31,
1999, the Fund paid Firstar $15,500 pursuant to the
Fund Administration Servicing Agreement.
DISTRIBUTOR AND PLAN OF DISTRIBUTION
Distributor
Under a distribution agreement dated November 16,
1999 (the "Distribution Agreement"), Provident
Distributors, Inc. (the "Distributor"), Four Falls
Corporate Center, 6th Floor, West Conshohocken,
Pennsylvania 19428-2961, acts as principal distributor
of the Fund's shares. The Distribution Agreement
provides that the Distributor will use appropriate
efforts to distribute the Fund's shares, which shares
are offered for sale by the Fund continuously at net
asset value per share plus a maximum initial sales
charge of 4.75% of the offering price. Directors and
officers of the Corporation are not subject to the
sales charge. In addition, no sales charge is imposed
on the reinvestment of dividends or capital gains.
Certain other exceptions to the imposition of the sales
charge may apply, as discussed more fully in the
Prospectus under the caption "How to Purchase Shares -
Sales Charge Waivers."
The Distributor may pay up to 100% of the
applicable initial sales charge due upon the purchase
of such shares to the broker, if any, involved in the
trade. As compensation for its services under the
Distribution Agreement, the Distributor receives an
annual fee equal to the lesser of (i) $10,000 or (ii)
0.01% of the aggregate average net assets of the Fund.
Distribution and Shareholder Servicing Plan
The Corporation, on behalf of the Fund, has
adopted a plan pursuant to Rule 12b-1 under the 1940
Act (the "12b-1 Plan"), which authorizes it to pay the
Distributor, in its capacity as the principal
distributor of Fund shares, or
<PAGE>
any Recipient (as defined below) a distribution and shareholder
servicing fee of up to 0.25% per annum of the Fund's average
daily net assets. Under the terms of the 12b-1 Plan,
the Corporation or the Distributor may pay all or a
portion of this fee to any securities dealer, financial
institution or any other person (the "Recipient") who
renders assistance in distributing or promoting the
sale of Fund shares, or who provides certain
shareholder services to Fund shareholders, pursuant to
a written agreement (the "Related Agreement"). For the
period June 29, 1999 to October 31, 1999, the principal
activities for which amounts were payable under the 12b-1
Plan were fulfillment of requests for Fund prospectuses and
distribution fees. The 12b-1 Plan is a "reimbursement" plan,
which means that the fees paid by the Fund are intended as
reimbursement for services rendered up to the maximum
allowable fee. If more money for services rendered is
due than is immediately payable because of the expense
limitation under the 12b-1 Plan, the unpaid amount is
carried forward from period to period while the 12b-1
Plan is in effect until such time as it may be paid.
No interest, carrying or other forward charge will be
borne by the Fund with respect to unpaid amounts
carried forward. The 12b-1 Plan has the effect of
increasing the Fund's expenses from what they would
otherwise be. The Board of Directors reviews the
Fund's distribution and shareholder servicing fee
payments in connection with its determination as to the
continuance of the 12b-1 Plan.
The 12b-1 Plan, including forms of Related
Agreements, was initially adopted by a unanimous vote
of a majority of the Board of Directors of the
Corporation, and of the members of the Board who are
not "interested persons" of the Corporation as defined
in the 1940 Act and who have no direct or indirect
financial interest in the operation of the 12b-1 Plan
or any Related Agreements (the "Disinterested
Directors") voting separately. The 12b-1 Plan, and any
Related Agreement which is entered into, provide that
they will continue in effect for a period of more than
one year only so long as their continuance is
specifically approved at least annually by a vote of a
majority of the Corporation's Board of Directors and of
the Disinterested Directors, cast in person at a
meeting called for the purpose of voting on the 12b-1
Plan or the Related Agreement, as applicable. The
continuance of the 12b-1 Plan and the Related Agreement
was approved by a vote of a majority of the
Corporation's Board of Directors and of the
Disinterested Directors at a meeting held on December
10, 1999. In addition, the 12b-1 Plan and any Related
Agreement may be terminated at any time, without
penalty, by vote of a majority of the outstanding
voting securities of the Fund, or by vote of a majority
of Disinterested Directors (on not more than 60 days'
written notice in the case of the Related Agreement
only). Payment of the distribution and shareholder
servicing fee is to be made monthly. The Distributor
and/or Recipients will provide reports or invoices to
the Corporation of all amounts payable to them (and the
purposes for which the amounts were expended) pursuant
to the 12b-1 Plan.
Interests of Certain Persons
With the exception of the Adviser, in its capacity
as the Fund's investment adviser, and the Distributor,
in its capacity as principal distributor of Fund
shares, no "interested person" of the Fund, as defined
in the 1940 Act, and no director of the Fund who is not
an "interested person" has or had a direct or indirect
financial interest in the 12b-1 Plan or any Related
Agreement.
Anticipated Benefits to the Fund
The Board of Directors considered various factors
in connection with its decision to adopt and approve
the continuance of the 12b-1 Plan, including: (a) the
nature and causes of the circumstances which make
implementation of the 12b-1 Plan necessary and
appropriate; (b) the way in which the 12b-1 Plan would
address those circumstances, including the nature and
potential amount of expenditures; (c) the nature of the
anticipated benefits; (d) the merits of possible
alternative plans or pricing structures; (e) the
relationship of the 12b-1 Plan to other distribution
efforts of the Fund; and (f) the possible benefits of
the 12b-1 Plan to any other person relative to those of
the Fund.
Based upon its review of the foregoing factors and
the material presented to it, and in light of its
fiduciary duties under relevant state law and the 1940
Act, the Board of Directors determined, in the exercise
of its business judgment, that the 12b-1 Plan was
reasonably likely to benefit the Fund and its
shareholders in at least one or several potential ways.
Specifically, the Board concluded that the Distributor
and any Recipients operating under Related Agreements
would have little or no incentive to incur promotional
expenses on behalf of the Fund if a 12b-1 Plan were not
in place to reimburse them, thus making the adoption of
such 12b-1 Plan important to the initial success and
thereafter, continued viability of the Fund. In
addition, the Board determined that the payment of
distribution fees to these persons should motivate them
to provide an enhanced level of service to Fund
shareholders, which would benefit such shareholders.
Finally, the adoption and continuance of the 12b-1 Plan
would help to increase net assets under
<PAGE>
management in a
relatively short amount of time, given the marketing
efforts on the part of the Distributor and Recipients
to sell Fund shares, which should result in certain
economies of scale.
While there is no assurance that the expenditure
of Fund assets to finance distribution of Fund shares
will have the anticipated results, the Board of
Directors believes there is a reasonable likelihood
that one or more of such benefits will result, and
since the Board will be in a position to monitor the
distribution and shareholder servicing expenses of the
Fund, it will be able to evaluate the benefit of such
expenditures in deciding whether to continue the 12b-1
Plan.
PURCHASE, EXCHANGE AND PRICING OF SHARES
Letter of Intent
The Fund's Letter of Intent ("LOI") allows for
reduction of the Fund's initial sales charge when
multiple purchases of Fund shares are combined by
taking advantage of the breakpoints in the sales charge
schedule. By completing the LOI application, you
express an intention to invest during the next 12-month
period a specified amount (minimum of at least $50,000)
which, if made at one time, would qualify for a reduced
sales charge.
Any shares you own on the date you execute the LOI
may be used as a credit toward the completion of the
LOI. However, the reduced sales charge will only be
applied to new purchases. Any redemptions made during
the 12-month period will be subtracted from the amount
of the purchases for purposes of determining whether
the terms of the LOI have been satisfied. If, at the
end of the 12-month period covered by the LOI, the
total amount of purchases (less redemptions) does not
equal the amount indicated, you will be required to pay
the difference between the sales charge paid at the
reduced rate and the sales charge applicable to the
purchases actually made. Shares equal to 5% of the
amount specified in the LOI will be held in escrow
during the 12-month period and are subject to
involuntary redemption to assure any payment of a
higher applicable sales charge.
By signing the LOI application, you grant to the
Distributor a security interest in the reserved shares
and appoint the Distributor as attorney-in-fact to sell
any or all of the reserved shares to cover any
additional sales charges if you do not fulfill your
undertaking. Signing the LOI application does not bind
you to purchase the full amount indicated, but you must
complete the intended purchase in accordance with the
terms of the LOI to obtain the reduced sales charge.
For more information on the LOI, please contact your
investment professional, the Distributor or Firstar.
Right of Accumulation
The Fund's Right of Accumulation ("ROA") program
also allows for reduction of the Fund's initial sales
charge when multiple purchases of Fund shares are
combined by taking advantage of the breakpoints in the
sales charge schedule. Using the ROA, you may purchase
Fund shares at the sales charge applicable to the sum
of (i) the dollar amount then being purchased, plus
(ii) the current market value (calculated at the
maximum Offering Price) of all Fund shares already held
by you, your spouse and your minor children or you and
members of a "qualified group." A "qualified group" is
one that was formed at least one year prior to the ROA
purchase, has a purpose other than buying Fund shares
at a discount, has more than 10 members, can arrange
meetings between the Distributor and group members,
agrees to include Fund literature in mailings to its
members, agrees to arrange for payroll deductions or
other bulk transmissions of investment to the Fund and
meets other uniform criteria that allow the Distributor
to achieve cost savings in distributing shares of the
Fund. To receive the ROA, at the time of purchase, you
must give your investment professional, the Distributor
or Firstar, the Fund's transfer agent, sufficient
information to determine whether the purchase will
qualify for a reduced sales charge.
Automatic Investment Plan
The Automatic Investment Plan ("AIP") allows you
to make regular, systematic investments in the Fund
from your bank checking or NOW account. You must meet
the Fund's minimum initial investment of $5,000 before
the AIP may be established. To establish the AIP,
complete the appropriate section in the shareholder
application.
<PAGE>
Under the AIP, you may choose to make monthly
investments on the days of your choosing (or the next
business day thereafter) from your financial
institution in amounts of $500 or more. There is no
service fee for participating in the AIP. However, a
service fee of $25 will be deducted from your Fund
account for any AIP purchase that does not clear due to
insufficient funds or, if prior to notifying the Fund
in writing or by telephone of your intention to
terminate the plan, you close your bank account or in
any manner prevent withdrawal of funds from the
designated checking or NOW account. You can set up the
AIP with any financial institution that is a member of
Automated Clearing House.
The AIP is a method of using dollar cost averaging
which is an investment strategy that involves investing
a fixed amount of money at a regular time interval.
However, a program of regular investment cannot ensure
a profit or protect against a loss from declining
markets. By always investing the same amount, you will
be purchasing more shares when the price is low and
fewer shares when the price is high. Since such a
program involves continuous investment regardless of
fluctuating share values, you should consider your
financial ability to continue the program through
periods of low share price levels.
Individual Retirement Accounts
In addition to purchasing Fund shares as described
in the Prospectus under "How to Purchase Shares,"
individuals may establish their own tax-sheltered
individual retirement accounts ("IRAs"). The Fund
offers three types of IRAs, including the Traditional
IRA, that can be adopted by executing the appropriate
Internal Revenue Service ("IRS") Form.
Traditional IRA. In a Traditional IRA, amounts
contributed to the IRA may be tax deductible at the
time of contribution depending on whether the investor
is an "active participant" in an employer-sponsored
retirement plan and the investor's income.
Distributions from a Traditional IRA will be taxed at
distribution except to the extent that the distribution
represents a return of the investor's own contributions
for which the investor did not claim (or was not
eligible to claim) a deduction. Distributions prior to
age 59-1/2 may be subject to an additional 10% tax
applicable to certain premature distributions.
Distributions must commence by April 1 following the
calendar year in which the investor attains age 70-1/2.
Failure to begin distributions by this date (or
distributions that do not equal certain minimum
thresholds) may result in adverse tax consequences.
Roth IRA. In a Roth IRA, amounts contributed to
the IRA are taxed at the time of contribution, but
distributions from the IRA are not subject to tax if
the investor has held the IRA for certain minimum
periods of time (generally, until age 59-1/2).
Investors whose income exceeds certain limits are
ineligible to contribute to a Roth IRA. Distributions
that do not satisfy the requirements for tax-free
withdrawal are subject to income taxes (and possibly
penalty taxes) to the extent that the distribution
exceeds the investor's contributions to the IRA. The
minimum distribution rules applicable to Traditional
IRAs do not apply during the lifetime of the investor.
Following the death of the investor, certain minimum
distribution rules apply.
The minimum initial investment for Traditional and
Roth IRAs is $1,000. For Traditional and Roth IRAs,
the maximum annual contribution generally is equal to
the lesser of $2,000 or 100% of the investor's
compensation (earned income). An individual may also
contribute to a Traditional IRA or Roth IRA on behalf
of his or her spouse provided that the individual has
sufficient compensation (earned income). Contributions
to a Traditional IRA reduce the allowable contributions
under a Roth IRA, and contributions to a Roth IRA
reduce the allowable contribution to a Traditional IRA.
Education IRA. In an Education IRA, amounts
contributed to the IRA are taxed at the time of
contribution, but distributions from the IRA are not
subject to tax if they do not exceed the beneficiary's
"qualified higher education expenses" or are rolled
over into another Education IRA. Investors whose
income exceeds certain limits are ineligible to
contribute to an Education IRA. Distributions that do
not satisfy the requirements for tax-free withdrawal
are subject to income taxes (and possibly penalty
taxes) to the extent they exceed "qualified higher
education expenses." Distributions from an Education
IRA may be rolled over into another beneficiary's
Education IRA prior to the date the beneficiary to whom
the distribution was made attains the age of 30.
Within 30 days after the beneficiary of an Education
IRA attains the age of 30, distribution of the IRA must
be made. Following the death of a beneficiary, the
Education IRA must be rolled over on a nontaxable basis
or distributed on a taxable basis. The minimum initial
investment for Education IRAs is $500.
<PAGE>
Under current IRS regulations, all IRA applicants
must be furnished a disclosure statement containing
information specified by the IRS. Applicants generally
have the right to revoke their account within seven
days after receiving the disclosure statement and
obtain a full refund of their contributions. Firstar
Bank, the Fund's custodian, may, in its discretion,
hold the initial contribution uninvested until the
expiration of the seven-day revocation period. Firstar
Bank does not anticipate that it will exercise its
discretion but reserves the right to do so.
Systematic Withdrawal Plan
Shareholders may set up automatic withdrawals from
their Fund accounts at regular intervals. To begin
distributions, a shareholder's account must have an
initial balance of $10,000 and at least $50 per payment
must be withdrawn. To establish the systematic
withdrawal plan ("SWP"), the appropriate section in the
shareholder application must be completed. Redemptions
will take place on a monthly, quarterly, semi-annual or
annual basis (or the following business day) as
indicated on the shareholder application. The amount
or frequency of withdrawal payments may be varied or
temporarily discontinued by calling 1-888-463-3957.
Depending upon the size of the account and the
withdrawals requested (and fluctuations in the net
asset value of the shares redeemed), redemptions for
the purpose of satisfying such withdrawals may reduce
or even exhaust a shareholder's account. If the amount
remaining in a shareholder's account is not sufficient
to meet a plan payment, the remaining amount will be
redeemed and the SWP will be terminated.
Money Market Exchange
As a service to our shareholders, the Fund has
established a program whereby our shareholders can
exchange shares of the Fund for shares of the Firstar
Money Market Fund (the "Firstar Fund"). Exchange
requests are available for exchanges of $1,000 or more.
The Firstar Fund is a no-load money market fund managed
by an affiliate of Firstar. The Firstar Fund is
unrelated to the Corporation or the Fund. However, the
Distributor may be compensated by the Firstar Fund for
servicing and related services provided in connection
with exchanges made by shareholders of the Fund. This
exchange privilege is a convenient way to buy shares in
a money market fund in order to respond to changes in
your goals or in market conditions. Before exchanging
into the Firstar Fund, please read the prospectus,
which may be obtained by calling 1-888-463-3957. There
is no charge for written exchange requests. Firstar
will, however, charge a $5 fee for each exchange
transaction that is executed via the telephone.
An exchange from the Fund to the Firstar Fund is
treated the same as an ordinary sale and purchase for
federal income tax purposes and you will realize a
capital gain or loss. An exchange is not a tax-free
transaction.
Offering Price
Shares of the Fund are sold on a continual basis
at the Offering Price, which is the sum of the net
asset value per share next computed following receipt
of an order in proper form by a dealer, the Distributor
or Firstar, the Fund's transfer agent and the
applicable sales charge. The sales charge may be
waived for certain investors. Sales charge waivers are
available to these individuals because sales of Fund
shares to these individuals do not require the selling
efforts of brokers or other financial intermediaries.
For more information, please see "How to Purchase
Shares" in the prospectus. The Fund calculates of the
Offering Price as follows (based on the Fund's net
asset value and outstanding securities as of October 31, 1999):
Net assets $1,448,439
Shares outstanding 127,148
Net asset value per share $11.39
Maximum sales charge (4.75% of offering price per share) 0.57
Maximum offering price per share $11.96
The net asset value per share is determined as of
the close of regular trading (generally 4:00 p.m.
Eastern Standard Time) on each day the New York Stock
Exchange (the "NYSE") is open for business. Purchase
orders received or shares tendered for redemption on a
day the NYSE is open for trading, prior to the close of
trading on that day, will be valued as of the close of
trading on that day. Applications for purchase of
shares and requests for redemption of shares received
after the close of trading on the NYSE will be valued
as of the close of trading on the
<PAGE>
next day the NYSE is
open. The Fund's net asset value may not be calculated
on days during which the Fund receives no orders to
purchase shares and no shares are tendered for
redemption. Net asset value is calculated by taking
the fair value of the Fund's total assets, including
interest or dividends accrued, but not yet collected,
less all liabilities, and dividing by the total number
of shares outstanding. The result, rounded to the
nearest cent, is the net asset value per share.
In determining net asset value, expenses are
accrued and applied daily and securities and other
assets for which market quotations are available are
valued at market value. Common stocks and other equity-
type securities are valued at the last sales price on
the national securities exchange or NASDAQ on which
such securities are primarily traded; however,
securities traded on a national securities exchange or
NASDAQ for which there were no transactions on a given
day, and securities not listed on a national securities
exchange or NASDAQ, are valued at the average of the
most recent bid and asked prices. Fixed income
securities are valued by a pricing service that
utilizes electronic data processing techniques to
determine values for normal institutional-sized trading
units of fixed income securities without regard to sale
or bid prices when such values are believed to more
accurately reflect the fair market value of such
securities; otherwise, actual sale or bid prices are
used. Any securities or other assets for which market
quotations are not readily available are valued at fair
value as determined in good faith by the Board of
Directors of the Corporation. The Board of Directors
may approve the use of pricing services to assist the
Fund in the determination of net asset value. Fixed
income securities having remaining maturities of 60
days or less when purchased are generally valued by the
amortized cost method. Under this method of valuation,
a security is initially valued at its acquisition cost
and, thereafter, amortization of any discount or
premium is assumed each day, regardless of the impact
of fluctuating interest rates on the market value of
the security.
REDEMPTIONS IN KIND
The Fund has filed a Notification under Rule 18f-1
of the 1940 Act, pursuant to which it has agreed to pay
in cash all requests for redemption by any shareholder
of record, limited in amount with respect to each
shareholder during any 90-day period to the lesser
amount of (i) $250,000 or (ii) 1% of the Fund's net
asset value, valued at the beginning of the election
period. The Fund intends also to pay redemption
proceeds in excess of such lesser amount in cash, but
reserves the right to pay such excess amount in kind,
if it is deemed to be in the best interests of the Fund
to do so. If you receive an in kind distribution, you
will likely incur a brokerage charge on the disposition
of such securities through a securities dealer.
TAXATION OF THE FUND
The Fund will not be liable for federal income
taxes because it intends to (i) qualify as a "regulated
investment company" under Subchapter M of the Code and
(ii) distribute to its shareholders substantially all
of its taxable income. In the event the Fund fails to
qualify as a "regulated investment company," it will be
treated as a regular corporation for federal income tax
purposes. Accordingly, the Fund would be subject to
federal income taxes and any distributions that it
makes would be taxable and non-deductible by the Fund.
This would increase the cost of investing in the Fund
for shareholders and would make it more economical for
shareholders to invest directly in securities held by
the Fund instead of investing indirectly in such
securities through the Fund.
PERFORMANCE INFORMATION
The Fund's historical performance or return may be
shown in the form of various performance figures. The
Fund's performance figures are based upon historical
results and are not necessarily representative of
future performance. Factors affecting the Fund's
performance include general market conditions,
operating expenses and investment management.
Total Return
The average annual total return of the Fund is
computed by finding the average annual compounded rates
of return over the periods that would equate the
initial amount invested to the ending redeemable value,
according to the following formula:
<PAGE>
P(1+T)n = ERV
P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of the stated periods
at the end of the stated periods.
Performance for a specific period is calculated by
first taking an investment (assumed to be $1,000)
("initial investment") in the Fund's shares on the
first day of the period and computing the "ending
value" of that investment at the end of the period.
The total return percentage is then determined by
subtracting the initial investment from the ending
value and dividing the remainder by the initial
investment and expressing the result as a percentage.
The calculation assumes that the maximum initial sales
charge of 4.75% is deducted and that all income and
capital gains dividends paid by the Fund have been
reinvested at the net asset value of the Fund on the
reinvestment dates during the period. Total return may
also be shown as the increased dollar value of the
hypothetical investment over the period.
Cumulative total return represents the simple
change in value of an investment over a stated period
and may be quoted as a percentage or as a dollar
amount. Total returns may be broken down into their
components of income and capital (including capital
gains and changes in share price) in order to
illustrate the relationship between these factors and
their contributions to total return.
Comparisons
From time to time, in marketing and other Fund
literature, the Fund's performance may be compared to
the performance of other mutual funds in general or to
the performance of particular types of mutual funds
with similar investment goals, as tracked by
independent organizations. Among these organizations,
Lipper Analytical Services, Inc. ("Lipper"), a widely
used independent research firm which ranks mutual funds
by overall performance, investment objectives and
assets, may be cited. Lipper performance figures are
based on changes in net asset value, with all income
and capital gains dividends reinvested. Such
calculations do not include the effect of any sales
charges imposed by other funds. The Fund will be
compared to Lipper's appropriate fund category, that
is, by fund objective and portfolio holdings.
The Fund's performance may also be compared to the
performance of other mutual funds by Morningstar, Inc.
("Morningstar"), which ranks funds on the basis of
historical risk and total return. Morningstar's
rankings range from five stars (highest) to one star
(lowest) and represent Morningstar's assessment of the
historical risk level and total return of a fund as a
weighted average for 3, 5 and 10 year periods.
Rankings are not absolute or necessarily predictive of
future performance.
Evaluations of Fund performance made by
independent sources may also be used in advertisements
concerning the Fund, including reprints of or
selections from, editorials or articles about the Fund.
Sources for Fund performance and articles about the
Fund may include publications such as Money, Forbes,
Kiplinger's, Financial World, Business Week, U.S. News
and World Report, the Wall Street Journal, Barron's and
a variety of investment newsletters.
The Fund may compare its performance to a wide
variety of indices and measures of inflation including
the Standard & Poor's Index of 500 Stocks, the NASDAQ
Over-the-Counter Composite Index and the Russell 2000
Index. There are differences and similarities between
the investments that the Fund may purchase for its
portfolio and the investments measured by these
indices.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 100 East Wisconsin
Avenue, Suite 1500, Milwaukee, Wisconsin 53202,
independent accountants for the Fund, audit and report
on the Fund's financial statements.
<PAGE>
FINANCIAL STATEMENTS
The following audited financial statements of the
Fund are incorporated herein by reference to the Fund's
Annual Report for the period from June 29, 1999
(commencement of operations) to October 31, 1999, as
filed with the Securities and Exchange Commission on
January 5, 2000:
(a) Report of Independent Accountants.
(b) Schedule of Investments as of October 31, 1999.
(c) Statement of Assets and Liabilities as of October 31, 1999.
(d) Statement of Operations for the period June 29, 1999
(commencement of operations) to October 31, 1999.
(e) Statement of Changes in Net Assets for the period
June 29, 1999 (commencement of operations) to October 31, 1999.
(f) Financial Highlights for the period June 29, 1999
(commencement of operations) to October 31, 1999.
(g) Notes to the Financial Statements.
<PAGE>
APPENDIX
SHORT-TERM RATINGS
Standard & Poor's Short-Term Debt Credit Ratings
A Standard & Poor's credit rating is a current
opinion of the creditworthiness of an obligor with
respect to a specific financial obligation, a specific
class of financial obligations or a specific financial
program. It takes into consideration the
creditworthiness of guarantors, insurers or other forms
of credit enhancement on the obligation and takes into
account the currency in which the obligation is
denominated. The credit rating is not a recommendation
to purchase, sell or hold a financial obligation,
inasmuch as it does not comment as to market price or
suitability for a particular investor.
