SECURITIES AND EXCHANGE COMMISSION File Nos. 333-86061
Washington, D.C. 20549 and 811-09287
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No. ___ [ ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 1 [X]
MERLIN FUNDS GROUP
(Exact name of registrant as specified in charter)
1200 Old Henderson Road, Columbus, Ohio 43220
(Address of principal executive offices)
Registrant's Telephone Number: 877-637-3863
Joseph M. McCloud, 1200 Old Henderson Road, Columbus, Ohio 43220
(Name and address of agent for service)
Copy to:
Andrew B. Coogle, Esq.
Benesch, Friedlander, Coplan & Aronoff LLP
88 East Broad Street, 9th Floor, Columbus, Ohio 43215
Approximate date of proposed public offering: As soon as practicable after the
effective date of the Registration Statement.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
has elected to register an indefinite number of shares of beneficial interest.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
MERLIN US COMMUNITY BANK STOCK FUND
The Merlin US Community Bank Stock Fund is a diversified portfolio of
Merlin Funds Group, an open-end management investment company. The investment
objective of the Bank Stock Fund is long-term capital growth. The Bank Stock
Fund will pursue this objective primarily by investing in equity securities of
community banks which the Bank Stock Fund's investment adviser believes offer
the potential for long-term growth. Many of these community banks are owned by
holding companies and, in those cases, the Bank Stock Fund will invest in equity
securities of the holding companies. The Bank Stock Fund considers a bank a
community bank if the bank has less than $15 billion in total assets.
Bank Stock Fund Shares are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are not federally insured or guaranteed. An
investment in the Bank Stock Fund involves risk, including the possible loss of
your entire investment.
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
This Prospectus is dated June 11, 1999.
<PAGE>
SUMMARY OF INVESTMENT OBJECTIVE, PRINCIPAL
INVESTMENT STRATEGIES AND PRINCIPAL RISKS
Summary of the Bank Stock Fund's Investment Objective
The investment objective of the Bank Stock Fund is long-term capital
growth.
Summary of the Bank Stock Fund's Principal Investment Strategies
The Bank Stock Fund will pursue its objective primarily by investing in
equity securities of community banks and community bank holding companies, which
the Bank Stock Fund's investment adviser believes offer the potential for
long-term growth. The Bank Stock Fund considers a bank a community bank if the
bank has less than $15 billion in total assets.
The Bank Stock Fund's investment adviser will consider the following when
selecting investments for the Bank Stock Fund:
- The company's return on assets, return on equity, efficiency ratio and
other operational ratios;
- The company's revenue consistency and growth;
- The company's earnings consistency and growth;
- The amount of the company's loan loss provisions, which are amounts
set aside by the company for potentially uncollectible loans;
- The general economic conditions in the communities where the company
conducts business; and
- Other similar factors.
Summary of Principal Risks of Investing in the Bank Stock Fund
The following is a summary of the principal risks of investing in the Bank
Stock Fund.
- Shareholders risk the loss of their investment in Bank Stock Fund Shares.
- The Bank Stock Fund is not appropriate for all investors.
- The success of the Bank Stock Fund is dependent upon the management
experience and skill of the Bank Stock Fund's portfolio manager.
- Community banks and community bank holding companies may be more
vulnerable than larger companies to adverse business or market
developments, and may have fewer resources and less experienced
management than larger companies.
- Less public information may be available about community banks and
community bank holding companies than is available about larger
companies to assist the Bank Stock Fund's investment adviser in making
investment decisions.
<PAGE>
- Community bank and community bank holding company securities may be
more thinly traded than securities of larger companies. The Bank Stock
Fund may not be able to buy and sell these securities at optimum
prices. Prices for these securities may be more volatile than prices
for securities with better developed markets.
- The price of Bank Stock Fund Shares may decline because changes in
interest rates adversely affect the value of bank securities.
- Due to the Bank Stock Fund's investment concentration in community
banks and community bank holding companies, investment in the Bank
Stock Fund is subject to the risks affecting the banking and financial
services industry generally. Legislative and regulatory developments
may adversely affect the banking industry (including the possibility
that other financial service providers may be permitted to provide
banking services).
- Due to the possibility of local economic downturns, the value of
community bank and community bank holding company securities may be
more vulnerable than securities of companies that do business in a
wider geographic area.
- The Bank Stock Fund must comply with the Bank Holding Company Act of
1956 or else pay fines and penalties.
- The Bank Stock Fund may lose money on illiquid investments if the Bank
Stock Fund must sell them in a short period of time.
- The price of Bank Stock Fund Shares could decline if the Bank Stock
Fund, the Bank Stock Fund's service providers or the community banks
in which the Bank Stock Fund invests are not year 2000 compliant.
See the discussion under the heading "Principal Risks of Investing in the
Bank Stock Fund" for a more complete discussion of the principal risks of
investing in the Bank Stock Fund.
A bar chart showing the Bank Stock Fund's annual returns and a table
showing the Bank Stock Fund's average annual returns have not been included in
this prospectus because the Bank Stock Fund has not operated for a full calendar
year.
FEES AND EXPENSES OF THE BANK STOCK FUND
This table describes the fees and expenses you may pay if you buy and hold Bank
Stock Fund Shares.
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a 3.00%
percentage of offering Price)
Maximum Deferred Sales Charge (Load) None(a)
(a) No sales charge is imposed on purchases of Bank Stock Fund Shares for
$1,000,000 or more. A contingent deferred sales charge of 1% is imposed if
these Bank Stock Fund Shares are sold sooner than one year after purchase.
Annual Fund Operating Expenses (expenses that are deducted from Bank Stock Fund
assets)
<PAGE>
Management Fees 2.00%
Distribution and Service (12b-1) Fees 0.50%
Total Annual Fund Operating Expenses 2.50%
Example: This Example is intended to help you compare the cost of
investing in the Bank Stock Fund with the cost of investing in other mutual
funds.
This Example assumes that you invest $10,000 in the Bank Stock Fund for the
time periods indicated and then redeem all of your Bank Stock Fund Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Bank Stock Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 year 3 years
$553 $1,063
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
Investment Objective
The Bank Stock Fund's investment objective is long-term capital growth.
The Bank Stock Fund's investment objective may be changed by the board of
trustees without shareholder approval. If the board of trustees changes the Bank
Stock Fund's investment objective, shareholders may not consider the new
investment objective appropriate and the new investment objective may not be in
the best interests of all shareholders.
Principal Investment Strategies and Types of Securities
Strategy. The Bank Stock Fund will pursue its investment objective by
investing in equity securities of community banks and community bank holding
companies, which the Bank Stock Fund's investment adviser believes offer the
potential for long-term growth. Except when pursuing a temporary defensive
position in response to adverse market conditions, the Bank Stock Fund will
invest at least 70% of its total assets in publicly traded equity securities of
community banks and community bank holding companies. The Bank Stock Fund may
from time to time invest in banks that are not members of the Federal Reserve
System or whose deposits are not insured by the Federal Deposit Insurance
Corporation.
Investment Considerations. The Bank Stock Fund's investment adviser will
make the investment decisions for the Bank Stock Fund and will be responsible
for the daily management and operation of the Bank Stock Fund's portfolio. In
deciding which securities the Bank Stock Fund will buy and sell, the Bank Stock
Fund's investment adviser will consider:
- The company's return on assets, return on equity, efficiency ratio and
other operational ratios;
- The company's revenue consistency and growth;
- The company's earnings consistency and growth;
<PAGE>
- The amount of the company's loan loss provisions, which are amounts
set aside by the company for potentially uncollectible loans;
- The general economic conditions in the communities where the company
conducts business; and
- Other similar factors.
The Bank Stock Fund's investment adviser may also consider the degree that
officers and directors of the company have personally invested in securities of
the company as an indicator of the quality of care and attention provided by the
company's management.
Equity Securities. The Bank Stock Fund may invest in common stocks and
preferred stocks. Although the Bank Stock Fund will purchase equity securities
primarily for capital appreciation, these investments may also produce dividends
and other income.
When evaluating convertible preferred stock, the Bank Stock Fund's
investment adviser will give primary emphasis to the attractiveness of the
underlying equity security. The Bank Stock Fund will not purchase preferred
stock rated below BBB by Standard & Poor's Rating Group. See Appendix A for a
description of these ratings.
Illiquid Securities. Illiquid securities are securities which cannot be
sold by the Bank Stock Fund within seven days in the ordinary course of business
at the approximate amount at which the Bank Stock Fund values the securities. Up
to 15% of the Bank Stock Fund's net assets may be invested in illiquid
securities.
Portfolio Turnover. The Bank Stock Fund intends to purchase and hold
securities for long-term capital appreciation and not to sell securities for
short-term gain. However, the Bank Stock Fund is not restricted with regard to
portfolio turnover. The Bank Stock Fund will make changes to its investment
portfolio if the Bank Stock Fund's investment adviser believes that business and
economic conditions or market prices indicate that it is in the best interests
of the Bank Stock Fund to do so. A high rate of portfolio turnover in any year
will increase brokerage commissions paid and could result in high amounts of
realized investment gain subject to the payment of taxes by shareholders. Any
realized net short-term capital gain will be taxed to shareholders as investment
income .
Also, the Bank Stock Fund's investment adviser may make short-term
investments when it believes these investments are in the best interest of the
Bank Stock Fund; see "-Temporary Investments."
Temporary Investments. The Bank Stock Fund may invest up to 30% of its
total assets in cash and temporary investments for cash management purposes, to
pay distributions to shareholders or to meet its operating expenses and
obligations to repurchase Bank Stock Fund Shares. In addition, the Bank Stock
Fund may invest an unlimited amount of its total assets in cash and temporary
investments when pursuing a temporary defensive position in response to adverse
market conditions.
These temporary investments may include:
- Short-term and medium-term obligations issued or guaranteed by the
U.S. government or its agencies or instrumentalities;
- Money market funds; and
- Repurchase agreements.
Investments in money market funds may subject shareholders to duplicative fees.
To the extent that the Bank Stock Fund invests in temporary investments, it may
not achieve its investment objective.
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE BANK STOCK FUND
Shareholders may lose money.
The value of securities in the Bank Stock Fund's portfolio will go up and
down. Consequently, the price of Bank Stock Fund Shares may decline and
shareholders could lose money.
The Bank Stock Fund may not be appropriate for all investors.
The Bank Stock Fund is not a complete investment program and, due to the
uncertainty inherent in all investments, there can be no assurance that the Bank
Stock Fund will achieve its investment objective. An investment in the Bank
Stock Fund may not be appropriate for all investors, given the risks described
below and elsewhere in this prospectus. Investors should carefully consider
their ability to assume these risks before making an investment in the Bank
Stock Fund.
The success of the Bank Stock Fund depends on the management experience and
skills of the Bank Stock Fund's portfolio manager.
Joseph M. McCloud, an officer and trustee of the Bank Stock Fund and an
officer and director of the Bank Stock Fund's investment adviser, is the person
primarily responsible for the day-to-day management of the Bank Stock Fund's
portfolio. Therefore, the success of the Bank Stock Fund will depend largely
upon the management experience and skills of Mr. McCloud. Mr. McCloud does not
have experience in managing an institutional portfolio of bank stocks.
Investments in community banks have risks of investing in small companies.
Because the Bank Stock Fund intends to invest in community banks and
community bank holding companies, the Bank Stock Fund may be exposed to the
following small company investment risks:
- Community banks and community bank holding companies may be more
vulnerable than larger companies to adverse business or market
developments, may have limited markets or financial resources and may
lack experienced management.
- Most community banks and community bank holding companies are not
well-known to the investing public, do not have significant
institutional ownership and are followed by relatively few securities
analysts. As a result, there may be less publicly available
information concerning these companies compared to what is available
for larger companies.
- The securities of community banks and community bank holding companies
may be more thinly traded than securities of larger companies. Thinly
traded securities may have fewer market makers, larger differences
between their quoted bid and asked prices, and lower trading volumes,
resulting in comparatively greater price volatility and less liquidity
than securities of larger companies. The Bank Stock Fund may not be
able to buy and sell community bank and community bank holding company
securities at optimum prices.
Investments in banks have risk that changes in interest rates will adversely
affect bank profitability.
The profitability of banks is dependant to a large degree upon their net
interest income, which is the difference between interest earned from loans and
investments, on the one hand, and interest paid on deposits and borrowings on
the other. Recently, the difference between the interest rates charged by banks
on loans and investments and the interest rate paid by banks on deposits and
borrowings has generally narrowed due to changing market conditions and
competitive pricing pressures, and this difference may narrow even further in
the future. If this happens, the price of Bank Stock Fund Shares may decline.
<PAGE>
Investments in banks have risks that new legislation and regulation will reduce
profitability.
The concentration of the Bank Stock Fund's investments in the banking
industry will subject the Bank Stock Fund to risks in addition to those that
apply generally to equity investments including:
- The risk that legislative and regulatory developments may
significantly affect the banking industry as a whole and may subject
the Bank Stock Fund to greater market fluctuations than a fund that
does not concentrate in a particular industry;
- The risk that the Federal Reserve may adjust interest rates and
adversely affect the profitability of banks;
- The risk that federal and state banking laws and regulations may limit
the ability of banks to compete geographically and restrict the
activities in which banks may engage; and
- The risk that federal and state banking laws and regulations may
permit other financial service providers to provide banking services.
Investments in community banks have risk of losing value due to local economic
downturns.
The profitability of community banks may be more dependant than companies
which serve a larger geographical region upon local and regional economic
conditions. Downturns in a local or regional economy or in the general business
cycle or depressed conditions in an industry, for example, may adversely affect
the quality or volume of a community bank's loan portfolio and the value of the
collateral, including real estate, held with respect to the loans. If this
happens to community banks in which the Bank Stock Fund is invested, the value
of Bank Stock Fund Shares may decline.
Investments in banks have risk of violating the Bank Holding Company Act of
1956.
If the Bank Stock Fund controls a bank, then the Bank Stock Fund must
register as a Bank Holding Company under the Bank Holding company Act of 1956.
The Bank Stock Fund would control a bank if:
- The Bank Stock Fund owned 25% or more of any class of voting
securities of the bank;
- The Bank Stock Fund controlled the election of a majority of the
directors or trustees of the bank; or
- The Federal Reserve board determined, after notice and opportunity for
hearing, that the Bank Stock Fund exercises a controlling influence
over the management or policy of the bank.
Under a safe harbor provision, if the Bank Stock Fund owns less than 5% of the
stock of a bank, then the Bank Stock Fund will not be in control of the bank. If
the Bank Stock Fund acquires more than 5% of the voting securities of a bank,
the Bank Stock Fund may be subjected to fines and penalties.
Illiquid securities may be sold at a discount.
If the Bank Stock Fund must sell illiquid securities in a short period of
time, the Bank Stock Fund may have to sell them at a discount. This risk will be
particularly acute when the Bank Stock Fund's operations require immediate cash
because the Bank Stock Fund may not have the time necessary to find a buyer who
is willing to pay full market price.
The year 2000 problem could adversely affect the value of Bank Stock Fund
Shares.
<PAGE>
Many of the services provided to the Bank Stock Fund depend on the smooth
functioning of computer systems. Many systems in use today cannot distinguish
between the year 1900 and the year 2000. Failure of service provider systems to
process information properly could have an adverse impact on the Bank Stock
Fund's performance. The Bank Stock Fund's investment adviser, distributor,
transfer agent, custodian, and other key service providers have reported that
each is working toward mitigating the risks associated with the so-called "year
2000 problem". However, there can be no assurance that the problem will be
corrected in all respects and that the Bank Stock Fund will not be adversely
affected.
The Bank Stock Fund's investment adviser will rely upon public filings and
other statements made by companies about their year 2000 readiness. The Bank
Stock Fund's investment adviser, of course, cannot audit each company and its
major suppliers to verify their year 2000 readiness. If a company in which the
Bank Stock Fund is invested is adversely affected by the year 2000 problem, it
is likely that the price of its security will also be adversely affected. A
decrease in the value of one or more of the Bank Stock Fund's portfolio holdings
will have a similar impact on the value of the Bank Stock Fund's shares.
MANAGEMENT
The Bank Stock Fund's Investment Adviser
Advisory Services. Under the supervision and direction of the Bank Stock
Fund's board of trustees, Merlin Advisors, Inc. will:
- Manage the Bank Stock Fund's portfolio in compliance with the stated
policies of the Bank Stock Fund;
- Make investment decisions for the Bank Stock Fund and place the
purchase and sale orders for portfolio transactions;
- Furnish office facilities and clerical and administrative services;
- Pay the salaries of all officers and employees who are employed by
both Merlin Advisors and the Bank Stock Fund;
- Be responsible for the overall management of the business affairs of
the Bank Stock Fund, including the provision of personnel for record
keeping, the preparation of governmental reports and responding to
shareholder communications; and
- Pay all of the operating expenses of the Bank Stock Fund with the
exception of brokerage, taxes, interest and extraordinary expenses.
Merlin Advisors' Address. Merlin Advisors' address is 1200 Old Henderson
Road, Columbus, Ohio 43220.
Advisory Fee. The Bank Stock Fund has agreed to pay Merlin Advisors an
annual fee equal to 2.00% of the Bank Stock Fund's average daily net assets.
Person Primarily Responsible for Portfolio Management. Joseph M. McCloud is
the person primarily responsible for the day-to-day management of the Bank Stock
Fund's portfolio. Mr. McCloud has been a Vice President of Michael Patterson,
Inc. responsible for the firm's asset management division since February, 1998.
He was an equity trader for Quantum Capital from February, 1998 until March,
1998 and an equity trader for Banc One Securities Corp from November, 1996 until
February, 1998. From January, 1996 until July, 1996 Mr. McCloud was an employee
in Dean Witter Reynolds, Inc.'s marketing department. Before that, in February,
1994, Mr. McCloud founded Image Alchemy, Inc., a marketing company.
<PAGE>
Interrelationships Between the Bank Stock Fund, Merlin Advisors and Michael
Patterson, Inc.
Michael W. Patterson and Joseph M. McCloud are affiliates of the Bank Stock
Fund, Merlin Advisors, the Bank Stock Fund's investment adviser, and Michael
Patterson, Inc., the Bank Stock Fund's distributor.
Mr. Patterson is a trustee, and the Chairman and Secretary of the Bank
Stock Fund. Mr. Patterson indirectly owns 55% of Merlin Advisors, and is a
director and the Chairman, Chief Executive Officer and Secretary of Merlin
Advisors. Mr. Patterson wholly owns Michael Patterson, Inc., and is a director
and the President, Chief Executive Officer, Chairman, Secretary and Treasurer of
Michael Patterson, Inc.
Mr. McCloud is a trustee and the Chairman and Secretary of the Bank Stock
Fund. Mr. McCloud indirectly owns 15% of Merlin Advisors, and is a director and
the President, Chief Financial Officer and Treasurer of Merlin Advisors. Mr.
McCloud is a Vice President of Michael Patterson, Inc.
SHAREHOLDER INFORMATION
The Price of a Bank Stock Fund Share
The Price of a Bank Stock Fund Share. The purchase price of a Bank Stock
Fund Share is the net asset value of a Bank Stock Fund Share, as next determined
after receipt by the Bank Stock Fund's distributor of properly identified
purchase funds, plus any applicable sales charge. Please see the "Sales Charges"
section of this prospectus for information regarding sales charges. Broker-
dealers other than the Bank Stock Fund's distributor may charge investors an
additional fee if Bank Stock Fund Shares are purchased through them.
Calculation of a Bank Stock Fund Share's Net Asset Value. The net asset
value of a Bank Stock Fund Share is calculated by dividing the excess of the
Bank Stock Fund's assets, including accrued income, over any liabilities,
including estimated accrued expenses, by the number of shares outstanding,
rounded to the nearest cent. Net asset value per Bank Stock Fund Share is
determined as of the close of the close of the New York Stock Exchange (4:00
p.m. Eastern time) on each day that the exchange is open for business.
Valuation of Portfolio Securities. Portfolio securities are valued
primarily on the basis of market quotations. When market quotations are not
available, the Bank Stock Fund's investment adviser believes that market
quotations do not accurately reflect current value or the securities are
restricted, the values of securities are determined in good faith by the Bank
Stock Fund's board of trustees.
Procedure for Purchasing Bank Stock Fund Shares
Minimum Investments. The minimum initial investment in Bank Stock Fund
Shares is $1,500. Once a shareholder has made an initial investment, the
shareholder may make additional purchases of $150 or more.
Shareholder Accounts. When a shareholder invests in the Bank Stock Fund,
Mutual Shareholder Services, LLC, the Bank Stock Fund's transfer agent, will
open an account for the shareholder. This account will contain any Bank Stock
Fund Shares that the shareholder purchases and all Bank Stock Fund Shares which
are paid to the shareholder as dividends or capital gains distributions. Each
shareholder is notified of the status of his account following each purchase or
sale transaction.
Initial Purchases. An investor may make an initial purchase of Bank Stock
Fund Shares by check or by wire.
<PAGE>
In order to purchase Bank Stock Fund Shares by check, an investor must:
- Complete and sign the Account Application which accompanies this
Prospectus; and
- Mail the Account Application and a check payable to the Merlin Funds
Group for the initial investment to Mutual Shareholder Services, LLC,
The Tower at Erieview, Suite 1005, 1301 East Ninth Street, Cleveland,
Ohio 44114.
In order to purchase Bank Stock Fund Shares by wire, an investor must:
- Complete and sign the Account Application which accompanies this
Prospectus;
- Fax the Account Application to Mutual Shareholder Services, LLC at
(216) 875-8992; and
- Advise the investor's bank or broker to transmit the payment for
the initial investment via Federal Reserve Wire System to: Star Bank,
N.A. Cinti/Trust, ABA #0420-0001-3, DDA #821602034, For Account:
Merlin US Community Bank Stock Fund, Account #19-5450.
Any wire must be accompanied by the investor's name and account number. Prior to
wiring any funds, an investor should call Mutual Shareholder Services, LLC at
(216) 736-3500 in order to obtain the necessary account number and to receive
additional instructions. The investor's bank may charge the investor a fee for
the wire transfer.
Additional Purchases. Shareholders may also make additional purchases of
Bank Stock Fund Shares by check or wire.
In order to make an additional purchase by check, the shareholder must mail
a check, in the amount of the additional purchase and payable to the Merlin
Funds Group, and the stub or sales confirmation from the shareholder's previous
purchase to Mutual Shareholder Services, LLC, The Tower at Erieview, Suite 1005,
1301 East Ninth Street, Cleveland, Ohio 44114.
In order to make an additional purchase by wire, the shareholder should
follow the wire instructions for initial purchases. However, the shareholder
should not complete or deliver a new Account Application.
Systematic Investment Plan. The systematic investment plan permits
investors to purchase Bank Stock Fund Shares at monthly intervals. Provided the
investor's bank or other financial institution allows automatic withdrawals,
Bank Stock Fund Shares may be purchased by transferring funds from the account
designated by the investor. At the investor's option, the investor's account
will be debited in the amount specified by the investor to purchase Bank Stock
Fund Shares once a month. The investor's account must be with a domestic
financial institution which is an Automated Clearing House member. Investors
desiring to participate in the systematic investment plan should call Mutual
Shareholder Services, LLC at (216) 736-3500 to obtain appropriate forms. The
systematic investment plan does not assure a profit and does not protect a
shareholder against loss.
Non-Payment by Investors. The Bank Stock Fund reserves the right to reject
any order and cancel any order because of non-payment by the investor. If an
order is canceled because of non-payment, the investor will be responsible for
any related loss that the Bank Stock Fund incurs. If the investor is already a
shareholder, the Bank Stock Fund may redeem the investor's Bank Stock Fund
Shares from the investor's account as reimbursement for losses resulting from
the investor's non-payment.
Purchases Over $50,000. The Bank Stock Fund may, in its sole discretion,
require that an investor purchasing more than $50,000 of Bank Stock Fund Shares
make payment by wire, cashier's check or certified check.
<PAGE>
Redemption of Bank Stock Fund Shares
Redemption Price. The Bank Stock Fund will redeem each Bank Stock Fund
Share offered by a shareholder for redemption at the net asset value per Bank
Stock Fund Share next determined after receipt of the redemption request, if in
good order, by the Bank Stock Fund's transfer agent. Because the net asset value
of Bank Stock Fund Shares will fluctuate as a result of changes in the market
value of securities owned by the Bank Stock Fund, the amount a shareholder
receives upon redemption may be more or less than the amount paid for the
shares.
