FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. 3 [X]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. [ ]
(Check appropriate box or boxes.)
METAMARKETS.COM FUNDS
(Exact Name of Registrant as Specified in Charter)
400 Oyster Point Blvd. - Suite 414
South San Francisco, CA 94080
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (650) 616-1900
Donald L. Luskin
400 Oyster Point Blvd. - Suite 414
South San Francisco, CA 94080
(Name and Address of Agent for Service)
copy to:
Stuart H. Coleman Esq.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
Approximate Date of Proposed Public Offering: As soon as practicable after this
Registration Statement is declared effective.
===============================================================================
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 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>
SUBJECT TO COMPLETION, DATED AUGUST 11, 1999
METAMARKETS.COM FUNDS
PROSPECTUS
____________, 1999
o OPENFUND
o COMMUNICATIONS TECHNOLOGY FUND
o MEDIA TECHNOLOGY FUND
o OPENFUND II
ADVISED BY
METAMARKETS INVESTMENTS LLC
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE FUND SHARES OR DETERMINED WHETHER THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A CRIME.
- ------------------
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
DESCRIPTION OF THE FUNDS
OVERVIEW
- -------------------------------------------------------------------------------
THE FUNDS
The MetaMarkets.com Funds consist of four separate
Funds, each with its own investment strategy and
risk/return profile. All four Funds seek capital
growth and invest principally in common stocks of
companies characterized as "growth" companies. The
differences in investment strategy among the Funds
affect the degree of risk each Fund is subject to
and its return. The Funds are actively managed
and, thus, are subject to the risk that a Fund's
portfolio management practices might not achieve
their goals. Because you could lose money by
investing in a Fund, be sure to read all risk
disclosure carefully before investing.
Each Fund invests in securities of companies
which, in the opinion of the Fund's investment
adviser, are innovative growth companies at the
leading edge of technological, social and economic
change. These are companies which define the "New
Economy." They demonstrate the ability to
innovate, continuously learn and productively
change. Through innovative use of technology or
the imaginative use of organizational techniques
or marketing methods, they are redefining the way
goods and services are provided in the economy.
These are companies that make us more efficient at
work, and change the way we relax and play.
The Funds' investments may range from small
companies developing new technologies or
practicing innovative methods to provide consumer
services, to large blue chip companies with
established track records of developing and
marketing these advances.
Much is being written about the New Economy. Visit
the Web site at http://www.MetaMarkets.com if you
want to find out where you can read more about it.
The Funds' investment adviser intends to operate
the Funds as the first "interactive mutual funds"
integrating real time investor participation with
the investment process. Each Fund intends to post
on its Web site frequent updates of its holdings
and completed trading activity. In addition, part
of the investment adviser's Web site will support
communication technologies such as discussion
boards, chat rooms, webcams, and on-line polls
through which Fund shareholders and others may
interact with the Funds' portfolio managers and
each other to share ideas about the Funds, stocks,
market conditions and other related topics.
OBJECTIVES, RISK/RETURN AND EXPENSES
OPENFUND
INVESTMENT OBJECTIVE The Fund seeks to provide investors with capital
growth.
PRINCIPAL INVESTMENT The Fund invests principally in the common stocks
STRATEGIES of companies that the investment adviser believes
derive strategic advantage from trends caused by
the development of the "New Economy."
The Fund will engage in aggressive portfolio
trading in an attempt to take advantage of
short-term trends in valuation and momentum.
To implement the Fund's strategy, the adviser will
select from those companies based in the U.S. or,
to a limited extent, in foreign countries that
provide or are expected to benefit from advances
and improvements in technology, consumer services
or business practices. These companies may include
those that develop, produce or distribute products
or services in the Internet, electronics,
communications, healthcare, biotechnology, and
computer software and hardware sectors, as well as
the consumer marketing, media, entertainment and
financial services sectors. The Fund also may
invest in the preferred stocks and convertible
securities (including those rated below investment
grade) of these companies and engage in short
selling and, from time to time, leverage, futures
and options transactions.
PRINCIPAL INVESTMENT Stocks fluctuate in price, often based on factors
RISKS unrelated to the issuers' value. The value of your
investment in the Fund will fluctuate in response
to movements in the stock market and the
activities of individual portfolio companies. As a
result, you could lose money by investing in the
Fund, particularly if there is a sudden decline in
the share prices of the Fund's holdings or an
overall decline in the stock market.
The Fund will engage in short-term trading, which
could produce higher brokerage costs and taxable
distributions than a fund with low portfolio
turnover.
The Fund will invest in companies in the
technology sector, including those with small
capitalizations (below $500 million), which carry
additional risks. These companies typically have
less predictable earnings than other companies. In
addition, small-cap stocks trade less frequently
and in more limited volume than those of larger,
more established companies. As a result,
technology and small-cap stocks may fluctuate
significantly more in value than other stocks.
Thus, the Fund's share price should be expected to
fluctuate significantly more than the share prices
of many other types of mutual funds.
The Fund is non-diversified and may invest a
greater percentage of its assets in a particular
company compared with other funds. Accordingly,
the Fund's portfolio may be more sensitive to
changes in the market value of a single company or
industry.
The Fund may invest in lower-rated convertible
securities which have speculative characteristics
and higher credit risk. With this type of
investment, a greater likelihood exists that
adverse economic changes can result in a weakened
capacity to make interest and principal payments
on a timely basis.
Foreign securities involve special risks, such as
exposure to currency exchange rate fluctuations,
and tend to be more volatile than U.S. securities.
The Fund may not always be able to close out an
established short position at any particular time
or at an acceptable price.
The Fund can buy securities with borrowed money (a
form of leverage), which could have the effect of
magnifying the Fund's gains or losses.
Successful use of options and futures is subject
to the adviser's ability to predict correctly
movements in the direction of the market. A
relatively small investment could have a large
impact on the Fund's performance.
<PAGE>
PERFORMANCE BAR CHART AND TABLE
Because the Fund is new, it has no performance as of the date of this
prospectus.
FEES AND EXPENSES
If you purchase and hold shares of OpenFund, you will pay certain fees and
expenses, which are described in the tables. Annual Fund operating expenses are
paid out of Fund assets, and are reflected in the share price.
- ------------------------------------------
Annual Fund Operating Expenses
(fees paid from Fund assets)
- ------------------------------------------
Management Fee 1.00%
- ------------------------------------------
Distribution (12b-1)
Fee .25%
- ------------------------------------------
Other Expenses1 .20%
- ------------------------------------------
Total Annual Fund
Operating Expenses1 1.45%
- ------------------------------------------
- -----------------------
1 Reflects a contractual obligation by the adviser to waive its fees in their
entirety and pay all Fund expenses through February 28, 2000, and to reimburse
the Fund to the extent Total Annual Fund Operating Expenses exceed 1.45% of
the Fund's average daily net assets from March 1, 2000 through
August 31, 2000.
EXPENSE EXAMPLE
Use the example at right
to help you compare the
cost of investing in the Fund OPENFUND 1 3
with the cost of investing
in other mutual funds. It $74(2) $387(2)
illustrates the amount of -----------------------------------
fees and expenses you would
pay, assuming the following:
- ----------------------
2 Year 1 fees and expenses are based on a contractual agreement.
o $10,000 investment
o 5% annual return
o no changes in the Fund's
operating expenses
o reinvestment of all dividends
and distributions
Your actual costs may be higher or lower.
<PAGE>
OBJECTIVES, RISK/RETURN AND EXPENSES
COMMUNICATIONS TECHNOLOGY FUND
INVESTMENT OBJECTIVE The Fund seeks to provide investors with capital
growth.
PRINCIPAL INVESTMENT The Fund invests principally in the common stocks
STRATEGIES of companies that the investment adviser believes
derive strategic advantage from the development of
global telecommunications for voice and data
traffic.
To implement the Fund's strategy, the adviser will
select from those companies based in the U.S. or,
to a limited extent, in foreign countries that
develop, manufacture or sell communications and
networking services or equipment, or that provide
Internet and media services to such companies. The
Fund also may invest in the preferred stocks and
convertible securities (including those rated
below investment grade) of these companies and
engage in short selling and, from time to time,
leverage, futures and options transactions.
PRINCIPAL INVESTMENT Stocks fluctuate in price, often based on factors
RISKS unrelated to the issuers' value. The value of your
investment in the Fund will fluctuate in response
to movements in the stock market and the
activities of individual portfolio companies. As a
result, you could lose money by investing in the
Fund, particularly if there is a sudden decline in
the share prices of the Fund's holdings or an
overall decline in the stock market.
Because the Fund's investments are concentrated in
the telecommunications industries (at least 65% of
its total assets), the value of its shares will be
affected by factors peculiar to those industries
and may fluctuate more widely than that of a fund
which invests in a broad range of industries.
The Fund will invest in companies in the
technology sector, including those with small
capitalizations (below $500 million), which carry
additional risks. These companies typically have
less predictable earnings than other companies. In
addition, small-cap stocks trade less frequently
and in more limited volume than those of larger,
more established companies. As a result,
technology and small-cap stocks may fluctuate
significantly more in value than other stocks.
Thus, the Fund's share price should be expected to
fluctuate significantly more than the share prices
of many other types of mutual funds.
The Fund is non-diversified and may invest a
greater percentage of its assets in a particular
company compared with other funds. Accordingly,
the Fund's portfolio may be more sensitive to
changes in the market value of a single company or
industry.
The Fund may invest in lower-rated convertible
securities which have speculative characteristics
and higher credit risk. With this type of
investment, a greater likelihood exists that
adverse economic changes can result in a weakened
capacity to make interest and principal payments
on a timely basis.
Foreign securities involve special risks, such as
exposure to currency exchange rate fluctuations,
and tend to be more volatile than U.S. securities.
The Fund may not always be able to close out an
established short position at any particular time
or at an acceptable price.
The Fund can buy securities with borrowed money (a
form of leverage), which could have the effect of
magnifying the Fund's gains or losses.
Successful use of options and futures is subject
to the adviser's ability to predict correctly
movements in the direction of the market. A
relatively small investment could have a large
impact on the Fund's performance.
<PAGE>
PERFORMANCE BAR CHART AND TABLE
Because the Fund is new, it has no performance as of the date of this
prospectus.
FEES AND EXPENSES
If you purchase and hold shares of the Communications Technology Fund, you will
pay certain fees and expenses, which are described in the tables. Annual Fund
operating expenses are paid out of Fund assets, and are reflected in the share
price.
- ------------------------------------------
Annual Fund Operating Expenses
(fees paid from Fund assets)
- ------------------------------------------
Management Fee 1.00%
- ------------------------------------------
Distribution (12b-1)
Fee .25%
- ------------------------------------------
Other Expenses1 .20%
- ------------------------------------------
Total Annual Fund
Operating Expenses1 1.45%
- ------------------------------------------
- --------------------
1 Reflects a contractual obligation by the adviser to waive its fees in their
entirety and pay all Fund expenses through February 28, 2000, and to reimburse
the Fund to the extent Total Annual Fund Operating Expenses exceed 1.45% of
the Fund's average daily net assets from March 1, 2000 through
August 31, 2000.
EXPENSE EXAMPLE
Use the example at right COMMUNICATIONS 1 3
to help you compare the TECHNOLOGY FUND Year Years
cost of investing in the Fund
with the cost of investing $74(2) $387(2)
in other mutual funds. -------------------------------------
It illustrates the amount of
fees and expenses you would
pay, assuming the following:
- --------------------
2 Year 1 fees and expenses are based on a contractual agreement.
o $10,000 investment
o 5% annual return
o no changes in the Fund's
operating expenses
o reinvestment of all dividends
and distributions
Your actual costs may be higher or lower.
<PAGE>
OBJECTIVES, RISK/RETURN AND EXPENSES
MEDIA TECHNOLOGY FUND
INVESTMENT OBJECTIVE The Fund seeks to provide investors with capital
growth.
PRINCIPAL INVESTMENT The Fund invests principally in common stocks of
STRATEGIES companies that the investment adviser believes
derive strategic advantage from the development of
digital technologies used in the broadcast,
entertainment and other media industries.
To implement the Fund's strategy, the adviser will
select companies based in the U.S. or, to a
limited extent, in foreign countries that develop,
produce, sell or distribute goods or services used
in the media industries, such as Internet,
retailing, financial services, advertising,
broadcasting, film, publishing, cable television
and video, and cellular communications companies.
The Fund also may invest in the preferred stocks
and convertible securities (including those rated
below investment grade) of these companies and
engage in short selling and, from time to time,
leverage, futures and options transactions.
PRINCIPAL INVESTMENT Stocks fluctuate in price, often based on factors
RISKS unrelated to the issuers' value. The value of your
investment in the Fund will fluctuate in response
to movements in the stock market and the
activities of individual portfolio companies. As a
result, you could lose money by investing in the
Fund, particularly if there is a sudden decline in
the share prices of the Fund's holdings or an
overall decline in the stock market.
Because the Fund's investments are concentrated in
the media industries (at least 65% of its total
assets), the value of its shares will be affected
by factors peculiar to those industries and may
fluctuate more widely than that of a fund which
invests in a broad range of industries.
The Fund will invest in companies in the
technology sector, including those with small
capitalizations (below $500 million), which carry
additional risks. These companies typically have
less predictable earnings than other companies. In
addition, small-cap stocks trade less frequently
and in more limited volume than those of larger,
more established companies. As a result,
technology and small-cap stocks may fluctuate
significantly more in value than other stocks.
Thus, the Fund's share price should be expected to
fluctuate significantly more than the share prices
of many other types of mutual funds.
The Fund is non-diversified and may invest a
greater percentage of its assets in a particular
company compared with other funds. Accordingly,
the Fund's portfolio may be more sensitive to
changes in the market value of a single company or
industry.
The Fund may invest in lower-rated convertible
securities which have speculative characteristics
and higher credit risk. With this type of
investment, a greater likelihood exists that
adverse economic changes can result in a weakened
capacity to make interest and principal payments
on a timely basis.
Foreign securities involve special risks, such as
exposure to currency exchange rate fluctuations,
and tend to be more volatile than U.S. securities.
The Fund may not always be able to close out an
established short position at any particular time
or at an acceptable price.
The Fund can buy securities with borrowed money (a
form of leverage), which could have the effect of
magnifying the Fund's gains or losses.
Successful use of options and futures is subject
to the adviser's ability to predict correctly
movements in the direction of the market. A
relatively small investment could have a large
impact on the Fund's performance.
<PAGE>
PERFORMANCE BAR CHART AND TABLE
Because the Fund is new, it has no performance as of the date of this
prospectus.
FEES AND EXPENSES
If you purchase and hold shares of the Media Technology Fund, you will pay
certain fees and expenses, which are described in the tables. Annual Fund
operating expenses are paid out of Fund assets, and are reflected in the share
price.
- ------------------------------------------
Annual Fund Operating Expenses
(fees paid from Fund assets)
- ------------------------------------------
Management Fee 1.00%
- ------------------------------------------
Distribution (12b-1) .25%
Fee
- ------------------------------------------
Other Expenses1 .20%
- ------------------------------------------
Total Annual Fund
Operating Expenses1 1.45%
- ------------------------------------------
- ----------------------
1 Reflects a contractual obligation by the adviser to waive its fees in their
entirety and pay all Fund expenses through February 28, 2000, and to reimburse
the Fund to the extent Total Annual Fund Operating Expenses exceed 1.45% of
the Fund's average daily net assets from March 1, 2000 through
August 31, 2000.
EXPENSE EXAMPLE
Use the example at right MEDIA TECHNOLOGY FUND 1 3
to help you compare the Year Years
cost of investing in the Fund
with the cost of investing $74(2) $387(2)
in other mutual funds. It ---------------------------------------
illustrates the amount of
fees and expenses you would
pay, assuming the following:
- ----------------------
2 Year 1 fees and expenses are based on a contractual agreement.
o $10,000 investment
o 5% annual return
o no changes in the Fund's
operating expenses
o reinvestment of all dividends
and distributions
Your actual costs may be higher or lower.
<PAGE>
OBJECTIVES, RISK/RETURN AND EXPENSES
OPENFUND II
INVESTMENT OBJECTIVE The Fund seeks to provide investors with capital
growth.
PRINCIPAL INVESTMENT The Fund invests principally in the common stocks
STRATEGIES of companies that the investment adviser believes
derive strategic advantage from trends caused by
the development of the "New Economy."
To implement the Fund's strategy, the adviser will
select from those companies based in the U.S. or,
to a limited extent, in foreign countries that
provide or are expected to benefit from advances
and improvements in technology, consumer services
or business practices. These companies may include
those that develop, produce or distribute products
or services in the Internet, electronics,
communications, healthcare, biotechnology, and
computer software and hardware sectors, as well as
the consumer marketing, media, entertainment and
financial services sectors. The Fund also may
invest in the preferred stocks and convertible
securities (including those rated below investment
grade) of these companies and engage in short
selling and, from time to time, leverage, futures
and options transactions.
PRINCIPAL INVESTMENT Stocks fluctuate in price, often based on factors
RISKS unrelated to the issuers' value. The value of your
investment in the Fund will fluctuate in response
to movements in the stock market and the
activities of individual portfolio companies. As a
result, you could lose money by investing in the
Fund, particularly if there is a sudden decline in
the share prices of the Fund's holdings or an
overall decline in the stock market.
The Fund will invest in companies in the
technology sector, including those with small
capitalizations (below $500 million), which carry
additional risks. These companies typically have
less predictable earnings than other companies. In
addition, small-cap stocks trade less frequently
and in more limited volume than those of larger,
more established companies. As a result,
technology and small-cap stocks may fluctuate
significantly more in value than other stocks.
Thus, the Fund's share price should be expected to
fluctuate significantly more than the share prices
of many other types of mutual funds.
The Fund is non-diversified and may invest a
greater percentage of its assets in a particular
company compared with other funds. Accordingly,
the Fund's portfolio may be more sensitive to
changes in the market value of a single company or
industry.
The Fund may invest in lower-rated convertible
securities which have speculative characteristics
and higher credit risk. With this type of
investment, a greater likelihood exists that
adverse economic changes can result in a weakened
capacity to make interest and principal payments
on a timely basis.
Foreign securities involve special risks, such as
exposure to currency exchange rate fluctuations,
and tend to be more volatile than U.S. securities.
The Fund may not always be able to close out an
established short position at any particular time
or at an acceptable price.
The Fund can buy securities with borrowed money (a
form of leverage), which could have the effect of
magnifying the Fund's gains or losses.
Successful use of options and futures is subject
to the adviser's ability to predict correctly
movements in the direction of the market. A
relatively small investment could have a large
impact on the Fund's performance.
<PAGE>
PERFORMANCE BAR CHART AND TABLE
Because the Fund is new, it has no performance as of the date of this
prospectus.
FEES AND EXPENSES
If you purchase and hold shares of OpenFund II, you will pay certain fees and
expenses, which are described in the tables. Annual Fund operating expenses are
paid out of Fund assets, and are reflected in the share price.
- ------------------------------------------
Annual Fund Operating Expenses
(fees paid from Fund assets)
- ------------------------------------------
Management Fee 1.00%
- ---------------------------------------------
Distribution (12b-1)
Fee .25%
- ---------------------------------------------
Other Expenses1 .20%
- ---------------------------------------------
Total Annual Fund
Operating Expenses1 1.45%
- ---------------------------------------------
- -----------------------
1 Reflects a contractual obligation by the adviser to waive its fees in their
entirety and pay all Fund expenses through February 28, 2000, and to reimburse
the Fund to the extent Total Annual Fund Operating Expenses exceed 1.45% of
the Fund's average daily net assets from March 1, 2000 through
August 31, 2000.
EXPENSE EXAMPLE
Use the example at right OPENFUND II 1 3
to help you compare the Year Years
cost of investing in the Fund
with the cost of investing $74(2) $387(2)
in other mutual funds. It --------------------------------------
illustrates the amount of
fees and expenses you would
pay, assuming the following:
- -----------------------
2 Year 1 fees and expenses are based on a contractual agreement.
o $10,000 investment
o 5% annual return
o no changes in the Fund's
operating expenses
o reinvestment of all dividends
and distributions
Your actual costs may be higher or lower.
<PAGE>
ADDITIONAL INFORMATION ON INVESTMENT STRATEGIES AND RISKS
PRINCIPAL STRATEGIES APPLICABLE TO ALL FUNDS
While the Funds typically invest principally in common stocks, they also may
invest in convertible securities and preferred stocks and other equity
securities having the characteristics of common stocks (generally, in each case
up to 10% of the Fund's assets). Each Fund also may invest in Standard & Poor's
Depositary Receipts ("SPDRs") and DIAMONDS when it desires exposure to the U.S.
stock market generally. Convertible securities are exchangeable for another form
of the issuer's securities, and generally are subordinated to other similar but
non-convertible securities of the same issuer and, thus, typically have lower
credit ratings than similar non-convertible securities. Each Fund may invest up
to 10% of its assets in convertible securities rated below investment grade
(Baa/BBB) and as low as the lowest rating assigned by the rating agencies (C/D)
or the unrated equivalent as determined by the adviser. Preferred stock has
preference over common stock in the payment of dividends and the liquidation of
assets, but ordinarily does not carry voting rights. depositary
receipts listed on the American Stock Exchange that are designed to provide
investment results that generally correspond to the price and yield performance
of the common stocks included in the Standard & Poor's 500 Index. DIAMONDS are
units listed on the American Stock Exchange that are designed to provide
investment results that generally correspond to the price and yield performance
of the common stocks included in the Dow Jones Industrial Average.
Although the Funds will invest principally in securities of U.S. issuers, each
Fund may invest up to 20% of its total assets in the equity securities of
foreign issuers, including common stocks, preferred stocks, convertible
securities and depositary receipts, such as ADRs.
The Funds may sell short securities of companies that the investment adviser
believes will underperform amidst the challenges of the New Economy. In
addition, each Fund may engage in short-selling for hedging purposes, such as to
limit exposure to a possible market decline in the value of its portfolio
securities. Generally, the Fund would sell a security it does not own. To
complete the transaction, the Fund must borrow the security to make delivery to
the buyer. The Fund is obligated to replace the security borrowed by purchasing
it subsequently at the market price at the time of replacement. No securities
will be sold short if, after effect is give to any such short sale, the total
market value of all securities sold short would exceed 25% of the value of a
Fund's net assets.
Each Fund may invest some assets in options and futures contracts and, though
not part of its principal strategy, certain other derivatives such as equity
swaps. These instruments are used primarily to hedge the Fund's portfolio but
may be used to increase returns; however, they sometimes may reduce returns or
increase volatility.
Each Fund may borrow money from banks, brokers or dealers for investment
purposes. Borrowing for investment purposes is known as "leverage." To the
extent a Fund uses leverage, it would limit such leverage to 25% of its total
assets.
Each Fund, from time to time, may take temporary defensive positions that are
inconsistent with the Fund's principal investment strategies in an attempt to
respond to adverse market, economic, political, or other conditions and invest
some or all of its assets in money market instruments. During these periods, the
Fund may not achieve its investment objective.
PRINCIPAL RISKS APPLICABLE TO ALL FUNDS
MARKET AND MANAGEMENT RISK. Over time, growth companies are expected to increase
their earnings at an above-average rate. If these expectations are not met,
their stock prices can fall drastically--even if earnings show an absolute
increase.
Each Fund may purchase securities of companies in initial public offerings or
shortly thereafter. The prices of these companies' securities may be very
volatile. Each Fund may purchase securities of companies which have no earnings
or have experienced losses. The Fund generally will make these investments based
on a belief that actual or anticipated products or services will produce future
earnings. If the anticipated event is delayed or does not occur, or if investor
perceptions about the company change, the company's stock price may decline
sharply and its securities may become less liquid.
<PAGE>
FOREIGN SECURITIES RISK. Securities of foreign issuers (including ADRs)
fluctuate in price, often based on factors unrelated to the issuers' value, and
such fluctuations can be pronounced. Foreign securities tend to be more volatile
than U.S. securities because they include special risks, such as exposure to
currency fluctuations, a lack of comprehensive company information, political
instability, and differing auditing and legal standards.
LOWER RATED SECURITIES RISK. Higher yielding (and, therefore, higher risk)
convertible securities, such as those rated below investment grade, may be
subject to certain risks with respect to the issuing entity and to greater
market fluctuations than lower yielding, higher rated convertible securities.
The retail secondary market for these securities may be less liquid than that of
higher rated securities; adverse conditions could make it difficult at times for
the Fund to sell these securities or could result in lower prices that those
used in calculating the Fund's net asset value.
RISK OF USING CERTAIN INVESTMENT TECHNIQUES. With respect to short sales, the
price at the time the Fund replaces the security borrowed may be more (and the
Fund would lose money) or less (and the Fund would make money) than the price at
which the security was sold by the Fund. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount of any premium or
amounts in lieu of interest the Fund may be required to pay in connection with a
short sale.
The risks related to the use of options and futures contracts include: (i) the
correlation between movements in the market price of a Fund's investments (held
or intended for purchase) being hedged and in the price of the futures contract
or option may be imperfect; (ii) possible lack of a liquid secondary market for
closing out options or futures positions; and (iii) losses due to unanticipated
market movements.
Leveraging is a sophisticated investment technique that amplifies the effect on
net asset value of any increase or decrease in the market value of the Fund's
portfolio. These borrowings will be subject to interest costs which may or may
not be recovered by appreciation of the securities purchased; in certain cases,
interest costs may exceed the return received on the securities purchased.
INTERNET RISK. Since the Funds are designed specifically for on-line investors,
an interruption in transmissions over the Internet generally or problem in the
transmission of the MetaMarkets.com Web site in particular could result in a
delay or interruption in your ability to access the MetaMarkets.com Web site,
place purchase or sale orders with the Funds or otherwise interact with the
Funds.
YEAR 2000 RISK. Like other funds and business organizations around the world,
the Funds could be adversely affected if the computer systems used by the
investment adviser and the Funds' other service providers do not properly
process and calculate date-related information for the year 2000 and beyond.
Year 2000 issues may adversely affect the companies or other issuers in which
the Funds invest where, for example, such entities incur substantial costs to
address Year 2000 issues or suffer losses caused by the failure to adequately or
timely do so. Foreign markets may be less prepared to address Year 2000 issues
than U.S. ones.
The investment adviser and the Funds' other service providers have assured the
Funds that they have developed and are implementing clearly defined and
documented plans intended to minimize risks to services critical to the Funds'
operations associated with Year 2000 issues. The investment adviser and the
Fund's other service providers are likewise seeking assurances from their
respective vendors and suppliers that such entities are addressing Year 2000
issues.
While the ultimate costs or consequences of incomplete or untimely resolution of
Year 2000 issues cannot be accurately assessed at this time, the Funds currently
have no reason to believe that the Year 2000 plans of the investment adviser and
the Funds' other service providers will not be completed by December 31, 1999,
or that the anticipated costs associated with full implementation of their plans
will have a material adverse impact on either their business operations or
financial condition or those of the Funds. If any systems upon which the Funds
are dependent are not Year 2000 ready by December 31, 1999, administrative
errors and account maintenance failures would likely occur, which could result
in a decline in the value of the Funds' securities and return.
<PAGE>
FUND MANAGEMENT
Investment Adviser
MetaMarkets Investments LLC, located at 400 Oyster Point Blvd., Suite 414, South
San Francisco, California 94080, serves as each Fund's investment adviser. The
investment adviser is a newly formed entity and has no operating history upon
which investors can evaluate its performance. Donald L. Luskin, the investment
adviser's President and Chief Executive Officer, was formerly the Chief
Executive Officer of Barclays Global Mutual Funds and the Vice Chairman of
Barclays Global Investors, one of the world's largest investment management
organizations. The investment adviser is responsible for making investment
decisions for each Fund, placing purchase and sale orders and providing
research, statistical analysis and continuous supervision of each Fund's
investment portfolio. Investment decisions for each Fund are made by a team of
the investment adviser's portfolio managers; the team collaborates in making
portfolio recommendations and no individual is primarily responsible for making
recommendations to the team. Set forth below is the investment advisory fee rate
payable to the investment adviser by each Fund:
Average Daily Net Annual Rate of
ASSETS OF THE FUND ADVISORY FEE
on the first $250 million 1.00%
on the next $500 million .75%
on assets in excess of $750 million .50%
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
The per share net asset value (NAV) of each Fund is calculated by adding the
total value of the Fund's investments and other assets, subtracting its
liabilities and then dividing that figure by the number of outstanding shares.
Each Fund's NAV is determined and its shares are priced at the close of regular
trading on the New York Stock Exchange, normally at 4:00 p.m. Eastern time, on
days the Exchange is open, except Columbus Day and Veterans' Day. The New York
Stock Exchange is closed on weekends, national holidays and Good Friday.
Your order for purchase, sale or exchange of shares is priced at the next NAV
calculated after the Fund receives your completed order form.
