AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION
ON 04/15/99
FILE NOS: 811-08617
333-47541
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ 3]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. [9]
(Check appropriate box or boxes.)
HUGHES FUNDS, INC.
(Exact name of Registrant as Specified in Charter)
741 Cox Road
Moorestown, NJ 08057
(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code:
609-234-3903
MR. CHARLES J. HUGHES
741 COX ROAD
MOORESTOWN, NJ 08057
(Name and Address of Agent for Service)
Please send copy of communications to:
DAVID D. JONES, ESQUIRE
518 Kimberton Road, # 134
Phoenixville, Pennsylvania 19460
610-718-5381
Approximate Date of Proposed Public Offering: As soon as practicable following
effective date.
It is proposed that this filing will become effective (check appropriate box):
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ X/ 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.
Registrant declares hereby that an indefinite number or amount of its securities
has been registered by this Registration Statement.
THE HUGHES GROWTH FUND
THE HUGHES TECHNOLOGY FUND
THE HUGHES HEALTH CARE FUND
THE HUGHES FINANCIAL SERVICES FUND
CROSS-REFERENCE SHEET
(As required by Rule 495)
Item No. on Form N-1A Caption or Subheading in Prospectus
or Statement of Additional
Information
PART A - INFORMATION REQUIRED IN PROSPECTUS
1. Front and Back Cover Pages. Cover Page; Back Cover Page
2. Risk/Return Summary: Investments, Risk/Return Summary; Fees and
Risks, and Performance. Expenses
3. Risk/Return Summary/ Fee Table. Fees and Expenses
4. Investment Objectives, Principal Risk/Return Summary; Investment
Investment Strategies, and Related Objectives and Policies
Risks
5. Management's Discussion of Not Applicable
Fund Performance
6. Management, Organization and Investment Adviser; General
Capital Structure Information
7. Shareholder Information Investing in the Fund; How to
Sell (Redeem) Your Shares;
Distribution Fee; Federal Taxes;
General Information; Dividends
and Distributions
8. Distribution Arrangements Not Applicable
9. Financial Highlights Information Not Applicable
PART B. STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page and Table of Contents Cover Page; Table of Contents
11. Fund History Management of the Fund
12. Description of the Fund and its Investment Policies and
Investment and Risks Restrictions
13. Management of the Fund. Investment Adviser; Directors
and Officers
14. Control Persons and Principal Directors and Officers;
Holders of Securities Principal Holders of Securities
15. Investment Advisory and other Investment Adviser; Custodian;
Services Transfer Agent; Administration
16. Brokerage Allocation and Other
Practices Portfolio Transactions
17. Capital Stock and Other Portfolio Transactions
Securities.
18. Purchase, Redemption and Pricing Purchasing and Redeeming Shares
of Securities Being Offered
19. Taxation of the Fund. Tax Information
20. Underwriters Transfer Agent; Administration
and Transfer Agents
21. Calculations of Performance Data Performance Information
22. Financial Statements Financial Statements.
PART C
Information required to be included in PART C is set forth under the appropriate
Item, so numbered, in PART C of the Registration Statement.
______________________________________________________________________________
PART A
THE HUGHES GROWTH FUND
THE HUGHES TECHNOLOGY FUND
THE HUGHES HEALTH CARE FUND
THE HUGHES FINANCIAL SERVICES FUND
Separate Portfolios of Hughes Funds, Inc.
741 Cox Road
Moorestown, NJ 08057
PROSPECTUS
July 1, 1999
Each Fund described in this Prospectus seeks to achieve capital growth by using
different investment strategies and concentrating on different sectors of the
economy. The Funds are offered by Hughes Funds, Inc. (the "Company"), an open-
end, diversified management investment company.
The Funds offer two classes of shares so that you can choose the type of
shares that best suits your investment needs: Class A shares, with a 3.75% front
end sales load and a No-Load Class that requires an initial minimum investment
of $5,000.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Risk/Return Summary
Fees And Expenses
Investment Objectives And Policies
Investing In The Fund
How To Sell (Redeem) Shares
Dividends and Distributions
Management of the Fund
Federal Taxes
General Information
Financial Highlights
- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY
Investment Objective
Each Fund's investment objective is growth of capital.
Principal Investment Strategies
The Hughes Growth Fund seeks to achieve its objective by normally investing at
least 65% of its net assets in a diversified group of common stocks and
securities convertible into common stocks. The Fund invests in companies that
appear to have above-average prospects for long-term capital growth. The Fund
may invest in companies of any size and industry, so long as the company
satisfies the investment adviser's criteria for growth potential.
The Hughes Technology Fund seeks to achieve its investment objective by normally
investing at least 65% of its total assets in securities of companies that the
Fund's investment adviser believes will benefit significantly from advances or
improvements in technology. These companies may not be exclusively in the
technology sector, but their business is significantly impacted by technological
progress.
The Hughes Health Care Fund seeks to achieve its investment objective by
normally investing at least 65% of its net assets in companies that are involved
in the provision of health care services.
The Hughes Financial Services Fund seeks to achieve its investment objective by
normally investing at least 65% of its net assets in companies that are in the
banking, thrift, investment and financial service industries.
Hughes Investment Advisors, LLC is the investment adviser to each Fund (the
"Advisor") and is responsible for choosing the investments for each Fund.
In choosing securities for the Funds' portfolios, the Advisor conducts extensive
fundamental security analysis to develop earnings forecasts and to identify
attractive investment opportunities relative to market valuation. Individual
companies are scrutinized concerning their individual growth prospects and their
competitive positions within their respective industries. Individual company
analysis focuses upon the outlook for sales, profit margins, returns on capital,
cash flow and earnings per share. The Advisor favors companies that have shown
above average book value growth on both a five- and ten-year basis, exhibit
sound finances and demonstrate above-average long term earnings prospects. The
Fund may diversify its holdings among many different companies and industries
which meet the Advisor's criteria for growth.
Investment Rationale
The Technology, Health Care and Financial Services Funds are each designed to
expose the investor to different sectors of the economy. Each of the chosen
sectors has had a history of above-average growth. The Growth Fund is designed
to allow an investor to invest in a wide range of companies and industry
sectors, all of which are chosen for their future growth potential.
Principal Risks
Stock Market Risks. Each Fund invests primarily in common stock, so each of the
Funds will be subject to the risks associated with common stocks, including
price volatility and the creditworthiness of the issuing company. The stock
market trades in a cyclical price pattern, with prices generally rising or
falling over time. These cyclical periods may last for a significant period of
time.
Small-Cap Stocks Risks. Each Fund may invest in small-cap companies (less than
$1 billion in market capitalization). These companies are relatively smaller,
engaged in business mostly within their own geographic region, and may be less
well-known to the investment community. Because the Funds invest in small-cap
companies, price risk may be increased. Smaller, newer companies have more
volatile share prices for several reasons. Small companies often have less
liquidity, less management depth, narrower market penetrations, less diverse
product lines, and fewer resources than larger companies. As a result, their
stock prices react more violently to changes in the marketplace.
Year 2000 Risks: As with other mutual funds, financial and business
organizations and individuals around the world, the Funds could be adversely
affected if the computer systems used by the Adviser and the Funds' other
service providers don't properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000" or "Y2K" problem. The Adviser is taking steps to address the Y2K problem
with respect to the computer systems that it uses and to obtain assurances that
comparable steps are being taken by the Funds' other major service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the Fund.
General Risks. You may lose money by investing in the Funds. Your risk of loss
is greater if you hold your investment for shorter time periods. The Funds may
be appropriate for long-term investors who understand the potential risks and
rewards of investing in common stocks. The value of the Funds' investments will
vary from day-to-day, reflecting changes in market conditions, interest rates
and other company, political, and economic news. The Funds have no operating
history, and this may pose additional risks. When you sell your Fund shares,
they may be worth more or less than what you paid for them. There is no
assurance that the Funds can achieve their investment objectives, since all
investments are inherently subject to market risk.
Risks Relating to Specific Funds
Technology Fund Risks. Although The Hughes Technology Fund does not concentrate
its investments in specific industries, it may invest in companies related in
such a way that they react similarly to certain market pressures. For example,
competition among technology companies may result in increasingly aggressive
pricing of their products and services, which may affect the profitability of
companies in the Fund's portfolio. In addition, because of the rapid pace of
technological development, products or services developed by companies in the
Fund's portfolio may become rapidly obsolete or have relatively short product
cycles. As a result, the Fund's returns may be considerably more volatile than
the returns of a fund that does not invest in similarly related companies.
Health Care Fund Risks. The Hughes Health Care Fund concentrates its
investments in companies that are involved in health care. These companies
include hospitals, insurance companies, pharmaceutical companies, and medical
device companies. As a result of the Fund's concentration in this industry, the
Fund will be particularly vulnerable to adverse changes to the industry. The
health care industry is heavily regulated. Changes in regulations and laws that
negatively impact these companies will have a greater impact on the Fund than if
the Fund were invested in a broader variety of securities. In addition, because
of the rapid pace of technological developments, products or services developed
by companies in the Fund's portfolio may become rapidly obsolete or have
relatively short product cycles. As a result, the Fund's returns may be
considerably more volatile than the returns of a fund that does not invest in
similarly related companies. Also, because of the population demographics of
the nation and the aging of America's population, the industry may undergo
significant changes to adjust to the changing health care needs of the country,
and the Fund will be impacted by those changes.
Financial Services Fund Risks. The Hughes Financial Services Fund concentrates
its investments in companies that are involved in the financial sector of the
economy. These companies include banks, thrifts, insurance companies, brokerage
companies, financing companies, investment management and investment banking
firms. As a result of the Fund's concentration in this industry, the Fund will
be particularly vulnerable to adverse changes to the industry. The financial
services industry is heavily regulated. Changes in regulations and laws that
negatively impact these companies will have a greater impact on the Fund than if
the Fund were invested in a broader variety of securities. Changes in the
strength of the nation's economy and changes in the investing, spending and
savings habits of people have a significant effect on these companies. Also,
changes in interest rates can have a negative impact on these companies.
FEES AND EXPENSES
This table describes the fees and expenses you may pay if you buy and hold
shares of the Funds. The normal expenses and fees of each Fund are identical,
no matter which Fund you choose.
Shareholder Fees: Class A No-Load
(fees paid directly from your investment)
1. Maximum Sales Charges
Imposed on Purchases 3.75% NONE
(as a percentage of offering price)
Annual Fund Operating Expenses:
(expenses that are deducted from Fund assets) Class A No-Load
Management Fees(1) 1.00% 1.00%
12b-1 Fees NONE NONE
Other Expenses(2) 0.25% 0.25%
------- ------
Total Annual Fund Operating Expenses 1.25% 1.25%
1. The Adviser has voluntarily agreed to waive its advisory fee and/or to
reimburse the Fund, if necessary, if the advisory fee or expenses would cause
the Total Fund Operating expenses to exceed 1.25% for the Class A or No-Load
Class Shares. The Adviser may revise or cancel these expense limitations at any
time and will notify you by letter not less than 30 days prior to any such
change.
2. Because the Funds have not yet completed their first year of investment
operations, "Other Expenses" are estimated.
Example: This example is intended to help you compare the costs of investing in
each Fund with the costs of investing in other mutual funds.
The Example below assumes that you invest $10,000 in any Fund for the time
periods indicated and then redeem all 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 operating expenses that were described above remain the same.
Although your actual costs may be higher or lower, based on these assumptions,
your costs would be:
Time Period Class A No-Load
One Year $502 $132
Three Years $771 $412
INVESTMENT OBJECTIVES AND POLICIES
Information concerning the Fund's principal investment objectives and strategies
is set forth in the Risk/Return Summary above. What follows is additional
information concerning how the Funds invest and what kind of other securities
the Funds may invest in. If the risks of investing in certain kinds of
securities has not already been discussed, the risks of those securities is also
set forth in this Section.
The Adviser will allocate Fund assets among securities of particular issuers and
industry groups, based on the Advisor's analysis as to the best values currently
available in the marketplace. Elements included in that analysis are, by way of
example, a company's price value relative to its industry peers, its history of
dividend payments and capital growth, its ability to show strong and consistent
book value growth over the long term, and other technical and fundamental
analytical factors. The Advisor will, based on the its analysis, purchase
securities that appear to be undervalued in relation to the long-term earning
power or asset value of their issuers. Consistent earnings and book value growth
are also important factors.
The Hughes Technology Fund seeks long-term growth of capital. It pursues its
objective by investing primarily in equity securities of U.S. and foreign
companies selected for their growth potential. Normally, it invests at least 65%
of its total assets in securities of companies that the Advisor believes will
benefit significantly from advances or improvements in technology. These
companies generally fall into two categories:
a. Companies that the portfolio manager believes have or will develop products,
processes or services that will provide significant technological advancements
or improvements; and
b. Companies that the portfolio manager believes rely extensively on technology
in connection with their operations or services.
The Hughes Technology Fund will not concentrate its investments in any
particular industry or group of related industries. As a result, the Advisor may
have more flexibility to find companies that it believes will benefit from
advances or improvements in technology in a number of industries. Nevertheless,
the Fund may hold a significant portion of its assets in industries such as:
aerospace/ defense; biotechnology; computers; office/business equipment;
semiconductors; software; telecommunications; and telecommunications equipment.
The Hughes Health Care Fund seeks long-term growth of capital. It pursues its
objective by investing primarily in equity securities of U.S. and foreign
companies selected for their growth potential. Normally, it invests at least 65%
of its total assets in securities of companies that are involved in the health
care sector of the economy. These companies include hospitals, insurance
companies, pharmaceutical companies, and medical device companies.
The Hughes Financial Services Fund seeks long-term growth of capital. It
pursues its objective by investing primarily in equity securities of U.S. and
foreign companies selected for their growth potential. Normally, it invests at
least 65% of its total assets in securities of companies that are involved in
the financial sector of the economy. These companies include banks, thrifts,
insurance companies, financing companies, investment management,brokerage
companies and investment banking firms.
The Technology Fund, Health Care Fund, and Financial Services Funds are each
non-diversified funds. Diversification is a way to reduce risk by investing in
a broad range of stocks or other securities. A "nondiversified" fund has the
ability to take larger positions in a smaller number of issuers. Because the
appreciation or depreciation of a single stock may have a greater impact on the
NAV of a nondiversified fund, its share price can be expected to fluctuate more
than a comparable diversified fund. This fluctuation, if significant, may affect
the performance of a Fund.
The Technology Fund, Health Care Fund, and Financial Services Funds each will or
may concentrate in certain industry sectors. Industry risk is the possibility
that a group of related stocks will decline in price due to industry-specific
developments. Companies in the same or similar industries may share common
characteristics and are more likely to react similarly to industry-specific
market or economic developments. In the health care and financial services
sectors, for example, many companies are subject to government regulation and
approval of their products and services, which may affect their price or
availability. In addition, the products and services offered by these companies
may quickly become obsolete in the face of scientific or technological
developments. The economic outlook of such companies may fluctuate dramatically
due to changes in regulatory or competitive environments. In technology-related
industries, competitive pressures may have a significant effect on the
performance of companies in which The Hughes Technology Fund may invest. In
addition, technology and technology-related companies often progress at an
accelerated rate, and these companies may be subject to short product cycles and
aggressive pricing which may increase their volatility.
The Hughes Health Care and Financial Services Funds invest in a concentrated
portfolio, which may result in greater exposure to related industries. As a
result, these Funds may be more volatile than a less concentrated portfolio.
Although The Hughes Technology Fund does not "concentrate" in a specific group
of industries, it may at times have significant exposure to companies in a
variety of technology-related industries.
The Hughes Growth Fund seeks long-term growth of capital. It pursues its
objective by investing primarily in equity securities of U.S. and foreign
companies selected for their growth potential. Normally, it invests at least 65%
of its total assets in securities of companies that appear to have above-average
prospects for long-term capital growth. The Fund may invest in companies of any
size and industry. This Fund does not concentrate its investments in a single
industry or economic sector. Because it invests in a wide range of companies
and securities, it is a diversified fund.
All of the Funds may invest in the following securities.
Common Stock
The Funds seek to realize capital appreciation by investing in common stocks
that are, in the Adviser's opinion, undervalued in the market. The market values
of common stock can fluctuate significantly, reflecting the business performance
of the issuing company, investor perception and general economic or financial
market movements. Smaller companies are especially sensitive to these factors.
Futures and Options On Securities
The Fund may purchase futures contracts relating to equity, debt and index
securities, write (i.e. sell) covered put and call options, and purchase put and
call options, on equity, debt and index securities. The Fund intends to use
futures and options transactions to decrease its exposure to the effects of
changes in security prices, to hedge securities held, to maintain cash reserves
while remaining fully invested, to facilitate trading, to reduce transaction
costs, and to seek higher investment returns when a futures or options contract
is priced more attractively than the underlying security or index.
Risk Factors. The primary risks associated with the use of options and futures
are; (1) imperfect correlation between a change in the value of the underlying
security or index and a change in the price of the option or futures contract,
and (2) the possible lack of a liquid secondary market for an options or futures
contract and the resulting inability of the Fund to close out the position prior
to the maturity date. The risk of imperfect correlation will be minimized by
investing only in those contracts whose price fluctuations are expected to
resemble those of the Fund's underlying securities. The risk that the Fund will
be unable to close out a position will be minimized by entering into such
transactions only on national exchanges and over-the-counter markets with an
active and liquid secondary market.
Preferred Stock
The Funds may invest in preferred stock. Preferred stock generally pays
dividends at a specified rate and generally has preference over common stock in
the payments of dividends and the liquidation of the issuer's assets. Dividends
on preferred stock are generally payable at the discretion of the issuer's board
of directors. Accordingly, Shareholders may suffer a loss of value if dividends
are not paid. The market prices of preferred stocks are also sensitive to
changes in interest rates and in the issuer's creditworthiness. Accordingly,
shareholders may experience a loss of value due to adverse interest rate
movements or a decline in the issuer's credit rating.
Foreign Securities
The Funds may invest in securities of foreign issuers which are publicly traded
on U.S. exchanges either directly or in the form of American Depository Receipts
(ADRs). The Fund will only invest in ADRs that are issuer sponsored. Sponsored
ADRs typically are issued by a U.S. bank or trust company and evidence ownership
of underlying securities issued by a foreign corporation.
Risk Factors of Foreign Securities
Investments in foreign securities involve greater risks compared to domestic
investments. Foreign companies are not subject to the regulatory requirements of
U.S. companies and, as such, there may be less publicly available information
about issuers than is available in the reports and ratings published about
companies in the U.S. Additionally, foreign companies are not subject to
uniform accounting, auditing and financial reporting standards. Dividends and
interest on foreign securities may be subject to foreign withholding taxes. Such
taxes may reduce the net return to shareholders. Further, foreign securities
are often denominated in a currency other than the U.S. dollar. Accordingly,
the Fund will be subject to the risks associated with fluctuations in currency
values. Although the Fund intends to invest in securities of foreign issuers
domiciled in nations which the Adviser considers as having stable and friendly
governments, there is the possibility of expropriation, confiscation, taxation,
currency blockage or political or social instability which could affect
investments of foreign issuers domiciled in such nations.