Redemption Proceeds. The Bank Stock Fund will mail redemption proceeds to
the shareholder's registered address of record unless the shareholder requests
that the redemption proceeds be transmitted by wire to the shareholder's
pre-designated account at a domestic bank. The Bank Stock Fund will not wire
redemption proceeds in an amount less than $5,000. If the Bank Stock Fund wires
redemption proceeds to a shareholder, the shareholder must pay the cost of the
wire. If the shareholder purchased Bank Stock Fund Shares by check, the check
must clear before the Bank Stock Fund will deliver redemption proceeds to the
shareholder. A shareholder may avoid this delay by purchasing Bank Stock Fund
Shares by wire, cashier's check or certified check.
Redemption by Mail. Bank Stock Fund Shares may be redeemed by mail by
writing directly to the Bank Stock Funds' transfer agent, Mutual Shareholder
Services, LLC, at The Tower at Erieview, Suite 1005, 1301 East Ninth Street,
Cleveland, Ohio 44114. The redemption request must be signed exactly as the
shareholder's name appears on the registration form, with the signature
guaranteed, and must include the shareholder's account number. If Bank Stock
Fund Shares are owned by more than one person, the redemption request for those
shares must be signed by all owners exactly as their names appear on the
registration.
If a shareholder's Bank Stock Fund Shares are represented by a certificate,
the certificate must accompany the redemption request and must be endorsed as
registered with a signature guarantee. Additional documents may be required for
registered certificates owned by corporations, executors, administrators,
trustees or guardians. The Bank Stock Fund's transfer agent will not process a
redemption request until the transfer agent has received all of the necessary
documents in proper form. Shareholders may call Mutual Shareholder Services, LLC
at (216) 736-3500 for help in obtaining all of the necessary documents and in
completing the documents correctly.
A shareholder may obtain a signature guarantee from a bank, broker-dealer,
credit union (if authorized under state law), securities exchange or
association, clearing agency or savings association. A notary public is not an
acceptable guarantor. The Bank Stock Fund may, in its sole discretion, waive
signature guarantee requirements on a case-by-case basis.
Redemption By Telephone. A shareholder may redeem Bank Stock Fund Shares by
telephone by calling Mutual Shareholder Services, LLC at (216) 736-3500 between
9:00 A.M. and 4:00 P.M. Eastern time on any day the New York Stock Exchange is
open for trading. To redeem Bank Stock Fund Shares by telephone, a shareholder
must make the election to do so on the initial application form or on other
forms prescribed by the Bank Stock Fund. Shareholders may obtain these forms by
calling Mutual Shareholder Services, LLC at (216) 736-3500. These forms contain
a space for the shareholder to supply his own four digit identification number.
The shareholder must give this identification number when requesting redemption
by telephone. The Bank Stock Fund will not be liable for following instructions
communicated by telephone that the Bank Stock Fund reasonably believes to be
genuine. If the Bank Stock Fund fails to employ reasonable procedures to confirm
that instructions communicated by telephone are genuine, the Bank Stock Fund may
be liable for any losses due to unauthorized or fraudulent instructions. Any
changes or exceptions to the original election must be made in writing with
signature guaranteed, and will be effective upon receipt by the Bank Stock
Fund's transfer agent. Mutual Shareholder Services, LLC reserves the right to
refuse any telephone instructions and may discontinue the aforementioned
redemption option without notice. The minimum telephone redemption is $1,000.
Other Information Concerning Redemption. The Bank Stock Fund reserves the
right to take up to seven days to pay redemption proceeds if, in the judgment of
the Bank Stock Fund's investment adviser, the Bank Stock Fund could be affected
adversely by immediate payment. In addition, shareholders' rights of redemption
may be suspended or the date of payment postponed:
<PAGE>
- For any period during which the New York Stock Exchange is closed,
other than for customary week-end and holiday closings;
- When trading in the markets that the Bank Stock Fund normally
utilizes is restricted, or when an emergency, as defined by the rules
and regulations of the SEC, exists, making disposal of the Bank Stock
Fund's investments or determination of its net asset value
impracticable; or
- For any other periods the SEC permits by order for the protection
of shareholders.
Due to the high cost of maintaining accounts, the Bank Stock Fund has the
right to redeem, upon at least 30 days' written notice to the shareholder, all
of a shareholder's Bank Stock Fund Shares if, through redemptions, the
shareholder's account has a net asset value of less than $1,000. During the
period after receipt of notice and prior to the date of the involuntary
redemption, the shareholder may avoid the involuntary redemption by purchasing
additional Bank Stock Fund Shares and raising the net asset value of the
shareholder's account to at least $1,000.
Dividends and Distributions by the Bank Stock Fund
The Bank Stock Fund intends to distribute net realized capital gains,
including net realized short-term capital gains, if any, and net investment
income, if any, at least annually. There can be no assurance that the Bank Stock
Fund will earn income, realize capital gains, or ever pay a dividend.
All dividends paid to each shareholder by the Bank Stock Fund will be
reinvested automatically at net asset value in additional Bank Stock Fund Shares
unless the shareholder has delivered to the Bank Stock Fund a written election
to receive dividends in cash.
Taxation
General. As with any investment, investments in Bank Stock Fund Shares
could have tax consequences for shareholders. Potential investors should
consider these tax consequences.
Taxes on Distributions. Distributions shareholders receive from the Bank
Stock Fund are subject to federal income tax, and may also be subject to state
or local taxes.
For federal tax purposes, the Bank Stock Fund's dividends and distributions
of short-term capital gains are taxable to shareholders as ordinary income. The
Bank Stock Fund's distributions of long-term capital gains are taxable to
shareholders generally as capital gains.
If an investor buys Bank Stock Fund Shares when the Bank Stock Fund has
realized but not yet distributed income or capital gains, the investor will be
"buying a dividend" by paying full price for the shares and then receiving a
portion of the price back in the form of a taxable distribution.
Any taxable distributions shareholders receive from the Bank Stock Fund
will normally be taxable to shareholders when they receive them, regardless of
whether the distributions are in cash or in additional Bank Stock Fund Shares.
Taxes on Transactions. Redemptions of Bank Stock Fund Shares, including
exchanges, may result in a capital gain or loss for federal tax purposes. A
capital gain or loss on a shareholder's investment in the Bank Stock Fund is the
difference between the cost of the shareholder's shares and the price the
shareholder receives when the shareholder sells them.
<PAGE>
SALES CHARGES
Sales Load
Except in circumstances described below, shareholders must pay a front-end
sales load at the time of each purchase of Bank Stock Fund Shares. The front-end
sales load is calculated as a percentage of the net asset value of the Bank
Stock Fund Shares purchased, which percentage decreases as the dollar value of
the shares purchased increases. The term "offering price" includes the front-end
sales load.
The current sales charge rates and commissions paid to selected dealers are
as follows:
Sales Load as % of:
Amount of Net Amount Dealer
Investment NAV Invested Reallowance (at NAV)
Less than $100,000 3.00% 3.09% 2.50%
$100,000 but less than $250,000 2.75% 2.83% 2.25%
$250,000 but less than $500,000 2.25% 2.30% 1.75%
$500,000 but less than $750,000 1.75% 1.78% 1.25%
$750,000 but less than $1,000,000 1.25% 1.27% 0.75%
$1,000,000 or more NONE*
*No sales charge is imposed on purchases of Bank Stock Fund Shares of $1,000,000
or more. A contingent deferred sales charge of 1% is imposed if these Bank Stock
Fund Shares are sold sooner than one year after purchase.
The Bank Stock Fund's distributor may charge a reallowance to dealers and
may also compensate dealers out of its own assets. The Bank Stock Fund's
distributor retains the entire sales load on all direct initial investments in
the Bank Stock Fund and on all investments in accounts with no dealer of record.
The Bank Stock Fund will waive the sales charge for:
- Individuals who are affiliated with the Bank Stock Fund's investment
adviser;
- Employees of the Bank Stock Fund's investment adviser and the Bank
Stock Fund's other service providers, and their immediate family
members; and
- Fee-based financial planners or employee benefit plan consultants
acting for the accounts of their clients.
These waivers are intended to encourage people associated with the Bank
Stock Fund to invest in the Bank Stock Fund and to avoid duplicative fees for
potential investors.
Sales Load Reductions.
If a shareholder intends to purchase $100,000 or more in Bank Stock Fund
Shares over a period of time up to 13 months, the shareholder may agree to do so
in a letter of intent. At the time of each purchase related to a letter of
intent, the shareholder must deliver payment of the full sales load for that
purchase as described above under the heading "Sales Charges-Sales Load."
However, the Bank Stock Fund's custodian will hold the excess of these sales
load payments over the sales load which would have been charged on the total
purchase described in the letter of intent in an escrow account. If the
shareholder complies with all of the terms of the letter of intent, this excess
will be refunded to the shareholder.
A Shareholder who makes the election described in this section and submits
a letter of intent is not obligated to purchase the amount specified in the
letter of intent. However, if the shareholder does not comply with the terms of
the letter of intent, the custodian will not refund the escrowed funds to the
shareholder and will treat the escrowed funds as sales loads collected.
<PAGE>
Right of Accumulation
A shareholder may add the value of any Bank Stock Fund Shares which the
shareholder already owns for the purpose of calculating the sales charge at the
time of a subsequent purchase. A shareholder must notify the shareholder's
broker or the Bank Stock Fund's transfer agent at the time of purchase to
qualify for this treatment.
12b-1 Fees
The Bank Stock Fund has adopted a Distribution and Shareholder Servicing
Plan as permitted by Rule 12b-1 under the Investment Company Act of 1940. The
Distribution and Shareholder Servicing Plan allows the Bank Stock Fund to pay
distribution and other fees for the sale of Bank Stock Fund Shares and for
services provided to shareholders. Under the Distribution and Shareholder
Servicing Plan, the Bank Stock Fund pays Michael Patterson, Inc., the Bank Stock
Fund's distributor, distribution and shareholder services fees at the annual
rate of 0.50% of the Bank Stock Fund's average net assets.
Because these fees are paid out of the Bank Stock Fund's assets on an
on-going basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
SERVICE PROVIDERS
Merlin Advisors, Inc., located at 1200 Old Henderson Road, Columbus, Ohio
43220, is the Bank Stock Fund's investment adviser.
Firstar Bank, N.A., located at 425 Walnut Street, Cincinnati, Ohio 45201,
is the custodian for the Bank Stock Fund's securities and cash.
Mutual Shareholder Services, LLC, located at The Tower at Erieview, Suite
1005, 1301 East Ninth Street, Cleveland, Ohio 44114, is the Bank Stock Fund's
transfer agent.
Michael Patterson, Inc., located at 1200 Old Henderson Road, Columbus, Ohio
43220, is the distributor of the Bank Stock Fund Shares.
McCurdy & Associates CPA.'s, Inc., located at 27955 Clemens Road, Westlake,
Ohio 44145, are the Bank Stock Fund's independent accountants.
Benesch, Friedlander, Coplan & Aronoff LLP, located at 88 East Broad
Street, 9th Floor, Columbus, Ohio 43215, is legal counsel to the Bank Stock
Fund, Merlin Funds Group and Merlin Advisors.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S PREFERRED STOCK RATINGS
AAA - This is the highest rating that may be assigned to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred
stock obligations.
AA - A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is
very strong, although not as overwhelming as for issues rated AAA.
A - An issue rated A is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions.
BBB - An issue rated BBB is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Although it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
payments for preferred stock in this category than for issues in the A
category.
BB, B, CCC - Preferred stock rated BB, B, and CCC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity
to pay preferred stock obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation. While these issues
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions.
CC - The rating CC is reserved for a preferred stock issue in arrears
on dividends or sinking fund payments but that is currently paying.
C - A preferred stock rated C is a non-paying issue.
To provide more detailed indications of preferred stock quality, the
rating from AA to CCC may be modified by the addition of a plus (+) or a
minus (-) sign to show the relative standing within the major rating
categories.
<PAGE>
TABLE OF CONTENTS Page
SUMMARY OF INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT
STRATEGIES AND PRINCIPAL RISKS 1
FEES AND EXPENSES OF THE BANK STOCK FUND 2
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES 3
PRINCIPAL RISKS OF INVESTING IN THE BANK STOCK FUND 5
MANAGEMENT 7
SHAREHOLDER INFORMATION 8
SALES CHARGES 11
SERVICE PROVIDERS 13
The Statement of Additional Information dated June 11, 1999 contains
additional information about the Bank Stock Fund and is incorporated by
reference into this prospectus. The Statement of Additional Information is
available without charge upon request. Shareholders may call the Bank Stock Fund
toll free at 877- MERFUND to request the Statement of Additional Information, to
request other information about the Bank Stock Fund and to make shareholder
inquiries.
You may review and copy information about the Bank Stock Fund, including
the Statement of Additional Information, at the SEC's Public Reference Room in
Washington, DC 20549-6009. You may obtain information about the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. Reports and other
information about the Bank Stock Fund are available on the SEC's Internet site
at http://www.sec.gov and copies of this information may be obtained, upon
payment of a duplicating fee, by writing the Public Reference Section of the
SEC, Washington, D.C. 20549-6009.
The Merlin Funds Group
1200 Old Henderson Road
Columbus, Ohio 43220
877 637-3863
The Bank Stock Fund's Investment Company Act File Number is 811-09287
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION June 11, 1999
MERLIN US COMMUNITY BANK STOCK FUND
1200 Old Henderson Road
Columbus, Ohio
(877) 637-3863
Merlin US Community Bank Stock Fund is a diversified portfolio of Merlin Funds
Group, an open-end management investment company. The investment objective of
the Bank Stock Fund is to obtain long term capital growth. This Statement of
Additional Information is not a prospectus. A copy of the Bank Stock Funds'
prospectus can be obtained from the Fund's distributor, Michael Patterson, Inc.,
at 1200 Old Henderson Road, Columbus, Ohio 43220, telephone number (614) 451-
5806.
Information from the prospectus is incorporated by reference into this
Statement of Additional Information as specifically noted herein.
The date of this Statement of Additional Information and of the prospectus to
which it relates is June 11, 1999.
<PAGE>
TABLE OF CONTENTS
CAPTION PAGE LOCATION IN PROSPECTUS
General Information and Bank 3 Not Applicable
Stock Fund History
Investments and Risks 3 "Summary of Investment Objective,
Principal Investment Strategies and
Principal Risks,"
"Investment Objective and Principal
Investment Strategies," and
"Principal Risks of Investing in
the Bank Stock Fund"
Management of the Bank Stock 6 "Management-The Bank Stock Fund's
Fund Investment Advisor," "Sales
Charges-Sales Load" and "Service
Providers"
Ownership of Bank Stock Fund Shares 8 Not Applicable
Investment Advisory and Other 9 "Management-The Bank Stock Fund's
Services Investment Advisor," "Sales
Charges" and "Service Providers"
Brokerage Allocation 11 Not Applicable
Capital Stock and Other Securities 13 Not Applicable
Purchase, Redemption and Pricing 14 "Shareholder Information-The
of Shares Price of a Bank
Stock Fund Share," "Shareholder
Information-Procedure for
Purchasing Bank Stock Fund Shares"
and "Shareholder Information-
Redemption of Bank Stock Fund
Shares"
Taxation of the Bank Stock Fund 14 Not Applicable
Distributor 14 "Sales Charges"
Performance 14 Not Applicable
<PAGE>
GENERAL INFORMATION AND BANK STOCK FUND HISTORY
Merlin Funds Group, an open-end investment management company, was organized
as a business trust under the laws of the State of Delaware by the filing of a
Certificate of Trust on February 3, 1999 with the Secretary of State of the
State of Delaware.
The Bank Stock Fund is a diversified portfolio of Merlin Funds Group. The
investment objective of the Bank Stock Fund is long-term capital growth.
To provide the initial capitalization for Merlin Funds Group, Merlin Funds
Group and Michael Patterson, Inc. entered into an Investment Agreement dated May
20, 1999 with each of J. Craig Wright and Alice Wright. Under these Investment
Agreements, Merlin Funds Group agreed to sell, and J. Craig Wright and Alice
Wright agreed to buy, a total of 10,000 Bank Stock Fund Shares for aggregate
consideration of $100,000 as soon as the Registration Statement with respect to
Bank Stock Fund Shares is effective.
INVESTMENTS AND RISKS
Investment Strategies and Risks
The principal investment strategies used by the Bank Stock Fund to pursue its
investment objective, together with the principal risks of investing in the Bank
Stock Fund, are described in the Bank Stock Fund's prospectus under the headings
"Investment Objective and Principal Investment Strategies" and "Principal Risks
of Investing in the Bank Stock Fund".
The Bank Stock Fund has also adopted the following investment strategies to be
used by the Bank Stock Fund's investment adviser in managing the Bank Stock Fund
that are not principal strategies:
Warrants and Stock Purchase Rights. The Bank Stock Fund may invest in warrants
to purchase equity securities and stock purchase rights. Owners of warrants
and stock purchase rights have the right to buy specified securities at a set
price.
Options on Securities and Securities Indices. The Bank Stock Fund may write
and purchase call and put options on securities and securities indices. The
value of options purchased by the Bank Stock Fund, together with the
obligations of the Bank Stock Fund under options written by the Bank Stock
Fund, other than options written or purchased for hedging purposes and call
options written "against-the-box", will not exceed 5% of the Bank Stock Fund's
total assets at the time of the writing or purchase.
A call option written by the Bank Stock Fund obligates the Bank Stock
Fund to sell specified securities to the owner of the option at a specified
price if the option is exercised by the owner on or before the expiration
date. A put written by the Bank Stock Fund obligates the Bank Stock Fund to
purchase specified securities from the option owner at a specified price if
the option is exercised by the owner on or before the expiration date.
Repurchase Agreements. The Bank Stock Fund may enter repurchase agreements
with broker-dealers, banks and other financial institutions. A repurchase
agreement is a contract which requires the Bank Stock Fund, against receipt of
securities of at least equal value, to advance a specified amount of money to
a financial institution which agrees to reacquire the securities at an agreed
upon time and price. Repurchase agreements, which are usually for periods of
one week or less, enable the Bank Stock Fund to invest its cash reserves at
fixed rates of return. The Bank Stock Fund may enter into repurchase
agreements, but only if the Bank Stock Fund deposits securities, with its
custodian, having a market value equal to the Bank Stock Fund's repurchase
obligation. To minimize the risk of loss, the Bank Stock Fund will only enter
into repurchase agreements with persons the Bank Stock Fund's investment
adviser considers creditworthy.
<PAGE>
The investment strategies described above will expose the Bank Stock Fund to
the following risks in addition to the risks described in the Bank Stock Fund's
prospectus under the heading "Principal Risks of Investing in the Bank Stock
Fund":
Warrants and stock purchase rights may be riskier than common stock and lose
their value entirely if not exercised on or before their expiration dates.
Generally, owners of warrants and stock purchase rights do not have a right to
dividends or a right to participate in shareholder votes, and do not have
rights in the assets of the issuer. As a result, investments in warrants and
stock purchases rights may be considered riskier than investments which give
owners rights to receive payments or to participate in shareholder votes, or
give owners interests in the issuer's assets. In addition, the value of
warrants and stock purchase rights do not necessarily change with the value of
the underlying securities, and they cease to have value if they are not
exercised by their expiration date.
Investments in options require special skills and may not have an active
trading market. The writing and purchasing of options is a highly specialized
activity which involves investment techniques and risks different from those
associated with ordinary portfolio securities transactions. The successful use
of options depends in part on the Bank Stock Fund's investment adviser's
ability to predict future price fluctuations and the degree of correlation
between the options and securities markets.
There is no assurance that a liquid secondary market on an options
exchange will exist for any exchange-traded option at any particular time. If
the Bank Stock Fund is unable to effect a closing purchase transaction with
respect to covered options it has written, the Bank Stock Fund will not be
able to sell the underlying securities or dispose of assets held in a
segregated account until the options expire or are exercised. Similarly, if
the Bank Stock Fund is unable to effect a closing sale transaction with
respect to options it has purchased, the Bank Stock Fund must exercise the
options and incur transaction costs before realizing any profit. Reasons for
the absence of a liquid secondary market on an exchange include:
- There may be insufficient trading interest in the options;
- Restrictions may be imposed by an exchange;
- Trading halts, suspensions or other restrictions may be imposed;
- Unusual or unforeseen circumstances may interrupt normal operation
on an exchange;
- The facilities of an exchange or the Options Clearing Corporation may
not be adequate to handle current trading volume; or
- One or more exchanges could discontinue the trading of options, and the
secondary market on that exchange would cease to exist.
The Bank Stock Fund may purchase and sell options that are traded
over-the-counter. The market for over-the-counter options is more limited than
the market for exchange-traded options and may involve the risk that
broker-dealers participating in these transactions will not fulfill their
obligations.
Repurchase agreements pose a credit risk. An investment in a repurchase
agreement has the risk that the other party to the agreement will not fulfill
its obligation to repurchase the subject securities. This would cause the Bank
Stock Fund to incur a loss, as well as legal expense, if the value of the
securities declined before the Bank Stock Fund liquidated the securities.
Options, warrants and stock purchase rights are derivative securities which
may lose value due to illiquidity, or changes in interest rates and stock
prices. The Bank Stock Fund may purchase or sell options and invest in
warrants and stock purchase rights, all of which are derivative securities.
Derivative securities derive their value from a different underlying security,
index or financial indicator. The use of derivative instruments exposes the
Bank Stock Fund to additional risks and transaction costs. Risks inherent to
the use of derivative instruments include:
<PAGE>
- The risk that interest rates, securities prices and currency markets will
not move in the direction anticipated by the Bank Stock Fund's investment
adviser;
- Imperfect correlation between the price of the derivative instrument and
movements in the prices of the securities, interest rates or currencies
being hedged;
- The fact that skills needed to use these strategies are different than
those needed to select equity securities;
- The possible absence of a liquid secondary market for any particular
instrument and possible exchange imposed price fluctuation limits, either
of which may make it difficult or impossible to close out a position when
desired;
- Leverage risk, that is, the risk that adverse price movements in an
instrument can result in a loss substantially greater than the Bank Stock
Fund's initial investment in that instrument and, in some cases, the
potential loss is unlimited; and
- Inability to close out hedged positions to avoid adverse tax
consequences.
Fund Policies
The Bank Stock Fund has adopted the following fundamental investment policies
and restrictions. These policies cannot be changed without approval by the
owners of a majority of the outstanding voting securities of the Bank Stock
Fund. As defined in the Investment Company Act of 1940, the "vote of a majority
of the outstanding voting securities" of the Bank Stock Fund means the lesser of
the vote of (a) 67% of the Bank Stock Fund Shares at a meeting where more than
50% of the outstanding Bank Stock Fund Shares are present in person or by proxy
or (b) more than 50% of the outstanding Bank Stock Fund Shares. Without approval
by the vote of a majority of the outstanding voting securities of the Fund, the
Bank Stock Fund may not:
1. Invest less than 70% of its total assets in publicly traded equity
securities of community banks and community bank holding companies, except
when the Bank Stock Fund is pursuing a temporary defensive position in
response to adverse market conditions.
2. Lend money or securities, provided that the making of interest-bearing
demand deposits with banks compatible with the Bank Stock Fund's investment
objective strategies and policies are not prohibited.
3. Borrow money except (a) from a bank, provided that there is an asset
coverage of 300% for all borrowings of the Bank Stock Fund; or (b) from a bank
or other persons for temporary purposes only, provided that these temporary
borrowings amount to less than 5% of the Bank Stock Fund's net assets when the
borrowing is made.
4. Invest in commodities or commodity futures contracts or in real
estate, although it may invest in securities which are secured by real estate
and securities of issuers which invest or deal in real estate.
5. Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in the securities of issuers
which invest in or sponsor these programs.
6. Underwrite securities issued by others except to the extent the Bank
Stock Fund may be deemed to be an underwriter, under the federal securities
laws, in connection with the disposition of the Bank Stock Fund's portfolio
securities.
