AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION
ON 07/28/99
FILE NOS: 811-9219
333-71501
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [1]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. [3]
(Check appropriate box or boxes.)
OPTIMAL FUNDS, INC.
-------------------------------
(Exact name of Registrant as Specified in Charter)
213-G VT Route 15
Jericho, VT 05465
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(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code:
802-899-2593
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MR. MITCHELL M. MAYNARD
213-G VT ROUTE 15
JERICHO, VT 05465
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(Name and Address of Agent for Service)
Please send copy of communications to:
MR. TERENCE P. SMITH
Declaration Service Company
555 North Lane, Suite 6160
Conshohocken, Pennsylvania 19428
610-832-1075
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Approximate Date of Proposed Public Offering:
- ---------------------------------------------
As soon as practicable following effective date.
It is proposed that this filing will become effective (check appropriate box):
- ------------------------------------------------------------------------------
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/X/ 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(3)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant declares hereby that an indefinite number or amount of its securities
has been registered by this Registration Statement.
TOTAL NUMBER OF PAGES _____
EXHIBIT INDEX BEGINS
ON PAGE _____
<PAGE>
The Optimal Fund
(the "Fund")
A Portfolio of Optimal Funds, Inc.
PROSPECTUS
September 28, 1999
The Fund's investment objective is to achieve capital growth. Current income is
a secondary objective of the Fund. The Fund is offered by Optimal Funds, Inc.
(the "Company"), an open-end, diversified management investment company.
The Fund offers two classes of shares so that you can choose the class that best
suits your investing needs--Class A shares, with a maximum front-end sales
charge of 4.50% and Class C shares, with maximum continuing annual Distribution
and Service (12b-1) fees of 1.00%.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANYONE WHO
TELLS YOU OTHERWISE IS COMMITTING A CRIME.
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<PAGE>
TABLE OF CONTENTS
Risk/Return Summary
Fees And Expenses
Investing In The Fund
How To Sell (Redeem) Shares
Dividends and Distributions
Optimal Funds, Inc.
Management of the Fund
Fund Service Providers
Federal Taxes
General Information
Distribution Fee
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<PAGE>
RISK/RETURN SUMMARY
Investment Objectives
- ---------------------
The Fund's primary investment objective is capital growth. Current income is a
secondary objective of the Fund.
Primary Investment Strategies
- -----------------------------
The Fund seeks to achieve its objectives by investing primarily in stock index
futures and options contracts on stock indexes of developed countries all over
the world ("Global Indexes"). There are stock indexes for most of the world's
stock markets. In order to "invest" in an index, you must purchase a security
that is designed to mirror the performance of that index. Stock index futures
and options contracts are designed to mirror the performance of a particular
stock index. As the value of a particular index rises and falls, the value of
the underlying futures or options contract also rises or falls. Ideally, the two
will rise and fall together and to the same degree.
The Fund will invest in futures and options contracts on indexes that are
largely representative of the world's developed economies. The Fund will not
invest in "emerging" countries. Further, the Fund will limit its investment in
stock index futures and options contracts so that the Fund will not invest more
than five percent (5%) of its net assets as initial margin on those contracts.
The table below sets out the Global Indexes in which the Fund normally intends
to concentrate its investments:
Country Index
- ------- -----
United States S&P 500
United Kingdom FTSE-100
France CAC-40
Germany DAX
Japan Nikkei-225
The Fund invests in futures and options contracts on the Global Indexes based on
each country's Gross Domestic Product ("GDP"). GDP is the measure of all goods
and services produced in a country in a year, measured in U.S. dollars. Each
year, the World Bank issues reports on the GDP for each of the countries that
will be included in the Fund. Each country's GDP is added together to get a
global GDP value, called the Base Value. Each country's individual GDP will be
divided by the Base value to determine that country's percentage representation
in the total. The Fund will then invest in stock index futures and options
contracts to the extent of that country's representation in the total. The
Adviser will recalculate the Base Value and each country's percentage
representation annually, usually in July.
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If the Fund's Adviser determines that investing in stock index futures and
options contracts alone will not achieve adequate participation in the Global
Indexes, the Fund will also invest in shares of other registered investment
companies (mutual funds) that have the investment objective of tracking the
performance of an index or a basket of indexes. Examples of these types of
mutual funds are S&P Depository Receipts ("SPDRS") and World Equity Benchmarks
("WEBS"). SPDRS are mutual fund shares that trade on the American Stock Exchange
and track the performance of the S&P 500 Stock Index. WEBS are mutual fund
shares that also trade on the American Stock Exchange. There are a number of
distinct WEBS that track the performance of a number of foreign country indexes.
WEBS are based on the Morgan Stanley Capital International country index
baskets, and are designed to track the performance of such indexes.
To further assist the Fund in achieving its investment objective of
participating in Global Indexes, the Fund may also invest in Eurotop 100 Index
futures contracts. The FTSE Eurotop 100 Index is a selection of the "top" 100
stocks of companies that are native to Europe. The companies in the index are
chosen based on their volume of trading activity, and are weighted in the index
based on their market capitalization. The index is calculated and managed by the
FTSE in London, England. The futures contracts on the Eurotop 100 Index also
trade on the FTSE in London.
The remaining net assets of the Fund normally will be invested in money market
instruments such as certificates of deposit and short-term treasury notes and
bills.
Investment Rationale
- --------------------
By investing in stock index futures and options contracts, registered investment
companies, and money market instruments, the Fund is designed to invest in a
manner that achieves both capital growth and current income.
Capital Growth. By investing up to 5% of the Fund's net assets as initial margin
for futures and options contracts, the Fund will be investing in securities that
rise or fall in value based on the performance of the underlying indexes. If the
value of the Global Indexes rise, the value of the underlying futures and
options contract will also rise.
Futures and options contracts are bought on margin, which means that a contract
can be purchased for a percentage of its full value. Purchasing futures and
options contracts on margin results in the Fund controlling an amount of
securities in excess of the price paid for those securities. Because the Fund
controls securities in excess of its invested margin, growth in the value of the
Global Indexes will generate greater growth than would be possible if such
margin amount were invested in other types of securities. To fully replicate the
price changes in the Global Indexes, the Fund attempts to achieve and maintain a
Beta of 1.0 to the Global Indexes that are included in the Fund's portfolio.
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Beta is a way of measuring the volatility of a portfolio versus the volatility
of some other standard, in this case, the Global Indexes. A Beta of less than
1.0 means that the portfolio is less volatile than the underlying index, and
price changes in the portfolio will not be as severe as price changes in the
underlying index. A Beta of greater than 1.0 means that prices in the portfolio
will increase or decrease in value more severely than price changes in the
underlying index. By attempting to maintain a Beta of 1.0, the Fund will attempt
to mirror changes in the Global Indexes.
The Fund, in order to maintain its Beta of 1.0, may also need to invest in WEBS,
SPDRS and Euorotop 100 Index futures. Generally, the Fund will invest in these
securities under the following conditions: (1) Where maintaining a Beta of 1.0
would call for less than a full futures or options contract value be purchased,
and (2) when the margin requirements to purchase an adequate amount of futures
and options contracts would result in the Fund exceeding its 5% initial margin
limitation.
If the value of the WEBS, SPDRS and Euorotop 100 Index futures rise as a result
of an increase in the value of the underlying indexes, the Fund will achieve
capital growth.
Current Income. The Fund attempts to realize current income by investing its
remaining net assets in money market instruments such as certificates of
deposit, short-term treasury notes and bills, and repurchase agreements. Money
market instruments are debt instruments that pay interest to the investor.
Accordingly, those net assets of the Fund invested in such instruments will
generate current income for the Fund.
Principal Risks
- ---------------
Futures and Options Contracts. The primary risks of futures and options
contracts are (1) imperfect correlation between the price movement of the
futures and options contract and the price movement of the underlying security,
in this case, stock indexes, (2) margin risk, and (3) liquidity risk.
There is always the risk that an offsetting futures and options contract will
not correlate exactly to the underlying security. When that happens, price
movements of the underlying security will not be completely offset by the
related futures and options contract, and losses can occur.
Although the Fund may invest no more than 5% of its net assets in initial
margin, the Fund may lose far more than its initial margin if the value of the
stock index futures and/or options contracts drop.
There is the possibility that there will not be a liquid secondary market for a
futures and/or options contract, which would make it more difficult for the Fund
to close out the position prior to the maturity date. In a rapidly declining
market, the Fund could experience serious losses if it were unable to liquidate
its positions. The Fund will minimize these risks by purchasing futures and
options contracts only on national exchanges and over-the-counter markets with
an active and liquid secondary market. The Fund will also minimize these risks
by investing only in the most liquid and active indexes in each country.
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Common Stock. Because the Fund invests globally in stock index futures and
options contracts, the Fund will be subject, indirectly, to changes in stock
markets, both in the United States and in the other countries in which the Fund
invests. The stock markets trade in a cyclical price pattern, with prices
generally rising or falling over time. These cyclical periods may last for a
significant period of time. The Global Indexes change in value as the value of
that country's stock market changes. Accordingly, a sustained period of
declining stock prices in a Global Index country will cause a sustained decline
in the value of that index, and in the Fund.
