As filed with the Securities and Exchange Commission on June 25, 1998
Registration Nos.:333-
811-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ___ [ ]
Post-Effective Amendment No. ___ [ ]
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. ___
(Check appropriate box or boxes)
INDEX EXCHANGE LISTED SECURITIES TRUST
(Exact Name of Registrant as Specified in Charter)
225 Franklin Street
Boston, Masschusetts 02110
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(Address of Principal Executive Offices)
Registrant's Telephone Number: (303) 623-2577
Joseph J. McBrien, Esq.
Vice President and Counsel
State Street Bank and Trust Company
1776 Heritage Drive, A4N
North Quincy, Massachusetts 02171-2197
(Name and Address of Agent for Service)
Copies to:
Stuart M. Strauss, Esq.
Gordon Altman Butowsky Weitzen Shalov & Wein
147 West 47th Street, 20th Floor
New York, New York 10036
Kathleen H. Moriarty, Esq.
Carter Ledyard & Milburn
2 Wall Street
New York, NY 10005
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this registration statement.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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CROSS REFERENCE SHEET
N-1A ITEM NO. LOCATION
(PART A)
Item 1. Cover Page
Item 2. Synopsis
Item 3. Condensed Financial Information
Item 4. General Description of Registrant
Item 5. Management of the Fund
Item 5A. Management's Discussion of Fund Performance
Item 6. Capital Stock and Other Securities
Item 7. Purchase of Securities Being Offered
Item 8. Redemption or Repurchase
Item 9. Legal Proceedings
(PART B)
Item 10. Cover Page
Item 11. Table of Contents
Item 12. General Information and History
Item 13. Investment Objectives and Policies
Item 14. Management of the Registrant
Item 15. Control Persons and Principal Holders of Securities
Item 16. Investment Advisory and Other Services
Item 17. Brokerage Allocation
Item 18. Capital Stock and Other Securities
Item 19. Purchase, Redemption and Pricing of Securities Being Offered
Item 20. Tax Status
Item 21. Underwriters
Item 22. Calculations of Performance Data
Item 23. Financial Statements
(PART C)
Item 24. Financial Statements and Exhibits
Item 25. Persons Controlled by or Under Common Control
Item 27. Number of Holders of Securities
Item 27. Indemnification
Item 29. Business and Other Connections of Investment Adviser
Item 30. Location of Accounts and Records
Item 31. Management Services
Item 32. Undertakings
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SUBJECT TO COMPLETION; DATED JUNE 24, 1998
INDEX EXCHANGE LISTED SECURITIES TRUST
Index Exchange Listed Securities Trust (the "Trust") is an "index fund"
presently consisting of a single investment portfolio, the Technology 100 Index
Fund (the "Fund"). The Fund's investment objective is to provide investment
results that correspond generally to the price and yield performance of publicly
traded equity securities of technology companies, as represented by an index
compiled by Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch"). The Fund is managed by State Street Bank and Trust Company (the
"Adviser").
The Fund's shares of beneficial interest (the "Shares") have been
listed for trading on the American Stock Exchange (the "AMEX"). The Shares will
trade on the AMEX at market prices. These prices may differ to some degree from
the Shares' net asset value. The Fund issues and redeems Shares -- at net asset
value -- only in a large specified number of Shares called a "Creation Unit."
EXCEPT WHEN AGGREGATED IN CREATION UNITS, THE SHARES ARE NOT REDEEMABLE
SECURITIES OF THE FUND.
This Prospectus (dated , 1998) explains concisely the information you
ought to know before investing in the Fund. We suggest that you keep it for
future reference.
A STATEMENT OF ADDITIONAL INFORMATION (dated , 1998), which has been
filed with the Securities and Exchange Commission (the "SEC"), provides more
information about the Fund. The STATEMENT OF ADDITIONAL INFORMATION is
incorporated herein by reference (is legally part of this Prospectus). It may be
obtained without charge by writing to the Fund at ALPS Mutual Funds Services,
Inc., the Fund's distributor, at 370 17th Street, Suite 3100, Denver, CO 80202,
or by calling the distributor at the following number:
Investor Information: (800) ____________.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC OR
ANY STATE SECURITIES COMMISSION, NOR HAS THE SEC OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SHARES IN THE FUND ARE NOT GUARANTEED OR INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT, NOR ARE SHARES
DEPOSITS OR OBLIGATIONS OF ANY BANK.
RED HERRING
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER OF THE FUND'S SHARES, AND, IF GIVEN OR MADE, THE INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE OF SHARES SHALL UNDER ANY
CIRCUMSTANCE IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE AFTER THE DATE OF THIS PROSPECTUS.
DEALERS EFFECTING TRANSACTIONS IN THE FUND'S SHARES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, ARE GENERALLY REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO ANY OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS.
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TABLE OF CONTENTS
PAGE
Prospectus Summary............................................................7
Summary of Fund Expenses......................................................9
The Fund and its Investment Objective........................................11
Who Should Invest?...........................................................11
Investment Policies and Strategies...........................................12
Investment Limitations.......................................................15
Investment Considerations and Risks..........................................16
Management...................................................................18
Shareholder Guide............................................................20
Determination of Net Asset Value....................................20
Buying and Selling Exchange-Traded Shares...........................20
Creation and Redemption of Creation Units...........................21
Distributions.......................................................22
Tax Matters.........................................................22
General Information.................................................24
Additional Information..............................................25
THE INDEX IS BASED ON EQUITY SECURITIES OF PUBLIC COMPANIES SELECTED
FROM THE UNIVERSE OF ALL U.S. TRADED STOCKS AND AMERICAN DEPOSITORY RECEIPTS AND
CLASSIFIED AS APPROPRIATE FOR INCLUSION BY BY MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED ("MERRILL LYNCH" OR THE "INDEX COMPILATION AGENT").
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THE SHARES ARE NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY MERRILL
LYNCH. THE INDEX COMPILATION AGENT MAKES NO REPRESENTATION OR WARRANTY, EXPRESS
OR IMPLIED, TO THE OWNERS OF THE SHARES OF THE FUND OR ANY MEMBER OF THE PUBLIC
REGARDING THE ADVISABILITY OF INVESTING IN SECURITIES GENERALLY OR IN THE SHARES
OF THE FUND PARTICULARLY OR THE ABILITY OF THE INDEX IDENTIFIED HEREIN TO TRACK
STOCK MARKET PERFORMANCE. MERRILL LYNCH IS THE LICENSOR OF CERTAIN TRADEMARKS,
SERVICE MARKS AND TRADE NAMES, INCLUDING THE TECHNOLOGY 100 INDEX. THE INDEX
IDENTIFIED HEREIN IS DETERMINED, COMPOSED AND CALCULATED WITHOUT REGARD TO THE
SHARES OF THE FUND OR THE ISSUER THEREOF. THE INDEX COMPILATION AGENT IS NOT
RESPONSIBLE FOR, NOR HAS IT PARTICIPATED IN, THE DETERMINATION OF THE TIMING OF,
PRICES AT, OR QUANTITIES OF THE SHARES OF THE FUND TO BE ISSUED OR IN THE
DETERMINATION OR CALCULATION OF THE EQUATION BY WHICH THE SHARES ARE REDEEMABLE.
THE INDEX COMPILATION AGENT HAS NO OBLIGATION OR LIABILITY TO OWNERS OF THE
SHARES OF THE FUND IN CONNECTION WITH THE ADMINISTRATION, MARKETING OR TRADING
OF THE SHARES OF THE FUND.
ALTHOUGH THE INDEX COMPILATION AGENT SHALL OBTAIN INFORMATION FOR INCLUSION
IN OR FOR USE IN THE CALCULATION OF THE INDEX FROM SOURCES WHICH IT CONSIDERS
RELIABLE, THE INDEX COMPILATION AGENT DOES NOT GUARANTEE THE ACCURACY AND/OR THE
COMPLETENESS OF THE COMPONENT DATA OF THE INDEX OBTAINED FROM INDEPENDENT
SOURCES. THE INDEX COMPILATION AGENT MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS
TO RESULTS TO BE OBTAINED BY THE TRUST AS LICENSEE, LICENSEE'S CUSTOMERS AND
COUNTERPARTIES, OWNERS OF THE SHARES, OR ANY OTHER PERSON OR ENTITY FROM THE USE
OF THE INDEX OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED
AS DESCRIBED HEREIN OR FOR ANY OTHER USE. THE INDEX COMPILATION AGENT MAKES NO
EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE INDEX OR
ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL THE INDEX COMPILATION AGENT HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT,
SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS)
EVEN IF NOTIFIED OF THE INDEX'S POSSIBILITY OF SUCH DAMAGES.
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PROSPECTUS SUMMARY
The Fund This Prospectus offers shares of
and its Investment Objective . . . the Technology 100 Index Fund
(the "Fund"). The Fund is a
separate investment portfolio
of the Trust.
The investment objective of the
Fund is to provide investment
results that correspond
generally to the price and yield
performance of publicly traded
equity securities of technology
companies, as represented by the
Technology 100 Index (the
"Index") compiled by Merrill
Lynch. SEE "The Fund and its
Investment Objective," and
"Investment Policies and
Strategies."
Exchange-Traded Shares The Shares have been listed for
and Creation Units . . . . secondary market trading on the
AMEX. The Shares will trade on
the AMEX at market prices.
These prices may differ from the
Share's net asset value. The
initial price per Share of the
Fund is expected to be
approximately $25, although
there can be no assurance that
Shares will trade at this price
or that an active trading market
will develop.
The Fund issues and redeems
Shares at their net asset value
only in a large specified number
of Shares called a "Creation
Unit." A Creation Unit consists
of ___ Shares. The Fund
generally issues and redeems
Creation Units only in kind in
exchange for a designated
portfolio of equity securities
included in the Index and a
relatively small cash payment.
EXCEPT WHEN AGGREGATED IN
CREATION UNITS, THE SHARES ARE
NOT REDEEMABLE SECURITIES OF THE
FUND. SEE "Buying and Selling
Exchange-Traded Shares,"
"Creation of Creation Units,"
and "Redemptions of Creation
Units."
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Who Should Invest? . . . . The Fund is designed for
investors who seek a relatively
low-cost "passive" approach for
investing in a portfolio of
equity securities of companies
in a particular industry, as
represented by a specified
Index.
Unlike actively managed equity
mutual funds that attempt to
"beat" a market benchmark index
and which may experience results
very different from the
benchmark, the Fund seeks to
provide investment results that
correspond generally to its
benchmark Index. SEE "Who Should
Invest?" and "Investment
Considerations and Risks."
Management of the Fund. . . ADVISER. State Street Bank and
Trust Company ("State Street")
is the Adviser to the Fund. The
Adviser is responsible for the
investment management of the
Fund, subject to the
supervision of the Trust's
Board of Trustees.
ADMINISTRATOR. State Street is
the Administrator of the Fund
and will perform certain
clerical, fund accounting,
recordkeeping and bookkeeping
services in such capacity.
CUSTODIAN. State Street serves
as the Custodian for the cash
and portfolio securities of the
Fund.
DISTRIBUTOR. ALPS Mutual Funds
Services, Inc. (the
"Distributor") serves as the
principal underwriter and
distributor of the Fund's
Creation Units. The Distributor
does not maintain a secondary
market in the Shares. SEE
"Investment Considerations and
Risks" and "Management."
SUMMARY OF FUND EXPENSES
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SHAREHOLDER TRANSACTION EXPENSES
EXCHANGE-TRADED SHARES. When buying or selling exchange-listed Shares,
you will incur customary brokerage commissions and charges.
CREATION UNITS. In order to create Creation Units, an investor must
deposit a designated portfolio of equity securities included in the Index and
generally make a small cash payment referred to as the cash component. SEE the
STATEMENT OF ADDITIONAL INFORMATION for more detail. As of , 1998, the
approximate value of the securities comprising a deposit of designated equity
securities necessary for an in-kind purchase of a Creation Unit was
approximately $1.25 million.
ANNUAL FUND OPERATING EXPENSES
"Annual Fund Operating Expenses" are the estimated expenses you would
incur as a shareholder of the Fund. Actual expenses may vary. "Management Fees"
are paid to the Adviser by the Fund to provide the Fund with investment
management services. A "unitary" fee is paid by the Fund based on the Fund's
average daily net assets to compensate the Adviser for, administration, custody
and transfer agency services it provides to the Fund. The unitary fee has the
following two components: (i) a percentage fee based on the net assets of the
Fund; and (ii) [a minimum fee of ___, which in no event will exceed ___% of net
assets.] The Fund will bear all other expenses of its operation.
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ANNUAL FUND OPERATING TECHNOLOGY 100 INDEX
EXPENSES (AS A PERCENTAGE FUND
OF AVERAGE NET ASSETS)
Management Fees
Administrative, Custody and
Transfer Agency Fees(a)<F1>
12b-1 Fees(b)<F2>
Other Operating Expenses
Total Expenses(c)<F3>
- --------
<F1> (a) This fee covers fees for administration, custody and transfer
agency services.
<F2> (b) All payments made to the Distributor by the Fund will be
pursuant to the Fund's Rule 12b-1 Plan pursuant to which the
Distributor will be reimbursed for certain specified
distribution-related expenses, provided that the annual rate
may not exceed .25% of the Fund's average daily net assets.
Distribution expenses in excess of .25% incurred in any one
year may be carried over and reimbursed in subsequent years
subject to the maximum annual payment. A long-term
shareholder of the Fund may pay more in total sales
charges than the economic equivalent of the maximum front-end
sales charges otherwise permitted by the rules of the National
Association of Securities Dealers, Inc. In addition, the
Distributor may enter into agreements whereby certain
broker-dealers and/or their salespersons may receive a portion
of the Rule 12b-1 fee to compensate them for their
distribution of Shares and/or for services provided to their
shareholders or to the Fund.
<F3> (c) Expenses will be capped at __% for the twelve month
period commencing on ___________.
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THE FUND AND ITS INVESTMENT OBJECTIVE
The Fund is a separate investment portfolio of the Trust, which is an
open-end investment company registered under the Investment Company Act of 1940
(the "1940 Act"). The Fund is classified as a ["non-diversified"] investment
company under the 1940 Act.
The investment objective of the Fund is to provide equity results that
correspond generally to the price and yield performance of publicly traded
equity securities of technology companies, as represented by a specified market
sector Index published by the AMEX. The Fund's investment objective is a
fundamental policy and cannot be changed unless a majority of shareholders
approve the change.
There can be no assurance that the Fund will achieve its investment
objective. In this regard, please refer to the "Investment Policies and
Strategies" and "Investment Considerations and Risks" sections in this
Prospectus and the STATEMENT OF ADDITIONAL INFORMATION.
WHO SHOULD INVEST?
The Fund is designed for investors who seek a relatively low-cost
"passive" approach for investing in a portfolio of equity securities of
companies in the technology industry as represented by the Index. Unlike
actively managed equity mutual funds that attempt to "beat" a market benchmark
index and which may experience results very different from the benchmark, the
Fund seeks to provide investment results that correspond generally to the price
and yield performance of its benchmark Index.
The Fund may be suitable for long term investment in the market or
market segment represented in the benchmark Index. Shares of the Fund may also
be used as an asset allocation or speculative trading vehicle. Unlike many
conventional mutual funds which are only bought and sold at closing net asset
values, the Fund's Shares have been designed to be tradable in a secondary
market on the AMEX on an intraday basis and to be created and redeemed in kind
in Creation Units at each day's market close. These arrangements are designed to
protect ongoing shareholders from adverse effects on the portfolio that could
arise from frequent cash purchase and redemption transactions that affect the
net asset value of the Fund. Moreover, in contrast to
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conventional mutual funds where frequent redemptions can have an adverse tax
impact on taxable shareholders because of the need to sell portfolio securities
which, in turn, may generate taxable gain, the in-kind redemption mechanism of
the Fund generally will not lead to a tax event for ongoing shareholders.
INVESTMENT POLICIES AND STRATEGIES
INDEXING INVESTMENT APPROACH. The Fund is not managed according to
traditional methods of "active" investment management, which involve the buying
and selling of securities based upon economic, financial and market analysis and
investment judgment. Instead, the Fund, utilizing a "passive" or indexing
investment approach, attempts to approximate the investment performance of its
benchmark Index by investing in a portfolio of stocks that replicate the Index.
The Adviser anticipates that, generally, the Fund will hold all of the
securities which comprise its benchmark Index. There may, however, be instances
where a stock in the Index is not held or is not held in the same weightings as
in the Index. The Adviser expects that, over time, the "expected tracking error"
of the Fund relative to the performance of its benchmark Index adjusted for the
effect of Fund expenses will be less than 5%. An expected tracking error of 5%
means that there is a 68% probability that the net asset value of the Fund will
be within plus or minus 5% of the Index level after one year, without modifying
(or "rebalancing") the Fund's composition. Over time, the securities holdings of
the Fund may be rebalanced to reflect changes in the composition of the Index.
The Fund would incur transaction costs and other expenses as a result of a
rebalancing. Factors such as timing differences on rebalancing, Fund expenses,
taxes, the need to comply with the diversification and other requirements of the
Internal Revenue Code of 1986 (the "Internal Revenue Code"), and the existence
of uninvested assets in the Fund may also impact the Fund's performance in
tracking the Index.
The Fund has the policy to remain as fully invested as practicable in a
pool of equity securities. The Fund will normally invest at least 95% of its
total assets in stocks that comprise the benchmark Index or stock equivalent
positions which the Adviser deems appropriate as an alternative to such stocks.
Stock equivalent positions may include convertible securities and structured
notes (notes on which the amount of principal repayment and interest payments
are based on the movement of one or more specified factors such as the movement
of a particular
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stock or stock index). A lesser percentage may be so invested to the extent that
the Adviser needs additional flexibility to comply with the requirements of the
Internal Revenue Code and other regulatory requirements.
The Fund may invest its remaining assets in money market instruments or
funds which reinvest exclusively in money market instruments, in stocks that are
in the relevant market but not the Index, and/or in combinations of certain
stock index futures contracts, options on such futures contracts, stock options,
stock index options, options on the Shares, and stock index swaps and swaptions,
each with a view towards providing the Fund with exposure to the stocks in its
benchmark Index. These investments may be made to invest uncommitted cash
balances or, in limited circumstances, to assist in meeting shareholder
redemptions of Creation Units. SEE "Investment Policies and Restrictions" in the
STATEMENT OF ADDITIONAL INFORMATION for a discussion of the risks of these
investments. The Fund will not use these instruments to leverage its securities
holdings. The Fund also will not invest in money market instruments as part of a
temporary defensive strategy to protect against potential stock market declines.
Although the Index underlying the Fund will generally not be subject to
frequent or large changes, giving the underlying portfolio many of the
characteristics of a long-term investment, periodic changes in the Index may
occur as a result of capital changes, E.G., mergers, spin-offs, or a change in
the business or character of a component company within the Index. Because of
the passive investment management approach of the Fund, the portfolio turnover
rate is expected to be under 50%, a generally lower turnover rate than for many
other investment companies. Sales as a result of Index changes could result in
the realization of short, medium, or long-term capital gains in the Fund
resulting in tax liability for shareholders subject to capital gains taxes. (See
"Tax Matters").
LENDING SECURITIES. The Fund may lend securities from its holdings to
brokers, dealers and other financial institutions desiring to borrow securities
to complete transactions and for other purposes. Because government securities
or other assets that are pledged as collateral to the Fund in connection with
these loans generate income, securities lending enables the Fund to earn income
that may partially offset its expenses. This may reduce the effect that expenses
have on the Fund's ability to provide investment results that correspond
generally to the performance of its benchmark Index. The Fund will receive
collateral equal to at least 100% of the current market
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value of the loaned securities. The Fund may invest cash collateral in high
quality short-term debt securities or in funds which invest exclusively in such
securities.
BORROWING MONEY. The Fund may borrow money from a bank up to a limit of
33% of the market value of its assets, but only for temporary or emergency
purposes. To the extent that the Fund borrows money, it may be leveraged; at
such times, the Fund may appreciate or depreciate in value more rapidly than its
benchmark Index.
INVESTMENT CONCENTRATION. The Fund will concentrate its investments in
the technology industry.
FUNDAMENTAL POLICIES. The concentration policy of the Fund is a
fundamental policy that may be changed only with shareholder approval. Each of
the other investment policies is a non-fundamental policy that may be changed by
the Board of Trustees without shareholder approval. However, shareholders would
be notified prior to any material change in these policies.
DESCRIPTION OF THE INDEX
The Index is intended to give investors an efficient, equal dollar
weight investment designed to track the movements of 100 companies in the
technology industry. The majority of the companies are involved in the following
industries: computer software, data processing, computer services,
semiconductors and telecommunications equipment.
CONSTRUCTION AND MAINTENANCE STANDARDS FOR THE INDEX
The Index has been developed and will be maintained in accordance with
the following criteria:
o A candidate pool of technology stocks will be identified from
the selection universe of all U.S. traded stocks and American
Depository Receipts ("ADRs") and classified as appropriate for
inclusion by Merrill Lynch (the "Index Compilation Agent").
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o Each of the component stocks must be traded on the New York
Stock Exchange, the AMEX, or the NASDAQ and be NASDAQ National
Market Securities.
o A liquidity screen is used to eliminate stocks that have less
than $12.5 million in daily trading volume from the candidate
pool. The median 63-day trading volume calculation is used for
this screening.
o The top 100 stocks based on market capitalization from the
liquidity-screened universe of technology names are chosen.
o Each component stock within the Index is represented in an
approximately equal dollar amount.
o Potential additions to the Index are tested to make sure that
they have trading volume greater than that of the 75th-ranked
Index constituent in terms of trading volume. For more
information, see "Construction and Maintenance Standards for
the Index" in the STATEMENT OF ADDITIONAL INFORMATION.
INVESTMENT LIMITATIONS
The Fund intends to observe certain limitations on its investment
practices. The Fund MAY NOT:
o lend cash or other assets, except that the Fund may
lend its securities holdings in an amount not to
exceed 33% of the value of its total assets;
o borrow money, except from banks for temporary or
emergency purposes in an amount up to 33% of the
value of its total assets, and the Fund will not
purchase securities while borrowings in excess of 5%
of its total assets are outstanding (this limitation
on purchases does not apply to acceptance of Creation
Units by the Fund);
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o pledge or otherwise encumber its assets, except to
secure permitted borrowings (for these purposes
collateral arrangements with respect to options and
futures are not deemed to involve a pledge of
assets); or
These investment limitations and certain additional limitations
described in the STATEMENT OF ADDITIONAL INFORMATION may be changed only with
shareholder approval.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL RISKS
You can lose money by investing in the Fund.
Unlike many investment companies, the Fund is not actively "managed."
Therefore, the Fund would not sell a stock because the stock's issuer was in
financial trouble, unless that stock is removed from the Index. An investment in
the Fund involves risks similar to those of investing in any fund of equity
securities traded on exchanges, such as market fluctuations caused by such
factors as economic and political developments, changes in interest rates and
perceived trends in stock prices. You should anticipate that the value of the
Fund's Shares will decline, more or less, in correspondence with any decline in
value of the Index.