7. Issue senior securities of the Bank Stock Fund. This limitation is not
applicable to activities that may be deemed to involve the issuance or sale of
a senior security by the Bank Stock Fund, provided that the Bank Stock Fund's
engagement in such activities is (a) consistent with or permitted by the
Investment Company Act of 1940, the rules and regulations promulgated
thereunder or interpretations of the SEC and (b) as described in the Bank
Stock Fund's prospectus and this Statement of Additional Information.
<PAGE>
8. Invest more than 5% of the value of its total assets in the securities
of any one issuer (except obligations issued or guaranteed by the United
States Government, its agencies and instrumentalities).
9. Acquire more than 5% of the outstanding voting securities of any
issuer.
If a percentage restriction is adhered to at the time the action is taken by the
Bank Stock Fund, a later increase or decrease in the percentage beyond the
specified limit resulting from a change in values or net assets will not be
considered a violation.
The following investment policies are not fundamental and they may be changed
without shareholder approval:
1. The Bank Stock Fund will not purchase securities on margin except to
obtain short-term credits necessary for the clearance of transactions.
2. The Bank Stock Fund will not write or purchase call and put options on
securities and securities indices with an aggregate value, excluding the value
of options written or purchased for hedging purposes and call options written
against-the-box, in excess of 5% of the Bank Stock Fund's total assets at the
time of the purchase or writing.
Defensive Investments
The information in the Bank Stock Fund's prospectus under the caption
"Investment Objective and Principal Investment Strategies-Principal Investment
Strategies and Types of Securities; Temporary Investments" is incorporated
herein by reference.
MANAGEMENT OF THE BANK STOCK FUND
Responsibilities
The business and affairs of the Bank Stock Fund are managed by or under the
direction of the Bank Stock Fund's board of trustees. The day-to-day operations
of the Bank Stock Fund are conducted by the Bank Stock Fund's officers.
<PAGE>
Biographical Information
The following table provides biographical information with respect to each
current trustee and officer of the Bank Stock Fund. Each trustee who is or may
be deemed to be an "interested person" of the Bank Stock Fund, as defined in the
Investment Company Act of 1940, is indicated by an asterisk.
Name, Address and Age Position(s) Held Principal Occupatio(s)
with the bank During Past Five (5) Years
Stock Fund
Michael W. Patterson* Trustee; President, Chief Executive
1200 Old Henderson Road Chairman; Officer, Chairman, Secretary
Columbus, Ohio 43220 Secretary and Treasurer of Michael
Age: 31 Patterson, Inc. (a registered
broker / dealer) since
November, 1997; Registered
Representative for Quantum
Capital Corp. (a registered
broker/dealer) from December
1996 until March, 1998;
Registered Representative for
Hamilton Shea Group (a
registered broker/dealer)
from April, 1995 until
December, 1996; Registered
Representative for
Diversified Capital Markets
(a registered broker/dealer)
form May, 1993 until April,
1995; and a Registered
Representative for M.C.
Capital Corp. (a registered
broker/dealer) from February
1991 until May, 1993.
Joseph M. McCloud* Trustee; Vice President of Michael
1200 Old Henderson Road President; Patterson, Inc.
Columbus, Ohio 43220 Treasurer (broker/dealer) since
Age: 29 February, 1998; Equity trader
for Quantum Capital
(broker/dealer) from
February, 1998 until March
1998; Equity trader for Banc
One Securities Corp.
(broker/dealer) from
November, 1996 until
February, 1998; Marketing
associate for Dean Witter
Reynolds, Inc.
(broker/dealer) from January,
1996 until July, 1996; Mr.
McCloud formed Image Alchemy,
Inc. (Internet services
company) from February 1994,
which he operated until
January, 1996.
Cavin C. Carmell Trustee Owner and operator of
1439 North High Street University Area Rentals since
Columbus, Ohio 43201 July, 1985.
Age: 42
Gavin Freytag Trustee Partial owner and President
1220 West Powell Road of Profitworks, Ltd., which
Powell, Ohio 43065 provides employee education
Age: 32 programs and helps employers
develop and implement
employee incentive programs,
since August, 1996; Trust
Officer for Fiduciary Trust
Company (a provider of
investment management
services) from March, 1993
until July, 1994.
William F. Maibaum Trustee Sole owner of Comprehensive
232 Storington Road Dwelling Evaluations (a
Westerville, Ohio 43081 provider of property
Age: 71 inspection services) since
September, 1986.
<PAGE>
Trustees and Officers Who Hold Positions with the Bank Stock Fund's Investment
Adviser and Distributor
The information in the Bank Stock Fund's prospectus under the caption
"Management-Interrelationships Between the Bank Stock Fund, Merlin Advisors and
Michael Patterson, Inc." is incorporated herein by reference.
Compensation
No officer, director or employee of Merlin Advisors, Inc., the Bank Stock
Fund's investment adviser, receives any compensation from the Bank Stock Fund
for serving as an officer or trustee of the Bank Stock Fund. Merlin Advisors
will pay, out of the advisory fee it receives from the Bank Stock Fund, each
trustee who is not an interested person in Merlin Advisors a fee of $250 per
hour for each board of trustees or shareholders meeting attended. The estimated
fees payable to the trustees for the current fiscal year, which are the only
compensation or benefits payable to trustees, are summarized in the following
table:
Aggregate Pension or Total
Compensation Retirement Compensation
from Bank Benefits From Bank
Stock Accrued As Stock Fund
Fund(a) Part of Fund Payable to
Expenses(b) Trustees(a)
Michael W. Patterson $0 $0 $0
Joseph M. McCloud $0 $0 $0
Cavin C. Carmell $1,500 $0 $1,500
Gavin Freytag $1,500 $0 $1,500
William F. Mailbaum $1,500 $0 $1,500
(a) Estimated fees for current fiscal year based on four meetings of the board
of trustees and one shareholder meeting.
(b) The Bank Stock Fund does not now, nor does it intend to ever, pay pension or
retirement benefits under any plan, either directly or indirectly.
Sales Load Waiver
The information in the Bank Stock Fund's prospectus under the caption "Sales
Charges-Sales Load" is incorporated herein by reference.
<PAGE>
OWNERSHIP OF BANK STOCK FUND SHARES
As of the date of this Statement of Additional Information, there are no
issued and outstanding shares of Merlin Funds Group or of any series of Merlin
Funds Group, including the Bank Stock Fund.
On May 20, 1999, Merlin Funds Group and Michael Patterson, Inc. entered into
an Investment Agreement with each of J. Craig Wright and Alice Wright. Under
these Investment Agreements, Merlin Funds Group agreed to sell, and J. Craig
Wright and Alice Wright agreed to buy, a total of 10,000 Bank Stock Fund Shares
for aggregate consideration of $100,000 as soon as the Registration Statement
with respect to Bank Stock Fund Shares is effective. J. Craig Wright and Alice
Wright are individuals whose address is 17 South High Street, Columbus, Ohio
43215.
INVESTMENT ADVISORY AND OTHER SERVICES
Control Persons of Merlin Advisors, Inc. and Affiliates Common to the Adviser
and the Trust
The information in the Bank Stock Fund's prospectus under the caption
"Management-Interrelationships Between the Bank Stock Fund, Merlin Advisors and
Michael Patterson, Inc." is incorporated herein by reference.
Investment Adviser
The information in the Bank Stock Fund's prospectus under the captions
"Management-The Bank Stock Fund's Investment Adviser" and "Management-
Interrelationships Between the Bank Stock Fund, Merlin Advisors and Michael
Patterson, Inc." is incorporated herein by reference.
Distributor
Michael Patterson, Inc. is the distributor of Bank Stock Fund Shares under
the terms of a distribution agreement dated June 17, 1999 between Michael
Patterson, Inc. and the Bank Stock Fund. Michael Patterson, Inc.'s principal
business address is 1200 Old Henderson Road, Columbus, Ohio 43220.
The information in the Bank Stock Fund's prospectus under the caption
"Management-Interrelationships Between the Bank Stock Fund, Merlin Advisors and
Michael Patterson, Inc." is incorporated herein by reference.
Distribution Plan
The Bank Stock Fund has adopted a Distribution and Shareholder Servicing Plan
as permitted by Rule 12b-1 under the Investment Company Act of 1940. The
Distribution and Shareholder Servicing Plan allows the Bank Stock Fund to pay
distribution and other fees for the sale of Bank Stock Fund Shares and for
services provided to shareholders. Under the Distribution and Shareholder
Servicing Plan, the Bank Stock Fund pays Michael Patterson, Inc. distribution
and shareholder services fees at the annual rate of 0.50% of the Bank Stock
Fund's average net assets.
<PAGE>
Michael Patterson, Inc. uses this fee to pay administration, shareholder
services and distribution assistance costs incurred to service the Bank Stock
Fund, including, but not limited to:
- Compensation to securities dealers and other persons for providing
distribution assistance with respect to Bank Stock Fund Shares;
- Compensation to dealers and other person providing distribution
assistance for providing administration, accounting and other shareholder
services with respect to Bank Stock Fund Shares; and
- Otherwise promoting the sale of Bank Stock Fund Shares, including paying
for the preparation of advertising and sales literature and the printing
and distribution of such materials to prospective Bank Stock Fund
investors.
However, Michael Patterson, Inc. will be paid the full amount of this fee
regardless of the amount of Michael Patterson, Inc.'s expenses.
The information in the Bank Stock Fund's prospectus under the caption
"Management-Interrelationships Between the Bank Stock Fund, Merlin Advisors and
Michael Patterson, Inc." is incorporated herein by reference. Because of their
relationships with Michael Patterson, Inc., Michael W. Patterson and Joseph M.
McCloud have personal financial interests in the operation of the Distribution
and Shareholder Servicing Plan.
<PAGE>
Other Service Providers
Transfer Agent and Accounting Services Provider. The Bank Stock Fund has
entered into a Transfer Agent Agreement with Mutual Shareholder Services, LLC,
an Ohio limited liability company, wherein Mutual Shareholder Services has
agreed to act as the Bank Stock Fund's transfer agent and dividend disbursing
and redemption agent. Under the Transfer Agent Agreement, Mutual Shareholder
Services will:
- - Receive order for the purchase of Bank Stock Fund Shares for acceptance;
- - Promptly deliver payments for Bank Stock Fund Shares and appropriate
documentation thereof to the Bank Stock Fund's custodian;
- - Issue Bank Stock Fund Shares and hold issued Bank Stock Fund Shares in
appropriate shareholder accounts;
- - Receive redemption requests and redemption directions for acceptance, and
deliver appropriate documentation thereof to the Bank Stock Fund's custodian;
- - Upon receipt by Mutual Shareholder Services of money paid to the Bank Stock
Fund's custodian for any redemption, pay over the money as instructed by the
redeeming shareholder;
- - Effect transfers of Bank Stock Fund Shares by the registered owners thereof,
upon receipt of appropriate instructions;
- - Prepare and transmit payments for dividends and distributions declared by the
Bank Stock Fund;
- - Maintain records of account for all of the foregoing activities;
- - Record the issuance of Bank Stock Fund Shares and maintain a record of the
total number of Bank Stock Fund Shares that are authorized, issued and
outstanding;
- - On a regular basis, provide the Bank Stock Fund with the total number of Bank
Stock Fund Shares which are authorized, issued and outstanding;
- - Maintain all shareholder accounts;
- - Prepare shareholder meeting lists;
- - Mail proxies;
- - Receive and tabulate proxies;
- - Mail shareholder reports and prospectuses to current shareholders;
- - Withhold taxes on U.S. residents and non-resident alien accounts;
- - Prepare and file U.S. Treasury Department Forms 1099 and other appropriate
forms required with respect to dividends and distributions by federal
authorities for all shareholders;
<PAGE>
- - Prepare and mail confirmation forms and statements of account for all
purchases and redemptions of Bank Stock Fund Shares and other confirmable
transactions in shareholder accounts;
- - Prepare and mail activity statements for shareholders;
- - Provide shareholder account information and provide a system and reports which
will enable the Bank Stock Fund to monitor the total number of Bank Stock Fund
Shares sold in each State; and,
- - Perform all other customary services of a transfer agent, dividend disbursing,
and redemption agent.
Under the Transfer Agent Agreement, the Bank Stock Fund has agreed to pay
Mutual Shareholder Services an annual fee, paid monthly, equal to $11.50 per
shareholder account (with a monthly minimum of $775) plus $12 per month for each
State in which the Bank Stock Fund is registered under such State's securities
laws, plus out-of-pocket expenses.
The Bank Stock Fund has entered into an Accounting Services Agreement with
Mutual Shareholder Services under which Mutual Shareholder Services has agreed
to provide portfolio pricing and related services to the Bank Stock Fund, and
the Bank Stock Fund has agreed to pay Mutual Shareholder Services an annual fee
of $21,000 for the first $25,000,000 in net assets, $9,500 for the next
$25,000,000 in net assets and $5,750 for each additional $25,000,000 in net
assets, plus out-of-pocket expenses. The fees paid by the Bank Stock Fund to
Mutual Shareholder Services are discounted at a rate which declines as the
amount of the Bank Stock Fund's net assets increases. The discount rate is 80%
until net assets exceed $250,000, then 70% until the net assets exceed $500,000,
then 60% until net assets exceed $1,000,000, then 50% until net assets exceed
$2,000,000 and then the discount rate declines 5% for each additional $1,000,000
in net assets until the discount rate is 0%.
Custodian. The Bank Stock Fund has entered into a Custody Agreement with
Firstar Bank, N.A., a national banking association, wherein Firstar Bank has
agreed to serve as the custodian of the Bank Stock Fund's portfolio securities
and cash. In consideration of such services, the Bank Stock Fund has agreed to
pay Firstar Bank:
- Portfolio transaction fees on a per transaction basis which fees
range from $5 to $80 depending upon the type of transaction;
- A percentage of the market value of the Bank Stock Fund's portfolio
securities and cash held by Firstar Bank equal to an annual rate of
0.0003% on the first $20,000,000; 0.0002% on the next $20,000,000;
and 0.00015% on any amount in excess of $40,000,000;
- A monthly minimum fee of $300; and
- Reimbursement of out-of-pocket expenses.
Firstar Bank's address is 425 Walnut Street, Cincinnati, Ohio 45201.
Public Accountants. McCurdy & Associates CPA's, Inc., independent certified
public accountants located at 27955 Clemens Road, Westlake, Ohio 44145, has been
selected as auditors for the Bank Stock Fund. In this capacity, McCurdy &
Associates CPA's, Inc. periodically reviews the accounting and financial records
of the Bank Stock Fund and examines its financial statements.
<PAGE>
Dealer Reallowances
The information in the Bank Stock Fund's prospectus under the caption "Sales
Charges-Sales Load" is incorporated herein by reference.
BROKERAGE ALLOCATION
Types of Fees. Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. There is generally no stated commission in the
case of securities traded in the over-the-counter markets, but the price of
those securities includes an undisclosed commission or mark-up. The cost of
securities purchased from underwriters includes an underwriting commission or
concession, and the prices at which securities are purchased from and sold to
dealers include a dealer's markup or markdown.
Broker-Dealer Selection Policy. The Bank Stock Fund's primary policy is to
execute all purchases and sales of portfolio securities at the most favorable
prices consistent with best execution, considering all of the costs of the
transaction including brokerage commissions and dealer mark-ups.
The Bank Stock Fund and the Bank Stock Fund's investment adviser may consider
the reliability and quality of the services, including primarily the
availability and value of research information and to a lesser extent
statistical assistance furnished to the Bank Stock Fund or to the Bank Stock
Fund's investment adviser, when selecting a broker-dealer. As permitted by
Section 28(e) of the Securities Exchange Act of 1934, the Bank Stock Fund may
pay a broker which provides brokerage and research services to the Bank Stock
Fund an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. The Bank Stock Fund
may pay these commissions only after a good faith determination by the Bank
Stock Fund's board of trustees that the price is reasonable in light of the
services provided and the policies as the Bank Stock Fund's board of trustees
may adopt from time to time.
The research information and statistical assistance furnished by brokers-
dealers may benefit other clients of the Bank Stock Fund's investment adviser,
and not all of this information and assistance may be used by the Bank Stock
Fund's investment adviser in connection with the Bank Stock Fund. The Bank Stock
Fund's investment adviser's fee will not be reduced by reason of the investment
adviser receiving this research information and statistical assistance.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and the Bank Stock Fund's investment adviser's
obligation to seek the best qualitative execution, the Bank Stock Fund's
investment adviser may consider the number of Bank Stock Fund Shares a
broker-dealer has sold when selecting a broker-dealer to execute portfolio
transactions. In addition, the Bank Stock Fund's distributor may compensate
brokers for directing investors to buy or retain Bank Stock Fund Shares.
Bank Stock Fund's Investment Adviser. The Bank Stock Fund's investment adviser
will select broker-dealers to execute securities transactions for the Bank Stock
Fund's portfolio. However, the investment adviser's selections must be
consistent with the Bank Stock Fund's policies and the investment advisory
agreement between the Bank Stock Fund and the investment adviser, and will at
all times be reviewable by the Bank Stock Fund's board of trustees.
Even though investment decisions for the Bank Stock Fund are made
independently from those of the other accounts managed by the Bank Stock Fund's
investment adviser, investments of the kind made by the Bank Stock Fund may also
be made by other accounts managed by the investment adviser. When the Bank Stock
Fund and one or more other accounts managed by the investment adviser are
prepared to invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner believed by
the investment adviser to be equitable. In some cases, this procedure may
adversely affect the price paid or received by the Bank Stock Fund or the size
of the position obtained for or disposed of by the Bank Stock Fund.
<PAGE>
Michael Patterson, Inc. The Bank Stock Fund's board of trustees has
determined that any portfolio transaction for the Bank Stock Fund, including in
certain instances over-the-counter purchases and sales, may be effected through
Michael Patterson, Inc. if:
- In the Bank Stock Fund's investment adviser's judgment, the use of
Michael Patterson, Inc. is likely to result in price and execution at
least as favorable as those of other qualified brokers; and
- Michael Patterson, Inc. charges the Bank Stock Fund a commission for the
transaction at a rate consistent with those charged by Michael
Patterson, Inc. to comparable unaffiliated customers in similar
transactions.
Each quarter, the Bank Stock Fund's board of trustees review a report
comparing the commissions charged to the Bank Stock Fund by Michael Patterson,
Inc. to the commissions which would have been charged for the same transactions
by a national discount brokerage firm and a full-service brokerage firm at
institutional rates. Based upon this review, the Bank Stock Fund's board of
trustees determines on a quarterly basis whether the commissions charged by
Michael Patterson, Inc. meet the requirements of the Investment Company Act of
1940.
Michael Patterson, Inc. will not participate in commissions from brokerage
given by the Bank Stock Fund to other brokers or dealers.
Over-the-counter purchases and sales are transacted through brokers and
dealers with principal market makers. The Bank Stock Fund will in no event
effect principal transactions with Michael Patterson, Inc. in which Michael
Patterson, Inc. makes a market.
Michael W. Patterson and Joseph M. McCloud are affiliates of the Bank Stock
Fund and Michael Patterson, Inc. Michael Patterson, Inc. is the Bank Stock
Fund's current distributor. See "Management-Interrelationships between Bank
Stock Fund, Merlin Advisors and Michael Patterson, Inc."
CAPITAL STOCK AND OTHER SECURITIES
Merlin Funds Group's Agreement and Declaration of Trust provides for an
unlimited number of authorized shares of beneficial interest, which may, without
shareholder approval, be divided into an unlimited number of series of such
shares. Currently, the Bank Stock Fund Shares are the only series of Merlin
Funds Group shares. Each share represents an equal proportionate interest in a
fund with other shares of the same series and class, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
that fund as are declared at the discretion of the trustees. All consideration
received by Merlin Funds Group for shares of a fund and all assets in which such
consideration is invested will belong to that fund and will be subject to the
liabilities relating thereto.
Shareholders are entitled to one vote per share (with proportional voting for
fractional shares) on such matters as shareholders are entitled to vote.
Shareholders vote in the aggregate and not by series or class on all matters
except that the shares shall be voted by individual series or class when
required by the Investment Company Act of 1940 or when the trustees have
determined that the matter affects only the interests of a particular series or
class.
Whenever the approval of a majority of the outstanding shares of Merlin Funds
Group or a particular fund is required in connection with shareholder approval
of an investment advisory contract, changes in the investment objective and
policies or the investment restrictions, or approval of a distribution expense
plan, a "majority" shall mean the lesser of the vote of (a) 67% or more of the
shares of Merlin Funds Group or such fund present at a meeting, if the holders
of more than 50% of the outstanding shares of Merlin Funds Group or such fund
are present in person or by proxy, or (b) more than 50% of the outstanding
shares of Merlin Funds Group or such fund.
<PAGE>
Meetings of shareholders may be called by the Bank Stock Fund board of
trustees in accordance with the terms of the Bank Stock Fund's Agreement and
Declaration of Trust and By-Laws, and will be called by the trustees for the
purpose of voting upon the question of removal of a trustee or trustees when
requested in writing to do so by the owners of at least 10% of the outstanding
Bank Stock Fund Shares.
Upon issuance and sale in accordance with the terms of the Bank Stock Fund's
prospectus, each Bank Stock Fund Share will be fully paid and non-assessable.
Bank Stock Fund Shares have no preemptive, subscription or conversion rights.
The Agreement and Declaration of Trust also provides that shareholders shall not
be subject to any personal liability for the acts or obligations of the Bank
Stock Fund and that every agreement, obligation or instrument entered into or
executed by a Bank Stock Fund shall contain a provision to the effect that the
shareholders are not personally liable thereunder.
Owners of Bank Stock Fund Shares do not have cumulative voting rights.
PURCHASE, REDEMPTION AND PRICING OF SHARES
The information contained in the Bank Stock Fund's prospectus under the
captions "Shareholder Information-The Price of a Bank Stock Fund Share,"
"Shareholder Information-Redemption of Bank Stock Fund Shares" and "Sales
Charges" is incorporated herein by reference.
TAXATION OF THE BANK STOCK FUND
The Bank Stock Fund intends to qualify continually as a regulated investment
company under Subchapter M of the Internal Revenue Code. As a regulated
investment company, the Bank Stock Fund would not incur federal income tax
liability for any income the Bank Stock Fund distributes to shareholders. If the
requirements of Subchapter M are not met, the Bank Stock Fund will not receive
special tax treatment and will pay federal income taxes, thus reducing the
return of the Bank Stock Fund.
DISTRIBUTOR
Michael Patterson, Inc., a registered NASD broker-dealer, offers Bank Stock
Fund Shares on a best-efforts basis. Pursuant to the distribution agreement
between the Bank Stock Fund and Michael Patterson, Inc., Michael Patterson, Inc.
has agreed to hold itself available to receive orders, satisfactory to Michael
Patterson, Inc., for the purchase of Bank Stock Fund Shares, to accept such
orders on behalf of the Bank Stock Fund as of the time of receipt of such orders
and to transmit such orders to the Bank Stock Fund's transfer agent as promptly
as practicable.
The information contained in the Prospectus under the caption "Sales Charges"
is incorporated herein by reference.
PERFORMANCE
From time to time, the Bank Stock Fund may advertise performance data
represented by a cumulative total return or an average annual total return.
Total returns are based on the overall or percentage change in value of a
hypothetical investment in the Bank Stock Fund and assume all of the Bank Stock
Fund's dividends and capital gain distributions are reinvested. A cumulative
total return reflects the Bank Stock Fund's performance over a stated period of
time. An average annual total return reflects the hypothetical annually
compounded return that would have produced the same cumulative total return if
the Bank Stock Fund's performance had been constant over the entire period.
Because average annual returns tend to smooth out variations in the Bank Stock
Fund's returns, it should be recognized that they are not the same as actual
year-by-year results.
<PAGE>
The Bank Stock Fund's performance may be compared to well-known indices such
as the Dow Jones Industrial Average or alternative investments such as Treasury
Bills. Also, the Bank Stock Fund may include published editorial comments
compiled by independent organizations such as Lipper Analytical Services or
Morningstar, Inc.
All performance information is historical in nature and is not intended to
represent or guarantee future results. The value of Bank Stock Fund Shares when
redeemed may be more or less than their original cost.
