As filed via EDGAR with the Securities and Exchange Commission on July 9, 1998
File No. 333-_____
ICA No. 811-08871
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. __ [ ]
POST-EFFECTIVE AMENDMENT NO. __ [ ]
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. __
SIMMS FUNDS
(Exact Name of Registrant as Specified in Charter)
55 Railroad Avenue Greenwich, CT 06830
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (203) 861-8500
Jay G. Baris, Esq.
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
(Name and Address of Agent for Service)
Copy to:
Simms Funds
55 Railroad Avenue
Greenwich, CT 06830
Approximate date of proposed public offering: As soon as practicable
after this registration statement becomes effective.
---------------------------------------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
CROSS-REFERENCE SHEET
(Pursuant to Rule 404 showing location in the Prospectus of
the responses to the Items in Part A and location in the Statement of Additional
Information of the responses to the Items in Part B of Form N-1A).
SIMMS FUNDS
Item Number
Form N-1A,
Part A Prospectus Caption
------ ------------------
1(a) Front Cover Page
(b) Back Cover Page
2(a) Risk/Return Summary - Each Fund's Investment Objective
(b) Risk/Return Summary - Principal Strategies
(c) Risk/Return Summary - Principal Risks
3 Fees and Expenses of the Funds
4(a) Investments - Each Fund's Investment Objective
(b) Investments - Principal Investment Strategies; Other Investment
Strategies
(c) Risks
5 Performance
6(a) Management of the Funds
(b) Not Applicable
7(a) Shareholder Information - How we value Fund shares
(b) Investing with Simms - How to Purchase Shares
(c) Investing with Simms - How to Redeem Shares
(d) Dividends, Distributions and Taxes
(e) Taxes
(f) Not Applicable
8(a) Investing with Simms - General Information; How we calculate
Sales Charges on Class A Shares; Sales Charge Reductions and
Waivers
(b) Shareholder Servicing Fees
(c) Not Applicable
9 Not Applicable
<PAGE>
SIMMS FUNDS
Item Number
Form N-1A, Statement of Additional
Part B Information Caption
------ -------------------
10(a) Front Cover Page
(b) Table of Contents
11(a) Additional Information - Description of Shares
(b) Not Applicable
12(a) Statement of Additional Information
(b) Additional Information
(c) Investment Objectives and Investment Policies and Limitations
(d) Temporary Defensive Measures - Short-Term Obligations
(e) Not Applicable
13(a) Trustees and Officers - Board of Trustees
(b) Trustees and Officers - Board of Trustees; Officers
(c) Trustees and Officers - Board of Trustees
(d) Trustees and Officers - Board of Trustees
(e) Trustees and Officers - Officers
14(a) Miscellaneous
(b) Not Applicable
(c) Trustees and Officers - Officers
15(a) Advisory and Other Contracts - Investment Adviser
(b) Advisory and Other Contracts - Distributor
(c) Advisory and Other Contracts - Investment Adviser
(d) Transfer Agent; Shareholder Servicing Plan; Other Servicing
Plans; Distribution Plan, Fund Accountant; Legal Counsel
(e) Not Applicable
(f) Additional Purchase, Exchange, and Redemption Information -
Dealer Reallowances
(g) Distribution Plan
(h) Administrator; Transfer Agent; Custodian; Independent Accountant;
Legal Counsel
-2-
<PAGE>
Item Number
Form N-1A, Statement of Additional
Part B Information Caption
------ -------------------
16(a) Portfolio Transactions
(b) Not Applicable
(c) Portfolio Transactions
(d) Not Applicable
(e) Not Applicable
17(a) Additional Information - Description of Shares
(b) Not Applicable
18(a) Additional Purchase, Exchange, and Redemption Information;
Purchasing Shares
(b) Not Applicable
(c) Additional Purchase, Exchange, and Redemption Information;
Purchasing Shares
(d) Additional Purchase, Exchange, and Redemption Information
19(a) Taxes
(b) Taxes
20(a) Distributor
(b) Not Applicable
(c) Not Applicable
21(a) Not Applicable
(b) Performance of the Funds
22(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
-3-
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
SIMMS CAPITAL MANAGEMENT, INC.
55 RAILROAD AVENUE, GREENWICH, CONNECTICUT 06830 203-861-8500
Simms Funds
U.S. EQUITY FUND
INTERNATIONAL EQUITY FUND
GLOBAL EQUITY FUND
This Prospectus describes the two classes of shares that
each Fund offers: Class A Shares, sold primarily to retail
investors, and Class Y Shares, sold primarily to institutions.
PROSPECTUS
_______, 1998
THIS PROSPECTUS PROVIDES IMPORTANT INFORMATION ABOUT EACH FUND THAT YOU SHOULD
KNOW BEFORE INVESTING. PLEASE READ IT CAREFULLY AND KEEP IT FOR FUTURE
REFERENCE.
THE SECURITIES AND EXCHANGE COMMISSION
HAS NOT APPROVED ANY FUND'S SHARES AS AN
INVESTMENT OR DETERMINED WHETHER THIS
PROSPECTUS IS ACCURATE OR COMPLETE.
ANYONE WHO TELLS YOU OTHERWISE IS
COMMITTING A CRIME.
<PAGE>
TABLE OF CONTENTS
AN OVERVIEW OF THE FUNDS A presentation of
each Fund's risk/return summary, fees and
expenses, and investments....................1
OTHER INVESTMENT STRATEGIES..................
RISKS........................................
PERFORMANCE..................................
MANAGEMENT OF THE FUNDS......................
SHAREHOLDER INFORMATION......................
INVESTING WITH SIMMS.........................
How to Purchase Shares.................
How to Redeem Shares...................
Exchanges..............................
SHAREHOLDER SERVICES.........................
DIVIDENDS, DISTRIBUTIONS AND TAXES...........
ADDITIONAL INFORMATION.......................
<PAGE>
RISK/RETURN SUMMARY
EACH FUND'S INVESTMENT OBJECTIVE
Capital appreciation.
PRINCIPAL STRATEGIES
o *** The U.S. EQUITY FUND invests primarily in securities of large
capitalization U.S. companies ***
The U.S. Equity Fund invests at least 80% of its assets in the equity
securities of large capitalization U.S. companies, including multinational
companies.
o *** The INTERNATIONAL EQUITY FUND invests primarily in securities of large
capitalization foreign companies ***
TheInternational Equity Fund invests at least 80% of its assets in the
equity securities of large capitalization foreign companies, including
multinational companies. The Fund typically invests in American Depositary
Receipts (ADRs) and may also invest directly in securities of foreign
companies not denominated in U.S. dollars.
o *** The GLOBAL EQUITY FUND invests primarily in securities of large
capitalization U.S. and foreign companies ***
The Global Equity Fund invests at least 80% of its assets in the equity
securities of large capitalization U.S. and foreign companies, including
multinational companies. The Fund's foreign equity investments will
typically consist of ADRs and the Fund may also invest directly in
securities of foreign companies not denominated in U.S. dollars.
We seek to invest in securities that we believe offer the best potential for
growth at a reasonable price. To that end, Simms Capital Management, Inc., the
Funds' investment adviser, uses a proprietary "bottom-up" quantitative and
qualitative stock selection process. A "bottom-up" approach to investing
emphasizes the evaluation of individual stocks more than the consideration of
broader market and economic trends. See "Investments -- Principal Investment
Strategies."
PRINCIPAL RISKS
Each Fund is subject to the risks common to all mutual funds that invest in
equity securities. You could lose money by investing in a Fund if any of the
following occurs:
- The stock market goes down
- Stocks of multinational companies fall out of favor with investors
- "Growth" stocks fall out of favor with investors A company's earnings
- do not increase as expected
THE INTERNATIONAL EQUITY AND GLOBAL EQUITY FUNDS are also subject to
certain risks that are not typical of investments in the securities
of U.S. companies, such as
- Political or economic events overseas adversely
- affect securities of foreign issuers
- Non-U.S. dollar-denominated securities may experience
- adverse foreign currency fluctuations
We summarize these and other risk factors in the "Risks" section later in this
Prospectus.
<PAGE>
WHO MAY WANT TO INVEST IN THE FUNDS
EACH FUND may be appropriate for investors who:
- are long-term investors with a particular goal, like saving for
retirement
- want potential growth over time
- want a diversified portfolio that includes multinational companies
- are willing to take more risk in the short-term for potentially higher
gains in the long-term
THE U.S. EQUITY FUND may be appropriate for investors who want a
portfolio comprised primarily of the securities of U.S. issuers.
THE INTERNATIONAL EQUITY FUND may be appropriate for investors who want a
portfolio comprised primarily of the securities of foreign issuers.
THE GLOBAL EQUITY FUND may be appropriate for investors who want a portfolio
that includes securities of U.S. and foreign issuers.
The Funds may NOT be appropriate for investors who:
- are investing for the short term or need current income
- are not willing to take any risk that they may lose money on their
investment
- want absolute stability of their investment principal
- want to invest in a particular sector or in particular industries,
countries, or regions
Keep in mind that mutual fund shares:
- are not deposits or obligations of, or guaranteed or endorsed by, any
bank
- are not insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other government agency
- are subject to investment risks, including possible loss of the
principal amount invested
2
<PAGE>
FEES AND EXPENSES OF THE FUNDS
This table describes the fees and expenses that you may pay if you buy and hold
shares of a Fund
<TABLE>
<CAPTION>
International Global
U.S. Equity Fund Equity Fund Equity Fund
---------------- ----------- -----------
Class A Class Y Class A Class Y Class A Class Y
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER FEES
(fees paid directly from
your investment)
Maximum sales charge
(load) imposed on 5.00% None 5.00% None 5.00% None
purchases (as a
percentage of offering
price)(1)
Maximum deferred
sales charge (load) None None None None None None
Maximum sales charge None None None None None None
(load) imposed on
reinvested dividends
Redemption fee(2) None None None None None None
ANNUAL FUND OPERATING
EXPENSES
(expenses that are
deducted from the Fund's
assets, as a percentage of
net assets)
Management fees .75% .75% 1.00% 1.00% 1.00% 1.00%
Rule 12b-1 .25% None .25% None .25% None
distribution fees(3)
Other fees(4) 2.13% 1.88% 1.99% 1.74% 1.99% 1.74%
----- ----- ----- ----- ----- -----
Total annual Fund 3.13% 2.63% 3.24% 2.74% 3.24% 2.74%
operating
expenses(5)
</TABLE>
Notes:
1. The initial sales charge imposed on Class A Shares declines for purchases
over $50,000 and the charge is eliminated entirely for purchases of at
least $1 million and for certain categories of investors. See "Investing
With Simms" below.
2. You may pay fees in connection with certain redemption services, such as a
$12 wire transfer fee.
3. Class A Shares of each Fund pay distribution fees on an ongoing basis. Over
time, these fees will increase the cost of your investment and may cost you
more than paying other types of sales charges. Merit Capital Associates,
Inc., the Funds' Distributor, will waive its distribution fees to the
extent that the Fund would exceed the regulatory limitations on asset-based
sales charges.
4. Includes a shareholder servicing fee of .25%.
5. We expect that each Fund's total annual operating expenses will decrease as
the Fund's assets increase. Simms Capital Management, Inc. (Simms or the
Adviser) has agreed to waive its investment advisory fee and reimburse
certain expenses to the extent those expenses exceed the following limits:
U.S. Equity Fund: 1.93% (Class A) and 1.43% (Class Y); International Equity
Fund: 2.25% (Class A) and 1.75% (Class Y); and Global Equity Fund: 2.10%
(Class A) and 1.60% (Class Y). Simms may terminate or reduce its waivers or
reimbursements at any time.
3
<PAGE>
EXAMPLE
This example is intended to help you compare the cost of investing in each Fund
with the cost of investing in other mutual funds.
This example assumes that:
- you invest $10,000 in the Fund for the time periods indicated
- your investment returns 5% each year
- the Fund's operating expenses remain the same
Although your actual costs may be higher or lower, under these assumptions your
costs would be:
<TABLE>
<CAPTION>
International
U.S. Equity Fund Equity Fund Global Equity Fund
---------------- ----------- ------------------
Class A Class Y Class A Class Y Class A Class Y
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
If you redeem
your shares at
the end of each
period:
One Year $____ $____ $_____ $____ $____ $____
--------
Three Years $____ $____ $_____ $____ $____ $____
-----------
If you do not
redeem your
shares at the
end of each
period:
One Year $____ $____ $_____ $____ $____ $____
--------
Three Years $____ $____ $_____ $____ $____ $____
-----------
</TABLE>
This example does not reflect sales charges (loads) on reinvested dividends. If
these sales charges (loads) were included, your costs would be higher.
4
<PAGE>
INVESTMENTS
EACH FUND'S INVESTMENT OBJECTIVE
Capital appreciation
PRINCIPAL INVESTMENT STRATEGIES
U.S. Equity Fund
*** The U.S. Fund invests primarily in securities of large capitalization U.S.
companies ***
The U.S. Equity Fund invests primarily in the common stock of large
capitalization U.S. companies, including multinational companies. The Fund may
also invest in convertible securities and preferred stock of U.S. companies.
International Equity Fund
*** The International Equity Fund invests primarily in securities of large
capitalization foreign companies ***
The International Equity Fund invests primarily in the securities of large
capitalization foreign companies, including multinational companies. The Fund
invests primarily in ADRs and may also invest directly in equity securities of a
foreign company not denominated in U.S. dollars.
Global Equity Fund
*** The Global Equity Fund invests primarily in securities of large
capitalization U.S. and foreign companies ***
The Global Equity Fund invests primarily in the securities of large
capitalization U.S. and foreign companies, including multinational companies.
The Fund's foreign equity investments will typically consist of ADRs and the
Fund may also invest directly in equity securities of a foreign company not
denominated in U.S. dollars.
*** The Funds will invest in the securities of large capitalization companies,
that is, securities of companies whose market capitalization is greater than $1
billion at the time of purchase ***
*** We seek growth at a reasonable price. ***
Simms looks for securities that offer the best potential for growth at a
reasonable price. That is, we look for stocks that we believe will increase in
value over time, based upon our analysis of a company's growth prospects.
We seek to invest in companies with relatively high return on equity and high
earnings growth rates, not companies or industries that have predominantly
cyclical characteristics. In choosing investments, we analyze the following
factors:
- the present value of a company's future cash flows using a proprietary
Dividend Discount Model
- the stock's price relative to similar companies
- the company's financial condition and cash flow
- the growth of the company's earnings
- demand and supply for a company's shares, including insider
transactions
- industry momentum, that is, the rate at which the company's sector is
growing
- the stock's liquidity
- the company's exposure to economic conditions outside the U.S.
5
<PAGE>
- for foreign securities, diversification by country as compared with
the country weighting of the Morgan Stanley Capital International
Europe, Australasia, Far East (EAFE) Index
- for foreign securities, a company's economic exposure to countries
outside its home base, including the U.S.
INVESTMENT POLICIES
o U.S. EQUITY FUND: Under normal market conditions, we expect to invest at
least 80% of the U.S. Equity Fund's total assets in common stock. We expect
to invest no more than 20% of the Fund's total assets in convertible or
preferred securities, debt securities, or money market instruments, if at
all.
o INTERNATIONAL EQUITY FUND: Under normal market conditions, we expect to
invest at least 80% of the International Equity Fund's total assets in ADRs
of foreign companies or directly in equity securities of foreign companies
not denominated in U.S. dollars. We expect to invest no more than 20% of
the Fund's total assets in convertible or preferred securities, debt
securities, or money market instruments, if at all.
o GLOBAL EQUITY FUND: Under normal market conditions, we expect to invest at
least 80% of the Global Equity Fund's total assets in (i) the common stock
of U.S. issuers, and (ii) ADRs of foreign companies or directly in equity
securities of foreign companies not denominated in U.S. dollars. We expect
to invest no more than 20% of the Fund's total assets in convertible or
preferred securities, debt securities, or money market instruments, if at
all.
When we determine that market conditions warrant temporary defensive measures or
for cash management purposes, each Fund may hold up to 100% of its assets in
cash and U.S. dollar denominated money market instruments, which may result in
performance that is inconsistent with its investment objective.
*** We use a bottom-up approach in selecting stocks. ***
OTHER INVESTMENT STRATEGIES
- Debt instruments. After implementing a Fund's principal investment
strategy, we may invest the balance of each Fund's assets in U.S.
dollar-denominated debt instruments (bonds) issued by U.S. companies
or by the U.S. Government, including short-term "money market"
instruments. In addition, the International Equity Fund and the Global
Equity Fund may also invest in non-U.S. dollar-denominated bonds
issued by foreign companies or governments or supranational
organizations.
*** We may invest defensively or hedge our investments to protect
against a downturn ***
- Defensive investing. During unfavorable market conditions, we may
invest "defensively," that is, make temporary investments that are not
consistent with a Fund's investment objective and principal
strategies. For example, if there is a market downturn or if we must
raise cash to meet redemption requests, we may invest more assets in
bonds or money market instruments, or invest in derivative instruments
to protect our investments.
- Options. From time to time, we may write call covered options on
securities owned by a Fund in order to enhance the Fund's return.
- Portfolio turnover. We may trade actively and frequently to achieve a
Fund's objective, which may result in higher capital gains
distributions and increase your tax liability.
6
<PAGE>
Frequent trading may also increase the Fund's costs, affecting the
Fund's performance over time.
- Lending. Each Fund may lend a portion of its securities to financial
institutions for a fee.
- Borrowing. Each Fund may borrow from banks as a temporary defensive
measure, to meet redemption requests, or for other purposes that are
consistent with the Fund's investment objective and strategies.
INTERNATIONAL EQUITY FUND AND GLOBAL EQUITY FUND
Closed-End Funds. Each of the International Equity and Global Equity
Funds may invest in closed-end funds that invest in foreign companies.
*** The Statement of Additional Information (SAI) describes each Fund's
investment strategies in more detail. ***
RISKS
*** Mutual fund investing involves risks ***
Each Fund is designed for long-term investors. The Funds are subject to risks
common to all mutual funds and risks common to mutual funds that invest in
equity securities and, to a lesser extent, debt securities. The International
Equity Fund and the Global Equity Fund are also subject to risks common to
mutual funds that invest in foreign securities.
YOU SHOULD ONLY INVEST IN A FUND IF YOU ARE WILLING AND ABLE TO TAKE
THE RISKS INVOLVED. PLEASE READ "RISKS OF INVESTING" CAREFULLY.
As with all mutual funds, investing in a Fund involves certain risks. There is
no guarantee that a Fund will meet its investment objective. You can lose money
by investing in a Fund, especially if you sell your shares during periods of
market volatility. There is never any assurance that a Fund will continue to
perform as it has in the past.
Each Fund may use various investment techniques, which involve varying amounts
of risk. We discuss these investment techniques in detail in the SAI. To reduce
risk, each Fund is subject to certain investment limitations and restrictions,
which we also describe in the SAI.
The following paragraphs describe some of the principal risks of investing in
the Funds that you should be aware of:
THE FOLLOWING RISKS ARE COMMON TO ALL MUTUAL FUNDS
- MARKET RISK is the risk that the market value of a security may go up
or down, sometimes rapidly. These fluctuations may cause the security
to be worth less than it was at the time it was purchased. Market risk
may involve a single security, a particular sector, country or region,
or the global economy.
- MANAGER RISK is the risk that a portfolio manager's investment
strategy may not produce the intended results. Manager risk also
involves the possibility that a portfolio manager fails to execute an
investment strategy effectively.
7
<PAGE>
- YEAR 2000 RISK is the risk that a Fund or its service providers could
be disrupted by the possible failure of computer systems that cannot
accurately process date-related information after December 31, 1999.
This failure, referred to as the "Year 2000 Issue," could adversely
affect the handling of securities trades, pricing and account
servicing for the Funds.
The Adviser has taken steps that it reasonably believes are designed
to adequately address the Year 2000 Issue. In addition, the Adviser
has been informed that the Funds' other major service providers have
taken similar steps. Neither the Adviser nor the Funds' other major
service providers can assure that these steps will be sufficient to
avoid any adverse affects from the Year 2000 Issue.
THE FOLLOWING RISK IS COMMON TO MUTUAL FUNDS THAT INVEST IN EQUITY SECURITIES
- EQUITY RISK is the risk that a security's value will fluctuate in
response to events affecting an issuer's profitability or viability.
Unlike debt securities, which have a preference to a company's
earnings and cash flow, equity securities receive value only after the
company meets its other obligations. For example, in the event of
bankruptcy, a company's bondholders have preference over stockholders
to the company's assets.
THE FOLLOWING RISKS ARE COMMON TO MUTUAL FUNDS THAT INVEST IN DEBT SECURITIES
- INTEREST RATE RISK is the risk that a security may lose value if
interest rates change. Generally, the value of a debt security changes
in the opposite direction from a change in interest rates. That is,
when interest rates rise, the value of a fixed-rate bond typically
will decrease. When interest rates decline, the value of a fixed-rate
bond typically will increase. In general, the bonds with longer
maturities are more sensitive to changes in interest rates.
- CREDIT RISK is the risk that the issuer of a debt security will be
unable to make timely payments of principal or interest, or will
default.
- REINVESTMENT RISK is the risk that an investor may obtain a lower rate
or return when reinvesting interest income, maturing principal, or the
proceeds from selling debt securities.
THE FOLLOWING RISKS ARE COMMON TO MUTUAL FUNDS THAT INVEST IN FOREIGN SECURITIES
- FOREIGN INVESTMENT RISK is the risk that the value of securities of
foreign companies could be affected by factors not present in the
U.S., including expropriation, confiscation of property, difficulties
in enforcing contracts, adverse changes in currency exchange rates,
and political risks.
THE FOLLOWING RISKS ARE COMMON TO MUTUAL FUNDS THAT USE HEDGING OR LEVERAGED
TRANSACTIONS
- CORRELATION RISK is the risk that changes in the value of a hedging
instrument will not correlate, or match, those of the underlying
security being hedged. Generally, a portfolio manager would enter into
a hedging transaction to protect the value of a portfolio position
without selling it.
- LEVERAGE RISK is the risk associated with certain techniques (like
borrowing) that multiply small price movements of an index or a
security into large price movements. A Fund's use of a derivative to
hedge a portfolio position may involve leverage. If the hedge works
properly, the gains produced will offset losses on the securities
hedged. Hedging may also reduce gains, or, if not executed properly,
may result in losses. A Fund's
8
<PAGE>
use of derivatives for speculation or asset substitution may also involve
leverage, because gains or losses might be substantially greater than the amount
the Fund invests.
PERFORMANCE
The U.S. Equity Fund and the International Equity Fund are successors to the
U.S. Equity Portfolio and International Equity Portfolio, respectively, of Simms
Investors L.P., a private investment fund managed by Simms. In addition, Simms
manages advisory accounts that operate in a manner substantially similar to the
Global Equity Fund. Each Fund's investment objective and policies are the same
as those of the pre-existing private fund and advisory accounts. Since each Fund
will continue to operate in substantially the same manner as the pre-existing
private fund and advisory accounts, the past performance of these investment
vehicles may be considered relevant. HOWEVER, PAST PERFORMANCE DOES NOT
NECESSARILY INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE.
As mutual funds, each Fund is subject to different rules and regulations than
those that govern private fund and advisory account operations. In addition, the
pre-existing private fund and advisory accounts did not incur the same operating
expenses that mutual funds incur. While the historical information relating to
each Fund's Class A Shares has been adjusted to reflect the Fund's maximum sales
charge of 5.00%, it has not been adjusted for the estimated operating expenses
of the Fund, and only reflects expenses that were incurred by the private fund
or the advisory accounts during the periods shown. The information relating to
Class Y Shares has not been adjusted.
===============================================================================
AVERAGE ANNUAL TOTAL RETURNS*
PRIVATE INVESTMENT FUND/ADVISORY ACCOUNTS
FOR THE PERIODS ENDED JUNE 30, 1998
===============================================================================
Class A
- --------------------------------------------------------------------------------
One Year Two Years Three Years Five Years Since
Inception**
- --------------------------------------------------------------------------------
U.S. Equity _____% _____% _____%
- --------------------------------------------------------------------------------
International
Equity
- --------------------------------------------------------------------------------
Ten Years
- --------------------------------------------------------------------------------
Global Equity
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------------------------
One Year Two Years Three Years Five Years Since
Inception**
- --------------------------------------------------------------------------------
U.S. Equity _____% _____% _____%
- --------------------------------------------------------------------------------
International
Equity
- --------------------------------------------------------------------------------
Ten Years
- --------------------------------------------------------------------------------
Global Equity
- -------------------------------------------------------------------------------
* This performance data has been calculated net of advisory fees and the
Funds' maximum front-end sales load of 5%. Performance information for the
International and Global accounts conforms to standards set by the
Association for Investment Management and Research, an organization of
investment managers and analysts.
** International returns prior to 1/31/92 are derived from the performance of
foreign securities held by Global advisory accounts. U.S. returns prior to
1/1/96 are derived from the performance of U.S. securities held by Global
advisory accounts. The Global advisory accounts' domestic and international
weightings correlate to those of global capital markets and global gross
domestic product (GDP).
9
<PAGE>
================================================================================
TOTAL RETURNS
PRIVATE INVESTMENT FUND/ADVISORY ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------
U.S.
Equity
- --------------------------------------------------------------------------------
International
Equity
- --------------------------------------------------------------------------------
Global
Equity
================================================================================
Class Y
================================================================================
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------
U.S.
Equity
- --------------------------------------------------------------------------------
International
Equity
- --------------------------------------------------------------------------------
Global
Equity
- --------------------------------------------------------------------------------
***Past performance is not a guarantee of future results. History does not
always repeat itself.***
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISER
Simms, the investment adviser of the Funds, is located at 55 Railroad Avenue,
Greenwich, Connecticut 06830. Simms is a registered investment adviser and
offers investment advisory services to open-end investment funds and other
managed pooled investment vehicles.
Simms supervises and assists in the overall management of the Funds' affairs,
subject to oversight by the Funds' Board of Trustees. The following table lists
the advisory fees paid to Simms based at the indicated annual rates of a Fund's
average daily net assets, computed daily and payable monthly. Simms may from
time to time waive all or part of its advisory fees in order to limit a Fund's
expenses. Simms may terminate such waivers at any time.
U.S. Equity Fund - .75%
International Equity Fund - 1.00%
Global Equity Fund - 1.00%
PORTFOLIO MANAGERS
EACH FUND IS MANAGED BY ROBERT A. SIMMS, THOMAS L. MELLY, JENNIFER D. MILLER,
AND ROBERT ROSA, JR.
Mr. Simms has been the President and CEO of Simms since 1984, prior to which he
was a General Partner of Bear, Stearns & Co. Mr. Melly, a Principal of Simms,
joined Simms in 1990, prior to which he specialized in product development and
evaluation at Lake Partners, Inc., an independent financial consulting firm. Ms.
Miller, a Principal of Simms, joined Simms in 1991, prior to which she served as
a quantitative and technical analyst with Salomon Brothers Inc. Mr. Rosa joined
Simms in March 1997.
10
<PAGE>
DISTRIBUTOR
Merit Capital Associates, Inc., located at 1221 Post Road East, Westport,
Connecticut 06880, serves as each Fund's principal underwriter and distributor.
The Distributor receives the sales load described under "How to Buy Shares" and
payments under each Fund's distribution plan.
DISTRIBUTION FEES
Each Fund, on behalf of its Class A Shares, has adopted a distribution plan
according to Rule 12b-1 under the Investment Company Act of 1940, as amended.
Under the distribution plan, each Fund's Class A Shares pays the Distributor a
fee of up to .25% of its average daily net assets to reimburse expenses it may
incur in distributing shares.
Keep in mind that:
- Each Fund pays distribution fees on an ongoing basis. Over time, these
fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
- The Distributor will waive its distribution fees to the extent that a
Fund would exceed the National Association of Securities Dealers,
Inc.'s limitations on asset-based sales charges.
SHAREHOLDER SERVICING FEES
Each Fund, on behalf of its Class A Shares, has adopted a shareholder servicing
plan. Under the shareholder servicing plan, Class A Shares may pay financial
institutions, including affiliates of the Adviser, a fee of up to .25% of its
average daily net assets for services relating to maintenance of investor
accounts, including liaison with investors. The shareholder servicing fee and
the distribution fee may be used to compensate "mutual fund supermarkets" or "no
transaction fee" programs that make available Fund shares.
SHAREHOLDER INFORMATION
HOW WE VALUE FUND SHARES
***The net asset value, multiplied by the number of Fund shares you own, gives
you the value of your investment.***
We calculate each Fund's share price, called its net asset value (the NAV), each
business day as of the close of the New York Stock Exchange, Inc. (NYSE),
normally 4:00 p.m. Eastern Time. Any shares that you purchase, redeem, or
exchange are valued at the next share price calculated after we receive and
accept your investment instructions. A business day is a day on which the NYSE
is open for trading or any day in which enough trading has occurred in the
securities held by a Fund to affect the NAV materially.
Portfolio securities that are listed primarily on foreign exchanges may trade on
weekends or on other days on which the Funds do not price their shares.
We calculate the NAV by adding up the total value of a Fund's investments and
other assets, subtracting its liabilities and then dividing that figure by the
number of the Fund's outstanding shares. The value of an investment in a mutual
fund is based upon the NAV determined by that mutual fund.
Total Assets Less Liabilities
NAV = -----------------------------
Number of Shares Outstanding
11
<PAGE>
You can find the NAV of most mutual funds every day in The Wall Street Journal
and other newspapers. Newspapers do not normally publish information about a
particular mutual fund until it has a minimum number of shareholders or minimum
level of assets.
INVESTING WITH SIMMS
This section provides information to assist you in purchasing shares of the
Funds. We describe the minimum investment requirements for each Fund. We also
describe the expenses and sales charges applied to each Class of shares and the
procedures to follow if you decide to buy shares of a Fund. Please read the
entire Prospectus carefully before buying shares of a Fund.
INVESTMENT REQUIREMENTS
Minimum Initial Investment
Non-Retirement Account Retirement Account
---------------------- ------------------
o Class A Shares $1,000 $500
---------------
o Class Y Shares $1,000,000 not applicable
---------------
Minimum Subsequent Investment
Non-Retirement Account Retirement Account
---------------------- ------------------
o Class A Shares $50 $25
---------------
o Class Y Shares $250,000 not applicable
---------------
GENERAL INFORMATION
o Class A Shares are sold at NAV plus a front-end sales charge. The
Distributor may, in its discretion, waive these purchase minimums.
o Class Y Shares are sold primarily to institutions at NAV without a
front-end sales charge. The Distributor, in its discretion, may sell
Class Y Shares to individuals who invest at least $1 million.
Class A and Class Y Shares of the Funds may be purchased from the following:
o Authorized Securities Dealers
o Firstar Trust Company, the Funds' Transfer Agent (Firstar or the
Transfer Agent).
12
<PAGE>
HOW WE CALCULATE SALES CHARGES ON CLASS A SHARES
The Class A Shares' sales load varies according to the size of the purchase.