Money Market Funds
The Fund may invest in securities issued by other registered investment
companies that invest in short-term debt securities (i.e., money market fund).
As a shareholder of another registered investment company, the Fund would bear
its pro rata portion of that company's advisory fees and other expenses. Such
fees and expenses will be borne indirectly by the Fund's shareholders. The Fund
may invest in such instruments to the extent that such investments do not exceed
10% of the Funds net assets and/or 3% of any one investment company's
outstanding securities.
Money Market Instruments
The Fund may invest in "money market instruments," a term that includes, among
other things, bank obligations (which include U.S. Dollar denominated
certificates of deposit, bankers acceptances and time deposits issued or
supported by the credit of U.S. or foreign banks or savings institutions having
total assets at the time of purchase in excess of $1 billion), commercial paper,
obligations of the U.S. Government, its agencies and instrumentalities, and
repurchase agreements backed by U.S. Government securities, and cash. For
temporary defensive purposes, the Fund may invest up to 100% of its total assets
in money market instruments. To the extent and for the time period that the Fund
is invested in temporary defensive instruments, it will not be pursuing its
investment objective.
Risks of Money Market Instruments
Money Market Instruments are generally fixed-income debt instruments.
Accordingly, the primary risks involved in these securities is interest rate
risk and credit risk. Interest Rate risk is the risk to the value of an
instrument due to changes in the overall rates of interest. Debt instrument
prices generally fall when interest rates rise. In addition, the longer a
security has until it matures, the more severely its price will decline for any
given change in interest rates. Credit risk is the risk to the value of a
security due to changes in the creditworthiness of the issuing entity. The
value of a security may decline if the credit rating of the issuing entity
declines. To minimize interest rate risk to the Fund, the Fund will only invest
in securities with a remaining maturity of not greater than 397 days. To
minimize credit rate risk, the Fund will only invest in securities rate "A" or
better by Standard & Poors, or an equivalent rating by another nationally
recognized rating agency.
Restricted And Illiquid Securities
No Fund will invest more than 15% of its net assets in securities that the
Advisor determines, under the supervision of the Board of Directors, to be
illiquid and/or restricted. Illiquid securities may be difficult to sell
promptly at an acceptable price because of lack of available market and other
factors. The sale of some illiquid and other types of securities may be subject
to legal restrictions.
When-Issued Securities And Delayed-Delivery Transactions
The Funds may purchase securities on a when-issued basis, and they may purchase
or sell securities for delayed-delivery. These transactions occur when
securities are purchased or sold by a Fund with payment and delivery taking
place at some future date. The Funds may enter into such transactions when, in
the Advisor's opinion, doing so may secure an advantageous yield and/or price to
a Fund that might otherwise be unavailable. The Funds have not established any
limit on the percentage of assets they may commit to such transactions, but to
minimize the risks of entering into these transactions, each Fund will maintain
a segregated account with its Custodian consisting of cash, cash equivalents,
U.S. Government Securities or other high-grade liquid debt securities,
denominated in U.S. dollars or non-U.S. currencies, in an amount equal to the
aggregate fair market value of its commitments to such transactions.
A complete listing of the Funds' investment restrictions, including those that
may be changed only by a vote of a Fund's shareholders, may be found in the
Statement of Additional Information ("SAI") for the Funds.
MANAGEMENT OF THE FUND
The business affairs of each Fund are managed under the general supervision of
a Board of Directors.
Investment Adviser
The Company has entered into an Investment Advisory Contract (the "Contract")
with Hughes Investment Advisors LLC, (the "Adviser"), 741 Cox Road, Moorestown
NJ 08057.
Charles J. Hughes is the president of the Adviser and is responsible for all its
investment decisions, including the day-to-day management of the Funds. Mr.
Hughes also serves as the President and as a Director of the Company. The
Adviser manages the investment of the assets of the Funds in accordance with
each Fund's investment objective, policies, and restrictions. The Adviser was
formed on December 9, 1997 and registered as an Investment Advisory Firm with
the Securities and Exchange Commission on March 13, 1998. The Advisor formerly
operated as Hughes Trading L.L.C., and developed financial futures and timing
model software for equity trading.
Mr. Hughes is the portfolio manager for the Funds. Mr. Hughes has been
providing investment advice to the Funds since their inception. From 1994
through 1997, Mr. Hughes developed and implemented futures trading programs when
the Advisor operated as Hughes Trading, LLC. During this period, he acted as a
private investor for himself and members of his family. In addition, Mr. Hughes
has been a commercial airline pilot for American Airlines since 1988. Although
Mr. Hughes has extensive experience managing portfolios for himself and his
family, Mr. Hughes does not have any previous experience in providing investment
management services to any registered investment company.
The Adviser receives from each Fund, as compensation for its services, a fee,
accrued daily and payable monthly, at an annual rate of 0.50% of each Fund's net
assets.
Operating Services Agreement; the Company has also entered into an Operating
Services Agreement with the Adviser where the Adviser will provide, or arrange
to provide, essentially all other services needed to each Fund. These services
include transfer agent, accounting, distribution and custodial services. The
effect of the Investment Advisory Agreement and the Operating Services Agreement
is to cap each Fund's normal operating expenses. These contracts do not cover
expenses incurred by a Fund for taxes, interest, brokerage fees, legal expenses
for litigation, and other extraordinary expenses.
The Adviser receives from each Fund, as compensation for its services, a fee,
accrued daily and payable monthly, at an annual rate of 0.50% of each Fund's net
assets.
Under these agreements, the Adviser furnishes at its own expense office space to
the Company and all necessary office facilities, equipment, and personnel for
managing the assets of the Fund. The Adviser also pays all expenses of marketing
shares of the Fund, and related bookkeeping.
INVESTING IN THE FUND
Determination of Share Price
Shares of the Funds are offered at the public offering price for each share
class. The public offering price for Class A and No-Load shares of the
Funds is based upon each Fund's net asset value per share. Net asset value per
share is calculated by adding the value of Fund investments, cash and other
assets, subtracting Fund liabilities, and then dividing the result by the number
of shares outstanding. The assets of each Fund are valued at market value or,
if market quotes cannot be readily obtained, fair value is used as determined
by the Board of Directors. The net asset value of each Fund's shares is
computed on all days on which the New York Stock Exchange is open for business
at the close of regular trading hours on the Exchange, currently 4:00 p.m. East
Coast time. The public offering price for Class A shares is the NAV plus a
maximum sales charge of 3.75% of your investment. you should be aware that each
Fund may invest in foreign securities. Foreign securities sometimes trade on
exchanges that are open on days when the new York Stock Exchange is closed.
Accordingly, when a Fund is investing in such securities, the NAV on your shares
could change on days when you cannot purchase or redeem shares.
Opening And Adding To Your Account
You can invest directly in the Funds in a number of ways. Simply choose the one
that is most convenient for you. Any questions you may have can be answered by
calling 1-800-446-2987. You may also purchase Fund shares through broker-dealers
or other financial organizations.
Payments for Fund shares should be in U.S. dollars, and in order to avoid fees
and delays, should be drawn on a U.S. bank. Please remember that Fund
management reserves the right to reject any purchase order for Fund shares if,
in the Fund's opinion, such an order would cause a material detriment to
existing shareholders. Your purchase of Fund shares is subject to the following
minimum investment amounts:
Minimum Investment To Open Account Additional Investments
--------------- ----------------------
Class A Shares
Regular Account $2,500 $500
IRAs $2,500 $500
No-Load Shares
Regular Accounts $5,000 $500
IRA's $2,500 $500
TO OPEN AN ACCOUNT
By Mail. Complete an Account Registration Form. Make a check payable the
Hughes Fund that you have selected, and mail the Form and check to Hughes
Funds, Inc. c/o Mutual Shareholder Services, 1301 East Ninth Street, Suite 3600,
Cleveland, OH 44114.
By Wire. Ask your bank to wire funds to the Account of UMB Bank, N.A.
ABA#:101000695
Credit: Hughes Funds, Inc.
Account #:744007006
Further credit: The Hughes [NAME] Fund.
The wire should state that the purchase is to be in your name(s). Include
your name(s), address and taxpayer identification number or Social Security
number and the name of the Fund in which you are purchasing shares.
Call 1-800-446-2987 to inform us that a wire is being sent.
By Telephone. Telephone transactions may not be used for initial purchases.
If you want to make subsequent transactions via telephone, call 1-800-446-2987
to make your purchase.
Hughes Funds, Inc. wants you to be kept current regarding the status of your
account in the Fund. To assist you, the following statements and reports will
be sent to you:
Confirmation Statements - After every transaction that affects your
account balance or your account registration.
Financial Reports - Semi-annually. To reduce Fund expenses, only one copy of the
Fund report will be mailed to each taxpayer identification number even if
you have more than one account in the Fund.
Purchase By Mail
Your purchase order, if accompanied by payment, will be processed upon receipt
by Mutual Shareholder Services, the Fund's Transfer Agent. If the Transfer Agent
receives your order and payment by the close of regular trading on the Exchange
(currently 4:00 p.m. East Coast time), your shares will be purchased at your
chosen Fund's net asset value calculated at the close of regular trading on that
day. Otherwise, your shares will be purchased at the net asset value determined
as of the close of regular trading on the next business day.
The Company does not consider the U.S. Postal Service or any other independent
delivery service to be its agent. Therefore, deposit in the mail or with such
services, or receipt at the Transfer Agent's address, of purchase applications
or redemption requests does not constitute receipt by the Custodian or the Fund.
Correspondence mailed by overnight courier should be sent to the Fund at:
Mutual Shareholder Services
1301 East Ninth Street, Suite 3600
Cleveland, OH 44114
All applications to purchase shares of the Funds are subject to acceptance or
rejection by authorized officers of the Company and are not binding until
accepted. Applications will not be accepted unless they are accompanied by
payment in U.S. funds. Payment must be made by check or money order drawn on a
U.S. bank, savings & loan or credit union. The Custodian will charge a $20.00
fee against your account, in addition to any loss sustained by a Fund, for any
payment check returned to the Custodian for insufficient funds. The Company
reserves the right to refuse to accept applications under circumstances or in
amounts considered disadvantageous to shareholders. If you place an order for
Fund shares through a securities broker, and you place your order in proper form
before 4:00 p.m. East Coast time on any business day in accordance with their
procedures, your purchase will be processed at the public offering price
calculated at 4:00 p.m. on that day, if the securities broker then transmits
your order to the Transfer Agent before the end of its business day (which is
usually 5:00 p.m. East Coast time). The securities broker must send to the
Transfer Agent immediately available funds in the amount of the purchase price
within three business days for the order.
By Financial Service Organization
If you are a client of a securities broker or other financial organization, you
should note that such organizations may charge a separate fee for administrative
services in connection with investments in Fund shares and may impose account
minimums and other requirements. These fees and requirements would be in
addition to those imposed by the Funds. If you are investing through a
securities broker or other financial organization, please refer to its program
materials for any additional special provisions or conditions that may be
different from those described in this Prospectus (for example, some or all of
the services and privileges described may not be available to you). Securities
brokers and other financial organizations have the responsibility of
transmitting purchase orders and funds, and of crediting their customers'
accounts following redemptions, in a timely manner in accordance with their
customer agreements and this Prospectus.
Telephone Purchases
In order to be able to purchase shares by telephone, your account authorizing
such purchases must have been established prior to your call. Your initial
purchase of shares may not be made by telephone. Shares purchased by telephone
will be purchased at the per share net asset value determined at the close of
business on the day that the transfer agent receives payment through the
Automatic Clearing House. Call the Transfer Agent for details.
You may make purchases by telephone only if you have an account at a bank that
is a member of the Automated Clearing House. Most transfers are completed
within three business days of your call. To preserve flexibility, the Company
may revise or eliminate the ability to purchase Fund shares by phone, or may
charge a fee for such service, although the Company does not currently expect to
charge such a fee.
Mutual Shareholder Services, the Fund's transfer agent, employs certain
procedures designed to confirm that instructions communicated by telephone are
genuine. Such procedures may include, but are not limited to, requiring some
form of personal identification prior to acting upon telephonic instructions,
providing written confirmations of all such transactions, and/or tape recording
all telephonic instructions. Assuming procedures such as the above have been
followed, neither the Transfer Agent nor the Fund will be liable for any loss,
cost, or expense for acting upon telephone instructions that are believed to be
genuine. The Company shall have authority, as your agent, to redeem shares in
your account to cover any such loss. As a result of this policy, you will bear
the risk of any loss unless the Fund has failed to follow procedures such as the
above. However, if the Fund fails to follow such procedures, it may be liable
for such losses.
Wire Purchases
If you purchase Fund shares by wire, you must complete and file an Account
Registration Form with the Transfer Agent before any of the shares purchased can
be redeemed. You should contact your bank (which will need to be a commercial
bank that is a member of the Federal Reserve System) for information on sending
funds by wire, including any charges that your bank may make for these services.
Miscellaneous Purchase Information
Federal regulations require that you provide a certified taxpayer identification
number whenever you open or reopen an account. Congress has mandated that if
any shareholder fails to provide and certify to the accuracy of the
shareholder's social security number or other taxpayer identification number,
the Company will be required to withhold a percentage, currently 31%, of all
dividends, distributions and payments, including redemption proceeds, to such
shareholder as a backup withholding procedure.
For economy and convenience, share certificates will not be issued.
HOW TO SELL (REDEEM) YOUR SHARES
You may sell (redeem) your shares at any time. You may request the sale of your
shares either by mail, by telephone or by wire.
By Mail
Sale requests should be mailed via U.S. mail or overnight courier service to:
Mutual Shareholder Services
1301 East Ninth Street, Suite 3600
Cleveland, OH 44114
The selling price of the shares being redeemed will be your Fund's per share net
asset value next calculated after receipt of all required documents in Good
Order. Payment of redemption proceeds will be made no later than the third
business day after the valuation date unless otherwise expressly agreed by the
parties at the time of the transaction.
Good Order means that the request must include:
1. Your account number.
2. The number of shares to be sold (redeemed) or the dollar value of the
amount to be redeemed.
3. The signatures of all account owners exactly as they are registered on the
account.
4. Any required signature guarantees.
5. Any supporting legal documentation that is required in the case of estates,
trusts, corporations or partnerships and certain other types of accounts.
Signature Guarantees --
A signature guarantee of each owner is required to redeem shares in the
following situations, for all size transactions:
(i) if you change the ownership on your account;
(ii) when you want the redemption proceeds sent to a different address than is
registered on the account;
(iii) if the proceeds are to be made payable to someone other than the account's
owner(s);
(iv) any redemption transmitted by federal wire transfer to your bank; and
(v) if a change of address request has been received by the Company or
Mutual Shareholder Services within 15 days previous to the request for
redemption.
In addition, signature guarantees are required for all redemptions of $2,500 or
more from any Fund shareholder account. A redemption will not be processed
until the signature guarantee, if required, is received in Good Order.
Signature guarantees are designed to protect both you and the Fund from fraud.
To obtain a signature guarantee, you should visit a bank, trust company, member
of a national securities exchange or other broker-dealer, or other eligible
guarantor institution. (Notaries public cannot provide signature guarantees.)
Guarantees must be signed by an authorized person at one of these institutions,
and be accompanied by the words "Signature Guarantee."
By Telephone
You may redeem your shares in any Fund by calling the Transfer Agent at 1-800-
446-2987 if you elected to use telephone redemption on your account application
when you initially purchased shares. Redemption proceeds must be transmitted
directly to you or to your pre-designated account at a domestic bank. You may
not redeem by telephone if a change of address request has been received by the
Company or the Transfer Agent within 15 days previous to the request for
redemption. During periods of substantial economic or market changes,
telephone redemptions may be difficult to implement. If you are unable to
contact the Transfer Agent by telephone, shares may be redeemed by delivering
the redemption request in person or by mail. You should understand that with
the telephone redemption option, you may be giving up a measure of security that
you might otherwise have had were you to redeem your shares in writing. In
addition, interruptions in telephone service may mean that you will be unable to
effect a redemption by telephone if desired.
Shares purchased by check for which a redemption request has been received will
not be redeemed until the check or payment received for investment has cleared.
By Wire
You may request the redemption proceeds be wired to your designated bank if it
is a member bank or a correspondent of a member bank of the Federal Reserve
System. A $10 fee is charged for outgoing wires.
Redemption At The Option Of The Fund
If the value of the shares in your account falls to less than $1000, the Company
may notify you that, unless your account is increased to $1000 in value, it
will redeem all your shares and close the account by paying you the redemption
proceeds and any dividends and distributions declared and unpaid at the date of
redemption. You will have thirty days after notice to bring the account up to
$1000 before any action is taken. This minimum balance requirement does not
apply to IRAs and other tax-sheltered investment accounts. This right of
redemption shall not apply if the value of your account drops below $1000 as the
result of market action. The Company reserves this right because of the expense
to the Fund of maintaining very small accounts.
DIVIDENDS AND DISTRIBUTIONS
Dividends paid by the Funds are derived from net investment income. Net
investment income will be distributed at least annually. A Fund's net
investment income is made up of dividends received from the stocks it holds, as
well as interest accrued and paid on any other obligations that might be held in
its portfolio.
A Fund realizes capital gains when it sells a security for more than it paid for
it. The Funds may make distributions of net realized capital gains (after any
reductions for capital loss carry forwards), generally, once a year.
Unless you elect to have your distributions paid in cash, your distributions
will be reinvested in additional shares of your Fund.
You may change the manner in which your dividends are paid at any time by
writing to the Transfer Agent.
FEDERAL TAXES
As with any investment, you should consider the tax implications of an
investment in the Funds. The following is only a short summary of the
important tax considerations generally affecting the Funds and their
shareholders. You should consult your tax adviser with specific reference to
your own tax situation.
Each Fund will seek to qualify as a regulated investment company ("RIC") under
Subchapter M of the Internal Revenue code of 1986, as amended ("Code").
Because of the investment strategies of the Funds, there can be no assurance
that the Funds will qualify as RICs. If the Funds so qualify and satisfy
the distribution requirement under the Code for a taxable year, the Funds will
not be subject to Federal income tax on the part of their investment company
taxable income (generally consisting of net investment income and net short-term
capital gains) and net capital gain (the excess of net long-term capital gain
over short-term capital loss) they distribute to their shareholders for that
year. If the Funds fails to qualify as a RIC for any taxable year, their taxable
income, including net capital gain, will be taxed at corporate income tax rates
(up to 35%) and they will not receive a deduction for distributions to their
shareholders.
Before you purchase shares of a Fund, you should consider the effect of both
dividends and capital gain distributions that are expected to be declared or
that have been declared but not yet paid. When a Fund makes these payments,
its share price will be reduced by the amount of the payment, so that you will
in effect have paid full price for the shares and then received a portion of
your price back as a taxable dividend distribution.
The Funds will notify you annually as to the tax status of dividend and
capital gains distributions paid by the Fund. Such dividends and capital
gains may also be subject to state and local taxes.