<PAGE>
PART C
OTHER INFORMATION
Item 23.
Exhibit Description
a(1) Certificate of Trust of Merlin Funds Group dated February 3,
1999 (previously filed).
a(2) Agreement and Declaration of Trust of Merlin Funds Group dated
February 3, 1999 (previously filed).
b By-Laws of Merlin Funds Group dated February 3, 1999
(previously filed).
c Article IV, Section 4 and Articles V, VI and VII of the
Agreement and Declaration of Trust of Merlin Funds Group (see
Exhibit a(1)) and Article III of the By-Laws of Merlin Funds
Group (see Exhibit b).
d Investment Advisory Agreement between Merlin Funds Group and
Merlin Advisers, Inc. dated June 17, 1999.
e Distribution Agreement between Merlin Funds Group and Michael
Patterson, Inc. dated June 17, 1999.
f None.
g Custody Agreement between Merlin Funds Group and Firstar Bank,
N.A. dated June 17, 1999.
h(1) Transfer Agent Agreement between Merlin Funds Group and Mutual
Shareholder Services, LLC dated June 17, 1999.
h(2) Accounting Services Agreement between Merlin Funds Group and
Mutual Shareholder Services, LLC dated June 17, 1999.
i Legal opinion of Benesch, Friedlander, Coplan & Aronoff LLP
dated June 28, 1999.
j None.
k N/A
l(1) Investment Agreement dated May 20, 1999 among J. Craig Wright,
Michael Patterson, Inc., and Merlin Funds Group.
l(2) Investment Agreement dated May 20, 1999 among Alice Wright,
Michael Patterson, Inc., and Merlin Funds Group.
m Distribution and Shareholder Servicing Plan of Merlin Funds
Group dated June 8, 1999.
n N/A
o None
<PAGE>
Item 24. Persons Controlled by or Under Common Control with Registrant.
The Bank Stock Fund and Merlin Advisers, Inc. may be deemed to be under
the common control of Michael W. Patterson because Mr. Patterson is a
55% indirect owner of Merlin Advisors, a director of Merlin Advisors,
the Chairman, Chief Executive Officer and Secretary of Merlin Advisors,
the sole owner of Michael Patterson, Inc., a director of Michael
Patterson, Inc. and the President, Chief Executive Officer, Chairman,
Secretary and Treasurer of Michael Patterson, Inc.
The Bank Stock Fund and Merlin Advisors may be deemed to be under the
common control of Joseph M. McCloud because Mr. McCloud is a 15% indirect
owner of Merlin Advisors, a director of Merlin Advisors, the President
and Treasurer of Merlin Advisors, and a Vice President of Michael
Patterson, Inc.
The information in the Bank Stock Fund's prospectus under the caption
"Management-Interrelationships Between the Bank Stock Fund, Merlin
Advisors and Michael Patterson, Inc." is incorporated herein by
reference.
Item 25. Indemnification
Section 3817 of the Delaware Code provides that a business trust has the
power to indemnify and hold harmless any trustee of the business trust or
beneficial owner of the business trust or other person from and against
any and all claims and demands whatsoever.
Sections 3 and 4 of Article IV of the Bank Stock Fund's Agreement and
Declaration of Trust, filed as Exhibit (a) hereto, are incorporated
herein by reference.
These provisions are limited by the following undertaking set forth in
rules promulgated by the SEC:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than payment by the
registrant of expenses incurred or paid by a trustee, officer or
controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such trustee, officer
or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of counsel
the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in such
Act and will be governed by the final adjudication of such issue.
<PAGE>
Item 26. Business and Other Connections of the Investment Adviser.
Michael W. Patterson is a director of Merlin Advisors and also serves as
the Chairman, Chief Executive Officer and Secretary of Merlin Advisors.
Mr. Patterson has served as a director and the President, Chief
Executive Officer, Chairman, President, Secretary and Treasurer for
Michael Patterson, Inc., an Ohio corporation, since November, 1997.
Michael Patterson, Inc. is a registered broker-dealer located at 1200
Old Henderson Road, Columbus, Ohio 43220. From December, 1996 until
March, 1998, Mr. Patterson served as a registered representative for
Quantum Capital Corp., a registered broker-dealer.
Joseph M. McCloud is a director of Merlin Advisors and also serves as
Merlin Advisor's President and Treasurer. Mr. McCloud has served as a
Vice President of Michael Patterson, Inc. since February, 1998. Michael
Patterson, Inc. is a registered broker-dealer located at 1200 Old
Henderson Road, Columbus, Ohio 43220. From February, 1998 until March,
1998, Mr. McCloud served as an equity trader for Quantum Capital Corp., a
registered broker-dealer whose principal business address is 1200 Old
Henderson Road, Columbus, Ohio 43220. From November, 1996 until February,
1998, Mr. McCloud served as an equity trader for Banc One Securities
Corp., a registered broker-dealer whose principal business address is 733
Greencrest Drive, Westerville, Ohio 43081.
Item 27. Principal Underwriters.
(a) Michael Patterson, Inc. will be distributing the Bank Stock Fund
Shares and does not currently act as a principal underwriter, depositor
or investment adviser for any other investment company.
(b) The following information is provided with respect to each director
and officer of Michael Patterson, Inc. who is also affiliated with the
Bank Stock Fund.
Name and Principal Positions & Positions and
Business Address Offices with Offices with Bank
Underwriter Stock Fund
Michael W. Director, Trustee, Chairman
Patterson President, Chief and Secretary
1200 Old Henderson Executive Officer,
Road Chairman,
Columbus, Ohio President,
43220 Secretary and
Treasurer
Joseph M. McCloud Vice President Trustee, President
1200 Old Henderson and Treasurer
Road
Columbus, Ohio
43220
Item 28. Location of Accounts and Records.
All accounts, books and documents required to be maintained by the
Registrant pursuant to Section 31(a) of the Investment Company Act of
1940 and Rules 31a-1 through 31a-3 thereunder are maintained at the
office of the Bank Stock Fund and the offices of Mutual Shareholder
Services, LLC at The Tower at Erieview, Suite 1005, 1301 East Ninth
Street, Cleveland, Ohio 44114, except that all records relating to the
activities of the Bank Stock Fund's Custodian are maintained at the
office of the Custodian, Firstar Bank, N.A., 425 Walnut Street,
Cincinnati, Ohio 45201.
Item 29. Management Services.
Not applicable.
<PAGE>
Item 30. Undertakings.
The undersigned Bank Stock Fund hereby undertakes to file an amendment to
this registration statement with certified financial statements showing
the initial capital received before accepting subscriptions from more
than 25 persons.
The registrant undertakes to call a meeting of shareholders for the
purpose of voting on the question of a removal of a trustee or trustees
when requested in writing to do so by the holders of at least 10% of the
registrant's outstanding shares of beneficial interest and in connection
with such meeting to comply with the provisions of Section 16(c) of the
Investment Company Act of 1940 relating to shareholder communications.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Bank Stock Fund has duly caused this Pre-Effective
Amendment Number 1 to the Registration statement to be signed on its behalf by
the undersigned, duly authorized, in the City of Columbus, State of Ohio, on the
28th day of June, 1999.
Merlin Funds Group
By:/s/ Joseph M. McCloud
Joseph M. McCloud, President
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment Number 1 to the Registration Statement has been signed below
by the following persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Michael W. Patterson
Trustee, Chairman, Secretary June 14, 1999
Michael W. Patterson
/s/ Joseph M. McCloud Trustee, President, Treasurer June 14, 1999
Joseph M. McCloud
/s/ Cavin C. Carmell Trustee June 14, 1999
Cavin C. Carmell
/s/ Gavin Freytag Trustee June 14, 1999
Gavin Freytag
/s/ William F. Maibaum Trustee June 14, 1999
William F. Maibaum
- --------------------------------------------------------------------------------
- ----
- --------------------------------------------------------------------------------
- ----
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
MERLIN FUNDS GROUP
-----------------------
REGISTRATION STATEMENT ON FORM N-1A
-----------------------
EXHIBITS
-----------------------
- --------------------------------------------------------------------------------
----
- --------------------------------------------------------------------------------
----
<PAGE>
EXHIBIT INDEX
Exhibit Number of Pages Page in
Numbe Description in Original Manually
Document Signed
Original
a(1) Certificate of Trust of (previously
Merlin Funds Group dated 1 filed)
February 3, 1999.
a(2) Agreement and Declaration of (previously
Trust of Merlin Funds Group 28 filed)
dated February 3, 1999.
b By-Laws of Merlin Funds Group (previously
dated February 3, 1999. 7 filed)
c Article IV, Section 4 and
Articles V, VI and VII of the
Agreement and Declaration of
Trust of Merlin Funds Group
(see Exhibit a(1)) and
Article III of the By-Laws of
Merlin Funds Group (see
Exhibit (b)).
d Investment Advisory Agreement 37
between Merlin Funds Group 10
and Merlin Advisors, Inc.
dated June 17, 1999.
e Distribution Agreement
between Merlin Funds Group 5 47
and Michael Patterson, Inc.,
dated June 17, 1999.
f Reserved.
g Custody Agreement between
Merlin Funds Group and 26 52
Firstar Bank, N.A. dated June
17, 1999.
h(1) Transfer Agent Agreement
between Merlin Funds Group 7 78
and Mutual Shareholder
Services, LLC dated June 17, 1999.
h(2) Accounting Services Agreement 5
between Merlin Funds Group
and Mutual Shareholder 85
Services, LLC dated June 17,
1999.
i Legal Opinion of Benesch, 1
Friedlander, Coplan & Aronoff 90
LLP dated June 28, 1999.
j Reserved.
k Reserved.
l Initial capitalization 2 91
agreements
m Distribution and Shareholder 3 93
Servicing Plan of Merlin
Funds Group dated June 8,
1999,
n Reserved.
o Reserved.
<PAGE>
MERLIN ADVISORS, INC.
Exhibit d
INVESTMENT ADVISORY AGREEMENT
FOR
MERLIN FUNDS GROUP
This Agreement (the "Agreement") is made this 17th of June, 1999, between
Merlin Advisors, Inc., a Delaware corporation (the "Advisor"), and Merlin Funds
Group, a business trust organized and existing under the laws of the State of
Delaware (the "Client").
WHEREAS, the Client desires to employ its capital by investing and
reinvesting the same in investments of the type and in accordance with the
limitations specified in its Prospectus as from time to time in effect and in
such manner and to such extent as may from time to time be approved by the board
of trustees (the "Board") of the Client; and
WHEREAS, the Client desires to employ Advisor to act as the investment
advisor and administrator for its investment portfolio The Merlin US Community
Bank Stock Fund and such other investment portfolios as the Client may from time
to time create (individually a "Fund" and collectively the "Funds"); and
<PAGE>
WHEREAS, Advisor is willing to provide investment advice and administrative
services to the Client in accordance with the terms of this Agreement.
NOW THEREFORE, in consideration of the mutual promises set forth in this
Agreement, the Client and Advisor hereby agree as follows:
ARTICLE I
APPOINTMENT OF ADVISOR
The Client desires to, and hereby does, employ advisor as the investment
advisor to manage the Funds. By executing this Agreement, Advisor accepts the
appointment as investment advisor and agrees to provide investment management
services to the Funds in accordance with the terms of this Agreement.
ARTICLE II
ADVISOR DUTIES AND SCOPE OF AUTHORITY
Section 1. Types of Investments
The Advisor, subject to the supervision and approval of the Board, will
provide investment management services for each Fund in accordance with each
Fund's investment objective and policies as stated in such Fund's most recent
Prospectus delivered to the Advisor by the Client. The Client shall have the
duty to deliver to the Advisor a current Prospectus for each Fund, from time to
time, to ensure that the Advisor has a current Prospectus for each Fund. The
Advisor shall be entitled to rely on the most recent Prospectus for a Fund which
has been delivered to the Advisor by the Client.
<PAGE>
Section 2. Advisor's Duties
The Advisor shall be each Fund's investment advisor and will provide each
Fund with management and advisory services. Advisor will be responsible for the
actual management of the Funds and will constantly review the Funds in light of
its own research analysis and those from other relevant sources.
Section 3. Advisor's Discretionary Authority
The responsibility for making decisions to buy, sell or hold a particular
security rests with the Advisor. The Advisor is hereby authorized in the name of
and on behalf of each Fund, as its agent and attorney-in-fact, without obtaining
the consent of or consulting with the Fund or any other person, to issue
instructions to purchase, sell, and otherwise trade or deal with, any security
in the Fund; to purchase from or sell to any person any security in the Fund; to
instruct any trustee or custodian of any security or other asset in the Fund to
deliver securities sold, exchanged, or otherwise disposed of from the Fund and
to pay cash for securities delivered to any trustee or custodian upon
acquisition for the Fund; and generally, to perform any other act necessary to
enable the Advisor to carry out its obligations under this Agreement. Such
authorization, however, does not include authority to deliver or pay securities
or cash to the Advisor.
Section 4. Use of Brokers
The Advisor shall select broker-dealers to effect transactions for each
Fund on a best execution basis. In doing so, the Advisor shall consider the
price as well as the quality of brokerage services, including such factors as
execution capability, willingness to commit capital, creditworthiness and
financial stability, financial responsibility and strength, the broker-dealer's
facilities, reliability, clearance and settlement capability and any research
products or services provided by the broker-dealer. Accordingly, if the Advisor
determines in good faith that the amount of commissions charged by a
broker-dealer is reasonable in relation to the value of the brokerage and
research products or services provided by such broker-dealer, transactions by a
Fund may not always be executed at the lowest available commission. Research
products or services provided to the Advisor may include research reports on
particular industries or companies, economic surveys or analyses,
recommendations as to specific securities, and other products or services (e.g.,
quotation equipment and computer related costs and expenses), providing lawful
and appropriate assistance to the Advisor in the performance of its investment
decision-making responsibilities. The research products and services provided by
broker-dealers may benefit other clients of the Advisor, and not all such
products and services may be used by the Advisor in connection with the Client.
Where a product or service obtained with commission dollars provides both
research and non-research assistance to Advisor, the Advisor will make a
reasonable allocation of the cost which may be paid for with commission dollars.
With respect to transactions, Advisor routes to brokers for execution or directs
to particular exchanges, it is Advisor's policy not to receive payment for order
flow.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
Advisor may select a broker which provides brokerage and research services to
the Fund for an amount of disclosed commission in excess of the commission which
another broker would have charged for effecting that transaction. This practice
is subject to a good faith determination that such price is reasonable in light
of the services provided and to such policies as the Board may adopt from time
to time.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to its obligation of seeking the best
qualitative execution, the Advisor may give consideration to sales of shares of
the Client as a factor in selecting broker-dealers to executive portfolio
transactions.
<PAGE>
Section 5. Other Interests
The Advisor and its related persons may have conflicts of interest with a
Fund as a result of other present or future business activities. In the event of
any potential conflict of interest, the Advisor will act in the manner that it
in good faith believes to be in or not opposed to the best interests of the
Funds, consistent with its duty of fair dealing. The Advisor and its related
persons may engage in other investment and service activities for entities other
than the Funds. Any fees received by the Advisor or its related persons for such
services will not be shared with the Funds.
The Advisor and its related persons may, from time to time, purchase or
sell securities or other investments for their own accounts. Each such person
may take actions different for his own account than actions taken for the Funds.
Moreover, the Advisor and its related persons may purchase or sell or make
recommendations to purchase or sell securities, futures, options on futures or
other investments for the benefit of some clients that may not necessarily be
consistent with action taken for the other clients. The Advisor is not under any
obligation to share any investment opportunity, idea, or strategy with the
Funds. The activities or strategies used for some accounts managed by the
Advisor could conflict with the transactions and strategies employed by the
Advisor in managing other accounts and affect the prices and availability of the
securities and other investments in which clients will invest.
Section 6. Aggregate Sales
On occasions when the Advisor deems the purchase or sale of a security to
be in the best interest of a Fund as well as other clients, the Advisor, to the
extent permitted by applicable laws and regulations, may aggregate the
securities to be sold or purchased in order to obtain the most favorable price
or lower brokerage commissions and efficient execution. In such event,
allocation of the securities so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the Advisor in a manner it
considers to be the most equitable and consistent with its fiduciary obligations
to the Fund and to such other clients.
Section 7. Custodian
The Advisor shall not act as custodian for the Funds and shall not take
possession of cash or securities of the Funds.
Section 8. Review of Accounts
The Advisor will monitor each Fund's performance at least weekly. Such
review shall be made by an officer of the Advisor.
The Advisor will report to the Client no less frequently than quarterly.
Each such report shall contain sufficient information to assess the historic
performance of the Funds and shall contain sufficient detail of fees and
expenses paid out of the Funds to allow the Client to assess the reasonableness
of such fees and expenses.
Section 9. Other Services
The Advisor or its affiliates will furnish office facilities and clerical
and administrative services, pay the salaries of all officers and employees who
are employed by both the Advisor and the Client and, subject to the supervision
of the Board, is responsible for the overall management of the business affairs
of the Client, including the provision of personnel for record keeping, the
preparation of governmental reports and responding to shareholder
communications. The Advisor will pay all of the operating expenses of the client
with the exception of brokerage, taxes, interest, distribution (12b-1) fees and
extraordinary expenses, all of which shall be paid by the Client.
<PAGE>
Section 10. Instructions from the Client.
The Advisor may rely on all instructions (whether oral or written) given by
the Client or its agents which the Advisor believes to be genuine. The Advisor's
records of such a transaction will be conclusive as to the content of any
instruction. Instructions may be given to the Advisor by any officer or agent of
the Client. The Client agrees to hold harmless, and to indemnify and defend, the
Advisor, as well as any of its officers, directors, shareholders, affiliates,
employees and agents, against any and all losses sustained by the Advisor
resulting from, and against any and all claims, liabilities, losses, damages,
charges, costs, fees and expenses (including, without limitation, attorneys'
fees and costs, including fees of attorneys who may be the Advisor's employees
or employees of the Advisor's affiliates) arising out of or in connection with,
any action taken in reliance upon any instruction or inquiry believed genuine.
The Advisor reserves the right to refuse to act on any oral instructions.
Section 11. Proxies and Other Legal Notices
The Advisor shall not render any advice or take any action on behalf of the
Client with respect to securities or other investments held in the Funds or the
issuers thereof, which become the subject of any legal proceedings, including
bankruptcies. The Client retains the right and obligation to take any action
relating to the securities held in the Funds. Furthermore, except to the extent
otherwise required by law, the Advisor shall not take any action or render any
advice with respect to the voting of proxies solicited by, or with respect to,
the issuers of any securities held in the Funds. The Client hereby expressly
retains the right and obligation to vote proxies relating to the securities held
in the Funds; provided however, that the Client may delegate said rights and
obligations to a properly authorized agent.
ARTICLE III
FEES
Section 1. Fees and Costs of Advisors
As consideration for the services provided by the Advisor under this
Agreement, the Advisor will be entitled to a fee for each Fund equal to 2% per
annum of the average daily net asset value of the Fund. The advisory fee will be
payable monthly in arrears and shall be computed based upon the average daily
net assets under management for each Fund during such month. The advisory fee
for the initial period shall be prorated based upon the number of days between
the date of the initial public offering and the end of the month. In the event
this Agreement is terminated prior to the end of a month, the advisory fee shall
be prorated. The advisory fee is exclusive of brokerage, taxes, interest,
distribution (12b-1) fees and extraordinary expenses (including, but not limited
to, litigation and indemnification costs and obligations) incurred by the
Advisor as a result of providing the investment services to the Client under
this Agreement.
Section 2. Transaction Costs.
The Client shall be responsible for payment of all ticketing or other
transaction costs incurred to the custodian, or other third parties, from the
purchase and sale of securities under this Agreement. Such costs are not
included as part of the advisory fee. Such transaction costs shall be noted on
the trade confirmations. The Client shall authorize the custodian of the Funds
to pay any ticketing charges and other transaction costs directly from the
Accounts upon settlement of the trades.
Section 3. Reporting.
On a monthly basis, the Advisor will send to the Client a statement for
each Fund for the advisory fee, which shall include the specific manner in which
the advisory fee is calculated. In addition, all trade confirmations will
include (i) a list and explanation of costs incurred by the Client, and (ii) a
list of ticketing charges and other transaction costs incurred by the Client.
The Advisor shall promptly send (or cause to be sent) all trade confirmations to
the Client after the settlement of the trades.
ARTICLE IV
ADVISOR LIABILITY LIMITATIONS
Advisor and its officers, directors or employees shall not be liable for
any loss arising out of any act or omission unless arising out of their
negligence, misfeasance or bad faith. Any stated limitations on liability shall
not relieve the Advisor from any responsibility or liability the Advisor may
have under state or federal statutes.
<PAGE>
ARTICLE V
TERM AND TERMINATION OF THE AGREEMENT
Section 1. Term
This Agreement shall become effective on the date hereof and shall continue
in force for a period of two (2) years and from year to year thereafter,
provided such continuance is specifically approved at least annually by (i) the
Board or (ii) as to any Fund, by a vote of a majority (as defined in the
Investment Company Act of 1940) of such Fund's outstanding voting securities;
provided that in either event the continuance is also approved by a majority of
the Client's trustees who are not "interested persons" (as defined in the
Investment Company Act of 1940) of any party to this Agreement, by vote cast in
person at a meeting called for the purpose of voting on such approval.
Section 2. Termination by the Advisor
The Advisor may terminate this Agreement without penalty upon thirty days'
written notice to the Client.
Section 3. Termination by the Client
The Client may terminate this Agreement without penalty at any time by
written notice to the Advisor.
ARTICLE VI
ASSIGNMENT
No assignment (as that term is defined in the Investment advisors Act of
1940) of this Agreement shall be made by the Advisor without the consent of the
Client.
ARTICLE VII
INTERRELATIONSHIPS
Section 1. Broker-Dealer Services and Michael Patterson, Inc.
The Advisor may, consistent with Section 4 of Article II of this Agreement,
select Michael Patterson, Inc. to act as broker to effect security transactions
for the Client for a fee. Michael W. Patterson wholly owns Michael Patterson,
Inc. and is the Chairman and Chief Executive Officer of Michael Patterson, Inc.,
a director of Michael Patterson, Inc., the Chief Executive Officer, Chairman and
Secretary of the Advisor, a director of the Advisor, an indirect owner of 55% of
the Advisor, a Trustee of the Client and the Chairman and the Secretary of the
Client.
Joseph M. McCloud is the President, Chief Financial Officer and Treasurer
of the Advisor, a director of the Advisor, an indirect owner of 15% of the
Advisor, a broker employed by Michael Patterson, Inc., a Vice President of
Michael Patterson, Inc., a Trustee of the Client and the President and Treasurer
of the Client.
Nicolas P. Bicking and Andrew M. Ankrim are also indirect owners of the
Advisor and are brokers employed by Michael Patterson, Inc.
Section 2. Allocation of Brokerage
The Client agrees that when the Advisor places orders for the execution of
securities transactions for the Funds, the Advisor may allocate such
transactions to such brokers and dealers for execution on such markets, at such
prices and at such commission rates as in the judgment of the Advisor will be in
the best interests of the Client, taking into consideration in the selection of
such brokers and dealers the available prices and rates of brokerage commissions
and other relevant factors (such as without limitations, execution capabilities,
research and other services provided by such brokers or dealers which are
expected to enhance the general portfolio and management capabilities of the
Advisor, and the value of any ongoing relationship of the Advisor with such
brokers and dealers), without having to demonstrate that such factors are of a
direct benefit to the Client.
<PAGE>
Section 3. Transactions for the Advisor and Other Accounts
The Client hereby acknowledges that the Advisor's services under this
Agreement are non-exclusive, and that the Advisor shall be free to render the
same or similar services to other clients. The Client further acknowledges that
the Advisor renders investment advice based upon each client's representations
as to the client's investment objectives. Therefore, the Advisor, in the
performance of its advisory duties, may give advice to other clients and take
action which may differ from the advice given, or the timing and nature of the
action taken, with respect to the Funds. Nothing in this Agreement shall be
deemed to impose upon the Advisor any obligation to purchase or sell or to
recommend for purchase or sale for the Funds any security or other property
which it or its affiliates may purchase or sell for their own account or for the
accounts of any other client, if in the sole discretion of the Advisor, it is
for any reason undesirable or impractical to take such action or make such
recommendation for the Funds. The Client also acknowledges that the Advisor may
charge other clients different fees, which may be higher or lower than the fees
charged with respect to the Funds for similar services.