Amount of Purchase Initial Sales Charge:% of % of Net Amount
Offering Price Invested
----------------- ----------------------- ----------------
Less than $50,000 5.00 5.76
$50,000 to $99,999 4.00 4.17
$100,000 to $249,999 3.00 3.09
$250,000 to $499,999 2.00 2.04
$500,000 to $999,999 1.00 1.01
$1,000,000 and over* 0.00 0.00
* Individuals investing at least $1 million in a Fund may purchase either
Class A Shares or Class Y Shares of the Fund. Although Class Y Shares do
not carry a Rule 12b-1 distribution fee, purchasers of Class Y Shares do
not receive the services provided to investors in Class A Shares.
Certain purchases may be grouped in order to qualify for the reduced sales load:
o purchases by an individual, his or her spouse and minor children
o purchases by a fiduciary of a trust, estate or fiduciary account
SALES CHARGE REDUCTIONS AND WAIVERS
WAIVER OF CLASS A SALES CHARGES
The following categories of investors may purchase Class A Shares without a
front-end sales charge:
o qualified retirement plans
o Simms, Firstar, their active or retired trustees, directors, officers,
partners or employees and certain family members of these individuals
o active or retired Trustees or officers of the Funds
o employees of Authorized Securities Dealers
o organizations providing professional services to the Funds
o registered investment advisers purchasing shares for their own accounts or
discretionary accounts
*** To take advantage of the sales charge waiver, you must indicate your
eligibility for a waiver on your application. If you think you may be eligible
for a sales charge waiver, please contact your Authorized Securities Dealer or
the Transfer Agent at
1-800-______________.***
REDUCTION OF CLASS A SALES CHARGES
You may reduce your Class A sales charge by taking advantage of the following
privileges:
- Right of Accumulation: Allows you to add to the value of all Class A
Shares of Funds that you currently own for purposes of calculating the
sales charge on future purchases of Class A Shares. You may count
share purchases made by the following people to calculate the reduced
sales charge:
- you, your spouse, your children under the age of 21 (including
shares in certain
13
<PAGE>
retirement accounts) and a company that you, your spouse or your
children control;
- a trustee or other fiduciary account (including an employee
benefit plan);
- a trustee or other fiduciary that purchases shares at the same
time for two or more employee benefit plans of a single employer
or of affiliated employers.
- Letter of Intent: Allows you to purchase Class A Shares of the Funds
over a 13-month period at the same sales charge as if all shares had
been purchased at once. You are not obligated to purchase the full
amount of the shares, but you must complete the intended purchase to
obtain the reduced sales load. At the time you purchase shares of any
Fund, check the "Letter of Intent" box on the Account Information
Form.
- Group Purchases. If you are an individual member of a qualified group,
you may purchase Class A Shares at the reduced initial sales charge
applicable to the group taken as a whole. For example, if members of
the group had previously invested and still held $90,000 of Class A
Shares and now were investing $15,000, the initial sales charge would
be 4.00%. To qualify, the group must have the following
characteristics:
- in existence for more than six months
- have a purpose other than purchasing Class A Shares at a discount
- consist of more than 10 individuals
- be able to meet as a group with Fund representatives
- distribute Fund sales materials to its members
- arrange for payroll deduction or other bulk transmission of Fund
investments
*** When you purchase shares, you must specify the class of shares. Otherwise,
we will assume that you wish to purchase Class A Shares ***
HOW TO PURCHASE SHARES
You may purchase shares of the Funds through an Authorized Securities Dealer by
check or wire. If you purchase shares through the Transfer Agent, you must pay
by check or wire in U.S. dollars. Instructions for buying shares are described
below.
OPENING AN ACCOUNT
METHOD OF PAYMENT INSTRUCTIONS
By Check o complete application
o Make check or draft payable to "Simms Funds - [name of
Fund]" or your Authorized Securities Dealer. Be sure to
specify the Fund name and class of shares you wish to
purchase.
14
<PAGE>
o Mail your check and your completed account application
to:
Firstar Trust Company
Attn: Simms Funds
[name of Fund]
P.O. Box 701
Milwaukee, Wisconsin 53201-0701.
Overnight deliveries should be sent to:
Firstar Trust Company
615 East Michigan Street
Milwaukee, Wisconsin 53202.
o The Funds do not consider the U.S. Postal Service or
other independent delivery services to be their agents.
Accordingly, deposit in the mail or with such services,
or receipt at the Transfer Agent's post office box, of
purchase applications do not constitute receipt by
Firstar or the Funds.
o Authorized Securities Dealers must receive your payment
within 3 business days of receipt of your purchase
order.
o Neither cash nor third party checks will be accepted.
o Firstar will charge a $20 fee for any returned payment
check.
By Wire o Deliver your completed account application to your
Authorized Securities Dealer or to Firstar at the
address listed above.
o Instruct your bank to wire the amount of your
investment to:
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
ABA # 075000022
Credit: Firstar Trust Company
Account # 112-952-137
Further credit: Simms Fund [name of Fund]
Name of shareholder and account number
By Exchange o Call your Authorized Securities Dealer or Firstar
(1-800-____-_____) to request an exchange.
ADDING TO AN EXISTING ACCOUNT
METHOD OF PAYMENT INSTRUCTIONS
By Check o Make the check payable to "Simms Funds [name of Fund]".
o Fill out the additional investment form.
o Send your check and your [investment slip] to Firstar
at the address listed above.
15
<PAGE>
By Wire o Instruct your bank to wire the amount of your
investment to Firstar, using the instructions set out
above.
o Wired funds must be received prior to 4:00 p.m. Eastern
time to be eligible for same day pricing.o
o Be sure to specify the name of the Fund and the class
of shares you wish to purchase.
By Exchange o Call your Authorized Securities Dealer or Firstar
(1-800-____-_____) to request an exchange.
By Phone o Verify that your bank or credit union is a member of
the Automated Clearing House (ACH) system.
o Complete the required information on your account
application.
o Subsequent investments (not initial purchases) may be
made by calling 1-800-_____-_____.
o Tell the Transfer Agent representative the amount of
your investment, the name of the Fund, the Class of
Shares you wish to purchase, your account number and
the name(s) in which the account is registered.
HOW TO REDEEM SHARES
o You may redeem shares at any time.
o When we receive your redemption request in proper form (see
below), we will redeem your shares at the next determined NAV.
o We will normally mail your redemption proceeds the next business
day and, in any event, no later than seven business days after we
receive your redemption request.
REDEMPTION PROCEDURES
REDEMPTION THROUGH FIRSTAR OR AUTHORIZED SECURITIES DEALERS:
METHOD OF INSTRUCTIONS
REDEMPTION
In person o Contact your Authorized Securities Dealer or Firstar
(1-800-____-_____).
o Specify the name of the Fund, class of shares and
number of shares you wish to redeem.
By telephone o Call your Authorized Securities Dealer or Firstar
(1-800-____-_____).
o Specify the name of the Fund, account number Class of
Shares and number of Shares you wish to redeem.
16
<PAGE>
By mail o Mail your redemption request to your Authorized
Securities Dealer, or
o Mail your redemption request to:
Firstar Trust Company
Attn: Simms Funds
[name of Fund]
P.O. Box 701
Milwaukee, Wisconsin 53201-0701.
Overnight deliveries should be sent to:
Firstar Trust Company
615 East Michigan Street
Milwaukee, Wisconsin 53202.
o Deposit of redemption requests in the mail or with
independent delivery services does not constitute
receipt of such requests by Firstar or the Funds. See
"Opening an Account -- Method of Payment -- By Check"
above.o
o Specify the name of the Fund, class of shares and
number of shares you wish to redeem.
By wire o Submit wire instructions to:
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
ABA # 075000022
Credit: Firstar Trust Company
Account # 112-952-137
Further credit: Simms Funds [name of Fund]
Name of shareholder and account number
o Specify the name of the Fund, class of shares and
number of shares you wish to redeem.
o Firstar charges a $12 wire fee for redemption proceeds
made by Fed wire.
ADDITIONAL INFORMATION ABOUT REDEMPTIONS
- Purchases by check. If you purchase shares by check, we will wait up
to 12 days for your check to clear before accepting your redemption
request.
- Wiring redemption proceeds. Upon request, we will wire your proceeds
($500 minimum) to your brokerage account or a designated commercial
bank account. Firstar charges a transaction fee of $12 for this
service. Please call your Authorized Securities Dealer for information
on how to wire funds to your brokerage account. If you do not have a
brokerage account, call Firstar at 1-800-_____-_____ to wire funds to
your bank account.
- Signature guarantees. If your redemption proceeds exceed $25,000, if
you instruct us to send the proceeds to someone other than the record
owner at the record address or if you are a corporation, partnership,
trust or fiduciary, your signature must be guaranteed by any eligible
guarantor institution. Call Firstar at 1-800-______________ for
information about obtaining a signature guarantee.
17
<PAGE>
- Redemption by mail may cause a delay. During times of drastic economic
or market conditions, you may experience difficulty telephoning
Firstar or an Authorized Securities Dealer to redeem shares. If this
occurs, please consider using the other redemption procedures
described in this Prospectus. Redeeming shares using these alternative
procedures may take longer than if you phoned your redemption request.
- Automatic redemption; redemption in kind. If the value of your account
falls below $600 (for reasons other than changes in market
conditions), we may automatically redeem the shares in your account
and send you the proceeds. We will send you a notice at least 60 days
before we do this. We also reserve the right to redeem your shares "in
kind." For example, if you redeem a large amount of shares and the
Fund is unable to sell securities to raise cash, we may send you a
combination of cash and a share of actual portfolio securities. Call
the Transfer Agent for details.
- Telephone policies. You may authorize the Transfer Agent to accept
telephone instructions. If you do, the Transfer Agent will accept
instructions from people who it believes are authorized to act on your
behalf. The Transfer Agent will use reasonable procedures (like
requesting personal identification) to ensure that the caller is
properly authorized. Neither the Fund nor the Transfer Agent will be
liable for losses for following instructions they reasonably believe
to be genuine.
- Suspension of redemption. Under certain emergency circumstances, we
may suspend your right to redeem shares in a Fund.
EXCHANGES
You may exchange shares of one Fund for shares of the same class of another
Fund, usually without paying any additional sales charges. You may pay a sales
charge if the Fund you are buying has an initial sales charge that is higher
than the one you are selling. We do not currently charge a fee for exchanges,
although we may in the future.
Exchange procedures. To exchange your shares, you must give exchange
instructions to the Transfer Agent in writing or by telephone.
Exchange policies. When exchanging your shares, please keep in mind:
- Anytime you exchange your shares, it is a taxable event to you.
You may have a gain or loss on the transaction and you may be
liable for taxes resulting from the sale of your shares.
- When the market is very active, telephone exchanges may be
difficult to complete. You may have to submit exchange requests
to the Transfer Agent in writing, which will cause a delay.
- You must exchange shares having a value of at least $250 (except
in the case of certain retirement plans). If you are establishing
a new account, you must exchange the minimum dollar amount needed
to open that account.
- We may reject your exchange request. We may modify or terminate
our exchange policy at any time, provided we give you 60 days'
notice.
- Before you exchange your shares, you must review a copy of the
current prospectus of the Fund that you would like to purchase.
18
<PAGE>
- You may qualify for a reduced sales charge. See the SAI for
details.
SHAREHOLDER SERVICES
The Fund offers several additional shareholder services. If you would like to
take advantage of any of these services, please call the Transfer Agent at
1-800-____________ to obtain the appropriate forms. We may terminate any of
these services at any time upon 60 days' notice.
- AUTOMATIC INVESTMENT PLAN. You may purchase shares of a Fund at
regular intervals by direct transfer of funds from your bank. You
determine the frequency and the amount of the investments. You
can terminate the program at any time. The minimum investment
under this plan is $100 ($250 for the initial purchase).
- DIRECTED DISTRIBUTION OPTION. You may automatically reinvest your
dividends and capital gain distributions in the same class of
shares of another Fund or a Firstar Money Market Fund. You may
purchase Class A Shares without a sales charge at the current
NAV. You may not use this service to establish a new account.
Firstar Money Market Fund is managed by Firstar Investment
Research and Management Company, an affiliate of Firstar.
- SYSTEMATIC WITHDRAWAL. You may withdraw a set amount ($500
minimum) each month or quarter. You must have an account balance
worth at least $10,000 to qualify for this privilege. You or the
Transfer Agent may terminate the arrangement at any time. If you
plan to buy new shares when you participate in a systematic
withdrawal, you may be paying an additional sales charge.
- REINSTATEMENT PRIVILEGE. If you redeem your Class A Shares, you
may repurchase them (or purchase Class A Shares of any other
Fund) within 30 days without paying an additional sales charge.
DIVIDENDS, DISTRIBUTIONS AND TAXES
***If you buy shares of a Fund shortly before it makes a distribution, some of
your investment may come back to you as a taxable distribution.***
DISTRIBUTIONS
The Funds pass along your share of their investment earnings in the form of
dividends. Dividend distributions are the net dividends or interest earned on
investments after expenses. As with any investment, you should consider the tax
consequences of an investment in a Fund.
Ordinarily, each Fund declares and pays dividends from its net investment income
quarterly. The Funds pay any net capital gains realized as dividends at least
annually.
You can ask the Funds to send you distributions in one of the following ways:
- REINVESTMENT. We automatically reinvest your distributions in
additional shares of your Fund. If you do not indicate another
choice on your application, you will receive your distributions
this way automatically.
- CASH. We will send you a check no later than 7 days after the
payable date.
- PARTIAL REINVESTMENT. We will automatically reinvest your
dividends in additional shares of your Fund and pay your capital
gain distributions in cash or we will automatically reinvest your
capital gain distributions and send you your dividends in cash.
19
<PAGE>
- DIRECTED DIVIDENDS. We will automatically reinvest your dividends
in the same class of shares of another Fund. We describe this
option above in the Shareholder Services section above.
- DIRECT DEPOSIT. In most cases, you can automatically transfer
dividends to your bank checking or savings account. Under normal
circumstances, the Transfer Agent will transfer the funds within
7 days of the dividend payment date. The name on your bank
account must be the same as the registration on your Fund
account.
You may choose your distribution method on your original application. If you
would like to change the option you selected, please call the Transfer Agent at
1-800-_____________.
TAXES
Each Fund intends to continue to qualify as a regulated investment company,
which means that it pays no federal income tax on the earnings or capital gains
it distributes to its shareholders.
- Ordinary dividends from your Fund are taxable as ordinary income
and dividends from your Fund's long-term capital gains are
taxable as capital gain.
- Dividends are treated in the same manner for federal income tax
purposes whether you receive them in cash or in additional
shares. They may also be subject to state and local taxes.
- Dividends from the Funds that are attributable to interest on
certain U.S. Government obligations may be exempt from certain
state and local income taxes. The extent to which ordinary
dividends are attributable to U.S. Government obligations will be
indicated on the tax statements you receive from your Fund.
- Certain dividends paid to you in January will be taxable as if
they had been paid the previous December.
- We will mail you tax statements every January showing the amounts
and tax status of the distributions you received.
- When you sell (redeem) or exchange shares of a Fund, you must
recognize any gain or loss.
- Because your tax treatment depends on your purchase price and tax
position, you should keep your regular account statements for use
in determining your tax.
- Under certain circumstances, the International Equity Fund or
Global Equity Fund may be in a position to "pass through" to you
the right to a credit for foreign income taxes paid by the Fund.
- You should review the more detailed discussion of federal income
tax considerations in the SAI.
***We provide this tax information for your general information. You should
consult your own tax adviser about the tax consequences of investing in a
Fund.***
20
<PAGE>
ADDITIONAL INFORMATION
Statement of Additional Information. The Statement of Additional Information
(SAI) provides a more complete discussion of certain matters contained in this
Prospectus and is incorporated by reference.
Annual and Semi-Annual Reports. The annual and semi-annual reports to
shareholders contain additional information about each Fund's investments,
including a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during the fiscal period covered
by the report.
- To obtain a free copy of the SAI and the current annual or
semi-annual reports or to make any other inquiries about the
Fund, you may call or write:
Firstar Trust Company
Attention: Simms Funds
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
Telephone: 1-800-_________________________
- You may obtain copies of the SAI or financial reports for free by
calling or writing your Authorized Securities Dealer
- You may review the SAI or financial reports at the Public
Reference Room of the Securities Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. (1-800-SEC-0330)
- You may obtain copies of the SAI or the financial reports for a
fee by calling or writing the SEC's Public Reference Room at the
address or phone number listed above or
- for free by visiting the SEC's Worldwide Web site at
http://www.sec.gov.
- You may obtain a copy of the Fund's prospectus at the Simms
Worldwide Web site at http://www.simmscapital.com.
Investment Company Act File No. 811-_____
21
<PAGE>
Simms Funds
55 Railroad Avenue
Greenwich, Connecticut 06830
1-800-_____________
Distributor
Merit Capital Associates, Inc.
1221 Post Road East
Westport, Connecticut 06880
Investment Adviser
Simms Capital Management, Inc.
55 Railroad Avenue
Greenwich, Connecticut 06830
Administrator, Custodian and
Transfer & Dividend Disbursement Agent
Firstar Trust Company
615 East Michigan Street
Milwaukee, Wisconsin 53202-5207
Counsel
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Independent Accountants
---------------------
--------------------------
------------------------
<PAGE>
The information in this statement of additional information is not complete
and may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective.
This statement of additional information is not an offer to sell these
securities and is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
STATEMENT OF ADDITIONAL INFORMATION
SIMMS FUNDS
U.S. Equity Fund
International Equity Fund
Global Equity Fund
_____________ __, 1998
This Statement of Additional Information ("SAI") is not a prospectus, but should
be read in conjunction with the prospectus of Simms Funds (the "Prospectus"),
which is dated ___________ __, 1998. This SAI is incorporated by reference in
its entirety into the Prospectus. Copies of the Prospectus may be obtained by
writing Simms Funds at 55 Railroad Avenue, Greenwich, Connecticut 06830, or by
calling toll free 800-_______________________.
INVESTMENT ADVISER
Simms Capital Management, Inc.
DISTRIBUTOR
Merit Capital Associates, Inc.
ADMINISTRATOR, CUSTODIAN AND
TRANSFER & DIVIDEND DISBURSING AGENT
Firstar Trust Company
INDEPENDENT ACCOUNTANTS
- --------------------------------
COUNSEL
Kramer, Levin, Naftalis & Frankel
<PAGE>
Table of Contents
INVESTMENT OBJECTIVES AND INVESTMENT POLICIES AND LIMITATIONS..................
FUNDAMENTAL RESTRICTIONS OF THE FUNDS..........................................
NON-FUNDAMENTAL RESTRICTIONS OF THE FUNDS......................................
INSTRUMENTS IN WHICH THE FUNDS CAN INVEST......................................
Foreign Investments..................................................
Securities of Other Investment Companies -- Closed-End Funds.........
Warrants.............................................................
Preferred Stock......................................................
Convertible Securities...............................................
U.S. Government Obligations..........................................
Receipts.............................................................
Investment-Grade and High Quality Investments........................
U.S. Corporate Debt Obligations......................................
Zero-Coupon Bonds....................................................
International Bonds..................................................
Mortgage-Backed Securities...........................................
In General..................................................
U.S. Government Mortgage-Backed Securities..................
Collateralized Mortgage Obligations.........................
Non-Government Mortgage-Backed Securities...................
Asset-Backed Securities..............................................
Temporary Defensive Measures -- Short-Term Obligations...............
Short-Term Corporate Obligations............................
Bankers' Acceptances........................................
Certificates of Deposit.....................................
Foreign Time Deposits.......................................
Commercial Paper............................................
Repurchase Agreements.......................................
Futures and Options..................................................
Futures Contracts...........................................
Restrictions on the Use of Futures Contracts................
Risk Factors in Futures Transactions........................
Options.....................................................
Illiquid Investments.................................................
Restricted Securities................................................
Securities Lending Transactions......................................
Reverse Repurchase Agreements........................................
VALUATION OF PORTFOLIOS SECURITIES.............................................
PERFORMANCE OF THE FUNDS.......................................................
ADDITIONAL PURCHASE, EXCHANGE, AND REDEMPTION INFORMATION......................
DIVIDENDS AND DISTRIBUTIONS....................................................
TAXES .....................................................................
2
<PAGE>
TRUSTEES AND OFFICERS..........................................................
ADVISORY AND OTHER CONTRACTS...................................................
ADDITIONAL INFORMATION.........................................................
APPENDIX.......................................................................
3
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Simms Funds (the "Trust") is an open-end management investment company. The
Trust consists of three diversified series (each a "Fund," and collectively, the
"Funds") of units of beneficial interest ("shares"). The outstanding shares
represent interests in the three separate investment portfolios. This SAI
relates to the shares of the Funds listed below. Much of the information
contained in this SAI expands on subjects discussed in the Prospectus.
Capitalized terms not defined herein are used as defined in the Prospectus. No
investment in shares of a Fund should be made without first reading the
Prospectus.
SIMMS FUNDS:
o U.S. Equity Fund
o International Equity Fund
o Global Equity Fund
INVESTMENT OBJECTIVES AND INVESTMENT POLICIES AND LIMITATIONS
Each Fund's investment objective is fundamental and may not be changed without a
vote of the holders of a majority of the Fund's outstanding voting securities.
There can be no assurance that a Fund will achieve its investment objective.
ADDITIONAL INFORMATION REGARDING FUND INVESTMENTS.
The following policies and limitations supplement the Funds' investment policies
set forth in the Prospectus. The Funds' investments in the following securities
and other financial instruments are subject to the other investment policies and
limitations described in the Prospectus and this SAI.
Unless otherwise noted in the Prospectus or this SAI, a Fund may invest no more
than 5% of its total assets in any of the securities or financial instruments
described below (unless the context requires otherwise).
Unless otherwise noted, whenever an investment policy or limitation states a
maximum percentage of a Fund's assets that may be invested in any security or
other asset, or sets forth a policy regarding quality standards, such standard
or percentage limitation will be determined immediately after and as a result of
the Fund's acquisition of such security or other asset except in the case of
borrowing (or other activities that may be deemed to result in the issuance of a
"senior security" under the Investment Company Act of 1940, as amended (the
"1940 Act")). Accordingly, any subsequent change in values, net assets, or other
circumstances will not be considered when determining whether the investment
complies with a Fund's investment policies and limitations. If the value of a
Fund's holdings of illiquid securities at any time exceeds the percentage
limitation applicable at the time of acquisition due to subsequent fluctuations
in value or other reasons, the Trustees will consider what actions, if any, are
appropriate to maintain adequate liquidity.
The investment policies of a Fund may be changed without an affirmative vote of
the holders of a majority of that Fund's outstanding voting securities unless
(1) a policy expressly is deemed to be a fundamental policy of the Fund or (2) a
policy expressly is deemed to be changeable only by such majority vote. A Fund
may, following notice to its shareholders, take advantage of other investment
practices which presently are not contemplated for use by the Fund or which
currently are not available but which may be developed to the extent such
investment practices are both consistent with the Fund's investment objective
and legally permissible for the Fund. Such investment practices, if they arise,
may involve risks which exceed those involved in the activities described in the
Prospectus.
<PAGE>
The following sections list each Fund's investment policies, limitations, and
restrictions. The securities in which the Funds can invest and the risks
associated with these securities are discussed in the section "Instruments in
Which the Funds Can Invest."
FUNDAMENTAL RESTRICTIONS OF THE FUNDS
The following Fundamental Restrictions may not be changed with respect to a Fund
without the affirmative vote of the holders of a majority of the Fund's
outstanding shares. Such majority is defined as the lesser of (a) 67% or more of
the shares of the Fund present at a meeting at which the holders of more than
50% of the outstanding shares of the Fund are represented in person or by proxy,
or (b) more than 50% of the outstanding shares of the Fund.
1. SENIOR SECURITIES
The Funds may not:
Issue any senior security (as defined in the 1940 Act), except that (a) each
Fund may engage in transactions that may result in the issuance of senior
securities to the extent permitted under applicable regulations and
interpretations of the 1940 Act or an exemptive order; (b) each Fund may acquire
other securities, the acquisition of which may result in the issuance of a
senior security, to the extent permitted under applicable regulations or
interpretations of the 1940 Act; and (c) subject to the restrictions set forth
below, the Fund may borrow money as authorized by the 1940 Act.
2. UNDERWRITING
The Funds may not:
Underwrite securities issued by others, except to the extent that the Fund may
be considered an underwriter within the meaning of the Securities Act of 1933,
as amended (the "Securities Act"), in the disposition of restricted securities.
3. BORROWING
The Funds may not:
Borrow money, except that (a) each Fund may enter into commitments to purchase
securities and instruments in accordance with its investment program, including
delayed-delivery and when-issued securities and reverse repurchase agreements,
provided that the total amount of any such borrowing does not exceed 33 1/3 % of
the Fund's total assets; and (b) each Fund may borrow money in an amount not
exceeding 33 1/3% of the value of its total assets at the time when the loan is
made. Any borrowings representing more than 33 1/3% of a Fund's total assets
must be repaid before the Fund may make additional investments.
4. REAL ESTATE
The Funds may not:
Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent each Fund from
investing in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business). Investments by the Funds in
securities backed by mortgages on real estate or in marketable securities of
companies engaged in such activities are not hereby precluded.
2
<PAGE>
5. LENDING
Each Fund may not:
Lend any security or make any other loan if, as a result, more than 33 1/3% of
its total assets would be lent to other parties, but this limitation does not
apply to purchases of publicly issued debt securities or to repurchase
agreements.
6. COMMODITIES
The Funds may not:
Purchase or sell physical commodities unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent a Fund from
purchasing or selling options and futures contracts or from investing in
securities or other instruments backed by physical commodities.)
7. CONCENTRATION
Each Fund may not:
Purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities,
or repurchase agreements secured thereby) if, as a result, more than 25% of the
Fund's total assets would be invested in the securities of companies whose
principal business activities are in the same industry. In the utilities
category, the industry shall be determined according to the service provided.
For example, gas, electric, water and telephone will be considered as separate
industries.
NON-FUNDAMENTAL RESTRICTIONS OF THE FUNDS
Each Fund's Non-Fundamental Restrictions may be changed by a majority vote of
the Trust's Board of Trustees (the "Board") at any time.
1. ILLIQUID SECURITIES
Each Fund:
Will not invest more than 15% of its net assets in illiquid securities. Illiquid
securities are securities that are not readily marketable or cannot be disposed
of promptly within seven days and in the usual course of business at
approximately the price at which the Fund has valued them. Such securities
include, but are not limited to, time deposits and repurchase agreements with
maturities longer than seven days. Securities that may be resold pursuant to
Rule 144A under, securities offered pursuant to Section 4(2) of, or securities
otherwise subject to restrictions or limitations on resale under the Securities
Act ("Restricted Securities") shall not be deemed illiquid solely by reason of
being unregistered. Simms Capital Management, Inc., each Fund's investment
adviser ("Simms" or the "Adviser"), determines whether a particular security is
deemed to be liquid based on the trading markets for the specific security and
other factors.
2. SHORT SALES AND PURCHASES ON MARGIN
Each Fund:
Will not make short sales of securities or purchase securities on margin except
for short-term credits necessary for clearance of portfolio transactions,
provided that this restriction will not be applied to limit the use of options,
futures contracts and related options, in the manner otherwise permitted by the
investment restrictions, policies and investment program of the Fund.
3
<PAGE>
INSTRUMENTS IN WHICH THE FUNDS CAN INVEST
The following paragraphs provide a brief description of some of the types of
securities in which the Funds may invest in accordance with their investment
objective, policies, and limitations, including certain transactions the Funds
may make and strategies they may adopt. The following also contains a brief
description of certain risk factors.
FOREIGN INVESTMENTS (International Equity Fund and Global Equity Fund). These
Funds will invest in sponsored and unsponsored American Depositary Receipts
("ADRs"). Such investment may subject the Fund to significant investment risks
that are different from, and additional to, those related to investments in
obligations of U.S. domestic issuers or in U.S. securities markets. Unsponsored
ADRs may involve additional risks. These Funds may also invest directly in
non-U.S. dollar denominated equity and debt securities of foreign companies.
The value of securities denominated in or indexed to foreign currencies, and of
dividends and interest from such securities, can change significantly when
foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less liquidity than
U.S. markets, and prices on some foreign markets can be highly volatile. Many
foreign countries lack uniform accounting and disclosure standards comparable to
those applicable to U.S. companies, and it may be more difficult to obtain
reliable information regarding an issuer's financial condition and operations.
Settlement of transactions in some foreign markets may be delayed or may be less
frequent than in the U.S., which could affect the liquidity of a Fund's
investment. In addition, the costs of foreign investing, including withholding
taxes, brokerage commissions, and custodial costs, are generally higher than for
U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, which
may result in substantial delays in settlement. It may also be difficult to
enforce legal rights in foreign countries.
Investing abroad also involves different political and economic risks. Foreign
investments may be affected by actions of foreign governments adverse to the
interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility of
default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that the Adviser will be able to
anticipate these potential events or counter their effects.
The considerations noted above generally are intensified for investments in
developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities.
The International Equity Fund and the Global Equity Fund may invest in foreign
securities that impose restrictions on transfer within the U.S. or to U.S.
persons. Although securities subject to transfer restrictions may be marketable
abroad, they may be less liquid than foreign securities of the same class that
are not subject to such restrictions.
The Adviser continuously evaluates issuers based in countries all over the
world. Accordingly, a Fund may invest in the securities of issuers based in any
country when such securities meet the investment criteria of the Adviser and are
consistent with the investment objectives and policies of the Fund.
SECURITIES OF OTHER INVESTMENT COMPANIES -- CLOSED-END FUNDS (International
Equity and Global Equity Funds). These Funds may purchase closed-end funds that
invest in foreign securities. Unlike open-end
4
<PAGE>
investment companies, like the Funds, closed-end funds issue a fixed number of
shares that trade on major stock exchanges or over-the-counter. Also unlike
open-end funds, closed-end funds do not stand ready to issue and redeem shares
on a continuous basis. Closed-end funds often sell at a discount from net asset
value.
These Funds' investment in closed-end funds is subject to the 1940 Act's limits
on investment in other mutual funds. Under the 1940 Act, each Fund may invest up
to 5% of its total assets in any one mutual fund, but may not own more than 3%
of any one mutual fund or invest more than 10% of its total assets in mutual
funds as a group.
WARRANTS. Each Fund may invest in warrants. These are securities that give an
investor the right to purchase equity securities from the issuer at a specific
price (the strike price) for a limited period of time. The strike price of
warrants typically is much lower than the current market price of the underlying
securities, yet warrants are subject to greater price fluctuations. As a result,
warrants may be more volatile investments than the underlying securities and may
offer greater potential for capital appreciation as well as capital loss.
PREFERRED STOCK. Each Fund may invest in preferred stock issued by domestic and
foreign corporations. Preferred stocks are instruments that combine qualities
both of equity and debt securities. Individual issues of preferred stock will
have those rights and liabilities that are spelled out in the governing
document. Preferred stocks usually pay a fixed dividend per quarter (or annum)
and are senior to common stock in terms of liquidation and dividends rights.
Preferred stocks typically do not have voting rights.