Currency Risk. Because the Fund will invest indirectly in Global Indexes, the
Fund will be exposed to currency risk. This means that the Fund could lose money
due to a change in the value of its foreign holdings caused by a change in the
value of that country's currency. Changes in the value of a country's currency
relative to the value of the dollar can have a pronounced effect on the value of
a foreign security. Investing in stock index futures and options generally
reduces the need for currency conversion. Additionally, the Adviser will
minimize the risk of currency fluctuations by selling currency futures contracts
as a hedge against foreign currency positions.
Registered Investment Companies. The Fund will invest in other registered
investment companies (mutual funds) whose investment objective is to replicate
the performance of an index or country index basket in which the Fund wishes to
invest. When the Fund invests in other mutual funds, you will be subject to the
risks associated with those funds, and you will pay, indirectly, a portion of
the fees and expenses of that mutual fund. The Fund may not invest more than 10%
of its net assets in other mutual funds, and the fund cannot own more than 3% of
any one mutual fund's outstanding shares.
Debt Securities. The Fund will normally invest net assets not invested in
futures contracts or registered investment companies in money market
instruments. The primary risks of money market instruments are interest rate
risk and credit risk. As interest rates generally rise, the value of money
market instruments generally fall. The longer a money market instrument has
until it matures, the more severely its price will change when interest rates
change. Also, the value of a money market instrument can change due to a change
in the creditworthiness of the issuer. The less creditworthy the issuer, the
less desirable the security, and the lower its value.
To minimize interest rate risk, the Fund will only invest in money market
instruments with less than a year remaining to maturity, or will sell futures
contracts that correspond the security purchased as a hedge. To minimize credit
risk, the Fund will only invest in U.S.
4
<PAGE>
Government and agency securities, and certificates of deposits and other
interest bearing deposit instruments and accounts from U.S. banks with over $1
billion in assets. Year 2000 Risks. As with other mutual funds, financial and
business organizations and individuals around the world, the Fund could be
adversely affected if the computer systems used by the Adviser and the Fund's
other service providers don't properly process and calculate date-related
information and data from and after January 1, 2000. This is commonly known as
the "Year 2000" or "Y2K" problem. The Adviser is taking steps to address the Y2K
problem with respect to the computer systems that it uses and to obtain
assurances that comparable steps are being taken by the Fund's other major
service providers. At this time, however, there can be no assurance that these
steps will be sufficient to avoid any adverse impact on the Fund. Also, if
issuers of securities held by the Fund experience Y2K problems, those problems
may adversely affect the value of the Fund's portfolio.
Portfolio Risk. Because of the manner in which the Fund invests its assets, the
Fund requires a certain amount of assets in order to efficiently mange its
investments. The Adviser has determined that the Fund requires $10 million in
assets to efficiently invest according to the Fund's investment policies. Until
that asset level is reached, the Fund may not be invested in complete accordance
with its investment policies, and the Fund's performance could be negatively
affected as a result.
Other Risks. You may lose money by investing in the Fund. The likelihood of loss
is greater if you invest for a shorter period of time. The Fund intends to
engage in certain aggressive investment techniques, including transactions in
futures contracts. The Fund has no operating history, and the Adviser has no
previous experience advising this type of mutual fund. You should be aware that
there is no assurance that the Adviser will be successful in achieving the
objectives of the Fund, since all investments have some degree of risk.
The value of the Fund's investments will vary from day-to-day, reflecting
changes in market conditions, interest rates and other company, political, and
economic news. Over the short-term, stock prices can fluctuate dramatically in
response to these factors.
The Adviser has determined that, because of the manner in which the Fund
invests, in order to fully achieve the Fund's objective of a 1.0 Beta, the Fund
needs to have at least $10 million in net assets. Until such asset levels are
achieved, the Adviser will attempt to achieve the Fund's objectives through
selective investing in securities that the Advise believes will achieve the
fund's objective. However, there is no assurance that the Fund will be able to
achieve its objectives during this period.
A complete listing of the Fund's investment restrictions, including those that
may be changed only by a vote of the Fund's shareholders, may be found in the
Statement of Additional Information ("SAI") for the Fund.
The Fund is appropriate for investors who want capital appreciation and are
willing to accept moderate to high amounts of volatility and risk.
5
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses you may pay if you buy and hold
shares of the Fund.
Shareholder Fees: Class A Class C
- ----------------- ------- -------
(fees paid directly from your investment)
Maximum Sales Charge (Load) 4.50% NONE
Imposed On Purchases
(as a percentage of offering price)
Annual Fund Operating Expenses: Class A Class C
- ------------------------------- ------- -------
(expenses that are deducted from Fund assets)
Management Fees1 1.45% 1.45%
Distribution and Service (12b-1) Fees 0.25% 1.00% 2
Other Expenses 3 0.05% 0.05%
----- -----
Total Annual Fund Operating Expenses4 1.75% 2.50%
1. Includes investment advisory fees of 0.50% per annum and administrative
services fees of 0.95% per annum. These fees are paid to the Fund's
Adviser.
2. Includes a maximum annual fee of 0.75% of average net assets for
distribution-related expenses and 0.25% for shareholder service expenses.
You should be aware that if you hold your shares for a substantial period
of time, you may indirectly pay more than the economic equivalent of the
maximum front-end sales charge allowed by the National Association of
Securities Dealers due to the recurring nature of Distribution (12b-1)
fees.
3. Because this is a new Fund without an operating history, "Other Expenses"
are estimated for the Fund's first fiscal year.
4. The Adviser has voluntarily agreed to waive its advisory fee and/or to
reimburse the Fund, if necessary, if the Management Fees and/or Other
Expenses would cause the Total Annual Fund Operating expenses to exceed
1.75% for Class A shares and 2.50% for Class C shares. The Adviser may
revise or cancel these expense limitations at any time and will notify you
in writing at least 30 days prior to any such change.
Example: This example is intended to help you compare the costs of investing in
the Fund with the costs of investing in other mutual funds.
The Example below assumes that you invest $10,000 in the Fund for the time
periods indicated, reinvest all your dividends and distributions, and then
redeem all your shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that the Fund's operating
expenses that were described above remain the same. Although your actual costs
may be higher or lower, based on these assumptions, your costs would be:
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Time Period Class A Class C
- ----------- ------- -------
One Year $620 $253
Three Years $976 $779
The maximum front-end sales load of 4.50% for Class A shares is included in
these calculations. Because the Fund does not charge a redemption fee, you would
pay the same fees set forth above even if you did not redeem your shares.
However, the Fund's custodian does charge a $10 wire transfer fee for
redemptions made by wire transfer. That charge is not included in the example.
If it were, your expenses would be higher.
INVESTING IN THE FUND
Determination of Share Price
- ----------------------------
Shares of the Fund are offered at the public offering price for each share class
of the Fund. The public offering price for shares of the Fund is based upon the
Fund's net asset value per share. Net asset value per share is calculated by
adding the value of Fund investments, cash and other assets, subtracting Fund
liabilities, and then dividing the result by the number of shares outstanding.
The assets of the Fund are valued at market value or, if market quotes cannot be
readily obtained, fair value is used as determined by the Board of Directors.
Class A Shares of the Fund are sold at net asset value, plus any applicable
sales charge. Class C shares of the Fund are sold at net asset value.
The public offering price of the Fund's shares is computed on all days on which
the New York Stock Exchange is open for business at the close of regular trading
hours on the Exchange, currently 4:00 p.m. East Coast time.
CLASS A SHARES.
Class A shares are offered at their public offering price, which is net asset
value per share plus the applicable sales charge. The sales charge varies,
depending on how much you invest. There are no sales charges on reinvested
distributions. The following sales charges apply to your investment:
As a % of
Amount Invested offering price
- --------------- --------------
$1000 to 99,999 4.50%
$100,000 to 249,999 3.50%
$250,000 to 499,999 2.50%
$500,000 to 999,999 1.50%
$1 million and up 0.50%
7
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Declaration Distributors, Inc., the Fund's Distributor, will pay the appropriate
dealer concession to those selected dealers who have entered into an agreement
with the Distributor to sell shares of the Fund. The dealer's concession may be
changed from time to time. The Distributor may from time to time offer incentive
compensation to dealers who sell shares of the Fund subject to sales charges,
allowing such dealers to retain an additional portion of the sales load. A
dealer who receives all of the sales load may be deemed to be an "underwriter"
under the Securities Act of 1933, as amended.
Exemptions from Sales Charges
- -----------------------------
The Fund will waive sales charges for purchases by fee-based Registered
Investment Advisers for their clients, broker/dealers with wrap fee accounts,
registered brokers for their own accounts, employees and employee related
accounts of the Adviser, and for an organization's retirement plan that places
either (i) 50 or more participants or (ii) $300,000 or more of combined
participant initial assets into the Fund. For purchasers that qualify for fee
waiver, shares will be purchased at net asset value.
Reduced Sales Charges
- ---------------------
You may qualify for a reduced sales charge by aggregating the net asset value of
all your Class A shares previously purchased in the Fund with the dollar amount
of additional shares to be purchased. For example, if you already owned Class A
shares in the Fund with an aggregate net asset value of $450,000, and you
decided to purchase an additional $60,000 of Class A shares, your sales charge
on the additional purchase would be 1.50% instead of 4.50%, because you had
accumulated more than $500,000 in Class A Shares.
