<PAGE>
As filed with the Securities and Exchange Commission
on January 11, 1999
Registration Nos. 33-
811-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
RWB FUNDS - INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
1190 Saratoga Avenue
Suite 200
San Jose, California 95129
(Address of Principal Executive Offices)
Registrant's Telephone Number: (408) 260-3143
Cynthia Surprise
Vice President and Associate Counsel
State Street Bank and Trust Company
1776 Heritage Drive, AFB
North Quincy, MA 02171
(Name and Address of Agent for Service)
Copies to:
Julie Allecta, Esq.
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, CA 94104-2635
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after this
Registration Statement is declared 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 9(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>
RWB FUNDS - INVESTMENT TRUST
CROSS-REFERENCE SHEET
Pursuant to Rule 495(a)
Items in
- --------
Part A
- ------
of Form
- -------
N-1A Caption Page
- ---- ------- ----
1. Front and Back Cover Pages Cover
2. Risk/Return Summary: Investments, A - 3, A - 7
Risks, and Performance
3. Risk/Return Summary: Fee Table A - 4, A - 9
4. Investment Objectives; Principal A - 3, A - 7
Investment Strategies, and Related
Risks
5. Management's Discussion of Fund Not Applicable
Performance
6. Management, Organization, and A - 11
Capital Structure
7. Shareholder Information A - 12
8. Distribution Arrangements A - 14
9. Financial Highlights Information Not Applicable
<PAGE>
RWB FUNDS - INVESTMENT TRUST
CROSS-REFERENCE SHEET
Pursuant to Rule 495(a) (CONTINUED)
Items in
- --------
Part B
- ------
of Form
- -------
N-1A Caption Page
- ---- ------- ----
10. Cover Page, Table of Contents Cover
11. Fund History B - 3
12. Description of the Fund and Its B - 3
Investments and Risks
13. Management of the Fund B - 25
14. Control Persons and Principal B - 26
Holders of Securities
15. Investment Advisory and Other B - 27
Services
16. Brokerage Allocation and Other B - 30
Services
17. Capital Stock and Other B - 30
Securities
18. Purchase, Redemption and Pricing B - 31
of Shares
19. Taxation of the Fund B - 32
20. Underwriters B -
21. Calculation of Performance Data B - 37
22. Financial Statements Not Applicable
<PAGE>
RWB FUNDS - INVESTMENT TRUST
CROSS-REFERENCE SHEET
Pursuant to Rule 495(a) (CONTINUED)
Items in
- --------
Part C
- ------
of Form
- -------
N-1A Caption Page
- ---- ------- ----
23. Exhibits C - 1
24. Persons Controlled by or Under C - 1
Common Control with Registrant
25. Indemnification C - 1
26. Business and Other Connections C - 2
of the Investment Advisor
27. Principal Underwriters C - 3
28. Location of Accounts and Records C - 3
29. Management Services C - 3
30. Undertakings C - 3
<PAGE>
---------------------------------------------
Subject to Completion
Preliminary Prospectus dated ________, 1999
---------------------------------------------
RWB FUNDS
RWB BOND FUND
/ / U.S. BOND FUND
PROSPECTUS
RWB EQUITY FUNDS
/ / U.S. TOTAL MARKET FUND
/ / U.S. HIGH BOOK TO MARKET FUND
/ / U.S. SMALL COMPANIES FUND
/ / INTERNATIONAL HIGH BOOK TO MARKET
FUND
/ / INTERNATIONAL SMALL COMPANY FUND
[LOGO]
RWB
---
As with all mutual funds, the
Securities and Exchange Commission
does not guarantee that the
information in this prospectus is
accurate or complete, nor has it
approved or disapproved these
securities. It is a criminal
offense to state otherwise.
April [ ] , 1999
- --------------------------------------------------------------------------------
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION BECOMES
EFFECTIVE. THIS PROSPECTUS SHOULD NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
3 US BOND FUND
3 GOAL AND MAIN INVESTMENT STRATEGIES
3 RISKS
4 EXPENSES
5 RWB EQUITY FUNDS
5 INVESTMENT APPROACH
5 GOALS AND MAIN INVESTMENT STRATEGIES
7 RISKS
9 EXPENSES
11 MANAGEMENT
12 YOUR ACCOUNT
14 PRICING OF FUND SHARES
14 DISTRIBUTIONS
15 FEDERAL TAX CONSIDERATIONS
16 MORE ABOUT RWB FUNDS
16 U.S. BOND FUND
17 EQUITY FUNDS
BACK COVER FOR ADDITIONAL INFORMATION
2
<PAGE>
RWB BOND FUND
- --------------------------------------------------------------------------------
U.S. BOND FUND
This Risk/Return Summary briefly describes the RWB U.S. Bond Fund and the
principal risks of investing in the Fund. For further information on the Fund,
please read the section entitled More About RWB Funds.
GOAL AND MAIN INVESTMENT STRATEGIES
The Fund's goal is to maximize current income consistent with the preservation
of capital.
The Fund invests in high quality debt securities, such as corporate obligations,
U.S. Government obligations, U.S. Government agency obligations, bank
obligations, commercial paper and repurchase agreements.
The Fund may purchase U.S. dollar-denominated debt securities of foreign issuers
that are listed or traded in the United States and debt securities of
supranational organizations.
The Fund purchases securities which mature within five years from the date of
settlement.
The sub-adviser manages the Fund to capture credit risk premiums and maturity
risk premiums.
The Fund will concentrate in the banking industry under certain circumstances.
This policy is a fundamental policy that can be changed only with the approval
of the Fund's shareholders.
RISKS
The share price of the Fund and the Fund's yield will change daily because of
changes in interest rates and other market conditions and factors. You may lose
money if you invest in the Fund. There are other circumstances that could
adversely affect your investment, and that could prevent the Fund from achieving
its goal, which are not described here.
The principal risks of investing in the U.S. Bond Fund are:
- In general, bond prices rise when interest rates fall and fall when
interest rates rise. Longer term bonds and zero coupon bonds are
generally more sensitive to interest rate changes than shorter term
bonds. Generally, the longer the average maturity of the bonds in the
Fund, the more the Fund's share price will fluctuate in response to
interest rate changes.
- It is possible that some of the issuers will not make payments on debt
securities held by the Fund, or there could be defaults on repurchase
agreements held by the Fund. Or, an issuer may suffer adverse changes
in financial condition that could lower the credit quality of a
security, leading to greater volatility in the price of the security
and in shares of the Fund. A change in the quality rating of a bond
can affect the bond's liquidity and make it more difficult for the
Fund to sell.
- The Fund's policy of concentrating in the banking industry may involve
additional risk by foregoing the safety of investing in a variety of
industries. Changes in the market's perception of the relative
riskiness of banks could cause the Fund's net asset value to fluctuate
more than if the Fund were less concentrated.
- - Investments by the Fund in foreign securities involve risks in addition to
those of U.S. securities. They are generally more volatile and less liquid
than U.S. securities, in part because of higher political and economic
risks and because there is less public information available about foreign
companies.
3
<PAGE>
EXPENSES
The table below describes the fees and expenses that you may pay if you buy
and hold shares of the RWB U.S. Bond Fund. The Fund has no sales charge (load),
redemption fees or exchange fees, although some institutions may charge you a
fee for shares you buy through them. The annual fund operating expenses are
paid from Fund assets.
ANNUAL FUND OPERATING EXPENSES
AS A % OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS S CLASS I
------- -------
<S> <C> <C>
Investment Advisory Fee .45% .45%
Administration Fee .23% .11%
Shareholder Servicing Fee .25% .05%
Other Expenses .00% .00%
------- -------
Total Operating Expenses .93% .66%
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the
RWB U.S. Bond Fund to the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in the Fund for the time periods indicated and
then sell all of your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same as shown in the table above. Although your
actual costs and the return on your investment may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
YEAR
CLASS S CLASS I
<S> <C> <C>
1 $ $
3 $ $
</TABLE>
4
<PAGE>
RWB EQUITY FUNDS
- --------------------------------------------------------------------------------
U.S. TOTAL MARKET FUND
U.S. HIGH BOOK TO MARKET FUND
U.S. SMALL COMPANIES FUND
INTERNATIONAL HIGH BOOK TO MARKET FUND
INTERNATIONAL SMALL COMPANY FUND
This Risk/Return Summary briefly describes each RWB Equity Fund and the
principal risks of investing in the Funds. For further information on these
Funds, please read the section entitled More About RWB Funds.
INVESTMENT APPROACH
The sub-adviser uses quantitative programs to develop portfolios that replicate
asset classes. In structuring the portfolio for each Fund, the sub-adviser
seeks broad exposure to the relevant universe of stocks that make up the asset
class represented by that Fund. The sub-adviser will then structure each Fund's
portfolio on a market capitalization weighted basis, which means that stocks
representing larger companies will represent a proportionally larger percentage
of the Fund. While the sub-adviser does not attempt to engage in individual
stock selection or market timing, the sub-advisor may exclude certain eligible
stocks if conditions exist that make the stock inappropriate for inclusion. The
sub-advisor may also deviate from a strict market capitalization weighting from
time to time.
GOALS AND MAIN INVESTMENT STRATEGIES
U.S. TOTAL MARKET FUND
The Fund's goal is to achieve long-term capital appreciation.
The Fund invests in common stocks of almost all of the U.S. companies that are
traded on the NYSE, AMEX and OTC.
U.S. HIGH BOOK TO MARKET FUND
The Fund's goal is to provide long-term capital appreciation.
The Fund invests primarily in common stocks that it believes are value stocks.
The Fund invests in common stocks of U.S. companies whose market capitalizations
are equal to the market capitalizations of the largest 80% of companies whose
shares are listed on the NYSE.
The Fund may also invest in high quality, highly liquid, short-term fixed income
securities.
The Fund may use a variety of TAX-EFFICIENT MANAGEMENT TECHNIQUES, when
consistent with its strategies and operational needs, to minimize adverse tax
consequences to shareholders of the Fund.
- --------------------------------------------------------------------------------
ABOUT TAX-EFFICIENT MANAGEMENT TECHNIQUES
The following tax-efficient management techniques can minimize taxable
distributions, particularly short-term capital gains and current income, which
are taxed at a higher rate than long-term capital gains.
- - Minimizing sales of securities that result in capital gains.
- - If such a sale cannot be avoided, selling first the highest cost securities
to reduce the amount of capital gains. Also, preferring the sale of
securities producing long-term gains to those producing short-term gains.
- - When prudent, selling securities to realize capital losses that can be
offset against realized capital gains.
- - Favoring high quality, lower dividend stocks.
- --------------------------------------------------------------------------------
U.S. SMALL COMPANIES FUND
The Fund's goal is to provide long-term capital appreciation.
The Fund invests in a broad and diverse segment of small U.S. companies whose
market capitalization is not larger than the largest of those in the smaller
one-half of companies listed on the NYSE.
5
<PAGE>
The Fund may also invest in high quality, highly liquid, short-term fixed income
securities.
The Fund may use a variety of TAX-EFFICIENT MANAGEMENT TECHNIQUES to minimize
adverse tax consequences to shareholders of the Fund.
INTERNATIONAL HIGH BOOK TO MARKET FUND
The Fund's goal is to provide long-term capital appreciation.
The Fund invests primarily in common stocks that it believes are value stocks.
The Fund invests primarily in non-U.S. companies. The Fund intends to invest in
the stocks of large companies in countries with developed markets. Currently,
the Fund expects to invest in companies having at least $800 million of market
capitalization.
The Fund may also invest in high quality, highly liquid, short-term fixed income
securities.
The Fund may use a variety of TAX-EFFICIENT MANAGEMENT TECHNIQUES to minimize
adverse tax consequences to shareholders of the Fund.
INTERNATIONAL SMALL COMPANY FUND
The Fund's goal is long-term capital appreciation.
The Fund is a fund of funds, which means that it invests almost all of its
assets in other mutual funds. The Fund intends to invest its assets in the
following underlying funds: DFA Japanese Small Company Series, DFA United
Kingdom Small Company Series, DFA Continental Small Company Series, DFA Pacific
Rim Small Company Series and DFA Emerging Markets Series. Each of the
underlying funds is a series of The DFA Investment Trust Company Trust. The DFA
Trust is a mutual fund advised by Dimensional Fund Advisors, Inc. ("DFA"), the
sub-adviser of the International Small Company Fund.
The Fund will invest its assets in the underlying funds within the following
ranges (expressed as a percentage of the Fund's assets):
<TABLE>
<CAPTION>
Underlying Fund Investment Range
- --------------- ----------------
<S> <C>
Japanese Series 20% - 45%
U.K. Series 5% - 25%
Continental Series 20% - 45%
Pacific Rim Series 5% - 25%
Emerging Markets Series 0% - 10%
</TABLE>
The sub-adviser will determine periodically the allocations among underlying
funds primarily based on market capitalization.
The Fund may also invest in high quality, highly liquid, short-term fixed income
securities.
POLICIES OF ALL UNDERLYING FUNDS DFA structures each underlying fund by
generally basing the amount of each security purchased on the issuer's market
capitalization relative to other companies located in the same country (region
in the case of the Continental Series and Pacific Rim Series). DFA may exclude
the stock of an otherwise eligible company if DFA believes conditions exist that
make the purchase of that stock inappropriate.
Periodically, DFA will determine the market capitalization limit for eligible
portfolio securities and will adjust the composition of the portfolio to
eliminate stocks which are no longer eligible.
UNDERLYING FUND SPECIFIC POLICIES The following are the investment policies of
each underlying fund.
JAPANESE SERIES
The Japanese Series invests in a broad and diverse group of readily marketable
stocks of Japanese small companies which are traded in the Japanese securities
markets. A Japanese small company means a company located in Japan whose market
capitalization is not larger than the largest of those in the smaller one-half
of companies whose securities are listed on the First Section of the Tokyo Stock
Exchange. The Japanese Series will invest primarily in securities traded on the
Tokyo Stock Exchange or in other Japanese securities markets. The Japanese
Series intends to purchase a portion of the stock of each eligible company on a
market capitalization weighted basis. The Japanese Series invests at least 80%
of its total assets in equity securities of Japanese small companies.
6
<PAGE>
U.K. SERIES
The U.K. Series invests in a broad and diverse group of readily marketable
stocks of United Kingdom small companies which are traded principally on the
International Stock Exchange of the United Kingdom and the Republic of Ireland
("ISE"). A United Kingdom small company means a company organized in the
United Kingdom, with shares listed on the ISE whose market capitalization is not
larger than the largest of those in the smaller one-half of companies included
in the Financial Times-Actuaries World Index ("FTA"). The U.K. Series will not
purchase shares of any company whose market capitalization is less that
$5,000,000. The Series intends to purchase a portion of the stock of each
eligible company on a market capitalization weighted basis. The Series invests
at least 80% of its total assets in equity securities of United Kingdom small
companies.
CONTINENTAL SERIES
The Continental Series invests in a broad and diverse group of readily
marketable stocks of small companies organized in certain European countries
whose share are traded principally in securities markets located in those
countries. DFA determines company size by comparing the market capitalizations
of companies in all countries in which the Continental Series invests. Small
companies are those whose market capitalizations are not greater than the
largest of those in the smallest 20% of companies listed in the FTA. The
Continental Series will not purchase shares of any company whose market
capitalization is less than $5,000,000. The Series intends to purchase a
portion of the stock of each eligible company on a market capitalization
weighted basis. The Series invests at least 80% of its total assets in equity
securities of European small companies.
PACIFIC RIM SERIES
The Pacific Rim Series invests in a broad and diverse group of readily
marketable stocks of small companies located in Australia, New Zealand and Asian
countries, whose share are traded principally in securities markets located in
those countries. Small companies are those whose market capitalizations are
not greater than the largest of those in the smallest 30% of companies listed in
the FTA as combined for the countries in which the Pacific Rim Series invests.
The Pacific Rim Series will not purchase shares of any company whose market
capitalization is less than $5,000,000. The Series intends to purchase a
portion of the stock of each eligible company on a market capitalization
weighted basis. The Series invests at least 80% of its total assets in equity
securities of small companies located in the Pacific Rim.
EMERGING MARKETS SERIES
The Emerging Markets Series invests in companies located in emerging markets.
An emerging market is any country that the International Finance Corporation
considers an emerging market. The Series invests only in emerging markets
approved by DFA. The Series invests primarily in equity securities listed on
securities exchanges or actively traded on OTC markets. The Series invests in
companies whose aggregate overall share of the emerging market's total public
market capitalization is at least in the upper 40% of such capitalization. The
Series may also invest in shares of other mutual funds that invest in the
approved emerging markets where access to those markets is otherwise
significantly limited.
RISKS
The share price of each Equity Fund will change daily based on market conditions
and other factors. You may lose money if you invest in these Funds. There are
other circumstances which could adversely affect your investment, and that could
prevent a Fund from achieving its goal, which are not described here.
The principal risks of investing in the Equity Funds are:
- Stock prices may fluctuate widely in response to company, market or
economic news.
- There are particular risks associated with investing in companies of a
given size.
- Larger, more established companies are generally not nimble and
may be unable to respond quickly to competitive challenges, such
as changes in technology and consumer tastes.
- The stocks of smaller companies may have more risks than those of
larger companies. They may be more
7
<PAGE>
susceptible to market downturns and their prices may be more
volatile.
- The U.S. High Book to Market Fund and International High Book to
Market Fund may underperform when the market strongly favors growth
stocks over value stocks. In addition, a value stock may not reach
what the sub-adviser believes is its full market value or its
intrinsic value may go down.
- (International Small Company Fund and International High Book to
Market Fund) Investments in foreign securities involve risks in
addition to those of U.S. securities. They are generally more
volatile and less liquid than U.S. securities, in part because of
higher political and economic risks, less availability of public
information about foreign companies and fluctuations in currency
exchange rates.
- The International Small Company Fund may invest in issuers in emerging
markets.
- All of the risks of investing in foreign securities are
heightened by investing in emerging markets.
8
<PAGE>
EXPENSES
The table below describes the fees and expenses that you may pay if you buy
and hold shares of an RWB Equity Fund. The Funds have no sales charge (load),
redemption fees or exchange fees, although some institutions may charge you a
fee for shares you buy through them. The annual fund operating expenses are
paid from Fund assets.
ANNUAL FUND OPERATING EXPENSES
AS A % OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. TOTAL MARKET U.S. HIGH BOOK TO U.S. SMALL COMPANIES
FUND MARKET FUND FUND
CLASS S CLASS I CLASS S CLASS I CLASS S CLASS I
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fee .70% .70% .70% .70% .70% .70%
Administration Fee .29% .14% .55% .34% .69% .48%
Shareholder Servicing Fee .25% .05% .25% .05% .25% .05%
Other Expenses .00% .00% .00% .00% .00% .00%
--- --- --- --- --- ---
Total Operating Expenses 1.24% .89% 1.50% 1.09% 1.64% 1.23%
<CAPTION>
INTERNATIONAL HIGH BOOK INTERNATIONAL SMALL
TO MARKET FUND COMPANY FUND*
CLASS S CLASS I CLASS S CLASS I
------- ------- ------- -------
<S> <C> <C> <C> <C>
Investment Advisory Fee .70% .70% .70% .70%
Administration Fee .94% .70% .73% .56%
Shareholder Servicing Fee .25% .05% .25% .05%
Other Expenses .00% .00% .00% .00%
--- --- --- ---
Total Operating Expenses 1.89% 1.45% 1.68% 1.31%
</TABLE>
- --------------------
* In addition to the expenses shown above, shareholders of the International
Small Company Fund will indirectly bear their pro rata share of fees and
expenses of the underlying funds. The total operating expenses (as a percentage
of net assets) for the underlying funds during their last fiscal year were
__________% for the Japanese Series, __________% for the U.K. Series,
__________% for the Continental Series, __________% for the Pacific Rim Series,
and __________% for the Emerging Market Series.
9
<PAGE>
EXAMPLE
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in an
RWB Fund to the cost of investing in other mutual funds. The example assumes
that you invest $10,000 in a Fund for the time periods indicated and then sell
all of your shares at the end of those periods. The example also assumes that
your investment has a 5% return each year and that the Fund's operating expenses
remain the same as shown in the table above. Although your actual costs and the
return on your investment may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
U.S. TOTAL MARKET FUND U.S. HIGH BOOK TO MARKET U. S. SMALL COMPANIES
FUND FUND
YEAR CLASS S CLASS I CLASS S CLASS I CLASS S CLASS I
- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
1 $ $ $ $ $ $
3 $ $ $ $ $ $
<CAPTION>
INTERNATIONAL HIGH BOOK TO MARKET FUND INTERNATIONAL SMALL COMPANY FUND
YEAR CLASS S CLASS I CLASS S CLASS I
- ---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
1 $ $ $ $
3 $ $ $ $
</TABLE>
10
<PAGE>
MANAGEMENT
- --------------------------------------------------------------------------------
RWB Advisory Services Inc., 1190 Saratoga Avenue, San Jose, California 95129, is
the Funds' investment manager. Founded in 1975, the manager provides investment
advisory services to individuals, pension and profit sharing plans, trusts,
estates, charitable organizations and other business entities. Today the firm
has more than $1.4 billion in assets under management.
The manager, in its capacity as investment advisor, handles the business affairs
of the Funds and has general responsibility for the management of the Funds'
investments. The manager also serves as the Funds' administrator. As
administrator the manager provides administrative services to the Funds and has
agreed to pay each Fund's ordinary operating expenses that exceed the
administration fee. The manager has no prior experience as manager of a mutual
fund.
The manager has engaged Dimensional Fund Advisors, Inc., 1299 Ocean Avenue, 11th
Floor, Santa Monica, California 90401, as investment sub-adviser to the Funds.
Since its organization in May 1981, the sub-adviser has provided investment
management services to institutional investors and to other mutual funds.
Currently, the sub-adviser manages over $[ ] billion in assets, including over
$29 billion in mutual fund assets.
The sub-adviser, subject to the supervision of the manager, is responsible for
managing the assets of the Funds. The sub-adviser's investment committee makes
investment decisions for the Funds.
The following chart shows the annual investment management fees that each Fund
will pay.
INVESTMENT MANAGEMENT FEE (EXPRESSED AS PERCENTAGE OF AVERAGE DAILY NET ASSETS)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
U.S. Bond Fund .45%
U.S. Total Market Fund .70%
U.S. High Book to Market Fund .70%
U.S. Small Companies Fund .70%
International High Book to Market Fund .70%
International Small Company Fund .70%
</TABLE>
YEAR 2000
RWB Funds' operations depend on the functioning of computer systems in the
financial service industry, including those of its service providers. Many
computer systems in use today cannot properly process date-related information
after December 31, 1999 because of the method by which dates are encoded and
calculated. This failure, commonly referred to as the "Year 2000 Issue," could
adversely affect the handling of securities trades, pricing and account
servicing for the RWB Funds. The major service providers have told RWB Funds
that they have made compliance a high priority and are taking reasonable steps
to prevent material Year 2000 problems. There can be, however, no assurance
that these steps will be successful, or that interaction with other
non-complying computer systems will not impair their services at that time.
11
<PAGE>
YOUR ACCOUNT
- --------------------------------------------------------------------------------
This section describes how to do business with RWB Funds and the services that
are available to shareholders.
HOW TO REACH RWB FUNDS
By telephone: 800-366-7266
Call for account information 8:00 a.m. to 5:00 p.m. Pacific
time Monday through Friday
By mail: 1190 Saratoga Avenue
Suite 200
San Jose, California 95125
SHARE CLASSES
Each Fund offers two classes of shares (Class S and Class I). Each class has
its own expense structure, including different shareholder servicing fees.
Both of the classes are offered without a sales charge (load).
We base your eligibility to purchase shares of a class on the type of investor
you are. Institutional investors who maintain aggregate accounts of at least $5
million (or less at the discretion of RWB Funds) may purchase Class I shares.
All other investors must purchase Class S shares.
PURCHASING SHARES
Only investment advisory clients of the manager are eligible to purchase shares
of the Funds.
If you are making an initial investment, you must complete and submit an account
application.
You or your financial representative should notify the manager of any proposed
investment.
If you purchase shares through an omnibus account maintained by a securities
firm, the firm may charge you a fee.
MINIMUM INVESTMENTS
The minimum initial investment is $100,000, unless waived by RWB Funds.
There is no minimum for additional investments.
TIMING OF REQUESTS
All requests received by RWB Funds before 4:00 p.m. Eastern time will be
executed the same day, at that day's NAV. Orders received after 4:00 p.m.
Eastern time will be executed the following day, at that day's NAV. Financial
intermediaries acting on a purchaser's behalf are responsible for transmitting
orders by the deadline.
SELLING SHARES
You or your financial representative may sell shares at any time by furnishing a
redemption request to the manager in the form required by the manager.
INCOMPLETE SELL REQUESTS
RWB Funds will attempt to notify you or your financial representative promptly
if any information necessary to process your request is missing.
TIMING OF REQUESTS
All requests received in good order by RWB Funds before 4:00 p.m. Eastern time
will be executed the same day, at that day's NAV. Requests received after 4:00
p.m. Eastern time will be executed the following day, at that day's NAV.
WIRE TRANSACTIONS
[Proceeds sent by federal funds wire must total at least $[ ]. A fee of
$[ ] will be deducted from all proceeds sent by wire, and your bank may
charge an additional fee to receive wired funds.]
SELLING SHARES RECENTLY PURCHASED
If you sell shares before the check or electronic funds transfer (ACH) for those
shares has been collected, you will not receive the proceeds until your initial
payment has cleared. This may take up to 15 days after your purchase was
recorded (in rare cases, longer). If you open an account with shares purchased
by wire, you cannot sell those shares until your application has been processed.
[EXCHANGES
There is no fee to exchange shares among RWB Funds. The exchange privilege is
not intended as a way to speculate on short-term movements in the markets.]
12
<PAGE>
ACCOUNTS WITH LOW BALANCES
If the value of your total account with RWB Funds falls below $10,000, RWB Funds
may send you a notice asking you to bring the account back up to $10,000 or to
close it out. If you do not take action within 60 days, RWB Funds may sell your
shares and mail the proceeds to you at the address of record.
ADDITIONAL POLICIES FOR PURCHASES AND SALES
- All orders to purchase shares are subject to acceptance by RWB Funds.
- At any time, RWB Funds may change any of its order acceptance
practices, and may suspend sale of its shares.
- RWB Funds may delay sending your redemption proceeds for up to seven
days, or longer if permitted by the SEC.
- In the interest of economy, we do not issue share certificates.
- If accepted by RWB Funds, you may purchase shares of the Funds with
securities you own.
- The Funds reserve the right to make payment for redeemed shares wholly
or in part by giving the redeeming shareholder portfolio securities.
The shareholder will pay transaction costs to dispose of these
securities.
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<PAGE>
PRICING OF FUND SHARES
- --------------------------------------------------------------------------------
Each Fund's net asset value per share ("NAV") is calculated on each day the NYSE
is open. NAV is the value of a single share of a Fund. NAV is calculated by
(1) taking the current market value of a Fund's total assets, (2) subtracting
the liabilities and (3) dividing that amount by the total number of shares owned
by shareholders.
[The Funds calculate NAV as of the close of business on the NYSE, normally 4:00
p.m. Eastern time. If the NYSE closes early, the Funds accelerate calculation
of NAV transaction deadlines to that time.]
Each Fund values the securities held in the Fund based on quotations and
valuations provided by independent pricing services. If quotations are not
readily available or if the sub-adviser believes that events occurring after the
close of a foreign exchange have rendered the quotations unreliable, the Fund
may use fair-value estimates instead. A Fund that uses fair value to price
securities may value those securities higher or lower than a fund that uses
market quotations.
Foreign securities are valued based on quotations from the primary market in
which they are traded, and are converted from the local currency into U.S.
dollars using current exchange rates. Foreign securities may trade in their
primary markets on weekends or other days when the Fund does not
price its shares. Therefore, the value of the portfolio of a Fund holding
foreign securities may change on days when shareholders will not be able to buy
or sell their shares.
DISTRIBUTIONS
- --------------------------------------------------------------------------------
As a shareholder, you are entitled to your share of a Fund's net income and
gains on its investments. Each Fund passes substantially all of its earnings
along to its shareholders as distributions. When a Fund earns dividends from
stocks and interest from debt securities and distributes these earnings to
shareholders, it is called a DIVIDEND DISTRIBUTION. A Fund realizes capital
gains when it sells securities for a higher price than it paid. When these
gains are distributed to shareholders, it is called a CAPITAL GAIN DISTRIBUTION.
Dividend distributions may be made several times a year, while capital gain
distributions are generally made on an annual basis.
The U.S. Bond Fund, U.S. Total Market Fund and U.S. High Book to Market Fund pay
dividends, if any, quarterly.
The U.S. Small Companies Fund, International High Book to Market Fund and
International Small Company Fund pay dividends, if any, annually.
You will receive distributions from a Fund in additional shares of that Fund
unless you elect to receive your distributions in cash.
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<PAGE>
FEDERAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
Your investment in a Fund will have tax consequences that you should consider.
Some of the more common federal tax consequences are described here, but your
should consult your tax adviser about your own particular situation.
TAXES ON DISTRIBUTIONS
You will generally have to pay federal income tax on all Fund distributions.
Your distributions will be taxed in the same manner whether you receive the
distributions in cash or additional shares of the Fund. Distributions that are
derived from net long-term capital gains generally will be taxed as long-term
capital gains. Dividend distributions and short-term capital gains generally
will be taxed as ordinary income. The tax you pay on a given capital gain
distribution generally depends on how long the Fund held the portfolio
securities it sold. It does not depend on how long you held your Fund shares.
The U.S. Bond Fund expects that its distributions will consist primarily of
ordinary income. The Equity Funds expect that their distributions will consist
primarily of capital gains.
You generally are required to report all Fund distributions on your federal
income tax return. Each year RWB Funds will send you information detailing the
amount of ordinary income and capital gains paid to you for the previous year.
TAXES ON SALES OR EXCHANGES
If you sell your shares of a Fund or exchange them for shares of another Fund,
you generally will be subject to tax on any taxable gain. Your taxable gain is
computed by subtracting your tax basis in the shares from the redemption
proceeds (in the case of a sale) or the value of the shares received (in the
case of an exchange). Because your tax basis depends on the original purchase
price and on the price at which any dividends may have been reinvested, you
should be sure to keep your account statements so that you or your tax preparer
will be able to determine whether a sale or exchange will result in a taxable
gain.
OTHER CONSIDERATIONS
If you buy shares in a Fund just before the Fund makes any distribution, you
will receive some of the purchase price back in the form of a taxable
distribution.
By law, RWB Funds must withhold a portion of your proceeds to pay federal income
taxes if you have not provided complete, correct taxpayer information.
15
<PAGE>
MORE ABOUT RWB FUNDS
- --------------------------------------------------------------------------------
U.S. BOND FUND
The Fund's main strategies and risks are summarized above in the section
entitled RWB U.S. Bond Fund. Below is further information about the Fund's
principal investment strategies and their associated risks. The Fund may also
use strategies and invest in securities described in the SAI. The Fund's
objective may be changed without shareholder approval.
The Fund may engage in short-term trading, which could produce higher trading
costs and taxable distributions.
During unusual market conditions, the Fund may place up to 100% of total assets
in cash or high-quality, short-term debt securities. To the extent that the
Fund does this, it is not pursuing its goal.
The Fund may seek additional income by lending portfolio securities to qualified
institutions. By reinvesting any cash collateral it receives in these
transactions, the Fund could realize additional income gains or losses. If the
borrower fails to return the securities and the invested collateral has declined
in value, the Fund could lose money.