The Fund concentrates its investments in stocks that its benchmark
Index targets, I.E., technology companies. Companies in the Index include
companies that are involved in the development and production of technology
products. The majority of the components in the Index are involved in the
computer software, data processing, computer services, semiconductors and
telecommunications industries. Competitive pressures may have a significant
effect on the financial condition of such companies in the technology sector.
Also, many of the products and services offered by technology companies are
subject to the risk of rapid obsolescence. Because the Fund concentrates its
investments in the technology industry, it may be more susceptible to any single
economic, political or regulatory occurrence than an investment company that is
more broadly diversified than the Fund.
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ABSENCE OF PRIOR ACTIVE MARKET. The Fund is a newly organized series of
an investment company with no operating history. While the Shares have been
listed for trading on the AMEX, there can be no assurance that active trading
markets for the Shares will develop or be maintained. The Distributor does not
maintain a secondary market in the Shares.
Trading in Shares on the AMEX may be halted due to market conditions or
for reasons that, in the view of the AMEX, make trading in Shares inadvisable.
In addition, trading in Shares on the AMEX is subject to trading halts caused by
extraordinary market volatility pursuant to AMEX "circuit breaker" rules. There
can be no assurance that the requirements of the AMEX necessary to maintain the
listing of the Fund will continue to be met or will remain unchanged.
The net asset value of the Shares will fluctuate with changes in the
market value of the Fund's securities holdings. The market prices of Shares will
fluctuate in accordance with changes in net asset value and supply and demand on
the AMEX. The Adviser cannot predict whether Shares will trade below, at or
above their net asset value. Price differences may be due, in large part, to the
fact that supply and demand forces at work in the secondary trading market for
Shares will be closely related to, but not identical to, the same forces
influencing the prices of the stocks of the Index trading individually or in the
aggregate at any point in time. However, given that Shares can be created and
redeemed daily in Creation Units (unlike shares of many closed-end funds, which
frequently trade at appreciable discounts from, and sometimes at premiums to,
their net asset value), the Adviser believes that large discounts or premiums to
the net asset value of the Shares should not be sustained.
FOREIGN INVESTMENTS. The Fund may invest in foreign securities or ADRs
included in its benchmark Index. Foreign investments may involve additional
risks and considerations. These risks include, for example, fluctuations in
foreign currency, as well as the political and economic risks of an issuer's
country.
LENDING OF SECURITIES. Although the Fund receives collateral in
connection with all loans of its securities holdings, the Fund would be exposed
to a risk of loss should a borrower default on its obligation to return the
borrowed securities (E.G., the loaned securities may have appreciated beyond the
value of the collateral held by the Fund). In addition, the Fund bears the risk
of loss of any cash collateral that it invests.
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YEAR 2000. The services provided to the Fund by its various service
providers depend on the smooth functioning of their computer systems. Many
computer software systems in use today cannot recognize the year 2000, but
revert to 1900 or some other date, due to the manner in which dates were encoded
and calculated. That failure could have a negative impact on the handling of
securities trades, pricing and account services. The Fund's service providers
have been working actively on necessary changes to their own computer systems to
prepare for the year 2000 and expect that their systems will be adapted before
that date, but there can be no assurance that they will be successful, or that
interaction with other non-complying computer systems will not impair their
services at that time.
You should consider the risks of investing in the Fund that are more
fully discussed in the STATEMENT OF ADDITIONAL INFORMATION.
MANAGEMENT
BOARD OF TRUSTEES. The Board of Trustees of the Trust has
responsibility for the overall management of the Fund, including general
supervision of the Adviser and other service providers. A list of the Trustees
and the Trust officers, and their present positions and principal occupations
are provided in the STATEMENT OF ADDITIONAL INFORMATION.
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ADVISER. Under the terms of an Investment Advisory Agreement, State
Street serves as the Adviser to the Fund and, subject to the supervision of the
Board of Trustees, will be responsible for the investment management of the
Fund. As of __________, the Adviser managed approximately $__ billion in assets
including $_______ in index funds. The Adviser's principal business address is
225 Franklin Street, Boston, Massachusetts 02210.
For the services provided to the Fund under the Investment Advisory
Agreement, the Fund will pay the Adviser monthly fees based on a percentage of
the Fund's average daily net assets at the annual rate of ___%. From time to
time, the Adviser may waive all or a portion of its fee.
ADMINISTRATOR, CUSTODIAN, AND TRANSFER AGENT. State Street is the
administrator for the Fund, the custodian of Fund assets, and provides transfer
agency services to the Fund. As the administrator, State Street is responsible
for certain clerical, fund accounting, recordkeeping and bookkeeping services.
State Street is paid a "unitary" fee for these services. The unitary fee has two
components: (i) a percentage fee based on net assets of the Fund at the
following annual rates: ___% on the first $___ million; ___% on the next $___
million; and ___% on the portion of the Fund's assets exceeding $__ billion; and
(ii) [a minimum fee of ___, which in no event will exceed ___% of net assets.]
LENDING AGENT. The Lending Agent will cause the delivery of loaned
securities from the Fund to borrowers, arrange for the return of loaned
securities to the Fund at the termination of the loans, request deposit of
collateral, monitor daily the value of the loaned securities and collateral,
request that borrowers add to the collateral when required by the loan
agreements, and provide recordkeeping and accounting services necessary for the
operation of the program. For its services, the Lending Agent will receive a
portion of the net investment income earned on the collateral for the securities
loaned.
DISTRIBUTOR. Mutual Funds Services, Inc. is the Distributor of the
Fund's Shares. The Distributor will not distribute Shares in less than Creation
Units, and it does not maintain a secondary market in the Shares. As noted
below, the Shares are traded on the AMEX. The Fund has a distribution plan
pursuant to Rule 12b-1 under the 1940 Act. In accordance with the 12b-1 plan,
the Distributor is paid an annual fee up to .25% of the average daily net assets
of the Fund
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to reimburse the Distributor for certain specified expenses incurred in
connection with the offering and sales of Shares. Distribution expenses incurred
in any one year in excess of .25% of average daily net assets may be reimbursed
in subsequent years subject to the annual .25% limit. The Distributor may enter
into agreements with broker-dealers or other financial institutions to provide
distribution assistance, including shareholder support and educational and
promotional services. The Distributor will pay such persons out of Rule 12b-1
fees received from the Fund. The Distributor's principal business address is 370
17th Street, Suite 3100, Denver, CO 80202.
SHAREHOLDER GUIDE
DETERMINATION OF NET ASSET VALUE
Net asset value per Share for the Fund is computed by dividing the
value of the net assets of the Fund (I.E., the value of its total assets less
total liabilities) by the total number of Shares outstanding. Expenses and fees,
including the management, administration and distribution fees, are accrued
daily and taken into account for purposes of determining net asset value. The
net asset value of the Fund is determined each business day after the close of
trading (ordinarily 4:00 p.m., Eastern time) of the New York Stock Exchange.
BUYING AND SELLING EXCHANGE-TRADED SHARES
The Shares have been approved for listing and trading on the AMEX. If
you buy or sell Shares in the secondary market, you will incur customary
brokerage commissions and charges and may pay some or all of the spread between
the bid and the offered price in the secondary market on each leg of a round
trip (purchase and sale) transaction. The Shares will trade on the AMEX at
prices that may differ to varying degrees from the closing net asset values of
the Shares. Given, however, that Shares can be created and redeemed daily in
Creation Units, the Adviser believes that large discounts and premiums to net
asset value should not be sustained for very long.
There can be no assurance that the requirements of the AMEX necessary
to maintain the listings of Shares will continue to be met or will remain
unchanged. There can also be no assurance that an active trading market will
develop or can be maintained for the Shares. The fact that a number of similar
products, such as SPDRs, MidCap SPDRs, DIAMONDS and 17 series of
20
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World Equity Benchmark Shares ("WEBS"), have traded on the AMEX for varying
periods of time (up to five and one half years) may or may not be indicative of
the chances for active trading and liquidity in the Shares of the Fund described
herein. Products broadly similar to the WEBS traded briefly on the NYSE. Those
products were delisted and they were liquidated by their sponsor. While this has
not happened to funds listed on the AMEX, there can be no assurance that the
Fund described in this prospectus might not similarly be delisted and
liquidated.
The Depository Trust Corporation ("DTC") serves as securities
depository for the Shares. (The Shares may be held only in book-entry form;
stock certificates will not be issued.) DTC, or its nominee, is the record or
registered owner of all outstanding Sector SPDR Fund Shares. Beneficial
ownership of Shares will be shown on the records of DTC or its participants
(described below). Beneficial owners of Shares are not entitled to have Shares
registered in their names, will not receive or be entitled to receive physical
delivery of certificates in definitive form and are not considered the
registered holder thereof. Accordingly, to exercise any rights of a holder of
Shares, each beneficial owner must rely on the procedures of (i) DTC; (ii) "DTC
Participants", I.E., securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations, some of whom (and/or
their representatives) own DTC; and (iii) "Indirect Participants", I.E.,
brokers, dealers, banks and trust companies that clear through or maintain a
custodial relationship with a DTC Participant, either directly or indirectly,
through which such beneficial owner holds its interests. The Trust understands
that under existing industry practice, in the event the Trust requests any
action of holders of Shares, or a beneficial owner desires to take any action
that DTC, as the record owner of all outstanding Shares, is entitled to take,
DTC would authorize the DTC Participants to take such action and that the DTC
Participants would authorize the Indirect Participants and beneficial owners
acting through such DTC Participants to take such action and would otherwise act
upon the instructions of beneficial owners owning through them. As described
above, the Trust recognizes DTC or its nominee as the owner of all Shares for
all purposes. For more information, see the section entitled "Book Entry Only
System" in the STATEMENT OF ADDITIONAL INFORMATION.
CREATION AND REDEMPTION OF CREATION UNITS
The Fund issues and redeems Shares only in Creation Units at their net
asset value.
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Investors interested in creating and/or redeeming Creation Units should refer to
"Creation of Creation Units" and "Redemption of Creation Units" in the STATEMENT
OF ADDITIONAL INFORMATION.
DISTRIBUTIONS
DIVIDENDS AND CAPITAL GAINS. As a Fund shareholder, you are entitled
to your share of the Fund's income and net realized gains on its investments.
The Fund pays out substantially all of its net earnings along to its
shareholders as "distributions."
The Fund typically earns income dividends from stocks and interest from
debt securities. These amounts, net of expenses, are passed along to Fund
shareholders as "income dividend distributions." The Fund realizes capital gains
or losses whenever it sells securities. Net capital gains are distributed to
shareholders as "capital gain distributions."
Income dividends are distributed to shareholders typically quarterly
and at least annually. Net capital gains are distributed at least annually.
Dividends may be declared and paid more frequently to improve Index tracking or
to comply with the distribution requirements of the Internal Revenue Code. In
addition, the Fund intends to distribute at least annually amounts representing
the full dividend yield net of expenses on the underlying investment securities,
as if the Fund owned the underlying investment securities for the entire
dividend period. As a result, some portion of each distribution may result in a
return of capital. You will be notified regarding the portion of the
distribution which represents a return of capital.
Distributions in cash may be reinvested automatically in additional
Shares if the broker through which you purchased Shares makes such option
available.
TAX MATTERS
As with any investment, you should consider how your Fund investment
will be taxed. The tax information in this Prospectus is provided as general
information. You should consult your own tax professional about the tax
consequences of an investment in the Fund.
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Unless your investment in the Fund is through a tax-exempt entity or
taxed-deferred retirement account, such as a 401(k) plan, you need to be aware
of the possible tax consequences when:
o The Fund makes distributions,
o You sell Shares listed on the AMEX, and
o You create or redeem Creation Units.
TAXES ON DISTRIBUTIONS. Your distributions are subject to federal
income tax when they are paid, whether you take them in cash or reinvest them in
the Fund. Dividends paid out of the Fund's income and net short-term gains, if
any, are taxable as ordinary income. Distributions of net long-term capital
gains, if any, in excess of net short-term capital losses are taxable as
long-term capital gains, regardless of how long you have held the Shares.
Distributions in excess of the Fund's current and accumulated earnings
and profits are treated as a tax-free return of capital to the extent of your
basis in the Shares, and as capital gain thereafter. A distribution will reduce
the Fund's net asset value per Share and may be taxable to you as ordinary
income or capital gain even though, from an investment standpoint, it may
constitute a return of capital.
TAXES ON AMEX-LISTED SHARE SALES. Currently, any capital gain or loss
realized upon a sale of Shares is generally treated as long-term capital gain or
loss if the Shares have been held for more than eighteen months, a mid-term
capital gain or loss if held for twelve months to eighteen months, and otherwise
as a short-term capital gain or loss.
TAXES ON CREATIONS AND REDEMPTIONS OF CREATION UNITS. A person who
exchanges equity securities for Creation Units generally will recognize a gain
or loss. The gain or loss will be equal to the difference between the market
value of the Creation Units at the time and the exchanger's aggregate basis in
the securities surrendered and the cash component paid. The Internal Revenue
Service, however, may assert that a loss realized upon an exchange of securities
for Creation Units cannot be deducted currently under the rules governing "wash
sales," or on the basis that
23
<PAGE>
there has been no significant change in economic position. Persons exchanging
securities should consult their own tax advisor with respect to whether wash
sale rules apply and when a loss might be deductible.
Under current federal tax laws, any capital gain or loss realized upon
a redemption of Creation Units is generally treated as long-term capital gain or
loss if the Shares have been held for more than eighteen months, a mid-term
capital gain or loss if held for twelve months to eighteen months, and otherwise
as a short-term capital gain or loss.
If you create or redeem Creation Units, you will be sent a confirmation
statement showing how many Shares you created or sold and at what price.
GENERAL INFORMATION
The Trust was organized as a Massachusetts business trust on June ___,
1998. Its Declaration of Trust currently permits the Trust to issue billion
shares of beneficial interest. If shareholders are required to vote on any
matters, each Share outstanding would be entitled to one vote. Annual meetings
of shareholders will not be held except as required by the 1940 Act and other
applicable law. See the STATEMENT OF ADDITIONAL INFORMATION for more information
concerning the Trust's form of organization.
The Fund expects that, immediately prior to the commencement of trading
in the Fund's Shares, it will have __ shareholder(s) holding more than 5% of its
outstanding Shares. The Fund cannot predict the length of time that these
person(s) will remain control persons of the Fund. As of the date of this
Prospectus, the sole shareholder of the Fund is ______________, a "control"
person of the Fund.
From time to time, the Fund advertises yield and total return figures.
Yield is an historical measure of dividend income, and total return is a measure
of past dividend income (assuming that it has been reinvested) plus capital
appreciation. Neither yield nor total return should be used to predict the
future performance of the Fund. For a more detailed description of how the Fund
computes its performance figures and how these numbers may be used in
advertisements, please consult the STATEMENT OF ADDITIONAL INFORMATION.
24
<PAGE>
Gordon Altman Butowsky Weitzen Shalov & Wein serve as counsel to the
Trust, including the Fund. _____________________________ serve as independent
accountants and will audit the Fund's financial statement annually.
ADDITIONAL INFORMATION
This Prospectus does not contain all the information included in the
Registration Statement filed with the SEC with respect to the Fund's Shares. The
Registration Statement, including this Prospectus, the STATEMENT OF ADDITIONAL
INFORMATION, and the exhibits may be examined at the offices of the SEC (450
Fifth Street, N.W., Washington D.C. 20549) or at the SEC's Web site
(http://(1)www.sec.gov). These documents and other information concerning the
Trust also may be inspected at the offices of the AMEX (86 Trinity Place, New
York, New York 10006).
Shareholder inquiries may be directed to the Fund in writing to_______.
25
<PAGE>
SUBJECT TO COMPLETION; DATED JUNE 24, 1998
PART B
INDEX EXCHANGE LISTED SECURITIES TRUST
STATEMENT OF ADDITIONAL INFORMATION
Dated , 1998
This Statement of Additional Information is not a Prospectus. It should
be read in conjunction with the Prospectus dated , 1998 (the "Prospectus") for
the Index Exchange Listed Securities Trust (the "Trust"), as it may be revised
from time to time. A copy of the Prospectus for the Trust may be obtained
without charge by writing to the Trust or the Distributor. The Trust's address
is . Capitalized terms used herein that are not defined have the same meaning as
in the Prospectus, unless otherwise noted.
RED HERRING
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TABLE OF CONTENTS
General Description of the Trust...............................................4
Special Considerations and Risks..............................................12
Exchange Listing and Trading................................. ................15
Management of the Trust.......................................................16
Brokerage Transactions........................................................21
Book Entry Only System........................................................22
Determining Net Asset Value...................................................31
Dividends and Distributions...................................................32
Taxes .....................................................................33
Capital Stock and Shareholder Reports.........................................33
Performance Information....................................... ...............35
Counsel and Independent Auditors..............................................37
Financial Statements..........................................................38
-----------------------------------------------------
The information contained herein regarding the Index, securities
markets and The Depository Trust Company ("DTC") was obtained from publicly
available sources.
THE INDEX IS BASED ON EQUITY SECURITIES OF PUBLIC COMPANIES SELECTED
FROM THE UNIVERSE OF ALL U.S. TRADED STOCKS AND AMERICAN DEPOSITORY RECEIPTS AND
CLASSIFIED AS APPROPRIATE FOR INCLUSION BY MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED ("MERRILL LYNCH" OR THE "INDEX COMPILATION AGENT").
THE SHARES ARE NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY
MERRILL LYNCH. THE INDEX COMPILATION AGENT MAKES NO REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, TO THE OWNERS OF
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THE SHARES OF THE FUND OR ANY MEMBER OF THE PUBLIC REGARDING THE ADVISABILITY OF
INVESTING IN SECURITIES GENERALLY OR IN THE SHARES OF THE FUND PARTICULARLY OR
THE ABILITY OF THE INDEX IDENTIFIED HEREIN TO TRACK STOCK MARKET PERFORMANCE.
MERRILL LYNCH IS THE LICENSOR OF CERTAIN TRADEMARKS, SERVICE MARKS AND TRADE
NAMES, INCLUDING THE TECHNOLOGY 100 INDEX. THE INDEX IDENTIFIED HEREIN IS
DETERMINED, COMPOSED AND CALCULATED WITHOUT REGARD TO THE SHARES OF THE FUND OR
THE ISSUER THEREOF. THE INDEX COMPILATION AGENT IS NOT RESPONSIBLE FOR, NOR HAS
IT PARTICIPATED IN, THE DETERMINATION OF THE TIMING OF, PRICES AT, OR QUANTITIES
OF THE SHARES OF THE FUND TO BE ISSUED OR IN THE DETERMINATION OR CALCULATION OF
THE EQUATION BY WHICH THE SHARES ARE REDEEMABLE. THE INDEX COMPILATION AGENT HAS
NO OBLIGATION OR LIABILITY TO OWNERS OF THE SHARES OF THE FUND IN CONNECTION
WITH THE ADMINISTRATION, MARKETING OR TRADING OF THE SHARES OF THE FUND.
ALTHOUGH THE INDEX COMPILATION AGENT SHALL OBTAIN INFORMATION FOR INCLUSION
IN OR FOR USE IN THE CALCULATION OF THE INDEX FROM SOURCES WHICH IT CONSIDERS
RELIABLE, THE INDEX COMPILATION AGENT DOES NOT GUARANTEE THE ACCURACY AND/OR THE
COMPLETENESS OF THE COMPONENT DATA OF THE INDEX OBTAINED FROM INDEPENDENT
SOURCES. THE INDEX COMPILATION AGENT MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS
TO RESULTS TO BE OBTAINED BY THE TRUST AS LICENSEE, LICENSEE'S CUSTOMERS AND
COUNTERPARTIES, OWNERS OF THE SHARES, OR ANY OTHER PERSON OR ENTITY FROM THE USE
OF THE INDEX OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED
AS DESCRIBED HEREIN OR FOR ANY OTHER USE. THE INDEX COMPILATION AGENT MAKES NO
EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE INDEX OR
ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL THE INDEX COMPILATION AGENT HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT,
SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS)
EVEN IF NOTIFIED OF THE INDEX'S POSSIBILITY OF SUCH DAMAGES.
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GENERAL DESCRIPTION OF THE TRUST
The Trust is an open-end investment company. The Trust currently
consists of a single investment series, the Technology 100 Index Fund (the
"Fund"). The Fund invests in common stocks (the "Fund Securities") consisting of
some or all of the component securities of an index (the "Index") compiled by
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Index Compilation
Agent"), selected to reflect the performance thereof. The Trust was organized as
a Massachusetts business trust on , 1998. The shares of the Fund are referred to
herein as "Shares."
The Fund offers and issues Shares at their net asset value only in
aggregations of a specified number of Shares (each, a "Creation Unit"), usually
in exchange for a basket of Fund Securities (together with the deposit of a
specified cash payment). The Shares have been listed for secondary trading on
the American Stock Exchange (the "AMEX"). The Shares will trade on the AMEX at
market prices. Those prices may differ from the Shares' net asset value.
Similarly, Shares are also redeemable only in Creation Units, and generally in
exchange for Fund Securities and a specified cash payment. A Creation Unit
consists of ____ Shares of the Fund.
The Trust reserves the right to offer a "cash" option for creations and
redemptions of Shares (subject to applicable legal requirements) although it has
no intention of doing so. In each instance of such cash creations or
redemptions, the Trust may impose transaction fees based on transaction expenses
in the particular exchange that will be higher than the transaction fees
associated with in-kind purchases or redemptions. In all cases, such fees will
be limited in accordance with the requirements of the Securities and Exchange
Commission (the "SEC") applicable to management investment companies offering
redeemable securities.
THE INDEX AND ITS EQUITY MARKETS
The Index is intended to give investors an efficient, equal dollar
weight investment designed to track the movements of certain technology stocks
and American Depository Receipts ("ADRs") traded within the United States.
CONSTRUCTION AND MAINTENANCE STANDARDS FOR THE INDEX
SELECTION CRITERIA
The Index has been developed and will be maintained in accordance with
the following criteria:
o A candidate pool of technology stocks will be identified from
the selection universe of all U.S. traded stocks and ADRs and
classified as appropriate for inclusion by the Index
Compilation Agent.
o Each of the component stocks must be traded on the New York
Stock Exchange, the AMEX, or the NASDAQ and be NASDAQ National
Market Securities.
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o A liquidity screen is used to eliminate stocks that have less
than $12.5 million in daily trading volume from the candidate
pool. The median 63-day trading volume calculation is used for
this screening.
o The top 100 stocks based on market capitalization from the
liquidity-screened universe of technology names are chosen.
o Potential additions to the Index are tested to make sure that
they have trading volume greater than that of the 75th-ranked
Index constituent in terms of trading volume.