CONVERTIBLE SECURITIES. Each Fund may invest in convertible debt and convertible
preferred stock. These securities may be converted at either a stated price or
rate into underlying shares of common stock. As a result, an investor in
convertible securities may benefit from increases in the underlying common
stock's market price. Convertible securities provide higher yields than the
underlying common stock, but typically offer lower yields than comparable
non-convertible securities. The value of convertible securities fluctuates in
relation to changes in interest rates like bonds and also fluctuates in relation
to the underlying stock's price.
U.S. GOVERNMENT OBLIGATIONS. Each Fund may invest in U.S. Government
Obligations, that is, obligations issued or guaranteed by the U.S. Government,
its agencies, and instrumentalities. Obligations of certain agencies and
instrumentalities of the U.S. Government are supported by the full faith and
credit of the U.S. Treasury; others are supported by the right of the issuer to
borrow from the U.S. Treasury; others are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; and still
others are supported only by the credit of the agency or instrumentality. No
assurance can be given that the U.S. Government will provide financial support
to U.S. Government-sponsored agencies or instrumentalities if it is not
obligated to do so by law.
RECEIPTS. Receipts are separately traded interest and principal component parts
of bills, notes, and bonds issued by the U.S. Treasury that are transferable
through the Federal book entry system, known as Separately Traded Registered
Interest and Principal Securities ("STRIPS") and Coupon Under Book Entry
Safekeeping ("CUBES"). These instruments are issued by banks and brokerage firms
and are created by depositing Treasury notes and Treasury bonds into a special
account at a custodian bank; the custodian holds the interest and principal
payments for the benefit of the registered owners of the certificates or
receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
Treasury Receipts ("TRs"), Treasury Investment Growth Receipts ("TIGRs"), and
Certificates of Accrual on Treasury Securities ("CATS").
INVESTMENT GRADE AND HIGH QUALITY SECURITIES. The Funds may invest in
"investment grade" obligations, which are those rated at the time of purchase
within the four highest rating categories assigned by a nationally recognized
statistical rating organization ("NRSRO") or, if unrated, are obligations that
the Adviser determines to be of comparable quality. The applicable securities
ratings are described in the Appendix. "High-quality" short-term obligations are
those obligations which, at the time of purchase, (1) possess a rating in one of
the two highest ratings categories from at least one NRSRO (for example,
commercial paper rated "A-1" or "A-2" by Standard & Poor's Ratings Services
("S&P") or "P-1" or "P-2" by Moody's Investors Service, Inc.
5
<PAGE>
("Moody's")) or (2) are unrated by an NRSRO but are determined by the Adviser to
present minimal credit risks and to be of comparable quality to rated
instruments eligible for purchase by the Funds under guidelines adopted by the
Board.
U.S. CORPORATE DEBT OBLIGATIONS. The Funds may invest in U.S. corporate debt
obligations, including bonds, debentures, and notes. Debentures represent
unsecured promises to pay, while notes and bonds may be secured by mortgages on
real property or security interests in personal property. Bonds include, but are
not limited to, debt instruments with maturities of approximately one year or
more, debentures, mortgage-related securities, and zero coupon obligations.
Bonds, notes, and debentures in which the Funds may invest may differ in
interest rates, maturities, and times of issuance. The market value of a Fund's
fixed income investments will change in response to interest rate changes and
other factors. During periods of falling interest rates, the values of
outstanding fixed income securities generally rise. Conversely, during periods
of rising interest rates, the values of such securities generally decline.
Moreover, while securities with longer maturities tend to produce higher yields,
the prices of longer maturity securities are also subject to greater market
fluctuations as a result of changes in interest rates.
Changes by NRSROs in the rating of any fixed income security and in the ability
of an issuer to make payments of interest and principal also affect the value of
these investments. Except under conditions of default, changes in the value of a
Fund's securities will not affect cash income derived from these securities but
will affect the Fund's net asset value.
ZERO-COUPON BONDS. Each Fund may invest in zero-coupon bonds that are purchased
at a discount from the face amount because the buyer receives only the right to
a fixed payment on a certain date in the future and does not receive any
periodic interest payments. The effect of owning instruments that do not make
current interest payments is that a fixed yield is earned not only on the
original investment but also, in effect, on accretion during the life of the
obligations. This implicit reinvestment of earnings at the same rate eliminates
the risk of being unable to reinvest distributions at a rate as high as the
implicit yields on the zero-coupon bond, but at the same time eliminates the
holder's ability to reinvest at higher rates. For this reason, zero-coupon bonds
are subject to substantially greater price fluctuations during periods of
changing market interest rates than are comparable securities which pay interest
currently, which fluctuation increases in accordance with the length of the
period to maturity.
INTERNATIONAL BONDS. Each Fund may invest in international bonds, including U.S.
dollar-denominated international bonds for which the primary trading market is
in the United States ("Yankee Bonds"), or for which the primary trading market
is abroad ("Eurodollar Bonds"). International bonds also include Canadian and
supranational agency bonds (e.g., the International Monetary Fund). (See
"Foreign Investments" for a description of the risks associated with investments
in foreign securities.)
MORTGAGE-BACKED SECURITIES--IN GENERAL. The Funds may invest in mortgage-backed
securities that are backed by mortgage obligations including, among others,
conventional 30-year fixed rate mortgage obligations, graduated payment mortgage
obligations, 15-year mortgage obligations, and adjustable-rate mortgage
obligations. All of these mortgage obligations can be used to create
pass-through securities, created when mortgage obligations are pooled together
and undivided interests in the pool or pools are sold. The cash flow from the
mortgage obligations is passed through to the holders of the securities in the
form of periodic payments of interest, principal, and prepayments (net of a
service fee).
Prepayments occur when the holder of an individual mortgage obligation prepays
the remaining principal before the mortgage obligation's scheduled maturity
date. As a result of the pass-through of prepayments of principal on the
underlying securities, Mortgage-Backed Securities are often subject to more
rapid prepayment of principal than their stated maturity indicates. In addition,
during periods of falling interest rates, the rate of prepayment tends to
increase, thereby shortening the actual average life of the pool. Conversely, in
periods of rising interest rates, prepayment rates tend to decrease, lengthening
a pool's average life. Because the prepayment characteristics of the underlying
mortgage obligations vary, it is not possible to predict accurately the realized
yield or average life of a particular issue of pass-through certificates.
Reinvestment of
6
<PAGE>
prepayments may occur at higher or lower interest rates than the original
investment, thus affecting a Fund's yield.
A Fund may purchase Mortgage-Backed Securities at a premium or at a discount.
Accelerated prepayments have an adverse effect on yields for pass-throughs
purchased at a premium (i.e., a price in excess of principal amount) and may
involve additional risk of loss of principal because the premium may not have
been fully amortized at the time the obligation is repaid. The opposite is true
for pass-throughs purchased at a discount. Among the U.S. Government securities
in which a Fund may invest are Government Mortgage-Backed Securities (or
government guaranteed mortgage-related securities). Such guarantees do not
extend to the value of yield of the Mortgage-Backed Securities themselves or of
the Fund's shares.
U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES. Certain agencies and
instrumentalities of the U.S. Government issue Mortgage-Backed Securities. Some
such obligations, such as those issued by GNMA are supported by the full faith
and credit of the U.S. Treasury; others, such as those of FNMA, are supported by
the right of the issuer to borrow from the Treasury; others are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks or
FHLMC, are supported only by the credit of the instrumentality. No assurance can
be given that the U.S. Government would provide financial support to U.S.
Government-sponsored agencies and instrumentalities if it is not obligated to do
so by law.
COLLATERALIZED MORTGAGE OBLIGATIONS. CMOs in which a Fund may invest
are securities backed by a pool of mortgages in which the principal and interest
cash flows of the pool are channeled on a prioritized basis into two or more
classes, or tranches, of bonds.
NON-GOVERNMENTAL MORTGAGE-BACKED SECURITIES. A Fund may invest in
mortgage-related securities issued by non-governmental entities. Commercial
banks, savings and loan institutions, private mortgage insurance companies,
mortgage bankers, and other secondary market issuers also create pass-through
pools of conventional residential mortgage loans. These issuers may be the
originators of the underlying mortgage loans as well as the guarantors of the
mortgage-related securities. Pools created by such non-governmental issuers
generally offer a higher rate of interest than government and government-related
pools because there are not direct or indirect government guarantees of payments
in the former pools. However, timely payment of interest and principal of these
pools is supported by various forms of insurance or guarantees, including
individual loan, title, pool, and hazard insurance. The insurance and guarantees
are issued by government entities, private insurers and the mortgage pools. Such
insurance and guarantees and the creditworthiness of the issuers, thereof will
be considered in determining whether a Non-Governmental Mortgage-Backed Security
meets a Fund's investment quality standards. There can be no assurance that the
private insurers can meet their obligations under the policies. A Fund may buy
Non-Governmental Mortgage-Backed Related Securities without insurance or
guarantees if, through an examination of the loan experience and practices of
the pools, the Adviser determines that the securities meet the Fund's quality
standards. Although the market for such securities is becoming increasingly
liquid, securities issued by certain private organizations may not be readily
marketable. A Fund will not purchase mortgage-related securities or any other
assets which in the opinion of the Adviser are illiquid if, as a result, more
than 15% of the value of the Fund's net assets will be invested in illiquid
securities.
Mortgage-related securities include CMOs and participation certificates in pools
of mortgages. The average life of mortgage-related securities varies with the
maturities of the underlying mortgage instruments, which have maximum maturities
of 40 years. The average life is likely to be substantially less than the
original maturity of the mortgage pools underlying the securities as the result
of mortgage prepayments. The rate of such prepayments, and hence the average
life of the certificates, will be a function of current market interest rates
and current conditions in the relevant housing markets. The impact of prepayment
of mortgages is described under "Government Mortgage-Backed Securities."
Estimated average life will be determined by the Adviser. Various independent
mortgage-related securities dealers publish estimated average life data using
proprietary models. In making such determinations, the Adviser will rely on such
data except to the extent such data are deemed unreliable by the Adviser. The
Adviser might deem data unreliable which appears to
7
<PAGE>
present a significantly different estimated average life for a security than
data relating to the estimated average life of comparable securities as provided
by other independent mortgage-related securities dealers.
ASSET-BACKED SECURITIES. Each Fund may invest in asset-backed securities, that
is, debt securities backed by pools of automobile or other commercial or
consumer finance loans. The collateral backing asset-backed securities cannot be
foreclosed upon. These issues are normally traded over-the-counter and typically
have a short to intermediate maturity structure, depending on the paydown
characteristics of the underlying financial assets which are passed through to
the security holder.
TEMPORARY DEFENSIVE MEASURES -- SHORT-TERM OBLIGATIONS. These include high
quality, short-term obligations such as domestic and foreign commercial paper
(including variable-amount master demand notes), bankers' acceptances,
certificates of deposit and demand and time deposits of domestic and foreign
branches of U.S. banks and foreign banks, and repurchase agreements. (See
"Foreign Securities" for a description of risks associated with investments in
foreign securities.) Each Fund may hold up to 100% of its assets in these
instruments, which may result in performance that is inconsistent with its
investment objective.
SHORT-TERM CORPORATE OBLIGATIONS. Corporate obligations are bonds
issued by corporations and other business organizations in order to finance
their long-term credit needs. Corporate bonds in which a Fund may invest
generally consist of those rated in the two highest rating categories of an
NRSRO that possess many favorable investment attributes. In the lower end of
this category, credit quality may be more susceptible to potential future
changes in circumstances.
BANKERS' ACCEPTANCES. Bankers' Acceptances are negotiable drafts or
bills of exchange typically drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Bankers' Acceptances will be those guaranteed by domestic and foreign banks, if
at the time of purchase such banks have capital, surplus, and undivided profits
in excess of $100 million (as of the date of their most recently published
financial statements).
CERTIFICATES OF DEPOSIT. Certificates of Deposit ("CDs") are negotiable
certificates issued against funds deposited in a commercial bank or a savings
and loan association for a definite period of time and earning a specified
return. CDs and demand and time deposits invested in by a Fund will be those of
domestic and foreign banks and savings and loan associations, if (a) at the time
of purchase such financial institutions have capital, surplus, and undivided
profits in excess of $100 million (as of the date of their most recently
published financial statements) or (b) the principal amount of the instrument is
insured in full by the Federal Deposit Insurance Corporation (the "FDIC") or the
Savings Association Insurance Fund.
Eurodollar CDs are U.S. dollar-denominated CDs issued by branches of
foreign and domestic banks located outside the United States. Yankee CDs are CDs
issued by a U.S. branch of a foreign bank denominated in U.S. dollars and held
in the United States.
FOREIGN TIME DEPOSITS. Eurodollar Time Deposits are U.S.
dollar-denominated deposits in a foreign branch of a U.S. or foreign bank.
Canadian Time Deposits are U.S. dollar-denominated certificates of deposit
issued by Canadian offices of major Canadian Banks.
COMMERCIAL PAPER. Commercial paper ("CP") consists of unsecured
promissory notes issued by corporations. CP issues normally mature in less than
nine months and have fixed rates of return. The Funds will purchase only CP
rated in one of the two highest categories at the time of purchase by an NRSRO
or, if not rated, found by the Adviser to present minimal credit risks and to be
of comparable quality to instruments that are rated high quality by an NRSRO
that is neither controlling, controlled by, or under common control with the
issuer of, or any issuer, guarantor, or provider of credit support for, the
instruments. For a description of the rating symbols of each NRSRO, see the
Appendix to this SAI.
8
<PAGE>
REPURCHASE AGREEMENTS. Securities held by a Fund may be subject to
Repurchase Agreements, pursuant to which a Fund would acquire securities from
financial institutions or registered broker-dealers deemed creditworthy by the
Adviser pursuant to guidelines adopted by the Trustees, subject to the seller's
agreement to repurchase such securities at a mutually agreed upon date and
price. The seller is required to maintain the value of collateral held pursuant
to the agreement at not less than the repurchase price (including accrued
interest). If the seller were to default on its repurchase obligation or become
insolvent, a Fund would suffer a loss to the extent that the proceeds from a
sale of the underlying portfolio securities were less than the repurchase price,
or to the extent that the disposition of such securities by the Fund is delayed
pending court action.
FUTURES AND OPTIONS
FUTURES CONTRACTS. The Funds may enter into futures contracts, options on
futures contracts, and stock index futures contracts and options thereon for the
purposes of remaining fully invested and reducing transaction costs. Futures
contracts provide for the future sale by one party and purchase by another party
of a specified amount of a specific security, class of securities, or an index
at a specified future time and at a specified price. A stock index futures
contract is a bilateral agreement pursuant to which two parties agree to take or
make delivery of an amount of cash equal to a specified dollar amount times the
difference between the stock index value at the close of trading of the
contracts and the price at which the futures contract is originally struck.
Futures contracts which are standardized as to maturity date and underlying
financial instrument are traded on national futures exchanges. Futures exchanges
and trading are regulated under the Commodity Exchange Act by the Commodity
Futures Trading Commission (the "CFTC"), a U.S. Government agency.
The Funds may enter into contracts for the future delivery of securities and
futures contracts based on a specific security, class of securities or an index,
purchase or sell options on any such futures contracts and engage in related
closing transactions. A futures contract on a securities index is an agreement
obligating either party to pay, and entitling the other party to receive, while
the contract is outstanding, cash payments based on the level of a specified
securities index.
Although futures contracts (other than those relating to indexes) by their terms
call for actual delivery and acceptance of the underlying securities, in most
cases the contracts are closed out before the settlement date without 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. The
acquisition of put and call options on futures contracts will, respectively,
give a Fund the right (but not the obligation), for a specified price, to sell
or to purchase the underlying futures contract, upon exercise of the option, at
any time during the option period. Brokerage commissions are incurred when a
futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
government securities with a futures commission merchant 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 security) if it is not terminated prior to the specified delivery
date. Minimal initial margin requirements are established by the futures
exchange and may be changed. Futures commission merchants may establish deposit
requirements which are higher than the exchange minimums. Initial margin
deposits on futures contracts are customarily set at levels much lower than the
prices at which the underlying securities are purchased and sold, typically
ranging 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. 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 Funds
expect to earn interest income on its margin deposits.
9
<PAGE>
When interest rates are expected to rise or market values of portfolio
securities are expected to fall, a Fund can seek through the sale of futures
contracts to offset a decline in the value of its portfolio securities. When
interest rates are expected to fall or market values are expected to rise, a
Fund, through the purchase of such contracts, can attempt to secure better rates
or prices for a Fund than might later be available in the market when it effects
anticipated purchases.
The Funds may sell futures contracts to protect securities it owns against price
declines or purchase contracts to protect against an increase in the price of
securities it intends to purchase. A Fund may also enter into such transactions
in order to terminate existing positions.
The Funds' ability to use futures trading effectively depends on several
factors. First, it is possible that there will not be a perfect price
correlation between a futures contract and its underlying stock index. Second,
it is possible that a lack of liquidity for futures contracts could exist in the
secondary market, resulting in an inability to close a futures position prior to
its maturity date. Third, the purchase of a futures contract involves the risk
that a Fund could lose more than the original margin deposit required to
initiate a futures transaction.
Futures transactions involve brokerage costs and require a Fund to segregate
assets to cover contracts that would require it to purchase securities or
currencies. A Fund may lose the expected benefit of futures transactions if
interest rates, exchange rates or securities prices move in an unanticipated
manner. Such unanticipated changes may also result in poorer overall performance
than if a Fund had not entered into any futures transactions. In addition, the
value of a Fund's futures positions may not prove to be perfectly or even highly
correlated with the value of its portfolio securities, limiting a Fund's ability
to hedge effectively against interest rate and/or market risk and giving rise to
additional risks. There is no assurance of liquidity in the secondary market for
purposes of closing out futures positions.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS. The Funds will not enter into
futures contract transactions for purposes other than bona fide hedging purposes
or as a substitute for the underlying securities to gain market exposure to the
extent that, immediately thereafter, the sum of its initial margin deposits on
open contracts exceeds 5% of the market value of a Fund's total assets. In
addition, a Fund will not enter into futures contracts to the extent that the
value of the futures contracts held would exceed 1/3 of the Fund's total assets.
The Trust need not register with the CFTC as a Commodities Pool Operator.
In addition to the margin restrictions discussed above, transactions in futures
contracts may involve the segregation of funds pursuant to Securities and
Exchange Commission ("SEC") requirements. Under those requirements, where a Fund
has a long position in a futures contract, it may be required to establish a
segregated account (not with a futures commission merchant or broker) containing
cash or liquid securities equal to the purchase price of the contract (less any
margin on deposit). For a short position in futures or forward contracts held by
the Fund, those requirements may mandate the establishment of a segregated
account (not with a futures commission merchant or broker) with cash or liquid
securities that, when added to the amounts deposited as margin, equal the market
value of the instruments underlying the futures contracts (but are not less than
the price at which the short positions were established). However, segregation
of assets is not required if a Fund "covers" a long position. For example,
instead of segregating assets, a Fund, when holding a long position in a futures
contract, could purchase a put option on the same futures contract with a strike
price as high or higher than the price of the contract held by a Fund. In
addition, where a Fund engages in sales of call options, it need not segregate
assets if it "covers" these positions. For example, where a Fund holds a short
position in a futures contract, it may cover by owning the instruments
underlying the contract. A Fund may also cover such a position by holding a call
option permitting it to purchase the same futures contract at a price no higher
than the price at which the short position was established. Where a Fund sells a
call option on a futures contract, it may cover either by entering into a long
position in the same contract at a price no higher than the strike price of the
call option or by owning the instruments underlying the futures contract. A Fund
could also cover this position by holding a separate call option permitting it
to purchase the same futures contract at a price no higher than the strike price
of the call option sold by a Fund.
10
<PAGE>
In addition, the extent to which a Fund may enter into futures contracts may be
limited by requirements of the Internal Revenue Code of 1986, as amended (the
"Code"), for qualification as a registered investment company.
RISK FACTORS IN FUTURES TRANSACTIONS. Positions in futures contracts may be
closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, a Fund would continue to be required to make daily cash payments to
maintain the required margin. In such situations, if a 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, a Fund may be
required to make delivery of the instruments underlying futures contracts it
holds. The inability to close options and futures positions also could have an
adverse impact on the ability to effectively hedge them. A Fund will minimize
the risk that it will be unable to close out a futures contract by only entering
into futures contracts which are traded on national futures exchanges and for
which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. Because the deposit
requirements in the futures markets are less onerous than margin requirements in
the securities market, there may be increased participation by speculators in
the futures market which may also cause temporary price distortions. A
relatively small price movement in a futures contract may result in immediate
and substantial loss (as well as gain) to the investor. For example, if at the
time of purchase, 10% of the value of the futures contract is deposited as
margin, a subsequent 10% decrease in the value of the futures contract would
result in a total loss of the margin deposit, before any deduction for the
transaction costs, if the account were then closed out. A 15% decrease would
result in a loss equal to 150% of the original margin deposit if the contract
were closed out. Thus, a purchaser or sale of a futures contract may result in
losses in excess of the amount invested in the contract. However, because the
futures strategies engaged in by the Funds are only for hedging purposes, the
Adviser does not believe that the Funds are subject to the risks of loss
frequently associated with futures transactions. The Funds would presumably have
sustained comparable losses if, instead of the futures contract, it had invested
in the underlying financial instrument and sold it after the decline.
Use of futures transactions by the Funds involve the risk of imperfect or no
correlation where the securities underlying futures contracts have different
maturities than the portfolio securities being hedged. It is also possible that
a Fund could both lose money on futures contracts and also experience a decline
in the value of its portfolio securities. There is also the risk of loss by the
Funds of margin deposits in the event of bankruptcy of a broker with whom the
Funds have open positions in a futures contract or related option.
OPTIONS. Each Fund may sell (write) call options that are traded on national
securities exchanges with respect to common stock in its portfolio. A Fund must
at all times have in its portfolio the securities which it may be obligated to
deliver if the option is exercised. A Fund may write call options in an attempt
to realize a greater level of current income than would be realized on the
securities alone. A Fund may also write call options as a partial hedge against
a possible stock market decline. In view of its investment objective, a Fund
generally would write call options only in circumstances where the Adviser does
not anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security. As the writer of
a call option, a Fund receives a premium for undertaking the obligation to sell
the underlying security at a fixed price during the option period, if the option
is exercised. So long as a Fund remains obligated as a writer of a call option,
it forgoes the opportunity to profit from increases in the market price of the
underlying security above the exercise price of the option, except insofar as
the premium represents such a profit. A Fund retains the risk of loss should the
value of the underlying security decline. A Fund may also enter into "closing
purchase transactions" in order to terminate its obligation as a writer of a
call option prior to the expiration of the option. Although the writing of call
options only on national securities exchanges increases the likelihood of a
Fund's ability to make closing purchase transactions, there is no assurance that
a Fund will be able to effect such transactions at any particular time or at any
acceptable price. The writing of call options
11
<PAGE>
could result in increases in a Fund's portfolio turnover rate, especially during
periods when market prices of the underlying securities appreciate.
ILLIQUID INVESTMENTS. Illiquid investments are investments that cannot be sold
or disposed of, within seven business days, in the ordinary course of business
at approximately the prices at which they are valued.
Under the supervision of the Board, the Adviser determines the liquidity of each
Fund's investments and, through reports from the Adviser, the Trustees monitor
investments in illiquid instruments. In determining the liquidity of a Fund's
investments, the Adviser may consider various factors, including (1) the
frequency of trades and quotations, (2) the number of dealers and prospective
purchasers in the marketplace, (3) dealer undertakings to make a market, (4) the
nature of the security (including any demand or tender features), and (5) the
nature of the marketplace for trades (including the ability to assign or offset
the Funds' rights and obligations relating to the investment).
Investments currently considered by a Fund to be illiquid include repurchase
agreements not entitling the holder to payment of principal and interest within
seven days, over the counter options, non-government stripped fixed-rate
mortgage-backed securities, and Restricted Securities (see discussion below).
Also, the Adviser may determine some securities to be illiquid.
However, with respect to over-the-counter options a Fund writes, all or a
portion of the value of the underlying instrument may be illiquid depending on
the assets held to cover the option and the nature and terms of any agreement a
Fund may have to close out the option before expiration.
In the absence of market quotations, illiquid investments are priced at fair
value as determined in good faith by a committee appointed by the Trustees.
If through a change in values, net assets, or other circumstances, more than 15%
of a Fund's net assets were invested in illiquid securities, the Fund would seek
to take appropriate steps to protect liquidity.
RESTRICTED SECURITIES. Restricted securities generally can be sold in privately
negotiated transactions, pursuant to an exemption from registration under the
Securities Act, or in a registered public offering.
Where registration is required, a Fund may be obligated to pay all or part of
the registration expense and a considerable period may elapse between the time
it decides to seek registration and the time the Fund may be permitted to sell a
security under an effective registration statement.
If, during such a period, adverse market conditions were to develop, a Fund
might obtain a less favorable price than prevailed when it decided to seek
registration of the shares.
SECURITIES LENDING TRANSACTIONS. Each Fund may from time to time lend securities
from its portfolio to broker-dealers, banks, financial institutions and
institutional borrowers of securities and receive collateral in the form of cash
or U.S. Government Obligations. Generally, a Fund must receive initial
collateral equal to 102% of the market value of the loaned securities, plus any
interest due in the form of cash or U.S. Government Obligations. No Fund will
lend portfolio securities to: (a) any "affiliated person" (as that term is
defined in the 1940 Act) of the Trust; (b) any affiliated person of the Adviser;
or (c) any affiliated person of such an affiliated person. This collateral must
be valued daily and should the market value of the loaned securities increase,
the borrower must furnish additional collateral to the Fund sufficient to
maintain the value of the collateral equal to at least 100% of the value of the
loaned securities. During the time portfolio securities are on loan, the
borrower will pay the Fund any dividends or interest paid on such securities
plus any interest negotiated between the parties to the lending agreement. Loans
will be subject to termination by the Fund or the borrower at any time. While
the Fund will not have the right to vote securities on loan, they intend to
terminate loans and regain the right to vote if that is considered important
with respect to the investment. A Fund will only enter into loan arrangements
with broker-dealers, banks or other institutions
12
<PAGE>
which the Adviser has determined are creditworthy under guidelines established
by the Trustees. Each Fund will limit its securities lending to 33 1/3% of total
assets.
REVERSE REPURCHASE AGREEMENTS. Each Fund may borrow funds for temporary purposes
by entering into reverse repurchase agreements. Reverse repurchase agreements
are considered to be borrowings under the 1940 Act. Pursuant to such agreement,
a Fund would sell a portfolio security to a financial institution such as a bank
or broker-dealer, and agree to repurchase such security at a mutually
agreed-upon date and price. At the time a Fund enters into a reverse repurchase
agreement, it will place in a segregated custodial account liquid assets
consistent with the Fund's investment restrictions having a value equal to the
repurchase price (including accrued interest). The collateral will be
marked-to-market on a daily basis, and will be monitored continuously to ensure
that such equivalent value is maintained. Reverse Repurchase Agreements involve
the risk that the market value of the securities sold by a Fund may decline
below the price at which the Fund is obligated to repurchase the securities.
VALUATION OF PORTFOLIO SECURITIES.
Each equity security held by a Fund is valued at its last sales price on the
exchange where the security is principally traded or, lacking any sales on a
particular day, the security is valued at the mean between the closing bid and
asked prices on that day. Exchange listed convertible debt securities are valued
at the mean between the last bid and asked prices obtained from broker-dealers
or a comparable alternative, such as Bloomberg or Telerate. Each security traded
in the over-the-counter market (but not including securities reported on the
Nasdaq National Market System) is valued at the mean between the last bid and
asked prices based upon quotes furnished by market makers for such securities.
Each security reported on the Nasdaq National Market System is valued at the
sales price on the valuation date or absent a last sales price, at the mean
between the closing bid and asked prices on that day. Non-convertible debt
securities are valued on the basis of prices provided by an independent pricing
service. Prices provided by the pricing service may be determined without
exclusive reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments related
to special securities, yield, quality, coupon rate, maturity, type of issue,
individual trading characteristics and other market data. Securities for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under the supervision of the Trust's officers in
a manner specifically authorized by the Board. Short-term obligations maturing
in 60 days or less are valued on the basis of amortized cost. For purposes of
determining net asset value per share, futures and options contracts generally
will be valued 15 minutes after the close of trading of the New York Stock
Exchange, Inc. (the "NYSE"), currently 4:00 p.m. Eastern Time.
Generally, trading in foreign securities, corporate bonds, U.S. Government
securities and money market instruments is substantially completed each day at
various times prior to the close of the NYSE. The values of such securities used
in computing the net asset value of each Fund's shares are determined at such
times. Foreign currency exchange rates are also generally determined prior to
the close of the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which such
values are determined and the close of the NYSE which will not be reflected in
the computation of a Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will be
valued at their fair value as determined in good faith by or under the
supervision of the Board.
PERFORMANCE OF THE FUNDS
From time to time, the "average annual total return" and "total return" of an
investment in each of the Fund shares may be advertised. An explanation of how
yields and total returns are calculated for each class and the components of
those calculations are set forth below.
Total return information may be useful to investors in reviewing the Fund's
performance. A Fund's advertisement of its performance must, under applicable
SEC rules, include the average annual total returns for each class of shares of
a Fund for the 1, 5, and 10-year period (or the life of the class, if less) as
of the
13
<PAGE>
most recently ended calendar quarter. This enables an investor to compare the
Fund's performance to the performance of other funds for the same periods.
However, a number of factors should be considered before using such information
as a basis for comparison with other investments. Investments in a Fund are not
insured; its total return is not guaranteed and normally will fluctuate on a
daily basis. When redeemed, an investor's shares may be worth more or less than
their original cost. Total return for any given past period are not a prediction
or representation by the Trust of future rates of return on its shares. The
total returns of the shares of the Funds are affected by portfolio quality,
portfolio maturity, the type of investments the Fund holds, and operating
expenses.
TOTAL RETURNS. The "average annual total return" of a Fund is an average annual
compounded rate of return for each year in a specified number of years. It is
the rate of return ("T" in the formula below) based on the change in value of a
hypothetical initial investment of $1,000 ("P") held for a number of years ("n")
to achieve an Ending Redeemable Value ("ERV"), according to the following
formula:
P(1+T)^n = ERV
The cumulative "total return" calculation measures the change in value of a
hypothetical investment of $1,000 over an entire period of years. Its
calculation uses some of the same factors as average annual total return, but it
does not average the rate of return on an annual basis. Cumulative total return
is determined as follows:
ERV - P
------- = Cumulative Total Return
P
In calculating total returns for the Funds, the current maximum sales charge (as
a percentage of the offering price) is deducted from the initial investment
("P"). Total returns also assume that all dividends and net capital gains
distributions during the period are reinvested to buy additional shares at net
asset value per share, and that the investment is redeemed at the end of the
period.
OTHER PERFORMANCE COMPARISONS.
From time to time a Fund may publish the ranking of its performance or the
performance of its shares by Lipper Analytical Services, Inc. ("Lipper"), a
widely-recognized independent mutual fund monitoring service. Lipper monitors
the performance of regulated investment companies, including the Funds, and
ranks the performance of the Funds and their classes against all other funds in
similar categories, for both equity and fixed income funds. The Lipper
performance rankings are based on total return that includes the reinvestment of
capital gains distributions and income dividends but does not take sales charges
or taxes into consideration.