Letter of Intent
- ----------------
You can immediately qualify for a reduced or eliminated sales charge by signing
a non-binding letter of intent stating your intention to buy an amount of shares
in the Fund during the next thirteen (13) months sufficient to qualify for the
reduction. Your letter will not apply to purchases made more than 90 days prior
to the letter. During the term of your letter of intent, the transfer agent will
hold in escrow shares representing the highest applicable sales load for the
Fund in which you have purchased shares, each time you make a purchase. Any
shares you redeem during that period will count against your commitment. If, by
the end of your commitment term, you have purchased all the shares you committed
to purchase, the escrowed shares will be released to you. If you have not
purchased the full amount of your commitment, your escrowed shares will be
redeemed in an amount equal to the sales charge that would apply if you had
purchased the actual amount in your account(s) all at once. Any escrowed shares
not needed to satisfy that charge would be released to you.
Opening And Adding To Your Account
- ----------------------------------
You can invest directly in the Fund in a number of ways. Simply choose the one
that is most convenient for you. Any questions you may have can be answered by
calling 1-800-365-6828. You may also purchase Fund shares through
broker-dealers, registered investment advisers or other financial organizations.
8
<PAGE>
Payments for Fund shares should be in U.S. dollars, and in order to avoid fees
and delays, should be drawn on a U.S. bank. Please remember that Fund management
reserves the right to reject any purchase order for Fund shares. Your purchase
of Fund shares is subject to the following minimum investment amounts:
Minimum Investment To Open Account Additional Investments
--------------- ---------------------
Class A Shares
Regular Account $500 $50
IRA's $500 $50
Class C Shares
Regular Account $500 $50
IRA's $500 $50
TO OPEN AN ACCOUNT TO ADD TO ACCOUNT
By Mail Complete an Account Make your check payable to
Registration Form, make The Optimal Fund and
a check payable to The mail it to the address at left.
Optimal Fund
and mail the Form and check
to Optimal Funds, Inc. Please include your account
c/o Declaration Services number on your check.
Company, 555 North Lane Or use the convenient form
Suite 6160, Conshohocken, attached to your regular
PA 19428. Fund statement.
By Wire Ask your bank to wire funds Ask your bank to wire
to Account of First Union immediately available funds
National Bank, NA to the location described at
ABA#: -------------- the left, except that the wire
Credit: Optimal Funds, Inc. should note that it is to make
Account #: -------------- a subsequent purchase rather
Further credit: The Optimal than to open a new account.
Fund.
The wire should state that the Include your name and
Fund purchase is to be in your account number.
name(s).
9
<PAGE>
The wire should state that you
are opening a new Fund account.
Include your name(s), address and
taxpayer identification number or
Social Security number and the name
of the Fund in which you are
purchasing shares.
Call 1-800-365-6828 to inform us
that a wire is being sent.
By Telephone transactions may Call 1-800-365-6828 to make
Tele- not be used for initial purchases your purchase.
Phone. If you want to make
subsequent transactions via
telephone, please select this
service on your account
Registration Form.
Optimal Funds, Inc. wants you to be kept current regarding the status of your
account in the Fund. To assist you, the following statements and reports will be
sent to you:
Confirmation Statements After every transaction that affects your account
balance or your account registration.
Financial Reports Semi-annually -- to reduce Fund expenses, only one
copy of the Fund report will be mailed to each
taxpayer identification number even if you have more
than one account in the Fund.
Purchase By Mail
- ----------------
Your purchase order, if in proper form and accompanied by payment, will be
processed upon receipt by Declaration Services Company, the Fund's Transfer
Agent. If the Transfer Agent receives your order and payment by the close of
regular trading on the Exchange (currently 4:00 p.m. East Coast time), your
shares will be purchased at the Fund's net asset value calculated at the close
of regular trading on that day. Otherwise, your shares will be purchased at the
net asset value determined as of the close of regular trading on the next
business day.
10
<PAGE>
The Company does not consider the U.S. Postal Service or any other independent
delivery service to be its agent. Therefore, deposit in the mail or with such
services, or receipt at Declaration Service Company's Post Office Box, of
purchase applications or redemption requests does not constitute receipt by the
Custodian or the Fund. Do not mail letters by overnight courier to the post
office box address. Correspondence mailed by overnight courier should be sent to
the Fund at:
Declaration Services Company
555 North Lane, Suite 6160
Conshohocken, Pa 19428
All applications to purchase shares of the Fund are subject to acceptance or
rejection by authorized officers of the Company and are not binding until
accepted. Applications will not be accepted unless they are accompanied by
payment in U.S. funds. Payment must be made by check or money order drawn on a
U.S. bank, savings & loan or credit union. The Custodian will charge a $20.00
fee against your account, in addition to any loss sustained by the Fund, for any
payment check returned to the Custodian for insufficient funds. The Company
reserves the right to refuse to accept applications under circumstances or in
amounts considered disadvantageous to shareholders. If you place an order for
Fund shares through a securities broker, and you place your order in proper form
before 4:00 p.m. East Coast time on any business day in accordance with their
procedures, your purchase will be processed at the public offering price
calculated at 4:00 p.m. on that day, if the securities broker then transmits
your order to the Transfer Agent before the end of its business day (which is
usually 5:00 p.m. East Coast time). The securities broker must send to the
Transfer Agent immediately available funds in the amount of the purchase price
within three business days for the order.
By Financial Service Organization
- ---------------------------------
If you are a client of a securities broker or other financial organization, you
should note that such organizations may charge a separate fee for administrative
services in connection with investments in Fund shares and may impose account
minimums and other requirements. These fees and requirements would be in
addition to those imposed by the Fund. If you are investing through a securities
broker or other financial organization, please refer to its program materials
for any additional special provisions or conditions that may be different from
those described in this Prospectus (for example, some or all of the services and
privileges described may not be available to you). Securities brokers and other
financial organizations have the responsibility of transmitting purchase orders
and funds, and of crediting their customers' accounts following redemptions, in
a timely manner in accordance with their customer agreements and this
Prospectus.
Telephone Purchases
- -------------------
In order to be able to purchase shares by telephone, your account authorizing
such purchases must have been established prior to your call. Your initial
purchase of shares may not be made by telephone. Shares purchased by telephone
will be purchased at the per share net
11
<PAGE>
asset value determined at the close of business on the day that the transfer
agent receives payment through the Automatic Clearing House. Call the Transfer
Agent for details.
You may make purchases by telephone only if you have an account at a bank that
is a member of the Automated Clearing House. Most transfers are completed within
three business days of your call. To preserve flexibility, the Company may
revise or eliminate the ability to purchase Fund shares by phone, or may charge
a fee for such service, although the Company does not currently expect to charge
such a fee.
Declaration Service Company, the Fund's transfer agent, employs certain
procedures designed to confirm that instructions communicated by telephone are
genuine. Such procedures may include, but are not limited to, requiring some
form of personal identification prior to acting upon telephonic instructions,
providing written confirmations of all such transactions, and/or tape recording
all telephonic instructions. Assuming procedures such as the above have been
followed, neither the Transfer Agent nor the Fund will be liable for any loss,
cost, or expense for acting upon telephone instructions that are believed to be
genuine. The Company shall have authority, as your agent, to redeem shares in
your account to cover any such loss. As a result of this policy, you will bear
the risk of any loss unless the Fund has failed to follow procedures such as the
above. However, if the Fund fails to follow such procedures, it may be liable
for such losses.
Wire Purchases
- --------------
If you purchase Fund shares by wire, you must complete and file an Account
Registration Form with the Transfer Agent before any of the shares purchased can
be redeemed. You should contact your bank (which will need to be a commercial
bank that is a member of the Federal Reserve System) for information on sending
funds by wire, including any charges that your bank may make for these services.
Miscellaneous Purchase Information
- ----------------------------------
Federal regulations require that you provide a certified taxpayer identification
number whenever you open or reopen an account. Congress has mandated that if any
shareholder fails to provide and certify to the accuracy of the shareholder's
social security number or other taxpayer identification number, the Company will
be required to withhold a percentage, currently 31%, of all dividends,
distributions and payments, including redemption proceeds, to such shareholder
as a backup withholding procedure.
For economy and convenience, share certificates will not be issued.
HOW TO SELL (REDEEM) YOUR SHARES
You may sell (redeem) your shares at any time. You may request the sale of your
shares either by mail, by telephone or by wire.
12
<PAGE>
By Mail
- -------
Sale requests should be mailed via U.S. mail or overnight courier service to:
Declaration Service Company
555 North Lane, Suite 6160
Conshohocken, PA 19428
The selling price of the shares being redeemed will be the Fund's per share net
asset value next calculated after receipt of all required documents in Good
Order. Payment of redemption proceeds will be made no later than the third
business day after the valuation date unless otherwise expressly agreed by the
parties at the time of the transaction.
Good Order means that the request must include:
- -----------------------------------------------
1. Your account number.
2. The number of shares to be sold (redeemed) or the dollar value of the
amount to be redeemed.
3. The signatures of all account owners exactly as they are registered on the
account.
4. Any required signature guarantees.
5. Any supporting legal documentation that is required in the case of estates,
trusts, corporations or partnerships and certain other types of accounts.