INDEX CALCULATION
The Index is calculated by the American Stock Exchange Index
Services Group ("ISG") using an equal dollar weighting methodology designed to
ensure that each component security within the Index is represented in an
approximately equal dollar amount. In particular:
o A number called the "Index Divisor" was initially determined
to yield the benchmark value of 200.00 at the close of trading
on January 30, 1998. Annually thereafter, following the close
of trading on the third Friday of December, the Index
portfolio is adjusted by changing the number of whole shares
of each component stock so that each company is again
represented in equal dollar amounts. The new shares are
determined using the primary market closing prices of the
second Friday of December. When necessary, an Index Divisor
adjustment will be made at the rebalancing/reconstitution to
ensure the continuity of the Index. The newly determined
shares will then become the basis for the portfolio on the
first trading day following the annual adjustment.
o The number of shares of each component stock in the Index
remains fixed between annual rebalancings except in the event
of certain corporate actions, such as the payment of a
dividend other than ordinary cash, stock distribution, stock
split, reverse stock split, rights offering, distribution,
reorganization, recapitalization, or similar event with
respect to the component stocks. Shares are not adjusted in
the case of a share issuance or stock repurchase.
o In the case of a merger or the consolidation of a component
company, if the stock remains in the Index, the number of
shares of that security in the portfolio may be adjusted to
the nearest whole share to maintain the component's relative
weight in the Index at the level immediately prior to the
corporate action. In the case of a spin-off, the spun company
is not included in the Index.
o The Index is calculated and maintained by the AMEX in
consultation with the Index Compilation Agent, which may
suggest changes in the industry categories represented in the
Index or changes in the number of component stocks in an
industry category to properly reflect changing conditions in
the technology sector. In addition, the Index Compilation
Agent may advise the AMEX regarding the
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handling of unusual corporate actions. Routine corporate
actions (E.G., stock splits) that require straightforward
Index Divisor adjustments are handled by AMEX staff without
consulting the Index Compilation Agent.
o When possible, all stock replacements and unusual Index
Divisor adjustments caused by the occurrence of extraordinary
events such as dissolution, merger, bankruptcy, non-routine
spin-offs, or extraordinary dividends are made by the AMEX in
consultation with the Index Compilation Agent. In the case of
replacements, the largest non-Index constituent in terms of
market capitalization from the list of U.S.-traded technology
stocks and ADRs will be chosen.
o In selecting replacement stocks, the market capitalization and
trading volume is calculated using the primary exchange
closing price one day prior to potential replacements being
considered. There is no fixed period between the
consideration and change dates. The chosen stock must have a
trailing 63-day median daily trading volume that is greater
than that of the 75th percentile rank of the existing
100 stocks. If the liquidity level is insufficient, then the
next largest stock will be considered. In the event that no
stock meets the liquidity criteria, the largest stock
in terms of market capitalization will be added.
o The amount allocated to the replacement will be determined as
follows: The average dollar value of the remaining portfolio
components will be calculated. That dollar value will be
invested in the stock of the new component, rounded to the
nearest whole share, based on the primary market closing
prices one week (t-5 trading days) prior to the adjustment
date. The Index Divisor will be adjusted to ensure continuity
of the Index when necessary.
o Index reconstitution occurs annually after the close of the
third Friday of December. The reconstitution will take two
steps: first, determination of Index constituents, and second,
share calculations to ensure equal weighting.
o Index constituents will be replaced for two reasons: lack of
representation or decline in size rank. First, if a stock is
no longer deemed a representative "technology" stock, then the
stock will be removed from the Index. Second, if a stock's
market capitalization declines below that of the 125th
U.S.-traded technology stock after liquidity screening, then
the stock is removed. The shares and volume figures are
calculated using the data as of the second Friday of December.
INDEX DISSEMINATION
Similar to other stock index values published by the AMEX, the value of
the Index will be calculated continuously and disseminated every 15 seconds over
the Consolidated Tape Association's Network B. The major electronic financial
data vendors - Bloomberg, Quotron, Reuters and Bridge Information Systems - are
expected to publish information on the Index for their subscribers.
A brief description of the Index on which the Fund is based and the
equity markets in
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which the Fund is invested are provided below.
GENERAL BACKGROUND
The Index is an index of 100 companies identified by the Index
Compilation Agent as technology companies. It is an equally weighted index of
the 100 largest such technology companies based on market capitalization after
an initial screen for liquidity. The majority of the components are involved in
the following industries: computer software, data processing, computer services,
semiconductors, and telecommunications equipment. [A list of the 100 component
stocks included in the Index as of , 1998 is attached as Exhibit A.]
CONSTITUENT STOCKS
10 LARGEST COMPONENTS BY MARKET CAPITALIZATION ([ ]):
Cumulative
Company Name Market Cap Index Weight Weight
===================== ================= ================== ===============
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
- ------------------------------------------------------------------------------
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INVESTMENT POLICIES AND RESTRICTIONS
LENDING PORTFOLIO SECURITIES
The Fund may lend portfolio securities to brokers, dealers and other
financial institutions needing to borrow securities to complete transactions and
for other purposes. Because the government securities or other assets that are
pledged as collateral to the Fund in connection with these loans generate
income, securities lending enables the Fund to earn additional income that may
partially offset the expenses of the Fund, and thereby reduce the effect that
expenses have on the Fund's ability to provide investment results that
substantially correspond to the price and yield performance of its benchmark
Index.
Loans of portfolio securities may not exceed 33% of the Fund's total
assets. The documentation for these loans provide that the Fund will receive
collateral equal to at least 100% of the current market value of the loaned
securities, as marked to market each day that the net asset value of the Fund is
determined, consisting of government securities or other assets permitted by
applicable regulations and interpretations. The Fund pays reasonable
administrative and custodial fees in connection with the loan of securities and
invests collateral in money market instruments or funds which invest exclusively
in money market instruments.
The Fund will comply with the conditions for lending established by the
SEC. Although the Fund will receive collateral in connection with all loans of
portfolio securities, and such collateral will be marked to market, the Fund
will be exposed to the risk of loss should a borrower default on its obligation
to return the borrowed securities (E.G., the loaned securities may have
appreciated beyond the value of the collateral held by the Fund). In addition,
the Fund bears the risk of loss of any cash collateral that it invests in money
market instruments.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements with commercial banks,
brokers or dealers to generate income from its excess cash balances and to
invest securities lending cash collateral. A repurchase agreement is an
agreement under which the Fund acquires a money market instrument (generally a
security issued by the U.S. Government or an agency thereof, a banker's
acceptance or a certificate of deposit) from a seller, subject to resale to the
seller at an agreed upon price and date (normally, the next business day). A
repurchase agreement may be considered a loan collateralized by securities. The
resale price reflects an agreed upon interest rate effective for the period the
instrument is held by the Fund and is unrelated to the interest rate on the
underlying instrument.
In these repurchase agreement transactions, the securities acquired by
the Fund (including accrued interest earned thereon) must have a total value in
excess of the value of the repurchase agreement and are held by the Trust's
custodian bank until repurchased. In addition, the Trust's Board of Trustees
("Board" or "Trustees") monitors the Fund's repurchase agreement transactions
generally and has established guidelines and standards for review of the
creditworthiness of any bank, broker or dealer counterparty to a repurchase
agreement with the Fund. No more than an
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aggregate of 15% of the Fund's net assets will be invested in repurchase
agreements having maturities longer than seven days and securities subject to
legal or contractual restrictions on resale, or for which there are no readily
available market quotations.
The use of repurchase agreements involves certain risks. For example,
if the other party to the agreement defaults on its obligation to repurchase the
underlying security at a time when the value of the security has declined, the
Fund may incur a loss upon disposition of the security. If the other party to
the agreement becomes insolvent and subject to liquidation or reorganization
under the Bankruptcy Code or other laws, a court may determine that the
underlying security is collateral for a loan by the Fund not within the control
of the Fund and, therefore, the Fund may not be able to substantiate its
interest in the underlying security and may be deemed an unsecured creditor of
the other party to the agreement. While the Trust's management acknowledges
these risks, it is expected that they can be controlled through careful
monitoring procedures.
FUTURES CONTRACTS, OPTIONS AND SWAP AGREEMENTS
The Fund may utilize futures contracts, options and swap agreements.
Futures contracts generally provide for the future sale by one party and
purchase by another party of a specified commodity at a specified future time
and at a specified price. Stock index futures contracts are settled daily with a
payment by one party to the other of a cash amount based on the difference
between the level of the stock index specified in the contract from one day to
the next. Futures contracts are standardized as to maturity date and underlying
instrument and are traded on futures exchanges. The Fund may use futures
contracts, and options on futures contracts based on other indexes or
combinations of indexes that the Adviser (defined below) believes to be
representative of the benchmark Index.
Although futures contracts (other than cash settled futures contracts
including most stock index futures contracts) by their terms call for actual
delivery or acceptance of the underlying commodity, in most cases the contracts
are closed out before the maturity date without the making or taking of
delivery. Closing out an open futures position is done by taking an opposite
position ("buying" a contract which has previously been "sold," or "selling" a
contract previously "purchased") in an identical contract to terminate the
position. Brokerage commissions are incurred when a futures contract position is
opened or closed.
Futures traders are required to make a good faith margin deposit in
cash or government securities with a broker or custodian to initiate and
maintain open positions in futures contracts. A margin deposit is intended to
assure completion of the contract (delivery or acceptance of the underlying
commodity or payment of the cash settlement amount) if it is not terminated
prior to the specified delivery date. Brokers may establish deposit requirements
which are higher than the exchange minimums. Futures contracts are customarily
purchased and sold on margin deposits which may range upward from less than 5%
of the value of the contract being traded.
After a futures contract position is opened, the value of the contract
is marked to market daily. If the futures contract price changes to the extent
that the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required.
9
<PAGE>
Conversely, change in the contract value may reduce the required margin,
resulting in a repayment of excess margin to the contract holder. Variation
margin payments are made to and from the futures broker for as long as the
contract remains open. The Fund expects to earn interest income on its margin
deposits.
The Fund may use futures contracts and options thereon, together with
positions in cash and money market instruments, to simulate full investment in
the underlying Index. Liquid futures contracts are not currently available for
the benchmark Index of the Fund. Under such circumstances, the Adviser may seek
to utilize other instruments that it believes to be correlated to the underlying
Index components or a subset of the components.
RESTRICTIONS ON THE USE OF FUTURES AND OPTIONS
The Fund will not enter into futures contract transactions for purposes
other than hedging (stock replication transactions are considered hedging
transactions) to the extent that, immediately thereafter, the sum of its initial
margin deposits on open contracts exceeds 5% of the market value of the Fund's
total assets. The Fund will take steps to prevent its futures positions from
"leveraging" its securities holdings. When it has a long futures position, it
will maintain with its custodian bank, cash or liquid securities having a value
equal to the notional value of the contract (less any margin deposited in
connection with the position). When it has a short futures position, as part of
a complex stock replication strategy it will maintain with its custodian bank
assets substantially identical to those underlying the contract or cash and
liquid securities (or a combination of the foregoing) having a value equal to
the net obligation of the Fund under the contract (less the value of any margin
deposits in connection with the position).
SWAP AGREEMENTS
Swap agreements are contracts between parties in which one party agrees
to make payments to the other party based on the change in market value or level
of a specified index or asset. In return, the other party agrees to make
payments to the first party based on the return of a different specified index
or asset. Although swap agreements entail the risk that a party will default on
its payment obligations thereunder, the Fund seeks to reduce this risk by
entering into agreements that involve payments no less frequently than
quarterly. The net amount of the excess, if any, of the Fund's obligations over
its entitlements with respect to each swap is accrued on a daily basis and an
amount of cash or high liquid securities having an aggregate value at least
equal to the accrued excess is maintained in an account at the Trust's custodian
bank.
FUTURE DEVELOPMENTS
The Fund may take advantage of opportunities in the area of options,
futures contracts, options on futures contracts, options on the Fund, warrants,
swaps and any other investments which are not presently contemplated for use or
which are not currently available, but which may be developed, to the extent
such investments are considered suitable for the Fund by the Adviser.
10
<PAGE>
INVESTMENT RESTRICTIONS
The Trust has adopted the following investment restrictions as
fundamental policies with respect to the Fund. These restrictions cannot be
changed without the approval of the holders of a majority of the Fund's
outstanding voting securities. For purposes of the 1940 Act, a majority of the
outstanding voting securities of the Fund means the vote, at an annual or a
special meeting of the security holders of the Trust, of the lesser of (1) 67%
or more of the voting securities of the Fund present at such meeting, if the
holders of more than 50% of the outstanding voting securities of the Fund are
present or represented by proxy, or (2) more than 50% of the outstanding voting
securities of the Fund. The Fund MAY NOT:
1. Change its investment objective;
2. Lend any funds or other assets except through the purchase of
all or a portion of an issue of securities or obligations of
the type in which it is permitted to invest (including
participation interests in such securities or obligations) and
except that the Fund may lend its portfolio securities in an
amount not to exceed 33% of the value of its total assets;
3. Issue senior securities or borrow money, except borrowings
from banks for temporary or emergency purposes in an amount
up to 33% of the value of the Fund's total assets (including
the amount borrowed), valued at the lesser of cost or market,
less liabilities (not including the amount borrowed) valued at
the time the borrowing is made, and the Fund will not purchase
securities while borrowings in excess of 5% of the Fund's
total assets are outstanding, provided, that for purposes
of this restriction short-term credits necessary for the
clearance of transactions are not considered borrowings and
the limitation on purchases does not apply to acceptance of
Creation Units by the Fund;
4. Pledge, hypothecate, mortgage or otherwise encumber its
assets, except to secure permitted borrowings. (The deposit of
underlying securities and other assets in escrow and
collateral arrangements with respect to initial or variation
margin for futures contracts or options contracts will not be
deemed to be pledges of the Fund's assets);
5. Purchase a security (other than obligations of the United
States Government, its agencies or instrumentalities) if, as a
result, 25% or more of its total assets would be invested in a
single issuer;
6. Purchase, hold or deal in real estate, or oil, gas or mineral
interests or leases, but the Fund may purchase and sell
securities that are issued by companies that invest or deal in
such assets;
7. Act as an underwriter of securities of other issuers, except
to the extent the Fund may be deemed an underwriter in
connection with the sale of securities in its
11
<PAGE>
portfolio;
8. Purchase securities on margin, except for such short-term
credits as are necessary for the clearance of transactions,
except that the Fund may make margin deposits in connection
with transactions in options, futures and options on futures;
9. Sell securities short; or
10. Invest in commodities or commodity contracts, except that the
Fund may buy and sell currencies and forward contracts with
respect thereto, and may transact in futures contracts on
securities, stock indexes and currencies and options on such
futures contracts and make margin deposits in connection with
such contracts.
In addition to the investment restrictions adopted as fundamental
policies as set forth above, the Fund observes the following restrictions, which
may be changed by the Board without a shareholder vote. The Fund WILL NOT:
1. Invest in the securities of a company for the purpose of
exercising management or control, or in any event purchase and
hold more than 10% of the securities of a single issuer,
provided that the Trust may vote the investment securities
owned by the Fund in accordance with its views; or
2. Hold illiquid assets in excess of 15% of its net assets. An
illiquid asset is any asset which may not be sold or disposed
of in the ordinary course of business within seven days at
approximately the value at which the Fund has valued the
investment.
If a percentage limitation is adhered to at the time of investment or
contract, a later increase or decrease in percentage resulting from any change
in value or total or net assets will not result in a violation of such
restriction, except that the percentage limitations with respect to the
borrowing of money and illiquid securities will be observed continuously.
SPECIAL CONSIDERATIONS AND RISKS
A discussion of the risks associated with an investment in the Fund is
contained in the Prospectus under the heading "Investment Considerations and
Risks." The discussion below supplements, and should be read in conjunction
with, such section of the Prospectus.
GENERAL
Investment in the Fund should be made with an understanding that the
value of the Fund's portfolio securities may fluctuate in accordance with
changes in the financial condition of the issuers of the portfolio securities,
the value of common stocks generally and other factors.
12
<PAGE>
An investment in the Fund should also be made with an understanding of
the risks inherent in an investment in equity securities, including the risk
that the financial condition of issuers may become impaired or that the general
condition of the stock market may deteriorate (either of which may cause a
decrease in the value of the portfolio securities and thus in the value of
Shares). Common stocks are susceptible to general stock market fluctuations and
to volatile increases and decreases in value as market confidence in and
perceptions of their issuers change. These investor perceptions are based on
various and unpredictable factors including expectations regarding government,
economic, monetary and fiscal policies, inflation and interest rates, economic
expansion or contraction, and global or regional political, economic and banking
crises.
Holders of common stocks incur more risk than holders of preferred
stocks and debt obligations because common stockholders, as owners of the
issuer, have generally inferior rights to receive payments from the issuer in
comparison with the rights of creditors of, or holders of debt obligations or
preferred stocks issued by, the issuer. Further, unlike debt securities which
typically have a stated principal amount payable at maturity (whose value,
however, will be subject to market fluctuations prior thereto), or preferred
stocks which typically have a liquidation preference and which may have stated
optional or mandatory redemption provisions, common stocks have neither a fixed
principal amount nor a maturity. Common stock values are subject to market
fluctuations as long as the common stock remains outstanding.
Although most of the securities in the Index are listed on a national
securities exchange, the principal trading market for some may be in the
over-the-counter market. The existence of a liquid trading market for certain
securities may depend on whether dealers will make a market in such securities.
There can be no assurance that a market will be made or maintained or that any
such market will be or remain liquid. The price at which securities may be sold
and the value of the Fund's Shares will be adversely affected if trading markets
for the Fund's portfolio securities are limited or absent or if bid/ask spreads
are wide.
FUTURES AND OPTIONS TRANSACTIONS
Positions in futures contracts and options may be closed out only on an
exchange which provides a secondary market therefor. However, there can be no
assurance that a liquid secondary market will exist for any particular futures
contract or option at any specific time. Thus, it may not be possible to close a
futures or options position. In the event of adverse price movements, the Fund
would continue to be required to make daily cash payments to maintain its
required margin. In such situations, if the Fund has insufficient cash, it may
have to sell portfolio securities to meet daily margin requirements at a time
when it may be disadvantageous to do so. In addition, the Fund may be required
to make delivery of the instruments underlying futures contracts it has sold.
The Fund will minimize the risk that it will be unable to close out a
futures or options contract by only entering into futures and options for which
there appears to be a liquid secondary market.
The risk of loss in trading futures contracts or uncovered call options
in some strategies
13
<PAGE>
(E.G., selling uncovered stock index futures contracts) is potentially
unlimited. The Fund does not plan to use futures and options contracts in this
way. The risk of a futures position may still be large as traditionally measured
due to the low margin deposits required. In many cases, a relatively small price
movement in a futures contract may result in immediate and substantial loss or
gain to the investor relative to the size of a required margin deposit. The
Fund, however, intends to utilize futures and options contracts in a manner
designed to limit its risk exposure to that which is comparable to what it would
have incurred through direct investment in stocks.
Utilization of futures transactions by the Fund involves the risk of
imperfect or even negative correlation to the benchmark Index if the index
underlying the futures contracts differs from the benchmark Index. There is also
the risk of loss by the Fund of margin deposits in the event of bankruptcy of a
broker with whom the Fund has an open position in the futures contract or
option.
Certain financial futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of future positions and
subjecting some futures traders to substantial losses.
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS
The Fund is required for federal income tax purposes to mark to market
and recognize as income for each taxable year its net unrealized gains and
losses on certain futures contracts as of the end of the year as well as those
actually realized during the year. The Fund may be required to defer the
recognition of losses on futures contracts to the extent of any unrecognized
gains on related positions held by the Fund.
In order for the Fund to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income, I.E., dividends,
interest, income derived from loans of securities, gains from the sale of
securities or of foreign currencies or other income derived with respect to the
Fund's business of investing in securities. It is anticipated that any net gain
realized from the closing out of futures contracts will be considered gain from
the sale of securities and therefore will be qualifying income for purposes of
the 90% requirement.
The Fund distributes to shareholders annually any net capital gains
which have been recognized for federal income tax purposes (including unrealized
gains at the end of the Fund's fiscal year) on futures transactions. Such
distributions are combined with distributions of capital gains realized on the
Fund's other investments and shareholders are advised on the nature of the
14
<PAGE>
distributions.
CONTINUOUS OFFERING
The method by which Creation Units of Shares are created and traded may
raise certain issues under applicable securities laws. Because new Creation
Units of Shares are issued and sold by the Trust on an ongoing basis, at any
point a "distribution," as such term is used in the Securities Act of 1933 (the
"Securities Act"), may occur. Broker-dealers and other persons are cautioned
that some activities on their part may, depending on the circumstances, result
in their being deemed participants in a distribution in a manner which could
render them statutory underwriters and subject them to the prospectus delivery
and liability provisions of the Securities Act.
For example, a broker-dealer firm or its client may be deemed a
statutory underwriter if it takes Creation Units after placing an order with the
Distributor, breaks them down into constituent Shares, and sells such Shares
directly to customers, or if it chooses to couple the creation of a supply of
new Shares with an active selling effort involving solicitation of secondary
market demand for Shares. A determination of whether one is an underwriter for
purposes of the Securities Act must take into account all the facts and
circumstances pertaining to the activities of the broker-dealer or its client in
the particular case, and the examples mentioned above should not be considered a
complete description of all the activities that could lead to a categorization
as an underwriter.
Broker-dealer firms should also note that dealers who are not
"underwriters" but are effecting transactions in Shares, whether or not
participating in the distribution of Shares, are generally required to deliver a
prospectus. This is because the prospectus delivery exemption in Section 4(3) of
the Securities Act is not available in respect of such transactions as a result
of Section 24(d) of the 1940 Act. Firms that incur a prospectus-delivery
obligation with respect to Shares are reminded that under Securities Act Rule
153, a prospectus-delivery obligation under Section 5(b)(2) of the Securities
Act owed to an exchange member in connection with a sale on the AMEX is
satisfied by the fact that the Fund's prospectus is available at the AMEX upon
request. The prospectus delivery mechanism provided in Rule 153 is only
available with respect to transactions on an exchange and not with respect to
"upstairs" transactions.
EXCHANGE LISTING AND TRADING
A discussion of exchange listing and trading matters associated with an
investment in the Fund is contained under the headings "Investment
Considerations and Risks", "Determination of Net Asset Value," and "Buying and
Selling Exchange-Traded Shares." The discussion below supplements, and should be
read in conjunction with, such sections of the Prospectus.
The Shares of the Fund have been listed for trading on the AMEX. The
Shares will trade on the AMEX at prices that may differ to some degree from
their net asset value. There can be no assurance that the requirements of the
AMEX necessary to maintain the listing of Shares of the Fund will continue to be
met.