The Fund will be managed to capture credit risk premiums and maturity risk
premiums. "Credit risk premium" means the anticipated incremental return on
investment for holding obligations considered to have greater credit risk than
direct obligations of the U.S. Treasury. "Maturity risk premium" means the
anticipated incremental return on investment for holding securities having
maturities of longer than one month compared to securities having a maturity of
one month.
The Fund will invest more than 25% of its total assets in obligations of banks
and bank holding companies when the yield to maturity on these instruments
exceeds the yield to maturity on all other eligible portfolio investments of
similar quality for a period of five consecutive days when the NYSE is open for
trading.
The Fund may purchase corporate obligations only of companies whose
commercial paper is rated Prime-1 by Moody's or A-1 by Standard & Poor's. If
the issuer's commercial paper is unrated, then the debt security must be
rated at least Aa2 by Moody's or AA by Standard & Poor's. If there is
neither a commercial paper rating nor a rating of the debt security, then the
sub-adviser must determine that the debt security is of comparable quality to
equivalent issues of the same issuer rated at least AA or Aa2.
The Fund may purchase commercial paper only if it is rated, at the time of
purchase, Prime-1 by Moody's or A-1 or better by Standard & Poor's or, if not
rated, issued by a company having an outstanding unsecured debt issue rated Aaa
by Moody's or AAA by Standard & Poor's, and having a maximum maturity of nine
months.
The Fund's investments may include both fixed and floating rate securities.
Floating rate securities bear interest at rates that vary with prevailing market
rates.
The Fund may, but is not required to, invest in a limited amount of futures
contracts or options on futures contracts, commonly referred to as derivatives,
as a hedging strategy to offset unfavorable changes in the value of securities
held by the Fund for investment purpose. While hedging can guard against
potential risks, it adds to the Fund's expenses and can eliminate some
opportunities for gains. There is also a risk that a derivative intended as a
hedge may not perform as expected. The main risk with derivatives is that some
types can amplify a gain or loss, potentially earning or losing substantially
more money than the actual cost of the derivative. With some derivatives, there
is also the risk that the counterparty may fail to honor its contract terms,
causing a loss for the Fund.
The Fund may purchase U.S. Government securities, which are securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities. These
securities include U.S. Treasury bills, which have initial maturities of less
than one year, U.S. Treasury notes, which have initial maturities of one to ten
years, U.S. Treasury bonds, which generally have initial maturities of greater
than ten years, and obligations of the Federal Home Loan Mortgage
16
<PAGE>
Corporation, Federal National Mortgage Association and Government National
Mortgage Association.
EQUITY FUNDS
The Funds' main strategies and risks are summarized above in the section
entitled RWB Equity Funds. Below is further information about each Fund's
principal investment strategies and their associated risks. The Funds may also
use strategies and invest in securities described in the SAI. Each Fund's
objective may be changed without shareholder approval.
DERIVATIVES Each Fund (underlying fund, in the case of the International Small
Company Fund) may invest in a limited amount of derivatives as a hedging
strategy to offset unfavorable changes in the value of securities held by the
Fund for investment purposes. While hedging can guard against potential risks,
it adds to the Fund's expenses and can eliminate some opportunities for gains.
There is also a risk that a derivative intended as a hedge may not perform as
expected. The main risk with derivatives is that some types can amplify a gain
or loss, potentially earning or losing substantially more money than the actual
cost of the derivative. With some derivatives, there is also the risk that the
counterparty may fail to honor its contract terms, causing a loss for the Fund.
The Funds will not use derivatives for speculative purposes.
DEFENSIVE INVESTING During unusual market conditions, each Fund may place up to
100% of total assets in cash or high-quality, short-term debt securities. To
the extent that the Fund does this, it is not pursuing its goal.
SECURITIES LENDING Each Fund may seek additional income by lending portfolio
securities to qualified institutions. By reinvesting any cash collateral it
receives in these transactions, the Fund could realize additional gains or
losses. If the borrower fails to return the securities and the invested
collateral has declined in value, the Fund could lose money.
FIXED INCOME SECURITIES Each Fund may invest in fixed income securities. Risks
of these securities are:
- In general, bond prices rise when interest rates fall and fall when
interest rates rise.
- It is possible that some of the issuers will not make payments on debt
securities held by a Fund, or there could be defaults on repurchase
agreements held by a Fund. Or, an issuer may suffer adverse changes
in financial condition that could lower the credit quality of a
security, leading to greater volatility in the price of the security
and in shares of a Fund. A change in the quality rating of a bond can
affect the bond's liquidity and make it more difficult for the Fund to
sell.
U.S. TOTAL MARKET FUND
The Fund may, but is not required to, invest in a limited amount of futures
contracts or options on futures contracts, which are forms of derivatives, as a
hedging strategy.
The Fund may invest up to 20% of its assets in short-term, high quality,
highly-liquid, fixed-income obligations such as money market instruments and
short-term repurchase agreements pending investment or for liquidity purposes.
U.S. HIGH BOOK TO MARKET FUND
The Fund invests primarily in common stocks that it believes are value stocks.
The Fund considers value stocks to be those of companies with high book values
in relation to their market values. In measuring value, the sub-adviser also
considers factors such as cash flow, economic conditions and developments in the
issuer's industry.
The Fund will invest at least [80%] of its total assets in readily marketable
common stocks of companies with high book to market ratios. The Fund considers
that a company has a high book to market ratio if its ratio equals or exceeds
the ratios of any of the 30% of companies with the highest positive book to
market ratios whose shares are listed on the NYSE.
The Fund may, but is not required to, invest in a limited amount of futures
contracts or options on futures contracts, which are forms of derivatives, as a
hedging strategy.
The Fund may invest up to 20% of its total assets in short-term high quality,
highly liquid fixed income securities such as money market instruments and
short-term repurchase agreements pending investment or for liquidity purposes.
17
<PAGE>
U.S. SMALL COMPANIES FUND
The Fund will invest at least 80% of its total assets in equity securities of
small U.S. companies.
The Fund may invest up to 20% of its total assets in high quality, highly liquid
fixed-income securities such as money market instruments or short-term
repurchase agreements pending investment or for liquidity purposes.
The Fund may, but is not required to, invest in a limited amount of futures
contracts or options on futures contracts, which are forms of derivatives, as a
hedging strategy.
INTERNATIONAL HIGH BOOK TO MARKET FUND
The Fund invests primarily in common stocks that it believes are value stocks.
The Fund considers value stocks to be those of companies with high book values
in relation to their market values. In measuring value, the sub-adviser also
considers factors such as cash flow, economic conditions and developments in the
issuer's industry.
The Fund considers the shares of a company in any given country to have a high
book to market ratio if the ratio equals or exceeds the ratios of any of the 30%
of companies in that country with the highest positive book to market ratios
whose shares are listed on a major exchange.
The Fund's investments will be denominated in foreign currencies. To hedge
against changes in the relative values of foreign currencies and the U.S.
dollar, the Fund may, but is not required to, purchase foreign currency futures
and options contracts. The Fund may, but is not required to, invest in index
futures contracts to commit funds awaiting investment or to maintain liquidity.
Futures and options are forms of derivatives.
The Fund may invest up to 20% of its total assets in high quality, highly liquid
fixed income securities such as money market instruments or short-term
repurchase agreements pending investment or for liquidity purposes.
INTERNATIONAL SMALL COMPANY FUND
Under normal market conditions, the sub-adviser expects to allocate a portion of
the Fund's assets to the Pacific Rim Series. The Fund does not currently intend
to invest in the Pacific Rim Series, however, because of certain restrictions on
the repatriation of Malaysian assets by foreign investors.
The Fund may invest up to 20% of its assets in short-term, high quality, highly
liquid, fixed-income securities such as money market instruments or short-term
repurchase agreements pending investment or for liquidity purposes.
Each Underlying Fund's investments will be denominated in foreign currencies.
To hedge against changes in the relative values of foreign currencies and the
U.S. dollar, the Underlying Funds may, but are not required to, purchase foreign
currency futures and options contracts, which are forms of derivatives.
18
<PAGE>
FOR MORE INFORMATION
TO OBTAIN INFORMATION:
- --------------------------------------------------------------------------------
BY TELEPHONE
Call 1-800-366-7266
BY MAIL Write to:
RWB Funds
1190 Saratoga Avenue
Suite 200
San Jose, California 95129
[BY E-MAIL Send your request to
[ ]]
ON THE INTERNET Text-only
versions of fund documents can
be viewed online or downloaded
from:
SEC
http://www.sec.gov
RWB FUNDS
http://www.rwb.com
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (phone 1-800-SEC-0330) or by sending your request and a
duplicating fee to the SEC's Public Reference Section, Washington, DC 2054-6009.
- --------------------------------------------------------------------------------
RWB FUND --INVESTMENT TRUST
- -------------------------------------------
SEC FILE NUMBER: 811-
More information on these funds is available free upon request, including the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Provides more details about the funds and their policies. A current SAI is on
file with the Securities and Exchange Commission (SEC) and is incorporated by
reference (is legally considered part of this prospectus).
<PAGE>
RWB FUNDS
U.S. Bond Fund
U.S. Total Market Fund
U.S. High Book to Market Fund
U.S. Small Companies Fund
International High Book to Market Fund
International Small Company Fund
STATEMENT OF ADDITIONAL INFORMATION
April [ ], 1999
This Statement of Additional Information ("SAI") provides supplementary
information pertaining to all shares representing interests in each of the
no-load mutual funds listed above (the "Funds"). RWB Funds - Investment Trust
("RWB Funds") currently offers a selection of six Funds, each of which is
described in this SAI. This SAI is not a prospectus, and should be read only in
conjunction with the RWB Funds' Prospectus dated April [ ], 1999. A copy of
the Prospectus may be obtained by calling (800) 366-7266.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. History and General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. Description of the Funds and Their Investments and Risks . . . . . . . . . . . . . . . . . 3
Investments, Strategies and Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Strategies of the U.S. Small Companies Fund and the Underlying Funds of
the International Small Company Fund. . . . . . . . . . . . . . . . . . . . . . . . 20
Strategies of the U.S. High Book to Market Fund and the International High Book
to Market Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Tax Management Strategies of the U.S. High Book to Market Fund, U.S. Small Companies
and the International High Book to Market Fund . . . . . . . . . . . . . . . . . . . . 23
Fund Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Temporary Defensive Position. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3. Management of RWB Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Trustees and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Compensation Table. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4. Control Persons and Principal Holders of Securities. . . . . . . . . . . . . . . . . . . . 27
5. Investment Advisory and Other Services . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Investment Manager and Sub-Adviser. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Shareholder Servicing Arrangements. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Transfer Agent and Dividend Disbursing Agent. . . . . . . . . . . . . . . . . . . . . . 29
Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Independent Auditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6. Brokerage Allocations and Other Practices. . . . . . . . . . . . . . . . . . . . . . . . . 29
7. Information Concerning Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8. Purchase, Redemption and Pricing of Shares . . . . . . . . . . . . . . . . . . . . . . . . 31
Purchase and Redemption Information . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Determination of Net Asset Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Tax Status of the Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Taxation of Fund Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Disposition of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Information Relating to Foreign Investments . . . . . . . . . . . . . . . . . . . . . . 34
Information Relating to Fund Investments. . . . . . . . . . . . . . . . . . . . . . . . 35
Backup Withholding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Other Taxation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10. Performance Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11. Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
</TABLE>
No person has been authorized to give any information or to make any
representations not contained in this SAI or in the Prospectus in connection
with the offering made by the Prospectus and, if given or made, such information
or representations must not be relied upon as having been authorized by the
Funds. The Prospectus does not constitute an offering by the Funds in any
jurisdiction in which such offering may not lawfully be made.
2
<PAGE>
HISTORY AND GENERAL INFORMATION
RWB Funds was organized as a Delaware business trust on June 16, 1998 under
the name RWB Funds - Investment Trust.
RWB Funds is an open-end, management investment company. The Declaration
of Trust permits RWB Funds to offer separate portfolios ("Funds") of shares of
beneficial interest and different classes of shares of each Fund. RWB Funds
currently offers six Funds, each of which is a diversified mutual fund.
The following Funds are described in this SAI:
U.S. Bond Fund
U.S. Total Market Fund
U.S. High Book to Market Fund
U.S. Small Companies Fund
International High Book to Market Fund
International Small Company Fund
The investment manager of each Fund is RWB Advisory Services Inc. ("RWBAS"
or the "Manager"). Dimensional Fund Advisors Inc. ("DFA") serves as sub-adviser
for each of the Funds.
RWB Securities, Inc. is the distributor of shares of the Funds.
DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS
INVESTMENTS, STRATEGIES AND RISKS
The following supplements the information contained in the Prospectus
concerning the investments and investment techniques of the Funds. Each Fund's
investment objective is a non-fundamental policy and may be changed without the
authorization of the holders of a majority of the Fund's outstanding shares.
There can be no assurance that a Fund will achieve its objective. A description
of applicable credit ratings is set forth in Appendix A to this SAI.
BORROWING. The Funds are authorized to borrow money in amounts up to 5% of
the value of their total assets at the time of such borrowings for temporary
purposes, and are authorized to borrow money in excess of the 5% limit as
permitted by the Investment Company Act of 1940, as amended (the "1940 Act"),
[to meet redemption requests.] This borrowing may be unsecured. The 1940 Act
requires the Funds to maintain continuous asset coverage of 300% of the amount
borrowed. If the 300% asset coverage should decline as a result of market
fluctuations or other reasons, the Funds may be required to sell some of their
portfolio holdings within three days to reduce the debt and restore the 300%
asset coverage, even though it may be disadvantageous from an investment
standpoint to sell securities at that time. Borrowed funds are subject to
interest costs that may or may not be offset by amounts earned on the borrowed
funds. A Fund may also be required to maintain minimum average balances in
connection with such borrowing or to pay a commitment or other fees to maintain
a line of credit; either of these requirements would increase the cost of
borrowing over the stated interest rate. Each Fund may, in connection with
permissible borrowings, transfer as collateral securities owned by the Funds.
CONVERTIBLE DEBENTURES. The International High Book to Market Fund and
each Underlying Fund of the International Small Company Fund may invest up to 5%
of their assets in convertible debentures issued by non-U.S. companies.
Convertible debentures include corporate bonds and notes that may be converted
into or exchanged for common stock. These securities are generally convertible
either at a stated price or a stated rate (that is, for a specific number of
shares of common stock or other security). As with other fixed income
securities, the price of a convertible debenture to some extent varies inversely
with interest rates. While providing a fixed income stream (generally higher in
yield than the income derived from a common stock but lower than that afforded
by a nonconvertible debenture), a convertible debenture also affords the
investor an opportunity, through its conversion
3
<PAGE>
feature, to participate in the capital appreciation of the common stock into
which it is convertible. As the market price of the underlying common stock
declines, convertible debentures tend to trade increasingly on a yield basis and
so may not experience market value declines to the same extent as the underlying
common stock. When the market price of the underlying common stock increases,
the price of a convertible debenture tends to rise as a reflection of the value
of the underlying common stock. To obtain such a higher yield, a Fund may be
required to pay for a convertible debenture an amount in excess of the value of
the underlying common stock. Common stock acquired by a Fund upon conversion of
a convertible debenture will generally be held for so long as the Sub-Adviser
anticipates such stock will provide the Fund with opportunities which are
consistent with the Fund's investment objective and policies.
FOREIGN CURRENCY TRANSACTIONS. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. These
contracts are principally traded in the interbank market conducted directly
between currency traders (usually large, commercial banks) and their customers.
A forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades.
A Fund may enter into forward contracts for a variety of purposes in
connection with the management of the foreign currency exposure of its
portfolio. The Fund's use of such contracts would include, but not be limited
to, the following: First, when the Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, it may desire to "lock
in" the U.S. dollar price of the security. By entering into a forward contract
for the purchase or sale, for a fixed amount of dollars of the amount of foreign
currency involved in the underlying security transactions, the Fund will be able
to protect itself against a possible loss resulting from an adverse change in
the relationship between the U.S. dollar and the subject foreign currency during
the period between the date the security is purchased or sold and the date on
which payment is made or received.
Second, when the Sub-Adviser believes that one currency may experience a
substantial movement against another currency, including the U.S. dollar, or it
wishes to alter the Fund's exposure to the currencies of the countries in its
investment universe, it may enter into a forward contract to sell or buy foreign
currency in exchange for the U.S. dollar or another foreign currency.
Alternatively, where appropriate, a Fund may manage all or part of its foreign
currency exposure through the use of a basket of currencies or a proxy currency
where such currency or currencies act as an effective proxy for other
currencies. In such a case, the Fund may enter into a forward contract where
the amount of the foreign currency to be sold exceeds the value of the
securities denominated in such currency. The use of this basket hedging
technique may be more efficient and economical than entering into separate
forward contracts for each currency held in the Fund. The precise matching of
the forward contract amounts and the value of the securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and the
date it matures. The projection of short-term currency market movement is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. Under normal circumstances, consideration of the
prospect for currency parities will be incorporated into the longer term
investment decisions made with regard to overall diversification strategies.
However, the Sub-Adviser believes that it is important to have the flexibility
to enter into such forward contracts when it determines that the best interests
of a Fund will be served.
Each Fund may enter into forward contacts for any other purpose consistent
with the Fund's investment objective and program. However, the Fund will not
enter into a forward contract, or maintain exposure to any such contract(s), if
the amount of foreign currency required to be delivered thereunder would exceed
the Fund's holdings of liquid securities and currency available for cover of the
forward contract(s). In determining the amount to be delivered under a
contract, the Fund may net offsetting positions.
At the maturity of a forward contract, the Fund may sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and either extend the maturity of the forward contract (by "rolling"
that contract forward) or may initiate a new forward contract.
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If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. If the Fund
engages in an offsetting transaction, it may subsequently enter into a new
forward contract to sell the foreign currency. Should forward prices decline
during the period between the Fund's entering into a forward contract for the
sale of a foreign currency and the date it enters into an offsetting contract
for the purchase of the foreign currency, the Fund will realize a gain to the
extent the price of the currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, the Fund
will suffer a loss to the extent of the price of the currency it has agreed to
purchase exceeds the price of the currency it has agreed to sell.
A Fund's dealing in forward foreign currency exchange contracts will
generally be limited to the transactions described above. However, each Fund
reserves the right to enter into forward foreign currency contracts for
different purposes and under different circumstances. Of course, the Fund is
not required to enter into forward contracts with regard to its foreign currency
denominated securities and will not do so unless deemed appropriate by the
Sub-Adviser. It also should be realized that this method of hedging against a
decline in the value of a currency does not eliminate fluctuations in the
underlying prices of the securities. It simply establishes a rate of exchange
at a future date. Additionally, although such contracts tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time, they tend to limit any potential gain which might result from an increase
in the value of that currency.
Although each Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. It will do so from time to time, and investors should be
aware of the costs of currency conversion. Although foreign exchange dealers do
not charge a fee for conversion, they do realize a profit based on the
difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to the Fund at one rate, while offering a lesser rate of exchange should the
Fund desire to resell that currency to the dealer.
Federal tax treatment of forward foreign exchange contracts is discussed in
the section entitled "Futures and Options on Futures -- Federal Tax Treatment of
Futures Contracts, Options and Forward Foreign Exchange Contracts."
FOREIGN FUTURES AND OPTIONS. Participation in foreign futures and foreign
options transactions involves the execution and clearing of trades on or subject
to the rules of a foreign board of trade. Neither the National Futures
Association nor any domestic exchange regulates activities of any foreign boards
of trade, including the execution, delivery and clearing of transactions, or has
the power to compel enforcement of the rules of a foreign board of trade or any
applicable foreign law. This is true even if the exchange is formally linked to
a domestic market so that a position taken on the market may be liquidated by a
transaction on another market. Moreover, such laws or regulations will vary
depending on the foreign country in which the foreign futures or foreign options
transaction occurs. For these reasons, customers who trade foreign futures or
foreign options contracts may not be afforded certain of the protective measures
provided by the Commodity Exchange Act, the Commodity Futures Trading
Commission's ("CFTC's") regulations and the rules of the National Futures
Association and any domestic exchange, including the right to use reparations
proceedings before the Commission and arbitration proceedings provided by the
National Futures Association or any domestic futures exchange. In particular,
funds received from a Fund for foreign futures or foreign options transactions
may not be provided the same protections as funds received in respect of
transactions on United States futures exchanges. In addition, the price of any
foreign futures or foreign options contract and, therefore, the potential profit
and loss thereon may be affected by any variance in the foreign exchange rate
between the time the Fund's order is placed and the time it is liquidated,
offset or exercised.
FOREIGN SECURITIES. As stated in the Prospectus, certain Funds may invest
in foreign securities. Investors should consider carefully the substantial
risks involved in securities of companies and governments of foreign nations,
which are in addition to the usual risks inherent in domestic investments.
There may be less publicly available information about foreign companies
comparable to the reports and ratings published about companies in the United
States. Foreign companies are not generally subject to uniform
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accounting, auditing and financial reporting standards, and auditing practices
and requirements may not be comparable to those applicable to United States
companies. Foreign markets have substantially less volume than U.S. markets and
securities of some foreign companies are less liquid and more volatile than
securities of comparable United States companies. Commission rates in foreign
countries, which are generally fixed rather than subject to negotiation as in
the United States, are likely to be higher. In many foreign countries there is
less government supervision and regulation of stock exchanges, brokers, and
listed companies than in the United States. Such concerns are particularly
heightened for emerging markets and Eastern European countries.
Investments in companies domiciled in developing countries may be subject
to potentially higher risks than investments in developed countries. These
risks include (i) less social, political and economic stability; (ii) the small
current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict a
Fund's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interest; (iv) foreign taxation; (v)
the absence of developed legal structures governing private or foreign
investment or allowing for judicial redress for injury to private property; (vi)
the absence, until recently in certain Eastern European countries, of a capital
market structure or market-oriented economy; and (vii) the possibility that
recent favorable economic developments in Eastern Europe may be slowed or
reversed by unanticipated political or social events in such countries.
Investments in Eastern European countries may involve risks of
nationalization, expropriation and confiscatory taxation. The Communist
governments of a number of Eastern European countries expropriated large amounts
of private property in the past, in many cases without adequate compensation,
and there can be no assurance that such expropriation will not occur in the
future. In the event of such expropriation, the Fund could lose a substantial
portion of any investments it has made in the affected countries. Further, no
accounting standards exist in Eastern European countries. Finally, even though
certain Eastern European currencies may be convertible into United States
dollars, the conversion rates may be artificial to the actual market values and
may be adverse to a Fund.
The Sub-Adviser endeavors to buy and sell foreign currencies on as
favorable a basis as practicable. Some price spread on currency exchange (to
cover service charges) may be incurred, particularly when the Fund changes
investments from one country to another or when proceeds of the sale of Fund
shares in U.S. dollars are used for the purchase of securities in foreign
countries. Also, some countries may adopt policies which would prevent the Fund
from transferring cash out of the country or withhold portions of interest and
dividends at the source. There is the possibility of expropriation,
nationalization or confiscatory taxation, withholding and other foreign taxes on
income or other amounts, foreign exchange controls (which may include suspension
of the ability to transfer currency from a given country), default in foreign
government securities, political or social instability or diplomatic
developments that could affect investments in securities of issuers in foreign
nations.
Foreign securities markets have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when assets of a Fund are uninvested and no return is earned
thereon. The inability of a Fund to make intended security purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to a Fund due to subsequent declines in
value of the portfolio security or, if the Fund has entered into a contract to
sell the security, could result in possible liability to the purchaser.
A Fund may be affected either unfavorably or favorably by fluctuations in
the relative rates of exchange between the currencies of different nations, by
exchange control regulations and by indigenous economic and political
developments. Changes in foreign currency exchange rates will influence values
within a Fund from the perspective of U.S. investors, and may also affect the
value of dividends and interest earned, gains and losses realized on the sale of
securities, and net investment income and gains, if any, to be distributed to
shareholders by a Fund. The rate of exchange between the U.S. dollar and other
currencies is determined by the forces of supply and demand in the foreign
exchange markets. These forces are affected by the international balance of
payments and
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other economic and financial conditions, government intervention, speculation
and other factors. The Sub-Adviser will attempt to avoid unfavorable
consequences and to take advantage of favorable developments in particular
nations where, from time to time, it places a Fund's investments.
The exercise of this flexible policy may include decisions to purchase
securities with substantial risk characteristics and other decisions such as
changing the emphasis on investments from one nation to another and from one
type of security to another. Some of these decisions may later prove profitable
and others may not. No assurance can be given that profits, if any, will exceed
losses.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS.
TRANSACTIONS IN FUTURES. Stock index futures contracts may be used to
provide a hedge for a portion of the Fund's portfolio, as a cash management
tool, or as an efficient way for the Sub-Adviser to implement either an
increase or decrease in portfolio market exposure in response to changing
market conditions. A Fund may purchase or sell futures contracts with respect
to any stock index.
Interest rate or currency futures contracts may be used to manage a Fund's
exposure to changes in prevailing levels of interest rates or currency exchange
rates in order to establish more definitely the effective return on securities
or currencies held or intended to be acquired by the Fund. In this regard, the
Fund could sell interest rate or currency futures as an offset against the
effect of expected increases in interest rates or currency exchange rates and
purchase such futures as an offset against the effect of expected declines in
interest rates or currency exchange rates.
A Fund will enter into futures contracts which are traded on national or
foreign futures exchanges, and are standardized as to maturity date and
underlying financial instrument. Futures exchanges and trading in the United
States are regulated under the Commodity Exchange Act by the CFTC. Although
techniques other than the sale and purchase of futures contracts could be used
for the above-referenced purposes, futures contracts offer an effective and
relatively low cost means of implementing the Fund's objectives in these areas.
REGULATORY LIMITATIONS. A Fund will engage in futures contracts and
options thereon only for bona fide hedging, yield enhancement, and risk
management purposes, in each case in accordance with rules and regulations of
the CFTC.
A Fund may not purchase or sell futures contracts or related options if,
with respect to positions which do not qualify as bona fide hedging under
applicable CFTC rules, the sum of the amounts of initial margin deposits and
premiums paid on those portions would exceed 5% of the net asset value of the
Fund after taking into account unrealized profits and unrealized losses on any
such contracts it has entered into; provided, however, that in the case of an
option that is in-the money at the time of purchase, the in-the-money amount may
be excluded in calculating the 5% limitation. For purposes of this policy
options on futures contracts and foreign currency options traded on a
commodities exchange will be considered "related options". This policy may be
modified by the Board of Trustees without a shareholder vote and does not limit
the percentage of the Fund's assets at risk to 5%.
A Fund's use of futures contracts may result in leverage. Therefore, to
the extent necessary, in instances involving the purchase of futures contracts
or the writing of call or put options thereon by the Fund, an amount of cash,
U.S. Government securities or other appropriate liquid securities, equal to the
market value of the futures contracts and options thereon (less any related
margin deposits), will be identified in an account with the Fund's custodian to
cover (such as owning an offsetting position) the position, or alternative cover
will be employed. Assets used as cover or held in an identified account cannot
be sold while the position in the corresponding option or future is open, unless
they are replaced with similar assets. As a result, the commitment of a large
portion of a Fund's assets to cover or identified accounts could impede
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
If the CFTC or other regulatory authorities adopt different (including less
stringent) or additional restrictions, each Fund would comply with such new
restrictions.
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TRADING IN FUTURES CONTRACTS. A futures contract provides for the future
sale by one party and purchase by another party of a specified amount of a
specific financial instrument (e.g., units of a stock index) for a specified
price, date, time and place designated at the time the contract is made.
Brokerage fees are incurred when a futures contract is bought or sold and margin
deposits must be maintained. Entering into a contract to buy is commonly
referred to as buying or purchasing a contract or holding a long position.
Entering into a contract to sell is commonly referred to as selling a contract
or holding a short position.
Unlike when a Fund purchases or sells a security, no price would be paid or
received by the Fund upon the purchase or sale of a futures contract. Upon
entering into a futures contract, and to maintain the Fund's open positions in
futures contracts, the Fund would be required to deposit with its custodian or
futures broker in a segregated account in the name of the futures broker an
amount of cash, U.S. government securities, suitable money market instruments,
or other liquid securities, known as "initial margin." The margin required for
a particular futures contract is set by the exchange on which the contract is
traded, and may be significantly modified from time to time by the exchange
during the term of the contract. Futures contracts are customarily purchased
and sold on margins that may range upward from less than 5% of the value of the
contract being traded.
If the price of an open futures contract changes (by increase in underlying
instrument or index in the case of a sale or by decrease in the case of a
purchase) so that the loss on the futures contract reaches a point at which the
margin on deposit does not satisfy margin requirements, the broker will require
an increase in the margin. However, if the value of a position increases
because of favorable price changes in the futures contract so that the margin
deposit exceeds the required margin, the broker will pay the excess to the Fund.
These subsequent payments, called "variation margin," to and from the
futures broker, are made on a daily basis as the price of the underlying assets
fluctuate making the long and short positions in the futures contract more or
less valuable, a process known as "marking to the market." Each Fund expects to
earn interest income on its margin deposits.
Although certain futures contracts, by their terms, require actual future
delivery of and payment for the underlying instruments, in practice most futures
contracts are usually closed out before the delivery date. Closing out an open
futures contract purchase or sale is effected by entering into an offsetting
futures contract sale or purchase, respectively, for the same aggregate amount
of the identical underlying instrument or index and the same delivery date. If
the offsetting purchase price is less than the original sale price, the Fund
realizes a gain; if it is more, the Fund realizes a loss. Conversely, if the
offsetting sale price is more than the original purchase price, the Fund
realizes a gain; if it is less, the Fund realizes a loss. The transaction costs
must also be included in these calculations. There can be no assurance,
however, that the Fund will be able to enter into an offsetting transaction with
respect to a particular futures contract at a particular time. If the Fund is
not able to enter into an offsetting transaction, the Fund will continue to be
required to maintain the margin deposits on the futures contract.
For example, one contract in the Financial Times Stock Exchange 100 Index
future is a contract to buy 25 pounds sterling multiplied by the level of the UK
Financial Times 100 Share Index on a given future date. Settlement of a stock
index futures contract may or may not be in the underlying instrument or index.
If not in the underlying instrument or index, then settlement will be made in
cash, equivalent over time to the difference between the contract price and the
actual price of the underlying asset at the time the stock index futures
contract expires.
SPECIAL RISKS OF TRANSACTIONS IN FUTURES CONTRACTS. Volatility and
Leverage. The prices of futures contracts are volatile and are influenced,
among other things, by actual and anticipated changes in the market and interest
rates, which in turn are affected by fiscal and monetary policies and national
and international political and economic events.
Most United States futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond
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that limit. The daily limit governs only price movement during a particular
trading day and therefore does not limit potential losses, because the limit may
prevent the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, 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
purchase or sale of a futures contract may result in losses in excess of the
amount of margin deposited to maintain the futures contract. However, a Fund
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. Furthermore, in the case of a futures contract purchase, in
order to be certain that the Fund has sufficient assets to satisfy its
obligations under a futures contract, the Fund earmarks to the futures contract
money market instruments or other liquid securities equal in value to the
current value of the underlying instrument less the margin deposit.
Liquidity. A Fund may elect to close some or all of its futures positions
at any time prior to their expiration. The Fund would do so to reduce exposure
represented by long futures positions or short futures positions. The Fund may
close its positions by taking opposite positions which would operate to
terminate the Fund's position in the futures contracts. Final determinations of
variation margin would then be made, additional cash would be required to be
paid by or released to the Fund, and the Fund would realize a loss or a gain.