Each Fund's investments are valued each business day generally by using
available market quotations or, if market quotations are not available, at fair
value determined by the Fund's Board or in accordance with procedures approved
by the Board. For further information regarding the methods employed in valuing
the Funds' investments, see the Statement of Additional Information (SAI).
The Funds' 12b-1 fees compensate the Funds' distributor and other dealers and
investment representatives for services and expenses relating to the sale and
distribution of the Funds' shares. Because 12b-1 fees are paid from Fund assets
on an ongoing basis, over time they will increase the cost of your investment
and may cost you more than paying other types of sales charges.
<PAGE>
HOW TO BUY AND SELL SHARES
GENERAL
MetaMarkets.com Funds are designed specifically for on-line investors. You can
access the Funds at the MetaMarkets.com Web site on the Internet. By clicking
one of the Fund order icons, you can quickly and easily place a purchase or sale
order for shares. You will be prompted to enter your trading password whenever
you perform a transaction so that the Fund can be sure each purchase or sale is
secure. For your own protection, only you or your co-account holder(s) should
place orders through your Fund account. When you purchase shares, you will be
asked to: (1) affirm your consent to receive all Fund documentation
electronically, (2) provide your e-mail address and (3) affirm that you have
read the Prospectus. The Funds' current Prospectus will be readily available for
viewing and printing on the Web site.
To become a Fund shareholder, you will need to open an account and consent to
receive all shareholder information about the Funds electronically.
MetaMarkets.com Funds may deliver paper-based shareholder information in certain
circumstances at no extra cost to the investor. If you call or e-mail the Funds
to request paper-based shareholder information, or if you revoke your consent to
receive all shareholder information electronically, the Funds will deliver such
information to you and you may be charged a transaction fee of up to $12 to
cover the costs of printing, shipping and handling (a fee will not be charged
for delivery of confirmations or statements). Shareholder information includes
prospectuses, annual and semi-annual reports, proxy materials, confirmations and
statements.
PURCHASING AND ADDING TO YOUR SHARES
Minimum Investment
Account type Initial Subsequent
Regular
(non-retirement) $1,000 $250
Retirement (IRA) $100 $50
Automatic
Investment Plan $250 $50
To make your initial investment, follow the instructions on the account
application at the end of this Prospectus. To make subsequent investments, click
the Fund Purchase Order icon and follow the instructions. The Funds offer an
Automatic Investment Plan and Directed Dividend Option, which are convenient
ways of buying Fund shares. These also are described on the account application
and in the SAI.
All purchases must be in U.S. dollars. A fee will be charged for any checks that
do not clear. Third-party checks are not accepted.
The Funds may waive the minimum purchase requirements or reject any purchase
order in whole or in part.
SELLING YOUR SHARES
You may sell (i.e., redeem) your shares at any time. Your sales price will be
the next NAV after your sell order is received by the Fund, its transfer agent,
or your investment representative. Normally you will receive your proceeds
within a week after your request is received.
To sell Fund shares, click the Fund Sell Order icon and follow the instructions.
<PAGE>
o VERIFYING TELEPHONE REDEMPTIONS
MetaMarkets.com Funds will make efforts to insure that telephone redemptions are
only made by authorized shareholders. All telephone calls are recorded for your
protection and you will be asked for information to verify your identity. Given
these precautions, unless you have specifically indicated on your application
that you do not want the telephone redemption feature, you may be responsible
for any fraudulent telephone orders. If appropriate precautions have not been
taken, the transfer agent may be liable for losses due to unauthorized
transactions.
o REDEMPTIONS WITHIN 15 DAYS OF INITIAL INVESTMENT
Before selling recently purchased shares, please note that if your initial
investment was by check, the Fund may delay sending you the proceeds until the
check has cleared (which may take up to 15 days from the date of purchase). You
can avoid this delay by purchasing shares with a certified check.
o DELAYING PAYMENT OF REDEMPTION PROCEEDS
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the SEC in order to protect remaining shareholders.
o REDEMPTION IN KIND
The Fund reserves the right to make payment in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund operations
(for example, more than 1% of the Fund's net assets). Redemption in kind would
consist of securities equal in market value to your shares. When you convert
these securities to cash, you might have to pay brokerage charges.
o CLOSING OF SMALL ACCOUNTS
If your account falls below $500, the Fund may ask you to increase your balance.
If it is still below $500 after 30 days, the Fund may close your account and
send you the proceeds at the current NAV.
EXCHANGING YOUR SHARES
You can exchange your shares in one Fund for shares of another Fund. No
transaction fees are charged for exchanges.
You must exchange shares worth $500 or more and meet the minimum investment
requirements for the Fund into which you are exchanging. Exchanges from one Fund
to another are taxable.
To exchange your Fund shares, click the Fund Exchanges icon and follow the
instructions.
IMPORTANT INFORMATION ABOUT EXCHANGES. If Fund shares are purchased by check,
the shares cannot be exchanged until your check has cleared. This could take up
to 15 days from the date of purchase. The Funds may reject an exchange request
from a shareholder who has made more than eight exchanges between investment
portfolios offered by Fund management in a year, or more than four exchanges in
a calendar quarter. Although unlikely, the Funds may reject any exchanges or,
upon 60-days' notice to shareholders, change or terminate the exchange
privilege. The exchange privilege is available only in states where new Fund
shares may be sold. The registration and tax identification numbers of the two
accounts must be identical.
INTERACTIVE FUNDS
For OpenFund and OpenFund II, the discussion boards, chat rooms and
interactive features, including the display of trading activity and Fund
holdings, are presented for information purposes only and may be discontinued at
any time. MetaMarkets.com Funds also may terminate the ability to buy and sell
Fund shares on its Web site at any time, in which case you may continue to buy
and sell Fund shares pursuant to the alternative procedures described in a
separate document attached to this Prospectus. Prices and other data posted
during the day on the MetaMarkets.com Web site will be based on sources believed
reliable, but whose accuracy can not be assured.
DIVIDENDS, DISTRIBUTIONS AND TAXES
All dividends and distributions will be automatically reinvested in Fund shares.
Each Fund usually pays its shareholders dividends from its net investment income
and distributes any capital gains annually.
Dividends paid by a Fund are taxable to U.S. shareholders as ordinary income
(unless your investment is in an IRA or tax-advantaged account). Except for
tax-deferred accounts, any sale or exchange of Fund shares may generate a tax
liability. Of course, withdrawals or distributions from tax-deferred accounts
may be taxable when received.
Dividends are taxable in the year in which they are paid, even if they appear on
your account statement the following year. Dividends and distributions are
treated in the same manner for Federal income tax purposes whether you receive
them in cash or in additional shares.
DISTRIBUTIONS ARE MADE ON A PER SHARE BASIS REGARDLESS OF HOW LONG YOU'VE OWNED
YOUR SHARES. THEREFORE, IF YOU INVEST SHORTLY BEFORE THE DISTRIBUTION DATE, SOME
OF YOUR INVESTMENT WILL BE RETURNED TO YOU IN THE FORM OF A DISTRIBUTION.
You will be notified in January each year about the Federal tax status of
distributions made by the Fund. Depending on your residence for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes. Foreign shareholders may be subject to special withholding
requirements. There is a penalty on certain pre-retirement distributions from
retirement accounts.
Because everyone's tax situation is unique, you should consult your tax
professional about Federal, state and local tax consequences.
<PAGE>
For more information about the Funds, the following documents are available free
upon request:
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI provides more detailed information about the Funds, including their
operations and investment policies. It is incorporated by reference and is
legally considered a part of this Prospectus.
- -------------------------------------------------------------------------------
YOU CAN GET FREE COPIES OF THE SAI OR REQUEST OTHER INFORMATION AND DISCUSS YOUR
QUESTIONS ABOUT THE FUNDS ON THE FUNDS' INTERNET SITE OR BY E-MAIL:
METAMARKETS.COM FUNDS
INTERNET: HTTP://WWW.METAMARKETS.COM
TELEPHONE: 1-877-METAMKT (1-877-638-2658)
SHAREHOLDERS WILL BE ALERTED BY E-MAIL WHEN A PROSPECTUS AMENDMENT, ANNUAL OR
SEMI-ANNUAL REPORT, OR PROXY MATERIALS ARE AVAILABLE.
- -------------------------------------------------------------------------------
Certain instructions on how to buy and sell Fund shares are provided in a
separate document that is incorporated by reference into this Prospectus.
You can review information about the Funds, including the Funds' SAI, at the
Public Reference Room of the Securities and Exchange Commission. You can get
text-only copies:
o For a fee, by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-6009, or calling 1-800-SEC-0330.
o Free from the Commission's Web site at http://www.sec.gov.
Distributed by BISYS Fund Services Limited Partnership
Investment Company Act file no. 811-09351.
<PAGE>
HOW TO BUY, SELL AND EXCHANGE SHARES
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
BY INTERNET
Initial Investment:
1. Carefully read and complete the account application at the end of the
Prospectus, or download it from the MetaMarkets.com Web site, and follow the
instructions.
2. Make check, bank draft or money order payable to "MetaMarkets.com Funds,
[Name of Fund]."
3. Mail your payment and a signed copy of the
completed account application to: MetaMarkets.com Funds
c/o BISYS Fund Services
P. O. Box 182208
Columbus, Ohio 43218-2208
Subsequent Investment:
1. Provide the following information:
o Fund name: ____________________
o Amount invested: ____________________
o Account name: ____________________
o Account number: ____________________
2. Include your account number on your
check or money order and mail it to: MetaMarkets.com Funds
c/o BISYS Fund Services
P. O. Box 182208
Columbus, Ohio 43218-2208
or, for Overnight Service, send it to:
MetaMarkets.com Funds
c/o BISYS Fund Services
Attn: T.A. Operations
3435 Stelzer Road
Columbus, Ohio 43219
ELECTRONIC PAYMENTS
You may pay electronically if your U.S. bank participates in the Automated
Clearing House (ACH).
To establish an electronic purchase option, complete the account application as
directed, or call 1-877-638-2658. Your account can generally be set up for
electronic purchases within 15 days.
Call 1-877-638-2658 to arrange a transfer from your bank account.
<PAGE>
WIRE TRANSFER PAYMENTS
To pay by wire transfer, complete the account application as directed and
request a wire transfer confirmation number, or call 1-877-638-2658. Follow the
instructions below after receiving your confirmation number.
Instruct your bank to wire transfer your investment to:
Investors Bank & Trust Company
Routing Number: ABA # 011001438
DDA#000007910
Include:
Your name
Your confirmation number
After instructing your bank to wire the funds, call 1-877-638-2658 to advise us
of the amount being transferred and the name of your bank
ELECTRONIC VS. WIRE TRANSFER
Wire transfers allow financial institutions to
send funds to each other, almost instantaneously.
Your bank may change a wire transfer fee. With an
electronic purchase or sale, the transaction is
made through the Automated Clearing House (ACH)
and may take up to eight days to clear. There is
generally no fee for ACH transactions.
You can add to your account by using the convenient options described in the
account application. For more information about these options, also see the SAI.
<PAGE>
INSTRUCTIONS FOR SELLING SHARES
By Internet Provide the following information:
o your Fund and account number: ______________
o amount you wish to sell: _______________
o address where your check should be sent or
where your funds should be wired or
electronically transferred:
---------------
- -------------------------------------------------------------------------------
By Telephone Call 1-877-638-2658 with instructions as to
(UNLESS YOU HAVE DECLINED how you wish to receive your funds (mail,
TELEPHONE SALES PRIVILEGES) wire, electronic transfer).
<PAGE>
TO RECEIVE YOUR REDEMPTION PROCEEDS BY WIRE TRANSFER, you must indicate this
option on your application. Your payment will be wired to your bank ordinarily
on the next business day. The Fund and your bank may charge a wire transfer fee.
TO RECEIVE YOUR REDEMPTION PROCEEDS ELECTRONICALLY, your bank must participate
in the Automated Clearing House (ACH) and must be a U.S. bank. Your payment will
be credited ordinarily within seven days. Your bank may charge for this service.
<PAGE>
INSTRUCTIONS FOR EXCHANGING SHARES
To exchange your Fund shares, provide the following information:
o Your name and telephone number: _______________
o The exact name on your account and account number: _______________
o Taxpayer identification number (usually your Social Security
number): _______________
o Dollar value or number of shares to be exchanged: _______________
o The name of the Fund from which the exchange is to be made: _____________
o The name of the Fund into which the exchange is being made: _____________
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 11, 1999
METAMARKETS.COM FUNDS
OpenFund
Communications Technology Fund
Media Technology Fund
OpenFund II
STATEMENT OF ADDITIONAL INFORMATION
__________, 1999
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus for
OpenFund, Communications Technology Fund, Media Technology Fund and OpenFund
II (each, a "Fund" and collectively, the "Funds") of MetaMarkets.com Funds
(the "Company"), dated __________, 1999, as it may be revised from time to time.
To obtain a copy of the Prospectus, please access the Company's Web site at
http://www.MetaMarkets.com, click on the Fund Prospectus icon and follow the
instructions, or call toll free 1-877-METAMKT (1-877-638-2658). When investing
in the Funds, you will be asked to consent to receive all information about the
Funds electronically.
TABLE OF CONTENTS
PAGE
Description of the Company and the Funds....................................B-3
Management of the Company..................................................B-16
Management Arrangements....................................................B-19
Purchase and Redemption of Shares..........................................B-23
Determination of Net Asset Value...........................................B-24
Shareholder Services and Privileges........................................B-25
Performance Information....................................................B-26
Dividends, Distribution and Taxes..........................................B-26
Portfolio Transactions.....................................................B-28
Information About the Company and the Funds................................B-29
Counsel and Independent Auditors...........................................B-30
Appendix ..................................................................B-31
Financial Statement and Report of Independent Auditors.....................B-40
<PAGE>
[Left Side Margin on Cover Page]
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. THE FUNDS' SHARES MAY NOT BE SOLD UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY THE FUNDS' SHARES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
<PAGE>
DESCRIPTION OF THE COMPANY AND THE FUNDS
GENERAL
The Company is a Massachusetts business trust that was formed on May
21, 1999. Each Fund is a separate portfolio of the Company, an open-end
management investment company, known as a mutual fund.
MetaMarkets Investments LLC (the "Adviser") serves as each Fund's
investment adviser.
BISYS Fund Services Ohio, Inc. (the "Administrator") serves as each
Fund's administrator.
BISYS Fund Services Limited Partnership (the "Distributor"), an
affiliate of the Administrator, serves as each Fund's distributor.
CERTAIN PORTFOLIO SECURITIES
The following information supplements and should be read in
conjunction with the Funds' Prospectus. The portfolio securities described
below, other than convertible securities, are not part of the Funds' principal
investment strategies.
CONVERTIBLE SECURITIES. (All Funds) While the Funds typically invest
principally in common stocks, part of their principal investment strategies from
time to time may include investing in convertible securities. Convertible
securities may be converted at either a stated price or stated rate into
underlying shares of common stock and, therefore, are deemed to be equity
securities for purposes of the Funds' management policies. Convertible
securities have characteristics similar to both fixed-income and equity
securities. Convertible securities generally are subordinated to other similar
but non-convertible securities of the same issuer, although convertible bonds,
as corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. Because of the subordination feature, however, convertible
securities typically have lower ratings than similar non-convertible securities.
Although to a lesser extent than with fixed-income securities, the
market value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion feature, the market value of convertible
securities tends to vary with fluctuations in the market value of the underlying
common stock. A unique feature of convertible securities is that as the market
price of the underlying common stock declines, convertible securities tend to
trade increasingly on a yield basis, and so may not experience market value
declines to the same extent as the underlying common stock. When the market
price of the underlying common stock increases, the prices of the convertible
securities tend to rise as a reflection of the value of the underlying common
stock. While no securities investments are without risk, investments in
convertible securities generally entail less risk than investments in common
stock of the same issuer.
<PAGE>
Convertible securities are investments that provide for a stable
stream of income with generally higher yields than common stocks. There can be
no assurance of current income because the issuers of the convertible securities
may default on their obligations. A convertible security, in addition to
providing fixed income, offers the potential for capital appreciation through
the conversion feature, which enables the holder to benefit from increases in
the market price of the underlying common stock. There can be no assurance of
capital appreciation, however, because securities prices fluctuate. Convertible
securities, however, generally offer lower interest or dividend yields than
non-convertible securities of similar quality because of the potential for
capital appreciation.
WARRANTS. (All Funds) A warrant is an instrument issued by a
corporation which gives the holder the right to subscribe to a specified amount
of the corporation's capital stock at a set price for a specified period of
time.
INVESTMENT COMPANIES. (All Funds) A Fund may invest in securities
issued by other investment companies. Under the Investment Company Act of 1940,
as amended (the "1940 Act"), a Fund's investment in such securities, subject to
certain exceptions, currently is limited to (i) 3% of the total voting stock of
any one investment company, (ii) 5% of the Fund's total assets with respect to
any one investment company and (iii) 10% of the Fund's total assets in the
aggregate. Investments in the securities of other investment companies may
involve duplication of advisory fees and certain other expenses.
DEPOSITARY RECEIPTS. (All Funds) A Fund may invest in the securities
of foreign issuers in the form of American Depositary Receipts and American
Depositary Shares (collectively, "ADRs") and Global Depositary Receipts and
Global Depositary Shares (collectively, "GDRs") and other forms of depositary
receipts. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs are receipts
typically issued by a United States bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. GDRs are
receipts issued outside the United States typically by non-United States banks
and trust companies that evidence ownership of either foreign or domestic
securities. Generally, ADRs in registered form are designed for use in the
United States securities markets and GDRs in bearer form are designed for use
outside the United States.
These securities may be purchased through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by the issuer of the
underlying security and a depositary, whereas a depositary may establish an
unsponsored facility without participation by the issuer of the deposited
security. Holders of unsponsored depositary receipts generally bear all the
costs of such facilities and the depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of such receipts in respect of the deposited securities.
<PAGE>
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES.
(All Funds) A Fund may invest in obligations issued or guaranteed by one or more
foreign governments or any of their political subdivisions, agencies or
instrumentalities that are determined by the Adviser to be of comparable quality
to the other obligations in which the Fund may invest. Such securities also
include debt obligations of supranational entities. Supranational entities
include international organizations designated or supported by governmental
entities to promote economic reconstruction or development and international
banking institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the World Bank), the
European Coal and Steel Community, the Asian Development Bank and the
InterAmerican Development Bank.
STANDARD & POOR'S DEPOSITARY RECEIPTS AND DIAMONDS. (All Funds) A Fund
may invest in Standard & Poor's Depositary Receipts ("SPDRs"). SPDRs are units
of beneficial interest in an investment trust sponsored by a wholly-owned
subsidiary of the American Stock Exchange, Inc. (the "Exchange") which represent
proportionate undivided interests in a portfolio of securities consisting of
substantially all of the common stocks, in substantially the same weighting, as
the component stocks of the Standard & Poor's 500 Stock Index (the "S&P 500
Index"). SPDRs are listed on the Exchange and traded in the secondary market on
a per-SPDR basis.
A Fund also may invest in DIAMONDS. DIAMONDS are units of beneficial
interest in an investment trust representing proportionate undivided interests
in a portfolio of securities consisting of all the component common stocks of
the Dow Jones Industrial Average (the "DJIA"). DIAMONDS are listed on the
Exchange and may be traded in the secondary market on a per-DIAMONDS basis.
SPDRs are designed to provide investment results that generally
correspond to the price and yield performance of the component common stocks of
the S&P 500 Index. DIAMONDS are designed to provide investors with investment
results that generally correspond to the price and yield performance of the
component common stocks of the DJIA. The value of both SPDRs and DIAMONDS are
subject to change as the values of their respective component common stocks
fluctuate according to the volatility of the market. Investments in SPDRs and
DIAMONDS involve certain inherent risks generally associated with investments in
a broadly based portfolio of common stocks, including the risk that the general
level of stock prices may decline, thereby adversely affecting the value of each
unit of SPDRs and/or DIAMONDS invested in by a Fund. Moreover, a Fund's
investment in SPDRs and/or DIAMONDS may not exactly match the performance of a
direct investment in the respective indices to which they are intended to
correspond. Additionally, the respective investment trusts may not fully
replicate the performance of their respective benchmark indices due to the
temporary unavailability of certain index securities in the secondary market or
due to other extraordinary circumstances, such as discrepancies between each of
the investment trusts and the indices with respect to the weighting of
securities or the number of, for example, larger capitalized stocks held by an
index and each of the investment trusts.
ILLIQUID SECURITIES. (All Funds) A Fund may invest up to 15% of the
value of its net assets in securities as to which a liquid trading market does
not exist, provided such investments are consistent with the Fund's investment
objective. These securities may include securities that are not readily
marketable, such as securities that are subject to legal or contractual
restrictions on resale, repurchase agreements providing for settlement in more
than seven days after notice, and certain privately negotiated, non-exchange
traded options and securities used to cover such options. As to these
securities, the Fund is subject to a risk that should the Fund desire to sell
them when a ready buyer is not available at a price the Fund deems
representative of their value, the value of the Fund's net assets could be
adversely affected.
CORPORATE DEBT SECURITIES. (All Funds) A Fund may invest in corporate
debt securities, which include corporate bonds, debentures, notes and other
similar instruments. Debt securities may be acquired with warrants attached.
Corporate income-producing securities also may include forms of preferred or
preference fixed, floating or variable, and may vary inversely with respect to a
reference rate. The rate of return or return of principal on some debt
obligations may be linked or indexed to the level of exchange rates between the
U.S. dollar and a foreign currency or currencies.
Variable and floating rate securities provide for a periodic
adjustment in the interest rate paid on the interest rate paid on the
obligations. The terms of such obligations may provide that interest rates are
adjusted periodically based upon an interest rate adjustment index as provided
in the respective obligations. The adjustment intervals may be regular, and
range from daily up to annually, or may be event based, such as based on a
change in the prime rate.
The Fund may invest in floating rate debt instruments ("floaters").
The interest rate on a floater is a variable rate which is tied to another
interest rate, such as a money-market index or Treasury bill rate. The interest
rate on a floater resets periodically, typically every six months. Because of
the interest rate reset feature, floaters provide the Fund with a certain degree
of protection against rises in interest rates, although the Fund will
participate in any declines in interest rates as well.
The Fund also may invest in inverse floating rate debt instruments
("inverse floaters"). The interest rate on an inverse floater resets in the
opposite direction from the market rate of interest to which the inverse floater
is indexed. An inverse floating rate security may exhibit greater price
volatility than a fixed rate obligation of similar credit quality.
MONEY MARKET INSTRUMENTS. (All Funds) In an attempt to respond to
adverse market, economic, political or other conditions, a Fund may take a
temporary defensive position that is inconsistent with its principal investment
strategies and invest some or all of its assets in money market instruments,
including U.S. Government securities, repurchase agreements, bank obligations
and commercial paper. Each Fund also may purchase money market instruments when
it has cash reserves or in anticipation of taking a market position.
INVESTMENT TECHNIQUES
In addition to the principal investment strategies discussed in the
Funds' Prospectus, the Funds also may engage in the investment techniques
described below.
LEVERAGE. (All Funds) Leveraging (that is, buying securities using
borrowed money) exaggerates the effect on net asset value of any increase or
decrease in the market value of a Fund's portfolio. These borrowings will be
subject to interest costs which may or may not be recovered by appreciation of
the securities purchased; in certain cases, interest costs may exceed the return
received on the securities purchased. For borrowings for investment purposes,
the 1940 Act requires a Fund to maintain continuous asset coverage (that is,
total assets including borrowings, less liabilities exclusive of borrowings) of
300% of the amount borrowed. If the required coverage should decline as a result
of market fluctuations or other reasons, the Fund may be required to sell some
of its portfolio holdings within three days to reduce the amount of its
borrowings and restore the 300% asset coverage, even though it may be
disadvantageous from an investment standpoint to sell securities at that time.
The Fund also may be required to maintain minimum average balances in connection
with such borrowing or pay a commitment or other fee to maintain a line of
credit; either of these requirements would increase the cost of borrowing over
the stated interest rate.
A Fund may enter into reverse repurchase agreements with banks,
brokers or dealers. This form of borrowing involves the transfer by the Fund of
an underlying debt instrument in return for cash proceeds based on a percentage
of the value of the security. The Fund retains the right to receive interest and
principal payments on the security. At an agreed upon future date, the Fund
repurchases the security at principal plus accrued interest. Except for these
transactions, a Fund's borrowings generally will be unsecured.
SHORT-SELLING. (All Funds) In these transactions, a Fund sells a
security it does not own in anticipation of a decline in the market value of the
security. To complete the transaction, the Fund must borrow the security to make
delivery to the buyer. The Fund is obligated to replace the security borrowed by
purchasing it subsequently at the market price at the time of replacement. The
price at such time may be more or less than the price at which the security was
sold by the Fund, which would result in a loss or gain, respectively. A Fund
also may make short sales "against the box," in which the Fund enters into a
short sale of a security it owns. With respect to each Fund, securities will not
be sold short if, after effect is given to any such short sale, the total market
value of all securities sold short would exceed 25% of the value of the relevant
Fund's net assets.
Until a Fund closes its short position or replaces the borrowed
security, it will: (a) segregate permissible liquid assets in an amount which,
together with the amount deposited with the broker as collateral, always equals
the current value of the security sold short; or (b) otherwise cover its short
position.
DERIVATIVES. (All Funds) A Fund may invest in, or enter into,
derivatives, such as options and futures, for a variety of reasons, including to
hedge certain market risks, to provide a substitute for purchasing or selling
particular securities or to increase potential income gain. Derivatives may
provide a cheaper, quicker or more specifically focused way for the Fund to
invest than "traditional" securities would.
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular derivative and the
portfolio as a whole. Derivatives permit a Fund to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as the Fund can increase or decrease the level of
risk, or change the character of the risk, of its portfolio by making
investments in specific securities.
However, derivatives may entail investment exposures that are greater
than their cost would suggest, meaning that a small investment in derivatives
could have a large potential impact on a Fund's performance.
If a Fund invests in derivatives at inopportune times or judges market
conditions incorrectly, such investments may lower the Fund's return or result
in a loss. A Fund also could experience losses if its derivatives were poorly
correlated with its other investments, or if the Fund were unable to liquidate
its position because of an illiquid secondary market. The market for many
derivatives is, or suddenly can become, illiquid. Changes in liquidity may
result in significant, rapid and unpredictable changes in the prices for
derivatives.
Although neither the Company nor any Fund will be a commodity pool,
certain derivatives subject the Funds to the rules of the Commodity Futures
Trading Commission which limit the extent to which a Fund can invest in such
derivatives. A Fund may invest in futures contracts and options with respect
thereto for hedging purposes without limit. However, no Fund may invest in such
contracts and options for other purposes if the sum of the amount of initial
margin deposits and premiums paid for unexpired options with respect to such
contracts, other than for bona fide hedging purposes, exceeds 5% of the
liquidation value of the Fund's assets, after taking into account unrealized
profits and unrealized losses on such contracts and options; provided, however,
that in the case of an option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in calculating the 5% limitation.
A Fund may purchase call and put options and write (i.e., sell)
covered call and put option contracts. When required by the Securities and
Exchange Commission, the Fund will segregate permissible liquid assets to cover
its obligations relating to its purchase of derivatives. To maintain this
required cover, the Fund may have to sell portfolio securities at
disadvantageous prices or times since it may not be possible to liquidate a
derivative position at a reasonable price.
Derivatives may be purchased on established exchanges or through
privately negotiated transactions referred to as over-the-counter derivatives.
Exchange-traded derivatives generally are guaranteed by the clearing agency
which is the issuer or counterparty to such derivatives. This guarantee usually
is supported by a daily payment system (i.e., variation margin requirements)
operated by the clearing agency in order to reduce overall credit risk. As a
result, unless the clearing agency defaults, there is relatively little
counterparty credit risk associated with derivatives purchased on an exchange.
By contrast, no clearing agency guarantees over-the-counter derivatives.
Therefore, each party to an over-the-counter derivative bears the risk that the
counterparty will default. Accordingly, the Adviser will consider the
creditworthiness of counterparties to over-the-counter derivatives in the same
manner as it would review the credit quality of a security to be purchased by a
Fund. Over-the-counter derivatives are less liquid than exchange-traded
derivatives since the other party to the transaction may be the only investor
with sufficient understanding of the derivative to be interested in bidding for
it.
FUTURES TRANSACTIONS--IN GENERAL. (All Funds) A Fund may enter into futures
contracts in U.S. domestic markets, such as the Chicago Board of Trade and the
International Monetary Market of the Chicago Mercantile Exchange, or on
exchanges located outside the United States, such as the London International
Financial Futures Exchange, the Deutsche Termine Borse and the Sydney Futures
Exchange Limited. Foreign markets may offer advantages such as trading
opportunities or arbitrage possibilities not available in the United States.