A Fund also may publish the ranking of its performance or performance of its
shares by Morningstar, Inc., an independent mutual fund monitoring service that
ranks mutual funds, including the Funds, in broad investment categories
(domestic equity, international equity taxable bond, municipal bond or other)
monthly, based upon each fund's three, five, and ten-year average annual total
returns (when available) and a risk adjustment factor that reflects fund
performance relative to three-month U.S. Treasury bill monthly returns. Such
returns are adjusted for fees and sales loads. There are five ranking categories
with a corresponding number of stars: highest (5), above average (4), neutral
(3), below average (2), and lowest (1). Ten percent of the funds, series or
classes in an investment category receive five stars, 22.5% receive four stars,
35% receive three stars, 22.5% receive two stars, and the bottom 10% receive one
star.
The total return on an investment made in a Fund may be compared with the
performance for the same period of one or more of the following indices: the
Consumer Price Index, the Standard & Poor's 500 Index, and the Morgan Stanley
Capital International Europe, Australasia, Far East (EAFE) Index. Other indices
may be used from time to time. The Consumer Price Index generally is considered
to be a measure of inflation. The S&P 500 Index is a composite index of 500
common stocks generally regarded as an index of U.S. stock market performance.
The EAFE Index is a popular index of foreign stock prices, including more than
1,000 major
14
<PAGE>
foreign companies. The foregoing indices are unmanaged indices of securities
that do not reflect reinvestment of capital gains or take investment costs into
consideration, as these items are not applicable to indices.
From time to time, the total returns of the Funds may be quoted in and compared
to other mutual funds with similar investment objectives in advertisements,
shareholder reports or other communications to shareholders. A Fund also may
include calculations in such communications that describe hypothetical
investment results. (Such performance examples are based on an express set of
assumptions and are not indicative of the performance of any Fund.) Such
calculations may from time to time include discussions or illustrations of the
effects of compounding in advertisements. "Compounding" refers to the fact that,
if dividends or other distributions on a Fund's investment are reinvested by
being paid in additional Fund shares, any future income or capital appreciation
of a Fund would increase the value, not only of the original Fund investment,
but also of the additional Fund shares received through reinvestment. As a
result, the value of a Fund investment would increase more quickly than if
dividends or other distributions had been paid in cash. A Fund may also include
discussions or illustrations of the potential investment goals of a prospective
investor (including but not limited to tax and/or retirement planning),
investment management techniques, policies or investment suitability of a Fund,
economic conditions, legislative developments (including pending legislation),
the effects of inflation and historical performance of various asset classes,
including but not limited to stocks, bonds and Treasury bills.
From time to time advertisements or communications to shareholders may summarize
the substance of information contained in shareholder reports (including the
investment composition of a Fund, as well as the Adviser's views as to current
market, economic, trade and interest rate trends, legislative, regulatory and
monetary developments, investment strategies and related matters believed to be
of relevance to a Fund.) A Fund may also include in advertisements, charts,
graphs or drawings which illustrate the potential risks and rewards of
investment in various investment vehicles, including but not limited to stock,
bonds, and Treasury bills, as compared to an investment in shares of a Fund, as
well as charts or graphs that illustrate strategies such as dollar cost
averaging. In addition, advertisements or shareholder communications may include
a discussion of certain attributes or benefits to be derived by an investment in
a Fund. Such advertisements or communications may include symbols, headlines or
other material which highlight or summarize the information discussed in more
detail therein. With proper authorization, a Fund may reprint articles (or
excerpts) written regarding a Fund and provide them to prospective shareholders.
Performance information with respect to the Funds is generally available by
calling 1-800-_________________.
Investors may also judge, and a Fund may at times advertise, the performance of
a Fund by comparing it to the performance of other mutual funds or mutual fund
portfolios with comparable investment objectives and policies, which performance
may be contained in various unmanaged mutual fund or market indices or rankings
such as those prepared by Dow Jones & Co., Inc., Standard & Poor's, and Morgan
Stanley, and in publications issued by Lipper Analytical Services, Inc. and in
the following publications: Value Line Mutual Fund Survey, Morningstar,
CDA/Wiesenberger, Money Magazine, Forbes, Barron's, The Wall Street Journal, The
New York Times, Business Week, American Banker, Fortune, Institutional Investor,
Ibbotson Associates, and U.S.A. Today. In addition to performance information,
general information about a Fund that appears in a publication such as those
mentioned above may also be quoted or reproduced in advertisements or in reports
to shareholders.
Advertisements and sales literature may include discussions of specifics of a
portfolio manager's investment strategy and process, including, but not limited
to, descriptions of security selection and analysis. Advertisements may also
include descriptive information about the investment adviser, including, but not
limited to, its status within the industry, other services and products it makes
available, total assets under management, and its investment philosophy.
When comparing total return and investment risk of an investment in shares of a
Fund with other investments, investors should understand that certain other
investments have different risk characteristics than an investment in shares of
a Fund. For example, CDs may have fixed rates of return and may be insured as to
principal and interest by the FDIC, while a Fund's returns will fluctuate and
its share values and returns are
15
<PAGE>
not guaranteed. U.S. Treasury securities are guaranteed as to principal and
interest by the full faith and credit of the U.S. Government.
ADDITIONAL PURCHASE, EXCHANGE, AND REDEMPTION INFORMATION
The NYSE is currently scheduled to be closed on New Year's Day, Dr. Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day, or, when one of these
holidays fall on a Saturday or Sunday, the preceding Friday or subsequent
Monday. This closing schedule is subject to change.
When the NYSE is closed, or when trading is restricted for any reason other than
its customary weekend or holiday closings, or under emergency circumstances as
determined by the SEC to warrant such action, the Funds will determine their net
asset value at Valuation Time.
The Trust has elected, pursuant to Rule 18f-1 under the 1940 Act, to redeem
shares of a Fund solely in cash up to the lesser of $250,000 or 1% of the net
asset value of the Fund during any 90-day period for any one shareholder. The
remaining portion of the redemption may be made in securities or other property,
valued for this purpose as they are valued in computing the net asset value of
each class of the Fund. Shareholders receiving securities or other property on
redemption may realize a gain or loss for tax purposes and may incur additional
costs as well as the associated inconveniences of holding and/or disposing of
such securities or other property.
Pursuant to Rule 11a-3 under the 1940 Act, the Funds are required to give
shareholders at least 60 days' notice prior to terminating or modifying a Fund's
exchange privilege. The 60-day notification requirement may, however, be waived
if (1) the only effect of a modification would be to reduce or eliminate an
administrative fee, redemption fee, or deferred sales charge ordinarily payable
at the time of exchange or (2) a Fund temporarily suspends the offering of
shares as permitted under the 1940 Act or by the SEC or because it is unable to
invest amounts effectively in accordance with its investment objective and
policies.
The Funds reserve the right at any time without prior notice to shareholders to
refuse exchange purchases by any person or group if, in the Adviser's judgment,
a Fund would be unable to invest effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely affected.
PURCHASING SHARES.
DEALER REALLOWANCES. The following table shows the amount of the Funds' front
end sales load that is reallowed to dealers as a percentage of the offering
price of the Funds' Class A Shares.
<TABLE>
<CAPTION>
Initial Sales Charge: % of Net Amount Concession to Dealers:
Amount of Purchase % of Offering Price Invested % of Offering Price
------------------ ------------------- -------- -------------------
<S> <C> <C> <C>
Less than $50,000 5.00 5.26 _____
$50,000 to $99,999 4.00 4.17 _____
$100,000 to $249,999 3.00 3.09 _____
$250,000 to $499,999 2.00 2.04 _____
$500,000 to $999,999 1.00 1.01 _____
$1,000,000 and over 0.00 0.00 _____
</TABLE>
REDUCED SALES CHARGE. Reduced sales charges are available for purchases of
$50,000 or more of Class A Shares of a Fund alone or in combination with
purchases of other shares of the Trust. To obtain the reduction of the sales
charge, you or the broker-dealer through whom you are purchasing shares (an
"Authorized
16
<PAGE>
Securities Dealer") must notify Firstar Trust Company ("Firstar" or the
"Transfer Agent") at the time of purchase whenever a quantity discount is
applicable to your purchase.
In addition to investing at one time in any combination of shares of the Funds
in an amount entitling you to a reduced sales charge, you may qualify for a
reduction in the sales charge under the following programs:
COMBINED PURCHASES. When you invest in shares of the Funds for several accounts
at the same time, you may combine these investments into a single transaction if
purchased through one Authorized Securities Dealer, and if the total is $50,000
or more. The following may qualify for this privilege: an individual, or
"company" as defined in Section 2(a)(8) of the 1940 Act; an individual, spouse,
and their children under age 21 purchasing for his, her, or their own account; a
trustee, administrator or other fiduciary purchasing for a single trust estate
or single fiduciary account or for a single or a parent-subsidiary group of
"employee benefit plans" (as defined in Section 3(3) of ERISA); and tax-exempt
organizations under Section 501(c)(3) of the Code.
RIGHTS OF ACCUMULATION. "Rights of Accumulation" permit reduced sales charges on
future purchases of shares after you have reached a new breakpoint. You can add
the value of existing Fund shares held by you, your spouse, and your children
under age 21, determined at the previous day's net asset value at the close of
business, to the amount of your new purchase valued at the current offering
price to determine your reduced sales charge.
LETTER OF INTENT. If you anticipate purchasing $50,000 or more of shares of a
Fund alone or in combination with shares of certain other Funds within a
13-month period, you may obtain shares of the portfolios at the same reduced
sales charge as though the total quantity were invested in one lump sum, by
filing a non-binding Letter of Intent (the "Letter") within 90 days of the start
of the purchases. You must start with a minimum initial investment of 5% of the
projected purchase amount. Each investment you make after signing the Letter
will be entitled to the sales charge applicable to the total investment
indicated in the Letter. For example, a $2,500 purchase toward a $60,000 Letter
would receive the same reduced sales charge as if the $60,000 had been invested
at one time. To ensure that the reduced price will be received on future
purchases, you or your Authorized Securities Dealer must inform the Transfer
Agent that the Letter is in effect each time shares are purchased. Neither
income dividends nor capital gain distributions taken in additional shares will
apply toward the completion of the Letter.
You are not obligated to complete the additional purchases contemplated by a
Letter. If you do not complete your purchase under the Letter within the
13-month period, your sales charge will be adjusted upward, corresponding to the
amount actually purchased, and if after written notice, you do not pay the
increased sales charge, sufficient escrowed shares will be redeemed to pay such
charge.
If you purchase more than the amount specified in the Letter and qualify for a
further sales charge reduction, the sales charge will be adjusted to reflect
your total purchase at the end of 13 months. Surplus funds will be applied to
the purchase of additional shares at the then current offering price applicable
to the total purchase.
EXCHANGING SHARES.
Shares of a Fund may be exchanged for the same class of shares of any other Fund
of the Trust. For example, an investor can exchange Class A shares of a Fund
only for Class A shares of another Fund.
17
<PAGE>
REDEEMING SHARES.
REINSTATEMENT PRIVILEGE. Within 90 days of a redemption, a shareholder may
reinvest all or part of the redemption proceeds in the same class of shares of
the same Fund or another Fund, at the net asset value next computed after
receipt by the Transfer Agent of the reinvestment order. No service charge is
currently made for reinvestment in shares of the Funds. The shareholder must ask
Firstar for such privilege at the time of reinvestment. Any capital gain that
was realized when the shares were redeemed is taxable, and reinvestment will not
alter any capital gains tax payable on that gain. If there has been a capital
loss on the redemption, some or all of the loss may not be tax deductible,
depending on the timing and amount of the reinvestment. Under the Code, if the
redemption proceeds of Fund shares on which a sales charge was paid are
reinvested in shares of a Fund within 90 days of payment of the sales charge,
the shareholder's basis in the shares of the Fund that were redeemed may not
include the amount of the sales charge paid. That would reduce the loss or
increase the gain recognized from redemption. The Funds may amend, suspend, or
cease offering this reinvestment privilege at any time as to shares redeemed
after the date of such amendment, suspension, or cessation. The reinstatement
must be into an account bearing the same registration.
DIVIDENDS AND DISTRIBUTIONS
The Funds distribute substantially all of their net investment income and net
capital gains, if any, to shareholders within each calendar year as well as on a
fiscal year basis to the extent required for the Funds to qualify for favorable
federal tax treatment. The Funds ordinarily declare and pay dividends from their
net investment income quarterly.
The amount of a Fund's distributions may vary from time to time depending on
market conditions, the composition of a Fund's portfolio, and expenses borne by
a Fund.
The net income of a Fund, from the time of the immediately preceding
determination thereof, shall consist of all interest income accrued on the
portfolio assets of the Fund, dividend income, if any, income from securities
loans, if any, income from corporate actions such as reorganizations, if any,
and realized capital gains and losses on the Fund's assets, less all expenses
and liabilities of the Fund chargeable against income. Interest income shall
include discount earned, including both original issue and market discount, on
discount paper accrued ratably to the date of maturity. Expenses, including the
compensation payable to the Adviser, are accrued each day. The expenses and
liabilities of a Fund shall include those appropriately allocable to the Fund as
well as a share of the general expenses and liabilities of the Trust in
proportion to the Fund's share of the total net assets of the Trust.
18
<PAGE>
TAXES
The following is only a summary of certain additional federal income tax
considerations generally affecting each Fund and its shareholders that are not
described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of each Fund or its shareholders, and the
discussions here and in the Prospectus are not intended as substitutes for
careful tax planning.
Qualification as a Regulated Investment Company
Each Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Code. As a regulated investment company, a Fund is not
subject to federal income tax on the portion of its net investment income (i.e.,
taxable interest, dividends and other taxable ordinary income, net of expenses)
and capital gain net income (i.e., the excess of capital gains over capital
losses) that it distributes to shareholders, provided that it distributes at
least 90% of its investment company taxable income (i.e., net investment income
and the excess of net short-term capital gain over net long-term capital loss)
for the taxable year (the "Distribution Requirement"), and satisfies certain
other requirements of the Code that are described below. Distributions by a Fund
made during the taxable year or, under specified circumstances, within twelve
months after the close of the taxable year, will be considered distributions of
income and gains of the taxable year and will therefore count towards the
satisfaction of the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated investment
company must derive at least 90% of its gross income from dividends, interest,
certain payments with respect to securities loans, gains from the sale or other
disposition of stock or securities or foreign currencies (to the extent such
currency gains are directly related to the regulated investment company's
principal business of investing in stock or securities) and other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "Income Requirement").
In general, gain or loss recognized by a Fund on the disposition of an asset
will be a capital gain or loss. In addition, gain will be recognized as a result
of certain constructive sales, including short sales "against the box". However,
gain recognized on the disposition of a debt obligation purchased by a Fund at a
market discount (generally, at a price less than its principal amount) will be
treated as ordinary income to the extent of the portion of the market discount
which accrued during the period of time the Fund held the debt obligation. In
addition, under the rules of Code section 988, gain or loss recognized on the
disposition of a debt obligation denominated in a foreign currency or an option
with respect thereto (but only to the extent attributable to changes in foreign
currency exchange rates), and gain or loss recognized on the disposition of a
foreign currency forward contract, futures contract, option or similar financial
instrument, or of foreign currency itself, except for regulated futures
contracts or non-equity options subject to Code section 1256 (unless a Fund
elects otherwise), will generally be treated as ordinary income or loss.
Further, the Code also treats as ordinary income a portion of the capital gain
attributable to a transaction where substantially all of the return realized is
attributable to the time value of a Fund's net investment in the transaction
and: (1) the transaction consists of the acquisition of property by the Fund and
a contemporaneous contract to sell substantially identical property in the
future; (2) the transaction is a straddle within the meaning of section 1092 of
the Code; (3) the transaction is one that was marketed or sold to the Fund on
the basis that it would have the economic characteristics of a loan but the
interest-like return would be taxed as capital gain; or (4) the transaction is
described as a conversion transaction in the Treasury Regulations. The amount of
the gain recharacterized generally will not exceed the amount of the interest
that would have accrued on the net investment for the relevant period at a yield
equal to 120% of the federal long-term, mid-term, or short-term rate, depending
upon the type of instrument at issue, reduced by an amount equal to: (1) prior
inclusions of ordinary income items from the conversion transaction and (2) the
capital interest on acquisition indebtedness under Code section 263(g). Built-in
losses will be preserved where the Fund has a built-in loss with respect to
property that becomes a part of a conversion
19
<PAGE>
transaction. No authority exists that indicates that the converted character of
the income will not be passed through to the Fund's shareholders.
In general, for purposes of determining whether capital gain or loss recognized
by a Fund on the disposition of an asset is long-term or short-term, the holding
period of the asset may be affected if (1) the asset is used to close a "short
sale" (which includes for certain purposes the acquisition of a put option) or
is substantially identical to another asset so used, (2) the asset is otherwise
held by the Fund as part of a "straddle" (which term generally excludes a
situation where the asset is stock and the Fund grants a qualified covered call
option (which, among other things, must not be deep-in-the-money) with respect
thereto) or (3) the asset is stock and the Fund grants an in-the-money qualified
covered call option with respect thereto. In addition, a Fund may be required to
defer the recognition of a loss on the disposition of an asset held as part of a
straddle to the extent of any unrecognized gain on the offsetting position. Any
gain recognized by a Fund on the lapse of, or any gain or loss recognized by a
Fund from a closing transaction with respect to, an option written by the Fund
will be treated as a short-term capital gain or loss.
Certain transactions that may be engaged in by the Funds (such as regulated
futures contracts, certain foreign currency contracts, and options on stock
indexes and futures contracts) will be subject to special tax treatment as
"Section 1256 contracts." Section 1256 contracts are treated as if they are sold
for their fair market value on the last business day of the taxable year, even
though a taxpayer's obligations (or rights) under such contracts have not
terminated (by delivery, exercise, entering into a closing transaction or
otherwise) as of such date. Any gain or loss recognized as a consequence of the
year-end deemed disposition of Section 1256 contracts is taken into account for
the taxable year together with any other gain or loss that was previously
recognized upon the termination of Section 1256 contracts during that taxable
year. Any capital gain or loss for the taxable year with respect to Section 1256
contracts (including any capital gain or loss arising as a consequence of the
year-end deemed sale of such contracts) is generally treated as 60% long-term
capital gain or loss and 40% short-term capital gain or loss. A Fund, however,
may elect not to have this special tax treatment apply to Section 1256 contracts
that are part of a "mixed straddle" with other investments of the Fund that are
not Section 1256 contracts.
A Fund may purchase securities of certain foreign investment funds or trusts
which constitute passive foreign investment companies ("PFICs") for federal
income tax purposes. If a Fund invests in a PFIC, it has three separate options.
First, it may elect to treat the PFIC as a qualifying electing fund (a "QEF"),
in which case it will each year have ordinary income equal to its pro rata share
of the PFIC's ordinary earnings for the year and long-term capital gain equal to
its pro rata share of the PFIC's net capital gain for the year, regardless of
whether the Fund receives distributions of any such ordinary earnings or capital
gains from the PFIC. Second, the Fund may make a mark-to-market election with
respect to its PFIC stock. Pursuant to such an election, the Fund will include
as ordinary income any excess of the fair market value of such stock at the
close of any taxable year over its adjusted tax basis in the stock. If the
adjusted tax basis of the PFIC stock exceeds the fair market value of such stock
at the end of a given taxable year, such excess will be deductible as ordinary
loss in the amount equal to the lesser of the amount of such excess or the net
mark-to-market gains on the stock that the Fund included in income in previous
years. The Fund's holding period with respect to its PFIC stock subject to the
election will commence on the first day of the following taxable year. If the
Fund makes the mark-to-market election in the first taxable year it holds PFIC
stock, it will not incur the tax described below under the third option.
Finally, if the Fund does not elect to treat the PFIC as a QEF and does not make
a mark-to-market election, then, in general, (1) any gain recognized by the Fund
upon a sale or other disposition of its interest in the PFIC or any "excess
distribution" received by the Fund from the PFIC will be allocated ratably over
the Fund's holding period in the PFIC stock, (2) the portion of such gain or
excess distribution so allocated to the year in which the gain is recognized or
the excess distribution is received shall be included in the Fund's gross income
for such year as ordinary income (and the distribution of such portion by the
Fund to shareholders will be taxable as an ordinary income dividend, but such
portion will not be subject to tax at the Fund level), (3) the Fund shall be
liable for tax on the portions of such gain or excess distribution so allocated
to prior years in an amount equal to, for each such prior year, (i) the amount
of gain or excess
20
<PAGE>
distribution allocated to such prior year multiplied by the highest tax rate
(individual or corporate, as the case may be) in effect for such prior year,
plus (ii) interest on the amount determined under clause (i) for the period from
the due date for filing a return for such prior year until the date for filing a
return for the year in which the gain is recognized or the excess distribution
is received, at the rates and methods applicable to underpayments of tax for
such period, and (4) the distribution by the Fund to shareholders of the
portions of such gain or excess distribution so allocated to prior years (net of
the tax payable by the Fund thereon) will again be taxable to the shareholders
as an ordinary income dividend.
Treasury Regulations permit a regulated investment company, in determining its
investment company taxable income and net capital gain (i.e., the excess of net
long-term capital gain over net short-term capital loss) for any taxable year,
to elect (unless it has made a taxable year election for excise tax purposes as
discussed below) to treat all or any part of any net capital loss, any net
long-term capital loss or any net foreign currency loss (including, to the
extent provided in Treasury Regulations, losses recognized pursuant to the PFIC
mark-to-market election) incurred after October 31 as if it had been incurred in
the succeeding year.
In addition to satisfying the requirements described above, each Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of a Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in securities
of such issuer and does not hold more than 10% of the outstanding voting
securities of such issuer), and no more than 25% of the value of its total
assets may be invested in the securities of any one issuer (other than U.S.
Government securities and securities of other regulated investment companies),
or in two or more issuers which the Fund controls and which are engaged in the
same or similar trades or businesses. Generally, an option (call or put) with
respect to a security is treated as issued by the issuer of the security not the
issuer of the option. For purposes of asset diversification testing, obligations
issued or guaranteed by agencies or instrumentalities of the U.S. Government
such as the Federal Agricultural Mortgage Corporation, the Farm Credit System
Financial Assistance Corporation, a Federal Home Loan Bank, the Federal Home
Loan Mortgage Corporation, the Federal National Mortgage Association, the
Government National Mortgage Corporation, and the Student Loan Marketing
Association are treated as U.S.
Government securities.
If for any taxable year a Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment company that
fails to distribute in each calendar year an amount equal to 98% of its ordinary
income for such calendar year and 98% of capital gain net income for the
one-year period ended on October 31 of such calendar year (or, at the election
of a regulated investment company having a taxable year ending November 30 or
December 31, for its taxable year (a "taxable year election")). The balance of
such income must be distributed during the next calendar year. For the foregoing
purposes, a regulated investment company is treated as having distributed any
amount on which it is subject to income tax for any taxable year ending in such
calendar year.
For purposes of the excise tax, a regulated investment company shall: (1) reduce
its capital gain net income (but not below its net capital gain) by the amount
of any net ordinary loss for the calendar year; and (2) exclude foreign currency
gains and losses and ordinary gains or losses arising as a result of a PFIC
mark-to-market election (or upon an actual disposition of the PFIC stock subject
to such election) incurred
21
<PAGE>
after October 31 of any year (or after the end of its taxable year if it has
made a taxable year election) in determining the amount of ordinary taxable
income for the current calendar year (and, instead, include such gains and
losses in determining ordinary taxable income for the succeeding calendar year).
Each Fund intends to make sufficient distributions or deemed distributions of
its ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. However, investors should
note that a Fund may in certain circumstances be required to liquidate portfolio
investments to make sufficient distributions to avoid excise tax liability.
Fund Distributions
Each Fund anticipates distributing substantially all of its investment company
taxable income for each taxable year. Such distributions will be taxable to
shareholders as ordinary income and treated as dividends for federal income tax
purposes. Such dividends paid by a Fund will qualify for the 70%
dividends-received deduction for corporate shareholders only to the extent
discussed below.
A Fund may either retain or distribute to shareholders its net capital gain for
each taxable year. Each Fund currently intends to distribute any such amounts.
Net capital gain that is distributed and designated as a capital gain dividend
will be taxable to shareholders as long-term capital gain, regardless of the
length of time the shareholder has held his shares or whether such gain was
recognized by the Fund prior to the date on which the shareholder acquired his
shares. The Code provides, however, that under certain conditions only 50% (58%
for alternative minimum tax purposes) of the capital gain recognized upon a
Fund's disposition of domestic "small business" stock will be subject to tax.
Conversely, if a Fund elects to retain its net capital gain, the Fund will be
taxed thereon (except to the extent of any available capital loss carryovers) at
the 35% corporate tax rate. If a Fund elects to retain its net capital gain, it
is expected that the Fund also will elect to have shareholders of record on the
last day of its taxable year treated as if each received a distribution of his
pro rata share of such gain, with the result that each shareholder will be
required to report his pro rata share of such gain on his tax return as
long-term capital gain, will receive a refundable tax credit for his pro rata
share of tax paid by the Fund on the gain, and will increase the tax basis for
his shares by an amount equal to the deemed distribution less the tax credit.
Ordinary income dividends paid by a Fund with respect to a taxable year will
qualify for the 70% dividends-received deduction generally available to
corporations (other than corporations, such as S corporations, which are not
eligible for the deduction because of their special characteristics and other
than for purposes of special taxes such as the accumulated earnings tax and the
personal holding company tax) to the extent of the amount of qualifying
dividends received by the Fund from domestic corporations for the taxable year.
Generally, a dividend received by the Fund will not be treated as a qualifying
dividend (1) if it has been received with respect to any share of stock that the
Fund has held for less than 46 days (91 days in the case of certain preferred
stock), excluding for this purpose under the rules of Code section 246(c)(3) and
(4) any period during which the Fund has an option to sell, is under a
contractual obligation to sell, has made and not closed a short sale of, is the
grantor of a deep-in-the-money or otherwise nonqualified option to buy, or has
otherwise diminished its risk of loss by holding other positions with respect
to, such (or substantially identical) stock; (2) to the extent that the Fund is
under an obligation (pursuant to a short sale or otherwise) to make related
payments with respect to positions in substantially similar or related property;
or (3) to the extent that the stock on which the dividend is paid is treated as
debt-financed under the rules of Code Section 246A. The 46-day holding period
must be satisfied during the 90-day period beginning 45 days prior to each
applicable ex-dividend date; the 91-day holding period must be satisfied during
the 180-day period beginning 90 days before each applicable ex-dividend date.
Moreover, the dividends-received deduction for a corporate shareholder may be
disallowed or reduced (1) if the corporate shareholder fails to satisfy the
foregoing requirements with respect to its shares of the Fund or (2) by
application of Code section 246(b) which in general limits the
dividends-received deduction to 70% of the shareholder's taxable income
(determined without regard to the dividends-received deduction
22
<PAGE>
and certain other items). Since an insignificant portion of the International
Equity Fund will be invested in stock of domestic corporations, the ordinary
dividends distributed by the Fund generally will not qualify for the
dividends-received deduction for corporate shareholders.
Alternative minimum tax ("AMT") is imposed in addition to, but only to the
extent it exceeds, the regular tax and is computed at a maximum marginal rate of
28% for noncorporate taxpayers and 20% for corporate taxpayers on the excess of
the taxpayer's alternative minimum taxable income ("AMTI") over an exemption
amount. For purposes of the corporate AMT, the corporate dividends-received
deduction is not itself an item of tax preference that must be added back to
taxable income or is otherwise disallowed in determining a corporation's AMTI.
However, a corporate shareholder will generally be required to take the full
amount of any dividend received from the Fund into account (without a
dividends-received deduction) in determining its adjusted current earnings,
which are used in computing an additional corporate preference item (i.e., 75%
of the excess of a corporate taxpayer's adjusted current earnings over its AMTI
(determined without regard to this item and the AMT net operating loss
deduction)) includable in AMTI.
Investment income that may be received by a Fund from sources within foreign
countries may be subject to foreign taxes withheld at the source. The United
States has entered into tax treaties with many foreign countries which entitle a
Fund to a reduced rate of, or exemption from, taxes on such income. It is
impossible to determine the effective rate of foreign tax in advance since the
amount of a Fund's assets to be invested in various countries is not known. If
more than 50% of the value of a Fund's total assets at the close of its taxable
year consist of the stock or securities of foreign corporations, the Fund may
elect to "pass through" to the Fund's shareholders the amount of foreign taxes
paid by the Fund. If a Fund so elects, each shareholder would be required to
include in gross income, even though not actually received, his pro rata share
of the foreign taxes paid by the Fund, but would be treated as having paid his
pro rata share of such foreign taxes and would therefore be allowed to either
deduct such amount in computing taxable income or use such amount (subject to
various Code limitations) as a foreign tax credit against federal income tax
(but not both). For purposes of the foreign tax credit limitation rules of the
Code, each shareholder would treat as foreign source income his pro rata share
of such foreign taxes plus the portion of dividends received from the Fund
representing income derived from foreign sources. No deduction for foreign taxes
could be claimed by an individual shareholder who does not itemize deductions.
Each shareholder should consult his own tax adviser regarding the potential
application of foreign tax credits.
Distributions by a Fund that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital to the extent of
(and in reduction of) the shareholder's tax basis in his shares; any excess will
be treated as gain from the sale of his shares, as discussed below.
Distributions by a Fund will be treated in the manner described above regardless
of whether such distributions are paid in cash or reinvested in additional
shares of the Fund (or of another fund). Shareholders receiving a distribution
in the form of additional shares will be treated as receiving a distribution in
an amount equal to the fair market value of the shares received, determined as
of the reinvestment date. In addition, if the net asset value at the time a
shareholder purchases shares of a Fund reflects undistributed net investment
income or recognized capital gain net income, or unrealized appreciation in the
value of the assets of the Fund, distributions of such amounts will be taxable
to the shareholder in the manner described above, although such distributions
economically constitute a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by a Fund into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
23
<PAGE>
Each Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of ordinary income dividends and capital gain dividends, and the
proceeds of redemption of shares, paid to any shareholder (1) who has failed to
provide a correct taxpayer identification number, (2) who is subject to backup
withholding for failure to properly report the receipt of interest or dividend
income properly, or (3) who has failed to certify to the Fund that it is not
subject to backup withholding or that it is a corporation or other "exempt
recipient."
Sale or Redemption of Shares
A shareholder will recognize gain or loss on the sale or redemption of shares of
a Fund in an amount equal to the difference between the proceeds of the sale or
redemption and the shareholder's adjusted tax basis in the shares. All or a
portion of any loss so recognized may be disallowed if the shareholder purchases
other shares of a Fund within 30 days before or after the sale or redemption. In
general, any gain or loss arising from (or treated as arising from) the sale or
redemption of shares of a Fund will be considered capital gain or loss and will
be long-term capital gain or loss if the shares were held for longer than one
year. Long-term capital gain recognized by an individual shareholder will be
taxed at the lowest rate applicable to capital gains if the holder has held such
shares for more than 18 months at the time of the sale. However, any capital
loss arising from the sale or redemption of shares held for six months or less
will be treated as a long-term capital loss to the extent of the amount of
capital gain dividends received on such shares. For this purpose, the special
holding period rules of Code Section 246(c)(3) and (4) (discussed above in
connection with the dividends-received deduction for corporations) generally
will apply in determining the holding period of shares. Capital losses in any
year are deductible only to the extent of capital gains plus, in the case of a
noncorporate taxpayer, $3,000 of ordinary income.