Signature Guarantees --
- -----------------------
A signature guarantee of each owner is required to redeem shares in the
following situations, for all size transactions:
(i) if you change the ownership on your account;
(ii) when you want the redemption proceeds sent to a different address than is
registered on the account;
(iii) if the proceeds are to be made payable to someone other than the account's
owner(s);
(iv) any redemption transmitted by federal wire transfer to your bank; and
(v) if a change of address request has been received by the Company or
Declaration Service Company within 15 days previous to the request for
redemption.
In addition, signature guarantees are required for all redemptions of $2,500 or
more from any Fund shareholder account. A redemption will not be processed until
the signature guarantee, if required, is received in Good Order.
Signature guarantees are designed to protect both you and the Fund from fraud.
To obtain a signature guarantee, you should visit a bank, trust company, member
of a national securities exchange or other broker-dealer, or other eligible
guarantor institution. (Notaries public cannot provide signature guarantees.)
Guarantees must be signed by an authorized person at one of these institutions,
and be accompanied by the words "Signature Guarantee."
13
<PAGE>
By Telephone
- ------------
You may redeem your shares in the Fund by calling the Transfer Agent at
1-800-365-6828 if you elected to use telephone redemption on your account
application when you initially purchased shares. Redemption proceeds must be
transmitted directly to you or to your pre-designated account at a domestic
bank. You may not redeem by telephone if a change of address request has been
received by the Company or the Transfer Agent within 15 days previous to the
request for redemption. During periods of substantial economic or market
changes, telephone redemptions may be difficult to implement. If you are unable
to contact the Transfer Agent by telephone, shares may be redeemed by delivering
the redemption request in person or by mail. You should understand that with the
telephone redemption option, you may be giving up a measure of security that you
might otherwise have had were you to redeem your shares in writing. In addition,
interruptions in telephone service may mean that you will be unable to effect a
redemption by telephone if desired.
By Wire
- -------
You may request the redemption proceeds be wired to your designated bank if it
is a member bank or a correspondent of a member bank of the Federal Reserve
System. A $10 fee is charged for outgoing wires.
Redemption At The Option Of The Fund
- ------------------------------------
If the value of the shares in your account falls to less than $500, the Company
may notify you that, unless your account is increased to $500 in value, it will
redeem all your shares and close the account by paying you the redemption
proceeds and any dividends and distributions declared and unpaid at the date of
redemption. You will have thirty days after notice to bring the account up to
$500 before any action is taken. This minimum balance requirement does not apply
to IRAs and other tax-sheltered investment accounts. This right of redemption
shall not apply if the value of your account drops below $500 as the result of
market action. The Company reserves this right because of the expense to the
Fund of maintaining very small accounts.
DIVIDENDS AND DISTRIBUTIONS
Dividends paid by the Fund are derived from its net investment income. Net
investment income will be distributed at least annually. The Fund's net
investment income is made up of dividends received from the stocks it holds, as
well as interest accrued and paid on any other obligations that might be held in
its portfolio.
The Fund realizes capital gains when it sells a security for more than it paid
for it. The Fund may make distributions of its net realized capital gains (after
any reductions for capital loss carryforwards), generally, once a year.
14
<PAGE>
Unless you elect to have your distributions paid in cash, your distributions
will be reinvested in additional shares of the Fund. You may change the manner
in which your dividends are paid at any time by writing to Declaration Service
Company, 555 North Lane, Suite 6160, Conshohocken, PA 19428.
OPTIMAL FUNDS, INC.
Optimal Funds, Inc (the "Company") was organized on April 27, 1999 as a Maryland
corporation, and is a company of the type known as an open-end, diversified
management investment company. It did not begin operations until June 8, 1999
nor commence offering its shares until that time. It is authorized to issue
500,000,000 shares of .001 cent par value common capital stock. The Company's
Articles of Incorporation permit its Board of Directors to classify any unissued
shares into one or more classes of shares (each a "mutual fund"). A mutual fund
permits an investor to pool his or her assets with those of others in order to
achieve economies of scale, take advantage of professional money managers and
enjoy other advantages traditionally reserved for large investors. The Board has
authorized the issuance of 10,000,000 shares of Company stock to be classified
as the Optimal Fund, which are offered by this prospectus. The Fund shares are
fully paid and non-assessable. They are entitled to such dividends and
distributions as may be paid with respect to the shares and shall be entitled to
such sums on liquidation of the Fund as shall be determined. Other than these
rights, they have no preference as to conversion, exchange, dividends,
retirement or other features and have no preemption rights. Shareholder meetings
will not be held unless required by Federal or State law or in connection with
an undertaking given by the Fund (See Statement of Additional Information).
MANAGEMENT OF THE FUND
The business affairs of the Fund are managed under the general supervision of a
Board of Directors.
Investment Adviser
- ------------------
The Company has entered into an Investment Advisory Contract (the "Contract")
with Leveraged Index Management Company, (the "Adviser"), 213-G VT, Route 15,
Jericho, VT 05465. Mitchell M. Maynard is the president of and controls the
Adviser and is responsible for all its investment decisions, including the
day-to-day management of the Fund. Mr. Maynard also serves as the President and
as a Director of the Company. The Adviser is registered as a registered
investment adviser with the Securities and Exchange Commission. The Adviser
operates solely as an investment advisory firm, and manages the investment of
the assets of the Fund in accordance with the Fund's investment objectives,
policies, and restrictions.
Mitchell M. Maynard, the Fund's portfolio manager, has been offering and
providing investment services to the public for over 8 years. He founded the
Adviser in January, 1999 and has been its president and chief investment
professional since that time. The Adviser provides investment advice to
individuals and institutional clients in addition to advising the Fund. From
1992 through 1998, Mr. Maynard was president of MFAS, Inc., a financial planning
firm in Burlington, Vermont offering financial planning services to individuals
and institutions.
15
<PAGE>
Mr. Maynard has been the creator of many financial programs that have been used
in his private practice.
Mr. Maynard holds the following licenses from the National Association of
Securities Dealers ("NASD"): Series 7, Series 24, Series 63,and Series 65.
Mr. Maynard has also completed the studies and ethical requirements to obtain
the designation of Certified Investment Management Consultant ("CIMC") and
Certified Funds Specialist ("CFS"). The "CIMC" designation is awarded by the
Institute of Investment Management Consultants. The "CFS" designation is awarded
by the Institute of Business and Finance.
The Adviser receives from the Fund, as compensation for its services, a fee,
accrued daily and payable monthly, at an annual rate of 0.50% of the Fund's net
assets.
Operating Services Agreement; the Company has also entered into an Operating
Services Agreement with the Adviser where the Adviser will provide, or arrange
to provide, essentially all other services needed to the Fund. These services
include transfer agent, accounting, distribution and custodial services. The
effect of the Investment Advisory Agreement and the Operating Services Agreement
is to cap the Fund's normal operating expenses. These contracts do not cover
expenses incurred by the Fund for taxes, interest, brokerage fees, legal
expenses for litigation, and other extraordinary expenses.
The Adviser receives from the Fund, as compensation for its services, a fee,
accrued daily and payable monthly, at an annual rate of 0.95% of the Fund's net
assets.
Under these agreements, the Adviser furnishes at its own expense office space to
the Company and all necessary office facilities, equipment, and personnel for
managing the assets of the Fund. The Adviser also pays all expenses of marketing
shares of the Fund, and related bookkeeping.
FUND SERVICE PROVIDERS
The Fund could not function without the services provided by certain companies.
With the Board's permission, the Adviser and the Fund have entered into
contracts with the following companies. All fees charged by these companies will
be paid by the Adviser.
16
<PAGE>
Custodian
- ---------
First Union National Bank, NA, Philadelphia, PA, holds the investments and other
assets that the Fund owns. The Custodian is responsible for receiving and paying
for securities purchased, delivering against payment securities sold, receiving
and collecting income from investments, making all payments covering expenses of
the Fund, and performing other administrative duties, all as directed by persons
authorized by the Fund. The Custodian does not exercise any supervisory function
in such matters as the purchase and sale of portfolio securities, payment of
dividends, or payment of expenses of the Fund. Portfolio securities of the Fund
are maintained in the custody of the Custodian, and may be entered in the
Federal Reserve Book Entry System, or the security depository system of The
Depository Trust Company.
Transfer, Dividend Disbursing And Accounting Services Agent
- -----------------------------------------------------------
Declaration Service Company, 555 North Lane, Suite 6160, Conshohocken, PA 19428
provides transfer agency and dividend disbursing services for the Fund. This
means that its job is to maintain, accurately, the account records of all
shareholders in the Fund as well as to administer the distribution of income
earned as a result of investing in the Fund. Declaration Service Company also
provides accounting services to the Fund including portfolio accounting
services, expense accrual and payment services, valuation and financial
reporting services, tax accounting services and compliance control services.
FEDERAL TAXES
As with any investment, you should consider the tax implications of an
investment in the Fund. The following is only a short summary of the important
tax considerations generally affecting the Fund and its shareholders. You should
consult your tax adviser with specific reference to your own tax situation.
The Fund intends to distribute to shareholders, at least annually, usually in
December, substantially all net investment income and any net capital gains
realized from sales of the Fund's portfolio securities. Dividends from net
investment income and distributions from any net realized capital gains are
reinvested in additional shares of the Fund unless the shareholder has requested
in writing to have them paid by check.