You may realize a taxable gain or loss when redeeming shares of a Fund depending
on the difference in the prices at which you purchased and sold the shares.
Because your state and local taxes may be different than the federal taxes
described above, you should see your tax adviser regarding these taxes.
GENERAL INFORMATION
Total return for each Fund may be calculated on an average annual total
return basis or an aggregate total return basis. Average annual total return
reflects the average annual percentage change in value of an investment
over the measuring period. Aggregate total return reflects the total percentage
change in value of an investment over the measuring period. Both measures
assume the reinvestment of dividends and distributions.
Total return of each Fund may be compared to those of mutual funds with
similar investment objectives and to bond, stock or other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor mutual fund performance.
FINANCIAL HIGHLIGHTS
The Funds are being offered for the first time via this prospectus.
Accordingly, they have not yet acquired an operating history. Financial
information on each of the Funds will be available in the Company's next semi-
annual report, dated December 31, 1999.
FOR MORE INFORMATION
Additional information about the Funds will be available in the Fund's next
semi-annual report to shareholders. In the Fund's semi-annual report, you will
find a discussion of the market conditions and investment strategies that
significantly affected each Fund's performance during its first six months of
operations.
Statement of Additional Information (SAI)
The SAI contains more detailed Information on all aspects of the Fund. A
current SAI, dated July 1, 1999, has been filed with the SEC and is incorporated
by reference into (is legally a part of) this prospectus. To request a free
copy of the SAI, please contact the Fund. Or you may obtain these documents from
the SEC: In person, at the SEC's Public Reference Room in Washington, D.C.;
By Phone, 1-800-SEC-0330; By Mail, Public Reference Section, Securities and
Exchange Commission, Washington DC 20549-6009 (duplicating fee required)
The Hughes Growth Fund The Hughes Technology Fund
The Hughes Health Care Fund The Hughes Financial Services Fund
c/o Mutual Shareholder Services
1301 East Ninth Street, Suite 3600
Cleveland, OH 44114
Investment Company Act No.
811-08617
STATEMENT OF ADDITIONAL INFORMATION
Dated July 1, 1999
HUGHES FUNDS, INC.
741 Cox Road
Moorestown NJ 08057
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectus of Hughes Growth Fund, Hughes Technology
Fund, Hughes Health Care Fund, and Hughes Financial Services Fund, dated July 1,
1999. Requests for copies of the Prospectus should be made by writing to Hughes
Funds, Inc., 741 Cox Road, Moorestown NJ 08057 or by calling 609-234-3903.
TABLE OF CONTENTS
Hughes Funds, Inc. Fund Service Providers
Investment Policies and Restrictions Custodian
Investment Adviser Transfer Agent
Directors and Officers Administration
Performance Information Independent Accountants
Purchasing and Redeeming Shares Independent Auditors Report*
Tax Information Financial Statements*
Portfolio Transactions Principal Holders of Securities
* to be filed by amendment
HUGHES FUNDS, INC.
Hughes Funds, Inc (the "Company") was organized on December 15, 1997 as a
Maryland corporation, and is a mutual fund of the type known as an open-end,
diversified management investment company. It did not begin operations
until 1998 nor commence offering its shares until that time. A mutual fund
permits an investor to pool his or her assets with those of others in order to
achieve economies of scale, take advantage of professional money managers and
enjoy other advantages traditionally reserved for large investors. The
Company is authorized to issue 100,000,000 shares of .001 cent par value
common capital stock. The Company's Articles of Incorporation permit its
Board of Directors to classify any unissued shares into one or more classes of
shares. The Board has authorized the issuance of 5,000,000 shares each of The
Hughes Growth Fund, Hughes Technology Fund, Hughes Health Care Fund, and Hughes
Financial Services Fund which are offered by this prospectus. Each Fund's
shares are fully paid and non-assessable. They are entitled to such dividends
and distributions as may be paid with respect to the shares and shall be
entitled to such sums on liquidation of the Fund as shall be determined.
Other than these rights, they have no preference as to conversion, exchange,
dividends, retirement or other features and have no preemption rights.
Shareholder meetings will not be held unless required by Federal or State law or
in connection with an undertaking given by the Funds.
INVESTMENT POLICIES AND RESTRICTIONS
The Funds investment objectives and the manner in which the Funds pursue their
investment objectives are discussed in the prospectus. The investment
limitations and restrictions of all the Funds, as well as those that apply to
specific Funds, are listed below:
1. (The Hughes Growth Fund Only) To the extent of 75% of its net assets (valued
at time of investment), invest more than 5% of its assets in securities of any
one issuer, except in obligations of the United States Government and its
agencies and instrumentalities;
2. (Financial Services Fund) Invest less than 65% of its assets (valued at time
of investment) in securities of Financial Services Companies (as that term is
defined in the Prospectus), except for temporary or defensive purposes;
3. (Technology Fund) Invest less than 65% of its assets (valued at time of
investment) in securities of companies that the Fund's investment adviser
believes will benefit significantly from advances or improvements in technology,
except for temporary or defensive purposes;
4. (Health Care Fund Only) Invest less than 65% of its assets (valued at time
of investment) in securities of Health Care Companies (as that term is defined
in the Prospectus), except for temporary or defensive purposes;
5. (All Funds) Acquire securities of any one issuer that at the time of
investment (a) represent more than 10% of the voting securities of the issuer or
(b) have a value greater than 10% of the value of the outstanding securities of
the issuer;
5. (All Funds) Borrow money except from banks for temporary or emergency
purposes in amounts not exceeding 5% of the value of the Fund's assets at the
time of borrowing;
6. (All Funds) Underwrite the distribution of securities of other issuers, or
acquire "restricted" securities that, in the event of a resale, might be
required to be registered under the Securities Act of 1933;
7. (All Funds) Make margin purchases or short sales of securities;
8. (All Funds) Invest in companies for the purpose of management or the
exercise of control;
9. (All Funds) Lend money (but this restriction shall not prevent the Fund from
investing in debt securities or repurchase agreements), or lend its portfolio
securities.
10. (All Funds) Acquire or retain any security issued by a company, an officer
or director of which is an officer or director of the Company or an officer,
director or other affiliated person of the Advisor.
11. (All Funds) Invest in oil, gas or other mineral exploration or development
programs, although the Growth Fund only may invest in marketable securities of
companies engaged in oil, gas or mineral exploration;
12. (All Funds) Purchase or sell real estate or real estate loans or real
estate limited partnerships, although the Growth Fund only may invest in
marketable securities of companies that invest in real estate or interests in
real estate.
13. (All Funds) Purchase warrants on securities.
14. (All Funds) Issue senior securities.
15. (All Funds) Invest in commodities, or futures and options on commodities.
Restrictions 1 through 15 listed above are fundamental policies, and may be
changed only with the approval of a "majority of the outstanding voting
securities" of the Fund as defined in the Investment Company Act of 1940.
The Funds have also adopted the following restrictions that may be changed by
the Board of Directors without shareholder approval:
No Fund may:
a. Invest more than 15% of its net assets in securities that are not readily
marketable;
b. Acquire securities of other investment companies except (a) by purchase in
the open market, where no commission or profit to a sponsor or dealer results
from such purchase other than the customary broker's commission and (b) where
acquisition results from a dividend or merger, consolidation or other
reorganization (in addition to this investment restriction, the Investment
Company Act of 1940 provides that the Fund may neither purchase more than 3%
of the voting securities of any one investment company nor invest more than
10% of the Funds total net assets (valued at time of investment) in all
investment company securities purchased by the Fund);
c. Pledge, mortgage or hypothecate its assets, except for temporary or emergency
purposes and then to an extent not greater than 5% of its total assets at
cost;
d. Invest more than 10% of the Fund's assets (valued at time of investment)
in initial margin deposits of options or futures contracts;
INVESTMENT ADVISER
Information on the Fund's investment adviser, Hughes Investment Advisors LLC, is
set forth in the prospectus.
The adviser is a New Jersey Limited Liability Company. Charles J. Hughes is the
President with a 51% interest in the company and his brother, Daniel J. Hughes
has a 49% interest and is a member of the company. Although Mr. Hughes has
extensive experience in managing personal investment portfolios for himself and
his family, he does not have any previous experience in providing investment
management services to any registered investment company.
The Advisory Agreement with each Fund provides that the Adviser shall not be
liable for any loss suffered by the Fund or its shareholders as a consequence of
any act or omission in connection with services under the Agreement, except by
reason of the adviser's willful misfeasance, bad faith, gross negligence, or
reckless disregard of its obligations and duties under the Advisory Agreement.
The Advisory Agreements expire on June 30, 2001, but may be continued from year
to year so long as their continuance is approved annually (a) by the vote of a
majority of the Directors of the Fund who are not "interested persons" of the
Fund or the adviser cast in person at a meeting called for the purpose of voting
on such approval, and (b) by the Board of Directors as a whole or by the vote of
a majority (as defined in the 1940 Act) of the outstanding shares of the Fund.
The Agreement will terminate automatically in the event of its assignment (as
defined in the 1940 Act).
DIRECTORS AND OFFICERS
The board of directors has overall responsibility for conduct of the Company's
affairs. The day-to-day operations of the Funds are managed by the Advisor
subject to the bylaws of the Company and review by the Board of Directors. The
directors of the Company, including those directors who are also officers, are
listed below:
Name, Age, Address, Position Principal Occupation For the
with Fund Last Five Years
Charles J Hughes Age 48 * Fund Adviser
741 Cox Road President Hughes Trading LLC since
Moorestown NJ 08057 February, 1996. Pilot for
President, Treasurer & Director American Airlines since 1988.
BA Degree LaSalle University
Frank G Solecki Age 52 Director of Manufacturing PCD
48 Cove Road Division of FMC Corporation, a
Moorestown NJ 08057 Chemical manufacturing firm
Secretary and Director BS Degree Penn State University
Neal K Smith Age 47 Sales Engineer for Del-Val
144 Knotty Oak Dr. Equipment, Inc.,
Mount Laurel NJ 08054 BS Degree Grove City College
Director
* Indicates an "interested person" as defined in the Investment Company Act of
1940.
The Company was organized as a Maryland Corporation on December 15, 1997. The
table below sets forth the compensation anticipated to be paid by the
Corporation to each of the directors of the Corporation during the fiscal year
ending June 30, 1999.
Name of Director Compensation Pension Annual Total Compensation
from Corp. Benefits Benefits Paid to Director
Charles J Hughes 0 0 0 0
Frank G Solecki $500 0 0 $500
Neal K Smith $500 0 0 $500
PRINCIPAL HOLDERS OF SECURITIES
Charles J. Hughes and Daniel J. Hughes intend to purchase 50% each of each
Fund's outstanding shares. Accordingly, they will be deemed to then control
each Fund.
The Company will call a meeting of shareholders for the purpose of voting upon
the question of removal of a director or directors when requested in writing to
do so by record holders of at least 10% of the Fund's outstanding common shares.
The Corporation's bylaws contain procedures for the removal of directors by its
stockholders. At any meeting of stockholders, duly called and at which a quorum
is present, the stockholders may by the affirmative vote of the holders of a
majority of the votes entitled to be cast thereon, remove any director or
directors from office and may elect a successor or successors to fill any
resulting vacancies for the unexpired terms of the removed directors.
PERFORMANCE INFORMATION
From time to time the Funds may quote total return figures. "Total Return" for a
period is the percentage change in value during the period of an investment in
Fund shares, including the value of shares acquired through reinvestment of all
dividends and capital gains distributions. "Average Annual Total Return" is the
average annual compounded rate of change in value represented by the Total
Return Percentage for the period.
Average Annual Total Return is computed as follows: P(1+T)[n] = ERV
Where: P =a hypothetical initial investment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of shares at
the end of the period
Yield. The Funds may advertise performance in terms of a 30-day yield quotation.
The 30-day yield quotation is computed by dividing the net investment income per
share earned during the period by the maximum offering price per share on the
last day of the period, according to the following formula:
Yield = 2[(a-b/cd + 1)6 - 1]
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursement)
c = the average daily number of shares outstanding during the period that they
were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
Each Fund's performance is a function of conditions in the securities markets,
portfolio management, and operating expenses. Although information such as that
shown above is useful in reviewing a Fund's performance and in providing some
basis for comparison with other investment alternatives, it should not be used
for comparison with other investments using different reinvestment assumptions
or time periods.
In sales literature, a Fund's performance may be compared with that of market
indices and other mutual funds. In addition to the above computations, a Fund
might use comparative performance as computed in a ranking determined by Lipper
Analytical Services, Morningstar, Inc., or that of another service.
PURCHASING AND REDEEMING SHARES
Purchases and redemptions are discussed in the prospectus.
Redemptions will be made at net asset value. Each Fund's net asset value is
determined on days on which the New York Stock Exchange is open for trading.
TAX INFORMATION
Taxation Of The Funds. The Funds intend to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code. Because of the
investment strategies of the Funds, there can be no assurance that the Funds
will qualify as regulated investment companies.
To qualify as a regulated investment company, the Funds must,among other things,
derive at least 90% of their gross income from dividends, interest, payments
with respect to securities loans, gains from the sale or other disposition of
stock, securities, or other income derived with respect to its business of
investing in such stock or securities.
If a Fund qualifies as a regulated investment company and distributes at least
90% of its net investment income, the Fund will not be subject to Federal income
tax on the income so distributed. However, the Fund would be subject to
corporate income tax on any undistributed income other than tax-exempt income
from municipal securities.
Taxation Of The Shareholder. Taxable distributions generally are included in a
shareholder's gross income for the taxable year in which they are received.
However, dividends declared in October, November and December and made payable
to shareholders of record in such month will be deemed to have been received on
December 31st if paid by the Fund during the following January.
Distributions by a Fund will result in a reduction in the fair market value of
the Fund's shares. Should a distribution reduce the fair market value below a
shareholder's cost basis, such distribution would be taxable to the shareholder
as ordinary income or as a long-term capital gain, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares of a Fund just prior to a distribution. The price of such shares
include the amount of any forthcoming distribution so that those investors may
receive a return of investment upon distribution which will, nevertheless, be
taxable to them.
A redemption of shares is a taxable event and, accordingly, a capital gain or
loss may be recognized. Each investor should consult a tax advisor regarding
the effect of federal, state, local, and foreign taxes on an investment in the
Fund.
Dividends. A portion of a Fund's income may qualify for the dividends-received
deduction available to corporate shareholders to the extent that the Fund's
income is derived from qualifying dividends. Because a Fund may earn other
types of income, such as interest, income from securities loans, non-qualifying
dividends, and short-term capital gains, the percentage of dividends from the
Fund that qualifies for the deduction generally will be less than 100%. The
Funds will notify corporate shareholders annually of the percentage of Fund
dividends that qualifies for the dividend received deductions.
A portion of a Fund's dividends derived from certain U.S. Government obligations
may be exempt from state and local taxation. Short-term capital gains are
distributed as dividend income. The Funds will send each shareholder a notice
in January describing the tax status of dividends and capital gain distributions
for the prior year.
Capital Gain Distribution. Long-term capital gains earned by a Fund from the
sale of securities and distributed to shareholders are federally taxable as
long-term capital gains, regardless of the length of time shareholders have held
their shares. If a shareholder receives a long-term capital gain distribution on
shares of the Fund, and such shares are held six months or less and are sold at
a loss, the portion of the loss equal to the amount of the long-term capital
gain distribution will be considered a long-term loss for tax purposes. Short-
term capital gains distributed by a Fund are taxable to shareholders as
dividends, not as capital gains.
PORTFOLIO TRANSACTIONS
The Funds will generally purchase and sell securities without regard to the
length of time the security has been held. Accordingly, it can be expected that
the rate of portfolio turnover may be substantial. Since investment decisions
are based on the anticipated contribution of a security to the Fund's investment
objective, the rate of portfolio turnover is not a factor when the Adviser
believes a change is in order to achieve those objectives. Pursuant to the
regulations prescribed by the commission, the portfolio turnover rate for the
Funds are calculated without regard to instruments, including options and
futures contracts, having a maturity of less than one year. The Funds may hold
some investments in short-term options and futures contracts which are excluded
for purposes of computing portfolio turnover.
High portfolio turnover in any year will result in the payment by a Fund of
above-average transaction costs and could result in the payment by shareholders
of above-average amounts of taxes on realized investment gains. Distributions to
shareholders of such investment gains, to the extent they consist of short-term
capital gains, will be considered ordinary income for federal income tax
purposes.
Decisions to buy and sell securities for the Funds are made by the Adviser
subject to review by the Corporation's Board of Directors. In placing purchase
and sale orders for portfolio securities for the Funds, it is the policy of the
Adviser to seek the best execution of orders at the most favorable price. In
selecting brokers to effect portfolio transactions, the determination of what is
expected to result in the best execution at the most favorable price involves a
number of largely judgmental considerations. Among these are the Adviser's
evaluation of the broker's efficiency in executing and clearing transactions.
Over-the-counter securities are generally purchased and sold directly with
principal market makers who retain the difference in their cost in the security
and its selling price. In some instances, the Adviser feels that better prices
are available from non-principal market makers who are paid commissions
directly.
FUND SERVICE PROVIDERS
The Funds could not function without the services provided by certain companies.
With the Board's permission, the Adviser and the Funds have entered into
contracts with the following companies. All fees charged by these companies
will be paid by the Adviser.
Custodian
UMB Bank, N.A., Kansas City, Missouri, holds the investments and other assets
that the Fund owns. The Custodian is responsible for receiving and paying for
securities purchased, delivering against payment securities sold, receiving and
collecting income from investments, making all payments covering expenses of
the Fund, and performing other administrative duties, all as directed by
persons authorized by the Fund. The Custodian does not exercise any supervisory
function in such matters as the purchase and sale of portfolio securities,
payment of dividends, or payment of expenses of the Fund. Portfolio
securities of the Fund are maintained in the custody of the Custodian, and
may be entered in the Federal Reserve Book Entry System, or the security
depository system of The Depository Trust Company.
Transfer, Dividend Disbursing And Accounting Services Agent
Mutual Shareholder Services provides transfer agency and dividend disbursing
services for the Fund. This means that its job is to maintain, accurately, the
account records of all shareholders in the Fund as well as to administer the
distribution of income earned as a result of investing in the Fund. Mutual
Shareholder Services also provides accounting services to the Fund
including portfolio accounting services, expense accrual and payment services,
valuation and financial reporting services, tax accounting services and
compliance control services.
Administration
Mutual Shareholder Services also acts as Administrator to the Fund pursuant to a
written agreement with the Company and the Adviser, dated March 31, 1999. The
Administrator supervises all aspects of the operations of the Fund except those
performed by the Fund's investment adviser under the Fund's investment advisory
agreement. The Administrator is responsible for:
(a) calculating the Fund's net asset value
(b) preparing and maintaining the books and accounts specified in Rule 31a-1
and 31a-2 of the Investment Company Act of 1940
(c) preparing financial statements contained in reports to stockholders of the
Fund
(d) preparing the Fund's federal and state tax returns
(e) preparing reports and filings with the Securities and Exchange Commission
(f) preparing filings with state Blue Sky authorities
(g) maintaining the Fund's financial accounts and records
For the services to be rendered as Administrator, The Adviser shall pay mutual
Shareholder Services an annual fee, paid monthly, based on the average net
assets of the Fund, as determined by valuations made as of the close of each
business day of the month.