If a shareholder (1) incurs a sales load in acquiring shares of a Fund, (2)
disposes of such shares less than 91 days after they are acquired and (3)
subsequently acquires shares of the Fund or another fund at a reduced sales load
pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales load
on the shares disposed of (to the extent of the reduction in the sales load on
the shares subsequently acquired) shall not be taken into account in determining
gain or loss on the shares disposed of but shall be treated as incurred on the
acquisition of the shares subsequently acquired.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a nonresident alien
individual, foreign trust or estate, foreign corporation, or foreign partnership
("foreign shareholder"), depends on whether the income from a Fund is
"effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from a Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, ordinary income dividends paid to
a foreign shareholder will be subject to U.S. withholding tax at the rate of 30%
(or lower applicable treaty rate) upon the gross amount of the dividend.
Furthermore, such foreign shareholder may be subject to U.S. withholding tax at
the rate of 30% (or lower applicable treaty rate) on the gross income resulting
from a Fund's election to treat any foreign taxes paid by it as paid by its
shareholders, but may not be allowed a deduction against this gross income or a
credit against this U.S. withholding tax for the foreign shareholder's pro rata
share of such foreign taxes which it is treated as having paid. Such a foreign
shareholder would generally be exempt from U.S. federal income tax on gains
realized on the sale of shares of a Fund, capital gain dividends and amounts
retained by the Fund that are designated as undistributed capital gains.
If the income from a Fund is effectively connected with a U.S. trade or business
carried on by a foreign shareholder, then ordinary income dividends, capital
gain dividends, and any gains realized upon the sale of shares of the Fund will
be subject to U.S. federal income tax at the rates applicable to U.S. citizens
or domestic corporations.
24
<PAGE>
In the case of a foreign shareholder other than a corporation, a Fund may be
required to withhold U.S. federal income tax at a rate of 31% on distributions
that are otherwise exempt from withholding tax (or taxable at a reduced treaty
rate) unless such shareholder furnishes the Fund with proper notification of his
foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
shareholders are urged to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Fund, including the
applicability of foreign taxes.
Effect of Future Legislation; State and Local Tax Considerations
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the Treasury Regulations issued thereunder as in effect on
the date of this SAI. Future legislative or administrative changes or court
decisions may significantly change the conclusions expressed herein, and any
such changes or decisions may have a retroactive effect.
Rules of state and local taxation of ordinary income dividends and capital gain
dividends from regulated investment companies may differ from the rules for U.S.
federal income taxation described above. Shareholders are urged to consult their
tax advisers as to the consequences of these and other state and local tax rules
affecting investment in a Fund.
TRUSTEES AND OFFICERS
BOARD OF TRUSTEES.
Overall responsibility for management of the Trust rests with the Trustees, who
are elected by the shareholders of the Funds. The Funds are managed by the
Trustees in accordance with the laws of the State of Delaware. There are
currently _____ Trustees, _______ of whom are not "interested persons" of the
Trust within the meaning of that term under the 1940 Act ("disinterested
Trustees"). The Trustees, in turn, elect the officers of the Trust to supervise
actively its day-to-day operations.
The Trustees of the Trust, their addresses, ages, and their principal
occupations during the past five years are as follows:
Principal Occupation
Name and Age Position(s) Held with the Trust During Past 5 Years
- ------------ ------------------------------- -------------------
The Board presently has an Investment Policy Committee, a Business, Legal, and
Audit Committee, and a Board Process and Nominating Committee. The members of
the Investment Policy Committee are _______________ and ____________, who will
serve until __________ 1999. The function of the Investment Policy Committee is
to review the existing investment policies of the Funds, including the levels of
risk and types of funds available to shareholders, and make recommendations to
the Trustees regarding the revision of such policies or, if necessary, the
submission of such revisions to the Funds' shareholders for their
25
<PAGE>
consideration. The members of the Business, Legal and Audit Committee are
_________ (Chairman), _________, and __________ who will serve until ________
1999. The function of the Business, Legal, and Audit Committee is to recommend
independent auditors and monitor accounting and financial matters and to review
compliance and contract matters. ___________ is the Chairman of the Board
Process and Nominating Committee which nominates persons to serve as
disinterested Trustees and Trustees to serve on committees of the Board.
Remuneration of Trustees and Certain Executive Officers.
Each Trustee (other than _____________) receives an annual fee of $____________
for serving as Trustee of all the Funds of the Trust, and an additional per
meeting fee ($_________ in person and $________ per telephonic meeting).
____________ receives an annual fee of $________ for serving as President and
Trustee for all of the Funds of the Trust, and an additional per meeting fee
($_________ in person and $__________ per telephonic meeting). The Advisor pays
the fees and expenses of ___________.
The following table indicates the compensation each Trustee is expected to
receive from the Trust for the 12 month period ending ___________ __, 1999.
Pension or Retirement Estimated Annual Aggregate
Benefits Accrued as Benefits Upon Compensation
Name, Position Portfolio Expenses Retirement from the Trust
-------------- ------------------- ---------- --------------
-0- -0-
-0- -0-
-0- -0-
-0- -0-
-0- -0-
-0- -0-
OFFICERS.
The officers of the Trust, their ages, and principal occupations during the past
five years, are as follows:
Principal Occupation
Name and Age Position(s) with the Trust During Past 5 Years
- ------------ ---------------------------- -------------------
26
<PAGE>
The mailing address of each of the officers of the Trust is 615 East Michigan
Street, Milwaukee, Wisconsin 53202-5207.
The officers of the Trust (other than _____________) receive no compensation
directly from the Trust for performing the duties of their offices.
Current and retired Trustees and officers of the Trust may purchase Class A
Shares of the Funds without paying a sales load.
As of _________ __, 1998, the Trustees and officers as a group owned
beneficially less than 1% of all classes of outstanding shares of the Funds.
ADVISORY AND OTHER CONTRACTS
INVESTMENT ADVISER.
Simms, a Delaware corporation registered as an investment adviser with the SEC,
serves as the Funds' investment adviser. Simms is located at 55 Railroad Avenue,
Greenwich, Connecticut 06830. As of June 30, 1998, the Adviser managed
approximately $700 million for numerous clients including large corporate and
public retirement plans, Taft-Hartley plans, foundations and endowments, high
net worth individuals, and mutual funds. Robert A. Simms, President and CEO of
Simms, and Thomas L. Melly, Jennifer D. Miller, Thomas S. Kingsley and Peter M.
Gorman, Principals of Simms, may be deemed to control the Adviser.
The following schedule lists the advisory fees for Funds that are advised by the
Adviser.
.75 of 1% of average daily net assets
U.S. Equity Fund
1.00% of average daily net assets
International Equity Fund
Global Equity Fund
PORTFOLIO MANAGERS
Robert A. Simms. President and CEO of Simms from 1984 to present, prior to which
he was with Bear, Stearns & Co., Inc. investment bankers, from 1972 to 1984,
becoming a General Partner in 1977. His responsibilities included Manager of the
Institutional Department, Manager of the Options and Futures Department, and
Director of Asset Management Services. He was Executive Vice President of Black
& Co. from 1968 to 1972, a member of the Institutional Sales Department of
Paine, Webber, Jackson & Curtis from 1965 to 1968 and a research analyst for
Dominick & Dominick from 1961 to 1965. He received a B.A. from Rutgers
University in 1960.
Thomas L. Melly. Principal of the Adviser, joined Simms in 1990, prior to which
he was with Lake Partners, Inc., an independent investment consulting firm that
advises high net worth investors and private and institutional investment
partnerships. His responsibilities included the design and implementation of
custom-tailored investment programs and the evaluation of hedge funds and
investment managers in the specialized areas of short-selling, risk and
convertible arbitrage and high yield securities. He was an institutional fixed
income specialist at Autranet, Inc. and Tucker, Anthony & R.L. Day, Inc. from
1985 to 1988. From 1981 to 1983 he was an account officer and credit analyst at
Chemical Bank. Mr. Melly received his M.B.A. from
27
<PAGE>
the Amos Tuck School at Dartmouth in 1985 and his B.A. from Trinity College in
1980.
Jennifer D. Miller. Principal of the Adviser, joined Simms in 1991, prior to
which she spent six years in the Investment Strategy Group at Salomon Brothers
Inc. Her responsibilities included the quantitative and technical analysis of
the firm's proprietary positions. She also served as a liaison between the
research staff, the firm's proprietary traders and clients to establish and
manage portfolios using optimization, immunization, and index techniques. Ms.
Miller received her M.B.A. from the Stern Graduate School of Business at New
York University in 1990 and her B.S. in Finance from Lehigh University in 1982.
Robert Rosa, Jr. Mr. Rosa joined Simms in March 1997, prior to which he served
as an intern at Simms from June 1996 to February 1997. Mr. Rosa received his
M.B.A. from Sacred Heart University in 1997 and his B.S. from Worcester
Polytechnic Institute in 1989.
THE INVESTMENT ADVISORY AGREEMENT.
Unless sooner terminated, the Investment Advisory Agreement between the Adviser
and the Trust, on behalf of the Funds (the "Investment Advisory Agreement"),
provides that it will continue in effect for an initial two-year term and for
consecutive one-year terms thereafter, provided that such renewal is approved at
least annually by the Trustees or by vote of a majority of the outstanding
shares of each Fund (as defined under "Additional Information - Miscellaneous"),
and, in either case, by a majority of the Trustees who are not parties to the
Investment Advisory Agreement or interested persons (as defined in the 1940 Act)
of any party to the Investment Advisory Agreement, by votes cast in person at a
meeting called for such purpose.
The Investment Advisory Agreement is terminable as to any particular Fund at any
time on 60 days' written notice without penalty by the Trustees, by vote of a
majority of the outstanding shares of the Fund, by vote of the Board, or by the
Adviser. The Investment Advisory Agreement also terminates automatically in the
event of any assignment, as defined in the 1940 Act.
The Investment Advisory Agreement provides that the Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Funds in connection with the performance of services pursuant to the Investment
Advisory Agreement, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith, or gross negligence on the part of the Adviser
in the performance of its duties, or from reckless disregard by it of its duties
and obligations thereunder.
CODE OF ETHICS.
The Funds and the Adviser have each adopted a Code of Ethics to which all
investment personnel and all other access persons to the Fund must conform.
Investment personnel must refrain from certain trading practices and are
required to report certain personal investment activities. Violations of the
Code of Ethics can result in penalties, suspension, or termination of
employment.
PORTFOLIO TRANSACTIONS.
Pursuant to the Investment Advisory Agreement, the Adviser determines, subject
to the general supervision of the Board, and in accordance with each Fund's
investment objective and restrictions, which securities are to be purchased and
sold by the Funds, and which brokers are to be eligible to execute its portfolio
transactions. Purchases from underwriters and/or broker-dealers of portfolio
securities include a commission or concession paid by the issuer to the
underwriter and/or broker-dealer and purchases from dealers serving as market
makers may include the spread between the bid and asked price. While the Adviser
generally seeks competitive spreads or commissions, each Fund may not
necessarily pay the lowest spread or commission available on each transaction,
for reasons discussed below.
28
<PAGE>
Allocation of transactions to dealers is determined by the Adviser in its best
judgment and in a manner deemed fair and reasonable to shareholders. The primary
consideration is prompt execution of orders in an effective manner at the most
favorable price. Subject to this consideration, dealers who provide supplemental
investment research to the Adviser may receive orders for transactions by the
Trust. Information so received is in addition to and not in lieu of services
required to be performed by the Adviser and does not reduce the investment
advisory fees payable to the Adviser by the Funds. Such information may be
useful to the Adviser in serving both the Trust and other clients and,
conversely, such supplemental research information obtained by the placement of
orders on behalf of other clients may be useful to the Adviser in carrying out
its obligations to the Trust. At times, the Funds may also purchase portfolio
securities directly from dealers acting as principals, underwriters or market
makers. As these transactions are usually conducted on a net basis, no brokerage
commissions are paid by the Funds.
Investment decisions for each Fund are made independently from those made for
the other Funds of the Trust or any other investment company or account managed
by the Adviser. Such other investment companies or accounts may also invest in
the securities in which the Funds invest, and the Funds may invest in similar
securities. When a purchase or sale of the same security is made at
substantially the same time on behalf of a Fund and any other Fund, investment
company or account, the transaction will be averaged as to price, and available
investments allocated as to amount, in a manner which the Adviser believes to be
equitable to such Funds, investment company or account. In some instances, this
investment procedure may affect the price paid or received by a Fund or the size
of the position obtained by the Fund in an adverse manner relative to the result
that would have been obtained if only that particular Fund had participated in
or been allocated such trades. To the extent permitted by law, the Adviser may
aggregate the securities to be sold or purchased for a Fund with those to be
sold or purchased for the other funds of the Trust or for other investment
companies or accounts in order to obtain best execution. In making investment
recommendations for the Trust, the Adviser will not inquire or take into
consideration whether an issuer of securities proposed for purchase or sale by a
Fund is a customer of the Adviser, its parents or subsidiaries or affiliates
and, in dealing with their commercial customers, the Adviser, their parents,
subsidiaries, and affiliates will not inquire or take into consideration whether
securities of such customers are held by the Trust.
ADMINISTRATOR.
Firstar (the "Administrator"), 615 East Michigan Street, Milwaukee, Wisconsin
53202-5207, serves as administrator to the Funds pursuant to an administration
agreement dated _________ __, 1998 (the "Administration Agreement"). The
Administrator assists in supervising all operations of the Funds (other than
those performed by the Adviser under the Investment Advisory Agreement), subject
to the supervision of the Board. Firstar also provides a current security
position report, a summary report of transactions and pending maturities, a
current cash position report, calculates the dividend and capital gain
distribution, if any, and the yield, and maintains the general ledger accounting
records for the Funds.
For the services rendered to the Funds and related expenses borne by Firstar as
Administrator, each Fund pays Firstar an annual fee, computed daily and paid
monthly, at the following annual rates based on the Fund's average daily net
assets:
- ------------------------------
- ------------------------------
- ------------------------------
Firstar may periodically waive all or a portion of its fee with respect to any
Fund in order to increase the net income of one or more of the Funds available
for distribution to shareholders.
Unless sooner terminated, the Administration Agreement will continue in effect
as to each Fund for a period of two years, and for consecutive one-year terms
thereafter, provided that such renewal is ratified at least
29
<PAGE>
annually by the Trustees or by vote of a majority of the outstanding shares of
each Fund, and in either case by a majority of the Trustees who are not parties
to the Administration Agreement or interested persons (as defined in the 1940
Act) of any party to the Administration Agreement, by votes cast in person at a
meeting called for such purpose.
The Administration Agreement provides that Firstar shall not be liable for any
error of judgment or mistake of law or any loss suffered by the Trust in
connection with the matters to which the Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith, or gross negligence
in the performance of its duties, or from the reckless disregard by it of its
obligations and duties thereunder.
Under the Administration Agreement, Firstar assists in each Fund's
administration and operation, including providing statistical and research data,
clerical services, internal compliance and various other administrative
services, including among other responsibilities, forwarding certain purchase
and redemption requests to the Transfer Agent, participation in the updating of
the prospectus, coordinating the preparation, filing, printing and dissemination
of reports to shareholders, coordinating the preparation of income tax returns,
arranging for the maintenance of books and records and providing the office
facilities necessary to carry out the duties thereunder. Under the
Administration Agreement, Firstar may delegate all or any part of its
responsibilities thereunder.
DISTRIBUTOR.
Merit, 1221 Post Road East, Westport, Connecticut 06880, serves as distributor
for the continuous offering of the shares of the Funds pursuant to a
Distribution Agreement between the Distributor and the Trust. Unless otherwise
terminated, the Distribution Agreement will remain in effect with respect to
each Fund for two years, and will continue thereafter for consecutive one-year
terms, provided that the renewal is approved at least annually (1) by the
Trustees or by the vote of a majority of the outstanding shares of each Fund,
and (2) by the vote of a majority of the Trustees of the Trust who are not
parties to the Distribution Agreement or interested persons of any such party,
cast in person at a meeting called for the purpose of voting on such approval.
The Distribution Agreement will terminate in the event of its assignment, as
defined under the 1940 Act.
TRANSFER AGENT.
Firstar serves as transfer and dividend disbursing agent for the Funds pursuant
to a Transfer Agency and Service Agreement. Under its agreement with the Trust,
Firstar has agreed (1) to issue and redeem shares of the Funds; (2) to address
and mail all communications by the Trust to its shareholders, including reports
to shareholders, dividend and distribution notices, and proxy material for its
meetings of shareholders; (3) to respond to correspondence or inquiries by
shareholders and others relating to its duties; (4) to maintain shareholder
accounts and certain sub-accounts; and (5) to make periodic reports to the
Trustees concerning the Funds' operations.
SHAREHOLDER SERVICING PLAN.
Payments made under the Shareholder Servicing Plan to Shareholder Servicing
Agents (which may include affiliates of the Adviser) are for administrative
support services to customers who may from time to time beneficially own shares,
which services may include: (1) aggregating and processing purchase and
redemption requests for shares from customers and transmitting promptly net
purchase and redemption orders to our distributor or transfer agent; (2)
providing customers with a service that invests the assets of their accounts in
shares pursuant to specific or pre-authorized instructions; (3) processing
dividend and distribution payments on behalf of customers; (4) providing
information periodically to customers showing their positions in shares; (5)
arranging for bank wires; (6) responding to customer inquiries; (7) providing
subaccounting with respect to shares beneficially owned by customers or
providing the information to the Funds as necessary for subaccounting; (8) if
required by law, forwarding shareholder communications from us (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to
30
<PAGE>
customers; (9) forwarding to customers proxy statements and proxies containing
any proposals which require a shareholder vote; and (10) providing such other
similar services as the Trust may reasonably request to the extent permitted
under applicable statutes, rules or regulations.
OTHER SERVICING PLANS.
In connection with certain servicing plans, the Funds have made certain
commitments that: (i) provide for one or more brokers to accept on the Funds'
behalf, purchase and redemption orders; (ii) authorize such brokers to designate
other intermediaries to accept purchase and redemption orders on the Funds'
behalf; (iii) provide that the Funds will be deemed to have received a purchase
or redemption order when an authorized broker or, if applicable, a broker's
authorized designee, accepts the order; and (iv) provide that customer orders
will be priced at the Funds' Net Asset Value next computed after they are
accepted by an authorized broker or the broker's authorized designee.
DISTRIBUTION PLAN.
The Trust, on behalf of the Funds, has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act (the "Rule 12b-1"). Rule 12b-1
provides in substance that a mutual fund may not engage directly or indirectly
in financing any activity that is primarily intended to result in the sale of
shares of such mutual fund except pursuant to a plan adopted by the fund under
Rule 12b-1. The Plan provides that a Fund may incur distribution expenses
related to the sale of shares of up to .25% per annum of the Fund's average
daily net assets.
The Plan provides that a Fund may finance activities which are primarily
intended to result in the sale of the Fund's shares, including, but not limited
to, advertising, printing of prospectuses and reports for other than existing
shareholders, preparation and distribution of advertising material and sales
literature and payments to dealers and shareholder servicing agents who enter
into agreements with the Fund or its Distributor.
In approving the Plan in accordance with the requirements of Rule 12b-1 under
the 1940 Act, the Trustees (including the "disinterested" Trustees, as defined
in the 1940 Act) considered various factors and determined that there is a
reasonable likelihood that the Plan will benefit each Fund and its shareholders.
The Plan will continue in effect from year to year if specifically approved
annually (a) by the majority of such Fund's outstanding voting shares or by the
Board and (b) by the vote of a majority of the disinterested Trustees. While the
Plan remains in effect, each Fund will furnish to the Board a written report of
the amounts spent by the Fund under the Plan and the purposes for these
expenditures. The Plan may not be amended to increase materially the amount to
be spent for distribution without shareholder approval and all material
amendments to the Plan must be approved by a majority of the Board and by the
disinterested Trustees in a vote cast in person at a meeting called specifically
for that purpose. While the Plan is in effect, the selection and nomination of
the disinterested Trustees shall be made by those disinterested Trustees then in
office.
FUND ACCOUNTANT.
Firstar serves as fund accountant for the all of the Funds pursuant to a fund
accounting agreement with the Trust dated ___________ ___, 1998 (the "Fund
Accounting Agreement"). As fund accountant for the Trust, Firstar calculates
each Fund's net asset value and provides other services to the Funds. Under the
Fund Accounting Agreement, Firstar is entitled to receive annual fees of
_______________________.
CUSTODIAN.
Cash and securities owned by each of the Funds are held by Firstar as custodian
pursuant to a Custodian Agreement dated ________ __, 1998. Under this Agreement,
Firstar (1) maintains a separate account or accounts in the name of each Fund;
(2) makes receipts and disbursements of money on behalf of each Fund;
31
<PAGE>
(3) collects and receives all income and other payments and distributions on
account of portfolio securities; and (4) responds to correspondence from
security brokers and others relating to its duties. Firstar may, with the
approval of a Fund and at the custodian's own expense, open and maintain a
sub-custody account or accounts on behalf of a Fund, provided that Firstar shall
remain liable for the performance of all of its duties under the Custodian
Agreement.
INDEPENDENT ACCOUNTANTS.
____________________, located at ________________________________, serves as the
Trust's independent accountants.
LEGAL COUNSEL.
Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York, New York 10022
serves as counsel to the Trust.
EXPENSES.
The Funds bear the following expenses relating to its operations: taxes,
interest, brokerage fees and commissions, fees of the Trustees, SEC fees, state
securities qualification fees, costs of preparing and printing prospectuses for
regulatory purposes and for distribution to current shareholders, outside
auditing and legal expenses, advisory and administration fees, fees and
out-of-pocket expenses of the custodian and transfer agent, certain insurance
premiums, costs of maintenance of the fund's existence, costs of shareholders'
reports and meetings, and any extraordinary expenses incurred in the Funds'
operation.
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES.
The Trust is a Delaware business trust that was formed on July 1, 1998. The
Trust Instrument authorizes the Board to issue an unlimited number of shares,
which are units of beneficial interest, without par value. The Trust presently
has three series of shares, which represent interests in the U.S. Equity Fund,
the International Equity Fund, the Global Equity Fund, and their respective
Classes.
The Trust's Trust Instrument authorizes the Board to divide or redivide any
unissued shares of the Trust into one or more additional series by setting or
changing in any one or more aspects their respective preferences, conversion or
other rights, voting power, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption. Each Fund currently
offers two share classes: (1) Class A, sold primarily to individuals and other
purchasers investing less than $1 million, and (2) Class Y, sold primarily to
institutions investing at least $1 million. The Distributor, in its discretion,
may sell Class Y Shares to individuals who invest at least $1 million.
Shares have no subscription or preemptive rights and only such conversion or
exchange rights as the Board may grant in its discretion. When issued for
payment as described in the Prospectus and this SAI, the Trust's shares will be
fully paid and non-assessable. In the event of a liquidation or dissolution of
the Trust, shares of a Fund are entitled to receive the assets available for
distribution belonging to the fund, and a proportionate distribution, based upon
the relative asset values of the respective funds, of any general assets not
belonging to any particular Fund that are available for distribution.
Shares of the Trust are entitled to one vote per share (with proportional voting
for fractional shares) on such matters as shareholders are entitled to vote.
Shareholders vote as a single class on all matters except (1) when required by
the 1940 Act, shares shall be voted by individual series, and (2) when the
Trustees have determined that the matter affects only the interests of one or
more series, then only shareholders of such series shall be entitled to vote
thereon. There will normally be no meetings of shareholders for the purpose of
32
<PAGE>
electing Trustees unless and until such time as less than a majority of the
Trustees have been elected by the shareholders, at which time the Trustees then
in office will call a shareholders' meeting for the election of Trustees. A
meeting shall be held for such purpose upon the written request of the holders
of not less than 10% of the outstanding shares. Upon written request by ten or
more shareholders meeting the qualifications of Section 16(c) of the 1940 Act
(i.e., persons who have been shareholders for at least six months, and who hold
shares having a net asset value of at least $25,000 or constituting 1% of the
outstanding shares) stating that such shareholders wish to communicate with the
other shareholders for the purpose of obtaining the signatures necessary to
demand a meeting to consider removal of a Trustee, the Trust will provide a list
of shareholders or disseminate appropriate materials (at the expense of the
requesting shareholders). Except as set forth above, the Trustees shall continue
to hold office and may appoint their successors.
Rule 18f-2 under the 1940 Act provides that any matter required to be submitted
to the holders of the outstanding voting securities of an investment company
such as the Trust shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each Fund
affected by the matter. For purposes of determining whether the approval of a
majority of the outstanding shares of a Fund will be required in connection with
a matter, the Fund will be deemed to be affected by a matter unless it is clear
that the interests of each Fund in the matter are identical, or that the matter
does not affect any interest of the Fund. Under Rule 18f-2, the approval of an
investment advisory agreement or any change in investment policy would be
effectively acted upon with respect to a Fund only if approved by a majority of
the outstanding shares of such Fund. However, Rule 18f-2 also provides that the
ratification of independent accountants, the approval of principal underwriting
contracts, and the election of Trustees may be effectively acted upon by
shareholders of the Trust voting without regard to series.
SHAREHOLDER AND TRUSTEE LIABILITY.
The Trust is organized as a Delaware business trust. The Delaware Business Trust
Act provides that a shareholder of a Delaware business trust shall be entitled
to the same limitation of personal liability extended to shareholders of
Delaware corporations, and the Trust Instrument provides that shareholders of
the Trust shall not be liable for the obligations of the Trust. The Trust
Instrument also provides for indemnification out of Trust property of any
shareholder held personally liable solely by reason of his or her being or
having been a shareholder. The Trust Instrument also provides that the Trust
shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Trust, and shall satisfy any
judgment thereon. Thus, the risk of a shareholder incurring financial loss
because of shareholder liability is considered to be extremely remote.
The Trust Instrument states further that no Trustee, officer, or agent of the
Trust shall be personally liable in connection with the administration or
preservation of the assets of the Funds or the conduct of the Trust's business;
nor shall any Trustee, officer, or agent be personally liable to any person for
any action or failure to act except for his own bad faith, willful misfeasance,
gross negligence, or reckless disregard of his duties. The Trust Instrument also
provides that all persons having any claim against the Trustees or the Trust
shall look solely to the assets of the Trust for payment.
MISCELLANEOUS.
As used in the Prospectus and in this SAI, "assets belonging to a Fund" (or
"assets belonging to the Fund") means the consideration received by the Trust
upon the issuance or sale of shares of a Fund, together with all income,
earnings, profits, and proceeds derived from the investment thereof, including
any proceeds from the sale, exchange, or liquidation of such investments, and
any funds or payments derived from any reinvestment of such proceeds and any
general assets of the Trust, which general liabilities and expenses are not
readily identified as belonging to a particular Fund that are allocated to that
Fund by the Trustees. The Trustees may allocate such general assets in any
manner they deem fair and equitable. It is anticipated that the factor that will
be used by the Trustees in making allocations of general assets to a particular
fund of the Trust will be the relative net asset value of each respective fund
at the time of allocation. Assets belonging to a particular Fund are charged
with the direct liabilities and expenses in respect of that Fund, and with a
share of the general
33
<PAGE>
liabilities and expenses of each of the Funds not readily identified as
belonging to a particular Fund, which are allocated to each Fund in accordance
with its proportionate share of the net asset values of the Funds at the time of
allocation. The timing of allocations of general assets and general liabilities
and expenses of the Trust to a particular fund will be determined by the
Trustees and will be in accordance with generally accepted accounting
principles. Determinations by the Trustees as to the timing of the allocation of
general liabilities and expenses and as to the timing and allocable portion of
any general assets with respect to a particular fund are conclusive.
The Trust is registered with the SEC as an open-end management investment
company. Such registration does not involve supervision by the SEC of the
management or policies of the Trust.
The Prospectus and this SAI do not include certain information contained in the
registration statement filed with the SEC. Copies of such information may be
obtained from the SEC upon payment of the prescribed fee.
Simms Capital Management, Inc. may be deemed to control the Funds.
THE PROSPECTUS AND THIS SAI DO NOT CONSTITUTE AN OFFERING OF THE SECURITIES
DESCRIBED IN THESE DOCUMENTS IN ANY STATE IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE. NO SALESMAN, DEALER, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THE
PROSPECTUS AND THIS SAI.
34
<PAGE>
APPENDIX
DESCRIPTION OF SECURITY RATINGS.
The NRSROs that may be utilized by the Adviser with regard to portfolio
investments for the Funds include Moody's and S&P. Set forth below is a
description of the relevant ratings of each such NRSRO. The NRSROs that may be
utilized by the Adviser and the description of each NRSRO's ratings is as of the
date of this SAI, and may subsequently change.
LONG-TERM DEBT RATINGS (assigned to corporate bonds).
Description of the five highest long-term debt ratings by Moody's (Moody's
applies numerical modifiers (e.g., 1, 2, and 3) in each rating category to
indicate the security's ranking within the category):
Aaa. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa. Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative elements - their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times in the future. Uncertainty of position
characterizes bonds in this class.
Description of the five highest long-term debt ratings by S&P (S&P may apply a
plus (+) or minus (-) to a particular rating classification to show relative
standing within that classification):
AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
35
<PAGE>
BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB. Debt rated BB is regarded, on balance, as predominately speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposure to adverse conditions.
SHORT-TERM DEBT RATINGS (may be assigned, for example, to CP, bank instruments,
and letters of credit).
Moody's description of its three highest short-term debt ratings:
Prime-1. Issuers rated Prime-1 (or supporting institutions) have a superior
capacity for repayment of senior short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by many of the following
characteristics:
- - Leading market positions in well-established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
- - Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- - Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2. Issuers rated Prime-2 (or supporting institutions) have a strong
capacity for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3. Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
S&P's description of its three highest short-term debt ratings:
A-1. This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to have extremely strong safety
characteristics are denoted with a plus sign (+).
A-2. Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
A-3. Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
36
<PAGE>
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS
(a) (1) Certificate of Trust.
(a) (2) Trust Instrument.
(b) By-laws.
(c) Not Applicable.
(d) Investment Advisory Agreement between Registrant and Simms
Capital Management, Inc.*
(e) General Distribution Agreement between Registrant and Merit
Capital Associates, Inc.*
(f) Not Applicable.
(g) (1) Opinion of Kramer, Levin, Naftalis &
Frankel as to legality of securities being
registered.*
(g) (2) Opinion of Morris, Nichols, Arsht & Tunnell, Delaware Counsel
to Registrant.*
(h) (1) Consent of Kramer, Levin, Naftalis & Frankel, Counsel to
Registrant.
(h) (2) Consent of ____________________, Independent Accountants for
Registrant.*
(i) Not Applicable.
(j) Investment Letters.*
(k) Rule 12b-1 Distribution Plan.*
(l) Not Applicable.
(m) Rule 18f-3 Plan.*
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
- --------------------------
* To be filed by amendment.