Section 4. Agency Cross Transactions
The Client understands that, to the extent permitted by applicable law, the
Advisor may, in transactions involving the Client's securities, act as principal
or may act as agent while also representing another client of the Advisor on the
other side of the transaction, hereinafter referred to as an "agency cross
transaction". The Client hereby consents to the Advisor so acting as principal
or as agent for both sides of a transaction. The Client may revoke its consent
to the Advisor's participation in an agency cross transaction at any time by
providing written notice to the Advisor.
ARTICLE VIII
GOVERNMENTAL REGULATIONS
Section 1. Ownership Limitations
The Client agrees not to exceed the ownership limitations set by any
federal agency, exchange or regulatory authority for each of the Funds, acting
alone or in concert with others. The Client acknowledges that the Advisor has
the right to limit the holdings of specific securities in the Funds. The Client
agrees to abide by all other applicable laws, rules and regulations with respect
to maintaining Funds with the custodian, including reporting requirements.
Furthermore, the Client acknowledges that, under applicable rules, the Advisor
and the custodian may be required to provide the Securities and Exchange
Commission ("SEC"), self-regulatory agencies, state regulatory agencies or
exchanges with information concerning the Client's securities and options
positions and related data.
Section 2. Transactions Subject to Industry Regulations and Standards.
All transactions shall be subject to the regulations of all applicable
government authorities and self-regulatory agencies including, but not limited
to, the constitutions and rules of the clearing house, exchange, or market where
executed. The Client understands that the Advisor is registered as an investment
advisor under the Investment Advisors Act of 1940, as amended, and as such is
obligated to comply with all applicable laws and regulations including those of
the SEC and other regulatory and self-regulatory agencies and agrees that the
Advisor shall not be liable to the Client as a result of any action taken by the
Advisor to comply with any ruling, interpretation or directive of such
organization.
<PAGE>
ARTICLE IX
MISCELLANEOUS
Section 1. Confidential Relationship
All information and advice furnished by either party to the other
hereunder, including their respective agents and employees, shall be treated as
confidential and shall not be disclosed to third parties except as required by
law.
Section 2. Representation by Advisor
By execution of this Agreement, the Advisor represents that it is
registered as an investment advisor under the Investment Advisors Act of 1940.
Section 3. Acknowledgment of Disclosure
The Fund hereby acknowledges receipt of the Advisor's Disclosure Statement
(Form ADV Part II) as required pursuant to Rule 204-3 under the Investment
Advisors Act of 1940 prior to or on the date of the Fund's signing of this
Agreement.
Section 4. Entire Agreement
This Agreement constitutes the entire agreement between the parties hereto
with respect to the investment and management of the Funds.
Section 5. Construction
Headings used in this Agreement are for convenience only, and shall not
affect the construction or interpretation of any of its provisions. Each of the
provisions of this Agreement is severable, and the invalidity or inapplicability
of one or more provisions, in whole or in part, shall not affect any other
provision.
Section 6. Notices
All notices required or permitted to be sent under this Agreement shall be
sent to the address appearing beside the signature of the party to be notified
on the signature page of this Agreement, or to such other name or address as may
be given in writing to the other party. Any notice shall be deemed to be given
or received on the third day after deposit in U.S. mails or when actually
received, whichever is earlier.
Section 7. Authority
Each of the parties to this Agreement hereby represents that it is duly
authorized and empowered to execute, deliver, and perform this Agreement and
that such action does not conflict with or violate any provision of law, rule or
regulation, contract, deed of trust, or other instrument to which it is a party
or to which any of its property is subject.
Section 8. Governing Law.
The laws of the state of Ohio shall control all matters relating to this
Agreement and shall apply to the extent not preempted by the laws of the United
States of America.
Section 9. Counterparts
This Agreement may be executed in several counterparts, each of which shall
be considered as an original.
<PAGE>
Addresses: Signatures:
Merlin Advisors, Inc. MERLIN ADVISORS, INC.
Attn: Joseph M. McCloud
1200 Old Henderson Road
Columbus, Ohio 43220 By: /s/ Joseph M. McCloud
Joseph M. McCloud, President
Merlin Funds Group MERLIN FUNDS GROUP
Attn: Joseph M. McCloud
1200 Old Henderson Road
Columbus, Ohio 43220 By: /s/ Joseph M. McCloud
Joseph M. McCloud, President
<PAGE>
DISTRIBUTION AGREEMENT Exhibit e
THIS AGREEMENT dated as of the 17th day of June, 1999 by and between
MERLIN FUNDS GROUP (the "Trust"), a business trust established and existing
under the laws of the State of Delaware, and MICHAEL PATTERSON, INC. (the
"Distributor"), a corporation organized and existing under the laws of the State
of Ohio.
W I T N E S S E T H:
In consideration of the mutual covenants hereinafter contained, the
parties hereto agree as follows:
Section 1. Appointment of the Distributor. The Trust hereby appoints the
Distributor as its agent to arrange for the sale of shares of the Trust on the
terms and for the period set forth in this Agreement, and the Distributor hereby
accepts such appointment and agrees to act hereunder. It is acknowledged that
the Trust is authorized to issue shares in one or more series, with each series
representing shares of a separate investment portfolio of the Trust (a "Fund").
The term "Shares" as used herein shall refer to shares of each class of each
Fund of the Trust.
Section 2. Services and Duties of the Distributor.
(a) The Distributor agrees to arrange to sell, as agent for the
Trust, from time to time during the term of this Agreement, Shares upon
the terms described in the Prospectus. As used in this Agreement, the
term "Prospectus" shall mean the prospectus included in the Trust's
Registration Statement most recently filed by the Trust with the
Securities and Exchange Commission and effective under the Securities Act
of 1933, as amended (the "1933 Act"), and the Investment Company Act of
1940, as amended (the "1940 Act"), as such Registration Statement is
amended by any amendments thereto at the time in effect.
(b) Upon commencement of the continuous public offering of the
Shares of the Trust, the Distributor will hold itself available to
receive orders, satisfactory to the Distributor, for the purchase of
Shares and will accept such orders on behalf of the Trust as of the time
of receipt of such orders and will transmit such orders as are so
accepted to the Trust's Dividend and Transfer Agent as promptly as
practicable. Purchase orders shall be deemed effective at the time and in
the manner set forth in the Prospectus.
(c) The Distributor, as agent for the Trust and in its discretion,
may enter into agreements with such registered and qualified retail
broker-dealers as it may select pursuant to which such broker-dealers may
also arrange for the sale of Shares.
(d) The Distributor shall not be obligated to sell any certain
number of Shares, and nothing herein contained shall prevent the
Distributor from entering into like distribution agreements with other
investment companies so long as the performance of its obligations
hereunder is not impaired thereby.
Section 3. Duties of the Trust.
(a) The Trust agrees to sell its Shares so long as it has Shares
available for sale. No certificates certifying ownership of shares shall
be issued.
(b) The Trust shall keep the Distributor fully informed with regard
to its affairs and shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor
may reasonably request for use in connection with the distribution of
Shares of the Trust. This shall include, without limitation, one
certified copy of all financial statements of the Trust prepared by
independent accountants and such reasonable number of copies of its most
current Prospectus and annual and interim reports as the Distributor may
request. The Trust shall cooperate fully in the efforts of the
Distributor to arrange for the sale of the Shares and in the performance
of the Distributor under this Agreement.
<PAGE>
(c) The Trust agrees to file from time to time such amendments,
reports and other documents as may be necessary in order that there may
be no untrue statement of a material fact in a Registration Statement or
Prospectus, or necessary in order that there may be no omission to state
a material fact in the Registration Statement or Prospectus which
omission would make the statements therein, in light of the circumstances
under which they were made, misleading.
(d) The Trust shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Shares for sale under the
securities laws of such states as the Distributor and the Trust may
approve, and, if necessary or appropriate in connection therewith, to
qualify and maintain the qualification of the Trust as a broker or dealer
in such states; provided that the Trust shall not be required to amend
the Declaration of Trust or its By-Laws to comply with the laws of any
state, to maintain an office in any state, to change the terms of the
offering of its Shares in any state from the terms set forth in its
Registration Statement and Prospectus, to qualify as a foreign
corporation, business trust or similar entity in any state or to consent
to service of process in any state other than with respect to claims
arising out of the offering of its Shares. The Distributor shall furnish
such information and other material relating to its affairs and
activities as may be required by the Trust in connection with such
qualifications.
Section 4. Compensation and Expenses.
(a) Except as set forth in this Section, (i) the Distributor shall
not receive any compensation for its services under this Agreement and
(ii) the Distributor shall not be required to bear any costs in
connection with the offering of Shares for sale to the public.
(b) All shares sold by the Distributor as agent for the Fund shall
be sold at the public offering price as determined in the manner set
forth in the Fund's Prospectus or the Statement of Additional
Information, as amended. Any sales charge included in the public offering
price shall be retained by the Distributor. The Distributor may re-allow
a portion of such sales charge to any retail broker-dealers selected
pursuant to Section 2(c) of this Agreement.
Section 5. Indemnification. The Trust agrees to indemnify, defend and
hold the Distributor, its officers and directors and any person who controls the
Distributor within the meaning of Section 15 of the 1933 Act or Section 20 of
the Securities Exchange Act of 1934, as amended (the "1934 Act"), free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees and expenses incurred in connection therewith)
which the Distributor, its officers, directors or any such controlling persons
may incur under the 1933 Act, the 1934 Act, or under common law or otherwise,
arising out of or based upon any untrue statement of a material fact contained
in the Registration Statement or Prospectus or arising out of or based upon any
alleged omission to state a material fact required to be stated in either
thereof or necessary to make the statements in either thereof not misleading,
except insofar as such claims, demands, liabilities, fees or expenses arise out
of or are based upon any such untrue statement or omission, or alleged untrue
statement or omission, made in reliance upon, and in conformity with,
information furnished in writing by the Distributor to the Trust for use in the
Registration Statement or Prospectus; provided, however, that this indemnity
agreement, to the extent that it might require indemnity of any person who is
also an officer or trustee of the Trust or who controls the Trust within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, shall not
inure to the benefit of such officer, trustee or controlling person unless a
court of competent jurisdiction shall determine, or it shall have been
determined by controlling precedent, that such result would not be against
public policy as expressed in the 1933 Act; and further provided, that in no
event shall anything contained herein be so construed as to protect the
Distributor against any liability to the Trust or to its security holders to
which the Distributor would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
by reason of its reckless disregard of its obligations under this Agreement. The
Trust's agreement to indemnify the Distributor, its officers and directors and
any such controlling person as aforesaid is expressly conditioned upon the Trust
being promptly notified of any action brought against the Distributor, its
officers or directors, or any such controlling person, such notification to be
given by letter or telegram addressed to the Trust at its principal business
office. The Trust agrees promptly to notify the Distributor of the commencement
of any litigation or proceedings against it or any of its officers or directors
in connection with the issue and sale of any of its Shares.
<PAGE>
The Distributor agrees to indemnify, defend and hold the Trust, its
trustees and officers and any person who controls the Trust, if any, within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Trust, its trustees or officers or any such controlling person may incur under
the 1933 Act, the 1934 Act, or under common law or otherwise, but only to the
extent that such liability or expense incurred by the Trust, its trustees or
officers or such controlling person resulting from such claims or demands shall
arise out of or be based upon (i) any alleged untrue statement of a material
fact contained in information furnished in writing by the Distributor to the
Trust for use in the Registration Statement or Prospectus; (ii) any failure of
the Distributor or any investor purchasing Shares of the Trust through the
Distributor to timely transmit good payment for the purchase of Trust Shares; or
(iii) any breach of the obligations of the Distributor under Section 6 of this
Agreement. The Distributor's agreement to indemnify the Trust, its trustees and
officers and any such controlling person as aforesaid, is expressly conditioned
upon the Distributor being promptly notified of any event giving rise to rights
of indemnification hereunder, including any action brought against the Trust,
its trustees or officers or any such controlling person, such notification being
given to the Distributor at its principal business office.
Section 6. Compliance with Securities Laws. The Trust represents that it
will register as a diversified, open-end management investment company under the
1940 Act before the Trust publicly offers its Shares, and agrees that it will
comply with all of the provisions of the 1940 Act and of the rules and
regulations thereunder. The Trust and the Distributor each agree to comply with
all of the applicable terms and provisions of the 1940 Act, the 1933 Act and,
subject to the provisions of Section 3(d), all applicable state "Blue Sky" laws.
The Distributor agrees to comply with all of the applicable terms and provisions
of the 1934 Act.
Section 7. Terms of Agreement; Termination. This Agreement shall commence
on the date first set forth above. This Agreement shall continue in effect for a
period more than two years from the date hereof only so long as such continuance
is specifically approved at least annually in conformity with the requirements
of the 1940 Act, including Rule 12b-1 thereunder.
This Agreement shall terminate automatically in the event of its
assignment (as defined by the 1940 Act). In addition, this Agreement may be
terminated by either party at any time, without penalty, on not more than sixty
days' nor less than thirty days' written notice to the other party.
Section 8. Notices. Any notice required to be given pursuant to this
Agreement shall be deemed duly given if delivered or mailed by registered mail,
postage prepaid, (i) to the Distributor at Michael Patterson, Inc., 1200 Old
Henderson Road, Columbus, Ohio 43220 or (2) to the Trust at Merlin Funds Group,
1200 Old Henderson Road, Columbus, Ohio 43220.
Section 9. Governing Law. The validity, terms, performance and
enforcement of this Agreement will be governed by the laws of the State of Ohio
that are applicable to agreements negotiated, executed, delivered and performed
solely in the State of Ohio.
Section 10. Non-Liability of Shareholders, Trustees, Officers, Employees,
Representatives and Agents. It is expressly agreed that the obligation of the
Trust hereunder shall not be binding upon nor resort be had to the private
property of any of the trustees, Shareholders, nominees, officers, agents or
employees of the Trust, personally, but bind only the Trust property, as
provided in the Declaration of Trust. The execution and delivery of this
Agreement have been authorized by the trustees of the Trust and signed by the
officers of the Trust, acting as such, and neither such authorization by such
trustees nor such execution and delivery by such officers shall be deemed to
have been made by any of them individually, or to impose any liability on any of
them personally, but shall bind only the Trust property as provided in the
Declaration of Trust.
<PAGE>
Section 11. Use of Name. The Trust recognizes that directors, officers
and employees of the Distributor may from time to time serve as directors,
officers and employees of other corporations (including other investment
companies) and that such other corporations may include the name "Merlin" as
part of their name, and that the Distributor or its affiliates may enter into
distribution or other agreements with such other corporations. If the
Distributor ceases to act as the Trust's investment adviser, the Trust agrees
that, at the Distributor's request, the Trust's license to use the word "Merlin"
will terminate and the Trust will take all necessary action to change the name
of all Funds of the Trust to a name not including the word "Merlin".
Section 12. Complete Agreement. This Agreement contains the complete
agreement with respect to the subject matter hereof and supersedes any prior
understandings, agreements or representations by or between the parties related
to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
MERLIN FUNDS GROUP
By: /s/ Joseph M. McCloud
Joseph M. McCloud, President
MICHAEL PATTERSON, INC.
By: /s/ Joseph M. McCloud
Joseph M. McCloud, Vice President
<PAGE>
CUSTODY AGREEMENT Exhibit g
This AGREEMENT, dated as of June 17, 1999, by and between Merlin Funds
Group (the "Trust"), a business trust organized under the laws of the state of
Delaware, acting with respect to Merlin US Community Bank Stock Fund
(individually the "Fund" and collectively, the "Funds"), each of them a series
of the Trust and each of them operated and administered by the Trust, and
FIRSTAR BANK, N.A., a national banking association (the "Custodian").
W I T N E S S E T H:
WHEREAS, the Trust desires that the Fund's Securities and cash be held
and administered by the Custodian pursuant to this Agreement; and
WHEREAS, the Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Custodian represents that it is a bank having the
qualifications prescribed in Section 26(a)(i) of the 1940 Act;
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Trust and the Custodian hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meanings:
1.1 "Authorized Person" means any Officer or other person duly authorized
by resolution of the Board of Trustees to give Oral Instructions and Written
Instructions on behalf of the Fund and named in Appendix A hereto or in such
resolutions of the Board Of Trustees, certified by an Officer, as may be
received by the Custodian from time to time.
1.2 "Board Of Trustees" shall mean the Trustees from time to time serving
under the Trust's Agreement and Declaration of Trust, as from time to time
amended.
1.3 "Book-Entry System" shall mean a federal book-entry system as
provided in Subpart O of Treasury Circular No. 300, 31 CFR 306, in Subpart B of
31 CFR Part 350, or in such book-entry regulations of federal agencies as are
substantially in the form of such Subpart O.
1.4 "Business Day" shall mean any day recognized as a settlement day by
The New York Stock Exchange, Inc. and any other day for which the Trust computes
the net asset value of Shares of the Fund.
1.5 "Fund Custody Account" shall mean any of the accounts in the name of
the Trust, which is provided for in Section 3.2 below.
1.6 "NASD" shall mean The National Association of Securities Dealers,
Inc.
1.7 "Officer" shall mean the Chairman, President, any Vice President,
any Assistant Vice President, the Secretary, any Assistant Secretary, the
Treasurer, or any Assistant Treasurer of the Trust.
1.8 "Oral Instructions" shall mean instructions orally transmitted to and
accepted by the Custodian because such instructions are: (i) reasonably believed
by the Custodian to have been given by an Authorized Person, (ii) recorded and
kept among the records of the Custodian made in the ordinary course of business
and (iii) orally confirmed by the Custodian. The Trust shall cause all Oral
Instructions to be confirmed by Written Instructions prior to the end of the
next Business Day. If such Written Instructions confirming Oral Instructions are
not received by the Custodian prior to a transaction, it shall in no way affect
the validity of the transaction or the authorization thereof by the trust. If
Oral Instructions vary from the Written Instructions which purport to confirm
them, the Custodian shall notify the trust of such variance but such Oral
Instructions will govern unless the Custodian has not yet acted.
<PAGE>
1.9 "Proper Instructions" shall mean Oral Instructions or Written
Instructions. Proper Instructions may be continuing Written Instructions when
deemed appropriate by both parties.
1.10 "Securities Depository" shall mean The Depository Trust Company and
(provided that Custodian shall have received a copy of a resolution of the Board
Of Trustees, certified by an Officer, specifically approving the use of such
clearing agency as a depository for the Fund) any other clearing agency
registered with the Securities and Exchange Commission under Section 17A of the
Securities and Exchange Act of 1934 as amended (the "1934 Act"), which acts as a
system for the central handling of Securities where all Securities of any
particular class or series of an issuer deposited within the system are treated
as fungible and may be transferred or pledged by bookkeeping entry without
physical delivery of the Securities.
1.11 "Securities" shall include, without limitation, common and preferred
stocks, bonds, call options, put options, debentures, notes, bank certificates
of deposit, bankers' acceptances, mortgage-backed securities or other
obligations, and any certificates, receipts, warrants or other instruments or
documents representing rights to receive, purchase or subscribe for the same, or
evidencing or representing any other rights or interests therein, or any similar
property or assets that the Custodian has the facilities to clear and to
service.
1.12 "Shares" shall mean, with respect to a Fund, the units of beneficial
interest issued by the trust on account of the Fund.
1.13"Sub-Custodian" shall mean and include (i) any branch of a "U.S.
Bank," as that term is defined in Rule 17f-5 under the 1940 Act, (ii) any
"Eligible Foreign Custodian," as that term is defined in Rule 17f-5 under the
1940 Act, having a contract with the Custodian which the Custodian has
determined will provide reasonable care of assets of the Funds based on the
standards specified in Section 3.3 below. Such contract shall include provisions
that provide: (i) for indemnification or insurance arrangements (or any
combination of the foregoing) such that the Funds will be adequately protected
against the risk of loss of assets held in accordance with such contract; (ii)
that the Funds' assets will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of the Sub-Custodian or its
creditors except a claim of payment for their safe custody or administration, in
the case of cash deposits, liens or rights in favor of creditors of the
Sub-Custodian arising under bankruptcy, insolvency, or similar laws; (iii) that
beneficial ownership for the Funds' assets will be freely transferable without
the payment of money or value other than for safe custody or administration;
(iv) that adequate records will be maintained identifying the assets as
belonging to the funds or as being held by a third party for the benefit of the
Funds; (v) that the Funds' independent public accountants will be given access
to those records or confirmation of the contents of those records; and (vi) that
the Funds will receive periodic reports with respect to the safekeeping of the
Funds' assets, including, but not limited to, notification of any transfer to or
from a Fund's account or a third party account containing assets held for the
benefit of the Fund. Such contract may contain, in lieu of any or all of the
provisions specified above, such other provisions that the Custodian determines
will provide, in their entirety, the same or a greater level of care and
protection for Fund assets as the specified provisions, in their entirety.
1.14"Written Instructions" shall mean (i) written communications actually
received by the Custodian and signed by an Authorized Person, or (ii)
communications by telex or any other such system from one or more persons
reasonably believed by the Custodian to be Authorized Persons, or (iii)
communications between electro-mechanical or electronic devices provided that
the use of such devices and the procedures for the use thereof shall have been
approved by resolutions of the Board Of Trustees, a copy of which, certified by
an Officer, shall have been delivered to the Custodian.
<PAGE>
ARTICLE II
APPOINTMENT OF CUSTODIAN
2.1 Appointment. The Trust hereby constitutes and appoints the Custodian
as custodian of all Securities and cash owned by or in the possession of the
Fund at any time during the period of this Agreement.
2.2 Acceptance. The Custodian hereby accepts appointment as such
custodian and agrees to perform the duties thereof as hereinafter set forth.
2.3 Documents to be Furnished. The following documents, including any
amendments thereto, will be provided contemporaneously with the execution of the
Agreement to the Custodian by the trust:
(a) A copy of the Declaration of Trust of the Trust certified by
the Secretary;
(b) A copy of the Bylaws of the Trust certified by the Secretary;
(c) A copy of the resolution of the Board Of Trustees of the Trust
appointing the Custodian, certified by the Secretary;
(d) A copy of the then current Prospectus of the Fund; and
(e) A certification of the Chairman and Secretary of the Trust
setting forth the names and signatures of the current Officers of the
Trust and other Authorized Persons.
2.4 Notice of Appointment of Dividend and Transfer Agent. The Trust
agrees to notify the Custodian in writing of the appointment, termination or
change in appointment of any Dividend and Transfer Agent of the Fund.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
3.1 Segregation. All Securities and non-cash property held by the
Custodian for the account of the Fund (other than Securities maintained in a
Securities Depository or Book-Entry System) shall be physically segregated from
other Securities and non-cash property in the possession of the Custodian
(including the Securities and non-cash property of the other Funds) and shall be
identified as subject to this Agreement.
3.2 Fund Custody Accounts. As to each Fund, the Custodian shall open and
maintain in its trust department a custody account in the name of the Trust
coupled with the name of the Fund, subject only to draft or order of the
Custodian, in which the Custodian shall enter and carry all Securities, cash and
other assets of such Fund which are delivered to it.
3.3 Appointment of Agents. (a) In its discretion, the Custodian may
appoint one or more Sub-Custodians to act as Securities Depositories or as
sub-custodians to hold Securities and cash of the Funds and to carry out such
other provisions of this Agreement as it may determine, provided, however, that
the appointment of any such agents and maintenance of any Securities and cash of
the Fund shall be at the Custodian's expense and shall not relieve the Custodian
of any of its obligations or liabilities under this Agreement.
(b) If, after the initial approval of Sub-Custodians by the Board Of
Trustees in connection with this Agreement, the Custodian wishes to
appoint other Sub-Custodians to hold property of the Fund, it will so
notify the Trust and provide it with information reasonably necessary to
determine any such new Sub-Custodian's eligibility under Rule 17f-5 under
the 1940 Act, including a copy of the proposed agreement with such
Sub-Custodian. The Trust shall at the meeting of the Board Of Trustees
next following receipt of such notice and information give a written
approval or disapproval of the proposed action.