Futures contracts may be closed out only on the exchange or board of trade
where the contracts were initially traded. Although each Fund intends to
purchase or sell futures contracts only on exchanges or boards of trade where
there appears to be an active market, there is no assurance that a liquid market
on an exchange or board of trade will exist for any particular contract at any
particular time. The reasons for the absence of a liquid secondary market on an
exchange are substantially the same as those discussed under "Special Risks of
Transactions in Options on Futures Contracts." In the event that a liquid
market does not exist, it might not be possible to close out a futures contract,
and in the event of adverse price movements, the Fund would continue to be
required to make daily cash payments of variation margin. However, in the event
futures contracts have been used to hedge the underlying instruments, the Fund
would continue to hold the underlying instruments subject to the hedge until the
futures contracts could be terminated. In such circumstances, an increase in the
price of underlying instruments, if any, might partially or completely offset
losses on the futures contract. However, as described below, there is no
guarantee that the price of the underlying instruments will, in fact, correlate
with the price movements in the futures contract and thus provide an offset to
losses on a futures contract.
Hedging Risk. A decision of whether, when, and how to hedge involves skill
and judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior or market or interest rate trends. There
are several risks in connection with the use by a Fund of futures contracts as a
hedging device. One risk arises because of the possible imperfect correlation
between movements in the prices of the futures contracts and movements in the
prices of the underlying instruments which are the subject of the hedge. The
Sub-Adviser will, however, attempt to reduce this risk by entering into futures
contracts whose movements, in its judgment, will have a significant correlation
with movements in the prices of the Fund's underlying instruments sought to be
hedged.
Successful use of futures contracts by the Fund for hedging purposes is
also subject to the Sub-Adviser's ability to correctly predict movements in
the direction of the market. It is possible that, when the Fund has sold
futures to hedge its portfolio against a decline in the market, the index,
indices, or instruments underlying futures might advance and the value of the
underlying instruments held in the Fund's portfolio might decline. If this
were to occur, the Fund would lose money on the futures contract and also
would experience a decline in value in its underlying instruments. However,
while this might occur to a certain degree, the Sub-Adviser believes that
over time the value of the Fund's portfolio will tend to move in the same
direction as the market indices used to hedge the portfolio. It
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is also possible that if a Fund were to hedge against the possibility of a
decline in the market (adversely affecting the underlying instruments held in
its portfolio) and prices instead increased, the Fund would lose part or all of
the benefit of increased value of those underlying instruments that it has
hedged, because it would have offsetting losses in its futures positions. In
addition, in such situations, if the Fund had insufficient cash, it might have
to sell underlying instruments to meet daily variation margin requirements.
Such sales of underlying instruments might be, but would not necessarily be, at
increased prices (which would reflect the rising market). The Fund might have
to sell underlying instruments at a time when it would be disadvantageous to do
so.
In addition to the possibility that there might be an imperfect
correlation, or no correlation at all, between price movements in the futures
contracts and the portion of the portfolio being hedged, the price movements of
futures contracts might not correlate perfectly with price movements in the
underlying instruments due to certain market distortions. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors might close futures contracts through offsetting transactions, which
could distort the normal relationship between the underlying instruments and
futures markets. Second, the margin requirements in the futures market are less
onerous than margin requirements in the securities markets, and as a result the
futures market might attract more speculators than the securities markets do.
Increased participation by speculators in the futures market might also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market and also because of the imperfect correlation between price
movements in the underlying instruments and movements in the prices of futures
contracts, even a correct forecast of general market trends by the Sub-Adviser
might not result in a successful hedging transaction over a very short time
period.
OPTIONS ON FUTURES CONTRACTS. A Fund may purchase and sell options on the
same types of futures in which it may invest.
Options on futures are similar to options on underlying instruments except
that options on futures give the purchaser the right, in return for the premium
paid, to assume a position in a futures contract (a long position if the option
is a call and a short position if the option is a put), rather than to purchase
or sell the futures contract, at a specified exercise price at any time during
the period of the option. Upon exercise of the option, the delivery of the
futures position by the writer of the option to the holder of the option will be
accompanied by the delivery of the accumulated balance in the writer's futures
margin account which represents the amount by which the market price of the
futures contract, at exercise, exceeds (in the case of a call) or is less than
(in the case of a put) the exercise price of the option on the futures contract.
Purchasers of options who fail to exercise their options prior to the exercise
date suffer a loss of the premium paid.
As an alternative to writing or purchasing call and put options on stock
index futures, a Fund may write or purchase call and put options on stock
indices. Such options would be used in a manner similar to the use of options
on futures contracts.
SPECIAL RISKS OF TRANSACTIONS IN OPTIONS ON FUTURES CONTRACTS. The risks
described under "Special Risks of Transactions on Futures Contracts" are
substantially the same as the risks of using options on futures. In addition,
where a Fund seeks to close out an option position by writing or buying an
offsetting option covering the same underlying instrument, index or contract and
having the same exercise price and expiration date, its ability to establish and
close out positions on such options will be subject to the maintenance of a
liquid secondary market. Reasons for the absence of a liquid secondary market
on an exchange include the following: (i) there may be insufficient trading
interest in certain options; (ii) restrictions may be imposed by an exchange on
opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options, or underlying instruments; (iv) unusual or
unforeseen circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or a clearing corporation may not at all times be
adequate to handle current trading volume; or (vi) one or more exchanges could,
for economic or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series of options),
in which event the secondary market on that exchange (or in the class or series
of options) would cease to exist, although outstanding options on the exchange
that had been issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms. There
is no
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assurance that higher than anticipated trading activity or other unforeseen
events might not, at times, render certain of the facilities of any of the
clearing corporations inadequate, and thereby result in the institution by an
exchange of special procedures which may interfere with the timely execution of
customers' orders.
ADDITIONAL FUTURES AND OPTIONS CONTRACTS. Although the Funds have no
current intention of engaging in futures or options transactions other than
those described above, they reserve the right to do so. Such futures and
options trading might involve risks which differ from those involved in the
futures and options described above.
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS, OPTIONS AND FORWARD FOREIGN
EXCHANGE CONTRACTS. Certain option, futures, and forward foreign exchange
contracts, including options and futures on currencies, which are Section 1256
contracts, may result in a Fund entering into straddles.
Open Section 1256 contracts at fiscal year end will be considered to have
been closed at the end of the Fund's fiscal year and any gains or losses will be
recognized for tax purposes at that time. Such gains or losses from the normal
closing or settlement of such transactions will be characterized as 60%
long-term capital gain or loss and 40% short-term capital gain or loss
regardless of the holding period of the instrument. The Fund will be required
to distribute net gains on such transactions to shareholders even though it may
not have closed the transaction and received cash to pay such distributions.
Options, futures and forward foreign exchange contracts, including options
and futures on currencies, which offset a security or currency position may be
considered straddles for tax purposes, in which case a loss on any position in a
straddle will be subject to deferral to the extent of unrealized gain in an
offsetting position. The holding period of the securities or currencies
comprising the straddle may be deemed not to begin until the straddle is
terminated. The holding period of the security offsetting an "in-the-money
qualified covered call" option will not include the period of time the option is
outstanding.
Losses on written covered calls and purchased puts on securities, excluding
certain "qualified covered call" options, may be long-term capital loss, if the
security covering the option was held for more than twelve months prior to the
writing of the option.
ILLIQUID SECURITIES. Each Fund may invest up to 15% of the value of its
net assets (determined at time of acquisition) in securities that are illiquid.
Illiquid securities would generally include securities for which there is a
limited trading market, repurchase agreements and time deposits with
notice/termination dates in excess of seven days, and certain securities that
are subject to trading restrictions because they are not registered under the
Securities Act of 1933, as amended (the "Act"). If, after the time of
acquisition, events cause this limit to be exceeded, the Fund will take steps to
reduce the aggregate amount of illiquid securities as soon as reasonably
practicable in accordance with the policies of the SEC.
A Fund may invest in commercial obligations issued in reliance on the
"private placement" exemption from registration afforded by Section 4(2) of the
Act ("Section 4(2) paper"). A Fund may also purchase securities that are not
registered under the Act, but which can be sold to qualified institutional
buyers in accordance with Rule 144A under the Act, ("Rule 144A securities").
Section 4(2) paper is restricted as to disposition under the Federal securities
laws, and generally is sold to institutional investors who agree that they are
purchasing the paper for investment and not with a view to public distribution.
Any resale by the purchaser must be in an exempt transaction. Section 4(2)
paper normally is resold to other institutional investors through or with the
assistance of the issuer or investment dealers which make a market in the
Section 4(2) paper, thus providing liquidity. Rule 144A securities generally
must be sold only to other qualified institutional buyers. If a particular
investment in Section 4(2) paper or Rule 144A securities is not determined to be
liquid, that investment will be included within the Fund's limitation on
investment in illiquid securities. The Sub-Adviser will determine the liquidity
of such investments pursuant to guidelines established by the Boards of
Trustees. It is possible that unregistered securities purchased by the Fund in
reliance upon Rule 144A could have the effect of increasing the level of the
Fund's illiquidity to the extent that qualified institutional buyers become, for
a period, uninterested in purchasing these securities.
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INVESTMENT COMPANY SECURITIES. [Each Fund] may invest in securities issued
by other investment companies. As a shareholder of another investment company,
a Fund would bear its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
expenses each Fund bears directly in connection with its own operations. Each
Fund (other than the International Small Company Fund) currently intends to
limit its investments in securities issued by other investment companies so
that, as determined immediately after a purchase of such securities is made: (i)
not more than 5% of the value of the Fund's total assets will be invested in the
securities of any one investment company; (ii) not more than 10% of the value of
its total assets will be invested in the aggregate in securities of investment
companies as a group; and (iii) not more than 3% of the outstanding voting stock
of any one investment company will be owned by the Fund.
LENDING OF PORTFOLIO SECURITIES. To enhance the return on its portfolio,
each of the Funds may lend securities in its portfolio (subject to a limit of
33 1/3% of the total assets) to securities firms and financial institutions,
provided that each loan is secured continuously by collateral adjusted daily to
have a market value at least equal to the current market value of the securities
loaned. These loans are terminable at any time, and the Funds will receive any
interest or dividends paid on the loaned securities. In addition, it is
anticipated that a Fund may share with the borrower some of the income received
on the collateral for the loan or the Fund will be paid a premium for the loan.
The risk in lending portfolio securities, as with other extensions of credit,
consists of possible delay in recovery of the securities or possible loss of
rights in the collateral or loss on sale of the collateral should the borrower
fail financially. In determining whether the Funds will lend securities, the
Sub-Adviser will consider all relevant facts and circumstances. The Funds will
only enter into loan arrangements with broker-dealers, banks or other
institutions which the Sub-Adviser has determined are creditworthy under
guidelines established by the Boards of Trustees.
MONEY MARKET INSTRUMENTS. Each Fund may invest from time to time in "money
market instruments," a term that includes, among other things, bank obligations,
commercial paper, variable amount master demand notes and corporate bonds with
remaining maturities of 397 days or less.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits, including U.S. dollar-denominated
instruments issued or supported by the credit of U.S. or foreign banks or
savings institutions. Although the Funds will invest in obligations of foreign
banks or foreign branches of U.S. banks only where the Sub-Adviser deems the
instrument to present minimal credit risks, such investments may nevertheless
entail risks that are different from those of investments in domestic
obligations of U.S. banks due to differences in political, regulatory and
economic systems and conditions. All investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase.
The Funds may also purchase variable amount master demand notes which are
unsecured instruments that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate. Although the notes are
not normally traded and there may be no secondary market in the notes, a Fund
may demand payment of the principal of the instrument at any time. The notes
are not typically rated by credit rating agencies, but issuers of variable
amount master demand notes must satisfy the same criteria as set forth above for
issuers of commercial paper. If an issuer of a variable amount master demand
note defaulted on its payment obligation, a Fund might be unable to dispose of
the note because of the absence of a secondary market and might, for this or
other reasons, suffer a loss to the extent of the default. The Funds invest in
variable amount master notes only when the Sub-Adviser deems the investment to
involve minimal credit risk.
[MUNICIPAL OBLIGATIONS] Opinions relating to the validity of municipal
obligations and to the exemption of interest thereon from regular Federal income
tax are rendered by bond counsel or counsel to the respective issuers at the
time of issuance. Neither the RWB Funds nor the Sub-Adviser will review the
proceedings relating to the issuance of municipal obligations or the bases for
such opinions.
An issuer's obligations under its municipal obligations are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code, and laws, if any,
which may be enacted by Federal or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of
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municipalities to levy taxes. The power or ability of an issuer to meet its
obligations for the payment of interest on and principal of its municipal
obligations may be materially adversely affected by litigation or other
conditions.
From time to time proposals have been introduced before Congress for the
purpose of restricting or eliminating the Federal income tax exemption for
interest on municipal obligations. For example, under the Tax Reform Act of
1986 interest on certain private activity bonds must be included in an
investor's Federal alternative minimum taxable income, and corporate investors
must include all tax-exempt interest in their Federal alternative minimum
taxable income. The RWB Funds cannot predict what legislation, if any, may be
proposed in Congress in the future as regards the Federal income tax status of
interest on municipal obligations in general, or which proposals, if any, might
be enacted.
NON-DOMESTIC BANK OBLIGATIONS. Non-domestic bank obligations include
Eurodollar Certificates of Deposit ("ECDs"), which are U.S. dollar-denominated
certificates of deposit issued by offices of foreign and domestic banks located
outside the United States; Eurodollar Time Deposits ("ETDs"), which are U.S.
dollar-denominated deposits in a foreign branch of a U.S. bank or a foreign
bank; Canadian Time Deposits ("CTDs"), which are essentially the same as ETDs
except they are issued by Canadian offices of major Canadian banks; Schedule Bs
which are obligations issued by Canadian branches of foreign or domestic banks;
Yankee Certificates of Deposit ("Yankee CDs"), which are U.S. dollar-denominated
certificates of deposit issued by a U.S. branch of a foreign bank and held in
the United States; and Yankee Bankers' Acceptances ("Yankee BAs"), which are
U.S. dollar denominated bankers' acceptances issued by a U.S. branch of a
foreign bank and held in the United States.
OPTIONS. A Fund may write covered call options, buy put options, buy call
options and write secured put options. Such options may relate to particular
securities and may or may not be listed on a national securities exchange and
issued by the Options Clearing Corporation. Options trading is a highly
specialized activity which entails greater than ordinary investment risk.
Options on particular securities may be more volatile than the underlying
securities, and therefore, on a percentage basis, an investment in options may
be subject to greater fluctuation than an investment in the underlying
securities themselves.
A call option for a particular security gives the purchaser of the option
the right to buy, and a writer the obligation to sell, the underlying security
at the stated exercise price at any time prior to the expiration of the option,
regardless of the market price of the security. The premium paid to the writer
is in consideration for undertaking the obligations under the option contract.
A put option for a particular security gives the purchaser the right to sell the
underlying security at the stated exercise price at any time prior to the
expiration date of the option, regardless of the market price of the security.
The writer of an option that wished to terminate its obligation may effect
a "closing purchase transaction." This is accomplished by buying an option of
the same series as the option previously written. The effect of the purchase is
that the writer's position will be canceled by the clearing corporation.
However, a writer may not effect a closing purchase transaction after being
notified of the exercise of an option. Likewise, an investor who is the holder
of an option may liquidate its position by effecting a "closing sale
transaction." The cost of such a closing purchase plus transaction costs may be
greater than the premium received upon the original option, in which event each
Fund will have incurred a loss in the transaction. There is no guarantee that
either a closing purchase or a closing sale transaction can be effected.
Effecting a closing transaction in the case of a written call option will
permit the Funds to write another call option on the underlying security with
either a different exercise price or expiration date or both, or in the case of
a written put option, will permit the Funds to write another put option to the
extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other Fund investments. If a Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale of the
security.
A Fund may write options in connection with buy-and-write transactions;
that is, the Funds may purchase a security and then write a call option against
that security. The exercise price of the call the Funds determine to write
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will depend upon the expected price movement of the underlying security. The
exercise price of a call option may be below ("in-the-money"), equal to
("at-the-money") or above ("out-of-the-money") the current value of the
underlying security at the time the option is written. Buy-and-write
transactions using in-the-money call options may be used when it is expected
that the price of the underlying security will remain flat or decline moderately
during the option period. Buy-and-write transactions using out-of-the-money
call options may be used when it is expected that the premiums received from
writing the call option plus the appreciation in the market price of the
underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. If the call options
are exercised in such transactions, the maximum gain to the relevant Fund will
be the premium received by it for writing the option, adjusted upwards or
downwards by the difference between the Fund's purchase price of the security
and the exercise price. If the options are not exercised and the price of the
underlying security declines, the amount of such decline will be offset in part,
or entirely, by the premium received.
In the case of a call option on a security, the option is "covered" if a
Fund owns the security underlying the call or has an absolute and immediate
right to acquire that security without additional cash consideration (or, if
additional cash consideration is required, cash or liquid securities in such
amount as are earmarked on the books of the Fund or the Fund's sub-custodian)
upon conversion or exchange of other securities held by it. For a call option
on an index, the option is covered if a Fund maintains with its custodian cash
or liquid securities equal to the contract value. A call option is also covered
if a Fund holds a call on the same security or index as the call written where
the exercise price of the call held is (i) equal to or less than the exercise
price of the call written, or (ii) greater than the exercise price of the call
written provided the difference in cash or liquid securities is earmarked on
the books of the Fund or the Fund's custodian. Each of the Funds will limit its
investment in uncovered call options purchased or written by the Fund to 33 1/3%
of the Fund's total assets. Each of the Funds will write put options only if
they are "secured" by cash or liquid securities earmarked on the books of the
Fund or the Fund's custodian in an amount not less than the exercise price of
the option at all times during the option period.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and the relevant Fund's gain will be limited to the
premium received. If the market price of the underlying security declines or
otherwise is below the exercise price, the Fund may elect to close the position
or take delivery of the security at the exercise price and the Fund's return
will be the premium received from the put option minus the amount by which the
market price of the security is below the exercise price.
A Fund may purchase put options to hedge against a decline in the value of
its portfolio. By using put options in this way, a Fund will reduce any profit
it might otherwise have realized in the underlying security by the amount of the
premium paid for the put option and by transaction costs. The Funds may
purchase call options to hedge against an increase in the price of securities
that it anticipates purchasing in the future. The premium paid for the call
option plus any transaction costs will reduce the benefit, if any, realized by
the Funds upon exercise of the option, and, unless the price of the underlying
security rises sufficiently, the option may expire worthless to the Fund.
When a Fund purchases an option, the premium paid by it is recorded as an
asset of the Fund. When the Fund writes an option, an amount equal to the net
premium (the premium less the commission) received by the Fund is included in
the liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of this asset or deferred credit will be
subsequently marked-to-market to reflect the current value of the option
purchased or written. The current value of the traded option is the last sale
price or, in the absence of a sale, the average of the closing bid and asked
prices. If an option purchased by the Fund expires unexercised the Fund
realizes a loss equal to the premium paid. If the Fund enters into a closing
sale transaction on an option purchased by it, the Fund will realize a gain if
the premium received by the Fund on the closing transaction is more than the
premium paid to purchase the option, or a loss if it is less. If an option
written by the Fund expires on the stipulated expiration date or if the Fund
enters into a closing purchase transaction, it will realize a gain (or loss if
the cost of a closing purchase transaction exceeds the net premium received when
the option is sold) and the deferred credit related to such option will be
eliminated. If an option written by the Fund is exercised, the proceeds of the
sale will be increased by the net premium originally received and the Fund will
realize a gain or loss.
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There are several risks associated with transactions in options on
securities and indices. For example, there are significant differences between
the securities and options markets that could result in an imperfect correlation
between these markets, causing a given transaction not to achieve its
objectives. An option writer, unable to effect a closing purchase transaction,
will not be able to sell the underlying security (in the case of a covered call
option) or liquidate the earmarked securities (in the case of a secured put
option) until the option expires or the optioned security is delivered upon
exercise with the result that the writer in such circumstances will be subject
to the risk of market decline or appreciation in the security during such
period.
There is no assurance that a Fund will be able to close an unlisted option
position. Furthermore, unlisted options are not subject to the protections
afforded purchasers of listed options by the Options Clearing Corporation, which
performs the obligations of its members who fail to do so in connection with the
purchase or sale of options.
In addition, a liquid secondary market for particular options, whether
traded over-the-counter or on a national securities exchange ("Exchange") may be
absent for reasons which include the following: there may be insufficient
trading interest in certain options; restrictions may be imposed by an Exchange
on opening transactions or closing transactions or both; trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; unusual or unforeseen
circumstances may interrupt normal operations on an Exchange; the facilities of
an Exchange or the Options Clearing Corporation may not at all times be adequate
to handle current trading value; or one or more Exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that Exchange (or in that class or series of options)
would cease to exist, although outstanding options that had been issued by the
Options Clearing Corporation as a result of trades on that Exchange would
continue to be exercisable in accordance with their terms.
Currency transactions, including options on currencies and currency
futures, are subject to risks different from those of other portfolio
transactions. Because currency control is of great importance to the issuing
governments and influences economic planning and policy, purchases and sales of
currency and related instruments can be negatively affected by government
exchange controls, blockages, and manipulations or exchange restrictions imposed
by governments. These can result in losses to the Fund if it is unable to
deliver or receive currency or funds in settlement of obligations and could also
cause hedges it has entered into to be rendered useless, resulting in full
currency exposure as well as the incurring of transaction costs. Buyers and
sellers of currency futures are subject to the same risks that apply to the use
of futures generally. Further, settlement of a currency futures contract for
the purchase of most currencies must occur at a bank based in the issuing
nation. Trading options on currency futures is relatively new, and the ability
to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
The federal tax treatment of options is discussed in the section entitled
"Futures and Options on Futures -- Federal Tax Treatment of Futures Contracts,
Options and Forward Foreign Currency Exchange Contracts."
OTHER. Subsequent to its purchase by a Fund, a rated security may cease to
be rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Boards of Trustees or the Sub-Adviser, pursuant to
guidelines established by the Board, will consider such an event in determining
whether the Fund should continue to hold the security in accordance with the
interests of the Fund and applicable regulations of the SEC.
Because the structure of the Equity Funds is based on the relative market
capitalizations of eligible holdings, it is possible that the Funds might hold
at least 5% of the outstanding voting securities of one or more issuers. In
such circumstances, RWB Funds and the issuer would be deemed "affiliated
persons" under the Investment Company Act of 1940 (the "1940 Act") and certain
requirements of the 1940 Act regulating dealings between affiliates might become
applicable. However, based on the present capitalizations of the groups of
companies eligible for inclusion in the Funds and the anticipated amount of a
Fund's assets intended to be invested in such securities, management does not
anticipate that a Fund will hold as much as 5% of the voting securities of any
issuer.
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REPURCHASE AGREEMENTS. Each Fund may agree to purchase securities from
financial institutions such as member banks of the Federal Reserve System, any
foreign bank or any domestic or foreign broker/dealer that is recognized as a
reporting government securities dealer, subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). The
Sub-Adviser will review and continuously monitor the creditworthiness of the
seller under a repurchase agreement, and will require the seller to maintain
liquid assets segregated on the books of the Fund or the Fund's custodian in an
amount that is greater than the repurchase price. Default by, or bankruptcy of,
the seller would, however, expose a Fund to possible loss because of adverse
market action or delays in connection with the disposition of underlying
obligations except with respect to repurchase agreements secured by U.S.
Government securities.
The repurchase price under repurchase agreements generally equals the price
paid by a Fund plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the securities underlying the
repurchase agreement).
Securities subject to repurchase agreements will be held, as applicable, by
the Fund's custodian in the Federal Reserve/Treasury book-entry system or by
another authorized securities depositary. Repurchase agreements are considered
to be loans by a Fund under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS. Each Fund may borrow funds for temporary or
emergency purposes by selling portfolio securities to financial institutions
such as banks and broker/dealers and agreeing to repurchase them at a mutually
specified date and price ("reverse repurchase agreements"). Reverse repurchase
agreements involve the risk that the market value of the securities sold by a
Fund may decline below the repurchase price. A Fund will pay interest on
amounts obtained pursuant to a reverse repurchase agreement. While reverse
repurchase agreements are outstanding, a Fund will maintain cash, U.S.
Government securities or other liquid high-grade securities earmarked on the
books of the Fund or the Fund's sub-custodian in an amount at least equal to the
market value of the securities, plus accrued interest, subject to the agreement.
STAND-BY COMMITMENTS. A Fund may enter into stand-by commitments with
respect to municipal obligations held by it. Under a stand-by commitment, a
dealer agrees to purchase at the Fund's option a specified municipal obligation
at its amortized cost value to the Fund plus accrued interest, if any. Stand-by
commitments may be exercisable by a Fund at any time before the maturity of the
underlying municipal obligations and may be sold, transferred or assigned only
with the instruments involved.
It is expected that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for municipal obligations which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held by the Fund will not exceed 1/2
of 1% of the value of the Fund's total assets calculated immediately after each
stand-by commitment is acquired.
Stand-by commitments will be entered into only with dealers, banks and
broker/dealers which, in the Sub-Adviser's opinion, present minimal credit
risks. Funds will acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes. The acquisition of a stand-by commitment will not affect
the valuation of the underlying municipal obligation. The actual stand-by
commitment will be valued at zero in determining net asset value.
Accordingly, where a Fund pays directly or indirectly for a stand-by
commitment, its cost will be reflected as an unrealized loss for the period
during which the commitment is held by the Fund and will be reflected in
realized gain or loss when the commitment is exercised or expires.
[STRIPPED SECURITIES] A Fund may acquire U.S. Government obligations and
their unmatured interest coupons that have been separated ("stripped") by their
holder, typically a custodian bank or investment brokerage firm. Having
separated the interest coupons from the underlying principal of the U.S.
Government obligations, the holder will resell the stripped securities in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" ("TIGRs") and "Certificate of Accrual on Treasury
Securities" ("CATS"). The
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stripped coupons are sold separately from the underlying principal, which is
usually sold at a deep discount because the buyer receives only the right to
receive a future fixed payment on the security and does not receive any rights
to periodic interest (cash) payments. The underlying U.S. Treasury bonds and
notes themselves are held in book-entry form at the Federal Reserve Bank or, in
the case of bearer securities (i.e., unregistered securities which are
ostensibly owned by the bearer or holder), in trust on behalf of the owners.
Counsel to the underwriters of these certificates or other evidences of
ownership of U.S. Treasury securities have stated that, in their opinion,
purchasers of the stripped securities most likely will be deemed the beneficial
holders of the underlying U.S. Government obligations for federal tax and
securities purposes. The RWB Funds is not aware of any binding legislative,
judicial or administrative authority on this issue.
Only instruments which are stripped by the issuing agency will be
considered U.S. Government obligations. Securities such as CATS and TIGRs which
are stripped by their holder do not qualify as U.S. Government obligations.
Within the past several years the Treasury Department has facilitated
transfers of ownership of zero coupon securities by accounting separately for
the beneficial ownership of particular interest coupon and principal payments on
Treasury securities through the Federal Reserve book-entry record-keeping
system. The Federal Reserve program as established by the Treasury Department
is known as "STRIPS" or "Separate Trading of Registered Interest and Principal
of Securities." Under the STRIPS program, a Fund is able to have its beneficial
ownership of zero coupon securities recorded directly in the book-entry
record-keeping system in lieu of having to hold certificates or other evidences
of ownership of the underlying U.S. Treasury securities.
In addition, a Fund may invest in stripped mortgage-backed securities
("SMBS"), which represent beneficial ownership interests in the principal
distributions and/or the interest distributions on mortgage assets. SMBS are
usually structured with two classes that receive different proportions of the
interest and principal distributions on a pool of mortgage assets. One type of
SMBS will have one class receiving some of the interest and most of the
principal from the mortgage assets, while the other class will receive most of
the interest and the remainder of the principal. In the most common case, one
class of SMBS will receive all of the interest (the interest-only or "IO"
class), while the other class will receive all of the principal (the
principal-only or "PO" class). SMBS may be issued by FNMA or FHLMC.
The original principal amount, if any, of each SMBS class represents the
amount payable to the holder thereof over the life of such SMBS class from
principal distributions of the underlying mortgage assets, which will be zero in
the case of an IO class. Interest distributions allocable to a class of SMBS,
if any, consist of interest at a specified rate on its principal amount, if any,
or its notional principal amount in the case of an IO class. The notional
principal amount is used solely for purposes of the determination of interest
distributions and certain other rights of holders of such IO class and does not
represent an interest in principal distributions of the mortgage assets.
Yields on SMBS will be extremely sensitive to the prepayment experience on
the underlying mortgage loans, and there are other associated risks. For IO
classes of SMBS and SMBS that were purchased at prices exceeding their principal
amounts there is a risk that a Fund may not fully recover its initial
investment.
The determination of whether a particular government-issued IO or PO backed
by fixed-rate mortgages is liquid may be made under guidelines and standards
established by the Boards of Trustees. Such securities may be deemed liquid if
they can be disposed of promptly in the ordinary course of business at a value
reasonably close to that used in the calculation of a Fund's net asset value per
share.
[SUPRANATIONAL BANK OBLIGATIONS] The U.S. Bond Fund may invest in the
obligations of supranational banks. Supranational banks are international
banking institutions designed or supported by national governments to promote
economic reconstruction, development or trade between nations (e.g., The World
Bank). Obligations of supranational banks may be supported by appropriated but
unpaid commitments of their member countries and there is no assurance these
commitments will be undertaken or met in the future.
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[SWAP AGREEMENTS] By entering into interest rate, index and currency
exchange rate swap agreements a Fund attempts to obtain a particular desired
return at a lower cost to the Fund than if the Fund has invested directly in
an instrument that yielded that desired return. Swap agreements are
two-party contracts entered into primarily by institutional investors for
periods ranging from a few weeks to more than one year. In a standard "swap"
transaction, two parties agree to exchange the returns (or differentials in
rates of returns) earned or realized on particular predetermined investments
or instruments. The gross returns to be exchanged or "swapped" between the
parties are calculated with respect to a "notional amount," the return on or
increase in value of a particular dollar amount invested at a particular
interest rate, in a particular foreign currency, or in a "basket" of
securities representing a particular index. The "notional amount" of the
swap agreement is only a fictive basis on which to calculate the obligations
the parties to a swap agreement have agreed to exchange. A Fund's
obligations (or rights) under a swap agreement will generally be equal only
to the amount to be paid or received under the agreement based on the
relative values of the positions held by each party to the agreement (the
"net amount"). A Fund's obligations under a swap agreement will be accrued
daily (offset against any amounts owing to the Fund) and any accrued but
unpaid net amounts owed to a swap counterparty will be covered by the
maintenance of a segregated account consisting of cash, U.S. Government
securities, or other liquid securities, to avoid leveraging of the Fund's
portfolio. A Fund will not enter into a swap agreement with any single party
if the net amount owed or to be received under existing contracts with that
party would exceed 5% of the Fund's assets.
Whether a Fund's use of swap agreements enhance the Fund's total return
will depend on the Sub-Adviser's ability correctly to predict whether certain
types of investments are likely to produce greater returns than other
investments. Because they are two-party contracts and may have terms of
greater than seven days, swap agreements may be considered to be illiquid.
Moreover, a Fund bears the risk of loss of the amount expected to be received
under a swap agreement in the event of the default or bankruptcy of a swap
agreement counterparty. The Sub-Adviser will cause a Fund to enter into swap
agreements only with counterparties that would be eligible for consideration
as repurchase agreement counterparties under the Funds' repurchase agreement
guidelines. The swap market is a relatively new market and is largely
unregulated. It is possible that developments in the swaps market, including
potential government regulation, could adversely affect a Fund's ability to
terminate existing swap agreements or to realize amounts to be received under
such agreements.