C-1
<PAGE>
ITEM 25. INDEMNIFICATION
Article X, Section 10.02 of Registrant's Delaware Trust
Instrument, attached hereto as Exhibit (a)(2), provides for
the indemnification of Registrant's Trustees and officers, as
follows:
"SECTION 10.02 INDEMNIFICATION.
(a) Subject to the exceptions and limitations contained in
Subsection 10.02(b):
(i) every person who is, or has been, a Trustee or officer of the
Trust (hereinafter referred to as a "Covered Person") shall be
indemnified by the Trust to the fullest extent permitted by law
against 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 or officer and against amounts paid or
incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal or
other, including appeals), actual or threatened while in office or
thereafter, and the words "liability" and "expenses" shall include,
without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered
Person:
(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office or (B) not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office, (A) by the court or
other body approving the settlement; (B) by at least a majority of
those Trustees who are neither Interested Persons of the Trust nor are
parties to the matter based upon a review of readily available facts
(as opposed to a full trial-type inquiry); or (C) by written opinion
of independent legal counsel based upon a review of readily available
facts (as opposed to a full trial-type inquiry).
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall
not be exclusive of or affect any other rights to which any Covered
Person may now or hereafter be entitled, shall continue as to a person
who has ceased to be a Covered Person and shall inure to the benefit
of the heirs, executors and administrators of such a person. Nothing
contained herein shall affect any rights to indemnification to which
Trust personnel, other than Covered Persons, and other persons may be
entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character
described in Subsection (a) of this Section 10.02 may be paid by the
Trust or Series from time to time prior to final disposition thereof
upon receipt of an undertaking by or on behalf of such Covered Person
that such amount will be paid over by him to the Trust or Series if
it is ultimately determined that he is not entitled to
indemnification under this Section 10.02; provided, however, that
either (i) such Covered Person shall have provided appropriate
security for such undertaking, (ii) the Trust is insured against
losses arising out of any such advance payments or (iii) either a
majority of the Trustees who are neither Interested Persons of the
Trust nor parties to the matter, or independent legal counsel in a
written opinion, shall have determined, based upon a review of
readily available facts (as opposed to a trial-type inquiry or full
C-2
<PAGE>
investigation), that there is reason to believe that such Covered
Person will be found entitled to indemnification under this Section
10.02."
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to
trustees, officers, and controlling persons or Registrant pursuant to
the foregoing provisions, or otherwise, Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Investment Company Act of 1940, as amended (the "1940 Act"), and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a trustee, officer, or
controlling person of Registrant in the successful defense of any
action, suit, or proceeding) is asserted by such trustee, officer, or
controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Simms Capital Management, Inc. provides management services to
Registrant and its series. To the best of Registrant's knowledge, the directors
and officers of the investment adviser have not held at any time during the past
two fiscal years or been engaged for their own account or in the capacity of
director, officer, employee, partner or trustee in any other business,
profession, vocation or employment of a substantial nature.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Merit Capital Associates, Inc. ("Merit"), 1221 Post Road East, West
Port, Connecticut 06880, Registrant's principal underwriter, also acts as the
principal underwriter for the following investment companies:
(b) The following information is furnished with respect to the officers and
directors of Merit, Registrant's principal underwriter:
Name and Principal Position and Offices with Position and Offices
Business Address Principal Underwriter with Registrant
(c) not applicable
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
The accounts, books or other documents required to be
maintained by Section 31(a) of the 1940 Act and the rules promulgated thereunder
are maintained by Firstar Trust Company, 615 East Michigan Street, Milwaukee,
Wisconsin 53202-5207.
C-3
<PAGE>
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKING
Registrant undertakes to call a meeting of shareholders for
the purpose of voting upon the question of removal of a trustee or trustees if
requested to do so by the holders of at least 10% of Registrant's outstanding
voting securities, and to assist in communications with other shareholders, as
required by Section 16(c) of the 1940 Act.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the 1940 Act,
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
and the State of New York on this 9th day of July, 1998.
SIMMS FUNDS
By: /s/ Robert A. Simms
---------------------
Robert A. Simms
President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Robert A. Simms President and July 9, 1998
--------------------------- ------------
Robert A. Simms Trustee
/s/ Frank C. McLaughlin Trustee July 9, 1998
---------------------------- -------------
Frank C. McLaughlin
/s/ Arthur O. Poltrack Trustee and July 9, 1998
---------------------------- -------------
Arthur O. Poltrack Chief Financial
Officer
C-5
<PAGE>
EXHIBIT INDEX
(a)(1) Certificate of Trust.
(a)(2) Trust Instrument.
(b) By-laws.
(h)(1) Consent of Kramer, Levin, Naftalis & Frankel, Counsel to Registrant.
CERTIFICATE OF TRUST
This Certificate of Trust of Simms Funds (the "Trust"), dated June 30,
1998, is being duly executed and filed by Jay G. Baris and George P. Attisano,
as trustees of the Trust, to form a business trust under the laws of the State
of Delaware.
1. Name. The name of the business trust formed hereby is Simms Funds.
2. Registered Office. The address of the Trust's registered office in
the State of Delaware is 1201 North Market Street, P.O. Box 1347, Wilmington,
Delaware 19899-1347.
3. Registered Agent. The name of the Trust's registered agent at the
above listed address is Delaware Corporation Organizers, Inc.
4. Effective Date. This Certificate of Trust shall be effective upon
the date and time of filing.
5. Series Trust. Notice is hereby given that pursuant to Section 3804
of the Delaware Business Trust Act, the debts, liabilities, obligations and
expenses incurred, contracted for or otherwise existing with respect to a
particular series of the Trust shall be enforceable against the assets of such
series only and not against the assets of the Trust generally. The Trust is, or
will become prior to or within 180 days following the first issuance
<PAGE>
of shares of beneficial interests therein, a registered investment company under
the Investment Company Act of 1940, as amended.
IN WITNESS WHEREOF, the undersigned, being all of the Trustees of the
Trust, have executed this Certificate of Trust as of the date first above
written.
/s/ Jay G. Baris
-------------------------------
Jay G. Baris
as Trustee and not individually
/s/ George P. Attisano
-------------------------------
George P. Attisano
as Trustee and not individually
SIMMS FUNDS
TRUST INSTRUMENT
DATED JUNE 30, 1998
<PAGE>
SIMMS FUNDS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - NAME AND DEFINITIONS...............................................................1
Section 1.01 Name...........................................................................1
Section 1.02 Definitions....................................................................1
ARTICLE II - BENEFICIAL INTEREST...............................................................2
Section 2.01 Shares Of Beneficial Interest..................................................2
Section 2.02 Issuance of Shares.............................................................2
Section 2.03 Register of Shares and Share Certificates......................................3
Section 2.04 Transfer of Shares.............................................................3
Section 2.05 Treasury Shares................................................................3
Section 2.06 Establishment of Series........................................................3
Section 2.07 Investment in the Trust........................................................4
Section 2.08 Assets and Liabilities of Series...............................................4
Section 2.09 No Preemptive Rights...........................................................5
Section 2.10 No Personal Liability of Shareholder...........................................5
ARTICLE III - THE TRUSTEES.....................................................................5
Section 3.01 Management of the Trust.......................................................5
Section 3.02 Initial Trustees..............................................................6
Section 3.03 Term of Office................................................................6
Section 3.04 Vacancies and Appointments....................................................6
Section 3.05 Temporary Absence.............................................................7
Section 3.06 Number of Trustees............................................................7
Section 3.07 Effect of Ending of a Trustee's Service.......................................7
Section 3.08 Ownership of Assets of the Trust..............................................7
ARTICLE IV - POWERS OF THE TRUSTEES............................................................7
Section 4.01 Powers........................................................................7
Section 4.02 Issuance and Repurchase of Shares............................................10
Section 4.03 Trustees and Officers as Shareholders........................................11
Section 4.04 Action by the Trustees.......................................................11
Section 4.05 Chairman of the Board of Trustees............................................11
Section 4.06 Principal Transactions.......................................................11
ARTICLE V - EXPENSES OF THE TRUST.............................................................12
ARTICLE VI - INVESTMENT ADVISER, PRINCIPAL UNDERWRITER,
ADMINISTRATOR AND TRANSFER AGENT..............................................................12
Section 6.01 Investment Adviser...........................................................12
Section 6.02 Principal Underwriter........................................................13
<PAGE>
Section 6.03 Administration...............................................................13
Section 6.04 Transfer Agent...............................................................13
Section 6.05 Parties to Contract..........................................................13
Section 6.06 Provisions and Amendments....................................................14
ARTICLE VII - SHAREHOLDERS' VOTING POWERS AND MEETINGS........................................14
Section 7.01 Voting Powers................................................................14
Section 7.02 Meetings.....................................................................15
Section 7.03 Quorum and Required Vote.....................................................15
ARTICLE VIII - CUSTODIAN......................................................................16
Section 8.01 Appointment and Duties.......................................................16
Section 8.02 Central Certificate System...................................................16
ARTICLE IX - DISTRIBUTIONS AND REDEMPTIONS....................................................17
Section 9.01 Distributions................................................................17
Section 9.02 Redemptions..................................................................17
Section 9.03 Determination of Net Asset Value and Valuation of Portfolio Assets...........18
Section 9.04 Suspension of the Right of Redemption........................................18
Section 9.05 Required Redemption of Shares................................................19
ARTICLE X - LIMITATION OF LIABILITY AND INDEMNIFICATION.......................................19
Section 10.01 Limitation of Liability.....................................................19
Section 10.02 Indemnification.............................................................19
Section 10.03 Shareholders................................................................20
ARTICLE XI - MISCELLANEOUS....................................................................21
Section 11.01 Trust Not a Partnership.....................................................21
Section 11.02 Trustee's Good Faith Action, Expert Advice, No Bond or Surety...............21
Section 11.03 Establishment of Record Dates...............................................21
Section 11.04 Dissolution and Termination of Trust........................................22
Section 11.05 Reorganization and Master/Feeder............................................23
Section 11.06 Filing of Copies, References, Headings......................................23
Section 11.07 Applicable Law..............................................................24
Section 11.08 Derivative Actions..........................................................24
Section 11.09 Amendments..................................................................25
Section 11.10 Fiscal Year.................................................................25
Section 11.11 Name Reservation............................................................25
Section 11.12 Provisions in Conflict With Law.............................................26
</TABLE>
<PAGE>
SIMMS FUNDS
June 30, 1998
TRUST INSTRUMENT, made by Jay G. Baris and George P. Attisano (the
"Trustees").
WHEREAS, the Trustees desire to establish a business trust for the
investment and reinvestment of funds contributed thereto;
NOW THEREFORE, the Trustees declare that all money and property
contributed to the trust hereunder shall be held and managed in trust under this
Trust Instrument as herein set forth below.
ARTICLE I
NAME AND DEFINITIONS
SECTION 1.01 NAME. The name of the trust created hereby is "Simms
Funds."
SECTION 1.02 DEFINITIONS. Wherever used herein, unless otherwise
required by the context or specifically provided:
(a) The "1940 Act" means the Investment Company Act of 1940, as amended
from time to time. Whenever reference is made hereunder to the 1940 Act, such
references shall be interpreted as including any applicable order or orders of
the Commission or any rules or regulations adopted by the Commission thereunder
or interpretive releases of the Commission staff;
(b) "Bylaws" means the Bylaws of the Trust as adopted by the Trustees,
as amended from time to time;
(c) "Commission" has the meaning given it in the 1940 Act. In addition,
"Affiliated Person," "Assignment," "Interested Person" and "Principal
Underwriter" shall have the respective meanings given them in the 1940 Act.
"Majority Shareholder Vote" shall have the same meaning as the term "vote of a
majority of the outstanding voting securities" under the 1940 Act;
(d) "Delaware Act" refers to Chapter 38 of Title 12 of the Delaware
Code entitled "Treatment of Delaware Business Trusts," as amended from time to
time;
(e) "Net Asset Value" means the net asset value of each Series of the
Trust determined in the manner provided in Article IX, Section 9.03 hereof;
(f) "Outstanding Shares" means those Shares shown from time to time in
the books of the Trust or its transfer agent as then issued and outstanding, but
shall not include Shares which have been redeemed or repurchased by the Trust
and which are at the time held in the treasury of the Trust;
<PAGE>
(g) "Series" means a series of Shares of the Trust established in
accordance with the provisions of Article II, Section 2.06 hereof;
(h) "Shareholder" means a record owner of Outstanding Shares of the
Trust;
(i) "Shares" means the equal proportionate transferable units of
beneficial interest into which the beneficial interest of each Series of the
Trust or class thereof shall be divided and may include fractions of Shares as
well as whole Shares;
(j) The "Trust" means Simms Funds, a Delaware business trust, and
reference to the Trust when applicable to one or more Series of the Trust, shall
refer to any such Series;
(k) The "Trustees" means the person or persons who has or have signed
this Trust Instrument so long as he or they shall continue in office in
accordance with the terms hereof and all other persons who may from time to time
be duly qualified and serving as Trustees in accordance with the provisions of
Article III hereof, and reference herein to a Trustee or to the Trustees shall
refer to the individual Trustees in their respective capacity as Trustees
hereunder;
(l) "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of one or
more of the Trust or any Series, or the Trustees on behalf of the Trust or any
Series.
ARTICLE II
BENEFICIAL INTEREST
SECTION 2.01 SHARES OF BENEFICIAL INTEREST. The beneficial interest in
the Trust shall be divided into such Shares of one or more separate and distinct
Series or classes of a Series as set forth in Section 2.06 or as the Trustees
shall otherwise from time to time create and establish as provided in Section
2.06. The number of Shares of each Series and class thereof authorized hereunder
is unlimited. Each Share shall have a par value of $0.001. All Shares issued
hereunder, including without limitation, Shares issued in connection with a
dividend paid in Shares or a split of Shares, shall be fully paid and
non-assessable.
SECTION 2.02 ISSUANCE OF SHARES. The Trustees in their discretion may,
from time to time, without a vote of the Shareholders, issue Shares, 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, subject to
applicable law, including cash or securities, at such time or times and on such
terms as the Trustees may deem appropriate, 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 and Shares held in the
treasury. The Trustees may from time to time divide or combine the Shares into a
greater or lesser number without thereby changing the proportionate beneficial
interests in the Trust. Contributions to the Trust may be accepted for, and
Shares shall be redeemed as, whole Shares and/or 1/1000th of a Share or integral
multiples thereof. The Trustees or any person the Trustees may authorize for the
purpose may, in their discretion, reject any application for the issuance of
shares.
2
<PAGE>
SECTION 2.03 REGISTER OF SHARES AND SHARE CERTIFICATES. A register
shall be kept at the principal office of the Trust or an office of the Trust's
transfer agent which shall contain the names and addresses of the Shareholders
of each Series, the number of Shares of that Series (or any class or classes
thereof) held by them respectively and a record of all transfers thereof. No
share certificates shall be issued by the Trust except as the Trustees may
otherwise authorize, and the persons indicated as shareholders in such register
shall be entitled to receive dividends or other distributions or otherwise to
exercise or enjoy the rights of Shareholders. No Shareholder shall be entitled
to receive payment of any dividend or other 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 officer or other agent of the Trustees as shall
keep the said register for entry thereon.
SECTION 2.04 TRANSFER OF SHARES. Except as otherwise provided by the
Trustees, Shares shall be transferable on the records of the Trust only by the
record holder thereof or by his agent thereunto duly authorized in writing, upon
delivery to the Trustees or the Trust's transfer agent of a duly executed
instrument of transfer and such evidence of the genuineness of such execution
and authorization and of such other matters as may be required by the Trustees.
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
the Trust, 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.
SECTION 2.05 TREASURY SHARES. Shares held in the treasury shall, until
reissued pursuant to Section 2.02 hereof, not confer any voting rights on the
Trustees, nor shall such Shares be entitled to any dividends or other
distributions declared with respect to the Shares.
SECTION 2.06 ESTABLISHMENT OF SERIES. The Trust created hereby shall
consist initially of three Series: Income and Growth Portfolio; Moderate Growth
Portfolio, and Growth Portfolio. The preferences, voting powers, rights and
privileges of the Series and any classes thereof shall be as set forth in the
Trust's registration statement or statements as filed with the Commission, as
from time to time in effect. Distinct records shall be maintained by the Trust
for each Series and the assets associated with each Series shall be held and
accounted for separately from the assets of the Trust or any other Series. The
Trustees shall have full power and authority, in their sole discretion and
without obtaining any prior authorization or vote of the Shareholders of any
Series, to establish and designate and to change in any manner any Series or any
classes of initial or additional Series and to fix such preferences, voting
powers, rights and privileges of such Series or classes thereof as the Trustees
may from time to time determine, to divide or combine the Shares or any Series
or classes thereof into a greater or lesser number, to classify or reclassify
any issued Shares or any Series or classes thereof into one or more Series or
classes of Shares, and to take such other action with respect to the Shares as
the Trustees may deem desirable. The establishment and designation of any Series
(other than those established pursuant to the first sentence of this Section
2.06) shall be effective upon the adoption of a resolution by a majority of the
Trustees setting forth such establishment and designation and the relative
rights and preferences of the Shares of such Series, whether directly in such
resolution or by reference to, or approval of, another document that sets forth
such relative rights and preferences of such Series (or class) including,
without limitation, any registration statement of the Trust, or as
3
<PAGE>
otherwise provided in such resolution. A Series may issue any number of Shares,
but need not issue Shares. At any time that there are no Shares outstanding of
any particular Series previously established and designated, the Trustees may by
a majority vote abolish that Series and the establishment and designation
thereof.
All references to Shares in this Trust Instrument shall be deemed to be
Shares of any or all Series, or classes thereof as the context may require. All
provisions herein relating to the Trust shall apply equally to each Series of
the Trust, and each class thereof, except as the context otherwise requires.
Each Share of a Series of the Trust shall represent an equal beneficial
interest in the net assets of such Series. Each holder of Shares of a Series
shall be entitled to receive his proportionate share of all distributions made
with respect to such Series, based upon the number of full and fractional Shares
of the Series held. Upon redemption of his Shares, such Shareholder shall be
paid solely out of the funds and property of such Series of the Trust.
SECTION 2.07 INVESTMENT IN THE TRUST. The Trustees shall accept
investments in any Series from such persons and on such terms as they may from
time to time authorize. At the Trustees' discretion, such investments, subject
to applicable law, may be in the form of cash or securities in which the
affected Series is authorized to invest, valued as provided in Article IX
Section 9.03 hereof. Investments in a Series shall be credited to each
Shareholder's account in the form of full and fractional Shares at the net asset
value per Share next determined after the investment is received or accepted as
may be determined by the Trustees; provided, however, that the Trustees may, in
their sole discretion, (a) fix minimum amounts for initial and subsequent
investments or (b) impose a sales charge upon investments in such manner and at
such time determined by the Trustees.
SECTION 2.08 ASSETS AND LIABILITIES OF SERIES. All consideration
received by the Trust for the issue or sale of Shares of a particular Series,
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 be held and accounted for separately from the other assets of
the Trust and of every other Series and may be referred to herein as "assets
belonging to" that Series. The assets belonging to a particular Series shall
belong to that Series for all purposes, and to no other Series, and shall be
subject only to the rights of creditors of that Series. In addition, any assets,
income, earnings, profits or funds, or payments and proceeds with respect
thereto, which are not readily identifiable as belonging to any particular
Series shall be allocated by the Trustees between and among one or more of the
Series in such manner as the Trustees, in their sole discretion, deem fair and
equitable. Each such allocation shall be conclusive and binding upon the
Shareholders of all Series for all purposes, and such assets, income, earnings,
profits or funds, or payments and proceeds with respect thereto shall be assets
belonging to that Series. The assets belonging to a particular Series shall be
so recorded upon the books of the Trust, and shall be held by the Trustees in
trust for the benefit of the holders of Shares of that Series, and separate and
distinct records shall be maintained for each Series. The assets belonging to
each
4
<PAGE>
particular Series shall be charged with the liabilities of that Series and all
expenses, costs, charges and reserves attributable to that Series. 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 between or among any one or more of the Series in
such manner as the Trustees in their sole discretion deem fair and equitable.
Each such allocation shall be conclusive and binding upon the Shareholders of
all Series for all purposes. Without limitation of the foregoing provisions of
this Section 2.08, but subject to the right of the Trustees in their discretion
to allocate general liabilities, expenses, costs, changes or reserves as herein
provided, the debts, liabilities, obligations and expenses incurred, contracted
for or otherwise existing with respect to a particular Series shall be
enforceable against the assets of such Series only, and not against the assets
of the Trust generally or of any other Series. Notice of this contractual
limitation on inter-Series liabilities may, in the Trustee's sole discretion, be
set forth in the certificate of trust of the Trust (whether originally or by
amendment) as filed or to be filed in the Office of the Secretary of State of
the State of Delaware pursuant to the Delaware Act, and upon the giving of such
notice in the certificate of trust, the statutory provisions of Section 3804 of
the Delaware Act relating to limitations on inter-Series liabilities (and the
statutory effect under Section 3804 of setting forth such notice in the
certificate of trust) shall become applicable to the Trust and each Series. Any
person extending credit to, contracting with or having any claim against any
Series may look only to the assets of that Series to satisfy or enforce any
debt, with respect to that Series. No Shareholder or former Shareholder of any
Series shall have a claim on or any right to any assets allocated or belonging
to any other Series.
SECTION 2.09 NO PREEMPTIVE RIGHTS. Shareholders shall have no
preemptive or other right to subscribe to any additional Shares or other
securities issued by the Trust or the Trustees, whether of the same or other
Series.
SECTION 2.10 NO PERSONAL LIABILITY OF SHAREHOLDER. No Shareholder shall
be personally liable for the debts, liabilities, obligations and expenses
incurred by, contracted for, or otherwise existing with respect to, the Trust or
by or on behalf of any Series. The Trustees shall have no power to bind any
Shareholder personally or to call upon any Shareholder for the payment of any
sum of money or assessment whatsoever other than such as the Shareholder may at
any time personally agree to pay by way of subscription for any Shares or
otherwise.
ARTICLE III
THE TRUSTEES
SECTION 3.01 MANAGEMENT OF THE TRUST. 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 this Trust Instrument. 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 State of Delaware, in any and
all states of the United States of America, in the District of Columbia, in any
and all commonwealths, territories, dependencies, colonies, or possessions of
the United States of America, and in any foreign jurisdiction and to do all such
other things and execute all such instruments as they deem
5
<PAGE>
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 this Trust Instrument, the
presumption shall be in favor of a grant of power to the Trustees.
The enumeration of any specific power in this Trust Instrument shall
not be construed as limiting the aforesaid power. The powers of the Trustees may
be exercised without order of or resort to any court.
Except for the Trustees named herein or appointed to fill vacancies
pursuant to Section 3.04 of this Article III, the Trustees shall be elected by
the Shareholders owning of record a plurality of the Shares voting at a meeting
of Shareholders. Any Shareholder meeting held for such purpose shall be held on
a date fixed by the Trustees. In the event that less than a majority of the
Trustees holding office have been elected by Shareholders, the Trustees then in
office will call a Shareholders' meeting for the election of Trustees in
accordance with the provisions of the 1940 Act.
SECTION 3.02 INITIAL TRUSTEES. The initial Trustees shall be the
persons named herein.
SECTION 3.03 TERM OF OFFICE. The Trustees shall hold office during the
lifetime of this Trust, and until its termination as herein provided; except (a)
that any Trustee may resign his trust by written instrument signed by him and
delivered to the other Trustees, which shall take effect upon such delivery or
upon such later date as is specified therein; (b) that any Trustee may be
removed at any time by written instrument, signed by at least two-thirds of the
number of Trustees prior to such removal specifying the date when such removal
shall become effective; (c) that any Trustee who requests in writing to be
retired or who has died, becomes physically or mentally incapacitated by reason
of illness or otherwise, or is otherwise unable to serve, may be retired by
written instrument signed by a majority of the other Trustees, specifying the
date of his retirement; and (d) that a Trustee may be removed at any meeting of
the Shareholders of the Trust by a vote of Shareholders owning at least
two-thirds of the Outstanding Shares of the Trust.
SECTION 3.04 VACANCIES AND APPOINTMENTS . In case of a Trustee's
declination to serve, death, resignation, retirement, removal, physical or
mental incapacity by reason of illness, disease or otherwise, or if a Trustee is
otherwise unable to serve, or if there is an increase in the number of Trustees,
a vacancy shall occur. Whenever a vacancy in the Board of Trustees shall occur,
until such vacancy is filled, the other Trustees shall have all the powers
hereunder and the certificate of the other Trustees of such vacancy shall be
conclusive. In the case of a vacancy, the remaining Trustees shall fill such
vacancy by appointing such other person as they in their discretion see fit, to
the extent consistent with the limitations provided under the 1940 Act. Such
appointment shall be evidenced by a written instrument signed by a majority of
the Trustees in office or by resolution of the Trustees, duly adopted, which
shall be recorded in the minutes of a meeting of the Trustees, whereupon the
appointment shall take effect.
An appointment of a Trustee may be made by the Trustees then in office
in anticipation of a vacancy to occur by reason of retirement, resignation or
increase in number of Trustees effective at a later date, provided that said
appointment shall become effective only at or after the
6
<PAGE>
effective date of said retirement, resignation or increase in number of
Trustees. As soon as any person appointed as a Trustee pursuant to this Section
3.04 shall have accepted this Trust, the trust estate shall vest in the new
Trustee or Trustees, together with the continuing Trustees, without any further
act or conveyance, and such person shall be deemed a Trustee.
SECTION 3.05 TEMPORARY ABSENCE . Any Trustee may, by power of attorney,
delegate his power for a period not exceeding six months at any time to any
other Trustee or Trustees, provided that in no case shall fewer than two
Trustees personally exercise the other powers hereunder except as herein
otherwise expressly provided.
SECTION 3.06 NUMBER OF TRUSTEES . The number of Trustees shall be at
least two (2), and thereafter shall be such number as shall be fixed from time
to time by a majority of the Trustees, provided, however, that the number of
Trustees shall in no event be more than twelve (12).
SECTION 3.07 EFFECT OF ENDING OF A TRUSTEE'S SERVICE. The declination
to serve, death, resignation, retirement, removal, incapacity, or inability of
the Trustees, or any one of them, shall not operate to terminate the Trust or to
revoke any existing agency created pursuant to the terms of this Trust
Instrument.
SECTION 3.08 OWNERSHIP OF ASSETS OF THE TRUST . The assets of the Trust
and of each Series shall be held separate and apart from any assets now or
hereafter held in any capacity other than as Trustee hereunder by the Trustees
or any successor Trustees. Legal title in all of the assets of the Trust and the
right to conduct any business shall at all times be considered as vested in the
Trustees on behalf of the Trust, except that the Trustees may cause legal title
to any Trust Property to be held by, or in the name of, the Trust or in the name
of any person as nominee. No Shareholder shall be deemed to have a severable
ownership in any individual asset of the Trust or of any Series or any right of
partition or possession thereof but each Shareholder shall have, except as
otherwise provided for herein, a proportionate undivided beneficial interest in
the Trust or Series based upon the number of Shares owned. The Shares shall be
personal property giving only the rights specifically set forth in this Trust
Instrument.
ARTICLE IV
POWERS OF THE TRUSTEES
SECTION 4.01 POWERS. The Trustees in all instances shall act as
principals, and are and shall be free from the control of the Shareholders. The
Trustees shall have full power and authority to do any and all acts and to make
and execute any and all contracts and instruments that they may consider
necessary or appropriate in connection with the management of the Trust. The
Trustees shall not in any way be bound or limited by present or future laws or
customs in regard to trust investments, but shall have full authority and power
to make any and all investments which they, in their sole discretion, shall deem
proper to accomplish the purpose of this Trust without recourse to any court or
other authority. Subject to any applicable limitation in this Trust Instrument
or the Bylaws of the Trust, the Trustees shall have the power and authority:
(a) To invest and reinvest cash and other property (including
investment,
7
<PAGE>
notwithstanding any other provision hereof, of all of the assets of any Series
in a single open-end investment company, including investment by means of
transfer of such assets in exchange for an interest or interests in such
investment company), and to hold cash or other property of the Trust uninvested,
without in any event being bound or limited by any present or future law or
custom in regard to investments by trustees, and to sell, exchange, lend,
pledge, mortgage, hypothecate, write options on and lease any or all of the
assets of the Trust:
(b) To operate as and carry on the business of an investment company,
and exercise all the powers necessary and appropriate to the conduct of such
operations;
(c) To borrow money and in this connection issue notes or other
evidence of indebtedness; to secure borrowings by mortgaging, pledging or
otherwise subjecting as security the Trust Property; to endorse, guarantee, or
undertake the performance of an obligation or engagement of any other person and
to lend Trust Property;
(d) To provide for the distribution of interests of the Trust either
through a principal underwriter in the manner hereinafter provided for or by the
Trust itself, or both, or otherwise pursuant to a plan of distribution of any
kind;
(e) To adopt Bylaws not inconsistent with this Trust Instrument
providing for the conduct of the business of the Trust and to amend and repeal
them to the extent that they do not reserve that right to the Shareholders; such
Bylaws shall be deemed incorporated and included in this Trust Instrument;
(f) To elect and remove such officers and appoint and terminate such
agents as they consider appropriate;
(g) To employ one or more banks, trust companies or companies that are
members of a national securities exchange or such other entities as the
Commission may permit as custodians of any assets of the Trust subject to any
conditions set forth in this Trust Instrument or in the Bylaws;
(h) To retain one or more transfer agents and shareholder servicing
agents, or both;
(i) To set record dates in the manner provided herein or in the Bylaws;
(j) To delegate such authority as they consider desirable to any
officers of the Trust and to any investment adviser, manager, custodian,
underwriter or other agent or independent contractor;
(k) To sell or exchange any or all of the assets of the Trust, subject
to the provisions of Article XI, subsection 11.04(b) hereof;
(l) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property, and to execute and deliver
powers of attorney to such person or persons as the Trustees shall deem proper,
granting to such person or persons such power and
8
<PAGE>
discretion with relation to securities or property as the Trustees shall deem
proper;
(m) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities;
(n) To hold any security or property in a form not indicating any
trust, whether in bearer, book entry, unregistered or other negotiable form; or
either in the name of the Trust or in the name of a custodian or a nominee or
nominees, subject in either case to proper safeguards according to the usual
practice of Delaware business trusts or investment companies;
(o) To establish separate and distinct Series with separately defined
investment objectives and policies and distinct investment purposes in
accordance with the provisions of Article II hereof and to establish classes of
such Series having relative rights, powers and duties as they may provide
consistent with applicable law;
(p) Subject to the provisions of Section 3804 of the Delaware Act, to
allocate assets, liabilities and expenses of the Trust to a particular Series or
to apportion the same between or among two or more Series, provided that any
liabilities or expenses incurred by a particular Series shall be payable solely
out of the assets belonging to that Series as provided for in Article II hereof;
(q) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern, any security of which is
held in the Trust; to consent to any contract, lease, mortgage, purchase, or
sale of property by such corporation or concern, and to pay calls or
subscriptions with respect to any security held in the Trust;
(r) To compromise, arbitrate, or otherwise adjust claims in favor of or
against the Trust or any matter in controversy including, but not limited to,
claims for taxes;
(s) To make distributions of income and of capital gains to
Shareholders in the manner provided herein;
(t) To establish, from time to time, a minimum investment for
Shareholders in the Trust or in one or more Series or class, and to require the
redemption of the Shares of any Shareholders whose investment is less than such
minimum upon giving notice to such Shareholder;
(u) To establish one or more committees, to delegate any of the powers
of the Trustees to said committees and to adopt a committee charter providing
for such responsibilities, membership (including Trustees, officers or other
agents of the Trust therein) and any other characteristics of said committees as
the Trustees may deem proper. Notwithstanding the provisions of this Article IV,
and in addition to such provisions or any other provision of this Trust
Instrument or of the Bylaws, the Trustees may by resolution appoint a committee
consisting of less than the whole number of Trustees then in office, which
committee may be empowered to act for and bind the Trustees and the Trust, as if
the acts of such committee were the acts of all the Trustees then in office,
with respect to the institution, prosecution, dismissal, settlement, review or
investigation of any action, suit or proceeding which shall be pending or
threatened to be brought
9
<PAGE>
before any court, administrative agency or other adjudicatory body;
(v) To interpret the investment policies, practices or limitations of
any Series;
(w) To establish a registered office and have a registered agent in the
state of Delaware;
(x) To invest part or all of the Trust Property (or part or all of the
assets of any Series), or to dispose of part or all of the Trust Property (or
part or all of the assets of any Series) and invest the proceeds of such
disposition, in securities issued by one or more other investment companies
registered under the 1940 Act (including investment by means of transfer of part
or all of the Trust Property in exchange for an interest or interests in such
one or more investment companies) all without any requirement of approval by
Shareholders unless required by the 1940 Act. Any such other investment company
may (but need not) be a trust (formed under the laws of the State of Delaware or
of any other state) which is classified as a partnership for federal income tax
purposes; and
(y) In general to carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything necessary, suitable
or proper for the accomplishment of any purpose or the attainment of any object
or the furtherance of any power hereinbefore set forth, either alone or in
association with others, and to do every other act or thing incidental or
appurtenant to or growing out of or connected with the aforesaid business or
purposes, objects or powers.