15
<PAGE>
The AMEX may but is not required to remove the Shares of the Fund from
listing if (1) following the initial twelve-month period beginning upon the
commencement of trading of the Fund, there are fewer than 50 beneficial holders
of the Shares for 30 or more consecutive trading days, (2) the value of the
underlying Index or portfolio of securities on which the Fund is based is no
longer calculated or available or (3) such other event shall occur or condition
exists that, in the opinion of the AMEX, makes further dealings on the AMEX
inadvisable. In addition, the AMEX will remove the Shares from listing and
trading upon termination of the Trust.
As in the case of other stocks traded on the AMEX, brokers' commissions
on transactions will be based on negotiated commission rates at customary
levels.
In order to provide investors with a basis to gauge whether the market
price of the shares on the AMEX are approximately consistent with the current
value of the assets of the Fund on a per share basis, the AMEX disseminates
through the facilities of the Consolidated Tape Association an updated
Indicative Per Share Portfolio Value. Indicative Per Share Portfolio Values are
disseminated every 15 seconds during regular AMEX trading hours based on most
recently reported prices of the securities held by the Fund. The Fund is not
involved in or responsible for the calculation or dissemination of the
Indicative Per Share Portfolio Value and makes no warranty as to the accuracy of
the Indicative Per Share Portfolio Value.
The Indicative Per Share Portfolio Value has an equity securities value
component and a net other assets value component, each of which are summed and
divided by the total estimated Fund shares outstanding, including shares
expected to be issued by the Fund on that day, to arrive at an Indicative Per
Share Portfolio Value.
The equity securities value component of the Indicative Per Share
Portfolio Value represents the estimated value of the portfolio securities held
by the Fund on a given day. While the equity securities value component
estimates the current market value of the Fund's portfolio securities, it does
not necessarily reflect the precise composition or market value of the current
portfolio of securities held by the Trust for the Fund at a particular point in
time. Therefore, the Indicative Per Share Portfolio Value disseminated during
AMEX trading hours should be viewed only as an estimate of the Fund's net asset
value per share, which is calculated at the close of the regular trading session
on the NYSE (ordinarily 4:00 p.m. Eastern time) on each day Business Day.
In addition to the equity securities value component described in the
preceding paragraph, the Indicative Per Share Portfolio Value for the Fund
includes a net other assets value component consisting of estimates of all other
assets and liabilities of the Fund including, among others, current day
estimates of dividend income and expense accruals.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS OF THE TRUST
The Board has responsibility for the overall management and operations
of the Trust,
16
<PAGE>
including general supervision of the duties performed by the Adviser and other
service providers. The Board currently consists of Trustees.
<TABLE>
<S> <C> <C>
Name/Address/Age Position with the Trust Principal Occupations
During the Past Five Years
=========================== ================================ ===========================
</TABLE>
REMUNERATION OF TRUSTEES AND OFFICERS
The following table sets forth the estimated remuneration of Trustees and
officers of the Trust for the fiscal year ended , 1998. *<F1>
<TABLE>
<S> <C> <C> <C> <C>
Name/ Aggregate Pension or Estimated Annual Total
Position Compensation from Retirement Benefits Upon Compensation
Trust Benefits Accrued Retirement from Trust &
as Part of Trust Trust Complex
Expenses paid to Trustees
===================== ========================= ======================= ======================= ======================
</TABLE>
No officer of the Trust is entitled to any compensation, and no officer
or Trustee is entitled to any pension or retirement benefits, from the Trust.
<F1> * The information is presented for the period ,1998
to , 1998.
17
<PAGE>
MANAGEMENT
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "Management."
THE INVESTMENT ADVISER
State Street Bank and Trust Company, through its State Street Global
Advisors division ("State Street" or the "Adviser"), acts as investment adviser
to the Trust and, subject to the supervision of the Board of Trustees, is
responsible for the investment management of the Fund. State Street is a wholly
owned subsidiary of State Street Boston Corporation, a publicly held bank
holding company. State Street, with over $ billion (U.S.) under management as of
, 1998, provides complete global investment management services
from offices in the U.S., London, Sydney, Hong Kong, Tokyo, Toronto, Luxembourg,
Montreal, Paris, Dublin, Munich and Brussels.
The Adviser serves as investment adviser to the Fund pursuant to an
Investment Advisory Agreement between the Trust and the Adviser. Under the
Investment Advisory Agreement, the Adviser, subject to the supervision of the
Board and in conformity with the stated investment policies of the Fund, manages
the investment of the Fund's assets. The Adviser is responsible for placing
purchase and sale orders and providing continuous supervision of the investment
portfolio of the Fund.
Pursuant to the Investment Advisory Agreement, the Trust has agreed to
indemnify the Adviser for certain liabilities, including certain liabilities
arising under the federal securities laws, unless such loss or liability results
from willful misfeasance, bad faith or gross negligence in the performance of
its duties or the reckless disregard of its obligations and duties.
THE ADMINISTRATOR
In addition to serving as Adviser to the Fund, State Street (through
its Mutual Fund Services division) serves as Administrator for the Trust
pursuant to an Administrative Services Agreement. Under the Administrative
Services Agreement, State Street is obligated on a continuous basis to provide
such administrative services as the Board of Trustees of the Trust reasonably
deems necessary for the proper administration of the Trust and the Fund. State
Street will generally assist in all aspects of the Trust's and the Fund's
operations; supply and maintain office facilities (which may be in State
Street's own offices), statistical and research data, data processing services,
clerical, accounting, bookkeeping and record keeping services (including without
limitation the maintenance of such books and records as are required under the
1940 Act and the rules thereunder, except as maintained by other agents),
internal auditing, executive and administrative services, and stationery and
office supplies; prepare reports to shareholders or investors; prepare and file
tax returns; supply financial information and supporting data for reports to and
filings with the SEC and various state Blue Sky authorities; supply supporting
documentation for meetings of the Board of Trustees; provide monitoring reports
and assistance
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<PAGE>
regarding compliance with the Declaration of Trust, by-laws, investment
objectives and policies and with federal and state securities laws; arrange for
appropriate insurance coverage; calculate NAVs, net income and realized capital
gains or losses; and negotiate arrangements with, and supervise and coordinate
the activities of, agents and others to supply services.
CUSTODIAN AND TRANSFER AGENT
State Street also serves as Custodian for the Fund pursuant to a
Custodian Agreement. As Custodian, State Street holds the Fund's assets. State
Street also serves as Fund's Transfer Agent pursuant to a Transfer Agency
Agreement. State Street may be reimbursed by the Fund for its out-of-pocket
expenses. State Street and the Fund will comply with the self-custodian
provisions of Rule 17f-2 under the 1940 Act.
COMPENSATION. As compensation for its services under the Investment
Advisory Agreement, State Street is paid a monthly fee based on a percentage of
the Fund's average daily net assets at the annual rate of ___%. From time to
time, the Adviser may waive all or a portion of its fee. As compensation for its
services under the Administrative Services Agreement, the Custodian Agreement
and the Transfer Agency Agreement, State Street is paid a "unitary fee." The
unitary fee has two components: (i) a percentage fee based on net assets of the
Fund at the following annual rates: ___% on the first $___ million; ___% on the
next $___ million; and ___% on the portion of the Fund's assets exceeding $__
billion; and (ii) [a minimum fee of ___, which in no event will exceed ___% of
net assets.] The Fund will bear all other expenses of its operation.
TERM. The Investment Advisory Agreement continues in effect for two
years from its effective date, and thereafter is subject to annual approval by
(1) the Board of Trustees or (2) vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the Fund, provided that in either
event such continuance also is approved by a majority of the Board of Trustees
who are not interested persons (as defined in the 1940 Act) of the Trust by a
vote cast in person at a meeting called for the purpose of voting on such
approval. The Investment Advisory Agreement is terminable without penalty, on 60
days notice, by the Board of Trustees or by a vote of the holders of a majority
(as defined in the 1940 Act) of the Fund's outstanding voting securities. The
Investment Advisory Agreement is also terminable upon 60 days notice by the
Adviser and will terminate automatically in the event of its assignment (as
defined in the 1940 Act).
BANKING AND REGULATORY MATTERS
State Street has been advised by its counsel that, in counsel's
opinion, State Street currently may perform the services for the Trust and the
Fund contemplated by the Investment Advisory Agreement and other activities for
the Trust and the Fund described in the Prospectus and this SAI without
violation of the Glass-Steagall Act or other applicable banking laws or
regulations. However, counsel has pointed out that future changes in either
Federal or state statutes and regulations concerning the permissible activities
of banks or trust companies, as well as future judicial or administrative
decisions or interpretations of present and future statutes and regulations,
might prevent State Street from continuing to perform those services for the
Trust
19
<PAGE>
and the Fund. State laws on this issue may differ from the interpretations of
relevant federal law and banks and financial institutions may be required to
register as dealers pursuant to state securities law. If the circumstances
described above should change, the Board of Trustees would review the
relationships with State Street and consider taking all actions necessary in the
circumstances.
THE DISTRIBUTOR
ALPS Mutual Funds Services, Inc. (the "Distributor") is the principal
underwriter and distributor of Shares. Its principal address is 370 17th Street,
Suite 3100, Denver, CO 80202, and investor information can be obtained by
calling 1-800- . The Distributor has entered into an agreement with the Trust
which will continue for two years from its effective date, and which is
renewable annually thereafter (the "Distribution Agreement"), pursuant to which
it distributes Trust Shares. Shares will be continuously offered for sale by the
Trust through the Distributor only in Creation Units, as described below under
"Creation of Creation Units." Shares in less than Creation Units are not
distributed by the Distributor. The Distributor will deliver a prospectus to
persons purchasing Shares in Creation Units and will maintain records of both
orders placed with it and confirmations of acceptance furnished by it. The
Distributor is a broker-dealer registered under the Securities Exchange Act of
1934 (the "Exchange Act") and a member of the National Association of Securities
Dealers, Inc. (the "NASD"). The Distributor, has no role in determining the
investment policies of the Trust or which securities are to be purchased or sold
by the Trust.
The Trust has adopted a distribution plan pursuant to Rule 12b-1 under
the 1940 Act (the "Plan") for the Fund. Pursuant to the Plan, the Distributor
will be reimbursed for certain specified distribution-related expenses, provided
that the annual rate may not exceed .25% of the Fund's average daily net assets.
Distribution expenses incurred in any one year in excess of .25% of average
daily net assets may be reimbursed in subsequent years subject to the annual
.25% limit.
Under its terms, the Plan remains in effect from year to year, provided
such continuance is approved annually by vote of the Board, including a majority
of the Independent Trustees. The Plan may not be amended to increase materially
the amount to be spent for the services provided by the Distributor without
approval by the shareholders of the Fund to which the Plan applies, and all
material amendments of the Plan also require Board approval. The Plan may be
terminated at any time, without penalty, by vote of a majority of the
Independent Trustees, or by a vote of a majority of the outstanding voting
securities of the Fund (as such vote is defined in the 1940 Act). Pursuant to
the Distribution Agreement, the Distributor will provide the Board with periodic
reports of any amounts expended under the Plan and the purpose for which such
expenditures were made.
The Distributor may also enter into sales and investor services
agreements with broker-dealers or other persons that are Participating Parties
and DTC Participants (as defined below) to provide distribution assistance,
including broker-dealer and shareholder support and educational and promotional
services. Under the terms of each sales and investor services agreement, the
Distributor will pay such broker-dealers or other persons, out of Rule 12b-1
fees
20
<PAGE>
received from the Fund for such services as the Distributor may determine with
the approval of the Board.
The Distribution Agreement provides that it may be terminated at any
time, without the payment of any penalty: (i) by vote of a majority of the
Independent Trustees or (ii) by vote of a majority (as defined in the 1940 Act)
of the outstanding voting securities of the Fund, on at least 60 days written
notice to the Distributor. The Distribution Agreement is also terminable upon 60
days notice by the Distributor and will terminate automatically in the event of
its assignment (as defined in the 1940 Act).
ADDITIONAL EXPENSES
The Fund pays an Index license fee equal to .06% of the aggregate net
assets of the Fund to _________.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio securities, the Adviser looks for prompt execution of the order at a
favorable price. Generally, the Adviser works with recognized dealers in these
securities, except when a better price and execution of the order can be
obtained elsewhere. The Fund will not deal with affiliates in principal
transactions unless permitted by exemptive order or applicable rule or
regulation. Since the investment objective of the Fund is investment performance
that corresponds to that of an Index, the Adviser does not intend to select
brokers and dealers for the purpose of receiving research services in addition
to a favorable price and prompt execution either from that broker or an
unaffiliated third party.
The Adviser assumes general supervision over placing orders on behalf
of the Trust for the purchase or sale of portfolio securities. If purchases or
sales of portfolio securities of the Trust and one or more other investment
companies or clients supervised by the Adviser are considered at or about the
same time, transactions in such securities are allocated among the several
investment companies and clients in a manner deemed equitable to all by the
Adviser. In some cases, this procedure could have a detrimental effect on the
price or volume of the security so far as the Trust is concerned. However, in
other cases, it is possible that the ability to participate in volume
transactions and to negotiate lower brokerage commissions will be beneficial to
the Trust. The primary consideration is prompt execution of orders at the most
favorable net price.
Portfolio turnover may vary from year to year, as well as within a
year. High turnover rates are likely to result in comparatively greater
brokerage expenses. The portfolio turnover rate for the Fund is expected to be
under 50%. See "Investment Policies and Strategies" in the Prospectus. The
overall reasonableness of brokerage commissions is evaluated by the Adviser
based upon its knowledge of available information as to the general level of
commissions paid by other institutional investors for comparable services.
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<PAGE>
BOOK ENTRY ONLY SYSTEM
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "Buying and Selling Exchange-Traded
Shares."
DTC acts as securities depositary for the Shares. Shares of the Fund
are represented by securities registered in the name of DTC or its nominee and
deposited with, or on behalf of, DTC. Except in the limited circumstance
provided below, certificates will not be issued for Shares.
DTC, a limited-purpose trust company, was created to hold securities of
its participants (the "DTC Participants") and to facilitate the clearance and
settlement of securities transactions among the DTC Participants in such
securities through electronic book-entry changes in accounts of the DTC
Participants, thereby eliminating the need for physical movement of securities
certificates. DTC Participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations, some of
whom (and/or their representatives) own DTC. More specifically, DTC is owned by
a number of its DTC Participants and by the NYSE, the AMEX and the NASD. Access
to the DTC system is also available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a DTC Participant, either directly or indirectly (the "Indirect Participants").
Beneficial ownership of Shares is limited to DTC Participants, Indirect
Participants and persons holding interests through DTC Participants and Indirect
Participants. Ownership of beneficial interests in Shares (owners of such
beneficial interests are referred to herein as "Beneficial Owners") is shown on,
and the transfer of ownership is effected only through, records maintained by
DTC (with respect to DTC Participants) and on the records of DTC Participants
(with respect to Indirect Participants and Beneficial Owners that are not DTC
Participants). Beneficial Owners will receive from or through the DTC
Participant a written confirmation relating to their purchase of Shares.
Conveyance of all notices, statements and other communications to
Beneficial Owners is effected as follows. Pursuant to the Depositary Agreement
between the Trust and DTC, DTC is required to make available to the Trust upon
request and for a fee to be charged to the Trust a listing of the Shares
holdings of each DTC Participant. The Trust shall inquire of each such DTC
Participant as to the number of Beneficial Owners holding Shares, directly or
indirectly, through such DTC Participant. The Trust shall provide each such DTC
Participant with copies of such notice, statement or other communication, in
such form, number and at such place as such DTC Participant may reasonably
request, in order that such notice, statement or communication may be
transmitted by such DTC Participant, directly or indirectly, to such Beneficial
Owners. In addition, the Trust shall pay to each such DTC Participant a fair and
reasonable amount as reimbursement for the expenses attendant to such
transmittal, all subject to applicable statutory and regulatory requirements.
Share distributions shall be made to DTC or its nominee, Cede & Co., as
the registered holder of all Shares. DTC or its nominee, upon receipt of any
such distributions, shall credit
22
<PAGE>
immediately DTC Participants' accounts with payments in amounts proportionate to
their respective beneficial interests in Shares as shown on the records of DTC
or its nominee. Payments by DTC Participants to Indirect Participants and
Beneficial Owners of Shares held through such DTC Participants will be governed
by standing instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in a
"street name," and will be the responsibility of such DTC Participants.
The Trust has no responsibility or liability for any aspects of the
records relating to or notices to Beneficial Owners, or payments made on account
of beneficial ownership interests in such Shares, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests or for any other aspect of the relationship between DTC and the DTC
Participants or the relationship between such DTC Participants and the Indirect
Participants and Beneficial Owners owning through such DTC Participants.
DTC may determine to discontinue providing its service with respect to
Shares at any time by giving reasonable notice to the Trust and discharging its
responsibilities with respect thereto under applicable law. Under such
circumstances, the Trust shall take action either to find a replacement for DTC
to perform its functions at a comparable cost or, if such a replacement is
unavailable, to issue and deliver printed certificates representing ownership of
Shares, unless the Trust makes other arrangements with respect thereto
satisfactory to the AMEX.
CREATION OF CREATION UNITS
GENERAL
The Trust issues and sells Shares only in Creation Units on a
continuous basis through the Distributor, without an initial sales load, at
their net asset value next determined after receipt, on any Business Day (as
defined herein), of an order in proper form.
A "Business Day" with respect to the Fund is any day on which the NYSE
and the AMEX are open for business. As of the date of the Prospectus, the NYSE
and the AMEX observe the following holidays: New Year's Day, Martin Luther King,
Jr. Day, President's Day (Washington's Birthday), Good Friday, Memorial Day
(observed), Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
FUND DEPOSIT
The consideration for creation of Creation Units of the Fund generally
consists of the in-kind deposit of a designated portfolio of equity securities
(the "Deposit Securities") constituting a replication of the Fund's benchmark
Index and an amount of cash computed as described below (the "Cash Component").
Together, the Deposit Securities and the Cash Component constitute the "Fund
Deposit," which represents the minimum initial and subsequent investment amount
for Shares of the Fund. The Cash Component is an amount equal to the Dividend
Equivalent Payment (as defined below), plus or minus, as the case may be, a
Balancing Amount (as defined below). The "Dividend Equivalent Payment" enables
the Fund to make a
23
<PAGE>
complete distribution of dividends on the next dividend payment date, and is an
amount equal, on a per Creation Unit basis, to the dividends on all the Fund
Securities with ex-dividend dates within the accumulation period for such
distribution (the "Accumulation Period"), net of expenses and liabilities for
such period, as if all of the Fund Securities had been held by the Trust for the
entire Accumulation Period. The Accumulation Period begins on the ex-dividend
date for the Fund and ends on the next ex-dividend date. The "Balancing Amount"
is an amount equal to the difference between (x) the net asset value of the
Shares (per Creation Unit) of the Fund and (y) the sum of (i) the Dividend
Equivalent Payment and (ii) the market value (per Creation Unit) of the
securities deposited with the Trust (the sum of (i) and (ii) is referred to as
the "Deposit Amount"). The Balancing Amount serves the function of compensating
for any differences between the net asset value per Creation Unit and the
Deposit Amount.
The Administrator, through the National Securities Clearing Corporation
(discussed below), makes available on each Business Day, immediately prior to
the opening of business on the AMEX (currently 9:30 a.m., New York time), the
list of the names and the required number of shares of each Deposit Security to
be included in the current Fund Deposit (based on information at the end of the
previous Business Day) for the Fund. Such Fund Deposit is applicable, subject to
any adjustments as described below, in order to effect creations of Creation
Units of the Fund until such time as the next-announced Fund Deposit composition
is made available.
The identity and number of shares of the Deposit Securities required
for a Fund Deposit for the Fund changes as rebalancing adjustments and corporate
action events are reflected from time to time by the Adviser with a view to the
investment objective of the Fund. The composition of the Deposit Securities may
also change in response to adjustments to the weighting or composition of the
securities constituting the benchmark Index. In addition, the Trust reserves the
right to permit or require the substitution of an amount of cash (I.E., a "cash
in lieu" amount) to be added to the Cash Component to replace any Deposit
Security which may not be available in sufficient quantity for delivery or which
may not be eligible for transfer through the Clearing Process (described below),
or which may not be eligible for trading by a Participating Party (defined
below). Brokerage commissions incurred in connection with acquisition of Deposit
Securities not eligible for transfer through the systems of the Depository and
hence not eligible for transfer through the Clearing Process will be at the
expense of the Fund and will affect the value of all Shares; but the Adviser may
adjust the transaction fee within the parameters described above to protect
ongoing shareholders. The adjustments described above will reflect changes,
known to the Adviser on the date of announcement to be in effect by the time of
delivery of the Fund Deposit, in the composition of the Index or resulting from
stock splits and other corporate actions.
In addition to the list of names and numbers of securities constituting
the current Deposit Securities of a Fund Deposit, the Administrator, through the
National Securities Clearing Corporation (discussed below), also makes available
(i) on each Business Day, the Dividend Equivalent Payment effective through and
including the previous Business Day, per outstanding Shares of the Fund, and
(ii) on a continuous basis throughout the day, the Indicative Per Share
Portfolio Value.
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<PAGE>
PROCEDURES FOR CREATION OF CREATION UNITS
To be eligible to place orders with the Distributor to create Creation
Units of the Fund, an entity or person either must be (1) a "Participating
Party", I.E., a broker-dealer or other participant in the Clearing Process
through the Continuous Net Settlement System of the National Securities Clearing
Corporation (the "NSCC"), a clearing agency that is registered with the SEC; or
(2) a DTC Participant (see "Book Entry Only System"); and, in either case, must
have executed an agreement with the Trust and with the Distributor with respect
to creations and redemptions of Creation Units outside the Clearing Process
("Participant Agreement") (discussed below). All Creation Units of the Fund,
however created, will be entered on the records of the Depository in the name of
Cede & Co. for the account of a DTC Participant.
All orders to create Creation Units of the Fund must be placed in
multiples of ___ Shares (Creation Unit size). All orders to create Creation
Units, whether through the Clearing Process or outside the Clearing Process,
must be received by the Distributor no later than the closing time of the
regular trading session on the NYSE ("Closing Time") (ordinarily 4:00 p.m. New
York time) in each case on the date such order is placed in order for creation
of Creation Units to be effected based on the net asset value of the Fund as
determined on such date. The date on which a creation order (or order to redeem
as discussed below) is placed is herein referred to as the "Transmittal Date".
Orders must be transmitted by telephone or other transmission method acceptable
to the Distributor pursuant to procedures set forth in the Participant
Agreement, as described below (see "Placement of Creation Orders Using Clearing
Process" and "Placement of Creation Orders Outside Clearing Process"). Severe
economic or market disruptions or changes, or telephone or other communication
failure, may impede the ability to reach the Distributor, a Participating Party
or a DTC Participant.
