As filed with the Securities and Exchange Commission on July 23, 1999
Securities Act Registration No. 333-76293
Investment Company Act Registration No. 811-9291
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No. __ [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 1 [X]
BEARGUARD FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
985 University Avenue, Suite 26
Los Gatos, California 95032
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (408) 399-9200
Paul L. McEntire
Skye Investment Advisors LLC
985 University Avenue, Suite 26
Los Gatos, California 95032
(Name and Address of Agent for Service)
Copies to:
Scott A. Moehrke
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, Wisconsin 53202
Approximate date of proposed public offering: As soon
as practicable after the Registration Statement becomes
effective.
The Registrant hereby amends this Registration
Statement on such date or dates as may be necessary to
delay its effective date until the Registrant shall
file a further amendment which specifically states that
this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may
determine.
<PAGE>
This information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is permitted.
Subject to completion, dated July 23, 1999
Prospectus
dated ____________, 1999
Bearguard Funds, Inc.
BEARGUARD FUND
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
1-888-288-2880
www.bearguardfund.com
The investment objective of the Bearguard Fund
(the "Fund") is capital appreciation and income. The
Fund engages in short sales of common stocks and other
equity securities of companies that the Fund's
investment adviser, Skye Investment Advisors LLC (the
"Adviser"), believes are overvalued. Because of the
Fund's focus on short selling, it is anticipated that
the Fund will perform better in flat or declining
markets. The Fund will invest in U.S. government and
corporate notes and bonds to collateralize or "cover"
its short positions and to produce income.
This Prospectus contains information you should
consider before you invest in the Fund. Please read it
carefully and keep it for future reference.
____________________
The Securities and Exchange Commission (the "SEC") has
not approved or disapproved of these securities or
passed upon the adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
Page No.
HIGHLIGHTS AND RISKS 1
PERFORMANCE INFORMATION 2
FEES AND EXPENSES OF THE FUND 3
INVESTMENT OBJECTIVE 4
HOW THE FUND INVESTS 4
FUND MANAGEMENT 7
HOW TO PURCHASE SHARES 7
HOW TO REDEEM SHARES 10
VALUATION OF FUND SHARES 12
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX TREATMENT 12
YEAR 2000 ISSUE 13
_____________________________
In deciding whether to invest in the Fund, you
should rely only on information in this Prospectus or
the Statement of Additional Information (the "SAI").
The Fund has not authorized others to provide
additional information. The Fund does not authorize
the use of this Prospectus in any state or jurisdiction
in which such offering may not legally be made.
<PAGE>
HIGHLIGHTS AND RISKS
What are the goals of the Fund?
The Fund's goal is capital appreciation and
income. The Fund's goal is sometimes referred to as
the Fund's investment objective. The Fund considers
the income aspect of this goal to be secondary to
capital appreciation. The Fund cannot guarantee that
it will achieve its investment goal.
What are the Fund's principal investment strategies?
The Fund attempts to achieve its goal by engaging
in short sales of securities that the Adviser believes
will decrease in value. The Fund will primarily engage
in short sales of common stocks. The Fund may also
engage in short sales of American Depositary Receipts
("ADRs") and may purchase or sell exchange-traded and
index options when the Adviser believes that a
particular security or market index will decline in
value and that such investment would offer benefits to
the Fund not available through the short sale of a
particular security. Because of the Fund's focus on
short selling, it is anticipated that the Fund will
perform better in flat or declining markets than in
rising markets. The Fund also invests in U.S.
government and corporate notes and bonds and other
money market instruments to collateralize or "cover"
its short positions and, as a secondary goal, to
produce income. Accordingly, the Fund will produce
more income than an equity fund with a goal solely of
capital appreciation. The debt securities in which the
Fund invests are primarily investment grade and
typically have maturities of less than three years.
What are the main risks of investing in the Fund?
The main risks of investing in the Fund are:
* Reverse Stock Market Risk: The Fund is subject
to stock market risks and significant fluctuations in
value. However, this risk is opposite of a typical
stock mutual fund, because the Fund's short investments
tend to increase in value when the stock market
declines in value. Therefore, if the stock market
significantly increases in value, the Fund is likely to
decline in value. Increases or decreases in value of
stocks are generally greater than for bonds or other
debt investments.
* Stock Selection Risk: The stocks the Adviser
determines to sell short may increase in value or not
decline in value when the stock market in general is
declining. Accordingly, if the Adviser is incorrect in
determining which stocks to sell short, the Fund is
likely to experience a loss on the transaction.
* Short Selling Risk: Short selling involves
different risks than investing in stocks. Because
short sales require the Fund to deliver the stock
involved in the short sale at a price determined at the
time the transaction was originally established, later
increases in the price of such stock result in losses
to the Fund. Unlike stock investments, these losses
can be up to several times the amount of the Fund's
original investment in the transaction and may result
from general market forces, such as a lack of stock
available for short sellers to borrow for delivery, or
improving conditions with a company. The Fund may be
subject to "short squeeze" risk if the Fund is required
to close its short position when the price of the stock
in question is rising. As a result, the Fund may incur
a loss on the transaction. Occasionally a stock may
increase in value rapidly immediately upon the stock
market opening, which can result in significant losses
to short sellers, including the Fund.
* Fixed Income Securities Risks: Fixed income
securities are subject to interest
rate risk. If interest rates increase,
the value of fixed income securities generally
decrease. Similarly, if interest rates
decrease, the value of fixed income securities
generally increase. Shares in the Fund
are likely to fluctuate in a similar
<PAGE> manner. Fixed
income securities are also subject to
maturity risk. The longer the remaining maturity of
a fixed income security, the greater
it will generally fluctuate in value based on
interest rate changes. In addition, the
value of fixed income securities is subject to
changes in the credit quality of the issuer.
* Option Risks: If the Fund cannot close out
an option position, it may suffer a loss apart from any
loss or gain experienced at the time the Fund decided
to close the position.
* High Expenses/Adverse Tax Effects:
Because of the transaction costs associated
with short selling, the Fund may have higher
expenses than other equity funds. In
addition, profitable short sales will generally
be taxable as short-term capital gains to Fund
shareholders. Accordingly, the Fund's
investment strategy is not tax efficient.
You should be aware that you may lose money by
investing in the Fund. Because of the Fund's primary
focus on short selling, you should not consider it a
complete investment program for the equity portion of
your portfolio.
Is the Fund an appropriate investment for me?
The Fund is suitable for long-term investors only.
The Fund is not a short-term investment vehicle. An
investment in the Fund may be appropriate if:
* your goal is capital appreciation and income;
* you want to hedge your long equity positions;
* you want to allocate some portion of your long-
term investments to short selling; and
* you are willing to accept short-term to
intermediate-term fluctuations in value to seek
possible higher long-term returns particularly in flat
or declining markets.
PERFORMANCE INFORMATION
The bar chart and performance table are not
included because the Fund has been in operation for
less than a full calendar year.
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FEES AND EXPENSES OF THE FUND
The following table describes the fees and
expenses that you may pay if you buy and hold shares of
the Fund.
Investor Institutional
Class Class
Shareholder Fees (fees paid directly from
your investment)
Maximum Sales Charge (Load) Imposed on Purchases None None
Maximum Deferred Sales Charge (Load) None None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None
Redemption Fee None None
Exchange Fee None None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)(1)
Management Fees 1.25% 1.25%
Distribution and Service (12b-1) Fees 0.25%(2) 0.00%
Other Expenses(3) 2.97% 2.97%
Total Annual Fund Operating Expenses(3) 4.47% 4.22%
Fee Waiver/Expense Reimbursement(3) 1.72% 1.72%
Net Expenses 2.75% 2.50%
____________
(1)Fund operating expenses are deducted from Fund
assets before computing the daily share price or
making distributions. As a result, they will not
appear on your account statement, but instead
reduce the amount of total return you receive.
(2)Because Rule 12b-1 fees are paid out of the Fund's
assets on an on-going basis, over time these fees
will increase the cost of your investment and could
cost long-term investors of the Investor Class more
than other types of sales charges. For more
information, see "Distribution and Shareholder
Servicing Plan."
(3)"Other Expenses" have been estimated for the
current fiscal year since the Fund will not begin
operations until _________ __, 1999. Pursuant to
the Investment Advisory Agreement between the
Adviser and the Fund, the Adviser has agreed to
waive its management fee and/or reimburse the
Fund's other expenses to the extent necessary to
ensure that the total annual operating expenses do
not exceed 2.75% of the Investor Class's average
net assets and 2.50% of the Institutional Class's
average net assets until October 31, 2000. After
such date, the total operating expense limitations
may be terminated or revised at any time. "Other
expenses" are presented before any such waivers or
reimbursements. Any waiver or reimbursement is
subject to later adjustment to allow the Adviser to
recoup amounts waived or reimbursed, including
initial organization costs of the Fund, to the
extent actual fees and expenses for a period are
less than the expense limitation cap, provided,
however, that the Adviser shall only be entitled to
recoup such amounts for a period of three years
from the date such amount was waived or reimbursed.
For additional information, see "Fund Management."
<PAGE>
Example
The following Example is intended to help you
compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The Example
assumes that you invest $10,000 in the Fund for the
time periods indicated and then redeem all of your
shares at the end of those periods. The Example also
assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same.
In addition, the Example assumes the reinvestment of
dividends and distributions. Please note that the one
year numbers are based on the Fund's net expenses
because the Fund has agreed to waive its management fee
and/or reimburse the Fund's expenses until October 31,
2000, as described above. Although your actual costs
may be higher or lower, based on these assumptions your
costs would be as follows:
1 Year 3 Years
Investor Class $278 $1,352
Institutional Class $253 $1,281
INVESTMENT OBJECTIVE
The Fund's investment objective is capital
appreciation and income. While the Fund considers the
income aspect of the investment objective to be
secondary to capital appreciation, because the Fund
invests in debt securities to collateralize or "cover"
its short positions, the Fund will produce more income
than many equity funds.
HOW THE FUND INVESTS
The Fund Engages in Short Sales of Stock and Invests in Debt Securities
The Fund seeks to achieve its investment objective
by engaging primarily in short sales of common stocks.
The Fund also invests in U.S. government and corporate
notes and bonds to collateralize or "cover" its short
positions and to produce income. A short sale is a
transaction in which the Fund sells a security it does
not own. To complete the transaction, the Fund must
borrow the security from a broker or other institution
to make delivery to the buyer. The Fund then incurs an
obligation to replace the borrowed security to the
broker or other institution at some time (typically
unspecified) in the future. The Fund also is obligated
to pay dividends on securities sold short to the broker
or other institution that lent the security in
question. The Fund then purchases the security at the
market price at the time of replacement. The stocks
the Fund shorts will tend to be common stocks of
companies that the Adviser believes are reasonably
liquid. The Adviser makes this determination based on
a company's market capitalization; the Fund tends to
short common stocks of companies with large market
capitalizations (typically $15.0 billion or more). The
Adviser will pursue its short sales through a
diversified portfolio of short positions and, under
normal market conditions, will not have a single short
position exceeding 5% of its total assets.
The Fund Follows a Value Approach
The Adviser generally follows a value approach to
investing for the Fund. Because the Fund tries to
achieve its investment objective through short sales,
the Fund will implement the value approach by focusing
on securities of companies that the Adviser believes
are overvalued relative to their intrinsic worth and
possess certain characteristics that the Adviser
believes will lead to a lower market price over time.
In identifying short positions for the Fund, the
Adviser focuses on a company's fundamentals and selects
those securities that the Adviser believes are
expensive relative to their fundamentals and have an
above average chance of declining in value. The
Adviser examines a company's financial statements, its
debt structure and interest burden, its price relative
to its earnings and sales, and its operating margins
and cash flow. The Adviser seeks companies whose price-
to-earnings ratio is greater than its growth rate of
earnings, whose cash flow is negative and whose
management has made claims the Adviser believes to be
unrealistic or exaggerated. Because of the Fund's
focus on short selling, you should not consider it a
complete investment program for the equity portion of
your portfolio.
Securities Sold Short
Although the Fund is not required to invest a
specified percentage of its assets in short positions
at all times, under normal circumstances, the Fund
expects that 70% to 90% of the Fund's net assets will
represent short positions. Short sales will primarily
be in common stocks. Common stocks are units of
ownership of a corporation. In pursuing
<PAGE>
its investment objective, the Fund may also short American Depositary
Receipts ("ADRs"). ADRs are receipts typically issued
by a U.S. bank or trust company evidencing ownership of
the underlying foreign security and denominated in U.S.
dollars.
All short sale positions will be fully
collateralized. The Fund will set aside in a
segregated custodial account an amount of cash, U.S.
government securities or other liquid securities equal
to the excess of the current market value, as
calculated on a daily basis, of the securities sold
short over the amount of collateral deposited with the
broker or other institution in respect of the short
sale (not including the proceeds of the short sale).
Although not part of its principal investment
strategy, from time to time the Fund may also invest in
short positions through transactions other than short
sales of securities. These transactions include the
purchase of put options on securities and indices.
Risks of Short Selling
Short selling involves different risks than
investing in stocks. A short sale is profitable to the
Fund if the price of the stock at the time it is
replaced is less than at the time the short sale was
entered into and after factoring in transaction costs
(including dividends paid on stocks sold short to the
broker or other institution that lent the stock in
question) and interest income. Alternatively, if the
price of the stock is greater at the time of
replacement than at the time of the short sale and
after factoring in transaction costs (including
dividends paid on stocks sold short to the broker or
other institution that lent the stock in question) and
interest income, the transaction will result in a loss
to the Fund. These losses can be much larger than
losses resulting from stock investments. With stocks,
a fund can only lose the amount of its original
investment. With short positions, however, a fund can
lose up to several times the amount of its investment
due to general market forces, such as a lack of stock
available for short sellers to borrow for delivery, or
improving conditions with a company. For example, the
Fund may be subject to "short squeeze" risk when the
broker or other institution that lent the stock in
question to the Fund demands the security and the Fund
is required to close its short position at a time when
the price of the stock in question is rising.
Occasionally a stock may increase in value rapidly
immediately upon the stock market opening or after a
halt in trading on the security, which can result in
significant losses to short sellers, including the
Fund. In addition, the Fund's ability to accumulate
stocks to sell short may be limited in declining
markets due to securities law requirements that
prohibit short sales when a stock is declining.
Short selling also involves stock selection and
reverse stock market risk. Like a typical stock mutual
fund, the Fund is subject to stock market risks and
significant fluctuations in value. However, this risk
is opposite of a typical stock mutual fund, because the
Fund's short investments tend to increase in value when
the stock market declines in value. Therefore, if the
stock market significantly increases in value, the Fund
is likely to decline in value. Increases or decreases
in value of stocks are generally greater than for bonds
or other debt investments. In addition, the stocks the
Adviser determines to sell short may increase in value
or not decline in value when the stock market in
general is declining. Accordingly, if the Adviser is
incorrect in determining which stocks to sell short,
the Fund is likely to experience a loss on the
transaction.
You should be aware that the closing of a short
sale that is profitable to the Fund will result in
short-term capital gains to you. Gains will be
realized only when the Fund closes a short sale and
will remain unrealized until such time.
Debt Securities Held by the Fund
The Fund also invests in investment grade U.S.
government and investment grade corporate notes and
bonds to collateralize or "cover" its short positions
and to produce income. Debt securities are obligations
of the issuer to pay interest and repay principal. The
Fund expects that its debt securities will have an
average duration of three years or less. A debt
security's duration is a function of its maturity, the
coupon payments attached to it and its yield to
maturity (i.e., the approximate return on investment if
the debt security is held to maturity). For example,
higher coupon payments on a bond reduce the bond's
duration. Higher yield to maturity also reduces a
bond's duration.
Changes in market interest rates affect the value
of fixed income securities. If interest rates
increase, the value of fixed income securities
generally decrease. Similarly, if interest rates
decrease, the value of fixed income securities
generally increase. Shares in the Fund are likely to
fluctuate in a similar manner. In general, the longer
the remaining
<PAGE>
maturity of a fixed income security, the
greater it will fluctuate in value based on interest
rate change. Longer-term fixed income securities
generally pay a higher interest rate.
Changes in the credit quality of the issuer also
affect the value of fixed income securities. Lower-
rated fixed income securities generally pay a higher
interest rate. Although the Fund primarily invests in
investment grade debt securities, the value of these
securities may decrease due to changes in ratings over
time. For additional information regarding securities
ratings, please see the SAI and the Appendix to the
SAI.
The Fund may invest in the following types of fixed income securities:
* Corporate debt securities, including bonds, debentures and notes;
* U.S. government securities;
* Commercial paper (including variable amount master demand notes); and
* Bank obligations, such as certificates of deposit,
banker's acceptances and time deposits of domestic and
foreign banks, domestic savings association and their
subsidiaries and branches (in amounts in excess of the
current $100,000 per account insurance coverage
provided by the Federal Deposit Insurance Corporation).
Temporary, Defensive Strategies
To respond to adverse market, economic, political
or other conditions, on a temporary basis the Adviser
may hold cash and/or invest all or a portion of the
Fund's assets in money market instruments, which are
short-term fixed income securities issued by private
and governmental institutions. Because of the Fund's
focus on short selling, adverse market conditions may
include periods of rapid appreciation in the stock
markets. Money market instruments include:
* Commercial paper;
* Short-term U.S. government securities;
* Banker's acceptances;
* Certificates of deposit;
* Time deposits; and
* Other short-term fixed income securities.
If these temporary, defensive strategies are used, it
is impossible to predict when or for how long the
Adviser may employ these strategies for the Fund. To
the extent the Fund engages in this temporary,
defensive strategy, the Fund may not achieve its
investment objective. Pending investment or to pay
redemption requests and expenses of the Fund, the Fund
may also hold a portion of its assets in short-term
money market securities and cash. See the Fund's SAI
for additional information.
The Fund Has No Minimum Holding Period for its Investments
The Fund has no minimum holding period for its
investments. However, the Fund will typically hold a
short position open for nine months to one year. The
Fund typically closes out a short position when the
Adviser anticipates that the security is nearing its
fair value. For example, the Fund will close out a
short position when the company's price-to-earnings
ratio is consistent with its growth rate. The Fund
will attempt to maximize investment returns. Potential
tax consequences to Fund shareholders will be a
secondary consideration. Investors may realize taxable
capital gains as a result of frequent trading of the
Fund's assets and the Fund incurs transaction costs in
connection with buying and selling securities. Tax and
transaction costs lower the Fund's effective return for
investors.
<PAGE>
FUND MANAGEMENT
Adviser
Skye Investment Advisors LLC (the "Adviser") is
the investment adviser to the Fund. The Fund has
entered into an Investment Advisory Agreement with the
Adviser under which the Adviser manages the Fund's
investments and business affairs, subject to the
supervision of the Fund's Board of Directors. The
Adviser, 985 University Avenue, Suite 26, Los Gatos,
California 95032, a California limited liability
company, and its predecessor companies have been
serving clients since 1985. As of June 30, 1999, the
Adviser managed approximately $10 million for
individual and institutional clients. Under the
Investment Advisory Agreement, the Fund pays the
Adviser an annual management fee of 1.25% of the Fund's
average daily net assets attributable to each class of
shares. The advisory fee is accrued daily and paid
monthly. Pursuant to the Investment Agreement, the
Adviser has agreed to waive its management fee and/or
reimburse the Fund's other expenses to the extent
necessary to ensure that the total annual operating
expenses do not exceed 2.75% of the Investor Class's
average daily net assets and 2.50% of the Institutional
Class's average daily net assets until October 31,
2000. After such time, the Adviser may voluntarily
waive all or a portion of its management fee and/or
reimburse all or a portion of Fund operating expenses.
The Adviser will waive fees and/or reimburse expenses
on a monthly basis and the Adviser will pay the Fund by
reducing its fee. Any waivers or reimbursements will
have the effect of lowering the overall expense ratio
for the Fund and increasing its overall return to
investors at the time any such amounts were waived
and/or reimbursed. Any such waiver or reimbursement is
subject to later adjustment during the term of the
Investment Advisory Agreement to allow the Adviser to
recoup amounts waived or reimbursed, including initial
organization costs of the Fund, provided, however, that
the Adviser shall only be entitled to recoup such
amounts for a period of three years from the date such
amount was waived or reimbursed.
Under the Investment Advisory Agreement, not only
is the Adviser responsible for management of the Fund's
assets, but also for portfolio transactions and
brokerage.
Portfolio Manager. Chairman and Managing Member
of the Adviser since 1996, Paul L. McEntire graduated
Phi Beta Kappa from Stanford University in 1965 with a
Bachelor of Science degree in mathematics.
Mr. McEntire received a Master of Science in
mathematics from the State University of New York at
Buffalo in 1972 and a PhD in Engineering-Economic
Systems from Stanford University in 1982. Since 1989,
Mr. McEntire has served as Chairman and chief executive
officer of Skye Investments, Inc., the predecessor of
the Adviser. From 1994 to 1997, Mr. McEntire was a
broker with Brookstreet Securities Corporation in
Irvine, California, and from 1993 to 1994, Mr. McEntire
was a broker with PaineWebber, Inc. in Menlo Park,
California. Mr. McEntire was President and chief
executive officer of Skye Investment Advisors, Inc.
from 1985 to 1988.
Custodian
Firstar Bank Milwaukee, N.A. ("Firstar Bank"), 777
East Wisconsin Avenue, Milwaukee, Wisconsin 53202 acts
as custodian of the Fund's assets.
Transfer Agent and Administrator
Firstar Mutual Fund Services, LLC ("Firstar"),
Third Floor, 615 East Michigan Street, Milwaukee,
Wisconsin 53202 acts as transfer agent for the Fund
(the "Transfer Agent") and as the Fund's administrator.
Distributor
Rafferty Capital Markets, Inc., 1311 Mamaroneck
Avenue, White Plains, New York 10605, a registered
broker-dealer and member of the National Association of
Securities Dealers, Inc., acts as distributor of the
Fund's shares (the "Distributor").
HOW TO PURCHASE SHARES
Shares of the Fund may be purchased at net asset
value (as described below) through any dealer which has
entered into a sales agreement with the Distributor, in
its capacity as principal underwriter of shares of the
Fund, or through the Distributor directly. The
Transfer Agent may also accept purchase applications.
<PAGE>
Choosing a Class
The Fund offers two classes of shares: Investor
Class and Institutional Class. The classes differ with
respect to their minimum investments and their cost
structure. If you purchase Investor Class shares, you
will be subject to a distribution and shareholder
servicing fee. However, if you purchase Institutional
Class shares, you will not be subject to any fees.
The Fund has adopted a plan pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended
(the "12b-1 Plan") with respect to the Investor Class,
which authorizes it to pay the Distributor and certain
financial intermediaries (such as broker-dealers) who
assist in distributing Investor Class shares or who
provide shareholder services to Investor Class
shareholders a distribution and shareholder servicing
fee of up to 0.25% of the average daily net assets of
the Fund attributable to the Investor Class (computed
on an annual basis). To the extent expenses are
incurred under the 12b-1 Plan, the 12b-1 Plan has the
effect of increasing the expenses of the Investor Class
from what they would otherwise be. Because Rule 12b-1
fees are paid out of the net assets of the Investor
Class on an on-going basis, over time these fees will
increase the cost of your investment and could cost
long-term investors of Investor Class shares more than
paying other types of sales charges. For additional
information on the 12b-1 Plan, please see the SAI.
Purchases of Fund Shares
Payment for Fund shares should be made by check or
money order in U.S. dollars drawn on a U.S. bank,
savings and loan or credit union.
Minimum Investments
Initial Subsequent Investment
Investor $ 2,000* $ 100*
Institutional $100,000 $ 1,000
*You can establish an account using the
Automatic Investment Plan for an initial
investment of $1,000 with a $50 monthly
investment as described below.
These minimums can be changed or waived by the Fund at
any time. The Fund will waive the Institutional
Class's minimums for persons who own shares of the
hedge fund managed by the Adviser. You will be given
at least 30 days' notice of any increase in the minimum
dollar amount of subsequent investments.
Net Asset Value
Shares of the Fund are sold on a continual basis
at the net asset value per share next computed
following receipt of an order in proper form (as
described below under "Initial Investment" and
"Subsequent Investment") by a dealer, the Distributor
or the Transfer Agent, as the case may be. Net asset
value per share is calculated once daily as of the
close of trading (currently 4:00 p.m., Eastern Standard
Time) on each day the New York Stock Exchange (the
"NYSE") is open. See "Valuation of Fund Shares."
Initial Investment
You may purchase Fund shares by completing the
enclosed shareholder application and mailing it and a
check or money order payable to "Bearguard Funds, Inc."
to your securities dealer, the Distributor or the
Transfer Agent, as the case may be. The minimum
initial investment in the Investor Class is $2,000.
The minimum initial investment in the Institutional
Class is $100,000. If mailing to the Distributor or
Transfer Agent, please send to the following address:
<PAGE>
By Mail By Overnight Courier
Firstar Mutual Fund Services, LLC Firstar Mutual Fund Services, LLC
P.O. Box 701 Third Floor
Milwaukee, Wisconsin 53201-0701 615 East Michigan Street
Milwaukee, Wisconsin 53202
The Fund does not consider the U.S. Postal Service or
other independent delivery services to be its agents.
Therefore, deposit in the mail or with such services,
or receipt at the Transfer Agent's post office box, of
purchase applications does not constitute receipt by
the Transfer Agent or the Fund. Do not mail letters by
overnight courier to the post office box.
If the securities dealer you have chosen to
purchase Fund shares through has not entered into a
sales agreement with the Distributor, such dealer may,
nevertheless, offer to place your order for the
purchase of Fund shares. Purchases made through such
dealers will be effected at the net asset value next
determined after receipt by the Fund of the dealer's
order to purchase shares. Such dealers may also charge
a transaction fee, as determined by the dealer. That
fee may be avoided if shares are purchased through a
dealer who has entered into a sales agreement with the
Distributor or through the Transfer Agent.
If your check does not clear, you will be charged
a $25 service fee. You will also be responsible for
any losses suffered by the Fund as a result. Neither
cash nor third-party checks will be accepted. All
applications to purchase Fund shares are subject to
acceptance by the Fund and are not binding until so
accepted. The Fund reserves the right to decline or
accept a purchase order application in whole or in
part.
Wire Purchases
You may also purchase Fund shares by wire. The
following instructions should be followed when wiring
funds to the Transfer Agent for the purchase of Fund
shares:
Wire to: Firstar Bank Milwaukee, N.A.
ABA Number: 075000022
Credit: Firstar Mutual Fund Services, LLC
Account: 112-952-137
Further Credit: Bearguard Funds, Inc.
(shareholder account number)
(shareholder name/account registration)
Please call 1-888-288-2880 prior to wiring any
funds to notify the Transfer Agent that the wire is
coming and to verify the proper wire instructions so
that the wire is properly applied when received. The
Fund is not responsible for the consequences of delays
resulting from the banking or Federal Reserve wire
system.
Telephone Purchases
The telephone purchase option allows you to make
subsequent investments directly from a bank checking or
savings account. To establish the telephone purchase
option on your account, complete the appropriate
section in the shareholder application. Only bank
accounts held at domestic financial institutions that
are Automated Clearing House ("ACH") members may be
used for telephone transactions. This option will
become effective approximately 15 business days after
the application form is received by the Transfer Agent.
Purchases must be in amounts of $1,000 or more and may
not be used for initial purchases of the Fund's shares.
To have Fund shares purchased at the offering price
determined at the close of regular trading on a given
date, the Transfer Agent must receive both your
purchase order and payment by Electronic Funds Transfer
through the ACH system prior to the close of regular
trading on such date. Most transfers are completed
within one business day. Subsequent investments may be
made by calling 1-888-288-2880.
<PAGE>
Purchasing Shares Through Financial Intermediaries
If you purchase shares through a financial
intermediary (such as a broker-dealer), certain
features of the Fund relating to such transactions may
not be available or may be modified. In addition,
certain operational policies of the Fund, including
those related to settlement and dividend accrual, may
vary from those applicable to direct shareholders of
the Fund and may vary among intermediaries. You should
consult your financial intermediary for more
information regarding these matters. Certain financial
intermediaries may charge you transaction fees for
their services. You will not be charged such fees
directly by the Fund if you purchase your Fund shares
directly from the Fund without the intervention of a
financial intermediary. The Fund's Investor Class may,
however, compensate financial intermediaries for
assistance under the Fund's Distribution and
Shareholder Service Plan (i.e., Rule 12b-1 plan) or
otherwise.
Automatic Investment Plan
The Automatic Investment Plan ("AIP") allows you
to make regular, systematic investments in Investor
Class shares from your bank checking or NOW account.
The minimum initial investment for investors using the
AIP is $1,000 with a monthly minimum investment of $50.
To establish the AIP, complete the appropriate section
in the shareholder application. You should consider
your financial ability to continue in the AIP until the
minimum initial investment amount is met because the
Fund has the right to close an investor's account for
failure to reach the minimum initial investment. For
additional information on the AIP, please see the SAI.
Individual Retirement Accounts
You may invest in Investor Class shares by
establishing a tax-sheltered individual retirement
account ("IRA"). The minimum initial investment for
investors establishing IRAs is $500. The Fund offers
the Traditional IRA and Roth IRA. For additional
information on IRA options, please see the SAI.
Subsequent Investments
Additions to your account may be made by mail.
Any subsequent investment in the Investor Class must be
for at least $100. Any subsequent investment in the
Institutional Class must be for at least $1,000. When
making an additional purchase by mail, enclose a check
payable to "Bearguard Funds, Inc." and the Additional
Investment Form provided on the lower portion of your
account statement. Additions to your account of at
least $1,000 may also be made by wire. To make an
additional purchase by wire, please call 1-888-288-2880
for complete wiring instructions.
HOW TO REDEEM SHARES
In General
You may request redemption of part or all of your
Fund shares at any time at the next determined net
asset value. See "Valuation of Fund Shares." No
redemption request will become effective until a
redemption request is received in proper form (as
described below) by the Transfer Agent. You should
contact the Transfer Agent for further information on
documentation required for redemption of Fund shares.
The Fund normally will mail your redemption proceeds
the next business day and, in any event, no later than
seven business days after receipt of a redemption
request in good order. However, if you make a purchase
by check, the Fund may hold payment on redemption
proceeds until it is reasonably satisfied that the
check has cleared, which may take up to 12 days.
Redemptions may be made by written request, telephone
or wire.
Redemptions may also be made through brokers or
dealers. Such redemptions will be effected at the net
asset value next determined after receipt by the Fund
of the broker or dealer's instruction to redeem shares.
Some brokers or dealers may charge a fee in connection
with such redemptions.
Investors who have an Individual Retirement
Account must indicate on their redemption requests
whether or not federal income tax should be withheld.
Redemption requests failing to make an election will be
subject to withholding.
Your account may be terminated by the Fund on not
less than 30 days' notice if, at the time of any
redemption of shares in your account, the value of the
remaining shares in the account falls below $2,000 for
Investor Class
<PAGE>
investors or below $100,000 for
Institutional Class investors. Upon any such
termination, a check for the proceeds of redemption
will be sent to you within seven days of the
redemption.
Written Redemption
For most redemption requests, you need only
furnish a written, unconditional request to redeem your
shares at net asset value to the Transfer Agent:
By Mail By Overnight Courier
Firstar Mutual Fund Services, LLC Firstar Mutual Fund Services, LLC
P.O. Box 701 Third Floor
Milwaukee, Wisconsin 53201-0701 615 East Michigan Street
Milwaukee, Wisconsin 53202
Requests for redemption must (i) be signed exactly as
the shares are registered, including the signature of
each owner, and (ii) specify the number of shares or
dollar amount to be redeemed. Redemption proceeds made
by written redemption request may also be wired to a
commercial bank that you have authorized on your
account application. The Transfer Agent will charge a
$12 service fee for wire transactions. Additional
documentation may be requested from corporations,
executors, administrators, trustees, guardians, agents
or attorneys-in-fact. The Fund does not consider the
U.S. Postal Service or other independent delivery
services to be its agents. Therefore, deposit in the
mail or with such services, or receipt at the Transfer
Agent's post office box of redemption requests does not
constitute receipt by the Transfer Agent or the Fund.
Do not mail letters by overnight courier to the post
office box. Any written redemption requests received
within 15 days after an address change must be
accompanied by a signature guarantee.
Telephone Redemption
You may also redeem your shares by calling the
Transfer Agent at 1-888-288-2880. Redemption requests
by telephone are available for redemptions of $1,000 or
more. Redemption requests for less than $1,000 must be
in writing. In order to utilize this procedure, you
must have previously elected this option on your
shareholder application and the redemption proceeds
must be mailed directly to you or transmitted to your
predesignated account via wire or ACH transfer. Funds
sent via ACH are automatically credited to your account
within three business days. There is currently no
charge for this service. To change the designated
account, send a written request with signature(s)
guaranteed to the Transfer Agent. To change the
address, call the Transfer Agent or send a written
request with signature(s) guaranteed to the Transfer
Agent. Additional documentation may be requested from
corporations, executors, administrators, trustees,
guardians, agents or attorneys-in-fact. No telephone
redemption requests will be allowed within 15 days of
any address change. The Fund reserves the right to
limit the number of telephone redemptions you may make.