PRINCIPAL UNDERWRITER.
The Fund has not yet retained a principal underwriter.
INDEPENDENT ACCOUNTANTS
DeAngelis & Higgins LLC, 39 North Main Street, Cranbury NJ 08512 has been
selected as the independent accountants for the Fund. As such, DeAngelis &
Higgins LLC performs audits of the Fund's financial statements.
FINANCIAL STATEMENTS
The Funds have no operating history and therefor have no reportable financial
data.
PART C
OTHER INFORMATION
Item 23. Financial Statements and Exhibits
(a) Articles of Incorporation---(included in Pre-effective Amendment No. 1 filed
on April 28, 1998)
(b) By-Laws---(included in Pre-effective Amendment No. 1 filed on April 28,
1998)
(c) Instruments defining rights of Shareholders---None, See Articles of
Incorporation
(d) Investment Advisory Contracts---(included in Pre-effective Amendment No.
1 filed on April 28, 1998)
(e) Underwriting Contracts--- none
(f) Bonus or Profit Sharing Contracts--- None
(g) Custodian Agreement--- Attached
(h) Other Material Contracts---Transfer Agent Agreement, Fund Accounting
Agreement and Operating Services Agreement---Attached
(i) Legal Opinion--- Attached
(j) Other opinions--- None
(k) Omitted Financial statements--- None
(l) Initial Capital Agreements--- Not Applicable
(m) Rule 12b-1 Plans--- NONE
(n) Financial Data Schedule--- *
* To be filed by amendment.
Item 24. Persons Controlled by or Under Common Control With Registrant
See Caption "Principal Holders of Securities" in the Statement of
Additional Information
Item 25. Indemnification
(a) General. The Articles of Amendment and Restatement of Charter
(the "Articles") of the Corporation provide that to the fullest
extent permitted by Maryland and federal statutory and decisional
law, as amended or interpreted, no director or officer of this
Corporation shall be personally liable to the Corporation or the
holders of Shares for money damages for breach of fiduciary duty
as a director and each director and officer shall be indemnified
by the Corporation; provided, however, that nothing herein shall
be deemed to protect any director or officer of the Corporation
against any liability to the Corporation or the holders of Shares
to which such director or officer would otherwise be subject by
reason of breach of the director's or officer's duty of loyalty
to the Corporation or its stockholders, for acts or omissions not
in good faith or which involved intentional misconduct or a
knowing violation of law or for any transaction from which the
director derived any improper personal benefit.
The By-Laws of the Corporation provide that the Corporation shall
indemnify any individual who is a present or former director or
officer of the Corporation and who, by reason of his or her
position was, is or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative
(hereinafter collectively referred to as a "Proceeding") against
judgments, penalties, fines, settlements and reasonable expenses
actually incurred by such director or officer in connection with
such Proceeding, to the fullest extent that such indemnification
may be lawful under Maryland law.
(b) Disabling Conduct. The By-Laws provide that nothing therein shall
be deemed to protect any director or officer against any
liability to the Corporation or its shareholders to which such
director or officer would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her
office (such conduct hereinafter referred to as "Disabling
Conduct").
The By-Laws provide that no indemnification of a director or
officer may be made unless: (1) there is a final decision on the
merits by a court or other body before whom the Proceeding was
brought that the director or officer to be indemnified was not
liable by reason of Disabling Conduct; or (2) in the absence of
such a decision, there is a reasonable determination, based upon
a review of the facts, that the director or officer to be
indemnified was not liable by reason of Disabling Conduct, which
determination shall be made by: (i) the vote of a majority of a
quorum of directors who are neither "interested persons" of the
Corporation as defined in Section 2(a)(19) of the Investment
Company Act of 1940, nor parties to the Proceeding; or (ii) an
independent legal counsel in a written opinion.
(c) Standard of Conduct. Under Maryland law, the Corporation may not
indemnify any director if it is proved that: (1) the act or
omission of the director was material to the cause of action
adjudicated in the Proceeding and (i) was committed in bad faith
or (ii) was the result of active and deliberate dishonesty; or
(2) the director actually received an improper personal benefit;
or (3) in the case of a criminal proceeding, the director had
reasonable cause to believe that the act or omission was
unlawful. No indemnification may be made under Maryland law
unless authorized for a specific proceeding after a determination
has been made, in accordance with Maryland law, that
indemnification is permissible in the circumstances because the
requisite standard of conduct has been met.
(d) Required Indemnification. Maryland law requires that a director
or officer who is successful, on the merits or otherwise, in the
defense of any Proceeding shall be indemnified against reasonable
expenses incurred by the director or officer in connection with
the Proceeding. In addition, under Maryland law, a court of
appropriate jurisdiction may order indemnification under certain
circumstances.
(e) Advance Payment. The By-Laws provide that the Corporation may pay
any reasonable expenses so incurred by any director or officer in
defending a Proceeding in advance of the final disposition
thereof to the fullest extent permissible under Maryland law. In
accordance with the By-Laws, such advance payment of expenses
shall be made only upon the undertaking by such director or
officer to repay the advance unless it is ultimately determined
that such director or officer is entitled to indemnification, and
only if one of the following conditions is met: (1) the director
or officer to be indemnified provides a security for his
undertaking; (2) the Corporation shall be insured against losses
arising by reason of any lawful advances; or (3) there is a
determination, based on a review of readily available facts, that
there is reason to believe that the director or officer to be
indemnified ultimately will be entitled to indemnification, which
determination shall be made by: (i) a majority of a quorum of
directors who are neither "interested persons" of the
Corporation, as defined in Section 2(a)(19) of the Investment
Company Act of 1940, nor parties to the Proceeding; or (ii) an
independent legal counsel in a written opinion.
(f) Insurance. The By-Laws provide that, to the fullest extent
permitted by Maryland law and Section 17(h) of the Investment
Company Act of 1940, the Corporation may purchase and maintain
insurance on behalf of any officer or director of the
Corporation, against any liability asserted against him or her
and incurred by him or her in and arising out of his or her
position, whether or not the Corporation would have the power to
indemnify him or her against such liability.
Item 26. Business and Other Connections of Investment Adviser
None
Item 27. Principal Underwriter
The Fund does not have a principal underwriter
Item 28. Location of Accounts and Records
The books and records of the Fund, other than the accounting and
transfer agency (including dividend disbursing) records, are
maintained by the Fund at 741 Cox Road, Moorestown NJ 08057; the
Fund's accounting and transfer agency records are maintained at
Mutual Shareholder Services, 1301 East ninth Street, Suite 3600,
Cleveland, OH 44114.
Item 29. Management Services
There are no management service contracts not described in Part A or
Part B of Form N-1A.
Item 30. Undertakings
Not Applicable
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 1 to its Registration Statement to be signed on its
behalf by the undersigned, hereunto duly authorized in Moorestown, NJ
on the 15th day of April, 1999.
HUGHES FUNDS, INC.
/s/ Charles J. Hughes.
By: ____________________________
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the date indicated:
NAME TITLE DATE
/s/ Charles J. Hughes President &
________________________ Director April 15, 1999
CHARLES J. HUGHES
/s/ Frank G. Solceki
________________________ Director April 15, 1999
FRANK G. SOLECKI
/s/ Neal K. Smith
________________________ Director April 16, 1999
NEAL K. SMITH
EXHIBITS
Custodian Agreement
Exhibit 23(g)
Transfer Agent, Fund Accounting and Operating Agreements
Exhibit 23(h)
Legal Opinion
Exhibit 23(i)
THE LAW OFFICES OF DAVID D. JONES, P.C.
518 Kimberton, # 134
Phoenixville, PA 19460
(610) 718-5381 (phone)
(610) 718-5391 (facsimile)
[email protected] (e-mail)
Hughes Funds, Inc. April 13, 1999
741 Cox Road
Moorestown, NJ 08057
Dear Sirs:
As counsel to Hughes Funds, Inc. (the "Company"), a corporation organized under
the laws of the State of Maryland, I have been asked to render my opinion with
respect to the issuance of an indefinite number of shares of beneficial interest
of the Company (the "Shares") representing proportionate interests in The Hughes
Growth Fund, The Hughes Technology Fund, The Hughes Health Care Fund, and The
Hughes Financial Services Fund (the "Funds"). The Shares of the Funds are each
a series of the Company consisting of two classes of shares, all as more fully
described in the Prospectus and Statement of Additional Information contained in
the Registration Statement on Form N-1A, to which this opinion is an exhibit, to
be filed with the Securities and Exchange Commission.
I have examined the Company's Articles of Incorporation, by-laws, the Prospectus
and Statement of Additional Information contained in the Registration Statement,
and such other documents, records and certificates as deemed necessary for the
purposes of this opinion.
Based on the foregoing, I am of the opinion that the Shares, when issued,
delivered and paid for in accordance with the terms of the Prospectus and
Statement of Additional Information, will be legally issued, fully paid, and
non-assessable by the Company. I also give my consent for the Corporation to
include this opinion as an Exhibit to the Corporation's Registration Statement
on Form N-1A.
Very Truly Yours,
David D. Jones
Attorney & Counselor at Law
CUSTODY AGREEMENT
Dated March 11, 1999
Between
UMB BANK, N.A.
and
HUGHES FUNDS, INC.
TABLE OF CONTENTS
SECTION PAGE
1. Appointment of Custodian 1
2. Definitions 1
(a) Securities 1
(b) Assets 1
(c) Instructions and Special Instructions 1
3. Delivery of Corporate Documents 2
4. Powers and Duties of Custodian and Domestic 2
Subcustodian
(a) Safekeeping 3
(b) Manner of Holding Securities 3
(c) Free Delivery of Assets 4
(d) Exchange of Securities 4
(e) Purchases of Assets 4
(f) Sales of Assets 5
(g) Options 5
(h) Futures Contracts 6
(i) Segregated Accounts 6
(j) Depositary Receipts 6
(k) Corporate Actions, Put Bonds, Called Bonds, Etc. 6
(l) Interest Bearing Deposits 7
(m) Foreign Exchange Transactions 7
(n) Pledges or Loans of Securities 8
(o) Stock Dividends, Rights, Etc. 8
(p) Routine Dealings 8
(q) Collections 8
(r) Bank Accounts 9
(s) Dividends, Distributions and Redemptions 9
(t) Proceeds from Shares Sold 9
(u) Proxies and Notices; Compliance with the
Shareholders
Communication Act of 1985 9
(v) Books and Records 9
(w) Opinion of Fund's Independent Certified Public 10
Accountants
(x) Reports by Independent Certified Public 10
Accountants
(y) Bills and Others Disbursements 10
5. Subcustodians 10
(a) Domestic Subcustodians 10
(b) Foreign Subcustodians 10
(c) Interim Subcustodians 11
(d) Special Subcustodians 11
(e) Termination of a Subcustodian 11
(f) Certification Regarding Foreign Subcustodians 11
6. Standard of Care 12
(a) General Standard of Care 12
(b) Actions Prohibited by Applicable Law, Events 12
Beyond Custodian's Control, Armed
Conflict, Sovereign Risk, etc.
(c) Liability for Past Records 12
(d) Advice of Counsel 12
(e) Advice of the Fund and Others 12
(f) Instructions Appearing to be Genuine 13
(g) Exceptions from Liability 13
7. Liability of the Custodian for Actions of Others 13
(a) Domestic Subcustodians 13
(b) Liability for Acts and Omissions of Foreign 13
Subcustodians
(c) Securities Systems, Interim Subcustodians, 13
Special Subcustodians, Securities
Depositories and Clearing Agencies
(d) Defaults or Insolvency's of Brokers, Banks, Etc. 14
(e) Reimbursement of Expenses 14
8. Indemnification 14
(a) Indemnification by Fund 14
(b) Indemnification by Custodian 14
9. Advances 14
10. Liens 15
11. Compensation 15
12. Powers of Attorney 15
13. Termination and Assignment 15
14. Additional Funds 15
15. Notices 16
16. Miscellaneous 16
CUSTODY AGREEMENT
This agreement made as of this 11th day of March, 1999, between
UMB Bank, n.a., a national banking association with its principal place
of business located at Kansas City, Missouri (hereinafter "Custodian"),
and each of the Funds listed on Appendix B hereof, together with such
additional Funds which shall be made parties to this Agreement by the
execution of Appendix B hereto (individually, a "Fund" and
collectively, the "Funds").
WITNESSETH:
WHEREAS, each Fund is registered as an open-end management
investment company under the Investment Company Act of 1940, as
amended; and
WHEREAS, each Fund desires to appoint Custodian as its custodian
for the custody of Assets (as hereinafter defined) owned by such Fund
which Assets are to be held in such accounts as such Fund may establish
from time to time; and
WHEREAS, Custodian is willing to accept such appointment on the
terms and conditions hereof.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties hereto, intending to be legally bound, mutually
covenant and agree as follows:
1. APPOINTMENT OF CUSTODIAN.
Each Fund hereby constitutes and appoints the Custodian as
custodian of Assets belonging to each such Fund which have been or may
be from time to time deposited with the Custodian. Custodian accepts
such appointment as a custodian and agrees to perform the duties and
responsibilities of Custodian as set forth herein on the conditions set
forth herein.
2. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
meanings so indicated:
(a) "Security" or "Securities" shall mean stocks, bonds, bills,
rights, script, warrants, interim certificates and all negotiable or
nonnegotiable paper commonly known as Securities and other instruments
or obligations.
(b) "Assets" shall mean Securities, monies and other property
held by the Custodian for the benefit of a Fund.
(c)(1) "Instructions", as used herein, shall mean: (i) a tested
telex, a written (including, without limitation, facsimile
transmission) request, direction, instruction or certification signed
or initialed by or on behalf of a Fund by an Authorized Person; (ii) a
telephonic or other oral communication from a person the Custodian
reasonably believes to be an Authorized Person; or (iii) a
communication effected directly between an electro-mechanical or
electronic device or system (including, without limitation, computers)
on behalf of a Fund. Instructions in the form of oral communications
shall be confirmed by the appropriate Fund by tested telex or in
writing in the manner set forth in clause (i) above, but the lack of
such confirmation shall in no way affect any action taken by the
Custodian in reliance upon such oral Instructions prior to the
Custodian's receipt of such confirmation. Each Fund authorizes the
Custodian to record any and all telephonic or other oral Instructions
communicated to the Custodian.
(c)(2) "Special Instructions", as used herein, shall mean
Instructions countersigned or confirmed in writing by the Treasurer or
any Assistant Treasurer of a Fund or any other person designated by the
Treasurer of such Fund in writing, which countersignature or
confirmation shall be included on the same instrument containing the
Instructions or on a separate instrument relating thereto.
(c)(3) Instructions and Special Instructions shall be delivered
to the Custodian at the address and/or telephone, facsimile
transmission or telex number agreed upon from time to time by the
Custodian and each Fund.
(c)(4) Where appropriate, Instructions and Special Instructions
shall be continuing instructions.
3. DELIVERY OF CORPORATE DOCUMENTS.
Each of the parties to this Agreement represents that its
execution does not violate any of the provisions of its respective
charter, articles of incorporation, articles of association or bylaws
and all required corporate action to authorize the execution and
delivery of this Agreement has been taken.
Each Fund has furnished the Custodian with copies, properly
certified or authenticated, with all amendments or supplements thereto,
of the following documents:
(a) Certificate of Incorporation (or equivalent document) of
the Fund as in effect on the date hereof;
(b) By-Laws of the Fund as in effect on the date hereof;
(c) Resolutions of the Board of Directors of the Fund
appointing the Custodian and approving the form of this
Agreement; and
(d) The Fund's current prospectus and statements of additional
information.
Each Fund shall promptly furnish the Custodian with copies of any
updates, amendments or supplements to the foregoing documents.
In addition, each Fund has delivered or will promptly deliver to
the Custodian, copies of the Resolution(s) of its Board of Directors or
Trustees and all amendments or supplements thereto, properly certified
or authenticated, designating certain officers or employees of each
such Fund who will have continuing authority to certify to the
Custodian: (a) the names, titles, signatures and scope of authority of
all persons authorized to give Instructions or any other notice,
request, direction, instruction, certificate or instrument on behalf of
each Fund, and (b) the names, titles and signatures of those persons
authorized to countersign or confirm Special Instructions on behalf of
each Fund (in both cases collectively, the "Authorized Persons" and
individually, an "Authorized Person"). Such Resolutions and
certificates may be accepted and relied upon by the Custodian as
conclusive evidence of the facts set forth therein and shall be
considered to be in full force and effect until delivery to the
Custodian of a similar Resolution or certificate to the contrary. Upon
delivery of a certificate which deletes or does not include the name(s)
of a person previously authorized to give Instructions or to
countersign or confirm Special Instructions, such persons shall no
longer be considered an Authorized Person authorized to give
Instructions or to countersign or confirm Special Instructions. Unless
the certificate specifically requires that the approval of anyone else
will first have been obtained, the Custodian will be under no
obligation to inquire into the right of the person giving such
Instructions or Special Instructions to do so. Notwithstanding any of
the foregoing, no Instructions or Special Instructions received by the
Custodian from a Fund will be deemed to authorize or permit any
director, trustee, officer, employee, or agent of such Fund to withdraw
any of the Assets of such Fund upon the mere receipt of such
authorization, Special Instructions or Instructions from such director,
trustee, officer, employee or agent.
4. POWERS AND DUTIES OF CUSTODIAN AND DOMESTIC SUBCUSTODIAN.
Except for Assets held by any Subcustodian appointed pursuant to
Sections 5(b), (c), or (d) of this Agreement, the Custodian shall have
and perform the powers and duties hereinafter set forth in this Section
4. For purposes of this Section 4 all references to powers and duties
of the "Custodian" shall also refer to any Domestic Subcustodian
appointed pursuant to Section 5(a).
(a) Safekeeping.
The Custodian will keep safely the Assets of each Fund which are
delivered to it from time to time. The Custodian shall not be
responsible for any property of a Fund held or received by such Fund
and not delivered to the Custodian.
(b) Manner of Holding Securities.
(1) The Custodian shall at all times hold Securities of each
Fund either: (i) by physical possession of the share certificates or
other instruments representing such Securities in registered or bearer
form; or (ii) in book-entry form by a Securities System (as hereinafter
defined) in accordance with the provisions of sub-paragraph (3) below.