Dividends from investment income and net short-term capital gains are generally
taxable to you as ordinary income. Capital gains may be taxed at different
rates, depending on how long the Fund held the securities it sold. Distributions
are taxable, whether received in cash or reinvested in shares of the Fund.
You will be advised annually of the source of distributions for federal income
tax purposes.
If you fail to furnish your social security or other tax identification number
or to certify properly that it is correct, the Fund may be required to withhold
federal income tax at the rate
17
<PAGE>
of 31% (backup withholding) from your dividend, capital gain and redemption
payments. Dividend and capital gain payments may also be subject to backup
withholding if you fail to certify properly that you are not subject to backup
withholding due to the under-reporting of certain income.
Taxable distributions generally are included in your gross income for the
taxable year in which they are received. However, dividends declared in October,
November and December and made payable to shareholders of record in such month
will be deemed to have been received on December 31st if paid by the Fund during
the following January.
Distributions by the Fund will result in a reduction in the fair market value of
the Fund's shares. Should a distribution reduce the fair market value below your
cost basis, such distribution would be taxable to you as ordinary income or as a
long-term capital gain, even though, from an investment standpoint, it may
constitute a partial return of capital. In particular, you should be careful to
consider the tax implications of buying shares of the Fund just prior to a
distribution. The price of such shares include the amount of any forthcoming
distribution so that you may receive a return of investment upon distribution
which will, nevertheless, be taxable.
A redemption of shares is a taxable event and, accordingly, a capital gain or
loss may be recognized. You should consult a tax Adviser regarding the effect of
federal, state, local, and foreign taxes on an investment in the Fund.
GENERAL INFORMATION
Total return for the Fund may be calculated on an average annual total return
basis or an aggregate total return basis. Average annual total return reflects
the average annual percentage change in value of an investment over the
measuring period. Aggregate total return reflects the total percentage change in
value of an investment over the measuring period. Both measures assume the
reinvestment of dividends and distributions.
Total return of the Fund may be compared to those of mutual funds with similar
investment objectives and to bond, stock or other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor mutual fund performance.
DISTRIBUTION FEE
The Fund has adopted a distribution plan (the "Distribution Plan") for its Class
C shares, pursuant to which the Fund may incur shareholder servicing expenses of
up to .25% per annum of the Fund's average daily net assets, and up to .75% per
annum of the Fund's average daily net assets on its Class C shares for
distribution services. These fees are available to brokers, dealers and other
persons who provide distribution and other services to the Fund to help sell
Class C shares.
18
<PAGE>
The Distribution Plan provides that the Fund may finance activities which are
primarily intended to result in the sale of the Fund's shares, including but not
limited to, advertising, printing of prospectuses and reports for other than
existing shareholders, preparation and distribution of advertising materials and
sales literature, and payments to dealers and shareholder servicing agents.
Because Distribution and Servicing fees are paid out of the Fund's assets on an
ongoing basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
19
<PAGE>
FOR MORE INFORMATION
STATEMENT OF ADDITIONAL BY MAIL:
INFORMATION (SAI)
Optimal Funds, Inc., c/o
The SAI contains more detailed Declaration Service Company
Information on all aspects of the 555 North Lane, Suite 6160
Fund. A current SAI, dated June 8, Conshohocken, PA 19428
1999, has been filed with the SEC
and is incorporated by reference BY PHONE: 1-800-365-6828
into (is legally a part of) this
prospectus. ON THE INTERNET:
www.optimalfundsinc.com
To request a free copy of the SAI,
Please contact the Fund: Or you may view or obtain these
documents from the SEC.
IN PERSON: at the SEC's Public
Reference Room in Washington, D.C.
BY PHONE: 1-800-SEC-0330
BY MAIL: Public Reference Section,
Securities and Exchange Commission,
Washington, D.C. 20549-6009
(duplicating fee required)
ON THE INTERNET: www.sec.gov
The Optimal Fund
c/o Declaration Service Company
555 North Lane, Suite 6160
Conshohocken, PA 19428
1-800-365-6828
Investment Company Act No.
811-9219
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Dated September 7, 1999
THE OPTIMAL FUND
213-G VT, Route 15
Jericho, VT 05465
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectus of Optimal Funds, Inc., dated September 7,
1999. Requests for copies of the Prospectus should be made by writing to Optimal
Funds, Inc., 213-G VT, Route 15, Jericho, VT 05465 or by calling 800-365-6828
TABLE OF CONTENTS
Investment Policies and Restrictions Custodian
Investment Adviser Transfer Agent
Directors and Officers Administration
Performance Information Independent Accountants
Purchasing and Redeeming Shares Principal Holders of Securities
Tax Information Independent Auditors Report
Portfolio Transactions Financial Statements
Plan of Distribution
INVESTMENT POLICIES AND RESTRICTIONS
The Fund's investment objective and the manner in which the Fund pursues its
investment objective is discussed in the prospectus. The Fund's investment
limitations and restrictions are listed below:
The Fund will not:
1. To the extent of 75% of its assets (valued at time of investment), invest
more than 5% of its assets in securities of any one issuer, except in
obligations of the United States Government and its agencies and
instrumentalities;
2. Acquire securities of any one issuer that at the time of investment (a)
represent more than 10% of the voting securities of the issuer or (b) have
a value greater than 10% of the value of the outstanding securities of the
issuer;
3. Borrow money except from banks for temporary or emergency purposes in
amounts not exceeding 5% of the value of the Fund's assets at the time of
borrowing;
1
<PAGE>
4. Underwrite the distribution of securities of other issuers, or acquire
"restricted" securities that, in the event of a resale, might be required
to be registered under the Securities Act of 1933;
5. Make margin purchases on equity securities;
6. Invest in companies for the purpose of management or the exercise of
control;
7. Lend money (but this restriction shall not prevent the Fund from investing
in debt securities or repurchase agreements).
8. Acquire or retain any security issued by a company, an officer or director
of which is an officer or director of the Company or an officer, director
or other affiliated person of the Advisor.
9. Invest in oil, gas or other mineral exploration or development programs,
although it may invest in marketable securities of companies engaged in
oil, gas or mineral exploration;
10. Purchase or sell real estate or real estate loans or real estate limited
partnerships, although it may invest in marketable securities of companies
that invest in real estate or interests in real estate.
11. Purchase warrants on securities.
12. Issue senior securities.
13. Invest in commodities, or futures and options on commodities.
14. Invest more than 25% of its net assets (valued at the time of investment)
in securities of any one industry.
Restrictions 1 through 14 listed above are fundamental policies, and may be
changed only with the approval of a "majority of the outstanding voting
securities" of the Fund as defined in the Investment Company Act of 1940.
The Fund has also adopted the following restrictions that may be changed by the
Board of Directors without shareholder approval:
The Fund may not:
a. Invest more than 15% of its net assets in securities that are not readily
marketable;
2
<PAGE>
b. Acquire securities of other investment companies except (a) by purchase in
the open market, where no commission or profit to a sponsor or dealer
results from such purchase other than the customary broker's commission and
(b) where acquisition results from a dividend or merger, consolidation or
other reorganization (in addition to this investment restriction, the
Investment Company Act of 1940 provides that the Fund may neither purchase
more than 3% of the voting securities of any one investment company nor
invest more than 10% of the Funds assets (valued at time of investment) in
all investment company securities purchased by the Fund);
c. Pledge, mortgage or hypothecate its assets, except for temporary or
emergency purposes and then to an extent not greater than 5% of its total
assets at cost;
INVESTMENT ADVISER
Information on the Fund's investment Adviser, Leveraged Index Management
Company, is set forth in the prospectus.
The adviser is a Vermont Corporation. Mitchell Maynard is the President of and
controls the Adviser.
The Advisory Agreement provides that the adviser shall not be liable for any
loss suffered by the Fund or its shareholders as a consequence of any act or
omission in connection with services under the Agreement, except by reason of
the adviser's willful misfeasance, bad faith, gross negligence, or reckless
disregard of its obligations and duties under the Advisory Agreement.
The Advisory Agreement expires on May 15, 2001, but may be continued from year
to year so long as its continuance is approved annually (a) by the vote of a
majority of the Directors of the Fund who are not "interested persons" of the
Fund or the adviser cast in person at a meeting called for the purpose of voting
on such approval, and (b) by the Board of Directors as a whole or by the vote of
a majority (as defined in the 1940 Act) of the outstanding shares of the Fund.
The Agreement will terminate automatically in the event of its assignment (as
defined in the 1940 Act).
DIRECTORS AND OFFICERS
The board of directors has overall responsibility for conduct of the Company's
affairs. The day-to-day operations of the Fund are managed by the Adviser
subject to the bylaws of the Company and review by the Board of Directors. The
directors of the Company, including those directors who are also officers, are
listed below:
3
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupation for the
Name, Age, with Fund Last Five Years
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Mitchell M. Maynard* President, President and controlling shareholder of
(Age 32) Director Leveraged Index Management Company, an
investment advisory firm, since January,
1999. From January, 1992 through
December, 1998, was president of MFAS,
Inc., an investment advisory firm in
Burlington, Vermont. Mr. Maynard has his
Series 7, 63, 24, and 65 securities
licenses. He also has obtained his
Certified Fund Specialist and Certified
Investment management Consultant
designations. Mr. Maynard attended
Riverside City College in Riverside, CA
from 1984 -1986.