Certain swap agreements are exempt from most provisions of the Commodity
Exchange Act ("CEA") and, therefore, are not regulated as futures or commodity
option transactions under the CEA, pursuant to regulations of the CFTC. To
qualify for this exemption, a swap agreement must be entered into by "eligible
participants," which include the following, provided the participants' total
assets exceed established levels: a bank or trust company, savings association
or credit union, insurance company, investment company subject to regulation
under the 1940 Act, commodity pool, corporation, partnership, proprietorship,
organization, trust or other entity, employee benefit plan, governmental entity,
broker-dealer, futures commission merchant, natural person. or regulated foreign
person. To be eligible, natural persons and most other entities must have total
assets exceeding $10 million; commodity pools and employees benefit plans must
have assets exceeding $5 million. In addition, an eligible swap transaction
must meet three conditions. First, the swap agreement may not be part of a
fungible class of agreements that are standardized as to their material economic
terms. Second, the creditworthiness of parties with actual or potential
obligations under the swap agreement must be a material consideration in
entering into or determining the terms of the swap agreement, including pricing,
cost or credit enhancement terms. Third, swap agreements may not be entered
into and traded on or through a multilateral transaction execution facility.
U.S. GOVERNMENT OBLIGATIONS. Each Fund may purchase obligations issued or
guaranteed by the U.S. Government and U.S. Government agencies and
instrumentalities. Obligations of certain agencies and instrumentalities of the
U.S. Government, such as those of the GNMA, are supported by the full faith and
credit of the U.S. Treasury. Others, such as those of the Export-Import Bank of
the United States, are supported by the right of the issuer to borrow from the
U.S. Treasury; and still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the agency or instrumentality
issuing the obligation. No assurance can be given that the U.S. Government
would provide financial support to U.S. government-sponsored instrumentalities
if it is not obligated to do so by law. Examples of the types of U.S.
Government obligations that may be acquired by the Funds include U.S. Treasury
Bills, Treasury Notes and Treasury Bonds and the obligations of Federal Home
Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
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Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, FNMA, Government National Mortgage
Association, General Services Administration, Student Loan Marketing
Association, Central Bank for Cooperatives, FHLMC, Federal Intermediate Credit
Banks and Maritime Administration.
VARIABLE AND FLOATING RATE INSTRUMENTS. The U.S. Bond Fund may invest
in variable and floating rate instruments. Debt instruments also may be
structured to have variable or floating interest rates. Variable and
floating rate obligations purchased by a Fund may have stated maturities in
excess of a Fund's maturity limitation if the Fund can demand payment of the
principal of the instrument at least once during such period on not more than
thirty days' notice (this demand feature is not required if the instrument is
guaranteed by the U.S. Government or an agency thereof). These instruments
may include variable amount master demand notes that permit the indebtedness
to vary in addition to providing for periodic adjustments in the interest
rates. The Sub-Adviser will consider the earning power, cash flows and other
liquidity ratios of the issuers and guarantors of such instruments and, if
the instrument is subject to a demand feature, will continuously monitor
their financial ability to meet payment on demand. Where necessary to ensure
that a variable or floating rate instrument is equivalent to the quality
standards applicable to a Fund, the issuer's obligation to pay the principal
of the instrument will be backed by an unconditional bank letter or line of
credit, guarantee or commitment to lend.
In determining average weighted portfolio maturity of the Funds, an
instrument will usually be deemed to have a maturity equal to the longer of the
period remaining until the next interest rate adjustment or the time the Fund
involved can recover payment of principal as specified in the instrument.
Variable rate U.S. Government obligations held by the Funds, however, will be
deemed to have maturities equal to the period remaining until the next interest
rate adjustment.
The absence of an active secondary market for certain variable and floating
rate notes could make it difficult to dispose of the instruments, and a Fund
could suffer a loss if the issuer defaulted or during periods that a Fund is not
entitled to exercise its demand rights.
Variable and floating rate instruments held by a Fund will be subject to
the Fund's limitation on illiquid investments when the Fund may not demand
payment of the principal amount within seven days absent a reliable trading
market.
[WARRANTS] Warrants are privileges issued by corporations enabling the
owners to subscribe to and purchase a specified number of shares of the
corporation at a specified price during a specified period of time. The
purchase of warrants involves the risk that a Fund could lose the purchase value
of a warrant if the right to subscribe to additional shares is not exercised
prior to the warrant's expiration. Also, the purchase of warrants involves the
risk that the effective price paid for the warrant added to the subscription
price of the related security may exceed the value of the subscribed security's
market price such as when there is no movement in the level of the underlying
security.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS (DELAYED-DELIVERY
TRANSACTIONS). Each Fund may purchase securities on a when-issued or delayed
delivery basis. When-issued purchases and forward commitments (delayed-delivery
transactions) are commitments by a Fund to purchase or sell particular
securities with payment and delivery to occur at a future date (perhaps one or
two months later). These transactions permit the Fund to lock-in a price or
yield on a security, regardless of future changes in interest rates.
When a Fund agrees to purchase securities on a when-issued or forward
commitment basis, the Fund will earmark cash or liquid portfolio securities
equal to the amount of the commitment. Normally, the Fund will earmark
portfolio securities to satisfy a purchase commitment, and in such a case the
Fund may be required subsequently to earmark additional assets in order to
ensure that the value of the account remains equal to the amount of the Fund's
commitments. It may be expected that the market value of the Fund's net assets
will fluctuate to a greater degree when it earmarks portfolio securities to
cover such purchase commitments than when it earmarks cash.
19
<PAGE>
A Fund will purchase securities on a when-issued or forward commitment
basis only with the intention of completing the transaction and actually
purchasing the securities. If deemed advisable as a matter of investment
strategy, however, a Fund may dispose of or renegotiate a commitment after it is
entered into, and may sell securities it has committed to purchase before those
securities are delivered to the Fund on the settlement date. In these cases the
Fund may realize a taxable capital gain or loss.
When a Fund engages in when-issued and forward commitment transactions, it
relies on the other party to consummate the trade. Failure of such party to do
so may result in the Fund's incurring a loss or missing an opportunity to obtain
a price considered to be advantageous.
The market value of the securities underlying a when-issued purchase or a
forward commitment to purchase securities, and any subsequent fluctuations in
their market value, are taken into account when determining the market value of
a Fund starting on the day the Fund agrees to purchase the securities. The Fund
does not earn interest on the securities it has committed to purchase until they
are paid for and delivered on the settlement date.
YIELDS AND RATINGS. The yields on certain obligations, including the money
market instruments in which the Funds may invest (such as commercial paper and
bank obligations), are dependent on a variety of factors, including general
money market conditions, conditions in the particular market for the obligation,
the financial condition of the issuer, the size of the offering, the maturity of
the obligation and the ratings of the issue. The ratings of S&P, Moody's, Duff
& Phelps Credit Rating Co., Thomson Bank Watch, Inc., and other nationally
recognized statistical rating organizations ("NRSROs") represent their
respective opinions as to the quality of the obligations they undertake to rate.
Ratings, however, are general and are not absolute standards of quality.
Consequently, obligations with the same rating, maturity and interest rate may
have different market prices.
STRATEGIES OF THE U.S. SMALL COMPANIES FUND AND THE UNDERLYING FUNDS OF THE
INTERNATIONAL SMALL COMPANY FUND
PORTFOLIO STRUCTURE
Each of the U.S. Small Companies Fund and the Underlying Funds (except the
Emerging Markets Series) of the International Small Company Fund (the
"Underlying Funds") is structured by generally basing the amount of each
security purchased on the issuer's relative market capitalization with a view to
creating in each Fund a reasonable reflection of the relative market
capitalizations of its portfolio companies.
The decision to include or exclude the shares of an issuer will be made on
the basis of such issuer's relative market capitalization determined by
reference to other companies located in the same country, except that with
respect to Continental and Pacific Rim Series, such determination shall be made
by reference to other companies located in all countries in which the Series
invest. Company size is measure in terms of local currencies in order to
eliminate the effect of variations in currency exchange rates, except that
Continental and Pacific Rim Series each will measure company size in terms of a
common currency. Even though a company's stock may meet the applicable market
capitalization criterion, it may not be purchased if (i) in the Sub-Adviser's
judgment, the issuer is in extreme financial difficulty, (ii) the issuer is
involved in a merger or consolidation or is the subject of an acquisition or
(iii) a significant portion of the issuer's securities are closely held.
Further, securities of real estate investment trusts will not be acquired
(except as a part of a merger, consolidation or acquisition of assets). In
addition, the Sub-Adviser may exclude the stock of a company that otherwise
meets applicable market capitalization criterion if the Sub-Adviser determines
in its best judgment that other conditions exist that make the purchase of such
stock inappropriate.
Deviation from strict market capitalization weighting will also occur
because the Sub-Adviser intends to purchase round lots only. Furthermore, in
order to retain sufficient liquidity, the relative amount of any security held
may be reduced from time to time from the level which strict adherence to market
capitalization weighting would otherwise require. A portion, but generally not
in excess of 20%, of assets may be invested in interest-bearing obligations,
such as money-market instruments, for this purpose, thereby causing further
deviation from strict market capitalization weighting.
20
<PAGE>
Block purchases of eligible securities may be made at opportune prices even
though such purchases exceed the number of shares which, at the time of
purchase, strict adherence to the policy of market capitalization weighting
would otherwise require. In addition, each of the U.S. Small Companies Fund and
the Underlying Funds may, in exchange for the issuance of shares, acquire
securities eligible for purchase or otherwise represented in their portfolios at
the time of the exchange. While such purchases and acquisitions might cause a
temporary deviation from market capitalization weighting, they would ordinarily
be made in anticipation of further growth of assets.
If securities must be sold in order to obtain funds to make redemption
payments, they may be repurchased as additional cash becomes available. In most
instances, however, management would anticipate selling securities which had
appreciated sufficiently to be eligible for sale and, therefore, would not need
to repurchase such securities.
Changes in the composition and relative ranking (in terms of market
capitalization) of the stocks which are eligible for purchase take place with
every trade when the securities markets are open for trading due, primarily, to
price fluctuations of such securities. On a not less than semi-annual basis,
the Sub-Adviser will determine the market capitalization of the largest small
company eligible for investment. Common stocks whose market capitalizations are
not greater than such company will be purchased. Additional investments
generally will not be made in securities which have appreciated in value
sufficiently to be excluded from the Sub-Adviser's then current market
capitalization limit for eligible portfolio securities. This may result in
further deviation from strict market capitalization weighting and such deviation
could be substantial if a significant amount of holdings increase in value
sufficiently to be excluded from the limit for eligible securities, but not by a
sufficient amount to warrant their sale. A further deviation from market
capitalization weighting may occur if a Fund or Underlying Fund invests a
portion of its assets in privately placed convertible debentures.
It is the Sub-Adviser's belief that the stocks of small companies offer,
over a long term, a prudent opportunity for capital appreciation, but, at the
same time, selecting a limited number of such issues for investment involves
greater risk than investing in a large number of them.
Generally, current income is not sought as an investment objective and
investment will not be based upon an issuer's dividend payment policy or record.
However, many of the companies whose securities will be selected for investment
do pay dividends. It is anticipated, therefore, that dividend income will be
received.
PORTFOLIO TRANSACTIONS
On a periodic basis, the Sub-Adviser will review the holdings of each Fund
and Underlying Fund and determine which, at the time of such review, are no
longer considered small U.S., Japanese, United Kingdom, European or Pacific Rim
companies. The present policy of the Sub-Adviser (except with respect to the
U.S. Small Companies Fund) is to consider portfolio securities for sale when
they have appreciated sufficiently to rank, on a market capitalization basis,
more than one full decile higher than the company with the largest market
capitalization that is eligible for purchase by the particular Fund or
Underlying Fund as determined periodically by the Sub-Adviser. The Sub-Adviser
may, from time to time, revise that policy if, in the opinion of the
Sub-Adviser, such revision is necessary to maintain appropriate market
capitalization weighting.
Securities which have depreciated in value since their acquisition will
not be sold solely because prospects for the issuer are not considered
attractive or due to an expected or realized decline in securities' prices in
general. Securities may be disposed of, however, at any time when, in the
Sub-Adviser's judgment, circumstances, such as (but not limited to) tender
offers, mergers and similar transactions, or bids made for block purchases at
opportune prices warrant their sale. Generally, securities will not be sold
to realize short-term profits, but when circumstances warrant, they may be
sold without regard to the length of time held. Generally, securities will
be purchased with the expectation that they will be held for longer than one
year and will be held until such time as they are no longer considered an
appropriate holding in light of the policy of maintaining portfolios of
companies with small market capitalizations.
21
<PAGE>
In the case of the U.S. Small Companies Fund, management strategies used by
the Sub-Adviser to defer the realization of net capital gains and to minimize
dividend income may, from time to time, cause deviation from market
capitalization weighting. The U.S. Small Companies Fund should not be expected
to adhere to its market capitalization weighting with the same precision as the
other Funds.
STRATEGIES OF THE U.S. HIGH BOOK TO MARKET FUND AND INTERNATIONAL HIGH BOOK TO
MARKET FUND
Each of the U.S. High Book to Market Fund and International High Book to
Market Fund will be structured on a market capitalization basis, by generally
basing the amount of each security purchased on the issuer's relative market
capitalization, with a view to creating a reasonable reflection of the relative
market capitalizations of its portfolio companies. However, the Sub-Adviser may
exclude the securities of a company that otherwise meets the applicable criteria
if the Sub-Adviser determines in its best judgment that other conditions exist
that make the inclusion of such security inappropriate.
The International High Book to Market Fund intends to invest in companies
having at least $800 million of market capitalization, and the Fund will be
approximately market capitalization weighted. The Sub-Adviser may reset such
floor from time to time to reflect changing market conditions. In determining
market capitalization weights, the Sub-Adviser, using its best judgment, will
seek to eliminate the effect of cross holdings on the individual country
weights. As a result, the weighting of certain countries in the International
High Book to Market Fund may vary from their weighting in international indices
such as those published by The Financial Times, Morgan Stanley Capital
International or Salomon/Russell. The Sub-Adviser, however, will not attempt to
account for cross holding within the same country.
Deviation from strict market capitalization weighting will also occur
because the Funds intend to purchase round lots only. In order to retain
sufficient liquidity, the relative amount of any security held by a Fund may be
reduced, from time to time, from the level which strict adherence to market
capitalization weighting would otherwise require. A portion, but generally not
in excess of 20%, of a Fund's assets may be invested in interest-bearing
obligations, such as money market instruments and short-term repurchase
agreements, thereby causing further deviation from strict market capitalization
weighting. Such investments would be made on a temporary basis pending
investment in equity securities pursuant to the Fund's investment objective. A
further deviation from market capitalization weighting may occur if the
International High Book to Market Fund invests a portion of its assets in
privately placed convertible debentures.
The Funds may make block purchases of eligible securities at opportune
prices even though such purchases exceed the number of shares which, at the
time of purchase, strict adherence to the policy of market capitalization
weighting would otherwise require. In addition, the Funds may acquire
securities eligible for purchase at the time of the exchange or otherwise
represented in their portfolios in exchange for the issuance of their shares.
While such purchases and acquisitions might cause a temporary deviation from
market capitalization weighting, they would ordinarily be made in
anticipation of further growth of the assets of a Fund.
Changes in the composition and relative ranking (in terms of market
capitalization and book to market ratio) of the stocks which are eligible for
purchase by the Fund take place with every trade when the securities markets are
open for trading due, primarily, to price fluctuations of such securities. On a
periodic basis, the Sub-Adviser will prepare lists of eligible large companies
with high book to market ratios whose stock are eligible for investment; such
list will be revised not less than semi-annually. Only common stocks whose
market capitalizations are not less than the minimum on such list will be
purchased by the Fund. Additional investments will not be made in securities
which have depreciated in value to such extent that they are not then considered
by the Sub-Adviser to be large companies. This may result in further deviation
from market capitalization weighting, and such deviation could be substantial if
a significant amount of the Fund's holdings decrease in value sufficiently to be
excluded from the then current market capitalization requirement for eligible
securities, but not by a sufficient amount to warrant their sale.
22
<PAGE>
It is the Sub-Adviser's belief that the stocks of large companies with high
book to market ratios offer, over a long term, a prudent opportunity for capital
appreciation, but, at the same time, selecting a limited number of such issues
for inclusion in the Fund involves greater risk than including a large number of
them. The Sub-Adviser does not anticipate that a significant number of
securities which meet the market capitalization criteria will be selectively
excluded from the Fund.
The Funds do not seek current income as investment objectives and
investments will not be based upon an issuer's dividend payment policy or
record. However, many of the companies whose securities will be included in
a Fund do pay dividends. It is anticipated, therefore, that the Funds will
receive dividend income.
Securities which have depreciated in value since their acquisition will not
be sold by the Fund solely because prospects for the issuer are not considered
attractive, or due to an expected or realized decline in securities prices in
general. Securities may be disposed of, however, at any time when, in the
Sub-Adviser's judgment, circumstances warrant their sale, such as tender offers,
mergers and similar transactions, or bids made for block purchases at opportune
prices. Generally, securities will not be sold to realize short-term profits,
but when circumstances warrant, they may be sold without regard to the length of
time held. Generally, securities will be purchased with the expectation that
they will be held for longer than one year, and will be held until such time as
they are no longer considered an appropriate holding in light of the policy of
maintaining a portfolio of companies with large market capitalizations and high
book to market ratios.
TAX MANAGEMENT STRATEGIES OF THE U.S. HIGH BOOK TO MARKET FUND, U.S. SMALL
COMPANIES FUND AND THE INTERNATIONAL HIGH BOOK TO MARKET FUND
These Funds may try to minimize the impact of federal taxes on returns by
managing their portfolios in a manner that will defer the realization of net
capital gains where possible and may minimize ordinary income.
When selling securities, each Fund typically will select the highest cost
shares of the specific security in order to minimize the realization of capital
gains. In certain cases, the highest cost shares may produce a short-term
capital gain. Since short-term capital gains are taxed at higher tax rates than
long-term capital gains, the highest cost shares with a long-term holding period
may be disposed of instead. Each Fund also will seek, when possible, not to
dispose of a security until the long-term holding period for capital gains for
tax purposes has been satisfied. Additionally, each Fund may, when consistent
with all other tax management policies, sell securities in order to realize
capital losses. Realized capital losses can be used to offset realized capital
gains, thus reducing capital gains distributions. However, realization of
capital gains is not entirely within the Sub-Adviser's control. Capital gains
distributions may vary considerably from year to year; there will be no capital
gains distributions in years when a Fund realizes net capital losses.
The timing of purchases and sales of securities may be managed to minimize
dividends to the extent possible. With respect to dividends that are received,
the Funds may not be eligible to flow through the dividends received deduction
to corporate shareholders, if because of timing activities, the requisite
holding period is not met. Except for the U.S. High Book to Market Fund,
portfolio holdings may be managed to minimize high dividend-yielding securities
and to emphasize low dividend-yielding securities.
The Funds are expected to deviate from their market capitalization
weightings to a greater extent than the other Funds. For example, the
Sub-Adviser may exclude the stock a company that meets applicable market
capitalization criterion in order to avoid dividend income, and the Sub-Adviser
may sell the stock of a company that meets applicable market capitalization
criterion in order to realize a capital loss. Additionally, while the Funds are
managed so that securities will generally be held for longer than one year, the
Funds may dispose of any securities whenever the Sub-Adviser determines that
such disposition would be consistent with the tax management strategies of the
Funds.
Although the Sub-Adviser may manage each Fund to minimize the realization
of capital gains and taxable dividend distributions during a particular year,
the Funds may nonetheless distribute taxable gains and taxable income to
shareholders from time to time. Furthermore, shareholders may be required to
pay taxes on capital gains
23
<PAGE>
realized, if any, upon redemption of shares of a Fund, if the amount realized on
redemption is greater than the amount the shareholder paid for the shares.
FUND POLICIES
FUNDAMENTAL POLICIES. Each Fund is subject to the investment limitations
enumerated in this section which may be changed with respect to a particular
Fund only by a vote of the holders of a majority of such Fund's outstanding
shares. As used in this SAI and in the Prospectus, a "majority of the
outstanding shares" of a Fund means the lesser of (a) 67% of the shares of the
particular Fund represented at a meeting at which the holders of more than 50%
of the outstanding shares of such Fund are present in person or by proxy, or (b)
more than 50% of the outstanding shares of such Fund.
1. No Fund may invest more than 25% of its total assets in any one
industry (securities issued or guaranteed by the United States
Government, its agencies or instrumentalities are not considered to
represent industries). [This limitation does not apply to the U.S.
Bond Fund. The U.S. Bond Fund shall invest more than 25% of its total
assets in obligations of banks and bank holding companies in the
circumstances described in the Prospectus.] For purposes of this
limitation, (i) utility companies will be divided according to their
services; for example, gas, gas transmission, electric and telephone
will each be considered a separate industry; (ii) financial service
companies will be classified according to the end users of their
services; for example, automobile finance, bank finance and
diversified finance will each be considered a separate industry; (iii)
supranational entities will be considered a separate industry; and
(iv) loan participations are considered to be issued by both the
issuing bank and the underlying corporate borrower.
2. No Fund may with respect to 75% of the Fund's assets, invest more than
5% of the Fund's assets (taken at a market value at the time of
purchase) in the outstanding securities of any single issuer or own
more than 10% of the outstanding voting securities of any one issuer,
in each case other than securities issued or guaranteed by the United
States Government, its agencies or instrumentalities.
3. No Fund may borrow money or issue senior securities (as defined in the
1940 Act) except that the Funds may borrow amounts not exceeding
33 1/3% of its total assets (including the amount borrowed) valued at
the lesser of cost or market, less liabilities (not including the
amount borrowed) valued at the time the borrowing is made and
additionally for temporary or emergency purposes in amounts not
exceeding 5% of its total assets.
4. No Fund may pledge, mortgage or hypothecate its assets other than to
secure borrowings permitted by investment limitation 3 above
(collateral arrangements with respect to margin requirements for
options and futures transactions are not deemed to be pledges or
hypothecations for this purpose).
5. No Fund may make loans of securities to other persons in excess of
33 1/3% of a Fund's total assets; provided the Funds may invest
without limitation in short-term debt obligations (including
repurchase agreements) and publicly distributed debt obligations.
6. No Fund may underwrite securities of other issuers, except insofar as
a Fund may be deemed an underwriter under the Securities Act of 1933,
as amended, in selling portfolio securities.
7. No Fund may purchase or sell real estate or any interest therein,
including interests in real estate limited partnerships, except
securities issued by companies (including real estate investment
trusts) that invest in real estate or interests therein.
24
<PAGE>
8. No Fund may purchase securities on margin, except for the use of
short-term credit necessary for the clearance of purchases and sales
of portfolio securities, but the Funds may make margin deposits in
connection with transactions in options, futures and options on
futures.
9. No Fund may invest in commodities or commodity futures contracts,
provided that this limitation shall not prohibit the purchase or sale
by the Fund of forward foreign currency exchange contracts, financial
futures contracts and options on financial futures contracts, foreign
currency futures contracts, and options on securities, foreign
currencies and securities indices, as permitted by the Fund's
prospectus.
NON-FUNDAMENTAL POLICIES. Additional investment restrictions adopted by
each Fund, which may be changed by the Board of Trustees, provide that a Fund
may not:
1. Invest more than 15% of its net assets (taken at market value at the
time of purchase) in securities which cannot be readily sold or
disposed of within the ordinary course of business within seven days
at approximately the value at which the Fund has valued the
investment;
2. Purchase or sell interests in oil, gas or other mineral exploration or
development plans or leases;
3. Make investments for the purpose of exercising control or management;
or
4. Invest in other investment companies except as permitted under the
1940 Act.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
a Fund's investments will not constitute a violation of such limitation, except
that any borrowing by a Fund that exceeds the fundamental investment limitations
stated above must be reduced to meet such limitations within the period required
by the 1940 Act (currently three days). Otherwise, a Fund may continue to hold
a security even though it causes the Fund to exceed a percentage limitation
because of fluctuation in the value of the Fund's assets.
TEMPORARY DEFENSIVE POSITION
During periods of unusual economic or market conditions or for temporary
defensive purposes or liquidity, each Fund may invest without limit in cash and
in U.S. dollar-denominated high quality money market and other short-term
instruments. These investments may result in a lower yield than would be
available from investments with a lower quality or longer term.
MANAGEMENT OF RWB FUNDS
The management of RWB Funds is supervised by the Board of Trustees under
the laws of the State of Delaware. Subject to the provisions of the Declaration
of Trust, the business of RWB Funds shall be managed by the Trustees, and they
shall have all powers necessary or convenient to carry out that responsibility.
TRUSTEES AND OFFICERS
The Trustees and executive officers of RWB Funds and their principal
occupations during the past five years are as set forth below. An asterisk
indicates a Trustee who may be deemed to be an "interested person" (as defined
by the 1940 Act) of RWB Funds.
25
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION(s) DURING
NAME, ADDRESS AND AGE POSITION(s) HELD WITH FUND PAST 5 YEARS
--------------------- -------------------------- ------------
<S> <C> <C>
John J. Bowen, Jr.* Trustee, President and Chief Executive Officer CEO and President, Assante Financial Group
1190 Saratoga Avenue, Suite 200 Inc. (since July 1998); CEO, Registered
San Jose, CA 95120 Principal and President, RWB Securities
Age: 48 Inc. (since July 1998); CEO and President,
RWB Advisory Services Inc. (since July
1998); CEO, Registered Principal and
President, Reinhardt Werba Bowen
Securities, Inc. (December 1980 to October
1998); CEO, Director and President,
Reinhardt, Werba, Bowen, Inc. (July 1993
to October 1998).
Alexander B. Potts Vice President and Secretary Vice President of Advisor Services and
1190 Saratoga Avenue, Suite 200 Investment Operations, RWB Advisory
San Jose, CA 95120 Services Inc. (since April 1990).
Age: 31
Michael Clinton Treasurer and Chief Financial and Accounting
1190 Saratoga Avenue, Suite 200 Officer
San Jose, CA 95120
Age:
</TABLE>
COMPENSATION TABLE
The following table summarizes the estimated compensation to be paid by RWB
Funds to its Trustees during the current fiscal year.
26
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION
FROM A FUND TRUSTEE TRUSTEE TRUSTEE
<S> <C> <C> <C>
U.S. Bond Fund
U.S. Total Market Fund
U.S. High Book to Market Fund
U.S. Small Companies Fund
International High Book to
Market Fund
International Small
Company Fund
TOTAL COMPENSATION FROM THE FUND
COMPLEX
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
[To be provided]
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT MANAGER AND SUB-ADVISER
RWB Funds, on behalf of each Fund, has entered into an Investment Advisory
Agreement (the "Advisory Agreement") with the Manager, an indirect, wholly-owned
subsidiary of Assante Capital Management, Inc., which is a privately held
financial services company located in Winnipeg, Canada.
The Advisory Agreement will continue in effect for a period of two years
from its effective date. If not sooner terminated, the Advisory Agreement will
continue in effect for successive one year periods thereafter, provided that its
continuance is specifically approved annually by (a) the vote of a majority of
the Board of Trustees who are not parties to the Advisory Agreement or
interested persons (as defined in the 1940 Act), cast in person at a meeting
called for the purpose of voting on approval, and (b) either (i) the vote of a
majority of the outstanding voting securities of the affected Fund, or (ii) the
vote of a majority of the Board of Trustees. The Advisory Agreement is
terminable with respect to a Fund by vote of the Board of Trustees, or by the
holders of a majority of the outstanding voting securities of the Fund, at any
time without penalty, on 60 days' written notice to the Manager. The Manager
may also terminate its advisory relationship with respect to a Fund without
penalty on 90 days' written notice to the Trust, as applicable. The Advisory
Agreement terminates automatically in the event of its assignment (as defined in
the 1940 Act).
Dimensional Fund Advisors Inc. ("DFA") is the Sub-Adviser to each Fund.
DFA is a [ ] corporation.
The Manager has entered into a sub-advisory agreement (the "Sub-Advisory
Agreement") with DFA. Under the terms of the Sub-Advisory Agreement, DFA
provides sub-advisory services to the Funds. Subject to supervision of the
Manager, DFA is responsible for the management of each Fund's portfolio,
including decisions regarding purchases and sales of portfolio securities by
the Funds. DFA is also responsible for arranging the execution of portfolio
management decisions, including the selection of brokers to execute trades
and the negotiation of brokerage commissions in connection therewith.
The Sub-Advisory Agreement will continue in effect with respect to a Fund
for a period of two years from its effective date. If not sooner terminated,
the Sub-Advisory Agreement will continue in effect for successive one year
periods thereafter, provided that each continuance is specifically approved
annually by (a) the vote of a
27
<PAGE>
majority of the Board of Trustees who are not parties to the Sub-Advisory
Agreement or interested persons (as defined in the 1940 Act), cast in person at
a meeting called for the purpose of voting on approval, and (b) either (i) with
respect to a Fund, the vote of a majority of the outstanding voting securities
of that Fund, or (ii) the vote of a majority of the Board of Trustees. The
Sub-Advisory Agreement is terminable by vote of the Board of Trustees, or, with
respect to a Fund, by the holders of a majority of the outstanding voting
securities of that Fund, at any time without penalty, on 60 days' written notice
to DFA, or by the Manager on 90 days' written notice to DFA. DFA-may also
terminate its sub-advisory relationship with a Fund without penalty on 90 days'
written notice to the Manager. The Sub-Advisory Agreement terminates
automatically in the event of its assignment (as defined in the 1940 Act).
For the advisory services provided and expenses assumed by it, the Manager
is entitled to a fee from each Fund computed daily and payable monthly at the
rate of [ ]% of the average daily net assets of the U.S. Bond Fund and [ ]%
of the average daily net assets of each of the other Funds.
For the sub-advisory services provided, DFA is entitled to a fee [from each
Fund] computed daily and payable monthly at the rate of [ ]% of each Fund's
average daily net assets.
DISTRIBUTOR
[RWB Securities, Inc. (the "Distributor") and RWB Funds have entered into a
distribution agreement, under which the Distributor, as agent, sells shares of
each Fund on a continuous basis. The Distributor's principal offices are
located at ______. The Distributor is an indirect, wholly-owned subsidiary of
Assante Capital Management, Inc. and an affiliate of RWBAS. The Distributor
receives no compensation for distribution of the Funds shares.]
SHAREHOLDER SERVICING ARRANGEMENTS
Under a Shareholder Servicing Agreement with RWB Funds, the Manager
performs various services for the Funds, including establishing a toll-free
telephone number for shareholders of each Fund to use to obtain up-to-date
account information; providing to shareholders quarterly and other reports with
respect to the performance of each Fund; and providing shareholders with such
information regarding the operations and affairs of each Fund, and their
investment in its shares, as the shareholders or the Board of Trustees may
reasonably request. The Manager is paid an annual service fee at the rate of up
to [0.25%] of the value of average daily net assets of the Class S shares, and
an annual service fee at the rate of up to [0.05%] of the value of average daily
net assets of the Class I shares of each Fund.
ADMINISTRATION
The Manager and RWB Funds have entered into a Administration Agreement
pursuant to which the Manager has agreed to maintain office facilities for the
RWB Funds, oversee the computation of each Fund's net asset value, net income
and realized capital gains, if any; furnish statistical and research data,
clerical services, and stationery and office supplies; prepare and file various
reports with the appropriate regulatory agencies; and prepare various materials
required by the SEC. The Manager receives a fee for these services, which is
calculated daily and paid [ ] at an annual rate based on the average daily net
assets of each Fund as follows:
<TABLE>
<CAPTION>
FUND CLASS S CLASS I
- ---- ------- -------
<S> <C> <C>
U.S. Bond Fund .19% .07%
U.S. Total Market Fund .25% .10%
U.S. High Book to Market Fund .45% .24%
U.S. Small Companies Fund .60% .39%
International High Book to Market Fund .80% .56%
International Small Company Fund .90% .73%
</TABLE>
28
<PAGE>
Under the Administration Agreement the Manager is obligated to pay the
ordinary operating expenses of each Fund in excess of the administration fee.