(2) The Custodian may hold registrable portfolio Securities
which have been delivered to it in physical form, by registering the
same in the name of the appropriate Fund or its nominee, or in the name
of the Custodian or its nominee, for whose actions such Fund and
Custodian, respectively, shall be fully responsible. Upon the receipt
of Instructions, the Custodian shall hold such Securities in street
certificate form, so called, with or without any indication of
fiduciary capacity. However, unless it receives Instructions to the
contrary, the Custodian will register all such portfolio Securities in
the name of the Custodian's authorized nominee. All such Securities
shall be held in an account of the Custodian containing only assets of
the appropriate Fund or only assets held by the Custodian as a
fiduciary, provided that the records of the Custodian shall indicate at
all times the Fund or other customer for which such Securities are held
in such accounts and the respective interests therein.
(3) The Custodian may deposit and/or maintain domestic
Securities owned by a Fund in, and each Fund hereby approves use of:
(a) The Depository Trust Company; (b) The Participants Trust Company;
and (c) any book-entry system as provided in (i) Subpart O of Treasury
Circular No. 300, 31 CFR 306.115, (ii) Subpart B of Treasury Circular
Public Debt Series No. 27-76, 31 CFR 350.2, or (iii) the book-entry
regulations of federal agencies substantially in the form of 31 CFR
306.115. Upon the receipt of Special Instructions, the Custodian may
deposit and/or maintain domestic Securities owned by a Fund in any
other domestic clearing agency registered with the Securities and
Exchange Commission ("SEC") under Section 17A of the Securities
Exchange Act of 1934 (or as may otherwise be authorized by the SEC to
serve in the capacity of depository or clearing agent for the
Securities or other assets of investment companies) which acts as a
Securities depository. Each of the foregoing shall be referred to in
this Agreement as a "Securities System", and all such Securities
Systems shall be listed on the attached Appendix A. Use of a
Securities System shall be in accordance with applicable Federal
Reserve Board and SEC rules and regulations, if any, and subject to the
following provisions:
(i) The Custodian may deposit the Securities directly or
through one or more agents or Subcustodians which are also qualified to
act as custodians for investment companies.
(ii) The Custodian shall deposit and/or maintain the
Securities in a Securities System, provided that such Securities are
represented in an account ("Account") of the Custodian in the
Securities System that includes only assets held by the Custodian as a
fiduciary, custodian or otherwise for customers.
(iii) The books and records of the Custodian shall at all
times identify those Securities belonging to any one or more Funds
which are maintained in a Securities System.
(iv) The Custodian shall pay for Securities purchased for
the account of a Fund only upon (a) receipt of advice from the
Securities System that such Securities have been transferred to the
Account of the Custodian in accordance with the rules of the Securities
System, and (b) the making of an entry on the records of the Custodian
to reflect such payment and transfer for the account of such Fund. The
Custodian shall transfer Securities sold for the account of a Fund only
upon (a) receipt of advice from the Securities System that payment for
such Securities has been transferred to the Account of the Custodian in
accordance with the rules of the Securities System, and (b) the making
of an entry on the records of the Custodian to reflect such transfer
and payment for the account of such Fund. Copies of all advices from
the Securities System relating to transfers of Securities for the
account of a Fund shall be maintained for such Fund by the Custodian.
The Custodian shall deliver to a Fund on the next succeeding business
day daily transaction reports that shall include each day's
transactions in the Securities System for the account of such Fund.
Such transaction reports shall be delivered to such Fund or any agent
designated by such Fund pursuant to Instructions, by computer or in
such other manner as such Fund and Custodian may agree.
(v) The Custodian shall, if requested by a Fund pursuant to
Instructions, provide such Fund with reports obtained by the Custodian
or any Subcustodian with respect to a Securities System's accounting
system, internal accounting control and procedures for safeguarding
Securities deposited in the Securities System.
(vi) Upon receipt of Special Instructions, the Custodian
shall terminate the use of any Securities System on behalf of a Fund as
promptly as practicable and shall take all actions reasonably
practicable to safeguard the Securities of such Fund maintained with
such Securities System.
(c) Free Delivery of Assets.
Notwithstanding any other provision of this Agreement and except as
provided in Section 3 hereof, the Custodian, upon receipt of Special
Instructions, will undertake to make free delivery of Assets, provided
such Assets are on hand and available, in connection with a Fund's
transactions and to transfer such Assets to such broker, dealer,
Subcustodian, bank, agent, Securities System or otherwise as specified
in such Special Instructions.
(d) Exchange of Securities.
Upon receipt of Instructions, the Custodian will exchange portfolio
Securities held by it for a Fund for other Securities or cash paid in
connection with any reorganization, recapitalization, merger,
consolidation, or conversion of convertible Securities, and will
deposit any such Securities in accordance with the terms of any
reorganization or protective plan.
Without Instructions, the Custodian is authorized to exchange
Securities held by it in temporary form for Securities in definitive
form, to surrender Securities for transfer into a name or nominee name
as permitted in Section 4(b)(2), to effect an exchange of shares in a
stock split or when the par value of the stock is changed, to sell any
fractional shares, and, upon receiving payment therefor, to surrender
bonds or other Securities held by it at maturity or call.
(e) Purchases of Assets.
(1) Securities Purchases. In accordance with Instructions, the
Custodian shall, with respect to a purchase of Securities, pay for such
Securities out of monies held for a Fund's account for which the
purchase was made, but only insofar as monies are available therein for
such purpose, and receive the portfolio Securities so purchased.
Unless the Custodian has received Special Instructions to the contrary,
such payment will be made only upon receipt of Securities by the
Custodian, a clearing corporation of a national Securities exchange of
which the Custodian is a member, or a Securities System in accordance
with the provisions of Section 4(b)(3) hereof. Notwithstanding the
foregoing, upon receipt of Instructions: (i) in connection with a
repurchase agreement, the Custodian may release funds to a Securities
System prior to the receipt of advice from the Securities System that
the Securities underlying such repurchase agreement have been
transferred by book-entry into the Account maintained with such
Securities System by the Custodian, provided that the Custodian's
instructions to the Securities System require that the Securities
System may make payment of such funds to the other party to the
repurchase agreement only upon transfer by book-entry of the Securities
underlying the repurchase agreement into such Account; (ii) in the case
of Interest Bearing Deposits, currency deposits, and other deposits,
foreign exchange transactions, futures contracts or options, pursuant
to Sections 4(g), 4(h), 4(l), and 4(m) hereof, the Custodian may make
payment therefor before receipt of an advice of transaction; and (iii)
in the case of Securities as to which payment for the Security and
receipt of the instrument evidencing the Security are under generally
accepted trade practice or the terms of the instrument representing the
Security expected to take place in different locations or through
separate parties, such as commercial paper which is indexed to foreign
currency exchange rates, derivatives and similar Securities, the
Custodian may make payment for such Securities prior to delivery
thereof in accordance with such generally accepted trade practice or
the terms of the instrument representing such Security.
(2) Other Assets Purchased. Upon receipt of Instructions and
except as otherwise provided herein, the Custodian shall pay for and
receive other Assets for the account of a Fund as provided in
Instructions.
(f) Sales of Assets.
(1) Securities Sold. In accordance with Instructions, the
Custodian will, with respect to a sale, deliver or cause to be
delivered the Securities thus designated as sold to the broker or other
person specified in the Instructions relating to such sale. Unless the
Custodian has received Special Instructions to the contrary, such
delivery shall be made only upon receipt of payment therefor in the
form of: (a) cash, certified check, bank cashier's check, bank credit,
or bank wire transfer; (b) credit to the account of the Custodian with
a clearing corporation of a national Securities exchange of which the
Custodian is a member; or (c) credit to the Account of the Custodian
with a Securities System, in accordance with the provisions of Section
4(b)(3) hereof. Notwithstanding the foregoing, Securities held in
physical form may be delivered and paid for in accordance with "street
delivery custom" to a broker or its clearing agent, against delivery to
the Custodian of a receipt for such Securities, provided that the
Custodian shall have taken reasonable steps to ensure prompt collection
of the payment for, or return of, such Securities by the broker or its
clearing agent, and provided further that the Custodian shall not be
responsible for the selection
of or the failure or inability to perform of such broker or its
clearing agent or for any related loss arising from delivery or custody
of such Securities prior to receiving payment therefor.
(2) Other Assets Sold. Upon receipt of Instructions and except as
otherwise provided herein, the Custodian shall receive payment for and
deliver other Assets for the account of a Fund as provided in
Instructions.
(g) Options.
(1) Upon receipt of Instructions relating to the purchase of an
option or sale of a covered call option, the Custodian shall: (a)
receive and retain confirmations or other documents, if any, evidencing
the purchase or writing of the option by a Fund; (b) if the transaction
involves the sale of a covered call option, deposit and maintain in a
segregated account the Securities (either physically or by book-entry
in a Securities System) subject to the covered call option written on
behalf of such Fund; and (c) pay, release and/or transfer such
Securities, cash or other Assets in accordance with any notices or
other communications evidencing the expiration, termination or exercise
of such options which are furnished to the Custodian by the Options
Clearing Corporation (the "OCC"), the securities or options exchanges
on which such options were traded, or such other organization as may be
responsible for handling such option transactions.
(2) Upon receipt of Instructions relating to the sale of a naked
option (including stock index and commodity options), the Custodian,
the appropriate Fund and the broker-dealer shall enter into an
agreement to comply with the rules of the OCC or of any registered
national securities exchange or similar organizations(s). Pursuant to
that agreement and such Fund's Instructions, the Custodian shall: (a)
receive and retain confirmations or other documents, if any, evidencing
the writing of the option; (b) deposit and maintain in a segregated
account, Securities (either physically or by book-entry in a Securities
System), cash and/or other Assets; and (c) pay, release and/or transfer
such Securities, cash or other Assets in accordance with any such
agreement and with any notices or other communications evidencing the
expiration, termination or exercise of such option which are furnished
to the Custodian by the OCC, the securities or options exchanges on
which such options were traded, or such other organization as may be
responsible for handling such option transactions. The appropriate
Fund and the broker-dealer shall be responsible for determining the
quality and quantity of assets held in any segregated account
established in compliance with applicable margin maintenance
requirements and the performance of other terms of any option contract.
(h) Futures Contracts.
Upon receipt of Instructions, the Custodian shall enter into a
futures margin procedural agreement among the appropriate Fund, the
Custodian and the designated futures commission merchant (a "Procedural
Agreement"). Under the Procedural Agreement the Custodian shall: (a)
receive and retain confirmations, if any, evidencing the purchase or
sale of a futures contract or an option on a futures contract by such
Fund; (b) deposit and maintain in a segregated account cash, Securities
and/or other Assets designated as initial, maintenance or variation
"margin" deposits intended to secure such Fund's performance of its
obligations under any futures contracts purchased or sold, or any
options on futures contracts written by such Fund, in accordance with
the provisions of any Procedural Agreement designed to comply with the
provisions of the Commodity Futures Trading Commission and/or any
commodity exchange or contract market (such as the Chicago Board of
Trade), or any similar organization(s), regarding such margin deposits;
and (c) release Assets from and/or transfer Assets into such margin
accounts only in accordance with any such Procedural Agreements. The
appropriate Fund and such futures commission merchant shall be
responsible for determining the type and amount of Assets held in the
segregated account or paid to the broker-dealer in compliance with
applicable margin maintenance requirements and the performance of any
futures contract or option on a futures contract in accordance with its
terms.
(i) Segregated Accounts.
Upon receipt of Instructions, the Custodian shall establish and
maintain on its books a segregated account or accounts for and on
behalf of a Fund, into which account or accounts may be transferred
Assets of such Fund, including Securities maintained by the Custodian
in a Securities System
pursuant to Paragraph (b)(3) of this Section 4, said account or
accounts to be maintained (i) for the purposes set forth in Sections
4(g), 4(h) and 4(n) and (ii) for the purpose of compliance by such Fund
with the procedures required by the SEC Investment Company Act Release
Number 10666 or any subsequent release or releases relating to the
maintenance of segregated accounts by registered investment companies,
or (iii) for such other purposes as may be set forth, from time to
time, in Special Instructions. The Custodian shall not be responsible
for the determination of the type or amount of Assets to be held in any
segregated account referred to in this paragraph, or for compliance by
the Fund with required procedures noted in (ii) above.
(j) Depositary Receipts.
Upon receipt of Instructions, the Custodian shall surrender or cause
to be surrendered Securities to the depositary used for such Securities
by an issuer of American Depositary Receipts or International
Depositary Receipts (hereinafter referred to, collectively, as "ADRs"),
against a written receipt therefor adequately describing such
Securities and written evidence satisfactory to the organization
surrendering the same that the depositary has acknowledged receipt of
instructions to issue ADRs with respect to such Securities in the name
of the Custodian or a nominee of the Custodian, for delivery in
accordance with such instructions.
Upon receipt of Instructions, the Custodian shall surrender or cause
to be surrendered ADRs to the issuer thereof, against a written receipt
therefor adequately describing the ADRs surrendered and written
evidence satisfactory to the organization surrendering the same that
the issuer of the ADRs has acknowledged receipt of instructions to
cause its depository to deliver the Securities underlying such ADRs in
accordance with such instructions.
(k) Corporate Actions, Put Bonds, Called Bonds, Etc.
Upon receipt of Instructions, the Custodian shall: (a) deliver
warrants, puts, calls, rights or similar Securities to the issuer or
trustee thereof (or to the agent of such issuer or trustee) for the
purpose of exercise or sale, provided that the new Securities, cash or
other Assets, if any, acquired as a result of such actions are to be
delivered to the Custodian; and (b) deposit Securities upon invitations
for tenders thereof, provided that the consideration for such
Securities is to be paid or delivered to the Custodian, or the tendered
Securities are to be returned to the Custodian.
Notwithstanding any provision of this Agreement to the contrary, the
Custodian shall take all necessary action, unless otherwise directed to
the contrary in Instructions, to comply with the terms of all mandatory
or compulsory exchanges, calls, tenders, redemptions, or similar rights
of security ownership, and shall notify the appropriate Fund of such
action in writing by facsimile transmission or in such other manner as
such Fund and Custodian may agree in writing.
The Fund agrees that if it gives an Instruction for the performance
of an act on the last permissible date of a period established by any
optional offer or on the last permissible date for the performance of
such act, the Fund shall hold the Bank harmless from any adverse
consequences in connection with acting upon or failing to act upon such
Instructions.
(l) Interest Bearing Deposits.
Upon receipt of Instructions directing the Custodian to purchase
interest bearing fixed term and call deposits (hereinafter referred to,
collectively, as "Interest Bearing Deposits") for the account of a
Fund, the Custodian shall purchase such Interest Bearing Deposits in
the name of such Fund with such banks or trust companies, including the
Custodian, any Subcustodian or any subsidiary or affiliate of the
Custodian (hereinafter referred to as "Banking Institutions"), and in
such amounts as such Fund may direct pursuant to Instructions. Such
Interest Bearing Deposits may be denominated in U.S. dollars or other
currencies, as such Fund may determine and direct pursuant to
Instructions. The responsibilities of the Custodian to a Fund for
Interest Bearing Deposits issued by the Custodian shall be that of a
U.S. bank for a similar deposit. With respect to Interest Bearing
Deposits other than those issued by the Custodian, (a) the Custodian
shall be responsible for the collection of income and the transmission
of cash to and from such accounts; and (b) the Custodian shall have no
duty with respect to the selection of the Banking Institution or for
the failure of such Banking Institution to pay upon demand.
(m) Foreign Exchange Transactions.
(l) Each Fund hereby appoints the Custodian as its agent in the
execution of all currency exchange transactions. The Custodian agrees
to provide exchange rate and U.S. Dollar information, in writing, to
the Funds. Such information shall be supplied by the Custodian at
least by the business day prior to the value date of the foreign
exchange transaction, provided that the Custodian receives the request
for such information at least two business days prior to the value date
of the transaction.
(2) Upon receipt of Instructions, the Custodian shall settle
foreign exchange contracts or options to purchase and sell foreign
currencies for spot and future delivery on behalf of and for the
account of a Fund with such currency brokers or Banking Institutions as
such Fund may determine and direct pursuant to Instructions. If, in
its Instructions, a Fund does not direct the Custodian to utilize a
particular currency broker or Banking Institution, the Custodian is
authorized to select such currency broker or Banking Institution as it
deems appropriate to execute the Fund's foreign currency transaction.
(3) Each Fund accepts full responsibility for its use of third
party foreign exchange brokers and for execution of said foreign
exchange contracts and understands that the Fund shall be responsible
for any and all costs and interest charges which may be incurred as a
result of the failure or delay of its third party broker to deliver
foreign exchange. The Custodian shall have no responsibility or
liability with respect to the selection of the currency brokers or
Banking Institutions with which a Fund deals or the performance of such
brokers or Banking Institutions.
(4) Notwithstanding anything to the contrary contained herein,
upon receipt of Instructions the Custodian may, in connection with a
foreign exchange contract, make free outgoing payments of cash in the
form of U.S. Dollars or foreign currency prior to receipt of
confirmation of such foreign exchange contract or confirmation that the
countervalue currency completing such contract has been delivered or
received.
(5) The Custodian shall not be obligated to enter into foreign
exchange transactions as principal. However, if the Custodian has made
available to a Fund its services as a principal in foreign exchange
transactions and subject to any separate agreement between the parties
relating to such transactions, the Custodian shall enter into foreign
exchange contracts or options to purchase and sell foreign currencies
for spot and future delivery on behalf of and for the account of the
Fund, with the Custodian as principal.
(n) Pledges or Loans of Securities.
(1) Upon receipt of Instructions from a Fund, the Custodian will
release or cause to be released Securities held in custody to the
pledgees designated in such Instructions by way of pledge or
hypothecation to secure loans incurred by such Fund with various
lenders including but not limited to UMB Bank, n.a.; provided, however,
that the Securities shall be released only upon payment to the
Custodian of the monies borrowed, except that in cases where additional
collateral is required to secure existing borrowings, further
Securities may be released or delivered, or caused to be released or
delivered for that purpose upon receipt of Instructions. Upon receipt
of Instructions, the Custodian will pay, but only from funds available
for such purpose, any such loan upon re-delivery to it of the
Securities pledged or hypothecated therefor and upon surrender of the
note or notes evidencing such loan. In lieu of delivering collateral
to a pledgee, the Custodian, on the receipt of Instructions, shall
transfer the pledged Securities to a segregated account for the benefit
of the pledgee.
(2) Upon receipt of Special Instructions, and execution of a
separate Securities Lending Agreement, the Custodian will release
Securities held in custody to the borrower designated in such
Instructions and may, except as otherwise provided below, deliver such
Securities prior to the receipt of collateral, if any, for such
borrowing, provided that, in case of loans of Securities held by a
Securities System that are secured by cash collateral, the Custodian's
instructions to the Securities System shall require that the Securities
System deliver the Securities of the appropriate Fund to the borrower
thereof only upon receipt of the collateral for such borrowing. The
Custodian shall have no responsibility or liability for any loss
arising from the delivery of Securities prior to the receipt of
collateral. Upon receipt of Instructions and the loaned Securities,
the Custodian will release the collateral to the borrower.
(o) Stock Dividends, Rights, Etc.
The Custodian shall receive and collect all stock dividends, rights,
and other items of like nature and, upon receipt of Instructions, take
action with respect to the same as directed in such Instructions.