Judith E. Liskin-Gasparro* Director Assistant Professor of Spanish,
(Age 52) University of Iowa, Iowa City, Iowa,
since 1993. Graduate of Bryn Mawr
College, Bryn Mawr, PA in 1969. Masters
degree from Princeton University,
Princeton, NJ in 1971.
Ellyn M. Mack* Director Surgical Assistant, John D. Carlson,
(Age 55) DMD, Middlebury, VT, since January,
1994. Attended New Paltz Teacher's
College, New Paltz, NY from 1961-1962.
Christine Bechade Director Product Services Manager for Cognex
(Age __) Corporation, Natick, MA, since 1997.
From 1994 through 1997, Senior Financial
Analyst with Coca-Cola Enterprises.
Served in a number of positions for
Coca-Cola from 1988 through 1997.
Presently attending Northeastern
University majoring in accounting.
Attended University of Vermont from 1986
through 1988.
4
<PAGE>
Elaine A. Bernasconi Director Customer Service Manager for Accent Lamp
(Age __) and Shade Company, Newton, MA since
1995. Store Manager for Brooks Store in
Burlington, VT from 1994 through 1995.
Undergraduate degree from University of
Vermont, 1988.
</TABLE>
* Indicates an "interested person" as defined in the Investment Company Act of
1940.
The Company was organized as a Maryland Corporation on April 27, 1999. The table
below sets forth the compensation anticipated to be paid by the Company to each
of the directors of the Company during its first fiscal year ending April 30,
2000.
Compensation Pension Annual Total Compensation
Name of Director from Corp. Benefits Benefits Paid to Director
- --------------------------------------------------------------------------------
Mitchell M. Maynard 0.00 0.00 0.00 0.00
Judith E.
Liskin-Gasparro 0.00 0.00 0.00 0.00
Ellyn M. Mack 0.00 0.00 0.00 0.00
Christine Bechade 2000.00 0.00 0.00 2000.00
Elaine A. Bernasconi 2000.00 0.00 0.00 2000.00
PRINCIPAL HOLDERS OF SECURITIES
The Adviser intends to purchase all of the outstanding shares of the Fund prior
to the effective date of the Fund's registration and will be deemed initially to
control the Fund.
The Company will call a meeting of shareholders for the purpose of voting upon
the question of removal of a director or directors when requested in writing to
do so by record holders of at least 10% of the Fund's outstanding common shares.
The Corporation's bylaws contain procedures for the removal of directors by its
stockholders. At any meeting of stockholders, duly called and at which a quorum
is present, the stockholders may by the affirmative vote of the holders of a
majority of the votes entitled to be cast thereon, remove any director or
directors from office and may elect a successor or successors to fill any
resulting vacancies for the unexpired terms of the removed directors.
PERFORMANCE INFORMATION
From time to time the Fund may quote total return figures. "Total Return" for a
period is the percentage change in value during the period of an investment in
Fund shares, including the value of shares acquired through reinvestment of all
dividends and capital gains distributions. "Average Annual Total Return" is the
average annual compounded rate of change in value represented by the Total
Return Percentage for the period.
5
<PAGE>
[n]
Average Annual Total Return is computed as follows: P(1+T) = ERV
Where: P = a hypothetical initial investment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of shares at the end of the period
Yield. The Fund may advertise performance in terms of a 30-day yield quotation.
The 30-day yield quotation is computed by dividing the net investment income per
share earned during the period by the maximum offering price per share on the
last day of the period, according to the following formula:
6
Yield = 2[(a-b/cd + 1) - 1]
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursement)
c = the average daily number of shares outstanding during the period
that they were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
The Fund's performance is a function of conditions in the securities markets,
portfolio management, and operating expenses. Although information such as that
shown above is useful in reviewing the Fund's performance and in providing some
basis for comparison with other investment alternatives, it should not be used
for comparison with other investments using different reinvestment assumptions
or time periods.
In sales literature, the Fund's performance may be compared with that of market
indices and other mutual funds. In addition to the above computations, the Fund
might use comparative performance as computed in a ranking determined by Lipper
Analytical Services, Morningstar, Inc., or that of another service.
PURCHASING AND REDEEMING SHARES
Purchases and redemptions are discussed in the Fund's prospectus.
Redemptions will be made at net asset value. The Fund's net asset value is
determined on days on which the New York Stock Exchange is open for trading.
6
<PAGE>
TAX INFORMATION
Taxation Of The Fund. The Fund intends to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code. To qualify as a
regulated investment company, the Fund must, among other things, derive at least
90% of its gross income from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock, securities,
or other income derived with respect to its business of investing in such stock
or securities.
If the Fund qualifies as a regulated investment company and distributes at least
90% of its net investment income, the Fund will not be subject to Federal income
tax on the income so distributed. However, the Fund would be subject to
corporate income tax on any undistributed income other than tax-exempt income
from municipal securities.
Taxation Of The Shareholder. Taxable distributions generally are included in a
shareholder's gross income for the taxable year in which they are received.
However, dividends declared in October, November and December and made payable
to shareholders of record in such month will be deemed to have been received on
December 31st if paid by the Fund during the following January.
Distributions by the Fund will result in a reduction in the fair market value of
the Fund's shares. Should a distribution reduce the fair market value below a
shareholder's cost basis, such distribution would be taxable to the shareholder
as ordinary income or as a long-term capital gain, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares of the Fund just prior to a distribution. The price of such shares
include the amount of any forthcoming distribution so that those investors may
receive a return of investment upon distribution which will, nevertheless, be
taxable to them.
A redemption of shares is a taxable event and, accordingly, a capital gain or
loss may be recognized. Each investor should consult a tax advisor regarding the
effect of federal, state, local, and foreign taxes on an investment in the Fund.
Dividends. A portion of the Fund's income may qualify for the dividends-received
deduction available to corporate shareholders to the extent that the Fund's
income is derived from qualifying dividends. Because the Fund may earn other
types of income, such as interest, income from securities loans, non-qualifying
dividends, and short-term capital gains, the percentage of dividends from the
Fund that qualifies for the deduction generally will be less than 100%. The Fund
will notify corporate shareholders annually of the percentage of Fund dividends
that qualifies for the dividend received deductions.
A portion of the Fund's dividends derived from certain U.S. Government
obligations may be exempt from state and local taxation. Short-term capital
gains are distributed as dividend income. The Fund will send each shareholder a
notice in January describing the tax status of dividends and capital gain
distributions for the prior year.
7
<PAGE>
Capital Gain Distribution. Long-term capital gains earned by the Fund from the
sale of securities and distributed to shareholders are federally taxable as
long-term capital gains, regardless of the length of time shareholders have held
their shares. If a shareholder receives a long-term capital gain distribution on
shares of the Fund, and such shares are held six months or less and are sold at
a loss, the portion of the loss equal to the amount of the long-term capital
gain distribution will be considered a long-term loss for tax purposes.
Short-term capital gains distributed by the Fund are taxable to shareholders as
dividends, not as capital gains.
PORTFOLIO TRANSACTIONS
The Fund will generally purchase and sell securities without regard to the
length of time the security has been held. Accordingly, it can be expected that
the rate of portfolio turnover may be substantial. Since investment decisions
are based on the anticipated contribution of a security to the Fund's investment
objective, the rate of portfolio turnover is not a factor when the Adviser
believes a change is in order to achieve those objectives. The Fund expects that
its annual portfolio turnover rate will not exceed 100% under normal conditions.
However, there can be no assurance that the Fund will not exceed this rate, and
the portfolio turnover rate may vary from year to year.
High portfolio turnover in any year will result in the payment by the Fund of
above-average transaction costs and could result in the payment by shareholders
of above-average amounts of taxes on realized investment gains. Distributions to
shareholders of such investment gains, to the extent they consist of short-term
capital gains, will be considered ordinary income for federal income tax
purposes.
Decisions to buy and sell securities for the Fund are made by the Adviser
subject to review by the Corporation's Board of Directors. In placing purchase
and sale orders for portfolio securities for the Fund, it is the policy of the
Adviser to seek the best execution of orders at the most favorable price. In
selecting brokers to effect portfolio transactions, the determination of what is
expected to result in the best execution at the most favorable price involves a
number of largely judgmental considerations. Among these are the Adviser's
evaluation of the broker's efficiency in executing and clearing transactions.
Over-the-counter securities are generally purchased and sold directly with
principal market makers who retain the difference in their cost in the security
and its selling price. In some instances, the Adviser feels that better prices
are available from non-principal market makers who are paid commissions
directly.
CUSTODIAN
First Union National Bank, NA, acts as custodian for the Fund. As such, it holds
all securities and cash of the Fund, delivers and receives payment for
securities sold, receives and pays for securities purchased, collects income
from investments and performs other duties, all as directed by officers of the
Company. The Custodian does not exercise any supervisory function over
management of the Fund, the purchase and sale of securities or the payment of
distributions to shareholders.
8
<PAGE>
TRANSFER AGENT
Declaration Service Company ("DSC"), 555 North Lane, Suite 6160, Conshohocken,
PA 19428, acts as transfer, dividend disbursing, and shareholder servicing agent
for the Fund pursuant to a written agreement with the Company and the Adviser,
dated April 17, 1999. Under the agreement, DSC is responsible for administering
and performing transfer agent functions, dividend distribution, shareholder
administration, and maintaining necessary records in accordance with applicable
rules and regulations.