Credit ratings are based on current information
furnished by the obligors or obtained by Standard &
Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in
connection with any credit rating and may, on occasion,
rely on unaudited financial information. Credit
ratings may be changed, suspended or withdrawn as a
result of changes in, or unavailability of, such
information, or based on other circumstances.
Short-term ratings are generally assigned to those
obligations considered short-term in the relevant
market. In the U.S., for example, that means
obligations with an original maturity of no more than
365 days-including commercial paper. Short-term
ratings are also used to indicate the creditworthiness
of an obligor with respect to put features on long-term
obligations. The result is a dual rating, in which the
short-term rating addresses the put feature, in
addition to the usual long-term rating.
Ratings are graded into several categories,
ranging from `A-1' for the highest quality obligations
to `D' for the lowest. These categories are as
follows:
A-1 A short-term obligation rated `A-1' is rated
in the highest category by Standard & Poor's.
The obligor's capacity to meet its financial
commitment on the obligation is strong.
Within this category, certain obligations are
designated with a plus sign (+). This
indicates that the obligor's capacity to meet
its financial commitment on these obligations
is extremely strong.
A-2 A short-term obligation rated `A-2' is
somewhat more susceptible to the adverse
effects of changes in circumstances and
economic conditions than obligations in
higher rating categories. However, the
obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
A-3 A short-term obligation rated `A-3' exhibits
adequate protection parameters. However,
adverse economic conditions or changing
circumstances are more likely to lead to a
weakened capacity of the obligor to meet its
financial commitment on the obligation.
B A short-term obligation rated `B' is regarded
as having significant speculative
characteristics. The obligor currently has
the capacity to meet its financial commitment
on the obligation; however, it faces major
ongoing uncertainties which could lead to the
obligor's inadequate capacity to meet its
financial commitment on the obligation.
C A short-term obligation rated `C' is
currently vulnerable to nonpayment and is
dependent upon favorable business, financial
and economic conditions for the obligor to
meet its financial commitment on the
obligation.
D A short-term obligation rated `D' is in
payment default. The `D' rating category is
used when payments on an obligation are not
made on the date due even if the applicable
grace period has not expired, unless Standard
& Poor's believes that such payments will be
made during such grace period. The `D'
rating also will be used upon the filing of a
bankruptcy petition or the taking of a
similar action if payments on an obligation
are jeopardized.
Moody's Short-Term Debt Ratings
Moody's short-term debt ratings are opinions of
the ability of issuers to repay punctually senior debt
obligations. These obligations have an original
maturity not exceeding one year, unless explicitly
noted. Moody's ratings are opinions, not
recommendations to buy or sell, and their accuracy is
not guaranteed.
<PAGE>
Moody's employs the following three designations,
all judged to be investment grade, to indicate the
relative repayment ability of rated issuers:
PRIME-1 Issuers rated `Prime-1' (or supporting
institutions) have a superior ability for
repayment of senior short-term debt
obligations. Prime-1 repaying ability will
often be evidenced by many of the following
characteristics:
* Leading market positions in well-established
industries.
* High rates of return on funds employed.
* Conservative capitalization structure with
moderate reliance on debt and ample asset protection.
* Broad margins in earnings coverage of fixed
financial charges and high internal cash generation.
* Well-established access to a range of financial
markets and assured sources of alternate liquidity.
PRIME-2 Issuers rated `Prime-2' (or supporting
institutions) have a strong ability for
repayment of senior short-term debt
obligations. This will normally be evidenced
by many of the characteristics cited above,
but to a lesser degree. Earnings trends and
coverage ratios, while sound, may be more
subject to variation. Capitalization
characteristics, while still appropriate, may
be more affected by external conditions.
Ample alternate liquidity is maintained.
PRIME-3 Issuers rated `Prime-3' (or supporting
institutions) have an acceptable ability for
repayment of senior short-term obligations.
The effect of industry characteristics and
market compositions may be more pronounced.
Variability in earnings and profitability may
result in changes in the level of debt
protection measurements and may require
relatively high financial leverage. Adequate
alternate liquidity is maintained.
NOT PRIME Issuers rated `Not Prime' do not fall within
any of the Prime rating categories.
Fitch IBCA International Short-Term Debt Credit Ratings
Fitch IBCA's international debt credit ratings are
applied to the spectrum of corporate, structured and
public finance. They cover sovereign (including
supranational and subnational), financial, bank,
insurance and other corporate entities and the
securities they issue, as well as municipal and other
public finance entities, securities backed by
receivables or other financial assets and
counterparties. When applied to an entity, these short-
term ratings assess its general creditworthiness on a
senior basis. When applied to specific issues and
programs, these ratings take into account the relative
preferential position of the holder of the security and
reflect the terms, conditions and covenants attaching
to that security.
International credit ratings assess the capacity
to meet foreign currency or local currency commitments.
Both "foreign currency" and "local currency" ratings
are internationally comparable assessments. The local
currency rating measures the probability of payment
within the relevant sovereign state's currency and
jurisdiction and therefore, unlike the foreign currency
rating, does not take account of the possibility of
foreign exchange controls limiting transfer into
foreign currency.
A short-term rating has a time horizon of less
than 12 months for most obligations, or up to three
years for U.S. public finance securities, and thus
places greater emphasis on the liquidity necessary to
meet financial commitments in a timely manner.
F-1 Highest credit quality. Indicates the
strongest capacity for timely payment of
financial commitments; may have an added "+"
to denote any exceptionally strong credit
feature.
F-2 Good credit quality. A satisfactory capacity
for timely payment of financial commitments,
but the margin of safety is not as great as
in the case of the higher ratings.
F-3 Fair credit quality. The capacity for timely
payment of financial commitments is adequate;
however, near term adverse changes could
result in a reduction to non-investment
grade.
<PAGE>
B Speculative. Minimal capacity for timely
payment of financial commitments, plus
vulnerability to near term adverse changes in
financial and economic conditions.
C High default risk. Default is a real
possibility. Capacity for meeting financial
commitments is solely reliant upon a
sustained, favorable business and economic
environment.
D Default. Denotes actual or imminent payment default.
Duff & Phelps, Inc. Short-Term Debt Ratings
Duff & Phelps Credit Ratings' short-term debt
ratings are consistent with the rating criteria used by
money market participants. The ratings apply to all
obligations with maturities of under one year,
including commercial paper, the uninsured portion of
certificates of deposit, unsecured bank loans, master
notes, bankers acceptances, irrevocable letters of
credit and current maturities of long-term debt. Asset-
backed commercial paper is also rated according to this
scale.
Emphasis is placed on liquidity which is defined
as not only cash from operations, but also access to
alternative sources of funds including trade credit,
bank lines and the capital markets. An important
consideration is the level of an obligor's reliance on
short-term funds on an ongoing basis.
The distinguishing feature of Duff & Phelps Credit
Ratings' short-term debt ratings is the refinement of
the traditional `1' category. The majority of short-
term debt issuers carry the highest rating, yet quality
differences exist within that tier. As a consequence,
Duff & Phelps Credit Rating has incorporated gradations
of `1+' (one plus) and `1-` (one minus) to assist
investors in recognizing those differences.
These ratings are recognized by the SEC for broker-
dealer requirements, specifically capital computation
guidelines. These ratings meet Department of Labor
ERISA guidelines governing pension and profit sharing
investments. State regulators also recognize the
ratings of Duff & Phelps Credit Rating for insurance
company investment portfolios.
Rating Scale: Definition
High Grade
D-1+ Highest certainty of timely payment. Short-
term liquidity, including internal operating
factors and/or access to alternative sources
of funds, is outstanding, and safety is just
below risk-free U.S. Treasury short-term
obligations.
D-1 Very high certainty of timely payment.
Liquidity factors are excellent and supported
by good fundamental protection factors. Risk
factors are minor.
D-1- High certainty of timely payment. Liquidity
factors are strong and supported by good
fundamental protection factors. Risk factors
are very small.
Good Grade
D-2 Good certainty of timely payment. Liquidity
factors and company fundamentals are sound.
Although ongoing funding needs may enlarge
total financing requirements, access to
capital markets is good. Risk factors are
small.
Satisfactory Grade
D-3 Satisfactory liquidity and other protection
factors qualify issue as to investment grade.
Risk factors are larger and subject to more
variation. Nevertheless, timely payment is
expected.
Non-investment Grade
D-4 Speculative investment characteristics.
Liquidity is not sufficient to insure against
disruption in debt service. Operating
factors and market access may be subject to a
high degree of variation.
Default
<PAGE>
D-5 Issuer failed to meet scheduled principal
and/or interest payments.
LONG-TERM RATINGS
Standard & Poor's Long-Term Debt Credit Ratings
A Standard & Poor's credit rating is a current
opinion of the creditworthiness of an obligor with
respect to a specific financial obligation, a specific
class of financial obligations or a specific financial
program. It takes into consideration the
creditworthiness of guarantors, insurers or other forms
of credit enhancement on the obligation and takes into
account the currency in which the obligation is
denominated. The credit rating is not a recommendation
to purchase, sell or hold a financial obligation,
inasmuch as it does not comment as to market price or
suitability for a particular investor.
Credit ratings are based on current information
furnished by the obligors or obtained by Standard &
Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in
connection with any credit rating and may, on occasion,
rely on unaudited financial information. Credit
ratings may be changed, suspended or withdrawn as a
result of changes in, or unavailability of, such
information, or based on other circumstances.
Credit ratings are based, in varying degrees, on
the following considerations: (1) likelihood of
payment-capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance
with the terms of the obligation; (2) nature of and
provisions of the obligation; and (3) protection
afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization or other
arrangement under the laws of bankruptcy and other laws
affecting creditors' rights.
The rating definitions are expressed in terms of
default risk. As such, they pertain to senior
obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to
reflect the lower priority in bankruptcy. (Such
differentiation applies when an entity has both senior
and subordinated obligations, secured and unsecured
obligations, or operating company and holding company
obligations.) Accordingly, in the case of junior debt,
the rating may not conform exactly with the category
definition.
AAA An obligation rated `AAA' has the highest
rating assigned by Standard & Poor's. The
obligor's capacity to meet its financial
commitment on the obligation is EXTREMELY
STRONG.
AA An obligation rated `AA' differs from the
highest rated obligations only in small
degree. The obligor's capacity to meet its
financial commitment on the obligation is
VERY STRONG.
A An obligation rated `A' is somewhat more
susceptible to the adverse effects of changes
in circumstances and economic conditions than
obligations in higher rated categories.
However, the obligor's capacity to meet its
financial commitment on the obligation is
still STRONG.
BBB An obligation rated `BBB' exhibits ADEQUATE
protection parameters. However, adverse
economic conditions or changing circumstances
are more likely to lead to a weakened
capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated `BB', `B', `CCC, `CC', and `C'
are regarded as having significant speculative
characteristics. `BB' indicates the least degree of
speculation and `C' the highest. While such
obligations will likely have some quality and
protective characteristics, these may be outweighed by
large uncertainties or major exposures to adverse
conditions.
BB An obligation rated `BB' is LESS VULNERABLE
to nonpayment than other speculative issues.
However, it faces major ongoing uncertainties
or exposure to adverse business, financial or
economic conditions which could lead to the
obligor's inadequate capacity to meet its
financial commitment on the obligation.
B An obligation rated `B' is MORE VULNERABLE to
nonpayment than obligations rated `BB', but
the obligor currently has the capacity to
meet its financial commitment on the
obligation. Adverse business, financial or
economic conditions will likely impair the
obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC An obligation rated `CCC' is CURRENTLY
VULNERABLE to nonpayment, and is dependent
upon favorable business, financial and
economic conditions for the obligor to meet
its financial
<PAGE>
commitment on the obligation.
In the event of adverse business, financial
or economic conditions, the obligor is not
likely to have the capacity to meet its
financial commitment on the obligation.
CC An obligation rated `CC' is CURRENTLY HIGHLY
VULNERABLE to nonpayment.
C The `C' rating may be used to cover a
situation where a bankruptcy petition has
been filed or similar action has been taken,
but payments on this obligation are being
continued.
D An obligation rated `D' is in payment
default. The `D' rating category is used
when payments on an obligation are not made
on the date due even if the applicable grace
period has not expired, unless Standard &
Poor's believes that such payments will be
made during such grace period. The `D'
rating also will be used upon the filing of a
bankruptcy petition or the taking of a
similar action if payments on an obligation
are jeopardized.
Plus (+) or minus (-): The ratings from `AA' to
`CCC' may be modified by the addition of a plus or
minus sign to show relative standing within the major
rating categories.
Moody's Long-Term Debt Ratings
Aaa Bonds which are rated `Aaa' are judged to be
of the best quality. They carry the smallest
degree of investment risk and are generally
referred to as "gilt edged." Interest
payments are protected by a large or by an
exceptionally stable margin and principal is
secure. While the various protective
elements are likely to change, such changes
as can be visualized are most unlikely to
impair the fundamentally strong position of
such issues.
Aa Bonds which are rated `Aa' are judged to be
of high quality by all standards. Together
with the Aaa group they comprise what are
generally known as high-grade bonds. They
are rated lower than the best bonds because
margins of protection may not be as large as
in Aaa securities or fluctuation of
protective elements may be of greater
amplitude or there may be other elements
present which make the long-term risk appear
somewhat larger than Aaa securities.
A Bonds which are rated `A' possess many
favorable investment attributes and are to be
considered as upper-medium-grade obligations.
Factors giving security to principal and
interest are considered adequate, but
elements may be present which suggest a
susceptibility to impairment some time in the
future.
Baa Bonds which are rated `Baa' are considered as
medium-grade obligations (i.e., they are
neither highly protected nor poorly secured).
Interest payments and principal security
appear adequate for the present but certain
protective elements may be lacking or may be
characteristically unreliable over any great
length of time. Such bonds lack outstanding
investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds which are rated `Ba' are judged to have
speculative elements; their future cannot be
considered as well-assured. Often the
protection of interest and principal payments
may be very moderate, and thereby not well
safeguarded during both good and bad times
over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated `B' generally lack
characteristics of the desirable investment.
Assurance of interest and principal payments
or of maintenance of other terms of the
contract over any long period of time may be
small.
Caa Bonds which are rated `Caa' are of poor
standing. Such issues may be in default or
there may be present elements of danger with
respect to principal or interest.
Ca Bonds which are rated `Ca' represent
obligations which are speculative in a high
degree. Such issues are often in default or
have other marked shortcomings.
C Bonds which are rated `C' are the lowest
rated class of bonds, and issues so rated can
be regarded as having extremely poor
prospects of ever attaining any real
investment standing.
<PAGE>
Moody's applies numerical modifiers 1, 2 and 3 in
each generic rating classification from `Aa' through
`B.' The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category;
the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates a ranking in the lower end of that
generic rating category.
Fitch IBCA International Long-Term Debt Credit Ratings
Fitch IBCA's international debt credit ratings are
applied to the spectrum of corporate, structured and
public finance. They cover sovereign (including
supranational and subnational), financial, bank,
insurance and other corporate entities and the
securities they issue, as well as municipal and other
public finance entities, securities backed by
receivables or other financial assets and
counterparties. When applied to an entity, these long-
term ratings assess its general creditworthiness on a
senior basis. When applied to specific issues and
programs, these ratings take into account the relative
preferential position of the holder of the security and
reflect the terms, conditions and covenants attaching
to that security.
International credit ratings assess the capacity
to meet foreign currency or local currency commitments.
Both "foreign currency" and "local currency" ratings
are internationally comparable assessments. The local
currency rating measures the probability of payment
within the relevant sovereign state's currency and
jurisdiction and therefore, unlike the foreign currency
rating, does not take account of the possibility of
foreign exchange controls limiting transfer into
foreign currency.
Investment Grade
AAA Highest credit quality. `AAA' ratings
denote the lowest expectation of credit
risk. They are assigned only in case of
exceptionally strong capacity for timely
payment of financial commitments. This
capacity is highly unlikely to be
adversely affected by foreseeable
events.
AA Very high credit quality. `AA' ratings
denote a very low expectation of credit
risk. They indicate very strong
capacity for timely payment of financial
commitments. This capacity is not
significantly vulnerable to foreseeable
events.
A High credit quality. `A' ratings denote
a low expectation of credit risk. The
capacity for timely payment of financial
commitments is considered strong. This
capacity may, nevertheless, be more
vulnerable to changes in circumstances
or in economic conditions than is the
case for higher ratings.
BBB Good credit quality. `BBB' ratings
indicate that there is currently a low
expectation of credit risk. The
capacity for timely payment of financial
commitments is considered adequate, but
adverse changes in circumstances and in
economic conditions are more likely to
impair this capacity. This is the
lowest investment grade category.
Speculative Grade
BB Speculative. `BB' ratings indicate that
there is a possibility of credit risk
developing, particularly as the result
of adverse economic change over time;
however, business or financial
alternatives may be available to allow
financial commitments to be met.
B Highly speculative. `B' ratings
indicate that significant credit risk is
present, but a limited margin of safety
remains. Financial commitments are
currently being met; however, capacity
for continued payment is contingent upon
a sustained, favorable business and
economic environment.
CCC, CC, C High default risk. Default is a
real possibility. Capacity for meeting
financial commitments is solely reliant
upon sustained, favorable business or
economic developments. A `CC' rating
indicates that default of some kind
appears probable. `C' ratings signal
imminent default.
DDD, DD and D Default. Securities are not
meeting current obligations and are
extremely speculative. `DDD' designates
the highest potential for recovery of
amounts outstanding on any
<PAGE>
securities
involved. For U.S. corporates, for
example, `DD' indicates expected
recovery of 50% - 90% of such
outstandings, and `D' the lowest
recovery potential, i.e. below 50%.
Duff & Phelps, Inc. Long-Term Debt Ratings
These ratings represent a summary opinion of the
issuer's long-term fundamental quality. Rating
determination is based on qualitative and quantitative
factors which may vary according to the basic economic
and financial characteristics of each industry and each
issuer. Important considerations are vulnerability to
economic cycles as well as risks related to such
factors as competition, government action, regulation,
technological obsolescence, demand shifts, cost
structure and management depth and expertise. The
projected viability of the obligor at the trough of the
cycle is a critical determination.
Each rating also takes into account the legal form
of the security (e.g., first mortgage bonds,
subordinated debt, preferred stock, etc.). The extent
of rating dispersion among the various classes of
securities is determined by several factors including
relative weightings of the different security classes
in the capital structure, the overall credit strength
of the issuer and the nature of covenant protection.
The Credit Rating Committee formally reviews all
ratings once per quarter (more frequently, if
necessary). Ratings of `BBB-` and higher fall within
the definition of investment grade securities, as
defined by bank and insurance supervisory authorities.
Structured finance issues, including real estate, asset-
backed and mortgage-backed financings, use this same
rating scale. Duff & Phelps Credit Rating claims
paying ability ratings of insurance companies use the
same scale with minor modification in the definitions.
Thus, an investor can compare the credit quality of
investment alternatives across industries and
structural types. A "Cash Flow Rating" (as noted for
specific ratings) addresses the likelihood that
aggregate principal and interest will equal or exceed
the rated amount under appropriate stress conditions.
Rating Scale Definition
AAA Highest credit quality. The risk factors are
negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are
AA strong. Risk is modest but may
AA- vary slightly from time to time because of
economic conditions.
A+ Protection factors are average but adequate.
A However, risk factors are more variable
A- and greater in periods of economic stress.
BBB+ Below-average protection factors but still
BBB considered sufficient for prudent
BBB- investment. Considerable variability in risk
during economic cycles.
BB+ Below investment grade but deemed likely to
BB meet obligations when due.
BB- Present or prospective financial protection
factors fluctuate according to
industry conditions or company fortunes.
Overall quality may move up or
down frequently within this category.
B+ Below investment grade and possessing risk
B that obligations will not be met
B- when due. Financial protection factors will
fluctuate widely according to
economic cycles, industry conditions and/or
company fortunes. Potential
exists for frequent changes in the rating
within this category or into a higher
or lower rating grade.
<PAGE>
CCC Well below investment grade securities.
Considerable uncertainty exists as to
timely payment of principal, interest or
preferred dividends.
Protection factors are narrow and risk can be
substantial with unfavorable
economic/industry conditions, and/or with
unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to
meet scheduled principal and/or
interest payments.
DP Preferred stock with dividend arrearages.
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits
See "Exhibit Index."
Item 24. Persons Controlled by or under Common Control with Registrant
The Registrant neither controls any person nor is
under common control with any other person.
Item 25. Indemnification
Pursuant to the authority of the Maryland
General Corporation Law, particularly Section 2-
418 thereof, the Registrant's Board of Directors
has adopted the following bylaw which is in full
force and effect and has not been modified or
canceled:
ARTICLE VII
GENERAL PROVISIONS
* * *
Section 6.1. Indemnification
The Corporation shall indemnify (a) its directors
and officers, whether serving the Corporation or, at
its request, any other entity, to the full extent
required or permitted by (i) Maryland law now or
hereafter in force, including the advance of expenses
under the procedures and to the full extent permitted
by law, and (ii) the 1940 Act, and (b) other employees
and agents to such extent as shall be authorized by the
Board of Directors and be permitted by law. The
foregoing rights of indemnification shall not be
exclusive of any other rights to which those seeking
indemnification may be entitled. The Board of
Directors may take such action as is necessary to carry
out these indemnification provisions and is expressly
empowered to adopt, approve and amend from time to time
such resolutions or contracts implementing such
provisions or such further indemnification arrangements
as may be permitted by law.
Item 26. Business and Other Connections of the Investment Adviser
In addition to serving as investment adviser to
private accounts and publishing the Light Index and a
related newsletter, the Light Revolution Herald, the
Adviser serves as the managing member of the Light
Index Year 2000 Investment Fund, L.L.C. The Adviser is
not currently and has not during the past two fiscal
years engaged in any other business, profession,
vocation or employment of a substantial nature. John
C. Harrington, the Vice President of the Adviser, has
been the President of Harrington Investments Inc. since
February, 1986 and the Secretary and Treasurer of
WaterHealth International, Inc. since August, 1996.
Information regarding Henry Hewitt and Charles M.
O'Herin is hereby incorporated by reference from the
information contained under the heading "Directors and
Officers" in the SAI.
Item 27. Principal Underwriters
(a) Provident Distributors, Inc. ("Provident"),
the Registrant's principal underwriter, acts
as principal underwriter for the following
investment companies as of January 1, 2000:
International Dollar Reserve Fund I, Ltd.,
Provident Institutional Funds Trust, Pacific
Innovations Trust, Columbia Common Stock
Fund, Inc., Columbia Growth Fund, Inc.,
Columbia International Stock Fund, Inc.,
Columbia Special Fund, Inc., Columbia Small
Cap Fund, Inc., Columbia Real Estate Equity
Fund, Inc., Columbia Balanced Fund, Inc.,
Columbia Daily Income Company, Columbia U.S.
Government Securities Fund, Inc., Columbia
Fixed Income Securities Fund, Inc., Columbia
Municipal Bond Fund, Inc., Columbia High
Yield Fund, Inc., Columbia National Municipal
Bond Fund, Inc., GAMNA Series Funds, Inc., WT
Investment Trust, Kalmar Pooled Investment
Trust, The RBB Fund, Inc., Robertson Stephens
Investment Trust, HT Insight Funds, Inc.,
Harris Insight Funds Trust,
<PAGE>
Hilliard-Lyons
Government Fund, Inc., Hilliard-Lyons Growth
Fund, Inc., Hilliard-Lyons Research Trust,
Senbanc Fund, Warburg Pincus Trust, ABN AMRO
Funds, Alleghany Funds, BT Insurance Funds
Trust, First Choice Funds Trust, Forward
Funds, Inc., IAA Trust Asset Allocation Fund,
Inc., IAA Trust Growth Fund, Inc., IAA Trust
Tax Exempt Bond Fund, Inc., IAA Trust Taxable
Fixed Income Series Fund, Inc., IBJ Funds
Trust, LKCM Funds, Matthews International
Funds, McM Funds, Metropolitan West Funds,
New Covenant Funds, Inc., Panorama Trust,
Smith Breeden Series Funds, Smith Breeden
Trust, Stratton Growth Fund, Inc., Stratton
Monthly Dividend REIT Shares, Inc., The
Stratton Funds, Inc., The Galaxy Fund, The
Galaxy VIP Fund, Galaxy Fund II, The Govett
Funds, Inc., Trainer, Wortham First Mutual
Funds, Undiscovered Managers Funds, Wilshire
Target Funds, Inc., Weiss, Peck & Greer Funds
Trust, Weiss, Peck & Greer International
Fund, WPG Growth and Income Fund, WPG Growth
Fund, WPG Tudor Fund, RWB/WPG U.S. Large
Stock Fund, Tomorrow Funds Retirement Trust,
The BlackRock Funds, Inc. (Distributed by
BlackRock Distributors, Inc., a wholly owned
subsidiary of Provident), Northern Funds
Trust and Northern Institutional Funds Trust
(Distributed by Northern Funds Distributors,
LLC, a wholly owned subsidiary of Provident),
The Offit Investment Fund, Inc. (Distributed
by Offit Funds Distributor, Inc., a wholly
owned subsidiary of Provident), The Offit
Variable Insurance Fund, Inc. (Distributed by
Offit Funds Distributor, Inc., a wholly owned
subsidiary of Provident).