(p) Routine Dealings.
The Custodian will, in general, attend to all routine and mechanical
matters in accordance with industry standards in connection with the
sale, exchange, substitution, purchase, transfer, or other dealings
with Securities or other property of each Fund except as may be
otherwise provided in this Agreement or directed from time to time by
Instructions from any particular Fund. The Custodian may also make
payments to itself or others from the Assets for disbursements and
out-of-pocket expenses incidental to handling Securities or other
similar items relating to its duties under this Agreement, provided
that all such payments shall be accounted for to the appropriate Fund.
(q) Collections.
The Custodian shall (a) collect amounts due and payable to each Fund
with respect to portfolio Securities and other Assets; (b) promptly
credit to the account of each Fund all income and other payments
relating to portfolio Securities and other Assets held by the Custodian
hereunder upon Custodian's receipt of such income or payments or as
otherwise agreed in writing by the Custodian and any particular Fund;
(c) promptly endorse and deliver any instruments required to effect
such collection; and (d) promptly execute ownership and other
certificates and affidavits for all federal, state, local and foreign
tax purposes in connection with receipt of income or other payments
with respect to portfolio Securities and other Assets, or in connection
with the transfer of such Securities or other Assets; provided,
however, that with respect to portfolio Securities registered in
so-called street name, or physical Securities with variable interest
rates, the Custodian shall use its best efforts to collect amounts due
and payable to any such Fund. The Custodian shall notify a Fund in
writing by facsimile transmission or in such other manner as such Fund
and Custodian may agree in writing if any amount payable with respect
to portfolio Securities or other Assets is not received by the
Custodian when due. The Custodian shall not be responsible for the
collection of amounts due and payable with respect to portfolio
Securities or other Assets that are in default.
(r) Bank Accounts.
Upon Instructions, the Custodian shall open and operate a bank
account or accounts on the books of the Custodian; provided that such
bank account(s) shall be in the name of the Custodian or a nominee
thereof, for the account of one or more Funds, and shall be subject
only to draft or order of the Custodian. The responsibilities of the
Custodian to any one or more such Funds for deposits accepted on the
Custodian's books shall be that of a U.S. bank for a similar deposit.
(s) Dividends, Distributions and Redemptions.
To enable each Fund to pay dividends or other distributions to
shareholders of each such Fund and to make payment to shareholders who
have requested repurchase or redemption of their shares of each such
Fund (collectively, the "Shares"), the Custodian shall release cash or
Securities insofar as available. In the case of cash, the Custodian
shall, upon the receipt of Instructions, transfer such funds by check
or wire transfer to any account at any bank or trust company designated
by each such Fund in such Instructions. In the case of Securities, the
Custodian shall, upon the receipt of Special Instructions, make such
transfer to any entity or account designated by each such Fund in such
Special Instructions.
(t) Proceeds from Shares Sold.
The Custodian shall receive funds representing cash payments
received for shares issued or sold from time to time by each Fund, and
shall credit such funds to the account of the appropriate Fund. The
Custodian shall notify the appropriate Fund of Custodian's receipt of
cash in payment for shares issued by such Fund by facsimile
transmission or in such other manner as such Fund and the Custodian
shall agree. Upon receipt of Instructions, the Custodian shall: (a)
deliver all federal funds received by the Custodian in payment for
shares as may be set forth in such Instructions and at a time agreed
upon between the Custodian and such Fund; and (b) make federal funds
available to a Fund as of specified times agreed upon from time to time
by such Fund and the Custodian, in the amount of checks received in
payment for shares which are deposited to the accounts of such Fund.
(u) Proxies and Notices; Compliance with the Shareholders
Communication Act of 1985.
The Custodian shall deliver or cause to be delivered to the
appropriate Fund all forms of proxies, all notices of meetings, and any
other notices or announcements affecting or relating to Securities
owned by such Fund that are received by the Custodian, any
Subcustodian, or any nominee of either of them, and, upon receipt of
Instructions, the Custodian shall execute and deliver, or cause such
Subcustodian or nominee to execute and deliver, such proxies or other
authorizations as may be required. Except as directed pursuant to
Instructions, neither the Custodian nor any Subcustodian or nominee
shall vote upon any such Securities, or execute any proxy to vote
thereon, or give any consent or take any other action with respect
thereto.
The Custodian will not release the identity of any Fund to an issuer
which requests such information pursuant to the Shareholder
Communications Act of 1985 for the specific purpose of direct
communications between such issuer and any such Fund unless a
particular Fund directs the Custodian otherwise in writing.
(v) Books and Records.
The Custodian shall maintain such records relating to its activities
under this Agreement as are required to be maintained by Rule 31a-1
under the Investment Company Act of 1940 ("the 1940 Act") and to
preserve them for the periods prescribed in Rule 31a-2 under the 1940
Act. These records shall be open for inspection by duly authorized
officers, employees or agents (including independent public
accountants) of the appropriate Fund during normal business hours of
the Custodian.
The Custodian shall provide accountings relating to its activities
under this Agreement as shall be agreed upon by each Fund and the
Custodian.
(w) Opinion of Fund's Independent Certified Public Accountants.
The Custodian shall take all reasonable action as each Fund may
request to obtain from year to year favorable opinions from each such
Fund's independent certified public accountants with respect to the
Custodian's activities hereunder and in connection with the preparation
of each such Fund's periodic reports to the SEC and with respect to any
other requirements of the SEC.
(x) Reports by Independent Certified Public Accountants.
At the request of a Fund, the Custodian shall deliver to such Fund a
written report prepared by the Custodian's independent certified public
accountants with respect to the services provided by the Custodian
under this Agreement, including, without limitation, the Custodian's
accounting system, internal accounting control and procedures for
safeguarding cash, Securities and other Assets, including cash,
Securities and other Assets deposited and/or maintained in a Securities
System or with a Subcustodian. Such report shall be of sufficient
scope and in sufficient detail as may reasonably be required by such
Fund and as may reasonably be obtained by the Custodian.
(y) Bills and Other Disbursements.
Upon receipt of Instructions, the Custodian shall pay, or cause to
be paid, all bills, statements, or other obligations of a Fund.
5. SUBCUSTODIANS.
From time to time, in accordance with the relevant provisions of
this Agreement, the Custodian may appoint one or more Domestic
Subcustodians, Foreign Subcustodians, Special Subcustodians, or Interim
Subcustodians (as each are hereinafter defined) to act on behalf of any
one or more Funds. A Domestic Subcustodian, in accordance with the
provisions of this Agreement, may also appoint a Foreign Subcustodian,
Special Subcustodian, or Interim Subcustodian to act on behalf of any
one or more Funds. For purposes of this Agreement, all Domestic
Subcustodians, Foreign Subcustodians, Special Subcustodians and Interim
Subcustodians shall be referred to collectively as "Subcustodians".
(a) Domestic Subcustodians.
The Custodian may, at any time and from time to time, appoint any
bank as defined in Section 2(a)(5) of the 1940 Act or any trust company
or other entity, any of which meet the requirements of a custodian
under Section 17(f) of the 1940 Act and the rules and regulations
thereunder, to act for the Custodian on behalf of any one or more Funds
as a subcustodian for purposes of holding Assets of such Fund(s) and
performing other functions of the Custodian within the United States (a
"Domestic Subcustodian"). Each Fund shall approve in writing the
appointment of the proposed Domestic Subcustodian; and the Custodian's
appointment of any such Domestic Subcustodian shall not be effective
without such prior written approval of the Fund(s). Each such duly
approved Domestic Subcustodian shall be listed on Appendix A attached
hereto, as it may be amended, from time to time.
(b) Foreign Subcustodians.
The Custodian may at any time appoint, or cause a Domestic
Subcustodian to appoint, any bank, trust company or other entity
meeting the requirements of an "eligible foreign custodian" under
Section 17(f) of the 1940 Act and the rules and regulations thereunder
to act for the Custodian on behalf of any one or more Funds as a
subcustodian or sub-subcustodian (if appointed by a Domestic
Subcustodian) for purposes of holding Assets of the Fund(s) and
performing other functions of the Custodian in countries other than the
United States of America (hereinafter referred to as a "Foreign
Subcustodian" in the context of either a subcustodian or a
sub-subcustodian); provided that the Custodian shall have obtained
written confirmation from each Fund of the approval of the Board of
Directors or other governing body of each such Fund (which approval may
be withheld in the sole discretion of such Board of Directors or other
governing body or entity) with respect to (i) the identity of any
proposed Foreign Subcustodian (including branch designation), (ii) the
country or countries in which, and the securities depositories or
clearing agencies (hereinafter "Securities Depositories and Clearing
Agencies"), if any, through which, the Custodian or any proposed
Foreign Subcustodian is authorized to hold Securities and other Assets
of each such Fund, and (iii) the form and terms of the subcustodian
agreement to be entered into with such proposed Foreign Subcustodian.
Each such duly approved Foreign Subcustodian and the countries where
and the Securities Depositories and Clearing Agencies through which
they may hold Securities and other Assets of the Fund(s) shall be
listed on Appendix A attached hereto, as it may be amended, from time
to time. Each Fund shall be responsible for informing the Custodian
sufficiently in advance of a proposed investment which is to be held in
a country in which no Foreign Subcustodian is authorized to act, in
order that there shall be sufficient time for the Custodian, or any
Domestic Subcustodian, to effect the appropriate arrangements with a
proposed Foreign Subcustodian, including obtaining approval as provided
in this Section 5(b). In connection with the appointment of any
Foreign Subcustodian, the Custodian shall, or shall cause the Domestic
Subcustodian to, enter into a subcustodian agreement with the Foreign
Subcustodian in form and substance approved by each such Fund. The
Custodian shall not consent to the amendment of, and shall cause any
Domestic Subcustodian not to consent to the amendment of, any agreement
entered into with a Foreign Subcustodian, which materially affects any
Fund's rights under such agreement, except upon prior written approval
of such Fund pursuant to Special Instructions.
(c) Interim Subcustodians.
Notwithstanding the foregoing, in the event that a Fund shall invest
in an Asset to be held in a country in which no Foreign Subcustodian is
authorized to act, the Custodian shall notify such Fund in writing by
facsimile transmission or in such other manner as such Fund and the
Custodian shall agree in writing of the unavailability of an approved
Foreign Subcustodian in such country; and upon the receipt of Special
Instructions from such Fund, the Custodian shall, or shall cause its
Domestic Subcustodian to, appoint or approve an entity (referred to
herein as an "Interim Subcustodian") designated in such Special
Instructions to hold such Security or other Asset.
(d) Special Subcustodians.
Upon receipt of Special Instructions, the Custodian shall, on behalf
of a Fund, appoint one or more banks, trust companies or other entities
designated in such Special Instructions to act for the Custodian on
behalf of such Fund as a subcustodian for purposes of: (i) effecting
third-party repurchase transactions with banks, brokers, dealers or
other entities through the use of a common custodian or subcustodian;
(ii) providing depository and clearing agency services with respect to
certain variable rate demand note Securities, (iii) providing
depository and clearing agency services with respect to dollar
denominated Securities, and (iv) effecting any other transactions
designated by such Fund in such Special Instructions. Each such
designated subcustodian (hereinafter referred to as a "Special
Subcustodian") shall be listed on Appendix A attached hereto, as it may
be amended from time to time. In connection with the appointment of
any Special Subcustodian, the Custodian shall enter into a subcustodian
agreement with the Special Subcustodian in form and substance approved
by the appropriate Fund in Special Instructions. The Custodian shall
not amend any subcustodian agreement entered into with a Special
Subcustodian, or waive any rights under such agreement, except upon
prior approval pursuant to Special Instructions.
(e) Termination of a Subcustodian.
The Custodian may, at any time in its discretion upon notification
to the appropriate Fund(s), terminate any Subcustodian of such Fund(s)
in accordance with the termination provisions under the applicable
subcustodian agreement, and upon the receipt of Special Instructions,
the Custodian will terminate any Subcustodian in accordance with the
termination provisions under the applicable subcustodian agreement.
(f) Certification Regarding Foreign Subcustodians.
Upon request of a Fund, the Custodian shall deliver to such Fund a
certificate stating: (i) the identity of each Foreign Subcustodian
then acting on behalf of the Custodian; (ii) the countries in which and
the Securities Depositories and Clearing Agencies through which each
such Foreign Subcustodian is then holding cash, Securities and other
Assets of such Fund; and (iii) such other information as may be
requested by such Fund, and as the Custodian shall be reasonably able
to obtain, to evidence compliance with rules and regulations under the
1940 Act.
6. STANDARD OF CARE.
(a) General Standard of Care.
The Custodian shall be liable to a Fund for all losses, damages and
reasonable costs and expenses suffered or incurred by such Fund
resulting from the negligence or willful misfeasance of the Custodian;
provided, however, in no event shall the Custodian be liable for
special, indirect or consequential damages arising under or in
connection with this Agreement.
(b) Actions Prohibited by Applicable Law, Events Beyond Custodian's
Control, Sovereign Risk, Etc.
In no event shall the Custodian or any Domestic Subcustodian incur
liability hereunder (i) if the Custodian or any Subcustodian or
Securities System, or any subcustodian, Securities System, Securities
Depository or Clearing Agency utilized by the Custodian or any such
Subcustodian, or any nominee of the Custodian or any Subcustodian
(individually, a "Person") is prevented, forbidden or delayed from
performing, or omits to perform, any act or thing which this Agreement
provides shall be performed or omitted to be performed, by reason of:
(a) any provision of any present or future law or regulation or order
of the United States of America, or any state thereof, or of any
foreign country, or political subdivision thereof or of any court of
competent jurisdiction (and neither the Custodian nor any other Person
shall be obligated to take any action contrary thereto); or (b) any
event beyond the control of the Custodian or other Person such as armed
conflict, riots, strikes, lockouts, labor disputes, equipment or
transmission failures, natural disasters, or failure of the mails,
transportation, communications or power supply; or (ii) for any loss,
damage, cost or expense resulting from "Sovereign Risk." A "Sovereign
Risk" shall mean nationalization, expropriation, currency devaluation,
revaluation or fluctuation, confiscation, seizure, cancellation,
destruction or similar action by any governmental authority, de facto
or de jure; or enactment, promulgation, imposition or enforcement by
any such governmental authority of currency restrictions, exchange
controls, taxes, levies or other charges affecting a Fund's Assets; or
acts of armed conflict, terrorism, insurrection or revolution; or any
other act or event beyond the Custodian's or such other Person's
control.
(c) Liability for Past Records.
Neither the Custodian nor any Domestic Subcustodian shall have any
liability in respect of any loss, damage or expense suffered by a Fund,
insofar as such loss, damage or expense arises from the performance of
the Custodian or any Domestic Subcustodian in reliance upon records
that were maintained for such Fund by entities other than the Custodian
or any Domestic Subcustodian prior to the Custodian's employment
hereunder.
(d) Advice of Counsel.
The Custodian and all Domestic Subcustodians shall be entitled to
receive and act upon advice of counsel of its own choosing on all
matters. The Custodian and all Domestic Subcustodians shall be without
liability for any actions taken or omitted in good faith pursuant to
the advice of counsel.
(e) Advice of the Fund and Others.
The Custodian and any Domestic Subcustodian may rely upon the advice
of any Fund and upon statements of such Fund's accountants and other
persons believed by it in good faith to be expert in matters upon
which they are consulted, and neither the Custodian nor any Domestic
Subcustodian shall be liable for any actions taken or omitted, in good
faith, pursuant to such advice or statements.
(f) Instructions Appearing to be Genuine.
The Custodian and all Domestic Subcustodians shall be fully
protected and indemnified in acting as a custodian hereunder upon any
Resolutions of the Board of Directors or Trustees, Instructions,
Special Instructions, advice, notice, request, consent, certificate,
instrument or paper appearing to it to be genuine and to have been
properly executed and shall, unless otherwise specifically provided
herein, be entitled to receive as conclusive proof of any fact or
matter required to be ascertained from any Fund hereunder a certificate
signed by any officer of such Fund authorized to countersign or confirm
Special Instructions.
(g) Exceptions from Liability.
Without limiting the generality of any other provisions hereof,
neither the Custodian nor any Domestic Subcustodian shall be under any
duty or obligation to inquire into, nor be liable for:
(i) the validity of the issue of any Securities purchased by or
for any Fund, the legality of the purchase thereof or evidence of
ownership required to be received by any such Fund, or the propriety of
the decision to purchase or amount paid therefor;
(ii) the legality of the sale of any Securities by or for any
Fund, or the propriety of the amount for which the same were sold; or
(iii) any other expenditures, encumbrances of Securities,
borrowings or similar actions with respect to any Fund's Assets;
and may, until notified to the contrary, presume that all Instructions
or Special Instructions received by it are not in conflict with or in
any way contrary to any provisions of any such Fund's Declaration of
Trust, Partnership Agreement, Articles of Incorporation or By-Laws or
votes or proceedings of the shareholders, trustees, partners or
directors of any such Fund, or any such Fund's currently effective
Registration Statement on file with the SEC.
7. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF OTHERS.
(a) Domestic Subcustodians
The Custodian shall be liable for the acts or omissions of any
Domestic Subcustodian to the same extent as if such actions or
omissions were performed by the Custodian itself.
(b) Liability for Acts and Omissions of Foreign Subcustodians.
The Custodian shall be liable to a Fund for any loss or damage to
such Fund caused by or resulting from the acts or omissions of any
Foreign Subcustodian to the extent that, under the terms set forth in
the subcustodian agreement between the Custodian or a Domestic
Subcustodian and such Foreign Subcustodian, the Foreign Subcustodian
has failed to perform in accordance with the standard of conduct
imposed under such subcustodian agreement and the Custodian or Domestic
Subcustodian recovers from the Foreign Subcustodian under the
applicable subcustodian agreement.
(c) Securities Systems, Interim Subcustodians, Special
Subcustodians, Securities Depositories and Clearing Agencies.
The Custodian shall not be liable to any Fund for any loss, damage
or expense suffered or incurred by such Fund resulting from or
occasioned by the actions or omissions of a Securities System, Interim
Subcustodian, Special Subcustodian, or Securities Depository and
Clearing Agency unless such loss, damage or expense is caused by, or
results from, the negligence or willful misfeasance of the Custodian.
(d) Defaults or Insolvency's of Brokers, Banks, Etc.
The Custodian shall not be liable for any loss, damage or expense
suffered or incurred by any Fund resulting from or occasioned by the
actions, omissions, neglects, defaults or insolvency of any broker,
bank, trust company
or any other person with whom the Custodian may deal (other than any of
such entities acting as a Subcustodian, Securities System or Securities
Depository and Clearing Agency, for whose actions the liability of the
Custodian is set out elsewhere in this Agreement) unless such loss,
damage or expense is caused by, or results from, the negligence or
willful misfeasance of the Custodian.
(e) Reimbursement of Expenses.
Each Fund agrees to reimburse the Custodian for all out-of-pocket
expenses incurred by the Custodian in connection with this Agreement,
but excluding salaries and usual overhead expenses.
8. INDEMNIFICATION.
(a) Indemnification by Fund.