Foreign markets, however, may have greater risk potential than domestic markets.
For example, some foreign exchanges are principal markets so that no common
clearing facility exists and an investor may look only to the broker for
performance of the contract. In addition, any profits that a Fund might realize
in trading could be eliminated by adverse changes in the exchange rate, or the
Fund could incur losses as a result of those changes. Transactions on foreign
exchanges may include both commodities which are traded on domestic exchanges
and those which are not. Unlike trading on domestic commodity exchanges, trading
on foreign commodity exchanges is not regulated by the Commodity Futures Trading
Commission.
Engaging in these transactions involves risk of loss to a Fund which
could adversely affect the value of the Fund's net assets. Although each Fund
intends to purchase or sell futures contracts only if there is an active market
for such contracts, no assurance can be given that a liquid market will exist
for any particular contract at any particular time. Many futures exchanges and
boards of trade limit the amount of fluctuation permitted in futures contract
prices during a single trading day. Once the daily limit has been reached in a
particular contract, no trades may be made that day at a price beyond that limit
or trading may be suspended for specified periods during the trading day.
Futures contract prices could move to the limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of futures
positions and potentially subjecting the Fund to substantial losses.
<PAGE>
Successful use of futures by a Fund also is subject to the Adviser's
ability to predict correctly movements in the direction of the relevant market
and, to the extent the transaction is entered into for hedging purposes, to
ascertain the appropriate correlation between the transaction being hedged and
the price movements of the futures contract. For example, if a Fund uses futures
to hedge against the possibility of a decline in the market value of securities
held in its portfolio and the prices of such securities instead increase, the
Fund will lose part or all of the benefit of the increased value of securities
which it has hedged because it will have offsetting losses in its futures
positions. Furthermore, if in such circumstances the Fund has insufficient cash,
it may have to sell securities to meet daily variation margin requirements. A
Fund may have to sell such securities at a time when it may be disadvantageous
to do so.
Pursuant to regulations and/or published positions of the Securities
and Exchange Commission, a Fund may be required to segregate permissible liquid
assets in connection with its commodities transactions in an amount generally
equal to the value of the underlying commodity. The segregation of such assets
will have the effect of limiting the Fund's ability otherwise to invest those
assets.
SPECIFIC FUTURES TRANSACTIONS. A Fund may purchase and sell stock index futures
contracts. A stock index future obligates a Fund to pay or receive an amount of
cash equal to a fixed dollar amount specified in the futures contract multiplied
by the difference between the settlement price of the contract on the contract's
last trading day and the value of the index based on the stock prices of the
securities that comprise it at the opening of trading in such securities on the
next business day.
A Fund may purchase and sell currency futures. A foreign currency
future obligates the Fund to purchase or sell an amount of a specific currency
at a future date at a specific price.
OPTIONS--IN GENERAL. (All Funds) A Fund may purchase and write (i.e., sell) call
or put options with respect to specific securities. A call option gives the
purchaser of the option the right to buy, and obligates the writer to sell, the
underlying security or securities at the exercise price at any time during the
option period, or at a specific date. Conversely, a put option gives the
purchaser of the option the right to sell, and obligates the writer to buy, the
underlying security or securities at the exercise price at any time during the
option period.
A covered call option written by a Fund is a call option with respect
to which the Fund owns the underlying security or otherwise covers the
transaction by segregating cash or other securities. A put option written by a
Fund is covered when, among other things, cash or liquid securities having a
value equal to or greater than the exercise price of the option are segregated
to fulfill the obligation undertaken. The principal reason for writing covered
call and put options is to realize, through the receipt of premiums, a greater
return than would be realized on the underlying securities alone. A Fund
receives a premium from writing covered call or put options which it retains
whether or not the option is exercised.
There is no assurance that sufficient trading interest to create a
liquid secondary market on a securities exchange will exist for any particular
option or at any particular time, and for some options no such secondary market
may exist. A liquid secondary market in an option may cease to exist for a
variety of reasons. In the past, for example, higher than anticipated trading
activity or order flow, or other unforeseen events, at times have rendered
certain of the clearing facilities inadequate and resulted in the institution of
special procedures, such as trading rotations, restrictions on certain types of
orders or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. If, as a
covered call option writer, a Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise or it otherwise covers its position.
SPECIFIC OPTIONS TRANSACTIONS. A Fund may purchase and sell call and put options
in respect of specific securities (or groups or "baskets" of specific
securities) or stock indices listed on national securities exchanges or traded
in the over-the-counter market. An option on a stock index is similar to an
option in respect of specific securities, except that settlement does not occur
by delivery of the securities comprising the index. Instead, the option holder
receives an amount of cash if the closing level of the stock index upon which
the option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option. Thus, the effectiveness of
purchasing or writing stock index options will depend upon price movements in
the level of the index rather than the price of a particular stock.
A Fund may purchase and sell call and put options on foreign currency.
These options convey the right to buy or sell the underlying currency at a price
which is expected to be lower or higher than the spot price of the currency at
the time the option is exercised or expires.
Successful use by a Fund of options will be subject to the Adviser's
ability to predict correctly movements in the prices of individual stocks, the
stock market generally, foreign currencies or interest rates. To the extent such
predictions are incorrect, a Fund may incur losses.
SWAP AGREEMENTS. (All Funds) A Fund may enter into swap agreements in an attempt
to obtain a particular return when it is considered desirable to do so, possibly
at a lower cost than if the Fund had invested directly in the asset that yielded
the desired return. Swap agreements are two- party contracts entered into
primarily by institutional investors for periods ranging from a few weeks to
more than a year. In a standard swap transaction, two parties agree to exchange
the returns (or differentials in rates of return) earned or realized on
particular predetermined investments or instruments, which may be adjusted for
an interest factor. The gross returns to be exchanged or "swapped" between the
parties are generally calculated with respect to a "notional amount," i.e., the
return on or increase in value of a particular dollar amount invested at a
particular interest rate, or in a "basket" of securities representing a
particular index.
A Fund may purchase cash-settled options on equity index swaps in
pursuit of its investment objective. Equity index swaps involve the exchange by
the Fund with another party of cash flows based upon the performance of an index
or a portion of an index of securities which usually includes dividends. A
cash-settled option on a swap gives the purchaser the right, but not the
obligation, in return for the premium paid, to receive an amount of cash equal
to the value of the underlying swap as of the exercise date. These options
typically are purchased in privately negotiated transactions from financial
institutions, including securities brokerage firms.
Most swap agreements entered into by the Fund would calculate the
obligations of the parties to the agreement on a "net basis." Consequently, the
Fund's current obligations (or rights) under a swap agreement generally will be
equal only to the net amount to be paid or received under the agreement based on
the relative values of the positions held by each party to the agreement (the
"net amount"). The risk of loss with respect to swaps is limited to the net
amount of interest payments that the Fund is contractually obligated to make. If
the other party to a swap defaults, the Fund's risk of loss consists of the net
amount of payments that the Fund contractually is entitled to receive.
FUTURE DEVELOPMENTS. (All Funds) A Fund may take advantage of
opportunities in the area of options and futures contracts and options on
futures contracts and any other derivatives which are not presently contemplated
for use by the Fund or which are not currently available but which may be
developed, to the extent such opportunities are both consistent with the Fund's
investment objective and legally permissible for the Fund. Before entering into
such transactions or making any such investment, the Fund will provide
appropriate disclosure in its Prospectus or Statement of Additional Information.
FORWARD COMMITMENTS. (All Funds) A Fund may purchase securities on a
forward commitment or when-issued basis, which means that delivery and payment
take place a number of days after the date of the commitment to purchase. The
payment obligation and the interest rate receivable on a forward commitment or
when-issued security are fixed when the Fund enters into the commitment but the
Fund does not make a payment until it receives delivery from the counterparty.
The Fund will commit to purchase such securities only with the intention of
actually acquiring the securities, but the Fund may sell these securities before
the settlement date if it is deemed advisable. The Fund will segregate
permissible liquid assets at least equal at all times to the amount of the
Fund's purchase commitments.
Securities purchased on a forward commitment or when-issued basis are
subject to changes in value (generally changing in the same way, i.e.,
appreciating when interest rates decline and depreciating when interest rates
rise) based upon the public's perception of the creditworthiness of the issuer
and changes, real or anticipated, in the level of interest rates. Securities
purchased on a forward commitment or when-issued basis may expose a Fund to
risks because they may experience such fluctuations prior to their actual
delivery. Purchasing securities on a when-issued basis can involve the
additional risk that the yield available in the market when the delivery takes
place actually may be higher than that obtained in the transaction itself.
Purchasing securities on a forward commitment or when-issued basis when a Fund
is fully or almost fully invested may result in greater potential fluctuation in
the value of the Fund's net assets and its net asset value per share.
LENDING PORTFOLIO SECURITIES. (All Funds) A Fund may lend securities
from its portfolio to brokers, dealers and other financial institutions needing
to borrow securities to complete certain transactions. In connection with such
loans, the Fund continues to be entitled to payments in amounts equal to the
dividends, interest or other distributions payable on the loaned securities
which affords the Fund an opportunity to earn interest on the amount of the loan
and at the same time to earn income on the loaned securities' collateral. Loans
of portfolio securities may not exceed 33-1/3% of the value of the Fund's total
assets, and the Fund will receive collateral consisting of cash, U.S. Government
securities or irrevocable letters of credit which will be maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities. Such loans are terminable by the Fund at any time upon
specified notice. The Fund might experience risk of loss if the institution with
which it has engaged in a portfolio loan transaction breaches its agreement with
the Fund. In connection with its securities lending transactions, the Fund may
return to the borrower or a third party which is unaffiliated with the Fund, and
which is acting as a "placing broker," a part of the interest earned from the
investment of collateral received for securities loaned.
FOREIGN CURRENCY TRANSACTIONS. (All Funds) A Fund may enter into
foreign currency transactions for a variety of purposes, including: to fix in
U.S. dollars, between trade and settlement date, the value of a security the
Fund has agreed to buy or sell; to hedge the U.S. dollar value of securities the
Fund already owns, particularly if it expects a decrease in the value of the
currency in which the foreign security is denominated; or to gain exposure to
the foreign currency in an attempt to realize gains.
Foreign currency transactions may involve, for example, a Fund's
purchase of foreign currencies for U.S. dollars or the maintenance of short
positions in foreign currencies, which would involve the Fund agreeing to
exchange an amount of a currency it did not currently own for another currency
at a future date in anticipation of a decline in the value of the currency sold
relative to the currency the Fund contracted to receive in the exchange. A
Fund's success in these transactions will depend principally on the Adviser's
ability to predict accurately the future exchange rates between foreign
currencies and the U.S. dollar.
Currency exchange rates may fluctuate significantly over short periods
of time. They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of investments in different
countries, actual or perceived changes in interest rates and other complex
factors, as seen from an international perspective. Currency exchange rates also
can be affected unpredictably by intervention by U.S. or foreign governments or
central banks, or the failure to intervene, or by currency controls or political
developments in the United States or abroad.
INVESTMENT RISKS
FOREIGN SECURITIES. (All Funds) Foreign securities markets generally
are not as developed or efficient as those in the United States. Securities of
some foreign issuers are less liquid and more volatile than securities of
comparable U.S. issuers. Similarly, volume and liquidity in most foreign
securities markets are less than in the United States and, at times, volatility
of price can be greater than in the United States.
<PAGE>
Because evidences of ownership of foreign securities usually are held
outside the United States, a Fund's investment in such securities will be
subject to additional risks which include possible adverse political and
economic developments, seizure or nationalization of foreign deposits and
adoption of governmental restrictions which might adversely affect or restrict
the payment of principal and interest on the foreign securities to investors
located outside the country of the issuer, whether from currency blockage or
otherwise. Moreover, foreign securities held by a Fund may trade on days when
the Fund does not calculate its net asset value and thus affect the Fund's net
asset value on days when investors have no access to the Fund.
Developing countries have economic structures that are generally less
diverse and mature, and political systems that are less stable, than those of
developed countries. The markets of developing countries may be more volatile
than the markets of more mature economies; however, such markets may provide
higher rates of return to investors. Many developing countries providing
investment opportunities for the Funds have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain of these countries.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in U.S.
dollars may be affected favorably or unfavorably by changes in currency rates
and exchange control regulations.
FIXED-INCOME SECURITIES. (All Funds) A Fund may invest, to a limited
extent, in fixed-income securities, including those rated below investment grade
by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Ratings Group
("S&P"), Fitch IBCA, Inc. ("Fitch") or Duff & Phelps Credit Rating Co. ("Duff,"
and together with S&P, Moody's and Fitch, the "Rating Agencies"). Even though
interest-bearing securities are investments which promise a stable stream of
income, the prices of such securities generally are inversely affected by
changes in interest rates and, therefore, are subject to the risk of market
price fluctuations. The values of fixed-income securities also may be affected
by changes in the credit rating or financial condition of the issuer. Certain
securities that may be purchased by each Fund, such as those rated Baa or lower
by Moody's and BBB or lower by S&P, Fitch and Duff, may be subject to such risk
with respect to the issuing entity and to greater market fluctuations than
certain lower yielding, higher rated fixed-income securities. Once the rating of
a portfolio security has been changed, the Fund will consider all circumstances
deemed relevant in determining whether to continue to hold the security.
LOWER RATED SECURITIES. (All Funds) A Fund may invest in higher
yielding (and, therefore, higher risk) convertible securities and, to a limited
extent, in debt securities (junk bonds). These securities include those rated
below Baa by Moody's and below BBB by S&P, Fitch and Duff. These securities may
be subject to certain risks and to greater market fluctuations than lower
yielding investment grade securities. These securities are considered by the
Rating Agencies to be, on balance, predominantly speculative as to the payment
of principal and interest and generally involve more credit risk than investment
grade securities. The retail market for these securities may be less liquid than
that of investment grade securities. Adverse market conditions could make it
difficult for the Fund to sell these securities or could result in the Fund
obtaining lower prices for these securities which would adversely affect the
Fund's net asset value. See "Appendix" for a general description of the Rating
Agencies' ratings. Although ratings may be useful in evaluating the safety of
interest and principal payments, they do not evaluate the market value risk of
these securities. The Funds will rely on the Adviser's judgment, analysis and
experience in evaluating the creditworthiness of an issuer.
Companies that issue certain of these securities often are highly
leveraged and may not have available to them more traditional methods of
financing. Therefore, the risk associated with acquiring the securities of such
issuers generally is greater than is the case with the higher rated securities.
For example, during an economic downturn or a sustained period of rising
interest rates, highly leveraged issuers of these securities may not have
sufficient revenues to meet their interest payment obligations. The issuer's
ability to service its debt obligations also may be affected adversely by
specific corporate developments, forecasts, or the unavailability of additional
financing. The risk of loss because of default by the issuer is significantly
greater for the holders of these securities because such securities generally
are unsecured and often are subordinated to other creditors of the issuer.
Because there is no established retail secondary market for many of
these securities, a Fund may be able to sell such securities only to a limited
number of dealers or institutional investors. To the extent a secondary trading
market for these securities does exist, it generally is not as liquid as the
secondary market for higher rated securities. The lack of a liquid secondary
market may have an adverse impact on market price and yield and a Fund's ability
to dispose of particular issues when necessary to meet the Fund's liquidity
needs or in response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid secondary market for
certain securities also may make it more difficult for a Fund to obtain accurate
market quotations for purposes of valuing the Fund's portfolio and calculating
its net asset value. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may decrease the values and liquidity of these
securities. In such cases, judgment may play a greater role in valuation because
less reliable, objective data may be available.
These securities may be particularly susceptible to economic
downturns. It is likely that an economic recession could disrupt severely the
market for such securities and may have an adverse impact on the value of such
securities. In addition, it is likely that any such economic downturn could
adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon and increase the incidence of default for
such securities.
A Fund may acquire these securities during an initial offering. Such
securities may involve special risks because they are new issues. No Fund has
any arrangement with any persons concerning the acquisition of such securities,
and the Adviser will review carefully the credit and other characteristics
pertinent to such new issues.
NON-DIVERSIFIED STATUS. (All Funds) The classification of each Fund as
a "non-diversified" investment company means that the proportion of the Fund's
assets that may be invested in the securities of a single issuer is not limited
by the 1940 Act. A "diversified" investment company is required by the 1940 Act
generally, with respect to 75% of its total assets, to invest not more than 5%
of such assets in the securities of a single issuer. Since a relatively high
percentage of the Fund's assets may be invested in the securities of a limited
number of issuers, some of which may be in the same industry, the Fund's
portfolio may be more sensitive to changes in the market value of a single
issuer or industry. However, to meet Federal tax requirements, at the close of
each quarter the Fund may not have more than 25% of its total assets invested in
any one issuer and, with respect to 50% of its total assets, not more than 5% of
its total assets invested in any one issuer. These limitations do not apply to
U.S. Government securities.
SIMULTANEOUS INVESTMENTS. (All Funds) Investment decisions for each
Fund are made independently from those of the other Funds. If, however, such
other Funds desire to invest in, or dispose of, the same securities as a Fund,
available investments or opportunities for sales will be allocated equitably to
each Fund. In some cases, this procedure may adversely affect the size of the
position obtained for or disposed of by the Fund or the price paid or received
by the Fund.
INVESTMENT RESTRICTIONS
Each Fund's investment objective is a fundamental policy, which cannot
be changed without approval by the holders of a majority (as defined in the 1940
Act) of the Fund's outstanding voting shares. In addition, each Fund has adopted
investment restrictions numbered 1 through 7 as fundamental policies. Each Fund
has adopted investment restrictions numbered 8 through 10 as non-fundamental
policies which may be changed by vote of a majority of the Company's Board
members at any time. No Fund may:
1. Invest more than 25% of the value of its total assets in the
securities of issuers in any single industry, provided that there shall be no
limitation on the purchase of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities or, with respect to the
Communications Technology Fund and Media Technology Fund, securities issued by
companies in the telecommunications and media industries, respectively.
2. Invest in commodities, except that the Fund may purchase and sell
options, forward contracts, futures contracts, including those relating to
indices, and options on futures contracts or indices.
3. Purchase, hold or deal in real estate, or oil, gas or other mineral
leases or exploration or development programs, but the Fund may purchase and
sell securities that are secured by real estate or issued by companies that
invest or deal in real estate or real estate investment trusts.
4. Borrow money, except to the extent permitted under the 1940 Act
(which currently limits borrowing to no more than 33-1/3% of the value of the
Fund's total assets). For purposes of this Investment Restriction, the entry
into options, forward contracts, futures contracts, including those relating to
indices, and options on futures contracts or indices shall not constitute
borrowing.
<PAGE>
5. Lend any securities or make loans to others, if, as a result, more
than 33-1/3% of its total assets would be lent to others, except that this
limitation does not apply to the purchase of debt obligations and the entry into
repurchase agreements. However, the Fund may lend its portfolio securities in an
amount not to exceed 33-1/3% of the value of its total assets. Any loans of
portfolio securities will be made according to guidelines established by the
Securities and Exchange Commission and the Company's Board.
6. Act as an underwriter of securities of other issuers, except to the
extent the Fund may be deemed an underwriter under the Securities Act of 1933,
as amended, by virtue of disposing of portfolio securities.
7. Issue any senior security (as such term is defined in Section 18(f)
of the 1940 Act), except to the extent the activities permitted in Investment
Restriction Nos. 4, 6, 10 and 11 may be deemed to give rise to a senior
security.
8. Purchase securities on margin, but the Fund may make margin
deposits in connection with transactions in options, forward contracts, futures
contracts, including those relating to indices, and options on futures contracts
or indices.
9. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
purchase of securities on a when- issued or forward commitment basis and the
deposit of assets in escrow in connection with writing covered put and call
options and collateral and initial or variation margin arrangements with respect
to options, forward contracts, futures contracts, including those relating to
indices, and options on futures contracts or indices.
10. Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are illiquid, if, in
the aggregate, more than 15% of the value of the Fund's net assets would be so
invested.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from a change in values or assets will not
constitute a violation of such restriction. With respect to Investment
Restriction No. 4, however, if borrowings exceed 33- 1/3% of the value of the
Fund's total assets as a result of a change in values or assets, the Fund must
take steps to reduce such borrowings at least to the extent of such excess.
MANAGEMENT OF THE COMPANY
The Company's Board is responsible for the management and supervision
of each Fund. The Board approves all significant agreements with those companies
that furnish services to the Funds. These companies are as follows:
MetaMarkets Investments LLC........................... Investment Adviser
BISYS Fund Services Ohio, Inc. ....................... Administrator and
Transfer Agent
BISYS Fund Services Limited Partnership............... Distributor
Investors Bank & Trust Company ....................... Custodian
Board members and officers of the Company, together with information
as to their principal business occupations during at least the last five years,
are shown below. Each Board member who is an "interested person" of the Company,
as defined in the 1940 Act, is indicated by an asterisk.
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION(S) HELD PRINCIPAL OCCUPATION(S)
AND AGE WITH COMPANY DURING PAST 5 YEARS
- ------------------------- ------------------------------- -------------------
<S> <C> <C>
*Donald L. Luskin Board Member, President and Chief Executive
400 Oyster Point Blvd., Suite 414 President and Treasurer Officer of MetaMarkets.com,
South San Francisco, CA 94080 Inc. and the Adviser since
Age: 45 inception. From 1997 to 1998,
Mr. Luskin was Chief Executive
Officer of Barclays Global
Mutual Funds and, from 1996 to
1997, he was Vice Chairman of
Barclays Global Investors
("Barclays"), one of the world's
largest investment management
organizations. From 1987 to
1996, Mr. Luskin served in
various other executive
capacities for Barclays and its
predecessors. Prior thereto, he
served as a director and Senior
Vice President of Jefferies &
Company, Inc. ("Jefferies &
Co."), an investment bank and
registered broker-dealer, where
he created the POSIT crossing
network, currently operated by
the Investment Technology Group.
Formerly, Mr. Luskin was a hedge
fund manager and member of the
Chicago Board Options Exchange
and the Pacific Stock Exchange.
He is the author of the books,
"Index Options and Futures: The
Complete Guide," and editor of
"Portfolio Insurance: A Guide to
Dynamic Hedging."
Tracy G. Herrick Board Member Since 1981, President of
1150 University Tracy G. Herrick, Inc., an
Palo Alto, CA 94301 economic consulting firm, and a
Age: 65 director of Jefferies & Co.
Mr. Herrick also is a director
of Anderson Capital Management,
Inc., a registered investment
adviser, and of The Committee
For Monetary Research and
Education.
James E. Mitchell Board Member Director of Finance and
1550 Waverly Street Administration of the Lucile
Palo Alto, CA 94301 Packard Foundation for
Age: 57 Children's Health, a non-profit
foundation focusing on
children's health issues. From
1974 to 1990, Mr. Mitchell was
Chief Financial Officer of Lane
Publishing Co. and, from 1990 to
1998, he was Vice President of
Finance and Administration of
Sunset Publishing Corporation, a
subsidiary of Time Warner Inc.
George G. C. Parker Board Member Dean Witter Professor of Finance
Graduate School of Business and Management (Teaching),
Stanford University Associate Dean for Academic
Stanford, CA 94305 Affairs, Director of the MBA
Age: 60 Program and Co-director of the
Financial Management Program at
Stanford University Graduate
School of Business. Professor
Parker also is a board member of
Bailard, Biehl and Kaiser, Inc.,
a registered investment adviser,
Continental Airlines Inc. and
several investment companies in
the Dresdner/RCM Mutual Funds
complex.
James L. Smith Vice President and Since October 1996, an employee of BISYS Fund
3435 Stelzer Road Secretary Services, Inc., general partner of
Columbus, OH 43219 the Distributor, and an officer of
Age: 39 other investment companies
administered by the Administrator or
its affiliates. From October 1995 to October
1996, an employee of Davis, Graham & Stubbs.
Prior thereto, an employee of ALPS Mutual Fund
Services, Inc.
ALAINA METZ Assistant Secretary An employee of BISYS Fund
3435 Stelzer Road Services, Inc. and an officer of
Columbus, OH 43219 other investment companies
Age: 29 administered by the Administrator
or its affiliates.
</TABLE>
The Company has a standing nominating committee comprised of its Board
members who are not "interested persons" of the Company, as defined in the 1940
Act. The function of the nominating committee is to select and nominate all
candidates who are not "interested persons" of the Company for election to the
Company's Board.
The Company does not pay any remuneration to its officers and Board
members other than fees and expenses to those Board members who are not
directors, officers or employees of the Adviser or the Administrator or any of
their affiliates. The aggregate amount of compensation estimated to be paid to
each such Board member by the Company for the fiscal year ending June 30,
2000 is as follows:
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE PENSION OR RETIREMENT FROM FUND AND
NAME OF BOARD COMPENSATION FROM BENEFITS ACCRUED AS FUND COMPLEX
MEMBER COMPANY PART OF FUND EXPENSES PAID TO BOARD MEMBERS
- -------------------------------- ------------------ --------------------- ---------------------
<S> <C> <C> <C>
Tracy G. Herrick $2,700 -0- $2,700
James E. Mitchell $2,700 -0- $2,700
George G. C. Parker $2,700 -0- $2,700
</TABLE>
MANAGEMENT ARRANGEMENTS
INVESTMENT ADVISER. MetaMarkets Investments LLC, located at 400 Oyster
Point Blvd., Suite 414, South San Francisco, California 94080, serves as each
Fund's investment adviser. The Adviser is wholly-owned by MetaMarkets.com, Inc.,
and Donald L. Luskin and H. Davis Nadig III each may be deemed a "control
person" of the Adviser as such term is defined in the 1940 Act by virtue of
their ownership of shares of MetaMarkets.com, Inc.
<PAGE>
The Adviser provides investment advisory services pursuant to the
Investment Advisory Agreement (the "Agreement") dated July 20, 1999 with the
Company. As to each Fund, the Agreement is subject to annual approval by (i) the
Company's Board or (ii) vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of such Fund, provided that in either event the
continuance also is approved by a majority of the Board members who are not
"interested persons" (as defined in the 1940 Act) of the Company or the Adviser,
by vote cast in person at a meeting called for the purpose of voting on such
approval. The Agreement was approved by the Company's sole shareholder on August
6, 1999. As to each Fund, the Agreement is terminable without penalty, on 60
days' notice, by the Company's Board or by vote of the holders of a majority of
such Fund's shares, or, on not less than 90 days' notice, by the Adviser. The
Agreement will terminate automatically, as to the relevant Fund, in the event of
its assignment (as defined in the 1940 Act).
Under the terms of the Agreement, the Company has agreed to pay the
Adviser a monthly fee at the annual rate set forth below as a percentage of the
relevant Fund's average daily net assets:
AVERAGE DAILY NET ANNUAL RATE OF
ASSETS OF THE FUND ADVISORY FEE
- ------------------- ---------------
on the first $250 million 1.00%
on the next $500 million .75%
on assets in excess of $750 million .50%
From time to time, the Adviser may waive receipt of its fees and/or
voluntarily assume certain expenses of a Fund, which would have the effect of
lowering the overall expense ratio of that Fund and increasing yield to its
investors. The Fund will not pay the Adviser at a later time for any amounts it
may waive, nor will the Fund reimburse the Adviser for any amounts it may
assume.
ADMINISTRATOR. BISYS Fund Services Ohio, Inc., located at 3435 Stelzer
Road, Columbus, Ohio 43219, a wholly-owned subsidiary of The BISYS Group, Inc.,
provides certain administrative services pursuant to the Administration
Agreement (the "Administration Agreement") dated July 20, 1999 with the Company.
Under the Administration Agreement with the Company, the Administrator generally
assists in all aspects of the Funds' operations, other than providing investment
advice, subject to the overall authority of the Company's Board in accordance
with Massachusetts law. In connection therewith, the Administrator provides the
Funds with office facilities, personnel, and certain clerical and bookkeeping
services (e.g., preparation of reports to shareholders and the Securities and
Exchange Commission and filing of Federal, state and local income tax returns)
that are not being furnished by the Funds' custodian. As to each Fund, the
Administration Agreement will continue until July 20, 2004 and thereafter is
subject to annual approval by (i) the Company's Board or (ii) vote of a majority
(as defined in the 1940 Act) of the outstanding voting securities of such Fund,
provided that in either event the continuance also is approved by a majority of
the Board members who are not "interested persons" (as defined in the 1940 Act)
of the Company or the Administrator, by vote cast in person at a meeting called
for the purpose of voting such approval. The Administration Agreement was
approved by the Company's Board, including a majority of the Board members
who are not "interested persons" of any party to the Administration Agreement,
at a meeting held on July 20, 1999. As to each Fund, the Administration
Agreement is terminable without penalty, at any time if for cause, by the
Company's Board or by vote of the holders of a majority of such Fund's
outstanding voting securities, or, on not less than 90 days' notice, by the
Administrator. The Administration Agreement will terminate automatically, as to
the relevant Fund, in the event of its assignment (as defined in the 1940 Act).