(b) The principal business address of Provident
is Four Falls Corporate Center, 6th Floor,
West Conshohocken, Pennsylvania 19428-2961.
The following information relates to each
director and officer of Provident:
Positions Positions
and Offices and Offices
Name With Underwriter With Registrant
Philip H. Rinnander President & Treasurer None
Jane Haegele 100% Owner, Director None
& Secretary
Jason A. Greim Vice President None
Barbara A. Rice Vice President None
Jennifer K. Rinnander Vice President None
Lisa M. Buono Vice President & None
Compliance Officer
(c) As compensation for its services under the
distribution agreement, the Distributor
receives an annual fee equal to the lesser of
(i) $10,000 or (ii) 0.01% of the aggregate
average net assets of the Fund.
Item 28. Location of Accounts and Records
All accounts, books or other documents required to
be maintained by Section 31(a) of the Investment
Company Act of 1940, as amended, and the rules
promulgated thereunder are in the possession of Light
Index Investment Company, the Registrant's investment
adviser, at the Registrant's corporate offices, except
records held and maintained by Firstar Mutual Fund
Services, LLC, the Registrant's administrator, fund
accountant, and dividend-disbursing and transfer agent
and Firstar Bank, N.A., the Registrant's custodian,
both of which are located at 615 East Michigan Street,
Milwaukee, Wisconsin 53202, and Provident, the
Registrant's distributor, which is located at Four
Falls Corporate Center, 6th Floor, West Conshohocken,
Pennsylvania 19428-2961.
Item 29. Management Services
All management-related service contracts entered
into by Registrant are discussed in Parts A and B of
this Registration Statement.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act
of 1933 and the Investment Company Act of 1940, the
Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective
Amendment No. 1 to the Registration Statement on Form N-
1A under Rule 485(b) under the Securities Act and has
duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly
authorized, in the City of Tacoma and State of
Washington on the 15th day of February, 2000.
LIGHT REVOLUTION FUND, INC. (Registrant)
By: /s/ Henry Hewitt
--------------------------
Henry Hewitt, President
Each person whose signature appears below hereby
constitutes and appoints Henry Hewitt and Charles M.
O'Herin, and each of them, his or her true and lawful
attorney-in-fact and agent, with full power of
substitution, to sign on his or her behalf individually
and in the capacity stated below and to perform any
acts necessary to be done in order to file all
amendments and post-effective amendments to this
Registration Statement, and any and all instruments or
documents filed as part of or in connection with this
Registration Statement or the amendments thereto, and
each of the undersigned does hereby ratify and confirm
all that said attorney-in-fact and agent, or his
substitutes, shall do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act
of 1933, this Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A has been signed
below by the following persons in the capacities and on
the date(s) indicated.
Name Title Date
/s/ Henry Hewitt President and a Director February 15, 2000
- ------------------
Henry Hewitt
/s/ Charles O'Herin Vice President, Secretary February 15, 2000
- ------------------- and Treasurer
Charles O'Herin
/s/ Brian Hatch* Director February 15, 2000
- -------------------
Brian Hatch
/s/ John Hewitt, Jr.* Director February 15, 2000
- ---------------------
John Hewitt, Jr.
/s/ Tamsin Taylor Director February 15, 2000
- -------------------
Tamsin Taylor
/s/ Robert Burnett Director February 15, 2000
- -------------------
Robert Burnett
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
(a) Registrant's Amended and Restated Articles of Incorporation(1)
(b) Registrant's Amended and Restated By-Laws(1)
(c) None
(d.1) Investment Advisory Agreement between
Light Revolution Fund, Inc. and Light Index Investment Company
(d.2) Expense Cap/Reimbursement Agreement
dated as of December 10, 1999 between Light
Revolution Fund, Inc. and Light Index Investment Company
(e) Distribution Agreement between Light
Revolution Fund, Inc. and Provident Distributors, Inc.
(f) None
(g.1) Custodian Servicing Agreement
between Light Revolution Fund, Inc. and
Firstar Bank Milwaukee, N.A.
(g.2) Global Custody Agreement by and
among Light Revolution Fund, Inc., Firstar
Bank, N.A. and The Chase Manhattan Bank
(h.1) Transfer Agency Agreement between
Light Revolution Fund, Inc. and Firstar
Mutual Fund Services, LLC
(h.2) Fund Administration Servicing
Agreement between Light Revolution Fund, Inc.
and Firstar Mutual Fund Services, LLC
(h.3) Fulfillment Servicing Agreement
between Light Revolution Fund, Inc. and
Firstar Mutual Fund Services, LLC
(h.4) Fund Accounting Servicing Agreement
between Light Revolution Fund, Inc. and
Firstar Mutual Fund Services, LLC
(i) Opinion and Consent of Godfrey & Kahn, S.C.(1)
(j) Consent of PricewaterhouseCoopers LLP
(k) None
(l.1) Initial Subscription Agreement between the
Fund and John C. Harrington(1)
(1.2) Initial Subscription Agreement between the
Fund and Sylvia B. Harris(1)
(1.3) Initial Subscription Agreement between the
Fund and Light Index Investment Company(1)
(1.4) Initial Subscription Agreement between the
Fund and Gene Roy Little(1)
(1.5) Initial Subscription Agreement between the
Fund and Stetson Maine & Co. LLC(1)
(m) Light Revolution Fund, Inc. Distribution and
Shareholder Servicing Plan
(n) None
<PAGE>
(o) None
(p) Code of Ethics(2)
___________________
(1) Incorporated by reference to the Registrant's
Registration Statement on Form N-1A filed May 14, 1999.
(2) To be filed with the next post-effective amendment
filed by the Registrant after March 1, 2000.
LIGHT REVOLUTION FUND, INC.
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is entered into as of the 15th day
of May, 1999, between Light Revolution Fund, Inc., a
Maryland corporation (the "Corporation"), and Light
Index Investment Company, a Washington corporation (the
"Adviser").
W I T N E S S E T H
WHEREAS, the Corporation is an open-end investment
company registered under the Investment Company Act of
1940, as amended (the "1940 Act"). The Corporation is
authorized to create separate series, each with its own
separate investment portfolio (the "Funds"), and the
beneficial interest in each such series will be
represented by a separate series of shares (the
"Shares").
WHEREAS, the Adviser is a registered investment
adviser, engaged in the business of rendering
investment advisory services.
WHEREAS, in managing the Corporation's assets, as
well as in the conduct of certain of its affairs, the
Corporation seeks the benefit of the Adviser's services
and its assistance in performing certain managerial
functions. The Adviser desires to furnish such
services and to perform the functions assigned to it
under this Agreement for the consideration provided for
herein.
NOW THEREFORE, the parties mutually agree as
follows:
1. Appointment of the Adviser. The Corporation
hereby appoints the Adviser as investment adviser for
each of the Funds of the Corporation on whose behalf
the Corporation executes an Exhibit to this Agreement,
and the Adviser, by execution of each such Exhibit,
accepts the appointments. Subject to the direction of
the Board of Directors (the "Directors") of the
Corporation, the Adviser shall manage the investment
and reinvestment of the assets of each Fund in
accordance with the Fund's investment objective and
policies and limitations, for the period and upon the
terms herein set forth. The investment of funds shall
also be subject to all applicable restrictions of the
Articles of Incorporation and By-Laws of the
Corporation as may from time to time be in force.
2. Expenses Paid by the Adviser. In addition to the
expenses which the Adviser may incur in the performance
of its responsibilities under this Agreement, and the
expenses which it may expressly undertake to incur and
pay, the Adviser shall incur and pay all reasonable
compensation, fees and related expenses of the
Corporation's officers and its Directors, except for
such Directors who are not interested persons (as that
term is defined in Section 2(a)(19) of the 1940 Act) of
the Adviser, and all expenses related to the rental and
maintenance of the principal offices of the
Corporation.
<PAGE>
3. Investment Advisory Functions. In its capacity as
investment adviser, the Adviser shall have the
following responsibilities:
(a) To furnish continuous advice and recommendations
to the Funds, as to the acquisition, holding or
disposition of any or all of the securities or other
assets which the Funds may own or contemplate acquiring
from time to time;
(b) To cause its officers to attend meetings and
furnish oral or written reports, as the Corporation may
reasonably require, in order to keep the Directors and
appropriate officers of the Corporation fully informed
as to the condition of the investments of the Funds,
the investment recommendations of the Adviser, and the
investment considerations which have given rise to
those recommendations; and
(c) To supervise the purchase and sale of securities
or other assets as directed by the appropriate officers
of the Corporation.
The services of the Adviser are not to be deemed
exclusive and the Adviser shall be free to render
similar services to others as long as its services for
others does not in any way hinder, preclude or prevent
the Adviser from performing its duties and obligations
under this Agreement. In the absence of willful
misfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties hereunder on the
part of the Adviser, the Adviser shall not be subject
to liability to the Corporation, the Funds, or to any
shareholder for any act or omission in the course of,
or in connection with, rendering services hereunder or
for any losses that may be sustained in the purchase,
holding or sale of any security.
4. Obligations of the Corporation. The Corporation
shall have the following obligations under this
Agreement:
(a) To keep the Adviser continuously and fully
informed as to the composition of the Funds'
investments and the nature of all of their respective
assets and liabilities;
(b) To furnish the Adviser with a copy of any
financial statement or report prepared for it by
certified or independent public accountants, and with
copies of any financial statements or reports made to
the Funds' shareholders or to any governmental body or
securities exchange;
(c) To furnish the Adviser with any further materials
or information which the Adviser may reasonably request
to enable it to perform its functions under this
Agreement; and
(d) To compensate the Adviser for its services in
accordance with the provisions of paragraph 5 hereof.
<PAGE>
5. Compensation. The Corporation will pay the
Adviser a fee for its services with respect to each
Fund (the "Advisory Fee") at the annual rate set forth
on the Exhibit(s) hereto. The Advisory Fee shall be
accrued each calendar day during the term of this
Agreement and the sum of the daily fee accruals shall
be paid monthly as soon as practicable following the
last day of each month. The daily fee accruals will be
computed by multiplying 1/365 by the annual rate and
multiplying the product by the net asset value of the
Fund as determined in accordance with the Corporation's
registration statement as of the close of business on
the previous day on which the Fund was open for
business, or in such other manner as the parties agree.
The Adviser may from time to time and for such periods
as it deems appropriate or for such time and to the
extent agreed on Exhibit A for a Fund reduce its
compensation and/or assume expenses for one or more of
the Funds (including initial organization costs);
provided, however, that with respect to any agreement
set forth on Exhibit A the Adviser shall be entitled to
recoup such amounts for a period of up to three (3)
years from the date such amount was reduced or assumed.
6. Expenses Paid by Corporation.
(a) Except as provided in this paragraph, nothing in
this Agreement shall be construed to impose upon the
Adviser the obligation to incur, pay, or reimburse the
Corporation for any expenses not specifically assumed
by the Adviser under paragraph 2 above. Each Fund
shall pay or cause to be paid all of its expenses and
the Fund's allocable share of the Corporation's
expenses, including, but not limited to, investment
adviser fees; any compensation, fees, or reimbursements
which the Corporation pays to its Directors who are not
interested persons (as that phrase is defined in
Section 2(a)(19) of the 1940 Act) of the Adviser; fees
and expenses of the custodian, transfer agent,
registrar or dividend disbursing agent; current legal,
accounting and printing expenses; administrative,
clerical, recordkeeping and bookkeeping expenses;
brokerage commissions and all other expenses in
connection with the execution of Fund transactions;
interest; all federal, state and local taxes (including
stamp, excise, income and franchise taxes); expenses of
shareholders' meetings and of preparing, printing and
distributing proxy statements, notices and reports to
shareholders; expenses of preparing and filing reports
and tax returns with federal and state regulatory
authorities; and all expenses incurred in complying
with all federal and state laws and the laws of any
foreign country applicable to the issue, offer, or sale
of Shares of the Funds, including but not limited to,
all costs involved in the registration or qualification
of Shares of the Funds for sale in any jurisdiction and
all costs involved in preparing, printing and
distributing prospectuses and statements of additional
information to existing shareholders of the Funds.
(b) If expenses borne by a Fund in any fiscal year
(including the Adviser's fee, but excluding taxes,
interest, brokerage commissions, Rule 12b-1 expenses
and similar fees) exceed those set forth in any
statutory or regulatory formula applicable to a Fund,
the Adviser will reimburse the Fund for any excess.
<PAGE>
7. Brokerage Commissions. For purposes of this
Agreement, brokerage commissions paid by a Fund upon
the purchase or sale of securities shall be considered
a cost of the securities of the Fund and shall be paid
by the respective Fund. The Adviser is authorized and
directed to place Fund transactions only with brokers
and dealers who render satisfactory service in the
execution of orders at the most favorable prices and at
reasonable commission rates; provided, however, that
the Adviser may pay a broker or dealer an amount of
commission for effecting a securities transaction in
excess of the amount of commission another broker or
dealer would have charged for effecting that
transaction, if the Adviser determines in good faith
that such amount of commission was reasonable in
relation to the value of the brokerage and research
services provided by such broker or dealer viewed in
terms of either that particular transaction or the
overall responsibilities of the Adviser. In placing
Fund business with such broker or dealers, the Adviser
shall seek the best execution of each transaction, and
all such brokerage placement shall be made in
compliance with Section 28(e) of the Securities
Exchange Act of 1934, as amended, and other applicable
state and federal laws. Notwithstanding the foregoing,
the Corporation shall retain the right to direct the
placement of all Fund transactions, and the Directors
may establish policies or guidelines to be followed by
the Adviser in placing Fund transactions for the Funds
pursuant to the foregoing provisions.
8. Proprietary Rights. The Adviser has proprietary
rights in each Fund's name and the Corporation's name.
The Corporation acknowledges and agrees that the
Adviser may withdraw the use of such names from the
Funds or the Corporation should it cease to act as the
investment adviser to any Fund.
9. Termination. This Agreement may be terminated at
any time, without penalty, by the Directors of the
Corporation or by the shareholders of a Fund acting by
the vote of at least a majority of its outstanding
voting securities (as that phrase is defined in Section
2(a)(42) of the 1940 Act), provided in either case that
60 days' written notice of termination be given to the
Adviser at its principal place of business. This
Agreement may also be terminated by the Adviser at any
time by giving 60 days' written notice of termination
to the Corporation, addressed to its principal place of
business.
10. Assignment. This Agreement shall terminate
automatically in the event of any assignment (within
the meaning of Section 2(a)(4) of the 1940 Act) of this
Agreement.
11. Term. This Agreement shall begin for each Fund as
of the date of execution of the applicable Exhibit and
shall continue in effect with respect to each Fund (and
any subsequent Funds added pursuant to an Exhibit
during the initial term of this Agreement) for two
years from the date of this Agreement and thereafter
for successive periods of one year, subject to the
provisions for termination and all of the other terms
and conditions hereof if such continuation shall be
specifically approved at least annually (i) by the vote
of a majority of the Directors of the Corporation,
including a majority of the Directors who are not
parties to this Agreement or "interested persons" of
any such party (as defined in the 1940 Act), cast in
person at a meeting called for that purpose or (ii) by
the vote of a majority of the outstanding voting
securities (as
<PAGE>
that phrase is defined in Section 2(a)(42) of
the 1940 Act) of each Fund. If a Fund is
added after the first approval by the Directors as
described above, this Agreement will be effective as to
that Fund upon execution of the applicable Exhibit and
will continue in effect until the next annual approval
of this Agreement by the Directors and thereafter for
successive periods of one year, subject to approval as
described above.
12. Amendments. This Agreement may be amended by the
mutual consent of the parties, provided that the terms
of each such amendment shall be approved by the
Directors or by the affirmative vote of a majority of
the outstanding voting securities (as that phrase is
defined in Section 2(a)(42) of the 1940 Act) of each
Fund.
13. Governing Law. This Agreement shall be governed
by and construed in accordance with the internal laws
of the State of Washington, provided, however that
nothing herein shall be construed in a manner that is
inconsistent with the 1940 Act, the Investment Advisers
Act of 1940, as amended, or the rules and regulations
promulgated with respect to such respective Acts.
This Agreement will become binding on the parties
hereto upon their execution of the Exhibit(s) to this
Agreement.
<PAGE>
EXHIBIT A
to the
Investment Advisory Agreement
LIGHT REVOLUTION FUND
For all services rendered by the Adviser
hereunder, the Corporation shall pay the Adviser, on
behalf of the above-named Fund, and the Adviser agrees
to accept as full compensation for all services
rendered hereunder, an annual investment advisory fee
equal to 1.00% of the average daily net assets of the
Fund.
The Adviser hereby agrees that until May 31, 2000,
the Adviser will waive its fees and/or reimburse the
Fund's operating expenses to the extent necessary to
ensure that the Fund's total operating expenses (on an
annual basis) do not exceed 2.00% of its average daily
net assets, subject to possible later recoupment as
provided in Section 5.
The annual investment advisory fee shall be
accrued daily at the rate of 1/365th of 1.00% applied
to the daily net assets of the Fund. The advisory fee
so accrued shall be paid by the Corporation to the
Adviser monthly.
Executed as of this 15th day of May, 1999.
The Adviser:
LIGHT INDEX INVESTMENT COMPANY
By: /s/ Henry Hewitt
-----------------------------------
Henry Hewitt, President
The Corporation:
LIGHT REVOLUTION FUND, INC.
By: /s/ Charles M. O'Herin
-----------------------------------
Charles M. O'Herin, Vice President,
Treasurer and Secretary
EXPENSE CAP/REIMBURSEMENT AGREEMENT
This Agreement is entered into as of December 10, 1999
between Light Index Investment Company (the "Adviser") and
Light Revolution Fund, Inc. (the "Company") on behalf of the
Light Revolution Fund (the "Fund").
WHEREAS, the Adviser desires to contractually
agree to waive a portion of its advisory fee or
reimburse certain of the Fund's operating expenses to
ensure that the Fund's total operating expenses do not
exceed the levels described below.
NOW THEREFORE, the parties agree as follows:
The Adviser agrees that until March 31, 2001, it
will reduce its compensation as provided for in the
Investment Advisory Agreement between the Company and
the Adviser dated May 15, 1999, and/or assume expenses
for the Fund to the extent necessary to ensure that the
Fund's total operating expenses (on an annual basis) do
not exceed 2.00% of the Fund's average daily net assets.
The Adviser shall be entitled to recoup such
amounts for a period of up to three (3) years following
the fiscal year in which the Adviser reduced its
compensation and/or assumed expenses for the Fund,
provided that the total operating expenses including
this recoupment do not exceed the established cap on
expenses for that year.
LIGHT INDEX INVESTMENT COMPANY
By: /s/ Henry Hewitt
-------------------------------
Henry Hewitt, III, President
LIGHT REVOLUTION FUND, INC.
By: /s/ Charles M. O'Herin
------------------------------
Charles M. O'Herin, Vice President,
Secretary and Treasurer
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made as of this 16th day of
November, 1999 (the "Agreement") by and between the
Light Revolution Fund, Inc. (the "Company") and
Provident Distributors, Inc. (the "Distributor"), a
Delaware corporation.
WHEREAS, the Company is registered as a
diversified, open-end management investment company
under the Investment Company Act of 1940, as amended
(the "1940 Act"); and is currently 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 first written above.
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. For the services rendered
under this Agreement, the Company agrees to pay
the Distributor the fees set forth in Schedule B
to this Agreement.
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;
provided, however, that each Fund will bear the
expenses incurred and other payments made in
accordance with the provisions of the Agreement
and any plan now or hereafter adopted with respect
to any Fund pursuant to Rule 12b-1 under the 1940
Act (the "Plans"). 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.
The Distributor agrees to provide to the Company
and its Board of Directors at least quarterly a
written report of the amounts expended under the
Plans and the purposes for which such expenditures
were made.
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 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. The
Distributor agrees to provide legal/compliance
review of all sales literature and advertisements
("Sales Material") prepared for use by the Company
in advance of the use of such Sales Material. The
Company agrees to incorporate such changes to such
Sales Materials as the Distributor shall
<PAGE>
reasonably request. The Distributor will file
such Sales Materials and obtain such approvals for
their use as may be required by the SEC, NASD or
state securities commissioners.
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.
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 Distributor may enter into selling agreements
with selected dealers or other institutions with
respect to the offering of Shares to the public.
Each such selling agreement will provide (a) that
all payments for purchases of Shares will be sent
directly from the dealer or such other institution
to the Funds' transfer agent and (b) that, if
payment is not made with respect to purchases of
Shares at the customary or required time for
settlement of the transaction, the Distributor
will have the right to cancel the sale of the
Shares ordered by the dealer or such other
institution, in which case the dealer or such
other institution will be responsible for any loss
suffered by any Fund or the Distributor resulting
from such cancellation. The Distributor may also
act as disclosed agent for a Fund and sell Shares
of that Fund to individual investors, such
transactions to be specifically approved by an
officer of that Fund.
1.9 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.
1.10 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.
1.11 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.
1.12 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 any Registration Statement, when
such Registration Statement becomes
<PAGE>
effective, will contain statements required to be
stated therein in conformity with the 1933 Act and
the rules and regulations of the SEC; that all
statements of fact contained in any such
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.
1.13 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 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 the Distributor, its
officers and directors, or such controlling
person, may incur in connection with this
Agreement or the Distributor's performance
hereunder, 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, are required to give
indemnification comparable to that set forth in
clause (a) of this Section 1.13 to any entity
selling Shares of the Company or providing
shareholder services to shareholders of the
Company and such entity shall make a claim for
indemnification against the Distributor, the
Distributor shall make a similar claim for
indemnification against the Company.
1.14 The Distributor agrees to indemnify and hold
harmless the Company, its several officers and
Directors 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,
Directors 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 Directors, 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
<PAGE>
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), or as a result of the
Distributor's failure to comply with the terms of
this Agreement.
1.15 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. The Indemnifying Party
shall have the option to defend the 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 1.15 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 1.15 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.
1.16 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
1.16 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 Company, or bylaws.
1.17 The Company agrees to advise the Distributor as
soon as reasonably practical by a notice in
writing delivered to the Distributor:
(a) 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;
<PAGE>
(b) 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
(c) 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.
1.18 The Distributor agrees to coordinate the
registration of the Company with the National
Securities Clearing Corporation ("NSCC") and file
required Fund/SERV reports with NSCC.
2. Term
2.1 This Agreement shall become effective immediately
upon the consummation of the acquistion of First
Data Investor Services Group, Inc. by a subsidiary
of PNC Bank Corp., which the parties anticipate to
occur on or about December 1, 1999, and, unless
sooner terminated as provided herein, shall
continue for an initial one-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 Directors 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 Directors 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
sixty days' written notice, by the Company's Board
of Directors, 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 reasonable expenses associated with
movement of records and materials and conversion
thereof will be borne by the Company.
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.
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 EITHER PARTY, ITS
AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE
LIABLE FOR LOST PROFITS OR CONSEQUENTIAL 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
<PAGE>
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.
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 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
<PAGE>
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:
Light Revolution Fund, Inc.
704 Court A
Tacoma, Washington 98402
To the Distributor:
Provident Distributors, Inc.
Four Falls Corporate Center, 6th Floor
West Conshohocken, Pennsylvania 19428-2961
Attention: Philip Rinnander
10.2 The laws of the State of Delaware, 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
Delaware law or the provisions hereof conflict
with the 1940 Act, the 1940 Act shall control.
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.
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
<PAGE>
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 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.
12. The Company and the Distributor agree that the
obligations of the Company under the Agreement
shall not be binding upon any of the Directors,
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 Articles of Incorporation. The
execution and delivery of this Agreement have been
authorized by the Directors of the Company, and
signed by an authorized officer of the Company,
acting as such, and neither such authorization by
such 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 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 Articles of
Incorporation.
