As filed with the Securities and Exchange Commission on April 14, 1999
Securities Act Registration No. 333-_____
Investment Company Act Registration No. 811-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. __
Post-Effective Amendment No. __
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. __
BEARGUARD FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
985 University Avenue, Suite 26 95032
Los Gatos, California (Zip Code)
(Address of Principal Executive
Offices)
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>
THEINFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO
SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
Subject to completion, dated April 14, 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
FEES AND EXPENSES OF THE FUND 2
INVESTMENT OBJECTIVE 3
HOW THE FUND INVESTS 3
FUND MANAGEMENT 5
HOW TO PURCHASE SHARES 6
HOW TO REDEEM SHARES 8
VALUATION OF FUND SHARES 10
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN 10
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX
TREATMENT 10
YEAR 2000 ISSUE 11
_____________________________
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 attempts to achieve this
goal by engaging in short sales of investments that the
Adviser believes will decrease in value. 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. The Fund considers the
income aspect of this goal 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 typical equity funds.
The Fund cannot guarantee that it will achieve its
investment goal. For more information, see "Investment
Objective" and "How the Fund Invests."
What will the Fund invest in?
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 in
pursuing its investment objective. In trying to
achieve its goal, the Fund engages in short sales of
stocks the Adviser believes are currently overvalued.
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 to
produce income. For more information, see "How the
Fund Invests."
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
larger than 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. 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. See
"How the Fund Invests."
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.
<PAGE>
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.
Because the Fund has been in operation for less than a
full calendar year, it has no annual return history.
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) % %
Total Annual Fund Operating Expenses(3) % %
Fee Waiver/Expense Reimbursement(3) % %
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 _________ __, 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
<PAGE>
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."
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.
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 _______________ ____, 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 $____ $____
Institutional Class $____ $____
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 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 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 focus 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. 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 total assets will
represent short positions. Short sales will primarily
be in common stocks. Common stocks are units of
ownership of a corporation. In pursuing 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.
<PAGE>
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
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 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.
Debt Securities Held by the Fund
The Fund also invests in U.S. government and
corporate notes and bonds to collateralize or "cover"
its short positions and to produce income. The Fund
expects that its debt securities will have an average
duration of three years or less. 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 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, 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
<PAGE>
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. The Fund typically closes out a short
position when the Adviser anticipates that the security
is nearing its fair value. 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.
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 _________ __, 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 _________ _,
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.
<PAGE>
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., 550 Mamaroneck
Avenue, Harrison, New York 10528, 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.
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. The Fund offers two
classes of shares: Investor Class and Institutional
Class.
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. Shareholders 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."
<PAGE>
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:
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
<PAGE>
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.
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.
<PAGE>
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 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.
<PAGE>
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.
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.
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN
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.
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
<PAGE>
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 distribution from short sales will be
short-term capital gains. 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.
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, Firstar Bank Milwaukee, N.A.
Chairman 777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
PRINCIPAL OFFICERS
Paul L. McEntire, President ADMINISTRATOR, TRANSFER AGENT
Thomas F. Burns, Jr., AND DIVEND-DISURSING AGENT
Treasurer and Secretary
INVESTMENT ADVISER
Firstar Mutual Fund Sevices, LLC
Skye Investment Advisors LL Third Floor
985 University Avenue,Suite 26 615 East Michigan Street
Los Gatos, California 95032 Milwaukee, Wisconsin 53202
INDEPENDENT ACCOUNTANTS
DISTRIBUTOR
PricewaterhouseCoopers LLP
Rafferty Capital Markets,Inc. 100 East Wisconsin Avenue, Suite 1500
550 Mamaroneck Avenue Milwaukee, Wisconsin 53202
Harrison, New York 10528
LEGAL COUNSEL
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-____.
<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 13
INVESTMENT ADVISER 13
FUND TRANSACTIONS AND BROKERAGE 14
CUSTODIAN 15
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT 15
ADMINISTRATOR 15
DISTRIBUTOR AND PLAN OF DISTRIBUTION 16
PURCHASE AND PRICING OF SHARES 17
REDEMPTIONS IN KIND 20
TAXATION OF THE FUND 20
PERFORMANCE INFORMATION 20
ADDITIONAL INFORMATION 21
INDEPENDENT ACCOUNTANTS 21
FINANCIAL STATEMENTS 21
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
<PAGE>
generally increase. Shares in the Fund are likely to
fluctuate in a similar manner. In general, the longer
the remaining 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
<PAGE>
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.