As compensation for the Administrator's services, the Company has
agreed to pay the Administrator a monthly administration fee at the annual rate
set forth below as a percentage of each Fund's average daily net assets:
AVERAGE DAILY NET ANNUAL RATE OF
ASSETS OF THE FUND ADMINISTRATION FEE
- ------------------ -------------------
on the first $500 million .13%
on the next $250 million .10%
on the next $250 million .085%
on assets in excess of $1 billion .075%
The Company has agreed to pay the Administrator a minimum annual fee of $75,000
for the first year under the Administration Agreement, $162,500 for the second
year and $187,500 for years three, four and five.
DISTRIBUTOR. BISYS Fund Services Limited Partnership, located at 3435
Stelzer Road, Columbus, Ohio 43219, a wholly-owned subsidiary of The BISYS
Group, Inc., as the exclusive distributor of each Fund's shares on a best
efforts basis pursuant to a Distribution Agreement (the "Distribution
Agreement") dated July 20, 1999, with the Company. Shares are sold on a
continuous basis by the Distributor as agent, although the Distributor is not
obliged to sell any particular amount of shares.
DISTRIBUTION PLAN. Rule 12b-1 (the "Rule") adopted by the Securities
and Exchange Commission under the 1940 Act provides, among other things, that an
investment company may bear expenses of distributing its shares only pursuant to
a plan adopted in accordance with the Rule. The Company's Board has adopted such
a plan (the "Distribution Plan") pursuant to which each Fund pays the
Distributor for distribution-related services and shareholder servicing at an
annual rate of .25% of the value of the Fund's average daily net assets. Under
the Distribution Plan, the Distributor may make payments to certain financial
institutions, securities dealers and other industry professionals that have
entered into agreements with the Distributor ("Service Organizations") in
respect of these services. The Distributor determines the amounts to be paid to
Service Organizations. Service Organizations receive such fees in respect of the
average daily value of shares owned by their clients. From time to time, the
Distributor may defer or waive receipt of fees under the Distribution Plan while
retaining the ability to be paid by the Fund under the Distribution Plan
thereafter. The fees payable to the Distributor under the Distribution Plan for
advertising, marketing and distributing are payable without regard to actual
expenses incurred. The Company's Board believes that there is a reasonable
likelihood that the Distribution Plan will benefit each Fund and its
shareholders.
A quarterly report of the amounts expended under the Distribution
Plan, and the purposes for which such expenditures were incurred, must be made
to the Board members for their review. In addition, the Distribution Plan
provides that it may not be amended to increase materially the costs which
shareholders may bear for distribution pursuant to the Distribution Plan without
shareholder approval and that other material amendments of the Distribution Plan
must be approved by the Company's Board, and by the Board members who are
neither "interested persons" (as defined in the 1940 Act) of the Company nor
have any direct or indirect financial interest in the operation of the
Distribution Plan or in the related Distribution Plan agreements, by vote cast
in person at a meeting called for the purpose of considering such amendments.
The Distribution Plan and related agreements are subject to annual approval by
such vote of the Board members cast in person at a meeting called for the
purpose of voting on the Distribution Plan. As to each Fund, the Distribution
Plan is terminable at any time by vote of a majority of the Board members who
are not "interested persons" and who have no direct or indirect financial
interest in the operation of the Distribution Plan or in the Distribution Plan
agreements or by vote of the holders of a majority of the Fund's outstanding
shares. As to each Fund, a Distribution Plan agreement is terminable without
penalty, at any time, by such vote of the Board members, upon not more than 60
days' written notice to the parties to such agreement or by vote of the holders
of a majority of the Fund's outstanding shares. A Distribution Plan agreement
will terminate automatically, as to the relevant Fund, in the event of its
assignment (as defined in the 1940 Act).
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN. BISYS Fund
Services Ohio, Inc. is the Company's transfer and dividend disbursing agent (the
"Transfer Agent"). Under a transfer agency agreement with the Company, the
Transfer Agent arranges for the maintenance of shareholder account records for
each Fund, the handling of certain communications between shareholders and the
Fund and the payment of dividends and distributions payable by the Fund. For
these services, the Transfer Agent receives a monthly fee computed on the basis
of the number of shareholder accounts it maintains for each Fund during the
month, and is reimbursed for certain out-of-pocket expenses.
Investors Bank & Trust Company (the "Custodian") acts as custodian of
the investments of each Fund. Under a custodian agreement with the Company, the
Custodian provides for the holding of each Fund's securities and the retention
of all necessary accounts and records. For its custody services, the Custodian
receives a monthly fee based on the market value of the Funds' assets held in
custody and receives certain securities transactions charges.
EXPENSES. All expenses incurred in the operation of the Company are
borne by the Company, except to the extent specifically assumed by others. The
expenses borne by the Company include: taxes, interest, brokerage fees and
commissions, if any, fees of Board members who are not officers, directors,
employees or holders of 5% or more of the outstanding voting securities of the
Adviser or the Administrator or any of their affiliates, Securities and Exchange
Commission fees, state Blue Sky qualification fees, advisory and administration
fees, charges of custodians, transfer and dividend disbursing agents' fees,
certain insurance premiums, industry association fees, auditing and legal
expenses, costs of maintaining the Company's existence, costs of independent
pricing services, costs attributable to investor services (including, without
limitation, telephone and personnel expenses), costs of calculating the net
asset value of each Fund's shares, costs of shareholders' reports and corporate
meetings, costs of preparing and printing certain prospectuses and statements of
additional information, and any extraordinary expenses. Expenses attributable to
a Fund are charged against the assets of that Fund; other expenses of the
Company are allocated among the Funds on the basis determined by the Company's,
Board including, without limitation, proportionately in relation to the net
assets of each Fund.
PURCHASE AND REDEMPTION OF SHARES
GENERAL PURCHASE INFORMATION. The minimum initial investment for each
Fund is $1,000, and subsequent investments must be at least $250. The minimum
initial investment is $100 for IRAs, and subsequent investments for IRAs must be
at least $50. For full-time or part-time employees of the Adviser or any of its
affiliates, the minimum initial investment is $500, and subsequent investments
must be at least $100. For full-time or part-time employees of the Adviser or
any of its affiliates who elect to have a portion of their pay directly
deposited into their Fund accounts, the minimum initial or subsequent investment
must be at least $50. The Adviser, its affiliates and Service Organizations may
impose initial or subsequent investment minimums which are higher or lower than
those specified above and may impose different minimums for different types of
accounts or purchase arrangements. In addition, purchases of shares made in
connection with certain shareholder privileges may have different minimum
investment requirements. The Company reserves the right to reject any purchase
order in whole or in part, including purchases made with foreign checks and
third party checks not originally made payable to the order of the investor.
Share certificates will not be issued.
REOPENING AN ACCOUNT. An investor may reopen an account with a minimum
investment of $500 without filing a new account application during the calendar
year the account is closed or during the following calendar year, provided the
information on the old account application is still applicable.
REDEMPTION COMMITMENT. Each Fund has committed itself to pay in cash
all redemption requests by any shareholder of record, limited in amount during
any 90-day period to the lesser of $250,000 or 1% of the value of such Fund's
net assets at the beginning of such period. Such commitment is irrevocable
without the prior approval of the Securities and Exchange Commission. In the
case of requests for redemption in excess of such amount, the Company's Board
reserves the right to make payments in whole or in part in securities or other
assets in case of an emergency or any time a cash distribution would impair the
liquidity of the Fund to the detriment of the existing shareholders. In this
event, the securities would be valued in the same manner as the Fund is valued.
If the recipient sells such securities, brokerage charges would be incurred.
SUSPENSION OF REDEMPTIONS. The right of redemption may be suspended or
the date of payment postponed (a) during any period when the New York Stock
Exchange is closed (other than customary weekend and holiday closing), (b) when
trading in the markets the Fund normally utilizes is restricted, or when an
emergency exists as determined by the Securities and Exchange Commission so that
disposal of the Fund's investments or determination of its net asset value is
not reasonably practicable, or (c) for such other periods as the Securities and
Exchange Commission by order may permit to protect the Fund's shareholders.
DETERMINATION OF NET ASSET VALUE
GENERAL. Expenses and fees, including the advisory fee and fees paid
pursuant to the Distribution Plan, are accrued daily and taken into account for
the purpose of determining the net asset value of each Fund's shares.
Each Fund's securities, including covered call options written by the
Fund, are valued at the last sale price on the securities exchange or national
securities market on which such securities primarily are traded. Securities not
listed on an exchange or national securities market, or securities in which
there were no transactions, are valued at the average of the most recent bid and
asked prices, except in the case of open short positions where the asked price
is used for valuation purposes. Bid price is used when no asked price is
available. Any assets or liabilities initially expressed in terms of foreign
currency will be translated into dollars at the midpoint of the New York
interbank market spot exchange rate as quoted on the day of such translation by
the Federal Reserve Bank of New York or if no such rate is quoted on such date,
at the exchange rate previously quoted by the Federal Reserve Bank of New York
or at such other quoted market exchange rate as may be determined to be
appropriate by the Adviser. Forward currency contracts will be valued at the
current cost of offsetting the contract. Debt securities maturing in 60 days or
less generally are carried at amortized cost, which approximates value, except
where to do so would not reflect accurately their fair value, in which case such
securities would be valued at their fair value as determined under the
supervision of the Company's Board. Any securities or other assets for which
recent market quotations are not readily available are valued at fair value as
determined in good faith by the Company's Board.
Restricted securities, as well as securities or other assets for which
market quotations are not readily available, or are not valued by a pricing
service approved by the Company's Board are valued at fair value as determined
in good faith by the Board. The Company's Board will review the method of
valuation on a current basis. In making their good faith valuation of restricted
securities, the Board members generally will take the following factors into
consideration: restricted securities which are, or are convertible into,
securities of the same class of securities for which a public market exists
usually will be valued at market value less the same percentage discount at
which purchased. This discount will be revised periodically by the Company's
Board if the Board members believe that it no longer reflects the value of the
restricted securities. Restricted securities not of the same class as securities
for which a public market exists usually will be valued initially at cost. Any
subsequent adjustment from cost will be based upon considerations deemed
relevant by the Company's Board.
<PAGE>
SHAREHOLDER SERVICES AND PRIVILEGES
The services and privileges described under this heading may not be
available to clients of certain Service Organizations, and some Service
Organizations may impose certain conditions on their clients which are different
from those described in the Prospectus or this Statement of Additional
Information. Such investors should consult their Service Organization in this
regard.
EXCHANGE PRIVILEGE. The Exchange Privilege enables you to purchase, in
exchange for shares of a Fund, shares of another Fund. The shares being
exchanged must have a current value of at least $500; furthermore, when
establishing a new account by exchange, the shares being exchanged must have a
value of at least the minimum initial investment required for the Fund into
which the exchange is being made.
Shares will be exchanged at the next determined net asset value. No
fees currently are charged shareholders directly in connection with exchanges
although the Company reserves the right, upon not less than 60 days' written
notice, to charge shareholders a nominal administrative fee in accordance with
rules promulgated by the Securities and Exchange Commission. The Company
reserves the right to reject any exchange request in whole or in part. The
Exchange Privilege may be modified or terminated at any time upon notice to
shareholders.
The exchange of shares of one Fund for shares of another is treated
for Federal income tax purposes as a sale of the shares given in exchange by the
shareholder and, therefore, an exchanging shareholder may realize a taxable gain
or loss.
AUTOMATIC INVESTMENT PLAN. The Automatic Investment Plan permits you
to purchase shares of a Fund (minimum initial investment of $250 and minimum
subsequent investments of $50 per transaction) at regular intervals selected by
you. Provided your bank or other financial institution allows automatic
withdrawals, shares may be purchased by transferring funds from the bank account
designated by you. At your option, the account designated will be debited in the
specified amount, and shares will be purchased, once a month, on either the
first or fifteenth day, or twice a month, on both days. Only an account
maintained at a domestic financial institution which is an Automated Clearing
House member may be so designated. This service enables you to make regularly
scheduled investments and may provide you with a convenient way to invest for
long-term financial goals. You should be aware, however, that periodic
investment plans do not guarantee a profit and will not protect an investor
against loss in a declining market. To establish an Automatic Investment Plan
account, you must check the appropriate box and supply the necessary information
on the account application. You may cancel your participation in the Automatic
Investment Plan or change the amount of purchase at any time by accessing the
Company's Web site at http://www.MetaMarkets.com and following the relevant
instructions, and your cancellation will be effective three business days
following receipt. The Company may modify or terminate the Automatic Investment
Plan at any time or charge a service fee. No such fee currently is contemplated.
<PAGE>
DIRECTED DISTRIBUTION PLAN. The Directed Distribution Plan enables you
to invest automatically dividends and capital gain distributions, if any, paid
by a Fund in shares of another Fund of which you are a shareholder. Shares of
the other Fund will be purchased at the then-current net asset value. Minimum
subsequent investments do not apply. Investors desiring to participate in the
Directed Distribution Plan should check the appropriate box and supply the
necessary information on the account application. The Plan is available only for
existing accounts and may not be used to open new accounts. The Company may
modify or terminate the Directed Distribution Plan at any time or charge a
service fee. No such fee currently is contemplated.
PERFORMANCE INFORMATION
Average annual total return is calculated by determining the ending
redeemable value of an investment purchased with a hypothetical $1,000 payment
made at the beginning of the period (assuming the reinvestment of dividends and
distributions), dividing by the amount of the initial investment, taking the
"n"th root of the quotient (where "n" is the number of years in the period) and
subtracting 1 from the result.
Total return is calculated by subtracting the amount of a Fund's net
asset value per share at the beginning of a stated period from the net asset
value per share at the end of the period (after giving effect to the
reinvestment of dividends and distributions during the period), and dividing the
result by the net asset value per share at the beginning of the period.
From time to time, advertising materials for a Fund may refer to or
discuss current or past business, political, economic or financial conditions,
such as U.S. monetary or fiscal policies and actual or proposed tax legislation.
In addition, from time to time, advertising materials for a Fund may include
information concerning retirement and investing for retirement, average life
expectancy and pension and social security benefits. Comparative performance
information may be used from time to time in advertising or marketing each
Fund's shares, including data from Lipper Analytical Services, Inc.,
Morningstar, Inc., S&P 500 Index, Russell 2000 Index, EAFE Index, the Dow Jones
Industrial Average, CDA/Wiesenberger Investment Companies Service, Mutual Fund
Values; Mutual Fund Forecaster, Mutual Fund Investing and other industry
publications.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund intends to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended (the "Code"), if such
qualification is in the best interests of its shareholders. To qualify as a
regulated investment company, the Fund must pay out to its shareholders at least
90% of its net income (consisting of net investment income and net short-term
capital gain), and must meet certain asset diversification and other
requirements. Qualification as a regulated investment company relieves the Fund
from any liability for Federal income taxes to the extent its earnings are
distributed in accordance with the applicable provisions of the Code. If a Fund
did not qualify as a regulated investment company, it would be treated for tax
purposes as an ordinary corporation subject to Federal income tax. The term
"regulated investment company" does not imply the supervision of management or
investment practices or policies by any government agency.
Any dividend or distribution paid shortly after an investor's purchase
may have the effect of reducing the aggregate net asset value of his shares
below the cost of his investment. Such a distribution would be a return on
investment in an economic sense although taxable as stated in the Prospectus. In
addition, if a shareholder holds shares for six months or less and has received
a capital gain dividend with respect to such shares, any loss incurred on the
sale of such shares will be treated as a long-term capital loss to the extent of
the capital gain dividend received.
In general, depending upon the composition of a Fund's income, all or
a portion of the dividends paid by the Fund from net investment income may
qualify for the dividends received deduction allowable to qualifying U.S.
corporate shareholders ("dividends received deduction") to the extent such
Fund's income consists of dividends paid by U.S. corporations. However, Section
246(c) of the Code generally provides that if a qualifying corporate shareholder
has disposed of Fund shares held for less than 46 days, which 46 days generally
must be during the 90-day period commencing 45 days before the shares become
ex-dividend, and has received a dividend from net investment income with respect
to such shares, the portion designated by the Fund as qualifying for the
dividends received deduction will not be eligible for such shareholder's
dividends received deduction. In addition, the Code provides other limitations
with respect to the ability of a qualifying corporate shareholder to claim the
dividends received deduction in connection with holding Fund shares.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gains and losses. However, a portion of the gain or loss
realized from the disposition of non-U.S. dollar denominated securities
(including debt instruments, certain financial futures and options, and certain
preferred stock) may be treated as ordinary income or loss under Section 988 of
the Code. Finally, all or a portion of the gain realized from engaging in
"conversion transactions" may be treated as ordinary income under Section 1258.
"Conversion transactions" are defined to include certain forward, futures,
option and "straddle" transactions, transactions marketed or sold to produce
capital gains, or transactions described in Treasury regulations to be issued in
the future.
Under Section 1256 of the Code, any gain or loss realized by the Fund
from certain financial futures and options transactions (other than those taxed
under Section 988 of the Code) will be treated as 60% long-term capital gain or
loss and 40% short-term capital gain or loss. Gain or loss will arise upon the
exercise or lapse of such futures and options as well as from closing
transactions. In addition, any such futures or options remaining unexercised at
the end of the Fund's taxable year will be treated as sold for their then fair
market value, resulting in additional gain or loss to the Fund characterized as
described above.
Offsetting positions held by a Fund involving financial futures and
options may constitute "straddles." Straddles are defined to include "offsetting
positions" in actively traded personal property. The tax treatment of straddles
is governed by Sections 1092 and 1258 of the Code, which, in certain
circumstances, override or modify the provisions of Sections 988 and 1256 of the
Code. If the Fund was treated as entering into straddles by reason of its
futures or options transactions, such straddles could be characterized as "mixed
straddles" if the futures or options transactions comprising such straddles were
governed by Section 1256. The Fund may make one or more elections with respect
to "mixed straddles." Depending upon which election is made, if any, the results
to the Fund may differ. If no election is made, to the extent the straddle rules
apply to positions established by the Fund, losses realized by the Fund will be
deferred to the extent of unrealized gain in any offsetting positions. Moreover,
as a result of the straddle rules, short-term capital loss on straddle positions
may be recharacterized as long-term capital loss, and long-term capital gain on
straddle positions may be treated as short-term capital gain or ordinary income.
The Taxpayer Relief Act of 1997 included constructive sale provisions
that generally apply if a Fund either (1) holds an appreciated financial
position with respect to stock, certain debt obligations, or partnership
interests ("appreciated financial position") and then enters into a short sale,
futures, forward, or offsetting notional principal contract (collectively, a
"Contract") respecting the same or substantially identical property or (2) holds
an appreciated financial position that is a Contract and then acquires property
that is the same as or substantially identical to the underlying property. In
each instance, with certain exceptions, the Fund generally will be taxed as if
the appreciated financial position were sold at its fair market value on the
date the Fund enters into the financial position or acquires the property,
respectively. Transactions that are identified hedging or straddle transactions
under other provisions of the Code can be subject to the constructive sale
provisions.
Investment by a Fund in securities issued or acquired at a discount,
or providing for deferred interest or for payment of interest in the form of
additional obligations could under special tax rules affect the amount, timing
and character of distributions to shareholders by causing such Fund to recognize
income prior to the receipt of cash payments. For example, the Fund could be
required to accrue a portion of the discount (or deemed discount) at which the
securities were issued each year and to distribute such income in order to
maintain its qualifica tion as a regulated investment company. In such case, the
Fund may have to dispose of securities which it might otherwise have continued
to hold in order to generate cash to satisfy these distribution requirements.
PORTFOLIO TRANSACTIONS
The Adviser is responsible for the selection of brokers to effect
securities transactions and the negotiation of brokerage commissions, if any.
Purchases and sale of securities on a securities exchange are effected through
brokers who charge a negotiated commission for their services. Transactions are
allocated to various dealers by the Funds' investment personnel in their best
judgment. The primary consideration is prompt and effective execution of orders
at the most favorable price. Subject to that primary consideration, dealers may
be selected to act on an agency basis for research, statistical or other
services to enable the Adviser to supplement its own research and analysis with
the views and information of other securities firms. The allocation of brokerage
transactions also may take into account a broker's sales of Fund shares.
<PAGE>
To the extent research services are furnished by brokers through which
a Fund effects securities transactions, the Adviser may use such information in
advising other funds or accounts it advises and, conversely, to the extent
research services are furnished to the Adviser by brokers in connection with
other funds or accounts the Adviser advises, the Adviser also may use such
information in advising the Funds. Although it is not possible to place a dollar
value on these services, if they are provided, it is the opinion of the Adviser
that the receipt and study of any such services should not reduce the overall
expenses of its research department.
The overall reasonableness of brokerage commissions paid is evaluated
by the Adviser based upon its knowledge of available information as to the
general level of commissions paid by other institutional investors for
comparable services. The Funds may pay commission rates in excess of those
another broker or dealer would have charged for effecting the same transaction,
if the Adviser determines in good faith that the commission paid is reasonable
in relation to the value of the brokerage and research services provided.
When transactions are executed in the over-the-counter market, the
Adviser will deal with the primary market makers unless a more favorable price
or execution otherwise is obtainable.
INFORMATION ABOUT THE COMPANY AND THE FUNDS
Each share has one vote and shareholders will vote in the aggregate,
except as otherwise required by law. Each Fund share, when issued and paid for
in accordance with the terms of the offering, is fully paid and non-assessable.
Shares have no preemptive, conversion or subscription rights and are freely
transferable.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of a Massachusetts
business trust. However, the Company's Agreement and Declaration of Trust
("Trust Agreement") disclaims shareholder liability for acts or obligations of
the Company and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Company or a
Board member. The Trust Agreement provides for indemnification from the Fund's
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Fund. Thus, the risk of a shareholder's incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Fund itself would be unable to meet its obligations, a possibility
which management believes is remote. Upon payment of any liability incurred by
the Fund, the shareholder paying such liability will be entitled to
reimbursement from the general assets of the Fund. The Company intends to
conduct its operations in such a way so as to avoid, as far as possible,
ultimate liability of the shareholders for liabilities of the Fund.
Unless otherwise required by the 1940 Act, ordinarily it will not be
necessary for the Company to hold annual meetings of shareholders. As a result,
shareholders may not consider each year the election of Board members or the
appointment of auditors. However, the holders of at least 10% of the shares
outstanding and entitled to vote may require the Company to hold a special
meeting of shareholders for purposes of removing a Board member from office.
Shareholders may remove a Board member by the affirmative vote of two-thirds of
the Company's outstanding voting shares. In addition, the Company's Board will
call a meeting of shareholders for the purpose of electing Board members if, at
any time, less than a majority of the Board members then holding office have
been elected by shareholders.
The Company is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for certain
matters under the 1940 Act and for other purposes. A shareholder of one
portfolio is not deemed to be a shareholder of any other portfolio. For certain
matters shareholders vote together as a group; as to others they vote separately
by portfolio. From time to time, other portfolios may be established and sold
pursuant to other offering documents.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise, to the holders of the outstanding voting securities of an investment
company, such as the Company, will not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each series affected by such matter. Rule 18f-2 further provides that a series
shall be deemed to be affected by a matter unless it is clear that the interests
of each series in the matter are identical or that the matter does not affect
any interest of such series. However, the Rule exempts the election of board
members from the separate voting requirements of the Rule.
To date, four series have been authorized. All consideration received
by the Company for shares of one of the series, and all assets in which such
consideration is invested, belong to that series (subject only to the rights of
creditors of the Company) and will be subject to the liabilities related
thereto. The income attributable to, and expenses of, one series are treated
separately from those of the other series.
Each Fund will post its annual and semi-annual financial statements on
the MetaMarkets.com Web site and e-mail notice of such postings to all its
shareholders.
COUNSEL AND INDEPENDENT AUDITORS
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York
10038-4982, as counsel for the Company, has rendered its opinion as to certain
legal matters regarding the due authorization and valid issuance of the shares
being sold pursuant to the Prospectus.
PricewaterhouseCoopers LLP, 333 Market Street, San Francisco,
California 94105-2119, independent accountants, have been selected as each
Fund's independent auditors.
<PAGE>
APPENDIX
Description of S&P, Moody's, Fitch and Duff ratings:
S&P
BOND RATINGS
AAA
Bonds rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA
Bonds rated AA have a very strong capacity to pay interest and repay
principal an from the highest rated issues only in small degree.
A
Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than bonds in higher rated categories.
BB
Bonds rated BB have less near-term vulnerability to default than other
speculative grade debt. However, they face major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
B
Bonds rated B have a greater vulnerability to default but presently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions would likely impair capacity or
willingness to pay interest and repay principal.
<PAGE>
CCC
Bonds rated CCC have a current identifiable vulnerability to default
and are dependent upon favorable business, financial and economic conditions to
meet timely payments of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, they are not likely to have
the capacity to pay interest and repay principal.
CC
The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
C
The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating.
D
Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus (+) or
a minus (-) sign designation, which is used to show relative standing within the
major rating categories, except in the AAA (Prime Grade) category.
COMMERCIAL PAPER RATING
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Issues assigned an A rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1
This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
designation.
A-2
Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
<PAGE>
A-3
Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
B
Issues carrying this designation are regarded as having only
speculative capacity for timely payment.
C
This designation is assigned to short-term obligations with doubtful
capacity for payment.
D
Issues carrying this designation are in default, and payment of
interest and/or repayment of principal is in arrears.
Moody's
BOND RATINGS
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and generally are referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
<PAGE>
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 sometime 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.
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, therefore, 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 present 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 the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category and in
the categories below B. The modifier 1 indicates a ranking for the security in
the higher end of a rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates a ranking in the lower end of a rating
category.
COMMERCIAL PAPER RATING
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity for
repayment of short-term promissory obligations, and ordinarily will be evidenced
by leading market positions in well established industries, high rates of return
on funds employed, conservative capitalization structures with moderate reliance
on debt and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate liquidity.
Issuers (or related supporting institutions) rated Prime-2 (P-2) have
a strong capacity for repayment of short-term promissory obligations. This
ordinarily will be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Issuers (or related supporting institutions) rated Prime-3 (P-3) have
an acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirements for relatively
high financial leverage. Adequate alternate liquidity is maintained.
Issuers (or related supporting institutions) rated Not Prime do not
fall within any of the Prime rating categories.
Fitch
BOND RATING
The ratings represent Fitch's assessment of the issuer's ability to
meet the obligations of specific debt issue or class of debt. The ratings take
into consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the political and
economic environment that might affect the issuer's future financial strength
and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
<PAGE>
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F1+.
A
Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds and, therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
BB
Bonds rated BB are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
B
Bonds rated B are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC
Bonds rated CCC have certain identifiable characteristics, which, if
not remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
<PAGE>
CC
Bonds rated CC are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C
Bonds rated C are in imminent default in payment of interest or
principal.
DDD, DD and D
Bonds rated DDD, DD and D are in actual default of interest and/or
principal payments. Such bonds are extremely speculative and should be valued on
the basis of their ultimate recovery value in liquidation or reorganization of
the obligor. DDD represents the highest potential for recovery on these bonds
and D represents the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category. Plus and minus
signs, however, are not used in the AAA category covering 12 to 36 months.
SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond ratings on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2
Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payments, but the margin of safety is not as
great as the F-1+ and F-1 categories.
<PAGE>
F-3
Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate; however,
near-term adverse changes could cause these securities to be rated below
investment grade.
F-S
Weak Credit Quality. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are vulnerable
to near-term adverse changes in financial and economic conditions.
D
Default. Issues assigned this rating are in actual or imminent payment
default.
Duff
BOND RATINGS
AAA
Bonds rated AAA are considered highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
AA
Bonds rated AA are considered high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
A
Bonds rated A have protection factors which are average but adequate.
However, factors are more variable and greater in periods of economic stress.
BBB
Bonds rated BBB are considered to have below average protection
factors but still considered sufficient for prudent investment. There may be
considerable variability in risk for bonds in this category during economic
cycles.
BB
Bonds rated BB are below investment grade but are deemed by Duff as
likely to meet obligations when due. Present or prospective financial protection
factors fluctuate according to industry conditions or company fortunes. Overall
quality may move up or down frequently within the category.
B
Bonds rated B are below investment grade and possess the risk that
obligations will not be met when due. Financial protection factors will
fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in quality rating within
this category or into a higher or lower quality rating grade.
CCC
Bonds rated CCC are well below investment grade securities. Such bonds
may be in default or have considerable uncertainty as to timely payment of
interest, preferred dividends and/or principal. Protection factors are narrow
and risk can be substantial with unfavorable economic or industry conditions
and/or with unfavorable company developments.
DD
Defaulted debt obligations. Issuer has failed to meet scheduled
principal and/or interest payments.