Orders to create Creation Units of the Fund shall be placed with a
Participating Party or DTC Participant, as applicable, in the form required by
such Participating Party or DTC Participant. Investors should be aware that
their particular broker may not have executed a Participant Agreement, and that,
therefore, orders to create Creation Units of the Fund may have to be placed by
the investor's broker through a Participating Party or a DTC Participant who has
executed a Participant Agreement. At any given time there may be only a limited
number of broker-dealers that have executed a Participant Agreement. Those
placing orders to create Creation Units of the Fund through the Clearing Process
should afford sufficient time to permit proper submission of the order to the
Distributor prior to the Closing Time on the Transmittal Date.
Orders for creation that are effected outside the Clearing Process are
likely to require transmittal by the DTC Participant earlier on the Transmittal
Date than orders effected using the Clearing Process. Those persons placing
orders outside the Clearing Process should ascertain the deadlines applicable to
DTC and the Federal Reserve Bank wire system by contacting the operations
department of the broker or depository institution effectuating such transfer of
Deposit Securities and Cash Component.
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<PAGE>
PLACEMENT OF CREATION ORDERS USING CLEARING PROCESS
Fund Deposits created through the Clearing Process must be delivered
through a Participating Party that has executed a Participant Agreement with the
Distributor and with the Trust (as the same may be from time to time amended in
accordance with its terms). The Participant Agreement authorizes the Distributor
to transmit to NSCC on behalf of the Participating Party such trade instructions
as are necessary to effect the Participating Party's creation order. Pursuant to
such trade instructions from the Distributor to NSCC, the Participating Party
agrees to transfer the requisite Deposit Securities (or contracts to purchase
such Deposit Securities that are expected to be delivered in a "regular way"
manner by the third (3rd) NSCC Business Day) and the Cash Component to the
Trust, together with such additional information as may be required by the
Distributor. An order to create Creation Units of the Fund through the Clearing
Process is deemed received by the Distributor on the Transmittal Date if (i)
such order is received by the Distributor not later than the Closing Time on
such Transmittal Date and (ii) all other procedures set forth in the Participant
Agreement are properly followed.
Creation Units of the Fund may be created in advance of the receipt by
the Trust of all or a portion of the Fund Deposit. In such cases, the
Participating Party will remain liable for the full deposit of the missing
portion(s) of the Fund Deposit and will be required to post collateral with the
Trust consisting of cash at least equal to 115% of the marked-to-market value of
such missing portion(s). Information concerning the procedures for such cash
collateralization will be available from the Distributor prior to the effective
date of these provisions. The Participant Agreement for any Participating Party
intending to follow such procedures will contain terms and conditions permitting
the Trust to use such collateral to buy the missing portion(s) of the Fund
Deposit at any time and will subject such Participating Party to liability for
any shortfall between the cost to the Trust of purchasing such securities and
the value of such collateral. The Trust will have no liability for any such
shortfall. The Trust will return any unused portion of the collateral to the
Participating Party once the entire Fund Deposit has been properly received by
the Distributor and deposited into the Trust.
PLACEMENT OF CREATION ORDERS OUTSIDE CLEARING PROCESS
Fund Deposits created outside the Clearing Process must be delivered
through a DTC Participant that has executed a Participant Agreement with the
Distributor and with the Trust. A DTC Participant who wishes to place an order
creating Creation Units of the Fund to be effected outside the Clearing Process
need not be a Participating Party, but such orders must state that the DTC
Participant is not using the Clearing Process and that the creation of Creation
Units will instead be effected through a transfer of securities and cash. The
Fund Deposit transfer must be ordered by the DTC Participant in a timely fashion
so as to ensure the delivery of the requisite number of Deposit Securities
through DTC to the account of the Trust by no later than 11:00 a.m. of the next
Business Day immediately following the Transmittal Date. All questions as to the
number of Deposit Securities to be delivered, and the validity, form and
eligibility (including time of receipt) for the deposit of any tendered
securities, will be determined by the Trust, whose determination shall be final
and binding. The cash equal to the Cash Component must be transferred directly
to the Distributor through the Federal Reserve wire system in a timely manner
26
<PAGE>
so as to be received by the Distributor no later than 2:00 p.m. on the next
Business Day immediately following the Transmittal Date. An order to create
Creation Units of the Fund outside the Clearing Process is deemed received by
the Distributor on the Transmittal Date if (i) such order is received by the
Distributor not later than the Closing Time on such Transmittal Date; and (ii)
all other procedures set forth in the Participant Agreement are properly
followed. However, if the Distributor does not receive both the requisite
Deposit Securities and the Cash Component in a timely fashion on the next
Business Day immediately following the Transmittal Date, such order will be
cancelled. Upon written notice to the Distributor, such cancelled order may be
resubmitted the following Business Day using a Fund Deposit as newly constituted
to reflect the current net asset value of the Fund. The delivery of Creation
Units of the Fund so created will occur no later than the third (3rd) Business
Day following the day on which the creation order is deemed received by the
Distributor. Under the current schedule, the total fee charged in connection
with the creation of one Creation Unit outside the Clearing Process would not
exceed $_____.
ACCEPTANCE OF CREATION ORDER
The Trust reserves the absolute right to reject a creation order
transmitted to it by the Distributor if (a) the order is not in proper form; (b)
the creation or creators, upon obtaining the shares ordered, would own 80% or
more of the currently outstanding shares of the Fund; (c) the Deposit Securities
delivered are not as specified by the Administrator, as described above; (d)
acceptance of the Deposit Securities would have certain adverse tax consequences
to the Fund; (e) the acceptance of the Fund Deposit would, in the opinion of
counsel, be unlawful; (f) the acceptance of the Fund Deposit would otherwise, in
the discretion of the Trust or the Adviser, have an adverse effect on the Trust
or the rights of beneficial owners; or (g) in the event that circumstances
outside the control of the Trust, the Distributor and the Adviser make it for
all practical purposes impossible to process creation orders. Examples of such
circumstances include acts of God or public service or utility problems such as
fires, floods, extreme weather conditions and power outages resulting in
telephone, telecopy and computer failures; market conditions or activities
causing trading halts; systems failures involving computer or other information
systems affecting the Trust, the Adviser, the Distributor, DTC, NSCC or any
other participant in the creation process, and similar extraordinary events. The
Trust shall notify a prospective creator of its rejection of the order of such
person. The Trust and the Distributor are under no duty, however, to give
notification of any defects or irregularities in the delivery of Fund Deposits
nor shall either of them incur any liability for the failure to give any such
notification. The Trust shall notify a prospective creator of its rejection of
the order of such person. The Trust and the Distributor are under no duty,
however, to give notification of any defects or irregularities in the delivery
of Fund Deposits nor shall either of them incur any liability for the failure to
give any such notification.
All questions as to the number of shares of each security in the
Deposit Securities and the validity, form, eligibility and acceptance for
deposit of any securities to be delivered shall be determined by the Trust, and
the Trust's determination shall be final and binding.
CASH CREATION METHOD
27
<PAGE>
Although the Trust does not currently permit cash creations of Creation
Units, when cash creations of Creation Units are available or specified for the
Fund, they will be effected in essentially the same manner as in-kind creations
thereof. In the case of a cash creation, the investor must pay the cash
equivalent of the Deposit Securities it would otherwise be required to provide
through an in-kind creation, plus the same Cash Component required to be paid by
an in-kind creation.
In addition, to offset the Trust's brokerage and other transaction
costs associated with using the cash to create the requisite Deposit Securities,
the investor will be required to pay a fixed creation transaction fee, plus an
additional variable charge for cash creations, which is expressed as a
percentage of the value of the Deposit Securities. The transaction fees for
in-kind and cash creations of Creation Units are described below.
CREATION TRANSACTION FEE
A creation transaction fee of $1,000 payable to the Trust is imposed to
compensate the Trust for transfer and other transaction costs. In addition, a
variable charge for cash creations currently of up to three times the basic
creation fee will be imposed. Where the Trust permits a creator to substitute
cash in lieu of depositing a portion of the Deposit Securities, the creator will
be assessed the additional variable charge for cash creations on the "cash in
lieu" portion of its investment. Creators of Creation Units are responsible for
the costs of transferring the securities constituting the Deposit Securities to
the account of the Trust.
REDEMPTION OF CREATION UNITS
Shares may be redeemed only in Creation Units at their net asset value
next determined after receipt of a redemption request in proper form by the
Distributor and only on a day on which the AMEX is open for trading. THE TRUST
WILL NOT REDEEM SHARES IN AMOUNTS LESS THAN CREATION UNITS. Beneficial Owners
also may sell Shares in the secondary market, but must accumulate enough Shares
to constitute a Creation Unit in order to have such shares redeemed by the
Trust. There can be no assurance, however, that there will be sufficient
liquidity in the public trading market at any time to permit assembly of a
Creation Unit. Investors should expect to incur brokerage and other costs in
connection with assembling a sufficient number of Shares to constitute a
redeemable Creation Unit. See "Investment Considerations and Risks" in the
Prospectus.
The Administrator, through NSCC, makes available immediately prior to
the opening of business on the AMEX (currently 9:30 am, Eastern time) on each
day that the AMEX is open for business, the Fund Securities that will be
applicable (subject to possible amendment or correction) to redemption requests
received in proper form (as defined below) on that day. Unless cash redemptions
are available or specified for the Fund, the redemption proceeds for a Creation
Unit generally consist of Deposit Securities as announced by the Distributor on
the Business Day of the request for redemption, plus cash in an amount equal to
the difference between the net asset value of the shares being redeemed, as next
determined after a receipt of a request in proper form, and the value of the
Deposit Securities, less the redemption transaction fee described below. The
28
<PAGE>
redemption transaction fee of $1,000 is deducted from such redemption proceeds.
A redemption transaction fee is paid to the Trust to offset transfer
and other transaction costs that may be incurred in connection with the
redemption of a Creation Unit. The basic redemption transaction fees are the
same no matter how many Creation Units are being redeemed pursuant to any one
redemption request. The Fund may adjust these fees from time to time based upon
actual experience. An additional variable charge for cash redemptions or partial
cash redemptions (when cash redemptions are available) for the Fund may be
imposed. Investors who use the services of a broker or other such intermediary
may be charged a fee for such services.
PLACEMENT OF REDEMPTION ORDERS USING CLEARING PROCESS
Orders to redeem Creation Units of the Fund through the Clearing
Process must be delivered through a Participating Party that has executed the
Participant Agreement with the Distributor and with the Trust (as the case may
be from time to time amended in accordance with its terms). An order to redeem
Creation Units of the Fund using the Clearing Process is deemed received on the
Transmittal Date if (i) such order is received by the Distributor not later than
3:45 p.m. on such Transmittal Date; and (ii) all other procedures set forth in
the Participant Agreement are properly followed; such order will be effected
based on the net asset value of the Fund as next determined. An order to redeem
Creation Units of the Fund using the Clearing Process made in proper form but
received by the Fund after 3:45 p.m. will be deemed received on the next
Business Day immediately following the Transmittal Date. The requisite Fund
Securities (or contracts to purchase such Fund Securities which are expected to
be delivered in a "regular way" manner) will be transferred by the third (3rd)
NSCC Business Day following the date on which such request for redemption is
deemed received, and the applicable cash payment.
PLACEMENT OF REDEMPTION ORDERS OUTSIDE CLEARING PROCESS
Orders to redeem Creation Units of the Fund outside the Clearing
Process must be delivered through a DTC Participant that has executed the
Participant Agreement with the Distributor and with the Trust. A DTC Participant
who wishes to place an order for redemption of Creation Units of the Fund to be
effected outside the Clearing Process need not be a Participating Party, but
such orders must state that the DTC Participant is not using the Clearing
Process and that redemption of Creation Units of the Fund will instead be
effected through transfer of Creation Units of the Fund directly through DTC. An
order to redeem Creation Units of the Fund outside the Clearing Process is
deemed received by the Administrator on the Transmittal Date if (i) such order
is received by the Administrator not later than 3:45 p.m. on such Transmittal
Date; (ii) such order is preceded or accompanied by the requisite number of
shares of Creation Units specified in such order, which delivery must be made
through DTC to the Administrator no later than 11:00 a.m. on such Transmittal
Date (the "DTC Cut-Off-Time"); and (iii) all other procedures set forth in the
Participant Agreement are properly followed.
After the Administrator has deemed an order for redemption outside the
Clearing Process
29
<PAGE>
received, the Administrator will initiate procedures to transfer the requisite
Fund Securities (or contracts to purchase such Fund Securities) which are
expected to be delivered within three Business Days and the cash redemption
payment to the redeeming Beneficial Owner by the third Business Day following
the Transmittal Date on which such redemption order is deemed received by the
Administrator.
If it is not possible to effect deliveries of the Fund Securities, the
Trust may in its discretion exercise its option to redeem such shares in cash,
and the redeeming Beneficial Owner will be required to receive its redemption
proceeds in cash. In addition, an investor may request a redemption in cash
which the Fund may, in its sole discretion, permit. In either case, the investor
will receive a cash payment equal to the net asset value of its shares based on
the net asset value of Shares of the Fund next determined after the redemption
request is received in proper form (minus a redemption transaction fee and
additional variable charge for requested cash redemptions specified above, to
offset the Trust's brokerage and other transaction costs associated with the
disposition of portfolio securities). The Fund may also, in its sole discretion,
upon request of a shareholder, provide such redeemer a portfolio of securities
which differs from the exact composition of the Fund Deposit but does not differ
in net asset value.
Redemptions of Shares for Deposit Securities will be subject to
compliance with applicable United States federal and state securities laws and
the Fund (whether or not it otherwise permits cash redemptions) reserves the
right to redeem Creation Units for cash to the extent that the Fund could not
lawfully deliver specific Deposit Securities upon redemptions or could not do so
without first registering the Deposit Securities under such laws.
The right of redemption may be suspended or the date of payment
postponed (1) for any period during which the NYSE is closed (other than
customary weekend and holiday closings); (2) for any period during which trading
on the NYSE is suspended or restricted; (3) for any period during which an
emergency exists as a result of which disposal of the Shares of the Fund or
determination of its net asset value is not reasonably practicable; or (4) in
such other circumstance as is permitted by the SEC.
EXAMPLES OF EXPENSES.
Shares in less than Creation Units are not redeemable. The Fund creates
and redeems Creation Units principally on an in-kind basis for Deposit
Securities. If you were permitted to purchase and redeem less than a Creation
Unit on an in-kind basis, you would pay the following expenses on a $1,000
investment (payment with a deposit of Deposit Securities), assuming (1) a 5%
annual return and (2) redemption (delivery of Deposit Securities) at the end of
each indicated time period: The presentation of a $1,000 investment in a
Creation Unit is for illustration purposes only, as Shares will be issued by the
Fund only in Creation Units. Further, the return of 5% and estimated expenses
are for illustration purposes only and should not be considered indications of
expected Fund expenses or performance, which may be greater or lesser than the
estimates. The expenses associated with a $1,000 investment in Shares include a
pro rata portion
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<PAGE>
of shareholder transaction expenses associated with the creation or redemption
of a sample Creation Unit.
1 year 3 years
($) ($)
Technology 100 Index Fund
You would pay the following expenses on the same investment, assuming
no redemptions:
1 year 3 years
($) ($)
Technology 100 Index Fund
DETERMINING NET ASSET VALUE
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "Determination of Net Asset Value."
Net asset value per share for the Fund is computed by dividing the
value of the net assets of the Fund (I.E., the value of its total assets less
total liabilities) by the total number of Shares outstanding, rounded to the
nearest cent. Expenses and fees, including the management, administration and
distribution fees, are accrued daily and taken into account for purposes of
determining net asset value. The net asset value of the Fund is determined as of
the close of the regular trading session on the NYSE (ordinarily 4:00 p.m.,
Eastern time) on each day that such exchange is open.
In computing the Fund's net asset value, the Fund's securities holdings
are valued based on their last quoted current price. Price information on listed
securities is taken from the exchange where the security is primarily traded.
Securities regularly traded in an over-the-counter market are valued at the
latest quoted bid price in such market. Other portfolio securities and assets
for which market quotations are not readily available are valued based on fair
value as determined in good faith by the Adviser in accordance with procedures
adopted by the Board.
DIVIDENDS AND DISTRIBUTIONS
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "Distributions."
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GENERAL POLICIES
Dividends from net investment income are declared and paid at least
annually (and generally quarterly) by the Fund. Distributions of net realized
securities gains, if any, generally are declared and paid once a year, but the
Trust may make distributions on a more frequent basis for the Fund to improve
Index tracking or to comply with the distribution requirements of the Internal
Revenue Code, in all events in a manner consistent with the provisions of the
1940 Act. In addition, the Trust intends to distribute at least annually amounts
representing the full dividend yield on the underlying portfolio securities of
the Fund, net of expenses of the Fund, as if the Fund owned such underlying
portfolio securities for the entire dividend period. As a result, some portion
of each distribution may result in a return of capital for tax purposes for
certain shareholders.
Dividends and other distributions on Shares are distributed, as
described below, on a pro rata basis to Beneficial Owners of such Shares.
Dividend payments are made through DTC Participants and Indirect Participants to
Beneficial Owners then of record with proceeds received from the Trust.
The Trust makes additional distributions to the minimum extent
necessary (i) to distribute the entire annual taxable income of the Trust, plus
any net capital gains and (ii) to avoid imposition of the excise tax imposed by
Section 4982 of the Internal Revenue Code. Management of the Trust reserves the
right to declare special dividends if, in its reasonable discretion, such action
is necessary or advisable to preserve the status of the Fund as a regulated
investment company ("RIC") or to avoid imposition of income or excise taxes on
undistributed income.
DIVIDEND REINVESTMENT SERVICE
Broker-dealers may make available the DTC book-entry Dividend
Reinvestment Service for use by Beneficial Owners of the Fund through DTC
Participants for reinvestment of their dividend distributions. If this service
is used, dividend distributions of both income and realized gains will be
automatically reinvested in additional whole Shares of the Fund.
TAXES
The following information also supplements and should be read in
conjunction with the section in the Prospectus entitled "Tax Matters."
The Fund intends to qualify for and to elect treatment as a separate
RIC under Subchapter M of the Internal Revenue Code. To qualify for treatment as
a RIC, a company must annually distribute at least 90% of its net investment
company taxable income (which includes dividends,
32
<PAGE>
interest and net short-term capital gains) and meet several other requirements.
The Fund will be subject to a 4% excise tax on certain undistributed
income if it does not distribute to its shareholders in each calendar year at
least 98% of its ordinary income for the calendar year plus 98% of its capital
gain net income for the twelve months ended October 31 of such year. The Fund
intends to declare and distribute dividends and distributions in the amounts and
at the times necessary to avoid the application of this 4% excise tax.
As a result of tax requirements, the Trust on behalf of the Fund, has
the right to reject an order for a creation of Shares if the creator (or group
of creators) would, upon obtaining the Shares so ordered, own 80% or more of the
outstanding Shares of the Fund and if, pursuant to section 351 of the Internal
Revenue Code, the Fund would have a basis in the securities different from the
market value of such securities on the date of deposit. The Trust also has the
right to require information necessary to determine beneficial share ownership
for purposes of the 80% determination. See "Creation of Creation Units."
The foregoing discussion is a summary only and is not intended as a
substitute for careful tax planning. Purchasers of Shares of the Trust should
consult their own tax advisors as to the tax consequences of investing in such
shares, including under state, local and other tax laws. Finally, the foregoing
discussion is based on applicable provisions of the Internal Revenue Code,
regulations, judicial authority and administrative interpretations in effect on
the date hereof. Changes in applicable authority could materially affect the
conclusions discussed above, and such changes often occur.
CAPITAL STOCK AND SHAREHOLDER REPORTS
The Trust currently is comprised of one investment Fund. The Fund
issues shares of beneficial interest, par value $.001 per share. The Board may
designate additional Funds.
Each Share issued by the Trust has a pro rata interest in the assets of
the corresponding Fund. Shares have no preemptive, exchange, subscription or
conversion rights and are freely transferable. Each Share is entitled to
participate equally in dividends and distributions declared by the Board with
respect to the relevant Fund, and in the net distributable assets of such Fund
on liquidation.
Each Share has one vote with respect to matters upon which a
shareholder vote is required consistent with the requirements of the 1940 Act
and the rules promulgated thereunder. Shares of all Funds vote together as a
single class except that if the matter being voted on affects only a particular
Fund it will be voted on only by that Fund and if a matter affects a particular
Fund differently from other Funds, that Fund will vote separately on such
matter. Under Massachusetts law, the Trust is not required to hold an annual
meeting of shareholders unless required to do so under the 1940 Act. The policy
of the Trust is not to hold an annual meeting of
33
<PAGE>
shareholders unless required to do so under the 1940 Act. All Shares of the
Trust have noncumulative voting rights for the election of Trustees. Under
Massachusetts law, Trustees of the Trust may be removed by vote of the
shareholders.
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for obligations of
the Trust. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust, requires that Trust
obligations include such disclaimer, and provides for indemnification and
reimbursement of expenses out of the Trust's property for any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability, and
the nature of the Portfolio's assets and operations, the risk to shareholders of
personal liability is remote.
The Trust expects that, immediately prior to the commencement of
trading of Shares, the Fund will have shareholders, each of whom will hold more
than 5% of the outstanding Shares of the Fund in Creation Units. The Trust
cannot predict the length of time such persons will remain control persons of
the Fund.
The Trust does not have information concerning the beneficial ownership
of the Shares held in the names of such DTC Participants.
The Trust will issue through DTC Participants to its shareholders
semi-annual reports containing unaudited financial statements and annual reports
containing financial statements audited by independent auditors approved by the
Trust's Trustees and by the shareholders when meetings are held and such other
information as may be required by applicable laws, rules and regulations.
Beneficial Owners also receive annually notification as to the tax status of the
Trust's distributions.
Shareholder inquiries may be made by writing to the Trust, c/o________.
Absent an applicable exemption or other relief from the SEC or its
staff, officers and directors of the Trust and beneficial owners of 10% of the
Shares of the Fund ("Insiders") would be subject to the insider reporting,
short-swing profit and short sale provisions in Section 16 of the Exchange Act
and the SEC's rules thereunder. In a "no action letter", the SEC staff advised
that the staff will not recommend SEC enforcement action if Insiders do not file
reports required by Section 16(a) of the Exchange Act and the rules thereunder
with respect to transactions in a substantially similar investment product.
Insiders should consult with their own legal counsel concerning their
obligations under Section 16 of the Exchange Act, and should note that the no
action letter does not address other requirements under the Exchange Act,
including those imposed by Section 13(d) thereof and the rules thereunder.
34
<PAGE>
PERFORMANCE INFORMATION
The performance of the Fund may be quoted in advertisements, sales
literature or reports to shareholders in terms of AVERAGE ANNUAL TOTAL RETURN,
CUMULATIVE TOTAL RETURN and YIELD.
Quotations of AVERAGE ANNUAL TOTAL RETURN are expressed in terms of the
average annual rate of return of a hypothetical investment in the Fund over
periods of 1, 5 and 10 years (or the life of the Fund, if shorter). Such total
return figures will reflect the deduction of a proportional share of the Fund's
expenses on an annual basis, and will assume that all dividends and
distributions are reinvested when paid.