All fees charged by the transfer agent will be paid by the Adviser. For the
services to be rendered as transfer agent, The Adviser shall pay DSC an annual
fee, paid monthly, based on the average net assets of the Fund, as determined by
valuations made as of the close of each business day of the month.
ADMINISTRATION
DSC also acts as Administrator to the Fund pursuant to a written agreement with
the Company and the Adviser, dated April 17, 1999. The Administrator supervises
all aspects of the operations of the Fund except those performed by the Fund's
investment adviser under the Fund's investment advisory agreement. The
Administrator is responsible for:
(a) calculating the Fund's net asset value
(b) preparing and maintaining the books and accounts specified in Rule 31a-1
and 31a-2 of the Investment Company Act of 1940
(c) preparing financial statements contained in reports to stockholders of the
Fund
(d) preparing the Fund's federal and state tax returns
(e) preparing reports and filings with the Securities and Exchange Commission
(f) preparing filings with state Blue Sky authorities
(g) maintaining the Fund's financial accounts and records
For the services to be rendered as Administrator, The Adviser shall pay mutual
Shareholder Services an annual fee, paid monthly, based on the average net
assets of the Fund, as determined by valuations made as of the close of each
business day of the month.
DISTRIBUTOR
Declaration Distributors, Inc., 555 North Lane, Suite 6160, Conshohocken, PA
19428, will act s principal underwriter of the Fund's shares, pursuant to a
written agreement between the Company, the Adviser, and the DDI dated April 17,
1999. The Adviser shall pay an annual flat fee of $20,000 to DDI, such fee to
paid in equal monthly installments.
9
<PAGE>
INDEPENDENT ACCOUNTANTS
Sanville & Company, 1514 Old York Road, Abington, PA 19001, a certified public
accounting firm offering audit and accounting services to mutual funds
nationwide, has been selected as the independent accountants for the Fund. As
such, Sanville & Company performs audits of the Fund's financial statements.
FINANCIAL STATEMENTS
This is a new fund without an operating history, so it has no financial
statements at this time. An amendment to the registration statement will be
filed when required by law to include a report of its operations.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution, or "12b-1 Plan" under which it may
finance activities primarily intended to sell shares. Under the 12b-1 Plan, the
Fund may pay a distribution fee at an annual rate of up to 0.25% of average
daily net assets of the Fund to the Adviser for services primarily intended to
sell shares, and servicing fees of up to 0.75% of average daily net assets of
the Fund for providing certain shareholder services. These services include,
among other things, processing new shareholder account applications, preparing
and transmitting to the Fund's Transfer Agent computer processable tapes of all
transactions by customers, and serving as the primary source of information to
customers in answering questions concerning the Fund and their transactions with
the Fund.
Payments under the 12b-1 Plan are not tied exclusively to the distribution
and/or shareholder servicing expenses actually incurred by the Adviser, and such
payments may exceed the expenses actually incurred. The Company's Board of
Directors evaluates the Plan on a regular basis.
You should be aware that, over time, 12b-1 fees will increase the costs of your
investment, and may eventually cost you more than other types of sales charges.
The Board of Directors, including those Directors that are not affiliated with
the Company, Adviser or any of the Company's service providers, and who have no
interest in the Plan, approved the Plan after finding, based on their reasonable
business judgement, that the Plan would likely benefit the Fund and its
shareholders.
10
<PAGE>
In approving the Plan, the Board determined that there is a reasonable
likelihood that the Plan would benefit the Company, the Fund and its
shareholders. In doing so, the Board considered several factors, including that
the Plan would (i) enable investors to choose the purchasing option best suited
to their individual situations, thereby encouraging current shareholders to make
additional investments in the Fund and attracting new investors and assets to
Trust to the benefit of the Fund and its shareholders, (ii) facilitate
distribution of the Fund's shares, (iii) help maintain the competitive position
of the Company in relation to other funds that have implemented or are seeking
to implement similar distribution arrangements; and (iv) permit possible
economies of scale through increased Fund size.
11
<PAGE>
PART C
Information required to be included in PART C is set forth under the appropriate
Item, so numbered, in PART C of the Registration Statement.
- --------------------------------------------------------------------------------
PART C
------
OTHER INFORMATION
Item 23. Financial Statements and Exhibits
---------------------------------
(a) Articles of Incorporation --- Incorporated by reference to Pre-effective
Amendment # 1, filed on April 28, 1999.
(b) By-laws --- Incorporated by reference to Pre-effective Amendment # 1, filed
on April 28, 1999.
(c) Instruments defining rights of Shareholders --- None, See Articles of
Incorporation
(d) Investment Advisory Contracts --- Incorporated by reference to
Pre-effective Amendment # 1, filed on April 28, 1999.
(e) Underwriting Contracts --- Incorporated by reference to Pre-effective
Amendment # 1, filed on April 28, 1999.
(f) Bonus or Profit Sharing Contracts --- None
(g) Custodian Agreements --- Incorporated by reference to Pre-effective
Amendment # 1, filed on April 28, 1999.
(h) Other Material Contracts --- Incorporated by reference to Pre-effective
Amendment # 1, filed on April 28, 1999.
(i) Legal Opinion --- Attached as Exhibit 23(I)
(j) Other opinions --- Incorporated by reference to Pre-effective Amendment #
1, filed on April 28, 1999.
(k) Omitted Financial statements --- None
(l) Initial Capital Agreements --- Incorporated by reference to Pre-effective
Amendment # 1, filed on April 28, 1999.
(m) Rule 12b-1 Plan --- Attached as Exhibit 23(M)
(n) Financial Data Schedule --- Not Applicable
Item 24. Persons Controlled by or Under Common Control With Registrant
-------------------------------------------------------------
See Caption "Principal Holders of Securities" in the Statement of
Additional Information
<PAGE>
Item 25. Indemnification
---------------
(a) General. The Articles of Amendment and Restatement of Charter
(the "Articles") of the Corporation provide that to the fullest
extent permitted by Maryland and federal statutory and decisional
law, as amended or interpreted, no director or officer of this
Corporation shall be personally liable to the Corporation or the
holders of Shares for money damages for breach of fiduciary duty
as a director and each director and officer shall be indemnified
by the Corporation; provided, however, that nothing herein shall
be deemed to protect any director or officer of the Corporation
against any liability to the Corporation or the holders of Shares
to which such director or officer would otherwise be subject by
reason of breach of the director's or officer's duty of loyalty
to the Corporation or its stockholders, for acts or omissions not
in good faith or which involved intentional misconduct or a
knowing violation of law or for any transaction from which the
director derived any improper personal benefit.
The by-laws of the Corporation provide that the Corporation shall
indemnify any individual who is a present or former director or
officer of the Corporation and who, by reason of his or her
position was, is or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative
(hereinafter collectively referred to as a "Proceeding") against
judgments, penalties, fines, settlements and reasonable expenses
actually incurred by such director or officer in connection with
such Proceeding, to the fullest extent that such indemnification
may be lawful under Maryland law.
(b) Disabling Conduct. The by-laws provide that nothing therein shall
be deemed to protect any director or officer against any
liability to the Corporation or its shareholders to which such
director or officer would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her
office (such conduct hereinafter referred to as "Disabling
Conduct").
<PAGE>
The by-laws provide that no indemnification of a director or
officer may be made unless: (1) there is a final decision on the
merits by a court or other body before whom the Proceeding was
brought that the director or officer to be indemnified was not
liable by reason of Disabling Conduct; or (2) in the absence of
such a decision, there is a reasonable determination, based upon
a review of the facts, that the director or officer to be
indemnified was not liable by reason of Disabling Conduct, which
determination shall be made by: (i) the vote of a majority of a
quorum of directors who are neither "interested persons" of the
Corporation as defined in Section 2(a)(19) of the Investment
Company Act of 1940, nor parties to the Proceeding; or (ii) an
independent legal counsel in a written opinion.
(c) Standard of Conduct. Under Maryland law, the Corporation may not
indemnify any director if it is proved that: (1) the act or
omission of the director was material to the cause of action
adjudicated in the Proceeding and (i) was committed in bad faith
or (ii) was the result of active and deliberate dishonesty; or
(2) the director actually received an improper personal benefit;
or (3) in the case of a criminal proceeding, the director had
reasonable cause to believe that the act or omission was
unlawful. No indemnification may be made under Maryland law
unless authorized for a specific proceeding after a determination
has been made, in accordance with Maryland law, that
indemnification is permissible in the circumstances because the
requisite standard of conduct has been met.
(d) Required Indemnification. Maryland law requires that a director
or officer who is successful, on the merits or otherwise, in the
defense of any Proceeding shall be indemnified against reasonable
expenses incurred by the director or officer in connection with
the Proceeding. In addition, under Maryland law, a court of
appropriate jurisdiction may order indemnification under certain
circumstances.