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.
<PAGE>
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 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.
*Paul L. McEntire, a Director and President of the
Corporation.
Mr. McEntire, 54 years old, graduated Phi Beta
Kappa with a Bachelor of Science degree in mathematics
from Stanford University in 1965. Mr. McEntire
received a Masters 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. Mr. McEntire has been the Adviser's
Chairman and Managing Member since 1996.
Thomas F. Burns, Jr., Secretary and Treasurer of
the Corporation.
Mr. Burns, 55 years old, received a Bachelor of
Science degree in accounting from Quinnipiac College in
1970. Prior to 1986, Mr. Burns worked in accounting
at a Big Five public accounting firm and a Fortune 500
company 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.
[Insert names and bios of outside directors]
The address for Messrs. McEntire and Burns is Skye
Investment Advisors LLC, 985 University Avenue, Suite
26, Los Gatos, California 95032. [Insert addresses of
outside directors]
[As of _________ __, 1999, officers and directors
of the Corporation did not beneficially own any of the
shares of common stock of the Fund's then outstanding
shares.] 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):
<PAGE>
Name Cash Compensation (2) Other Compensation Total
Paul L. McEntire $ 0 $0 $ 0
All directors as a group
(__ persons) $ $0 $
____________________
(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, including one in-person meeting. Thus,
each disinterested director is entitled to up to $1,000
during such time period from the Corporation, plus
reasonable expenses.
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
Michael Feuer 10,000 100%
[insert address]
Based on the foregoing, as of _________ __, 1999,
Mr. Feuer 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.
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.
<PAGE>
Pursuant to the Advisory Agreement, the Adviser
has agreed that until _________ __, ____, 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 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
<PAGE>
(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.
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 .01%
Average net assets in excess of $240 million .005%
<PAGE>
DISTRIBUTOR AND PLAN OF DISTRIBUTION
Distributor
Under a distribution agreement dated _________ __,
1999 (the "Distribution Agreement"), Rafferty Capital
Markets, Inc. (the "Distributor"), 550 Mamaroneck
Avenue, Harrison, New York 10528, 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% 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
<PAGE>
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 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
<PAGE>
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.
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 1998 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 1998 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,
<PAGE>
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.
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.
<PAGE>
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:
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
<PAGE>
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.
ADDITIONAL INFORMATION
[Insert language for any unique advertising plans]
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.
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
strong. Risk is modest but may
AA vary slightly from time to time because of
economic conditions.
AA-
- -----------------------------------------------------------------------------
<PAGE>
A+ Protection factors are average but adequate.
However, risk factors are more
A variable and greater in periods of economic
stress.
A-
- -----------------------------------------------------------------------------
BBB+ Below-average protection factors but still
considered sufficient for prudent
BBB investment. Considerable variability in risk
during economic cycles.
BBB-
- -----------------------------------------------------------------------------
BB+ Below investment grade but deemed likely to
meet obligations when due.
BB Present or prospective financial protection
factors fluctuate according to
BB- industry conditions or company fortunes.
Overall quality may move up or
down frequently within this category.
- -----------------------------------------------------------------------------
B+ Below investment grade and possessing risk
that obligations will not be met
B when due. Financial protection factors will
fluctuate widely according to
B- 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 Articles of Incorporation
(a.2) Registrant's Articles of Amendment
(b) Registrant's By-Laws
(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 Michael Feuer*
(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.
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 Home State Funds
Group. [Insert names of other investment
companies, if applicable.]
(b) The principal business address of Rafferty
Capital Markets, Inc. ("Rafferty"), the
Registrant's principal underwriter, is 550
Mamaroneck Avenue, Harrison, New York 10528.