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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed all as of the day
and year first above written.
LIGHT REVOLUTION FUND, INC.
By: /s/ Henry Hewitt
--------------------------
Name: Henry Hewitt
------------------------
Title: President
-----------------------
PROVIDENT DISTRIBUTORS, INC.
By: /s/ Philip H. Rinnander
---------------------------
Name: Philip H. Rinnander
-------------------------
Title: President
------------------------
<PAGE>
SCHEDULE A
to the Distribution Agreement
between the Light Revolution Fund, Inc. and
Provident Distributors, Inc.
Name of Funds
Light Revolution Fund
<PAGE>
SCHEDULE B
to the Distribution Agreement
between the Light Revolution Fund, Inc. and
First Data Distributors, Inc.
Fees
Notwithstanding anything contained in Section 1.2
to the contrary, the Company shall pay to the
Distributor an annual fee equal to the lesser of (a)
$10,000 per Fund or (b) 0.01% of the aggregate average
net assets of the Funds. Such fee shall be payable in
equal monthly installments on the first business day of
each month. Compensation under this Agreement shall be
calculated and accrued daily and the amounts of the
daily accruals shall be paid monthly in arrears.
In addition, the Company agrees to reimburse the
Distributor for its reasonable out-of-pocket expenses
in providing services hereunder as mutually agreed to
by the parties from time to time.
CUSTODIAN SERVICING AGREEMENT
THIS AGREEMENT made as of May 15th, 1999, between
Light Revolution Fund, Inc., a Maryland corporation
(hereinafter called the "Company"), and Firstar Bank
Milwaukee, N.A., a Wisconsin corporation (hereinafter
called "Custodian").
WHEREAS, the Company is an open-end management
investment company which is registered under the
Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Company is authorized to create
separate series, each with its own separate investment
portfolio; and
WHEREAS, the Company desires that the securities
and cash of the Light Revolution Fund and each
additional series of the Company listed on Exhibit A
attached hereto (each, a "Fund"), as may be amended
from time to time, shall be hereafter held and
administered by Custodian pursuant to the terms of this
Agreement.
NOW, THEREFORE, in consideration of the mutual
agreements herein made, the Company and Custodian agree
as follows:
1. Definitions
The word "securities" as used herein includes
stocks, shares, bonds, debentures, notes, mortgages or
other obligations, and any certificates, receipts,
warrants or other instruments representing rights to
receive, purchase or subscribe for the same, or
evidencing or representing any other rights or
interests therein, or in any property or assets.
The words "officers' certificate" shall mean a
request or direction or certification in writing signed
in the name of the Company by any two of the President,
a Vice President, the Secretary and the Treasurer of
the Company, or any other persons duly authorized to
sign by the Board of Directors.
The word "Board" shall mean the Board of Directors
of the Company.
2. Names, Titles, and Signatures of the Company's
Officers
An officer of the Company will certify to
Custodian the names and signatures of those persons
authorized to sign the officers' certificates described
in Section 1 hereof, and the names of the members of
the Board of Directors, together with any changes which
may occur from time to time.
<PAGE>
3. Receipt and Disbursement of Money
A. Custodian shall open and maintain a separate
account or accounts in the name of the Company, subject
only to draft or order by Custodian acting pursuant to
the terms of this Agreement. Custodian shall hold in
such account or accounts, subject to the provisions
hereof, all cash received by it from or for the account
of the Company. Custodian shall make payments of cash
to, or for the account of, the Company from such cash
only:
(a) for the purchase of securities for the
portfolio of the Fund upon the delivery
of such securities to Custodian,
registered in the name of the Company or
of the nominee of Custodian referred to
in Section 7 or in proper form for
transfer;
(b) for the purchase or redemption of shares
of the common stock of the Fund upon
delivery thereof to Custodian, or upon
proper instructions from the Company;
(c) for the payment of interest, dividends,
taxes, investment adviser's fees or
operating expenses (including, without
limitation thereto, fees for legal,
accounting, auditing and custodian
services, expenses for printing and
postage and payments under any Rule 12b-
1 plan);
(d) for payments in connection with the
conversion, exchange or surrender of
securities owned or subscribed to by the
Fund held by or to be delivered to
Custodian; or
(e) for other proper corporate purposes
certified by resolution of the Board of
Directors of the Company.
Before making any such payment, Custodian shall
receive (and may rely upon) an officers' certificate
requesting such payment and stating that it is for a
purpose permitted under the terms of items (a), (b),
(c), or (d) of this Subsection A, and also, in respect
of item (e), upon receipt of an officers' certificate
specifying the amount of such payment, setting forth
the purpose for which such payment is to be made,
declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom such
payment is to be made, provided, however, that an
officers' certificate need not precede the disbursement
of cash for the purpose of purchasing a money market
instrument, or any other security with same or next-day
settlement, if the President, a Vice President, the
Secretary or the Treasurer of the Company issues
appropriate oral or facsimile instructions to Custodian
and an appropriate officers' certificate is received by
Custodian within two business days thereafter.
B. Custodian is hereby authorized to endorse and
collect all checks, drafts or other orders for the
payment of money received by Custodian for the account
of the Company.
<PAGE>
C. Custodian shall, upon receipt of proper
instructions, make federal funds available to the
Company as of specified times agreed upon from time to
time by the Company and the Custodian in the amount of
checks received in payment for shares of the Fund which
are deposited into the Fund's account.
D. If so directed by the Company, Custodian will
invest any and all available cash in overnight cash-
equivalent investments as specified by the investment
manager.
4. Segregated Accounts
Upon receipt of proper instructions, the Custodian
shall establish and maintain a segregated account(s)
for and on behalf of the Fund, into which account(s)
may be transferred cash and/or securities.
5. Transfer, Exchange, Redelivery, etc. of Securities
Custodian shall have sole power to release or
deliver any securities of the Company held by it
pursuant to this Agreement. Custodian agrees to
transfer, exchange or deliver securities held by it
hereunder only:
(a) for sales of such securities for the account of
the Fund upon receipt by Custodian of payment
therefore;
(b) when such securities are called, redeemed or
retired or otherwise become payable;
(c) for examination by any broker selling any such
securities in accordance with "street
delivery" custom;
(d) in exchange for, or upon conversion into, other
securities alone or other securities and cash
whether pursuant to any plan of merger,
consolidation, reorganization, recapitalization
or readjustment, or otherwise;
(e) upon conversion of such securities pursuant to
their terms into other securities;
(f) upon exercise of subscription, purchase or
other similar rights represented by such
securities;
(g) for the purpose of exchanging interim receipts
or temporary securities for definitive
securities;
(h) for the purpose of redeeming in kind shares of
common stock of the Fund upon delivery
thereof to Custodian; or
(i) for other proper corporate purposes.
<PAGE>
As to any deliveries made by Custodian pursuant to
items (a), (b), (d), (e), (f), and (g), securities or
cash receivable in exchange therefor shall be
deliverable to Custodian.
Before making any such transfer, exchange or
delivery, Custodian shall receive (and may rely upon)
an officers' certificate requesting such transfer,
exchange or delivery, and stating that it is for a
purpose permitted under the terms of items (a), (b),
(c), (d), (e), (f), (g), or (h) of this Section 5 and
also, in respect of item (i), upon receipt of an
officers' certificate specifying the securities to be
delivered, setting forth the purpose for which such
delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or
persons to whom delivery of such securities shall be
made, provided, however, that an officers' certificate
need not precede any such transfer, exchange or
delivery of a money market instrument, or any other
security with same or next-day settlement, if the
President, a Vice President, the Secretary or the
Treasurer of the Company issues appropriate oral or
facsimile instructions to Custodian and an appropriate
officers' certificate is received by Custodian within
two business days thereafter.
6. Custodian's Acts Without Instructions
Unless and until Custodian receives an officers'
certificate to the contrary, Custodian shall: (a)
present for payment all coupons and other income items
held by it for the account of the Fund, which call for
payment upon presentation and hold the cash received by
it upon such payment for the account of the Fund; (b)
collect interest and cash dividends received, with
notice to the Company, for the account of the Fund; (c)
hold for the account of the Fund hereunder all stock
dividends, rights and similar securities issued with
respect to any securities held by it hereunder; and (d)
execute, as agent on behalf of the Company, all
necessary ownership certificates required by the
Internal Revenue Code of 1986, as amended (the "Code")
or the Income Tax Regulations (the "Regulations") of
the United States Treasury Department (the "Treasury
Department") or under the laws of any state now or
hereafter in effect, inserting the Company's name on
such certificates as the owner of the securities
covered thereby, to the extent it may lawfully do so.
7. Registration of Securities
Except as otherwise directed by an officers'
certificate, Custodian shall register all securities,
except such as are in bearer form, in the name of a
registered nominee of Custodian as defined in the Code
and any Regulations of the Treasury Department issued
thereunder or in any provision of any subsequent
federal tax law exempting such transaction from
liability for stock transfer taxes, and shall execute
and deliver all such certificates in connection
therewith as may be required by such laws or
regulations or under the laws of any state. All
securities held by Custodian hereunder shall be at all
times identifiable in its records as being held in an
account or accounts of Custodian containing only the
assets of the Company.
The Company shall from time to time furnish to
Custodian appropriate instruments to enable Custodian
to hold or deliver in proper form for transfer, or to
register in the name of its
<PAGE>
registered nominee, any securities which it may hold
for the account of the Company and which may from time
to time be registered in the name of the Company.
8. Voting and Other Action
Neither Custodian nor any nominee of Custodian
shall vote any of the securities held hereunder by or
for the account of the Fund, except in accordance with
the instructions contained in an officers' certificate.
Custodian shall deliver, or cause to be executed and
delivered, to the Company all notices, proxies and
proxy soliciting materials with respect to such
securities, such proxies to be executed by the
registered holder of such securities (if registered
otherwise than in the name of the Company), but without
indicating the manner in which such proxies are to be
voted.
9. Transfer Tax and Other Disbursements
The Company shall pay or reimburse Custodian from
time to time for any transfer taxes payable upon
transfers of securities made hereunder, and for all
other necessary and proper disbursements and expenses
made or incurred by Custodian in the performance of
this Agreement.
Custodian shall execute and deliver such
certificates in connection with securities delivered to
it or by it under this Agreement as may be required
under the provisions of the Code and any Regulations of
the Treasury Department issued thereunder, or under the
laws of any state, to exempt from taxation any exempt
transfers and/or deliveries of any such securities.
10. Concerning Custodian
Custodian shall be paid as compensation for its
services pursuant to this Agreement such compensation
as may from time to time be agreed upon in writing
between the two parties. Until modified in writing,
such compensation shall be as set forth in Exhibit A
attached hereto.
Custodian shall not be liable for any action taken
in good faith upon any certificate herein described or
certified copy of any resolution of the Board, and may
rely on the genuineness of any such document which it
may in good faith believe to have been validly
executed.
The Company agrees to indemnify and hold harmless
Custodian and its nominee from all taxes, charges,
expenses, assessments, claims and liabilities
(including reasonable counsel fees) incurred or
assessed against it or by its nominee in connection
with the performance of this Agreement, except such as
may arise from its or its nominee's own bad faith,
negligent action, negligent failure to act or willful
misconduct. Custodian is authorized to charge any
account of the Fund for such items. In the event of
any advance of cash for any purpose made by Custodian
resulting from orders or instructions of the Company,
or in the event that Custodian or its nominee shall
incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with
the performance of this Agreement, except such as may
arise from its or its
<PAGE>
nominee's own bad faith, negligent action, negligent
failure to act or willful misconduct, any property at
any time held for the account of the Company shall be
security therefor.
Custodian agrees to indemnify and hold harmless
the Company from all charges, expenses, assessments,
and claims/liabilities (including reasonable counsel
fees) incurred or assessed against it in connection
with the performance of this Agreement, except such as
may arise from the Fund's own bad faith, negligent
action, negligent failure to act, or willful
misconduct.
11. Subcustodians
Custodian is hereby authorized to engage another
bank or trust company as a subcustodian for all or any
part of the Company's assets, so long as any such bank
or trust company is itself qualified under the 1940 Act
and the rules and regulations thereunder and provided
further that, if the Custodian utilizes the services of
a subcustodian, the Custodian shall remain fully liable
and responsible for any losses caused to the Company by
the subcustodian as fully as if the Custodian was
directly responsible for any such losses under the
terms of this Agreement.
Notwithstanding anything contained herein, if the
Company requires the Custodian to engage specific
subcustodians for the safekeeping and/or clearing of
assets, the Company agrees to indemnify and hold
harmless Custodian from all claims, expenses and
liabilities incurred or assessed against it in
connection with the use of such subcustodian in regard
to the Company's assets, except as may arise from
Custodian's own bad faith, negligent action, negligent
failure to act or willful misconduct.
12. Reports by Custodian
Custodian shall furnish the Company periodically
as agreed upon with a statement summarizing all
transactions and entries for the account of Company.
Custodian shall furnish to the Company, at the end of
every month, a list of the portfolio securities for the
Fund showing the aggregate cost of each issue. The
books and records of Custodian pertaining to its
actions under this Agreement shall be open to
inspection and audit at reasonable times by officers
of, and by auditors employed by, the Company.
13. Termination or Assignment
This Agreement may be terminated by the Company,
or by Custodian, on ninety (90) days notice, given in
writing and sent by registered mail to:
Firstar Bank Milwaukee, N.A.
615 East Michigan Street
Milwaukee, WI 53202
<PAGE>
or to the Company at:
Light Revolution Fund, Inc.
704 Court A
Tacoma, Washington 98402
Attn: Corporate Secretary
as the case may be. Upon any termination of this
Agreement, pending appointment of a successor to
Custodian or a vote of the shareholders of the Fund to
dissolve or to function without a custodian of its
cash, securities and other property, Custodian shall
not deliver cash, securities or other property of the
Fund to the Company, but may deliver them to a bank or
trust company of its own selection that meets the
requirements of the 1940 Act as a Custodian for the
Company to be held under terms similar to those of this
Agreement, provided, however, that Custodian shall not
be required to make any such delivery or payment until
full payment shall have been made by the Company of all
liabilities constituting a charge on or against the
properties then held by Custodian or on or against
Custodian, and until full payment shall have been made
to Custodian of all its fees, compensation, costs and
expenses, subject to the provisions of Section 10 of
this Agreement.
This Agreement may not be assigned by Custodian
without the consent of the Company, authorized or
approved by a resolution of its Board of Directors.
14. Deposits of Securities in Securities Depositories
No provision of this Agreement shall be deemed to
prevent the use by Custodian of a central securities
clearing agency or securities depository, provided,
however, that Custodian and the central securities
clearing agency or securities depository meet all
applicable federal and state laws and regulations, and
the Board of Directors of the Company approves by
resolution the use of such central securities clearing
agency or securities depository.
15. Records
Custodian shall keep records relating to its
services to be performed hereunder, in the form and
manner, and for such period, as it may deem advisable
and is agreeable to the Company but not inconsistent
with the rules and regulations of appropriate
government authorities, in particular Section 31 of the
1940 Act and the rules thereunder. Custodian agrees
that all such records prepared or maintained by the
Custodian relating to the services performed by
Custodian hereunder are the property of the Company and
will be preserved, maintained, and made available in
accordance with such section and rules of the 1940 Act
and will be promptly surrendered to the Company on and
in accordance with its request.
<PAGE>
16. Governing Law
This Agreement shall be governed by Wisconsin law.
However, nothing herein shall be construed in a manner
inconsistent with the 1940 Act or any rule or
regulation promulgated by the Securities and Exchange
Commission thereunder.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by a duly authorized
officer in one or more counterparts as of the day and
year first written above.
LIGHT REVOLUTION FUND, INC. FIRSTAR BANK MILWAUKEE, N.A.
By: /s/ Charles M. O'Herin By: /s/ Michael R. McVoy
- ----------------------------- ----------------------------
Its: Secretary Its: Vice President
- ----------------------------- ----------------------------
<PAGE>
Custody Services
Annual Fee Schedule - Domestic Funds
Exhibit A
Separate Series of Light Revolution Fund, Inc.
Name of Series Date Added
Light Revolution Fund May 15, 1999
Annual fee based upon market value
2 basis points per year
Minimum annual fee per fund - $3,000
Investment transactions (purchase, sale, exchange, tender, redemption,
maturity, receipt, delivery):
$12.00 per book entry security (depository or Federal Reserve system)
$25.00 per definitive security (physical)
$25.00 per mutual fund trade
$75.00 per Euroclear
$ 8.00 per principal reduction on pass-through certificates
$35.00 per option/futures contract
$15.00 per variation margin
$15.00 per Fed wire deposit or withdrawal
Variable Amount Demand Notes: Used as a short-term
investment, variable amount notes offer safety and
prevailing high interest rates. Our charge, which is
1/4 of 1%, is deducted from the variable amount note
income at the time it is credited to your account.
Plus out-of-pocket expenses. Foreign securities
custody services quoted separately.
Fees and out-of-pocket expenses are billed to the Fund
monthly, based upon market value at the beginning of
the month.
GLOBAL CUSTODY AGREEMENT
This AGREEMENT is effective June 1, 1999, and is
between THE CHASE MANHATTAN BANK ("Bank") FIRSTAR Bank,
Milwaukee, N.A. and Light Revolution Fund, Inc. ("Customer").
1. Customer Accounts.
Bank, acting as "Securities Intermediary" (as
defined in Section 15(g) hereof) shall establish and
maintain the following accounts ("Accounts"):
(a) a Custody Account (as defined in Section
15(b) hereof) in the name of Customer for Financial
Assets, which shall, except as modified by Section
15(d) hereof, mean stocks, shares, bonds, debentures,
notes, mortgages or other obligations for the payment
of money, bullion, coin and any certificates, receipts,
warrants or other instruments representing rights to
receive, purchase or subscribe for the same or
evidencing or representing any other rights or
interests therein and other similar property whether
certificated or uncertificated as may be received by
Bank or its Subcustodian (as defined in Section 3
hereof) for the account of Customer, including as an
"Entitlement Holder" as defined in Section 15(c)
hereof); and
(b) an account in the name of Customer ("Deposit
Account") for any and all cash in any currency received
by Bank or its Subcustodian for the account of
Customer, which cash shall not be subject to withdrawal
by draft or check.
Customer warrants its authority to: 1) deposit the
cash and Financial Assets (collectively "Assets")
received in the Accounts and 2) give Instructions (as
defined in Section 11 hereof) concerning the Accounts.
Bank may deliver Financial Assets of the same class in
place of those deposited in the Custody Account.
Upon written agreement between Bank and Customer,
additional Accounts may be established and separately
accounted for as additional Accounts hereunder.
2. Maintenance of Financial Assets and Cash at Bank
and Subcustodian Locations.
Unless Instructions specifically require another
location acceptable to Bank:
(a) Financial Assets shall be held in the country
or other jurisdiction in which the principal trading
market for such Financial Assets is located, where such
Financial Assets are to be presented for payment or
where such Financial Assets are acquired; and
(b) Cash shall be credited to an account in a
country or other jurisdiction in which such cash may be
legally deposited or is the legal currency for the
payment of public or private debts.
<PAGE>
Cash may be held pursuant to Instructions in
either interest or non-interest bearing accounts as may
be available for the particular currency. To the
extent Instructions are issued and Bank can comply with
such Instructions, Bank is authorized to maintain cash
balances on deposit for Customer with itself or one of
its "Affiliates" at such reasonable rates of interest
as may from time to time be paid on such accounts, or
in non-interest bearing accounts as Customer may
direct, if acceptable to Bank. For purposes hereof,
the term "Affiliate" shall mean an entity controlling,
controlled by, or under common control with, Bank.
If Customer wishes to have any of its Assets held
in the custody of an institution other than the
established Subcustodians as defined in Section 3 (or
their securities depositories), such arrangement must
be authorized by a written agreement, signed by Bank
and Customer.
3. Subcustodians and Securities Depositories.
Bank may act hereunder through the subcustodians
listed in Schedule A hereof with which Bank has entered
into subcustodial agreements ("Subcustodians").
Customer authorizes Bank to hold Assets in the Accounts
in accounts which Bank has established with one or more
of its branches or Subcustodians. Bank and
Subcustodians are authorized to hold any of the
Financial Assets in their account with any securities
depository in which they participate.
Bank reserves the right to add new, replace or
remove Subcustodians. Customer shall be given
reasonable notice by Bank of any amendment to Schedule
A. Upon request by Customer, Bank shall identify the
name, address and principal place of business of any
Subcustodian of Customer's Assets and the name and
address of the governmental agency or other regulatory
authority that supervises or regulates such
Subcustodian.
4. Use of Subcustodian.
(a) Bank shall identify the Assets on its books
as belonging to Customer.
(b) A Subcustodian shall hold such Assets
together with assets belonging to other customers of
Bank in accounts identified on such Subcustodian's
books as custody accounts for the exclusive benefit of
customers of Bank.
(c) Any Assets in the Accounts held by a
Subcustodian shall be subject only to the instructions
of Bank or its agent. Any Financial Assets held in a
securities depository for the account of a Subcustodian
shall be subject only to the instructions of such
Subcustodian.
(d) Any agreement Bank enters into with a
Subcustodian for holding Bank's customers' assets shall
provide that such assets shall not be subject to any
right, charge, security interest, lien or claim of any
kind in favor of such Subcustodian except for safe
custody or administration, and that the beneficial
ownership of such assets shall be freely transferable
without the payment of money or value other than for
safe custody or administration, or, in the case of cash
deposits, except for liens or rights in favor of credi
tors of the Subcustodian arising under bankruptcy,
insolvency or similar laws. Where Securities are
deposited by a Subcustodian with a securities
depository, Bank shall cause the Subcustodian to
identify on its books as belonging to Bank, as agent,
the Securities shown on the Subcustodian's account on
the books of such securities depository. The foregoing
shall not apply to the extent of any special agreement
or arrangement made by Customer with any particular
Subcustodian.
5. Deposit Account Transactions.
<PAGE>
(a) Bank or its Subcustodians shall make payments
from the Deposit Account upon receipt of Instructions
which include all information required by Bank.
(b) In the event that any payment to be made
under this Section 5 exceeds the funds available in the
Deposit Account, Bank, in its discretion, may advance
Customer such excess amount which shall be deemed a
loan payable on demand, bearing interest at the rate
customarily charged by Bank on similar loans.
(c) If Bank credits the Deposit Account on a
payable date, or at any time prior to actual collection
and reconciliation to the Deposit Account, with
interest, dividends, redemptions or any other amount
due, Customer shall promptly return any such amount
upon oral or written notification: (i) that such amount
has not been received in the ordinary course of
business or (ii) that such amount was incorrectly
credited. If Customer does not promptly return any
amount upon such notification, Bank shall be entitled,
upon oral or written notification to Customer, to
reverse such credit by debiting the Deposit Account for
the amount previously credited. Bank or its
Subcustodian shall have no duty or obligation to
institute legal proceedings, file a claim or a proof of
claim in any insolvency proceeding or take any other
action with respect to the collection of such amount,
but may act for Customer upon Instructions after
consultation with Customer.
6. Custody Account Transactions.
(a) Financial Assets shall be transferred,
exchanged or delivered by Bank or its Subcustodian upon
receipt by Bank of Instructions which include all
information required by Bank. Settlement and payment
for Financial Assets received for, and delivery of
Financial Assets out of, the Custody Account may be
made 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 Financial Assets to a purchaser, dealer or
their agents against a receipt with the expectation of
receiving later payment and free delivery. Delivery of
Financial Assets out of the Custody Account may also be
made in any manner specifically required by
Instructions acceptable to Bank.
(b) Bank, in its discretion, may credit or debit
the Accounts on a contractual settlement date with cash
or Financial Assets with respect to any sale, exchange
or purchase of Financial Assets. Otherwise, such
transactions shall be credited or debited to the
Accounts on the date cash or Financial Assets are
actually received by Bank and reconciled to the
Account.
(i) Bank may reverse credits or debits made
to the Accounts in its discretion if the related
transaction fails to settle within a reasonable
period, determined by Bank in its discretion,
after the contractual settlement date for the
related transaction.
(ii) If any Financial Assets delivered
pursuant to this Section 6 are returned by the
recipient thereof, Bank may reverse the credits
and debits of the particular transaction at any
time.
7. Actions of Bank.
Bank shall follow Instructions received regarding
Assets held in the Accounts. However, until it
receives Instructions to the contrary, Bank shall:
(a) Present for payment any Financial Assets
which are called, redeemed or retired or otherwise
become payable and all coupons and other income items
which call for payment upon presentation, to the extent
that Bank or Subcustodian is actually aware of such
opportunities.