Total return is calculated according to the following formula: P(1 +
T)(n) = ERV (where P = a hypothetical initial payment of $1,000, T = the average
annual total return, n = the number of years and ERV = the ending redeemable
value of a hypothetical $1,000 payment made at the beginning of the 1, 5 or 10
year period).
Quotations of a CUMULATIVE TOTAL RETURN will be calculated for any
specified period by assuming a hypothetical investment in the Fund on the date
of the commencement of the period and will assume that all dividends and
distributions are reinvested on ex date. The net increase or decrease in the
value of the investment over the period will be divided by its beginning value
to arrive at cumulative total return. Total return calculated in this manner
will differ from the calculation of average annual total return in that it is
not expressed in terms of an average rate of return.
The YIELD of the Fund is the net annualized yield based on a specified
30-day (or one month) period assuming a semiannual compounding of income.
Included in net investment income is the amortization of market premium or
accretion of market and original issue discount on bonds. Yield is calculated 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
reimbursements), c = the average daily number of shares outstanding during the
period that were entitled to receive dividends, and d = the maximum offering
price per share on the last day of the period).
Quotations of cumulative total return, average annual total return or
yield reflect only the performance of a hypothetical investment in the Fund
during the particular time period on which the calculations are based. Such
quotations for the Fund will vary based on changes in market conditions and the
level of the Fund's expenses, and no reported performance figure should be
considered an indication of performance which may be expected in the future.
The cumulative and average total returns and yields do not take into
account federal or state income taxes which may be payable by shareholders;
total returns and yields would, of
35
<PAGE>
course, be lower if such charges were taken into account.
A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner. Since
there are different methods for calculating performance, investors should
consider the effects of the methods used to calculate performance when comparing
performance of the Trust with performance quoted with respect to other
investment companies or types of investments.
From time to time, in advertising and marketing literature, the Trust's
performance may be compared to the performance of broad groups of open-end and
closed-end investment companies with similar investment goals, as tracked by
independent organizations such as Investment Company Data, Inc., Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc., Morningstar, Inc.,
Value Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, the Trust will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk.
In addition, in connection with the communication of its performance to
current or prospective shareholders, the Trust also may compare those figures to
the performance of certain unmanaged indexes which may assume the reinvestment
of dividends or interest but generally do not reflect deductions for
administrative and management costs. Examples of such indexes include, but are
not limited to the following: Dow Jones Industrial Average; Consumer Price
Index; Standard & Poor's 500 Composite Stock Price Index (S&P 500); Russell 1000
& NASDAQ non-financial 100 and their sector subsidiary.
Performance of an index is historical and does not represent
performance of the Trust, and is not a guarantee of future results.
Evaluation of Trust performance or other relevant statistical
information made by independent sources may also be used in advertisements and
sales literature concerning the Trust, including reprints of, or selections
from, editorials or articles about the Trust. Sources for Trust performance
information and articles about the Trust include, but are not limited to, the
following: AMERICAN ASSOCIATION OF INDIVIDUAL INVESTORS' JOURNAL, a monthly
publication of the AAII that includes articles on investment analysis
techniques; BARRON'S, a Dow Jones and Company, Inc. business and financial
weekly that periodically reviews investment company performance data; BUSINESS
WEEK, a national business weekly that periodically reports the performance
rankings of investment companies; CDA Investment Technologies, an organization
that provides performance and ranking information through examining the dollar
results of hypothetical mutual fund investments and comparing these results
against appropriate indexes; FORBEs, a national business publication that from
time to time reports the performance of specific investment companies; FORTUNE,
a national business publication that periodically rates the performance of a
variety of investment companies; The Frank Russell Company, a West-Coast
investment management firm that periodically evaluates international stock
markets and compares foreign equity market
36
<PAGE>
performance to U.S. stock market performance; Ibbotson Associates, Inc., a
company specializing in investment research and data; Investment Company Data,
Inc., an independent organization that provides performance ranking information
for broad classes of mutual funds; INVESTOR'S BUSINESS DAILY, a daily newspaper
that features financial, economic, and business news; KIPLINGER'S PERSONAL
FINANCE MAGAZINE, a monthly investment advisory publication that periodically
features the performance of a variety of securities; Lipper Analytical Services,
Inc.'s Mutual Fund Performance Analysis, a weekly publication of industry-wide
mutual fund averages by type of fund; MONEY, a monthly magazine that from time
to time features both specific funds and the mutual fund industry as a whole;
THE NEW YORK TIMES, a nationally distributed newspaper that regularly covers
financial news; SMART MONEY, a national personal finance magazine published
monthly by Dow Jones & Company, Inc. and The Hearst Corporation that focuses on
ideas for investing, spending and saving; VALUE LINE MUTUAL FUND SURVEY, an
independent organization that provides biweekly performance and other
information on mutual funds; THE WALL STREET JOURNAL, a Dow Jones and Company,
Inc. newspaper that regularly covers financial news; Wiesenberger Investment
Companies Services, an annual compendium of information about mutual funds and
other investment companies, including comparative data on funds' backgrounds,
management policies, salient features, management results, income and dividend
records and price ranges; WORTH, a national publication distributed ten times
per year by Capital Publishing Company that focuses on personal financial
journalism.
COUNSEL AND INDEPENDENT AUDITORS
Gordon Altman Butowsky Weitzen Shalov & Wein, 114 West 47th Street, New
York, New York 10036, are counsel to the Trust and have passed upon the validity
of the Fund's shares.
____________________________ serve as the independent auditors of the
Trust.
37
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FINANCIAL STATEMENTS
38
<PAGE>
REPORT OF INDEPENDENT AUDITORS
39
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
40
<PAGE>
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
41
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITs
(a) Financial Statements:
Part A:
Part B:
(b) Exhibits:
(1) Declaration of Trust.
(2) Bylaws of the Trust.*<F1>
(3) Not applicable.
(4) Form of global certificate evidencing shares of the
Beneficial Interest, $.001 par value, of the
Fund.*<F1>
(5) Investment Management Agreement between the Trust
and State Street Bank and Trust Company.*<F1>
(6) (A) Distribution Agreement between the Trust and ALPS
Mutual Fund Services, Inc.*<F1>
(6) (B) Form of Participant Agreement*<F1>
(6) (C) Form of Sales and Investor Services Agreement.*<F1>
(7) Not applicable
(8) (A) Custodian Agreement between the Trust and
----------.*<F1>
(8) (B) Lending Agreement between the Trust and
---------.*<F1>
(9) (A) Administration and Accounting Services Agreement
between the Trust and
--------------------------.*<F1>
(9) (B) Transfer Agency Services Agreement between the Trust
and --------------.*<F1>
(9) (C) License Agreement between the Trust and
----------.*<F1>
(10) Opinion and consent of Gordon Altman Butowsky Weitzen
Shalov & Wein*<F1>
(11) Opinion and consent of --------------------.*<F1>
(12) Not applicable.
(13) Subscription Agreement(s) between the Trust and ALPS
Mutual Funds Services, Inc.*<F1>
(14) Not applicable
(15) Form of 12b-1 Plan.*<F1>
(16) Schedules for Computations of Performance
Quotations.*<F1>
(17) Financial Data Schedules.*<F1>
(17) Not applicable.
_______________
<F1>
* To be filed by Amendment.
42
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Immediately prior to the contemplated public offering of the Trust
Shares, the following persons may be deemed individually to control the Fund of
the Trust:
[To be completed by amendment]
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of , 1998, the stockholders of
Common Stock, par value $.001 per share, of the Fund were:
[To be completed by amendment]
ITEM 27. INDEMNIFICATION
To be completed by amendment.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See "Management" in the STATEMENT OF ADDITIONAL INFORMATION.
Information as to the directors and officers of the Adviser is included in its
Form ADV filed with the SEC and is incorporated herein by reference thereto.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) ALPS Mutual Funds Services, Inc. is the Trust's principal underwriter. ALPS
also acts as a principal underwriter, depositor, or investment adviser for the
following other investment companies:
43
<PAGE>
(b) The following is a list of the executive officers, directors and partners of
ALPS Mutual Funds Services, Inc.:
<TABLE>
<S> <C> <C>
Name Positions and Offices Positions and Offices
and Principal Business Address with Underwriter with Registrant
======================================= ====================================== ======================================
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder will be maintained
at the offices of .
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
The Trust hereby undertakes that it will file an amendment to the
registration statement with certified financial statements showing the initial
capital received before accepting subscriptions from any persons in excess of 25
if the Trust proposes to raise its initial capital pursuant to Section 14(a)(3)
of the 1940 Act (15 U.S.C. 80a-14(a)(3)).
The Trust hereby undertakes to call a meeting of the shareholders for
the purpose of voting upon the question of removal of any Trustee when requested
in writing to do so by the holders of at least 10% of the Trust's outstanding
shares of common stock and, in connection with such meeting, to comply with the
provisions of Section 16(c) of the 1940 Act relating to shareholder
communications.
44
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Denver and State of Colorado on the 24th day of June
1998.
INDEX EXCHANGE LISTED SECURITIES TRUST
BY /S/ EDMUND J. BURKE
Edmund J. Burke
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following person in the
capacities and on the date indicated.
SIGNATURE TITLE DATE
/S/ EDMUND J. BURKE President, Treasurer June 24, 1998
Edmund J. Burke and Sole Trustee
45
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT
1.(a) Form of Declaration of Trust of the Registrant
46
<PAGE>
DECLARATION OF TRUST
OF
INDEX EXCHANGE LISTED SECURITIES TRUST
THE DECLARATION OF TRUST of Index Exchange Listed Securities Trust is
made the 9th day of June 1998 by the signatory hereto, as trustee (such person,
so long as he shall continue in office in accordance with the terms of this
Declaration of Trust, and all other persons who at the time in question have
been duly elected or appointed as trustees in accordance with the provisions of
this Declaration of Trust and are then in office, being hereinafter called the
"Trustees").
WITNESSETH:
WHEREAS, the Trustees desire to form a trust fund under the laws of
Massachusetts for the investment and reinvestment of funds contributed thereto;
and
WHEREAS, it is provided that the beneficial interest in the trust
assets be divided into transferable shares of beneficial interest as hereinafter
provided;
NOW, THEREFORE, the Trustees hereby declare that they will hold in
trust, all money and property contributed to the trust fund to manage and
dispose of the same for the benefit of the holders from time to time of the
shares of beneficial interest issued hereunder and subject to the provisions
hereof, to wit:
ARTICLE I
NAME AND DEFINITIONS
SECTION 1.1 NAME. The name of the trust created hereby is the "Index
Exchange Listed Securities Trust," and so far as may be practicable the Trustees
shall conduct the Trust's activities, execute all documents and sue or be sued
under that name, which name (and the word "Trust" wherever herein used) shall
refer to the Trustees as Trustees, and not as individuals, or personally, and
shall not refer to the officers, agents, employees or Shareholders of the Trust.
Should the Trustees determine that the use of such name is not advisable, they
may use such other name for the Trust as they deem proper and the Trust may hold
its property and conduct its activities under such other name.
SECTION 1.2 DEFINITIONS. Wherever they are used herein, the following
terms have the following respective meanings:
(a) "BYLAWS" means the Bylaws referred to in Section 3.9 hereof, as
from time to time amended. (b) The terms "COMMISSION," "AFFILIATED
PERSON" and "INTERESTED PERSON" have the meanings given
them in the 1940 Act.
(C) "DECLARATION" means this Declaration of Trust as amended from time
to time. Reference in this Declaration of Trust to "DECLARATION," "HEREOF,"
"HEREIN," and "HEREUNDER" shall be deemed to refer to this Declaration rather
than the article or section in which such words appear.
(d) "DISTRIBUTOR" means the party, other than the Trust, to a contract
described in Section 4.3 hereof. (e) "FUNDAMENTAL POLICIES" shall mean
the investment policies and restrictions set forth in the Prospectus
and Statement of Additional Information and designated as fundamental policies
therein.
(f) "INVESTMENT ADVISER" means any party other than the Trust, to an
investment advisory contract described in Section 4.1 hereof.
(g) "MAJORITY SHAREHOLDER VOTE" means the vote of the holders of a
majority of Shares, which shall consist of: (i) a majority of Shares represented
in person or by proxy and entitled to vote at a meeting of Shareholders at which
a quorum, as determined in accordance with the Bylaws, is present; (ii) a
majority of Shares issued and outstanding and entitled to vote when action is
taken by written consent of Shareholders; and (iii) a "majority of the
outstanding voting securities," as the phrase is defined in the 1940 Act, when
any action is required by the 1940 Act by such majority as so defined.
<PAGE>
(h) "MANAGER" means any party, other than the Trust, to a management
contract described in Section 4.1 hereof.
(i) "1940 ACT" means the Investment Company Act of 1940 and the rules
and regulations thereunder as amended from time to time.
(j) "PERSON" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and governments and agencies and political subdivisions
thereof.
(k) "PROSPECTUS" means the Prospectus and Statement of Additional
Information constituting parts of the Registration Statement of the Trust under
the Securities Act of 1933 as such Prospectus and Statement of Additional
Information may be amended or supplemented and filed with the Commission from
time to time.
(l) "SERIES" means one of the separately managed components of the
Trust (or, if the Trust shall have only one such component, then that one) as
set forth in Section 6.1 hereof or as may be established and designated from
time to time by the Trustees pursuant to that section.
(m) "SHAREHOLDER" means a record owner of outstanding Shares.
(n) "SHARES" means the units of interest into which the beneficial
interest in the Trust shall be divided from time to time, including the shares
of any and all series or classes which may be established by the Trustees, and
includes fractions of Shares as well as whole Shares.
(o) "TRANSFER AGENT" means the party, other than the Trust, to the
contract described in Section 4.4 hereof.
(p) "TRUST" means the Index Exchange Listed Securities Trust.
(q) "TRUST PROPERTY" means any and all property real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees.
(r) "TRUSTEES" means the persons who have signed the Declaration, so
long as they shall continue in office in accordance with the terms hereof, and
all other persons who may from time to time be duly elected or appointed,
qualified and serving as Trustees in accordance with the provisions hereof, and
reference herein to a Trustee or the Trustees shall refer to such person or
persons in their capacity as trustees hereunder.
ARTICLE II
TRUSTEES
SECTION 2.1 NUMBER OF TRUSTEES. The initial Trustee shall be Edmund J.
Burke, 370 17th Street Suite 3100, Denver, Colorado 80202. The Trustees serving
as such, whether named above or hereafter becoming Trustees, may increase or
decrease the number of Trustees to a number other than the number theretofore
determined.
SECTION 2.2 ELECTION AND TERM. Trustees in addition to the initial
Trustee named herein may become such by election by a Majority Shareholder Vote
or by the Trustees then in office pursuant to Section 2.4 hereof. The Trustees
shall have the power to set and alter the terms of office of the Trustees, and
they may at any time lengthen or lessen their own terms or make their terms of
unlimited duration, subject to the resignation and removal provisions of Section
2.3 hereof. The Trustees may adopt Bylaws that divide the Trustees into classes
and proscribe the tenure of office of the several classes. Subject to Section
16(a) of the 1940 Act, the Trustees may elect their own successors and may,
pursuant to Section 2.4 hereof, appoint Trustees to fill vacancies. The Trustees
shall adopt Bylaws not inconsistent with this Declaration or any provision of
law to provide for election of Trustees by Shareholders at such time or times as
the Trustees shall determine to be necessary or advisable. The provisions of
this Section 2.2 may not be amended except by a vote of three-fourths of the
Shares outstanding and entitled to vote thereupon.
SECTION 2.3 RESIGNATION AND REMOVAL. Any Trustee may resign his trust
(without need for prior or subsequent accounting) by an instrument in writing
signed by him and delivered to the other Trustees and such resignation shall be
effective upon such delivery, or at a later date according to the terms of the
instrument. Any of the Trustees may be removed (provided the aggregate number of
Trustees after such removal shall not be less than the number required by
Section 2.1 hereof) by the action of two-thirds of the remaining Trustees or by
the
<PAGE>
action of the Shareholders of record of not less than three-fourths of the
Shares outstanding (for purposes of determining the circumstances and procedures
under which such removal by the Shareholders may take place, the provisions of
Section 16(c) of the 1940 Act shall be applicable to the same extent as if the
Trust were subject to the provisions of that Section). Upon the resignation or
removal of a Trustee, or his otherwise ceasing to be a Trustee, he shall execute
and deliver such documents as the remaining Trustees shall require for the
purpose of conveying to the Trust or the remaining Trustees any Trust Property
held in the name of the resigning or removed Trustee. Upon the incapacity or
death of any Trustee, his legal representative shall execute and deliver on his
behalf such documents as the remaining Trustees shall require as provided in the
preceding sentence. The provisions of this Section 2.3 may not be amended except
by a vote of three-fourths of the Shares outstanding and entitled to vote
thereupon.
SECTION 2.4 VACANCIES. The term of office of a Trustee shall terminate
and a vacancy shall occur in the event of the death, resignation, removal,
bankruptcy, adjudicated incompetence or other incapacity to perform the duties
of the office of a Trustee. No such vacancy shall operate to annul the
Declaration or to revoke any existing agency created pursuant to the terms of
the Declaration. In the case of an existing vacancy existing by reason of an
increase in the number of Trustees, subject to the provisions of Section 16(a)
of the 1940 Act, the remaining Trustees or, prior to the public offering of
Shares of the Trust, if only one Trustee shall then remain in office, the
remaining Trustee, shall fill such vacancy by the appointment of such other
person as they or he, in their or his discretion, shall see fit, made by a
written instrument signed by a majority of the remaining Trustees or by the
remaining Trustee, as the case may be. Any such appointment shall not become
effective, however, until the person named in the written instrument of
appointment shall have accepted in writing such appointment and agreed in
writing to be bound by the terms of the Declaration. An appointment of a Trustee
may be made in anticipation of a vacancy to occur at a later date by reason of
retirement, resignation or increase in the number of Trustees, provided that
such appointment shall not become effective prior to such retirement,
resignation or increase in the number of Trustees. Whenever a vacancy in the
number of Trustees shall occur, until such vacancy is filled as provided in this
Section 2.4, the Trustees in office, regardless of their number, shall have all
the powers granted to the Trustees and shall discharge all the duties imposed
upon the Trustees by the Declaration. A written instrument certifying the
existence of such vacancy signed by a majority of the Trustees shall be
conclusive evidence of the existence of such vacancy.
SECTION 2.5 DELEGATION OF POWER TO OTHER TRUSTEES. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six (6) months
at any one time to any other Trustee or Trustees; provided that in no case shall
less than two (2) Trustees personally exercise the powers granted to the
Trustees under the Declaration except as herein otherwise expressly provided.
ARTICLE III
POWERS OF TRUSTEES
SECTION 3.1 GENERAL. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and
business in their own right, but with such powers of delegation as may be
permitted by the Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without The Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities wheresoever in the world they may be
located as they deem necessary, proper or desirable in order to promote the
interests of the Trust although such things are not herein specifically
mentioned. Any determination as to what is in the interests of the Trust made by
the Trustees in good faith shall be conclusive. In construing the provisions of
the Declaration, the presumption shall be in favor of a grant of power to the
Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
<PAGE>
SECTION 3.2 INVESTMENTS. The Trustees shall have the power to:
(a) conduct, operate and carry on the business of an investment
company;
(b) subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange, distribute, lend or
otherwise deal in or dispose of negotiable or nonnegotiable instruments,
obligations, evidences of indebtedness, certificates of deposit or indebtedness,
commercial paper, repurchase agreements, reverse repurchase agreements, options,
commodities, commodity futures contracts and related options, currencies,
currency futures and forward contracts, and other securities, investment
contracts and other instruments of any kind, including, without limitation,
those issued, guaranteed or sponsored by any and all Persons including, without
limitation, states, territories and possessions of the United States, the
District of Columbia and any of the political subdivisions, agencies or
instrumentalities thereof, and by the United States Government or its agencies
or instrumentalities, foreign or international instrumentalities, or by any bank
or savings institution, or by any corporation or organization organized under
the laws of the United States or of any state, territory or possession thereof,
and of corporations or organizations organized under foreign laws, or in "when
issued" contracts for any such securities, or retain Trust assets in cash and
from time to time change the investments of the assets of the Trust; and to
exercise any and all rights, powers and privileges of ownership or interest in
respect of any and all such investments of every kind and description,
including, without limitation, the right to consent and otherwise act with
respect thereto, with power to designate one or more persons, firms,
associations or corporations to exercise any of said rights, powers and
privileges in respect of any of said instruments; and the Trustees shall be
deemed to have the foregoing powers with respect to any additional securities in
which the Trust may invest should the Fundamental Policies be amended.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
SECTION 3.3 LEGAL TITLE. Legal title to all the Trust Property shall be
vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the name of
one or more of the Trustees, or in the name of the Trust, or in the name of any
other Person as nominee, on such terms as the Trustees may determine, provided
that the interest of the Trust therein is appropriately protected. The right,
title and interest of the Trustees in the Trust Property shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
resignation, removal or death of a Trustee he shall automatically cease to have
any right, title or interest in any of the Trust Property, and the right, title
and interest of such Trustee in the Trust Property shall vest automatically in
the remaining Trustees. Such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered.
SECTION 3.4 ISSUANCE AND REPURCHASE OF SECURITIES. The Trustees shall
have the power to issue, sell, repurchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer, and otherwise deal in Shares and,
subject to the provisions set forth in Articles VII, VIII and IX and Section 6.9
hereof, to apply to any such repurchase, redemption, retirement, cancellation or
acquisition of Shares any funds or property of the Trust, whether capital or
surplus or otherwise, to the full extent now or hereafter permitted by the laws
of The Common wealth of Massachusetts governing business corporations.
SECTION 3.5 BORROWING MONEY; LENDING TRUST ASSETS. Subject to the
Fundamental Policies, the Trustee Shall have power to borrow money or otherwise
obtain credit and to secure the same by mortgaging, pledging or otherwise
subjecting as security the assets of the Trust, to endorse, guarantee, or
undertake the performance of any obligation, contract or engagement of any other
Person and to lend Trust assets.
SECTION 3.6 DELEGATION; COMMITTEES. The Trustees shall have power,
consistent with their continuing exclusive authority over the management of the
Trust and the Trust Property, to delegate from time to time to such of their
number or to officers, employees or agents of the Trust the doing of such things
and the execution of such instruments either in the name of the Trust or the
names of the Trustees or otherwise as the Trustees may deem expedient.
<PAGE>
SECTION 3.7 COLLECTION AND PAYMENT. Subject to Section 6.9 hereof, the
Trustees shall have power to collect all property due to the Trust; to pay all
claims, including taxes, against the Trust Property; to prosecute, defend,
compromise or abandon any claims relating to the Trust Property; to foreclose
any security interest securing any obligations, by virtue of which any property
is owed to the Trust; and to enter into releases, agreements and other
instruments.