The following information relates to each
director and officer of Rafferty:
Name 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 Officer and Secretary None
(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., 615 E. Michigan Street, 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 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 12th day of
April, 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 pre-effective and post-effective
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 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 April 12, 1999
- -------------------- (principal executive officer)
Paul L. McEntire
/s/ Thomas F. Burns, Jr. Treasurer and Secretary April 12, 1999
- ------------------------ (principal financial
Thomas F. Burns, Jr. and accounting officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
(a.1) Registrant's Articles of Incorporation
(a.2) Registrant's Articles of Amendment
(b) Registrant's By-Laws
(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 Michael Feuer*
(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.
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 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 All
ocated
Bearguard Fund Retail 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 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
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
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 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 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.
IN WITNESS WHEREOF, the undersigned incorporator
of Bearguard Funds, Inc. hereby executes the foregoing
Articles of Incorporation and acknowledges the same to
be her act.
Dated this 8th day of April, 1999.
/s/ Renee Hardt Torr
---------------------------
Renee Hardt Torr
ARTICLES OF AMENDMENT
TO ARTICLES OF INCORPORATION
BEARGUARD FUNDS, INC.
The undersigned incorporator of Bearguard Funds,
Inc., a corporation duly organized and existing under
the Maryland General Corporation law (the
"Corporation"), does hereby certify:
FIRST: That the name of the Corporation is
Bearguard Funds, Inc.
SECOND: That Section 5.2 of the Corporation's
Articles of Incorporation is amended in its entirety to
read as follows:
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 preferences, 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 Series Name of Class Number 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.
THIRD: That there is no stock outstanding or
subscribed for entitled to be voted on the amendment to
the Corporation's Articles of Incorporation (the
"Amendment").
FOURTH: That the Amendment is made before the
organization meeting of the Board of Directors.
IN WITNESS WHEREOF, the undersigned incorporator
of the Corporation who executed the foregoing Articles
of Amendment hereby acknowledges the same to be her
act.
Dated this 12th day of April, 1999.
BEARGUARD FUNDS, INC.
/s/ Renee Hardt Torr
------------------------
Renee Hardt Torr
BY-LAWS
OF
BEARGUARD FUNDS, INC.
ARTICLE I
Offices
1.1 Principal Office. The principal office of
Bearguard Funds, Inc. ("the Corporation") in the State
of Maryland shall be in the City of Baltimore.
1.2 Other Offices. The Corporation may have such
other offices in such places as the Board of Directors
may from time to time determine.
ARTICLE II
Meetings of Stockholders
2.1 Annual Meeting. Subject to this Article II,
an annual meeting of stockholders for the election of
directors and the transaction of such other business as
may properly come before the meeting shall be held at
such time and place as the Board of Directors shall
select. The Corporation shall not be required to hold
an annual meeting of its stockholders in any year in
which the election of directors is not required to be
acted upon under the Investment Company Act of 1940, as
amended (the "1940 Act").
2.2 Special Meetings. Special meetings of
stockholders may be called at any time by the
President, the Secretary, the Treasurer, or by a
majority of the Board of Directors and shall be held at
such time and place as may be stated in the notice of
the meeting. Special meetings of the stockholders
shall be called by the Secretary upon receipt of
written request of the holders of shares entitled to
cast not less than 10% of the votes entitled to be cast
at such meeting, provided that such request shall state
the purposes of such meeting and the matters proposed
to be acted on.
2.3 Place of Meetings. Meetings of stockholders
shall be held at such place within the United States as
the Board of Directors may from time to time determine.
2.4 Notice of Meetings; Waiver of Notice. Notice
of the place, date and time of the holding of each
stockholders' meeting and, if the meeting is a special
meeting, the purpose or purposes of the meeting, shall
be given personally or by mail, not less than ten nor
more than ninety days before the date of such meeting,
to each stockholder entitled to vote at such meeting
and to each other stockholder entitled to notice of the
meeting. Notice by mail shall be deemed to be duly
given when deposited in the United States mail
addressed to the stockholder at his or her address as
it appears on the records of the Corporation, with
postage prepaid. Notice of any meeting of stockholders
shall be deemed waived by any stockholder who attends
such meeting in person or by proxy, or who, either
before or after the meeting, submits a signed waiver of
notice which is filed with the records of the meeting.