<PAGE>
(b) Execute in the name of Customer such
ownership and other certificates as may be required to
obtain payments in respect of Financial Assets.
(c) Exchange interim receipts or temporary
Financial Assets for definitive Financial Assets.
(d) Appoint brokers and agents for any
transaction involving the Financial Assets, including,
without limitation, Affiliates of Bank or any
Subcustodian.
(e) Issue statements to Customer, at times
mutually agreed upon, identifying the Assets in the
Accounts.
Bank shall send Customer an advice or notification
of any transfers of Assets to or from the Accounts.
Such statements, advices or notifications shall
indicate the identity of the entity having custody of
the Assets. Unless Customer sends Bank a written
exception or objection to any Bank statement within
sixty (60) days of receipt, Customer shall be deemed to
have approved such statement. In such event, or where
Customer has otherwise approved any such statement,
Bank shall, to the extent permitted by law, be
released, relieved and discharged with respect to all
matters set forth in such statement or reasonably
implied therefrom as though it had been settled by the
decree of a court of competent jurisdiction in an
action where Customer and all persons having or
claiming an interest in Customer or Customer's Accounts
were parties.
All collections of funds or other property paid or
distributed in respect of Financial Assets in the
Custody Account shall be made at the risk of Customer.
Bank shall have no liability for any loss occasioned by
delay in the actual receipt of notice by Bank or by its
Subcustodians of any payment, redemption or other trans
action regarding Financial Assets in the Custody
Account in respect of which Bank has agreed to take any
action hereunder.
8. Corporate Actions; Proxies; Tax Reclaims.
(a) Corporate Actions. Whenever Bank receives
information concerning the Financial Assets which
requires discretionary action by the beneficial owner
of the Financial Assets (other than a proxy), such as
subscription rights, bonus issues, stock repurchase
plans and rights offerings, or legal notices or other
material intended to be transmitted to securities
holders ("Corporate Actions"), Bank shall give Customer
notice of such Corporate Actions to the extent that
Bank's central corporate actions department has actual
knowledge of a Corporate Action in time to notify its
customers.
When a rights entitlement or a fractional interest
resulting from a rights issue, stock dividend, stock
split or similar Corporate Action is received which
bears an expiration date, Bank shall endeavor to obtain
Instructions from Customer or its Authorized Person (as
defined in Section 10 hereof), but if Instructions are
not received in time for Bank to take timely action, or
actual notice of such Corporate Action was received too
late to seek Instructions, Bank is authorized to sell
such rights entitlement or fractional interest and to
credit the Deposit Account with the proceeds or take
any other action it deems, in good faith, to be appro
priate in which case it shall be held harmless for any
such action.
(b) Proxy Voting. Bank shall provide proxy voting
services, if elected by Customer, in accordance with
the terms of the proxy voting services rider hereto.
Proxy voting services may be provided by Bank or, in
whole or in part, by one or more third parties
appointed by Bank (which may be Affiliates of Bank).
(c) Tax Reclaims.
<PAGE>
(i) Subject to the provisions hereof, Bank
shall apply for a reduction of withholding
tax and any refund of any tax paid or tax
credits which apply in each applicable
market in respect of income payments on
Financial Assets for Customer's benefit
which Bank believes may be available to
Customer.
(ii) The provision of tax reclaim services
by Bank is conditional upon Bank's
receiving from Customer or, to the extent
the Financial Assets are beneficially owned
by others, from each beneficial owner, A) a
declaration of the beneficial owner's
identity and place of residence and (B)
certain other documentation (pro forma
copies of which are available from Bank).
Customer acknowledges that, if Bank does
not receive such declarations,
documentation and information Bank shall be
unable to provide tax reclaim services.
(iii) Bank shall not be liable to
Customer or any third party for any taxes,
fines or penalties payable by Bank or
Customer, and shall be indemnified
accordingly, whether these result from the
inaccurate completion of documents by
Customer or any third party, or as a result
of the provision to Bank or any third party
of inaccurate or misleading information or
the withholding of material information by
Customer or any other third party, or as a
result of any delay of any revenue
authority or any other matter beyond Bank's
control.
(iv) Bank shall perform tax reclaim
services only with respect to taxation
levied by the revenue authorities of the
countries notified to Customer from time
to time and Bank may, by notification in
writing, at Bank's absolute discretion,
supplement or amend the markets in which
tax reclaim services are offered. Other
than as expressly provided in this sub-
clause, Bank shall have no responsibility
with regard to Customer's tax position or
status in any jurisdiction.
(v) Customer confirms that Bank is
authorized to disclose any information
requested by any revenue authority or any
governmental body in relation to Customer
or the securities and/or cash held for
Customer.
(vi) Tax reclaim services may be provided
by Bank or, in whole or in part, by one or
more third parties appointed by Bank (which
may be Bank's affiliates); provided that
Bank shall be liable for the performance of
any such third party to the same extent as
Bank would have been if Bank performed such
services.
(d) Tax Obligations.
(i) Customer confirms that Bank is
authorized to deduct from any cash received
or credited to the Deposit Account any
taxes or levies required by any revenue or
governmental authority for whatever reason
in respect of the Custody Account.
(ii) If Bank does not receive appropriate
declarations, documentation and information
that additional United Kingdom taxation
shall be deducted from all income received
in respect of the Financial Assets issued
outside the United Kingdom and any
applicable United States withholding tax
shall be deducted from income received from
the Financial Assets. Customer shall
provide to Bank such documentation and
information as Bank may require in
connection with taxation, and warrants
that, when given, this information shall be
true and correct in every respect, not
misleading in any way, and contain all
material
<PAGE>
information. Customer undertakes
to notify Bank immediately if any such
information requires updating or amendment.
(iii) Customer shall be responsible for
the payment of all taxes relating to the
Financial Assets in the Custody Account,
and Customer agrees to pay, indemnify and
hold Bank harmless from and against any and
all liabilities, penalties, interest or
additions to tax with respect to or
resulting from, any delay in, or failure
by, Bank (1) to pay, withhold or report any
U.S. federal, state or local taxes or
foreign taxes imposed on, or (2) to report
interest, dividend or other income paid or
credited to the Deposit Account, whether
such failure or delay by Bank to pay,
withhold or report tax or income is the
result of (x) Customer's failure to comply
with the terms of this paragraph, or (y)
Bank's own acts or omissions; provided
however, Customer shall not be liable to
Bank for any penalty or additions to tax
due as a result of Bank's failure to pay,
withhold or report tax or to report
interest, dividend or other income paid or
credited to the Deposit Account solely as a
result of Bank's negligent acts or
omissions.
9. Nominees.
Financial Assets which are ordinarily held in
registered form may be registered in a nominee name of
Bank, Subcustodian or securities depository, as the
case may be. Bank may without notice to Customer cause
any such Financial Assets to cease to be registered in
the name of any such nominee and to be registered in
the name of Customer. In the event that any Financial
Assets registered in a nominee name are called for
partial redemption by the issuer, Bank may allot the
called portion to the respective beneficial holders of
such class of security in any manner Bank deems to be
fair and equitable. Customer shall hold Bank,
Subcustodians, and their respective nominees harmless
from any liability arising directly or indirectly from
their status as a mere record holder of Financial
Assets in the Custody Account.
10. Authorized Persons.
As used herein, the term "Authorized Person" means
employees or agents including investment managers as
have been designated by written notice from Customer or
its designated agent to act on behalf of Customer
hereunder. Such persons shall continue to be
Authorized Persons until such time as Bank receives
Instructions from Customer or its designated agent that
any such employee or agent is no longer an Authorized
Person.
11. Instructions.
The term "Instructions" means instructions of any
Authorized Person received by Bank, via telephone,
telex, facsimile transmission, bank wire or other
teleprocess or electronic instruction or trade
information system acceptable to Bank which Bank
believes in good faith to have been given by Authorized
Persons or which are transmitted with proper testing or
authentication pursuant to terms and conditions which
Bank may specify. Unless otherwise expressly provided,
all Instructions shall continue in full force and
effect until canceled or superseded. The term
"Instructions" includes, without limitation,
instructions to sell, assign, transfer, deliver,
purchase or receive for the Custody Account, any and
all stocks, bonds and other Financial Assets or to
transfer funds in the Deposit Account.)
Any Instructions delivered to Bank by telephone
shall promptly thereafter be confirmed in writing by an
Authorized Person (which confirmation may bear the
facsimile signature of such Person), but Customer shall
hold Bank harmless for the failure of an Authorized
Person to send such confirmation in writing, the
failure of such confirmation to conform to the
telephone instructions received or Bank's failure to
produce such
<PAGE>
confirmation at any subsequent time. Bank
may electronically record any Instructions given by
telephone, and any other telephone discussions with
respect to the Custody Account. Customer shall be
responsible for safeguarding any testkeys,
identification codes or other security devices which
Bank shall make available to Customer or its Authorized
Persons.
12. Standard of Care; Liabilities.
(a) Bank shall be responsible for the performance
of only such duties as are set forth herein or
expressly contained in Instructions which are
consistent with the provisions hereof as follows:
(i) Notwithstanding any other provisions of
this Agreement, Bank's responsibilities shall be
limited to the exercise of reasonable care with
respect to its obligations hereunder. Bank shall
only be liable to Customer for any loss which
shall occur as the result of the failure of a
Subcustodian to exercise reasonable care with
respect to the safekeeping of such Assets where
such loss results directly from the failure by the
Subcustodian to use reasonable care in the
provision of custodial services by it in
accordance with the standards prevailing in its
local market or from the willful default of such
Subcustodian in the provision of custodial
services by it. In the event of any loss to
Customer which is compensable hereunder (i.e. a
loss arising by reason of willful misconduct or
the failure of Bank or its Subcustodian to use
reasonable care), Bank shall be liable to Customer
only to the extent of Customer's direct damages,
to be determined based on the market value of the
property which is the subject of the loss at the
date of discovery of such loss and without
reference to any special conditions or
circumstances. Bank shall have no liability
whatsoever for any consequential, special,
indirect or speculative loss or damages
(including, but not limited to, lost profits)
suffered by Customer in connection with the
transactions and services contemplated hereby and
the relationship established hereby even if Bank
has been advised as to the possibility of the same
and regardless of the form of the action.
(ii) Bank shall not be responsible for the
insolvency of any Subcustodian which is not a
branch or Affiliate of Bank. Bank shall not be
responsible for any act, omission, default or the
solvency of any broker or agent which it or a
Subcustodian appoints unless such appointment was
made negligently or in bad faith.
(iii) (A) Customer shall indemnify and
hold Bank and its directors, officers, agents and
employees (collectively the "Indemnitees")
harmless from and against any and all claims,
liabilities, losses, damages, fines, penalties,
and expenses, including out-of-pocket and
incidental expenses and legal fees ("Losses") that
may be imposed on, incurred by, or asserted
against, the Indemnitees or any of them for
following any instructions or other directions
upon which Bank is authorized to rely pursuant to
the terms of this Agreement. (B) In addition to
and not in limitation of the preceding
subparagraph, Customer shall also indemnify and
hold the Indemnitees and each of them harmless
from and against any and all Losses that may be
imposed on, incurred by, or asserted against, the
Indemnitees or any of them in connection with or
arising out of Bank's performance under this
Agreement, provided the Indemnitees have not acted
with negligence or engaged in willful misconduct.
(C) In performing its obligations hereunder, Bank
may rely on the genuineness of any document which
it believes in good faith to have been validly
executed.
(iv) Customer shall pay for and hold Bank
harmless from any liability or loss resulting from
the imposition or assessment of any taxes or other
governmental charges, and any related expenses,
with respect to income from or Assets in the
Accounts.
<PAGE>
(v) Bank shall be entitled to rely, and may
act, upon the advice of counsel (who may be
counsel for Customer) on all matters and shall be
without liability for any action reasonably taken
or omitted pursuant to such advice.
(vi) Bank need not maintain any insurance for
the benefit of Customer.
(vii) Without limiting the foregoing,
Bank shall not be liable for any loss which
results from: 1) the general risk of investing,
or 2) investing or holding Assets in a particular
country including, but not limited to, losses
resulting from malfunction, interruption of or
error in the transmission of information caused by
any machines or system or interruption of
communication facilities, abnormal operating
conditions, nationalization, expropriation or
other governmental actions; regulation of the
banking or securities industry; currency
restrictions, devaluations or fluctuations; and
market conditions which prevent the orderly
execution of securities transactions or affect the
value of Assets.
(viii) Neither party shall be liable to
the other for any loss due to forces beyond their
control including, but not limited to strikes or
work stoppages, acts of war (whether declared or
undeclared) or terrorism, insurrection,
revolution, nuclear fusion, fission or radiation,
or acts of God.
(b) Consistent with and without limiting the
first paragraph of this Section 12, it is specifically
acknowledged that Bank shall have no duty or
responsibility to:
(i) question Instructions or make any
suggestions to Customer or an Authorized Person
regarding such Instructions;
(ii) supervise or make recommendations with
respect to investments or the retention of
Financial Assets;
(iii) advise Customer or an Authorized
Person regarding any default in the payment of
principal or income of any security other than as
provided in Section 5(c) hereof;
(iv) evaluate or report to Customer or an
Authorized Person regarding the financial
condition of any broker, agent or other party to
which Financial Assets are delivered or payments
are made pursuant hereto; and
(v) review or reconcile trade confirmations
received from brokers. Customer or its Authorized
Persons issuing Instructions shall bear any
responsibility to review such confirmations
against Instructions issued to and statements
issued by Bank.
(c) Customer authorizes Bank to act hereunder
notwithstanding that Bank or any of its divisions or
Affiliates may have a material interest in a
transaction, or circumstances are such that Bank may
have a potential conflict of duty or interest including
the fact that Bank or any of its Affiliates may provide
brokerage services to other customers, act as financial
advisor to the issuer of Financial Assets, act as a
lender to the issuer of Financial Assets, act in the
same transaction as agent for more than one customer,
have a material interest in the issue of Financial
Assets, or earn profits from any of the activities
listed herein.
13. Fees and Expenses.
Customer shall pay Bank for its services hereunder
the fees set forth in Schedule B hereto or such other
amounts as may be agreed upon in writing, together with
Bank's reasonable out-of-pocket or incidental
<PAGE>
expenses, including, but not limited to, legal fees.
Bank shall have a lien on and is authorized to charge
any Accounts of Customer for any amount owing to Bank
under any provision hereof.
14. Miscellaneous.
(a) Foreign Exchange Transactions. To facilitate
the administration of Customer's trading and investment
activity, when instructed by specific or standing
Instruction, Bank is authorized to enter into spot or
forward foreign exchange contracts with Customer or an
Authorized Person for Customer and may also provide
foreign exchange through its subsidiaries, Affiliates
or Subcustodians. Instructions, may be issued with
respect to such contracts but Bank may establish rules
or limitations concerning any foreign exchange facility
made available. In all cases where Bank, its
subsidiaries, Affiliates or Subcustodians enter into a
separate master foreign exchange contract with Customer
that covers foreign exchange transactions for the
Accounts, the terms and conditions of that foreign
exchange contract, and to the extent not inconsistent,
this Agreement, shall apply to such transactions.
(b) Certification of Residency, etc. Customer
certifies that it is a resident of the United States
and shall notify Bank of any changes in residency.
Bank may rely upon this certification or the
certification of such other facts as may be required to
administer Bank's obligations hereunder. Customer
shall indemnify Bank against all losses, liability,
claims or demands arising directly or indirectly from
any such certifications.
(c) Access to Records. Bank shall allow
Customer's independent public accountant reasonable
access to the records of Bank relating to Financial
Assets as is required in connection with their
examination of books and records pertaining to
Customer's affairs. Subject to restrictions under
applicable law, Bank shall also obtain an undertaking
to permit Customer's independent public accountants
reasonable access to the records of any Subcustodian
which has physical possession of any Financial Assets
as may be required in connection with the examination
of Customer's books and records.
(d) Governing Law; Successors and Assigns;
Immunity; Captions THIS AGREEMENT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN NEW YORK and
shall not be assignable by either party, but shall bind
the successors in interest of Customer and Bank. . To
the extent that in any jurisdiction Customer may now or
hereafter be entitled to claim, for itself or its
assets, immunity from suit, execution, attachment
(before or after judgment) or other legal process,
Customer irrevocably shall not claim, and it hereby
waives, such immunity. The captions given to the
sections and subsections of this Agreement are for
convenience of reference only and are not to be used to
interpret this Agreement.
(e) Entire Agreement; Applicable Riders.
Customer represents that the Assets deposited in the
Accounts are (Check one):
__ Investment Company assets subject to
certain U.S. Securities and Exchange Commission rules
and regulations;
__ Other (specify)
This Agreement consists exclusively of this
document together with Schedules A and B, Exhibits
I - _______ and the following Rider(s) [Check
applicable rider(s)]:
__ INVESTMENT COMPANY
__ PROXY VOTING
<PAGE>
__ SPECIAL TERMS AND CONDITIONS
There are no other provisions hereof and this
Agreement supersedes any other agreements, whether
written or oral, between the parties. Any amendment
hereto must be in writing, executed by both parties.
(f) Severability. In the event that one or more
provisions hereof are held invalid, illegal or
unenforceable in any respect on the basis of any
particular circumstances or in any jurisdiction, the
validity, legality and enforceability of such provision
or provisions under other circumstances or in other
jurisdictions and of the remaining provisions shall not
in any way be affected or impaired.
(g) Waiver. Except as otherwise provided herein,
no failure or delay on the part of either party in
exercising any power or right hereunder operates as a
waiver, nor does any single or partial exercise of any
power or right preclude any other or further exercise,
or the exercise of any other power or right. No waiver
by a party of any provision hereof, or waiver of any
breach or default, is effective unless in writing and
signed by the party against whom the waiver is to be
enforced.
(h) Representations and Warranties. (i)
Customer hereby represents and warrants to Bank that:
(A) it has full authority and power to deposit and
control the Financial Assets and cash deposited in the
Accounts; (B) it has all necessary authority to use
Bank as its custodian; (C) this Agreement constitutes
its legal, valid and binding obligation, enforceable
in accordance with its terms; (D) it shall have full
authority and power to borrow moneys and enter into
foreign exchange transactions; and (E) it has not
relied on any oral or written representation made by
Bank or any person on its behalf, and acknowledges
that this Agreement sets out to the fullest extent the
duties of Bank. (ii) Bank hereby represents and
warrants to Customer that: (A) it has the full power
and authority to perform its obligations hereunder,
(B) this Agreement constitutes its legal, valid and
binding obligation, enforceable in accordance with its
terms; and (C) that it has taken all necessary action
to authorize the execution and delivery hereof.
(i) Notices. All notices hereunder shall be
effective when actually received. Any notices or
other communications which may be required hereunder
are to be sent to the parties at the following
addresses or such other addresses as may subsequently
be given to the other party in writing: (a) Bank: The
Chase Manhattan Bank, 4 Chase MetroTech Center,
Brooklyn, N.Y. 11245, Attention: Global Investor
Services, Investment Management Group; and (b)
Customer: ___________________________________________.
(j) Termination. This Agreement may be
terminated by Customer or Bank by giving sixty (60)
days written notice to the other, provided that such
notice to Bank shall specify the names of the persons
to whom Bank shall deliver the Assets in the Accounts.
If notice of termination is given by Bank, Customer
shall, within sixty (60) days following receipt of the
notice, deliver to Bank Instructions specifying the
names of the persons to whom Bank shall deliver the
Assets. In either case Bank shall deliver the Assets
to the persons so specified, after deducting any
amounts which Bank determines in good faith to be owed
to it under Section 13. If within sixty (60) days
following receipt of a notice of termination by Bank,
Bank does not receive Instructions from Customer
specifying the names of the persons to whom Bank shall
deliver the Assets, Bank, at its election, may deliver
the Assets to a bank or trust company doing business in
the State of New York to be held and disposed of
pursuant to the provisions hereof, or to Authorized
Persons, or may continue to hold the Assets until
Instructions are provided to Bank.
(k) Money Laundering. Customer warrants and
undertakes to Bank for itself and its agents that all
Customer's customers are properly identified in
accordance with U.S. Money Laundering Regulations as in
effect from time to time.
<PAGE>
(l) Imputation of certain information. Bank
shall not be held responsible for and shall not be
required to have regard to information held by any
person by imputation or information of which Bank is
not aware by virtue of a "Chinese Wall" arrangement.
If Bank becomes aware of confidential information which
in good faith it feels inhibits it from effecting a
transaction hereunder Bank may refrain from effecting
it.
15. Definitions.
As used herein, the following terms shall have the
meaning hereinafter stated:
a) "Certificated Security" shall mean a security
that is represented by a certificate.
b) "Custody Account" shall mean each Securities
custody account on Bank's records to which Financial
Assets are or may be credited pursuant hereto.
c) "Entitlement Holder" shall mean the person on
the records of a Securities Intermediary as the person
having a Securities Entitlement against the Securities
Intermediary.
d) "Financial Asset" shall mean, as the context
requires, either the asset itself or the means by which
a person's claim to it is evidenced, including a
Certificated Security or Uncertificated Security, a
security certificate, or a Securities Entitlement.
e) "Securities" shall mean stocks, bonds, rights,
warrants and other negotiable and non-negotiable paper
whether issued as Certificated Securities or
Uncertificated Securities and commonly traded or dealt
in on securities exchanges or financial markets, and
other obligations of an issuer, or shares,
participations and interests in an issuer recognized in
an area in which it is issued or dealt in as a medium
for investment and any other property as shall be
acceptable to Bank for the Custody Account.
f) "Securities Entitlement" shall mean the rights
and property interest of an Entitlement Holder with
respect to a Financial Asset as set forth in Part 5 of
the Uniform Commercial Code.
g) "Securities Intermediary" shall mean Bank, a
Subcustodian, a securities depository, and any other
financial institution which in the ordinary course of
business maintains custody accounts for others and acts
in that capacity.
h) "Uncertificated Security" shall mean a security
that is not represented by a certificate.
i) "Uniform Commercial Code" shall mean Article 8
of the Uniform Commercial Code of the State of New
York, as the same may be amended from time to time.
IN WITNESS WHEREOF, the parties hereto have
executed this Agreement as of the date first-above
written.
CUSTOMER
By: /s/ Charles M. O'Herin
--------------------------
Title: Vice President, Secretary and Treasurer
Date: May 21, 1999
THE CHASE MANHATTAN BANK
By: /s/ Kathleen Roeder
-------------------------
Title: Vice President
Date: June 1, 1999
FIRSTAR BANK, MILWAUKEE, N.A.
By: /s/ Andrea McVoy
---------------------------
Title: Assistant Vice President
Date: June 1, 1999
<PAGE>
STATE OF WASHINGTON )
: ss.
COUNTY OF PIERCE )
On this 21st day of May, 1999 , before me personally came
Charles M. O'Herin, to me known, who being by me duly sworn, did depose
and say that he resides in Tacoma at 4109 N. Vassault, that he is
Vice President of Light Revolution Fund, Inc., the entity described in and
which executed the foregoing instrument; that he knows the seal of
said entity, that the seal affixed to said instrument
is such seal, that it was so affixed by order of said
entity, and that he signed his name thereto by like order.
Sworn to before me this 21st day of May, 1999.
Notary /s/ Karen Demelo
<PAGE>
Investment Company Rider to Global Custody Agreement
Between The Chase Manhattan Bank and
Firstar Bank, Milwaukee, N.A. and
Light Revolution Fund, Inc.
effective June 1, 1999
The following modifications are made to the Agreement:
A. Add a new Section 16 to the Agreement as
follows:
"16. Compliance with SEC rule 17f-5.
(a) Customer's board of directors (or equivalent
body) (hereinafter `Board') hereby delegates to Bank,
and, except as to the country or countries as to which
Bank may, from time to time, advise Customer that it
does not accept such delegation, Bank hereby accepts
the delegation to it, of the obligation to perform as
Customer's `Foreign Custody Manager' (as that term is
defined in SEC rule 17f-5(a)(2)), both for the purpose
of selecting Eligible Foreign Custodians (as that term
is defined in SEC rule 17f-5(a)(1), and as the same may
be amended from time to time, or that have otherwise
been made exempt pursuant to an SEC exemptive order) to
hold Financial Assets and Cash and of evaluating the
contractual arrangements with such Eligible Foreign
Custodians (as set forth in SEC rule 17f-5(c)(2));
provided that, the term Eligible Foreign Custodian
shall not include any `Compulsory Depository.' A
Compulsory Depository shall mean a securities
depository or clearing agency the use of which is
compulsory because: (1) its use is required by law or
regulation, (2) securities cannot be withdrawn from the
depository, or (3) maintaining securities outside the
depository is not consistent with prevailing custodial
practices in the country which the depository serves.