(e) Advance Payment. The by-laws provide that the Corporation may pay
any reasonable expenses so incurred by any director or officer in
defending a Proceeding in advance of the final disposition
thereof to the fullest extent permissible under Maryland law. In
accordance with the by-laws, such advance payment of expenses
shall be made only upon the undertaking by such director or
officer to repay the advance unless it is ultimately determined
that such director or officer is entitled to indemnification, and
only if one of the following conditions is met: (1) the director
or officer to be indemnified provides a security for his
undertaking; (2) the Corporation shall be insured against losses
arising by reason of any lawful advances; or (3) there is a
determination, based on a review of readily available facts, that
there is reason to believe that the director or officer to be
indemnified ultimately will be entitled to indemnification, which
determination shall be made by: (i) a majority of a quorum of
directors who are neither "interested persons" of the
Corporation, as defined in Section 2(a)(19) of the Investment
Company Act of 1940, nor parties to the Proceeding; or (ii) an
independent legal counsel in a written opinion.
<PAGE>
(f) Insurance. The by-laws provide that, to the fullest extent
permitted by Maryland law and Section 17(h) of the Investment
Company Act of 1940, the Corporation may purchase and maintain
insurance on behalf of any officer or director of the
Corporation, against any liability asserted against him or her
and incurred by him or her in and arising out of his or her
position, whether or not the Corporation would have the power to
indemnify him or her against such liability.
Item 26. Business and Other Connections of Investment Adviser
----------------------------------------------------
None
Item 27. Principal Underwriter
---------------------
Declaration Distributors, Inc., 555 North Lane, Suite 6160,
Conshohocken, PA 19428
Item 28. Location of Accounts and Records
--------------------------------
The books and records of the Fund, other than the accounting and
transfer agency (including dividend disbursing) records, are
maintained by the Fund at 213-G VT, Route 15, Jericho, VT 05465; the
Fund's accounting and transfer agency records are maintained at
Declaration Service Company, 555 North Lane, Suite 6160, Conshohocken,
PA 19428.
Item 29. Management Services
-------------------
There are no management service contracts not described in Part A or
Part B of Form N-1A.
Item 30. Undertakings
------------
Not Applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, hereunto duly
authorized in Jericho, Vermont on the ___ day of July, 1999.
OPTIMAL FUNDS, INC.
By: /s/ Mitchell M. Maynard
-----------------------
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated:
NAME TITLE DATE
- ---- ----- ----
/s/ Mitchell M. Maynard President & Director July _, 1999
/s/ Judith E. Liskin-Gasparro* Director July _, 1999
/s/ Ellyn M. Mack* Director July _, 1999
/s/ Christine Bechade* Director July _, 1999
/s/ Elaine A. Bernasconi* Director July _, 1999
Signed by Mr. Mitchell M. Maynard pursuant to executed Powers of Attorney signed
by each Director and filed as Exhibit 23(H)(3) to Pre-Effective Amendment # 1 to
this Registration Statement, filed on April 28, 1999.
<PAGE>
EXHIBIT INDEX
Exhibit 23(I)--- Opinion and Consent of Counsel
Exhibit 23(M)-- Plan of Distribution Pursuant to Rule 12b-1
EXHIBIT 23(I)
OPINION AND CONSENT OF COUNSEL
THE LAW OFFICES OF DAVID D. JONES, P.C.
518 Kimberton, # 134
Phoenixville, PA 19460
(610) 718-5382 (phone)
(610) 528-5391 (fax)
[email protected] (e-mail)
Optimal Funds, Inc. July 7, 1999
213-G VT, Route 15
Jericho, VT 05465
Dear Sirs:
As counsel to Optimal Funds, Inc. (the "Company"), a corporation organized under
the laws of the State of Maryland, I have been asked to render my opinion with
respect to the issuance of an indefinite number of shares of beneficial interest
of the Company (the "Shares") representing proportionate interests in the
Optimal Fund (the "Fund"). The Shares of the Fund are a series of the Company
consisting of two classes of shares, Class A and Class C, all as more fully
described in the Prospectus and Statement of Additional Information contained in
the Registration Statement on Form N-1A, to which this opinion is an exhibit, to
be filed with the Securities and Exchange Commission.
I have examined the Company's Articles of Incorporation, the Prospectus and
Statement of Additional Information contained in the Registration Statement, and
such other documents, records and certificates as deemed necessary for the
purposes of this opinion.
Based on the foregoing, I am of the opinion that the Shares, when issued,
delivered and paid for in accordance with the terms of the Prospectus and
Statement of Additional Information, will be legally issued, fully paid, and
non-assessable by the Company.
Further, I give my permission to use this opinion for whatever purposes needed
by the Company.
Very Truly Yours,
/s/ David D. Jones
Attorney & Counselor at Law
EXHIBIT 23(M)
DISTRIBUTION PLAN PURSUANT TO RULE 12B-1
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
Adopted July __, 1999
RECITALS
1. OPTIMAL FUNDS, INC, a corporation organized under the laws of the State
of Maryland (the "Company") is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "Act").
2. The Company operates as a "series company" within the meaning of Rule
18f-2 under the Act and is authorized to issue shares of beneficial interest in
various series (collectively the "Funds").
3. Funds of the Company may utilize Fund assets to pay for sales or
promotional services or activities that have been or will be provided in
connection with distribution of shares of the Funds if such payments are made
pursuant to a Plan adopted and continued in accordance with Rule 12b-1 under the
Act.
4. The Optimal Fund, a series of the Company (the "Fund") by virtue of such
arrangement may be deemed to act as a distributor of its shares as provided in
Rule 12b-1 under the Act and desires to adopt a Plan pursuant to such Rule (the
"Plan").
5. The Directors as a whole, and the Directors who are not interested
persons of the Company (as defined in the Act) and who have no direct or
indirect financial interest in the operation of this Plan and any agreements
relating to it (the "Qualified Directors"), having determined, in the exercise
of reasonable business judgement and in light of their fiduciary duties under
state law and under Section 36(a) and (b) of the Act, that there is a reasonable
likelihood that this Plan will benefit the Fund and its shareholders, and have
approved the Plan by votes cast in person at a meeting called for the purpose of
voting on this Plan and agreements related thereto.
6. The shareholder(s) of the Fund have approved the Plan.
<PAGE>
PLAN PROVISIONS
SECTION 1. EXPENDITURES
(a) Purposes. Fund assets may be utilized to pay for promotional services
related to the distribution of Fund shares, including personal services provided
to prospective and existing Fund shareholders, which include the costs of:
printing and distribution of prospectuses and promotional materials; making
slides and charts for presentations; assisting shareholders and prospective
investors in understanding and dealing with the Fund; and travel and
out-of-pocket expenses (e.g. copy and long distance telephone charges) related
thereto.
(b) Amounts. The Fund will pay to Leveraged Index Management Company (the
"Adviser") a monthly Distribution fee at an annual rate of 0.25% of the net
assets of the Class A Shares of the Fund, such fee to be computed daily based on
the daily average net assets of the Class A Shares of the Fund. The Adviser
shall utilize such fees to pay for sales and promotional services related to the
distribution of Class A Fund shares, including personal services provided to
prospective and existing Fund shareholders.
SECTION 2. TERM AND TERMINATION
(a) Initial Term. This Plan shall become effective on July __, 1999 and
shall continue in effect for a period of one year thereafter unless terminated
or otherwise continued or discontinued as provided in this Plan.
(b) Continuation of the Plan. The Plan and any related agreements shall
continue in effect for periods of one year thereafter for so long as such
continuance is specifically approved at least annually by votes of a majority of
both (a) the Directors of the Company and (b) the Qualified Directors, cast in
person at a meeting called for the purpose of voting on this Plan and such
related agreements.
(c) Termination of the Plan. This Plan may be terminated at any time by
vote of a majority of the Qualified Directors, or by vote of a majority of the
outstanding voting securities of the Fund.
SECTION 3. AMENDMENTS
This Plan may not be amended to increase materially the amount of
distribution expenditures provided for in Section 1 hereof unless such amendment
is approved by a vote of the majority of the outstanding voting securities of
the Fund, and no material amendment to the Plan shall be made unless approved in
the manner provided for annual renewal in Section 2(b) hereof.
<PAGE>
SECTION 4. INDEPENDENT DIRECTORS
While this Plan is in effect with respect to the Fund, the selection and
nomination of Directors who are not interested persons of the Company (as
defined in the Act) shall be committed to the discretion of the Directors who
are not interested persons.
SECTION 5. QUARTERLY REPORTS
The Treasurer of the Company shall provide to the Directors and the
Directors shall review, at least quarterly, a written report of the amounts
accrued and the amounts expended under this Plan for distribution, along with
the purposes for which such expenditures were made.
SECTION 6. RECORDKEEPING
The Company shall preserve copies of this Plan and any related agreements
and all reports made pursuant to Section 5 hereof, for a period of not less than
six years from the date of this Plan, the agreements or such report, as the case
may be, the first two years in an easily accessible place.
SECTION 7. AGREEMENTS RELATED TO THIS PLAN
Agreements with persons providing distribution services to be paid for or
reimbursed under this Plan shall provide that:
(a) the agreement will continue in effect for a period of one year and will
continue thereafter only if specifically approved by vote of a majority of
the Directors of the Company;
(b) the agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of (i) the Qualified Directors or (ii) the
outstanding voting securities of the Fund, on not more than sixty (60)
days' written notice to any other party to the agreement;
(c) the agreement will terminate automatically in the event of an
assignment; and
(d) in the event the agreement is terminated or otherwise discontinued, no
further payments will be made by the Fund after the effective date of such
action.