2.5 Quorum, Adjournment of Meetings. The
presence at any stockholders' meeting, in person or by
proxy, of stockholders of one-third of the shares of
the Common Stock of the Corporation entitled to vote,
without regard to class or series, shall be necessary
and sufficient to constitute a quorum for the
transaction of business, except for 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 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. The holders of a majority
of shares of Common Stock entitled to vote at the
meeting and present in person or by proxy, whether or
not sufficient to constitute a quorum, or, any officer
present entitled to preside or act as Secretary of such
meeting may adjourn the meeting without determining the
date of the new meeting or from time to time without
further notice to a date not more than one hundred and
twenty days after the original record date. Any
business that might have been transacted at the meeting
originally called may be transacted at any such
adjourned meeting at which a quorum is present.
2.6 Organization. At each meeting of the
stockholders, the President, or in his or her absence
or inability to act, a Vice President, shall act as
chairman of the meeting; provided, however, that if no
such officer is present or able to act, a chairman of
the meeting shall be elected at the meeting. The
Secretary or, in his or her absence or inability to
act, any person appointed by the chairman of the
meeting, shall act as secretary of the meeting and keep
the minutes thereof.
2.7 Order of Business. The order of business at
all meetings of the stockholders shall be as determined
by the chairman of the meeting.
2.8 Voting. Except as otherwise provided by
statute or the Articles of Incorporation, each holder
of record of shares of Common Stock of the Corporation
shall be entitled at each meeting of the stockholders
to one vote for every full share of such stock, with a
fractional vote for any fractional shares, standing in
his or her name on the record of stockholders of the
Corporation, irrespective of the class or series
thereof, as of the record date determined pursuant to
Section 2.9 or if the record date has not been fixed,
then at the later of (i) the close of business on the
day on which notice of the meeting is mailed or (ii)
the thirtieth day before the meeting. Each stockholder
entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him or
her by a proxy signed by such stockholder or his or her
attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof,
unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the stockholder
executing it, except in those cases where such proxy
states that it is irrevocable and where the proxy is
coupled with an interest in the stock to be voted under
the proxy or another general interest in the
Corporation or its assets or liabilities. Except as
otherwise provided by statute, the Articles of
Incorporation or these By-Laws, any corporate action to
be taken by vote of the stockholders shall be
authorized by the affirmative vote of the holders of a
majority of the total number of shares of Common Stock,
or of a class or series of Common Stock, as applicable,
outstanding and entitled to vote at a meeting of
stockholders at which a quorum is present. No votes
need to be taken by ballot other than the election of
directors, which shall be by written ballot, or unless
required by statute, these By-Laws, or determined by
the chairman of the meeting to be advisable. On a vote
by ballot, each ballot shall be signed by the
stockholder voting or by his or her proxy and shall
state the number of shares voted.
2.9 Fixing of Record Date. The Board of
Directors may fix a time not less than ten nor more
than ninety days prior to the date of any meeting of
stockholders or prior to the last day on which the
consent or dissent of stockholders may be effectively
expressed for any purpose without a meeting, as the
time as of which stockholders entitled to notice of and
to vote at such a meeting or whose consent or dissent
is required or may be expressed for any purpose, as the
case may be, shall be determined; and only persons who
were holders of record of Common Stock at such time and
no other shall be entitled to notice of and to vote at
such meeting or to express their consent or dissent, as
the case may be. If no record date has been fixed, the
record date for the determination of stockholders
entitled to notice of or to vote at a meeting of
stockholders shall be the later of the close of
business on the day on which notice of the meeting is
mailed or the thirtieth day before the meeting, or if
notice is waived by all stockholders, at the close of
business on the tenth day next preceding the day on
which the meeting is held. The Board of Directors may
fix a record date for determining stockholders entitled
to receive payment of a dividend or distribution, but
such date shall be not more than ninety days before the
date on which such payment is made. If no record date
has been fixed, the record date for determining
stockholders entitled to receive dividends or
distributions shall be the close of business on the day
on which the resolution of the Board of Directors
declaring the dividend or distribution is adopted, but
the payment shall not be made more than sixty days
after the date on which the resolution is adopted.