Compulsory Depositories used by Bank as of the date
hereof are set forth in Appendix 1-A hereto, and as the
same may be amended on notice to Customer from time to
time.
(b) In connection with the foregoing, Bank shall:
(i) provide written reports notifying Customer's
Board of the placement of Financial Assets and
Cash with particular Eligible Foreign Custodians
and of any material change in the arrangements
with such Eligible Foreign Custodians, with such
reports to be provided to Customer's Board at such
times as the Board deems reasonable and
appropriate based on the circumstances of
Customer's foreign custody arrangements (and until
further notice from Customer such reports shall be
provided not less than quarterly with respect to
the placement of Financial Assets and Cash with
particular Eligible Foreign Custodians and with
reasonable promptness upon the occurrence of any
material change in the arrangements with such
Eligible Foreign Custodians);
(ii) exercise such reasonable care, prudence and
diligence in performing as Customer's Foreign
Custody Manager as a person having responsibility
for the safekeeping of Financial Assets and Cash
would exercise;
(iii) in selecting an Eligible Foreign Custodian,
first have determined that Financial Assets and
Cash placed and maintained in the safekeeping of
such Eligible Foreign Custodian shall be subject
to reasonable care, based on the standards
applicable to custodians in the relevant market,
after having considered all factors relevant to
the safekeeping of such Financial Assets and Cash,
including, without limitation, those factors set
forth in SEC rule 17f-5(c)(1)(i)-(iv);
<PAGE>
(iv) determine that the written contract with the
Eligible Foreign Custodian (or, in the case of an
Eligible Foreign Custodians that is a securities
depository or clearing agency, such contract, the
rules or established practices or procedures of
the depository, or any combination of the
foregoing) requires that the Eligible Foreign
Custodian will provide reasonable care for
Financial Assets and Cash based on the standards
applicable to custodians in the relevant market.
(v) have established a system to monitor the
continued appropriateness of maintaining Financial
Assets and Cash with particular Eligible Foreign
Custodians and of the governing contractual
arrangements; it being understood, however, that
in the event that Bank shall have determined that
the existing Eligible Foreign Custodian in a given
country would no longer afford Financial Assets
and Cash reasonable care and that no other
Eligible Foreign Custodian in that country would
afford reasonable care, Bank shall promptly so
advise Customer and shall then act in accordance
with the Instructions of Customer with respect to
the disposition of the affected Financial Assets
and Cash.
Subject to (b)(i)-(v) above, Bank is hereby authorized
to place and maintain Financial Assets and Cash on
behalf of Customer with Eligible Foreign Custodians
pursuant to a written contract deemed appropriate by
Bank.
(c) Except as expressly provided herein, Customer
shall be solely responsible to assure that the
maintenance of Financial Assets and Cash hereunder
complies with the rules, regulations, interpretations
and exemptive orders promulgated by or under the
authority of the SEC.
(d) Bank represents to Customer that it is a U.S.
Bank as defined in Rule 17f-5(a)(7). Customer
represents to Bank that: (1) the Financial Assets and
Cash being placed and maintained in Bank's custody are
subject to the Investment Company Act of 1940, as
amended (the "1940 Act"), as the same may be amended
from time to time; (2) its Board: (i) has determined
that it is reasonable to rely on Bank to perform as
Customer's Foreign Custody Manager (ii) or its
investment adviser shall have determined that Customer
may maintain Financial Assets and Cash in each country
in which Customer's Financial Assets and Cash shall be
held hereunder and determined to accept the risks
arising therefrom (including, but not limited to, a
country's financial infrastructure), prevailing custody
and settlement practices, laws applicable to the
safekeeping and recovery of Financial Assets and Cash
held in custody, and the likelihood of nationalization,
currency controls and the like) (collectively ("Country
Risk")). Nothing contained herein shall require Bank
to make any selection or to engage in any monitoring on
behalf of Customer that would entail consideration of
Country Risk.
(e) Bank shall provide to Customer such
information relating to Country Risk as is specified in
Appendix 1-B hereto. Customer hereby acknowledges
that: (i) such information is solely designed to inform
Customer of market conditions and procedures and is not
intended as a recommendation to invest or not invest in
particular markets; and (ii) Bank has gathered the
information from sources it considers reliable, but
that Bank shall have no responsibility for inaccuracies
or incomplete information.
B. Add the following after the first sentence of
Section 3 of the Agreement: "At the request of
Customer, Bank may, but need not, add to Schedule A an
Eligible Foreign Custodian that is either a bank or a
non-Compulsory Depository where Bank has not acted as
Foreign Custody Manager with respect to the selection
thereof. Bank shall notify Customer in the event that
it elects to add any such entity."
C. Add the following language to the end of
Section 3 of the Agreement:
"The term Subcustodian as used herein shall mean the
following:
<PAGE>
(a) a `U.S. Bank,' which shall mean a U.S. bank
as defined in SEC rule 17f-5(a)(7);
(b) an `Eligible Foreign Custodian,' which shall
mean (i) a banking institution or trust company,
incorporated or organized under the laws of a
country other than the United States, that is
regulated as such by that country's government or
an agency thereof, (ii) a majority-owned direct or
indirect subsidiary of a U.S. bank or bank holding
company which subsidiary is incorporated or
organized under the laws of a country other than
the United States; (iii) a securities depository
or clearing agency, incorporated or organized
under the laws of a country other than the United
States (other than a Compulsory Depository), that
acts as a system for the central handling of
securities or equivalent book-entries in that
country and that is regulated by a foreign
financial regulatory authority as defined under
section 2(a)(50) of the 1940 Act, (iv) a
securities depository or clearing agency organized
under the laws of a country other than the United
States to the extent acting as a transnational
system for the central handling of securities or
equivalent book-entries, and (v) any other entity
that shall have been so qualified by exemptive
order, rule or other appropriate action of the
SEC.
For purposes of clarity, it is agreed that as used in
Section 12(a)(i), the term Subcustodian shall not
include any Eligible Foreign Custodian as to which Bank
has not acted as Foreign Custody Manager or any
Compulsory Depository."
<PAGE>
Appendix 1-A
COMPULSORY DEPOSITORIES
<PAGE>
Appendix 1-B
Information Regarding Country Risk
1. To aid Customer in its determinations
regarding Country Risk, Bank shall furnish annually and
upon the initial placing of Financial Assets and Cash
into a country the following information (check items
applicable):
A Opinions of local counsel concerning:
___ i. Whether applicable foreign law would
restrict the access afforded Customer's
independent public accountants to books and
records kept by an eligible foreign custodian
located in that country.
___ ii. Whether applicable foreign law would
restrict the Customer's ability to recover
its Financial Assets and Cash in the event of
the bankruptcy of an Eligible Foreign
Custodian located in that country.
___ iii. Whether applicable foreign law would
restrict the Customer's ability to recover
Financial Assets that are lost while under
the control of an Eligible Foreign Custodian
located in the country.
B. Written information concerning:
___ i. The foreseeability of expropriation,
nationalization, freezes, or confiscation of
Customer's Financial Assets and Cash.
___ ii. Whether difficulties in converting
Customer's cash and cash equivalents to U.S.
dollars are reasonably foreseeable.]
C. A market report with respect to the following topics:
(i) securities regulatory environment, (ii)
foreign ownership restrictions, (iii) foreign
exchange, (iv) securities settlement and
registration, (v) taxation, and (vi) compulsory
depositories (including depository evaluation).
2. To aid Customer in monitoring Country Risk,
Bank shall furnish board the following additional
information:
Market flashes, including with respect to changes
in the information in market reports.
<PAGE>
GLOBAL PROXY SERVICE RIDER
To Global Custody Agreement
Between
THE CHASE MANHATTAN BANK
FIRSTAR BANK, MILWAUKEE, N.A.
AND
____________________________________
dated 1999.
1. Global Proxy Services ("Proxy Services") shall be
provided for the countries listed in the proce
dures and guidelines ("Procedures") furnished to
Customer, as the same may be amended by Bank from
time to time on prior notice to Customer. The
Procedures are incorporated by reference herein
and form a part of this Rider.
2. Proxy Services shall consist of those elements as
set forth in the Procedures, and shall include (a)
notifications ("Notifications") by Bank to
Customer of the dates of pending shareholder
meetings, resolutions to be voted upon and the
return dates as may be received by Bank or
provided to Bank by its Subcustodians or third
parties, and (b) voting by Bank of proxies based
on Customer Instructions. Original proxy
materials or copies thereof shall not be provided.
Notifications shall generally be in English and,
where necessary, shall be summarized and
translated from such non-English materials as have
been made available to Bank or its Subcustodian.
In this respect Bank's only obligation is to
provide information from sources it believes to be
reliable and/or to provide materials summarized
and/or translated in good faith. Bank reserves
the right to provide Notifications, or parts
thereof, in the language received. Upon
reasonable advance request by Customer, backup
information relative to Notifications, such as
annual reports, explanatory material concerning
resolutions, management recommendations or other
material relevant to the exercise of proxy voting
rights shall be provided as available, but without
translation.
3. While Bank shall attempt to provide accurate and
complete Notifications, whether or not translated,
Bank shall not be liable for any losses or other
consequences that may result from reliance by
Customer upon Notifications where Bank prepared
the same in good faith.
4. Notwithstanding the fact that Bank may act in a
fiduciary capacity with respect to Customer under
other agreements or otherwise under the Agreement,
in performing Proxy Services Bank shall be acting
solely as the agent of Customer, and shall not
exercise any discretion with regard to such Proxy
Services.
5. Proxy voting may be precluded or restricted in a
variety of circumstances, including, without
limitation, where the relevant Financial Assets
are: (i) on loan; (ii) at registrar for
registration or reregistration; (iii) the subject
of a conversion or other corporate action; (iv)
not held in a name subject to the control of Bank
or its Subcustodian or are otherwise held in a
manner which precludes voting; (v) not capable of
being voted on account of local market regulations
or practices or restrictions by the issuer; or
(vi) held in a margin or collateral account.
<PAGE>
6. Customer acknowledges that in certain countries
Bank may be unable to vote individual proxies but
shall only be able to vote proxies on a net basis
(e.g., a net yes or no vote given the voting
instructions received from all customers).
7. Customer shall not make any use of the information
provided hereunder, except in connection with the
funds or plans covered hereby, and shall in no
event sell, license, give or otherwise make the
information provided hereunder available, to any
third party, and shall not directly or indirectly
compete with Bank or diminish the market for Proxy
Services by provision of such information, in
whole or in part, for compensation or otherwise,
to any third party.
8. The names of Authorized Persons for Proxy Services
shall be furnished to Bank in accordance with 10
of the Agreement. Proxy Services fees shall be as
set forth in 13 of the Agreement or as separately
agreed.
<PAGE>
SPECIAL TERMS AND CONDITIONS RIDER
GLOBAL CUSTODY AGREEMENT
WITH ____________________________
DATE ____________________________
<PAGE>
DOMESTIC ONLY
SPECIAL TERMS AND CONDITIONS RIDER
Domestic Corporate Actions and Proxies
With respect to domestic U.S. and Canadian Financial
Assets (the latter if held in DTC), the following
provisions shall apply rather than the provisions of
Section 8 of the Agreement and the Global Proxy Service
rider:
Bank shall send to Customer or the Authorized
Person for a Custody Account, such proxies
(signed in blank, if issued in the name of
Bank's nominee or the nominee of a central
depository) and communications with respect
to Financial Assets in the Custody Account as
call for voting or relate to legal
proceedings within a reasonable time after
sufficient copies are received by Bank for
forwarding to its customers. In addition,
Bank shall follow coupon payments,
redemptions, exchanges or similar matters
with respect to Financial Assets in the
Custody Account and advise Customer or the
Authorized Person for such Account of rights
issued, tender offers or any other
discretionary rights with respect to such
Financial Assets, in each case, of which Bank
has received notice from the issuer of the
Financial Assets, or as to which notice is
published in publications routinely utilized
by Bank for this purpose.
Fees
The fees referenced in Section 13 hereof cover only
domestic and euro-dollar holdings. There shall be no
Schedule A hereto, as there are no foreign assets in
the Accounts.
<PAGE>
DOMESTIC AND GLOBAL
SPECIAL TERMS AND CONDITIONS RIDER
Domestic Corporate Actions and Proxies
With respect to domestic U.S. and Canadian Financial
Assets (the latter if held in DTC), the following
provisions shall apply rather than the pertinent
provisions of Section 8 of the Agreement and the Global
Proxy Service rider:
Bank shall send to Customer or the Authorized
Person for a Custody Account, such proxies
(signed in blank, if issued in the name of
Bank's nominee or the nominee of a central
depository) and communications with respect
to Financial Assets in the Custody Account as
call for voting or relate to legal
proceedings within a reasonable time after
sufficient copies are received by Bank for
forwarding to its customers. In addition,
Bank shall follow coupon payments,
redemptions, exchanges or similar matters
with respect to Financial Assets in the
Custody Account and advise Customer or the
Authorized Person for such Account of rights
issued, tender offers or any other
discretionary rights with respect to such
Financial Assets, in each case, of which Bank
has received notice from the issuer of the
Financial Assets, or as to which notice is
published in publications routinely utilized
by Bank for this purpose.
TRANSFER AGENT SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of this
15th day of May, 1999, by and between Light Revolution
Fund, Inc., a Maryland corporation (hereinafter
referred to as the "Company"), and Firstar Mutual Fund
Services, LLC, a Wisconsin limited liability company
(hereinafter referred to as the "Firstar").
WHEREAS, the Company is an open-end management
investment company which is registered under the
Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Company is authorized to create
separate series, each with its own separate investment
portfolio;
WHEREAS, Firstar is in the business of
administering transfer and dividend disbursing agent
functions for investment companies; and
WHEREAS, the Company desires to retain Firstar to
provide transfer and dividend disbursing agent services
to the Light Revolution Fund and each additional series
of the Company listed on Exhibit A attached hereto
(each, a "Fund"), as may be amended from time to time.
NOW, THEREFORE, in consideration of the mutual
agreements herein made, the Company and Firstar agree
as follows:
1. Appointment of Transfer Agent
The Company hereby appoints Firstar as Transfer
Agent of the Company on the terms and conditions set
forth in this Agreement, and Firstar hereby accepts
such appointment and agrees to perform the services and
duties set forth in this Agreement in consideration of
the compensation provided for herein.
2. Duties and Responsibilities of Firstar
Firstar shall perform all of the customary
services of a transfer agent and dividend disbursing
agent, and as relevant, agent in connection with
accumulation, open account or similar plans (including
without limitation any periodic investment plan or
periodic withdrawal program), including but not limited
to:
A. Receive orders for the purchase of shares;
B. Process purchase orders with prompt delivery,
where appropriate, of payment and supporting
documentation to the Company's custodian, and
issue the appropriate
<PAGE>
number of uncertificated shares with such
uncertificated shares being held in the
appropriate shareholder account;
C. Process redemption requests received in good
order and, where relevant, deliver
appropriate documentation to the Company's
custodian;
D. Pay monies upon receipt from the Company's
custodian, where relevant, in accordance with
the instructions of redeeming shareholders;
E. Process transfers of shares in accordance with
the shareholder's instructions;
F. Process exchanges between funds and/or classes
of shares of funds both within the same
family of funds and with the Firstar Money
Market Funds, if applicable;
G. Prepare and transmit payments for dividends and
distributions declared by the Company with
respect to the Fund;
H. Make changes to shareholder records, including,
but not limited to, address changes in plans
(i.e., systematic withdrawal, automatic
investment, dividend reinvestment, etc.);
I. Record the issuance of shares of the Fund and
maintain, pursuant to Rule 17ad-10(e)
promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), a
record of the total number of shares of the
Fund which are authorized, issued and
outstanding;
J. Prepare shareholder meeting lists and, if
applicable, mail, receive and tabulate
proxies;
K. Mail shareholder reports and prospectuses to
current shareholders;
L. Prepare and file U.S. Treasury Department Forms
1099 and other appropriate information
returns required with respect to dividends
and distributions for all shareholders;
M. Provide shareholder account information upon
request and prepare and mail confirmations
and statements of account to shareholders for
all purchases, redemptions and other
confirmable transactions as agreed upon with
the Company;
N. Provide a Blue Sky System which will enable the
Company to monitor the total number of shares
of the Fund sold in each state. In addition,
the Company or its agent, including Firstar,
shall identify to Firstar in writing those
transactions and assets to be treated as
exempt from the Blue Sky reporting for each
state. The responsibility of Firstar for the
Company's Blue Sky state registration status
under
<PAGE>
this Agreement is solely limited to the
initial compliance by the Company and the
reporting of such transactions to the Company
or its agent.
O. Answer telephone calls and correspondence from
shareholders relating to their accounts
during Firstar's normal business hours.
Firstar shall strive to promptly respond to
all such telephone or written inquiries from
shareholders. Copies of all correspondence
from shareholders involving complaints about
the management of the Company, services
provided by or for the Company, Firstar or
others, shall be promptly forwarded to the
Company. Firstar shall keep records of
substantive shareholder telephone calls and
correspondence and replies thereto, and of
the lapse of time between receipt of such
calls and correspondence and replies.
P. Prepare such reports as may be reasonably
requested from time to time by the Company or
its Board of Directors relating to fees paid
out under a Fund's Rule 12b-1 plan.
3. Compensation
The Company agrees to pay Firstar for the
performance of the duties listed in this Agreement as
set forth on Exhibit A attached hereto; the fees and
out-of-pocket expenses include, but are not limited to
the following: printing, postage, forms, stationery,
record retention (if requested by the Company),
mailing, insertion, programming (if requested by the
Company), labels, shareholder lists and proxy expenses.
These fees and reimbursable expenses may be
changed from time to time subject to mutual written
agreement between the Company and Firstar.
The Company agrees to pay all fees and
reimbursable expenses within ten (10) business days
following the receipt of the billing notice.
4. Representations of Firstar
Firstar represents and warrants to the Company
that:
A. It is a limited liability company duly
organized, existing and in good standing
under the laws of Wisconsin;
B. It is a registered transfer agent under the
Exchange Act.
C. It is duly qualified to carry on its business
in the State of Wisconsin;
D. It is empowered under applicable laws and by its
charter and bylaws to enter into and perform
this Agreement;
<PAGE>
E. All requisite corporate proceedings have been
taken to authorize it to enter and perform
this Agreement;
F. It has and will continue to have access to the
necessary facilities, equipment and personnel
to perform its duties and obligations under
this Agreement; and
G. It will comply with all applicable requirements
of the Securities Act of 1933, as amended
(the "Securities Act"), and the Exchange Act,
the 1940 Act, and any laws, rules, and
regulations of governmental authorities
having jurisdiction.
5. Representations of the Company
The Company represents and warrants to Firstar
that:
A. The Company is an open-end diversified
investment company under the 1940 Act;
B. The Company is a corporation organized,
existing, and in good standing under the laws
of Maryland;
C. The Company is empowered under applicable laws
and by its Articles of Incorporation and
Bylaws to enter into and perform this
Agreement;
D. All necessary proceedings required by the
Articles of Incorporation have been taken to
authorize it to enter into and perform this
Agreement;
E. The Company will comply with all applicable
requirements of the Securities Act, the
Exchange Act, the 1940 Act, and any laws,
rules and regulations of governmental
authorities having jurisdiction; and
F. A registration statement under the Securities
Act will be made effective and will remain
effective, and appropriate state securities
law filings have been made and will continue
to be made, with respect to all shares of the
Company being offered for sale.
6. Covenants of the Company and Firstar
The Company shall furnish Firstar a certified copy
of the resolution of the Board of Directors of the
Fund authorizing the appointment of Firstar and the
execution of this Agreement. The Company shall provide
to Firstar a copy of its Articles of Incorporation and
Bylaws, and all amendments thereto.
Firstar shall keep records relating to the
services to be performed hereunder, in the form and
manner as it may deem advisable and as required under
the Exchange Act. To the extent required by Section 31
of the 1940 Act, and the rules thereunder, Firstar
agrees that all such
<PAGE>
records prepared or maintained by
Firstar relating to the services to be performed by
Firstar hereunder are the property of the Company and
will be preserved, maintained and made available in
accordance with such section and rules and will be
surrendered to the Company on and in accordance with
its request.
7. Performance of Service; Limitation of Liability
Firstar shall exercise reasonable care in the
performance of its duties under this Agreement.
Firstar shall not be liable for any error of judgment
or mistake of law or for any loss suffered by the
Company in connection with matters to which this
Agreement relates, including losses resulting from
mechanical breakdowns or the failure of communication
or power supplies beyond Firstar's control, except a
loss resulting from Firstar's refusal or failure to
comply with the terms of this Agreement or from bad
faith, negligence, or willful misconduct on its part in
the performance of its duties under this Agreement.
Notwithstanding any other provision of this Agreement,
the Company shall indemnify and hold harmless Firstar
from and against any and all claims, demands, losses,
expenses, and liabilities (whether with or without
basis in fact or law) of any and every nature
(including reasonable attorneys' fees) which Firstar
may sustain or incur or which may be asserted against
Firstar by any person arising out of any action taken
or omitted to be taken by it in performing the services
hereunder (i) in accordance with the foregoing
standards, or (ii) in reliance upon any written or oral
instruction provided to Firstar by any duly authorized
officer of the Company, such duly authorized officer to
be included in a list of authorized officers furnished
to Firstar and as amended from time to time in writing
by resolution of the Board of Directors of the Company.
Firstar shall indemnify and hold the Company
harmless from and against any and all claims, demands,
losses, expenses, and liabilities (whether with or
without basis in fact or law) of any and every nature
(including reasonable attorneys' fees) which the
Company may sustain or incur or which may be asserted
against the Company by any person arising out of any
action taken or omitted to be taken by Firstar as a
result of Firstar's refusal or failure to comply with
the terms of this Agreement, its bad faith, negligence,
or willful misconduct.
In the event of a mechanical breakdown or failure
of communication or power supplies beyond its control,
Firstar shall take all reasonable steps to minimize
service interruptions for any period that such
interruption continues beyond Firstar's control.
Firstar will make every reasonable effort to restore
any lost or damaged data and correct any errors
resulting from such a breakdown at the expense of
Firstar. Firstar agrees that it shall, at all times,
have reasonable contingency plans with appropriate
parties, making reasonable provision for emergency use
of electrical data processing equipment to the extent
appropriate equipment is available. Representatives of
the Company shall be entitled to inspect Firstar's
premises and operating capabilities at any time during
regular business hours of Firstar, upon reasonable
notice to Firstar.
Regardless of the above, Firstar reserves the
right to reprocess and correct administrative errors at
its own expense.
<PAGE>
In order that the indemnification provisions
contained in this section shall apply, it is understood
that if in any case the indemnitor may be asked to
indemnify or hold the indemnitee harmless, the
indemnitor shall be fully and promptly advised of all
pertinent facts concerning the situation in question,
and it is further understood that the indemnitee will
use all reasonable care to notify the indemnitor
promptly concerning any situation which presents or
appears likely to present the probability of a claim
for indemnification. The indemnitor shall have the
option to defend the indemnitee against any claim which
may be the subject of this indemnification. In the
event that the indemnitor so elects, it will so notify
the indemnitee and thereupon the indemnitor shall take
over complete defense of the claim, and the indemnitee
shall in such situation initiate no further legal or
other expenses for which it shall seek indemnification
under this section. The indemnitee shall in no case
confess any claim or make any compromise in any case in
which the indemnitor will be asked to indemnify the
indemnitee except with the indemnitor's prior written
consent.
8. Proprietary and Confidential Information
Firstar agrees on behalf of itself and its
directors, officers, and employees to treat
confidentially and as proprietary information of the
Company all records and other information relative to
the Company and prior, present, or potential
shareholders (and clients of said shareholders) and not
to use such records and information for any purpose
other than the performance of its responsibilities and
duties hereunder, except after prior notification to
and approval in writing by the Company, which approval
shall not be unreasonably withheld and may not be
withheld where Firstar may be exposed to civil or
criminal contempt proceedings for failure to comply
after being requested to divulge such information by
duly constituted authorities, or when so requested by
the Company.
9. Term of Agreement; Amendment
This Agreement shall become effective as of the
date hereof and, unless sooner terminated as provided
herein, shall continue automatically in effect for
successive annual periods. The Agreement may be
terminated by either party upon giving ninety (90) days
prior written notice to the other party or such shorter
period as is mutually agreed upon by the parties. This
Agreement may be amended only by mutual written consent
of the parties.