The Sub-Administration Agreement provides that the Manager performing
services thereunder shall not be liable under the Agreement except for its bad
faith, gross negligence or willful misconduct in the performance of its duties
and obligations thereunder.
State Street Bank and Trust Company ("State Street"), whose principal
business address is 225 Franklin Street, Boston, Massachusetts, 02110, serves as
sub-administrator for the RWB Funds, pursuant to a sub-administration agreement
(the "Sub-Administration Agreement") with the Manager and RWB Funds.
CUSTODIAN
State Street is the custodian of each Fund's assets pursuant to a custodian
agreement (the "Custody Contract") with the RWB Funds. State Street is also the
custodian with respect to the custody of foreign securities held by the Funds.
State Street has in turn entered into additional agreements with financial
institutions and depositaries located in foreign countries with respect to the
custody of such securities. Under the Custody Contract, the Custodian (i)
maintains a separate account in the name of each Fund, (ii) holds and transfers
portfolio securities on account of each Fund, (iii) accepts receipts and makes
disbursements of money on behalf of each Fund, (iv) collects and receives all
income and other payments and distributions on account of each Fund's securities
and (v) makes periodic reports to the Board of Trustees concerning the Funds'
operations.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
State Street serves as the transfer agent and dividend disbursing agent for
the Funds
COUNSEL
The law firm of Paul, Hastings, Janofsky & Walker LLP, 345 California
Street, San Francisco, California 94104, has passed upon certain legal matters
in connection with the shares offered by the Funds and serves as counsel to the
RWB Funds.
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLC, 555 California Street, San Francisco,
California 94101, serves as the independent auditors for the RWB Funds,
providing audit and accounting services including: examination of the Funds'
annual financial statements, assistance and consultation with respect to the
preparation of filings with the SEC; and preparation of income tax returns.
BROKERAGE ALLOCATIONS AND OTHER PRACTICES
Subject to the general supervision of the Trustees, the Sub-Adviser makes
decisions with respect to and places orders for all purchases and sales of
portfolio securities for the Funds.
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. Transactions on foreign
stock exchanges involve payment for brokerage commissions which are generally
fixed.
Over-the-counter issues, including corporate debt and government
securities, are normally traded on a "net" basis (i.e., without commission)
through dealers, or otherwise involve transactions directly with the issuer of
an instrument. With respect to over-the-counter transactions, the Sub-Adviser
will normally deal directly with dealers who make a market in the instruments
involved except in those circumstances where more favorable prices and execution
are available elsewhere. The cost of foreign and domestic securities purchased
from underwriters
29
<PAGE>
includes an underwriting commission or concession, and the prices at which
securities are purchased from and sold to dealers include a dealer's mark-up or
mark-down.
The Funds may participate, if and when practicable, in bidding for the
purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group.
The Funds will engage in this practice, however, only when the Sub-Adviser
believes such practice to be in the Funds' interests.
The Sub-Adviser selects broker-dealers in accordance with guidelines
established by the Board of Trustees from time to time and in accordance with
applicable law. In assessing the terms available for any transaction, the
Sub-Adviser shall consider all factors it deems relevant, including the breadth
of the market in the security, the price of the security, the financial
condition and execution capability of the broker-dealer, and the reasonableness
of the commission, if any, both for the specific transaction and on a continuing
basis. In addition, the Sub-Advisory Agreement authorizes the Sub-Adviser,
subject to the prior approval of the Board of Trustees, to cause the Funds to
pay a broker-dealer which furnishes brokerage and research services a higher
commission than that which might be charged by another broker-dealer for
effecting the same transaction, provided that the Sub-Adviser determines in good
faith that such commission is reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in terms
of either the particular transaction or the overall responsibilities of the
Sub-Adviser to the Funds. Such brokerage and research services might consist of
reports and statistics on specific companies or industries, general summaries of
groups of bonds and their comparative earnings and yields, or broad overviews of
the securities markets and the economy.
Supplementary research information so received is in addition to, and not
in lieu of, services required to be performed by the Sub-Adviser and does not
reduce the advisory fees payable to the Sub-Adviser. It is possible that
certain of the supplementary research or other services received will primarily
benefit one or more other investment companies or other accounts for which
investment discretion is exercised. Conversely, a Fund may be the primary
beneficiary of the research or services received as a result of portfolio
transactions effected for such other account or investment company.
Investment decisions for each Fund and for other investment accounts
managed by the Sub-Adviser are made independently of each other in the light of
differing conditions. However, the same investment decision may be made for two
or more of such accounts. In such cases, simultaneous transactions are
inevitable. Purchases or sales are then averaged as to price and allocated as
to amount in a manner deemed equitable to each such account. While in some
cases this practice could have a detrimental effect on the price or value of the
security as far as a Fund is concerned, in other cases it is believed to be
beneficial to a Fund. To the extent permitted by law, the Sub-Adviser may
aggregate the securities to be sold or purchased for a Fund with those to be
sold or purchased for other investment companies or accounts in executing
transactions.
Subject to seeking best price and execution, the Sub-Adviser may place
orders for a Fund with broker-dealers who have agreed to defray certain Fund
expenses such as custodian fees, and may give consideration to sales of shares
of the Funds as a factor in the selection of brokers and dealers to execute Fund
transactions.
Portfolio securities will not be purchased from or sold to the Manager,
Sub-Adviser, Distributor or any affiliated person (as defined in the 1940 Act)
of the foregoing entities except to the extent permitted by SEC exemptive order
or by applicable law. A Fund will not purchase securities during the existence
of any underwriting or selling group relating to such securities of which the
Manager, Sub-Adviser or any affiliated person (as defined in the 1940 Act)
thereof is a member except pursuant to procedures adopted by the Trust's Board
of Trustees in accordance with Rule 10f-3 under the 1940 Act.
INFORMATION CONCERNING SHARES
RWB Funds is a Delaware business trust. Under the Declaration of Trust,
the beneficial interest in the RWB Funds may be divided into an unlimited number
of full and fractional transferable shares. The Declaration of Trust authorizes
the Board of Trustees to classify or reclassify any unissued shares of the RWB
Funds into one or
30
<PAGE>
more classes by setting or changing, in any one or more respects, their
respective designations, preferences, conversion or other rights, voting
powers, restrictions, limitations, qualifications and terms and conditions of
redemption. Currently, the RWB Funds' Board of Trustees has authorized the
issuance of an unlimited number of shares of beneficial interest in the RWB
Funds, representing interests in eleven separate series, each of which is a
Fund. Each Fund currently offers two classes of shares.
In the event of a liquidation or dissolution of RWB Funds, shareholders of
a particular Fund would be entitled to receive the assets available for
distribution belonging to such Fund, and a proportionate distribution, based
upon the relative net asset values of the Funds, of any general assets not
belonging to any particular Fund which are available for distribution.
Shareholders of a Fund are entitled to participate in the net distributable
assets of the particular Fund involved on liquidation, based on the number of
shares of the Fund that are held by each shareholder.
Shares of the RWB Funds have noncumulative voting rights and, accordingly,
the holders of more than 50% of RWB Fund's outstanding shares (irrespective of
class) may elect all of the trustees. Shares have no preemptive rights and only
such conversion and exchange rights as the Board may grant in its discretion.
When issued for payment as described in the applicable Prospectus, shares will
be fully paid and non-assessable by RWB Funds.
Shareholder meetings to elect trustees will not be held unless and until
such time as required by law. At that time, the trustees then in office will
call a shareholders' meeting to elect trustees. Except as set forth above, the
trustees will continue to hold office and may appoint successor trustees.
Meetings of the shareholders of the RWB Funds, shall be called by the trustees
upon the written request of shareholders owning at least 10% of the outstanding
shares entitled to vote.
The Declaration of Trust, authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to: (i) sell
and convey the assets belonging to a class of shares to another management
investment company for consideration which may include securities issued by the
purchaser and, in connection therewith, to cause all outstanding shares of such
class to be redeemed at a price which is equal to their net asset value and
which may be paid in cash or by distribution of the securities or other
consideration received from the sale and conveyance; (ii) sell and convert the
assets belonging to one or more classes of shares into money and, in connection
therewith, to cause all outstanding shares of such class to be redeemed at their
net asset value; or (iii) combine the assets belonging to a class of shares with
the assets belonging to one or more other classes of shares if the Board of
Trustees reasonably determines that such combination will not have a material
adverse effect on the shareholders of any class participating in such
combination and, in connection therewith, to cause all outstanding shares of any
such class to be redeemed or converted into shares of another class of shares at
their net asset value. However, the exercise of such authority may be subject
to certain restrictions under the 1940 Act. The Board of Trustees may authorize
the termination of any class of shares after the assets belonging to such class
have been distributed to its shareholders.
PURCHASE, REDEMPTION AND PRICING OF SHARES
PURCHASE AND REDEMPTION INFORMATION
Purchases and redemptions are discussed in the Funds' Prospectus and such
information is incorporated herein by reference.
[RETIREMENT PLANS. Shares of any of the Funds may be purchased in
connection with various types of tax deferred retirement plans, including
individual retirement accounts ("IRAs"), qualified plans, deferred compensation
for public schools and charitable organizations (403(b) plans) and simplified
employee pension IRAs. An individual or organization considering the
establishment of a retirement plan should consult with an attorney and/or an
accountant with respect to the terms and tax aspects of the plan. A $10.00
annual custodial fee is also charged on IRAs. This custodial fee is due by
December 15 of each year and may be paid by check or shares liquidated from a
shareholder's account.]
31
<PAGE>
IN-KIND PURCHASES. Payment for shares may, in the discretion of the
Manager, be made in the form of securities that are permissible investments for
the Funds as described in the Prospectuses. For further information about this
form of payment please contact the Manager. In connection with an in-kind
securities payment, a Fund will require, among other things, that the securities
(a) meet the investment objectives and policies of the Funds; (b) are acquired
for investment and not for resale; (c) are liquid securities that are not
restricted as to transfer either by law or liquidity of markets; (d) have a
value that is readily ascertainable by a listing on a nationally recognized
securities exchange; and (e) are valued on the day of purchase in accordance
with the pricing methods used by the Fund and that the Fund receive satisfactory
assurances that (i) it will have good and marketable title to the securities
received by it; (ii) that the securities are in proper form for transfer to the
Fund; and (iii) adequate information will be provided concerning the basis and
other tax matters relating to the securities.
REDEMPTION IN-KIND. Redemption proceeds are normally paid in cash;
however, each Fund may pay the redemption price in whole or part by a
distribution in kind of securities from the portfolio of the particular Fund, in
lieu of cash, in conformity with applicable rules of the SEC. If shares are
redeemed in kind, the redeeming shareholder might incur transaction costs in
converting the assets into cash.
OTHER REDEMPTION INFORMATION. The Funds reserve the right to suspend or
postpone redemptions during any period when: (i) trading on the New York Stock
Exchange (the "NYSE") is restricted by applicable rules and regulations of the
SEC; (ii) the NYSE is closed for other than customary weekend and holiday
closings; (iii) the SEC has by order permitted such suspension or postponement
for the protection of the shareholders; or (iv) an emergency, as determined by
the SEC, exists, making disposal of portfolio securities or valuation of net
assets of a Fund not reasonably practicable.
The Funds may involuntarily redeem an investor's shares if the net asset
value of such shares is less than [$ ]; provided that involuntary redemptions
will not result from fluctuations in the value of an investor's shares. A
notice of redemption, sent by first-class mail to the investor's address of
record, will fix a date not less than 60 days after the mailing date, and shares
will be redeemed at the net asset value at the close of business on that date
unless sufficient additional shares are purchased to bring the aggregate account
value up to [$ ] or more. A check for the redemption proceeds payable to
the investor will be mailed to the investor at the address of record.
DETERMINATION OF NET ASSET VALUE
In determining the approximate market value of portfolio investments, the
RWB Funds may employ outside organizations, which may use matrix or formula
methods that take into consideration market indices, matrices, yield curves and
other specific adjustments. This may result in the securities being valued at a
price different from the price that would have been determined had the matrix or
formula methods not been used. All cash, receivables and current payables are
carried on the RWB Fund's, books at their face value. Other assets, if any, are
valued at fair value as determined in good faith under the supervision of the
Trustees.
TAXES
The following summarizes certain additional federal and state income tax
considerations generally affecting the Funds and their shareholders that are not
described in the Funds' Prospectuses. No attempt is made to present a detailed
explanation of the tax treatment of the Funds or their shareholders, and the
discussion here and in the Prospectus is not intended as a substitute for
careful tax planning. This discussion is based upon present provisions of the
Code, the regulations promulgated thereunder, and judicial and administrative
ruling authorities, all of which are subject to change, which change may be
retroactive. Prospective investors should consult their own tax advisors with
regard to the federal tax consequences of the purchase, ownership and
disposition of Fund shares, as well as the tax consequences arising under the
laws of any state, foreign country, or other taxing jurisdiction.
TAX STATUS OF THE FUNDS
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<PAGE>
Each Fund intends to elect and qualify to be taxed separately as a
regulated investment company under the Code. As a regulated investment company,
each Fund generally is exempt from federal income tax on its net investment
income and realized capital gains which it distributes to shareholders, provided
that it distributes an amount equal to the sum of (a) at least 90% of its
investment company taxable income (net investment income and the excess of net
short-term capital gain over net long-term capital loss), if any, for the year
and (b) at least 90% of its net tax-exempt interest income, if any, for the year
(the "Distribution Requirement") and satisfies certain other requirements of
the Code that are described below. Distributions of investment company taxable
income and net tax-exempt interest income made during the taxable year or, under
specified circumstances, within twelve months after the close of the taxable
year will satisfy the Distribution Requirement.
In addition to satisfaction of the Distribution Requirement, each Fund must
derive with respect to a taxable year at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans and gains
from the sale or other disposition of stock or securities or foreign currencies,
or from other income derived with respect to its business of investing in such
stock, securities, or currencies (the "Income Requirement"). Interest
(including original issue discount and "accrued market discount") received by a
Fund at maturity or on disposition of a security held for less than three months
will not be treated (in contrast to other income which is attributable to
realized market appreciation) as gross income from the sale or other disposition
of securities held for less than three months for this purpose.
In addition to the foregoing requirements, at the close of each quarter of
its taxable year, at least 50% of the value of each 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 a
Fund has not invested more than 5% of the value of its total assets in
securities of such issuer and as to which a Fund does not hold more than 10% of
the outstanding voting securities of such issuer) and no more than 25% of the
value of each Fund's 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 such Fund controls and
which are engaged in the same or similar trades or businesses.
If for any taxable year any Fund does not qualify as a regulated investment
company, all of its taxable income will be subject to tax at regular corporate
rates without any deduction for distributions to shareholders. In such event,
all distributions (whether or not derived from exempt-interest income) would be
taxable as ordinary income and would be eligible for the dividends received
deduction in the case of corporate shareholders to the extent of such Fund's
current and accumulated earnings and profits.
Although a Fund expects to qualify as a "regulated investment company" and
to be relieved of all or substantially all Federal income taxes, depending upon
the extent of its activities in states and localities in which its offices are
maintained, in which its agents or independent contractors are located or in
which it is otherwise deemed to be conducting business, a Fund may be subject to
the tax laws of such states or localities.
TAXATION OF FUND DISTRIBUTIONS
Distributions of net investment income received by a Fund from investments
in debt securities and any net realized short-term capital gains distributed by
a Fund will be taxable to shareholders as ordinary income and will not be
eligible for the dividends received deduction for corporations.
Each Fund intends to distribute to shareholders any excess of net long-term
capital gain over net short-term capital loss ("net capital gain") for each
taxable year. Such gain is distributed as a capital gain dividend and is
taxable to shareholders as gain from the sale or exchange of a capital asset
held for more than one year, regardless of the length of time a shareholder has
held his or her Fund shares and regardless of whether the distribution is paid
in cash or reinvested in shares. The Funds expect that capital gain dividends
will be taxable to shareholders as long-term gain. Capital gain dividends are
not eligible for the dividends received deduction.
In the case of corporate shareholders, distributions of a Fund for any
taxable year generally qualify for the dividends received deduction to the
extent of the gross amount of "qualifying dividends" received by such Fund for
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<PAGE>
the year and if certain holding period requirements are met. Generally, a
dividend will be treated as a "qualifying dividend" if it has been received from
a domestic corporation.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax. To
prevent imposition of the excise tax, a Fund must distribute during each
calendar year an amount equal to the sum of (1) at least 98% of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, (2) at least 98% of its capital gains in excess of its capital losses
(adjusted for certain ordinary losses, as prescribed by the Code) for the
one-year period ending on October 31 of the calendar year, and (3) any ordinary
income and capital gains for previous years that was not distributed during
those years. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by a Fund in October, November or
December with a record date in such a month and paid by a Fund during January of
the following calendar year. Such distributions will be taxable to shareholders
in the calendar year in which the distributions are declared, rather than the
calendar year in which the distributions are received. To prevent application
of the excise tax, a Fund intends to make its distributions in accordance with
the calendar year distribution requirement.
Shareholders will be advised annually as to the federal income tax
consequences of distributions made by the Funds each year.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and will be long-term short-term,
generally, depending upon the shareholder's holding period for the shares. Any
loss realized on a redemption, sale or exchange will be disallowed to the extent
the shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by
a shareholder on the sale of Fund shares held by the shareholder for six months
or less will be treated as a long-term capital loss to the extent of any
distributions of net capital gains received or treated as having been received
by the shareholder with respect to such shares and treated as long-term capital
gains. Furthermore, a loss realized by a shareholder on the redemption, sale or
exchange of shares of a Fund with respect to which exempt-interest dividends
have been paid will, to the extent of such exempt-interest dividends, be
disallowed if such shares have been held by the shareholder for six months or
less.
INFORMATION RELATING TO FOREIGN INVESTMENTS
Income received by a Fund from sources within foreign countries may be
subject to withholding and other foreign taxes. The payment of such taxes will
reduce the amount of dividends and distributions paid to the Funds'
shareholders. So long as a Fund qualifies as a regulated investment company,
certain distribution requirements are satisfied, and more than 50% of the value
of the Fund's assets at the close of the taxable year consists of securities of
foreign issuers, the Fund may elect, subject to limitation, to pass through its
foreign tax credits to its shareholders. The Fund may qualify for and make this
election in some, but not necessarily all, of its taxable years. If a Fund were
to make an election, an amount equal to the foreign income taxes paid by the
Fund would be included in the income of its shareholders and the shareholders
would be entitled to credit their portions of this amount against their U.S. tax
due, if any, or to deduct such portions from their U.S. taxable income, if any.
Shortly after any year for which it makes such an election, a Fund will report
to its shareholders, in writing, the amount per share of such foreign tax that
must be included in each shareholder's gross income and the amount which will be
available for deduction or credit. No deduction for foreign taxes may be
claimed by a shareholder who does not itemize deductions. Certain limitations
are imposed on the extent to which the credit (but not the deduction) for
foreign taxes may be claimed.
Shareholders who choose to utilize a credit (rather than a deduction) for
foreign taxes will be subject to limitations, including the restriction that the
credit may not exceed the shareholder's United States tax (determined
34
<PAGE>
without regard to the availability of the credit) attributable to his or her
total foreign source taxable income. For this purpose, the portion of dividends
and distributions paid by the Fund from its foreign source income will be
treated as foreign source income. The Fund's gains and losses from the sale of
securities will generally be treated as derived from United States sources and
certain foreign currency gains and losses likewise will be treated as derived
from United States sources. The limitation on the foreign tax credit is applied
separately to foreign source "passive income", such as the portion of dividends
received from the Fund which qualifies as foreign source income. In addition,
only a portion of the foreign tax credit will be allowed to offset any
alternative minimum tax imposed on corporations and individuals. Because of
these limitations, shareholders may be unable to claim a credit for the full
amount of their proportionate shares of the foreign income taxes paid by the
Fund.
Certain Funds may invest in shares of foreign corporations that may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least on-half of
its assets constitute investment-type assets, or 75% or more of its gross income
investment-type income. If a Fund receives a so-called "excess distribution"
with respect to PFIC stock, the Fund itself may be subject to a tax on a portion
of the excess distribution, whether or not the corresponding income is
distributed by the Fund to shareholders. In general, under the PFIC rules, an
excess distribution is treated as having been realized ratably over the period
during which the Fund held the PFIC shares. Each Fund will itself be subject to
tax on the portion, if any, of an excess distribution that is so allocated to
prior Fund taxable years and an interest factor will be added to the tax, as if
the tax had been payable in such prior taxable years. Certain distributions
from a PFIC as well as gain from the sale of PFIC shares are treated as excess
distributions. Excess distributions are characterized as ordinary income even
though, absent application of the PFIC rules, certain excess distributions might
have been classified as capital gain.
The Funds may be eligible to elect alternative tax treatment with respect
to PFIC shares. Under an election that currently is available in some
circumstances, a Fund generally would be required to include in its gross income
its share of the earnings of a PFIC on a current basis, regardless of whether
distributions were received from the PFIC in a given year. If this election
were made, the special rules, discussed above, relating to the taxation of
excess distributions, would not apply. In addition, another election would
involve marking to market the Fund's PFIC shares at the end of each taxable
year, with the result that unrealized gains would be treated as though they were
realized and reported as ordinary income. Any mark-to market losses and any
loss from an actual disposition of Fund shares would be deductible as ordinary
losses to the extent of any net mark-to-market gains included in income in prior
years.
Income received by a Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries.
INFORMATION RELATING TO FUND INVESTMENTS
TAXATION OF CERTAIN FINANCIAL INSTRUMENTS. Special rules govern the
Federal income tax treatment of financial instruments that may be held by some
of the Funds. These rules may have a particular impact on the amount of income
or gain that the Funds must distribute to their respective shareholders to
comply with the Distribution Requirement and on the income or gain qualifying
under the Income Requirement.
MARKET DISCOUNT. If a Fund purchases a debt security at a price lower than
the stated redemption price of such debt security, the excess of the stated
redemption price over the purchase price is "market discount". If the amount of
market discount is more than a de minimis amount, a portion of such market
discount must be included as ordinary income (not capital gain) by the Fund in
each taxable year in which the Fund owns an interest in such debt security and
receives a principal payment on it. In particular, the Fund will be required to
allocate that principal payment first to the portion of the market discount on
the debt security that has accrued but has not previously been includable in
income. In general, the amount of market discount that must be included for
each period is equal to the lesser of (i) the amount of market discount accruing
during such period (plus any accrued market discount for prior periods not
previously taken into account) or (ii) the amount of the principal payment with
respect to such period. Generally, market discount accrues on a daily basis for
each day the debt security is held by a Fund at a constant rate over the time
remaining to the debt security's maturity or, at the election of the Fund, at a
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<PAGE>
constant yield to maturity which takes into account the semi-annual compounding
of interest. Gain realized on the disposition of a market discount obligations
must be recognized as ordinary interest income (not capital gain) to the extent
of the "accrued market discount."
ORIGINAL ISSUE DISCOUNT. Certain debt securities acquired by the Funds may
be treated as debt securities that were originally issued at a discount. Very
generally, original issue discount is defined as the difference between the
price at which a security was issued and its stated redemption price at
maturity. Although no cash income on account of such discount is actually
received by a Fund, original issue discount that accrues on a debt security in a
given year generally is treated for federal income tax purposes as interest and,
therefore, such income would be subject to the distribution requirements
applicable to regulated investment companies.
Some debt securities may be purchased by the Fund at a discount that
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes
(see above).
HEDGING TRANSACTIONS. The taxation of equity options and over-the-counter
options on debt securities is governed by Code section 1234. Pursuant to Code
section 1234, the premium received by a Fund for selling a put or call option is
not included in income at the time of receipt. If the option expires, the
premium is short-term capital gain to the Fund. If the Fund enters into a
closing transaction, the difference between the amount paid to close out its
position and the premium received is short-term capital gain or loss. If a call
option written by a Fund is exercised, thereby requiring the Fund to sell the
underlying security, the premium will increase the amount realized upon the sale
of such security and any resulting gain or loss will be a capital gain or loss,
and will be long-term or short-term depending upon the holding period of the
security. With respect to a put or call option that is purchased by a Fund, if
the option is sold, any resulting gain or loss will be a capital gain or loss,
and will be long-term or short-term, depending upon the holding period of the
option. If the option expires, the resulting loss is a capital loss and is
long-term or short-term, depending upon the holding period of the option. If
the option is exercised, the cost of the option, in the case of a call option,
is added to the basis of the purchased security and, in the case of a put
option, reduces the amount realized on the underlying security in determining
gain or loss.
Any regulated futures and foreign currency contracts and certain options
(namely, nonequity options and dealer equity options) in which a Fund may invest
may be "section 1256 contracts." Gains or losses on section 1256 contracts are
generally considered 60% long-term and 40% short-term capital gains or losses;
however, foreign currency gains or losses arising from certain section 1256
contracts may be treated as ordinary income or loss. Also, section, 1256
contracts held by a Fund at the end of each taxable year (and generally for
purposes of the 4% excise tax, on October 31 of each year) are
"marked-to-market" with the result that unrealized gains or losses are treated
as though they were realized.
Generally, hedging transactions, if any, undertaken by a Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by the Funds. In addition, losses
realized by a Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which such losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences of hedging transactions to the Funds are not
entirely clear. The hedging transactions may increase the amount of short-term
capital gain realized by the Funds which is taxed as ordinary income when
distributed to shareholders.
The Funds may make one or more of the elections available under the Code
which are applicable to straddles. If a Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections
may operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of gains
or losses, defer losses and/or accelerate the recognition of gains or losses
from the affected straddle positions, the amount which must be
36
<PAGE>
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not engage in such hedging transactions.
The diversification requirements applicable to the Funds' assets may limit
the extent to which the Funds will be able to engage in transactions in options,
futures or forward contracts.
CONSTRUCTIVE SALES. Recently enacted rules may affect the timing and
character of gain if a Fund engages in transactions that reduce or eliminate its
risk of loss with respect to appreciated financial positions. If the Fund
enters into certain transactions in property while holding substantially
identical property, the Fund would be treated as if it had sold and immediately
repurchased the property and would be taxed on any gain (but not loss) from the
constructive sale. The character of gain from a constructive sale would depend
upon the Fund's holding period in the property. Loss from a constructive sale
would be recognized when the property was subsequently disposed of, and its
character would depend on the Fund's holding period and the application of
various loss deferral provisions of the Code.
CURRENCY FLUCTUATIONS - "SECTION 988" GAINS OR LOSSES. Under the Code,
gains or losses attributable to fluctuations in exchange rates which occur
between the time a Fund accrues receivables or liabilities denominated in a
foreign currency and the time the Fund actually collects such receivables or
pays such liabilities generally are treated as ordinary income and loss.
Similarly, on disposition of debt securities denominated in a foreign currency
and on disposition of certain futures, forward contracts and options, gains or
losses attributable to fluctuations in the value of the foreign currency between
the date of acquisition of the security or contract and the date of disposition
also may be treated as ordinary gain or loss. These gains or losses, referred
to under the Code as "Section 988" gains or losses, may increase or decrease the
amount of a Fund's investment company taxable income to be distributed to its
shareholders as ordinary income.
BACKUP WITHHOLDING
The RWB Funds will be required in certain cases to withhold and remit to
the United States Treasury 31% of taxable distributions, including gross
proceeds realized upon sale or other dispositions paid to any shareholder (i)
who has provided an incorrect tax identification number or no number at all,
(ii) who is subject to backup withholding by the Internal Revenue Service for
failure to report the receipt of taxable interest or dividend income properly,
or (iii) who has failed to certify that he is not subject to backup withholding
or that he is an "exempt recipient."
OTHER TAXATION
The foregoing discussion relates only to U.S. federal income tax law and
certain state taxes as applicable to U.S. persons (i.e., U.S. citizens and
residents and domestic corporations, partnerships, trusts and estates).
Distributions by the Funds, and dispositions of Fund shares also may be subject
to other state and local taxes, and their treatment under state and local income
tax laws may differ from the U.S. federal income tax treatment. Shareholders
should consult their tax advisers with respect to particular questions of U.S.
federal, state and local taxation. Shareholders who are not U.S. persons should
consult their tax advisers regarding U.S. and foreign tax consequences of
ownership of shares of the Fund, including the likelihood that distributions to
them would be subject to withholding of U.S. federal income tax at a rate of 30%
(or at a lower rate under a tax treaty). 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 with
respect to the transactions contemplated herein.
PERFORMANCE INFORMATION
The 30-day (or one month) standard yield described in the Prospectus is
calculated for each Fund in accordance with the method prescribed by the SEC for
mutual funds:
6
YIELD = 2 [( a-b + 1) - 1]
----
cd
37
<PAGE>
Where:
a = dividends and interest earned by a Fund during the period;
b = expenses accrued for the period (net of reimbursements and waivers);
c = average daily number of shares outstanding during the period entitled
to receive dividends;
d = maximum offering price per share on the last day of the period.
For the purpose of determining interest earned on debt obligations
purchased by a Fund at a discount or premium (variable "a" in the formula), each
Fund computes the yield to maturity of such instrument based on the market value
of the obligation (including actual accrued interest) at the close of business
on the last business day of each month, or, with respect to obligations
purchased during the month, the purchase price (plus actual accrued interest).
Such yield is then divided by 360 and the quotient is multiplied by the market
value of the obligation (including actual accrued interest) in order to
determine the interest income on the obligation for each day of the subsequent
month that the obligation is in the portfolio. It is assumed in the above
calculation that each month contains 30 days. The maturity of a debt obligation
with a call provision is deemed to be the next call date on which the obligation
reasonably may be expected to be called or, if none, the maturity date. For the
purpose of computing yield on equity securities held by a Fund, dividend income
is recognized by accruing 1/360 of the stated dividend rate of the security for
each day that the security is held by the Fund.
Interest earned on tax-exempt obligations that are issued without original
issue discount and have a current market discount is calculated by using the
coupon rate of interest instead of the yield to maturity. In the case of
tax-exempt obligations that are issued with original issue discount but which
have discounts based on current market value that exceed the then-remaining
portion of the original issue discount (market discount), the yield to maturity
is the imputed rate based on the original issue discount calculation. On the
other hand, in the case of tax-exempt obligations that are issued with original
issue discount but which have the discounts based on current market value that
are less than the then-remaining portion of the original issue discount (market
premium), the yield to maturity is based on the market value.
With respect to mortgage or other receivables-backed debt obligations
purchased at a discount or premium, the formula generally calls for amortization
of the discount or premium. The amortization schedule will be adjusted monthly
to reflect changes in the market value of such debt obligations. Expenses
accrued for the period (variable "b" in the formula) include all recurring fees
charged by a Fund to all shareholder accounts in proportion to the length of the
base period and the Fund's mean (or median) account size. Undeclared earned
income will be subtracted from the offering price per share (variable "d" in the
formula).
Each Fund that advertises its "average annual total return" computes such
return by determining the average annual compounded rate of return during
specified periods that equates the initial amount invested to the ending
redeemable value of such investment according to the following formula:
n
P (1 + T) = ERV
Where:
T = average annual total return
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 or 10 year (or other) periods at the end of the
applicable period (or a fractional portion thereof)
P = hypothetical initial payment of $1,000
n = period covered by the computation, expressed in years.
38
<PAGE>
Each Fund that advertises its "aggregate total return" computes such
returns by determining the aggregate compounded rates of return during specified
periods that likewise equate the initial amount invested to the ending
redeemable value of such investment. The formula for calculating aggregate
total return is as follows:
(ERV) - 1
----
Aggregate Total Return = P
The calculations are made assuming that (1) all dividends and capital gain
distributions are reinvested on the reinvestment dates at the price per share
existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all non-recurring charges at the end of the
measuring period.