Plus (+) and minus (-) signs are used with a rating symbol (except
AAA) to indicate the relative position of a credit within the rating category.
COMMERCIAL PAPER RATING
The rating Duff-1 is the highest commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as having very high certainty of timely
payment with excellent liquidity factors which are supported by ample asset
protection. Risk factors are minor. Paper rated Duff- 2 is regarded as having
good certainty of timely payment, good access to capital markets and sound
liquidity factors and company fundamentals. Risk factors are small. Paper rated
Duff-3 is regarded as having satisfactory liquidity and other protection
factors. Risk factors are larger and subject to more variation. Nevertheless,
timely payment is expected. Paper rated Duff-4 is regarded as having 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. Paper rated Duff-5 is in default. The issuer has
failed to meet scheduled principal and/or interest payments.
s<PAGE>
FINANCIAL STATEMENT AND REPORT OF INDEPENDENT AUDITORS
METAMARKETS.COM FUNDS
STATEMENT OF ASSETS AND LIABILITIES
August 6, 1999
<TABLE>
<CAPTION>
COMMUNICATIONS MEDIA
TECHNOLOGY TECHNOLOGY
OPENFUND FUND FUND OPENFUND II
-------- ------------- -----------
ASSETS
<S> <C> <C> <C> <C>
Cash................................ $ 100,000.00 $ 12.50 $ 12.50 $ 12.50
============= ======= ======== =======
LIABILITIES AND CAPITAL: 0 0 0 0
NET ASSETS applicable to the shares
of beneficial interest ($.001 par
value) issued and outstanding
(unlimited number of
shares authorized)................... $ 100,000.00 $ 12.50 $ 12.50 $ 12.50
============== ========= ======= ========
SHARES OUTSTANDING....................... 8,000 1 1 1
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE............................ $ 12.50 $ 12.50 $ 12.50 $ 12.50
=============== ======== ======= ========
</TABLE>
NOTE 1 - MetaMarkets.com Funds (the "Company") is organized as a Massachusetts
business trust and has had no operations as of the date hereof other than
matters relating to its organization and registration as an open-end investment
company under the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended, and the sale and issuance of 8,000 shares of beneficial
interest of the Open Fund and one share of beneficial interest of each other of
the above-named series of the Company (each, a "Fund") to MetaMarkets
Investments LLC (the "Adviser").
Pursuant to an investment advisory agreement with the Adviser, the Fund pays a
monthly investment advisory fee based on the value of the average daily net
assets of each Fund as follows:
AVERAGE DAILY NET ANNUAL RATE OF
ASSETS OF THE FUND ADVISORY FEE
on the first $250 million 1.00%
on the next $500 million .75%
on assets in excess of $750 million .50%
Expenses related to the organization of the Company have been borne by the
Adviser.
NOTE 2 - Each Fund intends to qualify as a "regulated investment company" and as
such (and by complying with the applicable provisions of the Internal Revenue
Code of 1986, as amended) will not be subject to Federal income tax on taxable
income (including realized capital gain) that is distributed to shareholders.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Trustees
of MetaMarkets.com Funds
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of the OpenFund, Media
Technology Fund, Communications Technology Fund and OpenFund II (hereafter
referred to as the "Funds"), each a series of MetaMarkets.com Funds, at August
6, 1999, in conformity with generally accepted accounting principles. This
financial statement is the responsibility of the Funds' management; our
responsibility is to express an opinion on this financial statement based on our
audit. We conducted our audit of this financial statement in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statement is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement,
assessing the accounting principles used and significant estimates made by the
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
San Francisco, California
August 9, 1999
<PAGE>
[GRAPHIC OMITTED]SUBJECT TO COMPLETION, DATED AUGUST 11, 1999
METAMARKETS.COM FUNDS
PROSPECTUS
____________, 1999
o OPENFUND
ADVISED BY
METAMARKETS INVESTMENTS LLC
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE FUND SHARES OR DETERMINED WHETHER THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A CRIME.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
DESCRIPTION OF THE FUND
OVERVIEW
- -------------------------------------------------------------------------------
THE FUND The Fund invests in securities of
companies which, in the opinion of the
Fund's investment adviser, are innovative
growth companies at the leading edge of
technological, social and economic change.
These are companies which define the "New
Economy." They demonstrate the ability to
innovate, continuously learn and
productively change. Through innovative
use of technology or the imaginative use
of organizational techniques or marketing
methods, they are redefining the way goods
and services are provided in the economy.
These are companies that make us more
efficient at work, and change the way we
relax and play.
The Fund's investments may range from
small companies developing new
technologies or practicing innovative
methods to provide consumer services, to
large blue chip companies with established
track records of developing and marketing
these advances.
Much is being written about the New
Economy. Visit the Web site at
http://www.MetaMarkets.com if you want to
find out where you can read more about it.
The Fund intends to operate as the first
"interactive mutual fund" integrating real
time investor participation with the
investment process. The Fund intends to
post on its Web site frequent updates of
its holdings and completed trading
activity. In addition, part of the
investment adviser's Web site will support
communication technologies such as
discussion boards, chat rooms, webcams,
and on-line polls through which Fund
shareholders and others may interact with
the Fund's portfolio managers and each
other to share ideas about the Fund,
stocks, market conditions and other
related topics.
<PAGE>
OBJECTIVES, RISK/RETURN AND EXPENSES
OPENFUND
INVESTMENT OBJECTIVE The Fund seeks to provide investors with
capital growth.
PRINCIPAL INVESTMENT The Fund invests principally in the
STRATEGIES common stocks of companies that the
investment adviser believes derive
strategic advantage from trends caused by
the development of the "New Economy."
The Fund will engage in aggressive
portfolio trading in an attempt to take
advantage of short-term trends in
valuation and momentum.
To implement the Fund's strategy, the
adviser will select from those companies
based in the U.S. or, to a limited extent,
in foreign countries that provide or are
expected to benefit from advances and
improvements in technology, consumer
services or business practices. These
companies may include those that develop,
produce or distribute products or services
in the Internet, electronics,
communications, healthcare, biotechnology,
and computer software and hardware
sectors, as well as the consumer
marketing, media, entertainment and
financial services sectors. The Fund also
may invest in the preferred stocks and
convertible securities (including those
rated below investment grade) of these
companies and engage in short selling and,
from time to time, leverage, futures and
options transactions.
PRINCIPAL INVESTMENT Stocks fluctuate in price, often based on
RISKS factors unrelated to the issuers' value.
The value of your investment in the Fund
will fluctuate in response to movements in
the stock market and the activities of
individual portfolio companies. As a
result, you could lose money by investing
in the Fund, particularly if there is a
sudden decline in the share prices of the
Fund's holdings or an overall decline in
the stock market.
The Fund will engage in short-term
trading, which could produce higher
brokerage costs and larger taxable
distributions than a fund with low
portfolio turnover.
The Fund will invest in companies in the
technology sector, including those with
small capitalizations (below $500
million), which carry additional risks.
These companies typically have less
predictable earnings than other companies.
In addition, small-cap stocks trade less
frequently and in more limited volume than
those of larger, more established
companies. As a result, technology and
small-cap stocks may fluctuate
significantly more in value than other
stocks. Thus, the Fund's share price
should be expected to fluctuate
significantly more than the share prices
of many other types of mutual funds.
The Fund is non-diversified and may invest
a greater percentage of its assets in a
particular company compared with other
funds. Accordingly, the Fund's portfolio
may be more sensitive to changes in the
market value of a single company or
industry.
The Fund may invest in lower-rated
convertible securities which have
speculative characteristics and higher
credit risk. With this type of investment,
a greater likelihood exists that adverse
economic changes can result in a weakened
capacity to make interest and principal
payments on a timely basis.
Foreign securities involve special risks,
such as exposure to currency exchange rate
fluctuations, and tend to be more volatile
than U.S. securities.
The Fund may not always be able to close
out an established short position at any
particular time or at an acceptable price.
The Fund can buy securities with borrowed
money (a form of leverage), which could
have the effect of magnifying the Fund's
gains or losses.
Successful use of options and futures is
subject to the adviser's ability to
predict correctly movements in the
direction of the market. A relatively
small investment could have a large impact
on the Fund's performance.
<PAGE>
PERFORMANCE BAR CHART AND TABLE
Because the Fund is new, it has no performance as of the date of this
prospectus.
FEES AND EXPENSES
If you purchase and hold shares of OpenFund, you will pay certain fees and
expenses, which are described in the tables. Annual Fund operating expenses are
paid out of Fund assets, and are reflected in the share price.
- ------------------------------------------
Annual Fund Operating Expenses
(fees paid from Fund assets)
- ------------------------------------------
- ------------------------------------------
Management Fee 1.00%
- ------------------------------------------
Distribution (12b-1)
Fee .25%
- ------------------------------------------
Other Expenses1 .20%
- ------------------------------------------
Total Annual Fund
Operating Expenses1 1.45%
- ------------------------------------------
- -----------------------
1 Reflects a contractual obligation by the adviser to waive its fees in their
entirety and pay all Fund expenses through February 28, 2000, and to reimburse
the Fund to the extent Total Annual Fund Operating Expenses exceed 1.45% of
the Fund's average daily net assets from March 1, 2000 through
August 31, 2000.
EXPENSE EXAMPLE
Use the example at right to OPENFUND 1 3
help you compare the cost of Year Years
investing in the Fund with the
cost of investing in other $74(2) $387(2)
mutual funds. It illustrates -------------------------------------
the amount of fees and
expenses you would pay,
assuming the following:
- --------------------
2 Year 1 fees and expenses are based on a contractual agreement.
o $10,000 investment
o 5% annual return
o no changes in the Fund's
operating expenses
o reinvestment of all dividends
and distributions
Your actual costs may be higher or lower.
<PAGE>
ADDITIONAL INFORMATION ON INVESTMENT STRATEGIES
AND RISKS
PRINCIPAL STRATEGIES
While the Fund typically invests principally in common stocks, it also may
invest in convertible securities and preferred stocks and other equity
securities having the charcteristics of common stocks(generally, in each case up
to 10% of the Fund's assets). The Fund also may invest in Standard & Poor's
Depositary Receipts ("SPDRs") and DIAMONDS when it desires exposure to the U.S.
stock market generally. Convertible securities are exchangeable for another form
of the issuer's securities, and generally are subordinated to other similar but
non-convertible securities of the same issuer and, thus, typically have lower
credit ratings than similar non-convertible securities. The Fund may invest up
to 10% of its assets in convertible securities rated below investment grade
(Baa/BBB) and as low as the lowest rating assigned by the rating agencies (C/D)
or the unrated equivalent as determined by the adviser. Preferred stock has
preference over common stock in the payment of dividends and the liquidation of
assets, but ordinarily does not carry voting rights. SPDRs are depositary
receipts listed on the American Stock Exchange that are designed to provide
investment results that generally correspond to the price and yield performance
of the common stocks included in the Standard & Poor's 500 Index. DIAMONDS are
units listed on the American Stock Exchange that are designed to provide
investment results that generally correspond to the price and yield performance
of the common stocks included in the Dow Jones Industrial Average.
Although the Fund will invest principally in securities of U.S. issuers, it may
invest up to 20% of its total assets in the equity securities of foreign
issuers, including common stocks, preferred stocks, convertible securities and
depositary receipts, such as ADRs.
The Fund may sell short securities of companies that the investment adviser
believes will underperform amidst the challenges of the New Economy. In
addition, the Fund may engage in short-selling for hedging purposes, such as to
limit exposure to a possible market decline in the value of its portfolio
securities. Generally, the Fund would sell a security it does not own. To
complete the transaction, the Fund must borrow the security to make delivery to
the buyer. The Fund is obligated to replace the security borrowed by purchasing
it subsequently at the market price at the time of replacement. No securities
will be sold short if, after effect is give to any such short sale, the total
market value of all securities sold short would exceed 25% of the value of the
Fund's net assets.
The Fund may invest some assets in options and futures contracts and, though not
part of its principal strategy, certain other derivatives such as equity swaps.
These instruments are used primarily to hedge the Fund's portfolio but may be
used to increase returns; however, they sometimes may reduce returns or increase
volatility.
The Fund may borrow money from banks, brokers or dealers for investment
purposes. Borrowing for investment purposes is known as "leverage." To the
extent the Fund uses leverage, it would limit such leverage to 25% of its total
assets.
The Fund, from time to time, may take temporary defensive positions that are
inconsistent with the Fund's principal investment strategies in an attempt to
respond to adverse market, economic, political, or other conditions and invest
some or all of its assets in money market instruments. During these periods, the
Fund may not achieve its investment objective.
PRINCIPAL RISKS
MARKET AND MANAGEMENT RISK. The Fund is actively managed and, thus, is subject
to the risk that its portfolio management practices might not achieve its goals.
Over time, growth companies are expected to increase their earnings at an
above-average rate. If these expectations are not met, their stock prices can
fall drastically--even if earnings show an absolute increase.
The Fund may purchase securities of companies in initial public offerings or
shortly thereafter. The prices of these companies' securities may be very
volatile. The Fund may purchase securities of companies which have no earnings
or have experienced losses. The Fund generally will make these investments based
on a belief that actual or anticipated products or services will produce future
earnings. If the anticipated event is delayed or does not occur, or if investor
perceptions about the company change, the company's stock price may decline
sharply and its securities may become less liquid.
FOREIGN SECURITIES RISK. Securities of foreign issuers (including ADRs)
fluctuate in price, often based on factors unrelated to the issuers' value, and
such fluctuations can be pronounced. Foreign securities tend to be more volatile
than U.S. securities because they include special risks, such as exposure to
currency fluctuations, a lack of comprehensive company information, political
instability, and differing auditing and legal standards.
LOWER RATED SECURITIES RISK. Higher yielding (and, therefore, higher risk)
convertible securities, such as those rated below investment grade, may be
subject to certain risks with respect to the issuing entity and to greater
market fluctuations than lower yielding, higher rated convertible securities.
The retail secondary market for these securities may be less liquid than that of
higher rated securities; adverse conditions could make it difficult at times for
the Fund to sell these securities or could result in lower prices that those
used in calculating the Fund's net asset value.
RISK OF USING CERTAIN INVESTMENT TECHNIQUES. With respect to short sales, the
price at the time the Fund replaces the security borrowed may be more (and the
Fund would lose money) or less (and the Fund would make money) than the price at
which the security was sold by the Fund. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount of any premium or
amounts in lieu of interest the Fund may be required to pay in connection with a
short sale.
The risks related to the use of options and futures contracts include: (i) the
correlation between movements in the market price of the Fund's investments
(held or intended for purchase) being hedged and in the price of the futures
contract or option may be imperfect; (ii) possible lack of a liquid secondary
market for closing out options or futures positions; and (iii) losses due to
unanticipated market movements.
Leveraging is a sophisticated investment technique that amplifies the effect on
net asset value of any increase or decrease in the market value of the Fund's
portfolio. These borrowings will be subject to interest costs which may or may
not be recovered by appreciation of the securities purchased; in certain cases,
interest costs may exceed the return received on the securities purchased.
INTERNET RISK. Since the Fund is designed specifically for on-line investors,
an interruption in transmissions over the Internet generally or problem in the
transmission of the MetaMarkets.com Web site in particular could result in a
delay or interruption in your ability to access the MetaMarkets.com Web site,
place purchase or sale orders with the Fund or otherwise interact with the
Fund.
YEAR 2000 RISK. Like other funds and business organizations around the world,
the Fund could be adversely affected if the computer systems used by the
investment adviser and the Fund's other service providers do not properly
process and calculate date-related information for the year 2000 and beyond.
Year 2000 issues may adversely affect the companies or other issuers in which
the Fund invests where, for example, such entities incur substantial costs to
address Year 2000 issues or suffer losses caused by the failure to adequately or
timely do so. Foreign markets may be less prepared to address Year 2000 issues
than U.S. ones.
The investment adviser and the Fund's other service providers have assured the
Fund that they have developed and are implementing clearly defined and
documented plans intended to minimize risks to services critical to the Fund's
operations associated with Year 2000 issues. The investment adviser and the
Fund's other service providers are likewise seeking assurances from their
respective vendors and suppliers that such entities are addressing Year 2000
issues.
While the ultimate costs or consequences of incomplete or untimely resolution of
Year 2000 issues cannot be accurately assessed at this time, the Fund currently
has no reason to believe that the Year 2000 plans of the investment adviser and
the Fund's other service providers will not be completed by December 31, 1999,
or that the anticipated costs associated with full implementation of their plans
will have a material adverse impact on either their business operations or
financial condition or those of the Fund. If any systems upon which the Fund is
dependent are not Year 2000 ready by December 31, 1999, administrative errors
and account maintenance failures would likely occur, which could result in a
decline in the value of the Fund's securities and return.
<PAGE>
FUND MANAGEMENT
Investment Adviser
MetaMarkets Investments LLC, located at 400 Oyster Point Blvd., Suite 414, South
San Francisco, California 94080, serves as the Fund's investment adviser. The
investment adviser is a newly formed entity and has no operating history upon
which investors can evaluate its performance. Donald L. Luskin, the investment
adviser's President and Chief Executive Officer was formerly the Chief Executive
Officer of Barclays Global Mutual Funds and the Vice Chairman of Barclays Global
Investors, one of the world's largest investment management organizations. The
investment adviser is responsible for making investment decisions for the Fund,
placing purchase and sale orders and providing research, statistical analysis
and continuous supervision of the Fund's investment portfolio. Investment
decisions for the Fund are made by a team of the investment adviser's portfolio
managers; the team collaborates in making portfolio recommendations and no
individual is primarily responsible for making recommendations to the team. Set
forth below is the investment advisory fee rate payable to the investment
adviser by the Fund:
AVERAGE DAILY NET ANNUAL RATE OF
ASSETS OF THE FUND ADVISORY FEE
- ------------------ ----------------
on the first $250 million 1.00%
on the next $500 million .75%
on assets in excess of $750 million .50%
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
The Fund's per share net asset value (NAV) is calculated by adding the total
value of the Fund's investments and other assets, subtracting its liabilities
and then dividing that figure by the number of outstanding shares.
The Fund's NAV is determined and its shares are priced at the close of regular
trading on the New York Stock Exchange, normally at 4:00 p.m. Eastern time, on
days the Exchange is open, except Columbus Day and Veterans' Day. The New York
Stock Exchange is closed on weekends, national holidays and Good Friday.
Your order for purchase, sale or exchange of shares is priced at the next NAV
calculated after the Fund receives your completed order form.
The Fund's investments are valued each business day generally by using available
market quotations or, if market quotations are not available, at fair value
determined by the Fund's Board or in accordance with procedures approved by the
Board. For further information regarding the methods employed in valuing the
Fund's investments, see the Statement of Additional Information (SAI).
The Fund's 12b-1 fees compensate the Fund's distributor and other dealers and
investment representatives for services and expenses relating to the sale and
distribution of the Fund's shares. Because 12b-1 fees are paid from Fund assets
on an ongoing basis, over time they will increase the cost of your investment
and may cost you more than paying other types of sales charges.
<PAGE>
HOW TO BUY AND SELL SHARES
GENERAL
The Fund is designed specifically for on-line investors. You can access the Fund
at the MetaMarkets.com Web site on the Internet. By clicking one of the Fund
order icons, you can quickly and easily place a purchase or sale order for
shares. You will be prompted to enter your trading password whenever you perform
a transaction so that the Fund can be sure each purchase or sale is secure. For
your own protection, only you or your co-account holder(s) should place orders
through your Fund account. When you purchase shares, you will be asked to: (1)
affirm your consent to receive all Fund documentation electronically, (2)
provide your e-mail address and (3) affirm that you have read the Prospectus.
The Fund's current Prospectus will be readily available for viewing and printing
on the Web site.
To become a Fund shareholder, you will need to open an account and consent to
receive all shareholder information about the Fund electronically. The Fund may
deliver paper-based shareholder information in certain circumstances at no extra
cost to the investor. If you call or e-mail the Fund to request paper-based
shareholder information, or if you revoke your consent to receive all
shareholder information electronically, the Fund will deliver such information
to you and you may be charged a transaction fee of up to $12 to cover the costs
of printing, shipping and handling (a fee will not be charged for delivery of
confirmations or statements). Shareholder information includes prospectuses,
annual and semi-annual reports, proxy materials, confirmations and statements.
PURCHASING AND ADDING TO YOUR SHARES
MINIMUM INVESTMENT
-------------------------------
ACCOUNT TYPE INITIAL SUBSEQUENT
Regular
(non-retirement) $1,000 $250
Retirement (IRA) $100 $50
Automatic
Investment Plan $250 $50
To make your initial investment, follow the instructions on the account
application at the end of this Prospectus. To make subsequent investments, click
the Fund Purchase Order icon and follow the instructions. The Fund offers an
Automatic Investment Plan and Directed Dividend Option, which are convenient
ways of buying Fund shares. These also are described on the account application
and in the SAI.
All purchases must be in U.S. dollars. A fee will be charged for any checks that
do not clear. Third-party checks are not accepted.
The Fund may waive the minimum purchase requirements or reject any purchase
order in whole or in part.
SELLING YOUR SHARES
You may sell (i.e., redeem) your shares at any time. Your sales price will be
the next NAV after your sell order is received by the Fund, its transfer agent,
or your investment representative. Normally you will receive your proceeds
within a week after your request is received.
To sell Fund shares, click the Fund Sell Order icon and follow the instructions.
<PAGE>
o VERIFYING TELEPHONE REDEMPTIONS
The Fund will make efforts to insure that telephone redemptions are only made by
authorized shareholders. All telephone calls are recorded for your protection
and you will be asked for information to verify your identity. Given these
precautions, unless you have specifically indicated on your application that you
do not want the telephone redemption feature, you may be responsible for any
fraudulent telephone orders. If appropriate precautions have not been taken, the
transfer agent may be liable for losses due to unauthorized transactions.
o REDEMPTIONS WITHIN 15 DAYS OF INITIAL INVESTMENT
Before selling recently purchased shares, please note that if your initial
investment was by check, the Fund may delay sending you the proceeds until the
check has cleared (which may take up to 15 days from the date of purchase). You
can avoid this delay by purchasing shares with a certified check.
o DELAYING PAYMENT OF REDEMPTION PROCEEDS
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the SEC in order to protect remaining shareholders.
o REDEMPTION IN KIND
The Fund reserves the right to make payment in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund operations
(for example, more than 1% of the Fund's net assets). Redemption in kind would
consist of securities equal in market value to your shares. When you convert
these securities to cash, you might have to pay brokerage charges.
o CLOSING OF SMALL ACCOUNTS If your account falls below $500, the Fund may ask
you to increase your balance. If it is still below $500 after 30 days, the Fund
may close your account and send you the proceeds at the current NAV.
EXCHANGING YOUR SHARES
You can exchange your Fund shares for shares of another fund in the
MetaMarkets.com family of funds. No transaction fees are charged for exchanges.
You must exchange shares worth $500 or more and meet the minimum investment
requirements for the fund into which you are exchanging. Exchanges from one fund
to another are taxable.
To exchange your Fund shares, click the Fund Exchanges icon and follow the
instructions. Be sure to read the current prospectus for any fund into which you
are exchanging.
IMPORTANT INFORMATION ABOUT EXCHANGES. If Fund shares are purchased by check,
the shares cannot be exchanged until your check has cleared. This could take up
to 15 days from the date of purchase. The Fund may reject an exchange request
from a shareholder who has made more than eight exchanges between investment
portfolios offered by Fund management in a year, or more than four exchanges in
a calendar quarter. Although unlikely, the Fund may reject any exchanges or,
upon 60-days' notice to shareholders, change or terminate the exchange
privilege. The exchange privilege is available only in states where new Fund
shares may be sold. The registration and tax identification numbers of the two
accounts must be identical.
INTERACTIVE FUND
The discussion boards, chat rooms and interactive features of the Fund,
including the display of trading activity and Fund holdings, are presented for
information purposes only and may be discontinued at any time. MetaMarkets.com
Funds also may terminate the ability to buy and sell Fund shares on its Web site
at any time, in which case you may continue to buy and sell Fund shares
pursuant to the alternative procedures described in a separate document attached
to this Prospectus. Prices and other data posted during the day on the
MetaMarkets.com Web site will be based on sources believed reliable, but whose
accuracy can not be assured.
DIVIDENDS, DISTRIBUTIONS AND TAXES
All dividends and distributions will be automatically reinvested in Fund shares.
The Fund usually pays its shareholders dividends from its net investment income
and distributes any capital gains annually.
Dividends paid by the Fund are taxable to U.S. shareholders as ordinary income
(unless your investment is in an IRA or tax-advantaged account). Except for
tax-deferred accounts, any sale or exchange of Fund shares may generate a tax
liability. Of course, withdrawals or distributions from tax-deferred accounts
may be taxable when received.
<PAGE>
Dividends are taxable in the year in which they are paid, even if they appear on
your account statement the following year. Dividends and distributions are
treated in the same manner for Federal income tax purposes whether you receive
them in cash or in additional shares.
DISTRIBUTIONS ARE MADE ON A PER SHARE BASIS REGARDLESS OF HOW LONG YOU'VE OWNED
YOUR SHARES. THEREFORE, IF YOU INVEST SHORTLY BEFORE THE DISTRIBUTION DATE, SOME
OF YOUR INVESTMENT WILL BE RETURNED TO YOU IN THE FORM OF A DISTRIBUTION.
You will be notified in January each year about the Federal tax status of
distributions made by the Fund. Depending on your residence for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes. Foreign shareholders may be subject to special withholding
requirements. There is a penalty on certain pre-retirement distributions from
retirement accounts.
Because everyone's tax situation is unique, you should consult your tax
professional about Federal, state and local tax consequences.
<PAGE>
For more information about the Fund, the following documents are available free
upon request:
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI provides more detailed information about the Fund, including its
operations and investment policies. It is incorporated by reference and is
legally considered a part of this Prospectus.
- -------------------------------------------------------------------------------
YOU CAN GET FREE COPIES OF THE SAI OR REQUEST OTHER INFORMATION AND DISCUSS YOUR
QUESTIONS ABOUT THE FUND ON THE FUND'S INTERNET SITE OR BY E-MAIL:
METAMARKETS.COM FUNDS
INTERNET: HTTP://WWW.METAMARKETS.COM
TELEPHONE: 1-877-METAMKT (1-877-638-2658)
SHAREHOLDERS WILL BE ALERTED BY E-MAIL WHEN A PROSPECTUS AMENDMENT, ANNUAL OR
SEMI-ANNUAL REPORT, OR PROXY MATERIALS ARE AVAILABLE.
- -------------------------------------------------------------------------------
Certain instructions on how to buy and sell Fund shares are provided in a
separate document that is incorporated by reference into this Prospectus.
You can review information about the Fund, including the Fund's SAI, at the
Public Reference Room of the Securities and Exchange Commission. You can get
text-only copies:
o For a fee, by writing the Public Reference Section of the Commission,
Washington, D.C. 20549- 6009, or calling 1-800-SEC-0330.
o Free from the Commission's Web site at http://www.sec.gov.
Distributed by BISYS Fund Services Limited Partnership
Investment Company Act file no. 811-09351.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 11, 1999
- -------------------------------------------------------------------------------
METAMARKETS.COM FUNDS
OpenFund
STATEMENT OF ADDITIONAL INFORMATION
__________, 1999
- -------------------------------------------------------------------------------
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus for
OpenFund (the "Fund") of MetaMarkets.com Funds (the "Company"), dated
__________, 1999, as it may be revised from time to time. To obtain a copy of
the Prospectus, please access the Company's Web site at
http://www.MetaMarkets.com, click on the Fund Prospectus icon and follow the
instructions, or call toll free 1-877-METAMKT (1-877-638-2658). When investing
in the Fund, you will be asked to consent to receive all information about the
Fund electronically.
TABLE OF CONTENTS
PAGE
Description of the Company and the Fund...................................B-2
Management of the Company................................................B-16
Management Arrangements..................................................B-19
Purchase and Redemption of Shares........................................B-22
Determination of Net Asset Value.........................................B-23
Shareholder Services and Privileges......................................B-24
Performance Information..................................................B-25
Dividends, Distribution and Taxes........................................B-26
Portfolio Transactions...................................................B-28
Information About the Company and the Fund...............................B-29
Counsel and Independent Auditors.........................................B-30
Appendix ................................................................B-31
Financial Statement and Report of Independent Auditors...................B-40
[Left Side Margin on Cover Page]
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. THE FUND'S SHARES MAY NOT BE SOLD UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY THE FUND'S SHARES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
<PAGE>
DESCRIPTION OF THE COMPANY AND THE FUND
GENERAL
The Company is a Massachusetts business trust that was formed on May
21, 1999. The Fund is a separate portfolio of the Company, an open-end
management investment company, known as a mutual fund.
MetaMarkets Investments LLC (the "Adviser") serves as the Fund's
investment adviser.