Subject to the limitations set forth in this Agreement, each Fund
agrees to indemnify and hold harmless the Custodian and its nominees
from all losses, damages and expenses (including attorneys' fees)
suffered or incurred by the Custodian or its nominee caused by or
arising from actions taken by the Custodian, its employees or agents in
the performance of its duties and obligations under this Agreement,
including, but not limited to, any indemnification obligations
undertaken by the Custodian under any relevant subcustodian agreement;
provided, however, that such indemnity shall not apply to the extent
the Custodian is liable under Sections 6 or 7 hereof.
If any Fund requires the Custodian to take any action with respect
to Securities, which action involves the payment of money or which may,
in the opinion of the Custodian, result in the Custodian or its nominee
assigned to such Fund being liable for the payment of money or
incurring liability of some other form, such Fund, as a prerequisite to
requiring the Custodian to take such action, shall provide indemnity to
the Custodian in an amount and form satisfactory to it.
(b) Indemnification by Custodian.
Subject to the limitations set forth in this Agreement and in
addition to the obligations provided in Sections 6 and 7, the Custodian
agrees to indemnify and hold harmless each Fund from all losses,
damages and expenses suffered or incurred by each such Fund caused by
the negligence or willful misfeasance of the Custodian.
9. ADVANCES.
In the event that, pursuant to Instructions, the Custodian or any
Subcustodian, Securities System, or Securities Depository or Clearing
Agency acting either directly or indirectly under agreement with the
Custodian (each of which for purposes of this Section 9 shall be
referred to as "Custodian"), makes any payment or transfer of funds on
behalf of any Fund as to which there would be, at the close of business
on the date of such payment or transfer, insufficient funds held by the
Custodian on behalf of any such Fund, the Custodian may, in its
discretion without further Instructions, provide an advance ("Advance")
to any such Fund in an amount sufficient to allow the completion of the
transaction by reason of which such payment or transfer of funds is to
be made. In addition, in the event the Custodian is directed by
Instructions to make any payment or transfer of funds on behalf of any
Fund as to which it is subsequently determined that such Fund has
overdrawn its cash account with the Custodian as of the close of
business on the date of such payment or transfer, said overdraft shall
constitute an Advance. Any Advance shall be payable by the Fund on
behalf of which the Advance was made on demand by Custodian, unless
otherwise agreed by such Fund and the Custodian, and shall accrue
interest from the date of the Advance to the date of payment by such
Fund to the Custodian at a rate agreed upon in writing from time to
time by the Custodian and such Fund. It is understood that any
transaction in respect of which the Custodian shall have made an
Advance, including but not limited to a foreign exchange contract or
transaction in respect of which the Custodian is not acting as a
principal, is for the account of and at the risk of the Fund on behalf
of which the Advance was made, and not, by reason of such Advance,
deemed to be a transaction undertaken by the Custodian for its own
account and risk. The Custodian and each of the Funds which are
parties to this Agreement acknowledge that the purpose of Advances is
to finance temporarily the purchase or sale of Securities for prompt
delivery in accordance with the settlement terms of such transactions
or to meet emergency expenses not reasonably foreseeable by a Fund.
The Custodian shall promptly notify the appropriate Fund of any
Advance. Such notification shall be sent by facsimile transmission or
in such other manner as such Fund and the Custodian may agree.
10. LIENS.
The Bank shall have a lien on the Property in the Custody Account to
secure payment of fees and expenses for the services rendered under
this Agreement. If the Bank advances cash or securities to the Fund
for any purpose or in the event that the Bank or its nominee shall
incur or be assessed any taxes, charges, expenses, assessments, claims
or liabilities in connection with the performance of its duties
hereunder, except such as may arise from its or its nominee's negligent
action, negligent failure to act or willful misconduct, any Property at
any time held for the Custody Account shall be security therefor and
the Fund hereby grants a security interest therein to the Bank. The
Fund shall promptly reimburse the Bank for any such advance of cash or
securities or any such taxes, charges, expenses, assessments, claims or
liabilities upon request for payment, but should the Fund fail to so
reimburse the Bank, the Bank shall be entitled to dispose of such
Property to the extent necessary to obtain reimbursement. The Bank
shall be entitled to debit any account of the Fund with the Bank
including, without limitation, the Custody Account, in connection with
any such advance and any interest on such advance as the Bank deems
reasonable.
11. COMPENSATION.
Each Fund will pay to the Custodian such compensation as is agreed
to in writing by the Custodian and each such Fund from time to time.
Such compensation, together with all amounts for which the Custodian is
to be reimbursed in accordance with Section 7(e), shall be billed to
each such Fund and paid in cash to the Custodian.
12. POWERS OF ATTORNEY.
Upon request, each Fund shall deliver to the Custodian such proxies,
powers of attorney or other instruments as may be reasonable and
necessary or desirable in connection with the performance by the
Custodian or any Subcustodian of their respective obligations under
this Agreement or any applicable subcustodian agreement.
13. TERMINATION AND ASSIGNMENT.
Any Fund or the Custodian may terminate this Agreement by notice in
writing, delivered or mailed, postage prepaid (certified mail, return
receipt requested) to the other not less than 90 days prior to the date
upon which such termination shall take effect. Upon termination of
this Agreement, the appropriate Fund shall pay to the Custodian such
fees as may be due the Custodian hereunder as well as its reimbursable
disbursements, costs and expenses paid or incurred. Upon termination
of this Agreement, the Custodian shall deliver, at the terminating
party's expense, all Assets held by it hereunder to the appropriate
Fund or as otherwise designated by such Fund by Special Instructions.
Upon such delivery, the Custodian shall have no further obligations or
liabilities under this Agreement except as to the final resolution of
matters relating to activity occurring prior to the effective date of
termination.
This Agreement may not be assigned by the Custodian or any Fund
without the respective consent of the other, duly authorized by a
resolution by its Board of Directors or Trustees.
14. ADDITIONAL FUNDS.
An additional Fund or Funds may become a party to this Agreement
after the date hereof by an instrument in writing to such effect signed
by such Fund or Funds and the Custodian. If this Agreement is
terminated as to one or more of the Funds (but less than all of the
Funds) or if an additional Fund or Funds shall become a party to this
Agreement, there shall be delivered to each party an Appendix B or an
amended Appendix B, signed by each of the additional Funds (if any) and
each of the remaining Funds as well as the Custodian, deleting or
adding such Fund or Funds, as the case may be. The termination of this
Agreement as to less than all of the Funds shall not affect the
obligations of the Custodian and the remaining Funds hereunder as set
forth on the signature page hereto and in Appendix B as revised from
time to time.
15. NOTICES.
As to each Fund, notices, requests, instructions and other writings
delivered to [INSERT FUND COMPLEX ADDRESS], postage prepaid, or to such
other address as any particular Fund may have designated to the
Custodian in writing, shall be deemed to have been properly delivered
or given to a Fund.
Notices, requests, instructions and other writings delivered to the
Securities Administration department of the Custodian at its office at
928 Grand Blvd., 10th Floor, Attn: Ralph Santoro, Kansas City, Missouri
64106, or mailed postage prepaid, to the Custodian's Securities
Administration department, Post Office Box 226, Attn: Ralph Santoro,
Kansas City, Missouri 64141, or to such other addresses as the
Custodian may have designated to each Fund in writing, shall be deemed
to have been properly delivered or given to the Custodian hereunder;
provided, however, that procedures for the delivery of Instructions and
Special Instructions shall be governed by Section 2(c) hereof.
16. MISCELLANEOUS.
(a) This Agreement is executed and delivered in the State of
Missouri and shall be governed by the laws of such state.
(b) All of the terms and provisions of this Agreement shall be
binding upon, and inure to the benefit of, and be enforceable by the
respective successors and assigns of the parties hereto.
(c) No provisions of this Agreement may be amended, modified or
waived, in any manner except in writing, properly executed by both
parties hereto; provided, however, Appendix A may be amended from time
to time as Domestic Subcustodians, Foreign Subcustodians, Special
Subcustodians, and Securities Depositories and Clearing Agencies are
approved or terminated according to the terms of this Agreement.
(d) The captions in this Agreement are included for convenience of
reference only, and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
(e) This Agreement shall be effective as of the date of execution
hereof.
(f) This Agreement may be executed simultaneously in two or more
counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same instrument.
(g) The following terms are defined terms within the meaning of
this Agreement, and the definitions thereof are found in the following
sections of the Agreement:
Term Section
Account 4(b)(3)
(ii)
ADR'S 4(j)
Advance 9
Assets 2(b)
Authorized Person 3
Banking Institution 4(1)
Domestic Subcustodian 5(a)
Foreign Subcustodian 5(b)
Instruction 2(c)(1)
Interim Subcustodian 5(c)
Interest Bearing Deposit 4(1)
Liens 10
OCC 4(g)(1)
Person 6(b)
Procedural Agreement 4(h)
SEC 4(b)(3)
Securities 2(a)
Securities Depositories 5(b)
and Clearing Agencies
Securities System 4(b)(3)
Shares 4(s)
Sovereign Risk 6(b)
Special Instruction 2(c)(2)
Special Subcustodian 5(d)
Subcustodian 5
1940 Act 4(v)
(h) If any part, term or provision of this Agreement is held to
be illegal, in conflict with any law or otherwise invalid by any court
of competent jurisdiction, the remaining portion or portions shall be
considered severable and shall not be affected, and the rights and
obligations of the parties shall be construed and enforced as if this
Agreement did not contain the particular part, term or provision held
to be illegal or invalid.
(i) This Agreement constitutes the entire understanding and
agreement of the parties hereto with respect to the subject matter
hereof, and accordingly supersedes, as of the effective date of this
Agreement, any custodian agreement heretofore in effect between the
Fund and the Custodian.
IN WITNESS WHEREOF, the parties hereto have caused this Custody
Agreement to be executed by their respective duly authorized officers.
HUGHES FUNDS, INC.
Attest: By:
Name: Charles J Hughes
Title: President
Date: March 11, 1999
UMB BANK, N.A.
Attest: By:
Name: Ralph R. Santoro
Title: Senior Vice
President
Date:
APPENDIX A
CUSTODY AGREEMENT
DOMESTIC SUBCUSTODIANS:
United Missouri Trust Company of New York
Morgan Stanley Trust Company (Foreign Securities Only)
SECURITIES SYSTEMS:
Federal Book Entry
Depository Trust Company
Participant Trust Company
SPECIAL SUBCUSTODIANS:
SECURITIES DEPOSITORIES
FOREIGN SUBCUSTODIANS
Euroclear
HUGHES FUNDS, INC. UMB BANK, N.A.
By: By:
Name: Charles J Hughes Name: Ralph R. Santoro
Title: President Title: Senior Vice
President
Date: March 11, 1999 Date:
APPENDIX B
CUSTODY AGREEMENT
The following open-end management investment companies
("Funds") are hereby made parties to the Custody Agreement dated
March 11th , 1999, with UMB Bank, n.a. ("Custodian") and Hughes
Funds, Inc., and agree to be bound by all the terms and
conditions contained in said Agreement:
HUGHES MARKET NEUTRAL FUND
HUGHES FUNDS, INC.
Attest: By:
Name: Charles J Hughes
Title: President
Date: March 11, 1999
UMB BANK, N.A.
Attest: By:
Name: Ralph R. Santoro
Title: Senior Vice
President
Date:
Operating Services Agreement
HUGHES FUNDS, INC.
This Agreement is made and entered into as of the 31st day of March,
1999, by and between Hughes Funds, Inc., a Maryland corporation (the "Fund"),
and Hughes Investment Advisors, LLC, a New Jersey Limited Liability
Company (hereinafter referred to as "Manager").
WHEREAS, the Fund is a diversified, open-end management investment company,
registered under the Investment Company Act of 1940, as amended (the "Act"),
and authorized to issue shares representing interests in The Hughes Value
Fund (the "Portfolio"); and
WHEREAS, Manager is registered as an investment advisor under the Investment
Advisors act of 1940, and engages in the business of asset manaagement and
the provision of certain other administrative recordkeeping in connection
therewith; and
WHEREAS, the Fund wishes to engage Manager, to provide, or arrange for the
provision of, certain operational services which are necessary for the day-
to-day operations of the Portfolio in the manner and on the terms and
conditions hereinafter set forth, and Manager wishes to accept such
engagement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the Fund and Manager agree as follows:
Obligations of Manager
(a) Services. The Fund hereby retains Manager to provide, or, upon receipt
of written approval of the Fund arrange for other companies to provide, the
following services to the Portfolio in the manner and to the extent that
such services are reasonably necessary for the operation of the Portfolio
(collectively, the "Services"):
accounting services and functions, including costs and expenses of any
independent public accountants;
non-litigation related legal and compliance services, including the
expenses of maintaining registration and qualification of the Fund and
the Portfolio under federal, state and any other applicable laws and
regulations;
dividend disbursing agent, dividend reinvestment agent, transfer agent,
and registrar services and functions (including answering inquiries
related to shareholder Portfolio accounts);
custodian and depository services and functions;
distribution, marketing, and/or underwriting services;
independent pricing services;
preparation of reports describing the operations of the Portfolio, including
the costs of providing such reports to broker-dealers, financial institutions
and other organizations which render services and assistance in connection
with the distribution of shares of the Portfolio;
sub-accounting and recordkeeping services and functions (other than those
books and records required to be maintained by Manager under the Investment
Advisory Agreement between the Fund and Manager dated August 15, 1998),
including maintenance of shareholder records and shareholder information
concerning the status of their Portfolio accounts by investment advisors,
broker-dealers, financial institutions, and other organizations on behalf
of Manager;
shareholder and board of directors communication services, including the
costs of preparing, printing and distributing notices of shareholders'
meetings, proxy statements, prospectuses, statements of additional
information, Portfolio reports, and other communications to the Fund's
Portfolio shareholders, as well as all expenses of shareholders' and
board of directors' meetings, including the compensation and reimbursable
expenses of the directors of the Fund;
other day-to-day administrative services, including the costs of designing,
printing, and issuing certificates representing shares of the Portfolio, and
premiums for the fidelity bond maintained by the Fund pursuant to
Section 17(g) of the Act and rules promulgated thereunder (except for such
premiums as may be allocated to third parties, as insureds thereunder).
(b)Exclusions from Service. Notwithstanding the provisions of Paragraph 1(a)
above, the Services shall not include and Manager will not be responsible
for any of the following:
all brokers' commissions, issue and transfer taxes, and other costs
chargeable to the Fund or the Portfolio in connection with securities
transactions to which the Fund or the Portfolio is a party or in
connection with securities owned by the Fund or the Portfolio;
the taxes, including franchise, income, issue, transfer, business
license, and other corporate fees payable by the Fund or the Portfolio
to federal, state, county, city, or other governmental agents;
the expenses, including fees and disbursements of counsel, in connection
with litigation by or against the Fund or the Portfolio; and
any other extraordinary expense of the Fund or Portfolio.
(c)Books and Records. All books and records prepared and maintained by
Manager for the Fund under this Agreement shall be the property of the
Fund and, upon request therefor, Manager shall surrender to the Fund
such of the books and records so requested.
(d)Staff and Facilities. Manager assumes and shall pay for maintaining
the staff, personnel, space, equipment and facilities necessary to
perform its obligations under this Agreement.
Obligations of the Fund
fee. The Fund will pay to Manager on the last day of each month a fee at
an annual rate equal to 0.50% of average net asset of the Portfolio, such
fee to be computed daily based upon the net asset value of the Portfolio
as determined by a valuation made in accordance with the Fund's procedure
for calculating Portfolio net asset value as described in the Fund's
Prospectus and/or Statement of Additional Information. During any period
when the determination of a Portfolio's net asset value is suspended by
the directors of the Fund, the net asset value of a share of that Portfolio
as of the last business day prior to such suspension shall, for the purpose
of this Paragraph 2(a), be deemed to be the net asset value at the close
of each succeeding business day until it is again determined.
Information. The Fund will, from time to time, furnish or otherwise make
available to Manager such information relating to the business and affairs
of the Portfolio as Manager may reasonably require in order to discharge
its duties and obligations hereunder.
3.Term. This Agreement shall remain in effect until no later than March
31, 2001, and from year to year thereafter provided such continuance is
approved at least annually by (1) the vote of a majority of the Board of
Directors of the Fund or (2) a vote of a "majority" (as that term is
defined in the Investment Company Act of 1940) of the Fund's outstanding
securities, provided that in either event the continuance is also approved
by the vote of a majority of the directors of the Fund who are not parties
to this Agreement or "interested persons" (as defined in the Act) of any
such party, which vote must be cast in person at a meeting called for
the purpose of voting on such approval; provided, however, that;
(a)the Fund, at any time and without the payment of any penalty may
terminate this Agreement upon 120 days written notice to Manager;
(b)the Agreement shall immediately terminate in the event of its assignment
(within the meaning of the Act and the Rules thereunder); and
(c)Manager may terminate this Agreement without payment of penalty on
120 days written notice to the Fund.
4. Notices. Except as otherwise provided in this Agreement, any notice
or other communication required by or permitted to be given in connection
with this Agreement will be in writing and will be delivered in person
or sent by first class mail, postage prepaid or by prepaid overnight
delivery service to the respective parties as follows:
If to the Fund: If to the Manager:
Hughes Funds, Inc. Hughes Investment Advisors, LLC
741 Cox Road 741 Cox Road
Moorestown, NJ 08057 Moorestown, NJ 08057
Attention: Charles J. Hughes Attention: Charles J. Hughes
President President
5. Miscellaneous
Performance Review. Manager will permit representatives of the Fund,
including the Fund's independent auditors, to have reasonable access to
the personnel and records of Manager in order to enable such representatives
to monitor the quality of services being provided and the level of fees
due Manager pursuant to this Agreement. In addition, Manager shall promptly
deliver to the board of directors of the Fund such information as may
reasonably be requested from time to time to permit the board of directors
to make an informed determination regarding continuation of this Agreement
and the payments contemplated to be made hereunder.
(b)Choice of Law. This Agreement shall be construed in accordance with
the laws of the State of Maryland and the applicable provisions of the
Act. To the extent the applicable law of the State of Maryland or any
of the provisions herein conflict with the applicable provisions of the
Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the day and year first above written.
Hughes Funds, Inc. Hughes Investment Advisors, LLC
By: Charles J. Hughes By: Charles J. Hughes
President President
ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made and entered into this 4th day of March 1999,
by and between Hughes Market Neutral Fund, a registered management
investment company (the "Fund"), and Maxus Information Systems, Inc., an Ohio
corporation doing business as Mutual Shareholder Services ("MSS").
RECITALS:
A. The Fund is an open-end management investment company
registered with the United States Securities and Exchange Commission under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
B. MSS is a corporation experienced in providing accounting services to
mutual funds and possesses facilities sufficient to provide such services; and
C. The Fund desires to avail itself of the experience, assistance and
facilities of MSS and to have MSS perform the Fund certain services appropriate
to the operations of the Fund, and MSS is willing to furnish such services in
accordance with the terms hereinafter set forth.