You may not modify or cancel a telephone redemption
request.
The Transfer Agent will use reasonable procedures
to ensure that instructions received by telephone are
genuine. These procedures may include requiring some
form of personal identification prior to acting upon
telephone instructions, recording telephonic
transactions and/or sending written confirmation of
such transactions to you. Assuming procedures such as
the above have been followed, neither the Fund nor the
Transfer Agent will be liable for any loss, cost or
expense for acting upon your telephone instructions or
for any unauthorized telephone redemption. The Fund
reserves the right to refuse a telephone redemption
request if so advised.
Redeeming Shares Through Financial Intermediaries
If you redeem shares through a financial
intermediary (such as a broker-dealer), such financial
intermediary may charge you transaction fees for their
services. You will not be charged such fees if you
redeem your Fund shares directly through the Fund
without the intervention of a financial intermediary.
Systematic Withdrawal Plan
The Systematic Withdrawal Plan ("SWP") allows
Investor Class investors to make automatic withdrawals
from their accounts at regular intervals. Redemptions
for the purpose of satisfying such withdrawals may
reduce or even exhaust your account. If the amount
remaining in your account is not sufficient to make a
SWP payment, the remaining amount will be redeemed and
the SWP will be terminated. Please see the SAI for
more information.
<PAGE>
Signature Guarantees
Signature guarantees are required for:
* redemption requests to be mailed or wired to a
person other than the registered owner(s) of the shares;
* redemption requests to be mailed or wired to other
than the address that appears of record; and
* any redemption request if a change of address has
been received by the Fund or the Transfer Agent within the last 15 days.
A signature guarantee may be obtained from any eligible
guarantor institution, as defined by the SEC. These
institutions include banks, saving associations, credit
unions, brokerage firms and others. Please note that a
notary public stamp or seal is not acceptable.
Redemption in Kind
The Fund has reserved the right to redeem in kind
(i.e., in securities positions) any redemption request
during any 90-day period in excess of the lesser of:
(i) $250,000 or (ii) 1% of the net asset value of the
class of shares being redeemed. Please see the SAI for
more information.
VALUATION OF FUND SHARES
Net asset value for the Fund is calculated by
taking the value of the Fund's total assets, including
interest or dividends accrued, but not yet collected,
less all liabilities, and dividing by the total number
of shares outstanding. The result, rounded to the
nearest cent, is the net asset value per share. The
net asset value per share is determined as of the close
of trading (generally 4:00 p.m. Eastern Standard Time)
on each day the NYSE is open for business. Net asset
value is not determined on days the NYSE is closed.
The price at which a purchase order or redemption
request is effected is based on the next calculation of
net asset value after the order is placed. In
determining net asset value, expenses are accrued and
applied daily and investments for which market
quotations are readily available are valued at market
value. Any investments for which market quotations are
not readily available are valued at fair value as
determined in good faith by the Board of Directors of
the Fund.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX TREATMENT
For federal income tax purposes, all dividends
paid by the Fund and distributions of net realized
short-term capital gains are taxable as ordinary income
whether reinvested or received in cash unless you are
exempt from taxation or entitled to a tax deferral.
Distributions paid by a Fund from net realized long-
term capital gains, whether received in cash or
reinvested in additional shares, are taxable as a
capital gain. The capital gain holding period (and the
applicable tax rate) is determined by the length of
time the Fund has held the security and not the length
of time you have held shares in the Fund. For short
sales, the Fund's holding period is determined by
reference to the period the Fund has held the security
delivered at the time of closing out the short sale.
Since the Fund engages in short sales without owning
the underlying security during the investment period,
the Fund anticipates that substantially all of its
capital gains distributions from short sales will be
short-term capital gains. Accordingly, the Fund's
investment strategy is not tax efficient because your
capital gains will generally be taxable as ordinary
income. Investors are informed annually as to the
amount and nature of all dividends and capital gains
paid during the prior year. Such capital gains and
dividends may also be subject to state or local taxes.
If you are not required to pay taxes on your income,
you are generally not required to pay federal income
taxes on the amounts distributed to you.
The Fund intends to pay dividends and distribute
capital gains, if any, at least annually. When a
dividend or capital gain is distributed, the Fund's net
asset value decreases by the amount of the payment. If
you purchase shares shortly before a distribution, you
will be subject to income taxes on the distribution,
even though the value of your investment (plus cash
received, if any) remains the same. All dividends and
capital gains distributions will automatically be
reinvested in additional Fund shares at the then
prevailing net asset value unless you specifically
request that either dividends or capital gains or both
be paid in cash. You may change an election by
telephone, subject to certain limitations, by calling
the Transfer Agent at 1-888-288-2880.
<PAGE>
If you request to have dividends and/or capital
gains paid in cash, you may choose to have such amounts
mailed or sent via electronic funds transfer ("EFT").
Transfers via EFT generally take up to three business
days to reach the investor's bank account.
If you elect to receive distributions and
dividends by check and the post office cannot deliver
such check, or if such check remains uncashed for six
months, the Fund reserves the right to reinvest the
distribution check in your account at the Fund's then
current net asset value per share and to reinvest all
subsequent distributions in shares of the Fund.
If you do not furnish the Fund with your correct
social security number or taxpayer identification
number, the Fund is required by federal law to withhold
federal income tax from your distributions and
redemption proceeds at a rate of 31%.
This section is not intended to be a full
discussion of federal income tax laws and the effect of
such laws on you. There may be other federal, state or
local tax considerations applicable to you. You are
urged to consult your own tax advisor.
YEAR 2000 ISSUE
The Fund's operations depend on the seamless
functioning of computer systems in the financial
service industry, including those of the Adviser,
Firstar and Firstar Bank. Many computer software
systems in use today cannot properly process date-
related information after December 31, 1999 because of
the method by which dates are encoded and calculated.
This failure, commonly referred to as the "Year 2000
Issue," could adversely affect the handling of security
trades, pricing and account servicing for the Fund.
The Adviser has made compliance with the Year 2000
Issue a high priority and is taking steps that it
believes are reasonably designed to address the Year
2000 Issue with respect to its computer systems. The
Adviser has also been informed that comparable steps
are being taken by the Fund's other major service
providers. The Adviser does not currently anticipate
that the Year 2000 Issue will have a material impact on
its ability to continue to fulfill its duties as
investment adviser to the Fund. However, there can be
no assurance that the computer systems of the companies
in which the Fund invests will be timely converted or
that the value of such investments will not be
adversely affected by the Year 2000 Issue.
<PAGE>
DIRECTORS CUSTODIAN
Paul L. McEntire, Chairman Firstar Bank Milwaukee, N.A.
Robert E. Larson 777 East Wisconsin Avenue
Robert W. Lishman, Jr. Milwaukee, Wisconsin 53202
Thomas M. Cover
Charles D. Feinstein
David G. Luenberger ADMINISTRATOR, TRANSFER AGENT
Edward C. Murphy AND DIVIDEND-DISBURSING AGENT
PRINCIPAL OFFICERS
Paul L. McEntire, President Firstar Mutual Fund Services, LLC
Thomas F. Burns, Jr., Third Floor
Treasurer and Secretary 615 East Michigan Street
Milwaukee, Wisconsin 53202
INVESTMENT ADVISER
Skye Investment Advisors LLC INDEPENDENT ACCOUNTANTS
985 University Avenue,
Suite 26 PricewaterhouseCoopers LLP
Los Gatos, California 95032 100 East Wisconsin Avenue
Suite 1500
Milwaukee, Wisconsin 53202
DISTRIBUTOR
Rafferty Capital Markets, Inc. LEGAL COUNSEL
1311 Manaroneck Avenue
White Plains, New York 10605 Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, Wisconsin 53202
The SAI for the Fund contains additional
information about the Fund. The Fund's SAI, which is
incorporated by reference into this Prospectus, is
available without charge upon request to the address,
toll-free telephone number or website noted on the
cover page of this Prospectus. The SAI may also be
obtained from certain financial intermediaries,
including the Fund's Distributor, who purchase and sell
Fund shares. General inquiries regarding the Fund can
be directed to the Fund at the address and toll-free
telephone number on the cover page of this Prospectus.
Information about the Fund (including the SAI) can
be reviewed and copied at the SEC's Public Reference
Room in Washington, D.C. Please call the SEC at
1-800-SEC-0330 for information relating to the
operation of the Public Reference Room. Other
information about the Fund is available on the SEC's
Internet site at http://www.sec.gov or upon payment of
a duplicating fee, by writing the Public Reference Room
of the SEC, Washington, D.C. 20549-6009.
The Fund's 1940 Act File Number is 811-9291.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Bearguard Funds, Inc.
BEARGUARD FUND
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
1-888-288-2880
www.bearguardfund.com
This Statement of Additional Information is not a
prospectus and should be read in conjunction with the
Prospectus of the Bearguard Fund (the "Fund"), dated
____________ __, 1999. The Fund is a series of
Bearguard Funds, Inc. (the "Corporation").
A copy of the Prospectus is available without
charge upon request to the above-noted address, toll-
free telephone number or website.
This Statement of Additional Information is dated ____________ __, 1999.
<PAGE>
TABLE OF CONTENTS
Page No.
FUND ORGANIZATION 3
INVESTMENT RESTRICTIONS 3
IMPLEMENTATION OF INVESTMENT OBJECTIVES 4
DIRECTORS AND OFFICERS 12
PRINCIPAL SHAREHOLDERS 15
INVESTMENT ADVISER 15
FUND TRANSACTIONS AND BROKERAGE 15
CUSTODIAN 16
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT 17
ADMINISTRATOR 17
DISTRIBUTOR AND PLAN OF DISTRIBUTION 17
PURCHASE AND PRICING OF SHARES 19
REDEMPTIONS IN KIND 21
TAXATION OF THE FUND 21
PERFORMANCE INFORMATION 21
INDEPENDENT ACCOUNTANTS 22
FINANCIAL STATEMENTS 23
APPENDIX A-1
In deciding whether to invest in the Fund, you
should rely on information in this Statement of
Additional Information and related Prospectus. The
Fund has not authorized others to provide additional
information. The Fund has not authorized the use of
this Statement of Additional Information in any state
or jurisdiction in which such offering may not legally
be made.
<PAGE>
FUND ORGANIZATION
The Corporation is an open-end, diversified,
management investment company, commonly referred to as
a mutual fund. The Fund is a series of common stock of
the Corporation, a Maryland company incorporated on
April 9, 1999. The Corporation is authorized to issue
shares of common stock in series and classes. The
Corporation currently offers one series of shares: the
Bearguard Fund. The shares of common stock of the Fund
are further divided into two classes: Investor Class
and Institutional Class. Each share of common stock of
each class of shares of the Fund is entitled to one
vote, and each share is entitled to participate equally
in dividends and capital gain distributions by the
respective class of shares and in the assets of the
respective class in the event of liquidation. However,
each class of shares bears its own expenses, and the
Investor Class has exclusive voting rights on matters
pertaining to its distribution and shareholder
servicing plan.
No certificates will be issued for shares held in
your account. You will, however, have full shareholder
rights. Generally, the Corporation will not hold
annual shareholders' meetings unless required by the
Investment Company Act of 1940, as amended (the "1940
Act"), or Maryland law. Shareholders have certain
rights, including the right to call an annual meeting
upon a vote of 10% of the Corporation's outstanding
shares for the purpose of voting to remove one or more
directors or to transact any other business. The 1940
Act requires the Corporation to assist the shareholders
in calling such a meeting.
INVESTMENT RESTRICTIONS
The investment objective of the Fund is to seek
capital appreciation and income. The following are the
Fund's fundamental investment restrictions which cannot
be changed without the approval of a majority of the
Fund's outstanding voting securities. As used herein,
a "majority of the Fund's outstanding voting
securities" means the lesser of (i) 67% of the shares
of common stock of the Fund represented at a meeting at
which more than 50% of the outstanding shares are
present, or (ii) more than 50% of the outstanding
shares of common stock of the Fund.
The Fund:
1. May not with respect to 75% of its total assets,
purchase the securities of any issuer (except
securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities)
if, as a result, (i) more than 5% of the Fund's
total assets would be invested in the securities
of that issuer, or (ii) the Fund would hold more
than 10% of the outstanding voting securities of
that issuer.
2. May (i) borrow money from banks for temporary or
emergency purposes and (ii) make other investments
or engage in other transactions permissible under
the Investment Company Act of 1940, as amended
(the "1940 Act"), which may involve a borrowing,
including borrowing through reverse repurchase
agreements, provided that the combination of (i)
and (ii) shall not exceed 33 1/3% of the value of
the Fund's total assets (including the amount
borrowed), less the Fund's liabilities (other than
borrowings). If the amount borrowed at any time
exceeds 33 1/3% of the Fund's total assets, the
Fund will, within three days thereafter (not
including Sundays, holidays and any longer
permissible period), reduce the amount of the
borrowings such that the borrowings do not exceed
33 1/3% of the Fund's total assets. The Fund may
also borrow money from other persons to the extent
permitted by applicable law.
3. May not issue senior securities, except as
permitted under the 1940 Act.
4. May not act as an underwriter of another issuer's
securities, except to the extent that the Fund may
be deemed to be an underwriter within the meaning
of the Securities Act of 1933, as amended (the
"Securities Act"), in connection with the purchase
and sale of portfolio securities.
5. May not purchase or sell physical commodities
unless acquired as a result of ownership of
securities or other instruments (but this shall
not prevent the Fund from purchasing or selling
options, futures contracts or other derivative
instruments, or from investing in securities or
other instruments backed by physical commodities).
6. May not make loans if, as a result, more than 33
1/3% of the Fund's total assets would be lent to
other persons, except through (i) purchases of
debt securities or other debt instruments, or (ii)
engaging in repurchase agreements.
<PAGE>
7. May not purchase the securities of any issuer if,
as a result, more than 25% of the Fund's total
assets would be invested in the securities of
issuers, the principal business activities of
which are in the same industry.
8. May not purchase or sell real estate unless
acquired as a result of ownership of securities or
other instruments (but this shall not prohibit the
Fund from purchasing or selling securities or
other instruments backed by real estate or of
issuers engaged in real estate activities).
The following are the Fund's non-fundamental
investment policies which may be changed by the Board
of Directors without shareholder approval.
The Fund:
1. May engage in short sales of the Fund's securities
or maintain a short position if at all times when
a short position is open, the Fund (i) owns or has
the right to obtain securities equivalent in kind
and amount to the securities sold short or (ii)
covers such short position as required by the
current rules and positions of the Securities and
Exchange Commission (the "SEC") or its staff.
2. May not purchase securities on margin, except that
the Fund may obtain such short-term credits as are
necessary for the clearance of transactions; and
provided that margin deposits in connection with
futures contracts, options on futures contracts or
other derivative instruments shall not constitute
purchasing securities on margin.
3. May not invest more than 15% of its assets in
illiquid securities.
4. May not purchase securities of other investment
companies except in compliance with the 1940 Act.
5. May not engage in futures or options on futures
transactions, which are impermissible pursuant to
Rule 4.5 under the Commodity Exchange Act (the
"CEA") and, in accordance with Rule 4.5, will use
futures or options on futures transactions solely
for bona fide hedging transactions (within the
meaning of the CEA), provided, however, that the
Fund may, in addition to bona fide hedging
transactions, use futures and options on futures
transactions if the aggregate initial margins and
premiums required to establish such positions,
less the amount by which such options positions
are in the money (within the meaning of the CEA),
do not exceed 5% of the Fund's net assets.
6. May not make any loans, except through (i)
purchases of debt securities or other debt
instruments, or (ii) engaging in repurchase
agreements.
7. May not purchase securities when bank borrowings
exceed 5% of its total assets.
Except for the fundamental investment limitations
listed above and the Fund's investment objective, the
Fund's other investment policies are not fundamental
and may be changed with approval of the Corporation's
Board of Directors. Unless noted otherwise, if a
percentage restriction is adhered to at the time of
investment, a later increase or decrease in percentage
resulting from a change in the Fund's assets (i.e., due
to cash inflows or redemptions) or in market value of
the investment or the Fund's assets will not constitute
a violation of that restriction.
IMPLEMENTATION OF INVESTMENT OBJECTIVES
The following information supplements the
discussion of the Fund's investment objectives and
strategy described in the Prospectus under the captions
"Investment Objective" and "How the Fund Invests."
Fixed Income Securities
Fixed income Securities in General. To
collateralize or "cover" its short positions and to
produce income, the Fund will invest in a wide variety
of fixed income securities, including U.S. government
and corporate notes and bonds. Debt securities are
obligations of the issuer to pay interest and repay
principal.
Changes in market interest rates affect the value
of fixed income securities. If interest rates
increase, the value of fixed income securities
generally decrease. Similarly, if interest rates
decrease, the value of fixed income securities
generally increase. Shares in the Fund are likely to
fluctuate in a similar manner. In general, the longer
the remaining
<PAGE>
maturity of a fixed income security, the
greater it will fluctuate in value based on interest
rate changes. Longer-term fixed income securities
generally pay a higher interest rate. The Fund
typically invests in short-term fixed income securities
with maturities of less than three years.
Changes in the credit quality of the issuer also
affect the value of fixed income securities. Lower-
rated fixed income securities generally pay a higher
interest rate. Although the Fund only invests in
investment grade debt securities, the value of these
securities may decrease due to changes in ratings over
time.
Types of Fixed income Securities. The Fund may
invest in the following types of fixed income
securities:
* Corporate debt securities, including bonds,
debentures and notes;
* U.S. government securities;
* Commercial paper (including variable amount master
demand notes); and
* Bank obligations, such as certificates of deposit,
banker's acceptances and time deposits of domestic and
foreign banks, domestic savings associations and their
subsidiaries and branches (in amounts in excess of the
current $100,000 per account insurance coverage
provided by the Federal Deposit Insurance Corporation).
Ratings. The Fund will generally limit
investments in fixed income securities to those that
are rated at the time of purchase as at least
investment grade by at least one national rating
organization, such as S&P or Moody's, or, if unrated,
are determined to be of equivalent quality by the
Adviser. Investment grade fixed income securities
include:
* U.S. government securities;
* Bonds or bank obligations rated in one of the four
highest categories (e.g., BBB- or higher by S&P);
* Short-term notes rated in one of the two highest
categories (e.g., SP-2 or higher by S&P); and
* Commercial paper or short-term bank obligations
rated in one of the three highest categories (e.g., A-3
or higher by S&P).
Investment grade fixed income securities are generally
believed to have a lower degree of credit risk. If a
security's rating falls below the above criteria, the
Adviser will determine what action, if any, should be
taken to ensure compliance with the Fund's investment
objective and to ensure that the Fund will at no time
have 5% or more of its net assets invested in non-
investment grade debt securities. Additional
information concerning securities ratings is contained
in the Appendix.
Government Securities. U.S. government securities
are issued or guaranteed by the U.S. government or its
agencies or instrumentalities. These securities may
have different levels of government backing. U.S.
Treasury obligations, such as Treasury bills, notes,
and bonds are backed by the full faith and credit of
the U.S. Treasury. Some U.S. government agency
securities are also backed by the full faith and credit
of the U.S. Treasury, such as securities issued by the
Government National Mortgage Association (GNMA). Other
U.S. government securities may be backed by the right
of the agency to borrow from the U.S. Treasury, such as
securities issued by the Federal Home Loan Bank, or may
be backed only by the credit of the agency. The U.S.
government and its agencies and instrumentalities only
guarantee the payment of principal and interest and not
the market value of the securities. The market value
of U.S. government securities will fluctuate based on
interest rate changes and other market factors.
Variable- or Floating-Rate Securities. Variable-
rate securities provide for automatic establishment of
a new interest rate at fixed intervals (e.g., daily,
monthly, semi-annually, etc.). Floating-rate
securities generally provide for automatic adjustment
of the interest rate whenever some specified interest
rate index changes. The interest rate on variable- or
floating-rate securities is ordinarily determined by
reference to or is a percentage of a bank's prime rate,
the 90-day U.S. Treasury bill rate, the rate of return
on commercial paper or bank certificates of deposit, an
index of short-term interest rates or some other
objective measure.
<PAGE>
Variable- or floating-rate securities frequently
include a demand feature entitling the holder to sell
the securities to the issuer at par. In many cases,
the demand feature can be exercised at any time on
seven days notice, in other cases, the demand feature
is exercisable at any time on 30 days notice or on
similar notice at intervals of not more than one year.
Some securities which do not have variable or floating
interest rates may be accompanied by puts producing
similar results and price characteristics.
Variable-rate demand notes include master demand
notes which are obligations that permit the Fund to
invest fluctuating amounts, which may change daily
without penalty, pursuant to direct arrangements
between the Fund, as lender, and the borrower. The
interest rates on these notes fluctuate from time to
time. The issuer of such obligations normally has a
corresponding right, after a given period, to prepay in
its discretion the outstanding principal amount of the
obligations plus accrued interest upon a specified
number of days' notice to the holders of such
obligations. The interest rate on a floating-rate
demand obligation is based on a known lending rate,
such as a bank's prime rate, and is adjusted
automatically each time such rate is adjusted. The
interest rate on a variable-rate demand obligation is
adjusted automatically at specified intervals.
Frequently, such obligations are secured by letters of
credit or other credit support arrangements provided by
banks. Because these obligations are direct lending
arrangements between the lender and borrower, it is not
contemplated that such instruments will generally be
traded. There generally is not an established
secondary market for these obligations, although they
are redeemable at face value. Accordingly, where the
obligations are not secured by letters of credit or
other credit support arrangements, the Fund's right to
redeem is dependent on the ability of the borrower to
pay principal and interest on demand. Such obligations
frequently are not rated by credit rating agencies and,
if not so rated, the Fund may invest in them only if
the Adviser determines that at the time of investment
other obligations are of comparable quality to the
other obligations in which the Fund may invest.
In addition, each variable- and floating-rate
obligation must meet the credit quality requirements
applicable to all the Fund's investments at the time of
purchase. When determining whether such an obligation
meets the Fund's credit quality requirements, the Fund
may look to the credit quality of the financial
guarantor providing a letter of credit or other credit
support arrangement.
Derivative Instruments
In General. The Fund may invest up to 10% of its
net assets in derivative instruments subject to
applicable regulatory requirements. Derivative
instruments may be used for any lawful purpose
consistent with the Fund's investment objective such as
hedging or managing risk, but not for speculation.
Derivative instruments are commonly defined to include
securities or contracts whose value depend on (or
"derive" from) the value of one or more other assets,
such as securities, currencies or commodities. These
"other assets" are commonly referred to as "underlying
assets."
A derivative instrument generally consists of, is
based upon, or exhibits characteristics similar to
options or forward contracts. Options and forward
contracts are considered to be the basic "building
blocks" of derivatives. For example, forward-based
derivatives include forward contracts and exchange-
traded futures. Option-based derivatives include
exchange-traded options on securities and options on
futures. Diverse types of derivatives may be created
by combining options or forward contracts in different
ways, and by applying these structures to a wide range
of underlying assets.
An option is a contract in which the "holder" (the
buyer) pays a certain amount (the "premium") to the
"writer" (the seller) to obtain the right, but not the
obligation, to buy from the writer (in a "call") or
sell to the writer (in a "put") a specific asset at an
agreed upon price at or before a certain time. The
holder pays the premium at inception and has no further
financial obligation. The holder of an option-based
derivative generally will benefit from favorable
movements in the price of the underlying asset but is
not exposed to corresponding losses due to adverse
movements in the value of the underlying asset. The
writer of an option-based derivative generally will
receive fees or premiums but generally is exposed to
losses due to changes in the value of the underlying
asset.
A forward is a sales contract between a buyer
(holding the "long" position) and a seller (holding the
"short" position) for an asset with delivery deferred
until a future date. The buyer agrees to pay a fixed
price at the agreed future date and the seller agrees
to deliver the asset. The seller hopes that the market
price on the delivery date is less than the agreed upon
price, while the buyer hopes for the contrary. The
change in value of a forward-based derivative generally
is roughly proportional to the change in value of the
underlying asset.
<PAGE>
Hedging. The Fund may use derivative instruments
to protect against possible adverse changes in the
market value of positions in the Fund's portfolio or
positions anticipated to be entered into. Derivatives
may also be used by the Fund to "lock-in" its realized
but unrecognized gains in the value of its portfolio
securities. Hedging strategies, if successful, can
reduce the risk of loss by wholly or partially
offsetting the negative effect of unfavorable price
movements in the investments being hedged. However,
hedging strategies can also reduce the opportunity for
gain by offsetting the positive effect of favorable
price movements in the hedged investments.
Managing Risk. The Fund may also use derivative
instruments to manage the risks of the Fund's
portfolio. Risk management strategies include, but are
not limited to, facilitating the sale of portfolio
investments, managing the effective maturity or
duration of debt obligations in the Fund's portfolio,
establishing a position in the derivatives markets as a
substitute for taking positions, or creating or
altering exposure to certain asset classes, such as
equity or debt. The use of derivative instruments may
provide a less expensive, more expedient or more
specifically focused way for the Fund to invest.
Exchange Derivatives. Derivative instruments may
be exchange-traded. Exchange-traded derivatives are
standardized options and futures contracts traded in an
auction on the floor of a regulated exchange. Exchange
contracts are generally liquid. The exchange
clearinghouse is the counterparty of every contract.
Thus, each holder of an exchange contract bears the
credit risk of the clearinghouse (and has the benefit
of its financial strength) rather than that of a
particular counterparty.
Risks and Special Considerations. The use of
derivative instruments involves risks and special
considerations as described below. Risks pertaining to
particular derivative instruments are described in the
sections that follow.
(1) Market Risk. The primary risk of derivatives
is the same as the risk of the underlying assets;
namely, that the value of the underlying asset may go
up or down. Adverse movements in the value of an
underlying asset can expose the Fund to losses.
Derivative instruments may include elements of leverage
and, accordingly, the fluctuation of the value of the
derivative instrument in relation to the underlying
asset may be magnified. The successful use of
derivative instruments depends upon a variety of
factors, particularly the Adviser's ability to predict
movements of the securities, currencies and commodities
markets, which requires different skills than
predicting changes in the prices of individual
securities. There can be no assurance that any
particular strategy adopted will succeed. A decision
to engage in a derivative transaction will reflect the
Adviser's judgment that the derivative transaction will
provide value to the Fund and its shareholders and is
consistent with the Fund's objectives, investment
limitations and operating policies. In making such a
judgment, the Adviser will analyze the benefits and
risks of the derivative transaction and weigh them in
the context of the Fund's entire portfolio and
investment objective.
(2) Credit Risk. The Fund will be subject to the
risk that a loss may be sustained by the Fund as a
result of the failure of a counterparty to comply with
the terms of a derivative instrument. The counterparty
risk for exchange-traded derivative instruments is
generally less than for privately-negotiated or OTC
derivative instruments, since generally a clearing
agency, which is the issuer or counterparty to each
exchange-traded instrument, provides a guarantee of
performance. For privately-negotiated instruments,
there is no similar clearing agency guarantee. In all
transactions, the Fund will bear the risk that the
counterparty will default, and this could result in a
loss of the expected benefit of the derivative
transaction and possibly other losses to the Fund. The
Fund will enter into transactions in derivative
instruments only with counterparties that the Adviser
reasonably believes are capable of performing under the
contract.
(3) Correlation Risk. When a derivative
transaction is used to completely hedge another
position, changes in the market value of the combined
position (the derivative instrument plus the position
being hedged) result from an imperfect correlation
between the price movements of the two instruments.
With a perfect hedge, the value of the combined
position remains unchanged for any change in the price
of the underlying asset. With an imperfect hedge, the
value of the derivative instrument and its hedge are
not perfectly correlated. Correlation risk is the risk
that there might be imperfect correlation, or even no
correlation, between price movements of an instrument
and price movements of investments being hedged. For
example, if the value of a derivative instrument used
in a short hedge (such as writing a call option, buying
a put option, or selling a futures contract) increased
by less than the decline in value of the hedged
investments, the hedge would not be perfectly
correlated. Such a lack of correlation might occur due
to factors unrelated to the value of the investments
being hedged, such as speculative or other pressures on
the markets in which these instruments are traded. The
effectiveness of hedges using instruments on indices
will depend,
<PAGE>
in part, on the degree of correlation
between price movements in the index and price
movements in the investments being hedged.
(4) Liquidity Risk. Derivatives are also subject
to liquidity risk. Liquidity risk is the risk that a
derivative instrument cannot be sold, closed out, or
replaced quickly at or very close to its fundamental
value. Generally, exchange contracts are very liquid
because the exchange clearinghouse is the counterparty
of every contract. The Fund might be required by
applicable regulatory requirement to maintain assets as
"cover," maintain segregated accounts, and/or make
margin payments when it takes positions in derivative
instruments involving obligations to third parties
(i.e., instruments other than purchased options). If
the Fund is unable to close out its positions in such
instruments, it might be required to continue to
maintain such assets or accounts or make such payments
until the position expired, matured or is closed out.
The requirements might impair the Fund's ability to
sell a portfolio security or make an investment at a
time when it would otherwise be favorable to do so, or
require that the Fund sell a portfolio investment at a
disadvantageous time. The Fund's ability to sell or
close out a position in an instrument prior to
expiration or maturity depends on the existence of a
liquid secondary market or, in the absence of such a
market, the ability and willingness of the counterparty
to enter into a transaction closing out the position.
Therefore, there is no assurance that any derivatives
position can be sold or closed out at a time and price
that is favorable to the Fund.
(5) Legal Risk. Legal risk is the risk of loss
caused by the legal unenforceability of a party's
obligations under the derivative. While a party
seeking price certainty agrees to surrender the
potential upside in exchange for downside protection,
the party taking the risk is looking for a positive
payoff. Despite this voluntary assumption of risk, a
counterparty that has lost money in a derivative
transaction may try to avoid payment by exploiting
various legal uncertainties about certain derivative
products.
(6) Systemic or "Interconnection" Risk.
Interconnection risk is the risk that a disruption in
the financial markets will cause difficulties for all
market participants. In other words, a disruption in
one market will spill over into other markets, perhaps
creating a chain reaction.
General Limitations. The use of derivative
instruments is subject to applicable regulations of the
SEC, the several options and futures exchanges upon
which they may be traded, and the Commodity Futures
Trading Commission ("CFTC").
The Corporation has filed a notice of eligibility
for exclusion from the definition of the term
"commodity pool operator" with the CFTC and the
National Futures Association, which regulate trading in
the futures markets. In accordance with Rule 4.5 of
the regulations under the CEA, the notice of
eligibility for the Fund includes representations that
the Fund will use futures contracts and related options
solely for bona fide hedging purposes within the
meaning of CFTC regulations, provided that the Fund may
hold other positions in futures contracts and related
options that do not qualify as a bona fide hedging
position if the aggregate initial margin deposits and
premiums required to establish these positions, less
the amount by which any such futures contracts and
related options positions are "in the money," do not
exceed 5% of the Fund's net assets.
The SEC has identified certain trading practices
involving derivative instruments that involve the
potential for leveraging the Fund's assets in a manner
that raises issues under the 1940 Act. In order to
limit the potential for the leveraging of the Fund's
assets, as defined under the 1940 Act, the SEC has
stated that a Fund may use coverage or the segregation
of the Fund's assets. The Fund will also set aside
permissible liquid assets in a segregated custodial
account if required to do so by SEC and CFTC
regulations. Assets used as cover or held in a
segregated account cannot be sold while the derivative
position is open, unless they are replaced with similar
assets. As a result, the commitment of a large portion
of the Fund's assets to segregated accounts could
impede portfolio management or the Fund's ability to
meet redemption requests or other current obligations.
In some cases the Fund may be required to maintain
or limit exposure to a specified percentage of its
assets to a particular asset class. In such cases,
when the Fund uses a derivative instrument to increase
or decrease exposure to an asset class and is required
by applicable SEC guidelines to set aside liquid assets
in a segregated account to secure its obligations under
the derivative instruments, the Adviser may, where
reasonable in light of the circumstances, measure
compliance with the applicable percentage by reference
to the nature of the economic exposure created through
the use of the derivative instrument and not by
reference to the nature of the exposure arising from
the assets set aside in the segregated account (unless
another interpretation is specified by applicable
regulatory requirements).
<PAGE>
Options. The Fund may use options for any lawful
purpose consistent with the Fund's investment objective
such as hedging or managing risk but not for
speculation. An option is a contract in which the
"holder" (the buyer) pays a certain amount (the
"premium") to the "writer" (the seller) to obtain the
right, but not the obligation, to buy from the writer
(in a "call") or sell to the writer (in a "put") a
specific asset at an agreed upon price (the "strike
price" or "exercise price") at or before a certain time
(the "expiration date"). The holder pays the premium
at inception and has no further financial obligation.
The holder of an option will benefit from favorable
movements in the price of the underlying asset but is
not exposed to corresponding losses due to adverse
movements in the value of the underlying asset. The
writer of an option will receive fees or premiums but
is exposed to losses due to changes in the value of the
underlying asset. The Fund may purchase (buy) or write
(sell) put and call options on assets, such as
securities, currencies, commodities, and indices of
debt and equity securities ("underlying assets") and
enter into closing transactions with respect to such
options to terminate an existing position. Options
used by the Fund may include European, American, and
Bermuda style options. If an option is exercisable
only at maturity, it is a "European" option; if it is
also exercisable prior to maturity, it is an "American"
option. If it is exercisable only at certain times, it
is a "Bermuda" option.