2.10 Consent of Stockholders in Lieu of Meeting.
Except as otherwise provided by statute or the Articles
of Incorporation, any action required to be taken at
any meeting of stockholders, or any action which may be
taken at any meeting of such stockholders, may be taken
without a meeting, without prior notice and without a
vote, if the following are filed with the records of
stockholders meetings: (i) a unanimous written consent
which sets forth the action and is signed by each stock
holder entitled to vote on the matter and (ii) a
written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not
entitled to vote thereat.
ARTICLE III
Board of Directors
3.1 General Powers. The business and affairs of
the Corporation shall be managed under the direction of
the Board of Directors and all powers of the
Corporation may be exercised by or under authority of
the Board of Directors.
3.2 Number of Directors. The number of directors
shall be fixed from time to time by resolution of the
Board of Directors adopted by a majority of the
Directors then in office; provided, however, that the
number of Directors shall in no event be less than
three nor more than fifteen except that the Corporation
may have less than three but no less than one director
if there is no stock outstanding, and may have a number
of directors no fewer than the number of stockholders
so long as there are fewer than three stockholders.
Any vacancy created by an increase in directors may be
filled in accordance with Section 3.6. No reduction in
the number of directors shall have the effect of
removing any director from office prior to the
expiration of his or her term unless such director is
specifically removed pursuant to Section 3.5 at the
time of such decrease. Directors need not be
stockholders.
3.3 Election and Term of Directors. Directors
shall be elected annually, by written ballot at the
annual meeting of stockholders or a special meeting
held for that purpose; provided, however, that if no
annual meeting of the stockholders of the Corporation
is required to be held in a particular year pursuant to
Section 2.1, directors shall be elected at the next
annual meeting held. The term of office of each
director shall be from the time of his or her election
and qualification until the election of directors next
succeeding his or her election and until his or her
successor shall have been elected and shall have
qualified.
3.4 Resignation. A director of the Corporation
may resign at any time by giving written notice of his
or her resignation to the Board of Directors, the
President or the Secretary. Any such resignation shall
take effect at the time specified therein or, if the
time when it shall become effective shall not be
specified therein, immediately upon its receipt.
Unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it
effective.
3.5 Removal of Directors. Any director of the
Corporation may be removed by the affirmative vote of a
majority of (a) the Board of Directors, (b) a committee
of the Board of Directors appointed for such purpose,
or (c) the stockholders by vote of a majority of the
outstanding shares of Common Stock of the Corporation.
3.6 Vacancies. If any vacancies occur in the
Board of Directors (i) by reason of death, resignation,
removal or otherwise, the remaining directors shall
continue to act, and subject to the provisions of the
1940 Act, such vacancies (if not previously filled by
the stockholders) may be filled by a majority of the
remaining directors and (ii) by reason of an increase
in the authorized number of directors, such vacancies
(if not previously filled by the stockholders) may be
filled by a majority vote of the entire Board of
Directors.
3.7 Place of Meeting. The directors may hold
their meetings, have one or more offices and keep the
books of the Corporation at any office or offices of
the Corporation or at any other place within or without
the State of Maryland as they may determine, or in the
case of meetings, as they may determine or as shall be
specified or fixed in the respective notices or waivers
of notice thereof.
3.8 Regular Meetings. The Board of Directors
from time to time may provide by resolution for the
holding of regular meetings and fix their time and
place as the Board of Directors may determine. Notice
of such regular meetings need not be in writing,
provided that notice of any change in the time or place
or such fixed regular meetings shall be communicated
promptly to each director not present at the meeting at
which such change was made in the manner provided in
Section 3.9 for notice of special meetings. Members of
the Board of Directors or any committee designated
thereby may participate in a meeting of such Board of
Directors or committee by means of a conference
telephone or similar communications equipment by means
of which all persons participating in the meeting can
hear each other at the same time, and participation by
such means shall constitute presence in person at a
meeting, except where meetings are required to be held
in person pursuant to the 1940 Act.