The performance of any investment is generally a function of portfolio
quality and maturity, type of investment and operating expenses.
From time to time, in advertisements or in reports to shareholders, a
Fund's yields or total returns may be quoted and compared to those of other
mutual funds with similar investment objectives and to stock or other relevant
indices.
FINANCIAL STATEMENTS
The Financial Statements for the RWB Funds at , 1999 including the
notes thereto and the report of PricewaterhouseCoopers LLP thereon are contained
in the SAI on the following pages.
39
<PAGE>
APPENDIX A
- RATED INVESTMENTS -
CORPORATE BONDS
Excerpts from MOODY'S INVESTORS SERVICES, INC. ("MOODY'S") description of
its bond ratings:
"Aaa":
Bonds that 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 edge." 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 that 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 risks appear somewhat larger than in "Aaa" securities.
"A":
Bonds that 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
sometime in the future.
"Baa":
Bonds that are rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appears 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 that are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
"B":
Bonds that are rated "B" generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
"Caa":
Bonds that are rated "Caa" are of poor standing. These issues may be in
default or present elements of danger may exist with respect to principal
or interest.
Moody's applies numerical modifiers (1, 2 and 3) with respect to bonds
rated "Aa" through "B". The modifier 1 indicates that the bond being rated
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the bond ranks in the
lower end of its generic rating category.
A-1
<PAGE>
Excerpts from STANDARD & POOR'S CORPORATION ("S&P") description of its bond
ratings:
"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 "AAA" issues by a 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.
"BBB":
Bonds rated "BBB" are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit 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 bonds in this category than for bonds
in higher rated categories.
"BB", "B" AND "CCC":
Bonds rated "BB" and "B" are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal
in accordance with the terms of the obligations. "BB" represents a
lower degree of speculation than "B" and "CCC" the highest degree of
speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions.
To provide more detailed indications of credit quality, the "AA" or "A"
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
COMMERCIAL PAPER
The rating "PRIME-1" is the highest commercial paper rating assigned by
MOODY'S. These issues (or related supporting institutions) are considered to
have a superior capacity for repayment of short-term promissory obligations.
Issues rated "PRIME-2" (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics of "Prime-1" rated issues, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Commercial paper ratings of S&P are current assessments of the likelihood
of timely payment of debt having original maturities of no more than 365 days.
Commercial paper rated "A-1" by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted "A-1+."
Commercial paper rated "A-2" by S&P indicates that capacity for timely payment
is strong. However, the relative degree of safety is not as high as for issues
designated "A-1."
A-2
<PAGE>
APPENDIX A
- RATED INVESTMENTS -
COMMERCIAL PAPER
MOODY'S: The rating "PRIME-1" is the highest commercial paper rating
category assigned by Moody's. These issues (or related supporting institutions)
are considered to have a superior capacity for repayment of short-term
promissory obligations.
S&P: Commercial paper ratings of S&P are current assessments of the
likelihood of timely payment of debts having original maturities of no more than
365 days. Commercial paper rated in the "A-1" category by S&P indicates that
the degree of safety regarding timely payment is either overwhelming or very
strong. Those issues determined to possess overwhelming safety characteristics
are denoted "A-1+".
A-3
<PAGE>
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Declaration of Trust
(b) By-laws
(c) Not Applicable
(d) (i) Investment Advisory Agreement with RWB Advisory Services Inc. *
(ii) Investment Sub-Advisory Agreement with Dimensional Fund Advisors,
Inc. *
(e) Distribution Agreement with RWB Securities Inc. *
(f) Not Applicable
(g) Custodian Agreement *
(h) (i) Administration Agreement *
(ii) Sub-Administration Agreement with State Street Bank and Trust
Company *
(iii) Transfer Agency and Service Agreement *
(iv) Shareholder Servicing Agreement *
(i) Opinion and Consent of Paul, Hastings, Janovsky & Walker LLP *
(j) (i) Consent of PricewaterhouseCoopers, LLP *
(ii) Opinion of PricewaterhouseCoopers, LLP *
(k) Not Applicable
(l) Initial Capital Agreement *
(m) Not Applicable
(n) Not Applicable
(o) Multi-Class Plan *
(p) Not Applicable
-----------------------
* To be filed by amendment
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
Not applicable.
ITEM 25. INDEMNIFICATION
Indemnification of Registrant's principal underwriter against certain
losses is provided for in the Distribution Agreement incorporated herein by
reference to Exhibit [e] hereto.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of
Registrant, Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by
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
<PAGE>
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
The Trustees shall not be responsible or liable in any event for any
neglect or wrong-doing of any officer, agent, employee, Investment Adviser or
principal underwriter of the Trust, nor shall any Trustee be responsible for the
act or omission of any other Trustee, and the Trust out of its assets shall
indemnify and hold harmless each and every Trustee from and against any and all
claims, demands and expenses (including reasonable attorneys' fees) whatsoever
arising out of or related to each Trustee's performance of his or her duties as
a Trustee of the Trust; provided that nothing herein contained shall indemnify,
hold harmless or protect any Trustee from or against any liability to the Trust
or any Shareholder to which he or she would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office.
Every note, bond, instrument, certificate or undertaking and every other
act or thing whatsoever issued, executed or done by or on behalf of the Trust or
the Trustees or any of them in connection with the Trust shall be conclusively
deemed to have been issued, executed or done only in or with respect to their or
his or her capacity as Trustees or Trustee, and such Trustees or Trustee shall
not be personally liable thereon.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
RWB Advisory Services Inc. performs investment advisory services for Registrant
and institutional and individual investors.
Dimensional Fund Advisors Inc. performs investment advisory services for
Registrant and other investment companies and institutional and individual
investors.
See the information concerning RWB Advisory Services Inc. and Dimensional Fund
Advisors Inc. set forth in Parts A and B of this Registration Statement.
RWB Advisory Services Inc. and Dimensional Fund Advisors Inc. are both
investment advisers registered under the Investment Advisers Act of 1940, as
amended (the "Advisers Act"). The list required by this Item 26 of directors,
officers or partners of RWB Advisory Services Inc. and Dimensional Fund Advisors
Inc., together with any information as to any business profession, vocation or
employment of a substantial nature engaged in by such directors, officers or
partners during the past two years, is incorporated herein by reference from
Schedules B and D of Forms ADV filed by RWB Advisory Services Inc. and
Dimensional Fund Advisors Inc. pursuant to the Advisers Act (SEC File Nos.
801-55934 and 801-16283).
<PAGE>
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Not Applicable
(b)
(1) (2) (3)
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH FUND
John J. Bowen, Jr. Chief Executive Officer, Chief Executive Officer,
RWB Securities Inc. Registered Principal and President and Trustee
1190 Saratoga Avenue President
Suite 200
San Jose, CA 95129
(c) Not Applicable
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
The following entities prepare, maintain and preserve the records required by
Section 31(a) of the 1940 Act for the Registrant. These services are provided to
the Registrant through written agreements between the parties to the effect that
such records will be maintained on behalf of the Registrant for the periods
prescribed by the rules and regulations of the Commission under the 1940 Act and
that such records are the property of the entity required to maintain and
preserve such records and will be surrendered promptly on request:
(1) RWB Advisory Services Inc.
1190 Saratoga Avenue, Suite 200
San Jose, California 95129
(2) Dimensional Fund Advisors Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
(3) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(4) Boston Financial Data Services, Inc.
Two Heritage Drive
North Quincy, Massachusetts 02171
ITEM 29. MANAGEMENT SERVICES
Not Applicable.
ITEM 30. UNDERTAKING
Not Applicable
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
23(a) Declaration of Trust
23(b) By-laws
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant has duly caused
this registration statement to be signed on its behalf by the undersigned, duly
authorized, in the City of San Jose and the State of California, on the 11th day
of January, 1999.
RWB FUNDS - INVESTMENT TRUST
By: /s/John J. Bowen, Jr.
---------------------
John J. Bowen, Jr.
President and Chief Executive Officer
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following person in the
capacities and on the date indicated:
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ John J. Bowen, Jr. Trustee January 11, 1999
- -----------------------
John J. Bowen, Jr.
/s/ Michael Clinton Treasurer and Chief January 11, 1999
- ----------------------- Financial and Accounting
Michael Clinton Officer
<PAGE>
AGREEMENT AND DECLARATION OF TRUST
of
RWB FUNDS -- INVESTMENT TRUST
a Delaware Business Trust
Principal Place of Business:
Reinhardt Werba Bowen
1190 Saratoga Avenue, Suite 200
San Jose, California 95129
<PAGE>
TABLE OF CONTENTS
RWB FUNDS -- INVESTMENT TRUST
AGREEMENT AND DECLARATION OF TRUST
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I Name and Definitions. . . . . . . . . . . . . . . . . . . . . .1
1. Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
(a) Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
(b) Trust Property. . . . . . . . . . . . . . . . . . . . . . . . .1
(c) Trustees. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
(d) Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
(e) Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . .2
(f) Person. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
(g) Investment Company Act. . . . . . . . . . . . . . . . . . . . .2
(h) Commission and Principal Underwriter. . . . . . . . . . . . . .2
(i) Declaration of Trust. . . . . . . . . . . . . . . . . . . . . .2
(j) By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
(k) Interested Person . . . . . . . . . . . . . . . . . . . . . . .2
(l) Investment Adviser. . . . . . . . . . . . . . . . . . . . . . .2
(m) Series. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
ARTICLE II Purpose of Trust. . . . . . . . . . . . . . . . . . . . . . . .2
ARTICLE III Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
1. Division of Beneficial Interest. . . . . . . . . . . . . . . . . . .3
2. Ownership of Shares. . . . . . . . . . . . . . . . . . . . . . . . .3
3. Investments in the Trust . . . . . . . . . . . . . . . . . . . . . .4
4. Status of Shares and Limitation of Personal Liability . . . . . . .4
5. Power of Board of Trustees to Change Provisions Relating to Shares .4
6. Establishment and Designation of Series. . . . . . . . . . . . . . .5
(a) Assets With Respect to a Particular Series. . . . . . . . . . .5
(b) Liabilities Held With Respect to a Particular Series. . . . . .6
(c) Dividends, Distributions, Redemptions and Repurchases . . . . .6
-i-
<PAGE>
(d) Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
(e) Equality. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
(f) Fractions . . . . . . . . . . . . . . . . . . . . . . . . . . .7
(g) Exchange Privilege. . . . . . . . . . . . . . . . . . . . . . .7
(h) Combination of Series . . . . . . . . . . . . . . . . . . . . .7
(i) Elimination of Series . . . . . . . . . . . . . . . . . . . . .7
7. Indemnification of Shareholders. . . . . . . . . . . . . . . . . . .7
ARTICLE IV The Board of Trustees . . . . . . . . . . . . . . . . . . . . .7
1. Number, Election and Tenure. . . . . . . . . . . . . . . . . . . . .7
2. Effect of Death, Resignation, etc., of a Trustee . . . . . . . . . .8
3. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
4. Payment of Expenses by the Trust . . . . . . . . . . . . . . . . . 11
5. Payment of Expenses by Shareholders. . . . . . . . . . . . . . . . 12
6. Ownership of Assets of the Trust . . . . . . . . . . . . . . . . . 12
7. Service Contracts. . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE V Shareholders' Voting Powers and Meetings. . . . . . . . . . . 14
1. Voting Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2. Voting Power and Meetings. . . . . . . . . . . . . . . . . . . . . 14
3. Quorum and Required Vote . . . . . . . . . . . . . . . . . . . . . 14
4. Action by Written Consent. . . . . . . . . . . . . . . . . . . . . 15
5. Record Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6. Additional Provisions. . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VI Net Asset Value, Distributions, and Redemptions. . . . . . . 16
1. Determination of Net Asset Value, Net Income and Distributions . . 16
2. Redemptions and Repurchases. . . . . . . . . . . . . . . . . . . . 16
3. Redemptions at the Option of the Trust . . . . . . . . . . . . . . 16
ARTICLE VII Compensation and Limitation of Liability of Trustees. . . . . 17
1. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2. Indemnification and Limitation of Liability. . . . . . . . . . . . 17
3. Trustee's Good Faith Action, Expert Advice, No Bond or Surety. . . 17
4. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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ARTICLE VIII Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 18
1. Liability of Third Persons Dealing with Trustees . . . . . . . . . 18
2. Termination of Trust or Series . . . . . . . . . . . . . . . . . . 18
3. Merger and Consolidation . . . . . . . . . . . . . . . . . . . . . 19
4. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5. Filing of Copies, References, Headings . . . . . . . . . . . . . . 19
6. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7. Provisions in Conflict with Law or Regulations . . . . . . . . . . 20
8. Business Trust Only. . . . . . . . . . . . . . . . . . . . . . . . 20
9. Use of the Identifying Words "RWB Funds -- Investment Trust" . . . 20
</TABLE>
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AGREEMENT AND DECLARATION OF TRUST
OF
RWB FUNDS -- INVESTMENT TRUST
WHEREAS, THIS AGREEMENT AND DECLARATION OF TRUST is made and entered
into as of the date set forth below by the Trustees named hereunder for the
purpose of forming a Delaware business trust in accordance with the provisions
hereinafter set forth,
NOW, THEREFORE, the Trustees hereby direct that a Certificate of Trust
be filed with Office of the Secretary of State of the State of Delaware and do
hereby declare that the Trustees will hold IN TRUST all cash, securities and
other assets which the Trust now possesses or may hereafter acquire from time to
time in any manner and manage and dispose of the same upon the following terms
and conditions for the pro rata benefit of the holders of Shares in this Trust.
ARTICLE I
Name and Definitions
SECTION 1. NAME. This Trust shall be known as RWB Funds --
Investment Trust, and the Trustees shall conduct the business of the Trust under
that name or any other name as they may from time to time determine.
SECTION 2. DEFINITIONS. Whenever used herein, unless otherwise
required by the context or specifically provided:
(a) The "Trust" refers to the Delaware business trust established by
this Agreement and Declaration of Trust, as amended from time to time;
(b) The "Trust Property" means any and all property, real or
personal, tangible or intangible, which is owned or held by or for the account
of the Trust, including without limitation the rights referenced in Article
VIII, Section 9 hereof;
(c) "Trustees" refers to the persons who have signed this Agreement
and Declaration of Trust, so long as they continue in office in accordance with
the terms hereof, and all other persons who may from time to time be duly
elected or appointed to serve on the Board of Trustees in accordance with the
provisions hereof, and reference herein to a Trustee or the Trustees shall refer
to such person or persons in their capacity as trustees hereunder;
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(d) "Shares" means the shares of beneficial interest into which the
beneficial interest in the Trust shall be divided from time to time and includes
fractions of Shares as well as whole Shares;
(e) "Shareholder" means a record owner of outstanding Shares;
(f) "Person" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures, estates and other entities,
whether or not legal entities, and governments and agencies and political
subdivisions thereof, whether domestic or foreign;
(g) The "Investment Company Act" refers to the Investment Company Act
of 1940 and the Rules and Regulations thereunder, all as amended from time to
time;
(h) The terms "Commission" and "Principal Underwriter" shall have the
meanings given them in the Investment Company Act;
(i) "Declaration of Trust" shall mean this Agreement and Declaration
of Trust, as amended or restated from time to time;
(j) "By-Laws" shall mean the By-Laws of the Trust as amended from
time to time and incorporated herein by reference;
(k) The term "Interested Person" has the meaning given it in the
Investment Company Act;
(l) "Investment Adviser" or "Manager" means a party furnishing
services to the Trust pursuant to any contract described in Article IV, Section
7(a) hereof; and
(m) "Series" refers to each Series of Shares established and
designated under or in accordance with the provisions of Article III.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to conduct, operate and carry on the
business of a management investment company registered under the Investment
Company Act through one or more Series investing primarily in securities.
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ARTICLE III
Shares
SECTION 1. DIVISION OF BENEFICIAL INTEREST. The beneficial interest
in the Trust shall at all times be divided into an unlimited number of Shares,
with a par value of $ .01 per Share. The Trustees may authorize the division of
Shares into separate Series and the division of Series into separate classes of
Shares. The different Series shall be established and designated, and the
variations in the relative rights and preferences as between the different
Series shall be fixed and determined, by the Trustees. If only one or no Series
(or classes) shall be established, the Shares shall have the rights and
preferences provided for herein and in this Article III, Section 6 hereof to the
extent relevant and not otherwise provided for herein, and all references to
Series (and classes) shall be construed (as the context may require) to refer to
the Trust.
Subject to the provisions of Section 6 of this Article III, each Share
shall have voting rights as provided in Article V hereof, and holders of the
Shares of any Series shall be entitled to receive dividends when, if and as
declared with respect thereto in the manner provided in Article VI, Section 1
hereof. No Share shall have any priority or preference over any other Share of
the same Series with respect to dividends or distributions upon termination of
the Trust or of such Series made pursuant to Article VIII, Section 2 hereof.
All dividends and distributions shall be made ratably among all Shareholders of
a particular class of a particular Series and, if no classes, of a particular
Series from the assets held with respect to such Series according to the number
of Shares of such class of such Series or of such Series held of record by such
Shareholder on the record date for any dividend or distribution or on the date
of termination, as the case may be. Shareholders shall have no preemptive or
other right to subscribe to any additional Shares or other securities issued by
the Trust or any Series. The Trustees may from time to time divide or combine
the Shares of any particular Series into a greater or lesser number of Shares of
that Series without thereby materially changing the proportionate beneficial
interest of the Shares of that Series in the assets held with respect to that
Series or materially affecting the rights of Shares of any other Series.
SECTION 2. OWNERSHIP OF SHARES. The ownership of Shares shall be
recorded on the books of the Trust or a transfer or similar agent for the Trust,
which books shall be maintained separately for the Shares of each Series (or
class of each Series). No certificates certifying the ownership of Shares shall
be issued except as the Board of Trustees may otherwise determine from time to
time. The Trustees may make such rules as they consider appropriate for the
transfer of Shares of each Series (or class of each Series) and similar matters.
The record books of the Trust as kept by the Trust or any transfer or similar
agent, as the case may be, shall be conclusive as to the identity of the
Shareholders of each Series (or class of each Series) and as to the number of
Shares of each Series (or class) held from time to time by each.
SECTION 3. INVESTMENTS IN THE TRUST. Investments may be accepted by
the Trust from such Persons, at such times, on such terms, and for such
consideration as the Trustees from time to time may authorize.
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SECTION 4. STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY.
Shares shall be deemed to be personal property giving only the rights provided
in this instrument. Every Shareholder, by virtue of having become a
Shareholder, shall be held to have expressly assented and agreed to the terms
hereof and to have become a party hereto. The death of a Shareholder during the
existence of the Trust shall not operate to terminate the Trust, nor entitle the
representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but entitles
such representative only to the rights of said deceased Shareholder under this
Trust. Ownership of Shares shall not entitle the Shareholder to any title in or
to the whole or any part of the Trust Property or right to call for a partition
or division of the same or for an accounting, nor shall the ownership of Shares
constitute the Shareholders as partners. Neither the Trust nor the Trustees,
nor any officer, employee or agent of the Trust shall have any power to bind
personally any Shareholder, nor, except as specifically provided herein, 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.
SECTION 5. POWER OF BOARD OF TRUSTEES TO CHANGE PROVISIONS RELATING
TO SHARES. Notwithstanding any other provision of this Declaration of Trust and
without limiting the power of the Board of Trustees to amend the Declaration of
Trust as provided elsewhere herein, the Board of Trustees shall have the power
to amend this Declaration of Trust, at any time and from time to time, in such
manner as the Board of Trustees may determine in their sole discretion, without
the need for Shareholder action, so as to add to, delete, replace or otherwise
modify any provisions relating to the Shares contained in this Declaration of
Trust, provided that before adopting any such amendment without Shareholder
approval the Board of Trustees shall determine that it is consistent with the
fair and equitable treatment of all Shareholders or that Shareholder approval is
not otherwise required by the Investment Company Act or other applicable law.
If Shares have been issued, Shareholder approval shall be required to adopt any
amendments to this Declaration of Trust that would adversely affect to a
material degree the rights and preferences of the Shares of any Series (or class
of any Series) or to increase or decrease the par value of the Shares of any
Series (or class of any Series).
Subject to the foregoing Paragraph, the Board of Trustees may amend
the Declaration of Trust to amend any of the provisions set forth in paragraphs
(a) through (i) of Section 6 of this Article III.
SECTION 6. ESTABLISHMENT AND DESIGNATION OF SERIES. The establishment
and designation of any Series (or class) of Shares shall be effective upon the
resolution by a majority of the then Trustees, adopting a resolution that sets
forth such establishment and designation and the relative rights and preferences
of such Series (or class). Each such resolution shall be incorporated herein by
reference upon adoption.
Shares of each Series (or class) established pursuant to this
Section 6, unless otherwise provided in the resolution establishing such
Series, shall have the following relative rights and preferences:
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(a) ASSETS HELD WITH RESPECT TO A PARTICULAR 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 from
whatever source derived, including, without limitation, any proceeds derived
from the sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same may be,
shall irrevocably be held with respect to that Series for all purposes, subject
only to the rights of creditors, and shall be so recorded upon the books of
account of the Trust. Such consideration, assets, income, earnings, profits and
proceeds thereof, from whatever source derived, including, without limitation,
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, are herein referred to as "assets held with
respect to" that Series. In the event that there are any assets, income,
earnings, profits and proceeds thereof, funds or payments which are not readily
identifiable as assets held with respect to any particular Series (collectively
"General Assets"), the Trustees shall allocate such General Assets to, between
or among any one or more of the Series in such manner and on such basis as the
Trustees, in their sole discretion, deem fair and equitable, and any General
Asset so allocated to a particular Series shall be held with respect to that
Series. Each such allocation by the Trustees shall be conclusive and binding
upon the Shareholders of all Series for all purposes.
(b) LIABILITIES HELD WITH RESPECT TO A PARTICULAR SERIES. The assets
of the Trust held with respect to each particular Series shall be charged
against the liabilities of the Trust held with respect to that Series and all
expenses, costs, charges and reserves attributable to that Series, and any
general liabilities of the Trust which are not readily identifiable as being
held with respect to any particular Series shall be allocated and charged by the
Trustees to and among any one or more of the Series in such manner and on such
basis as the Trustees in their sole discretion deem fair and equitable. The
liabilities, expenses, costs, charges, and reserves so charged to a Series are
herein referred to as "liabilities held with respect to" that Series. Each
allocation of liabilities, expenses, costs, charges and reserves by the Trustees
shall be conclusive and binding upon the holders of all Series for all purposes.
All Persons who have extended credit which has been allocated to a particular
Series, or who have a claim or contract which has been allocated to any
particular Series, shall look, and shall be required by contract to look
exclusively, to the assets of that particular Series for payment of such credit,
claim, or contract. In the absence of an express contractual agreement so
limiting the claims of such creditors, claimants and contract providers, each
creditor, claimant and contract provider will be deemed nevertheless to have
impliedly agreed to such limitation unless an express provision to the contrary
has been incorporated in the written contract or other document establishing the
claimant relationship.
(c) DIVIDENDS, DISTRIBUTIONS, REDEMPTIONS AND REPURCHASES.
Notwithstanding any other provisions of this Declaration of Trust, including,
without limitation, Article VI, no dividend or distribution including, without
limitation, any distribution paid upon termination of the Trust or of any Series
(or class) with respect to, nor any redemption or repurchase of, the Shares of
any Series (or class) shall be effected by the Trust other than from the assets
held with respect to such Series, nor, except as specifically provided in
Section 7 of
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this Article III, shall any Shareholder of any particular Series otherwise have
any right or claim against the assets held with respect to any other Series
except to the extent that such Shareholder has such a right or claim hereunder
as a Shareholder of such other Series. The Trustees shall have full discretion,
to the extent not inconsistent with the Investment Company Act, to determine
which items shall be treated as income and which items as capital; and each such
determination and allocation shall be conclusive and binding upon the
Shareholders.
(d) VOTING. All Shares of the Trust entitled to vote on a matter
shall vote separately by Series (and, if applicable, by class): that is, the
Shareholders of each Series (or class) shall have the right to approve or
disapprove matters affecting the Trust and each respective Series (or class) as
if the Series (or classes) were separate companies. There are, however, two
exceptions to voting by separate Series (or classes). First, if the Investment
Company Act requires all Shares of the Trust to be voted in the aggregate
without differentiation between the separate Series (or classes), then all the
Trust's Shares shall be entitled to vote on the basis of one vote for each
dollar of net asset value per share. Second, if any matter affects only the
interests of some but not all Series (or classes), then only the Shareholders of
such affected Series (or classes) shall be entitled to vote on the matter.
(e) EQUALITY. All the Shares of each particular Series shall
represent an equal proportionate interest in the assets held with respect to
that Series (subject to the liabilities held with respect to that Series and
such rights and preferences as may have been established and designated with
respect to classes of Shares within such Series), and each Share of any
particular Series shall be equal to each other Share of that Series.
(f) FRACTIONS. Any fractional Share of a Series shall carry
proportionately all the rights and obligations of a whole share of that Series,
including rights with respect to voting, receipt of dividends and distributions,
redemption of Shares and termination of the Trust.
(g) EXCHANGE PRIVILEGE. The Trustees shall have the authority to
provide that the holders of Shares of any Series shall have the right to
exchange said Shares for Shares of one or more other Series of Shares in
accordance with such requirements and procedures as may be established by the
Trustees.
(h) COMBINATION OF SERIES. The Trustees shall have the authority,
without the approval of the Shareholders of any Series unless otherwise required
by applicable law, to combine the assets and liabilities held with respect to
any two or more Series into assets and liabilities held with respect to a single
Series.
(i) ELIMINATION OF SERIES. At any time that there are no Shares
outstanding of any particular Series (or class) previously established and
designated or such other time and such manner not prohibited by the Investment
Company Act or other applicable law, the Trustees may by resolution of a
majority of the then Trustees abolish that Series (or class) and rescind the
establishment and designation thereof.
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SECTION 7. INDEMNIFICATION OF SHAREHOLDERS. If any Shareholder or
former Shareholder shall be exposed to liability by reason of a claim or demand
relating to his or her being or having been a Shareholder, and not because of
his or her acts or omissions, the Shareholder or former Shareholder (or his or
her heirs, executors, administrators, or other legal representatives or in the
case of a corporation or other entity, its corporate or other general successor)
shall be entitled to be held harmless from and indemnified out of the assets of
the applicable Series of the Trust against all loss and expense arising from
such claim or demand.
ARTICLE IV
The Board of Trustees
SECTION 1. NUMBER, ELECTION AND TENURE. The number of Trustees
constituting the Board of Trustees shall be fixed from time to time by a written
instrument signed, or by resolution approved at a duly constituted meeting, by a
majority of the Board of Trustees, provided, however, that the number of
Trustees shall in no event be less than one (1) nor more than fifteen (15). The
Board of Trustees, by action of a majority of the then Trustees at a duly
constituted meeting, may fill vacancies in the Board of Trustees or remove
Trustees with or without cause. Each Trustee shall serve during the continued
lifetime of the Trust until he or she dies, resigns, is declared bankrupt or
incompetent by a court of appropriate jurisdiction, or is removed, or, if
sooner, until the next meeting of Shareholders called for the purpose of
electing Trustees and until the election and qualification of his or her
successor. Any Trustee may resign at any time by written instrument signed by
him or her and delivered to any officer of the Trust or to a meeting of the
Trustees. Such resignation shall be effective upon receipt unless specified to
be effective at some other time. Except to the extent expressly provided in a
written agreement with the Trust, no Trustee resigning and no Trustee removed
shall have any right to any compensation for any period following his or her
resignation or removal, or any right to damages on account of such removal. The
Shareholders may fix the number of Trustees and elect Trustees at any meeting of
Shareholders called by the Trustees for that purpose. Any Trustee may be
removed at any meeting of Shareholders by a vote of two-thirds of the
outstanding Shares of the Trust. A meeting of Shareholders for the purpose of
electing or removing one or more Trustees may be called (i) by the Trustees upon
their own vote, or (ii) upon the demand of Shareholders owning 10% or more of
the Shares of the Trust in the aggregate.
SECTION 2. EFFECT OF DEATH, RESIGNATION, ETC. OF A TRUSTEE. The
death, declination, resignation, retirement, removal, or incapacity of one or
more Trustees, or all of them, shall not operate to annul the Trust or to revoke
any existing agency created pursuant to the terms of this Declaration of Trust.
Whenever a vacancy in the Board of Trustees shall occur, until such vacancy is
filled as provided in this Article IV, Section l, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by this Declaration
of Trust. As conclusive evidence of such vacancy, a written instrument
certifying the existence of such vacancy may be executed by an officer of the
Trust or by a majority of the Board of Trustees. In the event of the death,
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declination, resignation, retirement, removal, or incapacity of all the then
Trustees within a short period of time and without the opportunity for at least
one Trustee being able to appoint additional Trustees to fill vacancies, the
Trust's Investment Adviser(s) are empowered to appoint new Trustees subject to
the provisions of Section 16(a) of the Investment Company Act.
SECTION 3. POWERS. Subject to the provisions of this Declaration of
Trust, the business of the Trust shall be managed by the Board of Trustees, and
such Board shall have all powers necessary or convenient to carry out that
responsibility, including the power to engage in securities transactions of all
kinds on behalf of the Trust. Without limiting the foregoing, the Trustees may:
adopt By-Laws not inconsistent with this Declaration of Trust providing for the
regulation and management of the affairs of the Trust and may amend and repeal
them to the extent that such By-Laws do not reserve that right to the
Shareholders; fill vacancies in or remove from their number, and may elect and
remove such officers and appoint and terminate such agents as they consider
appropriate; appoint from their own number and establish and terminate one or
more committees consisting of two or more Trustees, which may exercise the
powers and authority of the Board of Trustees to the extent that the Trustees
determine; employ one or more custodians of the assets of the Trust and may
authorize such custodians to employ subcustodians and to deposit all or any part
of such assets in a system or systems for the central handling of securities or
with a Federal Reserve Bank; retain a transfer agent or a shareholder servicing
agent, or both; provide for the issuance and distribution of Shares by the Trust
directly or through one or more Principal Underwriters or otherwise; redeem,
repurchase and transfer Shares pursuant to applicable law; set record dates for
the determination of Shareholders with respect to various matters; declare and
pay dividends and distributions to Shareholders of each Series from the assets
of such Series; and, in general, delegate such authority as they consider
desirable to any officer of the Trust, to any committee of the Trustees and to
any agent or employee of the Trust or to any such custodian, transfer or
shareholder servicing agent, or Principal Underwriter. 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 Declaration of Trust, the
presumption shall be in favor of a grant of power to the Trustees. Unless
otherwise specified or required by law, any action by the Board of Trustees
shall be deemed effective if approved or taken by a majority of the Trustees
then in office.