The Fund may purchase (buy) and write (sell) put
and call options and enter into closing transactions
with respect to such options to terminate an existing
position. The purchase of call options serves as a
long hedge, and the purchase of put options serves as a
short hedge. Writing put or call options can enable
the Fund to enhance income by reason of the premiums
paid by the purchaser of such options. Writing call
options serves as a limited short hedge because
declines in the value of the hedged investment would be
offset to the extent of the premium received for
writing the option. However, if the security
appreciates to a price higher than the exercise price
of the call option, it can be expected that the option
will be exercised and the Fund will be obligated to
sell the security at less than its market value or will
be obligated to purchase the security at a price
greater than that at which the security must be sold
under the option. Writing put options serves as a
limited long hedge because increases in the value of
the hedged investment would be offset to the extent of
the premium received for writing the option. However,
if the security depreciates to a price lower than the
exercise price of the put option, it can be expected
that the put option will be exercised and the Fund will
be obligated to purchase the security at more than its
market value.
The value of an option position will reflect,
among other things, the historical price volatility of
the underlying investment, the current market value of
the underlying investment, the time remaining until
expiration, the relationship of the exercise price to
the market price of the underlying investment, and
general market conditions.
The Fund may effectively terminate its right or
obligation under an option by entering into a closing
transaction. For example, the Fund may terminate its
obligation under a call or put option that it had
written by purchasing an identical call or put option;
this is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put
or call option it had purchased by writing an identical
put or call option; this is known as a closing sale
transaction. Closing transactions permit the Fund to
realize the profit or limit the loss on an option
position prior to its exercise or expiration.
The Fund may purchase or write exchange-traded
options. Exchange-traded options are issued by a
clearing organization affiliated with the exchange on
which the option is listed that, in effect, guarantees
completion of every exchange-traded option transaction.
The Fund's ability to establish and close out
positions in exchange-listed options depends on the
existence of a liquid market. The Fund intends to
purchase or write only those exchange-traded options
for which there appears to be a liquid secondary
market. However, there can be no assurance that such a
market will exist at any particular time. If the Fund
were unable to effect a closing transaction for an
option it had purchased, it would have to exercise the
option to realize any profit.
The Fund may engage in options transactions on
indices in much the same manner as the options on
securities discussed above, except the index options
may serve as a hedge against overall fluctuations in
the securities market in general.
The writing and purchasing of options is a highly
specialized activity that involves investment
techniques and risks different from those associated
with ordinary portfolio securities transactions.
Imperfect correlation between the options and
securities markets may detract from the effectiveness
of attempted hedging.
<PAGE>
Futures Contracts. The Fund may use futures
contracts for any lawful purpose consistent with the
Fund's investment objective such as hedging and
managing risk but not for speculation. The Fund may
enter into futures contracts, including interest rate,
index, and currency futures. The Fund may also
purchase put and call options, and write covered put
and call options, on futures in which it is allowed to
invest. The purchase of futures or call options
thereon can serve as a long hedge, and the sale of
futures or the purchase of put options thereon can
serve as a short hedge. Writing covered call options
on futures contracts can serve as a limited short
hedge, and writing covered put options on futures
contracts can serve as a limited long hedge, using a
strategy similar to that used for writing covered
options in securities. The Fund's hedging may include
purchases of futures as an offset against the effect of
expected increases in currency exchange rates and
securities prices and sales of futures as an offset
against the effect of expected declines in currency
exchange rates and securities prices.
To the extent required by regulatory authorities,
the Fund may enter into futures contracts that are
traded on national futures exchanges and are
standardized as to maturity date and underlying
financial instrument. Futures exchanges and trading
are regulated under the CEA by the CFTC. Although
techniques other than sales and purchases of futures
contracts could be used to reduce the Fund's exposure
to market, currency, or interest rate fluctuations, the
Fund may be able to hedge its exposure more effectively
and perhaps at a lower cost through using futures
contracts.
An interest rate futures contract provides for the
future sale by one party and purchase by another party
of a specified amount of a specific financial
instrument (e.g., debt security) or currency for a
specified price at a designated date, time, and place.
An index futures contract is an agreement pursuant to
which the parties agree to take or make delivery of an
amount of cash equal to the difference between the
value of the index at the close of the last trading day
of the contract and the price at which the index
futures contract was originally written. Transaction
costs are incurred when a futures contract is bought or
sold and margin deposits must be maintained. A futures
contract may be satisfied by delivery or purchase, as
the case may be, of the instrument or the currency or
by payment of the change in the cash value of the
index. More commonly, futures contracts are closed out
prior to delivery by entering into an offsetting
transaction in a matching futures contract. Although
the value of an index might be a function of the value
of certain specified securities, no physical delivery
of those securities is made. If the offsetting
purchase price is less than the original sale price,
the Fund realizes a gain; if it is more, the Fund
realizes a loss. Conversely, if the offsetting sale
price is more than the original purchase price, the
Fund realizes a gain; if it is less, the Fund realizes
a loss. The transaction costs must also be included in
these calculations. There can be no assurance,
however, that the Fund will be able to enter into an
offsetting transaction with respect to a particular
futures contract at a particular time. If the Fund is
not able to enter into an offsetting transaction, the
Fund will continue to be required to maintain the
margin deposits on the futures contract.
No price is paid by the Fund upon entering into a
futures contract. Instead, at the inception of a
futures contract, the Fund is required to deposit in a
segregated account with its custodian, in the name of
the futures broker through whom the transaction was
effected, "initial margin," consisting of cash, U.S.
government securities or other liquid, high-grade debt
obligations, in an amount generally equal to 10% or
less of the contract value. Margin must also be
deposited when writing a call or put option on a
futures contract, in accordance with applicable
exchange rules. Unlike margin in securities
transaction, initial margin on futures contracts does
not represent a borrowing, but rather is in the nature
of a performance bond or good-faith deposit that is
returned to the Fund at the termination of the
transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as
periods of high volatility, the Fund may be required by
an exchange to increase the level of its initial margin
payment, and initial margin requirements might be
increased generally in the future by regulatory action.
Subsequent "variation margin" payments are made to
and from the futures broker daily as the value of the
futures position varies, a process known as "marking to
market." Variation margin does not involve borrowing,
but rather represents a daily settlement of the Fund's
obligations to or from a futures broker. When the Fund
purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast,
when the Fund purchases or sells a futures contract or
writes a call or put option thereon, it is subject to
daily variation margin calls that could be substantial
in the event of adverse price movements. If the Fund
has insufficient cash to meet daily variation margin
requirements, it might need to sell securities at a
time when such sales are disadvantageous. Purchasers
and sellers of futures positions and options on futures
can enter into offsetting closing transactions by
selling or purchasing, respectively, an instrument
identical to the instrument held or written. Positions
in futures and options on futures may be closed only on
an exchange or board of trade that provides a secondary
market. The Fund intends to enter into futures
transactions only on exchanges or boards of trade where
there appears to be a liquid secondary market.
However, there can be no assurance that such a market
will exist for a particular contract at a particular
time.
<PAGE>
Under certain circumstances, futures exchanges may
establish daily limits on the amount that the price of
a future or option on a futures contract can vary from
the previous day's settlement price; once that limit is
reached, no trades may be made that day at a price
beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily
limit for several consecutive days with little or no
trading, thereby preventing liquidation of unfavorable
positions.
If the Fund were unable to liquidate a futures or
option on a futures contract position due to the
absence of a liquid secondary market or the imposition
of price limits, it could incur substantial losses.
The Fund would continue to be subject to market risk
with respect to the position. In addition, except in
the case of purchased options, the Fund would continue
to be required to make daily variation margin payments
and might be required to maintain the position being
hedged by the future or option or to maintain certain
liquid securities in a segregated account.
Certain characteristics of the futures market
might increase the risk that movements in the prices of
futures contracts or options on futures contracts might
not correlate perfectly with movements in the prices of
the investments being hedged. For example, all
participants in the futures and options on futures
contracts markets are subject to daily variation margin
calls and might be compelled to liquidate futures or
options on futures contracts positions whose prices are
moving unfavorably to avoid being subject to further
calls. These liquidations could increase the price
volatility of the instruments and distort the normal
price relationship between the futures or options and
the investments being hedged. Also, because initial
margin deposit requirements in the futures markets are
less onerous than margin requirements in the securities
markets, there might be increased participation by
speculators in the future markets. This participation
also might cause temporary price distortions. In
addition, activities of large traders in both the
futures and securities markets involving arbitrage,
"program trading," and other investment strategies
might result in temporary price distortions.
Additional Derivative Instruments and Strategies.
In addition to the derivative instruments and
strategies described above, the Adviser expects to
discover additional derivative instruments and other
hedging or risk management techniques. The Adviser may
utilize these new derivative instruments and techniques
to the extent that they are consistent with the Fund's
investment objective and permitted by the Fund's
investment limitations, operating policies and
applicable regulatory authorities.
Temporary Strategies
Prior to investing the proceeds from sales of Fund
shares, to meet ordinary daily cash needs or to respond
to adverse market, economic, political or other
conditions, the Adviser may hold cash and/or invest all
or a portion of the Fund's assets in money market
instruments, which are short-term fixed income
securities issued by private and governmental
institutions. Money market instruments include:
* Commercial paper;
* Short-term U.S. government securities;
* Banker's acceptances;
* Certificates of deposit;
* Time deposits; and
* Other short-term fixed income securities.
If these temporary strategies are used for adverse
market, economic or political conditions, it is
impossible to predict when or for how long the Adviser
may employ these strategies for the Fund. To the
extent the Fund engages in this temporary strategy, the
Fund may not achieve its investment objective.
American Depositary Receipts
The Fund may take short positions in American
Depositary Receipts ("ADRs"). These securities may not
necessarily be denominated in the same currency as the
securities into which they may be converted.
Generally, ADRs, in registered form, are denominated in
U.S. dollars and are designed for use in the U.S.
securities markets. ADRs are
<PAGE>
receipts typically issued
by a U.S. Bank or trust company evidencing ownership of
the underlying securities. For purposes of the Fund's
investment objectives, ADRs are deemed to have the same
classification as the underlying securities they
represent. Although denominated in U.S. dollars, the
market price of ADRs may be affected by currency
fluctuations in the currency of the underlying
security.
ADR facilities may be established as either
"unsponsored" or "sponsored." While ADRs issued under
these two types of facilities are in some respects
similar, there are distinctions between them relating
to the rights and obligations of ADR holders and the
practices of market participants. For example, a non-
sponsored depositary may not provide the same
shareholder information that a sponsored depositary is
required to provide under its contractual arrangements
with the issuer, including reliable financial
statements. Under the terms of most sponsored
arrangements, depositories agree to distribute notices
of shareholder meetings and voting instructions, and to
provide shareholder communications and other
information to the ADR holders at the request of the
issuer of the deposited securities.
DIRECTORS AND OFFICERS
Under the laws of the State of Maryland, the Board
of Directors of the Corporation is responsible for
managing its business and affairs. The directors and
officers of the Corporation, together with information
as to their principal business occupations during the
last five years, and other information, are shown
below. Each director who is deemed an "interested
person," as defined in the 1940 Act, is indicated by an
asterisk.
Position(s) Held Education and Principal
Name, Address with the Corporation Business Occupations
and Age Corporation During Past 5 Years
*Paul L. McEntire Director and President Mr. McEntire graduated
Skye Investment Advisors LLC, Phi Beta Kappa with a
985 University Avenue, Bachelor of Science
Suite 26,Los Gatos, degree in mathematics
Los Gatos, California 95032 from Stanford University
54 years old in 1965. Mr. McEntire
received a Masters of
Science in mathematics
from the State
University of New York
at Buffalo in 1972 and a
Ph.D. in Engineering-
Economic Systems from
Stanford University in
1982. Since 1989,
Mr. McEntire has served
as Chairman and chief
executive officer of
Skye Investments, Inc.,
the predecessor of the
Adviser. From 1994 to
1997, Mr. McEntire was a
broker with Brookstreet
Securities Corporation
in Irvine, California,
and from 1993 to 1994,
Mr. McEntire was a
broker with PaineWebber,
Inc. in Menlo Park,
California.
Mr. McEntire was
President and chief
executive officer of
Skye Investment
Advisors, Inc. from 1985
to 1988. Mr. McEntire
has been the Adviser's
Chairman and Managing
Member since 1996.
*Robert E. Larson Director Mr. Larson received a
Skye Investment Advisors LLC, Bachelor of Science
985 University Avenue, degree in electrical
Suite 26, engineering from the
Los Gatos, California 95032 Massachusetts Institute
60 years old of Technology in 1960
and M.S. and Ph.D.
degrees in electrical
engineering from
Stanford University in
1961 and 1964,
respectively.
Mr. Larson has been a
General Partner of
Woodside Fund, a venture
capital fund, since
1983. Mr. Larson has
been a director of the
Adviser since 1997.
<PAGE>
*Robert. W. Lishman, Jr. Director Mr. Lishman received a
Skye Investment Advisors LLC Bachelor of Arts degree
985 University Avenue, in English from Harvard
Suite 26, College in 1969. In
Los Gatos, California 95032 1989, Mr. Lishman
54 years old founded MCT, a medical
technology company and
served as its President
until 1994. Mr. Lishman
was self-employed as an
investment consultant in
1994. From 1995 to
1997, Mr. Lishman was an
adviser with Oxcal
Partners, an investment
advisory firm in Palo
Alto, California.
Mr. Lishman has been a
director of the Adviser
since 1996. Mr. Lishman
is also a director of
Wickersham Asset
Management, Imagesmith,
a web site development
firm, and Pantechnicon,
an aviation company, and
is an adviser with
Glenbrook Partners.
Thomas M. Cover Director Mr. Cover received a
Durand Building, Bachelor or Science
Room 121, degree from the
Stanford, California 94305 Massachusetts Institute
60 years old of Technology in 1960
and M.S. and Ph.D.
degrees from Stanford
University in 1961 and
1964, respectively. Mr.
Cover, is a Professor
jointly in the
departments of
Electrical Engineering
and Statistics at
Stanford University
since 1964.
Charles D. Feinstein Director Mr. Feinstein received
200 Cervantes Road, his Ph.D. in Engineering-
Redwood City, 94062 Economic Systems from
52 years old Stanford University.
Mr. Feinstein, has been
an Associate Professor
at Santa Clara
University since 1983.
Mr. Feinstein is
President of the VMN
Group, a consulting
firm.
David G. Luenberger Director Mr. Luenberger, has been
813 Tolman Drive, a Professor at Stanford
Stanford, California 94305 University since 1963.
61 years old Since 1981
Mr. Luenberger has also
been the President and a
director of Luenberger &
Associates, a consulting
firm. Mr. Luenberger
has been a director of
Onward, Inc., a software
and consulting business,
since 1998.
Edward C. Murphy Director Mr. Murphy, has been the
111 1/2 Cooper Street Vice President of Sales
Santa Cruz, California 95060 and Marketing of
45 years old Imagesmith since May
1999. From 1997 to
1999, Mr. Murphy was
Vice President of
Creative Services of
Dazai Advertising.
Mr. Murphy was Vice
President of Marketing
of Borealis Software, a
company specializing in
sales force automation,
from 1995 to 1997 and of
Live Picture, Inc., a
professional imaging
software firm, from 1992
to 1995.
Thomas F. Burns, Jr. Secretary and Treasurer Mr. Burns, received a
Skye Investment Advisors LLC, Bachelor of Science
985 University Avenue, degree in accounting
Suite 26, from Quinnipiac College
Los Gatos, Claifornia 95032 in 1970. Prior to 1986,
55 years old Mr. Burns worked in
accounting at a Big Five
public accounting firm
and a Fortune 500
company
<PAGE>
and as a
financial officer of a
diversified holding
company and Equity Guard
Stock Fund, Inc., a
closed-end investment
company. From 1986 to
1992, Mr. Burns was
Chief Financial Officer
of Skye Investment
Advisors, Inc. and its
successor firm. From
1992 to 1997, Mr. Burns
was an independent
financial and business
consultant. Mr. Burns
has been the Adviser's
Chief Financial Officer
since July1998.
As of _________ __, 1999, Mr. Lishman, a director
of the Corporation, beneficially owned 100% of the
Fund's then outstanding shares of common stock.
Directors and officers of the Corporation who are also
officers, directors, employees or shareholders of the
Adviser do not receive any remuneration from the Fund
for serving as directors or officers.
The following table provides information relating
to annual compensation to be paid to directors of the
Corporation for their services as such (1):
Pension or
Name Aggregate Retirement Total
Compensation(2) Benefits Compensation
Paul L. McEntire $ 0 $ 0 $ 0
Robert E. Larson 0 0 0
Robert W. Lishman, Jr. 0 0 0
Thomas M. Cover 1,000 0 1,000
Charles D. Feinstein 1,000 0 1,000
David G. Luenberger 1,000 0 1,000
Edward C. Murphy 1,000 0 1,000
All directors as a group $4,000 $0 $4,000
(7 persons)
____________________
(1) The amounts indicated are estimates of amounts to
be paid by the Corporation.
(2) Each director who is not deemed an "interested
person" as defined in the 1940 Act, will receive $500
for each in-person Board of Directors meeting attended
by such person and $250 for each telephonic Board of
Directors meeting attended by such person and
reasonable expenses incurred in connection therewith.
The Board anticipates holding three meetings during
fiscal 1999, both of which will be in-person meetings.
Thus, each disinterested director is entitled to up to
$1,000 during such time period from the Corporation,
plus reasonable expenses.
<PAGE>
PRINCIPAL SHAREHOLDERS
As of _________ __, 1999, the following person
owned of record or is known by the Corporation to own
of record or beneficially 5% or more of the outstanding
shares of the Fund:
Name and Address No. Shares Percentage
Robert W. Lishman, Jr. 10,000 100%
985 University Avenue, Suite 26
Los Gatos, California 95032
Based on the foregoing, as of _________ __, 1999,
Mr. Lishman owned a controlling interest in the
Corporation. Shareholders with a controlling interest
could effect the outcome of proxy voting or the
direction of management of the Corporation.
INVESTMENT ADVISER
Skye Investment Advisors LLC (the "Adviser") is
the investment adviser to the Fund. Hambrecht & Quist,
a broker-dealer, owns approximately 35% of the Adviser
and is deemed to "control" the Adviser within the
meaning of the 1940 Act. Messrs. McEntire, Larson and
Lishman, all of whom are officers and/or directors of
the Corporation, together own approximately 28% of the
Adviser and together are also deemed to "control" the
Adviser within the meaning of the 1940 Act.
The investment advisory agreement between the
Corporation and the Adviser dated as of _________ __,
1999 (the "Advisory Agreement") has an initial term of
two years and thereafter is required to be approved
annually by the Board of Directors of the Corporation
or by vote of a majority of the Fund's outstanding
voting securities. Each annual renewal must also be
approved by the vote of a majority of the Corporation's
directors who are not parties to the Advisory Agreement
or interested persons of any such party, cast in person
at a meeting called for the purpose of voting on such
approval. The Advisory Agreement was approved by the
Board of Directors, including a majority of the
disinterested directors on _________ __, 1999 and by
the initial shareholder of the Fund on _________ __,
1999. The Advisory Agreement is terminable without
penalty, on 60 days' written notice by the Board of
Directors of the Corporation, by vote of a majority of
the Fund's outstanding voting securities or by the
Adviser, and will terminate automatically in the event
of its assignment.
Under the terms of the Advisory Agreement, the
Adviser manages the Fund's investments and business
affairs, subject to the supervision of the
Corporation's Board of Directors. At its expense, the
Adviser provides office space and all necessary office
facilities, equipment and personnel for managing the
investments of the Fund. As compensation for its
services, the Fund pays the Adviser an annual
management fee of 1.25% of the Fund's average daily net
assets attributable to each class of shares. The
advisory fee is accrued daily and paid monthly.
Pursuant to the Advisory Agreement, the Adviser
has agreed that until October 31, 2000, the Adviser
will waive its management fee and/or reimburse the
Fund's operating expenses to the extent necessary to
ensure that the total operating expenses (on an annual
basis) do not exceed 2.50% of the Investor Class's
average daily net assets and 2.75% of the Institutional
Class's average daily net assets. After such date, the
Adviser may from time to time voluntarily waive all or
a portion of its fee and/or absorb expenses for the
Fund. Any waiver of fees or absorption of expenses
will be made on a monthly basis and, with respect to
the latter, will be paid to the Fund by reduction of
the Adviser's fee. Any such waiver/absorption is
subject to later adjustment during the term of the
Advisory Agreement to allow the Adviser to recoup
amounts waived/absorbed, including initial organization
costs of the Fund, provided, however, that, the Adviser
shall only be entitled to recoup such amounts for a
maximum period of three years from the date such amount
was waived or reimbursed.
FUND TRANSACTIONS AND BROKERAGE
Under the Advisory Agreement, the Adviser, in its
capacity as portfolio manager, is responsible for
decisions to buy and sell securities for the Fund and
for the placement of the Fund's securities business,
the negotiation of the commissions to be paid on such
transactions and the allocation of portfolio brokerage
business. The Adviser seeks to obtain the best
execution at the best security price available with
respect to each transaction. The best price to the
Fund
<PAGE>
means the best net price without regard to the mix
between purchase or sale price and commission, if any.
While the Adviser seeks reasonably competitive
commission rates, the Fund does not necessarily pay the
lowest available commission. The Adviser does not
anticipate that brokerage will be allocated based on
the sale of the Fund's shares.
When the Adviser buys or sells the same security
for two or more advisory accounts, including the Fund,
the Adviser may place concurrent orders with a single
broker to be executed as a single, aggregated block in
order to facilitate orderly and efficient execution.
Whenever the Adviser does so, each advisory account on
whose behalf an order was placed will receive the
average price at which the block was executed and will
bear a proportionate share of all transaction costs,
based on the size of the advisory account's order.
While the Adviser believes combining orders for
advisory accounts will, over time, be advantageous to
all participants, in particular cases the average price
at which the block was executed could be less
advantageous to one particular advisory account than if
the advisory account had been the only account
effecting the transaction or had completed its
transaction before the other participants.
Section 28(e) of the Securities Exchange Act of
1934, as amended ("Section 28(e)"), permits an
investment adviser, under certain circumstances, to
cause an account to pay a broker or dealer who supplies
brokerage and research services a commission for
effecting a transaction in excess of the amount of
commission another broker or dealer would have charged
for effecting the transaction. Brokerage and research
services include (a) furnishing advice as to the value
of securities, the advisability of investing,
purchasing or selling securities and the availability
of securities or purchasers or sellers of securities;
(b) furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts; and
(c) effecting securities transactions and performing
functions incidental thereto (such as clearance,
settlement and custody).
In selecting brokers or dealers, the Adviser
considers investment and market information and other
research, such as economic, securities and performance
measurement research provided by such brokers or
dealers and the quality and reliability of brokerage
services, including execution capability, performance
and financial responsibility. Accordingly, the
commissions charged by any such broker or dealer may be
greater than the amount another firm might charge if
the Adviser determines in good faith that the amount of
such commissions is reasonable in relation to the value
of the research information and brokerage services
provided by such broker or dealer to the Fund. The
Adviser believes that the research information received
in this manner provides the Fund with benefits by
supplementing the research otherwise available to the
Fund. Such higher commissions will not be paid by the
Fund unless (a) the Adviser determines in good faith
that the amount is reasonable in relation to the
services in terms of the particular transaction or in
terms of the Adviser's overall responsibilities with
respect to the accounts, including the Fund, as to
which it exercises investment discretion; (b) such
payment is made in compliance with the provisions of
Section 28(e) and other applicable state and federal
laws; and (c) in the opinion of the Adviser, the total
commissions paid by the Fund will be reasonable in
relation to the benefits to the Fund over the long
term.
The Adviser places portfolio transactions for
other advisory accounts managed by the Adviser.
Research services furnished by firms through which the
Fund effects its securities transactions may be used by
the Adviser in servicing all of its accounts; not all
of such services may be used by the Adviser in
connection with the Fund. The Adviser believes it is
not possible to measure separately the benefits from
research services to each of the accounts (including
the Fund) managed by it. Because the volume and nature
of the trading activities of the accounts are not
uniform, the amount of commissions in excess of those
charged by another broker paid by each account for
brokerage and research services will vary. However,
the Adviser believes such costs to the Fund will not be
disproportionate to the benefits received by the Fund
on a continuing basis. The Adviser seeks to allocate
portfolio transactions equitably whenever concurrent
decisions are made to purchase or sell securities by
the Fund and another advisory account. In some cases,
this procedure could have an adverse effect on the
price or the amount of securities available to the
Fund. In making such allocations between the Fund and
other advisory accounts, the main factors considered by
the Adviser are the respective investment objectives,
the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for
investment and the size of investment commitments
generally held.
CUSTODIAN
As custodian of the Fund's assets, Firstar Bank
Milwaukee, N.A. ("Firstar Bank"), 777 East Wisconsin
Avenue, Milwaukee, Wisconsin 53202, has custody of all
securities and cash of the Fund, delivers and receives
payment for portfolio securities sold, receives and
pays for portfolio securities purchased, collects
income from investments and performs other duties, all
as directed by the officers of the Corporation.
<PAGE>
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
Firstar Mutual Fund Services, LLC ("Firstar"),
Third Floor, 615 East Michigan Street, Milwaukee,
Wisconsin 53202, acts as transfer agent and dividend-
disbursing agent for the Fund. Firstar is compensated
based on an annual fee per open account of $16.00
(subject to a minimum annual fee of $35,500) plus out-
of-pocket expenses, such as postage and printing
expenses in connection with shareholder communications.
From time to time, the Corporation, on behalf of
the Fund, directly or indirectly through arrangements
with the Adviser, the Distributor (as defined below) or
Firstar, may pay amounts to third parties that provide
transfer agent type services and other administrative
services relating to the Fund to persons who
beneficially have interests in the Fund, such as
participants in 401(k) plans. These services may
include, among other things, sub-accounting services,
transfer agent type activities, answering inquiries
relating to the Fund, transmitting proxy statements,
annual reports, updated prospectuses, other
communications regarding the Fund and related services
as the Fund or beneficial owners may reasonably
request. In such cases, the Fund will not pay fees
based on the number of beneficial owners at a rate that
is greater than the rate the Fund is currently paying
Firstar for providing these services to the Fund's
shareholders (i.e., $16.00 per account plus expenses).
ADMINISTRATOR
Pursuant to a Fund Administration Servicing
Agreement and a Fund Accounting Servicing Agreement,
Firstar also performs accounting and certain compliance
and tax reporting functions for the Corporation. For
these services, Firstar receives from the Corporation
out-of-pocket expenses plus the following aggregate
annual fees, computed daily and payable monthly, based
on the Fund's aggregate average net assets:
Administrative Services Fees
First $200 million of average net assets .06%*
Next $500 million of average net assets .05%
Average net assets in excess of $700 million .03%
_____________________________
* Subject to a minimum fee of $55,000.
Accounting Services Fees
First $40 million of average net assets $27,500
Next $200 million of average net assets .0125%
Average net assets in excess of $240 milliom .00625%
DISTRIBUTOR AND PLAN OF DISTRIBUTION
Distributor
Under a distribution agreement dated _________ __,
1999 (the "Distribution Agreement"), Rafferty Capital
Markets, Inc. (the "Distributor"), 1311 Mamaroneck
Avenue, White Plains, New York 10605, acts as principal
distributor of the Fund's shares. The Distribution
Agreement provides that the Distributor will use its
best efforts to distribute the Fund's shares, which
shares are offered for sale by the Fund continuously at
net asset value per share without the imposition of a
sales charge. Pursuant to the terms of the
Distribution Agreement, the Distributor receives from
the Corporation out-of-pocket expenses plus an annual
fee equal to the greater of (i) $18,000 or (ii) .01% of
the Fund's average net assets, computed daily and
payable monthly. All or a portion of the distribution
and shareholder servicing fee may be used by the
Distributor to pay such expenses with respect to the
Investor Class shares under the distribution and
shareholder servicing plan discussed below.
Distribution and Shareholder Servicing Plan
The Corporation, on behalf of the Fund's Investor
Class, has adopted a plan pursuant to Rule 12b-1 under
the 1940 Act (the "12b-1 Plan"), which authorizes it to
pay the Distributor, in its capacity as the principal
distributor of Investor Class shares, or any Recipient
(as defined below) a distribution and shareholder
servicing fee of up to 0.25%
<PAGE>
per annum of the Fund's
average daily net assets attributable to the Investor
Class. Under the terms of the 12b-1 Plan, the
Corporation or the Distributor may pay all or a portion
of this fee to any securities dealer, financial
institution or any other person (the "Recipient") who
renders assistance in distributing or promoting the
sale of Investor Class shares, or who provides certain
shareholder services to Investor Class shareholders,
pursuant to a written agreement (the "Related
Agreement"). The 12b-1 Plan is a "reimbursement" plan,
which means that the fees paid by the Fund are intended
as reimbursement for services rendered up to the
maximum allowable fee. If more money for services
rendered is due than is immediately payable because of
the expense limitation under the 12b-1 Plan, the unpaid
amount is carried forward from period to period while
the 12b-1 Plan is in effect until such time as it may
be paid. No interest, carrying or other forward charge
will be borne by the Fund with respect to unpaid
amounts carried forward. The 12b-1 Plan has the effect
of increasing the Investor Class's expenses from what
they would otherwise be. The Board of Directors
reviews the Fund's distribution and shareholder
servicing fee payments in connection with its
determination as to the continuance of the 12b-1 Plan.
The 12b-1 Plan, including forms of Related
Agreements, has been unanimously approved by a majority
of the Board of Directors of the Corporation, and of
the members of the Board who are not "interested
persons" of the Corporation as defined in the 1940 Act
and who have no direct or indirect financial interest
in the operation of the 12b-1 Plan or any Related
Agreements (the "Disinterested Directors") voting
separately. The 12b-1 Plan, and any Related Agreement
which is entered into, will continue in effect for a
period of more than one year only so long as its
continuance is specifically approved at least annually
by a vote of a majority of the Corporation's Board of
Directors and of the Disinterested Directors, cast in
person at a meeting called for the purpose of voting on
the 12b-1 Plan or the Related Agreement, as applicable.
In addition, the 12b-1 Plan and any Related Agreement
may be terminated at any time, without penalty, by vote
of a majority of the outstanding voting securities of
the Investor Class, or by vote of a majority of
Disinterested Directors (on not more than 60 days'
written notice in the case of the Related Agreement
only). Payment of the distribution and shareholder
servicing fee is to be made monthly. The Distributor
and/or Recipients will provide reports or invoices to
the Corporation of all amounts payable to them (and the
purposes for which the amounts were expended) pursuant
to the 12b-1 Plan.
Interests of Certain Persons
With the exception of the Adviser, in its capacity
as the Fund's investment adviser, and the Distributor,
in its capacity as principal distributor of Fund
shares, no "interested person" of the Fund, as defined
in the 1940 Act, and no director of the Fund who is not
an "interested person" has or had a direct or indirect
financial interest in the 12b-1 Plan or any Related
Agreement.
Anticipated Benefits to the Fund
The Board of Directors considered various factors
in connection with its decision to approve the 12b-1
Plan, including: (a) the nature and causes of the
circumstances which make implementation of the 12b-1
Plan necessary and appropriate; (b) the way in which
the 12b-1 Plan would address those circumstances,
including the nature and potential amount of
expenditures; (c) the nature of the anticipated
benefits; (d) the merits of possible alternative plans
or pricing structures; (e) the relationship of the
12b-1 Plan to other distribution efforts of the Fund;
and (f) the possible benefits of the 12b-1 Plan to any
other person relative to those of the Fund.
Based upon its review of the foregoing factors and
the material presented to it, and in light of its
fiduciary duties under relevant state law and the 1940
Act, the Board of Directors determined, in the exercise
of its business judgment, that the 12b-1 Plan was
reasonably likely to benefit the Investor Class and its
shareholders in at least one or several potential ways.
Specifically, the Board concluded that the Distributor
and any Recipients operating under Related Agreements
would have little or no incentive to incur promotional
expenses on behalf of the Investor Class if a 12b-1
Plan were not in place to reimburse them, thus making
the adoption of such 12b-1 Plan important to the
initial success and thereafter, continued viability of
the Investor Class. In addition, the Board determined
that the payment of distribution fees to these persons
should motivate them to provide an enhanced level of
service to Investor Class shareholders, which would, of
course, benefit such shareholders. Finally, the
adoption of the 12b-1 Plan would help to increase net
assets under management in a relatively short amount of
time, given the marketing efforts on the part of the
Distributor and Recipients to sell Investor Class
shares, which should result in certain economies of
scale.
While there is no assurance that the expenditure
of Investor Class assets to finance distribution of
Investor Class shares will have the anticipated
results, the Board of Directors believes there is a
reasonable likelihood that one or
<PAGE>
more of such benefits
will result, and since the Board will be in a position
to monitor the distribution and shareholder servicing
expenses of the Investor Class, it will be able to
evaluate the benefit of such expenditures in deciding
whether to continue the 12b-1 Plan.