10. Notices
Notices of any kind to be given by either party to
the other party shall be in writing and shall be duly
given if mailed or delivered as follows: Notice to
Firstar shall be sent to:
Firstar Mutual Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202
<PAGE>
and notice to the Company shall be sent to:
Light Revolution Fund, Inc.
704 Court A
Tacoma, Washington 98402
Attention: Corporate Secretary
11. Duties in the Event of Termination
In the event that, in connection with termination,
a successor to any of Firstar's duties or
responsibilities hereunder is designated by the Company
by written notice to Firstar, Firstar will promptly,
upon such termination and at the expense of the
Company, transfer to such successor all relevant books,
records, correspondence, and other data established or
maintained by Firstar under this Agreement in a form
reasonably acceptable to the Company (if such form
differs from the form in which Firstar has maintained,
the Company shall pay any expenses associated with
transferring the data to such form), and will cooperate
in the transfer of such duties and responsibilities,
including provision for assistance from Firstar's
personnel in the establishment of books, records, and
other data by such successor.
12. Governing Law
This Agreement shall be construed and the
provisions thereof interpreted under and in accordance
with the laws of the State of Wisconsin. However,
nothing herein shall be construed in a manner
inconsistent with the 1940 Act or any rule or
regulation promulgated by the Securities and Exchange
Commission thereunder.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by a duly authorized
officer in one or more counterparts as of the day and
year first written above.
LIGHT REVOLUTION FIRSTAR MUTUAL FUND
FUND, INC. SERVICES, LLC
By: /s/ Charles M. O'Herin By: /s/ Michael R. McVoy
- ----------------------------- -------------------------------
Its: Secretary Its: Vice President
- ----------------------------- -------------------------------
<PAGE>
Transfer Agent and Shareholder Servicing
Annual Fee Schedule
Exhibit A
Separate Series of Light Revolution Fund, Inc.
Name of Series Date Added
Light Revolution Fund May 15, 1999
Annual Fee
$16.00 per shareholder account
Minimum annual fees of $28,000 for the first
Fund, $10,000 for additional funds or classes
Plus Out-of-Pocket Expenses, including but not limited to:
Telephone - toll-free lines Proxies
Postage Retention of records (with prior approval)
Programming (with prior approval) Microfilm/fiche of records
Stationery/envelopes Special reports
Mailing ACH fees
Insurance NSCC charges
ACH Shareholder Services
$125.00 per month per Fund group
$ .50 per account setup and/or change
$ .50 per ACH item
$ 3.50 per correction, reversal, return item
Qualified Plan Fees (Billed to Investors)
Annual maintenance fee per account $12.50 / acct. (Cap at $25.00 per SSN)
Transfer to successor trustee $15.00 / trans.
Distribution to participant $15.00 / trans. (Exclusive of SWP)
Refund of excess contribution $15.00 / trans.
Additional Shareholder Fees (Billed to Investors)
Any outgoing wire transfer $12.00 / wire
Telephone Exchange $ 5.00 / exchange transaction
Return check fee $25.00 / item
Stop payment $20.00 / stop
(Liquidation, dividend, draft check)
Research fee $ 5.00 / item
(For requested items of the second calendar year [or previous] to the
request)(Cap at $25.00)
<PAGE>
NSCC and DAZL
Out-of-Pocket Charges
NSCC Interfaces
Setup
Fund/SERV, Networking ACATS, Exchanges $5,000 setup (one time)
DCCS, RAT
Commissions $5,000 setup (one time)
Processing
Fund/SERV $ 50 / month
Networking $250 / month
CPU Access $ 40 / month
Fund/SERV Transactions $.350 / trade
Networking - per item $.025 / monthly dividend fund
Networking - per item $.015 / non-mo. dividend fund
First Data $.100 / next-day Fund/SERV trade
First Data $.150 / same-day Fund/SERV trade
NSCC Implementation
8 to 10 weeks lead time
Fees and out-of-pocket expenses are billed to the Fund monthly.
FUND ADMINISTRATION SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of this
15th day of May, 1999, by and between Light Revolution
Fund, Inc., a Maryland corporation (hereinafter
referred to as the "Company"), and Firstar Mutual Fund
Services, LLC, a Wisconsin limited liability company
(hereinafter referred to as "Firstar").
WHEREAS, the Company is an open-end management
investment company which is registered under the
Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Company is authorized to create
separate series, each with its own separate investment
portfolio;
WHEREAS, Firstar is in the business of providing,
among other things, fund administration services to
investment companies; and
WHEREAS, the Company desires to retain Firstar to
act as Administrator for the Light Revolution Fund and
for each additional series of the Company listed on
Exhibit A attached hereto (each, a "Fund"), as may be
amended from time to time.
NOW, THEREFORE, in consideration of the mutual
agreements herein made, the Company and Firstar agree
as follows:
1. Appointment of Administrator
The Company hereby appoints Firstar as
Administrator of the Company on the terms and
conditions set forth in this Agreement, and Firstar
hereby accepts such appointment and agrees to perform
the services and duties set forth in this Agreement in
consideration of the compensation provided for herein.
2. Duties and Responsibilities of Firstar
A. General Fund Management
1. Act as liaison among all Fund service
providers
2. Coordinate board communication by:
a. Assisting Company counsel in
establishing meeting agendas
b. Preparing board reports based on
financial and administrative data
c. Evaluating independent auditor
<PAGE>
d. Securing and monitoring fidelity bond
and director and officer liability
coverage, and making the necessary
SEC filings relating thereto
e. Preparing minutes of meetings of the
board and shareholders
3. Audits
a. Prepare appropriate schedules and
assist independent auditors
b. Provide information to SEC and
facilitate audit process
c. Provide office facilities
4. Assist in overall operations of the Fund
5. Pay Fund expenses upon written
authorization from the Company
B. Compliance
1. Regulatory Compliance
a. Monitor compliance with 1940 Act
requirements, including:
1) Asset diversification tests
2) Total return and SEC yield
calculations
3) Maintenance of books and records
under Rule 31a-3
4) Code of Ethics for the
disinterested directors of the
Fund
b. Monitor Fund's compliance with the
policies and investment limitations
of the Company as set forth in its
Prospectus and Statement of
Additional Information
2. Blue Sky Compliance
a. Prepare and file with the appropriate
state securities authorities any
and all required compliance filings
relating to the registration of the
securities of the Company so as to
enable the Company to make a
continuous offering of its shares
in all states
b. Monitor status and maintain
registrations in each state
3. SEC Registration and Reporting
a. Assist Company counsel in updating
Prospectus and Statement of
Additional Information and in
preparing proxy statements and
Rule 24f-2 notices
b. Prepare annual and semiannual reports
<PAGE>
c. Coordinate the printing of publicly
disseminated Prospectuses and
reports
d. File fidelity bond under Rule 17g-1
e. File shareholder reports under Rule
30b2-1
4. IRS Compliance
a. Monitor Company's status as a
regulated investment company under
Subchapter M through review of the
following:
1) Asset diversification requirements
2) Qualifying income requirements
3) Distribution requirements
b. Calculate required distributions
(including excise tax distributions)
C. Financial Reporting
1. Provide financial data required by Fund's
Prospectus and Statement of Additional
Information
2. Prepare financial reports for shareholders,
the board, the SEC, and independent
auditors
3. Supervise the Company's Custodian and
Company Accountants in the maintenance
of the Company's general ledger and in
the preparation of the Fund's financial
statements, including oversight of
expense accruals and payments, of the
determination of net asset value of the
Company's net assets and of the
Company's shares, and of the declaration
and payment of dividends and other
distributions to shareholders
D. Tax Reporting
1. Prepare and file on a timely basis
appropriate federal and state tax
returns including Forms 1120/8610 with
any necessary schedules
2. Prepare state income breakdowns where
relevant
3. File Form 1099 Miscellaneous for payments
to directors and other service providers
4. Monitor wash losses
5. Calculate eligible dividend income for
corporate shareholders
<PAGE>
3. Compensation
The Company, on behalf of the Fund, agrees to pay
Firstar for the performance of the duties listed in
this Agreement, the fees and out-of-pocket expenses as
set forth in the attached Exhibit A.
These fees may be changed from time to time,
subject to mutual written Agreement between the Company
and Firstar.
The Company agrees to pay all fees and
reimbursable expenses within ten (10) business days
following the receipt of the billing notice.
4. Performance of Service; Limitation of Liability
A. Firstar shall exercise reasonable care in the
performance of its duties under this Agreement.
Firstar shall not be liable for any error of judgment
or mistake of law or for any loss suffered by the
Company in connection with matters to which this
Agreement relates, including losses resulting from
mechanical breakdowns or the failure of communication
or power supplies beyond Firstar's control, except a
loss resulting from Firstar's refusal or failure to
comply with the terms of this Agreement or from bad
faith, negligence, or willful misconduct on its part in
the performance of its duties under this Agreement.
Notwithstanding any other provision of this Agreement,
the Company shall indemnify and hold harmless Firstar
from and against any and all claims, demands, losses,
expenses, and liabilities (whether with or without
basis in fact or law) of any and every nature
(including reasonable attorneys' fees) which Firstar
may sustain or incur or which may be asserted against
Firstar by any person arising out of any action taken
or omitted to be taken by it in performing the services
hereunder (i) in accordance with the foregoing
standards, or (ii) in reliance upon any written or oral
instruction provided to Firstar by any duly authorized
officer of the Company, such duly authorized officer to
be included in a list of authorized officers furnished
to Firstar and as amended from time to time in writing
by resolution of the Board of Directors of the Company.
Firstar shall indemnify and hold the Company
harmless from and against any and all claims, demands,
losses, expenses, and liabilities (whether with or
without basis in fact or law) of any and every nature
(including reasonable attorneys' fees) which the
Company may sustain or incur or which may be asserted
against the Company by any person arising out of any
action taken or omitted to be taken by Firstar as a
result of Firstar's refusal or failure to comply with
the terms of this Agreement, its bad faith, negligence,
or willful misconduct.
In the event of a mechanical breakdown or
failure of communication or power supplies beyond its
control, Firstar shall take all reasonable steps to
minimize service interruptions for any period that such
interruption continues beyond Firstar's control.
Firstar will make every reasonable effort to restore
any lost or damaged data and correct any errors
resulting from such a breakdown at the expense of
Firstar. Firstar agrees that it shall, at all times,
have reasonable contingency plans with appropriate
parties, making reasonable provision for emergency use
of electrical data processing equipment to the extent
appropriate equipment is
<PAGE>
available. Representatives of
the Company shall be entitled to inspect Firstar's
premises and operating capabilities at any time during
regular business hours of Firstar, upon reasonable
notice to Firstar.
Regardless of the above, Firstar reserves the
right to reprocess and correct administrative errors at
its own expense.
B. In order that the indemnification provisions
contained in this section shall apply, it is understood
that if in any case the indemnitor may be asked to
indemnify or hold the indemnitee harmless, the
indemnitor shall be fully and promptly advised of all
pertinent facts concerning the situation in question,
and it is further understood that the indemnitee will
use all reasonable care to notify the indemnitor
promptly concerning any situation which presents or
appears likely to present the probability of a claim
for indemnification. The indemnitor shall have the
option to defend the indemnitee against any claim which
may be the subject of this indemnification. In the
event that the indemnitor so elects, it will so notify
the indemnitee and thereupon the indemnitor shall take
over complete defense of the claim, and the indemnitee
shall in such situation initiate no further legal or
other expenses for which it shall seek indemnification
under this section. The indemnitee shall in no case
confess any claim or make any compromise in any case in
which the indemnitor will be asked to indemnify the
indemnitee except with the indemnitor's prior written
consent.
5. Proprietary and Confidential Information
Firstar agrees on behalf of itself and its
directors, officers, and employees to treat
confidentially and as proprietary information of the
Company all records and other information relative to
the Company and prior, present, or potential
shareholders of the Company (and clients of said
shareholders), and not to use such records and
information for any purpose other than the performance
of its responsibilities and duties hereunder, except
after prior notification to and approval in writing by
the Company, which approval shall not be unreasonably
withheld and may not be withheld where Firstar may be
exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such
information by duly constituted authorities, or when so
requested by the Company.
6. Data Necessary to Perform Services
The Company or its agent, which may be Firstar,
shall furnish to Firstar the data necessary to perform
the services described herein at times and in such form
as mutually agreed upon.
7. Term of Agreement
This Agreement shall become effective as of the
date hereof and, unless sooner terminated as provided
herein, shall continue automatically in effect for
successive annual periods. The Agreement may be
terminated by either party upon giving ninety (90) days
prior
<PAGE>
written notice to the other party or such shorter
period as is mutually agreed upon by the parties.
However, this Agreement may be amended by mutual
written consent of the parties.
8. Notices
Notices of any kind to be given by either party to
the other party shall be in writing and shall be duly
given if mailed or delivered as follows: Notice to
Firstar shall be sent to:
Firstar Mutual Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202
and notice to the Company shall be sent to:
Light Revolution Fund, Inc.
704 Court A
Tacoma, Washington 98402
Attn: Corporate Secretary
9. Duties in the Event of Termination
In the event that, in connection with termination,
a successor to any of Firstar's duties or
responsibilities hereunder is designated by the Company
by written notice to Firstar, Firstar will promptly,
upon such termination and at the expense of the
Company, transfer to such successor all relevant books,
records, correspondence, and other data established or
maintained by Firstar under this Agreement in a form
reasonably acceptable to the Company (if such form
differs from the form in which Firstar has maintained,
the Company shall pay any expenses associated with
transferring the data to such form), and will cooperate
in the transfer of such duties and responsibilities,
including provision for assistance from Firstar's
personnel in the establishment of books, records, and
other data by such successor.
10. Governing Law
This Agreement shall be construed and the
provisions thereof interpreted under and in accordance
with the laws of the State of Wisconsin. However,
nothing herein shall be construed in a manner
inconsistent with the 1940 Act or any rule or
regulation promulgated by the Securities and Exchange
Commission thereunder.
11. Records
Firstar shall keep records relating to the
services to be performed hereunder, in the form and
manner, and for such period as it may deem advisable
and is agreeable to the Company but not inconsistent
with the rules and regulations of appropriate
government authorities, in particular, Section 31 of
the 1940 Act and the rules thereunder. Firstar agrees
that all such records prepared or maintained by Firstar
relating to the services to be performed by Firstar
<PAGE>
hereunder are the property of the Company and will be
preserved, maintained, and made available in accordance
with such section and rules of the 1940 Act and will be
promptly surrendered to the Company on and in
accordance with its request.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by a duly authorized
officer in one or more counterparts as of the day and
year first written above.
LIGHT REVOLUTION FIRSTAR MUTUAL FUND
FUND, INC. SERVICES, LLC
By: /s/ Henry Hewitt By: /s/ Michael R. McVoy
- ----------------------- ----------------------------
Its: President Its: Vice President
- ----------------------- ----------------------------
<PAGE>
Fund Administration and Compliance
Annual Fee Schedule - Domestic Funds
Exhibit A
Separate Series of Light Revolution Fund, Inc.
Name of Series Date Added
Light Revolution Fund May 15, 1999
Annual fee based upon average assets per Fund
7 basis points on the first $200 million
6 basis points on the next $500 million
4 basis points on the balance
Minimum annual fee: $40,000 for the first
Fund, $30,000 per Fund/class for the next
three Funds/classes and $25,000 per
Fund/class for additional Funds/classes
Plus out-of-pocket expense reimbursements, including but not limited to:
Postage
Programming
Stationery
Proxies
Retention of records
Special reports
Federal and state regulatory filing fees
Certain insurance premiums
Expenses from board of directors meetings
Auditing and legal expenses
Fees and out-of-pocket expense reimbursements are billed to the Fund monthly.
FULFILLMENT SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of this
28th day of May, 1999, by and between Light Revolution
Fund, Inc., a Maryland corporation (hereinafter
referred to as the "Company"), Firstar Mutual Fund
Services, LLC, a Wisconsin limited liability company
(hereinafter referred to as "Firstar"), Light Index
Investment Company, a Washington corporation
(hereinafter referred to as the "Adviser"), and First
Data Distributors, Inc., a Massachusetts corporation
(hereinafter referred to as the "Distributor").
WHEREAS, the Adviser is a registered investment
adviser under the Investment Advisers Act of 1940, as
amended;
WHEREAS, the Adviser serves as investment adviser
to the Company, a registered investment company under
the Investment Company Act of 1940, as amended, which
is authorized to create separate series of funds;
WHEREAS, the Distributor is a registered broker-
dealer under the Securities Exchange Act of 1934, as
amended, and serves as principal distributor of Company
shares;
WHEREAS, Firstar provides fulfillment services to
mutual funds;
WHEREAS, the Adviser, the Distributor, and the
Company desire to retain Firstar to provide fulfillment
services for the Light Revolution Fund and each
additional series of the Company listed on Exhibit A
attached hereto (each, a "Fund"), as may be amended
from time to time.
NOW, THEREFORE, the parties agree as follows:
1. Duties and Responsibilities of Firstar
1. Answer all prospective shareholder calls
concerning the Fund.
2. Send all available Fund material requested by
the prospect within 24 hours from time of call.
3. Receive and update all Fund fulfillment
literature so that the most current
information is sent and quoted.
4. Provide 24-hour answering service to record
prospect calls made after hours (7 p.m. to 8 a.m. CT).
5. Maintain and store Fund fulfillment inventory.
6. Send periodic fulfillment reports to the Company
as agreed upon between the parties.
<PAGE>
2. Duties and Responsibilities of the Company
1. Provide Fund fulfillment literature updates to
Firstar as necessary.
2. Coordinate with the Distributor the filing with
the NASD, SEC and State Regulatory Agencies,
as appropriate, all fulfillment literature
that the Fund requests Firstar send to
prospective shareholders.
3. Supply Firstar with sufficient inventory of
fulfillment materials as requested from time
to time by Firstar.
4. Provide Firstar with any sundry information
about the Fund in order to answer prospect
questions.
3. Indemnification
The Company agrees to indemnify Firstar from any
liability arising out of the distribution of
fulfillment literature which has not been approved by
the appropriate Federal and State Regulatory Agencies.
Firstar agrees to indemnify the Company from any
liability arising from the improper use of fulfillment
literature during the performance of duties and
responsibilities identified in this agreement.
4. Compensation
The Company, if permissible under any Rule 12b-1
plan in effect from time to time for the benefit of the
Fund and only to the extent consistent with the terms
of such plan, or the Adviser, or the Distributor,
agrees to compensate Firstar for the services performed
under this Agreement in accordance with the attached
Exhibit A. All invoices shall be paid within ten days
of receipt.
5. Proprietary and Confidential Information
Firstar agrees on behalf of itself and its
directors, officers, and employees to treat
confidentially and as proprietary information of the
Company all records and other information relative to
the Company and prior, present, or potential
shareholders of the Company (and clients of said
shareholders), and not to use such records and
information for any purpose other than the performance
of its responsibilities and duties hereunder, except
after prior notification to and approval in writing by
the Company, which approval shall not be unreasonably
withheld and may not be withheld where Firstar may be
exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such
information by duly constituted authorities, or when so
requested by the Company.
6. Termination
This Agreement may be terminated by any party upon
30 days written notice.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be executed by a duly
authorized officer in one or more counterparts as of
the day and year first written above.
LIGHT REVOLUTION FIRSTAR MUTUAL FUND
FUND, INC. SERVICES, LLC
By: /s/ Henry Hewitt By: /s/ Michael R. McVoy
- --------------------- -----------------------
Its: President Its: Vice President
LIGHT INDEX INVESTMENT COMPANY FIRST DATA DISTRIBUTORS, INC.
By: /s/ Henry Hewitt By: /s/ Scott M. Hacker
- ------------------------- ----------------------------------
Its: President Its: Vice President and Treasurer
- ------------------------- ----------------------------------
<PAGE>
Literature Fulfillment Services
Annual Fee Schedule
Exhibit A
Separate Series of Light Revolution Fund, Inc.
Name of Series Date Added
Light Revolution Fund May 28, 1999
Base Fee $100.00 per month
Customer Service
State registration compliance edits
Literature database
Record prospect request and profile
Prospect servicing 8:00 am to 7:00 pm CT
Recording and transcription of requests received off-hours
Periodic reporting of leads to client
Service Fee: $.99/ minute
Assembly and Distribution of Literature Requests
Generate customized prospect letters
Assembly and insertion of literature items
Inventory tracking
Inventory storage, reporting
Periodic reporting of leads by state, items requested, market source
Service Fee: $.45/ lead - insertion of up to 4 items/lead
$.15/ additional inserts
Fees and out-of-pocket expenses are billed to the Fund monthly.
FUND ACCOUNTING SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of this
15th day of May, 1999, by and between Light Revolution
Fund, Inc., a Maryland corporation (hereinafter
referred to as the "Company") and Firstar Mutual Fund
Services, LLC, a Wisconsin limited liability company
(hereinafter referred to as "Firstar").
WHEREAS, the Company is an open-end management
investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Company is authorized to create
separate series, each with its own separate investment
portfolio;
WHEREAS, Firstar is in the business of providing,
among other things, mutual fund accounting services to
investment companies; and
WHEREAS, the Company desires to retain Firstar to
provide accounting services to the Light Revolution
Fund and each additional series of the Company listed
on Exhibit A attached hereto (each, a "Fund"), as it
may be amended from time to time.
NOW, THEREFORE, in consideration of the mutual
agreements herein made, the Company and Firstar agree
as follows:
1. Appointment of Fund Accountant
The Company hereby appoints Firstar as Fund
Accountant of the Company on the terms and conditions
set forth in this Agreement, and Firstar hereby accepts
such appointment and agrees to perform the services and
duties set forth in this Agreement in consideration of
the compensation provided for herein.
2. Duties and Responsibilities of Firstar
A. Portfolio Accounting Services:
(1) Maintain portfolio records on a trade
date +1 basis using security trade information
communicated from the investment manager.
(2) For each valuation date, obtain prices
from a pricing source approved by the Board of
Directors of the Company and apply those prices to
the portfolio positions. For those securities
where market quotations are not readily available,
the Board of Directors of the Company shall
approve, in good faith, the method for determining
the fair value for such securities.
<PAGE>
(3) Identify interest and dividend accrual
balances as of each valuation date and calculate
gross earnings on investments for the accounting
period.
(4) Determine gain/loss on security sales
and identify them as, short-term or long-term;
account for periodic distributions of gains or
losses to shareholders and maintain undistributed
gain or loss balances as of each valuation date.
B. Expense Accrual and Payment Services:
(1) For each valuation date, calculate the
expense accrual amounts as directed by the Company
as to methodology, rate or dollar amount.
(2) Record payments for Fund expenses upon
receipt of written authorization from the Company.
(3) Account for Fund expenditures and
maintain expense accrual balances at the level of
accounting detail, as agreed upon by Firstar and
the Company.
(4) Provide expense accrual and payment
reporting.
C. Fund Valuation and Financial Reporting Services:
(1) Account for Fund share purchases, sales,
exchanges, transfers, dividend reinvestments, and
other Fund share activity as reported by the
transfer agent on a timely basis.
(2) Apply equalization accounting as
directed by the Company.
(3) Determine net investment income
(earnings) for the Fund as of each valuation date.
Account for periodic distributions of earnings to
shareholders and maintain undistributed net
investment income balances as of each valuation
date.
(4) Maintain a general ledger and other
accounts, books, and financial records for the
Fund in the form as agreed upon.
(5) Determine the net asset value of the
Fund according to the accounting policies and
procedures set forth in the Fund's Prospectus.
(6) Calculate per share net asset value, per
share net earnings, and other per share amounts
reflective of Fund operations at such time as
required by the nature and characteristics of the
Fund.
(7) Communicate, at an agreed upon time, the
per share price for each valuation date to parties
as agreed upon from time to time.
<PAGE>
(8) Prepare monthly reports which document
the adequacy of accounting detail to support month-
end ledger balances.
D. Tax Accounting Services:
(1) Maintain accounting records for the
investment portfolio of the Fund to support the
tax reporting required for IRS-defined regulated
investment companies.
(2) Maintain tax lot detail for the
investment portfolio.
(3) Calculate taxable gain/loss on security
sales using the tax lot relief method designated
by the Company.
(4) Provide the necessary financial
information to support the taxable components of
income and capital gains distributions to the
transfer agent to support tax reporting to the
shareholders.
E. Compliance Control Services:
(1) Support reporting to regulatory bodies
and support financial statement preparation by
making the Fund's accounting records available to
the Company, the Securities and Exchange
Commission, and the outside auditors.