3.9 Special Meetings. Special meetings of the
Board of Directors may be held at any time or place and
for any purpose when called by the President, the
Secretary or two or more of the directors. Notice of
special meetings, stating the time and place, shall be
communicated to each director personally by telephone
or transmitted to him or her by telegraph, telefax,
telex, cable or wireless at least one day before the
meeting.
3.10 Waiver of Notice. No notice of any meeting
of the Board of Directors or a committee of the Board
of Directors need be given to any director who is
present at the meeting or who waives notice of such
meeting in writing (which waiver shall be filed with
the records of such meeting), either before or after
the time of the meeting.
3.11 Quorum and Voting. At all meetings of the
Board of Directors, the presence of one-third of the
entire Board of Directors shall constitute a quorum
unless there are only two or three Directors, in which
case two directors shall constitute a quorum. If there
is only one director, the sole director shall
constitute a quorum. At any adjourned meeting at which
a quorum is present, any business may be transacted
which might have been transacted at the meeting as
originally called.
3.12 Organization. The Board of Directors may, by
resolution adopted by a majority of the entire Board of
Directors, designate a chairman or co-chairmen who
shall preside at each meeting. In the absence or
inability of such persons to preside at a meeting, the
President, or in his or her absence or inability to
act, another director chosen by a majority of the
directors present, shall act as chairman of the meeting
and preside thereat. The Secretary (or in his or her
absence or inability to act, any person appointed by
the chairmen) shall act as secretary of the meeting and
keep the minutes thereof.
3.13 Written Consent of Directors in Lieu of a
Meeting. Subject to the provisions of the 1940 Act,
any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee
thereof may be taken without a meeting if all members
of the Board of Directors or committee, as the case may
be, consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings.
3.14 Compensation. Directors may receive
compensation for services to the Corporation in their
capacities as directors or otherwise in such manner and
in such amounts as may be fixed from time to time by
the Board of Directors.
ARTICLE IV
Committees
4.1 Organization. By resolution adopted by the
Board of Directors, the Board may designate one or more
committees composed of two or more directors. The
Chairmen of such committees shall be elected by the
Board of Directors. The Board of Directors shall have
the power at any time to change the members of such
committees and to fill vacancies in the committees.
The Board of Directors may delegate to these committees
any of its powers, except the power to authorize the
issuance of stock, declare a dividend or distribution
on stock, recommend to stockholders any action
requiring stockholder approval, amend these By-Laws, or
approve any merger or share exchange which does not
require stockholder approval. If the Board of
Directors has given general authorization for the
issuance of stock, a committee of the Board, in
accordance with a general formula or method specified
by the Board by resolution or by adoption of a stock
option or other plan, may fix the terms of stock
subject to classification or reclassification and the
terms on which any stock may be issued, including all
terms and conditions required or permitted to be
established or authorized by the Board of Directors.
4.2 Proceedings and Quorum. In the absence of an
appropriate resolution of the Board of Directors, each
committee may adopt such rules and regulations
governing its proceedings, quorum and manner of acting
as it shall deem proper and desirable. In the event
any member of any committee is absent from any meeting,
the members thereof present at the meeting, whether or
not they constitute a quorum, may appoint a member of
the Board of Directors to act in the place of such
absent member.
ARTICLE V
Officers, Agents and Employees
5.1 General. The officers of the Corporation
shall be a President, Secretary and Treasurer, and may
include one or more additional Vice Presidents and/or
such other officers as may be appointed in accordance
with the provisions of Section 5.8.
5.2 Election, Tenure and Qualifications. The
officers of the Corporation, except those appointed as
provided in Section 5.8, shall be elected by the Board
of Directors at its first meeting and thereafter
annually at an annual meeting. If any officers are not
chosen at any annual meeting, such officers may be
chosen at any subsequent regular or special meeting of
the Board. Except as otherwise provided in this
Article V, each officer chosen by the Board of
Directors shall hold office until the next annual
meeting of the Board of Directors and until his or her
successor shall have been elected and qualified. Any
person may hold one or more offices of the Corporation
except the offices of President and Vice President.