PURCHASE AND PRICING OF SHARES
Automatic Investment Plan
The Automatic Investment Plan ("AIP") allows you
to make regular, systematic investments in Investor
Class shares from your bank checking or NOW account.
The minimum initial investment for investors using the
AIP is $1,000. To establish the AIP, complete the
appropriate section in the shareholder application.
Under certain circumstances (such as discontinuation of
the AIP before the Fund's minimum initial investment is
reached), the Fund reserves the right to close the
investor's account. Prior to closing any account for
failure to reach the minimum initial investment, the
Fund will give the investor written notice and 60 days
in which to reinstate the AIP or otherwise reach the
minimum initial investment. You should consider your
financial ability to continue in the AIP until the
minimum initial investment amount is met because the
Fund has the right to close an investor's account for
failure to reach the minimum initial investment. Such
closing may occur in periods of declining share prices.
Under the AIP, you may choose to make monthly
investments on the days of your choosing (or the next
business day thereafter) from your financial
institution in amounts of $50 or more. There is no
service fee for participating in the AIP. However, a
service fee of $20 will be deducted from your Fund
account for any AIP purchase that does not clear due to
insufficient funds or, if prior to notifying the Fund
in writing or by telephone of your intention to
terminate the plan, you close your bank account or in
any manner prevent withdrawal of funds from the
designated checking or NOW account. You can set up the
AIP with any financial institution that is a member of
the Automated Clearing House.
The AIP is a method of using dollar cost averaging
which is an investment strategy that involves investing
a fixed amount of money at a regular time interval.
However, a program of regular investment cannot ensure
a profit or protect against a loss from declining
markets. By always investing the same amount, you will
be purchasing more shares when the price is low and
fewer shares when the price is high. Since such a
program involves continuous investment regardless of
fluctuating share values, you should consider your
financial ability to continue the program through
periods of low share price levels.
Individual Retirement Accounts
In addition to purchasing Investor Class shares as
described in the Prospectus under "How to Purchase
Shares," individuals may establish their own tax-
sheltered individual retirement accounts ("IRAs"). The
Fund offers two types of IRAs, including the
Traditional IRA, that can be adopted by executing the
appropriate Internal Revenue Service ("IRS") Form.
Traditional IRA. In a Traditional IRA, amounts
contributed to the IRA may be tax deductible at the
time of contribution depending on whether the investor
is an "active participant" in an employer-sponsored
retirement plan and the investor's income.
Distributions from a Traditional IRA will be taxed at
distribution except to the extent that the distribution
represents a return of the investor's own contributions
for which the investor did not claim (or was not
eligible to claim) a deduction. Distributions prior to
age 59-1/2 may be subject to an additional 10% tax
applicable to certain premature distributions.
Distributions must commence by April 1 following the
calendar year in which the investor attains age 70-1/2.
Failure to begin distributions by this date (or
distributions that do not equal certain minimum
thresholds) may result in adverse tax consequences.
Roth IRA. In a Roth IRA, amounts contributed to
the IRA are taxed at the time of contribution, but
distributions from the IRA are not subject to tax if
the investor has held the IRA for certain minimum
periods of time (generally, until age 59-1/2).
Investors whose income exceeds certain limits are
ineligible to contribute to a Roth IRA. Distributions
that do not satisfy the requirements for tax-free
withdrawal are subject to income taxes (and possibly
penalty taxes) to the extent that the distribution
exceeds the investor's contributions to the IRA. The
minimum distribution rules applicable to Traditional
IRAs do not apply during the lifetime of the investor.
Following the death of the investor, certain minimum
distribution rules apply.
<PAGE>
For Traditional and Roth IRAs, the maximum annual
contribution generally is equal to the lesser of $2,000
or 100% of the investor's compensation (earned income).
An individual may also contribute to a Traditional IRA
or Roth IRA on behalf of his or her spouse provided
that the individual has sufficient compensation (earned
income). Contributions to a Traditional IRA reduce the
allowable contributions under a Roth IRA, and
contributions to a Roth IRA reduce the allowable
contribution to a Traditional IRA.
Simplified Employee Pension Plan. A Traditional
IRA may also be used in conjunction with a Simplified
Employee Pension Plan ("SEP-IRA"). A SEP-IRA is
established through execution of Form 5305-SEP together
with a Traditional IRA established for each eligible
employee. Generally, a SEP-IRA allows an employer
(including a self-employed individual) to purchase
shares with tax deductible contributions not exceeding
annually for any one participant 15% of compensation
(disregarding for this purpose compensation in excess
of $160,000 per year). The $160,000 compensation limit
applies for 1999 and is adjusted periodically for cost
of living increases. A number of special rules apply
to SEP Plans, including a requirement that
contributions generally be made on behalf of all
employees of the employer (including for this purpose a
sole proprietorship or partnership) who satisfy certain
minimum participation requirements.
SIMPLE IRA. An IRA may also be used in connection
with a SIMPLE Plan established by the investor's
employer (or by a self-employed individual). When this
is done, the IRA is known as a SIMPLE IRA, although it
is similar to a Traditional IRA with the exceptions
described below. Under a SIMPLE Plan, the investor may
elect to have his or her employer make salary reduction
contributions of up to $6,000 per year to the SIMPLE
IRA. The $6,000 limit applies for 1999 and is adjusted
periodically for cost of living increases. In
addition, the employer will contribute certain amounts
to the investor's SIMPLE IRA, either as a matching
contribution to those participants who make salary
reduction contributions or as a non-elective
contribution to all eligible participants whether or
not making salary reduction contributions. A number of
special rules apply to SIMPLE Plans, including (1) a
SIMPLE Plan generally is available only to employers
with fewer than 100 employees; (2) contributions must
be made on behalf of all employees of the employer
(other than bargaining unit employees) who satisfy
certain minimum participation requirements; (3)
contributions are made to a special SIMPLE IRA that is
separate and apart from the other IRAs of employees;
(4) the distribution excise tax (if otherwise
applicable) is increased to 25% on withdrawals during
the first two years of participation in a SIMPLE IRA;
and (5) amounts withdrawn during the first two years of
participation may be rolled over tax-free only into
another SIMPLE IRA (and not to a Traditional IRA or to
a Roth IRA). A SIMPLE IRA is established by executing
Form 5304-SIMPLE together with an IRA established for
each eligible employee.
Under current IRS regulations, all IRA applicants
must be furnished a disclosure statement containing
information specified by the IRS. Applicants generally
have the right to revoke their account within seven
days after receiving the disclosure statement and
obtain a full refund of their contributions. Firstar,
the Fund's custodian, may, in its discretion, hold the
initial contribution uninvested until the expiration of
the seven-day revocation period. Firstar does not
anticipate that it will exercise its discretion but
reserves the right to do so.
Systematic Withdrawal Plan
Investor Class shareholders may set up automatic
withdrawals from their Fund accounts at regular
intervals. To begin distributions, a shareholder's
account must have an initial balance of $1,000 and at
least $50 per payment must be withdrawn. To establish
the systematic withdrawal plan ("SWP"), the appropriate
section in the shareholder application must be
completed. Redemptions will take place on a monthly,
quarterly, semi-annual or annual basis (or the
following business day) as indicated on the shareholder
application. The amount or frequency of withdrawal
payments may be varied or temporarily discontinued by
calling 1-888-288-2880. Depending upon the size of the
account and the withdrawals requested (and fluctuations
in the net asset value of the shares redeemed),
redemptions for the purpose of satisfying such
withdrawals may reduce or even exhaust a shareholder's
account. If the amount remaining in a shareholder's
account is not sufficient to meet a plan payment, the
remaining amount will be redeemed and the SWP will be
terminated.
Pricing of Shares
Shares of the Fund are sold on a continual basis
at the net asset value per share next computed
following receipt of an order in proper form by a
dealer, the Distributor or Firstar, the Fund's transfer
agent.
<PAGE>
The net asset value per share for each class of
shares is determined as of the close of trading
(generally 4:00 p.m. Eastern Standard Time) on each day
the New York Stock Exchange (the "NYSE") is open for
business. Purchase orders received or shares tendered
for redemption on a day the NYSE is open for trading,
prior to the close of trading on that day, will be
valued as of the close of trading on that day.
Applications for purchase of shares and requests for
redemption of shares received after the close of
trading on the NYSE will be valued as of the close of
trading on the next day the NYSE is open. The net
asset value for each class of shares is calculated by
taking the fair value of the Fund's total assets
attributable to each class of shares, including
interest or dividends accrued, but not yet collected,
less all liabilities, and dividing by the total number
of shares outstanding. The result, rounded to the
nearest cent, is the net asset value per share.
In determining the net asset value, expenses are
accrued and applied daily and securities and other
assets for which market quotations are available are
valued at market value. Common stocks and other equity-
type securities are valued at the last sales price on
the national securities exchange or NASDAQ on which
such securities are primarily traded; however,
securities traded on a national securities exchange or
NASDAQ for which there were no transactions on a given
day, and securities not listed on a national securities
exchange or NASDAQ, are valued at the average of the
most recent bid and asked prices. Fixed income
securities are valued by a pricing service that
utilizes electronic data processing techniques to
determine values for normal institutional-sized trading
units of fixed income securities without regard to sale
or bid prices when such values are believed to more
accurately reflect the fair market value of such
securities; otherwise, actual sale or bid prices are
used. Any securities or other assets for which market
quotations are not readily available are valued at fair
value as determined in good faith by the Board of
Directors of the Corporation. The Board of Directors
may approve the use of pricing services to assist the
Fund in the determination of net asset value. Fixed
income securities having remaining maturities of 60
days or less when purchased are generally valued by the
amortized cost method. Under this method of valuation,
a security is initially valued at its acquisition cost
and, thereafter, amortization of any discount or
premium is assumed each day, regardless of the impact
of fluctuating interest rates on the market value of
the security.
REDEMPTIONS IN KIND
The Fund has filed a Notification under Rule 18f-1
of the 1940 Act, pursuant to which it has agreed to pay
in cash all requests for redemption by any shareholder
of record, limited in amount with respect to each
shareholder during any 90-day period to the lesser
amount of (i) $250,000 or (ii) 1% of the net asset
value of the class of shares of the Fund being
redeemed, valued at the beginning of the election
period. The Fund intends also to pay redemption
proceeds in excess of such lesser amount in cash, but
reserves the right to pay such excess amount in kind,
if it is deemed to be in the best interest of the Fund
to do so. If you receive an in kind distribution, you
will likely incur a brokerage charge on the disposition
of investments through a securities dealer.
TAXATION OF THE FUND
The Fund intends to qualify annually as a
"regulated investment company" under Subchapter M of
the Code, and, if so qualified, will not be liable for
federal income taxes to the extent earnings are
distributed to shareholders on a timely basis. In the
event the Fund fails to qualify as a "regulated
investment company," it will be treated as a regular
corporation for federal income tax purposes.
Accordingly, the Fund would be subject to federal
income taxes and any distributions that it makes would
be taxable and non-deductible by the Fund. This would
increase the cost of investing in the Fund for
shareholders and would make it more economical for
shareholders to invest directly in securities held by
the Fund instead of investing indirectly in such
securities through the Fund.
PERFORMANCE INFORMATION
The Fund's historical performance or return may be
shown in the form of various performance figures. The
Fund's performance figures are based upon historical
results and are not necessarily representative of
future performance. Factors affecting the Fund's
performance include general market conditions,
operating expenses and investment management.
Total Return
The average annual total return of the Fund is
computed by finding the average annual compounded rates
of return over the periods that would equate the
initial amount invested to the ending redeemable value,
according to the following formula:
<PAGE>
P(1+T)n = ERV
P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the stated periods
at the end of the stated periods.
Performance for a specific period is calculated by
first taking an investment (assumed to be $1,000)
("initial investment") in the Fund's shares on the
first day of the period and computing the "ending
value" of that investment at the end of the period.
The total return percentage is then determined by
subtracting the initial investment from the ending
value and dividing the remainder by the initial
investment and expressing the result as a percentage.
The calculation assumes that all income and capital
gains dividends paid by the Fund have been reinvested
at the net asset value of the Fund on the reinvestment
dates during the period. Total return may also be
shown as the increased dollar value of the hypothetical
investment over the period.
Cumulative total return represents the simple
change in value of an investment over a stated period
and may be quoted as a percentage or as a dollar
amount. Total returns may be broken down into their
components of income and capital (including capital
gains and changes in share price) in order to
illustrate the relationship between these factors and
their contributions to total return.
Comparisons
From time to time, in marketing and other Fund
literature, the Fund's performance may be compared to
the performance of other mutual funds in general or to
the performance of particular types of mutual funds
with similar investment goals, as tracked by
independent organizations. Among these organizations,
Lipper Analytical Services, Inc. ("Lipper"), a widely
used independent research firm which ranks mutual funds
by overall performance, investment objectives and
assets, may be cited. Lipper performance figures are
based on changes in net asset value, with all income
and capital gains dividends reinvested. Such
calculations do not include the effect of any sales
charges imposed by other funds. The Fund will be
compared to Lipper's appropriate fund category, that
is, by fund objective and portfolio holdings.
The Fund's performance may also be compared to the
performance of other mutual funds by Morningstar, Inc.
("Morningstar"), which ranks funds on the basis of
historical risk and total return. Morningstar's
rankings range from five stars (highest) to one star
(lowest) and represent Morningstar's assessment of the
historical risk level and total return of a fund as a
weighted average for 3, 5 and 10 year periods.
Rankings are not absolute or necessarily predictive of
future performance.
Evaluations of Fund performance made by
independent sources may also be used in advertisements
concerning the Fund, including reprints of or
selections from, editorials or articles about the Fund.
Sources for Fund performance and articles about the
Fund may include publications such as Money, Forbes,
Kiplinger's, Financial World, Business Week, U.S. News
and World Report, the Wall Street Journal, Barron's and
a variety of investment newsletters.
The Fund may compare its performance to a wide
variety of indices and measures of inflation including
the Standard & Poor's Index of 500 Stocks, the NASDAQ
Over-the-Counter Composite Index and the Russell 2000
Index. There are differences and similarities between
the investments that the Fund may purchase for its
portfolio and the investments measured by these
indices.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 100 East Wisconsin
Avenue, Suite 1500, Milwaukee, Wisconsin 53202,
independent accountants for the Fund, audit and report
on the Fund's financial statements.
<PAGE>
FINANCIAL STATEMENTS
The following financial statements of the Fund are
contained herein:
(a) Report of Independent Accountants. *
(b) Statement of Assets and Liabilities. *
(c) Statement of Operations. *
(d) Notes to the Financial Statements.
* To be filed by Amendment.
<PAGE>
APPENDIX
SHORT-TERM RATINGS
Standard & Poor's Short-Term Debt Credit Ratings
A Standard & Poor's credit rating is a current
opinion of the creditworthiness of an obligor with
respect to a specific financial obligation, a specific
class of financial obligations or a specific financial
program. It takes into consideration the
creditworthiness of guarantors, insurers or other forms
of credit enhancement on the obligation and takes into
account the currency in which the obligation is
denominated. The credit rating is not a recommendation
to purchase, sell or hold a financial obligation,
inasmuch as it does not comment as to market price or
suitability for a particular investor.
Credit ratings are based on current information
furnished by the obligors or obtained by Standard &
Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in
connection with any credit rating and may, on occasion,
rely on unaudited financial information. Credit
ratings may be changed, suspended or withdrawn as a
result of changes in, or unavailability of, such
information, or based on other circumstances.
Short-term ratings are generally assigned to those
obligations considered short-term in the relevant
market. In the U.S., for example, that means
obligations with an original maturity of no more than
365 days-including commercial paper. Short-term
ratings are also used to indicate the creditworthiness
of an obligor with respect to put features on long-term
obligations. The result is a dual rating, in which the
short-term rating addresses the put feature, in
addition to the usual long-term rating.
Ratings are graded into several categories,
ranging from `A-1' for the highest quality obligations
to `D' for the lowest. These categories are as
follows:
A-1 A short-term obligation rated `A-1' is rated
in the highest category by Standard & Poor's.
The obligor's capacity to meet its financial
commitment on the obligation is strong.
Within this category, certain obligations are
designated with a plus sign (+). This
indicates that the obligor's capacity to meet
its financial commitment on these obligations
is extremely strong.
A-2 A short-term obligation rated `A-2' is
somewhat more susceptible to the adverse
effects of changes in circumstances and
economic conditions than obligations in
higher rating categories. However, the
obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
A-3 A short-term obligation rated `A-3' exhibits
adequate protection parameters. However,
adverse economic conditions or changing
circumstances are more likely to lead to a
weakened capacity of the obligor to meet its
financial commitment on the obligation.
B A short-term obligation rated `B' is regarded
as having significant speculative
characteristics. The obligor currently has
the capacity to meet its financial commitment
on the obligation; however, it faces major
ongoing uncertainties which could lead to the
obligor's inadequate capacity to meet its
financial commitment on the obligation.
C A short-term obligation rated `C' is
currently vulnerable to nonpayment and is
dependent upon favorable business, financial
and economic conditions for the obligor to
meet its financial commitment on the
obligation.
D A short-term obligation rated `D' is in
payment default. The `D' rating category is
used when payments on an obligation are not
made on the date due even if the applicable
grace period has not expired, unless Standard
& Poor's believes that such payments will be
made during such grace period. The `D'
rating also will be used upon the filing of a
bankruptcy petition or the taking of a
similar action if payments on an obligation
are jeopardized.
<PAGE>
Moody's Short-Term Debt Ratings
Moody's short-term debt ratings are opinions of
the ability of issuers to repay punctually senior debt
obligations. These obligations have an original
maturity not exceeding one year, unless explicitly
noted. Moody's ratings are opinions, not
recommendations to buy or sell, and their accuracy is
not guaranteed.
Moody's employs the following three designations,
all judged to be investment grade, to indicate the
relative repayment ability of rated issuers:
PRIME-1 Issuers rated `Prime-1' (or supporting
institutions) have a superior ability for
repayment of senior short-term debt
obligations. Prime-1 repaying ability will
often be evidenced by many of the following
characteristics:
* Leading market positions in well-established industries.
* High rates of return on funds employed.
* Conservative capitalization structure with
moderate reliance on debt and ample asset protection.
* Broad margins in earnings coverage of fixed
financial charges and high internal cash generation.
* Well-established access to a range of financial
markets and assured sources of alternate liquidity.
PRIME-2 Issuers rated `Prime-2' (or supporting
institutions) have a strong ability for
repayment of senior short-term debt
obligations. This will normally be evidenced
by many of the characteristics cited above,
but to a lesser degree. Earnings trends and
coverage ratios, while sound, may be more
subject to variation. Capitalization
characteristics, while still appropriate, may
be more affected by external conditions.
Ample alternate liquidity is maintained.
PRIME-3 Issuers rated `Prime-3' (or supporting
institutions) have an acceptable ability for
repayment of senior short-term obligations.
The effect of industry characteristics and
market compositions may be more pronounced.
Variability in earnings and profitability may
result in changes in the level of debt
protection measurements and may require
relatively high financial leverage. Adequate
alternate liquidity is maintained.
NOT PRIME Issuers rated `Not Prime' do not fall within
any of the Prime rating categories.
Fitch IBCA International Short-Term Debt Credit Ratings
Fitch IBCA's international debt credit ratings are
applied to the spectrum of corporate, structured and
public finance. They cover sovereign (including
supranational and subnational), financial, bank,
insurance and other corporate entities and the
securities they issue, as well as municipal and other
public finance entities, securities backed by
receivables or other financial assets and
counterparties. When applied to an entity, these short-
term ratings assess its general creditworthiness on a
senior basis. When applied to specific issues and
programs, these ratings take into account the relative
preferential position of the holder of the security and
reflect the terms, conditions and covenants attaching
to that security.
International credit ratings assess the capacity
to meet foreign currency or local currency commitments.
Both "foreign currency" and "local currency" ratings
are internationally comparable assessments. The local
currency rating measures the probability of payment
within the relevant sovereign state's currency and
jurisdiction and therefore, unlike the foreign currency
rating, does not take account of the possibility of
foreign exchange controls limiting transfer into
foreign currency.
A short-term rating has a time horizon of less
than 12 months for most obligations, or up to three
years for U.S. public finance securities, and thus
places greater emphasis on the liquidity necessary to
meet financial commitments in a timely manner.
<PAGE>
F-1 Highest credit quality. Indicates the
strongest capacity for timely payment of
financial commitments; may have an added "+"
to denote any exceptionally strong credit
feature.
F-2 Good credit quality. A satisfactory capacity
for timely payment of financial commitments,
but the margin of safety is not as great as
in the case of the higher ratings.
F-3 Fair credit quality. The capacity for timely
payment of financial commitments is adequate;
however, near term adverse changes could
result in a reduction to non-investment
grade.
B Speculative. Minimal capacity for timely
payment of financial commitments, plus
vulnerability to near term adverse changes in
financial and economic conditions.
C High default risk. Default is a real
possibility. Capacity for meeting financial
commitments is solely reliant upon a
sustained, favorable business and economic
environment.
D Default. Denotes actual or imminent payment
default.
Duff & Phelps, Inc. Short-Term Debt Ratings
Duff & Phelps Credit Ratings' short-term debt
ratings are consistent with the rating criteria used by
money market participants. The ratings apply to all
obligations with maturities of under one year,
including commercial paper, the uninsured portion of
certificates of deposit, unsecured bank loans, master
notes, bankers acceptances, irrevocable letters of
credit and current maturities of long-term debt. Asset-
backed commercial paper is also rated according to this
scale.
Emphasis is placed on liquidity which is defined
as not only cash from operations, but also access to
alternative sources of funds including trade credit,
bank lines and the capital markets. An important
consideration is the level of an obligor's reliance on
short-term funds on an ongoing basis.
The distinguishing feature of Duff & Phelps Credit
Ratings' short-term debt ratings is the refinement of
the traditional `1' category. The majority of short-
term debt issuers carry the highest rating, yet quality
differences exist within that tier. As a consequence,
Duff & Phelps Credit Rating has incorporated gradations
of `1+' (one plus) and `1-` (one minus) to assist
investors in recognizing those differences.
These ratings are recognized by the SEC for broker-
dealer requirements, specifically capital computation
guidelines. These ratings meet Department of Labor
ERISA guidelines governing pension and profit sharing
investments. State regulators also recognize the
ratings of Duff & Phelps Credit Rating for insurance
company investment portfolios.
Rating Scale: Definition
High Grade
D-1+ Highest certainty of timely payment. Short-
term liquidity, including internal operating
factors and/or access to alternative sources
of funds, is outstanding, and safety is just
below risk-free U.S. Treasury short-term
obligations.
D-1 Very high certainty of timely payment.
Liquidity factors are excellent and supported
by good fundamental protection factors. Risk
factors are minor.
D-1- High certainty of timely payment. Liquidity
factors are strong and supported by good
fundamental protection factors. Risk factors
are very small.
Good Grade
D-2 Good certainty of timely payment. Liquidity
factors and company fundamentals are sound.
Although ongoing funding needs may enlarge
total financing requirements, access to
capital markets is good. Risk factors are
small.
<PAGE>
Satisfactory Grade
D-3 Satisfactory liquidity and other protection
factors qualify issue as to investment grade.
Risk factors are larger and subject to more
variation. Nevertheless, timely payment is
expected.
Non-investment Grade
D-4 Speculative investment characteristics.
Liquidity is not sufficient to insure against
disruption in debt service. Operating
factors and market access may be subject to a
high degree of variation.
Default
D-5 Issuer failed to meet scheduled principal
and/or interest payments.
LONG-TERM RATINGS
Standard & Poor's Long-Term Debt Credit Ratings
A Standard & Poor's credit rating is a current
opinion of the creditworthiness of an obligor with
respect to a specific financial obligation, a specific
class of financial obligations or a specific financial
program. It takes into consideration the
creditworthiness of guarantors, insurers or other forms
of credit enhancement on the obligation and takes into
account the currency in which the obligation is
denominated. The credit rating is not a recommendation
to purchase, sell or hold a financial obligation,
inasmuch as it does not comment as to market price or
suitability for a particular investor.
Credit ratings are based on current information
furnished by the obligors or obtained by Standard &
Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in
connection with any credit rating and may, on occasion,
rely on unaudited financial information. Credit
ratings may be changed, suspended or withdrawn as a
result of changes in, or unavailability of, such
information, or based on other circumstances.
Credit ratings are based, in varying degrees, on
the following considerations: (1) likelihood of
payment-capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance
with the terms of the obligation; (2) nature of and
provisions of the obligation; and (3) protection
afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization or other
arrangement under the laws of bankruptcy and other laws
affecting creditors' rights.
The rating definitions are expressed in terms of
default risk. As such, they pertain to senior
obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to
reflect the lower priority in bankruptcy. (Such
differentiation applies when an entity has both senior
and subordinated obligations, secured and unsecured
obligations, or operating company and holding company
obligations.) Accordingly, in the case of junior debt,
the rating may not conform exactly with the category
definition.
AAA An obligation rated `AAA' has the highest
rating assigned by Standard & Poor's. The
obligor's capacity to meet its financial
commitment on the obligation is EXTREMELY
STRONG.
AA An obligation rated `AA' differs from the
highest rated obligations only in small
degree. The obligor's capacity to meet its
financial commitment on the obligation is
VERY STRONG.
A An obligation rated `A' is somewhat more
susceptible to the adverse effects of changes
in circumstances and economic conditions than
obligations in higher rated categories.
However, the obligor's capacity to meet its
financial commitment on the obligation is
still STRONG.
BBB An obligation rated `BBB' exhibits ADEQUATE
protection parameters. However, adverse
economic conditions or changing circumstances
are more likely to lead to a weakened
capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated `BB', `B', `CCC, `CC', and `C'
are regarded as having significant speculative
characteristics. `BB' indicates the least degree of
speculation and `C' the highest. While such
obligations will likely
<PAGE>
have some quality and protective characteristics, these may be
outweighed by large uncertainties or major exposures to adverse
conditions.
BB An obligation rated `BB' is LESS VULNERABLE
to nonpayment than other speculative issues.
However, it faces major ongoing uncertainties
or exposure to adverse business, financial or
economic conditions which could lead to the
obligor's inadequate capacity to meet its
financial commitment on the obligation.
B An obligation rated `B' is MORE VULNERABLE to
nonpayment than obligations rated `BB', but
the obligor currently has the capacity to
meet its financial commitment on the
obligation. Adverse business, financial or
economic conditions will likely impair the
obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC An obligation rated `CCC' is CURRENTLY
VULNERABLE to nonpayment, and is dependent
upon favorable business, financial and
economic conditions for the obligor to meet
its financial commitment on the obligation.
In the event of adverse business, financial
or economic conditions, the obligor is not
likely to have the capacity to meet its
financial commitment on the obligation.
CC An obligation rated `CC' is CURRENTLY HIGHLY
VULNERABLE to nonpayment.
C The `C' rating may be used to cover a
situation where a bankruptcy petition has
been filed or similar action has been taken,
but payments on this obligation are being
continued.
D An obligation rated `D' is in payment
default. The `D' rating category is used
when payments on an obligation are not made
on the date due even if the applicable grace
period has not expired, unless Standard &
Poor's believes that such payments will be
made during such grace period. The `D'
rating also will be used upon the filing of a
bankruptcy petition or the taking of a
similar action if payments on an obligation
are jeopardized.
Plus (+) or minus (-): The ratings from `AA' to
`CCC' may be modified by the addition of a plus or
minus sign to show relative standing within the major
rating categories.
Moody's Long-Term Debt Ratings
Aaa Bonds which are rated `Aaa' are judged to be
of the best quality. They carry the smallest
degree of investment risk and are generally
referred to as "gilt edged." Interest
payments are protected by a large or by an
exceptionally stable margin and principal is
secure. While the various protective
elements are likely to change, such changes
as can be visualized are most unlikely to
impair the fundamentally strong position of
such issues.
Aa Bonds which are rated `Aa' are judged to be
of high quality by all standards. Together
with the Aaa group they comprise what are
generally known as high-grade bonds. They
are rated lower than the best bonds because
margins of protection may not be as large as
in Aaa securities or fluctuation of
protective elements may be of greater
amplitude or there may be other elements
present which make the long-term risk appear
somewhat larger than Aaa securities.
A Bonds which are rated `A' possess many
favorable investment attributes and are to be
considered as upper-medium-grade obligations.
Factors giving security to principal and
interest are considered adequate, but
elements may be present which suggest a
susceptibility to impairment some time in the
future.
Baa Bonds which are rated `Baa' are considered as
medium-grade obligations (i.e., they are
neither highly protected nor poorly secured).
Interest payments and principal security
appear adequate for the present but certain
protective elements may be lacking or may be
characteristically unreliable over any great
length of time. Such bonds lack outstanding
investment characteristics and in fact have
speculative characteristics as well.
<PAGE>
Ba Bonds which are rated `Ba' are judged to have
speculative elements; their future cannot be
considered as well-assured. Often the
protection of interest and principal payments
may be very moderate, and thereby not well
safeguarded during both good and bad times
over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated `B' generally lack
characteristics of the desirable investment.
Assurance of interest and principal payments
or of maintenance of other terms of the
contract over any long period of time may be
small.
Caa Bonds which are rated `Caa' are of poor
standing. Such issues may be in default or
there may be present elements of danger with
respect to principal or interest.
Ca Bonds which are rated `Ca' represent
obligations which are speculative in a high
degree. Such issues are often in default or
have other marked shortcomings.
C Bonds which are rated `C' are the lowest
rated class of bonds, and issues so rated can
be regarded as having extremely poor
prospects of ever attaining any real
investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in
each generic rating classification from `Aa' through
`B.' The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category;
the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates a ranking in the lower end of that
generic rating category.
Fitch IBCA International Long-Term Debt Credit Ratings
Fitch IBCA's international debt credit ratings are
applied to the spectrum of corporate, structured and
public finance. They cover sovereign (including
supranational and subnational), financial, bank,
insurance and other corporate entities and the
securities they issue, as well as municipal and other
public finance entities, securities backed by
receivables or other financial assets and
counterparties. When applied to an entity, these long-
term ratings assess its general creditworthiness on a
senior basis. When applied to specific issues and
programs, these ratings take into account the relative
preferential position of the holder of the security and
reflect the terms, conditions and covenants attaching
to that security.
International credit ratings assess the capacity
to meet foreign currency or local currency commitments.
Both "foreign currency" and "local currency" ratings
are internationally comparable assessments. The local
currency rating measures the probability of payment
within the relevant sovereign state's currency and
jurisdiction and therefore, unlike the foreign currency
rating, does not take account of the possibility of
foreign exchange controls limiting transfer into
foreign currency.
Investment Grade
AAA Highest credit quality. `AAA' ratings
denote the lowest expectation of credit
risk. They are assigned only in case of
exceptionally strong capacity for timely
payment of financial commitments. This
capacity is highly unlikely to be
adversely affected by foreseeable
events.
AA Very high credit quality. `AA' ratings
denote a very low expectation of credit
risk. They indicate very strong
capacity for timely payment of financial
commitments. This capacity is not
significantly vulnerable to foreseeable
events.
A High credit quality. `A' ratings denote
a low expectation of credit risk. The
capacity for timely payment of financial
commitments is considered strong. This
capacity may, nevertheless, be more
vulnerable to changes in circumstances
or in economic conditions than is the
case for higher ratings.
BBB Good credit quality. `BBB' ratings
indicate that there is currently a low
expectation of credit risk. The
capacity for timely payment of financial
commitments is considered adequate, but
adverse changes in circumstances and in
economic conditions are more likely to
impair this capacity. This is the
lowest investment grade category.
<PAGE>
Speculative Grade
BB Speculative. `BB' ratings indicate that
there is a possibility of credit risk
developing, particularly as the result
of adverse economic change over time;
however, business or financial
alternatives may be available to allow
financial commitments to be met.
B Highly speculative. `B' ratings
indicate that significant credit risk is
present, but a limited margin of safety
remains. Financial commitments are
currently being met; however, capacity
for continued payment is contingent upon
a sustained, favorable business and
economic environment.
CCC, CC, C High default risk. Default is a
real possibility. Capacity for meeting
financial commitments is solely reliant
upon sustained, favorable business or
economic developments. A `CC' rating
indicates that default of some kind
appears probable. `C' ratings signal
imminent default.
DDD, DD and D Default. Securities are not
meeting current obligations and are
extremely speculative. `DDD' designates
the highest potential for recovery of
amounts outstanding on any securities
involved. For U.S. corporates, for
example, `DD' indicates expected
recovery of 50% - 90% of such
outstandings, and `D' the lowest
recovery potential, i.e. below 50%.
Duff & Phelps, Inc. Long-Term Debt Ratings
These ratings represent a summary opinion of the
issuer's long-term fundamental quality. Rating
determination is based on qualitative and quantitative
factors which may vary according to the basic economic
and financial characteristics of each industry and each
issuer. Important considerations are vulnerability to
economic cycles as well as risks related to such
factors as competition, government action, regulation,
technological obsolescence, demand shifts, cost
structure and management depth and expertise. The
projected viability of the obligor at the trough of the
cycle is a critical determination.