(c) The Agreement between the Custodian and each Sub-Custodian
acting hereunder shall contain the required provisions set forth in Rule
17f-5(a)(1)(iii).
<PAGE>
(d) At the end of each calendar quarter, the Custodian shall provide
written reports notifying the Board of Trustees of the placement of the
Securities and cash of the Funds with a particular Sub-Custodian and of
any material changes in the Funds' arrangements. The Custodian shall
promptly take such steps as may be required to withdraw assets of the
Funds from any Sub-Custodian that has ceased to meet the requirements of
Rule 17f-5 under the 1940 Act.
(e) With respect to its responsibilities under this Section 3.3, the
Custodian hereby warrants to the Trust that it agrees to exercise
reasonable care, prudence and diligence such as a person having
responsibility for the safekeeping of property of the Funds. The
Custodian further warrants that a Fund's assets will be subject to
reasonable care, based on the standards applicable to custodians in the
relevant market, if maintained with each Sub-Custodian, after considering
all factors relevant to the safekeeping of such assets, including,
without limitation: (i) the Sub-Custodian's practices, procedures, and
internal controls, or certificated securities (if applicable), the method
of keeping custodial records, and the security and data protection
practices; (ii) whether the Sub-Custodian has the requisite financial
strength to provide reasonable care for Fund assets; (iii) the
Sub-Custodian's general reputation and standing and, in the case of a
Securities Depository, the Securities Depository's operating history and
number of participants; and (iv) whether the Fund will have jurisdiction
over and be able to enforce judgments against the Sub- Custodian, such as
by virtue of the existence of any offices of the Sub- Custodian in the
United States or the Sub-Custodian's consent to service of process in the
United States.
(f) The Custodian shall establish a system to monitor the
appropriateness of maintaining the Fund's assets with a particular Sub-
Custodian and the contract governing the Funds' arrangements with such
Sub-Custodian.
3.4 Delivery of Assets to Custodian. The Trust shall deliver, or cause to
be delivered, to the Custodian all of the Funds' Securities, cash and other
assets, including (a) all payments of income, payments of principal and capital
distributions received by the Fund with respect to such Securities, cash or
other assets owned by the Fund at any time during the period of this Agreement,
and (b) all cash received by the Fund for the issuance, at any time during such
period, of Shares. The Custodian shall not be responsible for such Securities,
cash or other assets until actually received by it.
3.5 Securities Depositories and Book-Entry Systems. The Custodian may
deposit and/or maintain Securities of the Fund in a Securities Depository or in
a Book-Entry System, subject to the following provisions:
(a) Prior to a deposit of Securities of the Funds in any Securities
Depository or Book-Entry System, the Trust shall deliver to the Custodian
a resolution of the Board Of Trustees, certified by an Officer,
authorizing and instructing the Custodian on an on-going basis to deposit
in such Securities Depository or Book-Entry System all Securities
eligible for deposit therein and to make use of such Securities
Depository or Book-Entry System to the extent possible and practical in
connection with its performance hereunder, including, without limitation,
in connection with settlements of purchases and sales of Securities,
loans of Securities, and deliveries and returns of collateral consisting
of Securities.
(b) Securities of the Funds kept in a Book-Entry System or
Securities Depository shall be kept in an account ("Depository Account")
of the Custodian in such Book-Entry System or Securities Depository which
includes only assets held by the Custodian as a fiduciary, custodian or
otherwise for customers.
<PAGE>
(c) The records of the Custodian with respect to Securities of the
Fund maintained in a Book-Entry System or Securities Depository shall, by
book-entry, identify such Securities as belonging to such Fund.
(d) If Securities purchased by a Fund are to be held in a Book-
Entry System or Securities Depository, the Custodian shall pay for such
Securities upon (i) receipt of advice from the Book-Entry System or
Securities Depository that such Securities have been transferred to the
Depository Account, and (ii) the making of an entry on the records of the
Custodian to reflect such payment and transfer for the account of such
Fund. If Securities sold by a Fund are held in a Book-Entry System or
Securities Depository, the Custodian shall transfer such Securities upon
(i) receipt of advice from the Book-Entry System or Securities Depository
that payment for such Securities has been transferred to the Depository
Account, and (ii) the making of an entry on the records of the Custodian
to reflect such transfer and payment for the account of such Fund.
(e) The Custodian shall provide the Trust with copies of any report
(obtained by the Custodian from a Book-Entry System or Securities
Depository in which Securities of the Fund are kept) on the internal
accounting controls and procedures for safeguarding Securities deposited
in such Book-Entry System or Securities Depository.
(f) Anything to the contrary in this Agreement notwithstanding, the
Custodian shall be liable to the Trust for any loss or damage to the Fund
resulting (i) from the use of a Book-Entry System or Securities
Depository by reason of any negligence or willful misconduct on the part
of Custodian or any Sub-Custodian appointed pursuant to Section 3.3 above
or any of its or their employees, or (ii) from failure of Custodian or
any such Sub-Custodian to enforce effectively such rights as it may have
against a Book-Entry System or Securities Depository. At its election,
the Trust shall be subrogated to the rights of the Custodian with respect
to any claim against a Book-Entry System or Securities Depository or any
other person from any loss or damage to the Fund arising from the use of
such Book-Entry System or Securities Depository, if and to the extent
that the Funds has not been made whole for any such loss or damage.
3.6 Disbursement of Moneys from Fund Custody Account. Upon receipt of
Proper Instructions, the Custodian shall disburse moneys from the Fund Custody
Account but only in the following cases:
(a) For the purchase of Securities for the Fund but only in
accordance with Section 4.1 of this Agreement and only (i) in the case of
Securities (other than options on Securities, futures contracts and
options on futures contracts), against the delivery to the Custodian (or
any Sub-Custodian appointed pursuant to Section 3.3 above) of such
Securities registered as provided in Section 3.9 below or in proper form
for transfer, or if the purchase of such Securities is effected through a
Book-Entry System or Securities Depository, in accordance with the
conditions set forth in Section 3.5 above; (ii) in the case of options on
Securities, against delivery to the Custodian (or such Sub-Custodian) of
such receipts as are required by the customs prevailing among dealers in
such options; (iii) in the case of futures contracts and options on
futures contracts, against delivery to the Custodian (or such Sub-
Custodian) of evidence of title thereto in favor of the Fund or any
nominee referred to in Section 3.9 below; and (iv) in the case of
repurchase or reverse repurchase agreements entered into between the
Trust and a bank which is a member of the Federal Reserve System or
between the Trust and a primary dealer in U.S. Government securities,
against delivery of the purchased Securities either in certificate form
or through an entry crediting the Custodian's account at a Book-Entry
System or Securities Depository with such Securities;
(b) In connection with the conversion, exchange or surrender, as set
forth in Section 3.7(f) below, of Securities owned by the Fund;
(c) For the payment of any dividends or capital gain distributions
declared by the Fund;
<PAGE>
(d) In payment of the redemption price of
Shares as provided in Section 5.1 below;
(e) For the payment of any expense or liability incurred by the
Fund, including but not limited to the following payments for the account
of the Fund: interest; taxes; administration, investment advisory,
accounting, auditing, transfer agent, custodian, trustee and legal fees;
and other operating expenses of the Fund; in all cases, whether or not
such expenses are to be in whole or in part capitalized or treated as
deferred expenses;
(f) For transfer in accordance with the provisions of any
agreement among the Trust, the Custodian and a broker-dealer registered
under the 1934 Act and a member of the NASD, relating to compliance with
rules of The Options Clearing Corporation and of any registered national
securities exchange (or of any similar organization or organizations)
regarding escrow or other arrangements in connection with transactions by
the Fund;
(g) For transfer in accordance with the provision of any agreement
among the Trust, the Custodian, and a futures commission merchant
registered under the Commodity Exchange Act, relating to compliance with
the rules of the Commodity Futures Trading Commission and/or any contract
market (or any similar organization or organizations) regarding account
deposits in connection with transactions by the Fund;
(h) For the funding of any uncertificated time deposit or other
interest-bearing account with any banking institution (including the
Custodian), which deposit or account has a term of one year or less; and
(i) For any other proper purpose, but only upon receipt, in addition
to Proper Instructions, of a copy of a resolution of the Board Of
Trustees, certified by an Officer, specifying the amount and purpose of
such payment, declaring such purpose to be a proper corporate purpose,
and naming the person or persons to whom such payment is to be made.
3.7 Delivery of Securities from Fund Custody Account. Upon receipt of
Proper Instructions, the Custodian shall release and deliver Securities from the
Fund Custody Account but only in the following cases:
(a) Upon the sale of Securities for the account of the Fund but only
against receipt of payment therefor in cash, by certified or cashiers
check or bank credit;
(b) In the case of a sale effected through a Book-Entry System or
Securities Depository, in accordance with the provisions of Section 3.5
above;
(c) To an offeror's depository agent in connection with tender or
other similar offers for Securities of the Fund; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
(d) To the issuer thereof or its agent (i) for transfer into the
name of the Fund, the Custodian or any Sub-Custodian appointed pursuant
to Section 3.3 above, or of any nominee or nominees of any of the
foregoing, or (ii) for exchange for a different number of certificates or
other evidence representing the same aggregate face amount or number of
units; provided that, in any such case, the new Securities are to be
delivered to the Custodian;
(e) To the broker selling Securities, for examination in accordance
with the "street delivery" custom;
<PAGE>
(f) For exchange or conversion pursuant to any plan or merger,
consolidation, recapitalization, reorganization or readjustment of the
issuer of such Securities, or pursuant to provisions for conversion
contained in such Securities, or pursuant to any deposit agreement,
including surrender or receipt of underlying Securities in connection
with the issuance or cancellation of depository receipts; provided that,
in any such case, the new Securities and cash, if any, are to be
delivered to the Custodian;
(g) Upon receipt of payment therefor pursuant to any repurchase or
reverse repurchase agreement entered into by the Fund;
(h) In the case of warrants, rights or similar Securities, upon the
exercise thereof, provided that, in any such case, the new Securities and
cash, if any, are to be delivered to the Custodian;
(i) For delivery in connection with any loans of Securities of the
Fund, but only against receipt of such collateral as the Trust shall have
specified to the Custodian in Proper Instructions;
(j) For delivery as security in connection with any borrowings by
the Fund requiring a pledge of assets by the Trust, but only against
receipt by the Custodian of the amounts borrowed;
(k) Pursuant to any authorized plan of liquidation, reorganization,
merger, consolidation or recapitalization of the Trust;
(l) For delivery in accordance with the provisions of any agreement
among the Trust, the Custodian and a broker-dealer registered under the
1934 Act and a member of the NASD, relating to compliance with the rules
of The Options Clearing Corporation and of any registered national
securities exchange (or of any similar organization or organizations)
regarding escrow or other arrangements in connection with transactions by
the Fund;
(m) For delivery in accordance with the provisions of any agreement
among the Trust, the Custodian, and a futures commission merchant
registered under the Commodity Exchange Act, relating to compliance with
the rules of the Commodity Futures Trading Commission and/or any contract
market (or any similar organization or organizations) regarding account
deposits in connection with transactions by the Fund; or
(n) For any other proper corporate purpose, but only upon receipt,
in addition to Proper Instructions, of a copy of a resolution of the
Board Of Trustees, certified by an Officer, specifying the Securities to
be delivered, setting forth the purpose for which such delivery is to be
made, declaring such purpose to be a proper corporate purpose, and naming
the person or persons to whom delivery of such Securities shall be made.
3.8 Actions Not Requiring Proper Instructions. Unless otherwise
instructed by the Trust, the Custodian shall with respect to all Securities held
for the Fund:
(a) Subject to Section 7.4 below, collect on a timely basis all
income and other payments to which the Fund is entitled either by law or
pursuant to custom in the securities business;
(b) Present for payment and, subject to Section 7.4 below, collect
on a timely basis the amount payable upon all Securities which may mature
or be called, redeemed, or retired, or otherwise become payable;
(c) Endorse for collection, in the name of the Fund, checks, drafts
and other negotiable instruments;
<PAGE>
(d) Surrender interim receipts or Securities in temporary form for
Securities in definitive form;
(e) Execute, as custodian, any necessary declarations or
certificates of ownership under the federal income tax laws or the laws
or regulations of any other taxing authority now or hereafter in effect,
and prepare and submit reports to the Internal Revenue Service ("IRS")
and to the Trust at such time, in such manner and containing such
information as is prescribed by the IRS;
(f) Hold for the Fund, either directly or, with respect to
Securities held therein, through a Book-Entry System or Securities
Depository, all rights and similar securities issued with respect to
Securities of the Fund; and
(g) In general, and except as otherwise directed in Proper
Instructions, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other dealings
with Securities and assets of the Fund.
3.9 Registration and Transfer of Securities. All Securities held for a
Fund that are issued or issuable only in bearer form shall be held by the
Custodian in that form, provided that any such Securities shall be held in a
Book-Entry System if eligible therefor. All other Securities held for the Fund
may be registered in the name of such Fund, the Custodian, or any Sub-Custodian
appointed pursuant to Section 3.3 above, or in the name of any nominee of any of
them, or in the name of a Book-Entry System, Securities Depository or any
nominee of either thereof. The Trust shall furnish to the Custodian appropriate
instruments to enable the Custodian to hold or deliver in proper form for
transfer, or to register in the name of any of the nominees hereinabove referred
to or in the name of a Book-Entry System or Securities Depository, any
Securities registered in the name of a Fund.
3.10 Records. (a) The Custodian shall maintain, by Fund, complete and
accurate records with respect to Securities, cash or other property held for the
Fund, including (i) journals or other records of original entry containing an
itemized daily record in detail of all receipts and deliveries of Securities and
all receipts and disbursements of cash; (ii) ledgers (or other records)
reflecting (A) Securities in transfer, (B) Securities in physical possession,
(C) monies and Securities borrowed and monies and Securities loaned (together
with a record of the collateral therefor and substitutions of such collateral),
(D) dividends and interest received, and (E) dividends receivable and interest
receivable; and (iii) canceled checks and bank records related thereto. The
Custodian shall keep such other books and records of the Funds as the Trust
shall reasonably request, or as may be required by the 1940 Act, including, but
not limited to, Section 31 of the 1940 Act and Rule 31a-2 promulgated
thereunder.
(b) All such books and records maintained by the Custodian shall (i)
be maintained in a form acceptable to the Trust and in compliance with
rules and regulations of the Securities and Exchange Commission, (ii) be
the property of the Trust and at all times during the regular business
hours of the Custodian be made available upon request for inspection by
duly authorized officers, employees or agents of the Trust and employees
or agents of the Securities and Exchange Commission, and (iii) if
required to be maintained by Rule 31a-1 under the 1940 Act, be preserved
for the periods prescribed in Rule 31a-2 under the 1940 Act.
3.11 Fund Reports by Custodian. The Custodian shall furnish the Trust
with a daily activity statement and a summary of all transfers to or from each
Fund Custody Account on the day following such transfers. At least monthly and
from time to time, the Custodian shall furnish the Trust with a detailed
statement of the Securities and moneys held by the Custodian and the Sub-
Custodians for the Fund under this Agreement.
3.12 Other Reports by Custodian. The Custodian shall provide the Trust
with such reports, as the Trust may reasonably request from time to time, on the
internal accounting controls and procedures for safeguarding Securities, which
are employed by the Custodian or any Sub-Custodian appointed pursuant to Section
3.3 above.
<PAGE>
3.13 Proxies and Other Materials. The Custodian shall cause all proxies
relating to Securities which are not registered in the name of the Fund, to be
promptly executed by the registered holder of such Securities, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Trust such proxies, all proxy soliciting materials and
all notices relating to such Securities.
3.14Information on Corporate Actions. The Custodian shall promptly
deliver to the Trust all information received by the Custodian and pertaining to
Securities being held by the Fund with respect to optional tender or exchange
offers, calls for redemption or purchase, or expiration of rights as described
in the Standards of Service Guide attached as Appendix B. If the Trust desires
to take action with respect to any tender offer, exchange offer or other similar
transaction, the Trust shall notify the Custodian at least five Business Days
prior to the date on which the Custodian is to take such action. The Trust will
provide or cause to be provided to the Custodian all relevant information for
any Security which has unique put/option provisions at least five Business Days
prior to the beginning date of the tender period.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
4.1 Purchase of Securities. Promptly upon each purchase of Securities for
the Fund, Written Instructions shall be delivered to the Custodian, specifying
(a) the name of the issuer or writer of such Securities, and the title or other
description thereof, (b) the number of shares, principal amount (and accrued
interest, if any) or other units purchased, (c) the date of purchase and
settlement, (d) the purchase price per unit, (e) the total amount payable upon
such purchase, and (f) the name of the person to whom such amount is payable.
The Custodian shall upon receipt of such Securities purchased by such Fund pay
out of the moneys held for the account of a Fund the total amount specified in
such Written Instructions to the person named therein. The Custodian shall not
be under any obligation to pay out moneys to cover the cost of a purchase of
Securities for the Fund, if in the Fund Custody Account there is insufficient
cash available to the Fund for which such purchase was made.
4.2 Liability for Payment in Advance of Receipt of Securities Purchased.
In any and every case where payment for the purchase of Securities for a Fund is
made by the Custodian in advance of receipt of the Securities purchased but in
the absence of specified Written Instructions to so pay in advance, the
Custodian shall be liable to the Fund for such Securities to the same extent as
if the Securities had been received by the Custodian.
4.3 Sale of Securities. Promptly upon each sale of Securities by a Fund,
Written Instructions shall be delivered to the Custodian, specifying (a) the
name of the issuer or writer of such Securities, and the title or other
description thereof, (b) the number of shares, principal amount (and accrued
interest, if any), or other units sold, (c) the date of sale and settlement, (d)
the sale price per unit, (e) the total amount payable upon such sale, and (f)
the person to whom such Securities are to be delivered. Upon receipt of the
total amount payable to the Fund as specified in such Written Instructions, the
Custodian shall deliver such Securities to the person specified in such Written
Instructions. Subject to the foregoing, the Custodian may accept payment in such
form as shall be satisfactory to it, and may deliver Securities and arrange for
payment in accordance with the customs prevailing among dealers in Securities.
4.4 Delivery of Securities Sold. Notwithstanding Section 4.3 above or any
other provision of this Agreement, the Custodian, when instructed to deliver
Securities against payment, shall be entitled, if in accordance with generally
accepted market practice, to deliver such Securities prior to actual receipt of
final payment therefor. In any such case, the Fund shall bear the risk that
final payment for such Securities may not be made or that such Securities may be
returned or otherwise held or disposed of by or through the person to whom they
were delivered, and the Custodian shall have no liability for any for the
foregoing.
4.5 Payment for Securities Sold, etc. In its sole discretion and from
time to time, the Custodian may credit the Fund Custody Account, prior to actual
receipt of final payment thereof, with (i) proceeds from the sale of Securities
which it has been instructed to deliver against payment, (ii) proceeds from the
redemption of Securities or other assets of the Fund, and (iii) income from
cash, Securities or other assets of the Fund. Any such credit shall be
conditional upon actual receipt by Custodian of final payment and may be
reversed if final payment is not actually received in full. The Custodian may,
in its sole discretion and from time to time, permit the Fund to use funds so
credited to the Fund Custody Account in anticipation of actual receipt of final
payment. Any such funds shall be repayable immediately upon demand made by the
Custodian at any time prior to the actual receipt of all final payments in
anticipation of which funds were credited to the Fund Custody Account.
<PAGE>
4.6 Advances by Custodian for Settlement. The Custodian may, in its sole
discretion and from time to time, advance funds to the Trust to facilitate the
settlement of a Fund's transactions in the Fund Custody Account. Any such
advance shall be repayable immediately upon demand made by Custodian.
ARTICLE V
REDEMPTION OF FUND SHARES
5.1 Transfer of Funds. From such funds as may be available for the
purpose in the relevant Fund Custody Account, and upon receipt of Proper
Instructions specifying that the funds are required to redeem Shares of the
Fund, the Custodian shall wire each amount specified in such Proper Instructions
to or through such bank as the Trust may designate with respect to such amount
in such Proper Instructions.
5.2 No Duty Regarding Paying Banks. The Custodian shall not be under any
obligation to effect payment or distribution by any bank designated in Proper
Instructions given pursuant to Section 5.1 above of any amount paid by the
Custodian to such bank in accordance with such Proper Instructions.
ARTICLE VI
SEGREGATED ACCOUNTS
Upon receipt of Proper Instructions, the Custodian shall establish and
maintain a segregated account or accounts for and on behalf of the Fund, into
which account or accounts may be transferred cash and/or Securities, including
Securities maintained in a Depository Account,
(a) in accordance with the provisions of any agreement among the
Trust, the Custodian and a broker-dealer registered under the 1934 Act
and a member of the NASD (or any futures commission merchant registered
under the Commodity Exchange Act), relating to compliance with the rules
of The Options Clearing Trust and of any registered national securities
exchange (or the Commodity Futures Trading Commission or any registered
contract market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with transactions by
the Fund,
(b) for purposes of segregating cash or Securities in connection
with securities options purchased or written by the Fund or in connection
with financial futures contracts (or options thereon) purchased or sold
by the Fund,
(c) which constitute collateral for loans of Securities made by the
Fund,
(d) for purposes of compliance by the Fund with requirements under
the 1940 Act for the maintenance of segregated accounts by registered
investment companies in connection with reverse repurchase agreements and
when-issued, delayed delivery and firm commitment transactions, and
(f) for other proper corporate purposes, but only upon receipt of,
in addition to Proper Instructions, a certified copy of a resolution of
the Board Of Trustees, certified by an Officer, setting forth the purpose
or purposes of such segregated account and declaring such purposes to be
proper corporate purposes.
<PAGE>
Each segregated account established under this Article VI shall be established
and maintained for a single Fund only. All Proper Instructions relating to a
segregated account shall specify the Fund involved.
ARTICLE VII
CONCERNING THE CUSTODIAN
7.1 Standard of Care. The Custodian shall be held to the exercise of
reasonable care in carrying out its obligations under this Agreement, and shall
be without liability to the Trust or any Fund for any loss, damage, cost,
expense (including attorneys' fees and disbursements), liability or claim unless
such loss, damage, cost, expense, liability or claim arises from negligence, bad
faith or willful misconduct on its part or on the part of any Sub-Custodian
appointed pursuant to Section 3.3 above. The Custodian shall be entitled to rely
on and may act upon advice of counsel on all matters, and shall be without
liability for any action reasonably taken or omitted pursuant to such advice.
The Custodian shall promptly notify the Trust of any action taken or omitted by
the Custodian pursuant to advice of counsel. The Custodian shall not be under
any obligation at any time to ascertain whether the Trust or the Fund is in
compliance with the 1940 Act, the regulations thereunder, the provisions of the
Trust's charter documents or by-laws, or its investment objectives and policies
as then in effect.
7.2 Actual Collection Required. The Custodian shall not be liable for, or
considered to be the custodian of, any cash belonging to a Fund or any money
represented by a check, draft or other instrument for the payment of money,
until the Custodian or its agents actually receive such cash or collect on such
instrument.
7.3 No Responsibility for Title, etc. So long as and to the extent that
it is in the exercise of reasonable care, the Custodian shall not be responsible
for the title, validity or genuineness of any property or evidence of title
thereto received or delivered by it pursuant to this Agreement.
7.4 Limitation on Duty to Collect. Custodian shall not be required to
enforce collection, by legal means or otherwise, of any money or property due
and payable with respect to Securities held for the Fund if such Securities are
in default or payment is not made after due demand or presentation.
7.5 Reliance Upon Documents and Instructions. The Custodian shall be
entitled to rely upon any certificate, notice or other instrument in writing
received by it and reasonably believed by it to be genuine. The Custodian shall
be entitled to rely upon any Oral Instructions and any Written Instructions
actually received by it pursuant to this Agreement.
7.6 Express Duties Only. The Custodian shall have no duties or
obligations whatsoever except such duties and obligations as are specifically
set forth in this Agreement, and no covenant or obligation shall be implied in
this Agreement against the Custodian.