BISYS Fund Services Ohio, Inc. (the "Administrator") serves as the
Fund's administrator. BISYS Fund Services Limited Partnership (the
"Distributor"), an affiliate of the Administrator, serves as the Fund's
distributor.
CERTAIN PORTFOLIO SECURITIES
The following information supplements and should be read in
conjunction with the Fund's Prospectus. The portfolio securities described
below, other than convertible securities, are not part of the Fund's principal
investment strategies.
CONVERTIBLE SECURITIES. While the Fund typically invests principally
in common stocks, part of its principal investment strategy from time to time
may include investing in convertible securities. Convertible securities may be
converted at either a stated price or stated rate into underlying shares of
common stock and, therefore, are deemed to be equity securities for purposes of
the Fund's management policies. Convertible securities have characteristics
similar to both fixed-income and equity securities. Convertible securities
generally are subordinated to other similar but non-convertible securities of
the same issuer, although convertible bonds, as corporate debt obligations,
enjoy seniority in right of payment to all equity securities, and convertible
preferred stock is senior to common stock, of the same issuer. Because of the
subordination feature, however, convertible securities typically have lower
ratings than similar non-convertible securities.
Although to a lesser extent than with fixed-income securities, the
market value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion feature, the market value of convertible
securities tends to vary with fluctuations in the market value of the underlying
common stock. A unique feature of convertible securities is that as the market
price of the underlying common stock declines, convertible securities tend to
trade increasingly on a yield basis, and so may not experience market value
declines to the same extent as the underlying common stock. When the market
price of the underlying common stock increases, the prices of the convertible
securities tend to rise as a reflection of the value of the underlying common
stock. While no securities investments are without risk, investments in
convertible securities generally entail less risk than investments in common
stock of the same issuer.
<PAGE>
Convertible securities are investments that provide for a stable
stream of income with generally higher yields than common stocks. There can be
no assurance of current income because the issuers of the convertible securities
may default on their obligations. A convertible security, in addition to
providing fixed income, offers the potential for capital appreciation through
the conversion feature, which enables the holder to benefit from increases in
the market price of the underlying common stock. There can be no assurance of
capital appreciation, however, because securities prices fluctuate. Convertible
securities, however, generally offer lower interest or dividend yields than
non-convertible securities of similar quality because of the potential for
capital appreciation.
WARRANTS. A warrant is an instrument issued by a corporation which
gives the holder the right to subscribe to a specified amount of the
corporation's capital stock at a set price for a specified period of time.
INVESTMENT COMPANIES. The Fund may invest in securities issued by
other investment companies. Under the Investment Company Act of 1940, as amended
(the "1940 Act"), the Fund's investment in such securities, subject to certain
exceptions, currently is limited to (i) 3% of the total voting stock of any one
investment company, (ii) 5% of the Fund's total assets with respect to any one
investment company and (iii) 10% of the Fund's total assets in the aggregate.
Investments in the securities of other investment companies may involve
duplication of advisory fees and certain other expenses.
DEPOSITARY RECEIPTS. The Fund may invest in the securities of foreign
issuers in the form of American Depositary Receipts and American Depositary
Shares (collectively, "ADRs") and Global Depositary Receipts and Global
Depositary Shares (collectively, "GDRs") and other forms of depositary receipts.
These securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically issued
by a United States bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. GDRs are receipts issued outside the
United States typically by non-United States banks and trust companies that
evidence ownership of either foreign or domestic securities. Generally, ADRs in
registered form are designed for use in the United States securities markets and
GDRs in bearer form are designed for use outside the United States.
These securities may be purchased through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by the issuer of the
underlying security and a depositary, whereas a depositary may establish an
unsponsored facility without participation by the issuer of the deposited
security. Holders of unsponsored depositary receipts generally bear all the
costs of such facilities and the depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of such receipts in respect of the deposited securities.
<PAGE>
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES.
The Fund may invest in obligations issued or guaranteed by one or more foreign
governments or any of their political subdivisions, agencies or
instrumentalities that are determined by the Adviser to be of comparable quality
to the other obligations in which the Fund may invest. Such securities also
include debt obligations of supranational entities. Supranational entities
include international organizations designated or supported by governmental
entities to promote economic reconstruction or development and international
banking institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the World Bank), the
European Coal and Steel Community, the Asian Development Bank and the
InterAmerican Development Bank.
STANDARD & POOR'S DEPOSITARY RECEIPTS AND DIAMONDS. The Fund may
invest in Standard & Poor's Depositary Receipts ("SPDRs"). SPDRs are units of
beneficial interest in an investment trust sponsored by a wholly-owned
subsidiary of the American Stock Exchange, Inc. (the "Exchange") which represent
proportionate undivided interests in a portfolio of securities consisting of
substantially all of the common stocks, in substantially the same weighting, as
the component stocks of the Standard & Poor's 500 Stock Index (the "S&P 500
Index"). SPDRs are listed on the Exchange and traded in the secondary market on
a per-SPDR basis.
The Fund also may invest in DIAMONDS. DIAMONDS are units of beneficial
interest in an investment trust representing proportionate undivided interests
in a portfolio of securities consisting of all the component common stocks of
the Dow Jones Industrial Average (the "DJIA"). DIAMONDS are listed on the
Exchange and may be traded in the secondary market on a per-DIAMONDS basis.
SPDRs are designed to provide investment results that generally
correspond to the price and yield performance of the component common stocks of
the S&P 500 Index. DIAMONDS are designed to provide investors with investment
results that generally correspond to the price and yield performance of the
component common stocks of the DJIA. The value of both SPDRs and DIAMONDS are
subject to change as the values of their respective component common stocks
fluctuate according to the volatility of the market. Investments in SPDRs and
DIAMONDS involve certain inherent risks generally associated with investments in
a broadly based portfolio of common stocks, including the risk that the general
level of stock prices may decline, thereby adversely affecting the value of each
unit of SPDRs and/or DIAMONDS invested in by the Fund. Moreover, the Fund's
investment in SPDRs and/or DIAMONDS may not exactly match the performance of a
direct investment in the respective indices to which they are intended to
correspond. Additionally, the respective investment trusts may not fully
replicate the performance of their respective benchmark indices due to the
temporary unavailability of certain index securities in the secondary market or
due to other extraordinary circumstances, such as discrepancies between each of
the investment trusts and the indices with respect to the weighting of
securities or the number of, for example, larger capitalized stocks held by an
index and each of the investment trusts.
ILLIQUID SECURITIES. The Fund may invest up to 15% of the value of its
net assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Fund's investment objective.
These securities may include securities that are not readily marketable, such as
securities that are subject to legal or contractual restrictions on resale,
repurchase agreements providing for settlement in more than seven days after
notice, and certain privately negotiated, non-exchange traded options and
securities used to cover such options. As to these securities, the Fund is
subject to a risk that should the Fund desire to sell them when a ready buyer is
not available at a price the Fund deems representative of their value, the value
of the Fund's net assets could be adversely affected.
CORPORATE DEBT SECURITIES. The Fund may invest in corporate debt
securities, which include corporate bonds, debentures, notes and other similar
instruments. Debt securities may be acquired with warrants attached. Corporate
income-producing securities also may include forms of preferred or preference
fixed, floating or variable, and may vary inversely with respect to a reference
rate. The rate of return or return of principal on some debt obligations may be
linked or indexed to the level of exchange rates between the U.S. dollar and a
foreign currency or currencies.
Variable and floating rate securities provide for a periodic
adjustment in the interest rate paid on the interest rate paid on the
obligations. The terms of such obligations may provide that interest rates are
adjusted periodically based upon an interest rate adjustment index as provided
in the respective obligations. The adjustment intervals may be regular, and
range from daily up to annually, or may be event based, such as based on a
change in the prime rate.
The Fund may invest in floating rate debt instruments ("floaters").
The interest rate on a floater is a variable rate which is tied to another
interest rate, such as a money-market index or Treasury bill rate. The interest
rate on a floater resets periodically, typically every six months. Because of
the interest rate reset feature, floaters provide the Fund with a certain degree
of protection against rises in interest rates, although the Fund will
participate in any declines in interest rates as well.
The Fund also may invest in inverse floating rate debt instruments
("inverse floaters"). The interest rate on an inverse floater resets in the
opposite direction from the market rate of interest to which the inverse floater
is indexed. An inverse floating rate security may exhibit greater price
volatility than a fixed rate obligation of similar credit quality.
MONEY MARKET INSTRUMENTS. In an attempt to respond to adverse market,
economic, political or other conditions, the Fund may take a temporary defensive
position that is inconsistent with its principal investment strategies and
invest some or all of its assets in money market instruments, including U.S.
Government securities, repurchase agreements, bank obligations and commercial
paper. The Fund also may purchase money market instruments when it has cash
reserves or in anticipation of taking a market position.
INVESTMENT TECHNIQUES
In addition to the principal investment strategies discussed in the
Fund's Prospectus, the Fund also may engage in the investment techniques
described below.
LEVERAGE. Leveraging (that is, buying securities using borrowed money)
exaggerates the effect on net asset value of any increase or decrease in the
market value of the Fund's portfolio. These borrowings will be subject to
interest costs which may or may not be recovered by appreciation of the
securities purchased; in certain cases, interest costs may exceed the return
received on the securities purchased. For borrowings for investment purposes,
the 1940 Act requires the Fund to maintain continuous asset coverage (that is,
total assets including borrowings, less liabilities exclusive of borrowings) of
300% of the amount borrowed. If the required coverage should decline as a result
of market fluctuations or other reasons, the Fund may be required to sell some
of its portfolio holdings within three days to reduce the amount of its
borrowings and restore the 300% asset coverage, even though it may be
disadvantageous from an investment standpoint to sell securities at that time.
The Fund also may be required to maintain minimum average balances in connection
with such borrowing or pay a commitment or other fee to maintain a line of
credit; either of these requirements would increase the cost of borrowing over
the stated interest rate.
The Fund may enter into reverse repurchase agreements with banks,
brokers or dealers. This form of borrowing involves the transfer by the Fund of
an underlying debt instrument in return for cash proceeds based on a percentage
of the value of the security. The Fund retains the right to receive interest and
principal payments on the security. At an agreed upon future date, the Fund
repurchases the security at principal plus accrued interest. Except for these
transactions, the Fund's borrowings generally will be unsecured.
SHORT-SELLING. In these transactions, the Fund sells a security it
does not own in anticipation of a decline in the market value of the security.
To complete the transaction, the Fund must borrow the security to make delivery
to the buyer. The Fund is obligated to replace the security borrowed by
purchasing it subsequently at the market price at the time of replacement. The
price at such time may be more or less than the price at which the security was
sold by the Fund, which would result in a loss or gain, respectively. The Fund
also may make short sales "against the box," in which the Fund enters into a
short sale of a security it owns. The Fund will not sell securities sold short
if, after effect is given to any such short sale, the total market value of all
securities sold short would exceed 25% of the value of the Fund's net assets.
Until the Fund closes its short position or replaces the borrowed
security, it will: (a) segregate permissible liquid assets in an amount which,
together with the amount deposited with the broker as collateral, always equals
the current value of the security sold short; or (b) otherwise cover its short
position.
DERIVATIVES. The Fund may invest in, or enter into, derivatives, such
as options and futures, for a variety of reasons, including to hedge certain
market risks, to provide a substitute for purchasing or selling particular
securities or to increase potential income gain. Derivatives may provide a
cheaper, quicker or more specifically focused way for the Fund to invest than
"traditional" securities would.
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular derivative and the
portfolio as a whole. Derivatives permit the Fund to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as the Fund can increase or decrease the level of
risk, or change the character of the risk, of its portfolio by making
investments in specific securities.
However, derivatives may entail investment exposures that are greater
than their cost would suggest, meaning that a small investment in derivatives
could have a large potential impact on the Fund's performance.
If the Fund invests in derivatives at inopportune times or judges
market conditions incorrectly, such investments may lower the Fund's return or
result in a loss. The Fund also could experience losses if its derivatives were
poorly correlated with its other investments, or if the Fund were unable to
liquidate its position because of an illiquid secondary market. The market for
many derivatives is, or suddenly can become, illiquid. Changes in liquidity may
result in significant, rapid and unpredictable changes in the prices for
derivatives.
Although neither the Company nor the Fund will be a commodity pool,
certain derivatives subject the Fund to the rules of the Commodity Futures
Trading Commission which limit the extent to which the Fund can invest in such
derivatives. The Fund may invest in futures contracts and options with respect
thereto for hedging purposes without limit. However, the Fund may not invest in
such contracts and options for other purposes if the sum of the amount of
initial margin deposits and premiums paid for unexpired options with respect to
such contracts, other than for bona fide hedging purposes, exceeds 5% of the
liquidation value of the Fund's assets, after taking into account unrealized
profits and unrealized losses on such contracts and options; provided, however,
that in the case of an option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in calculating the 5% limitation.
The Fund may purchase call and put options and write (i.e., sell)
covered call and put option contracts. When required by the Securities and
Exchange Commission, the Fund will segregate permissible liquid assets to cover
its obligations relating to its purchase of derivatives.
<PAGE>
To maintain this required cover, the Fund may have to sell portfolio securities
at disadvantageous prices or times since it may not be possible to liquidate a
derivative position at a reasonable price.
Derivatives may be purchased on established exchanges or through
privately negotiated transactions referred to as over-the-counter derivatives.
Exchange-traded derivatives generally are guaranteed by the clearing agency
which is the issuer or counterparty to such derivatives. This guarantee usually
is supported by a daily payment system (i.e., variation margin requirements)
operated by the clearing agency in order to reduce overall credit risk. As a
result, unless the clearing agency defaults, there is relatively little
counterparty credit risk associated with derivatives purchased on an exchange.
By contrast, no clearing agency guarantees over-the-counter derivatives.
Therefore, each party to an over-the-counter derivative bears the risk that the
counterparty will default. Accordingly, the Adviser will consider the
creditworthiness of counterparties to over-the-counter derivatives in the same
manner as it would review the credit quality of a security to be purchased by
the Fund. Over-the-counter derivatives are less liquid than exchange-traded
derivatives since the other party to the transaction may be the only investor
with sufficient understanding of the derivative to be interested in bidding for
it.
FUTURES TRANSACTIONS--IN GENERAL. The Fund may enter into futures contracts in
U.S. domestic markets, such as the Chicago Board of Trade and the International
Monetary Market of the Chicago Mercantile Exchange, or on exchanges located
outside the United States, such as the London International Financial Futures
Exchange, the Deutsche Termine Borse and the Sydney Futures Exchange Limited.
Foreign markets may offer advantages such as trading opportunities or arbitrage
possibilities not available in the United States. Foreign markets, however, may
have greater risk potential than domestic markets. For example, some foreign
exchanges are principal markets so that no common clearing facility exists and
an investor may look only to the broker for performance of the contract. In
addition, any profits that the Fund might realize in trading could be eliminated
by adverse changes in the exchange rate, or the Fund could incur losses as a
result of those changes. Transactions on foreign exchanges may include both
commodities which are traded on domestic exchanges and those which are not.
Unlike trading on domestic commodity exchanges, trading on foreign commodity
exchanges is not regulated by the Commodity Futures Trading Commission.
Engaging in these transactions involves risk of loss to the Fund which
could adversely affect the value of the Fund's net assets. Although the Fund
intends to purchase or sell futures contracts only if there is an active market
for such contracts, no assurance can be given that a liquid market will exist
for any particular contract at any particular time. Many futures exchanges and
boards of trade limit the amount of fluctuation permitted in futures contract
prices during a single trading day. Once the daily limit has been reached in a
particular contract, no trades may be made that day at a price beyond that limit
or trading may be suspended for specified periods during the trading day.
Futures contract prices could move to the limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of futures
positions and potentially subjecting the Fund to substantial losses.
<PAGE>
Successful use of futures by the Fund also is subject to the Adviser's
ability to predict correctly movements in the direction of the relevant market
and, to the extent the transaction is entered into for hedging purposes, to
ascertain the appropriate correlation between the transaction being hedged and
the price movements of the futures contract. For example, if the Fund uses
futures to hedge against the possibility of a decline in the market value of
securities held in its portfolio and the prices of such securities instead
increase, the Fund will lose part or all of the benefit of the increased value
of securities which it has hedged because it will have offsetting losses in its
futures positions. Furthermore, if in such circumstances the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. The Fund may have to sell such securities at a time when it may be
disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities
and Exchange Commission, the Fund may be required to segregate permissible
liquid assets in connection with its commodities transactions in an amount
generally equal to the value of the underlying commodity. The segregation of
such assets will have the effect of limiting the Fund's ability otherwise to
invest those assets.
SPECIFIC FUTURES TRANSACTIONS. The Fund may purchase and sell stock index
futures contracts. A stock index future obligates the Fund to pay or receive an
amount of cash equal to a fixed dollar amount specified in the futures contract
multiplied by the difference between the settlement price of the contract on the
contract's last trading day and the value of the index based on the stock prices
of the securities that comprise it at the opening of trading in such securities
on the next business day.
The Fund may purchase and sell currency futures. A foreign currency
future obligates the Fund to purchase or sell an amount of a specific currency
at a future date at a specific price.
OPTIONS--IN GENERAL. The Fund may purchase and write (i.e., sell) call or put
options with respect to specific securities. A call option gives the purchaser
of the option the right to buy, and obligates the writer to sell, the underlying
security or securities at the exercise price at any time during the option
period, or at a specific date. Conversely, a put option gives the purchaser of
the option the right to sell, and obligates the writer to buy, the underlying
security or securities at the exercise price at any time during the option
period.
A covered call option written by the Fund is a call option with
respect to which the Fund owns the underlying security or otherwise covers the
transaction by segregating cash or other securities. A put option written by the
Fund is covered when, among other things, cash or liquid securities having a
value equal to or greater than the exercise price of the option are segregated
to fulfill the obligation undertaken. The principal reason for writing covered
call and put options is to realize, through the receipt of premiums, a greater
return than would be realized on the underlying securities alone. The Fund
receives a premium from writing covered call or put options which it retains
whether or not the option is exercised.
There is no assurance that sufficient trading interest to create a
liquid secondary market on a securities exchange will exist for any particular
option or at any particular time, and for some options no such secondary market
may exist. A liquid secondary market in an option may cease to exist for a
variety of reasons. In the past, for example, higher than anticipated trading
activity or order flow, or other unforeseen events, at times have rendered
certain of the clearing facilities inadequate and resulted in the institution of
special procedures, such as trading rotations, restrictions on certain types of
orders or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. If, as a
covered call option writer, the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise or it otherwise covers its position.
SPECIFIC OPTIONS TRANSACTIONS. The Fund may purchase and sell call and put
options in respect of specific securities (or groups or "baskets" of specific
securities) or stock indices listed on national securities exchanges or traded
in the over-the-counter market. An option on a stock index is similar to an
option in respect of specific securities, except that settlement does not occur
by delivery of the securities comprising the index. Instead, the option holder
receives an amount of cash if the closing level of the stock index upon which
the option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option. Thus, the effectiveness of
purchasing or writing stock index options will depend upon price movements in
the level of the index rather than the price of a particular stock.
The Fund may purchase and sell call and put options on foreign
currency. These options convey the right to buy or sell the underlying currency
at a price which is expected to be lower or higher than the spot price of the
currency at the time the option is exercised or expires.
Successful use by the Fund of options will be subject to the Adviser's
ability to predict correctly movements in the prices of individual stocks, the
stock market generally, foreign currencies or interest rates. To the extent such
predictions are incorrect, the Fund may incur losses.
SWAP AGREEMENTS. The Fund may enter into swap agreements in an attempt to obtain
a particular return when it is considered desirable to do so, possibly at a
lower cost than if the Fund had invested directly in the asset that yielded the
desired return. Swap agreements are two-party contracts entered into primarily
by institutional investors for periods ranging from a few weeks to more than a
year. In a standard swap transaction, two parties agree to exchange the returns
(or differentials in rates of return) earned or realized on particular
predetermined investments or instruments, which may be adjusted for an interest
factor. The gross returns to be exchanged or "swapped" between the parties are
generally calculated with respect to a "notional amount," i.e., the return on or
increase in value of a particular dollar amount invested at a particular
interest rate, or in a "basket" of securities representing a particular index.
The Fund may purchase cash-settled options on equity index swaps in
pursuit of its investment objective. Equity index swaps involve the exchange by
the Fund with another party of cash flows based upon the performance of an index
or a portion of an index of securities which usually includes dividends. A
cash-settled option on a swap gives the purchaser the right, but not the
obligation, in return for the premium paid, to receive an amount of cash equal
to the value of the underlying swap as of the exercise date. These options
typically are purchased in privately negotiated transactions from financial
institutions, including securities brokerage firms.
Most swap agreements entered into by the Fund would calculate the
obligations of the parties to the agreement on a "net basis." Consequently, the
Fund's current obligations (or rights) under a swap agreement generally will be
equal only to the net amount to be paid or received under the agreement based on
the relative values of the positions held by each party to the agreement (the
"net amount"). The risk of loss with respect to swaps is limited to the net
amount of interest payments that the Fund is contractually obligated to make. If
the other party to a swap defaults, the Fund's risk of loss consists of the net
amount of payments that the Fund contractually is entitled to receive.
FUTURE DEVELOPMENTS. The Fund may take advantage of opportunities in
the area of options and futures contracts and options on futures contracts and
any other derivatives which are not presently contemplated for use by the Fund
or which are not currently available but which may be developed, to the extent
such opportunities are both consistent with the Fund's investment objective and
legally permissible for the Fund. Before entering into such transactions or
making any such investment, the Fund will provide appropriate disclosure in its
Prospectus or Statement of Additional Information.
FORWARD COMMITMENTS. The Fund may purchase securities on a forward
commitment or when-issued basis, which means that delivery and payment take
place a number of days after the date of the commitment to purchase. The payment
obligation and the interest rate receivable on a forward commitment or
when-issued security are fixed when the Fund enters into the commitment but the
Fund does not make a payment until it receives delivery from the counterparty.
The Fund will commit to purchase such securities only with the intention of
actually acquiring the securities, but the Fund may sell these securities before
the settlement date if it is deemed advisable. The Fund will segregate
permissible liquid assets at least equal at all times to the amount of the
Fund's purchase commitments.
Securities purchased on a forward commitment or when-issued basis are
subject to changes in value (generally changing in the same way, i.e.,
appreciating when interest rates decline and depreciating when interest rates
rise) based upon the public's perception of the creditworthiness of the issuer
and changes, real or anticipated, in the level of interest rates. Securities
purchased on a forward commitment or when-issued basis may expose the Fund to
risks because they may experience such fluctuations prior to their actual
delivery. Purchasing securities on a when-issued basis can involve the
additional risk that the yield available in the market when the delivery takes
place actually may be higher than that obtained in the transaction itself.
Purchasing securities on a forward commitment or when-issued basis when the Fund
is fully or almost fully invested may result in greater potential fluctuation in
the value of the Fund's net assets and its net asset value per share.
<PAGE>
LENDING PORTFOLIO SECURITIES. The Fund may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to borrow
securities to complete certain transactions. In connection with such loans, the
Fund continues to be entitled to payments in amounts equal to the dividends,
interest or other distributions payable on the loaned securities which affords
the Fund an opportunity to earn interest on the amount of the loan and at the
same time to earn income on the loaned securities' collateral. Loans of
portfolio securities may not exceed 33-1/3% of the value of the Fund's total
assets, and the Fund will receive collateral consisting of cash, U.S. Government
securities or irrevocable letters of credit which will be maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities. Such loans are terminable by the Fund at any time upon
specified notice. The Fund might experience risk of loss if the institution with
which it has engaged in a portfolio loan transaction breaches its agreement with
the Fund. In connection with its securities lending transactions, the Fund may
return to the borrower or a third party which is unaffiliated with the Fund, and
which is acting as a "placing broker," a part of the interest earned from the
investment of collateral received for securities loaned.
FOREIGN CURRENCY TRANSACTIONS. The Fund may enter into foreign
currency transactions for a variety of purposes, including: to fix in U.S.
dollars, between trade and settlement date, the value of a security the Fund has
agreed to buy or sell; to hedge the U.S. dollar value of securities the Fund
already owns, particularly if it expects a decrease in the value of the currency
in which the foreign security is denominated; or to gain exposure to the foreign
currency in an attempt to realize gains.
Foreign currency transactions may involve, for example, the Fund's
purchase of foreign currencies for U.S. dollars or the maintenance of short
positions in foreign currencies, which would involve the Fund agreeing to
exchange an amount of a currency it did not currently own for another currency
at a future date in anticipation of a decline in the value of the currency sold
relative to the currency the Fund contracted to receive in the exchange. The
Fund's success in these transactions will depend principally on the Adviser's
ability to predict accurately the future exchange rates between foreign
currencies and the U.S. dollar.
Currency exchange rates may fluctuate significantly over short periods
of time. They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of investments in different
countries, actual or perceived changes in interest rates and other complex
factors, as seen from an international perspective. Currency exchange rates also
can be affected unpredictably by intervention by U.S. or foreign governments or
central banks, or the failure to intervene, or by currency controls or political
developments in the United States or abroad.
INVESTMENT RISKS
FOREIGN SECURITIES. Foreign securities markets generally are not as
developed or efficient as those in the United States. Securities of some foreign
issuers are less liquid and more volatile than securities of comparable U.S.
issuers. Similarly, volume and liquidity in most foreign securities markets are
less than in the United States and, at times, volatility of price can be greater
than in the United States.
<PAGE>
Because evidences of ownership of foreign securities usually are held
outside the United States, the Fund's investment in such securities will be
subject to additional risks which include possible adverse political and
economic developments, seizure or nationalization of foreign deposits and
adoption of governmental restrictions which might adversely affect or restrict
the payment of principal and interest on the foreign securities to investors
located outside the country of the issuer, whether from currency blockage or
otherwise. Moreover, foreign securities held by the Fund may trade on days when
the Fund does not calculate its net asset value and thus affect the Fund's net
asset value on days when investors have no access to the Fund.
Developing countries have economic structures that are generally less
diverse and mature, and political systems that are less stable, than those of
developed countries. The markets of developing countries may be more volatile
than the markets of more mature economies; however, such markets may provide
higher rates of return to investors. Many developing countries providing
investment opportunities for the Fund have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain of these countries.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in U.S.
dollars may be affected favorably or unfavorably by changes in currency rates
and exchange control regulations.
FIXED-INCOME SECURITIES. The Fund may invest, to a limited extent, in
fixed-income securities, including those rated below investment grade by Moody's
Investors Service, Inc. ("Moody's"), Standard & Poor's Ratings Group ("S&P"),
Fitch IBCA, Inc. ("Fitch") or Duff & Phelps Credit Rating Co. ("Duff," and
together with S&P, Moody's and Fitch, the "Rating Agencies"). Even though
interest-bearing securities are investments which promise a stable stream of
income, the prices of such securities generally are inversely affected by
changes in interest rates and, therefore, are subject to the risk of market
price fluctuations. The values of fixed-income securities also may be affected
by changes in the credit rating or financial condition of the issuer. Certain
securities that may be purchased by the Fund, such as those rated Baa or lower
by Moody's and BBB or lower by S&P, Fitch and Duff, may be subject to such risk
with respect to the issuing entity and to greater market fluctuations than
certain lower yielding, higher rated fixed-income securities. Once the rating of
a portfolio security has been changed, the Fund will consider all circumstances
deemed relevant in determining whether to continue to hold the security.
LOWER RATED SECURITIES. The Fund may invest in higher yielding (and,
therefore, higher risk) convertible securities and, to a limited extent, in debt
securities (junk bonds). These securities include those rated below Baa by
Moody's and below BBB by S&P, Fitch and Duff. These securities may be subject to
certain risks and to greater market fluctuations than lower yielding investment
grade securities. These securities are considered by the Rating Agencies to be,
on balance, predominantly speculative as to the payment of principal and
interest and generally involve more credit risk than investment grade
securities. The retail market for these securities may be less liquid than that
of investment grade securities. Adverse market conditions could make it
difficult for the Fund to sell these securities or could result in the Fund
obtaining lower prices for these securities which would adversely affect the
Fund's net asset value. See "Appendix" for a general description of the Rating
Agencies' ratings. Although ratings may be useful in evaluating the safety of
interest and principal payments, they do not evaluate the market value risk of
these securities. The Fund will rely on the Adviser's judgment, analysis and
experience in evaluating the creditworthiness of an issuer.
Companies that issue certain of these securities often are highly
leveraged and may not have available to them more traditional methods of
financing. Therefore, the risk associated with acquiring the securities of such
issuers generally is greater than is the case with the higher rated securities.