AGREEMENTS:
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereby agree as follows:
1. DUTIES OF MSS.
MSS will provide the Fund with the necessary office space, communication
facilities and personnel to perform the following services for the Fund:
(a) Timely calculate and transmit to NASDAQ the daily net asset value
of each class of shares of each portfolio of the Fund, and communicate such
value to the Fund and its transfer agent;
(b) Maintain and keep current all books and records of the Fund as
required by Rule 31a-1 under the 1940 Act, as such rule or any successor
rule may be amended from time to time ("Rule 31a-1"), that are applicable
to the fulfillment of MSS's duties hereunder, as well as any other
documents necessary or advisable for compliance with applicable regulations
as may be mutually agreed to between the Fund and MSS. Without limiting
the generality of the foregoing, MSS will prepare and maintain the
following records upon receipt of information in proper form from the Fund
or its authorized agents:
Cash receipts journal
Cash disbursements journal
Dividend record
Purchase and sales - portfolio securities journals
Subscription and redemption journals
Security ledgers
Broker ledger
General ledger
Daily expense accruals
Daily income accruals
Securities and monies borrowed or loaned and collateral therefore
Foreign currency journals
Trial balances
(c) Provide the Fund and its investment adviser with daily portfolio
valuation, net asset value calculation and other standard operational
reports as requested from time to time.
(d) Provide all raw data available from its fund accounting system
for the preparation by the Fund or its investment advisor of the following:
1. Semi-annual financial statements;
2. Semi-annual form N-SAR;
3. Annual tax returns;
4. Financial data necessary to update form N-1A;
5. Annual proxy statement.
(e) Provide facilities to accommodate annual audit and any audits or
examinations conducted by the Securities and Exchange Commission or any
other governmental or quasi-governmental entities with jurisdiction.
MSS shall for all purposes herein be deemed to be an independent contractor and
shall, unless otherwise expressly provided or authorized, have no authority to
act for or represent the Fund in any way or otherwise be deemed an agent of the
Fund.
2. FEES AND EXPENSES.
(a) In consideration of the services to be performed by MSS pursuant
to this Agreement, the Fund agrees to pay MSS the fees set forth in the fee
schedule attached hereto as Exhibit A.
(b) In addition to the fees paid under paragraph (a) above, the Fund
agrees to reimburse MSS for out-of-pocket expenses or advances incurred by
MSS in connection with the performance of its obligations under this
Agreement. In addition, any other expenses incurred by MSS at the request
or with the consent of the Fund will be reimbursed by the Fund.
(c) The Fund agrees to pay all fees and reimbursable expenses within
five days following the receipt of the respective billing notice.
3. LIMITATION OF LIABILITY OF MSS.
(a) MSS shall be held to the exercise of reasonable care in carrying
out the provisions of the Agreement, but shall not be liable to the Fund for any
action taken or omitted by it in good faith without gross negligence, bad
faith, willful misconduct or reckless disregard of its duties hereunder. It
shall be entitled to rely upon and may act upon the accounting records and
reports generated by the Fund, advice of the Fund, or of counsel for the Fund
and upon statements of the Fund's independent accountants, and shall not be
liable for any action reasonably taken or omitted pursuant to such records and
reports or advice, provided that such action is not, to the knowledge of MSS, in
violation of applicable federal or state laws or regulations, and provided
further that such action is taken without gross negligence, bad faith, willful
misconduct or reckless disregard of its duties.
(b) Nothing herein contained shall be construed to protect MSS
against any liability to the Fund to which MSS shall otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence in the
performance of its duties to the Fund, reckless disregard of its
obligations and duties under this Agreement or the willful violation of any
applicable law.
(c) Except as may otherwise be provided by applicable law, neither
MSS nor its stockholders, officers, directors, employees or agents shall be
subject to, and the Fund shall indemnify and hold such persons harmless
from and against, any liability for and any damages, expenses or losses
incurred by reason of the inaccuracy of information furnished to MSS by the
Fund or its authorized agents.
4. REPORTS.
(a) The Fund shall provide to MSS on a quarterly basis a report of a
duly authorized officer of the Fund representing that all information
furnished to MSS during the preceding quarter was true, complete and
correct in all material respects. MSS shall not be responsible for the
accuracy of any information furnished to it by the Fund or its authorized
agents, and the Fund shall hold MSS harmless in regard to any liability
incurred by reason of the inaccuracy of such information.
(b) Whenever, in the course of performing its duties under this
Agreement, MSS determines, on the basis of information supplied to MSS by
the Fund or its authorized agents, that a violation of applicable law has
occurred or that, to its knowledge, a possible violation of applicable law
may have occurred or, with the passage of time, would occur, MSS shall
promptly notify the Fund and its counsel of such violation.
5. ACTIVITIES OF MSS.
The services of MSS under this Agreement are not to be deemed exclusive,
and MSS shall be free to render similar services to others so long as its
services hereunder are not impaired thereby.
6. ACCOUNTS AND RECORDS.
The accounts and records maintained by MSS shall be the property of the
Fund, and shall be surrendered to the Fund promptly upon request by the Fund in
the form in which such accounts and records have been maintained or preserved.
MSS agrees to maintain a back-up set of accounts and records of the Fund (which
back-up set shall be updated on at least a weekly basis) at a location other
than that where the original accounts and records are stored. MSS shall assist
the Fund's independent auditors, or, upon approval of the Fund, any regulatory
body, in any requested review of the Fund's accounts and records. MSS shall
preserve the accounts and records as they are required to be maintained and
preserved by Rule 31a-1.
7. CONFIDENTIALITY.
MSS agrees that it will, on behalf of itself and its officers and
employees, treat all transactions contemplated by this Agreement, and all other
information germane thereto, as confidential and not to be disclosed to any
person except as may be authorized by the Fund.
8. TERM OF AGREEMENT.
(a) This Agreement shall become effective as of the date hereof and shall
remain in force for a period of three years; provided, however, that each party
to this Agreement have the option to terminate the Agreement, without penalty,
upon 90 days prior written notice.
(b) Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movements of records and material will be borne by
the Fund. Additionally, MSS reserves the right to charge for any other
reasonable expenses associated with such termination.
9. MISCELLANEOUS.
(a) Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the written consent of the other party. This
Agreement shall inure to the benefit of and be binding upon the parties and
their respective permitted successors and assigns.
(b) The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of Ohio as at the time in effect and the
applicable provisions of the 1940 Act. To the extent that the applicable law of
the State of Ohio, or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control.
(c) This Agreement may be amended by the parties hereto only if such
amendment is in writing and signed by both parties.
(d) This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof whether oral or written.
(e) All notices and other communications hereunder shall be in writing,
shall be deemed to have been given when received or when sent by telex or
facsimile, and shall be given to the following addresses (or such other
addresses as to which notice is given):
To the Fund: To MSS:
Hughes Market Neutral Fund, Inc Maxus Information Systems,
741 Cox Road DBA Mutual Shareholder Services
Moorestown, NJ 08057 1301 East Ninth Street, 36th Floor
Cleveland, OH 44114
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
Hughes Market Neutral Fund Maxus Information Systems, Inc.
By: Charles J Hughes By: Gregory Getts
Its: President Its: President
EXHIBIT A
Current Maxus Information Systems billing system:
Accounting Fees
If average value of fund is
between the following Yearly Fee
- 25,000,000 21,000
25,000,000 50,000,000 30,500
50,000,000 75,000,000 36,250
75,000,000 100,000,000 42,000
100,000,000 125,000,000 47,750
125,000,000 150,000,000 53,500
150,000,000 - 59,250
Sharelolder Servicing Fees
9.25 annual fee per shareholder with a min of $775.00 charge per month
Blue Sky Servicing Fees
12.00 per state per month
Calculated monthly charges for Hughes Value Fund
Value Monthly Fee
Approximate Fund Size: 200,000 1,750
No. of shareholders: 5 775
Blue Sky States 0 0
Total 2,525
Less 80% discount 2,020
New Fund discount 50
Discounted fee 455
Annual Fee 5,460
ADMINISTRATION AGREEMENT
THIS AGREEMENT is made and entered into this 4th day of March, 1999, by
and between Hughes Market Neutral Fund a registered management investment
company (the "Fund"), and Maxus Information Systems, Inc. DBA Mutual Shareholder
Services, an Ohio corporation ("MSS").
RECITALS:
A. The Fund is an open-end management investment company
registered with the United States Securities and Exchange Commission under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
B. The Fund desires to appoint MSS as its transfer agent and dividend
disbursing and redemption agent, and MSS desires to accept such appointment.
AGREEMENTS:
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereby agree as follows:
1. DUTIES OF MSS.
1.01 Subject to the terms and conditions set forth in this Agreement, the
Fund hereby employs and appoints MSS to act, and MSS agrees to act, as transfer
agent for the Funds authorized and issued shares of beneficial interest of each
class of each portfolio of the Fund (the "Shares"), and as dividend disbursing
and redemption agent for the Fund.
1.02 MSS agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and MSS, MSS shall:
(i) Receive for acceptance, orders for the purchase of Shares,
and promptly deliver payment and appropriate documentation therefore
to the Custodian of the Fund authorized by the Board of Directors of
the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation therefore to the
Custodian;
(iv) At the appropriate time as and when it receives monies paid
to it by the Custodian with respect to any redemption, pay over or
cause to be paid over in the appropriate manner such monies as
instructed by the redeeming Shareholders;
(v) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and
distributions declared by the Fund;
(vii) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(viii) Record the issuance of shares of the Fund and maintain
pursuant to SEC Rule 17Ad-10(e) a record of the total number of shares
of the Fund which are authorized, based upon data provided to it by
the Fund, and issued and outstanding. MSS shall also provide the Fund
on a regular basis with the total number of shares which are
authorized and issued and outstanding and shall have no obligation,
when recording the issuance of shares, to monitor the issuance of such
shares or to take cognizance of any laws relating to the issue or sale
of such shares, which functions shall be the sole responsibility of
the Fund.
(b) In addition, MSS shall perform all of the customary services of a
transfer agent, dividend disbursing and redemption agent, including but not
limited to: maintaining all Shareholder accounts, preparing Shareholder
meeting lists, mailing proxies, receiving and tabulating proxies, mailing
Shareholder reports and prospectuses to current Shareholders, withholding
taxes on U.S. resident and non-resident alien accounts, preparing and
filing U.S. Treasury Department Forms 1099 and other appropriate forms
required with respect to dividends and distributions by federal authorities
for all Shareholders, preparing and mailing confirmation forms and
statements of account to Shareholders for all purchases and redemptions of
Shares and other confirmable transactions in Shareholder accounts,
preparing and mailing activity statements for Shareholders, and providing
Shareholder account information and provide a system and reports which will
enable the Fund to monitor the total number of Shares sold in each State.
Procedures applicable to certain of these services may be established from
time to time by agreement between the Fund and MSS.
2. FEES AND EXPENSES
2.01 In consideration of the services to be performed by MSS pursuant to
this Agreement, the Fund agrees to pay MSS the fees set forth in the fee
schedule attached hereto as Exhibit "A".
2.02 In addition to the fee paid under Section 2.01 above, the Fund agrees
to reimburse MSS for out-of-pocket expenses or advances incurred by MSS in
connection with the performance of its obligations under this Agreement. In
addition, any other expenses incurred by MSS at the request or with the consent
of the Fund will be reimbursed by the Fund.
2.03 The Fund agrees to pay all fees and reimbursable expenses within five
days following the receipt of the respective billing notice. Postage for
mailing of dividends, proxies, Fund reports and other mailings to all
shareholder accounts shall be advanced to MSS by the Fund at least seven days
prior to the mailing date of such materials.
3. REPRESENTATIONS AND WARRANTIES OF MSS
MSS represents and warrants to the Fund that:
3.01 It is a corporation duly organized and existing and in good standing
under the laws of the State of Ohio.
3.02 It is duly qualified to carry on its business in the State of Ohio.
3.03 It is empowered under applicable laws and by its charter and by-laws
to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
3.06 MSS is duly registered as a transfer agent under the Securities Act of
1934 and shall continue to be registered throughout the remainder of this
Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to MSS that:
4.01 It is a Corporation duly organized and existing and in good standing
under the laws of Maryland.
4.02 It is empowered under applicable laws and by its charter and By-Laws
to enter into and perform this Agreement.
4.03 All corporate proceedings required by said charter and By-Laws have
been taken to authorize it to enter into and perform this Agreement.
4.04 It is an open-end and diversified management investment company
registered under the 1940 Act.
4.05 A registration statement under the Securities Act of 1933 is currently
or will become effective and will remain effective, and appropriate state
securities law filings as required, have been or will be made and will continue
to be made, with respect to all Shares of the Fund being offered for sale.
5. INDEMNIFICATION
5.01 MSS shall not be responsible for, and the Fund shall indemnify and
hold MSS harmless from and against, any and all losses, damages, costs, charges,
counsel fees, payments, expenses and liability arising out of or attributable
to:
(a) All actions of MSS or its agents or subcontractors required to be
taken pursuant to this Agreement, provided that such actions are taken in
good faith and without gross negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack good faith, gross
negligence or willful misconduct or which arise out of the breach of any
representation or warranty of the Fund hereunder.
(c) The reliance on or use by MSS or its agents or subcontractors of
information, records and documents which (i) are received by MSS or its
agents or subcontractors and furnished to it by or on behalf of the Fund,
and (ii) have been prepared and/or maintained by the Fund or any other
person or firm on behalf of the Fund.
(d) The reliance on, or the carrying out by MSS or its agents or
subcontractors of, any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state or in
violation of any stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of such Shares in
such state.
5.02 MSS shall indemnify and hold the Fund harmless from and against any
and all losses, damages, costs, charges, counsel fees, payments, expenses and
liability arising out of or attributable to any action or failure or omission to
act by MSS as a result of MSS's lack of good faith, gross or ordinary negligence
or willful misconduct.
5.03 At any time MSS may apply to any officer of the Fund
for instructions, and may consult with legal counsel with respect
to any matter arising in connection with the services to be
performed by MSS under this Agreement, and MSS and its agents or
subcontractors shall not be liable and shall be indemnified by
the Fund for any action taken or omitted by it in reliance upon
such instructions or upon the opinion of such counsel. MSS, its
agents and subcontractors shall be protected and indemnified in
acting upon any paper or document furnished by or on behalf of
the Fund, reasonably believed to be genuine and to have been
signed by the proper person or persons, or upon any instruction,
information, data, records or documents provided MSS or its
agents or subcontractors by machine readable input, telex, CRT
data entry or other similar means authorized by the Fund, and
shall not be held to have notice of any change of authority of
any person, until receipt of written notice thereof from the
Fund. MSS, its agents and subcontractors shall also be protected
and indemnified in recognizing stock certificates which are
reasonably believed to bear the proper manual or facsimile
signatures of the officers of the Fund, and the proper
countersignature of any former transfer agent or registrar, or of
a co-transfer agent or co-registrar.
5.04 In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of
God, strikes, equipment or transmission failure or damage
reasonably beyond its control, or other causes reasonably beyond
its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or
otherwise from such causes.
5.05 Neither party to this Agreement shall be liable to the
other party for consequential damages under any provision of this
Agreement or for any act or failure to act hereunder.
5.06 Upon the assertion of a claim for which either party
may be required to indemnify the other, the party of seeking
indemnification shall promptly notify the other party of such
assertion, and shall keep the other party advised with respect to
all developments concerning such claim. The party who may be
required to indemnify shall have the option to participate with
the party seeking indemnification the defense of such claim. The
party seeking indemnification shall in no case confess any claim
or make any compromise in any case in which the other party may
be required to indemnify it except with the other party's prior
written consent.
6. COVENANTS OF THE FUND AND MSS
6.01 The Fund shall promptly furnish to MSS a certified copy
of the resolution of the Board of Directors of the Fund
authorizing the appointment of MSS and the execution and delivery
of this Agreement.
6.02 MSS hereby agrees to establish and maintain facilities
and procedures reasonably acceptable to the Fund for safekeeping
of stock certificates, check forms and facsimile signature
imprinting devices, if any; and for the preparation or use, and
for keeping account of, such certificates, forms and devices.
6.03 MSS shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem
advisable. To the extent required by Section 31 of the 1940 Act,
as amended, and the Rules thereunder, MSS agrees that all such
records prepared or maintained by MSS relating to the services to
be performed by MSS hereunder are the property of the Fund and
will be preserved, maintained and made available in accordance
with such Section and Rules, and will be surrendered promptly to
the Fund on and in accordance with its request.
6.04 MSS and the Fund agree that all books, records,
information and data pertaining to the business of the other
party which are exchanged or received pursuant to the negotiation
or the carrying out of this Agreement shall remain confidential,
and shall not be voluntarily disclosed to any other person,
except as may be required by law.
6.05 In case of any requests or demands for the inspection
of the Shareholder records of the Fund, MSS will endeavor to
notify the Fund and to secure instructions from an authorized
officer of the Fund as to such inspection. MSS reserves the
right, however, to exhibit the Shareholder records to any person
whenever it is advised by its counsel that it may be held liable
for the failure to exhibit the Shareholder records to such
person, and shall promptly notify the Fund of any unusual request
to inspect or copy the shareholder records of the Fund or the
receipt of any other unusual request to inspect, copy or produce
the records of the Fund.
7. TERM OF AGREEMENT
7.01 This Agreement shall become effective as of the date
hereof and shall remain in force for a period of three years;
provided, however, that each party to this Agreement have the
option to terminate the Agreement without penalty, upon 90 days
prior written notice.
7.02 Should the Fund exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records
and material will be borne by the Fund. Additionally, MSS
reserves the right to charge for any other reasonable expenses
associated with such termination.
8. MISCELLANEOUS
8.01 Neither this Agreement nor any rights or obligations
hereunder may be assigned by either party without the written
consent of the other party. This Agreement shall inure to the
benefit of and be binding upon the parties and their respective
permitted successors and assigns.
8.02 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by
a resolution of the Board of Directors of the Fund.
8.03 The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of Ohio as
at the time in effect and the applicable provisions of the 1940
Act. To the extent that the applicable law of the State of Ohio,
or any of the provisions here in, conflict with the applicable
provisions of the 1940 Act, the latter shall control.
8.04 This Agreement constitutes the entire agreement between
the parties hereto and supersedes any prior agreement with
respect to the subject matter hereof whether oral or written.
8.05 All notices and other communications hereunder shall be
in writing, shall be deemed to have been given when received or
when sent by telex or facsimile, and shall be given to the
following addresses (or such other addresses as to which notice
is given):
To the Fund: To MSS:
Hughes Market Neutral Fund, Inc. Maxus Information Systems,
741 Cox Road DBA Mutual Shareholder Services
Moorestown, NJ 08057 1301 East Ninth Street,36th Floor
Cleveland, OH 44114
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
Fund: Hughes Market Neutral Fund, Inc. MAXUS INFORMATION SYSTEMS,
(Name of Fund)
By: Charles J Hughes By: Gregory Getts
Its: President Its: President