7.7 Co-operation. The Custodian shall cooperate with and supply necessary
information to the entity or entities appointed by the Trust to keep the books
of account of the Funds and/or compute the value of the assets of the Funds. The
Custodian shall take all such reasonable actions as the Trust may from time to
time request to enable the Trust to obtain, from year to year, favorable
opinions from the Trust's independent accountants with respect to the
Custodian's activities hereunder in connection with (a) the preparation of the
Trust's reports on Form N-1A and Form N-SAR and any other reports required by
the Securities and Exchange Commission, and (b) the fulfillment by the Trust of
any other requirements of the Securities and Exchange Commission.
<PAGE>
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by Trust. The Trust shall indemnify and hold harmless
the Custodian and any Sub-Custodian appointed pursuant to Section 3.3 above, and
any nominee of the Custodian or of such Sub-Custodian, from and against any
loss, damage, cost, expense (including attorneys' fees and disbursements),
liability (including, without limitation, liability arising under the Securities
Act of 1933, the 1934 Act, the 1940 Act, and any state or foreign securities
and/or banking laws) or claim arising directly or indirectly (a) from the fact
that Securities are registered in the name of any such nominee, or (b) from any
action or inaction by the Custodian or such Sub- Custodian (i) at the request or
direction of or in reliance on the advice of the Trust, or (ii) upon Proper
Instructions, or (c) generally, from the performance of its obligations under
this Agreement or any sub-custody agreement with a Sub- Custodian appointed
pursuant to Section 3.3 above, provided that neither the Custodian nor any such
Sub-Custodian shall be indemnified and held harmless from and against any such
loss, damage, cost, expense, liability or claim arising from the Custodian's or
such Sub-Custodian's negligence, bad faith or willful misconduct.
8.2 Indemnification by Custodian. The Custodian shall indemnify and hold
harmless the Trust from and against any loss, damage, cost, expense (including
attorneys' fees and disbursements), liability (including without limitation,
liability arising under the Securities Act of 1933, the 1934 Act, the 1940 Act,
and any state or foreign securities and/or banking laws) or claim arising from
the negligence, bad faith or willful misconduct of the Custodian or any
Sub-Custodian appointed pursuant to Section 3.3 above, or any nominee of the
Custodian or of such Sub-Custodian.
8.3 Indemnity to be Provided. If the Trust requests the Custodian to take
any action with respect to Securities, which may, in the opinion of the
Custodian, result in the Custodian or its nominee becoming liable for the
payment of money or incurring liability of some other form, the Custodian shall
not be required to take such action until the Trust shall have provided
indemnity therefor to the Custodian in an amount and form satisfactory to the
Custodian.
8.4 Security. If the Custodian advances cash or Securities to the Fund
for any purpose, either at the Trust's request or as otherwise contemplated in
this Agreement, or in the event that the Custodian or its nominee incurs, in
connection with its performance under this Agreement, any loss, damage, cost,
expense (including attorneys' fees and disbursements), liability or claim
(except such as may arise from its or its nominee's negligence, bad faith or
willful misconduct), then, in any such event, any property at any time held for
the account of such Fund shall be security therefor, and should the Fund fail
promptly to repay or indemnify the Custodian, the Custodian shall be entitled to
utilize available cash of such Fund and to dispose of other assets of such Fund
to the extent necessary to obtain reimbursement or indemnification.
ARTICLE IX
FORCE MAJEURE
Neither the Custodian nor the Trust shall be liable for any failure or
delay in performance of its obligations under this Agreement arising out of or
caused, directly or indirectly, by circumstances beyond its reasonable control,
including, without limitation, acts of God; earthquakes; fires; floods; wars;
civil or military disturbances; sabotage; strikes; epidemics; riots; power
failures; computer failure and any such circumstances beyond its reasonable
control as may cause interruption, loss or malfunction of utility,
transportation, computer (hardware or software) or telephone communication
service; accidents; labor disputes; acts of civil or military authority;
governmental actions; or inability to obtain labor, material, equipment or
transportation; provided, however, that the Custodian in the event of a failure
or delay (i) shall not discriminate against the Funds in favor of any other
customer of the Custodian in making computer time and personnel available to
input or process the transactions contemplated by this Agreement and (ii) shall
use its best efforts to ameliorate the effects of any such failure or delay.
ARTICLE X
EFFECTIVE PERIOD; TERMINATION
10.1 Effective Period. This Agreement shall become effective as of its
execution and shall continue in full force and effect until terminated as
hereinafter provided.
<PAGE>
10.2 Termination. Either party hereto may terminate this Agreement by
giving to the other party a notice in writing specifying the date of such
termination, which shall be not less than sixty (60) days after the date of the
giving of such notice. If a successor custodian shall have been appointed by the
Board Of Trustees, the Custodian shall, upon receipt of a notice of acceptance
by the successor custodian, on such specified date of termination (a) deliver
directly to the successor custodian all Securities (other than Securities held
in a Book-Entry System or Securities Depository) and cash then owned by the Fund
and held by the Custodian as custodian, and (b) transfer any Securities held in
a Book-Entry System or Securities Depository to an account of or for the benefit
of the Funds at the successor custodian, provided that the Trust shall have paid
to the Custodian all fees, expenses and other amounts to the payment or
reimbursement of which it shall then be entitled. Upon such delivery and
transfer, the Custodian shall be relieved of all obligations under this
Agreement. The Trust may at any time immediately terminate this Agreement in the
event of the appointment of a conservator or receiver for the Custodian by
regulatory authorities or upon the happening of a like event at the direction of
an appropriate regulatory agency or court of competent jurisdiction.
10.3 Failure to Appoint Successor Custodian. If a successor custodian is
not designated by the Trust on or before the date of termination specified
pursuant to Section 10.1 above, then the Custodian shall have the right to
deliver to a bank or corporation company of its own selection, which (a) is a
"bank" as defined in the 1940 Act and (b) has aggregate capital, surplus and
undivided profits as shown on its then most recent published report of not less
than $25 million, all Securities, cash and other property held by Custodian
under this Agreement and to transfer to an account of or for the Funds at such
bank or trust company all Securities of the Funds held in a Book-Entry System or
Securities Depository. Upon such delivery and transfer, such bank or trust
company shall be the successor custodian under this Agreement and the Custodian
shall be relieved of all obligations under this Agreement.
ARTICLE XI
COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to compensation as agreed upon from time
to time by the Trust and the Custodian. The fees and other charges in effect on
the date hereof and applicable to the Fund are set forth in Appendix C attached
hereto.
ARTICLE XII
LIMITATION OF LIABILITY
It is expressly agreed that the obligations of the Trust hereunder shall
not be binding upon any of the Trustees, shareholders, nominees, officers,
agents or employees of the Trust personally, but shall bind only the property of
the Trust as provided in the Trust's Agreement and Articles of Incorporation, as
from time to time amended. The execution and delivery of this Agreement have
been authorized by the Trustees, and this Agreement has been signed and
delivered by an authorized officer of the Trust, acting as such, and neither
such authorization by the Trustees nor such execution and delivery by such
officer shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the
corporation property of the Trust as provided in the above-mentioned Agreement
and Articles of Incorporation.
ARTICLE XIII
NOTICES
Unless otherwise specified herein, all demands, notices, instructions,
and other communications to be given hereunder shall be in writing and shall be
sent or delivered to the recipient at the address set forth after its name
hereinbelow:
To the Trust:
Merlin Funds Group
1200 Old Henderson Road
Columbus, OH 43220
Telephone: (877) 637-3863
Facsimile: (614) 451-5640
<PAGE>
To Custodian:
Firstar Bank, N.A.
425 Walnut Street, M.L. 6118
Cincinnati, Ohio 45202
Attention: Mutual Fund Custody Services
Telephone: (513) 632-3095
Facsimile: (513) 632-3299
or at such other address as either party shall have provided to the other by
notice given in accordance with this Article XIII. Writing shall include
transmissions by or through teletype, facsimile, central processing unit
connection, on-line terminal and magnetic tape.
ARTICLE XIV
MISCELLANEOUS
14.1 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio.
14.2 References to Custodian. The Trust shall not circulate any printed
matter which contains any reference to Custodian without the prior written
approval of Custodian, excepting printed matter contained in the prospectus or
statement of additional information for the Fund and such other printed matter
as merely identifies Custodian as custodian for the Fund. The Trust shall submit
printed matter requiring approval to Custodian in draft form, allowing
sufficient time for review by Custodian and its counsel prior to any deadline
for printing.
14.3 No Waiver. No failure by either party hereto to exercise, and no
delay by such party in exercising, any right hereunder shall operate as a waiver
thereof. The exercise by either party hereto of any right hereunder shall not
preclude the exercise of any other right, and the remedies provided herein are
cumulative and not exclusive of any remedies provided at law or in equity.
14.4 Amendments. This Agreement cannot be changed orally and no amendment
to this Agreement shall be effective unless evidenced by an instrument in
writing executed by the parties hereto.
14.5 Counterparts. This Agreement may be executed in one or more
counterparts, and by the parties hereto on separate counterparts, each of which
shall be deemed an original but all of which together shall constitute but one
and the same instrument.
14.6 Severability. If any provision of this Agreement shall be invalid,
illegal or unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remaining provisions shall not be affected or
impaired thereby.
14.7 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that this Agreement shall not be assignable by
either party hereto without the written consent of the other party hereto.
14.8 Headings. The headings of sections in this Agreement are for
convenience of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed and delivered in its name and on its behalf by its
representatives thereunto duly authorized, all as of the day and year first
above written.
ATTEST: MERLIN FUNDS GROUP
Merlin Funds Group By: /s/ Joseph M. McCloud,
President
ATTEST: FIRSTAR BANK, N.A.
/s/ Lynnette C. Gibson By: /s/ Marsha A. Croxton
Marsha A. Croxton, Senior Vice
President
<PAGE>
EXHIBIT B
Firstar Bank, N.A.
Standards of Service Guide
Firstar Bank, N.A. is committed to providing superior quality service to
all customers and their agents at all times. We have compiled this guide as a
tool for our clients to determine our standards for the processing of security
settlements, payment collection, and capital change transactions. Deadlines
recited in this guide represent the times required for Firstar Bank, N.A. to
guarantee processing. Failure to meet these deadlines will result in settlement
at our client's risk. In all cases, Firstar Bank, N.A. will make every effort to
compete all processing on a timely basis.
Firstar Bank, N.A. is a direct participant of the Depository Trust
Company, a direct member of the Federal Reserve Bank of Cleveland, and utilizes
the Bankers Trust Company as its agent for ineligible and foreign securities.
For corporate reorganizations, Firstar Bank, N.A. utilizes SEI's Reorg
Source, Financial Information, Inc., XCITEK, DTC Important Notices, and the Wall
Street Journal.
For bond calls and mandatory puts, Firstar Bank, N.A. utilizes SEI's
Bond Source, Kenny Information Systems, Standard & Poor's Corporation, and DTC
Important Notices. Firstar Bank, N.A. will not notify clients of optional put
opportunities.
Any securities delivered free to Firstar Bank, N.A. or its agents must be
received three (3) business days prior to any payment or settlement in order for
the Firstar Bank, N.A. standards of service to apply.
Should you have any questions regarding the information contained in this
guide, please feel free to contact your account representative.
The information contained in this Standards of Service Guide is subject to
change. Should any changes be made Firstar Bank, N.A. will provide you
with an updated copy of its Standards of Service Guide.
<PAGE>
Firstar Bank, N.A. Security Settlement Standards
Transaction Instructions Delivery
Type Deadlines* Instructions
DTC 1:30 P.M. on DTC Participant
Settlement Date #2219
Agent Bank ID
#27895
Institutional
#____________
For Account
#____________
Federal 12:30 P.M. on Federal Reserve
Reserve Book Settlement Date Bank of Cin for
Entry Firstar Bank, N.A.
ABA
For Account
#____________
Federal 1:00 P.M. on Federal Reserve
Reserve Book Settlement Date Bank of Cin for
Entry Firstar Bank, N.A.
(Repurchase ABA
Agreement For Account
Collateral #___________
Only)
PTC 12:00 p.m. on PTC For Account
Securities Settlement Date BTRST/C
(GNMA Book Sub Account:
Entry) 9:30 A.M. EST on Firstar Bank, N.A.
Physical Settlement Date Bankers Trust
Securities (for Deliveries, by Company
4:00 p.m. on 16 Wall Street 4th
Settlement Date Floor,
minus 1) for Firstar Bank
Account #0
CEDEL/EURO- 11:00 A.M. on Euroclear Via
CLEAR Settlement Date Cedel Bridge in
minus 2 favor of Bankers
Trust Co.
Cedel 53355
For Firstar Bank
Account #5
Cash Wire 3:00 P.M. Firstar Bank, N.A.
Transfer Cinti/Trust
Credit Account
#9901877
Further Credit to
---------
Account
#______________
* All times listed are Cincinnati time.
Firstar Bank, N.A. Payment Standards
<PAGE>
Security Type Income Principal
Equities Payable Date
Municipal Payable Date Payable Date
Bonds*
Corporate Payable Date Payable Date
Bonds*
Federal Reserve Payable Date Payable Date
Bank Book
Entry*
PTC GNMA's Payable Date Payable Date + 1
(P&I) + 1
CMOs *
DTC Payable Date Payable Date + 1
Bankers + 1 Payable Date + 1
Trust Payable Date
+ 1
SBA Loan When Received When Received
Certificates
Unit Investment Payable Date Payable Date
Trust
Certificates*
Certificates of Payable Date Payable Date
Deposit*
Limited When Received When Received
Partnerships
Foreign When Received When Received
Securities
*Variable Rate
Securities Payable Date Payable Date
Federal
Reserve Payable Date Payable Date + 1
Bank + 1 Payable Date + 1
Book Payable Date
Entry + 1
DTC
Bankers
Trust
Note: If a payable date falls on a weekend or bank holiday, payment will be
made on the immediately following business day.
Firstar Bank, N.A. Corporate Reorganization Standards
<PAGE>
Type of Action Notification to Client Deadline for
Client Instructions to Firstar Bank, N.A.
Rights, Warrants, and Optional Mergers Later of 10
business days prior to expiration or receipt of notice 5 business days
prior to expiration
mandatory Puts with Option to Retain Later of 10
business days prior to expiration or receipt of notice 5 business days
prior to expiration
Class Actions 10 business days prior to expiration date 5 business
days prior to expiration
Voluntary Tenders, Exchanges, and Conversions Later of 10
business days prior to expiration or receipt of notice 5 business days
prior to expiration
Mandatory Puts, Defaults, liquidations,
Bankruptcies, Stock Splits,
Mandatory Exchanges At posting of funds or securities received None
Full and Partial Calls Later of 10 business days prior to expiration or
receipt of notice None
Note: Fractional shares/par amounts resulting from any of the above will be
sold.
<PAGE>
EXHIBIT C
Firstar Bank, N.A.
Domestic Custody Fee Schedule
Firstar Bank, N.A., as Custodian, wil receive monthly compensation for services
according to the terms of the following schedule:
Services Unit Cost ($) MonthlyCost ($)
D.D.A. Account Maintenance 15.00
Deposits .42
Deposited Items .109
Checks Paid .159
Balance Reporting - P.C. Access
50.00 1st Acct.
35.00 each add'l
ACH Transaction .105
ACH Monthly Maintenance 40.00
ACH Additions, Deletions, Changes 6.00
ACH Stop Payment 5.00
ACH Debits .12
Deposited Items Returned 6.00
International Items Returned 10.00
NSF Returned Checks 25.00
Stop Payments 22.00
Data Transmission per account 115.00
Drafts Cleared .179
Lockbox Maintenance 60.00
Lockbox items Processed .34
Miscellaneous Lockbox items .12
Positive Pay .06
Issued Items .015
Invoicing for Service Charge 15.00
Wires Incoming
Domestic
International
Wires Outgoing
Domestic
Repetitive
Non-Repetitive
PC - Initiated wires:
Domestic
Customer Initiated
International
Repetitive
Non-Repetitive
International
Repetitive
Non-Repetitive
Uncollected Charge -- Firstar Bank Prime Rate as of first of month plus 4%
Other available cash management services are priced separately
Revised July 1, 1998
<PAGE>
Firstar Bank N.A., as Custodian, will receive monthly compensation for services
according to the terms of the following Schedule:
I. Portfolio Transaction Fees:
(a) For each repurchase agreement transaction$7.00
(b) For each portfolio transaction processed through DTC or Federal
Reserve $9.00
(c) For each portfolio transaction processed through our New York
custodian $25.00
(d) For each GNMA/Amortized Security Purchase$16.00
(e) For each GNMA Prin/Int Paydown, GNMA Sales$8.00
(f) For each option/future contract written,
exercised or expired $40.00
(g) For each Cedel/Euro clear transaction $80.00
(h) For each Disbursement (Fund expenses only)$5.00
A transaction is a purchase/sale of a security, free receipt/free delivery
(excludes initial conversation), maturity, tender or exchange:
II. Market Value Fee
Based upon an annual rate of: Million
.0003 (3 Basis Points) on First $20
.0002 (2 Basis Points) on Next $20
.00015 (1.5 Basis Points) on Balance
III. Monthly Minimum Fee-Per Fund $300.00
IV. Out-of-Pocket Expenses
The only out-of-pocket expenses charged to your account will be shipping
fees or transfer fees
V. IRA Documents
Per Shareholder/year to hold each IRA Document$5.00
VI. Earnings Credits
On a monthly basis any earnings credits generated from uninvested custody
balances will be applied against any cash management service fees
generated. Earnings credits are based on a Cost of Funds Tiered Earnings
Credit Rate.
<PAGE>
TRANSFER AGENT AGREEMENT Exhibit h(1)
THIS AGREEMENT is made and entered into this 17th day of June, 1999, by
and between Merlin Funds Group, a registered management investment company
(the "Fund"), Mutual Shareholder Services, LLC an Ohio Limited Liability
Corporation ("MSS").
RECITALS:
A. The Fund is a diversified, open-end management investment company
registered with the United States Securities and Exchange Commission under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
B. The Fund desires to appoint MSS as its transfer agent and dividend
disbursing and redemption agent, and MSS desires to accept such appointment.
AGREEMENTS:
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereby agree as follows:
1. DUTIES OF MSS.
1.01Subject to the terms and conditions set forth in this Agreement, the
Fund hereby employs and appoints MSS to act, and MSS agrees to act, as
transfer agent for the Fund's authorized and issued shares of beneficial
interest of each class of each portfolio of the Fund (the "Shares"), and as
dividend disbursing and redemption agent for the Fund.
1.02MSS agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and MSS, MSS shall:
(i) Receive for acceptance, orders for the purchase of Shares,
and promptly deliver payment and appropriate documentation therefore
to the Custodian of the Fund authorized by the Board of Directors of
the Fund (the "Custodian");
(ii)Pursuant to purchase orders, issue the
appropriate number of Shares and hold such Shares in
the appropriate Shareholder account;
(iii)Receive for acceptance redemption requests
and redemption directions and deliver the appropriate
documentation therefore to the Custodian;
(iv)At the appropriate time as and when it receives monies paid
to it by the Custodian with respect to any redemption, pay over or
cause to be paid over in the appropriate manner such monies as
instructed by the redeeming Shareholders;
(v) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
<PAGE>
(vi)Prepare and transmit payments for dividends
and distributions declared by the Fund;
(vii)Maintain records of account for and advise
the Fund and its Shareholders as to the foregoing; and
(viii)Record the issuance of shares of the Fund and maintain
pursuant to SEC Rule 17Ad-10(e) a record of the total number of
shares of the Fund which are authorized, based upon data provided to
it by the Fund, and issued and outstanding. MSS shall also provide
the Fund on a regular basis with the total number of shares which
are authorized and issued and outstanding and shall have no
obligation, when recording the issuance of shares, to monitor the
issuance of such shares or to take cognizance of any laws relating
to the issue or sale of such shares, which functions shall be the
sole responsibility of the Fund.
(b) In addition, MSS shall perform all of the customary services of
a transfer agent, dividend disbursing and redemption agent, including but
not limited to: maintaining all Shareholder accounts, preparing
Shareholder meeting lists, mailing proxies, receiving and tabulating
proxies, mailing Shareholder reports and prospectuses to current
Shareholders, withholding taxes on U.S. resident and non-resident alien
accounts, preparing and filing U.S. Treasury Department Forms 1099 and
other appropriate forms required with respect to dividends and
distributions by federal authorities for all Shareholders, preparing and
mailing confirmation forms and statements of account to Shareholders for
all purchases and redemptions of Shares and other confirmable
transactions in Shareholder accounts, preparing and mailing activity
statements for Shareholders, and providing Shareholder account
information and provide a system and reports which will enable the Fund
to monitor the total number of Shares sold in each State.
Procedures applicable to certain of these services may be established
from time to time by agreement between the Fund and MSS.
2. FEES AND EXPENSES
2.01In consideration of the services to be performed by MSS pursuant to
this Agreement, the Fund agrees to pay MSS the fees set forth in the fee
schedule attached hereto as Exhibit "A".
2.02In addition to the fee paid under Section 2.01 above, the Fund agrees
to reimburse MSS for out-of-pocket expenses or advances incurred by MSS in
connection with the performance of its obligations under this Agreement. In
addition, any other expenses incurred by MSS at the request or with the
consent of the Fund will be reimbursed by the Fund.
2.03The Fund agrees to pay all fees and reimbursable expenses within five
days following the receipt of the respective billing notice. Postage for
mailing of dividends, proxies, Fund reports and other mailings to all
shareholder accounts shall be advanced to MSS by the Fund at least seven days
prior to the mailing date of such materials.
3. REPRESENTATIONS AND WARRANTIES OF MSS
MSS represents and warrants to the Fund that:
3.01 It is a corporation duly organized and existing and in good standing
under the laws of the State of Ohio.
<PAGE>
3.02 It is duly qualified to carry on its business in the State of Ohio.
3.03 It is empowered under applicable laws and by its charter and by-laws
to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
3.06 MSS is duly registered as a transfer agent under the Securities Act of
1934 and shall continue to be registered throughout the remainder of this
Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to MSS that:
4.01 It is a Corporation duly organized and existing and in good standing
under the laws of Delaware.
4.02 It is empowered under applicable laws and by its charter and By-Laws
to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Certificate of Trust and
Agreement and Declaration of Trust have been taken to authorize it to enter into
and perform this Agreement.
4.04 It is an open-end and diversified management investment company
registered under the 1940 Act.
4.05 A registration statement under the Securities Act of 1933 is currently
or will become effective and will remain effective, and appropriate state
securities law filings as required, have been or will be made and will continue
to be made, with respect to all Shares of the Fund being offered for sale.
5. INDEMNIFICATION
5.01 MSS shall not be responsible for, and the Fund shall indemnify and
hold MSS harmless from and against, any and all losses, damages, costs, charges,
counsel fees, payments, expenses and liability arising out of or attributable
to:
(a) All actions of MSS or its agents or subcontractors required to be
taken pursuant to this Agreement, provided that such actions are taken in
good faith and without gross negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack good faith, gross
negligence or willful misconduct or which arise out of the breach of any
representation or warranty of the Fund hereunder.
(c) The reliance on or use by MSS or its agents or subcontractors of
information, records and documents which (i) are received by MSS or its
agents or subcontractors and furnished to it by or on behalf of the Fund,
and (ii) have been prepared and/or maintained by the Fund or any other
person or firm on behalf of the Fund.
<PAGE>
(d) The reliance on, or the carrying out by MSS or its agents or
subcontractors of, any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state or in
violation of any stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of such Shares in
such state.
5.02 MSS shall indemnify and hold the Fund harmless from and against any
and all losses, damages, costs, charges, counsel fees, payments, expenses and
liability arising out of or attributable to any action or failure or omission to
act by MSS as a result of MSS's lack of good faith, gross or ordinary negligence
or willful misconduct.
5.03 At any time MSS may apply to any officer of the Fund for instructions,
and may consult with legal counsel with respect to any matter arising in
connection with the services to be performed by MSS under this Agreement, and
MSS and its agents or subcontractors shall not be liable and shall be
indemnified by the Fund for any action taken or omitted by it in reliance upon
such instructions or upon the opinion of such counsel. MSS, its agents and
subcontractors shall be protected and indemnified in acting upon any paper or
document furnished by or on behalf of the Fund, reasonably believed to be
genuine and to have been signed by the proper person or persons, or upon any
instruction, information, data, records or documents provided MSS or its agents
or subcontractors by machine readable input, telex, CRT data entry or other
similar means authorized by the Fund, and shall not be held to have notice of
any change of authority of any person, until receipt of written notice thereof
from the Fund. MSS, its agents and subcontractors shall also be protected and
indemnified in recognizing stock certificates which are reasonably believed to
bear the proper manual or facsimile signatures of the officers of the Fund, and
the proper countersignature of any former transfer agent or registrar, or of a
co-transfer agent or co-registrar.