(2) Maintain accounting records according to
the 1940 Act and regulations provided thereunder.
3. Pricing of Securities
For each valuation date, obtain prices from a
pricing source selected by Firstar but approved by the
Company's Board of Directors and apply those prices to
the portfolio positions of the Fund. For those
securities where market quotations are not readily
available, the Company's Board of Directors shall
approve, in good faith, the method for determining the
fair value for such securities.
If the Company desires to provide a price which
varies from the pricing source, the Company shall
promptly notify and supply Firstar with the valuation
of any such security on each valuation date. All
pricing changes made by the Company will be in writing
and must specifically identify the securities to be
changed by CUSIP, name of security, new price or rate
to be applied, and, if applicable, the time period for
which the new price(s) is/are effective.
<PAGE>
4. Changes in Accounting Procedures
Any resolution passed by the Board of Directors of
the Company that affects accounting practices and
procedures under this Agreement shall be effective upon
written receipt and acceptance by the Firstar.
5. Changes in Equipment, Systems, Service, Etc.
Firstar reserves the right to make changes from
time to time, as it deems advisable, relating to its
services, systems, programs, rules, operating schedules
and equipment, so long as such changes do not adversely
affect the service provided to the Company under this
Agreement.
6. Compensation
Firstar shall be compensated for providing the
services set forth in this Agreement in accordance with
the Fee Schedule attached hereto as Exhibit A and as
mutually agreed upon and amended from time to time.
The Company agrees to pay all fees and reimbursable
expenses within ten (10) business days following the
receipt of the billing notice.
7. Performance of Service; Limitation of Liability
A. Firstar shall exercise reasonable care
in the performance of its duties under this
Agreement. Firstar shall not be liable for any
error of judgment or mistake of law or for any
loss suffered by the Company in connection with
matters to which this Agreement relates, including
losses resulting from mechanical breakdowns or the
failure of communication or power supplies beyond
Firstar's control, except a loss resulting from
Firstar's refusal or failure to comply with the
terms of this Agreement or from bad faith,
negligence, or willful misconduct on its part in
the performance of its duties under this
Agreement. Notwithstanding any other provision of
this Agreement, the Company shall indemnify and
hold harmless Firstar from and against any and all
claims, demands, losses, expenses, and liabilities
(whether with or without basis in fact or law) of
any and every nature (including reasonable
attorneys' fees) which Firstar may sustain or
incur or which may be asserted against Firstar by
any person arising out of any action taken or
omitted to be taken by it in performing the
services hereunder (i) in accordance with the
foregoing standards, or (ii) in reliance upon any
written or oral instruction provided to Firstar by
any duly authorized officer of the Company, such
duly authorized officer to be included in a list
of authorized officers furnished to Firstar and as
amended from time to time in writing by resolution
of the Board of Directors of the Company.
Firstar shall indemnify and hold the Company
harmless from and against any and all claims,
demands, losses, expenses, and liabilities
(whether with or without basis in fact or law) of
any and every nature (including reasonable
attorneys' fees) which the Company may sustain or
incur or which may be asserted against the Company
by any person arising out of any action taken or
omitted to be taken by Firstar as a result of
<PAGE>
Firstar's refusal or failure to comply with the
terms of this Agreement, its bad faith,
negligence, or willful misconduct.
In the event of a mechanical breakdown or
failure of communication or power supplies beyond
its control, Firstar shall take all reasonable
steps to minimize service interruptions for any
period that such interruption continues beyond
Firstar's control. Firstar will make every
reasonable effort to restore any lost or damaged
data and correct any errors resulting from such a
breakdown at the expense of Firstar. Firstar
agrees that it shall, at all times, have
reasonable contingency plans with appropriate
parties, making reasonable provision for emergency
use of electrical data processing equipment to the
extent appropriate equipment is available.
Representatives of the Company shall be entitled
to inspect Firstar's premises and operating
capabilities at any time during regular business
hours of Firstar, upon reasonable notice to
Firstar.
Regardless of the above, Firstar reserves the
right to reprocess and correct administrative
errors at its own expense.
B. In order that the indemnification
provisions contained in this section shall apply,
it is understood that if in any case the
indemnitor may be asked to indemnify or hold the
indemnitee harmless, the indemnitor shall be fully
and promptly advised of all pertinent facts
concerning the situation in question, and it is
further understood that the indemnitee will use
all reasonable care to notify the indemnitor
promptly concerning any situation which presents
or appears likely to present the probability of a
claim for indemnification. The indemnitor shall
have the option to defend the indemnitee against
any claim which may be the subject of this
indemnification. In the event that the indemnitor
so elects, it will so notify the indemnitee and
thereupon the indemnitor shall take over complete
defense of the claim, and the indemnitee shall in
such situation initiate no further legal or other
expenses for which it shall seek indemnification
under this section. Indemnitee shall in no case
confess any claim or make any compromise in any
case in which the indemnitor will be asked to
indemnify the indemnitee except with the
indemnitor's prior written consent.
8. No Agency Relationship
Nothing herein contained shall be deemed to
authorize or empower Firstar to act as agent for the
other party to this Agreement, or to conduct business
in the name of, or for the account of the other party
to this Agreement.
9. Records
Firstar shall keep records relating to the
services to be performed hereunder, in the form and
manner, and for such period as it may deem advisable
and is agreeable to the Company but not inconsistent
with the rules and regulations of appropriate
government authorities, in particular, Section 31 of
the 1940 Act, and the rules thereunder. Firstar agrees
that all such records prepared or maintained by Firstar
relating to the services to be performed by Firstar
<PAGE>
hereunder are the property of the Company and will be
preserved, maintained, and made available in accordance
with such section and rules of the 1940 Act and will be
promptly surrendered to the Company on and in
accordance with its request.
10. Data Necessary to Perform Services
The Company or its agent, which may be Firstar,
shall furnish to Firstar the data necessary to perform
the services described herein at such times and in such
form as mutually agreed upon. If Firstar is also
acting as the transfer agent for the Company, nothing
herein shall be deemed to relieve Firstar of any of its
obligations under the Transfer Agent Servicing
Agreement.
11. Notification of Error
The Company will notify Firstar of any balancing
or control error caused by Firstar within three (3)
business days after receipt of any reports rendered by
Firstar to the Company, or within three (3) business
days after discovery of any error or omission not
covered in the balancing or control procedure, or
within three (3) business days of receiving notice from
any shareholder.
12. Proprietary and Confidential Information
Firstar agrees on behalf of itself and its
directors, officers, and employees to treat
confidentially and as proprietary information of the
Company all records and other information relative to
the Company and prior, present, or potential
shareholders of the Company (and clients of said
shareholders), and not to use such records and
information for any purpose other than the performance
of its responsibilities and duties hereunder, except
after prior notification to and approval in writing by
the Company, which approval shall not be unreasonably
withheld and may not be withheld where Firstar may be
exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such
information by duly constituted authorities, or when so
requested by the Company.
13. Term of Agreement
This Agreement shall become effective as of the
date hereof and, unless sooner terminated as provided
herein, shall continue automatically in effect for
successive annual periods. This Agreement may be
terminated by either party upon giving ninety (90) days
prior written notice to the other party or such shorter
period as is mutually agreed upon by the parties.
However, this Agreement may be replaced or modified by
a subsequent agreement between the parties.
14. Notices
Notices of any kind to be given by either party to
the other party shall be in writing and shall be duly
given if mailed or delivered as follows: Notice to
Firstar shall be sent to:
<PAGE>
Firstar Mutual Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202
and notice to the Company shall be sent to:
Light Revolution Fund, Inc.
704 Court A
Tacoma, Washington 98402
Attn: Corporate Secretary
15. Duties in the Event of Termination
In the event that in connection with termination,
a successor to any of Firstar's duties or
responsibilities hereunder is designated by the Company
by written notice to Firstar, Firstar will promptly,
upon such termination and at the expense of the Company
transfer to such successor all relevant books, records,
correspondence and other data established or maintained
by Firstar under this Agreement in a form reasonably
acceptable to the Company (if such form differs from
the form in which Firstar has maintained the same, the
Company shall pay any expenses associated with
transferring the same to such form), and will cooperate
in the transfer of such duties and responsibilities,
including provision for assistance from Firstar's
personnel in the establishment of books, records and
other data by such successor.
16. Governing Law
This Agreement shall be construed in accordance
with the laws of the State of Wisconsin. However,
nothing herein shall be construed in a manner
inconsistent with the 1940 Act or any rule or
regulation promulgated by the SEC thereunder.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by a duly authorized
officer in one or more counterparts as of the day and
year first written above.
LIGHT REVOLUTION FIRSTAR MUTUAL FUND
FUND, INC. SERVICES, LLC
By: /s/ Charles M. O'Herin By: /s/ Michael R. McVoy
- --------------------------- --------------------------
Its: Secretary Its: Vice President
- --------------------------- --------------------------
<PAGE>
Fund Accounting Services
Annual Fee Schedule
Exhibit A
Separate Series of Light Revolution Fund, Inc.
Name of Series Date Added
Light Revolution Fund May 15th, 1999
Domestic Equity Funds
$22,000 for the first $40 million
.01 of 1% (1 basis point) on the next $200 million
.005 of 1% (0.5 basis point) on average net assets exceeding
$240 million
Fees and out-of-pocket expenses are billed to the Fund monthly.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in
this Registration Statement on Form N-1A of our report
dated November 15, 1999, relating to the financial
statements and financial highlights which appears in
the October 31, 1999 Annual Report to Shareholders of
the Light Revolution Fund, Inc., which is also
incorporated by reference into the Registration
Statement. We also consent to the references to us
under the headings "Financial Highlights" and
"Independent Accountants" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
February 11, 2000
LIGHT REVOLUTION FUND, INC.
LIGHT REVOLUTION FUND
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN
The following Distribution and Shareholder
Servicing Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940,
as amended (the "Act"), by Light Revolution Fund, Inc.
(the "Corporation"), a Maryland corporation, on behalf
of the Light Revolution Fund (the "Fund"). The Plan
has been approved by a majority of the Corporation's
Board of Directors, including a majority of the
directors who are not interested persons of the
Corporation and who have no direct or indirect
financial interest in the operation of the Plan or in
any Rule 12b-1 Related Agreement (as defined below)
(the "Disinterested Directors"), cast in person at a
meeting called for the purpose of voting on the Plan.
In approving the Plan, the Board of Directors
determined that the Plan would be prudent and in the
best interests of the Fund and its shareholders. Such
approval by the Board of Directors included a
determination, in the exercise of its reasonable
business judgment and in light of its fiduciary duties,
that there is a reasonable likelihood that the Plan
will benefit the Fund and its shareholders.
The provisions of the Plan are as follows:
1. PAYMENTS BY THE CORPORATION
(a) The Corporation, on behalf of the Fund,
will reimburse Provident Distributors, Inc. (the
"Distributor"), as principal distributor of the
Fund's shares, and any Recipient (as defined
below) for expenses incurred in connection with
the promotion and distribution of Fund shares and
the provision of personal services to Fund
shareholders (the "distribution and shareholder
servicing fee"), including fees and costs provided
for in the Distribution Agreement between the
Corporation and the Distributor. The distribution
and shareholder servicing fee payable to the
Distributor and any Recipient shall not exceed, on
an aggregate basis, 0.25% of the average daily net
assets of the Fund. The Corporation or the
Distributor may pay all or a portion of these fees
to any registered securities dealer, financial
institution or any other person (the "Recipient")
who renders assistance in distributing or
promoting the sale of Fund shares, or who provides
certain shareholder services to Fund shareholders,
pursuant to a written agreement (the "Rule 12b-1
Related Agreement"), forms of which are attached
hereto as Appendix A and Appendix B. To the
extent that the Corporation or the Distributor
does not pay such fees to such persons, the
Distributor may use the fees for its distribution
expenses incurred in connection with the sale of
Fund shares or any of its shareholder servicing
expenses. Payment of these fees to the
Distributor and the Recipients shall be made
monthly promptly following the close of the month,
upon the Distributor and/or the Recipients
forwarding to the Corporation a written report or
invoice detailing all amounts payable to them
pursuant to the Plan and the purpose for which the
amounts were expended; provided that the aggregate
payments under the Plan to the Distributor and all
Recipients
<PAGE>
shall not exceed 0.25% (on an annualized basis)
of the average daily net assets
of the Fund. In addition, the Distributor and the
Recipients shall furnish the Corporation with such
other information as the Corporation's Board of
Directors may reasonably request in connection
with reimbursements made under the Plan and the
use of such payments by the Distributor and/or the
Recipients in order to enable the Board of
Directors to make an informed determination of
whether the Plan should be continued.
(b) If the Distributor and/or any Recipient
is due more monies for its services rendered than
are immediately payable because of the expense
limitation under Section 1 of this Plan, the
unpaid amount shall be carried forward from period
to period while the Plan is in effect until such
time as it is paid. The Distributor and/or any
Recipient shall not, however, be entitled to
charge the Fund any interest, carrying or finance
fees in connection with any such unpaid amounts
carried forward.
2. RULE 12B-1 RELATED AGREEMENTS
(a) No Rule 12b-1 Related Agreement shall be
entered into, and no payments shall be made
pursuant to any Rule 12b-1 Related Agreement,
unless such Rule 12b-1 Related Agreement is in
writing and has first been delivered to and
approved by a vote of a majority of the
Corporation's Board of Directors, and of the
Disinterested Directors, cast in person at a
meeting called for the purpose of voting on such
Rule 12b-1 Related Agreement. The forms of Rule
12b-1 Related Agreements attached hereto as
Appendix A and Appendix B have been approved by
the Corporation's Board of Directors as specified
above.
(b) Any Rule 12b-1 Related Agreement shall
describe the services to be performed by the
Recipient and shall specify the amount of, or the
method for determining, the compensation to the
Recipient.
(c) No Rule 12b-1 Related Agreement may be
entered into unless it provides (i) that it may be
terminated at any time, without the payment of any
penalty, by vote of a majority of the shareholders
of the Fund, or by vote of a majority of the
Disinterested Directors, on not more than 60 days'
written notice to the other party to the Rule
12b-1 Related Agreement, and (ii) that it shall
automatically terminate in the event of its
assignment.
(d) Any Rule 12b-1 Related Agreement shall
continue in effect for a period of more than one
year from the date of its execution only if such
continuance is specifically approved at least
annually by a vote of a majority of the Board of
Directors, and of the Disinterested Directors,
cast in person at a meeting called for the purpose
of voting on such Rule 12b-1 Related Agreement.
<PAGE>
3. QUARTERLY REPORTS
The officers of the Corporation, based on
information received from the Distributor and/or
the Recipients, shall provide to the Board of
Directors, and the Directors shall review, at
least quarterly, a written report of all amounts
expended pursuant to the Plan. This report shall
include the identity of the Recipient of each
payment and the purpose for which the amounts were
expended and such other information as the Board
of Directors may reasonably request.
4. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall become effective immediately
upon approval by the vote of a majority of the
Board of Directors, and of the Disinterested
Directors, cast in person at a meeting called for
the purpose of voting on the approval of the Plan.
The Plan shall continue from year to year after
the first year, provided that such continuance is
approved at least annually by a vote of a majority
of the Board of Directors, and of the
Disinterested Directors, cast in person at a
meeting called for the purpose of voting on such
continuance. The Plan may be terminated with
respect at any time by a majority vote of the
shareholders of the Fund, or by vote of a majority
of the Disinterested Directors.
5. SELECTION OF DISINTERESTED DIRECTORS
During the period in which the Plan is
effective, the selection and nomination of those
Directors who are Disinterested Directors of the
Corporation shall be committed to the discretion
of the Disinterested Directors.
6. AMENDMENTS
All material amendments of the Plan shall be
in writing and shall be approved by a vote of a
majority of the Board of Directors, and of the
Disinterested Directors, cast in person at a
meeting called for the purpose of voting on such
amendment. In addition, the Plan may not be
amended to increase materially the amount to be
expended by the Fund hereunder without the
approval by a majority vote of the shareholders of
the Fund.
<PAGE>
APPENDIX A
Rule 12b-1 Related Agreement
Provident Distributors, Inc.
Four Falls Corporate Center, 6th Floor
West Conshohocken, Pennsylvania 19428-2961
[date]
[Recipient's Name and Address]
Ladies and Gentlemen:
This letter will confirm our understanding and
agreement with respect to payments to be made to you
pursuant to a Distribution and Shareholder Servicing
Plan (the "Plan") adopted by Light Revolution Fund,
Inc. (the "Corporation"), on behalf of the Light
Revolution Fund (the "Fund"), a series of the
Corporation, pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "Act").
The Plan and this related agreement (the "Rule 12b-1
Related Agreement") have been approved by a majority of
the Board of Directors of the Corporation, including a
majority of the Board of Directors who are not
"interested persons" of the Corporation, as defined in
the Act, and who have no direct or indirect financial
interest in the operation of the Plan or in this or any
other Rule 12b-1 Related Agreement (the "Disinterested
Directors"), cast in person at a meeting called for the
purpose of voting thereon. Such approval included a
determination by the Board of Directors that, in the
exercise of its reasonable business judgment and in
light of its fiduciary duties, there is a reasonable
likelihood that the Plan will benefit the Fund's
shareholders.
1. To the extent you provide distribution and
marketing services in the promotion of the Fund's
shares and/or services to Fund shareholders, including
furnishing services and assistance to your customers
who invest in and own shares, including, but not
limited to, answering routine inquiries regarding the
Fund and assisting in changing account designations and
addresses, we shall pay you a fee as described on
Schedule A which shall not exceed (together with any
other fees paid by the Fund under the Plan) 0.25% of
the average daily net assets of the Fund (computed on
an annual basis). We reserve the right to increase,
decrease or discontinue the fee at any time in our sole
discretion upon written notice to you.
<PAGE>
You agree that all activities conducted under this
Rule 12b-1 Related Agreement will be conducted in
accordance with the Plan, as well as all applicable
state and federal laws, including the Act, the
Securities Exchange Act of 1934, the Securities Act of
1933 and any applicable rules of the NASD.
2. At the end of each month, you shall furnish
us with a written report or invoice detailing all
amounts payable to you pursuant to this Rule 12b-1
Related Agreement and the purpose for which such
amounts were expended. In addition, you shall furnish
us with such other information as shall reasonably be
requested by the Board of Directors, on behalf of the
Fund, with respect to the fees paid to you pursuant to
this Rule 12b-1 Related Agreement.
3. We shall furnish to the Board of Directors,
for its review, on a quarterly basis, a written report
of the amounts expended under the Plan by us and the
purposes for which such expenditures were made.
4. This Rule 12b-1 Related Agreement may be
terminated by the vote of (a) a majority of
shareholders, or (b) a majority of the Disinterested
Directors, on 60 days' written notice, without payment
of any penalty. In addition, this Rule 12b-1 Related
Agreement will be terminated by any act which
terminates the Plan or the Distribution Agreement
between the Corporation and us and shall terminate
immediately in the event of its assignment. This Rule
12b-1 Related Agreement may be amended by us upon
written notice to you, and you shall be deemed to have
consented to such amendment upon effecting any
purchases of shares for your own account or on behalf
of any of your customer's accounts following your
receipt of such notice.
5. This Rule 12b-1 Related Agreement shall
become effective on the date accepted by you and shall
continue in full force and effect so long as the
continuance of the Plan and this Rule 12b-1 Related
Agreement are approved at least annually by a vote of
the Board of Directors of the Corporation and of the
Disinterested Directors, cast in person at a meeting
called for the purpose of voting thereon. All
communications to us should be sent to the above
address. Any notice to you shall be duly given if
mailed or telegraphed to you at the address specified
by you below.
<PAGE>
PROVIDENT DISTRIBUTORS, INC.,
on behalf of the Light Revolution Fund
By: ________________________________
(Name and Title)
Accepted:
__________________________________
(Dealer or Service Provider Name)
__________________________________
(Street Address)
__________________________________
(City) (State) (ZIP)
__________________________________
(Telephone No.)
__________________________________
(Facsimile No.)
By: ______________________________
(Name and Title)
<PAGE>
Schedule A
For all services rendered pursuant to the Rule 12b-1
Related Agreement, we shall pay you a fee calculated as follows:
[fee]
[We shall make the determination of the net asset
value, which determination shall be made in the manner
specified in the Fund's current prospectus, and pay to
you, on the basis of such determination, the fee
specified above, to the extent permitted under the
Plan.]
<PAGE>
APPENDIX B
Rule 12b-1 Related Agreement
Light Revolution Fund, Inc.
704 Court A
Tacoma, Washington 98402
[date]
[Recipient's Name and Address]
Ladies and Gentlemen:
This letter will confirm our understanding and
agreement with respect to payments to be made to you
pursuant to a Distribution and Shareholder Servicing
Plan (the "Plan") adopted by Light Revolution Fund,
Inc. (the "Corporation"), on behalf of the Light
Revolution Fund (the "Fund"), a series of the
Corporation, pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "Act").
The Plan and this related agreement (the "Rule 12b-1
Related Agreement") have been approved by a majority of
the Board of Directors of the Corporation, including a
majority of the Board of Directors who are not
"interested persons" of the Corporation, as defined in
the Act, and who have no direct or indirect financial
interest in the operation of the Plan or in this or any
other Rule 12b-1 Related Agreement (the "Disinterested
Directors"), cast in person at a meeting called for the
purpose of voting thereon. Such approval included a
determination by the Board of Directors that, in the
exercise of its reasonable business judgment and in
light of its fiduciary duties, there is a reasonable
likelihood that the Plan will benefit the Fund's
shareholders.
1. To the extent you provide distribution and
marketing services in the promotion of the Fund's
shares and/or services to Fund shareholders, including
furnishing services and assistance to your customers
who invest in and own shares, including, but not
limited to, answering routine inquiries regarding the
Fund and assisting in changing account designations and
addresses, we shall pay you a fee as described on
Schedule A which shall not exceed (together with any
other fees paid by the Fund under the Plan) 0.25% of
the average daily net assets of the Fund (computed on
an annual basis). We reserve the right to increase,
decrease or discontinue the fee at any time in our sole
discretion upon written notice to you.
<PAGE>
You agree that all activities conducted under this
Rule 12b-1 Related Agreement will be conducted in
accordance with the Plan, as well as all applicable
state and federal laws, including the Act, the
Securities Exchange Act of 1934, the Securities Act of
1933 and any applicable rules of the NASD.
2. At the end of each month, you shall furnish
us with a written report or invoice detailing all
amounts payable to you pursuant to this Rule 12b-1
Related Agreement and the purpose for which such
amounts were expended. In addition, you shall furnish
us with such other information as shall reasonably be
requested by the Board of Directors, on behalf of the
Fund, with respect to the fees paid to you pursuant to
this Rule 12b-1 Related Agreement.
3. We shall furnish to the Board of Directors,
for its review, on a quarterly basis, a written report
of the amounts expended under the Plan by us and the
purposes for which such expenditures were made.
4. This Rule 12b-1 Related Agreement may be
terminated by the vote of (a) a majority of
shareholders, or (b) a majority of the Disinterested
Directors, on 60 days' written notice, without payment
of any penalty. In addition, this Rule 12b-1 Related
Agreement will be terminated by any act which
terminates the Plan. This Rule 12b-1 Related Agreement
may be amended by us upon written notice to you, and
you shall be deemed to have consented to such amendment
upon effecting any purchases of shares for your own
account or on behalf of any of your customer's accounts
following your receipt of such notice.
5. This Rule 12b-1 Related Agreement shall
become effective on the date accepted by you and shall
continue in full force and effect so long as the
continuance of the Plan and this Rule 12b-1 Related
Agreement are approved at least annually by a vote of
the Board of Directors of the Corporation and of the
Disinterested Directors, cast in person at a meeting
called for the purpose of voting thereon. All
communications to us should be sent to the above
address. Any notice to you shall be duly given if
mailed or telegraphed to you at the address specified
by you below.
<PAGE>
LIGHT REVOLUTION FUND, INC.,
on behalf of the Light Revolution Fund
By: _____________________________
(Name and Title)
Accepted:
_________________________________
(Dealer or Service Provider Name)
_________________________________
(Street Address)
_________________________________
(City) (State) (ZIP)
_________________________________
(Telephone No.)
_________________________________
(Facsimile No.)
By: _____________________________
(Name and Title)
<PAGE>
Schedule A
For all services rendered pursuant to the Rule 12b-1
Related Agreement, we shall pay you a fee calculated as follows:
[fee]
[We shall make the determination of the net asset
value, which determination shall be made in the manner
specified in the Fund's current prospectus, and pay to
you, on the basis of such determination, the fee
specified above, to the extent permitted under the
Plan.]