SECTION 3.8 EXPENSES. Subject to Section 6.9 hereof, the Trustees shall
have the power to incur and pay any expenses which in the opinion of the
Trustees are necessary or incidental to carry out any of the purposes of the
Declaration, and to pay reasonable compensation from the funds of the Trust to
themselves as Trustees. The Trustees shall fix the compensation of all officers,
employees and Trustees.
SECTION 3.9 MANNER OF ACTING; BYLAWS. Except as otherwise provided
herein or in the Bylaws or by any provision of law, any action to be taken by
the Trustees may be taken by a majority of the Trustees present at a meeting of
Trustees (a quorum being present), including any meeting held by means of a
conference telephone circuit or similar communications equipment by means of
which all persons participating in the meeting can hear each other, or by
written consents of all the Trustees. The Trustees may adopt Bylaws not
inconsistent with this Declaration to provide for the conduct of the business of
the Trust and may amend or repeal such Bylaws to the extent such power is not
reserved to the Shareholders.
SECTION 3.10 MISCELLANEOUS POWERS. The Trustees shall have the power
to: (a) employ or contract with such Persons as the Trustees may deem desirable
for the transaction of the business of the Trust or any Series thereof; (b)
enter into joint ventures, partnerships and any other combinations or
associations; (c) remove Trustees or fill vacancies in or add to their number,
elect and remove such officers and appoint and terminate such agents or
employees as they consider appropriate, and appoint from their own number, and
terminate, any one or more committees which may exercise some or all of the
power and authority of the Trustees as the Trustees may determine; (d) purchase
and pay for out of Trust Property or the property of the appropriate Series of
the Trust, insurance policies insuring the Shareholders, Trustees, officers,
employees, agents, investment advisers, distributors, selected dealers or
independent contractors of the Trust against all claims arising by reason of
holding any such position or by reason of any action taken or omitted to be
taken by any such Person in such capacity, whether or not constituting
negligence, or whether or not the Trust would have the power to indemnify such
Person against such liability; (e) establish pension, profit-sharing, Share
purchase, and other retirement, incentive and benefit plans for any Trustees,
officers, employees and agents of the Trust; (f) indemnify, to the extent
permitted by law, any person with whom the Trust or any Series thereof has
dealings, including any Invest ment Adviser, Distributor, Transfer Agent and
selected dealers, to such extent as the Trustees shall determine; (g) guarantee
indebtedness or contractual obligations of others; (h) determine and change the
fiscal year of the Trust or any Series thereof and the method by which its
accounts shall be kept; and (i) adopt a seal for the Trust but the absence of
such seal shall not impair the validity of any instrument executed on behalf of
the Trust.
SECTION 3.11 PRINCIPAL TRANSACTIONS. Except in transactions permitted
by the 1940 Act or any rule or regulation thereunder, or any order of exemption
issued by the Commission, or effected to implement the provisions of any
agreement to which the Trust is a party, the Trustees shall not, on behalf of
the Trust, buy any securities (other than Shares) from or sell any securities
(other than Shares) to, or lend any assets of the Trust or any Series thereof
to, any Trustee or officer of the Trust or any firm of which any such Trustee or
officer is a member acting as principal or have any such dealings with any
Investment Adviser, Distributor or Transfer Agent or with any Affiliated Person
of such Person; but the Trust or any Series thereof may employ any such Person,
or firm or company in which such Person is an Interested Person, as broker,
legal counsel, registrar, transfer agent, dividend disbursing agent or custodian
upon customary terms.
SECTION 3.12 LITIGATION. The Trustees shall have the power to engage in
and to prosecute, defend, compromise, abandon, or adjust, by arbitration, or
otherwise, any actions, suits, proceedings, disputes, claims, and demands
relating to the Trust, and out of the assets of the Trust or any Series thereof
to pay or to satisfy any debts, claims or expenses incurred in connection
therewith, including those of litigation, and such power shall
<PAGE>
include, without limitation, the power of the Trustees or any appropriate
committee thereof, in the exercise of their or its good faith business judgment,
to dismiss any action, suit, proceeding, dispute, claim, or demand, derivative
or otherwise, brought by any person, including a Shareholder in its own name or
the name of the Trust, whether or not the Trust or any of the Trustees may be
named individually therein or the subject matter arises by reason of business
for or on behalf of the Trust.
ARTICLE IV
INVESTMENT ADVISER, MANAGER, DISTRIBUTOR, CUSTODIAN
AND TRANSFER AGENT
SECTION 4.1 INVESTMENT ADVISER AND MANAGER. Subject to applicable
provisions of the 1940 Act, the Trustees may in their discretion from time to
time enter into one or more investment advisory and management contracts or, if
the Trustees establish multiple Series, separate investment advisory and
management contracts with respect to one or more Series whereby the other party
or parties to any such contracts shall undertake to furnish the Trust or such
Series such management, investment advisory, administration, accounting, legal,
sta tistical and research facilities and services, promotional or marketing
activities, and such other facilities and services, if any, as the Trustees
shall from time to time consider desirable and all upon such terms and
conditions as the Trustees may in their discretion determine. Notwithstanding
any provisions of the Declaration, the Trustees may authorize the Investment
Advisers, or any of them, under any such contracts (subject to such general or
specific instructions as the Trustees may from time to time adopt) to effect
purchases, sales, loans or exchanges of portfolio securities and other
investments of the Trust on behalf of the Trustees or may authorize any officer,
employee or Trustee to effect such purchases, sales, loans or exchanges pursuant
to recommendations of such Investment Advisers, or any of them (and all without
further action by the Trustees). Any such purchases, sales, loans and exchanges
shall be deemed to have been authorized by all of the Trustees. The Trustees
may, in their sole discretion, call a meeting of Shareholders in order to submit
to a vote of Shareholders at such meeting the approval or continuance of any
such investment advisory or management contract. If the Shareholders of any one
or more of the Series of the Trust should fail to approve any such investment
advisory or management contract, the Investment Adviser may nonetheless serve as
Investment Adviser with respect to any Series whose Shareholders approve such
contract.
SECTION 4.2 ADMINISTRATIVE SERVICES. The Trustees may in their
discretion from time to time contract for administrative personnel and services
whereby the other party shall agree to provide the Trustees or the Trust
administrative personnel and services to operate the Trust on a daily or other
basis, on such terms and conditions as the Trustees may in their discretion
determine. Such services may be provided by one or more persons or entities.
SECTION 4.3 DISTRIBUTOR. The Trustees may in their discretion from time
to time enter into one or more contracts, providing for the sale of Shares to
net the Trust or the applicable Series of the Trust not less than the net asset
value per Share (as described in Article VIII hereof) and pursuant to which the
Trust may either agree to sell the Shares to the other parties to the contracts,
or any of them, or appoint any such other party its sales agent for such Shares.
In either case, any such contract shall be on such terms and conditions as the
Trustees may in their discretion determine not inconsistent with the provisions
of this Article IV including, without limitation, the provision for the
repurchase or sale of shares of the Trust by such other party as principal or as
agent of the Trust.
SECTION 4.4 TRANSFER AGENT. The Trustees may in their discretion from
time to time enter into a transfer agency and shareholder service contract
whereby the other party to such contract shall undertake to furnish transfer
agency and shareholder services to the Trust. The contract shall have such terms
and conditions as the Trustees may in their discretion determine not
inconsistent with the Declaration. Such services may be provided by one or more
Persons.
SECTION 4.5 CUSTODIAN. The Trustees may appoint or otherwise engage
one or more banks,
<PAGE>
broker-dealers or trust companies, to serve as Custodian with authority as its
agent, but subject to applicable requirements of the 1940 Act and to such
restrictions, limitations and other requirements, if any, as may be contained in
the Bylaws of the Trust.
SECTION 4.6 PARTIES TO CONTRACT. Any contract of the character
described in Sections 4.1, 4.2, 4.3, 4.4 or 4.5 of this Article IV and any other
contract may be entered into with any Person, although one or more of the
Trustees or officers of the Trust may be an officer, director, trustee,
shareholder, or member of such other party to the contract, and no such contract
shall be invalidated or rendered voidable by reason of the existence of any such
relationship; nor shall any Person holding such relationship be liable merely by
reason of such relationship for any loss or expense to the Trust under or by
reason of said contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was not
inconsistent with the provisions of this Article IV. The same Person may be the
other party to any contracts entered into pursuant to Sections 4.1, 4.2, 4.3,
4.4 or 4.5 above or otherwise, and any individual may be financially interested
or otherwise affiliated with Persons who are parties to any or all of the
contracts mentioned in this Section 4.6.
ARTICLE V
LIMITATIONS OF LIABILITIES OF SHAREHOLDERS,
TRUSTEES AND OTHERS
SECTION 5.1 NO PERSONAL LIABILITY OF SHAREHOLDERS, TRUSTEES, ETC. No
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust. The Trust shall indemnify out of the property of the Trust and hold each
Shareholder harmless from and against all claims and liabilities, to which such
Shareholder may become subject by reason of his being or having been a
Shareholder, and shall reimburse such Shareholder for all legal and other
expenses reasonably incurred by him in connection with any such claim or
liability; provided that, in the event the Trust shall consist of more than one
Series, Shareholders of a particular Series who are faced with claims or
liabilities solely by reason of their status as Shareholders of that Series
shall be limited to the assets of that Series for recovery of such loss and
related expenses. The rights accruing to a Shareholder under this Section 5.1
shall not exclude any other right to which such Shareholder may be lawfully
entitled, nor shall anything herein contained restrict the right of the Trust to
indemnify or reimburse a Shareholder in any appropriate situation even though
not specifically provided herein.
SECTION 5.2 NONLIABILITY OF TRUSTEES, ETC. No Trustee, officer,
employee or agent of the Trust shall be liable to the Trust, its Shareholders,
or to any Shareholder, Trustee, officer, employee or agent thereof for any
action or failure to act (including, without limitation, the failure to compel
in any way any former or acting Trustee to redress any breach of trust) except
for his own bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties, and all such Persons shall look solely to the Trust
Property, or to the Property of one or more specific Series of the Trust if the
claim arises from the conduct of such Trustee, officer, employee or agent with
respect to only such Series, for satisfaction of claims of any nature arising in
connection with the affairs of the Trust.
SECTION 5.3 INDEMNIFICATION. (a) The Trustees shall provide for
indemnification by the Trust, or by one or more Series thereof if the claim
arises from his or her conduct with respect to only such Series, of any person
who is, or has been, a Trustee, officer, employee or agent of the Trust against
all liability and against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been a
Trustee, officer, employee or agent and against amounts paid or incurred by him
in the settlement thereof, in such manner as the Trustees may provide from time
to time in the Bylaws.
(b) The word "claim," "action," "suit," or "proceeding" shall apply to
all claims, actions, suits and proceedings (civil, criminal, or other, including
appeals), actual or threatened; and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
<PAGE>
SECTION 5.4 NO BOND REQUIRED OF TRUSTEES. No Trustee shall be obligated
to give any bond or other security for the performance of any of his duties
hereunder.
SECTION 5.5 NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS, ETC.
No purchaser, lender, transfer agent or other Person dealing with the Trustees
or any officer, employee or agent of the Trust or a Series thereof shall be
bound to make any inquiry concerning the validity of any transaction purporting
to be made by the Trustees or by said officer, employee or agent or be liable
for the application of money or property paid, loaned or delivered to or on the
order of the Trustees or of said officer, employee or agent. Every obligation,
contract, instrument, certificate, Share, other security of the Trust or a
Series thereof or undertaking, and every other act or thing whatsoever executed
in connection with the Trust shall be conclusively presumed to have been
executed or done by the executors thereof only in their capacity as officers,
employees or agents of the Trust or a Series thereof. Every written obligation,
contract, instrument, certificate, Share, other security of the Trust or
undertaking made or issued by the Trustees shall recite that the same is
executed or made by them not individu ally, but as Trustees under the
Declaration, and that the obligations of the Trust or a Series thereof under any
such instrument are not binding upon any of the Trustees or Shareholders,
individually, but bind only the Trust Estate (or, in the event the Trust shall
consist of more than one Series, in the case of any such obligation which
relates to a specific Series, only the Series which is a party thereto), and may
contain any further recital which they or he may deem appropriate, but the
omission of such recital shall not affect the validity of such obligation,
contract instrument, certificate, Share, security or undertaking and shall not
operate to bind the Trustees or Shareholders individually. The Trustees shall at
all times maintain insurance for the protection of the Trust Property, its
Shareholders, Trustees, officers, employees and agents in such amount as the
Trustees shall deem adequate to cover possible tort liability, and such other
insurance as the Trustees in their sole judgment shall deem advisable.
SECTION 5.6 RELIANCE ON EXPERTS, ETC. Each Trustee and officer or
employee of the Trust shall, in the performance of his duties, be fully and
completely justified and protected with regard to any act or any failure to act
resulting from reliance in good faith upon the books of account or other records
of the Trust, upon an opinion of counsel, or upon reports made to the Trust by
any of its officers or employees or by any Investment Adviser, Distributor,
Transfer Agent, selected dealers, accountants, appraisers or other experts or
consultants selected with reasonable care by the Trustees, officers or employees
of the Trust, regardless of whether such counsel or expert may also be a
Trustee.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
SECTION 6.1 BENEFICIAL INTEREST. The interest of the beneficiaries
hereunder shall be divided into transferable shares of beneficial interest of
$.01 par value. The number of such shares of beneficial interest authorized
hereunder is unlimited. The Trustees shall have the authority to establish and
designate one or more Series or classes of shares. Each share of any Series
shall represent an equal proportionate share in the assets of that Series with
each other Share in that Series. The Trustees may divide or combine the shares
of any Series into a greater or lesser number of shares in that Series without
thereby changing the proportionate interests in the assets of that Series.
Subject to the provisions of Section 6.9 hereof, the Trustees may also authorize
the creation of additional series of shares (the proceeds of which may be
invested in separate, independently managed portfolios) and additional classes
of shares within any series. All Shares issued hereunder including, without
limitation, Shares issued in connection with a dividend in Shares or a split in
Shares, shall be fully paid and nonassessable.
SECTION 6.2 RIGHTS OF SHAREHOLDERS. The ownership of the Trust Property
of every description and the right to conduct any business herein before
described are vested exclusively in the Trustees, and the Shareholders shall
have no interest therein other than the beneficial interest conferred by their
Shares, and they shall have no right to call for any partition of division of
any property, profits, rights or interests of the Trust nor can they be called
upon to assume any losses of the Trust or suffer an assessment of any kind by
virtue of their ownership of Shares. The Shares shall be personal property
giving only the rights in the Declaration specifically set forth.
<PAGE>
The Shares shall not entitle the holder to preference, preemptive, appraisal,
conversion or exchange rights, except as the Trustees may determine with respect
to any series of Shares.
SECTION 6.3 TRUST ONLY. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in the Declaration shall be construed to make the Shareholders, either
by themselves or with the Trustees, partners or members of a joint stock
association.
SECTION 6.4 ISSUANCE OF SHARES. The Trustees, in their discretion may,
from time to time without vote of the Shareholders, issue Shares of any Series,
in addition to the then issued and outstanding Shares and Shares held in the
treasury, to such party or parties and for such amount and type of
consideration, including cash or property, at such time or times and on such
terms as the Trustees may deem best, and may in such manner acquire other assets
(including the acquisition of assets subject to, and in connection with the
assumption of liabilities) and businesses. In connection with any issuance of
Shares, the Trustees may issue fractional Shares. The Trustees may from time to
time divide or combine the Shares of any Series into a greater or lesser number
without thereby changing the proportionate beneficial interests in that Series.
Contributions to the Trust may be accepted for, and Shares shall be redeemed as,
whole Shares and/or fractions of a Share as described in the Prospectus.
SECTION 6.5 REGISTER OF SHARES. A register shall be kept in respect of
each Series at the principal office of the Trust or at an office of the Transfer
Agent which shall contain the names and addresses of the Shareholders and the
number of Shares of each Series held by them respectively and a record of all
transfers thereof. Such register may be in written form or any other form
capable of being converted into written form within a reasonable time for visual
inspection. Such register shall be conclusive as to who are the holders of the
Shares and who shall be entitled to receive dividends or distributions or
otherwise to exercise or enjoy the rights of Shareholders. No Shareholder shall
be entitled to receive payment of any dividend or distribution, nor to have
notice given to him as herein or in the Bylaws provided, until he has given his
address to the Transfer Agent or such other officer or agent of the Trustees as
shall keep the said register for entry thereon. It is not contemplated that
certificates will be issued for the Shares; however, the Trustees, in their
discretion, may authorize the issuance of Share certificates and promulgate
appropriate rules and regulations as to their use.
SECTION 6.6 TRANSFER OF SHARES. Shares shall be transferable on the
records of the Trust only by the record holder or by his agent thereunto duly
authorized in writing, upon delivery to the Trustees or the Transfer Agent of a
duly executed instrument of transfer, together with such evidence of the
genuineness of each such execution and authorization and of other matters as may
reasonably be required. Upon such delivery the transfer shall be recorded on the
register of the Trust. Until such record is made, the "shareholder of record"
shall be deemed to be the holder of such Shares for all purposes hereunder and
neither the Trustees nor any Transfer Agent or registrar nor any officer,
employee or agent of the Trust shall be affected by any notice of the proposed
transfer. Any person becoming entitled to any Shares in consequence of the
death, bankruptcy, or incompetence of any Shareholder, or otherwise by operation
of law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the Transfer
Agent, but until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar, nor any officer or agent of the
Trust shall be affected by any notice of such death, bankruptcy or incompetence,
or other operation of law, except as may otherwise be provided by the laws of
the Commonwealth of Massachusetts.
SECTION 6.7 NOTICES. Any and all notices to which any Shareholder may
be entitled and any and all communications shall be deemed duly served or given
if mailed, postage prepaid, addressed to any Shareholder of record at his last
known address as recorded on the register of the Trust. Annual reports and proxy
statements need not be sent to a shareholder if: (i) an annual report and proxy
statement for two consecutive annual meetings, or (ii) all, and at least two,
checks (if sent by first class mail) in payment of dividends or interest and
<PAGE>
shares during a twelve month period have been mailed to such shareholder's
address and have been returned undelivered. However, delivery of such annual
reports and proxy statements shall resume once a Shareholder's current address
is determined.
SECTION 6.8 VOTING POWERS. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Section 2.2 hereof, (ii)
for the removal of Trustees as provided in Section 2.3 hereof, (iii) with
respect to termination of the Trust as provided in Section 9.2, (iv) with
respect to any amendment of the Declaration to the extent and as provided in
Section 9.3, (v) with respect to any merger, consolidation or sale of assets as
provided in Section 9.4, (vi) with respect to incorporation of the Trust to the
extent and as provided in Section 9.5, (vii) to the same extent as the
stockholders of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust or the Shareholders
(provided that Shareholders of a Series are not entitled to vote in connection
with the bringing of a derivative or class action with respect to any matter
which only affects another Series or its Shareholders), and (viii) with respect
to such additional matters relating to the Trust as may be required by law, the
Declaration, the Bylaws or any registration of the Trust with the Commission (or
any successor agency) or any state, or as and when the Trustees may consider
necessary or desirable. Each whole Share shall be entitled to one vote as to any
matter on which it is entitled to vote and each fractional Share shall be
entitled to a proportionate fractional vote, except that Shares held in the
treasury of the Trust as of the record date, as determined in accordance with
the Bylaws, shall not be voted. On any matter submitted to a vote of
Shareholders, all Shares shall be voted by individual Series except (1) when
required by the 1940 Act, Shares shall be voted in the aggregate and not by
individual Series; and (2) when the Trustees have determined that the matter
affects only the interests of one or more Series, then only the Shareholders of
such Series shall be entitled to vote thereon. The Trustees may, in conjunction
with the establishment of any further Series or any classes of Shares, establish
conditions under which the several series or classes of Shares shall have
separate voting rights or no voting rights. There shall be no cumulative voting
in the election of Trustees. Until Shares are issued, the Trustees may exercise
all rights of Shareholders and may take any action required by law, the
Declaration or the Bylaws to be taken by Shareholders. The Bylaws may include
further provisions for Shareholders' votes and meetings and related matters.
SECTION 6.9 SERIES OR CLASSES OF SHARES. The following provisions are
applicable regarding the Series of Shares of the Trust established in Section
6.1 hereof and shall be applicable if the Trustees shall establish additional
Series or shall divide the shares of any Series into two or more classes, also
as provided in Section 6.1 hereof, and all provisions relating to the Trust
shall apply equally to each Series thereof except as the context requires:
(a) The number of authorized shares and the number of shares of each
Series or of each class that may be issued shall be unlimited. The Trustees may
classify or reclassify any unissued shares or any shares previously issued and
reacquired of any Series or class into one or more Series or one or more classes
that may be established and designated from time to time. The Trustees may hold
as treasury shares (of the same or some other Series or class), reissue for such
consideration and on such terms as they may determine, or cancel any shares of
any Series or any class reacquired by the Trust at their discretion from time to
time.
(b) The power of the Trustees to invest and reinvest the Trust Property
shall be governed by Section 3.2 of this Declaration with respect to any one or
more Series which represents the interests in the assets of the Trust
immediately prior to the establishment of any additional Series and the power of
the Trustees to invest and reinvest assets applicable to any other Series shall
be as set forth in the instrument of the Trustees establishing such series which
is hereinafter described.
(c) All consideration received by the Trust for the issue or sale of
shares of a particular Series or class together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that Series or class for all purposes, subject only to the
rights of creditors, and shall be so recorded upon the books of account of the
Trust. In the event that there are any assets, income, earnings, profits,
<PAGE>
and proceeds thereof, funds, or payments which are not readily identifiable as
belonging to any particular Series or class, the Trustees shall allocate them
among any one or more of the Series or classes established and designated from
time to time in such manner and on such basis as they, in their sole discretion,
deem fair and equitable. Each such allocation by the Trustees shall be
conclusive and binding upon the shareholders of all Series or classes for all
purposes. No holder of Shares of any Series shall have any claim on or right to
any assets allocated or belonging to any other Series.
(d) The assets belonging to each particular Series shall be charged
with the liabilities of the Trust in respect of that Series and all expenses,
costs, charges and reserves attributable to that Series. All expenses and
liabilities incurred or arising in connection with a particular Series, or in
connection with the management thereof, shall be payable solely out of the
assets of that Series and creditors of a particular Series shall be entitled to
look solely to the property of such Series for satisfaction of their claims. Any
general liabilities, expenses, costs, charges or reserves of the Trust which are
not readily identifiable as belonging to any particular Series shall be
allocated and charged by the Trustees to and among any one or more of the series
established and designed from time to time in such manner and on such basis as
the Trustees in their sole discretion deem fair and equitable. Each allocation
of liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the holders of all Series for all purposes. The
Trustees shall have full discretion, to the extent not inconsistent with the
1940 Act, to determine which items shall be treated as income and which items as
capital; and each such determination and allocation shall be conclusive and
binding upon the shareholders.