5.04 In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
5.05 Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any act or
failure to act hereunder.
5.06 Upon the assertion of a claim for which either party may be required
to indemnify the other, the party of seeking indemnification shall promptly
notify the other party of such assertion, and shall keep the other party advised
with respect to all developments concerning such claim. The party who may be
required to indemnify shall have the option to participate with the party
seeking indemnification the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
6. COVENANTS OF THE FUND AND MSS
6.01 The Fund shall promptly furnish to MSS a certified copy of the
resolution of the Board of Directors of the Fund authorizing the appointment of
MSS and the execution and delivery of this Agreement.
<PAGE>
6.02 MSS hereby agrees to establish and maintain facilities and procedures
reasonably acceptable to the Fund for safekeeping of stock certificates, check
forms and facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such certificates, forms and
devices.
6.03 MSS shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the 1940 Act, as amended, and the Rules thereunder,
MSS agrees that all such records prepared or maintained by MSS relating to the
services to be performed by MSS hereunder are the property of the Fund and
will be preserved, maintained and made available in accordance with such
Section and Rules, and will be surrendered promptly to the Fund on and in
accordance with its request.
6.04 MSS and the Fund agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or received
pursuant to the negotiation or the carrying out of this Agreement shall remain
confidential, and shall not be voluntarily disclosed to any other person,
except as may be required by law.
6.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, MSS will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. MSS reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be
held liable for the failure to exhibit the Shareholder records to such person,
and shall promptly notify the Fund of any unusual request to inspect or copy
the shareholder records of the Fund or the receipt of any other unusual
request to inspect, copy or produce the records of the Fund.
7. TERM OF AGREEMENT
7.01 This Agreement shall become effective as of the date hereof and shall
remain in force for a period of three years; provided, however, that each
party to this Agreement have the option to terminate the Agreement without
penalty, upon 90 days prior written notice.
7.02 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be borne by
the Fund. Additionally, MSS reserves the right to charge for any other
reasonable expenses associated with such termination.
8. MISCELLANEOUS
8.01 Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the written consent of the other party. This
Agreement shall inure to the benefit of and be binding upon the parties and
their respective permitted successors and assigns.
8.02 This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the
Board of Directors of the Fund.
8.03 The provisions of this Agreement shall be construed and interpreted
in accordance with the laws of the State of Ohio as at the time in effect and
the applicable provisions of the 1940 Act. To the extent that the applicable
law of the State of Ohio, or any of the provisions here in, conflict with the
applicable provisions of the 1940 Act, the latter shall control.
8.04 This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof whether oral or written.
<PAGE>
8.05 All notices and other communications hereunder shall be in writing,
shall be deemed to have been given when received or when sent by telex or
facsimile, and shall be given to the following addresses (or such other
addresses as to which notice is given):
To the Fund: To MSS:
Merlin Funds Group Mutual Shareholder Services, LLC
1200 Old Henderson Road 1301 East Ninth Street, Suite 1005
Columbus, Ohio 43220 Cleveland, OH 44114
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
Fund: Mutual Shareholder Services, LLC
Merlin Funds Group
(Name of Fund)
By: /s/ Joseph M. McCloud By: /s/ Gregory B. Getts
Its: President Its: President
<PAGE>
Exhibit h(2)
ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made and entered into this 17th day of June, 1999,
by and between Merlin Funds Group, a registered management investment company
(the "Fund"), and Mutual Shareholder Services, LLC, an Ohio Limited Liability
Corporation ("MSS").
RECITALS:
A. The Fund is a diversified, open-end management investment company
registered with the United States Securities and Exchange Commission under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
B. MSS is a corporation experienced in providing accounting services
to mutual funds and possesses facilities sufficient to provide such services;
and
C. The Fund desires to avail itself of the experience, assistance and
facilities of MSS and to have MSS perform the Fund certain services appropriate
to the operations of the Fund, and MSS is willing to furnish such services in
accordance with the terms hereinafter set forth.
AGREEMENTS:
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereby agree as follows:
ARTICLE I
DUTIES OF MSS.
MSS will provide the Fund with the necessary office space,
communication facilities and personnel to perform the following services for the
Fund:
SECTION 1.1 Timely calculate and transmit to NASDAQ the daily net
asset value of each class of shares of each portfolio of the Fund, and
communicate such value to the Fund and its transfer agent;
SECTION 1.2 Maintain and keep current all books and records of the
Fund as required by Rule 3 la-1 under the 1940 Act, as such rule or any
successor rule may be amended from time to time ("Rule 3la-l"), that are
applicable to the fulfillment of MSS's duties hereunder, as well as any other
documents necessary or advisable for compliance with applicable regulations as
may be mutually agreed to between the Fund and MSS. Without limiting the
generality of the foregoing, MSS will prepare and maintain the following records
upon receipt of information in proper form from the Fund or its authorized
agents:
- Cash receipts journal
- Cash disbursements journal
- Dividend record
- Purchase and sales - portfolio securities journals
- Subscription and redemption journals
- Security ledgers
- Broker ledger
- General ledger
- Daily expense accruals
- Daily income accruals
- o Securities and monies borrowed or loaned and collateral
therefore - Foreign currency journals - Trial balances
<PAGE>
SECTION 1.3 Provide the Fund and its investment adviser with daily
portfolio valuation, net asset value calculation and other standard
operational reports as requested from time to time.
SECTION 1.4 Provide all raw data available from its fund accounting
system for the preparation by the Fund or its investment advisor of the
following:
(1) Semi-annual financial statements;
(2) Semi-annual form N-SAR;
(3) Annual tax returns;
(4) Financial data necessary to update form N- I A;
(5) Annual proxy statement.
SECTION 1.5 Provide facilities to accommodate annual audit and any
audits or examinations conducted by the Securities and Exchange Commission or
any other governmental or quasi-governmental entities with jurisdiction.
MSS shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized, have
no authority to act for or represent the Fund in any way or otherwise be
deemed an agent of the Fund.
ARTICLE II
FEES AND EXPENSES.
SECTION 1.6 In consideration of the services to be performed by MSS
pursuant to this Agreement, the Fund agrees to pay MSS the fees set forth in
the fee schedule attached hereto as Exhibit A.
SECTION 1.7 In addition to the fees paid under paragraph (a) above,
the Fund agrees to reimburse MSS for out-of-pocket expenses or advances
incurred by MSS in connection with the performance of its obligations under
this Agreement. In addition, any other expenses incurred by MSS at the request
or with the consent of the Fund will be reimbursed by the Fund.
SECTION 1.8 The Fund agrees to pay all fees and reimbursable
expenses within five days following the receipt of the respective billing
notice.
ARTICLE III
LIMITATION OF LIABILITY OF MSS.
SECTION 1.9 MSS shall be held to the exercise of reasonable care in
carrying out the provisions of the Agreement, but shall not be liable to the
Fund for any action taken or omitted by it in good faith without gross
negligence, bad faith, willful misconduct or reckless disregard of its duties
hereunder. It shall be entitled to rely upon and may act upon the accounting
records and reports generated by the Fund, advice of the Fund, or of counsel for
the Fund and upon statements of the Fund's independent accountants, and shall
not be liable for any action reasonably taken or omitted pursuant to such
records and reports or advice, provided that such action is not, to the
knowledge of MSS, in violation of applicable federal or state laws or
regulations, and provided further that such action is taken without gross
negligence, bad faith, willful misconduct or reckless disregard of its duties.
<PAGE>
SECTION 1.10 Nothing herein contained shall be construed to protect
MSS against any liability to the Fund to which MSS shall otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence in the performance of
its duties to the Fund, reckless disregard of its obligations and duties under
this Agreement or the willful violation of any applicable law.
SECTION 1.11 Except as may otherwise be provided by applicable law,
neither MSS nor its stockholders, officers, directors, employees or agents shall
be subject to, and the Fund shall indemnify and hold such persons harmless from
and against, any liability for and any damages, expenses or losses incurred by
reason of the inaccuracy of information furnished to MSS by the Fund or its
authorized agents.
ARTICLE IV
REPORTS.
SECTION 1.12 The Fund shall provide to MSS on a quarterly basis a
report of a duly authorized officer of the Fund representing that all
information furnished to MSS during the preceding quarter was true, complete and
correct in all material respects. MSS shall not be responsible for the accuracy
of any information furnished to it by the Fund or its authorized agents, and the
Fund shall hold MSS harmless in regard to any liability incurred by reason of
the inaccuracy of such information.
SECTION 1.13 Whenever, in the course of performing its duties under
this Agreement, MSS determines, on the basis of information supplied to MSS by
the Fund or its authorized agents, that a violation of applicable law has
occurred or that, to its knowledge, a possible violation of applicable law may
have occurred or, with the passage of time, would occur, MSS shall promptly
notify the Fund and its counsel of such violation.
ARTICLE V
ACTIVITIES OF MSS.
The services of MSS under this Agreement are not to be deemed exclusive,
and MSS shall be
free to render similar services to others so long as its services hereunder
are not impaired thereby.
ARTICLE VI
ACCOUNTS AND RECORDS.
The accounts and records maintained by MSS shall be the property of
the Fund, and shall be surrendered to the Fund promptly upon request by the Fund
in the form in which such accounts and records have been maintained or
preserved. MSS agrees to maintain a back-up set of accounts and records of the
Fund (which back-up set shall be updated on at least a weekly basis) at a
location other than that where the original accounts and records are stored. MSS
shall assist the Fund's independent auditors, or, upon approval of the Fund, any
regulatory body, in any requested review of the Fund's accounts and records. MSS
shall preserve the accounts and records as they are required to be maintained
and preserved by Rule 3 1 a- 1.
<PAGE>
ARTICLE VII
CONFIDENTIALITY.
MSS agrees that it will, on behalf of itself and its officers and
employees, treat all transactions contemplated by this Agreement, and all other
information germane thereto, as confidential and not to be disclosed to any
person except as may be authorized by the Fund.
ARTICLE VIII
TERM OF AGREEMENT.
SECTION 1.14 This Agreement shall become effective as of the date
hereof and shall remain in force for a period of three years; provided, however,
that each party to this Agreement have the option to terminate the Agreement,
without penalty, upon 90 days prior written notice
SECTION 1.15 Should the Fund exercise its right to terminate, all
out-of-pocket expenses associated with the movements of records and material
will be borne by the Fund. Additionally, MSS reserves the right to charge for
any other reasonable expenses associated with such termination.
ARTICLE IX
MISCELLANEOUS.
SECTION 1.16 Neither this Agreement nor any rights or obligations
hereunder may be assigned by either party without the written consent of the
other party. This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
SECTION 1.17 The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of Ohio as at the time in
effect and the applicable provisions of the 1940 Act. To the extent that the
applicable law of the State of Ohio, or any of the provisions herein, conflict
with the applicable provisions of the 1940 Act, the latter shall control.
SECTION 1.18 This Agreement may be amended by the parties hereto only
if such amendment is in writing and signed by both parties.
SECTION 1.19 This Agreement constitutes the entire agreement between
the parties hereto and supersedes any prior agreement with respect to the
subject matter hereof whether oral or written.
SECTION 1.20 All notices and other communications hereunder shall be
in writing, shall be deemed to have been given when received or when sent by
telex or facsimile, and shall be given to the following addresses (or such other
addresses as to which notice is given):
To the Fund: To MSS:
Merlin Funds Group Mutual Shareholder Services, LLC
1200 Old Henderson Road 1301 East Ninth Street, Suite 1005
Columbus, Ohio 43220 Cleveland, OH 44114
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MERLIN FUNDS GROUP MUTUAL SHAREHOLDER SERVICES, LLC.
By:/s/ Joseph M. McCloud By:/s/ Gregory B. Getts
Its:President Its: President
<PAGE>
Exhibit i
June 28, 1999
Merlin Funds Group
1200 Old Henderson Road
Columbus, Ohio 43220
Gentlemen:
We have acted as counsel for Merlin Funds Group, a Delaware business
trust (the "Trust") in connection with the filing by the Trust of a Registration
Statement on Form N-1A pursuant to the Securities Act of 1933 and the Investment
Company Act of 1940 (the "Registration Statement") with respect to the proposed
sale of an indefinite number of shares (the "Shares") of the Merlin US Community
Bank Stock Fund, a series of the Trust.
We have examined and relied upon originals or copies, certified or
otherwise identified to our satisfaction as being true copies, of all such
records of the Trust, all such agreements, certificates of officers of the
Trust, public officials and others, and such other documents, certificates and
other records as we have deemed necessary as a basis of the opinions expressed
in this letter, including, without limitation, the Certificate of Trust of the
Trust (the "Certificate of Trust"), the Agreement and Declaration of Trust of
the Trust (the "Declaration of Trust"), the By-laws of the Trust and the records
of proceedings of the Trustees from the date of formation.
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of all natural persons, the authenticity of all documents
submitted to us as originals, and the conformity to original documents of all
documents submitted to us as certified or photostatic copies.
We have investigated such questions of law for the purpose of
rendering the opinions expressed in this letter as we have deemed necessary. We
express no opinion in this letter concerning any law other than the law of the
State of Delaware and the federal law of the United States of America.
This opinion is being rendered to you as of June 28, 1999. The opinion
expressed herein assumes that there is no change in the facts, circumstances and
law in effect on the date of this opinion, particularly as they relate to the
Trust's authority and the Trust's good standing under Delaware law.
On the basis of the foregoing, and in reliance thereon, we are of the
opinion that the Shares, when issued pursuant to the terms, provisions, and
conditions set forth in the Certificate of Trust, the Declaration of Trust and
the Registration Statement, and upon receipt of full authorized consideration
therefor in cash, will be validly issued, fully paid and non-assessable by the
Trust.
This opinion is rendered only to the Trust in connection with the
filing of the Registration Statement. We consent to the filing of this opinion
as Exhibit 10 to the Registration Statement. This letter may not be paraphrased,
quoted or summarized, nor may it be duplicated or reproduced in part.
BENESCH, FRIEDLANDER, COPLAN & ARONOFF, LLP
<PAGE>
INVESTMENT AGREEMENT Exhibit l(1)
Merlin Funds Group
1200 Old Henderson Road
Columbus, Ohio 43220
This Investment Agreement is made among Merlin Funds Group, a Delaware
business trust (the "Fund"), Michael Patterson, Inc. ("MPI"), distributor for
the Fund, and J. Craig Wright, (the "Investor").
For and in consideration of the mutual agreements herein contained,
Investor hereby agrees to purchase from the Fund and the Fund agrees to sell to
Investor shares of beneficial interest ("Shares"), in Merlin US Community Bank
Stock Fund, ("Series"), a series of the fund, at the price of $10.00 dollar(s) a
share, upon the following terms and conditions:
Section 1. Investor agrees to deliver $50,000.00 dollar(s) to MPI
simultaneously with Investor's execution of this Investment Agreement. As agent
for Investor, MPI will hold this money in a segregated bank account until either
the Fund or Investor has a right under the terms of this Investment Agreement to
receive the money.
Section 2. The Fund will not issue any securities to Investor or
receive any of the proceeds of this Investment Agreement until investment
agreements identical in form to this one have been made by not more than 25
persons (which persons shall include Investor) to purchase from the Fund
securities for an aggregate net amount, which plus the Series' then net worth
will equal at least$100,000.
Section 3. Unless such aggregate net amount is paid to the Fund and
the Series has $100,000 of net worth within 90 days after the date on which the
registration statement filed under the Securities Act of 1933 with respect to
the Fund's shares becomes effective, this Investment Agreement shall become null
and void and the full amount paid in by the Investor and held in the segregated
bank account by MPI will be refunded to the Investor on demand without any
deduction.
Section 4. In the event that such aggregate net amount of cash has
been paid in and the Series has a net worth of at least $100,000 within 90 days
after such registration statement has become effective, then this Investment
Agreement shall be in full force and effect and MPI will deliver to the Fund the
full amount paid by the Investor and held in the segregated bank account.
Section 5. Investor agrees that the shares are being purchased for
investment with no present intention of reselling or redeeming said shares.
Section 6. It is understood that said aggregate net amount will be
paid in to the Fund before any investment agreements for shares will be accepted
from any persons in excess of twenty-five.
<PAGE>
IN WITNESS WHEREOF, this Investment Agreement is entered into by the
undersigned as of the 20th day of May, 1999.
/s/ J. Craig Wright
Investor Signature
Print Name: J. Craig Wright
Address: 17 South High Street
Columbus, Ohio 43215
MICHAEL PATTERSON, INC.,
distributor for Merlin Funds Group
By: /s/ Michael Patterson
Michael Patterson, President
MERLIN FUNDS GROUP, a Delaware business trust
By: /s/ Joseph McCloud
Joseph McCloud, President
<PAGE>
INVESTMENT AGREEMENT Exhibit l(2)
Merlin Funds Group
1200 Old Henderson Road
Columbus, Ohio 43220
This Investment Agreement is made among Merlin Funds Group, a Delaware
business trust (the "Fund"), Michael Patterson, Inc. ("MPI"), distributor for
the Fund, and Alice Wright, (the "Investor").
For and in consideration of the mutual agreements herein contained,
Investor hereby agrees to purchase from the Fund and the Fund agrees to sell to
Investor shares of beneficial interest ("Shares"), in Merlin US Community Bank
Stock Fund, ("Series"), a series of the fund, at the price of $10.00 dollar(s) a
share, upon the following terms and conditions:
Section 1. Investor agrees to deliver $50,000.00 dollar(s) to MPI
simultaneously with Investor's execution of this Investment Agreement. As agent
for Investor, MPI will hold this money in a segregated bank account until either
the Fund or Investor has a right under the terms of this Investment Agreement to
receive the money.
Section 2. The Fund will not issue any securities to Investor or
receive any of the proceeds of this Investment Agreement until investment
agreements identical in form to this one have been made by not more than 25
persons (which persons shall include Investor) to purchase from the Fund
securities for an aggregate net amount, which plus the Series' then net worth
will equal at least$100,000.
Section 3. Unless such aggregate net amount is paid to the Fund and
the Series has $100,000 of net worth within 90 days after the date on which the
registration statement filed under the Securities Act of 1933 with respect to
the Fund's shares becomes effective, this Investment Agreement shall become null
and void and the full amount paid in by the Investor and held in the segregated
bank account by MPI will be refunded to the Investor on demand without any
deduction.
Section 4. In the event that such aggregate net amount of cash has
been paid in and the Series has a net worth of at least $100,000 within 90 days
after such registration statement has become effective, then this Investment
Agreement shall be in full force and effect and MPI will deliver to the Fund the
full amount paid by the Investor and held in the segregated bank account.
Section 5. Investor agrees that the shares are being purchased for
investment with no present intention of reselling or redeeming said shares.
Section 6. It is understood that said aggregate net amount will be
paid in to the Fund before any investment agreements for shares will be accepted
from any persons in excess of twenty-five.
<PAGE>
IN WITNESS WHEREOF, this Investment Agreement is entered into by the
undersigned as of the 20th day of May, 1999.
/s/ J.Craig Wright for Alice Wright
Investor Signature
Print Name: Alice Wright
Address: c/o J. Craig Wright
17 South High Street
Columbus, Ohio 43215
MICHAEL PATTERSON, INC.,
distributor for Merlin Funds Group
By: /s/ Michael Patterson
Michael Patterson, President
MERLIN FUNDS GROUP, a Delaware business trust
By: /s/ Joseph McCloud
Joseph McCloud, President
<PAGE>
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN Exhibit m
WHEREAS, Merlin Funds Group (the "Trust") engages 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"); and
WHEREAS, the Trust has established a series of its Shares (the
"Shares") designated the Merlin US Community Bank Stock Fund (the "Fund"); and
WHEREAS, the Trust desires to adopt this Plan pursuant to Rule 12b-1
under the Act, and the Trust's Board has determined that there is a reasonable
likelihood that adoption of this Plan will benefit the Fund and holders of the
Shares; and
WHEREAS, the Trust engages Michael Patterson, Inc. (the
"Distributor") as distributor for the Shares pursuant to a Distribution
Agreement dated as of the date hereof.
NOW, THEREFORE, the Trust hereby adopts, and the Distributor hereby
agrees to the terms of, this Plan in accordance with Rule 12b-1 under the Act on
the following terms and conditions:
1. (a) The Fund shall pay the Distributor a shareholder
servicing and distribution fee at the annual rate of 0.50%
of the average daily net assets of the Shares.
(b) Such fee will be used by the Distributor to make payments
for administration, shareholder services and distribution
assistance for holders of Shares, including, but not limited
to (i) compensation to securities dealers and other persons
and organizations (collectively, "Service Organizations"),
for providing distribution assistance with respect to
Shares, (ii) compensation to Service Organizations for
providing administration, accounting and other shareholder
services with respect to Shares, and (iii) otherwise
promoting the sale of Shares, including paying for the
preparation of advertising and sales literature and the
printing and distribution of such materials to prospective
investors. The Distributor shall determine the amounts to
be paid to third parties and the basis on which such
payments will be made. Payments to a third party are
subject to compliance by the third party with the terms of
any related Plan agreement between the third party and the
Distributor.
(c) For the purposes of determining the fees payable under this
Plan, the value of each Fund's net asset value shall be
computed in the manner specified in the Trust's charter
documents as then in effect for the computation of the value
of such Fund's net assets.
2. This Plan shall not take effect until it, together
with any related agreement, has been approved by
vote of a majority of both (a) the Trust's Board
and (b) those Trustees who are not "interested
persons" of the Trust (as defined by the Act) and
who have no direct or indirect financial interest
in the operation of this Plan or any agreements
related to it (the "Rule 12b-1 Trustees") cast in
person at a meeting (or meetings) called for the
purpose of voting on this Plan and such related
Agreements.
<PAGE>
3. This Plan shall commence on the date first set forth above and
shall continue in effect for a period more than two years from
the date hereof only so long as such continuance is
specifically approved at least annually in the manner provided
for approval of this Plan in paragraph 2.
4. The Distributor shall provide to the Trust's Board and the
Board shall review, at least quarterly, a written report of
amounts paid hereunder and the purposes for which they were
made.
5. This Plan may be terminated at any time by vote of a majority
of the Rule 12b-1 Trustees or by a vote of a majority of the
outstanding Shares.
6. This Plan may not be amended to increase
materially the amount of compensation payable
pursuant to paragraph 1 hereof unless such
amendment is approved by a vote of at least a
majority (as defined in the Act) of the
outstanding Shares. No material amendment to the
Plan shall be made unless approved in the manner
provided in paragraph 2 hereof.
7. While this Plan is in effect, the selection and nomination of
the Trustees who are not interested persons (as defined in the
Act) of the Trust shall be committed to the discretion of the
Trustees who are not such interested persons.
8. The Trust shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 4 hereof,
for a period of not less than six years from the date of this
Plan, any such agreement or any such report, as the case may
be, the first two years in an easily accessible place.
9. This Plan may be executed simultaneously in two or
more counterparts, each of which shall be deemed
an original, but all of which together shall
constitute one and the same instrument. The name
Merlin Funds Group is the designation of the
Trustees for the time being under a Declaration of
Trust dated February 8, 1999, as amended from time
to time, and all persons dealing with the Trust
must look solely to the property of the Trust for
enforcement of any claims against the Trust as
neither the Trustees, officers, agents or
shareholders assume any personal liability for
obligations entered into on behalf of the Trust.
<PAGE>
IN WITNESS WHEREOF, the Trust, on behalf of the Portfolios, and the
Distributor have executed this Plan as of the date set forth below.
Dated: June 17, 1999
MERLIN FUNDS GROUP
By:/s/ Joseph M. McCloud
Joseph M. McCloud, President
MICHAEL PATTERSON, INC.
By: /s/ Joseph M. McCloud
Joseph M. McCloud, Vice President
<PAGE>