The foregoing clauses shall be construed as objects and powers, and the
foregoing enumeration of specific powers shall not be held to limit or restrict
in any manner the general powers of the Trustees. Any action by one or more of
the Trustees in their capacity as such hereunder shall be deemed an action on
behalf of the Trust or the applicable Series, and not an action in an individual
capacity.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust.
No one dealing with the Trustees shall be under any obligation to make
any inquiry concerning the authority of the Trustees, or to see the application
of any payments made or property transferred to the Trustees or upon their
order.
Section 4.02 Issuance and Repurchase of Shares. The Trustees shall have
the power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold,
resell, reissue, dispose of and otherwise deal in Shares and, subject to the
provisions set forth in Article II and Article IX, to apply to any such
repurchase, redemption, retirement, cancellation or acquisition of Shares any
funds or property of the Trust, or the particular Series of the Trust, with
respect to which such Shares are issued.
Section 4.03 Trustees and Officers as Shareholders. Any Trustee,
officer or other agent of the Trust may acquire, own and dispose of Shares to
the same extent as if he were not a Trustee, officer or agent; and the Trustees
may issue and sell or cause to be issued and sold Shares
10
<PAGE>
to and buy such Shares from any such person or any firm or company in which he
is interested, subject only to the general limitations herein contained as to
the sale and purchase of such Shares; and all subject to any restrictions which
may be contained in the Bylaws.
SECTION 4.04 ACTION BY THE TRUSTEES. In any action taken by the
Trustees hereunder, unless otherwise specified, the Trustees shall act by
majority vote at a meeting duly called or by unanimous written consent without a
meeting or by telephone meeting provided a quorum of Trustees participate in any
such telephone meeting, unless the 1940 Act requires that a particular action be
taken only at a meeting at which the Trustees are present in person. At any
meeting of the Trustees, a majority of the Trustees shall constitute a quorum.
Meetings of the Trustees may be called orally or in writing by the Chairman of
the Board of Trustees or by any two other Trustees. Notice of the time, date and
place of all meetings of the Trustees shall be given by the person calling the
meeting to each Trustee by telephone, facsimile or other electronic mechanism
sent to his home or business address at least twenty-four hours in advance of
the meeting or by written notice mailed to his home or business address at least
seventy-two hours in advance of the meeting. Notice need not be given to any
Trustee who attends the meeting without objecting to the lack of notice or who
executes a written waiver of notice with respect to the meeting. Any meeting
conducted by telephone shall be deemed to take place at the principal office of
the Trust, as determined by the Bylaws or by the Trustees. Subject to the
requirements of the 1940 Act, the Trustees by majority vote may delegate to any
one or more of their number their authority to approve particular matters or
take particular actions on behalf of the Trust. Written consents or waivers of
the Trustees may be executed in one or more counterparts. Execution of a written
consent or waiver and delivery thereof to the Trust may be accomplished by
facsimile or other similar electronic mechanism.
SECTION 4.05 CHAIRMAN OF THE THE BOARD OF TRUSTEES. Trustees shall
appoint one of their number to be Chairman of the Board of Trustees. The
Chairman shall preside at all meetings of the Trustees, shall be responsible for
the execution of policies established by the Trustees and the administration of
the Trust, and may be (but is not required to be) the chief executive, financial
and/or accounting officer of the Trust.
SECTION 4.06 PRINCIPAL TRANSACTIONS. Except to the extent prohibited by
applicable law, the Trustees may, on behalf of the Trust, buy any securities
from or sell any securities to, or lend any assets of the Trust 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, administrator, distributor or transfer agent for the Trust or with any
interested person of such person; and the Trust may employ any such person, or
firm or company in which such person is an interested person, as broker, legal
counsel, registrar, investment adviser, administrator, distributor, transfer
agent, dividend disbursing agent, custodian or in any other capacity upon
customary terms.
ARTICLE V
EXPENSES OF THE TRUST
Subject to the provisions of Article II, Section 2.08 hereof, the
Trustees shall be
11
<PAGE>
reimbursed from the Trust estate or the assets belonging to the appropriate
Series for their expenses and disbursements, including, without limitation,
interest charges, taxes, brokerage fees and commissions; expenses of issue,
repurchase and redemption of Shares; certain insurance premiums; applicable
fees, interest charges and expenses of third parties, including the Trust's
investment advisers, managers, administrators, distributors, custodians,
transfer agent and fund accountant; fees of pricing, interest, dividend, credit
and other reporting services; costs of membership in trade associations;
telecommunications expenses; funds transmission expenses; auditing, legal and
compliance expenses; costs of forming the Trust and maintaining its existence;
costs of preparing and printing the Trust's prospectuses, statements of
additional information and shareholder reports and delivering them to existing
Shareholders; expenses of meetings of Shareholders and proxy solicitations
therefor; costs of maintaining books and accounts; costs of reproduction,
stationery and supplies; fees and expenses of the Trustees; compensation of the
Trust's officers and employees and costs of other personnel performing services
for the Trust; costs of Trustee meetings; Commission registration fees and
related expenses; state or foreign securities laws registration fees and related
expenses and for such non-recurring items as may arise, including litigation to
which the Trust (or a Trustee acting as such) is a party, and for all losses and
liabilities by them incurred in administering the Trust, and for the payment of
such expenses, disbursements, losses and liabilities the Trustees shall have a
lien on the assets belonging to the appropriate Series, or in the case of an
expense allocable to more than one Series, on the assets of each such Series,
prior to any rights or interests of the Shareholders thereto. This section shall
not preclude the Trust from directly paying any of the aforementioned fees and
expenses.
ARTICLE VI
INVESTMENT ADVISER, PRINCIPAL UNDERWRITER,
ADMINISTRATOR AND TRANSFER AGENT
SECTION 6.01 INVESTMENT ADVISER.
(a) The Trustees may in their discretion, from time to time, enter into
an investment advisory contract or contracts with respect to the Trust or any
Series whereby the other party or parties to such contract or contracts shall
undertake to furnish the Trustees with such investment advisory, statistical and
research facilities and services and such other facilities and services, if any,
all upon such terms and conditions (including any Shareholder vote) that may be
required under the 1940 Act, as may be prescribed in the Bylaws, or as the
Trustees may in their discretion determine (such terms and conditions not to be
inconsistent with the provisions of this Trust Instrument or of the Bylaws).
Notwithstanding any other provision of this Trust Instrument, the Trustees may
authorize any investment adviser (subject to such general or specific
instructions as the Trustees may from time to time adopt) to effect purchases,
sales or exchanges of portfolio securities, other investment instruments of the
Trust, or other Trust Property on behalf of the Trustees, or may authorize any
officer, agent, or Trustee to effect such purchases, sales or exchanges pursuant
to recommendations of the investment adviser (and all without further action by
the Trustees). Any such purchases, sales and exchanges shall be deemed to have
been authorized by all of the Trustees.
(b) The Trustees may authorize the investment adviser to employ, from
time to time,
12
<PAGE>
one or more sub-advisers to perform such of the acts and services of the
investment adviser, and upon such terms and conditions, as may be agreed upon
between the investment adviser and subadviser (such terms and conditions not to
be inconsistent with the provisions of this Trust Instrument or of the Bylaws).
Any reference in this Trust Instrument to the investment adviser shall be deemed
to include such sub-advisers, unless the context otherwise requires; provided
that no Shareholder approval shall be required with respect to any sub-adviser
unless required under the 1940 Act or other law, contract or order applicable to
the Trust.
SECTION 6.02 PRINCIPAL UNDERWRITER. The Trustees may in their
discretion from time to time enter into an exclusive or non-exclusive
underwriting contract or contracts providing for the sale of Shares, whereby the
Trust may either agree to sell Shares to the other party to the contract or
appoint such other party its sales agent for such Shares. In either case, the
contract shall be on such terms and conditions as may be prescribed in the
Bylaws and as the Trustees may in their discretion determine (such terms and
conditions not to be inconsistent with the provisions of this Trust Instrument
or of the Bylaws); and such contract may also provide for the repurchase or sale
of Shares by such other party as principal or as agent of the Trust.
SECTION 6.03 ADMINISTRATION. The Trustees may in their discretion from
time to time enter into one or more management or administrative contracts
whereby the other party or parties shall undertake to furnish the Trustees with
management or administrative services. The contract or contracts shall be on
such terms and conditions as may be prescribed in the Bylaws and as the Trustees
may in their discretion determine (such terms and conditions not to be
inconsistent with the provisions of this Trust Instrument or of the Bylaws).
SECTION 6.04 TRANSFER AGENT. The Trustees may in their discretion from
time to time enter into one or more transfer agency and shareholder service
contracts whereby the other party or parties shall undertake to furnish the
Trustees with transfer agency and shareholder services. The contract or
contracts shall be on such terms and conditions as may be prescribed in the
Bylaws and as the Trustees may in their discretion determine (such terms and
conditions not to be inconsistent with the provisions of this Trust Instrument
or of the Bylaws).
SECTION 6.05 PARTIES TO CONTRACT. Any contract of the character
described in Sections 6.01, 6.02, 6.03 and 6.04 of this Article VI or any
contract of the character described in Article VIII hereof may be entered into
with any corporation, firm, partnership, trust or association, 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 void or voidable by reason of the
existence of any relationship, nor shall any person holding such relationship be
disqualified from voting on or executing the same in his capacity as Shareholder
and/or Trustee, 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 VI or Article VIII hereof or of
the Bylaws. The same person (including a corporation, firm, partnership, trust,
or association) may be the other party to contracts entered into pursuant to
Sections 6.01, 6.02, 6.03 and 6.04 of this Article VI or pursuant to Article
VIII hereof and any individual may be
13
<PAGE>
financially interested or otherwise affiliated with persons who are parties to
any or all of the contracts mentioned in this Section 6.05.
SECTION 6.06 PROVISIONS AND AMENDMENTS. Any contract entered into
pursuant to Section 6.01 or 6.02 of this Article VI shall be consistent with and
subject to the requirements of Section 15 of the 1940 Act, if applicable, or
other applicable Act of Congress hereafter enacted with respect to its
continuance in effect, its termination, and the method of authorization and
approval of such contract or renewal thereof, and no amendment to any contract
entered into pursuant to Section 6.01 or 6.02 of this Article VI shall be
effective unless assented to in a manner consistent with the requirements of
said Section 15, as modified by any applicable rule, regulation or order of the
Commission.
ARTICLE VII
SHAREHOLDERS' VOTING POWERS AND MEETINGS
SECTION 7.01 VOTING POWERS.
(a) The Shareholders shall have power to vote only (a) for the election
of Trustees to the extent provided in Article III, Section 3.01 hereof, (b) for
the removal of Trustees to the extent provided in Article III, Section 3.03(d)
hereof, (c) with respect to any investment advisory contract to the extent
provided in Article VI, Section 6.01 hereof, (d) with respect to an amendment of
this Trust Instrument, to the extent provided in Article XI, Section 11.08, and
(e) with respect to such additional matters relating to the Trust as may be
required by law, by this Trust Instrument, or any registration of the Trust with
the Commission or any State, or as the Trustees may consider desirable.
(b) Notwithstanding paragraph (a) of this Section 7.01 or any other
provision of this Trust Instrument (including the Bylaws) which would by its
terms provide for or require a vote of Shareholders, the Trustees may take
action without a Shareholder vote if (i) the Trustees shall have obtained an
opinion of counsel that a vote or approval of such action by Shareholders is not
required under (A) the 1940 Act or any other applicable laws, or (B) any
registrations, undertakings or agreements of the Trust known to such counsel,
and if the Trustees determine that the taking of such action without a
Shareholder vote would be consistent with the best interests of the Shareholders
(considered as a group).
(c) On any matter submitted to a vote of the Shareholders, all Shares
shall be voted separately by individual Series, and whenever the Trustees
determine that the matter affects only certain Series, may be submitted for a
vote by only such Series, except (i) when required by the 1940 Act, Shares shall
be voted in the aggregate and not by individual Series; and (ii) when the
Trustees have determined that the matter affects the interests of more than one
Series and that voting by shareholders of all Series would be consistent with
the 1940 Act, then the Shareholders of all such Series shall be entitled to vote
thereon (either by individual Series or by Shares voted in the aggregate, as the
Trustees in their discretion may determine). The Trustees may also determine
that a matter affects only the interests of one or more classes of a Series, in
which case (or if required under the 1940 Act) such matter shall be voted on by
such class or classes. As determined by the Trustees without the vote or consent
of Shareholders (except as required by the
14
<PAGE>
1940 Act), on any matter submitted to a vote of Shareholders, either (i) 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 or (ii) each dollar of Net Asset Value (number of Shares owned
times Net Asset Value per share of such Series or class thereof, as applicable)
shall be entitled to one vote on any matter on which such Shares are entitled to
vote and each fractional dollar amount shall be entitled to a proportionate
fractional vote. Without limiting the power of the Trustees in any way to
designate otherwise in accordance with the preceding sentence, the Trustees
hereby establish that 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. There shall be no cumulative voting
in the election of Trustees. Shares may be voted in person or by proxy or in any
manner provided for in the Bylaws. A proxy may be given in writing. The Bylaws
may provide that proxies may also, or may instead, be given by any electronic or
telecommunications device or in any other manner. Notwithstanding anything else
herein or in the Bylaws, in the event a proposal by anyone other than the
officers or Trustees of the Trust is submitted to a vote of the Shareholders, or
in the event of any proxy contest or proxy solicitation or proposal in
opposition to any proposal by the officers or Trustees of the Trust, Shares may
be voted only in person or by written proxy. Until Shares are issued, the
Trustees may exercise all rights of Shareholders and may take any action
required or permitted by law, this Trust Instrument or any of the Bylaws of the
Trust to be taken by Shareholders.
SECTION 7.02 MEETINGS. Meetings may be held within or without the State
of Delaware. Special meetings of the Shareholders of any Series may be called by
the Trustees and shall be called by the Trustees upon the written request of
Shareholders owning at least one tenth of the Outstanding Shares of the Trust
entitled to vote. Whenever ten or more Shareholders meeting the qualifications
set forth in Section 16(c) of the 1940 Act, as the same may be amended from time
to time, seek the opportunity of furnishing materials to the other Shareholders
with a view to obtaining signatures on such a request for a meeting, the
Trustees shall comply with the provisions of said Section 16(c) with respect to
providing such Shareholders access to the list of the Shareholders of record of
the Trust or the mailing of such materials to such Shareholders of record,
subject to any rights provided to the Trust or any Trustees provided by said
Section 16(c). Notice shall be sent, by First Class Mail or such other means
determined by the Trustees, at least 10 days prior to any such meeting.
Notwithstanding anything to the contrary in this Section 7.02, the Trustees
shall not be required to call a special meeting of the Shareholders of any
Series or to provide Shareholders seeking the opportunity of furnishing the
materials to other Shareholders with a view to obtaining signatures on a request
for a meeting except to the extent required under the 1940 Act.
SECTION 7.03 QUORUM AND REQUIRED VOTE. One-third of Shares outstanding
and entitled to vote in person or by proxy as of the record date for a
Shareholders' meeting shall be a quorum for the transaction of business at such
Shareholders' meeting, except that where any provision of law or of this Trust
Instrument permits or requires that holders of any Series shall vote as a Series
(or that holders of a class shall vote as a class), then one-third of the
aggregate number of Shares of that Series (or that class) entitled to vote shall
be necessary to constitute a quorum for the transaction of business by that
Series (or that class). Any meeting of Shareholders may be adjourned from time
to time by a majority of the votes properly cast upon the question of
15
<PAGE>
adjourning a meeting to another date and time, whether or not a quorum is
present. Any adjourned session or sessions may be held, within a reasonable time
after the date set for the original meeting, without the necessity of further
notice. Except when a larger vote is required by law or by any provision of this
Trust Instrument or the Bylaws, a majority of the Shares voted in person or by
proxy shall decide any questions and a plurality shall elect a Trustee, provided
that where any provision of law or of this Trust Instrument permits or requires
that the holders of any Series shall vote as a Series (or that the holders of
any class shall vote as a class), then a majority of the Shares present in
person or by proxy of that Series (or class), voted on the matter in person or
by proxy shall decide that matter insofar as that Series (or class) is
concerned. Shareholders may act by unanimous written consent, to the extent not
inconsistent with the 1940 Act, and any such actions taken by a Series (or
class) may be consented to unanimously in writing by Shareholders of that Series
(or class).
ARTICLE VIII
CUSTODIAN
SECTION 8.01 APPOINTMENT AND DUTIES. The Trustees shall employ a bank,
a company that is a member of a national securities exchange, or a trust
company, that in each case shall have capital, surplus and undivided profits of
at least twenty million dollars ($20,000,000) and that is a member of the
Depository Trust Company (or such other person or entity as may be permitted to
act as custodian of the Trust's assets under the 1940 Act) as custodian with
authority as its agent, but subject to such restrictions, limitations and other
requirements, if any, as may be contained in the Bylaws of the Trust: (a) to
hold the securities owned by the Trust and deliver the same upon written order
or oral order confirmed in writing; (b) to receive and receipt for any moneys
due to the Trust and deposit the same in its own banking department or elsewhere
as the Trustees may direct; and (c) to disburse such funds upon orders or
vouchers.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian, and upon such terms and conditions, as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees, provided that in
every case such sub-custodian shall be a bank, a company that is a member of a
national securities exchange, or a trust company organized under the laws of the
United States or one of the states thereof and having capital, surplus and
undivided profits of at least twenty million dollars ($20,000,000) and that is a
member of the Depository Trust Company or such other person or entity as may be
permitted by the Commission or is otherwise able to act as custodian of the
Trust's assets in accordance with the 1940 Act.
SECTION 8.02 CENTRAL CERTIFICATE SYSTEM. Subject to the 1940 Act and
such other rules, regulations and orders as the Commission may adopt, the
Trustees may direct the custodian to deposit all or any part of the securities
owned by the Trust in a system for the central handling of securities
established by a national securities exchange or a national securities
association registered with the Commission under the Securities Exchange Act of
1934, as amended, or such other person as may be permitted by the Commission, or
otherwise in accordance with the 1940 Act, pursuant to which system all
securities of any particular class or series of any issuer deposited within the
system are treated as fungible and may be transferred or pledged by bookkeeping
entry
16
<PAGE>
without physical delivery of such securities, provided that all such deposits
shall be subject to withdrawal only upon the order of the Trust or its
custodians, sub-custodians or other agents.
ARTICLE IX
DISTRIBUTIONS AND REDEMPTIONS
SECTION 9.01 DISTRIBUTIONS.
(a) The Trustees may from time to time declare and pay dividends or
other distributions with respect to any Series and/or class of a Series. The
amount of such dividends or distributions and the payment of them and whether
they are in cash or any other Trust Property shall be wholly in the discretion
of the Trustees.
(b) Dividends and other distributions may be paid or made to the
Shareholders of record at the time of declaring a dividend or other distribution
or among the Shareholders of record at such other date or time or dates or times
as the Trustees shall determine, which dividends or distributions, at the
election of the Trustees, may be paid pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Trustees may
determine. The Trustees may adopt and offer to Shareholders such dividend
reinvestment plans, cash dividend payout plans or related plans as the Trustees
shall deem appropriate.
(c) Anything in this Trust Instrument to the contrary notwithstanding,
the Trustees may at any time declare and distribute a stock dividend to the
Shareholders of a particular Series, or class thereof, as of the record date of
that Series fixed as provided in Subsection 9.01(b) hereof.
SECTION 9.02 REDEMPTIONS. In case any holder of record of Shares of a
particular Series desires to dispose of his Shares or any portion thereof he may
deposit at the office of the transfer agent or other authorized agent of that
Series a written request or such other form of request as the Trustees may from
time to time authorize, requesting that the Series purchase the Shares in
accordance with this Section 9.02; and, subject to Section 9.04 hereof, the
Shareholder so requesting shall be entitled to require the Series to purchase,
and the Series or the principal underwriter of the Series shall purchase his
said Shares, but only at the Net Asset Value thereof (as described in Section
9.03 of this Article IX). The Series shall make payment for any such Shares to
be redeemed, as aforesaid, in cash or property from the assets of that Series
and, subject to Section 9.04 hereof, payment for such Shares shall be made by
the Series or the principal underwriter of the Series to the Shareholder of
record within seven (7) days after the date upon which the request is effective.
Upon redemption, shares shall become Treasury shares and may be re-issued from
time to time.
17
<PAGE>
SECTION 9.03 DETERMINATION OF NET ASSET VALUE AND VALUATION OF
PORTFOLIO ASSETS. The term "Net Asset Value" of any Series shall mean that
amount by which the assets of that Series exceed its liabilities, all as
determined by or under the direction of the Trustees. The Trustees may delegate
any of their powers and duties under this Section 9.03 with respect to valuation
of assets and liabilities. Such value shall be determined separately for each
Series and shall be determined on such days and at such times as the Trustees
may determine. Such determination shall be made with respect to securities for
which market quotations are readily available, at the market value of such
securities; and with respect to other securities and assets, at the fair value
as determined in good faith by the Trustees; provided, however, that the
Trustees, without Shareholder approval, may alter the method of valuing
portfolio securities insofar as permitted under the 1940 Act. The resulting
amount, which shall represent the total Net Asset Value of the particular
Series, shall be divided by the total number of shares of that Series
outstanding at the time and the quotient so obtained shall be the Net Asset
Value per Share of that Series. At any time the Trustees may cause the Net Asset
Value per Share last determined to be determined again in similar manner and may
fix the time when such redetermined value shall become effective.
The Trustees shall not be required to adopt, but may at any time adopt,
discontinue or amend a practice of seeking to maintain the Net Asset Value per
Share of the Series at a constant amount. If, for any reason, the net income of
any Series, determined at any time, is a negative amount, the Trustees shall
have the power with respect to that Series (a) to offset each Shareholder's pro
rata share of such negative amount from the accrued dividend account of such
Shareholder, (b) to reduce the number of Outstanding Shares of such Series by
reducing the number of Shares in the account of each Shareholder by a pro rata
portion of that number of full and fractional Shares which represents the amount
of such excess negative net income, (c) to cause to be recorded on the books of
such Series an asset account in the amount of such negative net income (provided
that the same shall thereupon become the property of such Series with respect to
such Series and shall not be paid to any Shareholder), which account may be
reduced by the amount of dividends declared thereafter upon the Outstanding
Shares of such Series on the day such negative net income is experienced, until
such asset account is reduced to zero; (d) to combine the methods described in
clauses (a) and (b) and (c) of this sentence; or (e) to take any other action
they deem appropriate, in order to cause (or in order to assist in causing) the
Net Asset Value per Share of such Series to remain at a constant amount per
Outstanding Share immediately after each such determination and declaration. The
Trustees shall also have the power not to declare a dividend out of net income
for the purpose of causing the Net Asset Value per Share to be increased.
In the event that any Series is divided into classes, the provisions of
this Section 9.03, to the extent applicable as determined in the discretion of
the Trustees and consistent with the 1940 Act and other applicable law, may be
equally applied to each such class.
SECTION 9.04 SUSPENSION OF THE RIGHT REDEMPTION. The Trustees may
declare a suspension of the right of redemption or postpone the date of payment
if permitted under the 1940 Act. Such suspension shall take effect at such time
as the Trustees 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 until the Trustees shall declare the
18
<PAGE>
suspension at an end. 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 per Share next determined after the termination of
the suspension.
SECTION 9.05 REQUIRED REDEMPTION OF SHARES. The Trustees may require
Shareholders to redeem Shares for any reason under terms set by the Trustees,
including, but not limited to, (i) the determination of the Trustees that direct
or indirect ownership of Shares of any Series has or may become concentrated in
such Shareholder to an extent that would disqualify any Series as a regulated
investment company under the Internal Revenue Code of 1986, as amended (or any
successor statue thereto), (ii) the failure of a Shareholder to supply a tax
identification number if required to do so, or to have the minimum investment
required (which may vary by Series), (iii) the failure of a Shareholder to pay
when due for the purchase of Shares issued to him or (iv) the Shares owned by
such Shareholder being below the minimum investment set by the Trustees, from
time to time, for investments in the Trust or in such Series or classes thereof,
as applicable.
The holders of Shares shall upon demand disclose to the Trustees in
writing such information with respect to direct and indirect ownership of Shares
as the Trustees deem necessary to comply with the requirements of any taxing
authority or for the Trustees to make any determination contemplated by this
Section 9.05.
ARTICLE X
LIMITATION OF LIABILITY AND INDEMNIFICATION
SECTION 10.01 LIMITAITON OF LIABILITY. Neither a Trustee nor an officer
of the Trust, when acting in such capacity, shall be personally liable to any
person other than the Trust or the Shareholders for any act, omission or
obligation of the Trust, any Trustee or any officer of the Trust. Neither a
Trustee nor an officer of the Trust shall be liable for any act or omission or
any conduct whatsoever in his capacity as Trustee or as an officer of the Trust,
provided that nothing contained herein or in the Delaware Act shall protect any
Trustee or any officer of the Trust against any liability to the Trust or to
Shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee or officer of the Trust
hereunder.
SECTION 10.02 INDEMNIFICATION.
(a) Subject to the exceptions and limitations contained in Subsection
10.02(b):
(i) every person who is, or has been, a Trustee or officer of the
Trust (hereinafter referred to as a "Covered Person") shall be
indemnified by the Trust to the fullest extent permitted by law against
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 or officer and against amounts paid or incurred by
him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal or
other, including appeals), actual or
19
<PAGE>
threatened while in office or thereafter, and the words "liability"
and "expenses" shall include, without limitation, attorneys' fees,
costs, judgments, amounts paid in settlement, fines, penalties and
other liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office or (B) not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office, (A) by the court or other
body approving the settlement; (B) by at least a majority of those
Trustees who are neither interested persons of the Trust nor are parties
to the matter based upon a review of readily available facts (as opposed
to a full trial-type inquiry); or (C) by written opinion of independent
legal counsel based upon a review of readily available facts (as opposed
to a full trial-type inquiry).
(c) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not be exclusive
of or affect any other rights to which any Covered Person may now or hereafter
be entitled, shall continue as to a person who has ceased to be a Covered Person
and shall inure to the benefit of the heirs, executors and administrators of
such a person. Nothing contained herein shall affect any rights to
indemnification to which Trust personnel, other than Covered Persons, and other
persons may be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character described in
Subsection (a) of this Section 10.02 may be paid by the Trust or Series from
time to time prior to final disposition thereof upon receipt of an undertaking
by or on behalf of such Covered Person that such amount will be paid over by him
to the Trust or Series if it is ultimately determined that he is not entitled to
indemnification under this Section 10.02; provided, however, that either (i)
such Covered Person shall have provided appropriate security for such
undertaking, (ii) the Trust is insured against losses arising out of any such
advance payments or (iii) either a majority of the Trustees who are neither
interested persons of the Trust nor parties to the matter, or independent legal
counsel in a written opinion, shall have determined, based upon a review of
readily available facts (as opposed to a trial-type inquiry or full
investigation), that there is reason to believe that such Covered Person will be
found entitled to indemnification under this Section 10.02.
SECTION 10.03 SHAREHOLDERS. In case any Shareholder of any Series shall
be held to be personally liable solely by reason of his being or having been a
Shareholder of such Series and not because of his acts or omissions or for some
other reason, the Shareholder or former Shareholder (or his heirs, executors,
administrators or other legal representatives, or, in the case of a
20
<PAGE>
corporation or other entity, its corporate or other general successor) shall be
entitled out of the assets belonging to the applicable Series to be held
harmless from and indemnified against all loss and expense arising from such
liability. The Trust, on behalf of the affected Series, shall, upon request by
the Shareholder, assume the defense of any claim made against the Shareholder
for any act or obligation of the Series and satisfy any judgment thereon from
the assets of the Series.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01 TRUST NOT A PARTNERSHIP. It is hereby expressly declared
that a trust and not a partnership is created hereby. No Trustee hereunder shall
have any power to bind personally either the Trust officers or any Shareholder.
All persons extending credit to, contracting with or having any claim against
the Trust or the Trustees shall look only to the assets of the appropriate
Series or (if the Trustees shall have yet to have established Series) of the
Trust for payment under such credit, contract or claim; and neither the
Shareholders nor the Trustees, nor any of their agents, whether past, present or
future, shall be personally liable therefor. Nothing in this Trust Instrument
shall protect a Trustee against any liability to which the Trustee would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee hereunder.
SECTION 11.02 TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR
SURETY. The exercise by the Trustees or the officers of the Trust of their
powers and discretion hereunder in good faith and with reasonable care under the
circumstances then prevailing shall be binding upon everyone interested. Subject
to the provisions of Article X hereof and to Section 11.01 of this Article XI,
the Trustees and the officers of the Trust shall not be liable for errors of
judgment or mistakes of fact or law. The Trustees and the officers of the Trust
may take advice of counsel or other experts with respect to the meaning and
operation of this Trust Instrument, and subject to the provisions of Article X
hereof and Section 11.01 of this Article XI, shall be under no liability for any
act or omission in accordance with such advice or for failing to follow such
advice. The Trustees and the officers of the Trust shall not be required to give
any bond as such, nor any surety if a bond is obtained.