For example, during an economic downturn or a sustained period of rising
interest rates, highly leveraged issuers of these securities may not have
sufficient revenues to meet their interest payment obligations. The issuer's
ability to service its debt obligations also may be affected adversely by
specific corporate developments, forecasts, or the unavailability of additional
financing. The risk of loss because of default by the issuer is significantly
greater for the holders of these securities because such securities generally
are unsecured and often are subordinated to other creditors of the issuer.
Because there is no established retail secondary market for many of
these securities, the Fund may be able to sell such securities only to a limited
number of dealers or institutional investors. To the extent a secondary trading
market for these securities does exist, it generally is not as liquid as the
secondary market for higher rated securities. The lack of a liquid secondary
market may have an adverse impact on market price and yield and the Fund's
ability to dispose of particular issues when necessary to meet the Fund's
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the issuer. The lack of a liquid
secondary market for certain securities also may make it more difficult for the
Fund to obtain accurate market quotations for purposes of valuing the Fund's
portfolio and calculating its net asset value. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of these securities. In such cases, judgment may play a
greater role in valuation because less reliable, objective data may be
available.
These securities may be particularly susceptible to economic
downturns. It is likely that an economic recession could disrupt severely the
market for such securities and may have an adverse impact on the value of such
securities. In addition, it is likely that any such economic downturn could
adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon and increase the incidence of default for
such securities.
The Fund may acquire these securities during an initial offering. Such
securities may involve special risks because they are new issues. The Fund has
no arrangement with any persons concerning the acquisition of such securities,
and the Adviser will review carefully the credit and other characteristics
pertinent to such new issues.
NON-DIVERSIFIED STATUS. The Fund's classification as a
"non-diversified" investment company means that the proportion of the Fund's
assets that may be invested in the securities of a single issuer is not limited
by the 1940 Act. A "diversified" investment company is required by the 1940 Act
generally, with respect to 75% of its total assets, to invest not more than 5%
of such assets in the securities of a single issuer. Since a relatively high
percentage of the Fund's assets may be invested in the securities of a limited
number of issuers, some of which may be in the same industry, the Fund's
portfolio may be more sensitive to changes in the market value of a single
issuer or industry. However, to meet Federal tax requirements, at the close of
each quarter the Fund may not have more than 25% of its total assets invested in
any one issuer and, with respect to 50% of its total assets, not more than 5% of
its total assets invested in any one issuer. These limitations do not apply to
U.S. Government securities.
SIMULTANEOUS INVESTMENTS. Investment decisions for the Fund are made
independently from those of the other funds advised by the Adviser. If, however,
such other funds desire to invest in, or dispose of, the same securities as the
Fund, available investments or opportunities for sales will be allocated
equitably to each fund. In some cases, this procedure may adversely affect the
size of the position obtained for or disposed of by the Fund or the price paid
or received by the Fund.
INVESTMENT RESTRICTIONS
The Fund's investment objective is a fundamental policy, which cannot
be changed without approval by the holders of a majority (as defined in the 1940
Act) of the Fund's outstanding voting shares. In addition, the Fund has adopted
investment restrictions numbered 1 through 7 as fundamental policies. The Fund
has adopted investment restrictions numbered 8 through 10 as non-fundamental
policies, which may be changed by vote of a majority of the Company's Board
members at any time. The Fund may not:
1. Invest more than 25% of the value of its total assets in the
securities of issuers in any single industry, provided that there shall be no
limitation on the purchase of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
2. Invest in commodities, except that the Fund may purchase and sell
options, forward contracts, futures contracts, including those relating to
indices, and options on futures contracts or indices.
3. Purchase, hold or deal in real estate, or oil, gas or other mineral
leases or exploration or development programs, but the Fund may purchase and
sell securities that are secured by real estate or issued by companies that
invest or deal in real estate or real estate investment trusts.
4. Borrow money, except to the extent permitted under the 1940 Act
(which currently limits borrowing to no more than 33-1/3% of the value of the
Fund's total assets). For purposes of this Investment Restriction, the entry
into options, forward contracts, futures contracts, including those relating to
indices, and options on futures contracts or indices shall not constitute
borrowing.
5. Lend any securities or make loans to others, if, as a result, more
than 33-1/3% of its total assets would be lent to others, except that this
limitation does not apply to the purchase of debt obligations and the entry into
repurchase agreements. However, the Fund may lend its portfolio securities in an
amount not to exceed 33-1/3% of the value of its total assets. Any loans of
portfolio securities will be made according to guidelines established by the
Securities and Exchange Commission and the Company's Board.
6. Act as an underwriter of securities of other issuers, except to the
extent the Fund may be deemed an underwriter under the Securities Act of 1933,
as amended, by virtue of disposing of portfolio securities.
7. Issue any senior security (as such term is defined in Section 18(f)
of the 1940 Act), except to the extent the activities permitted in Investment
Restriction Nos. 4, 6, 10 and 11 may be deemed to give rise to a senior
security.
8. Purchase securities on margin, but the Fund may make margin
deposits in connection with transactions in options, forward contracts, futures
contracts, including those relating to indices, and options on futures contracts
or indices.
9. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
purchase of securities on a when- issued or forward commitment basis and the
deposit of assets in escrow in connection with writing covered put and call
options and collateral and initial or variation margin arrangements with respect
to options, forward contracts, futures contracts, including those relating to
indices, and options on futures contracts or indices.
10. Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are illiquid, if, in
the aggregate, more than 15% of the value of the Fund's net assets would be so
invested.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from a change in values or assets will not
constitute a violation of such restriction. With respect to Investment
Restriction No. 4, however, if borrowings exceed 33-1/3% of the value of the
Fund's total assets as a result of a change in values or assets, the Fund must
take steps to reduce such borrowings at least to the extent of such excess.
MANAGEMENT OF THE COMPANY
The Company's Board is responsible for the management and supervision
of the Fund. The Board approves all significant agreements with those companies
that furnish services to the Fund. These companies are as follows:
MetaMarkets Investments LLC........................ Investment Adviser
BISYS Fund Services Ohio, Inc. .................... Administrator and Transfer
Agent
BISYS Fund Services Limited Partnership ........... Distributor
Investors Bank & Trust Company .................... Custodian
<PAGE>
Board members and officers of the Company, together with information
as to their principal business occupations during at least the last five years,
are shown below. Each Board member who is an "interested person" of the Company,
as defined in the 1940 Act, is indicated by an asterisk.
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION(S) HELD PRINCIPAL OCCUPATION(S)
AND AGE WITH COMPANY DURING PAST 5 YEARS
- ------------------------- ------------------------------- -------------------
<S> <C> <C>
*Donald L. Luskin Board Member, President and Chief Executive
400 Oyster Point Blvd., Suite 414 President and Treasurer Officer of MetaMarkets.com,
South San Francisco, CA 94080 Inc. and the Adviser since
Age: 45 inception. From 1997 to 1998,
Mr. Luskin was Chief Executive
Officer of Barclays Global
Mutual Funds and, from 1996 to
1997, he was Vice Chairman of
Barclays Global Investors
("Barclays"), one of the world's
largest investment management
organizations. From 1987 to
1996, Mr. Luskin served in
various other executive
capacities for Barclays and its
predecessors. Prior thereto, he
served as a director and Senior
Vice President of Jefferies &
Company, Inc. ("Jefferies &
Co."), an investment bank and
registered broker-dealer, where
he created the POSIT crossing
network, currently operated by
the Investment Technology Group.
Formerly, Mr. Luskin was a hedge
fund manager and member of the
Chicago Board Options Exchange
and the Pacific Stock Exchange.
He is the author of the books,
"Index Options and Futures: The
Complete Guide," and editor of
"Portfolio Insurance: A Guide to
Dynamic Hedging."
Tracy G. Herrick Board Member Since 1981, President of
1150 University Avenue Tracy G. Herrick, Inc., an
Palo Alto, CA 94301 economic consulting firm, and
Age: 65 a director of Jefferies & Co.
Mr. Herrick also is a director
of Anderson Capital Management,
Inc., a registered investment
adviser, and of The Committee
For Monetary Research and
Education.
James E. Mitchell Board Member Director of Finance and
1550 Waverly Street Administration of the Lucile
Palo Alto, CA 94301 Packard Foundation for
Age: 57 Children's Health, a non-profit
foundation focusing on
children's health issues. From
1974 to 1990, Mr. Mitchell was
Chief Financial Officer of Lane
Publishing Co. and, from 1990 to
1998, he was Vice President of
Finance and Administration of
Sunset Publishing Corporation, a
subsidiary of Time Warner Inc.
George G. C. Parker Board Member Dean Witter Professor of
Graduate School of Business Finance and Management
Stanford University (Teaching), Associate Dean for
Stanford, CA 94305 Academic Affairs, Director of
Age: 60 the MBA Program and
Co-director of the Financial
Management Program at Stanford
University Graduate School of
Business. Professor Parker also
is a board member of Bailard,
Biehl and Kaiser, Inc., a
registered investment adviser,
Continental Airlines Inc. and
several investment companies in
the Dresdner/RCM Mutual Funds
complex.
James L. Smith Vice President and Since October 1996, an employee of BISYS Fund
3435 Stelzer Road Secretary Services, Inc., general partner of
Columbus, OH 43219 the Distributor, and an officer of
Age: 39 other investment companies
administered by the Administrator or
its affiliates. From October 1995 to October
1996, an employee of Davis, Graham & Stubbs.
Prior thereto, an employee of ALPS Mutual Fund
Services, Inc.
Alaina Metz Assistant Secretary An employee of BISYS Fund
3435 Stelzer Road, Services, Inc. and an officer of
Columbus, OH 43219 other investment companies
Age: 29 administered by the Administrator
or its affiliates.
</TABLE>
The Company has a standing nominating committee comprised of its Board
members who are not "interested persons" of the Company, as defined in the 1940
Act. The function of the nominating committee is to select and nominate all
candidates who are not "interested persons" of the Company for election to the
Company's Board.
The Company does not pay any remuneration to its officers and Board
members other than fees and expenses to those Board members who are not
directors, officers or employees of the Adviser or the Administrator or any of
their affiliates. The aggregate amount of compensation estimated to be paid to
each such Board member by the Company for the fiscal year ending June 30, 2000
is as follows:
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE PENSION OR RETIREMENT FROM FUND AND
NAME OF BOARD COMPENSATION FROM BENEFITS ACCRUED AS FUND COMPLEX
MEMBER COMPANY PART OF FUND EXPENSES PAID TO BOARD MEMBERS
- ------------------------------- ------------------ --------------------- ---------------------
<S> <C> <C> <C>
Tracy G. Herrick $2,700 -0- $2,700
James E. Mitchell $2,700 -0- $2,700
George G. C. Parker $2,700 -0- $2,700
</TABLE>
<PAGE>
MANAGEMENT ARRANGEMENTS
INVESTMENT ADVISER. MetaMarkets Investments LLC, located at 400 Oyster
Point Blvd., Suite 414, South San Francisco, California 94080, serves as the
Fund's investment adviser. The Adviser is wholly-owned by MetaMarkets.com, Inc.,
and Donald L. Luskin and H. Davis Nadig III each may be deemed a "control
person" of the Adviser as such term is defined in the 1940 Act by virtue of
their ownership of shares of MetaMarkets.com, Inc.
The Adviser provides investment advisory services pursuant to the
Investment Advisory Agreement (the "Agreement") dated July 20, 1999 with the
Company. The Agreement is subject to annual approval by (i) the Company's Board
or (ii) vote of a majority (as defined in the 1940 Act) of the outstanding
voting securities of the Fund, provided that in either event the continuance
also is approved by a majority of the Board members who are not "interested
persons" (as defined in the 1940 Act) of the Company or the Adviser, by vote
cast in person at a meeting called for the purpose of voting on such approval.
The Agreement was approved by the Company's sole shareholder on August 6, 1999.
The Agreement is terminable without penalty, on 60 days' notice, by the
Company's Board or by vote of the holders of a majority of the Fund's shares,
or, on not less than 90 days' notice, by the Adviser. The Agreement will
terminate automatically, as to the Fund, in the event of its assignment (as
defined in the 1940 Act).
Under the terms of the Agreement, the Company has agreed to pay the
Adviser a monthly fee at the annual rate set forth below as a percentage of the
Fund's average daily net assets:
AVERAGE DAILY NET ANNUAL RATE OF
ASSETS OF THE FUND ADVISORY FEE
- ------------------ ---------------
on the first $250 million 1.00%
on the next $500 million .75%
on assets in excess of $750 million .50%
From time to time, the Adviser may waive receipt of its fees and/or
voluntarily assume certain expenses of the Fund, which would have the effect of
lowering the overall expense ratio of the Fund and increasing yield to its
investors. The Fund will not pay the Adviser at a later time for any amounts it
may waive, nor will the Fund reimburse the Adviser for any amounts it may
assume.
ADMINISTRATOR. BISYS Fund Services Ohio, Inc., located at 3435 Stelzer
Road, Columbus, Ohio 43219, a wholly-owned subsidiary of The BISYS Group, Inc.,
provides certain administrative services pursuant to the Administration
Agreement (the "Administration Agreement") dated July 20, 1999 with the Company.
Under the Administration Agreement with the Company, the Administrator generally
assists in all aspects of the Fund's operations, other than providing investment
advice, subject to the overall authority of the Company's Board in accordance
with Massachusetts law. In connection therewith, the Administrator provides the
Fund with office facilities, personnel, and certain clerical and bookkeeping
services (e.g., preparation of reports to shareholders and the Securities and
Exchange Commission and filing of Federal, state and local income tax returns)
that are not being furnished by the Fund's custodian. The Administration
Agreement will continue until July 20, 2004 and thereafter is subject to annual
approval by (i) the Company's Board or (ii) vote of a majority (as defined in
the 1940 Act) of the outstanding voting securities of the Fund, provided that in
either event the continuance also is approved by a majority of the Board members
who are not "interested persons" (as defined in the 1940 Act) of the Company or
the Administrator, by vote cast in person at a meeting called for the purpose of
voting such approval. The Administration Agreement was approved by the Company's
Board, including a majority of the Board members who are not "interested
persons" of any party to the Administration Agreement, at a meeting held on July
20, 1999. The Administration Agreement is terminable without penalty, at any
time if for cause, by the Company's Board or by vote of the holders of a
majority of the Fund's outstanding voting securities, or, on not less than 90
days' notice, by the Administrator. The Administration Agreement will terminate
automatically in the event of its assignment (as defined in the 1940 Act).
As compensation for the Administrator's services, the Company has
agreed to pay the Administrator a monthly administration fee at the annual rate
set forth below as a percentage of the Fund's average daily net assets:
AVERAGE DAILY NET ANNUAL RATE OF
ASSETS OF THE FUND ADMINISTRATION FEE
- ------------------ -------------------
on the first $500 million .13%
on the next $250 million .10%
on the next $250 million .085%
on assets in excess of $1 billion .075%
The Company has agreed to pay the Administrator a minimum annual fee of $75,000
for the first year under the Administration Agreement, $162,500 for the second
year and $187,500 for years three, four and five.
DISTRIBUTOR. BISYS Fund Services Limited Partnership, located at 3435
Stelzer Road, Columbus, Ohio 43219, a wholly-owned subsidiary of The BISYS
Group, Inc., acts as the exclusive distributor of the Fund's shares on a best
efforts basis pursuant to a Distribution Agreement (the "Distribution
Agreement") dated July 20, 1999, with the Company. Shares are sold on a
continuous basis by the Distributor as agent, although the Distributor is not
obliged to sell any particular amount of shares.
DISTRIBUTION PLAN. Rule 12b-1 (the "Rule") adopted by the Securities
and Exchange Commission under the 1940 Act provides, among other things, that an
investment company may bear expenses of distributing its shares only pursuant to
a plan adopted in accordance with the Rule. The Company's Board has adopted such
a plan (the "Distribution Plan") pursuant to which the Fund pays the Distributor
for distribution-related services and shareholder servicing at an annual rate of
.25% of the value of the Fund's average daily net assets. Under the Distribution
Plan, the Distributor may make payments to certain financial institutions,
securities dealers and other industry professionals that have entered into
agreements with the Distributor ("Service Organizations") in respect of these
services. The Distributor determines the amounts to be paid to Service
Organizations. Service Organizations receive such fees in respect of the average
daily value of shares owned by their clients. From time to time, the Distributor
may defer or waive receipt of fees under the Distribution Plan while retaining
the ability to be paid by the Fund under the Distribution Plan thereafter. The
fees payable to the Distributor under the Distribution Plan for advertising,
marketing and distributing are payable without regard to actual expenses
incurred. The Company's Board believes that there is a reasonable likelihood
that the Distribution Plan will benefit the Fund and its shareholders.
A quarterly report of the amounts expended under the Distribution
Plan, and the purposes for which such expenditures were incurred, must be made
to the Board members for their review. In addition, the Distribution Plan
provides that it may not be amended to increase materially the costs which
shareholders may bear for distribution pursuant to the Distribution Plan without
shareholder approval and that other material amendments of the Distribution Plan
must be approved by the Company's Board, and by the Board members who are
neither "interested persons" (as defined in the 1940 Act) of the Company nor
have any direct or indirect financial interest in the operation of the
Distribution Plan or in the related Distribution Plan agreements, by vote cast
in person at a meeting called for the purpose of considering such amendments.
The Distribution Plan and related agreements are subject to annual approval by
such vote of the Board members cast in person at a meeting called for the
purpose of voting on the Distribution Plan. As to the Fund, the Distribution
Plan is terminable at any time by vote of a majority of the Board members who
are not "interested persons" and who have no direct or indirect financial
interest in the operation of the Distribution Plan or in the Distribution Plan
agreements or by vote of the holders of a majority of the Fund's outstanding
shares. As to the Fund, a Distribution Plan agreement is terminable without
penalty, at any time, by such vote of the Board members, upon not more than 60
days' written notice to the parties to such agreement or by vote of the holders
of a majority of the Fund's outstanding shares. A Distribution Plan agreement
will terminate automatically, as to the Fund, in the event of its assignment (as
defined in the 1940 Act).
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN. BISYS Fund
Services Ohio, Inc. is the Company's transfer and dividend disbursing agent (the
"Transfer Agent"). Under a transfer agency agreement with the Company, the
Transfer Agent arranges for the maintenance of shareholder account records for
the Fund, the handling of certain communications between shareholders and the
Fund and the payment of dividends and distributions payable by the Fund. For
these services, the Transfer Agent receives a monthly fee computed on the basis
of the number of shareholder accounts it maintains for the Fund during the
month, and is reimbursed for certain out-of-pocket expenses.
Investors Bank & Trust Company (the "Custodian") acts as custodian of
the Fund's investments. Under a custodian agreement with the Company, the
Custodian provides for the holding of the Fund's securities and the retention of
all necessary accounts and records. For its custody services, the Custodian
receives a monthly fee based on the market value of the Fund's assets held in
custody and receives certain securities transactions charges.
<PAGE>
EXPENSES. All expenses incurred in the operation of the Company are
borne by the Company, except to the extent specifically assumed by others. The
expenses borne by the Company include: taxes, interest, brokerage fees and
commissions, if any, fees of Board members who are not officers, directors,
employees or holders of 5% or more of the outstanding voting securities of the
Adviser or the Administrator or any of their affiliates, Securities and Exchange
Commission fees, state Blue Sky qualification fees, advisory and administration
fees, charges of custodians, transfer and dividend disbursing agents' fees,
certain insurance premiums, industry association fees, auditing and legal
expenses, costs of maintaining the Company's existence, costs of independent
pricing services, costs attributable to investor services (including, without
limitation, telephone and personnel expenses), costs of calculating the Fund's
net asset value, costs of shareholders' reports and corporate meetings, costs of
preparing and printing certain prospectuses and statements of additional
information, and any extraordinary expenses. Expenses attributable to the Fund
are charged against the assets of the Fund; other expenses of the Company are
allocated among its funds on the basis determined by the Company's Board
including, without limitation, proportionately in relation to the net assets of
each fund.
PURCHASE AND REDEMPTION OF SHARES
GENERAL PURCHASE INFORMATION. The minimum initial investment for the
Fund is $1,000, and subsequent investments must be at least $250. The minimum
initial investment is $100 for IRAs, and subsequent investments for IRAs must be
at least $50. For full-time or part-time employees of the Adviser or any of its
affiliates, the minimum initial investment is $500, and subsequent investments
must be at least $100. For full-time or part-time employees of the Adviser or
any of its affiliates who elect to have a portion of their pay directly
deposited into their Fund accounts, the minimum initial or subsequent investment
must be at least $50. The Adviser, its affiliates and Service Organizations may
impose initial or subsequent investment minimums which are higher or lower than
those specified above and may impose different minimums for different types of
accounts or purchase arrangements. In addition, purchases of shares made in
connection with certain shareholder privileges may have different minimum
investment requirements. The Company reserves the right to reject any purchase
order in whole or in part, including purchases made with foreign checks and
third party checks not originally made payable to the order of the investor.
Share certificates will not be issued.
REOPENING AN ACCOUNT. An investor may reopen an account with a minimum
investment of $500 without filing a new account application during the calendar
year the account is closed or during the following calendar year, provided the
information on the old account application is still applicable.
REDEMPTION COMMITMENT. The Fund has committed itself to pay in cash
all redemption requests by any shareholder of record, limited in amount during
any 90-day period to the lesser of $250,000 or 1% of the value of the Fund's net
assets at the beginning of such period. Such commitment is irrevocable without
the prior approval of the Securities and Exchange Commission. In the case of
requests for redemption in excess of such amount, the Company's Board reserves
the right to make payments in whole or in part in securities or other assets in
case of an emergency or any time a cash distribution would impair the liquidity
of the Fund to the detriment of the existing shareholders. In this event, the
securities would be valued in the same manner as the Fund is valued. If the
recipient sells such securities, brokerage charges would be incurred.
SUSPENSION OF REDEMPTIONS. The right of redemption may be suspended or
the date of payment postponed (a) during any period when the New York Stock
Exchange is closed (other than customary weekend and holiday closing), (b) when
trading in the markets the Fund normally utilizes is restricted, or when an
emergency exists as determined by the Securities and Exchange Commission so that
disposal of the Fund's investments or determination of its net asset value is
not reasonably practicable, or (c) for such other periods as the Securities and
Exchange Commission by order may permit to protect the Fund's shareholders.
DETERMINATION OF NET ASSET VALUE
GENERAL. Expenses and fees, including the advisory fee and fees paid
pursuant to the Distribution Plan, are accrued daily and taken into account for
the purpose of determining the net asset value of the Fund's shares.
The Fund's securities, including covered call options written by the
Fund, are valued at the last sale price on the securities exchange or national
securities market on which such securities primarily are traded. Securities not
listed on an exchange or national securities market, or securities in which
there were no transactions, are valued at the average of the most recent bid and
asked prices, except in the case of open short positions where the asked price
is used for valuation purposes. Bid price is used when no asked price is
available. Any assets or liabilities initially expressed in terms of foreign
currency will be translated into dollars at the midpoint of the New York
interbank market spot exchange rate as quoted on the day of such translation by
the Federal Reserve Bank of New York or if no such rate is quoted on such date,
at the exchange rate previously quoted by the Federal Reserve Bank of New York
or at such other quoted market exchange rate as may be determined to be
appropriate by the Adviser. Forward currency contracts will be valued at the
current cost of offsetting the contract. Debt securities maturing in 60 days or
less generally are carried at amortized cost, which approximates value, except
where to do so would not reflect accurately their fair value, in which case such
securities would be valued at their fair value as determined under the
supervision of the Company's Board. Any securities or other assets for which
recent market quotations are not readily available are valued at fair value as
determined in good faith by the Company's Board.
Restricted securities, as well as securities or other assets for which
market quotations are not readily available, or are not valued by a pricing
service approved by the Company's Board are valued at fair value as determined
in good faith by the Board. The Company's Board will review the method of
valuation on a current basis. In making their good faith valuation of restricted
securities, the Board members generally will take the following factors into
consideration: restricted securities which are, or are convertible into,
securities of the same class of securities for which a public market exists
usually will be valued at market value less the same percentage discount at
which purchased. This discount will be revised periodically by the Company's
Board if the Board members believe that it no longer reflects the value of the
restricted securities. Restricted securities not of the same class as securities
for which a public market exists usually will be valued initially at cost. Any
subsequent adjustment from cost will be based upon considerations deemed
relevant by the Company's Board.
SHAREHOLDER SERVICES AND PRIVILEGES
The services and privileges described under this heading may not be
available to clients of certain Service Organizations, and some Service
Organizations may impose certain conditions on their clients which are different
from those described in the Prospectus or this Statement of Additional
Information. Such investors should consult their Service Organization in this
regard.
EXCHANGE PRIVILEGE. The Exchange Privilege enables you to purchase, in
exchange for shares of the Fund, shares of another fund. The shares being
exchanged must have a current value of at least $500; furthermore, when
establishing a new account by exchange, the shares being exchanged must have a
value of at least the minimum initial investment required for the fund into
which the exchange is being made.
Shares will be exchanged at the next determined net asset value. No
fees currently are charged shareholders directly in connection with exchanges
although the Company reserves the right, upon not less than 60 days' written
notice, to charge shareholders a nominal administrative fee in accordance with
rules promulgated by the Securities and Exchange Commission. The Company
reserves the right to reject any exchange request in whole or in part. The
Exchange Privilege may be modified or terminated at any time upon notice to
shareholders.
The exchange of shares of one fund for shares of another is treated
for Federal income tax purposes as a sale of the shares given in exchange by the
shareholder and, therefore, an exchanging shareholder may realize a taxable gain
or loss.
AUTOMATIC INVESTMENT PLAN. The Automatic Investment Plan permits you
to purchase shares of the Fund (minimum initial investment of $250 and minimum
subsequent investments of $50 per transaction) at regular intervals selected by
you. Provided your bank or other financial institution allows automatic
withdrawals, shares may be purchased by transferring funds from the bank account
designated by you. At your option, the account designated will be debited in the
specified amount, and shares will be purchased, once a month, on either the
first or fifteenth day, or twice a month, on both days. Only an account
maintained at a domestic financial institution which is an Automated Clearing
House member may be so designated. This service enables you to make regularly
scheduled investments and may provide you with a convenient way to invest for
long-term financial goals. You should be aware, however, that periodic
investment plans do not guarantee a profit and will not protect an investor
against loss in a declining market. To establish an Automatic Investment Plan
account, you must check the appropriate box and supply the necessary information
on the account application. You may cancel your participation in the Automatic
Investment Plan or change the amount of purchase at any time by accessing the
Company's Web site at http://www.MetaMarkets.com and following the relevant
instructions, and your cancellation will be effective three business days
following receipt. The Company may modify or terminate the Automatic Investment
Plan at any time or charge a service fee. No such fee currently is contemplated.
DIRECTED DISTRIBUTION PLAN. The Directed Distribution Plan enables you
to invest automatically dividends and capital gain distributions, if any, paid
by the Fund in shares of another fund advised by the Adviser of which you are a
shareholder. Shares of the other fund will be purchased at the then-current net
asset value. Minimum subsequent investments do not apply. Investors desiring to
participate in the Directed Distribution Plan should check the appropriate box
and supply the necessary information on the account application. The Plan is
available only for existing accounts and may not be used to open new accounts.
The Company may modify or terminate the Directed Distribution Plan at any time
or charge a service fee. No such fee currently is contemplated.
PERFORMANCE INFORMATION
Average annual total return is calculated by determining the ending
redeemable value of an investment purchased with a hypothetical $1,000 payment
made at the beginning of the period (assuming the reinvestment of dividends and
distributions), dividing by the amount of the initial investment, taking the
"n"th root of the quotient (where "n" is the number of years in the period) and
subtracting 1 from the result.
Total return is calculated by subtracting the amount of the Fund's net
asset value per share at the beginning of a stated period from the net asset
value per share at the end of the period (after giving effect to the
reinvestment of dividends and distributions during the period), and dividing the
result by the net asset value per share at the beginning of the period.
From time to time, advertising materials for the Fund may refer to or
discuss current or past business, political, economic or financial conditions,
such as U.S. monetary or fiscal policies and actual or proposed tax legislation.
In addition, from time to time, advertising materials for the Fund may include
information concerning retirement and investing for retirement, average life
expectancy and pension and social security benefits. Comparative performance
information may be used from time to time in advertising or marketing the Fund's
shares, including data from Lipper Analytical Services, Inc., Morningstar, Inc.,
S&P 500 Index, Russell 2000 Index, EAFE Index, the Dow Jones Industrial Average,
CDA/Wiesenberger Investment Companies Service, Mutual Fund Values; Mutual Fund
Forecaster, Mutual Fund Investing and other industry publications.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended (the "Code"), if such
qualification is in the best interests of its shareholders. To qualify as a
regulated investment company, the Fund must pay out to its shareholders at least
90% of its net income (consisting of net investment income and net short-term
capital gain), and must meet certain asset diversification and other
requirements. Qualification as a regulated investment company relieves the Fund
from any liability for Federal income taxes to the extent its earnings are
distributed in accordance with the applicable provisions of the Code. If the
Fund did not qualify as a regulated investment company, it would be treated for
tax purposes as an ordinary corporation subject to Federal income tax. The term
"regulated investment company" does not imply the supervision of management or
investment practices or policies by any government agency.