5.3 Removal and Resignation. Whenever in the
judgment of the Board of Directors the best interest of
the Corporation will be served thereby, any officer may
be removed from office by the vote of a majority of the
members of the Board of Directors at any regular
meeting or at a special meeting called for such
purpose. Any officer may resign his office at any time
by delivering a written resignation to the Board of
Directors, the President or the Secretary. Unless
otherwise specified therein, such resignation shall
take effect upon delivery.
5.4 President. The President shall be the chief
executive officer of the Corporation, and shall have
general charge of the business, affairs and property of
the Corporation and general supervision over its
officers, employees and agents. Except as the Board of
Directors may otherwise order, he or she may sign in
the name and on behalf of the Corporation all deeds,
bonds, contracts, or agreements. He or she shall
exercise such other powers and perform such other
duties as from time to time may be assigned to him or
her by the Board of Directors.
5.5 Vice President. The Board of Directors may
from time to time elect one or more Vice Presidents who
shall have such powers and perform such duties as from
time to time may be assigned to them by the Board of
Directors or the President. At the request or in the
absence or disability of the President, the Vice
President (or if there are two or more Vice Presidents,
then the more senior of such officers present and able
to act) may perform all the duties of the President and
when so acting, shall have all the powers of and be
subject to all the restrictions upon the President.
Any Vice President may perform such duties as the Board
of Directors may assign.
5.6 Treasurer. The Treasurer shall be the
principal financial and accounting officer of the
Corporation and shall have general charge of the
finances and books of account of the Corporation.
Except as otherwise provided by the Board of Directors,
he or she shall have general supervision of the funds
and property of the Corporation and of the performance
by the Custodian of its duties with respect thereto.
He or she shall render to the Board of Directors,
whenever directed, an account of the financial
condition of the Corporation and of all his or her
transactions as Treasurer; and as soon as possible
after the close of each fiscal year he or she shall
make and submit to the Board of Directors a like report
for such fiscal year.
5.7 Secretary. The Secretary shall attend to the
giving and serving of all notices of the Corporation
and shall record all proceedings of the meetings of the
stockholders and directors in books to be kept for that
purpose. He or she shall keep in safe custody the seal
of the Corporation, and shall have charge of the
records of the Corporation, including the stock books
and such other books and papers as the Board of
Directors may direct and such books, reports,
certificates and other documents required by law to be
kept, all of which shall at all reasonable times be
open to inspection by any director. He or she shall
perform such other duties as appertain to his or her
office or as may be required by the Board of Directors.
5.8 Subordinate Officers. The Board of Directors
from time to time may appoint such other officers or
agents as it may deem advisable, each of whom shall
have such title, hold office for such period, have such
authority and perform such duties as the Board of
Directors may determine. The Board of Directors from
time to time may delegate to one or more officers or
agents the power to appoint any such subordinate
officers or agents and to prescribe their rights, terms
of office, authorities and duties.
5.9 Remuneration. The salaries or other
compensation of the officers of the Corporation shall
be fixed from time to time by resolution of the Board
of Directors, except that the Board of Directors may by
resolution delegate to any person or group of persons
the power to fix the salaries or other compensation of
any subordinate officers or agents appointed in
accordance with the provisions of Section 5.8.
5.10 Surety Bonds. The Board of Directors may
require any officer or agent of the Corporation to
execute a bond (including, without limitation, any bond
required by the 1940 Act, and the rules and regulations
of the Securities and Exchange Commission) to the
Corporation in such sum and with such surety or
sureties as the Board of Directors may determine,
conditioned upon the faithful performance of his or her
duties to the Corporation, including responsibility for
negligence and for the accounting of any of the
Corporation's property, funds or securities that may
come into his or her hands.
ARTICLE VI
Indemnification
6.1 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 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.
ARTICLE VII
Capital Stock
7.1 Uncertificated Shares. The interest of
stockholders of the Corporation will not be evidenced
by certificates.
7.2 Stock Ledgers. The stock ledgers of the
Corporation, containing the names and addresses of the
stockholders and the number of shares held by them
respectively, shall be kept at the principal offices of
the Corporation or, if the Corporation employs a
transfer agent, at the offices of the transfer agent of
the Corporation.