Without limiting the foregoing, the Trust shall have power and
authority:
(a) To invest and reinvest cash, to hold cash uninvested, and to
subscribe for, invest in, reinvest in, purchase or otherwise acquire, own,
hold, pledge, sell, assign, transfer, exchange, distribute, write options on,
lend or otherwise deal in or dispose of contracts for the future acquisition
or delivery of fixed income or other securities, and securities of every
nature and kind, including, without limitation, all types of bonds,
debentures, stocks, negotiable or non-negotiable instruments, obligations,
evidences of indebtedness, certificates of deposit or indebtedness,
commercial paper, repurchase agreements, bankers' acceptances, and other
securities of any kind, issued, created, guaranteed, or sponsored by any and
all Persons, including, without limitation, states, territories, and
possessions of the United States and the District of Columbia and any
political subdivision, agency, or instrumentality thereof, any foreign
government or any political subdivision of the U.S. Government or any foreign
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government, or any international instrumentality, or by any bank or savings
institution, or by any corporation or organization organized under the laws of
the United States or of any state, territory, or possession thereof, or by any
corporation or organization organized under any foreign law, or in "when issued"
contracts for any such securities, to change the investments of the assets of
the Trust; and to exercise any and all rights, powers, and privileges of
ownership or interest in respect of any and all such investments of every kind
and description, including, without limitation, the right to consent and
otherwise act with respect thereto, with power to designate one or more Persons,
to exercise any of said rights, powers, and privileges in respect of any of said
instruments;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, or
write options with respect to or otherwise deal in any property rights relating
to any or all of the assets of the Trust or any Series;
(c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
proxies or powers of attorney to such person or persons as the Trustees shall
deem proper, granting to such person or persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;
(d) To exercise powers and right of subscription or otherwise which
in any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form, or in its own
name or in the name of a custodian or subcustodian or a nominee or nominees or
otherwise;
(f) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer of any security which is
held in the Trust; to consent to any contract, lease, mortgage, purchase or sale
of property by such corporation or issuer; and to pay calls or subscriptions
with respect to any security held in the Trust;
(g) To join with other security holders in acting through a
committee, depositary, voting trustee or otherwise, and in that connection to
deposit any security with, or transfer any security to, any such committee,
depositary or trustee, and to delegate to them such power and authority with
relation to any security (whether or not so deposited or transferred) as the
Trustees shall deem proper, and to agree to pay, and to pay, such portion of the
expenses and compensation of such committee, depositary or trustee as the
Trustees shall deem proper;
(h) 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;
(i) To enter into joint ventures, general or limited partnerships and
any other combinations or associations;
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(j) To borrow funds or other property in the name of the Trust
exclusively for Trust purposes;
(k) To endorse or guarantee the payment of any notes or other
obligations of any Person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof;
(l) To purchase and pay for entirely out of Trust Property such
insurance as the Trustees may deem necessary or appropriate for the conduct of
the business, including, without limitation, insurance policies insuring the
assets of the Trust or payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, investment advisers, principal underwriters, or
independent contractors of the Trust, individually against all claims and
liabilities of every nature arising by reason of holding Shares, holding, being
or having held any such office or position, or by reason of any action alleged
to have been taken or omitted by any such Person as Trustee, officer, employee,
agent, investment adviser, principal underwriter, or independent contractor,
including any action taken or omitted that may be determined to constitute
negligence, whether or not the Trust would have the power to indemnify such
Person against liability; and
(m) To adopt, establish and carry out pension, profit-sharing, share
bonus, share purchase, savings, thrift and other retirement, incentive and
benefit plans, trusts and provisions, including the purchasing of life insurance
and annuity contracts as a means of providing such retirement and other
benefits, for any or all of the Trustees, officers, employees and agents of the
Trust.
The Trust shall not be limited to investing in obligations maturing
before the possible termination of the Trust or one or more of its Series. The
Trust shall not in any way be bound or limited by any present or future law or
custom in regard to investment by fiduciaries. The Trust shall not be required
to obtain any court order to deal with any assets of the Trust or take any other
action hereunder.
SECTION 4. PAYMENT OF EXPENSES BY THE TRUST. The Trustees are
authorized to pay or cause to be paid out of the principal or income of the
Trust, or partly out of the principal and partly out of income, as they deem
fair, all expenses, fees, charges, taxes and liabilities incurred or arising in
connection with the Trust, or in connection with the management thereof,
including, but not limited to, the Trustees' compensation and such expenses and
charges for the services of the Trust's officers, employees, investment adviser
or manager, principal underwriter, auditors, counsel, custodian, transfer agent,
Shareholder servicing agent, and such other agents or independent contractors
and such other expenses and charges as the Trustees may deem necessary or proper
to incur.
SECTION 5. PAYMENT OF EXPENSES BY SHAREHOLDERS. The Trustees shall
have the power, as frequently as they may determine, to cause each Shareholder,
or each Shareholder of any particular Series, to pay directly, in advance or
arrears, for charges of the Trust's custodian or transfer, Shareholder servicing
or similar agent, an amount fixed from time to time by the
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Trustees, by setting off such charges due from such Shareholder from declared
but unpaid dividends owed such Shareholder and/or by reducing the number of
shares in the account of such Shareholder by that number of full and/or
fractional Shares which represents the outstanding amount of such charges due
from such Shareholder.
SECTION 6. OWNERSHIP OF ASSETS OF THE TRUST. Title to all of the
assets of the Trust shall at all times be considered as vested in the Trust,
except that the Trustees shall have power to cause legal title to any Trust
Property to be held by or in the name of one or more of the Trustees, or in the
name of the Trust, or in the name of any other Person as nominee, on such terms
as the Trustees may determine. The right, title and interest of the Trustees in
the Trust Property shall vest automatically in each Person who may hereafter
become a Trustee. Upon the resignation, removal or death of a Trustee, he or
she shall automatically cease to have any right, title or interest in any of the
Trust Property, and the right, title and interest of such Trustee in the Trust
Property shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective whether or not conveyancing documents has
been executed and delivered.
SECTION 7. SERVICE CONTRACTS.
(a) Subject to such requirements and restrictions as may be set forth
in the By-Laws, the Trustees may, at any time and from time to time, contract
for exclusive or nonexclusive advisory, management and/or administrative
services for the Trust or for any Series with any corporation, trust,
association or other organization; and any such contract may contain such other
terms as the Trustees may determine, including without limitation, authority for
the Investment Adviser or administrator to determine from time to time without
prior consultation with the Trustees what investments shall be purchased, held,
sold or exchanged and what portion, if any, of the assets of the Trust shall be
held uninvested and to make changes in the Trust's investments, or such other
activities as may specifically be delegated to such party.
(b) The Trustees may also, at any time and from time to time,
contract with any corporation, trust, association or other organization,
appointing it exclusive or nonexclusive distributor or Principal Underwriter for
the Shares of one or more of the Series (or classes) or other securities to be
issued by the Trust. Every such contract shall comply with such requirements
and restrictions as may be set forth in the By-Laws; and any such contract may
contain such other terms as the Trustees may determine.
(c) The Trustees are also empowered, at any time and from time to
time, to contract with any corporations, trusts, associations or other
organizations, appointing it or them the custodian, transfer agent and/or
shareholder servicing agent for the Trust or one or more of its Series. Every
such contract shall comply with such requirements and restrictions as may be set
forth in the By-Laws or stipulated by resolution of the Trustees.
(d) The Trustees are further empowered, at any time and from time to
time, to contract with any entity to provide such other services to the Trust or
one or more of the Series, as the Trustees determine to be in the best interests
of the Trust and the applicable Series.
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(e) The fact that:
(i) any of the Shareholders, Trustees, or officers of the Trust
is a shareholder, director, officer, partner, trustee, employee,
investment adviser, manager, principal underwriter, distributor, or
affiliate or agent of or for any corporation, trust, association, or
other organization, or for any parent or affiliate of any organization
with which an advisory, management or administration contract, or
principal underwriter's or distributor's contract, or transfer,
shareholder servicing or other type of service contract may have been
or may hereafter be made, or that any such organization, or any parent
or affiliate thereof, is a Shareholder or has an interest in the
Trust, or
(ii) any corporation, trust, association or other organization
with which an advisory, management or administration contract or
principal underwriter's or distributor's contract, or transfer,
shareholder servicing or other type of service contract may have been
or may hereafter be made also has an advisory, management or
administration contract, or principal underwriter's or distributor's
contract, or transfer, shareholder servicing or other service contract
with one or more other corporations, trusts, associations, or other
organizations, or has other business or interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same, or create any liability or accountability to the Trust or its
Shareholders, provided approval of each such contract is made pursuant to the
requirements of the Investment Company Act.
ARTICLE V
Shareholders' Voting Powers and Meetings
SECTION 1. VOTING POWERS. Subject to the provisions of Article III,
Section 6(d), the Shareholders shall have power to vote only (i) for the
election or removal of Trustees as provided in Article IV, Section 1, and (ii)
with respect to such additional matters relating to the Trust as may be required
by this Declaration of Trust, the By-Laws or any registration of the Trust with
the Commission (or any successor agency) or any state, or as the Trustees may
consider necessary or desirable. As appropriate, voting may be by Series (or
class). Each dollar of net asset value of a 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.
A proxy with respect to Shares held in the name of two or more persons shall be
valid if executed by any one of them unless at or prior to exercise of the proxy
the Trust receives a specific written notice to the contrary from any one of
them. A proxy purporting to be executed by or on behalf of a Shareholder shall
be deemed valid unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger.
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SECTION 2. VOTING POWER AND MEETINGS. Meetings of the Shareholders
may be called by the Trustees for the purpose of electing Trustees as provided
in Article IV, Section l and for such other purposes as may be prescribed by
law, by this Declaration of Trust or by the By-Laws. Meetings of the
Shareholders may also be called by the Trustees from time to time for the
purpose of taking action upon any other matter deemed by the Trustees to be
necessary or desirable. A meeting of Shareholders may be held at any place
designated by the Trustees. Written notice of any meeting of Shareholders shall
be given or caused to be given by the Trustees by mailing such notice at least
seven (7) days before such meeting, postage prepaid, stating the time and place
of the meeting, to each Shareholder at the Shareholder's address as it appears
on the records of the Trust. Whenever notice of a meeting is required to be
given to a Shareholder under this Declaration of Trust or the By-Laws, a written
waiver thereof, executed before or after the meeting by such Shareholder or his
or her attorney thereunto authorized and filed with the records of the meeting,
shall be deemed equivalent to such notice.
SECTION 3. QUORUM AND REQUIRED VOTE. Except when a larger quorum is
required by applicable law, by the By-Laws or by this Declaration of Trust,
forty percent (40%) of the dollar-weighted voting power of Shares entitled to
vote shall constitute a quorum at a Shareholders' meeting. When any one or more
Series (or classes) is to vote as a single class separate from any other Shares,
forty percent (40%) of the Shares of each such Series (or classes) entitled to
vote shall constitute a quorum at a Shareholder's meeting of that Series. Any
meeting of Shareholders may be adjourned from time to time by a majority of the
votes properly cast upon the question of adjourning a meeting to another date
and time, whether or not a quorum is present, and the meeting may be held as
adjourned within a reasonable time after the date set for the original meeting
without further notice. Subject to the provisions of Article III, Section 6(d),
when a quorum is present at any meeting, a majority of the Shares voted shall
decide any questions and a plurality shall elect a Trustee, except when a larger
vote is required by any provision of this Declaration of Trust or the By-Laws or
by applicable law.
SECTION 4. ACTION BY WRITTEN CONSENT. Any action taken by
shareholders may be taken without a meeting if Shareholders holding a majority
of the Shares entitled to vote on the matter (or such larger proportion thereof
as shall be required by any express provision of this Declaration of Trust or by
the By-Laws or by applicable law) and holding a majority (or such larger
proportion as aforesaid) of the Shares of any Series (or class) entitled to vote
separately on the matter consent to the action in writing and such written
consents are filed with the records of the meetings of Shareholders. Such
consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
SECTION 5. RECORD DATES. For the purpose of determining the
Shareholders of any Series (or class) who are entitled to vote or act at any
meeting or any adjournment thereof, the Trustees may from time to time fix a
time, which shall be not more than ninety (90) days before the date of any
meeting of Shareholders, as the record date for determining the Shareholders of
such Series (or class) having the right to notice of and to vote at such meeting
and any adjournment thereof, and in such case only Shareholders of record on
such record date shall have such right, notwithstanding any transfer of shares
on the books of the Trust after the record date. For the purpose of determining
the Shareholders of any Series (or class) who are entitled to
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receive payment of any dividend or of any other distribution, the Trustees may
from time to time fix a date, which shall be before the date for the payment of
such dividend or such other payment, as the record date for determining the
Shareholders of such Series (or class) having the right to receive such dividend
or distribution. Without fixing a record date the Trustees may for voting
and/or distribution purposes close the register or transfer books for one or
more Series for all or any part of the period between a record date and a
meeting of Shareholders or the payment of a distribution. Nothing in this
Section shall be construed as precluding the Trustees from setting different
record dates for different Series (or classes).
SECTION 6. ADDITIONAL PROVISIONS. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters.
ARTICLE VI
Net Asset Value, Distributions and Redemptions
SECTION 1. DETERMINATION OF NET ASSET VALUE, NET INCOME AND
DISTRIBUTIONS. Subject to Article III, Section 6 hereof, the Trustees, in their
absolute discretion, may prescribe and shall set forth in the By-laws or in a
duly adopted vote of the Trustees such bases and time for determining the
per-Share net asset value of the Shares of any Series or net income attributable
to the Shares of any Series, or the declaration and payment of dividends and
distributions on the Shares of any Series, as they may deem necessary or
desirable.
SECTION 2. REDEMPTIONS AND REPURCHASES. The Trust shall purchase
such Shares as are offered by any Shareholder for redemption, upon the
presentation of a proper instrument of transfer together with a request directed
to the Trust or a Person designated by the Trust that the Trust purchase such
Shares or in accordance with such other procedures for redemption as the
Trustees may from time to time authorize; and the Trust will pay therefor the
net asset value thereof, in accordance with the By-Laws and applicable law.
Payment for said Shares shall be made by the Trust to the Shareholder within
seven days after the date on which the request is made in proper form. The
obligation set forth in this Section 2 is subject to the provision that in the
event that any time the New York Stock Exchange (the "Exchange") is closed for
other than weekends or holidays, or if permitted by the Rules of the Commission
during periods when trading on the Exchange is restricted or during any
emergency which makes it impracticable for the Trust to dispose of the
investments of the applicable Series or to determine fairly the value of the net
assets held with respect to such Series or during any other period permitted by
order of the Commission for the protection of investors, such obligations may be
suspended or postponed by the Trustees.
The redemption price may in any case or cases be paid wholly or partly
in kind if the Trustees determine that such payment is advisable in the interest
of the remaining Shareholders of the Series for which the Shares are being
redeemed. Subject to the foregoing, the fair value, selection and quantity of
securities or other property so paid or delivered as all or part of the
redemption price may be determined by or under authority of the Trustees. In no
case
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shall the Trust be liable for any delay of any corporation or other Person in
transferring securities selected for delivery as all or part of any payment in
kind.
SECTION 3. REDEMPTIONS AT THE OPTION OF THE TRUST. The Trust shall
have the right, at its option and at any time, to redeem Shares of any
Shareholder at the net asset value thereof as described in Section 1 of this
Article VI: (i) if at such time such Shareholder owns Shares of any Series
having an aggregate net asset value of less than an amount determined from time
to time by the Trustees prior to the acquisition of said Shares; or (ii) to the
extent that such Shareholder owns Shares of a particular Series equal to or in
excess of a percentage of the outstanding Shares of that Series determined from
time to time by the Trustees; or (iii) to the extent that such Shareholder owns
Shares equal to or in excess of a percentage, determined from time to time by
the Trustees, of the outstanding Shares of the Trust or of any Series; or (iv)
in connection with the elimination of a Series under Section 6(i) of Article III
or Section 2 of Article VIII.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
SECTION 1. COMPENSATION. The Trustees as such shall be entitled to
reasonable compensation from the Trust, and they may fix the amount of such
compensation. Nothing herein shall in any way prevent the employment of any
Trustee for advisory, management, legal, accounting, investment banking or other
services and payment for the same by the Trust.
SECTION 2. INDEMNIFICATION AND LIMITATION OF LIABILITY. The Trustees
shall not be responsible or liable in any event for any neglect or wrong-doing
of any officer, agent, employee, Investment Adviser or principal underwriter of
the Trust, nor shall any Trustee be responsible for the act or omission of any
other Trustee, and the Trust out of its assets shall indemnify and hold harmless
each and every Trustee from and against any and all claims, demands and expenses
(including reasonable attorneys' fees) whatsoever arising out of or related to
each Trustee's performance of his or her duties as a Trustee of the Trust;
provided that nothing herein contained shall indemnify, hold harmless or protect
any Trustee from or against any liability to the Trust or any Shareholder to
which he or she would otherwise be subject by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever issued, executed or done by or on behalf of
the Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been issued, executed or done only in or with
respect to their or his or her capacity as Trustees or Trustee, and such
Trustees or Trustee shall not be personally liable thereon.
SECTION 3. TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR
SURETY. The exercise by the Trustees of their powers and discretion hereunder
shall be binding upon everyone interested. A Trustee shall be liable to the
Trust and to any Shareholder solely for his or her own
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wilful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee, and shall not be liable
for errors of judgment or mistakes of fact or law. The Trustees may take advice
of counsel or other experts with respect to the meaning and operation of this
Declaration of Trust, and shall be under no liability for any act or omission in
accordance with such advice nor for failing to follow such advice. The Trustees
shall not be required to give any bond as such, nor any surety if a bond is
required.
SECTION 4. INSURANCE. The Trustees shall be entitled and empowered
to the fullest extent permitted by law to purchase with Trust assets insurance
for liability and for all expenses reasonably incurred or paid or expected to be
paid by a Trustee or officer in connection with any claim, action, suit or
proceeding in which he or she becomes involved by virtue of his or her capacity
or former capacity with the Trust.
ARTICLE VIII
Miscellaneous
SECTION 1. LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES. No
Person dealing with the Trustees shall be bound to make any inquiry concerning
the validity of any transaction made or to be made by the Trustees or to see to
the application of any payments made or property transferred to the Trust or
upon its order.
SECTION 2. TERMINATION OF TRUST OR SERIES. Unless terminated as
provided herein, the Trust shall continue without limitation of time. The Trust
may be terminated at any time by vote of a majority of the Shares of each Series
entitled to vote, voting separately by Series, or by the Trustees by written
notice to the Shareholders. Any Series may be terminated at any time by vote of
a majority of the Shares of that Series or by the Trustees by written notice to
the Shareholders of that Series.
Upon termination of the Trust (or any Series, as the case may be),
after paying or otherwise providing for all charges, taxes, expenses and
liabilities held, severally, with respect to each Series (or the applicable
Series, as the case may be), whether due or accrued or anticipated as may be
determined by the Trustees, the Trust shall, in accordance with such procedures
as the Trustees consider appropriate, reduce the remaining assets held,
severally, with respect to each Series (or the applicable Series, as the case
may be), to distributable form in cash or shares or other securities, or any
combination thereof, and distribute the proceeds held with respect to each
Series (or the applicable Series, as the case may be), to the Shareholders of
that Series, as a Series, ratably according to the number of Shares of that
Series held by the several Shareholders on the date of termination.
SECTION 3. MERGER AND CONSOLIDATION. The Trustees may cause (i) the
Trust or one or more of its Series to the extent consistent with applicable law
to be merged into or consolidated with another trust or company, (ii) the Shares
of the Trust or any Series to be converted into beneficial interests in another
business trust (or series thereof) created pursuant to
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this Section 3 of this Article VIII, or (iii) the Shares to be exchanged under
or pursuant to any state or federal statute to the extent permitted by law.
Such merger or consolidation, Share conversion or Share exchange must be
authorized by vote of a majority of the outstanding Shares of the Trust, as a
whole, or any affected Series, as may be applicable; provided that in all
respects not governed by statute or applicable law, the Trustees shall have the
power to prescribe the procedure necessary or appropriate to accomplish a sale
of assets, merger or consolidation including the power to create one or more
separate business trusts to which all or any part of the assets, liabilities,
profits or losses of the Trust may be transferred and to provide for the
conversion of Shares of the Trust or any Series into beneficial interests in
such separate business trust or trusts (or series thereof).
SECTION 4. AMENDMENTS. This Declaration of Trust may be restated
and/or amended at any time by an instrument in writing signed by a majority of
the then Trustees and, if required, by approval of such amendment by
Shareholders in accordance with Article V, Section 3 hereof. Any such
restatement and/or amendment hereto shall be effective immediately upon
execution and approval. The Certificate of Trust of the Trust may be restated
and/or amended by a similar procedure, and any such restatement and/or amendment
shall be effective immediately upon filing with the Office of the Secretary of
State of the State of Delaware or upon such future date as may be stated
therein.
SECTION 5. FILING OF COPIES, REFERENCES, HEADINGS. The original or a
copy of this instrument and of each restatement and/or amendment 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 of the
Trust as to whether or not any such restatements and/or amendments have been
made and as to any matters in connection with the Trust hereunder; and, with the
same effect as if it were the original, may rely on a copy certified by an
officer of the Trust to be a copy of this instrument or of any such restatements
and/or amendments. In this instrument and in any such restatements and/or
amendment, references to this instrument, and all expressions like "herein,"
"hereof" and "hereunder," shall be deemed to refer to this instrument as amended
or affected by any such restatements and/or amendments. Headings are placed
herein for convenience of reference only and shall not be taken as a part hereof
or control or affect the meaning, construction or effect of this instrument.
Whenever the singular number is used herein, the same shall include the plural;
and the neuter, masculine and feminine genders shall include each other, as
applicable. This instrument may be executed in any number of counterparts each
of which shall be deemed an original.
SECTION 6. APPLICABLE LAW. This Agreement and Declaration of Trust
is created under and is to be governed by and construed and administered
according to the laws of the State of Delaware and the Delaware Business Trust
Act, as amended from time to time (the "Business Trust Act"). The Trust shall
be a Delaware business trust pursuant to such Business Trust Act, and without
limiting the provisions hereof, the Trust may exercise all powers which are
ordinarily exercised by such a business trust.
SECTION 7. PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS.
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(a) The provisions of the Declaration of Trust are severable,
and if the Trustees shall determine, with the advice of counsel, that any of
such provisions is in conflict with the Investment Company 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 the Declaration of Trust; provided, however, that
such determination shall not affect any of the remaining provisions of the
Declaration of Trust or render invalid or improper any action taken or omitted
prior to such determination.
(b) If any provision of the Declaration of Trust 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 manner affect such provision in any other jurisdiction or any
other provision of the Declaration of Trust in any jurisdiction.
SECTION 8. BUSINESS TRUST ONLY. It is the intention of the Trustees
to create a business trust pursuant to the Business Trust Act, and thereby to
create only the relationship of trustee and beneficial owners within the meaning
of such Business Trust Act between the Trustees and each Shareholder. It is not
the intention of the Trustees to create a general partnership, limited
partnership, joint stock association, corporation, bailment, or any form of
legal relationship other than a business trust pursuant to such Act. Nothing in
this Declaration of Trust shall be construed to make the Shareholders, either by
themselves or with the Trustees, partners or members of a joint stock
association.
SECTION 9. USE OF THE IDENTIFYING WORDS "RWB FUNDS -- INVESTMENT
TRUST" The identifying words "RWB Funds -- Investment Trust" and "RWB Funds --
Investment Trust" and all rights to the use of such identifying words belong to
Reinhardt Werba Bowen, the proposed Investment Adviser of the Trust's Shares.
Reinhardt Werba Bowen has licensed the Trust to use the identifying words "RWB
Funds" in the Trust's name. In the event that Reinhardt Werba Bowen or an
affiliate of Reinhardt Werba Bowen is not appointed or ceases to be the
Investment Adviser of the Trust, the non-exclusive license may be revoked by
Reinhardt Werba Bowen, and the Trust and any series thereof shall respectively
cease using the identifying words "RWB Funds" unless otherwise consented to by
Reinhardt Werba Bowen or any successor to Reinhardt Werba Bowen interest.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Trustees named below do hereby make and enter
into this Declaration of Trust as of the __th day of June, 1998.
- -----------------------------
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BY-LAWS
FOR THE REGULATION, EXCEPT AS
OTHERWISE PROVIDED BY STATUTE OR THE
AGREEMENT AND DECLARATION OF TRUST, OF
RWB FUNDS -- INVESTMENT TRUST
A DELAWARE BUSINESS TRUST
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C>
ARTICLE I
OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 1. PRINCIPAL OFFICE . . . . . . . . . . . . . . . . . . . . . . . .2
Section 2. DELAWARE OFFICE. . . . . . . . . . . . . . . . . . . . . . . . .2
Section 3. OTHER OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . .2
ARTICLE II
MEETINGS OF SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 1. PLACE OF MEETING . . . . . . . . . . . . . . . . . . . . . . . .2
Section 2. CALL OF MEETING. . . . . . . . . . . . . . . . . . . . . . . . .2
Section 3. NOTICE OF SHAREHOLDERS' MEETING. . . . . . . . . . . . . . . . .2
Section 4. MANNER OF GIVING NOTICE: AFFIDAVIT OF NOTICE . . . . . . . . . .3
Section 5. ADJOURNED MEETING; NOTICE. . . . . . . . . . . . . . . . . . . .3
Section 6. VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Section 7. WAIVER OF NOTICE BY CONSENT OF ABSENT SHAREHOLDERS . . . . . . .4
Section 8. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. . . . .4
Section 9. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING AND
GIVING CONSENTS. . . . . . . . . . . . . . . . . . . . . . . . .5
Section 10. PROXIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Section 11. INSPECTORS OF ELECTION . . . . . . . . . . . . . . . . . . . . .5
ARTICLE III
TRUSTEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Section 1. POWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Section 2. NUMBER OF TRUSTEES . . . . . . . . . . . . . . . . . . . . . . .6
Section 3. VACANCIES. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Section 4. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. . . . . . . . . . .7
Section 5. REGULAR MEETINGS . . . . . . . . . . . . . . . . . . . . . . . .7
Section 6. SPECIAL MEETINGS . . . . . . . . . . . . . . . . . . . . . . . .7
Section 7. QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Section 8. WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . . . . .8
Section 9. ADJOURNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . .8
Section 10. NOTICE OF ADJOURNMENT. . . . . . . . . . . . . . . . . . . . . .8
Section 11. ACTION WITHOUT A MEETING . . . . . . . . . . . . . . . . . . . .8
<PAGE>
Section 12. FEES AND COMPENSATION OF TRUSTEES. . . . . . . . . . . . . . . .8
Section 13. DELEGATION OF POWER TO OTHER TRUSTEES. . . . . . . . . . . . . .9
ARTICLE IV
COMMITTEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Section 1. COMMITTEES OF TRUSTEES . . . . . . . . . . . . . . . . . . . . .9
Section 2. MEETINGS AND ACTION OF COMMITTEES. . . . . . . . . . . . . . . 10
ARTICLE V
OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 1. OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2. ELECTION OF OFFICERS . . . . . . . . . . . . . . . . . . . . . 10
Section 3. SUBORDINATE OFFICERS . . . . . . . . . . . . . . . . . . . . . 10
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. . . . . . . . . . . . . . 10
Section 5. VACANCIES IN OFFICES . . . . . . . . . . . . . . . . . . . . . 11
Section 6. CHAIRMAN OF THE BOARD. . . . . . . . . . . . . . . . . . . . . 11
Section 7. PRESIDENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 8. VICE PRESIDENTS. . . . . . . . . . . . . . . . . . . . . . . . 11
Section 9. SECRETARY. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 10. TREASURER. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VI
INDEMNIFICATION OF TRUSTEES, OFFICERS, EMPLOYEES AND OTHER AGENTS . . . . . . 12
Section 1. AGENTS, PROCEEDINGS AND EXPENSES . . . . . . . . . . . . . . . 12
Section 2. ACTIONS OTHER THAN BY TRUST. . . . . . . . . . . . . . . . . . 12
Section 3. ACTIONS BY THE TRUST . . . . . . . . . . . . . . . . . . . . . 13
Section 4. EXCLUSION OF INDEMNIFICATION . . . . . . . . . . . . . . . . . 13
Section 5. SUCCESSFUL DEFENSE BY AGENT. . . . . . . . . . . . . . . . . . 14
Section 6. REQUIRED APPROVAL. . . . . . . . . . . . . . . . . . . . . . . 14
Section 7. ADVANCE OF EXPENSES. . . . . . . . . . . . . . . . . . . . . . 14
Section 8. OTHER CONTRACTUAL RIGHTS . . . . . . . . . . . . . . . . . . . 15
Section 9. LIMITATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 10. INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 11. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN . . . . . . . . . . . . . 15
ARTICLE VII
RECORDS AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER . . . . . . . . . 15
Section 2. MAINTENANCE AND INSPECTION OF BY-LAWS. . . . . . . . . . . . . 16
Section 3. MAINTENANCE AND INSPECTION OF OTHER RECORDS. . . . . . . . . . 16
Section 4. INSPECTION BY TRUSTEES . . . . . . . . . . . . . . . . . . . . 16
Section 5. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . 16
<PAGE>
ARTICLE VIII
GENERAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 1. CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS . . . . . . . . . . . 17
Section 2. CONTRACTS AND INSTRUMENTS - HOW EXECUTED . . . . . . . . . . . 17
Section 3. CERTIFICATES FOR SHARES. . . . . . . . . . . . . . . . . . . . 17
Section 4. LOST CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . 17
Section 5. REPRESENTATION OF SHARES OF OTHER ENTITIES HELD BY TRUST . . . 18
Section 6. FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE IX
AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 1. AMENDMENT BY SHAREHOLDERS. . . . . . . . . . . . . . . . . . . 18
Section 2. AMENDMENT BY TRUSTEES. . . . . . . . . . . . . . . . . . . . . 18
Section 3. INCORPORATION BY REFERENCE INTO AGREEMENT AND
DECLARATION OF TRUST OF THE TRUST. . . . . . . . . . . . . . . 18
</TABLE>
<PAGE>
BY-LAWS
OF
RWB FUNDS -- INVESTMENT TRUST
DELAWARE BUSINESS TRUST
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The Board of Trustees shall fix and, from
time to time, may change the location of the principal executive office of the
RWB Funds -- Investment Trust (the "Trust") at any place within or outside the
State of Delaware.
Section 2. DELAWARE OFFICE. The Board of Trustees shall establish a
registered office in the State of Delaware and shall appoint as the Trust's
registered agent for service of process in the State of Delaware an individual
resident of the State of Delaware or a Delaware corporation or a corporation
authorized to transact business in the State of Delaware; in each case the
business office of such registered agent for service of process shall be
identical with the registered Delaware office of the Trust.
Section 3. OTHER OFFICES. The Board of Trustees may at any time
establish branch or subordinate offices at any place or places where the Trust
intends to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETING. Meetings of shareholders shall be held at
any place designated by the Board of Trustees. In the absence of any such
designation, shareholders, meetings shall be held at the principal executive
office of the Trust.
Section 2. CALL OF MEETING. A meeting of the shareholders may be
called at any time by the Board of Trustees or by the Chairman of the Board of
the President.
Section 3. NOTICE OF SHAREHOLDERS' MEETING. All notices of meetings of
shareholders shall be sent or otherwise given in accordance with Section 4 of
this Article II not less than seven (7) nor more than seventy-five (75) days
before the date of the meeting. The notice shall specify (i) the place, date
and hour of the meeting, and (ii) the general nature of the business to be
transacted. The notice of any meeting at which Trustees are to be elected also
shall include the name of any nominee or nominees whom at the time of the notice
are intended to be presented for election.
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If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a Trustee has a direct or indirect financial
interest, (ii) an amendment of the Agreement and Declaration of Trust of the
Trust, (iii) a reorganization of the Trust, or (iv) a voluntary dissolution of
the Trust, the notice shall also state the general nature of that proposal.
Section 4. MANNER OF GIVING NOTICE: AFFIDAVIT OF NOTICE. Notice of any
meeting of shareholders shall be given either personally or by first-class mail
or telegraphic or other written communication, charges prepaid, addressed to the
shareholder at the address of that shareholder appearing on the books of the
Trust or its transfer agent or given by the shareholder to the Trust for the
purpose of notice. If no such address appears on the Trust's books or is given,
notice shall be deemed to have been given if sent to that shareholder by
first-class mail or telegraphic or other written communication to the Trust's
principal executive office, or if published at least once-in a newspaper of
general circulation in the county where that office is located. Notice shall be
deemed to have been given at the time when delivered personally or deposited in
the mail or sent by telegram or other means of written communication.