Each rating also takes into account the legal form
of the security (e.g., first mortgage bonds,
subordinated debt, preferred stock, etc.). The extent
of rating dispersion among the various classes of
securities is determined by several factors including
relative weightings of the different security classes
in the capital structure, the overall credit strength
of the issuer and the nature of covenant protection.
The Credit Rating Committee formally reviews all
ratings once per quarter (more frequently, if
necessary). Ratings of `BBB-` and higher fall within
the definition of investment grade securities, as
defined by bank and insurance supervisory authorities.
Structured finance issues, including real estate, asset-
backed and mortgage-backed financings, use this same
rating scale. Duff & Phelps Credit Rating claims
paying ability ratings of insurance companies use the
same scale with minor modification in the definitions.
Thus, an investor can compare the credit quality of
investment alternatives across industries and
structural types. A "Cash Flow Rating" (as noted for
specific ratings) addresses the likelihood that
aggregate principal and interest will equal or exceed
the rated amount under appropriate stress conditions.
Rating Scale Definition
AAA Highest credit quality. The risk factors are
negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are
AA strong. Risk is modest but may
AA- vary slightly from time to time because of
economic conditions.
<PAGE>
A+ Protection factors are average but adequate.
A However, risk factors are more
A- variable and greater in periods of economic stress.
BBB+ Below-average protection factors but still
BBB considered sufficient for prudent
BBB- investment. Considerable variability in risk
during economic cycles.
BB+ Below investment grade but deemed likely to
BB meet obligations when due.
BB- Present or prospective financial protection
factors fluctuate according to
industry conditions or company fortunes.
Overall quality may move up or
down frequently within this category.
B+ Below investment grade and possessing risk
B that obligations will not be met
B- when due. Financial protection factors will
fluctuate widely according to
economic cycles, industry conditions and/or
company fortunes. Potential
exists for frequent changes in the rating
within this category or into a higher
or lower rating grade.
CCC Well below investment grade securities.
Considerable uncertainty exists as to
timely payment of principal, interest or
preferred dividends.
Protection factors are narrow and risk can be
substantial with unfavorable
economic/industry conditions, and/or with
unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to
meet scheduled principal and/or interest payments.
DP Preferred stock with dividend arrearages.
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits
(a.1) Registrant's Amended Articles of Incorporation
(b) Registrant's By-Laws (1)
(c) None
(d) Investment Advisory Agreement
(e) Distribution Agreement with Rafferty Capital Markets, Inc.
(f) None
(g) Custodian Servicing Agreement with Firstar Bank Milwaukee, N.A.
(h.1) Transfer Agent Servicing Agreement with
Firstar Mutual Fund Services, LLC
(h.2) Fund Administration Servicing Agreement
with Firstar Mutual Fund Services, LLC
(h.3) Fund Accounting Servicing Agreement with
Firstar Mutual Fund Services, LLC
(h.4) Fulfillment Servicing Agreement with
Firstar Mutual Fund Services, LLC
(i) Opinion and Consent of Godfrey & Kahn, S.C. *
(j) Consent of PricewaterhouseCoopers LLP *
(k) None
(l) Subscription Agreement with Robert W. Lishman, Jr. *
(m) Rule 12b-1 Distribution and Shareholder Servicing Plan
(n) Financial Data Schedule *
(o) Rule 18f-3 Multi-Class Plan
______________
* To be filed by Amendment.
(1) Incorporated by reference to Registrant's Form N-
1A as filed with the Commission on April 14, 1999.
Item 24. Persons Controlled by or under Common Control with Registrant
Registrant neither controls any person nor is
under common control with any other person.
Item 25. Indemnification
Article VI of Registrant's By-Laws provides as follows:
ARTICLE VI INDEMNIFICATION
The Corporation shall indemnify (a) its
directors and officers, whether serving the
Corporation or, at its request, any other entity,
to the full extent required or permitted by (i)
Maryland law now or hereafter in
<PAGE>
force, including
the advance of expenses under the procedures and
to the full extent permitted by law, and (ii) the
1940 Act and (b) other employees and agents to
such extent as shall be authorized by the Board of
Directors and be permitted by law. The foregoing
rights of indemnification shall not be exclusive
of any other rights to which those seeking
indemnification may be entitled. The Board of
Directors may take such action as is necessary to
carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend
from time to time such resolutions or contracts
implementing such provisions or such further
indemnification arrangements as may be permitted
by law.
Item 26. Business and Other Connections of the Investment Adviser
Besides serving as investment adviser to private
accounts, the Adviser is not currently and has not
during the past two fiscal years engaged in any other
business, profession, vocation or employment of a
substantial nature. Information regarding the
business, profession, vocation or employment of a
substantial nature of each of the Adviser's directors
and officers is hereby incorporated by reference from
the information contained under "Directors and
Officers" in the SAI.
Item 27. Principal Underwriters
(a) The Distributor also acts as distributor for
the Badgley Funds, Inc., Kirr, Marbach
Partners Funds, Inc., The HomeState Funds
Group, Potomac Funds, Brazos Mutual Funds,
Bremer Investment Funds, Inc., Golf
Associated Fund, Leuthold Funds Inc. and
Texas Capital Value Funds, Inc.
(b) The principal business address of Rafferty
Capital Markets, Inc. ("Rafferty"), the
Registrant's principal underwriter, is 1311
Mamaroneck Avenue, White Plains, New York
10605. The following information relates to
each director and officer of Rafferty:
Positions
and Offices Positions and Offices
Name With Underwriter with Registrant
Thomas A. Mulrooney President None
Derek Park Vice President None
Stephen Sprague Chief Financial None
Officer and Secretary
(c) None.
Item 28. Location of Accounts and Records
All accounts, books or other documents required to
be maintained by Section 31(a) of the Investment
Company Act of 1940, as amended, and the rules
promulgated thereunder are in the possession of Skye
Investment Advisors LLC, Registrant's investment
adviser, at Registrant's corporate offices, except
records held and maintained by Firstar Bank Milwaukee,
N.A., 777 E. Wisconsin Avenue, Milwaukee, Wisconsin
53202, relating to its function as custodian, and
Firstar Mutual Fund Services, LLC, Third Floor, 615 E.
Michigan Street, Milwaukee, Wisconsin 53202, relating
to its function as transfer agent, administrator and
fund accountant.
Item 29. Management Services
All management-related service contracts entered
into by Registrant are discussed in Parts A and B of
this Registration Statement.
Item 30. Undertakings
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act
of 1933 and the Investment Company Act of 1940, the
Registrant has duly caused this Pre-Effective Amendment
No. 1 to the Registration Statement on Form N-1A to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Gatos and State of
California on the 23rd day of July, 1999.
BEARGUARD FUNDS, INC.
(Registrant)
By: /s/ Paul L. McEntire
------------------------
Paul L. McEntire, President
Each person whose signature appears below
constitutes and appoints Paul L. McEntire, his true and
lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to
sign any and all amendments to this Registration
Statement and to file the same, with all exhibits
thereto, and any other documents in connection
therewith, with the Securities and Exchange Commission
and any other regulatory body, granting unto said
attorney-in-fact and agent, full power and authority to
do and perform each and every act and thing requisite
and necessary to be done, as fully to all intents and
purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact
and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act
of 1933, this Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A has been signed
below by the following persons in the capacities and on
the date(s) indicated.
Name Title Date
/s/ Paul L. McEntire Director and President July 23, 1999
- --------------------- (principal executive officer)
Paul L. McEntire
/s/ Thomas F. Burns, Jr. Treasurer and Secretary July 23, 1999
- ----------------------- (principal financial and
Thomas F. Burns, Jr. accounting officer)
/s/ Robert E. Larson Director July 23, 1999
- ----------------------
Robert E. Larson
/s/ Robert W. Lishman, Jr. Director July 23, 1999
- --------------------------
Robert W. Lishman, Jr.
/s/ Thomas M. Cover Director July 23, 1999
- -----------------------
Thomas M. Cover
/s/ Charles D. Feinstein Director July 23, 1999
- ------------------------
Charles D. Feinstein
/s/ David G. Luenberger Director July 23, 1999
- -------------------------
David G. Luenberger
/s/ Edward C. Murphy Director July 23, 1999
- ----------------------
Edward C. Murphy
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
(a.1) Registrant's Amended Articles of Incorporation
(b) Registrant's By-Laws (1)
(c) None
(d) Investment Advisory Agreement
(e) Distribution Agreement with Rafferty Capital Markets, Inc.
(f) None
(g) Custodian Servicing Agreement with Firstar Bank Milwaukee, N.A.
(h.1) Transfer Agent Servicing Agreement with
Firstar Mutual Fund Services, LLC
(h.2) Fund Administration Servicing Agreement with
Firstar Mutual Fund Services, LLC
(h.3) Fund Accounting Servicing Agreement with
Firstar Mutual Fund Services, LLC
(h.4) Fulfillment Servicing Agreement with Firstar
Mutual Fund Services, LLC
(i) Opinion and Consent of Godfrey & Kahn, S.C. *
(j) Consent of PricewaterhouseCoopers LLP *
(k) None
(l) Subscription Agreement with Robert W. Lishman, Jr. *
(m) Rule 12b-1 Distribution and Shareholder Servicing Plan
(n) Financial Data Schedule *
(o) Rule 18f-3 Multi-Class Plan
_________________
* To be filed by Amendment.
(1) Incorporated by reference to Registrant's Form N-
1A as filed with the Commission on April 14, 1999.
AMENDED
ARTICLES OF INCORPORATION
OF
BEARGUARD FUNDS, INC.
ARTICLE I
Incorporator
1.1 Incorporator. The undersigned, Renee Hardt
Torr, whose post office address is Godfrey & Kahn,
S.C., 780 North Water Street, Milwaukee, Wisconsin
53202, being at least eighteen (18) years of age, does
hereby act as incorporator to form a corporation under
the general laws of the State of Maryland.
ARTICLE II
Name
2.1 Name. The name of the corporation is
Bearguard Funds, Inc. (the "Corporation").
ARTICLE III
Corporate Purposes and Powers
3.1 Corporate Purposes and Powers. The purpose
for which the Corporation is formed is, without
limitation, to act as an investment company pursuant to
the Investment Company Act of 1940, as amended (the
"1940 Act"), and to exercise and enjoy all the powers,
rights and privileges granted to, or conferred upon,
corporations by the Maryland General Corporation Law,
as amended from time to time (the "MGCL").
ARTICLE IV
Principal Office and Resident Agent
4.1 Principal Office and Resident Agent. The
post office address of the principal office of the
Corporation in the State of Maryland is c/o The
Corporation Trust Incorporated, 300 East Lombard
Street, Baltimore, Maryland 21202. The name of the
Corporation's resident agent in the State of Maryland
is The Corporation Trust Incorporated, a corporation of
the State of
<PAGE>
Maryland, and the post office address of
the resident agent is 300 East Lombard Street,
Baltimore, Maryland 21202.
ARTICLE V
Capital Stock
5.1 Authorized Shares. The total number of
shares of capital stock which the Corporation shall
have authority to issue is Five Hundred Million
(500,000,000) shares of Common Stock with a par value
of one cent ($0.01) per share and with an aggregate par
value of Five Million Dollars ($5,000,000).
5.2 Power to Classify. The Board of Directors
may classify or reclassify (i.e., into classes and/or
series), from time to time, any unissued shares of
Common Stock of the Corporation, whether now or
hereafter authorized, by setting or changing the prefer
ences, conversion or other rights, voting powers,
restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of
such shares of stock and, pursuant to such
classification or reclassification, to increase or
decrease the number of authorized shares of Common
Stock, or the number of shares of any class or series
of Common Stock, that the Corporation has the authority
to issue. Except as otherwise provided herein, all
references to Common Stock shall apply without
discrimination to the shares of each class or series of
Common Stock. Pursuant to such power, the Board of
Directors has initially designated the authorized
shares of the Corporation into two classes of one
series of shares of Common Stock as follows:
Name of SeriesName of ClassNumber of Shares Initially Allocated
Bearguard Fund Investor 50,000,000
Bearguard Fund Institutional 50,000,000
The remaining Four Hundred Million (400,000,000) shares
of Common Stock shall remain unclassified until action
is taken by the Board of Directors pursuant to this
paragraph.
5.3 Classes and Series. Unless otherwise
provided by the Board of Directors prior to the
issuance of shares, the shares of any and all classes
and series of Common Stock shall be subject to the
following:
(a) Redesignation of Class or Series. The
Board may change the designation of a class or series,
whether or not shares of such class or series are
issued and outstanding, provided that such change does
not affect the preferences, conversion or other rights,
voting powers, restrictions, limitations as to
dividends, qualifications, or terms or conditions of
redemption of such class or series.
(b) Authorization of Stock Issuance. The
Board of Directors may authorize the issuance and sale
of any class or series of shares of Common Stock from
time to time in such
<PAGE>
amounts and on such terms and
conditions, for such purposes and for such amounts or
kind of consideration as the Board of Directors shall
determine, subject to any limits required by then
applicable law. Nothing in this paragraph shall be
construed in any way as limiting the Board of
Director's authority to issue shares of Common Stock in
connection with a share dividend under the MGCL.
(c) Assets, Liabilities, Income and Expenses
of Each Class or Series. The assets and liabilities
and the income and expenses for each class or series of
Common Stock shall be attributable to that class or
series. The income or gain and the expense or
liabilities of the Corporation shall be allocated to
each class or series as determined by or under the
direction of the Board of Directors.
(d) Dividends and Distributions. The
holders of each class or series of Common Stock of
record as of a date determined by the Board of
Directors from time to time shall be entitled, from
funds or other assets legally available therefor, to
dividends or distributions, payable in shares or in
cash or both, in such amounts and at such times as may
be determined by the Board of Directors. Dividends or
distributions shall be paid on shares of a class or
series only out of the assets belonging to that class
or series. The amounts of dividends or distributions
declared and paid with respect to the various classes
or series of Common Stock and the timing thereof may
vary among such classes and series.
(e) Liquidation. At any time there are no
shares outstanding for a particular class or series of
Common Stock, the Board of Directors may liquidate such
class or series in accordance with applicable law. In
the event of the liquidation or dissolution of the
Corporation, or of a class or series thereof when there
are shares outstanding of the Corporation or of such
class or series, as applicable, the stockholders of the
Corporation or of each class or series, as applicable,
shall be entitled to receive, as a class or series, out
of the assets of the Corporation available for
distribution to stockholders, the assets belonging to
that class or series less the liabilities allocated to
that class or series. The assets so distributed to the
holders of a class or series shall be distributed among
such holders in proportion to the number of shares of
that class or series held by them and recorded on the
books of the Corporation. In the event that there are
any assets available for distribution that are not
attributable to any particular class or series, such
assets shall be allocated to all classes or series in
proportion to the net asset value of the respective
class or series.
(f) Fractional Shares. The Corporation may
issue fractional shares. Any fractional shares shall
carry proportionately all the rights of whole shares,
including, without limitation, the right to vote and
the right to receive dividends and distributions.
(g) Voting Rights. On each matter submitted
to a vote of stockholders, each holder of a share of
Common Stock of the Corporation shall be entitled to
one vote for each full share, and a fractional vote for
each fractional share, of stock standing in such
holder's name on the books of the Corporation,
irrespective of the class or series thereof. In
addition, all shares of all classes and series shall
vote together as a single class; provided, however,
that (i) when the MGCL or the 1940 Act requires that a
class or series vote separately with respect to a given
<PAGE>
matter, the separate voting requirements of the
applicable law shall govern with respect to the
affected class and/or series and other classes and
series shall vote as a single class, and (ii) unless
otherwise required by the MGCL or the 1940 Act, no
class or series shall have the right to vote on any
matter which does not affect the interest of that class
or series.
(h) Quorum. The presence in person or by
proxy of the holders of one-third of the shares of
Common Stock of the Corporation entitled to vote,
without regard to class or series, shall constitute a
quorum at any meeting of the stockholders, except with
respect to any matter which, under applicable statutes
or regulatory requirements, requires approval by a
separate vote of one or more classes or series of
Common Stock, in which case the presence in person or
by proxy of the holders of one-third of the shares of
each class or series of Common Stock required to vote
as a class or series on the matter shall constitute a
quorum. If, at any meeting of the stockholders, there
shall be less than a quorum present, the stockholders
present at such meeting may, without further notice,
adjourn the same from time to time until a quorum shall
be present.
(i) Authorizing Vote. Notwithstanding any
provision of the MGCL requiring for any purpose a
proportion greater than a majority of the votes of the
Corporation or of a class or series of Common Stock of
the Corporation, the affirmative vote of the holders of
a majority of the total number of shares of Common
Stock of the Corporation, or of a class or series of
Common Stock of the Corporation, as applicable,
outstanding and entitled to vote under such
circumstances pursuant to these Articles of
Incorporation and the By-Laws of the Corporation shall
be effective for such purpose, except to the extent
otherwise required by the 1940 Act and rules
thereunder; provided, however, that, to the extent
consistent with the MGCL and other applicable law, the
By-Laws may provide for authorization to be by the vote
of a proportion less than a majority of the votes of
the Corporation, or of a class or series of Common
Stock.
(j) Change of Name. The Board of Directors,
without action by the Corporation's stockholders, shall
have the authority to change the name of the
Corporation or of any class or series of its Common
Stock created herein or hereafter.
(k) Preemptive Rights. No holder of any
class or series of Common Stock of the Corporation
shall, as such holder, have any right to purchase or
subscribe for any shares of any class or series of
Common Stock which the Corporation may issue or sell
(whether out of the number of shares authorized by
these Articles of Incorporation, or out of any shares
of any class or series of Common Stock of the
Corporation acquired by it after the issue thereof, or
otherwise), other than such right, if any, as the Board
of Directors, in its sole discretion, may determine.
(l) Redemption.
(i) Subject to the suspension of the
right of redemption or postponement of the date of
payment or satisfaction upon redemption in
accordance with the 1940 Act, each holder of any
class or series of the Common Stock of the
Corporation, upon request and after complying with
the redemption procedures established by or under
<PAGE>
the supervision of the Board of Directors, shall
be entitled to require the Corporation to redeem,
out of legally available funds, all or any part of
the Common Stock standing in the name of such
holder on the books of the Corporation at the net
asset value (as determined in accordance with the
1940 Act) of such shares (less any applicable
redemption fee).
(ii) The Board of Directors may
authorize the Corporation, at its option and to
the extent permitted by and in accordance with the
conditions of the 1940 Act, to redeem any shares
of any class or series of Common Stock of the
Corporation owned by any stockholder under
circumstances deemed appropriate by the Board of
Directors in its sole discretion from time to
time, including, without limitation, failure to
maintain ownership of a specified minimum number
or value of shares of any class or series of
Common Stock of the Corporation, at the net asset
value (as determined in accordance with the 1940
Act) of such shares (less any applicable
redemption fee).
(iii) Payment for redeemed stock shall be made
in cash unless, in the opinion of the Board of Directors,
which shall be conclusive, conditions exist which make
it advisable for the Corporation to make payment wholly
or partially in securities or other property or assets
of the class or series of Common Stock being redeemed.
Payment made wholly or partially in securities or other
property or assets may be delayed to such reasonable extent,
not inconsistent with applicable law, as is reasonably
necessary under the circumstances. No stockholder shall
have the right, except as determined by the Board of Directors,
to have his shares redeemed in such securities, property
or other assets.
(iv) The Board of Directors may, upon
reasonable notice to the holders of any class or
series of Common Stock of the Corporation, impose
a fee for the redemption of shares, such fee to be
not in excess of the amount set forth in the
Corporation's then existing By-Laws and to apply
in the case of such redemptions and under such
terms and conditions as the Board of Directors
shall determine. The Board of Directors shall
have the authority to rescind the imposition of
any such fee in its discretion and to reimpose the
redemption fee from time to time upon reasonable
notice.
(v) Any shares of Common Stock redeemed
by the Corporation shall be deemed to be canceled
and restored to the status of authorized but
unissued shares of the particular class or series.
(m) Valuation. With respect to any class or
series of Common Stock, the Board of Directors may
adopt provisions to seek to maintain a stable net asset
value per share. Without limiting the foregoing, the
Board of Directors may determine that the net asset
value per share of any class or series should be
maintained at a designated constant value and may
establish procedures, not inconsistent with applicable
law, to accomplish that result. Such procedures may
include a requirement, in the event of a net loss with
respect to the particular class or series from time to
time, for automatic pro rata capital contributions from each
<PAGE>
stockholder of that class or series in amounts
sufficient to maintain the designated constant share
value.
ARTICLE VI
Board Of Directors
6.1 Number of Directors. The number of directors
of the Corporation shall be one (1), which may be
changed in accordance with the By-Laws and subject to
the limitations of the MGCL. The directors may fix a
different number of directors and may authorize a
majority of the directors to increase or decrease the
number of directors set by these Articles or the By-
Laws within limits set by the By-Laws. The directors
may also fill vacancies created by an increase in the
number of directors. Unless otherwise provided by the
By-Laws, the directors of the Corporation need not be
stockholders of the Corporation.
6.2 Names of Directors. The names of the
directors who will serve until the first annual meeting
and until their successors are elected and qualify are
as follows:
Paul L. McEntire
6.3 Limits on Liability of Directors and
Officers. To the fullest extent that limitations on
the liability of directors and officers are permitted
by the MGCL, no director or officer of the Corporation
shall have any personal liability to the Corporation or
to its stockholders for monetary damages. No amendment
to these Articles of Incorporation or repeal of any of
its provisions shall limit or eliminate the benefits
provided to directors and officers under this provision
with respect to any act or omission which occurred
prior to such amendment or repeal.
6.4 Indemnification of Directors and Officers.
The Corporation shall indemnify its directors and
officers and make advance payment of related expenses
to the fullest extent permitted, and in accordance with
the procedures required, by the MGCL and the 1940 Act.
The By-Laws may provide that the Corporation shall
indemnify its employees and/or agents in any manner and
within such limits as permitted by applicable law.
Such indemnification shall be in addition to any other
right or claim to which any director, officer, employee
or agent may otherwise be entitled. The Corporation
may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or
agent of the Corporation or is or was serving at the
request of the Corporation as a director, officer,
partner, trustee, employee or agent of another foreign
or domestic corporation, partnership, joint venture,
trust or other enterprise or employee benefit plan,
against any liability (including, with respect to
employee benefit plans, excise taxes) asserted against
and incurred by such person in any such capacity or
arising out of such person's position, whether or not
the Corporation would have had the power to indemnify
against such liability. The rights provided to any
person by this Article 6.4 shall be enforceable against
the Corporation by such person who shall be presumed to
have relied upon such rights in serving or continuing
to serve in the capacities indicated herein. No
amendment of these Articles
<PAGE>
of Incorporation shall impair the rights of any person
arising at any time with respect to events occurring
prior to such amendment.
6.5 Powers of Directors. In addition to any
powers conferred herein or in the By-Laws, the Board of
Directors may, subject to any express limitations
contained in these Articles of Incorporation or in the
By-Laws, exercise the full extent of powers conferred
by the MGCL, and the enumeration and definition of
particular powers herein or in the By-Laws shall in no
way be deemed to restrict or otherwise limit those
lawfully conferred powers. In furtherance and without
limitation of the foregoing, the Board of Directors
shall have power:
(a) To cause the Corporation to enter into,
from time to time, investment advisory agreements
providing for the management and supervision of the
investments of the Corporation and the furnishing of
advice to the Corporation with respect to the
desirability of investing in, purchasing or selling
securities or other assets. Such agreements shall
contain such terms, provisions and conditions as the
Board of Directors may deem advisable and as are
permitted by the 1940 Act.
(b) To designate, without limitation,
distributors, custodians, transfer agents,
administrators, account servicing and other agents for
the stock, assets and business of the Corporation and
employ and fix the powers, rights, duties,
responsibilities and compensation of each such
distributor, custodian, transfer agent, administrator,
account servicing and other agent.
ARTICLE VII
Amendments
7.1 Amendments. The Corporation reserves the
right from time to time to amend, alter, change or
repeal any provision of these Articles of
Incorporation, and all rights conferred upon
stockholders herein are granted subject to this
reservation.
<PAGE>
IN WITNESS WHEREOF, the undersigned incorporator
of Bearguard Funds, Inc. hereby executes the foregoing
Amended Articles of Incorporation and acknowledges the
same to be her act.
Dated this 21st day of April, 1999.
/s/ Renee Hardt Torr
----------------------
Renee Hardt Torr
BEARGUARD FUNDS, INC.
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is entered into as of the _____ day
of ______, 1999, between Bearguard Funds, Inc., a
Maryland corporation (the "Corporation"), and Skye
Investment Advisors LLC, a California limited liability
company (the "Adviser").
W I T N E S S E T H
WHEREAS, the Corporation is an open-end investment
company registered under the Investment Company Act of
1940, as amended (the "1940 Act"). The Corporation is
authorized to create separate series, each with its own
separate investment portfolio (the "Funds"), and the
beneficial interest in each such series will be
represented by a separate series of shares (the
"Shares").
WHEREAS, the Adviser is a registered investment
adviser, engaged in the business of rendering
investment advisory services.
WHEREAS, in managing the Corporation's assets, as
well as in the conduct of certain of its affairs, the
Corporation seeks the benefit of the Adviser's services
and its assistance in performing certain managerial
functions. The Adviser desires to furnish such
services and to perform the functions assigned to it
under this Agreement for the consideration provided for
herein.
NOW THEREFORE, the parties mutually agree as
follows:
1. Appointment of the Adviser. The Corporation
hereby appoints the Adviser as investment adviser for
each of the Funds of the Corporation on whose behalf
the Corporation executes an Exhibit to this Agreement,
and the Adviser, by execution of each such Exhibit,
accepts the appointments. Subject to the direction of
the Board of Directors (the "Directors") of the
Corporation, the Adviser shall manage the investment
and reinvestment of the assets of each Fund in
accordance with the Fund's investment objective and
policies and limitations, for the period and upon the
terms herein set forth. The investment of funds shall
also be subject to all applicable restrictions of the
Articles of Incorporation and By-Laws of the
Corporation as may from time to time be in force.
2. Expenses Paid by the Adviser. In addition to the
expenses which the Adviser may incur in the performance
of its responsibilities under this Agreement, and the
expenses which it may expressly undertake to incur and
pay, the Adviser shall incur and pay all reasonable
compensation, fees and related expenses of the
Corporation's officers and its Directors, except for
such Directors who are not interested persons (as that
term is defined in Section 2(a)(19) of
<PAGE>
the 1940 Act) of the Adviser, and all expenses related to
the rental and maintenance of the principal offices of the
Corporation.
3. Investment Advisory Functions. In its capacity as
investment adviser, the Adviser shall have the
following responsibilities:
(a) To furnish continuous advice and recommendations
to the Funds, as to the acquisition, holding or
disposition of any or all of the securities or other
assets which the Funds may own or contemplate acquiring
from time to time;
(b) To cause its officers to attend meetings and
furnish oral or written reports, as the Corporation may
reasonably require, in order to keep the Directors and
appropriate officers of the Corporation fully informed
as to the condition of the investments of the Funds,
the investment recommendations of the Adviser, and the
investment considerations which have given rise to
those recommendations; and
(c) To supervise the purchase and sale of securities
or other assets as directed by the appropriate officers
of the Corporation.
The services of the Adviser are not to be deemed
exclusive and the Adviser shall be free to render
similar services to others as long as its services for
others does not in any way hinder, preclude or prevent
the Adviser from performing its duties and obligations
under this Agreement. In the absence of willful
misfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties hereunder on the
part of the Adviser, the Adviser shall not be subject
to liability to the Corporation, the Funds, or to any
shareholder for any act or omission in the course of,
or in connection with, rendering services hereunder or
for any losses that may be sustained in the purchase,
holding or sale of any security.
4. Obligations of the Corporation. The Corporation
shall have the following obligations under this
Agreement:
(a) To keep the Adviser continuously and fully
informed as to the composition of the Funds'
investments and the nature of all of their respective
assets and liabilities;
(b) To furnish the Adviser with a copy of any
financial statement or report prepared for it by
certified or independent public accountants, and with
copies of any financial statements or reports made to
the Funds' shareholders or to any governmental body or
securities exchange;
(c) To furnish the Adviser with any further materials
or information which the Adviser may reasonably request
to enable it to perform its functions under this
Agreement; and
<PAGE>
(d) To compensate the Adviser for its services in
accordance with the provisions of paragraph 5 hereof.
5. Compensation. The Corporation will pay the
Adviser a fee for its services with respect to each
Fund (the "Advisory Fee") at the annual rate set forth
on the Exhibit(s) hereto. The Advisory Fee shall be
accrued each calendar day during the term of this
Agreement and the sum of the daily fee accruals shall
be paid monthly as soon as practicable following the
last day of each month. The daily fee accruals will be
computed by multiplying 1/365 by the annual rate and
multiplying the product by the net asset value of the
Fund as determined in accordance with the Corporation's
registration statement as of the close of business on
the previous day on which the Fund was open for
business, or in such other manner as the parties agree.
The Adviser may from time to time and for such periods
as it deems appropriate or for such time and to the
extent agreed on Exhibit A for a Fund reduce its
compensation and/or assume expenses for one or more of
the Funds (including initial organization costs);
provided, however, that with respect to any agreement
set forth on Exhibit A the Adviser shall be entitled to
recoup such amounts for a period of up to three (3)
years from the date such amount was reduced or assumed.
6. Expenses Paid by Corporation.
(a) Except as provided in this paragraph, nothing in
this Agreement shall be construed to impose upon the
Adviser the obligation to incur, pay, or reimburse the
Corporation for any expenses not specifically assumed
by the Adviser under paragraph 2 above. Each Fund
shall pay or cause to be paid all of its expenses and
the Fund's allocable share of the Corporation's
expenses, including, but not limited to, investment
adviser fees; any compensation, fees, or reimbursements
which the Corporation pays to its Directors who are not
interested persons (as that phrase is defined in
Section 2(a)(19) of the 1940 Act) of the Adviser; fees
and expenses of the custodian, transfer agent,
registrar or dividend disbursing agent; current legal,
accounting and printing expenses; administrative,
clerical, recordkeeping and bookkeeping expenses;
brokerage commissions and all other expenses in
connection with the execution of Fund transactions;
interest; all federal, state and local taxes (including
stamp, excise, income and franchise taxes); expenses of
shareholders' meetings and of preparing, printing and
distributing proxy statements, notices and reports to
shareholders; expenses of preparing and filing reports
and tax returns with federal and state regulatory
authorities; and all expenses incurred in complying
with all federal and state laws and the laws of any
foreign country applicable to the issue, offer, or sale
of Shares of the Funds, including but not limited to,
all costs involved in the registration or qualification
of Shares of the Funds for sale in any jurisdiction and
all costs involved in preparing, printing and
distributing prospectuses and statements of additional
information to existing shareholders of the Funds.
(b) If expenses borne by a Fund in any fiscal year
(including the Adviser's fee, but excluding taxes,
interest, brokerage commissions, Rule 12b-1 expenses
and similar fees) exceed those set forth in any
statutory or regulatory formula applicable to a Fund,
the Adviser will reimburse the Fund for any excess.
<PAGE>
7. Brokerage Commissions. For purposes of this
Agreement, brokerage commissions paid by a Fund upon
the purchase or sale of securities shall be considered
a cost of the securities of the Fund and shall be paid
by the respective Fund. The Adviser is authorized and
directed to place Fund transactions only with brokers
and dealers who render satisfactory service in the
execution of orders at the most favorable prices and at
reasonable commission rates; provided, however, that
the Adviser may pay a broker or dealer an amount of
commission for effecting a securities transaction in
excess of the amount of commission another broker or
dealer would have charged for effecting that
transaction, if the Adviser determines in good faith
that such amount of commission was reasonable in
relation to the value of the brokerage and research
services provided by such broker or dealer viewed in
terms of either that particular transaction or the
overall responsibilities of the Adviser. In placing
Fund business with such broker or dealers, the Adviser
shall seek the best execution of each transaction, and
all such brokerage placement shall be made in
compliance with Section 28(e) of the Securities
Exchange Act of 1934, as amended, and other applicable
state and federal laws. Notwithstanding the foregoing,
the Corporation shall retain the right to direct the
placement of all Fund transactions, and the Directors
may establish policies or guidelines to be followed by
the Adviser in placing Fund transactions for the Funds
pursuant to the foregoing provisions.
8. Proprietary Rights. The Adviser has proprietary
rights in each Fund's name and the Corporation's name.
The Corporation acknowledges and agrees that the
Adviser may withdraw the use of such names from the
Funds or the Corporation should it cease to act as the
investment adviser to any Fund.
9. Termination. This Agreement may be terminated at
any time, without penalty, by the Directors of the
Corporation or by the shareholders of a Fund acting by
the vote of at least a majority of its outstanding
voting securities (as that phrase is defined in Section
2(a)(42) of the 1940 Act), provided in either case that
60 days' written notice of termination be given to the
Adviser at its principal place of business. This
Agreement may also be terminated by the Adviser at any
time by giving 60 days' written notice of termination
to the Corporation, addressed to its principal place of
business.