SECTION 11.03 ESTABLISHMENT OF RECORD DATES. The Trustees may close the
Share transfer books of the Trust for a period not exceeding ninety (90) days
preceding the date of any meeting of Shareholders, or the date for the payment
of any dividends or other distributions, or the date for the allotment of
rights, or the date when any change or conversion or exchange of Shares shall go
into effect; or in lieu of closing the stock transfer books as aforesaid, the
Trustees may fix in advance a date, not exceeding ninety (90) days preceding the
date of any meeting of Shareholders, or the date for payment of any dividend or
other distribution, or the date for the allotment of rights, or the date when
any change or conversion or exchange of Shares shall go into effect, as a record
date for the determination of the Shareholders entitled to notice of, and to
vote at, any such meeting, or entitled to receive payment of any such dividend
or other distribution, or to any such allotment of rights, or to exercise the
rights in respect of any such change, conversion or exchange of Shares, and in
such case such Shareholders and only such Shareholders as shall be Shareholders
of record on the date so fixed shall be entitled to such notice of, and to vote
at, such
21
<PAGE>
meeting, or to receive payment of such dividend or other distribution, or to
receive such allotment or rights, or to exercise such rights, as the case may
be, notwithstanding any transfer of any Shares on the books of the Trust after
any such record date fixed as aforesaid.
SECTION 11.04 DISSOLUTION AND TERMINATION OF TRUST.
(a) This Trust shall continue without limitation of time but subject to
the provisions of Subsection 11.04(b).
(b) The Trustees may, subject to any necessary Shareholder, Trustee, and
regulatory approvals:
(i) sell and convey all or substantially all of the assets of the
Trust or any affected Series to another trust, partnership, association
or corporation, or to a separate series of shares thereof, organized
under the laws of any state which trust, partnership, association or
corporation is an open-end management investment company as defined in
the 1940 Act, or is a series thereof, for adequate consideration which
may include the assumption of all outstanding obligations, taxes and
other liabilities, accrued or contingent, of the Trust or any affected
Series, and which may include shares of beneficial interest, stock or
other ownership interests of such trust, partnership, association or
corporation or of a series thereof;
(ii) enter into a plan of liquidation in order to dissolve and
liquidate any Series (or class) of the Trust, or the Trust; or
(iii) at any time sell and convert into money all of the assets
of the Trust or any affected Series.
Upon making reasonable provision, in the determination of the Trustees, for the
payment of all liabilities by assumption or otherwise, the Trustees shall
distribute the remaining proceeds or assets (as the case may be) of each Series
(or class) ratably among the holders of Shares of the affected Series, based
upon the ratio that each Shareholder's Shares bears to the number of Shares of
such Series (or class) then outstanding.
(c) Upon completion of the distribution of the remaining proceeds or the
remaining assets as provided in Subsection 11.04(b), the Trustees and the Trust
or any affected Series shall be discharged of any and all further liabilities
and duties hereunder and the right, title and interest of all parties with
respect to the Trust or Series shall be canceled and discharged and any such
Series shall terminate.
Following completion of winding up of its business, the Trustees shall
cause a certificate of cancellation of the Trust's certificate of trust to be
filed in accordance with the Delaware Act, which certificate of cancellation may
be signed by any one Trustee. Upon filing of the certificate of cancellation for
the Trust, the Trust shall terminate.
22
<PAGE>
SECTION 11.05 REORGANIZATION AND MASTER/FEEDER.
(a) Notwithstanding anything else herein, the Trustees, in order to
change the form or jurisdiction of organization of the Trust, may (i) cause the
Trust to merge or consolidate with or into one or more trusts, partnerships
(general or limited), associations or corporations so long as the surviving or
resulting entity is an open-end management investment company under the 1940
Act, or is a series thereof, that will succeed to or assume the Trust's
registration under that Act and which is formed, organized or existing under the
laws of a state, commonwealth, possession or colony of the United States or (ii)
cause the Trust to incorporate under the laws of Delaware.
(b) The Trustees may, subject to a vote of a majority of the Trustees
and any shareholder vote required under the 1940 Act, if any, cause the Trust to
merge or consolidate with or into one or more trusts, partnerships (general or
limited), associations, limited liability companies or corporations formed,
organized or existing under the laws of a state, commonwealth, possession or
colony of the United States.
(c) Any agreement of merger or consolidation or certificate of merger or
consolidation may be signed by a majority of Trustees and facsimile signatures
conveyed by electronic or telecommunication means shall be valid.
(d) Pursuant to and in accordance with the provisions of Section 3815(f)
of the Delaware Act, and notwithstanding anything to the contrary contained in
this Trust Instrument, an agreement of merger or consolidation approved by the
Trustees in accordance with paragraph (a) or (b) of this Section 11.05 may
effect any amendment to the Trust Instrument or effect the adoption of a new
trust instrument of the Trust if it is the surviving or resulting trust in the
merger or consolidation.
(e) Notwithstanding anything else herein, the Trustees may, without
Shareholder approval (unless required by the 1940 Act), invest all or a portion
of the Trust Property of any Series, or dispose of all or a portion of the Trust
Property of any Series, and invest the proceeds of such disposition in interests
issued by one or more other investment companies registered under the 1940 Act.
Any such other investment company may (but need not) be a trust (formed under
the laws of the State of Delaware or any other state or jurisdiction) (or series
thereof) which is classified as a partnership for federal income tax purposes.
Notwithstanding anything else herein, the Trustees may, without Shareholder
approval unless such approval is required by the 1940 Act, cause a Series that
is organized in the master/feeder fund structure to withdraw or redeem its Trust
Property from the master fund and cause such series to invest its Trust Property
directly in securities and other financial instruments or in another master
fund.
SECTION 11.06 FILING OF COPIES, REFERENCES, HEADINGS. The original or a
copy of this Trust Instrument and of each amendment hereof or Trust Instrument
supplemental hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. Anyone dealing with the Trust may rely on a
certificate by an officer or Trustee of the Trust as to whether or not any such
amendments or supplements have been made and as to any matters in connection
with the Trust hereunder, and with the same effect as if it were the original,
may rely on a copy certified by an officer or Trustee of the Trust to be a copy
of this Trust Instrument or of any such amendment
23
<PAGE>
or supplemental Trust Instrument. In this Trust Instrument or in any such
amendment or supplemental Trust Instrument, references to this Trust Instrument,
and all expressions such as "herein," "hereof" and "hereunder," shall be deemed
to refer to this Trust Instrument as amended or affected by any such
supplemental Trust Instrument. All expressions like "his," "he" and "him," shall
be deemed to include the feminine and neuter, as well as masculine, genders.
Headings are placed herein for convenience of reference only and in case of any
conflict, the text of this Trust Instrument, rather than the headings, shall
control. This Trust Instrument may be executed in any number of counterparts
each of which shall be deemed an original.
SECTION 11.07 APPLICABLE LAW. The trust set forth in this instrument is
made in the State of Delaware, and the Trust and this Trust Instrument, and the
rights and obligations of the Trustees and Shareholders hereunder, are to be
governed by and construed and administered according to the Delaware Act and the
laws of said State; provided, however, that there shall not be applicable to the
Trust, the Trustees or this Trust Instrument (a) the provisions of Section 3540
of Title 12 of the Delaware Code or (b) any provisions of the laws (statutory or
common) of the State of Delaware (other than the Delaware Act) pertaining to
trusts which relate to or regulate (i) the filing with any court or governmental
body or agency of trustee accounts or schedules of trustee fees and charges,
(ii) affirmative requirements to post bonds for trustees, officers, agents or
employees of a trust, (iii) the necessity for obtaining court or other
governmental approval concerning the acquisition, holding or disposition of real
or personal property, (iv) fees or other sums payable to trustees, officers,
agents or employees of a trust, (v) the allocation of receipts and expenditures
to income or principal, (vi) restrictions or limitations on the permissible
nature, amount or concentration of trust investments or requirements relating to
the titling, storage or other manner of holding of trust assets, or (vii) the
establishment of fiduciary or other standards of responsibilities or limitations
on the acts or powers of trustees, which are inconsistent with the limitations
or liabilities or authorities and powers of the Trustees set forth or referenced
in this Trust Instrument. The Trust shall be of the type commonly called a
"business trust," and without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a trust under
Delaware law. The Trust specifically reserves the right to exercise any of the
powers or privileges afforded to trusts or actions that may be engaged in by
trusts under the Delaware Act, and the absence of a specific reference herein to
any such power, privilege or action shall not imply that the Trust may not
exercise such power or privilege or take such actions.
SECTION 11.08 DERIVATIVE ACTIONS. In addition to the requirements set
forth in Section 3816 of the Delaware Act, a Shareholder may bring a derivative
action on behalf of the Trust only if the following conditions are met:
(a) The Shareholder or Shareholders must make a pre-suit demand upon the
Trustees to bring the subject action unless an effort to cause the Trustees to
bring such an action is not likely to succeed. For purposes of this Section
11.08(a), a demand on the Trustees shall only be deemed not likely to succeed
and therefore excused if a majority of the Board of Trustees, or a majority of
any committee established to consider the merits of such action, has a personal
financial interest in the transaction at issue, and a Trustee shall not be
deemed interested in a transaction or otherwise disqualified from ruling on the
merits of a Shareholder demand by virtue of the fact that such Trustee receives
remuneration for his service on the Board of Trustees of the Trust or on the
24
<PAGE>
boards of one or more investment companies that are under common management with
or otherwise affiliated with the Trust.
(b) Unless a demand is not required under paragraph (a) of this Section
11.08, Shareholders eligible to bring such derivative action under the Delaware
Act who hold at least 10% of the Outstanding Shares of the Trust, or 10% of the
Outstanding Shares of the Series or Class to which such action relates, shall
join in the request for the Trustees to commence such action; and
(c) Unless a demand is not required under paragraph (a) of this Section
11.08, the Trustees must be afforded a reasonable amount of time to consider
such Shareholder request and to investigate the basis of such claim. The
Trustees shall be entitled to retain counsel or other advisors in considering
the merits of the request and shall require an undertaking by the Shareholders
making such request to reimburse the Trust for the expense of any such advisors
in the event that the Trustees determine not to bring such action.
For purposes of this Section 11.08, the Board of Trustees may
designate a committee of one Trustee to consider a Shareholder demand if
necessary to create a committee with a majority of Trustees who do not have a
personal financial interest in the transaction at issue.
SECTION 11.09 AMENDMENTS. Except as specifically provided herein, the
Trustees may, without shareholder vote, amend or otherwise supplement this Trust
Instrument by making an amendment, a Trust Instrument supplemental hereto or an
amended and restated trust instrument. Shareholders shall have the right to vote
(a) on any amendment as may be required by law or by the Trust's registration
statement filed with the Commission and (b) on any amendment submitted to them
by the Trustees. Any amendment required or permitted to be submitted to
Shareholders which, as the Trustees determine, shall affect the Shareholders of
one or more Series shall be authorized by vote of the Shareholders of each
Series affected and no vote of shareholders of a Series not affected shall be
required. Notwithstanding any other provision of this Trust Instrument, any
amendment to Article X hereof shall not limit the rights to indemnification or
insurance provided therein with respect to action or omission of Covered Persons
prior to such amendment.
SECTION 11.10 FISCAL YEAR. The fiscal year of the Trust shall end on a
specified date as set forth in the Bylaws, provided, however, that the Trustees
may change the fiscal year of the Trust.
SECTION 11.11 NAME RESERVATION. The Trustees on behalf of the Trust
acknowledge that Simms Capital Management, Inc. ("Simms") has licensed to the
Trust the non-exclusive right to use the name " Simms Funds" as part of the name
of the Trust, and has reserved the right to grant the non-exclusive use of the
name "Simms Funds" or any derivative thereof to any other party. In addition,
Simms reserves the right to grant the non-exclusive use of the name "Simms
Funds" to, and to withdraw such right from, any other business or other
enterprise. Simms reserves the right to withdraw from the Trust the right to use
said name "Simms Funds" and will withdraw such right if the Trust ceases to
employ, for any reason, Simms, an affiliate or any successor as adviser of the
Trust.
25
<PAGE>
SECTION 11.12 PROVISIONS IN CONFLICT WITH LAW. The provisions of this
Trust Instrument are severable, and if the Trustees shall determine, with the
advice of counsel, that any of such provision 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 provision shall be deemed
never to have constituted a part of this Trust Instrument; provided, however,
that such determination shall not affect any of the remaining provisions of this
Trust Instrument or render invalid or improper any action taken or omitted prior
to such determination. If any provision of this Trust Instrument shall be held
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction and
shall not in any matter affect such provision in any other jurisdiction or any
other provision of this Trust Instrument in any jurisdiction.
IN WITNESS WHEREOF, the undersigned, being all of the initial Trustees
of the Trust, have executed this instrument as of date first written above.
/s/ Jay G. Baris /s/ George P. Attisano
- -------------------------- --------------------------
Jay G. Baris, as Trustee George P. Attisano, as Trustee
and not individually and not individually
26
SIMMS FUNDS
BYLAWS
__________ ____, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
PRINCIPAL OFFICE...............................................................1
ARTICLE II
OFFICERS AND THEIR ELECTION....................................................1
Section 2.01 Officers......................................................1
Section 2.02 Election of Officers.........................................1
Section 2.03 Resignations..................................................1
ARTICLE III
POWERS AND DUTIES OF OFFICERS AND TRUSTEES.....................................1
Section 3.01 Management of the Trust.......................................1
Section 3.02 Executive And Other Committees................................2
Section 3.03 Compensation..................................................2
Section 3.04 Chairman of the Board of Trustees.............................2
Section 3.05 President.....................................................2
Section 3.06 Treasurer.....................................................2
Section 3.07 Secretary.....................................................3
Section 3.08 Vice President................................................3
Section 3.09 Assistant Treasurer...........................................3
Section 3.10 Assistant Secretary...........................................3
Section 3.11 Subordinate Officers..........................................3
Section 3.12 Surety Bonds..................................................3
Section 3.13 Removal.......................................................3
Section 3.14 Remuneration..................................................4
ARTICLE IV
SHAREHOLDERS' MEETINGS.........................................................4
Section 4.01 Special Meetings..............................................4
Section 4.02 Notices.......................................................4
Section 4.03 Voting-Proxies................................................4
Section 4.04 Place of Meeting..............................................5
Section 4.05 Action Without a Meeting......................................5
ARTICLE V
TRUSTEES' MEETINGS.............................................................5
Section 5.01 Special Meetings..............................................5
Section 5.02 Regular Meetings..............................................5
Section 5.03 Quorum........................................................5
<PAGE>
Section 5.04 Notice........................................................5
Section 5.05 Place of Meeting..............................................6
Section 5.06 Special Action................................................6
Section 5.07 Action by Consent.............................................6
Section 5.08 Participation in Meetings By Conference Telephone.............6
ARTICLE VI
FISCAL YEAR; REGISTERED OFFICE AND REGISTERED AGENT............................6
Section 6.01 Fiscal Year...................................................6
Section 6.02 Registered Office and Registered Agent........................6
ARTICLE VII
INSPECTION OF BOOKS............................................................6
ARTICLE VIII
INSURANCE OF OFFICERS, TRUSTEES, AND EMPLOYEES.................................6
ARTICLE IX
SEAL...........................................................................7
ii
<PAGE>
SIMMS FUNDS
BYLAWS
These Bylaws of Simms Funds (the "Trust"), a Delaware business trust,
are subject to the Trust Instrument of the Trust, dated June 30, 1998 as from
time to time amended, supplemented or restated (the "Trust Instrument").
Capitalized terms used herein which are defined in the Trust Instrument are used
as therein defined.
ARTICLE I
PRINCIPAL OFFICE
The principal office of the Trust shall be located in Greenwich,
Connecticut or such other location as the Trustees may, from time to time,
determine. The Trust may establish and maintain such other offices and places of
business as the Trustees may, from time to time, determine.
ARTICLE II
OFFICERS AND THEIR ELECTION
SECTION 2.01 OFFICERS. The officers of the Trust shall be a President,
a Treasurer, a Secretary, and such other officers as the Trustees may from time
to time elect. The Trustees may delegate to any officer or committee the power
to appoint any subordinate officers or agents. It shall not be necessary for any
Trustee or other officer to be a holder of Shares in the Trust.
SECTION 2.02 ELECTION OF OFFICERS. The Treasurer and Secretary shall be
chosen by the Trustees. The President shall be chosen by and from the Trustees.
Two or more offices may be held by a single person except the offices of
President and Secretary. Subject to the provisions of Section 3.13 hereof the
President, the Treasurer and the Secretary shall each hold office until their
successors are chosen and qualified and all other officers shall hold office at
the pleasure of the Trustees.
SECTION 2.03 RESIGNATIONS. Any officer of the Trust may resign,
notwithstanding Section 2.02 hereof, by filing a written resignation with the
President, the Trustees or the Secretary, which resignation shall take effect on
being so filed or at such time as may be therein specified.
ARTICLE III
POWERS AND DUTIES OF OFFICERS AND TRUSTEES
SECTION 3.01 MANAGEMENT OF THE TRUST. The business and affairs of the
Trust shall be managed by, or under the direction of the Trustees, and they
shall have all powers
<PAGE>
necessary and desirable to carry out their responsibilities, so far as such
powers are not inconsistent with the laws of the State of Delaware, the Trust
Instrument or with these Bylaws.
SECTION 3.02 EXECUTIVE AND OTHER COMMITTEES. The Trustees may elect
from their own number an executive committee, which shall have any or all of the
powers of the Board of Trustees while the Board of Trustees is not in session.
The Trustees may also elect from their own number other committees from time to
time. The number composing such committees and the powers conferred upon the
same are to be determined by vote of a majority of the Trustees. All members of
such committees shall hold such offices at the pleasure of the Trustees, and the
Trustees may abolish any of the committees at any time. Any committee to which
the Trustees delegate any of their powers or duties shall keep records of its
meetings and shall report its actions to the Trustees. The Trustees shall have
power to rescind any action of any committee, but no such rescission shall have
retroactive effect.
SECTION 3.03 COMPENSATION. Each Trustee and each committee member may
receive such compensation for his services and reimbursement for his expenses as
may be fixed from time to time by resolution of the Trustees.
SECTION 3.04 CHAIRMAN OF THE BOARD OF TRUSTEES. The Trustees may
appoint from among their number a Chairman who shall serve as such at the
pleasure of the Trustees. When present, he shall preside at all meetings of the
Shareholders and the Trustees, and he may, subject to the approval of the
Trustees, appoint a Trustee to preside at such meetings in his absence. He shall
perform such other duties as the Trustees may from time to time designate.
SECTION 3.05 PRESIDENT. The President shall be the chief executive
officer of the Trust and, subject to the direction of the Trustees, shall have
general administration of the business and policies of the Trust. Except as the
Trustees may otherwise order, the President shall have the power to grant,
issue, execute or sign such powers of attorney, process, agreements or other
documents as may be deemed advisable or necessary in the furtherance of the
interests of the Trust or any Series thereof. He shall also have the power to
employ attorneys, accountants and other advisors and agents and counsel for the
Trust. The President shall perform such duties additional to all of the
foregoing as the Trustees may from time to time designate.
SECTION 3.06 TREASURER. The Treasurer shall be the principal financial
and accounting officer of the Trust. He shall deliver all funds and securities
of the Trust which may come into his hands to such company as the Trustees shall
employ as Custodian in accordance with the Trust Instrument and applicable
provisions of law. He shall make annual reports regarding the business and
condition of the Trust, which reports shall be preserved in Trust records, and
he shall furnish such other reports regarding the business and condition of the
Trust as the Trustees may from time to time require. The Treasurer shall perform
such additional duties as the Trustees may from time to time designate.
2
<PAGE>
SECTION 3.07 SECRETARY. The Secretary shall record in books kept for
the purpose all votes and proceedings of the Trustees and the Shareholders at
their respective meetings. He shall have the custody of the seal of the Trust.
The Secretary shall perform such additional duties as the Trustees may from time
to time designate.
SECTION 3.08 VICE PRESIDENT. Any Vice President of the Trust shall
perform such duties as the Trustees or the President may from time to time
designate. At the request or in the absence or disability of the President, the
Vice President (or, if there are two or more Vice Presidents, then the senior of
the Vice Presidents) present and able to act may perform all the duties of the
President and, when so acting, shall have all the powers of and be subject to
all the restrictions upon the President.
SECTION 3.09 ASSISTANT TREASURER. Any Assistant Treasurer of the Trust
shall perform such duties as the Trustees or the Treasurer may from time to time
designate, and, in the absence of the Treasurer, the senior Assistant Treasurer,
present and able to act, may perform all the duties of the Treasurer and, when
so acting, shall have all the powers of and be subject to all the restrictions
upon the Treasurer.
SECTION 3.10 ASSISTANT SECRETARY. Any Assistant Secretary of the Trust
shall perform such duties as the Trustees or the Secretary may from time to time
designate, and, in the absence of the Secretary, the senior Assistant Secretary,
present and able to act, may perform all the duties of the Secretary and, when
so acting, shall have all the powers of and be subject to all the restrictions
upon the Secretary.
SECTION 3.11 SUBORDINATE OFFICERS. The Trustees from time to time may
appoint such officers or agents as they may deem advisable, each of whom shall
have such title, hold office for such period, have such authority and perform
such duties as the Trustees may determine. The Trustees from time to time may
delegate to one or more officers or committees of Trustees the power to appoint
any such subordinate officers or agents and to prescribe their respective terms
of office, authorities and duties.
SECTION 3.12 SURETY BONDS. The Trustees may require any officer or
agent of the Trust to execute a bond (including without limitation, any bond
required by the Investment Company Act of 1940 (the "1940 Act") and the rules
and regulations of the Commission) to the Trust in such sum and with such surety
or sureties as the Trustees may determine, conditioned upon the faithful
performance of his duties to the Trust including responsibility for negligence
and for the accounting of any of the Trust's property, funds or securities that
may come into his hands.
SECTION 3.13 REMOVAL. Any officer may be removed from office, with or
without cause, whenever in the judgment of the Trustees the best interest of the
Trust will be served thereby, by the vote of a majority of the Trustees given at
any regular meeting or any special meeting of the Trustees. In addition, any
officer or agent appointed in accordance with the provisions of Section 3.11
hereof may be removed, either with or without cause, by any officer upon whom
such power of removal shall have been conferred by the Trustees.
3
<PAGE>
SECTION 3.14 REMUNERATION. The salaries or other compensation, if any,
of the officers of the Trust shall be fixed from time to time by resolution of
the Trustees.
ARTICLE IV
SHAREHOLDERS' MEETINGS
SECTION 4.01 SPECIAL MEETINGS. A special meeting of the shareholders
shall be called by the Secretary whenever (a) ordered by the Trustees or (b)
requested in writing by the holder or holders of at least 10% of the Outstanding
Shares entitled to vote. If the Secretary, when so ordered or requested, refuses
or neglects for more than 30 days to call such special meeting, the Trustees or
the Shareholders so requesting may, in the name of the Secretary, call the
meeting by giving notice thereof in the manner required when notice is given by
the Secretary. If the meeting is a meeting of the Shareholders of one or more
Series or classes of Shares, but not a meeting of all Shareholders of the Trust,
then only special meetings of the Shareholders of such one or more Series or
classes shall be called and only the shareholders of such one or more Series or
classes shall be entitled to notice of and to vote at such meeting.
SECTION 4.02 NOTICES. Except as provided in Section 4.01, notices of
any meeting of the Shareholders shall be given by the Secretary by delivering or
mailing, postage prepaid, to each Shareholder entitled to vote at said meeting,
written or printed notification of such meeting at least ten (10) days before
the meeting, to such address as may be registered with the Trust by the
Shareholder. Notice of any Shareholder meeting need not be given to any
Shareholder if a written waiver of notice, executed before or after such
meeting, is filed with the records of such meeting, or to any Shareholder who
shall attend such meeting in person or by proxy. Notice of adjournment of a
Shareholder's meeting to another time or place need not be given, if such time
and place are announced at the meeting or reasonable notice is given to persons
present at the meeting and the adjourned meeting is held within a reasonable
time after the date set for the original meeting.
SECTION 4.03 VOTING-PROXIES. Subject to the provisions of the Trust
Instrument, shareholders entitled to vote may vote either in person or by proxy,
provided that either (a) an instrument authorizing such proxy to act is executed
by the Shareholder in writing and dated not more than eleven (11) months before
the meeting, unless the instrument specifically provides for a longer period or
(b) the Trustees adopt by resolution an electronic, telephonic, computerized or
other alternative to execution of a written instrument authorizing the proxy to
act, which authorization is received not more than eleven (11) months before the
meeting. Proxies shall be delivered to the Secretary of the Trust or other
person responsible for recording the proceedings before being voted. A proxy
with respect to shares held in the name of two or more persons shall be valid if
executed by one of them unless at or prior to exercise of such proxy the Trust
receives a specific written notice from any one of them. Unless otherwise
specifically limited by their terms, proxies shall entitle the holder thereof to
vote at any adjournment of a meeting. A proxy purporting to be exercised by or
on behalf of a Shareholder shall be deemed valid unless challenged at or prior
to its exercise and the burden or proving invalidity shall rest on the
challenger. At all meetings of the Shareholders, unless
4
<PAGE>
the voting is conducted by inspectors, all questions relating to the
qualifications of voters, the validity of proxies, and the acceptance or
rejection of votes shall be decided by the Chairman of the meeting. Except as
otherwise provided herein or in the Trust Instrument, as these Bylaws or such
Trust Instrument may be amended or supplemented from time to time, all matters
relating to the giving, voting or validity of proxies shall be governed by the
General Corporation Law of the State of Delaware relating to proxies, and
judicial interpretations thereunder, as if the Trust were a Delaware corporation
and the Shareholders were shareholders of a Delaware corporation.
SECTION 4.04 PLACE OF MEETING. All special meetings of the Shareholders
shall be held at the principal place of business of the Trust or at such other
place in the United States as the Trustees may designate.
SECTION 4.05 ACTION WITHOUT A MEETING. Any action to be taken by
Shareholders may be taken without a meeting if all Shareholders entitled to vote
on the matter consent to the action in writing and the written consents are
filed with the records of meetings of Shareholders of the Trust. Such consent
shall be treated for all purposes as a vote at a meeting of the Shareholders
held at the principal place of business of the Trust.
ARTICLE V
TRUSTEES' MEETINGS
SECTION 5.01 SPECIAL MEETINGS. Special meetings of the Trustees may be
called orally or in writing by the Chairman of the Board of Trustees or any two
other Trustees.
SECTION 5.02 REGULAR MEETINGS. Regular meetings of the Trustees may be
held at such places and at such times as the Trustees may from time to time
determine; each Trustee present at such determination shall be deemed a party
calling the meeting and no call or notice will be required to such Trustee
provided that any Trustee who is absent when such determination is made shall be
given notice of the determination by the Chairman or any two other Trustees, as
provided for in Section 4.04 of the Trust Instrument.
SECTION 5.03 QUORUM. A majority of the Trustees shall constitute a
quorum for the transaction of business at any meeting and an action of a
majority of the Trustees in attendance constituting a quorum shall constitute
action of the Trustees.
SECTION 5.04 NOTICE. Except as otherwise provided, notice of any
special meeting of the Trustees shall be given by the party calling the meeting
to each of the Trustees, as provided for in Section 4.04 of the Trust
Instrument. A written notice may be mailed, postage prepaid, addressed to him at
his address as registered on the books of the Trust or, if not so registered, at
his last known address.
5
<PAGE>
SECTION 5.05 PLACE OF MEETING. All special meetings of the Trustees
shall be held at the principal place of business of the Trust or such other
place as the Trustees may designate. Any meeting may adjourn to any place.
SECTION 5.06 SPECIAL ACTION. When all the Trustees shall be present at
any meeting however called or wherever held, or shall assent to the holding of
the meeting without notice, or shall sign a written assent thereto filed with
the records of such meeting, the acts of such meeting shall be valid as if such
meeting had been regularly held.
SECTION 5.07 ACTION BY CONSENT. Any action by the Trustees may be taken
without a meeting if a written consent thereto is signed by all the Trustees and
filed with the records of the Trustees' meeting. Such consent shall be treated,
for all purposes, as a vote at a meeting of the Trustees held at the principal
place of business of the Trustees.
SECTION 5.08 PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Except
when presence in person is required at a meeting under the 1940 Act or other
applicable laws, Trustees may participate in a meeting of Trustees by conference
telephone or similar communications equipment by means of which all persons
participating in the meeting are able to hear each other, and such participation
shall constitute presence in person at such meeting. Any meeting conducted by
telephone shall be deemed to take place at and from the principal office of the
Trust.
ARTICLE VI
FISCAL YEAR; REGISTERED OFFICE AND REGISTERED AGENT
SECTION 6.01 FISCAL YEAR. The fiscal year of the Trust and of each
Series of the Trust shall end on December 31 of each year; provided that the
last fiscal year of the Trust and each Series shall end on the date on which the
Trust or each such Series is terminated, as applicable; and further provided
that the Trustees by resolution and without a Shareholder vote may at any time
change the fiscal year of the Trust and of any or all Series (and the Trust and
each Series may have different fiscal years as determined by the Trustees).
SECTION 6.02 REGISTERED OFFICE AND REGISTERED AGENT. The initial
registered office of the Trust in the State of Delaware shall be located at 1201
North Market Street, Wilmington, Delaware 19801. The registered agent of the
Trust at such location shall be Delaware Corporation Organizers, Inc.; provided
that the Trustees by resolution and without a Shareholder vote may at any time
change the Trust's registered office or its registered agent, or both.
ARTICLE VII
INSPECTION OF BOOKS
The Trustees shall from time to time determine whether and to
what extent, and at what times and places, and under what conditions and
regulations the accounts and books of
6
<PAGE>
the Trust or any of them shall be open to the inspection of the Shareholders;
and no Shareholder shall have any right to inspect any account or book or
document of the Trust except as conferred by law or otherwise by the Trustees or
by resolution of the Shareholders.
ARTICLE VIII
INSURANCE OF OFFICERS, TRUSTEES, AND EMPLOYEES
The Trust may purchase and maintain insurance on behalf of any
Covered Person (as defined in Section 10.02 of the Trust Instrument) or employee
of the Trust, including any Covered Person or employee of the Trust who is or
was serving at the request of the Trust as a Trustee, officer or employee of a
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and claimed by him in any such capacity or
arising out of his status as such, whether or not the Trustees would have the
power to indemnify him against such liability.
The Trust may not acquire or obtain a contract for insurance that
protects or purports to protect any Trustee or officer of the Trust against any
liability to the Trust or its Shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office.
ARTICLE IX
SEAL
The seal of the Trust shall be circular in form bearing the
inscription:
"SIMMS FUNDS, JUNE 30, 1998
THE STATE OF DELAWARE"
7
[LETTERHEAD OF KRAMER, LEVIN, NAFTALIS & FRANKEL]
July 9, 1998
Simms Funds
55 Railroad Avenue
Greenwich, CT 06830
Re: Simms Funds
Registration Statement on Form N-1A
ICA #: 811-08871
-----------------------------------
Dear Gentlemen:
We hereby consent to the reference of our firm as Counsel in this
Registration Statement on Form N-1A.
Very truly yours,
/s/Kramer, Levin, Naftalis & Frankel
------------------------------------