(e) The power of the Trustees to pay dividends and make distributions
shall be governed by Section 8.2 of this Declaration with respect to any one or
more Series or classes which represents the interests in the assets of the Trust
immediately prior to the establishment of any additional Series or classes. With
respect to any other Series or class, dividends and distributions on shares of a
particular Series or class may be paid with such frequency as the Trustees may
determine, which may be daily or otherwise, pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Trustees may
determine, to the holders of shares of that Series or class, from such of the
income and capital gains, accrued or realized, from the assets belonging to that
Series or class, as the Trustees may determine, after providing for actual and
accrued liabilities belonging to that Series or class. All dividends and
distributions on shares of a particular Series or class shall be distributed pro
rata to the holders of that Series or class in proportion to the number of
shares of that Series or class held by such holders at the date and time of
record established for the payment of such dividends or distributions.
(f) The Trustees shall have the power to determine the designations,
preferences, privileges, limitations and rights, including voting and dividend
rights, of each class and Series of Shares.
(g) Subject to compliance with the requirements of the 1940 Act, the
Trustees shall have the authority to provide that the holders of Shares of any
Series or class shall have the right to convert or exchange said Shares into
Shares of one or more Series of Shares in accordance with such requirements and
procedures as may be established by the Trustees.
(h) The establishment and designation of any Series or class of shares
in addition to those established in Section 6.1 hereof shall be effective upon
the execution by a majority of the then Trustees of an instrument setting forth
such establishment and designation and the relative rights, preferences, voting
powers, restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption of such Series or class, or as otherwise provided in
such instrument. At any time that there are no shares outstanding of any
particular Series or class previously established and designated, the Trustees
may by an instrument executed by a majority of their number abolish that Series
or class and the establishment and designation thereof. Each instrument referred
to in this paragraph shall have the status of an amendment to this Declaration.
(i) Shareholders of a Series shall not be entitled to participate in a
derivative or class action with respect to any matter which only affects another
Series or its Shareholders.
Each Share of a Series of the Trust shall represent a beneficial
interest in the net assets of such Series. Each holder of Shares of a Series
shall be entitled to receive his pro rata share of distributions of income and
capital gains made with respect to such Series. In the event of the liquidation
of a particular Series, the Shareholders of that Series which has been
established and designated and which is being liquidated shall be entitled to
receive, when and as declared by the Trustees, the excess of the assets
belonging to that Series over the liabilities belonging to that Series. The
holders of Shares of any Series shall not be entitled hereby to any distribution
upon liquidation of any other Series. The assets so distributable to the
Shareholders of any Series
<PAGE>
shall be distributed among such Shareholders in proportion to the number of
Shares of that Series held by them and recorded on the books of the Trust. The
liquidation of any particular Series in which there are Shares then outstanding
may be authorized by an instrument in writing, without a meeting, signed by a
majority of the Trustees then in office, subject to the approval of a majority
of the outstanding voting securities of that Series, as that phrase is defined
in the 1940 Act.
ARTICLE VII
REDEMPTIONS
SECTION 7.1 REDEMPTIONS. Each Shareholder of a particular Series shall
have the right at such times as may be permitted by the Trust to require the
Trust to redeem all or any part of his Shares of that Series, upon and subject
to the terms and conditions provided in this Article VII, in accordance with and
pursuant to procedures or methods prescribed or approved by the Trustees and, in
the case of any Series now or hereafter authorized, if so determined by the
Trustees, shall be redeemable only in aggregations of such number of shares and
at such times as may be determined by, or determined pursuant to procedures or
methods prescribed by or approved by, the Trustees from time to time with
respect to such Series. The number of shares comprising an aggregation for
purposes of redemption or repurchase so determined from time to time with
respect to any Series shall be referred to herein as a "Creation Unit" and
collectively, as "Creation Units". The Trustees shall have the unrestricted
power to determine from time to time the number of shares constituting a
Creation Unit by resolutions adopted at any regular or special meeting of the
Trustees. Each holder of a Creation Unit aggregation of a Series, upon request
to the Trust accompanied by surrender of the appropriate stock certificate or
certificates in proper form for transfer it certificates have been issued to
such holder, or in accordance with such other procedures as may from time to
time be in effect if certificates have not been issued, shall be entitled to
require the Trust to redeem all or any number of such holder's shares standing
in the name of such holder on the books of the Trust, but in the case of shares
of any Series as to which the Trustees have determined that such shares shall be
redeemable in Creation Unit aggregations, only in such Creation Unit
aggregations of shares of such Series as the Trustees may determine from time to
time in accordance with this Section 7.1. The Trust shall, upon application of
any Shareholder or pursuant to authorization from any Shareholder, redeem or
repurchase from such Shareholder outstanding shares for an amount per share
determined by the Trustees in accordance with any applicable laws and
regulations; provided that (i) such amount per share shall not exceed the cash
equivalent of the proportionate interest of each share or of any class or Series
of shares in the assets of the Trust at the time of the redemption or repurchase
and (ii) if so authorized by the Trustees, the Trust may, at any time and from
time to time, charge fees for effecting such redemption or repurchase, at such
rates as the Trustees may establish, as and to the extent permitted under the
1940 Act and the rules and regulations promulgated thereunder, and may, at any
time and from time to time, pursuant to such Act and such rules and regulations,
suspend such right of redemption. The procedures for effecting and suspending
redemption shall be as set forth in the Prospectus from time to time. Payment
may be in cash, securities or a combination thereof, as determined by or
pursuant to the direction of the Trustees from time to time.
SECTION 7.2 REDEMPTION AT THE OPTION OF THE TRUST. Each Share of the
Trust or any Series of the Trust shall be subject to redemption at the option of
the Trust at the redemption price which would be applicable if such Share were
then being redeemed by the Shareholder pursuant to Section 7.1: (i) at any time,
if the Trustees determine in their sole discretion that failure to so redeem may
have materially adverse consequences to the holders of the Shares of the Trust
or of any Series, or (ii) upon such other conditions with respect to maintenance
of Shareholder accounts of a minimum amount as may from time to time be
determined by the Trustees and set forth in the then current Prospectus of the
Trust. Upon such redemption the holders of the Shares so redeemed shall have no
further right with respect thereto other than to receive payment of such
redemption price.
SECTION 7.3 EFFECT OF SUSPENSION OF DETERMINATION OF NET ASSET VALUE.
If, pursuant to Section 7.4 hereof, the Trustees shall declare a suspension of
the determination of net asset value with respect to Shares of the Trust or of
any Series thereof, the rights of Shareholders (including those who shall have
applied for redemption pursuant to Section 7.1 hereof but who shall not yet have
received payment) to have Shares redeemed
<PAGE>
and paid for by the Trust or a Series thereof shall be suspended until the
termination of such suspension is declared. Any record holder who shall have his
redemption right so suspended may, during the period of such suspension, by
appropriate written notice of revocation at the office or agency where
application was made, revoke any application for redemption not honored and
withdraw any certificates on deposit. The redemption price of Shares for which
redemption applications have not been revoked shall be the net asset value of
such Shares next determined as set forth in Section 8.1 after the termination of
such suspension.
SECTION 7.4 SUSPENSION OF RIGHT OF REDEMPTION. The Trust may declare a
suspension of the right of redemption or postpone the date of payment or
redemption for the whole or any part of any period (i) during which the New York
Stock Exchange is closed other than customary weekend and holiday closings, (ii)
during which trading on the New York Stock Exchange is restricted, (iii) during
which an emergency exists as a result of which disposal by the Trust or a Series
thereof of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Trust or a Series thereof fairly to determine the
value of its net assets, or (iv) during any other period when the Commission
may, for the protection of security holders of the Trust, by order permit
suspension of the rights of redemption or postponement of the date of payment or
redemption; provided that applicable rules and regulations of the Commission
shall govern as to whether the conditions prescribed in (ii), (iii) or (iv)
exist. Such suspension shall take effect at such time as the Trust shall specify
but not later than the close of business on the business day next following the
declaration of suspension, and thereafter there shall be no right of redemption
or payment on redemption until the Trust shall declare the suspension at an end,
except that the suspension shall terminate in any event on the first day on
which said stock exchange shall have reopened- or the period specified in (ii)
or (iii) shall have expired (as to which, in the absence of an official ruling
by the Commission, the determination of the Trust shall be conclusive). In the
case of a suspension of the right of redemption, a Shareholder may either
withdraw his request for redemption or receive payment based on the net asset
value existing after the termination of the suspension.
ARTICLE VIII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
SECTION 8.1 NET ASSET VALUE. The net asset value of each outstanding
Share of each Series of the Trust shall be determined on such days and at such
time or times as the Trustees may determine. The method of determination of net
asset value shall be determined by the Trustees and shall be as set forth in the
Prospectus. The power and duty to make the daily calculations may be delegated
by the Trustees to any Investment Adviser, Manager, the Custodian, the Transfer
Agent or such other person as the Trustees by resolution may determine. The
Trustees may suspend the daily determination of net asset value to the extent
permitted by the 1940 Act.
SECTION 8.2 DISTRIBUTIONS TO SHAREHOLDERS. The Trustees shall from time
to time distribute ratably among the Shareholders of the Trust or of any Series
such proportion of the net income, earnings, profits, gains, surplus (including
paid-in surplus), capital, or assets of the Trust or of such Series held by the
Trustees as they may deem proper. Such distribution may be made in cash or
property including, without limitation, any type of obligations of the Trust or
of such Series or any assets thereof, and the Trustees may distribute ratably
among the Shareholders of the Trust or of that Series additional Shares issuable
hereunder in such manner, at such times, and on such terms as the Trustees may
deem proper. Such distributions may be among the Shareholders of record
(determined in accordance with the Prospectus) of the Trust or of such Series at
the time of declaring a distribution, or among the Shareholders of record of the
Trust or of such Series at such later date as the Trustees shall determine. The
Trustees may always retain from the net income, earnings, profits or gains of
the Trust or of such Series such amount as they may deem necessary to pay the
debts or expenses of the Trust or of such Series or to meet obligations of the
Trust or of such Series, or as they may deem desirable to use in the conduct of
its affairs or to retain for future requirements or extensions of the business.
The Trustees may adopt and offer to Shareholders of the Trust or of any Series
such dividend reinvestment plans, cash dividend payout plans or related plans as
the Trustees deem appropriate.
Inasmuch as the computation of net income and gains for Federal income
tax purposes may vary from
<PAGE>
the computation thereof on the books, the above provisions shall be interpreted
to give the Trustees the power in their discretion to distribute for any fiscal
year as ordinary dividends and as capital gains distributions, respectively,
additional amounts sufficient to enable the Trust to avoid or reduce liability
for taxes.
SECTION 8.3 DETERMINATION OF NET INCOME. The Trustees shall have the
power to determine the net income of any Series of the Trust and from time to
time to distribute such net income ratably among the Shareholders as dividends
in cash or additional Shares of such Series issuable hereunder. The
determination of net income and the resultant declaration of dividends shall be
as set forth in the Prospectus. The Trustees shall have full discretion to
determine whether any cash or property received by any Series of the Trust shall
be treated as income or as principal and whether any item of expense shall be
charged to the income or the principal account, and their determination made in
good faith shall be conclusive upon the Shareholders. In the case of stock
dividends received, the Trustees shall have full discretion to determine, in the
light of the particular circumstances, how much, if any, of the value thereof
shall be treated as income, the balance, if any, to be treated as principal.
SECTION 8.4 POWER TO MODIFY FOREGOING PROCEDURES. Notwithstanding any
of the foregoing provisions of this Article VIII, the Trustees may prescribe, in
their absolute discretion, such other bases and times for determining the per
Share net asset value of the Shares or net income, or the declaration and
payment of dividends and distributions, as they may deem necessary or desirable
to enable the Trust to comply with any provision of the 1940 Act, or any rule or
regulation thereunder, including any rule or regulation adopted pursuant to
Section 22 of the 1940 Act by the Commission or any securities association
registered under the Securities Exchange Act of 1934, or any order of exemption
issued by said Commission, all as in effect now or hereafter amended or
modified. Without limiting the generality of the foregoing, the Trustees may
establish classes or additional Series of Shares in accordance with Section 6.9.
ARTICLE IX
DURATION; TERMINATION OF TRUST; AMENDMENT; MERGERS,
ETC.
SECTION 9.1 DURATION. The Trust shall continue without limitation of
time but subject to the provisions of this Article IX.
SECTION 9.2 TERMINATION OF TRUST OR A SERIES. The Trust or any Series
may be terminated (i) by the affirmative vote of the holders of not less than
three-fourths of the Shares outstanding and entitled to vote at any meeting of
Shareholders of the Trust or the appropriate Series thereof, (ii) by a Majority
Shareholder Vote of such Shares of the Trust or the appropriate Series thereof
if such termination is recommended by the Trustees, (iii) by an instrument in
writing, without a meeting, signed by a majority of the Trustees and consented
to by the holders of not less than a Majority Shareholder Vote of such Shares of
the Trust or the appropriate Series thereof, or by such other vote as may be
established by the Trustees with respect to any class or Series of Shares, or
(iii) with respect to a Series as provided in Section 6.9(h). The foregoing
provisions may not be amended except by the approval of at least three-fourths
of the Shares outstanding and entitled to vote thereupon. Upon the termination
of the Trust or the Series:
(a) The Trust or the Series shall carry on no business except for the
purpose of winding up its affairs. (b) The Trustees shall proceed to
wind up the affairs of the Trust or the Series and all of the powers of
the
Trustees under this Declaration shall continue until the affairs of the Trust
shall have been wound up, including the power to fulfill or discharge the
contracts of the Trust or the Series, collect its assets, sell, convey, assign,
exchange, transfer or otherwise dispose of all or any part of the remaining
Trust Property or Trust Property allocated or belonging to such Series to one or
more persons at public or private sale for consideration which may consist in
whole or in part of cash, securities or other property of any kind, discharge or
pay its liabilities, and to do all other acts appropriate to liquidate its
business; provided that any sale, conveyance, assignment, exchange, transfer or
other disposition of all or substantially all the Trust Property or Trust
Property allocated or belonging to such Series shall require Shareholder
approval in accordance with Section 9.4 hereof.
(c) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such
<PAGE>
releases, indemnities and refunding agreements, as they deem necessary for their
protection, the Trustees may distribute the remaining Trust Property or Trust
Property allocated or belonging to such Series, in cash or in kind or partly
each, among the Shareholders of the Trust according to their respective rights.
SECTION 9.3 AMENDMENT PROCEDURE. (a) This Declaration may be amended by
a Majority Shareholder Vote, at a meeting of Shareholders, or by written consent
without a meeting. If this Declaration specifically so provides, however, any
such amendment may be affected only upon the vote of three-fourths of the Shares
outstanding and entitled to vote thereupon. The provisions of the preceding
sentence may not be amended except by vote of three-fourths of the Shares
outstanding and entitled to vote thereupon. The Trustees may also amend this
Declaration without the vote or consent of Shareholders (i) to change the name
of the Trust or any Series or classes of Shares, (ii) to supply any omission, or
cure, correct or supplement any ambiguous, defective or inconsistent provision
hereof, (iii) if they deem it necessary to conform this declaration to the
requirements of applicable federal or state laws or regulations or the
requirements of the Internal Revenue Code, or to eliminate or reduce any
federal, state or local taxes which are or may be payable by the Trust or the
Shareholders, but the Trustees shall not be liable for failing to do so, or (iv)
for any other purpose which does not adversely affect the rights of any
Shareholder with respect to which the amendment is or purports to be applicable.
(b) No amendment may be made under this Section 9.3 which would change
any rights with respect to any Shares of the Trust or of any Series of the Trust
by reducing the amount payable thereon upon liquidation of the Trust or of such
Series of the Trust or by diminishing or eliminating any voting rights
pertaining thereto, except with the vote or consent of the holders of two-thirds
of the Shares of the Trust or of such Series outstanding and entitled to vote,
or by such other vote as may be established by the Trustees with respect to any
Series or class of Shares. Nothing contained in this Declaration shall permit
the amendment of this Declaration to impair the exemption from personal
liability of the Shareholders, Trustees, officers, employees and agents of the
Trust or to permit assessment upon Shareholders.
(c) A certificate signed by a majority of the Trustees or by the
Secretary or any Assistant Secretary of the Trust, setting forth an amendment
and reciting that it was duly adopted by the Shareholders or by the Trustees as
aforesaid or a copy of the Declaration, as amended and executed by a majority of
the Trustees or certified by the Secretary or any Assistant Secretary of the
Trust, shall be conclusive evidence of such amendment when lodged among the
records of the Trust. Unless such amendment or such certificate sets forth some
later time for the effectiveness of such amendment, such amendment shall be
effective when lodged among the records of the Trust. Notwithstanding any other
provision hereof, until such time as a Registration Statement under the
Securities Act of 1933, as amended, covering the first public offering of
securities of the Trust shall have become effective, this Declaration may be
terminated or amended in any respect by the affirmative vote of a majority of
the Trustees or by an instrument signed by a majority of the Trustees.
SECTION 9.4 MERGER, CONSOLIDATION AND SALE OF ASSETS. The Trust or any
Series thereof may merge or consolidate with any other corporation, association,
trust or other organization or may sell, lease or exchange all or substantially
all of the Trust Property or Trust Property allocated or belonging to such
Series, including its good will, upon such terms and conditions and for such
consideration when and as authorized, at any meeting of Shareholders called for
the purpose, by the affirmative vote of the holders of not less than
three-fourths of the Shares of the Trust or such Series outstanding and entitled
to vote, or by an instrument or instruments in writing without a meeting,
consented to by the holders of not less than three-fourths of such Shares, or by
such other vote as may be established by the Trustees with respect to any series
or class of Shares; provided, however, that, if such merger, consolidation,
sale, lease or exchange is recommended by the Trustees, a Majority Shareholder
Vote shall be sufficient authorization; and any such merger, consolidation,
sale, lease or exchange shall be deemed for all purposes to have been
accomplished under and pursuant to the laws of the Commonwealth of
Massachusetts.
SECTION 9.5 INCORPORATION. With approval of a Majority Shareholder
Vote, or by such other vote as may be established by the Trustees with respect
to any Series or class of Shares, the Trustees may cause to be organized or
assist in organizing a corporation or corporations under the laws of any
jurisdiction or any other trust, partnership, association or other organization
to take over all of the Trust Property or the Trust Property
<PAGE>
allocated or belonging to such Series or to carry on any business in which the
Trust shall directly or indirectly have any interest, and to sell, convey and
transfer the Trust Property or the Trust Property allocated or belonging to such
Series to any such corporation, trust, partnership, association or organization
in exchange for the shares or securities thereof or otherwise, and to lend money
to, subscribe for the shares or securities of, and enter into any contracts with
any such corporation, trust, partnership, association or organization in which
the Trust or such Series holds or is about to acquire shares or any other
interest. The Trustees may also cause a merger or consolidation between the
Trust or any successor thereto and any such corporation, trust, partnership,
association or other organization if and to the extent permitted by law, as
provided under the law then in effect. Nothing contained herein shall be
construed as requiring approval of Shareholders for the Trustees to organize or
assist in organizing one or more corporations, trusts, partnerships,
associations or other organizations and selling, conveying or transferring a
portion of the Trust Property to such organization or entities.
ARTICLE X
REPORTS TO SHAREHOLDERS
The Trustees shall at least semiannually submit or cause the officers of
the Trust to submit to the Shareholders a written financial report of each
Series of the Trust, including financial statements which shall at least
annually be certified by independent public accountants.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 FILING. This Declaration and any amendment hereto shall be
filed in the office of the Secretary of The Commonwealth of Massachusetts and in
such other places as may be required under the laws of Massachusetts and may
also be filed or recorded in such other places as the Trustees deem appropriate.
Each amendment so filed shall be accompanied by a certificate signed and
acknowledged by a Trustee or by the Secretary or any Assistant Secretary of the
Trust stating that such action was duly taken in a manner provided herein. A
restated Declaration, integrating into a single instrument all of the provisions
of the Declaration which are then in effect and operative, may be executed from
time to time by a majority of the Trustees and shall, upon filing with the
Secretary of The Commonwealth of Massachusetts, be conclusive evidence of all
amendments contained therein and may thereafter be referred to in lieu of the
original Declaration and the various amendments thereto.
SECTION 11.2 GOVERNING LAW. This Declaration is executed by the
Trustees and delivered in The Commonwealth of Massachusetts and with reference
to the laws thereof and the rights of all parties and the validity and
construction of every provision hereof shall be subject to and construed
according to the laws of said State.
SECTION 11.3 COUNTERPARTS. The Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
SECTION 11.4 RELIANCE BY THIRD PARTIES. Any certificate executed by an
individual who, according to the records of the Trust, appears to be a Trustee
hereunder, or Secretary or Assistant Secretary of the Trust, certifying to: (a)
the number or identity of Trustees or Shareholders, (b) the due authorization of
the execution of any instrument or writing, (c) the form of any vote passed at a
meeting of Trustees or Shareholders, (d) the fact that the number of Trustees or
Shareholders present at any meeting or executing any written instrument
satisfies the requirements of this Declaration, (e) the form of any Bylaws
adopted by or the identity of any officers elected by the Trustees, or (f) the
existence of any fact or facts which in any manner relate to the affairs of the
Trust, shall be conclusive evidence as to the matters so certified in favor of
any Person dealing with the Trustees and their successors.
<PAGE>
SECTION 11.5 PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS. (a) The
provisions of the Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code or with other applicable laws and regulations, the
conflicting provisions shall be deemed superseded by such law or regulation to
the extent necessary to eliminate such conflict; provided, however, that such
determination shall not affect any of the remaining provisions of the
Declaration or render invalid or improper any action taken or omitted prior to
such determination.
(b) If any provision of the Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
pertain only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of the
Declaration in any jurisdiction.
SECTION 11.6 PRINCIPAL PLACE OF BUSINESS; RESIDENT AGENT. The principal
place of business of the Trust shall be 225 Franklin Street, Boston,
Massachusetts 02110, or such other location as the Trustees may designate from
time to time. To the extent required, the Trustees shall have the power to
appoint a resident agent for service of process on the Trust in The Commonwealth
of Massachusetts, and from time to time to replace the resident agent so
appointed. State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is hereby designated as the initial resident agent for the
Trust in Massachusetts. The Trustees may, without the approval of the
Shareholders, change the resident agent of the Trust or the principal place of
business of the Trust.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Declaration of Trust this
______ day of June 1998.
Edmund J. Burke, as trustee and not individually
<PAGE>
STATE OF COLORADO )
)ss.:
COUNTY OF DENVER )
On this ______ day of June 1998, Edmund J. Burke, known to me and known
to be the individual described in and who executed the foregoing instrument,
personally appeared before me and acknowledged the foregoing instrument to be
his free act and deed.
Notary Public
My commission expires: __________________________
<PAGE>