10. Assignment. This Agreement shall terminate
automatically in the event of any assignment (within
the meaning of Section 2(a)(4) of the 1940 Act) of this
Agreement.
11. Term. This Agreement shall begin for each Fund as
of the date of execution of the applicable Exhibit and
shall continue in effect with respect to each Fund (and
any subsequent Funds added pursuant to an Exhibit
during the initial term of this Agreement) for two
years from the date of this Agreement and thereafter
for successive periods of one year, subject to the
provisions for termination and all of the other terms
and conditions hereof if such continuation shall be
specifically approved at least annually (i) by the vote
of a majority of the Directors of the Corporation,
including a majority of the Directors who are not
parties to this Agreement or "interested persons" of
any such party (as defined in the 1940 Act), cast in
person at a meeting
<PAGE>
called for that purpose or (ii) by
the vote of a majority of the outstanding voting
securities (as that phrase is defined in Section
2(a)(42) of the 1940 Act) of each Fund. If a Fund is
added after the first approval by the Directors as
described above, this Agreement will be effective as to
that Fund upon execution of the applicable Exhibit and
will continue in effect until the next annual approval
of this Agreement by the Directors and thereafter for
successive periods of one year, subject to approval as
described above.
12. Amendments. This Agreement may be amended by the
mutual consent of the parties, provided that the terms
of each such amendment shall be approved by the
Directors or by the affirmative vote of a majority of
the outstanding voting securities (as that phrase is
defined in Section 2(a)(42) of the 1940 Act) of each
Fund.
13. Governing Law. This Agreement shall be governed
by and construed in accordance with the internal laws
of the State of California, provided, however that
nothing herein shall be construed in a manner that is
inconsistent with the 1940 Act, the Investment Advisers
Act of 1940, as amended, or the rules and regulations
promulgated with respect to such respective Acts.
This Agreement will become binding on the parties
hereto upon their execution of the Exhibit(s) to this
Agreement.
<PAGE>
EXHIBIT A
to the
Investment Advisory Agreement
BEARGUARD FUND
For all services rendered by the Adviser
hereunder, the Corporation shall pay the Adviser, on
behalf of the above-named Fund, and the Adviser agrees
to accept as full compensation for all services
rendered hereunder, an annual investment advisory fee
equal to 1.25% of the average daily net assets of the
Fund.
The Adviser hereby agrees that until ___________, 2000,
the Adviser will waive its fees and/or
reimburse the Fund's operating expenses to the extent
necessary to ensure that the total operating expenses
(on an annual basis) do not exceed 2.75% of the
Investor Class's average daily net assets and 2.50% of
the Institutional Class's average daily net assets,
subject to possible later recoupment as provided in
Section 5.
The annual investment advisory fee shall be
accrued daily at the rate of 1/365th of 1.25% applied
to the daily net assets of the Fund. The advisory fee
so accrued shall be paid by the Corporation to the
Adviser monthly.
Executed as of this ____ day of____________________, 1999.
The Adviser:
SKYE INVESTMENT ADVISORS LLC
By:_____________________________
Paul L. McEntire, Chairman and
Managing Member
The Corporation:
BEARGUARD FUNDS, INC.
By:_____________________________
Thomas F. Burns, Jr., Treasurer and Secretary
DISTRIBUTION AGREEMENT
between
BEARGUARD FUNDS, INC.
and
RAFFERTY CAPITAL MARKETS, INC.
THIS AGREEMENT is made as of __________, 1999,
between Bearguard Funds, Inc. ("Fund"), a corporation
organized and existing under the laws of Maryland, and
Rafferty Capital Markets, Inc. ("RCM"), a corporation
organized and existing under the laws of the State of
New York.
WHEREAS, the Fund is registered under the
Investment Company Act of 1940, as amended ("1940
Act"), as an open-end management investment company,
and has registered one or more distinct series and/or
classes of shares of common stock ("Shares") for sale
to the public under the Securities Act of 1933, as
amended ("1933 Act"), and has qualified its shares for
sale to the public under various state securities laws;
and
WHEREAS, the Fund desires to retain RCM as
principal underwriter in connection with the offering
and sale of the Shares of each series listed on
Schedule A (as amended from time to time) to this
Agreement; and
WHEREAS, this Agreement has been approved by a
vote of the Fund's board of directors ("Board") and its
disinterested directors in conformity with Section
15(c) under the 1940 Act; and
WHEREAS, RCM is willing to act as principal
underwriter for the Fund on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the promises
and mutual covenants herein contained, it is agreed
between the parties hereto as follows:
1. Appointment. The Fund hereby appoints
RCM as its agent to be the principal underwriter so as
to hold itself out as available to receive and accept
orders for the purchase and redemption of the Shares on
behalf of the Fund, subject to the terms and for the
period set forth in this Agreement. RCM hereby accepts
such appointment and agrees to act hereunder. The Fund
understands that any active solicitation activities
conducted on behalf of the Fund will be conducted
primarily, if not exclusively, by employees of the
Fund's sponsor who shall become registered
representatives of RCM.
2. Services and Duties of RCM.
(a) RCM agrees to sell Shares on a best
efforts basis from time to time during the term of this
Agreement as agent for the Fund and upon the terms
described in the Registration Statement. As used in
this Agreement, the term "Registration Statement" shall
mean the currently effective registration statement of
the Fund, and any supplements thereto, under the 1933
Act and the 1940 Act.
<PAGE>
(b) RCM will hold itself available to
receive purchase and redemption orders satisfactory to
RCM for Shares and will accept such orders on behalf of
the Fund. Such purchase orders shall be deemed
effective at the time and in the manner set forth in
the Registration Statement.
(c) RCM, with the operational assistance of
the Fund's transfer agent, shall make Shares available
through the National Securities Clearing Corporation's
Fund/SERV System.
(d) RCM shall provide to investors and
potential investors only such information regarding the
Fund as the Fund shall provide or approve. RCM shall
review and file in a reasonably prompt manner all
proposed advertisements and sales literature with
appropriate regulators and consult with the Fund
regarding any comments provided by regulators with
respect to such materials. No employee of RCM shall
make any oral statements or representations regarding
the Fund, provided, however, that this provision shall
not apply to any registered representative who is an
employee of the Fund's sponsor.
(e) The offering price of the Shares shall
be the price determined in accordance with, and in the
manner set forth in, the most-current Prospectus. The
Fund shall make available to RCM a statement of each
computation of net asset value and the details of
entering into such computation.
(f) RCM at its sole discretion may
repurchase Shares offered for sale by the shareholders.
Repurchase of Shares by RCM shall be at the price
determined in accordance with, and in the manner set
forth in, the most-current Prospectus. At the end of
each business day, RCM shall notify, by any appropriate
means, the Fund and its transfer agent of the orders
for repurchase of Shares received by RCM since the last
such report, the amount to be paid for such Shares, and
the identity of the shareholders offering Shares for
repurchase. RCM reserves the right either to
repurchase such Shares or to act as agent for the Fund
to receive and transmit promptly to the Fund's transfer
agent shareholder requests for redemption of Shares.
(g) RCM shall not be obligated to sell any
certain number of Shares.
(h) In connection with the distribution
services provided hereunder and with respect to any
payments received under a Rule 12b-1 Plan, RCM shall
prepare reports for the Board regarding its activities
under this Agreement as from time to time shall be
reasonably requested by the Board and conduct its
activities in accordance with such Plan.
(i) RCM shall in all material respects
conform its activities hereunder to the requirements of
applicable state and federal laws and all applicable
rules of the National Association of Securities
Dealers, Inc. ("NASD").
3. Duties of the Fund.
(a) The Fund shall keep RCM fully informed
of its affairs and shall provide to RCM from time to
time copies of all information, financial statements,
and other papers that RCM
<PAGE>
may reasonably request for
use in connection with the distribution of Shares,
including, without limitation, certified copies of any
financial statements prepared for the Fund by its
independent public accountant and such reasonable
number of copies of the most current Prospectus,
Statement of Additional Information ("SAI"), and annual
and interim reports as RCM may request, and the Fund
shall fully cooperate in the efforts of RCM to sell and
arrange for the sale of Shares.
(b) The Fund shall maintain a currently
effective Registration Statement on Form N-1A with the
Securities and Exchange Commission (the "SEC"),
maintain qualification with applicable states and file
such reports and other documents as may be required
under applicable federal and state laws. The Fund
shall notify RCM in writing of the states in which the
Shares may be sold and shall notify RCM in writing of
any changes to such information. The Fund (or its
sponsor) shall bear all expenses related to preparing
and typesetting such Prospectuses, SAI and other
materials required by law and such other expenses,
including printing and mailing expenses, related to the
Fund's communication with persons who are shareholders.
(c) The Fund shall not use any
advertisements or other sales materials that have not
been (i) submitted to RCM for its review and approval,
and (ii) filed with the appropriate regulators.
(d) The Fund represents and warrants that
its Registration Statement and any advertisements and
sales literature (excluding statements relating to RCM
and the services it provides that are based upon
written information furnished by RCM expressly for
inclusion therein) of the Fund shall not contain any
untrue statement of material fact or omit to state any
material fact required to be stated therein or
necessary to make the statements therein not
misleading, and that all statements or information
furnished to RCM, pursuant to Section 3(a) hereof,
shall be true and correct in all material respects.
4. Other Broker-Dealers. RCM in its discretion
may enter into agreements to sell Shares to such
registered and qualified retail dealers, as reasonably
requested by the Fund. In making agreements with such
dealers, RCM shall act only as principal and not as
agent for the Fund and shall pay any compensation to
such persons. The form of any such dealer agreement
shall be mutually agreed upon and approved by the Fund
and RCM.
5. Withdrawal of Offering. The Fund reserves
the right at any time to withdraw all offerings of any
or all Shares by written notice to RCM at its principal
office. No Shares shall be offered by either RCM or
the Fund under any provisions of this Agreement and no
orders for the purchase or sale of Shares hereunder
shall be accepted by the Fund if and so long as
effectiveness of the Registration Statement then in
effect or any necessary amendments thereto shall be
suspended under any of the provisions of the 1933 Act,
or if and so long as a current prospectus as required
by Section 5(b)(2) of the 1933 Act is not on file with
the SEC.
6. Services Not Exclusive. The services
furnished by RCM hereunder are not to be deemed
exclusive and RCM shall be free to furnish similar
services to others so long as its services under this
Agreement are not impaired thereby.
<PAGE>
7. Expenses of the Fund. The Fund (or its
sponsor) shall bear all costs and expenses of
registering the Shares with the SEC and state and other
regulatory bodies, and shall assume expenses related to
communications with shareholders of the Fund including,
but not limited to, (i) fees and disbursements of its
counsel and independent public accountant; (ii) the
preparation, filing, and printing of Registration
Statements and/or Prospectuses or SAIs; (iii) the
preparation and mailing of annual and interim reports,
Prospectuses, SAIs, and proxy materials to
shareholders; (iv) such other expenses related to the
communications with persons who are shareholders of the
Fund; and (v) the qualifications of Shares for sale
under the securities laws of such jurisdictions as
shall be selected by the Fund pursuant to Paragraph
3(b) hereof, and the costs and expenses payable to each
such jurisdiction for continuing qualification therein.
In addition, the Fund (or its sponsor) shall bear all
costs of preparing, printing, mailing and filing any
advertisements and sales literature. RCM does not
assume responsibility for any expenses not assumed in
this Agreement.
8. Compensation. Pursuant to the terms of the
Fund's Rule 12b-1 Plan, the Fund may pay RCM the fee
set forth in Schedule B to this Agreement.
9. Share Certificates. The Fund shall not issue
certificates representing Shares.
10. Status of RCM. RCM is an independent
contractor and shall be agent of the Fund only with
respect to the sale and redemption of Shares. RCM is a
duly licensed broker-dealer with the SEC and all
applicable state securities commissions, a member of
the NASD and authorized to sell shares of open-end
investment companies. Neither RCM or any "affiliated
person" (as defined in the 1940 Act) is ineligible
pursuant to Section 9 of the 1940 Act to serve as an
underwriter to any registered investment company.
11. Indemnification.
(a) The Fund agrees to indemnify, defend,
and hold RCM, its officers and directors, and any
person who controls RCM within the meaning of Section
15 of the 1933 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 reasonable
counsel fees incurred in connection therewith) that
RCM, its officers, directors, or any such controlling
person may incur under the 1933 Act, or under common
law or otherwise, arising out of or based upon any (i)
alleged untrue statement of a material fact contained
in the Registration Statement, Prospectus, SAI or sales
literature, (ii) alleged omission to state a material
fact required to be stated in the Registration
Statement, Prospectus, SAI or sales literature or
necessary to make the statements therein not
misleading, or (iii) failure by the Fund to comply with
any material terms of the Agreement; provided, that in
no event shall anything contained herein be so
construed as to protect RCM against any liability to
the Fund or its shareholders to which RCM 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.
(b) The Fund shall not be liable to RCM
under this Agreement with respect to any claim made
against RCM or any person indemnified unless RCM or
other such person shall have notified the Fund in
writing of the claim within a reasonable time after the
summons or other first written notification giving
information of the nature of the claim shall have been
served upon
<PAGE>
RCM or such other person (or after RCM or
the person shall have received notice of service on any
designated agent). However, failure to notify the Fund
of any claim shall not relieve the Fund from any
liability that it may have to RCM or any person against
whom such action is brought otherwise than on account
of this Agreement.
(c) The Fund shall be entitled to
participate at its own expense in the defense or, if it
so elects, to assume the defense of any suit brought to
enforce any claims subject to this Agreement. If the
Fund elects to assume the defense of any such claim,
the defense shall be conducted by counsel chosen by the
Fund and satisfactory to indemnified defendants in the
suit whose approval shall not be unreasonably withheld.
In the event that the Fund elects to assume the defense
of any suit and retain counsel, the indemnified
defendants shall bear the fees and expenses of any
additional counsel retained by them. If the Fund does
not elect to assume the defense of a suit, it will
reimburse the indemnified defendants for the reasonable
fees and expenses of any counsel retained by the
indemnified defendants. The Fund agrees to promptly
notify RCM of the commencement of any litigation or
proceedings against it or any of its officers or
directors in connection with the issuance or sale of
any of its Shares.
(d) RCM agrees to indemnify, defend, and
hold the Fund, its officers and directors, and any
person who controls the Fund within the meaning of
Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities, and
expenses (including the cost of investigating or
defending against such claims, demands, or liabilities
and any reasonable counsel fees incurred in connection
therewith) that the Fund, its directors or officers, or
any such controlling person may incur under the 1933
Act, or under common law or otherwise, resulting from
(i) RCM's willful misfeasance, bad faith or gross
negligence in the performance of its obligations and
duties under this Agreement, (ii) arising out of or
based upon any alleged untrue statement of a material
fact contained in information furnished in writing by
RCM to the Fund for use in the Registration Statement,
Prospectus or SAI arising out of or based upon any
alleged omission to state a material fact in connection
with such information required to be stated in either
thereof or necessary to make such information not
misleading, or (iii) failure by RCM to comply with any
material terms of this Agreement.
(e) RCM shall be entitled to participate, at
its own expense, in the defense or, if it so elects, to
assume the defense of any suit brought to enforce the
claim, but if RCM elects to assume the defense, the
defense shall be conducted by counsel chosen by RCM and
satisfactory to the indemnified defendants whose
approval shall not be unreasonably withheld. In the
event that RCM elects to assume the defense of any suit
and retain counsel, the defendants in the suit shall
bear the fees and expenses of any additional counsel
retained by them. If RCM does not elect to assume the
defense of any suit, it will reimburse the indemnified
defendants in the suit for the reasonable fees and
expenses of any counsel retained by them. RCM agrees
to promptly notify the Fund of (i) the commencement of
any litigation or proceedings against it or any of its
personnel regarding the issuance or sale of its shares
of the Fund, or (ii) any regulatory inspection,
examination or proceeding materially affecting RCM's
ability to act as principal underwriter under this
Agreement.
<PAGE>
12. Duration and Termination.
(a) This Agreement shall become effective on
the date first written above or such later date as
indicated in Schedule A and, unless sooner terminated
as provided herein, will continue in effect for two
years from the above written date. Thereafter, if not
terminated this Agreement shall continue in effect for
successive annual periods, provided that such
continuance is specifically approved at least annually
(i) by a vote of a majority of the Fund's Board who are
neither interested persons (as defined in the 1940 Act)
of the Fund ("Independent directors") or RCM, cast in
person at a meeting called for the purpose of voting on
such approval, and (ii) by the Board or by vote of a
majority of the outstanding voting securities of the
Fund.
(b) Notwithstanding the foregoing, this
Agreement may be terminated in its entirety at any
time, without the payment of any penalty, by vote of
the Board, by vote of a majority of the Independent
directors, or by vote of a majority of the outstanding
voting securities of the Fund on sixty days' written
notice to RCM or by RCM at any time, without the
payment of any penalty, on sixty days' written notice
to the Fund. This Agreement will automatically
terminate in the event of its "assignment" (within the
meaning of the 1940 Act).
13. Amendment of this Agreement. No provision of
this Agreement may be changed, waived, discharged, or
terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the
change, waiver, discharge, or termination is sought.
This Agreement may be amended with the approval of the
Board or of a majority of the outstanding voting
securities of the Fund; provided, that in either case,
such amendment also shall be approved by a majority of
the Independent directors.
14. Notice. Any notice required or permitted to
be given by either party to the other shall be deemed
sufficient upon receipt in writing at the other party's
principal offices.
15. Miscellaneous. The captions in this
Agreement are included for convenience of reference
only and in no way define or delimit any of the
provisions hereof or otherwise affect their
construction or effect. If any provision of this
Agreement shall be held or made invalid by a court
decision, statute, rule, or otherwise, the remainder of
this Agreement shall not be affected thereby. This
Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective
successors. As used in this Agreement, the terms
"majority of the outstanding voting securities,"
"interested person," and "assignment" shall have the
same meaning as such terms have in the 1940 Act.
16. Governing Law. This Agreement shall be
construed in accordance with the laws of the State of
New York and the 1940 Act (without regard, however, to
the conflicts of law principles). To the extent that
the applicable laws of the State of New York conflict
with the applicable provisions of the 1940 Act, the
latter shall control.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by their officers
designated as of the day and year first above written.
BEARGUARD FUNDS, INC.
By:_________________________
Its:________________________
RAFFERTY CAPITAL MARKETS, INC.
By:_________________________
Its:________________________
<PAGE>
SCHEDULE A
to the
DISTRIBUTION AGREEMENT
between
BEARGUARD FUNDS, INC.
and
RAFFERTY CAPITAL MARKETS, INC.
Pursuant to section 1 of the Distribution
Agreement between Bearguard Funds, Inc. ("Fund") and
Rafferty Capital Markets, Inc. ("RCM"), the Fund hereby
appoints RCM as its agent to be the principal
underwriter of Fund with respect to its following
series:
Bearguard Fund
Investor Class
Institutional Class
Dated: ______ ____, 1999
<PAGE>
SCHEDULE B
to the
DISTRIBUTION AGREEMENT
between
BEARGUARD FUNDS, INC.
and
RAFFERTY CAPITAL MARKETS, INC.
As compensation pursuant to section 8 of the
Distribution Agreement between Bearguard Funds, Inc.
(the "Fund") and Rafferty Capital Markets, Inc.
("RCM"), the Fund shall pay to RCM the sum of:
1. an annual fee of $15,000 for the first series of
the Fund and $3,000 for each series or class thereafter
or .01% of the average daily net assets of each series
or class, computed daily and paid monthly, whichever is
greater;
2. the ongoing licensing fees and incidental costs of
those employees of the Fund's sponsor who are
designated by the Fund's sponsor to become registered
representatives of RCM;
3. the compensation, if any, paid by RCM to such
registered representatives in accordance with
compensation schedules, as agreed upon by RCM and the
Fund's sponsor from time to time;
4. the reasonable fees associated with listing and
maintaining shares on the National Securities Clearing
Corporation's Fund/SERV System;
5. incidental expenses associated with printing and
distributing advertising and sales literature, such as
filings with the National Association of Securities
Dealers, Inc.; and
6. any reasonable out-of-pocket expenses, including
travel expenses and retention of records.
In no event shall fees or expenses attributable to and
payable by the Fund's Investor Class under this
Agreement exceed the permissible payments authorized
under the Investors Class's Distribution Plan pursuant
to Rule 12b-1 under the 1940 Act. The Fund shall not
be obligated to pay any of the foregoing fees/expenses
with respect to any series or class of shares for which
the Fund does not have a Rule 12b-1 Plan in effect.
Dated: ______ ____, 1999
CUSTODIAN SERVICING AGREEMENT
THIS AGREEMENT made as of _______________ ____,
1999, between Bearguard Funds, Inc., a Maryland
corporation (hereinafter called the "Company"), and
Firstar Bank Milwaukee, N.A., a Wisconsin corporation
(hereinafter called "Custodian").
WHEREAS, the Company is an open-end management
investment company which is registered under the
Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Company is authorized to create
separate series, each with its own separate investment
portfolio; and
WHEREAS, the Company desires that the securities
and cash of the Bearguard Fund and each additional
series of the Company listed on Exhibit A attached
hereto (each, a "Fund"), as may be amended from time to
time, shall be hereafter held and administered by
Custodian pursuant to the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual
agreements herein made, the Company and Custodian agree
as follows:
1. Definitions
The word "securities" as used herein includes
stocks, shares, bonds, debentures, notes, mortgages or
other obligations, and any certificates, receipts,
warrants or other instruments representing rights to
receive, purchase or subscribe for the same, or
evidencing or representing any other rights or
interests therein, or in any property or assets.
The words "officers' certificate" shall mean a
request or direction or certification in writing signed
in the name of the Company by any two of the President,
a Vice President, the Secretary and the Treasurer of
the Company, or any other persons duly authorized to
sign by the Board of Directors.
The word "Board" shall mean the Board of Directors
of the Company.
2. Names, Titles, and Signatures of the Company's Officers
An officer of the Company will certify to
Custodian the names and signatures of those persons
authorized to sign the officers' certificates described
in Section 1 hereof, and the names of the members of
the Board of Directors, together with any changes which
may occur from time to time.
<PAGE>
3. Receipt and Disbursement of Money
A. Custodian shall open and maintain a separate
account or accounts in the name of the Company, subject
only to draft or order by Custodian acting pursuant to
the terms of this Agreement. Custodian shall hold in
such account or accounts, subject to the provisions
hereof, all cash received by it from or for the account
of the Company. Custodian shall make payments of cash
to, or for the account of, the Company from such cash
only:
(a) for the purchase of securities for the
portfolio of the Fund upon the delivery
of such securities to Custodian,
registered in the name of the Company or
of the nominee of Custodian referred to
in Section 7 or in proper form for
transfer;
(b) for the purchase or redemption of shares
of the common stock of the Fund upon
delivery thereof to Custodian, or upon
proper instructions from the Company;
(c) for the payment of interest, dividends,
taxes, investment adviser's fees or
operating expenses (including, without
limitation thereto, fees for legal,
accounting, auditing and custodian
services, expenses for printing and
postage and payments under any Rule 12b-
1 plan);
(d) for payments in connection with the
conversion, exchange or surrender of
securities owned or subscribed to by the
Fund held by or to be delivered to
Custodian; or
(e) for other proper corporate purposes
certified by resolution of the Board of
Directors of the Company.
Before making any such payment, Custodian shall
receive (and may rely upon) an officers' certificate
requesting such payment and stating that it is for a
purpose permitted under the terms of items (a), (b),
(c), or (d) of this Subsection A, and also, in respect
of item (e), upon receipt of an officers' certificate
specifying the amount of such payment, setting forth
the purpose for which such payment is to be made,
declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom such
payment is to be made, provided, however, that an
officers' certificate need not precede the disbursement
of cash for the purpose of purchasing a money market
instrument, or any other security with same or next-day
settlement, if the President, a Vice President, the
Secretary or the Treasurer of the Company issues
appropriate oral or facsimile instructions to Custodian
and an appropriate officers' certificate is received by
Custodian within two business days thereafter.
B. Custodian is hereby authorized to endorse and
collect all checks, drafts or other orders for the
payment of money received by Custodian for the account
of the Company.
<PAGE>
C. Custodian shall, upon receipt of proper
instructions, make federal funds available to the
Company as of specified times agreed upon from time to
time by the Company and the Custodian in the amount of
checks received in payment for shares of the Fund which
are deposited into the Fund's account.
D. If so directed by the Company, Custodian will
invest any and all available cash in overnight cash-
equivalent investments as specified by the investment
manager.
4. Segregated Accounts
Upon receipt of proper instructions, the Custodian
shall establish and maintain a segregated account(s)
for and on behalf of the Fund, into which account(s)
may be transferred cash and/or securities.
5. Transfer, Exchange, Redelivery, etc. of Securities
Custodian shall have sole power to release or
deliver any securities of the Company held by it
pursuant to this Agreement. Custodian agrees to
transfer, exchange or deliver securities held by it
hereunder only:
(a) for sales of such securities for the account of
the Fund upon receipt by Custodian of payment
therefore;
(b) when such securities are called, redeemed or
retired or otherwise become payable;
(c) for examination by any broker selling any such
securities in accordance with "street
delivery" custom;
(d) in exchange for, or upon conversion into, other
securities alone or other securities and cash
whether pursuant to any plan of merger,
consolidation, reorganization, recapitalization
or readjustment, or otherwise;
(e) upon conversion of such securities pursuant to
their terms into other securities;
(f) upon exercise of subscription, purchase or
other similar rights represented by such
securities;
(g) for the purpose of exchanging interim receipts
or temporary securities for definitive
securities;
(h) for the purpose of redeeming in kind shares of
common stock of the Fund upon delivery
thereof to Custodian; or
(i) for other proper corporate purposes.
<PAGE>
As to any deliveries made by Custodian pursuant to
items (a), (b), (d), (e), (f), and (g), securities or
cash receivable in exchange therefor shall be
deliverable to Custodian.
Before making any such transfer, exchange or
delivery, Custodian shall receive (and may rely upon)
an officers' certificate requesting such transfer,
exchange or delivery, and stating that it is for a
purpose permitted under the terms of items (a), (b),
(c), (d), (e), (f), (g), or (h) of this Section 5 and
also, in respect of item (i), upon receipt of an
officers' certificate 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, provided, however, that an officers' certificate
need not precede any such transfer, exchange or
delivery of a money market instrument, or any other
security with same or next-day settlement, if the
President, a Vice President, the Secretary or the
Treasurer of the Company issues appropriate oral or
facsimile instructions to Custodian and an appropriate
officers' certificate is received by Custodian within
two business days thereafter.
6. Custodian's Acts Without Instructions
Unless and until Custodian receives an officers'
certificate to the contrary, Custodian shall: (a)
present for payment all coupons and other income items
held by it for the account of the Fund, which call for
payment upon presentation and hold the cash received by
it upon such payment for the account of the Fund; (b)
collect interest and cash dividends received, with
notice to the Company, for the account of the Fund; (c)
hold for the account of the Fund hereunder all stock
dividends, rights and similar securities issued with
respect to any securities held by it hereunder; and (d)
execute, as agent on behalf of the Company, all
necessary ownership certificates required by the
Internal Revenue Code of 1986, as amended (the "Code")
or the Income Tax Regulations (the "Regulations") of
the United States Treasury Department (the "Treasury
Department") or under the laws of any state now or
hereafter in effect, inserting the Company's name on
such certificates as the owner of the securities
covered thereby, to the extent it may lawfully do so.
7. Registration of Securities
Except as otherwise directed by an officers'
certificate, Custodian shall register all securities,
except such as are in bearer form, in the name of a
registered nominee of Custodian as defined in the Code
and any Regulations of the Treasury Department issued
thereunder or in any provision of any subsequent
federal tax law exempting such transaction from
liability for stock transfer taxes, and shall execute
and deliver all such certificates in connection
therewith as may be required by such laws or
regulations or under the laws of any state. All
securities held by Custodian hereunder shall be at all
times identifiable in its records as being held in an
account or accounts of Custodian containing only the
assets of the Company.
The Company shall from time to time furnish to
Custodian appropriate instruments to enable Custodian
to hold or deliver in proper form for transfer, or to
register in the name of its
<PAGE>
registered nominee, any securities which it may hold
for the account of the Company and which may from time
to time be registered in the name of the Company.
8. Voting and Other Action
Neither Custodian nor any nominee of Custodian
shall vote any of the securities held hereunder by or
for the account of the Fund, except in accordance with
the instructions contained in an officers' certificate.
Custodian shall deliver, or cause to be executed and
delivered, to the Company all notices, proxies and
proxy soliciting materials with respect to such
securities, such proxies to be executed by the
registered holder of such securities (if registered
otherwise than in the name of the Company), but without
indicating the manner in which such proxies are to be
voted.
9. Transfer Tax and Other Disbursements
The Company shall pay or reimburse Custodian from
time to time for any transfer taxes payable upon
transfers of securities made hereunder, and for all
other necessary and proper disbursements and expenses
made or incurred by Custodian in the performance of
this Agreement.
Custodian shall execute and deliver such
certificates in connection with securities delivered to
it or by it under this Agreement as may be required
under the provisions of the Code and any Regulations of
the Treasury Department issued thereunder, or under the
laws of any state, to exempt from taxation any exempt
transfers and/or deliveries of any such securities.
10. Concerning Custodian
Custodian shall be paid as compensation for its
services pursuant to this Agreement such compensation
as may from time to time be agreed upon in writing
between the two parties. Until modified in writing,
such compensation shall be as set forth in Exhibit A
attached hereto.
Custodian shall not be liable for any action taken
in good faith upon any certificate herein described or
certified copy of any resolution of the Board, and may
rely on the genuineness of any such document which it
may in good faith believe to have been validly
executed.
The Company agrees to indemnify and hold harmless
Custodian and its nominee from all taxes, charges,
expenses, assessments, claims and liabilities
(including reasonable counsel fees) incurred or
assessed against it or by its nominee in connection
with the performance of this Agreement, except such as
may arise from its or its nominee's own bad faith,
negligent action, negligent failure to act or willful
misconduct. Custodian is authorized to charge any
account of the Fund for such items. In the event of
any advance of cash for any purpose made by Custodian
resulting from orders or instructions of the Company,
or in the event that Custodian or its nominee shall
incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with
the performance of this Agreement, except such as may
arise from its or its
<PAGE>
nominee's own bad faith,
negligent action, negligent failure to act or willful
misconduct, any property at any time held for the
account of the Company shall be security therefor.
Custodian agrees to indemnify and hold harmless
the Company from all charges, expenses, assessments,
and claims/liabilities (including reasonable counsel
fees) incurred or assessed against it in connection
with the performance of this Agreement, except such as
may arise from the Fund's own bad faith, negligent
action, negligent failure to act, or willful
misconduct.
11. Subcustodians
Custodian is hereby authorized to engage another
bank or trust company as a subcustodian for all or any
part of the Company's assets, so long as any such bank
or trust company is itself qualified under the 1940 Act
and the rules and regulations thereunder and provided
further that, if the Custodian utilizes the services of
a subcustodian, the Custodian shall remain fully liable
and responsible for any losses caused to the Company by
the subcustodian as fully as if the Custodian was
directly responsible for any such losses under the
terms of this Agreement.
Notwithstanding anything contained herein, if the
Company requires the Custodian to engage specific
subcustodians for the safekeeping and/or clearing of
assets, the Company agrees to indemnify and hold
harmless Custodian from all claims, expenses and
liabilities incurred or assessed against it in
connection with the use of such subcustodian in regard
to the Company's assets, except as may arise from
Custodian's own bad faith, negligent action, negligent
failure to act or willful misconduct.
12. Reports by Custodian
Custodian shall furnish the Company periodically
as agreed upon with a statement summarizing all
transactions and entries for the account of Company.
Custodian shall furnish to the Company, at the end of
every month, a list of the portfolio securities for the
Fund showing the aggregate cost of each issue. The
books and records of Custodian pertaining to its
actions under this Agreement shall be open to
inspection and audit at reasonable times by officers
of, and by auditors employed by, the Company.
13. Termination or Assignment
This Agreement may be terminated by the Company,
or by Custodian, on ninety (90) days notice, given in
writing and sent by registered mail to:
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, WI 53202
<PAGE>
or to the Company at:
Bearguard Funds, Inc.
985 University Avenue, Suite 26
Los Gatos, CA 95032
Attn: Corporate Secretary
as the case may be. Upon any termination of this
Agreement, pending appointment of a successor to
Custodian or a vote of the shareholders of the Fund to
dissolve or to function without a custodian of its
cash, securities and other property, Custodian shall
not deliver cash, securities or other property of the
Fund to the Company, but may deliver them to a bank or
trust company of its own selection that meets the
requirements of the 1940 Act as a Custodian for the
Company to be held under terms similar to those of this
Agreement, provided, however, that Custodian shall not
be required to make any such delivery or payment until
full payment shall have been made by the Company of all
liabilities constituting a charge on or against the
properties then held by Custodian or on or against
Custodian, and until full payment shall have been made
to Custodian of all its fees, compensation, costs and
expenses, subject to the provisions of Section 10 of
this Agreement.
This Agreement may not be assigned by Custodian
without the consent of the Company, authorized or
approved by a resolution of its Board of Directors.