7.3 Transfers of Shares. Transfers of shares of
Common Stock of the Corporation shall be made on the
stock records of the Corporation only by the registered
holder thereof, or by his or her attorney thereunto
authorized by power of attorney duly executed and filed
with the Secretary or with a transfer agent or transfer
clerk, subject to the payment of all taxes due for such
shares. The transfer of shares is also subject to the
receipt by the Secretary, transfer agent or transfer
clerk of proper evidence of succession, assignment or
authority to transfer as the Corporation or its agents
may reasonably require. Except as otherwise provided
by law, the Corporation shall be entitled to recognize
the exclusive right of a person in whose name any share
or shares of Common Stock stand on the record of
stockholders as the owner of such share or shares for
all purposes, including, without limitation, the rights
to receive dividends or other distributions, and to
vote as such owner, and the Corporation shall not be
bound to recognize any equitable or legal claim to or
interest in any such share or shares of Common Stock on
the part of any other person. The Board of Directors
may make such additional rules and regulations, not
inconsistent with these By-Laws, as it may deem
expedient concerning the issue, transfer and
registration of shares of Common Stock of the
Corporation.
7.4 Transfer Agents and Registrars. The Board of
Directors may from time to time appoint or remove
transfer agents and/or registrars of transfers of
shares of Common Stock of the Corporation, and it may
appoint the same person as both transfer agent and
registrar.
ARTICLE VIII
Seal
8.1 Seal. The seal of the Corporation shall
bear, in addition to any other emblem or device
approved by the Board of Directors, the name of the
Corporation, the year of its incorporation and the
words "Corporate Seal" and "Maryland." The form of the
seal may be altered by the Board of Directors. Said
seal may be used by causing it or a facsimile thereof
to be impressed or affixed or in any other manner repro
duced. Any officer or director of the Corporation
shall have the authority to affix the corporate seal of
the Corporation to any document requiring the same.
ARTICLE IX
Fiscal Year
9.1 Fiscal Year. The fiscal year of the Company
shall be fixed by resolution of the Board of Directors
adopted by a majority of the Directors then in office.
ARTICLE X
Depositories and Custodians
10.1 Depositories. The funds of the Corporation
shall be deposited with such banks or other
depositories as the Board of Directors may from time to
time determine.
10.2 Custodians. All securities and other
investments shall be deposited in the safe keeping of
such banks or other companies as the Board of Directors
may from time to time determine. Every arrangement
entered into with any bank or other company for the
safe keeping of the securities and investments of the
Corporation shall contain provisions complying with the
1940 Act and the general rules and regulations
thereunder.
ARTICLE XI
Execution of Instruments
11.1 Checks, Notes, Drafts, etc. Checks, notes,
drafts, acceptances, bills of exchange and other orders
obligations for the payment of money shall be signed by
such officer or officers or person or persons as the
Board of Directors by resolution shall from time to
time designate or as these By-Laws provide.
11.2 Sale or Transfer of Securities. Stock
certificates, bonds or other securities at any time
owned by the Corporation may be held on behalf of the
Corporation or sold, transferred or otherwise disposed
of subject to any limits imposed by these By-Laws and
pursuant to authorization by the Board of Directors
and, when so authorized to be held on behalf of the
Corporation or sold, transferred or otherwise disposed
of, may be transferred from the name of the Corporation
by the signature of the President, any Vice President
or the Treasurer or pursuant to any procedure approved
by the Board of Directors, subject to applicable law.
ARTICLE XII
Independent Public Accountants
12.1 Independent Public Accountants. The
Corporation shall employ an independent public
accountant or a firm of independent public accountants
as its accountants to examine the accounts of the
Corporation and to sign and certify financial
statements filed by the Corporation.
ARTICLE XIII
Amendments
13.1 Amendments. These By-Laws may be amended,
altered or repealed at any regular meeting of the
stockholders or at any special meeting of the
stockholders at which a quorum is present or
represented, provided that notice of the proposed
amendment, alteration or repeal be contained in the
notice of such special meeting. These By-Laws may also
be amended, altered or repealed by the affirmative vote
of a majority of the Board of Directors at any regular
or special meeting of the Board of Directors, except
any particular By-Law which is specified as not subject
to alteration or repeal by the Board of Directors,
subject to the requirements of the 1940 Act.