If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the Trust is returned to the Trust by the United
States Postal Service marked to indicate that the Postal Service is unable to
deliver the notice to the shareholder at that address, all future notices or
reports shall be deemed to have been duly given without further mailing if these
shall be available to the shareholder on written demand of the shareholder at
the principal executive office of the Trust for a period of one year from the
date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholder's meeting shall be executed by the Secretary, Assistant Secretary or
any transfer agent of the Trust giving the notice and shall be filed and
maintained in the minute book of the Trust.
Section 5. ADJOURNED MEETING; NOTICE. Any shareholder's meeting,
whether or not a quorum is present, may be adjourned from time to time by the
vote of the majority of the shares represented at that meeting, either in person
or by proxy.
When any meeting of shareholders is adjourned to another time or place,
notice need not be given of the adjourned meeting at which the adjournment is
taken, unless a new record date of the adjourned meeting is fixed or unless the
adjournment is for more than sixty (60) days from the date set for the original
meeting, in which case the Board of Trustees shall set a new record date.
Notice of any such adjourned meeting shall be given to each shareholder of
record entitled to vote at the adjourned meeting in accordance with the
provisions of Sections 3 and 4 of this Article II. At any adjourned meeting, the
Trust may transact any business which might have been transacted at the original
meeting.
Section 6. VOTING. The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of the
Agreement and
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Declaration of Trust of the Trust, as in effect at such time. The shareholders'
vote may be by voice vote or by ballot, provided, however, that any election for
Trustees must be by ballot if demanded by any shareholder before the voting has
begun. On any matter other than elections of Trustees, any shareholder may vote
part of the shares in favor of the proposal and refrain from voting the
remaining shares or, vote them against the proposal, but if the shareholder
fails to specify the number of shares which the shareholder is voting
affirmatively, it will be conclusively presumed that the shareholder's
approving vote is with respect to the total shares that the shareholder is
entitled to vote on such proposal.
Section 7. WAIVER OF NOTICE BY CONSENT OF ABSENT SHAREHOLDERS. The
transactions of the meeting of shareholders, however called and noticed and
wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice if a quorum be present either in person or by proxy and
if either before or after the meeting, each person entitled to vote who was not
present in person or by proxy signs a written waiver of notice or a consent to a
holding of the meeting or an approval of the minutes. The waiver of notice or
consent need not specify either the business to be transacted or the purpose of
any meeting of shareholders.
Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
of the meeting if that objection is expressly made at the beginning of the
meeting.
Section 8. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Any action which may be taken at any meeting of shareholders may be taken
without a meeting and without prior notice if a consent in writing setting forth
the action so taken is signed by the holders of outstanding shares having not
less than the minimum number of votes that would be necessary to authorize or
take that action at a meeting at which all shares entitled to vote on that
action were present and voted. All such consents shall be filed with the
Secretary of the Trust and shall be maintained in the Trust's records. Any
shareholder giving a written consent or the shareholder's proxy holders or a
transferee of the shares or a personal representative of the Shareholder or
their respective Proxy holders may revoke the consent by a writing received by
the Secretary of the Trust before written consents of the number of shares
required to authorize the proposed action have been filed with the Secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
shareholders shall not have been received, the Secretary shall give prompt
notice of the action approved by the shareholders without a meeting. This
notice shall be given in the manner specified in Section 4 of this Article II.
In the case of approval of (i) contracts or transactions in which a Trustee has
a direct or, indirect financial interest, (ii) indemnification of agents of the
Trust, and (iii) a reorganization of the Trust, the notice shall be given at
least ten (10) days before the consummation of any action authorized by
that approval.
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Section 9. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING AND GIVING
CONSENTS. For purposes of determining the shareholders entitled to notice of
any meeting or to vote or entitled to give consent to action without a meeting,
the Board of Trustees may fix in advance a record date which shall not be more
than ninety (90) days nor less than seven (7) days before the date of any such
meeting as provided in the Agreement and Declaration of Trust of the Trust.
If the Board of Trustees does not so fix a record date:
(a) The record date for determining shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice
is given or if notice is waived, at the close of business on the
business day next preceding the day on which the meeting is held.
(b) The record date for determining shareholders entitled to give
consent to action in writing without a meeting, (i) when no prior
action by the Board of Trustees has been taken, shall be the day on
which the first written consent is given, or (ii) when prior action
of the Board of Trustees has been taken, shall be at the close of
business on the day on which the Board of Trustees adopt the
resolution relating to that action or the seventy-fifth day before
the date of such other action, whichever is later.
Section 10. PROXIES. Every person entitled to vote for Trustees or on
any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the Secretary of the Trust. A proxy shall be deemed signed if the shareholder's
name is placed on the proxy (whether by manual signature, typewriting,
telegraphic transmission or otherwise) by the shareholder or the shareholder's
attorney-in-fact. A validly executed proxy which does not state that it is
irrevocable shall continue in full force and effect unless (i) revoked by the
person executing it before the vote pursuant to that proxy by a writing
delivered to the Trust stating that the proxy is revoked or by a subsequent
proxy executed by, or attendance at the meeting and voting in person by, the
person executing that proxy; or (ii) written notice of the death or incapacity
of the maker of that proxy is received by the Trust before the vote pursuant to
that proxy is counted; provided however, that no proxy shall be valid after the
expiration of eleven (11) months from the date of the proxy unless otherwise
provided in the proxy.
Section 11. INSPECTORS OF ELECTION. Before any meeting of shareholders,
the Board of Trustees may appoint any persons other than nominees for office to
act as inspectors of election at the meeting or its adjournment. If no
inspectors of election are so appointed, the chairman of the meeting may and on
the request of any shareholder or a shareholder's proxy
5
<PAGE>
shall, appoint inspectors of election at the meeting. The number of inspectors
shall be either one (1) or three (3). If inspectors are appointed at a meeting
on the request of one or more shareholders or proxies, the holders of a majority
of shares or their proxies present at the meeting shall determine whether one
(1) or three (3) inspectors are to be appointed. If any person appointed as
inspector fails to appear or fails or refuses to act, the Chairman of the
meeting may and on the request of any shareholder or a shareholder's proxy,
shall appoint a person to fill the vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a
quorum and the authenticity, validity and effect of proxies;
(b) Receive-votes, ballots or consents;
(c) Hear and determine all challenges and questions in any way arising
in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election or vote
with fairness to all shareholders.
ARTICLE III
TRUSTEES
Section 1. POWERS. Subject to the applicable provisions of the
Agreement and Declaration of Trust of the Trust and these By-Laws relating to
action required to be approved by the shareholders or by the outstanding shares,
the business and affairs of the Trust shall be managed and all powers shall be
exercised by or under the direction of the Board of Trustees.
Section 2. NUMBER OF TRUSTEES. The exact number of Trustees within the
limits specified in the Agreement and Declaration of Trust of the Trust shall be
fixed from time to time by a written instrument signed or a resolution approved
at a duly constituted meeting by a majority of the Board of Trustees.
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<PAGE>
Section 3. VACANCIES. Vacancies in the Board of Trustees may be filled
by a majority of the remaining Trustees, though less than a quorum, or by a sole
remaining Trustee, unless the Board of Trustees calls a meeting of shareholders
for the purposes of electing Trustees. In the event that at any time less than
a majority of the Trustees holding office at that time were so elected by the
holders of the outstanding voting securities of the Trust, the Board of Trustees
shall forthwith cause to be held as promptly as possible, and in any event
within sixty (60) days, a meeting of such holders for the purpose of electing
Trustees to fill any existing vacancies in the Board of Trustees, unless such
period is extended by order of the United States Securities and Exchange
Commission. Notwithstanding the above, whenever and for so long as the Trust is
a participant in or otherwise has in effect a Plan under which the Trust may be
deemed to bear expenses of distributing its shares as that practice is described
in Rule 12b-1 under the Investment Company Act of 1940, then the selection and
nomination of the Trustees who are not interested persons of the Trust (as that
term is defined in the Investment Company Act of 1940) shall be, and is,
committed to the discretion of such disinterested Trustees.
Section 4. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. All meetings
of the Board of Trustees may be held at any place that has been designated from
time to time by resolution of the Board. In the absence of such a designation,
regular meetings shall be held at the principal executive office of the Trust.
With the exception of meeting at which an Investment Management, Portfolio
Advisory Agreement or any Distribution Plan adopted pursuant to Rule 12b-1 is
approved by the Board, any meeting, regular or special, may be held by
conference telephone or similar communication equipment, so long as all Trustees
participating in the meeting can hear one another and all such Trustees shall be
deemed to be present in person at the meeting.
Section 5. REGULAR MEETINGS. Regular meetings of the Board of Trustees
shall be held without call at such time as shall from time to time be fixed by
the Board of Trustees. Such regular meetings may be held without notice.
Section 6. SPECIAL MEETINGS. Special meetings of the Board of Trustees
for any purpose or purposes may be called at any time by the Chairman of the
Board or the President or any Vice President or the Secretary or any two (2)
Trustees.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each Trustee or sent by first-class mail or
telegram, charges prepaid, addressed to each Trustee at that Trustee's address
as it is shown on the records of the Trust. In case the notice is mailed, it
shall be deposited in the United States mail at least seven (7) calendar days
before the time of the holding of the meeting. In case the notice is
delivered personally or by telephone or to the telegraph company or by express
mail or similar service, it shall be given at least forty-eight (48) hours
before the time of the holding of the meeting. Any oral notice given personally
or by telephone may be communicated either to the Trustee or to a person at the
office of the Trustee who the person giving the notice has reason to believe
will promptly communicate
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<PAGE>
it to the Trustee. The notice need not specify the purpose of the meeting or
the place if the meeting is to be held at the principal executive office of the
Trust.
Section 7. QUORUM. A majority of the authorized number of Trustees
shall constitute a quorum for the transaction of business, except to adjourn
as provided in Section 10 of this Article III. Every act or decision done or
made by a majority of the Trustees present at a meeting duly held at which a
quorum is present shall be regarded as the act of the Board of Trustees,
subject to the provisions of the Agreement and Declaration of Trust of the
Trust. A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of Trustees if any action
taken is approved by at least a majority of the required quorum for that
meeting.
Section 8. WAIVER OF NOTICE. Notice of any meeting need not be given
to any Trustee who either before or after the meeting signs a written waiver of
notice, a consent to holding the meeting, or an approval of the minutes. The
waiver of notice or consent need not specify the purpose of the meeting. All
such waivers, consents, and approvals shall be filed with the records of the
Trust or made a part of the minutes of the meeting. Notice of a meeting shall
also be deemed given to any Trustee who attends the meeting without protesting
before or at its commencement the lack of notice to that Trustee.
Section 9. ADJOURNMENT. A majority of the Trustees present, whether or
not constituting a quorum, may adjourn any meeting to another time and place.
Section 10. NOTICE OF ADJOURNMENT. Notice of the time and place of
holding an adjourned meeting need not be given unless the meeting is adjourned
for more than forty-eight (48) hours, in which case notice of the time and place
shall be given before the time of the adjourned meeting in the manner specified
in Section 7 of this Article III to the Trustees who were present at the time of
the adjournment.
Section 11. ACTION WITHOUT A MEETING. With the exception of the
approval of an Investment Management Agreement, Portfolio Advisory Agreement, or
any Distribution Plan adopted pursuant to Rule 12b-1, any action required or
permitted to be taken by the Board of Trustees may be taken without a meeting if
a majority of the members of the Board of Trustees shall individually or
collectively consent in writing to that action. Such action by written consent
shall have the same force and effect as a majority vote of the Board of
Trustees. Such written consent or consents shall be filed with the minutes of
the proceedings of the Board of Trustees.
Section 12. FEES AND COMPENSATION OF TRUSTEES. Trustees and members of
committees may receive such compensation, if any, for their services and such
reimbursement of expenses as may be fixed or determined by resolution of the
Board of Trustees. This Section 12 shall not be construed to preclude any
Trustee from serving the Trust in any other capacity as
8
<PAGE>
an officer, agent, employee, or otherwise and receiving compensation for those
services.
Section 13. DELEGATION OF POWER TO OTHER TRUSTEES. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six (6) months
at any one time to any other Trustee or Trustees; provided that in no case shall
fewer than two (2) Trustees personally exercise the powers granted to the
Trustees under this Agreement and Declaration of Trust of the Trust except as
otherwise expressly provided herein or by resolution of the Board of Trustees.
Except where applicable law may require a Trustee to be present in person, a
Trustee represented by another Trustee pursuant to such power of attorney shall
be deemed to be present for purposes of establishing a quorum and satisfying the
required majority vote.
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF TRUSTEES. The Board of Trustees may by
resolution adopted by a majority of the authorized number of Trustees designate
one or more committees, each consisting of two (2) or more Trustees, to serve
at the pleasure of the Board. The Board may designate one or more Trustees as
alternate members of any committee who may replace any absent member at any
meeting of the committee. Any committee to the extent provided in the
resolution of the Board, shall have the authority of the Board, except with
respect to:
(a) the approval of any action which under applicable law also
requires shareholders' approval or approval of the outstanding
shares, or requires approval by a majority of the entire Board
or certain members of said Board;
(b) the filling of vacancies on the Board of Trustees or in any
committee;
(c) the fixing of compensation of the Trustees for serving on
the Board of Trustees or on any committee;
(d) the amendment or repeal of the Agreement and Declaration of
Trust of the Trust or of the By-Laws or the adoption of new
By-Laws;
(e) the amendment or repeal of any resolution of the Board of
Trustees which by its express terms is not so amendable or
repealable;
(f) a distribution to the shareholders of the Trust, except at a
rate or in a periodic amount or within a designated range
determined by the Board of Trustees; or
(g) the appointment of any other committees of the Board of
Trustees or the members of these committees.
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Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of
committees shall be governed by and held and taken in accordance with the
provisions of Article III of these By-Laws, with such changes in the context
thereof as are necessary to substitute the committee and its members for the
Board of Trustees and its members, except that the time of regular meetings of
committees may be determined either by resolution of the Board of Trustees or by
resolution of the committee. Special meetings of committees may also be called
by resolution of the Board of Trustees. Alternate members shall be given notice
of meetings of committees and shall have the right to attend all meetings of
committees. The Board of Trustees may adopt rules for the government of any
committee not inconsistent with the provisions of these By-Laws.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the Trust shall be a President, a
Secretary, and a Treasurer. The Trust may also have, at the discretion of the
Board of Trustees, a Chairman of the Board, one or more Vice Presidents, one or
more Assistant Secretaries, one or more Assistant Treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 3 of
this Article V. Any number of offices may be held by the same person.
Section 2. ELECTION OF OFFICERS. The officers of the Trust, except
such officers as may be appointed in accordance with the provisions of Section 3
or Section 5 of this Article V, shall be chosen by the Board of Trustees, and
each shall serve at the pleasure of the Board of Trustees, subject to the
rights, if any, of an officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The Board of Trustees may appoint and
may empower the President to appoint such other officers as the business of the
Trust may require, each of whom shall hold office for such period, have such
authority and perform such duties as are provided in these By-Laws or as the
Board of Trustees may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights,
if any, of an officer under any contract of employment, any officer may be
removed, either with or without cause, by the Board of Trustees at any regular
or special meeting of the Board of Trustees or by the principal executive
officer or by such other officer upon whom such power of removal may be
conferred by the Board of Trustees.
Any officer may resign at any time by giving written notice to the Trust.
Any resignation shall take effect at the date of the receipt of that notice or
at any later time specified in that notice; and unless otherwise specified in
that notice, the acceptance of the resignation shall not
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<PAGE>
be necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Trust under any contract to which the officer is a party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office because of
death, resignation, removal, disqualification or other cause shall be filled in
the manner prescribed in these By-Laws for regular appointment to that office.
The President may make temporary appointments to a vacant office pending action
by the Board of Trustees.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such
an Officer is elected, shall if present preside at meetings of the Board of
Trustees, shall be the Chief Executive Officer of the Trust and shall, subject
to the control of the Board of Trustees, have general supervision, direction and
control of the business and the Officers of the Trust and exercise and perform
such other powers and duties as may be from time to time assigned to him by the
Board of Trustees or prescribed by the By-Laws.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as
may be given by the Board of Trustees to the Chairman of the Board, if there be
such an officer, the President shall be the chief operating officer of the Trust
and shall, subject to the control of the Board of Trustees and the Chairman,
have general supervision, direction and control of the business and the officers
of the Trust. He or she shall preside at all meetings of the shareholders and
in the absence of the Chairman of the Board or if there be none, at all meetings
of the Board of Trustees. He or she shall have the general powers and duties of
management usually vested in the office of President of a corporation and shall
have such other powers and duties as may be prescribed by the Board of Trustees
or these By-Laws.
Section 8. VICE PRESIDENTS. In the absence or disability of the
President, the Vice Presidents, if any, in order of their rank as fixed by the
Board of Trustees or if not ranked, the Executive Vice President (who shall be
considered first ranked) and such other Vice Presidents as shall be designated
by the Board of Trustees, shall perform all the duties of the President and when
so acting shall have all powers of and be subject to all the restrictions upon
the President. The Vice Presidents shall have such other powers and perform
such other duties as from time to time may be prescribed for them respectively
by the Board of Trustees or the President or the Chairman of the Board or by
these By-Laws.
Section 9. SECRETARY. The Secretary shall keep or cause to be kept at
the principal executive office of the Trust, or such other place as the Board of
Trustees may direct, a book of minutes of all meetings and actions of Trustees,
committees of Trustees and shareholders with the time and place of holding,
whether regular or special, and if special, how authorized, the notice given,
the names of those present at Trustees' meetings or committee meetings, the
number of shares present or represented at shareholders, meetings, and the
proceedings.
The Secretary shall keep or cause to be kept at the principal executive
office of the Trust
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or at the office of the Trust's transfer agent or registrar, a share register or
a duplicate share register showing the names of all shareholders and their
addresses, the number and classes of shares held by each, the number and date of
certificates issued for the same and the number and date of cancellation of
every certificate surrendered for cancellation.
The Secretary shall give or cause to be given notice of all meetings of the
shareholders and of the Board of Trustees required to be given by these By-Laws
or by applicable law and shall have such other powers and perform such other
duties as may be prescribed by the Board of Trustees or by these By-Laws.
Section 10. TREASURER. The Treasurer shall be the chief financial
officer and chief accounting officer of the Trust and shall keep and maintain or
cause to be kept and maintained adequate and correct books and records of
accounts of the properties and business transactions of the Trust, including
accounts of its assets, liabilities, receipts, disbursements, gains, losses,
capital, retained earnings and shares. The books of account shall at all
reasonable times be open to inspection by any Trustee.
The Treasurer shall deposit all monies and other valuables in the name and
to the credit of the Trust with such depositories as may be designated by the
Board of Trustees. He shall disburse the funds of the Trust as may be ordered
by the Board of Trustees, shall render to the President and Trustees, whenever
they request it, an account of all of his transactions as chief financial
officer and of the financial condition of the Trust and shall have other powers
and perform such other duties as may be prescribed by the Board of Trustees or
these By-Laws.
ARTICLE VI
INDEMNIFICATION OF TRUSTEES, OFFICERS,
EMPLOYEES AND OTHER AGENTS
Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the purpose of this
Article, "agent" means any person who is or was a Trustee, officer, employee or
other agent of this Trust or is or was serving at the request of this Trust as a
Trustee, director, officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise or was a
Trustee, director, officer, employee or agent of a foreign or domestic
corporation which was a predecessor of another enterprise at the request of such
predecessor entity; "proceeding" means any threatened, pending or completed
action or proceeding, whether civil, criminal, administrative or investigative;
and "expenses" includes without limitation attorney's fees and any expenses of
establishing a right to indemnification under this Article.
Section 2. ACTIONS OTHER THAN BY TRUST. This Trust shall indemnify
any person who was or is a party or is threatened to be made a party to any
proceeding (other than an action by or in the right of this Trust) by reason of
the fact that such person is or was an agent of this Trust, against expenses,
judgments, fines, settlements and other amounts actually and
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reasonably incurred in connection with such proceeding, if it is determined that
person acted in good faith and reasonably believed:
(a) in the case of conduct in his or her official capacity as a
Trustee of the Trust, that his or her conduct was in the
Trust's best interests, and
(b) in all other cases, that his or her conduct was at least not
opposed to the Trust's best interests, and
(c) in the case of a criminal proceeding, that he or she had no
reasonable cause to believe the conduct of that person was
unlawful.
The termination of any proceeding by judgment order, settlement, conviction
or upon a plea of nolo contendere or its equivalent shall not of itself create a
presumption that the person did not act in good faith and in a manner which the
person reasonably believed to be in the best interests of this Trust or that the
person had reasonable cause to believe that the person's conduct was unlawful.
Section 3. ACTIONS BY THE TRUST. This Trust shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action by or in the right of this Trust to procure a
judgment in its favor by reason of the fact that that person is or was an agent
of this Trust, against expenses actually and reasonably incurred by that person
in connection with the defense or settlement of that action if that person acted
in good faith, in a manner that person believed to be in the best interests of
this Trust and with such care, including reasonable inquiry, as an ordinarily
prudent person in a like position would use under similar circumstances.
Section 4. EXCLUSION OF INDEMNIFICATION. Notwithstanding any provision
to the contrary contained herein, there shall be no right to indemnification for
any liability arising by reason of willful misfeasance, bad faith, gross
negligence, or the reckless disregard of the duties involved in the conduct of
the agent's office with this Trust.
No indemnification shall be made under Sections 2 or 3 of this Article:
(a) In respect of any claim, issue, or matter as to which that
person shall have been adjudged to be liable on the basis
that personal benefit was improperly received by him or her,
whether or not the benefit resulted from an action taken in
the person's official capacity; or
(b) In respect of any claim, issue or matter as to which that
person shall have been adjudged to be liable in the
performance of that person's duty to this Trust, unless and
only to the extent that the court in which that action was
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brought shall determine upon application that in view of all
the circumstances of the case, that person was not liable by
reason of the disabling conduct set forth in the preceding
paragraph and is fairly and reasonably entitled to indemnity
for the expenses which the court shall determine; or
(c) Of amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without, court
approval, or of expenses incurred in defending a threatened
or pending action which is settled or otherwise disposed of
without court approval, unless the required approval set
forth in Section 6 of this Article is obtained.
Section 5. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent of
this Trust has been successful on the merits in defense of any proceeding
referred to in Sections 2 or 3 of this Article or in defense of any claim, issue
or matter therein, before the court or other body before whom the proceeding was
brought, the agent shall be indemnified against expenses actually and reasonably
incurred by the agent in connection therewith, provided that the Board of
Trustees, including a majority who are disinterested, non-party Trustees, also
determines that based upon a review of the facts, the agent was not liable by
reason of the disabling conduct referred to in Section 4 of this Article.
Section 6. REQUIRED APPROVAL. Except as provided in Section 5 of this
Article, any indemnification under this Article shall be made by this Trust only
if authorized in the specific case on a determination that indemnification of
the agent is proper in the circumstances because the agent has met the
applicable standard of conduct set forth in Sections 2 or 3 of this Article and
is not prohibited from indemnification because of the disabling conduct set
forth in Section 4 of this Article, by:
(a) A majority vote of a quorum consisting of Trustees who are
not parties to the proceeding and are not interested persons
of the Trust (as defined in the Investment Company Act of
1940); or
(b) A written opinion by an independent legal counsel.
Section 7. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by this Trust before the final disposition of the
proceeding upon a written undertaking by or on behalf of the agent, to repay the
amount of the advance if it is ultimately determined that he or she is not
entitled to indemnification, together with at least one of the following as a
condition to the advance: (i) security for the undertaking; or (ii) the
existence of insurance protecting the Trust against losses arising by reason of
any lawful advances; or (iii) a determination by a majority of a quorum of
Trustees who are not parties to the proceeding and are not interested persons of
the Trust, or by an independent legal counsel in
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a written opinion, based on a review of readily available facts that there is
reason to believe that the agent ultimately will be found entitled to
indemnification. Determinations and authorizations of payments under this
Section must be made in the manner specified in Section 6 of this Article for
determining that the indemnification is permissible.
Section 8. OTHER CONTRACTUAL RIGHTS. Nothing contained in this Article
shall affect any right to indemnification to which persons other than Trustees
and officers of this Trust or any subsidiary hereof may be entitled by contract
or otherwise.
Section 9. LIMITATIONS. No indemnification or advance shall be made
under this Article, except as provided in Sections 5 or 6 in any circumstances
where it appears:
(a) that it would be inconsistent with a provision of the
Agreement and Declaration of Trust of the Trust, a
resolution of the shareholders, or an agreement in effect at
the time of accrual of the alleged cause of action asserted
in the proceeding in which the expenses were incurred or
other amounts were paid which prohibits or otherwise limits
indemnification; or
(b) that it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
Section 10. INSURANCE. Upon and in the event of a determination by the
Board of Trustees of this Trust to purchase such insurance, this Trust shall
purchase and maintain insurance on behalf of any agent of this Trust against any
liability asserted against or incurred by the agent in such capacity or arising
out of the agent's status as such, but only to the extent that this Trust would
have the power to indemnify the agent against that liability under the
provisions of this Article and the Agreement and Declaration of Trust of the
Trust.
Section 11. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This Article does not
apply to any proceeding against any Trustee, investment manager or other
fiduciary of an employee benefit plan in that person's capacity as such, even
though that person may also be an agent of this Trust as defined in Section 1 of
this Article. Nothing contained in this Article shall limit any right to
indemnification to which such a Trustee, investment manager, or other fiduciary
may be entitled by contract or otherwise which shall be enforceable to the
extent permitted by applicable law other than this Article.
ARTICLE VII
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. This Trust
shall keep at its principal executive office or at the office of its transfer
agent or registrar, if either be appointed and as determined by resolution of
the Board of Trustees, a record of its
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shareholders, giving the names and addresses of all shareholders and the number
and series of shares held by each shareholder.
Section 2. MAINTENANCE AND INSPECTION OF BY-LAWS. The Trust shall keep
at its principal executive office the original or a copy of these By-Laws as
amended to date, which shall be open to inspection by the shareholders at all
reasonable times during office hours.
Section 3. MAINTENANCE AND INSPECTION OF OTHER RECORDS. The accounting
books and records and minutes of proceedings of the shareholders and the Board
of Trustees and any committee or committees of the Board of Trustees shall be
kept at such place or places designated by the Board of Trustees or in the
absence of such designation, at the principal executive office of the Trust.
The minutes shall be kept in written form and the accounting books and records
shall be kept either in written form or in any other form capable of being
converted into written form. The minutes and accounting books and records shall
be open to inspection upon the written demand of any shareholder or holder of a
voting trust certificate at any reasonable time during usual business hours for
a purpose reasonably related to the holder's interests as a shareholder or as
the holder of a voting trust certificate. The inspection may be made in
person or by an agent or attorney and shall include the right to copy and make
extracts.
Section 4. INSPECTION BY TRUSTEES. Every Trustee shall have the
absolute right at any reasonable time to inspect all books, records, and
documents of every kind and the physical properties of the Trust. This
inspection by a Trustee may be made in person or by an agent or attorney and the
right of inspection includes the right to copy and make extracts of documents.
Section 5. FINANCIAL STATEMENTS. A copy of any financial statements
and any income statement of the Trust for each quarterly period of each fiscal
year and accompanying balance sheet of the Trust as of the end of each such
period that has been prepared by the Trust shall be kept on file in the
principal executive office of the Trust for at least twelve (12) months and each
such statement shall be exhibited at all reasonable times to any shareholder
demanding an examination of any such statement or a copy shall be mailed to any
such shareholder.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the Trust or the certificate of an authorized officer of
the Trust that the financial statements were prepared without audit from the
books and records of the Trust.
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ARTICLE VIII
GENERAL MATTERS
Section 1. CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS. All checks,
drafts, or other orders for payment of money, notes or other evidences of
indebtedness issued in the name of or payable to the Trust shall be signed or
endorsed in such manner and by such person or persons as shall be designated
from time to time in accordance with the resolution of the Board of Trustees.
Section 2. CONTRACTS AND INSTRUMENTS - HOW EXECUTED. The Board of
Trustees, except as otherwise provided in these By-Laws, may authorize any
officer or officers, agent or agents, to enter into any contract or execute any
instrument in the name of and on behalf of the Trust and this authority may be
general or confined to specific instances; and unless so authorized or ratified
by the Board of Trustees or within the agency power of an officer, no officer,
agent, or employee shall have any power or authority to bind the Trust by any
contract or engagement or to pledge its credit or to render it liable for any
purpose or for any amount.
Section 3. CERTIFICATES FOR SHARES. A certificate or certificates for
shares of beneficial interest in any series of the Trust may be issued to a
shareholder upon his request when such shares are fully paid. All certificates
shall be signed in the name of the Trust by the Chairman of the Board or the
President or Vice President and by the Treasurer or an Assistant Treasurer or
the Secretary or any Assistant Secretary, certifying the number of shares and
the series of shares owned by the shareholders. Any or all of the signatures on
the certificate may be facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed on a
certificate shall have ceased to be that officer, transfer agent, or registrar
before that certificate is issued, it may be issued by the Trust with the same
effect as if that person were an officer, transfer agent or registrar at the
date of issue. Notwithstanding the foregoing, the Trust may adopt and use a
system of issuance, recordation and transfer of its shares by electronic or
other means.
Section 4. LOST CERTIFICATES. Except as provided in this Section 4, no
new certificates for shares shall be issued to replace an old certificate unless
the latter is surrendered to the Trust and canceled at the same time. The Board
of Trustees may in case any share certificate or certificate for any other
security is lost, stolen, or destroyed, authorize the issuance of a replacement
certificate on such terms and conditions as the Board of Trustees may require,
including a provision for indemnification of the Trust secured by a bond or
other adequate security sufficient to protect the Trust against any claim that
may be made against it, including any expense or liability on account of the
alleged loss, theft, or destruction of the certificate or the issuance of the
replacement certificate.
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Section 5. REPRESENTATION OF SHARES OF OTHER ENTITIES HELD BY TRUST.
The Chairman of the Board, the President or any Vice President or any other
person authorized by resolution of the Board of Trustees or by any of the
foregoing designated officers, is authorized to vote or represent on behalf of
the Trust any and all shares of any corporation, partnership, trusts, or other
entities, foreign or domestic, standing in the name of the Trust. The authority
granted may be exercised in person or by a proxy duly executed by such
designated person.
Section 6. FISCAL YEAR. The fiscal year of the Trust shall be fixed and
refixed or changed from time to time by resolution of the Trustees. The fiscal
year of the Trust shall be the taxable year of each Series of The Trust.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY SHAREHOLDERS. These By-Laws may be amended or
repealed by the affirmative vote or written consent of a majority of the
outstanding shares entitled to vote, except as otherwise provided by applicable
law or by the Agreement and Declaration of Trust of the Trust or these By-Laws.
Section 2. AMENDMENT BY TRUSTEES. Subject to the right of shareholders
as provided in Section 1 of this Article to adopt, amend or repeal By-Laws, and
except as otherwise provided by applicable law or by the Agreement and
Declaration of Trust of the Trust, these By-Laws may be adopted, amended, or
repealed by the Board of Trustees.
Section 3. INCORPORATION BY REFERENCE INTO AGREEMENT AND DECLARATION OF
TRUST OF THE TRUST. These By-Laws and any amendments thereto shall be
incorporated by reference to the Agreement and Declaration of Trust of the
Trust.
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