14. Deposits of Securities in Securities Depositories;
Mutual Fund Shares
A.No provision of this Agreement shall be deemed to
prevent the use by Custodian of a central securities
clearing agency or securities depository, provided,
however, that Custodian and the central securities
clearing agency or securities depository meet all
applicable federal and state laws and regulations, and
the Board of Directors of the Company approves by
resolution the use of such central securities clearing
agency or securities depository.
B.Custodian may deposit funds with and/or maintain
uncertificated shares of any mutual fund with the
transfer agent provided that:
(a) Custodian maintains the mutual fund shares in an
account with the transfer agent in the name of
Custodian as Custodian for the Company and the account
does not include any other assets of Custodian;
(b) Custodian confirms with any such transfer agent that
the transfer agent will maintain segregated accounts
representing only assets held by Custodian, as agent
for the Company;
(c) Custodian pays for and redeems mutual fund shares
upon receipt of proper instructions from the Company,
and sends to the Company copies of all confirmations
received from any such transfer agents of any transfers
to or from the account of a Fund;
<PAGE>
(d) Custodian sends the Company reports on its internal
accounting controls as the Company may reasonably
request from time to time; and
(e) The Board of Directors of the Company approves by
resolution the use of this arrangement with respect to
mutual fund shares and reviews this arrangement at
least annually thereafter.
15. Records
Custodian shall keep records relating to its
services to be performed hereunder, in the form and
manner, and for such period, as it may deem advisable
and is agreeable to the Company but not inconsistent
with the rules and regulations of appropriate
government authorities, in particular Section 31 of the
1940 Act and the rules thereunder. Custodian agrees
that all such records prepared or maintained by the
Custodian relating to the services performed by
Custodian hereunder are the property of the Company and
will be preserved, maintained, and made available in
accordance with such section and rules of the 1940 Act
and will be promptly surrendered to the Company on and
in accordance with its request.
16. Governing Law
This Agreement shall be governed by Wisconsin law.
However, nothing herein shall be construed in a manner
inconsistent with the 1940 Act or any rule or
regulation promulgated by the Securities and Exchange
Commission thereunder.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by a duly authorized
officer in one or more counterparts as of the day and
year first written above.
BEARGUARD FUNDS, INC. FIRSTAR BANK MILWAUKEE, N.A.
By:__________________ By:_________________________
Its:_________________ Its:________________________
<PAGE>
Custody Services
Annual Fee Schedule - Domestic Funds
Exhibit A
Separate Series of Bearguard Funds, Inc.
Name of Series Date Added
Bearguard Fund ______ ____, 1999
Investor Class
Institutional Class
Annual fee based upon market value
2 basis points per year
Minimum annual fee per fund or class - $3,000
Investment transactions (purchase, sale, exchange,
tender, redemption, maturity, receipt, delivery):
$12.00 per book entry security (depository or Federal Reserve system)
$25.00 per definitive security (physical)
$25.00 per mutual fund trade
$75.00 per Euroclear
$ 8.00 per principal reduction on pass-through certificates
$35.00 per option/futures contract
$15.00 per variation margin
$15.00 per Fed wire deposit or withdrawal
Variable Amount Demand Notes: Used as a short-term
investment, variable amount notes offer safety and
prevailing high interest rates. Our charge, which is
1/4 of 1%, is deducted from the variable amount note
income at the time it is credited to your account.
Plus out-of-pocket expenses. Foreign securities
custody services quoted separately.
Fees and out-of-pocket expenses are billed to the Fund
monthly, based upon market value at the beginning of
the month.
TRANSFER AGENT SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of this
_____ day of __________, 1999, by and between Bearguard
Funds, Inc., a Maryland corporation (hereinafter
referred to as the "Company"), and Firstar Mutual Fund
Services, LLC, a Wisconsin limited liability company
(hereinafter referred to as the "Firstar").
WHEREAS, the Company is an open-end management
investment company which is registered under the
Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Company is authorized to create
separate series, each with its own separate investment
portfolio;
WHEREAS, Firstar is in the business of
administering transfer and dividend disbursing agent
functions for investment companies; and
WHEREAS, the Company desires to retain Firstar to
provide transfer and dividend disbursing agent services
to the Bearguard Fund and each additional series of the
Company listed on Exhibit A attached hereto (each, a
"Fund"), as may be amended from time to time.
NOW, THEREFORE, in consideration of the mutual
agreements herein made, the Company and Firstar agree
as follows:
1. Appointment of Transfer Agent
The Company hereby appoints Firstar as Transfer
Agent of the Company on the terms and conditions set
forth in this Agreement, and Firstar hereby accepts
such appointment and agrees to perform the services and
duties set forth in this Agreement in consideration of
the compensation provided for herein.
2. Duties and Responsibilities of Firstar
Firstar shall perform all of the customary
services of a transfer agent and dividend disbursing
agent, and as relevant, agent in connection with
accumulation, open account or similar plans (including
without limitation any periodic investment plan or
periodic withdrawal program), including but not limited
to:
A. Receive orders for the purchase of shares;
B. Process purchase orders with prompt delivery,
where appropriate, of payment and supporting
documentation to the Company's custodian, and
issue the appropriate number of
uncertificated shares with such
uncertificated shares being held in the
appropriate shareholder account;
<PAGE>
C. Process redemption requests received in good
order and, where relevant, deliver
appropriate documentation to the Company's
custodian;
D. Pay monies upon receipt from the Company's
custodian, where relevant, in accordance with
the instructions of redeeming shareholders;
E. Process transfers of shares in accordance with
the shareholder's instructions;
F. Process exchanges between funds and/or classes
of shares of funds both within the same
family of funds and with the Firstar Money
Market Funds, if applicable;
G. Prepare and transmit payments for dividends and
distributions declared by the Company with
respect to the Fund;
H. Make changes to shareholder records, including,
but not limited to, address changes in plans
(i.e., systematic withdrawal, automatic
investment, dividend reinvestment, etc.);
I. Record the issuance of shares of the Fund and
maintain, pursuant to Rule 17ad-10(e)
promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), a
record of the total number of shares of the
Fund which are authorized, issued and
outstanding;
J. Prepare shareholder meeting lists and, if
applicable, mail, receive and tabulate
proxies;
K. Mail shareholder reports and prospectuses to
current shareholders;
L. Prepare and file U.S. Treasury Department Forms
1099 and other appropriate information
returns required with respect to dividends
and distributions for all shareholders;
M. Provide shareholder account information upon
request and prepare and mail confirmations
and statements of account to shareholders for
all purchases, redemptions and other
confirmable transactions as agreed upon with
the Company;
N. Provide a Blue Sky System which will enable the
Company to monitor the total number of shares
of the Fund sold in each state. In addition,
the Company or its agent, including Firstar,
shall identify to Firstar in writing those
transactions and assets to be treated as
exempt from the Blue Sky reporting for each
state. The responsibility of Firstar for the
Company's Blue Sky state registration status
under this Agreement is solely limited to the
initial compliance by the Company and the
reporting of such transactions to the Company
or its agent.
<PAGE>
O. Answer telephone calls and correspondence from
shareholders relating to their accounts
during Firstar's normal business hours.
Firstar shall strive to promptly respond to
all such telephone or written inquiries from
shareholders. Copies of all correspondence
from shareholders involving complaints about
the management of the Company, services
provided by or for the Company, Firstar or
others, shall be promptly forwarded to the
Company. Firstar shall keep records of
substantive shareholder telephone calls and
correspondence and replies thereto, and of
the lapse of time between receipt of such
calls and correspondence and replies.
P. Prepare such reports as may be reasonably
requested from time to time by the Company or
its Board of Directors relating to fees paid
out under a Fund's Rule 12b-1 plan.
3. Compensation
The Company agrees to pay Firstar for the
performance of the duties listed in this Agreement as
set forth on Exhibit A attached hereto; the fees and
out-of-pocket expenses include, but are not limited to
the following: printing, postage, forms, stationery,
record retention (if requested by the Company),
mailing, insertion, programming (if requested by the
Company), labels, shareholder lists and proxy expenses.
These fees and reimbursable expenses may be
changed from time to time subject to mutual written
agreement between the Company and Firstar.
The Company agrees to pay all fees and
reimbursable expenses within ten (10) business days
following the receipt of the billing notice.
4. Representations of Firstar
Firstar represents and warrants to the Company that:
A. It is a limited liability company duly
organized, existing and in good standing
under the laws of Wisconsin;
B. It is a registered transfer agent under the
Exchange Act.
C. It is duly qualified to carry on its business in
the State of Wisconsin;
D. It is empowered under applicable laws and by its
charter and bylaws to enter into and perform
this Agreement;
E. All requisite corporate proceedings have been
taken to authorize it to enter and perform
this Agreement;
<PAGE>
F. It has and will continue to have access to the
necessary facilities, equipment and personnel
to perform its duties and obligations under
this Agreement; and
G. It will comply with all applicable requirements
of the Securities Act of 1933, as amended
(the "Securities Act"), and the Exchange Act,
the 1940 Act, and any laws, rules, and
regulations of governmental authorities
having jurisdiction.
5. Representations of the Company
The Company represents and warrants to Firstar that:
A. The Company is an open-end diversified
investment company under the 1940 Act;
B. The Company is a corporation organized,
existing, and in good standing under the laws
of Maryland;
C. The Company is empowered under applicable laws
and by its Articles of Incorporation and
Bylaws to enter into and perform this
Agreement;
D. All necessary proceedings required by the
Articles of Incorporation have been taken to
authorize it to enter into and perform this
Agreement;
E. The Company will comply with all applicable
requirements of the Securities Act, the
Exchange Act, the 1940 Act, and any laws,
rules and regulations of governmental
authorities having jurisdiction; and
F. A registration statement under the Securities
Act will be made effective and will remain
effective, and appropriate state securities
law filings have been made and will continue
to be made, with respect to all shares of the
Company being offered for sale.
6. Covenants of the Company and Firstar
The Company shall furnish Firstar a certified copy
of the resolution of the Board of Directors of the
Fund authorizing the appointment of Firstar and the
execution of this Agreement. The Company shall provide
to Firstar a copy of its Articles of Incorporation and
Bylaws, and all amendments thereto.
Firstar shall keep records relating to the
services to be performed hereunder, in the form and
manner as it may deem advisable and as required under
the Exchange Act. To the extent required by Section 31
of the 1940 Act, and the rules thereunder, Firstar
agrees that all such records prepared or maintained by
Firstar relating to the services to be performed by
Firstar hereunder are the property of the Company and
will be preserved, maintained and made available
<PAGE>
in accordance with such section and rules and will be
surrendered to the Company on and in accordance with
its request.
7. Performance of Service; Limitation of Liability
Firstar shall exercise reasonable care in the
performance of its duties under this Agreement.
Firstar shall not be liable for any error of judgment
or mistake of law or for any loss suffered by the
Company in connection with matters to which this
Agreement relates, including losses resulting from
mechanical breakdowns or the failure of communication
or power supplies beyond Firstar's control, except a
loss resulting from Firstar's refusal or failure to
comply with the terms of this Agreement or from bad
faith, negligence, or willful misconduct on its part in
the performance of its duties under this Agreement.
Notwithstanding any other provision of this Agreement,
the Company shall indemnify and hold harmless Firstar
from and against any and all claims, demands, losses,
expenses, and liabilities (whether with or without
basis in fact or law) of any and every nature
(including reasonable attorneys' fees) which Firstar
may sustain or incur or which may be asserted against
Firstar by any person arising out of any action taken
or omitted to be taken by it in performing the services
hereunder (i) in accordance with the foregoing
standards, or (ii) in reliance upon any written or oral
instruction provided to Firstar by any duly authorized
officer of the Company, such duly authorized officer to
be included in a list of authorized officers furnished
to Firstar and as amended from time to time in writing
by resolution of the Board of Directors of the Company.
Firstar shall indemnify and hold the Company
harmless from and against any and all claims, demands,
losses, expenses, and liabilities (whether with or
without basis in fact or law) of any and every nature
(including reasonable attorneys' fees) which the
Company may sustain or incur or which may be asserted
against the Company by any person arising out of any
action taken or omitted to be taken by Firstar as a
result of Firstar's refusal or failure to comply with
the terms of this Agreement, its bad faith, negligence,
or willful misconduct.
In the event of a mechanical breakdown or failure
of communication or power supplies beyond its control,
Firstar shall take all reasonable steps to minimize
service interruptions for any period that such
interruption continues beyond Firstar's control.
Firstar will make every reasonable effort to restore
any lost or damaged data and correct any errors
resulting from such a breakdown at the expense of
Firstar. Firstar agrees that it shall, at all times,
have reasonable contingency plans with appropriate
parties, making reasonable provision for emergency use
of electrical data processing equipment to the extent
appropriate equipment is available. Representatives of
the Company shall be entitled to inspect Firstar's
premises and operating capabilities at any time during
regular business hours of Firstar, upon reasonable
notice to Firstar.
Regardless of the above, Firstar reserves the
right to reprocess and correct administrative errors at
its own expense.
In order that the indemnification provisions
contained in this section shall apply, it is understood
that if in any case the indemnitor may be asked to
indemnify or hold the indemnitee
<PAGE>
harmless, the indemnitor shall be fully and promptly advised
of all pertinent facts concerning the situation in question,
and it is further understood that the indemnitee will
use all reasonable care to notify the indemnitor
promptly concerning any situation which presents or
appears likely to present the probability of a claim
for indemnification. The indemnitor shall have the
option to defend the indemnitee against any claim which
may be the subject of this indemnification. In the
event that the indemnitor so elects, it will so notify
the indemnitee and thereupon the indemnitor shall take
over complete defense of the claim, and the indemnitee
shall in such situation initiate no further legal or
other expenses for which it shall seek indemnification
under this section. The indemnitee shall in no case
confess any claim or make any compromise in any case in
which the indemnitor will be asked to indemnify the
indemnitee except with the indemnitor's prior written
consent.
8. Proprietary and Confidential Information
Firstar agrees on behalf of itself and its
directors, officers, and employees to treat
confidentially and as proprietary information of the
Company all records and other information relative to
the Company and prior, present, or potential
shareholders (and clients of said shareholders) and not
to use such records and information for any purpose
other than the performance of its responsibilities and
duties hereunder, except after prior notification to
and approval in writing by the Company, which approval
shall not be unreasonably withheld and may not be
withheld where Firstar may be exposed to civil or
criminal contempt proceedings for failure to comply
after being requested to divulge such information by
duly constituted authorities, or when so requested by
the Company.
9. Term of Agreement; Amendment
This Agreement shall become effective as of the
date hereof and, unless sooner terminated as provided
herein, shall continue automatically in effect for
successive annual periods. The Agreement may be
terminated by either party upon giving ninety (90) days
prior written notice to the other party or such shorter
period as is mutually agreed upon by the parties. This
Agreement may be amended only by mutual written consent
of the parties.
10. Notices
Notices of any kind to be given by either party to
the other party shall be in writing and shall be duly
given if mailed or delivered as follows: Notice to
Firstar shall be sent to:
Firstar Mutual Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202
<PAGE>
and notice to the Company shall be sent to:
Bearguard Funds, Inc.
985 University Avenue, Suite 26
Los Gatos, California 95032
Attention: Corporate Secretary
11. Duties in the Event of Termination
In the event that, in connection with termination,
a successor to any of Firstar's duties or
responsibilities hereunder is designated by the Company
by written notice to Firstar, Firstar will promptly,
upon such termination and at the expense of the
Company, transfer to such successor all relevant books,
records, correspondence, and other data established or
maintained by Firstar under this Agreement in a form
reasonably acceptable to the Company (if such form
differs from the form in which Firstar has maintained,
the Company shall pay any expenses associated with
transferring the data to such form), and will cooperate
in the transfer of such duties and responsibilities,
including provision for assistance from Firstar's
personnel in the establishment of books, records, and
other data by such successor.
12. Governing Law
This Agreement shall be construed and the
provisions thereof interpreted under and in accordance
with the laws of the State of Wisconsin. However,
nothing herein shall be construed in a manner
inconsistent with the 1940 Act or any rule or
regulation promulgated by the Securities and Exchange
Commission thereunder.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by a duly authorized
officer in one or more counterparts as of the day and
year first written above.
BEARGUARD FUNDS, INC. FIRSTAR MUTUAL FUND
SERVICES, LLC
By:_________________ By:__________________
Its:________________ Its:_________________
<PAGE>
Transfer Agent and Shareholder Servicing
Annual Fee Schedule
Exhibit A
Separate Series of Bearguard Funds, Inc.
Name of Series Date Added
Bearguard Fund ______ ____, 1999
Investor Class
Institutional Class
Annual Fee
$16.00 per shareholder account
Minimum annual fees of $35,500 for the two
classes, $10,000 for additional funds or classes
Plus Out-of-Pocket Expenses, including but not limited to:
Telephone - toll-free linesProxies
Postage Retention of records
(with prior approval)
Programming (with prior approval)
Microfilm/fiche of records
Stationery/envelopes Special reports
Mailing ACH fees
Insurance NSCC charges
ACH Shareholder Services
$125.00 per month per Fund group
$ .50 per account setup and/or change
$ .50 per ACH item
$ 3.50 per correction, reversal, return item
Qualified Plan Fees (Billed to Investors)
Annual maintenance fee
per account $12.50 /acct. (Cap at $25.00 per SSN)
Transfer to successor trustee $15.00 / trans.
Distribution to participant $15.00 / trans. (Exclusive of SWP)
Refund of excess contribution $15.00 / trans.
Additional Shareholder Fees (Billed to Investors)
Any outgoing wire transfer $12.00 / wire
Telephone Exchange $ 5.00 / exchange transaction
Return check fee $20.00 / item
Stop payment $20.00 / stop
(Liquidation, dividend, draft check)
Research fee $ 5.00 / item
(For requested items of the second calendar
year [or previous] to the request)(Cap at $25.00)
<PAGE>
NSCC and DAZL
Out-of-Pocket Charges
NSCC Interfaces
Setup
Fund/SERV, Networking ACATS, Exchanges $5,000 setup (one time)
DCCS, RAT
Commissions $5,000 setup (one time)
Processing
Fund/SERV $ 50 / month
Networking $250 / month
CPU Access $ 40 / month
Fund/SERV Transactions $.350 / trade
Networking - per item $.025 /monthly dividend fund
Networking - per item $.015 /non-mo. dividend fund
First Data $.100 / next-day Fund/SERV
trade
First Data $.150 / same-day Fund/SERV
trade
NSCC Implementation
8 to 10 weeks lead time
Fees and out-of-pocket expenses are billed to the Fund monthly.
FUND ADMINISTRATION SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of this
_____ day of ____________, 1999, by and between
Bearguard Funds, Inc., a Maryland corporation
(hereinafter referred to as the "Company"), and Firstar
Mutual Fund Services, LLC, a Wisconsin limited
liability company (hereinafter referred to as
"Firstar").
WHEREAS, the Company is an open-end management
investment company which is registered under the
Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Company is authorized to create
separate series, each with its own separate investment
portfolio;
WHEREAS, Firstar is in the business of providing,
among other things, fund administration services to
investment companies; and
WHEREAS, the Company desires to retain Firstar to
act as Administrator for the Bearguard Fund and for
each additional series of the Company listed on Exhibit
A attached hereto (each, a "Fund"), as may be amended
from time to time.
NOW, THEREFORE, in consideration of the mutual
agreements herein made, the Company and Firstar agree
as follows:
1. Appointment of Administrator
The Company hereby appoints Firstar as
Administrator of the Company on the terms and
conditions set forth in this Agreement, and Firstar
hereby accepts such appointment and agrees to perform
the services and duties set forth in this Agreement in
consideration of the compensation provided for herein.
2. Duties and Responsibilities of Firstar
A. General Fund Management
1. Act as liaison among all Fund service providers
2. Coordinate board communication by:
a. Assisting Company counsel in
establishing meeting agendas
b. Preparing board reports based on
financial and administrative data
c. Evaluating independent auditor
<PAGE>
d. Securing and monitoring fidelity bond
and director and officer liability
coverage, and making the necessary
SEC filings relating thereto
e. Preparing minutes of meetings of the
board and shareholders
3. Audits
a. Prepare appropriate schedules and
assist independent auditors
b. Provide information to SEC and
facilitate audit process
c. Provide office facilities
4. Assist in overall operations of the Fund
5. Pay Fund expenses upon written authorization from the Company
B. Compliance
1. Regulatory Compliance
a. Monitor compliance with 1940 Act
requirements, including:
1) Asset diversification tests
2) Total return and SEC yield calculations
3) Maintenance of books and records under Rule 31a-3
4) Code of Ethics for the disinterested directors of the
Fund (if requested by the Fund)
b. Monitor Fund's compliance with the
policies and investment limitations
of the Company as set forth in its
Prospectus and Statement of
Additional Information
2. Blue Sky Compliance
a. Prepare and file with the appropriate
state securities authorities any
and all required compliance filings
relating to the registration of the
securities of the Company so as to
enable the Company to make a
continuous offering of its shares
in all states
b. Monitor status and maintain
registrations in each state
3. SEC Registration and Reporting
a. Assist Company counsel in updating
Prospectus and Statement of
Additional Information and in
preparing proxy statements and
Rule 24f-2 notices
b. Prepare annual and semiannual reports
<PAGE>
c. Coordinate the printing of publicly
disseminated Prospectuses and
reports
d. File fidelity bond under Rule 17g-1
e. File shareholder reports under Rule 30b2-1
4. IRS Compliance
a. Monitor Company's status as a
regulated investment company under
Subchapter M through review of the
following:
1) Asset diversification requirements
2) Qualifying income requirements
3) Distribution requirements
b. Calculate required distributions
(including excise tax distributions)
C. Financial Reporting
1. Provide financial data required by Fund's
Prospectus and Statement of Additional Information
2. Prepare financial reports for shareholders,
the board, the SEC, and independent auditors
3. Supervise the Company's Custodian and
Company Accountants in the maintenance
of the Company's general ledger and in
the preparation of the Fund's financial
statements, including oversight of
expense accruals and payments, of the
determination of net asset value of the
Company's net assets and of the
Company's shares, and of the declaration
and payment of dividends and other
distributions to shareholders
D. Tax Reporting
1. Prepare and file on a timely basis
appropriate federal and state tax
returns including Forms 1120/8610 with
any necessary schedules
2. Prepare state income breakdowns where relevant
3. File Form 1099 Miscellaneous for payments
to directors and other service providers
4. Monitor wash losses
5. Calculate eligible dividend income for
corporate shareholders
<PAGE>
3. Compensation
The Company, on behalf of the Fund, agrees to pay
Firstar for the performance of the duties listed in
this Agreement, the fees and out-of-pocket expenses as
set forth in the attached Exhibit A.
These fees may be changed from time to time,
subject to mutual written Agreement between the Company
and Firstar.
The Company agrees to pay all fees and
reimbursable expenses within ten (10) business days
following the receipt of the billing notice.
4. Performance of Service; Limitation of Liability
A. Firstar shall exercise reasonable care in the
performance of its duties under this Agreement.
Firstar shall not be liable for any error of judgment
or mistake of law or for any loss suffered by the
Company in connection with matters to which this
Agreement relates, including losses resulting from
mechanical breakdowns or the failure of communication
or power supplies beyond Firstar's control, except a
loss resulting from Firstar's refusal or failure to
comply with the terms of this Agreement or from bad
faith, negligence, or willful misconduct on its part in
the performance of its duties under this Agreement.
Notwithstanding any other provision of this Agreement,
the Company shall indemnify and hold harmless Firstar
from and against any and all claims, demands, losses,
expenses, and liabilities (whether with or without
basis in fact or law) of any and every nature
(including reasonable attorneys' fees) which Firstar
may sustain or incur or which may be asserted against
Firstar by any person arising out of any action taken
or omitted to be taken by it in performing the services
hereunder (i) in accordance with the foregoing
standards, or (ii) in reliance upon any written or oral
instruction provided to Firstar by any duly authorized
officer of the Company, such duly authorized officer to
be included in a list of authorized officers furnished
to Firstar and as amended from time to time in writing
by resolution of the Board of Directors of the Company.
Firstar shall indemnify and hold the Company
harmless from and against any and all claims, demands,
losses, expenses, and liabilities (whether with or
without basis in fact or law) of any and every nature
(including reasonable attorneys' fees) which the
Company may sustain or incur or which may be asserted
against the Company by any person arising out of any
action taken or omitted to be taken by Firstar as a
result of Firstar's refusal or failure to comply with
the terms of this Agreement, its bad faith, negligence,
or willful misconduct.
In the event of a mechanical breakdown or
failure of communication or power supplies beyond its
control, Firstar shall take all reasonable steps to
minimize service interruptions for any period that such
interruption continues beyond Firstar's control.
Firstar will make every reasonable effort to restore
any lost or damaged data and correct any errors
resulting from such a breakdown at the expense of
Firstar. Firstar agrees that it shall, at all times,
have reasonable contingency plans with appropriate
parties, making reasonable provision for emergency use
of electrical data processing equipment to the extent
appropriate equipment is
<PAGE>
available. Representatives of
the Company shall be entitled to inspect Firstar's
premises and operating capabilities at any time during
regular business hours of Firstar, upon reasonable
notice to Firstar.
Regardless of the above, Firstar reserves the
right to reprocess and correct administrative errors at
its own expense.
B. In order that the indemnification provisions
contained in this section shall apply, it is understood
that if in any case the indemnitor may be asked to
indemnify or hold the indemnitee harmless, the
indemnitor shall be fully and promptly advised of all
pertinent facts concerning the situation in question,
and it is further understood that the indemnitee will
use all reasonable care to notify the indemnitor
promptly concerning any situation which presents or
appears likely to present the probability of a claim
for indemnification. The indemnitor shall have the
option to defend the indemnitee against any claim which
may be the subject of this indemnification. In the
event that the indemnitor so elects, it will so notify
the indemnitee and thereupon the indemnitor shall take
over complete defense of the claim, and the indemnitee
shall in such situation initiate no further legal or
other expenses for which it shall seek indemnification
under this section. The indemnitee shall in no case
confess any claim or make any compromise in any case in
which the indemnitor will be asked to indemnify the
indemnitee except with the indemnitor's prior written
consent.
5. Proprietary and Confidential Information
Firstar agrees on behalf of itself and its
directors, officers, and employees to treat
confidentially and as proprietary information of the
Company all records and other information relative to
the Company and prior, present, or potential
shareholders of the Company (and clients of said
shareholders), and not to use such records and
information for any purpose other than the performance
of its responsibilities and duties hereunder, except
after prior notification to and approval in writing by
the Company, which approval shall not be unreasonably
withheld and may not be withheld where Firstar may be
exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such
information by duly constituted authorities, or when so
requested by the Company.
6. Data Necessary to Perform Services
The Company or its agent, which may be Firstar,
shall furnish to Firstar the data necessary to perform
the services described herein at times and in such form
as mutually agreed upon.
7. Term of Agreement
This Agreement shall become effective as of the
date hereof and, unless sooner terminated as provided
herein, shall continue automatically in effect for
successive annual periods. The Agreement may be
terminated by either party upon giving ninety (90) days prior
<PAGE>
written notice to the other party or such shorter
period as is mutually agreed upon by the parties.
However, this Agreement may be amended by mutual
written consent of the parties.
8. Notices
Notices of any kind to be given by either party to
the other party shall be in writing and shall be duly
given if mailed or delivered as follows: Notice to
Firstar shall be sent to:
Firstar Mutual Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202
and notice to the Company shall be sent to:
Bearguard Funds, Inc.
985 University Avenue, Suite 26
Los Gatos, CA 95032
Attn: Corporate Secretary
9. Duties in the Event of Termination
In the event that, in connection with termination,
a successor to any of Firstar's duties or
responsibilities hereunder is designated by the Company
by written notice to Firstar, Firstar will promptly,
upon such termination and at the expense of the
Company, transfer to such successor all relevant books,
records, correspondence, and other data established or
maintained by Firstar under this Agreement in a form
reasonably acceptable to the Company (if such form
differs from the form in which Firstar has maintained,
the Company shall pay any expenses associated with
transferring the data to such form), and will cooperate
in the transfer of such duties and responsibilities,
including provision for assistance from Firstar's
personnel in the establishment of books, records, and
other data by such successor.
10. Governing Law
This Agreement shall be construed and the
provisions thereof interpreted under and in accordance
with the laws of the State of Wisconsin. However,
nothing herein shall be construed in a manner
inconsistent with the 1940 Act or any rule or
regulation promulgated by the Securities and Exchange
Commission thereunder.
11. Records
Firstar shall keep records relating to the
services to be performed hereunder, in the form and
manner, and for such period as it may deem advisable
and is agreeable to the Company but not inconsistent
with the rules and regulations of appropriate
government authorities, in particular, Section 31 of
the 1940 Act and the rules thereunder. Firstar agrees
that all such records prepared or maintained by Firstar
relating to the services to be performed by Firstar
<PAGE>
hereunder are the property of the Company and will be
preserved, maintained, and made available in accordance
with such section and rules of the 1940 Act and will be
promptly surrendered to the Company on and in
accordance with its request.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by a duly authorized
officer in one or more counterparts as of the day and
year first written above.
BEARGUARD FUNDS, INC. FIRSTAR MUTUAL FUND
SERVICES, LLC
By:__________________ By:___________________________
Its:_________________ Its:__________________________
<PAGE>
Fund Administration and Compliance
Annual Fee Schedule - Domestic Funds
Exhibit A
Separate Series of Bearguard Funds, Inc.
Name of Series Date Added
Bearguard Fund ______ ____, 1999
Investor Class
Institutional Class
Annual fee based upon average assets per Fund or class
6 basis points on the first $200 million
5 basis points on the next $500 million
3 basis points on the balance
Minimum annual fee: $55,000 for the first two classes of Fund
$20,000 for additional Funds or classes
Plus out-of-pocket expense reimbursements, including but not limited to:
Postage
Programming
Stationery
Proxies
Retention of records
Special reports
Federal and state regulatory filing fees
Certain insurance premiums
Expenses from board of directors meetings
Auditing and legal expenses
Fees and out-of-pocket expense reimbursements are billed to the Fund monthly.
FUND ACCOUNTING SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of this
____ day of __________, 1999, by and between Bearguard
Funds, Inc., a Maryland corporation (hereinafter
referred to as the "Company"), and Firstar Mutual Fund
Services, LLC, a Wisconsin limited liability company
(hereinafter referred to as "Firstar").
WHEREAS, the Company is an open-end management
investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Company is authorized to create
separate series, each with its own separate investment
portfolio;
WHEREAS, Firstar is in the business of providing,
among other things, mutual fund accounting services to
investment companies; and
WHEREAS, the Company desires to retain Firstar to
provide accounting services to the Bearguard Fund and
each additional series of the Company listed on Exhibit
A attached hereto (each, a "Fund"), as it may be
amended from time to time.
NOW, THEREFORE, in consideration of the mutual
agreements herein made, the Company and Firstar agree
as follows:
1. Appointment of Fund Accountant
The Company hereby appoints Firstar as Fund
Accountant of the Company on the terms and conditions
set forth in this Agreement, and Firstar hereby accepts
such appointment and agrees to perform the services and
duties set forth in this Agreement in consideration of
the compensation provided for herein.
2. Duties and Responsibilities of Firstar
A. Portfolio Accounting Services:
(1) Maintain portfolio records on a trade
date +1 basis using security trade information
communicated from the investment manager.
(2) For each valuation date, obtain prices
from a pricing source approved by the Board of
Directors of the Company and apply those prices to
the portfolio positions. For those securities
where market quotations are not readily available,
the Board of Directors of the Company shall
approve, in good faith, the method for determining
the fair value for such securities.
<PAGE>
(3) Identify interest and dividend accrual
balances as of each valuation date and calculate
gross earnings on investments for the accounting
period.
(4) Determine gain/loss on security sales
and identify them as, short-term or long-term;
account for periodic distributions of gains or
losses to shareholders and maintain undistributed
gain or loss balances as of each valuation date.
B. Expense Accrual and Payment Services:
(1) For each valuation date, calculate the
expense accrual amounts as directed by the Company
as to methodology, rate or dollar amount.
(2) Record payments for Fund expenses upon
receipt of written authorization from the Company.
(3) Account for Fund expenditures and
maintain expense accrual balances at the level of
accounting detail, as agreed upon by Firstar and
the Company.
(4) Provide expense accrual and payment reporting.
C.Fund Valuation and Financial Reporting Services:
(1) Account for Fund share purchases, sales,
exchanges, transfers, dividend reinvestments, and
other Fund share activity as reported by the
transfer agent on a timely basis.
(2) Apply equalization accounting as
directed by the Company.
(3) Determine net investment income
(earnings) for the Fund as of each valuation date.
Account for periodic distributions of earnings to
shareholders and maintain undistributed net
investment income balances as of each valuation
date.
(4) Maintain a general ledger and other
accounts, books, and financial records for the
Fund in the form as agreed upon.
(5) Determine the net asset value of the
Fund according to the accounting policies and
procedures set forth in the Fund's Prospectus.
(6) Calculate per share net asset value, per
share net earnings, and other per share amounts
reflective of Fund operations at such time as
required by the nature and characteristics of the
Fund.
(7) Communicate, at an agreed upon time, the
per share price for each valuation date to parties
as agreed upon from time to time.
<PAGE>
(8) Prepare monthly reports which document
the adequacy of accounting detail to support month-
end ledger balances.
D. Tax Accounting Services:
(1) Maintain accounting records for the
investment portfolio of the Fund to support the
tax reporting required for IRS-defined regulated
investment companies.
(2) Maintain tax lot detail for the
investment portfolio.
(3) Calculate taxable gain/loss on security
sales using the tax lot relief method designated
by the Company.
(4) Provide the necessary financial
information to support the taxable components of
income and capital gains distributions to the
transfer agent to support tax reporting to the
shareholders.
E. Compliance Control Services:
(1) Support reporting to regulatory bodies
and support financial statement preparation by
making the Fund's accounting records available to
the Company, the Securities and Exchange
Commission, and the outside auditors.
(2) Maintain accounting records according to
the 1940 Act and regulations provided thereunder.
3. Pricing of Securities
For each valuation date, obtain prices from a
pricing source selected by Firstar but approved by the
Company's Board of Directors and apply those prices to
the portfolio positions of the Fund. For those
securities where market quotations are not readily
available, the Company's Board of Directors shall
approve, in good faith, the method for determining the
fair value for such securities.
If the Company desires to provide a price which
varies from the pricing source, the Company shall
promptly notify and supply Firstar with the valuation
of any such security on each valuation date. All
pricing changes made by the Company will be in writing
and must specifically identify the securities to be
changed by CUSIP, name of security, new price or rate
to be applied, and, if applicable, the time period for
which the new price(s) is/are effective.
<PAGE>
4. Changes in Accounting Procedures
Any resolution passed by the Board of Directors of
the Company that affects accounting practices and
procedures under this Agreement shall be effective upon
written receipt and acceptance by the Firstar.
5. Changes in Equipment, Systems, Service, Etc.
Firstar reserves the right to make changes from
time to time, as it deems advisable, relating to its
services, systems, programs, rules, operating schedules
and equipment, so long as such changes do not adversely
affect the service provided to the Company under this
Agreement.
6. Compensation
Firstar shall be compensated for providing the
services set forth in this Agreement in accordance with
the Fee Schedule attached hereto as Exhibit A and as
mutually agreed upon and amended from time to time.
The Company agrees to pay all fees and reimbursable
expenses within ten (10) business days following the
receipt of the billing notice.
7. Performance of Service; Limitation of Liability
A. Firstar shall exercise reasonable care
in the performance of its duties under this
Agreement. Firstar shall not be liable for any
error of judgment or mistake of law or for any
loss suffered by the Company in connection with
matters to which this Agreement relates, including
losses resulting from mechanical breakdowns or the
failure of communication or power supplies beyond
Firstar's control, except a loss resulting from
Firstar's refusal or failure to comply with the
terms of this Agreement or from bad faith,
negligence, or willful misconduct on its part in
the performance of its duties under this
Agreement. Notwithstanding any other provision of
this Agreement, the Company shall indemnify and
hold harmless Firstar from and against any and all
claims, demands, losses, expenses, and liabilities
(whether with or without basis in fact or law) of
any and every nature (including reasonable
attorneys' fees) which Firstar may sustain or
incur or which may be asserted against Firstar by
any person arising out of any action taken or
omitted to be taken by it in performing the
services hereunder (i) in accordance with the
foregoing standards, or (ii) in reliance upon any
written or oral instruction provided to Firstar by
any duly authorized officer of the Company, such
duly authorized officer to be included in a list
of authorized officers furnished to Firstar and as
amended from time to time in writing by resolution
of the Board of Directors of the Company.
Firstar shall indemnify and hold the Company
harmless from and against any and all claims,
demands, losses, expenses, and liabilities
(whether with or without basis in fact or law) of
any and every nature (including reasonable
attorneys' fees) which the Company may sustain or
incur or which may be asserted against the Company
by any person arising out of any action taken or
omitted to be taken by Firstar as a result of
<PAGE>
Firstar's refusal or failure to comply with the
terms of this Agreement, its bad faith,
negligence, or willful misconduct.
In the event of a mechanical breakdown or
failure of communication or power supplies beyond
its control, Firstar shall take all reasonable
steps to minimize service interruptions for any
period that such interruption continues beyond
Firstar's control. Firstar will make every
reasonable effort to restore any lost or damaged
data and correct any errors resulting from such a
breakdown at the expense of Firstar. Firstar
agrees that it shall, at all times, have
reasonable contingency plans with appropriate
parties, making reasonable provision for emergency
use of electrical data processing equipment to the
extent appropriate equipment is available.
Representatives of the Company shall be entitled
to inspect Firstar's premises and operating
capabilities at any time during regular business
hours of Firstar, upon reasonable notice to
Firstar.
Regardless of the above, Firstar reserves the
right to reprocess and correct administrative
errors at its own expense.
B. In order that the indemnification
provisions contained in this section shall apply,
it is understood that if in any case the
indemnitor may be asked to indemnify or hold the
indemnitee harmless, the indemnitor shall be fully
and promptly advised of all pertinent facts
concerning the situation in question, and it is
further understood that the indemnitee will use
all reasonable care to notify the indemnitor
promptly concerning any situation which presents
or appears likely to present the probability of a
claim for indemnification. The indemnitor shall
have the option to defend the indemnitee against
any claim which may be the subject of this
indemnification. In the event that the indemnitor
so elects, it will so notify the indemnitee and
thereupon the indemnitor shall take over complete
defense of the claim, and the indemnitee shall in
such situation initiate no further legal or other
expenses for which it shall seek indemnification
under this section. Indemnitee shall in no case
confess any claim or make any compromise in any
case in which the indemnitor will be asked to
indemnify the indemnitee except with the
indemnitor's prior written consent.
8. No Agency Relationship
Nothing herein contained shall be deemed to
authorize or empower Firstar to act as agent for the
other party to this Agreement, or to conduct business
in the name of, or for the account of the other party
to this Agreement.
9. Records
Firstar shall keep records relating to the
services to be performed hereunder, in the form and
manner, and for such period as it may deem advisable
and is agreeable to the Company but not inconsistent
with the rules and regulations of appropriate
government authorities, in particular, Section 31 of
the 1940 Act, and the rules thereunder. Firstar agrees
that all such records prepared or maintained by Firstar
relating to the services to be performed by Firstar
<PAGE>
hereunder are the property of the Company and will be
preserved, maintained, and made available in accordance
with such section and rules of the 1940 Act and will be
promptly surrendered to the Company on and in
accordance with its request.
10. Data Necessary to Perform Services
The Company or its agent, which may be Firstar,
shall furnish to Firstar the data necessary to perform
the services described herein at such times and in such
form as mutually agreed upon. If Firstar is also
acting as the transfer agent for the Company, nothing
herein shall be deemed to relieve Firstar of any of its
obligations under the Transfer Agent Servicing
Agreement.
11. Notification of Error
The Company will notify Firstar of any balancing
or control error caused by Firstar within three (3)
business days after receipt of any reports rendered by
Firstar to the Company, or within three (3) business
days after discovery of any error or omission not
covered in the balancing or control procedure, or
within three (3) business days of receiving notice from
any shareholder.
12. Proprietary and Confidential Information
Firstar agrees on behalf of itself and its
directors, officers, and employees to treat
confidentially and as proprietary information of the
Company all records and other information relative to
the Company and prior, present, or potential
shareholders of the Company (and clients of said
shareholders), and not to use such records and
information for any purpose other than the performance
of its responsibilities and duties hereunder, except
after prior notification to and approval in writing by
the Company, which approval shall not be unreasonably
withheld and may not be withheld where Firstar may be
exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such
information by duly constituted authorities, or when so
requested by the Company.
13. Term of Agreement
This Agreement shall become effective as of the
date hereof and, unless sooner terminated as provided
herein, shall continue automatically in effect for
successive annual periods. This Agreement may be
terminated by either party upon giving ninety (90) days
prior written notice to the other party or such shorter
period as is mutually agreed upon by the parties.
However, this Agreement may be replaced or modified by
a subsequent agreement between the parties.
14. Notices
Notices of any kind to be given by either party to
the other party shall be in writing and shall be duly
given if mailed or delivered as follows: Notice to
Firstar shall be sent to:
<PAGE>
Firstar Mutual Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202
and notice to the Company shall be sent to:
Bearguard Funds, Inc.
985 University Avenue, Suite 26
Los Gatos, CA 95032
Attn: Corporate Secretary
15. Duties in the Event of Termination
In the event that in connection with termination,
a successor to any of Firstar's duties or
responsibilities hereunder is designated by the Company
by written notice to Firstar, Firstar will promptly,
upon such termination and at the expense of the Company
transfer to such successor all relevant books, records,
correspondence and other data established or maintained
by Firstar under this Agreement in a form reasonably
acceptable to the Company (if such form differs from
the form in which Firstar has maintained the same, the
Company shall pay any expenses associated with
transferring the same to such form), and will cooperate
in the transfer of such duties and responsibilities,
including provision for assistance from Firstar's
personnel in the establishment of books, records and
other data by such successor.
16. Governing Law
This Agreement shall be construed in accordance
with the laws of the State of Wisconsin. However,
nothing herein shall be construed in a manner
inconsistent with the 1940 Act or any rule or
regulation promulgated by the SEC thereunder.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by a duly authorized
officer in one or more counterparts as of the day and
year first written above.
BEARGUARD FUNDS, INC. FIRSTAR MUTUAL FUND
SERVICES, LLC
By:__________________ By:_________________________
Its:_________________ Its:________________________
<PAGE>
Fund Accounting Services
Annual Fee Schedule
Exhibit A
Separate Series of Bearguard Funds, Inc.
Name of Series Date Added
Bearguard Fund ______ ____, 1999
Investor Class
Institutional Class
Domestic Equity Funds
$27,500 for the first $40 million
.0125 of 1% (1.25 basis points) on the next $200 million
.00625 of 1% (0.625 basis point) on the balance
Fees and out-of-pocket expenses are billed to the Fund monthly.
FULFILLMENT SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of this
_____ day of _________, 1999, by and between Bearguard
Funds, Inc., a Maryland corporation (hereinafter
referred to as the "Company"), Firstar Mutual Fund
Services, LLC, a Wisconsin limited liability company
(hereinafter referred to as "Firstar"), Skye Investment
Advisors LLC, a California limited liability company
(hereinafter referred to as the "Adviser"), and
Rafferty Capital Markets, Inc., a New York corporation
(hereinafter referred to as the "Distributor").
WHEREAS, the Adviser is a registered investment
adviser under the Investment Advisers Act of 1940, as
amended;
WHEREAS, the Adviser serves as investment adviser
to the Company, a registered investment company under
the Investment Company Act of 1940, as amended, which
is authorized to create separate series of funds;
WHEREAS, the Distributor is a registered broker-
dealer under the Securities Exchange Act of 1934, as
amended, and serves as principal distributor of Company
shares;
WHEREAS, Firstar provides fulfillment services to
mutual funds;
WHEREAS, the Adviser, the Distributor, and the
Company desire to retain Firstar to provide fulfillment
services for the Bearguard Fund and each additional
series of the Company listed on Exhibit A attached
hereto (each, a "Fund"), as may be amended from time to
time.
NOW, THEREFORE, the parties agree as follows:
1. Duties and Responsibilities of Firstar
1. Answer all prospective shareholder calls concerning the Fund.
2. Send all available Fund material requested by
the prospect within 24 hours from time of call.
3. Receive and update all Fund fulfillment
literature so that the most current
information is sent and quoted.
4. Provide 24-hour answering service to record
prospect calls made after hours (7 p.m. to 8 a.m. CT).
5. Maintain and store Fund fulfillment inventory.
6. Send periodic fulfillment reports to the Company
as agreed upon between the parties.
<PAGE>
2. Duties and Responsibilities of the Company
1. Provide Fund fulfillment literature updates to
Firstar as necessary.
2. Coordinate with the Distributor the filing with
the NASD, SEC and State Regulatory Agencies,
as appropriate, all fulfillment literature
that the Fund requests Firstar send to
prospective shareholders.
3. Supply Firstar with sufficient inventory of
fulfillment materials as requested from time
to time by Firstar.
4. Provide Firstar with any sundry information
about the Fund in order to answer prospect questions.
3. Indemnification
The Company agrees to indemnify Firstar from any
liability arising out of the distribution of
fulfillment literature which has not been approved by
the appropriate Federal and State Regulatory Agencies.
Firstar agrees to indemnify the Company from any
liability arising from the improper use of fulfillment
literature during the performance of duties and
responsibilities identified in this agreement.
4. Compensation
The Company, if permissible under any Rule 12b-1
plan in effect from time to time for the benefit of the
Fund and only to the extent consistent with the terms
of such plan, or the Adviser, or the Distributor,
agrees to compensate Firstar for the services performed
under this Agreement in accordance with the attached
Exhibit A. All invoices shall be paid within ten days
of receipt.
5. Proprietary and Confidential Information
Firstar agrees on behalf of itself and its
directors, officers, and employees to treat
confidentially and as proprietary information of the
Company all records and other information relative to
the Company and prior, present, or potential
shareholders of the Company (and clients of said
shareholders), and not to use such records and
information for any purpose other than the performance
of its responsibilities and duties hereunder, except
after prior notification to and approval in writing by
the Company, which approval shall not be unreasonably
withheld and may not be withheld where Firstar may be
exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such
information by duly constituted authorities, or when so
requested by the Company.
6. Termination
This Agreement may be terminated by any party upon 30
days written notice.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be executed by a duly
authorized officer in one or more counterparts as of
the day and year first written above.
BEARGUARD FUNDS, INC. FIRSTAR MUTUAL FUND
SERVICES, LLC
By:__________________ By:____________________
Its:_________________ Its:___________________
SKYE INVESTMENT ADVISORS LLC RAFFERTY CAPITAL MARKETS, INC.
By:__________________ By:_____________________
Its:_________________ Its:____________________
<PAGE>
Literature Fulfillment Services
Annual Fee Schedule
Exhibit A
Separate Series of Bearguard Funds, Inc.
Name of Series Date Added
Bearguard Fund ______ ____, 1999
Investor Class
Institutional Class
Base Fee $100.00 per month
Customer Service
State registration compliance edits
Literature database
Record prospect request and profile
Prospect servicing 8:00 am to 7:00 pm CT
Recording and transcription of requests
received off-hours
Periodic reporting of leads to client
Service Fee: $.99/ minute
Assembly and Distribution of Literature Requests
Generate customized prospect letters
Assembly and insertion of literature items
Inventory tracking
Inventory storage, reporting
Periodic reporting of leads by state, items
requested, market source
Service Fee: $.45/ lead - insertion of up to 4 items/lead
$.15/ additional inserts
Fees and out-of-pocket expenses are billed to the Fund monthly.
BEARGUARD FUNDS, INC.
INVESTOR CLASS OF BEARGUARD FUND
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN
The following Distribution and Shareholder
Servicing Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940,
as amended (the "Act"), by Bearguard Funds, Inc. (the
"Corporation"), a Maryland corporation, on behalf of
the Investor Class of the Bearguard Fund (the "Fund").
The Plan has been approved by a majority of the
Corporation's Board of Directors, including a majority
of the directors who are not interested persons of the
Corporation and who have no direct or indirect
financial interest in the operation of the Plan or in
any Rule 12b-1 Related Agreement (as defined below)
(the "Disinterested Directors"), cast in person at a
meeting called for the purpose of voting on the Plan.
In approving the Plan, the Board of Directors
determined that the Plan would be prudent and in the
best interests of the Fund and its shareholders. Such
approval by the Board of Directors included a
determination, in the exercise of its reasonable
business judgment and in light of its fiduciary duties,
that there is a reasonable likelihood that the Plan
will benefit the Fund and its shareholders.
The provisions of the Plan are as follows:
1. PAYMENTS BY THE CORPORATION
(a) The Corporation, on behalf of the Fund,
will reimburse Rafferty Capital Markets, Inc. (the
"Distributor"), as principal distributor of the
Fund's shares, and any Recipient (as defined
below) for expenses incurred in connection with
the promotion and distribution of Fund shares and
the provision of personal services to Fund
shareholders (the "distribution and shareholder
servicing fee"), including fees and costs provided
for in the Distribution Agreement between the
Corporation and the Distributor. The distribution
and shareholder servicing fee payable to the
Distributor and any Recipient shall not exceed, on
an aggregate basis, 0.25% of the average daily net
assets of the Fund. The Corporation or the
Distributor may pay all or a portion of these fees
to any registered securities dealer, financial
institution or any other person (the "Recipient")
who renders assistance in distributing or
promoting the sale of Fund shares, or who provides
certain shareholder services to Fund shareholders,
pursuant to a written agreement (the "Rule 12b-1
Related Agreement"), forms of which are attached
hereto as Appendix A and Appendix B. To the
extent that the Corporation or the Distributor
does not pay such fees to such persons, the
Distributor may use the fees for its distribution
expenses incurred in connection with the sale of
Fund shares or any of its shareholder servicing
expenses. Payment of these fees to the
Distributor and the Recipients shall be made
monthly promptly following the close of the month,
upon the Distributor and/or the Recipients
forwarding to the Corporation a written report or
invoice detailing all amounts payable to them
pursuant to the Plan and the purpose for which the
amounts were expended; provided that the aggregate
payments under the Plan to the Distributor and all
Recipients
<PAGE>
shall not exceed 0.25% (on an
annualized basis) of the average daily net assets
of the Fund. In addition, the Distributor and the
Recipients shall furnish the Corporation with such
other information as the Corporation's Board of
Directors may reasonably request in connection
with reimbursements made under the Plan and the
use of such payments by the Distributor and/or the
Recipients in order to enable the Board of
Directors to make an informed determination of
whether the Plan should be continued.
(b) If the Distributor and/or any Recipient
is due more monies for its services rendered than
are immediately payable because of the expense
limitation under Section 1 of this Plan, the
unpaid amount shall be carried forward from period
to period while the Plan is in effect until such
time as it is paid. The Distributor and/or any
Recipient shall not, however, be entitled to
charge the Fund any interest, carrying or finance
fees in connection with any such unpaid amounts
carried forward.
2. RULE 12B-1 RELATED AGREEMENTS
(a) No Rule 12b-1 Related Agreement shall be
entered into, and no payments shall be made
pursuant to any Rule 12b-1 Related Agreement,
unless such Rule 12b-1 Related Agreement is in
writing and has first been delivered to and
approved by a vote of a majority of the
Corporation's Board of Directors, and of the
Disinterested Directors, cast in person at a
meeting called for the purpose of voting on such
Rule 12b-1 Related Agreement. The forms of Rule
12b-1 Related Agreements attached hereto as
Appendix A and Appendix B have been approved by
the Corporation's Board of Directors as specified
above.
(b) Any Rule 12b-1 Related Agreement shall
describe the services to be performed by the
Recipient and shall specify the amount of, or the
method for determining, the compensation to the
Recipient.
(c) No Rule 12b-1 Related Agreement may be
entered into unless it provides (i) that it may be
terminated at any time, without the payment of any
penalty, by vote of a majority of the shareholders
of the Fund, or by vote of a majority of the
Disinterested Directors, on not more than 60 days'
written notice to the other party to the Rule
12b-1 Related Agreement, and (ii) that it shall
automatically terminate in the event of its
assignment.
(d) Any Rule 12b-1 Related Agreement shall
continue in effect for a period of more than one
year from the date of its execution only if such
continuance is specifically approved at least
annually by a vote of a majority of the Board of
Directors, and of the Disinterested Directors,
cast in person at a meeting called for the purpose
of voting on such Rule 12b-1 Related Agreement.
<PAGE>
3. QUARTERLY REPORTS
The officers of the Corporation, based on
information received from the Distributor and/or
the Recipients, shall provide to the Board of
Directors, and the Directors shall review, at
least quarterly, a written report of all amounts
expended pursuant to the Plan. This report shall
include the identity of the Recipient of each
payment and the purpose for which the amounts were
expended and such other information as the Board
of Directors may reasonably request.
4. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall become effective immediately
upon approval by the vote of a majority of the
Board of Directors, and of the Disinterested
Directors, cast in person at a meeting called for
the purpose of voting on the approval of the Plan.
The Plan shall continue from year to year after
the first year, provided that such continuance is
approved at least annually by a vote of a majority
of the Board of Directors, and of the
Disinterested Directors, cast in person at a
meeting called for the purpose of voting on such
continuance. The Plan may be terminated with
respect at any time by a majority vote of the
shareholders of the Fund, or by vote of a majority
of the Disinterested Directors.
5. SELECTION OF DISINTERESTED DIRECTORS
During the period in which the Plan is
effective, the selection and nomination of those
Directors who are Disinterested Directors of the
Corporation shall be committed to the discretion
of the Disinterested Directors.
6. AMENDMENTS
All material amendments of the Plan shall be
in writing and shall be approved by a vote of a
majority of the Board of Directors, and of the
Disinterested Directors, cast in person at a
meeting called for the purpose of voting on such
amendment. In addition, the Plan may not be
amended to increase materially the amount to be
expended by the Fund hereunder without the
approval by a majority vote of the shareholders of
the Fund.
<PAGE>
APPENDIX A
Rule 12b-1 Related Agreement
Rafferty Capital Markets, Inc.
1311 Mamaroneck Avenue
White Plains, New York 10605
[date]
[Recipient's Name and Address]
Ladies and Gentlemen:
This letter will confirm our understanding and
agreement with respect to payments to be made to you
pursuant to a Distribution and Shareholder Servicing
Plan (the "Plan") adopted by Bearguard Funds, Inc. (the
"Corporation"), on behalf of the Investor Class of the
Bearguard Fund (the "Fund"), a series of the
Corporation, pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "Act").
The Plan and this related agreement (the "Rule 12b-1
Related Agreement") have been approved by a majority of
the Board of Directors of the Corporation, including a
majority of the Board of Directors who are not
"interested persons" of the Corporation, as defined in
the Act, and who have no direct or indirect financial
interest in the operation of the Plan or in this or any
other Rule 12b-1 Related Agreement (the "Disinterested
Directors"), cast in person at a meeting called for the
purpose of voting thereon. Such approval included a
determination by the Board of Directors that, in the
exercise of its reasonable business judgment and in
light of its fiduciary duties, there is a reasonable
likelihood that the Plan will benefit the Fund's
shareholders.
1. To the extent you provide distribution and
marketing services in the promotion of the Fund's
shares, including furnishing services and assistance to
your customers who invest in and own shares, including,
but not limited to, answering routine inquiries
regarding the Fund and assisting in changing account
designations and addresses, we shall pay you a fee as
described on Schedule A which shall not exceed
(together with any other fees paid by the Fund under
the Plan) 0.25% of the average daily net assets of the
Fund (computed on an annual basis). We reserve the
right to increase, decrease or discontinue the fee at
any time in our sole discretion upon written notice to
you.
<PAGE>
You agree that all activities conducted under this
Rule 12b-1 Related Agreement will be conducted in
accordance with the Plan, as well as all applicable
state and federal laws, including the Act, the
Securities Exchange Act of 1934, the Securities Act of
1933 and any applicable rules of the NASD.
2. At the end of each month, you shall furnish
us with a written report or invoice detailing all
amounts payable to you pursuant to this Rule 12b-1
Related Agreement and the purpose for which such
amounts were expended. In addition, you shall furnish
us with such other information as shall reasonably be
requested by the Board of Directors, on behalf of the
Fund, with respect to the fees paid to you pursuant to
this Rule 12b-1 Related Agreement.
3. We shall furnish to the Board of Directors,
for its review, on a quarterly basis, a written report
of the amounts expended under the Plan by us and the
purposes for which such expenditures were made.
4. This Rule 12b-1 Related Agreement may be
terminated by the vote of (a) a majority of
shareholders, or (b) a majority of the Disinterested
Directors, on 60 days' written notice, without payment
of any penalty. In addition, this Rule 12b-1 Related
Agreement will be terminated by any act which
terminates the Plan or the Distribution Agreement
between the Corporation and us and shall terminate
immediately in the event of its assignment. This Rule
12b-1 Related Agreement may be amended by us upon
written notice to you, and you shall be deemed to have
consented to such amendment upon effecting any
purchases of shares for your own account or on behalf
of any of your customer's accounts following your
receipt of such notice.
5. This Rule 12b-1 Related Agreement shall
become effective on the date accepted by you and shall
continue in full force and effect so long as the
continuance of the Plan and this Rule 12b-1 Related
Agreement are approved at least annually by a vote of
the Board of Directors of the Corporation and of the
Disinterested Directors, cast in person at a meeting
called for the purpose of voting thereon. All
communications to us should be sent to the above
address. Any notice to you shall be duly given if
mailed or telegraphed to you at the address specified
by you below.
<PAGE>
RAFFERTY CAPITAL MARKETS, INC.,
on behalf of the Investor Class of the Bearguard Fund
By:_________________________________
(Name and Title)
Accepted:
____________________________________
(Dealer or Service Provider Name)
____________________________________
(Street Address)
_____________________________________
(City) (State) (ZIP)
____________________________________
(Telephone No.)
____________________________________
(Facsimile No.)
By:________________________________
(Name and Title)
<PAGE>
Schedule A
For all services rendered pursuant to the Rule 12b-
1 Related Agreement, we shall pay you a fee calculated
as follows:
[fee]
[We shall make the determination of the net asset
value, which determination shall be made in the manner
specified in the Fund's current prospectus, and pay to
you, on the basis of such determination, the fee
specified above, to the extent permitted under the
Plan.]
<PAGE>
APPENDIX B
Rule 12b-1 Related Agreement
Bearguard Funds, Inc.
985 University Avenue, Suite 26
Los Gatos, California 95032
[date]
[Recipient's Name and Address]
Ladies and Gentlemen:
This letter will confirm our understanding and
agreement with respect to payments to be made to you
pursuant to a Distribution and Shareholder Servicing
Plan (the "Plan") adopted by Bearguard Funds, Inc. (the
"Corporation"), on behalf of the Investor Class of the
Bearguard Fund (the "Fund"), a series of the
Corporation, pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "Act").
The Plan and this related agreement (the "Rule 12b-1
Related Agreement") have been approved by a majority of
the Board of Directors of the Corporation, including a
majority of the Board of Directors who are not
"interested persons" of the Corporation, as defined in
the Act, and who have no direct or indirect financial
interest in the operation of the Plan or in this or any
other Rule 12b-1 Related Agreement (the "Disinterested
Directors"), cast in person at a meeting called for the
purpose of voting thereon. Such approval included a
determination by the Board of Directors that, in the
exercise of its reasonable business judgment and in
light of its fiduciary duties, there is a reasonable
likelihood that the Plan will benefit the Fund's
shareholders.
1. To the extent you provide distribution and
marketing services in the promotion of the Fund's
shares, including furnishing services and assistance to
your customers who invest in and own shares, including,
but not limited to, answering routine inquiries
regarding the Fund and assisting in changing account
designations and addresses, we shall pay you a fee as
described on Schedule A which shall not exceed
(together with any other fees paid by the Fund under
the Plan) 0.25% of the average daily net assets of the
Fund (computed on an annual basis). We reserve the
right to increase, decrease or discontinue the fee at
any time in our sole discretion upon written notice to
you.
<PAGE>
You agree that all activities conducted under this
Rule 12b-1 Related Agreement will be conducted in
accordance with the Plan, as well as all applicable
state and federal laws, including the Act, the
Securities Exchange Act of 1934, the Securities Act of
1933 and any applicable rules of the NASD.
2. At the end of each month, you shall furnish
us with a written report or invoice detailing all
amounts payable to you pursuant to this Rule 12b-1
Related Agreement and the purpose for which such
amounts were expended. In addition, you shall furnish
us with such other information as shall reasonably be
requested by the Board of Directors, on behalf of the
Fund, with respect to the fees paid to you pursuant to
this Rule 12b-1 Related Agreement.
3. We shall furnish to the Board of Directors,
for its review, on a quarterly basis, a written report
of the amounts expended under the Plan by us and the
purposes for which such expenditures were made.
4. This Rule 12b-1 Related Agreement may be
terminated by the vote of (a) a majority of
shareholders, or (b) a majority of the Disinterested
Directors, on 60 days' written notice, without payment
of any penalty. In addition, this Rule 12b-1 Related
Agreement will be terminated by any act which
terminates the Plan. This Rule 12b-1 Related Agreement
may be amended by us upon written notice to you, and
you shall be deemed to have consented to such amendment
upon effecting any purchases of shares for your own
account or on behalf of any of your customer's accounts
following your receipt of such notice.
5. This Rule 12b-1 Related Agreement shall
become effective on the date accepted by you and shall
continue in full force and effect so long as the
continuance of the Plan and this Rule 12b-1 Related
Agreement are approved at least annually by a vote of
the Board of Directors of the Corporation and of the
Disinterested Directors, cast in person at a meeting
called for the purpose of voting thereon. All
communications to us should be sent to the above
address. Any notice to you shall be duly given if
mailed or telegraphed to you at the address specified
by you below.
<PAGE>
BEARGUARD FUNDS, INC.,
on behalf of the Investor Class of
the Bearguard Fund
By:____________________________
(Name and Title)
Accepted:
___________________________________
(Dealer or Service Provider Name)
___________________________________
(Street Address)
___________________________________
(City) (State) (ZIP)
___________________________________
(Telephone No.)
___________________________________
(Facsimile No.)
By:________________________________
(Name and Title)
<PAGE>
Schedule A
For all services rendered pursuant to the Rule 12b-
1 Related Agreement, we shall pay you a fee calculated
as follows:
[fee]
[We shall make the determination of the net asset
value, which determination shall be made in the manner
specified in the Fund's current prospectus, and pay to
you, on the basis of such determination, the fee
specified above, to the extent permitted under the
Plan.]
BEARGUARD FUNDS, INC.
RULE 18f-3
MULTIPLE CLASS PLAN
Bearguard Funds, Inc. (the "Company"), a
registered investment company currently consisting of
the Bearguard Fund (the "Fund"), has elected to rely on
Rule 18f-3 under the Investment Company Act of 1940, as
amended (the "1940 Act"), in offering multiple classes
of shares of the Fund. A majority of the Board of
Directors of the Company, including a majority of the
directors who are not interested persons of the
Company, has determined in accordance with Rule 18f-
3(d) that the following plan (the "Plan") is in the
best interests of each class individually and the
Company as a whole:
1. Class Designation. Fund shares will be designated
either Investor Class or Institutional Class.
2. Class Characteristics. Each class of shares will
represent interests in the same portfolio of
investments and will be identical in all respects to
the other class, except as set forth below:
Investor Class: Investor Class shares will be
offered for sale at net asset value
per share without the imposition of
a sales charge. Investor Class
shares will be subject to a
distribution plan adopted pursuant
to Rule 12b-1 under the 1940 Act
which provides for an annual
distribution fee of up to 0.25% of
the average daily net assets of the
Fund attributable to Investor Class
shares, computed on an annual
basis. The distribution plan fees
for the Investor Class shares will
be used to pay the Fund's
distributor a distribution and
shareholder servicing fee of up to
0.25% for promoting and
distributing Investor Class shares
or for providing shareholder
services or others who render
assistance in distributing or
promoting Investor Class shares.
Institutional Class: Institutional Class
shares will be offered for sale at
net asset value per share without
the imposition of a sales charge.
Institutional Class shares will not
be subject to a distribution plan
adopted pursuant to Rule 12b-1
under the 1940 Act.
3. Expense Allocations. The following expenses will
be allocated on a class-by-class basis, to the extent
practicable: (i) fees under the distribution plan
adopted pursuant to Rule 12b-1 under the 1940 Act; (ii)
accounting, auditor, litigation or other legal expenses
relating solely to a particular class; and (iii)
expenses incurred in connection with shareholder
meetings as a result of issues relating to a particular
class. Income, realized and unrealized capital gains
<PAGE>
and losses, and expenses of the Fund not allocated to a
particular class will be allocated on the basis of the
net asset value of each class in relation to the net
asset value of the Fund. Notwithstanding the
foregoing, a service provider for the Fund may waive or
reimburse the expenses of a specific class or classes
to the extent permitted under Rule 18f-3 of the 1940
Act.
4. Exchanges and Conversions. There are no
conversion features associated with the Investor Class
or Institutional Class shares.
5. General. Each class will have exclusive voting
rights with respect to any matter related solely to
such class's Rule 18f-3 arrangements. Each class will
have separate voting rights with respect to any matter
submitted to shareholders in which the interests of one
class differ from the interests of the other class.
Each class will have in all other respects the same
rights and obligations as each other class. On an
ongoing basis, the Board of Directors will monitor the
Plan for any material conflicts between the interests
of the classes of shares. The Board of Directors will
take such action as is reasonably necessary to
eliminate any conflict that develops. The Fund's
investment adviser and distributor will be responsible
for alerting the Board of Directors to any material
conflicts that may arise. Any material amendment to
this Plan must be approved by a majority of the Board
of Directors, including a majority of the directors who
are not interested persons of the Company, as defined
in the 1940 Act. This Plan is qualified by and subject
to the then current prospectus for the applicable
class, which contains additional information about that
class.