Any dividend or distribution paid shortly after an investor's purchase
may have the effect of reducing the aggregate net asset value of his shares
below the cost of his investment. Such a distribution would be a return on
investment in an economic sense although taxable as stated in the Prospectus. In
addition, if a shareholder holds shares for six months or less and has received
a capital gain dividend with respect to such shares, any loss incurred on the
sale of such shares will be treated as a long-term capital loss to the extent of
the capital gain dividend received.
In general, depending upon the composition of the Fund's income, all
or a portion of the dividends paid by the Fund from net investment income may
qualify for the dividends received deduction allowable to qualifying U.S.
corporate shareholders ("dividends received deduction") to the extent the Fund's
income consists of dividends paid by U.S. corporations. However, Section 246(c)
of the Code generally provides that if a qualifying corporate shareholder has
disposed of Fund shares held for less than 46 days, which 46 days generally must
be during the 90-day period commencing 45 days before the shares become
ex-dividend, and has received a dividend from net investment income with respect
to such shares, the portion designated by the Fund as qualifying for the
dividends received deduction will not be eligible for such shareholder's
dividends received deduction. In addition, the Code provides other limitations
with respect to the ability of a qualifying corporate shareholder to claim the
dividends received deduction in connection with holding Fund shares.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gains and losses. However, a portion of the gain or loss
realized from the disposition of non-U.S. dollar denominated securities
(including debt instruments, certain financial futures and options, and certain
preferred stock) may be treated as ordinary income or loss under Section 988 of
the Code. Finally, all or a portion of the gain realized from engaging in
"conversion transactions" may be treated as ordinary income under Section 1258.
"Conversion transactions" are defined to include certain forward, futures,
option and "straddle" transactions, transactions marketed or sold to produce
capital gains, or transactions described in Treasury regulations to be issued in
the future.
Under Section 1256 of the Code, any gain or loss realized by the Fund
from certain financial futures and options transactions (other than those taxed
under Section 988 of the Code) will be treated as 60% long-term capital gain or
loss and 40% short-term capital gain or loss. Gain or loss will arise upon the
exercise or lapse of such futures and options as well as from closing
transactions. In addition, any such futures or options remaining unexercised at
the end of the Fund's taxable year will be treated as sold for their then fair
market value, resulting in additional gain or loss to the Fund characterized as
described above.
<PAGE>
Offsetting positions held by the Fund involving financial futures and
options may constitute "straddles." Straddles are defined to include "offsetting
positions" in actively traded personal property. The tax treatment of straddles
is governed by Sections 1092 and 1258 of the Code, which, in certain
circumstances, override or modify the provisions of Sections 988 and 1256 of the
Code. If the Fund was treated as entering into straddles by reason of its
futures or options transactions, such straddles could be characterized as "mixed
straddles" if the futures or options transactions comprising such straddles were
governed by Section 1256. The Fund may make one or more elections with respect
to "mixed straddles." Depending upon which election is made, if any, the results
to the Fund may differ. If no election is made, to the extent the straddle rules
apply to positions established by the Fund, losses realized by the Fund will be
deferred to the extent of unrealized gain in any offsetting positions. Moreover,
as a result of the straddle rules, short-term capital loss on straddle positions
may be recharacterized as long-term capital loss, and long-term capital gain on
straddle positions may be treated as short-term capital gain or ordinary income.
The Taxpayer Relief Act of 1997 included constructive sale provisions
that generally apply if the Fund either (1) holds an appreciated financial
position with respect to stock, certain debt obligations, or partnership
interests ("appreciated financial position") and then enters into a short sale,
futures, forward, or offsetting notional principal contract (collectively, a
"Contract") respecting the same or substantially identical property or (2) holds
an appreciated financial position that is a Contract and then acquires property
that is the same as or substantially identical to the underlying property. In
each instance, with certain exceptions, the Fund generally will be taxed as if
the appreciated financial position were sold at its fair market value on the
date the Fund enters into the financial position or acquires the property,
respectively. Transactions that are identified hedging or straddle transactions
under other provisions of the Code can be subject to the constructive sale
provisions.
Investment by the Fund in securities issued or acquired at a discount,
or providing for deferred interest or for payment of interest in the form of
additional obligations could under special tax rules affect the amount, timing
and character of distributions to shareholders by causing the Fund to recognize
income prior to the receipt of cash payments. For example, the Fund could be
required to accrue a portion of the discount (or deemed discount) at which the
securities were issued each year and to distribute such income in order to
maintain its qualifica tion as a regulated investment company. In such case, the
Fund may have to dispose of securities which it might otherwise have continued
to hold in order to generate cash to satisfy these distribution requirements.
PORTFOLIO TRANSACTIONS
The Adviser is responsible for the selection of brokers to effect
securities transactions and the negotiation of brokerage commissions, if any.
Purchases and sale of securities on a securities exchange are effected through
brokers who charge a negotiated commission for their services. Transactions are
allocated to various dealers by the Fund's investment personnel in their best
judgment. The primary consideration is prompt and effective execution of orders
at the most favorable price. Subject to that primary consideration, dealers may
be selected to act on an agency basis for research, statistical or other
services to enable the Adviser to supplement its own research and analysis with
the views and information of other securities firms. The allocation of brokerage
transactions also may take into account a broker's sales of Fund shares.
To the extent research services are furnished by brokers through which
the Fund effects securities transactions, the Adviser may use such information
in advising other funds or accounts it advises and, conversely, to the extent
research services are furnished to the Adviser by brokers in connection with
other funds or accounts the Adviser advises, the Adviser also may use such
information in advising the Fund. Although it is not possible to place a dollar
value on these services, if they are provided, it is the opinion of the Adviser
that the receipt and study of any such services should not reduce the overall
expenses of its research department.
The overall reasonableness of brokerage commissions paid is evaluated
by the Adviser based upon its knowledge of available information as to the
general level of commissions paid by other institutional investors for
comparable services. The Fund may pay commission rates in excess of those
another broker or dealer would have charged for effecting the same transaction,
if the Adviser determines in good faith that the commission paid is reasonable
in relation to the value of the brokerage and research services provided.
When transactions are executed in the over-the-counter market, the
Adviser will deal with the primary market makers unless a more favorable price
or execution otherwise is obtainable.
INFORMATION ABOUT THE COMPANY AND THE FUND
Each share has one vote and shareholders will vote in the aggregate,
except as otherwise required by law. Each share, when issued and paid for in
accordance with the terms of the offering, is fully paid and non-assessable.
Shares have no preemptive, conversion or subscription rights and are freely
transferable.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of a Massachusetts
business trust. However, the Company's Agreement and Declaration of Trust
("Trust Agreement") disclaims shareholder liability for acts or obligations of
the Company and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Company or a
Board member. The Trust Agreement provides for indemnification from the Fund's
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Fund. Thus, the risk of a shareholder's incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Fund itself would be unable to meet its obligations, a possibility
which management believes is remote. Upon payment of any liability incurred by
the Fund, the shareholder paying such liability will be entitled to
reimbursement from the general assets of the Fund. The Company intends to
conduct its operations in such a way so as to avoid, as far as possible,
ultimate liability of the shareholders for liabilities of the Fund.
Unless otherwise required by the 1940 Act, ordinarily it will not be
necessary for the Company to hold annual meetings of shareholders. As a result,
shareholders may not consider each year the election of Board members or the
appointment of auditors. However, the holders of at least 10% of the shares
outstanding and entitled to vote may require the Company to hold a special
meeting of shareholders for purposes of removing a Board member from office.
Shareholders may remove a Board member by the affirmative vote of two-thirds of
the Company's outstanding voting shares. In addition, the Company's Board will
call a meeting of shareholders for the purpose of electing Board members if, at
any time, less than a majority of the Board members then holding office have
been elected by shareholders.
The Company is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for certain
matters under the 1940 Act and for other purposes. A shareholder of one
portfolio is not deemed to be a shareholder of any other portfolio. For certain
matters shareholders vote together as a group; as to others they vote separately
by portfolio. From time to time, other portfolios may be established and sold
pursuant to other offering documents.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise, to the holders of the outstanding voting securities of an investment
company, such as the Company, will not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each series affected by such matter. Rule 18f-2 further provides that a series
shall be deemed to be affected by a matter unless it is clear that the interests
of each series in the matter are identical or that the matter does not affect
any interest of such series. However, the Rule exempts the election of board
members from the separate voting requirements of the Rule.
To date, four series have been authorized. All consideration received
by the Company for shares of one of the series, and all assets in which such
consideration is invested, belong to that series (subject only to the rights of
creditors of the Company) and will be subject to the liabilities related
thereto. The income attributable to, and expenses of, one series are treated
separately from those of the other series.
The Fund will post its annual and semi-annual financial statements on
the MetaMarkets.com Web site and e-mail notice of such postings to all its
shareholders.
COUNSEL AND INDEPENDENT AUDITORS
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York
10038-4982, as counsel for the Company, has rendered its opinion as to certain
legal matters regarding the due authorization and valid issuance of the shares
being sold pursuant to the Prospectus.
PricewaterhouseCoopers LLP, 333 Market Street, San Francisco,
California 94105-2119, independent accountants, have been selected as the Fund's
independent auditors.
<PAGE>
APPENDIX
Description of S&P, Moody's, Fitch and Duff ratings:
S&P
BOND RATINGS
AAA
Bonds rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA
Bonds rated AA have a very strong capacity to pay interest and repay
principal an from the highest rated issues only in small degree.
A
Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than bonds in higher rated categories.
BB
Bonds rated BB have less near-term vulnerability to default than other
speculative grade debt. However, they face major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
B
Bonds rated B have a greater vulnerability to default but presently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions would likely impair capacity or
willingness to pay interest and repay principal.
<PAGE>
CCC
Bonds rated CCC have a current identifiable vulnerability to default
and are dependent upon favorable business, financial and economic conditions to
meet timely payments of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, they are not likely to have
the capacity to pay interest and repay principal.
CC
The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
C
The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating.
D
Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus (+) or
a minus (-) sign designation, which is used to show relative standing within the
major rating categories, except in the AAA (Prime Grade) category.
COMMERCIAL PAPER RATING
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Issues assigned an A rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1
This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
designation.
A-2
Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
<PAGE>
Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
B
Issues carrying this designation are regarded as having only
speculative capacity for timely payment.
C
This designation is assigned to short-term obligations with doubtful
capacity for payment.
D
Issues carrying this designation are in default, and payment of
interest and/or repayment of principal is in arrears.
Moody's
BOND RATINGS
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and generally are referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
<PAGE>
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 sometime 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.
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, therefore, 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 present 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 the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category and in
the categories below B. The modifier 1 indicates a ranking for the security in
the higher end of a rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates a ranking in the lower end of a rating
category.
COMMERCIAL PAPER RATING
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity for
repayment of short-term promissory obligations, and ordinarily will be evidenced
by leading market positions in well established industries, high rates of return
on funds employed, conservative capitalization structures with moderate reliance
on debt and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate liquidity.
Issuers (or related supporting institutions) rated Prime-2 (P-2) have
a strong capacity for repayment of short-term promissory obligations. This
ordinarily will be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Issuers (or related supporting institutions) rated Prime-3 (P-3) have
an acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirements for relatively
high financial leverage. Adequate alternate liquidity is maintained.
Issuers (or related supporting institutions) rated Not Prime do not
fall within any of the Prime rating categories.
Fitch
BOND RATING
The ratings represent Fitch's assessment of the issuer's ability to
meet the obligations of specific debt issue or class of debt. The ratings take
into consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the political and
economic environment that might affect the issuer's future financial strength
and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
<PAGE>
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F1+.
A
Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds and, therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
BB
Bonds rated BB are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
B
Bonds rated B are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC
Bonds rated CCC have certain identifiable characteristics, which, if
not remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
<PAGE>
CC
Bonds rated CC are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C
Bonds rated C are in imminent default in payment of interest or
principal.
DDD, DD and D
Bonds rated DDD, DD and D are in actual default of interest and/or
principal payments. Such bonds are extremely speculative and should be valued on
the basis of their ultimate recovery value in liquidation or reorganization of
the obligor. DDD represents the highest potential for recovery on these bonds
and D represents the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category. Plus and minus
signs, however, are not used in the AAA category covering 12 to 36 months.
SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond ratings on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2
Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payments, but the margin of safety is not as
great as the F-1+ and F-1 categories.
<PAGE>
F-3
Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate; however,
near-term adverse changes could cause these securities to be rated below
investment grade.
F-S
Weak Credit Quality. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are vulnerable
to near-term adverse changes in financial and economic conditions.
D
Default. Issues assigned this rating are in actual or imminent payment
default.
Duff
BOND RATINGS
AAA
Bonds rated AAA are considered highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
AA
Bonds rated AA are considered high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
A
Bonds rated A have protection factors which are average but adequate.
However, factors are more variable and greater in periods of economic stress.
BBB
Bonds rated BBB are considered to have below average protection
factors but still considered sufficient for prudent investment. There may be
considerable variability in risk for bonds in this category during economic
cycles.
BB
Bonds rated BB are below investment grade but are deemed by Duff as
likely to meet obligations when due. Present or prospective financial protection
factors fluctuate according to industry conditions or company fortunes. Overall
quality may move up or down frequently within the category.
B
Bonds rated B are below investment grade and possess the risk that
obligations will not be met when due. Financial protection factors will
fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in quality rating within
this category or into a higher or lower quality rating grade.
CCC
Bonds rated CCC are well below investment grade securities. Such bonds
may be in default or have considerable uncertainty as to timely payment of
interest, preferred dividends and/or principal. Protection factors are narrow
and risk can be substantial with unfavorable economic or industry conditions
and/or with unfavorable company developments.
DD
Defaulted debt obligations. Issuer has failed to meet scheduled
principal and/or interest payments.
Plus (+) and minus (-) signs are used with a rating symbol (except
AAA) to indicate the relative position of a credit within the rating category.
COMMERCIAL PAPER RATING
The rating Duff-1 is the highest commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as having very high certainty of timely
payment with excellent liquidity factors which are supported by ample asset
protection. Risk factors are minor. Paper rated Duff- 2 is regarded as having
good certainty of timely payment, good access to capital markets and sound
liquidity factors and company fundamentals. Risk factors are small. Paper rated
Duff-3 is regarded as having satisfactory liquidity and other protection
factors. Risk factors are larger and subject to more variation. Nevertheless,
timely payment is expected. Paper rated Duff-4 is regarded as having 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. Paper rated Duff-5 is in default. The issuer has
failed to meet scheduled principal and/or interest payments.
<PAGE>
FINANCIAL STATEMENT AND REPORT OF INDEPENDENT AUDITORS
METAMARKETS.COM FUNDS
STATEMENT OF ASSETS AND LIABILITIES
August 6, 1999
OPENFUND
ASSETS
Cash................................... $100,000
========
LIABILITIES AND CAPITAL: 0
NET ASSETS applicable to the shares of
beneficial interest ($.001 par value)
issued and outstanding (unlimited number
of shares authorized)..................... $100,000
========
SHARES OUTSTANDING......................... 8,000
-------
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE.............................. $12.50
========
NOTE 1 - MetaMarkets.com Funds (the "Company") is organized as a Massachusetts
business trust and has had no operations as of the date hereof other than
matters relating to its organization and registration as an open-end investment
company under the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended, and the sale and issuance of 8,000 shares of beneficial
interest of the above-named series of the Company (the "Fund") to MetaMarkets
Investments LLC (the "Adviser").
Pursuant to an investment advisory agreement with the Adviser, the Fund pays a
monthly investment advisory fee based on the value of the average daily net
assets of the Fund as follows:
AVERAGE DAILY NET ASSETS ANNUAL RATE
OF THE FUND OF ADVISORY FEE
on the first $250 million 1.00%
on the next $500 million .75%
on assets in excess of $750 million .50%
Expenses related to the organization of the Company have been borne by the
Adviser.
NOTE 2 - The Fund intends to qualify as a "regulated investment company" and as
such (and by complying with the applicable provisions of the Internal Revenue
Code of 1986, as amended) will not be subject to Federal income tax on taxable
income (including realized capital gain) that is distributed to shareholders.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Trustees
of MetaMarkets.com Funds
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of the OpenFund
(hereinafter referred to as the "Fund"), a series of MetaMarkets.com Funds, at
August 6, 1999, in conformity with generally accepted accounting principles.
This financial statement is the responsibility of the Fund's management; our
responsibility is to express an opinion on this financial statement based on our
audit. We conducted our audit of this financial statement in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statement is
free of material misstatement. An audit includes examining, on a test basis, the
evidence supporting the amounts and disclosures in the financial statement,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
San Francisco, California
August 9, 1999
<PAGE>
PART C. OTHER INFORMATION
Item 23.
(a) Amended and Restated Agreement and Declaration of Trust.*
(b) Bylaws.*
(d)(1) Investment Advisory Agreement.
(2) Administration Agreement.
(e)(1) Distribution Agreement.
(2) Distribution and Servicing Plan Agreement.
(g) Custodian Agreement.
(i) Opinion and Consent of Registrant's Counsel.
(j) Consent of Independent Auditors.
(m) Distribution and Servicing Plan Pursuant to Rule 12b-1.
Other: Notification of Election on Form N-18F-1
- -----------------------
* Previously filed.
Item 24. Persons Controlled By or Under Common Control with Registrant
Not applicable.
Item 25. Indemnification
Reference is made to Article EIGHTH of the Registrant's Amended and
Restated Agreement and Declaration of Trust previously filed as Exhibit (a). The
application of these provisions is limited by Article 10 of the Registrant's
By-Laws filed as Exhibit (b) to Pre-Effective Amendment No. 2 of Registrant's
Registration Statement on Form N-1A and by the following undertaking set forth
in the rules promulgated by the Securities and Exchange Commission:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to Board members,
officers and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in such Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a Board member, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such Board member, officer or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in such Act and will be governed by the final
adjudication of such issue.
Reference is also made to the Distribution Agreement filed as
Exhibit (e) hereto.
Item 26. Business and Other Connections of Investment Adviser
Registrant is fulfilling the requirement of this Item 26(a) to provide
a list of the officers and directors of MetaMarkets Investments LLC, the Fund's
investment adviser, together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by
MetaMarkets Investments LLC or those of its officers and directors during the
past two years, by incorporating by reference the information contained in the
Form ADV filed with the SEC pursuant to the Investment Advisers Act of 1940 by
MetaMarkets Investments LLC (SEC File No. 801-56655).
Item 27. Principal Underwriters
(a) Other investment companies for which Registrant's principal
underwriter (exclusive distributor) acts as principal underwriter or exclusive
distributor:
American Performance Funds
AmSouth Mutual Funds
The ARCH Fund, Inc.
The BB&T Mutual Funds Group
The Coventry Group
The Empire Builder Tax Free Bond Fund
ESC Strategic Funds, Inc.
The Eureka Funds
Fountain Square Funds
Hirtle Callaghan Trust
HSBC Family of Funds
The Infinity Mutual Funds, Inc.
INTRUST Funds Trust
The Kent Funds
Magna Funds
Meyers Investment Trust
MMA Praxis Mutual Funds
M.S.D.&T. Funds
Pacific Capital Funds
Parkstone Group of Funds
The Parkstone Advantage Fund
Pegasus Funds
The Republic Funds Trust
The Republic Advisors Funds Trust
The Riverfront Funds, Inc.
SBSF Funds, Inc. dba Key Mutual Funds
Sefton Funds
Summit Investment Trust
Variable Insurance Funds
The Victory Portfolios
The Victory Variable Funds
Vintage Mutual Funds, Inc.
(b) The information required by this Item 27(b) regarding each director
or officer of BISYS Fund Services Limited Partnership is incorporated by
reference to Schedule A of Form BD filed pursuant to the Securities Exchange Act
of 1934 (SEC File No. 8-32480).
Item 28. Location of Accounts and Records
1. Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02117-9130
2. BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, Ohio 43219-3035
3. MetaMarkets Investments LLC
400 Oyster Point Blvd., Suite 414
South San Francisco, CA 94080
Item 29. Management Services
Not Applicable.
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 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of South San Francisco, and State of California, on the
11th day of August, 1999.
METAMARKETS.COM FUNDS
(Registrant)
By: /s/ Donald L. Luskin
--------------------------------
DONALD L. LUSKIN, PRESIDENT
POWER OF ATTORNEY
Each person whose signature appears below on this Amendment to the
Registration Statement hereby constitutes and appoints William R. Dawson, Donald
L. Luskin and Matthew A. Shelton, and each of them, with full power to act
without the other, 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 (until revoked in writing) to sign any and all
amendments to this Registration Statement (including post-effective amendments
and amendments thereto), and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their 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 has been signed below by the following persons in the
capacities and on the date indicated.
/s/ Donald L. Luskin President and Treasurer August 11, 1999
- --------------------------- (Principal Executive
DONALD L. LUSKIN Officer and Chief Financial
and Accounting Officer)
and Board Member
/s/ Tracey G. Herrick Board Member August 11, 1999
- ---------------------------
TRACEY G. HERRICK
/s/ James E. Mitchell Board Member August 11, 1999
- ---------------------------
JAMES E. MITCHELL
/s/ George G.C. Parker Board Member August 11, 1999
- --------------------------
GEORGE G.C. PARKER
METAMARKET.COM FUNDS
Pre-Effective Amendment No. 3 to
Registration Statement on Form N-1A under
the Securities Act of 1933 and
the Investment Company Act of 1940
-----------
EXHIBITS
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INDEX TO EXHIBITS
Page
(d)(1) Investment Advisory Agreement
(d)(2) Administration Agreement
(e)(1) Distribution Agreement
(e)(2) Distribution and Servicing Plan Agreement
(g) Custodian Agreement
(i) Opinion and Consent of Registrant's Counsel
(j) Consent of Independent Auditors
(m) Distribution and Servicing Plan
Other: Notification of Election on Form N-18F-1
EXHIBIT 23(d)(1)
INVESTMENT ADVISORY AGREEMENT
MetaMarkets.com Funds
400 Oyster Point Blvd., Suite 414
South San Francisco, California 94080
July 20, 1999
MetaMarkets Investments LLC
400 Oyster Point Blvd., Suite 414
South San Francisco, California 94080
Ladies and Gentlemen:
The above-named investment company (the "Fund") consisting of the
series named on Schedule 1 hereto, as such Schedule may be revised from time to
time (each, a "Series"), herewith confirms its agreement with you as follows:
The Fund desires to employ its capital by investing and reinvesting
the same in investments of the type and in accordance with the limitations
specified in its charter documents and in its Prospectus and Statement of
Additional Information as from time to time in effect, copies of which have been
or will be submitted to you, and in such manner and to such extent as from time
to time may be approved by the Fund's Board. The Fund desires to employ you to
act as its investment adviser.
In this connection it is understood that from time to time you will
employ or associate with yourself such person or persons as you may believe to
be particularly fitted to assist you in the performance of this Agreement. Such
person or persons may be officers or employees who are employed by both you and
the Fund. The compensation of such person or persons shall be paid by you and no
obligation may be incurred on the Fund's behalf in any such respect.
Subject to the supervision and approval of the Fund's Board, you will
provide investment management of each Series' portfolio in accordance with such
Series' investment objective and policies as stated in the Fund's Prospectus and
Statement of Additional Information as from time to time in effect. In
connection therewith, you will obtain and provide investment research and will
supervise each Series' investments and conduct a continuous program of
investment, evaluation and, if appropriate, sale and reinvestment of such
Series' assets. You will furnish to the Fund such statistical information, with
respect to the investments which a Series may hold or contemplate purchasing, as
the Fund may reasonably request. The Fund wishes to be informed of important
developments materially affecting any Series' portfolio and shall expect you, on
your own initiative, to furnish to the Fund from time to time such information
as you may believe appropriate for this purpose.
You shall exercise your best judgment in rendering the services to be
provided to the Fund hereunder and the Fund agrees as an inducement to your
undertaking the same that you shall not be liable hereunder for any error of
judgment or mistake of law or for any loss suffered by one or more Series,
provided that nothing herein shall be deemed to protect or purport to protect
you against any liability to the Fund or a Series or to its security holders to
which you would otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of your duties hereunder, or by reason of
your reckless disregard of your obligations and duties hereunder ("disabling
conduct").
The Fund will indemnify you against, and hold you harmless from, any
and all losses, claims, damages, liabilities or expenses (including reasonable
counsel fees and expenses), including any amounts paid in satisfaction of
judgments, in compromise or as fines or penalties, not resulting from your
disabling conduct. Indemnification shall be made only following: (i) a final
decision on the merits by a court or other body before whom the proceeding was
brought that you were not liable by reason of disabling conduct or (ii) in the
absence of such a decision, a reasonable determination, based upon a review of
the facts, that you were not liable by reason of disabling conduct by (a) the
vote of a majority of a quorum of directors of the Fund who are neither
"interested persons" (as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of the Fund nor parties to the proceeding
("disinterested non-party directors") or (b) independent legal counsel in a
written opinion. You shall be entitled to advances from the Fund for payment of
the reasonable expenses incurred by you in connection with the matter as to
which you are seeking indemnification in the manner and to the fullest extent
permissible under Massachusetts law. You shall provide to the Fund a written
affirmation of your good faith belief that the standard of conduct necessary for
indemnification by the Fund has been met and a written undertaking to repay any
such advance if it should ultimately be determined that the standard of conduct
has not been met. In addition, at least one of the following additional
conditions shall be met: (a) you shall provide security in form and amount
acceptable to the Fund for its undertaking; (b) the Fund is insured against
losses arising by reason of the advance; or (c) a majority of a quorom of
disinterested non-party directors, or independent legal counsel in a written
opinion, shall have determined, based on a review of facts readily available to
the Fund at the time the advance is proposed to be made, that there is reason to
believe that you will ultimately be found to be entitled to indemnification.
In consideration of services rendered pursuant to this Agreement, the
Fund will pay you on the first business day of each month a fee at the rate set
forth opposite each Series' name on Schedule 1 hereto. Net asset value shall be
computed on such days and at such time or times as described in the Fund's
then-current Prospectus and Statement of Additional Information. The fee for the
period from the date of the commencement of the public sale of a Series' shares
to the end of the month during which such sale shall have been commenced shall
be pro-rated according to the proportion which such period bears to the full
monthly period, and upon any termination of this Agreement before the end of any
month, the fee for such part of a month shall be pro-rated according to the
proportion which such period bears to the full monthly period and shall be
payable upon the date of termination of this Agreement.
You will bear all expenses in connection with the performance of your
services under this Agreement. All other expenses to be incurred in the
operation of the Fund will be borne by the Fund, except to the extent
specifically assumed by you. The expenses to be borne by the Fund include,
without limitation, the following: organizational costs, taxes, interest, loan
commitment fees, interest and distributions paid on securities sold short,
brokerage fees and commissions, if any, fees of Board members who are not your
officers, directors or employees or holders of 5% or more of your outstanding
voting securities, Securities and Exchange Commission fees and state Blue Sky
qualification fees, advisory and administration fees, charges of custodians,
transfer and dividend disbursing agents' fees, certain insurance premiums,
industry association fees, outside auditing and legal expenses, costs of
independent pricing services, costs of maintaining the Fund's existence, costs
attributable to investor services (including, without limitation, telephone and
personnel expenses), costs of preparing and printing prospectuses and statements
of additional information for regulatory purposes and for distribution to
existing stockholders, costs of stockholders' reports and meetings, and any
extraordinary expenses. The Fund understands that from time to time hereafter
you may act as investment adviser to one or more other investment companies and
fiduciary or other managed accounts, and the Fund has no objection to your so
acting, provided that when the purchase or sale of securities of the same issuer
is suitable for the investment objectives of two or more companies or accounts
managed by you which have available funds for investment, the available
securities will be allocated in a manner believed by you to be equitable to each
company or account. It is recognized that in some cases this procedure may
adversely affect the price paid or received by one or more Series or the size of
the position obtainable for or disposed of by one or more Series.
In addition, it is understood that the persons employed by you to
assist in the performance of your duties hereunder will not devote their full
time to such service and nothing contained herein shall be deemed to limit or
restrict your right or the right of any of your affiliates to engage in and
devote time and attention to other businesses or to render services of whatever
kind or nature.
Any person, even though also your officer, director, partner, employee
or agent, who may be or become an officer, Board member, employee or agent of
the Fund, shall be deemed, when rendering services to the Fund or acting on any
business of the Fund, to be rendering such services to or acting solely for the
Fund and not as your officer, director, partner, employee or agent or one under
your control or direction even though paid by you.
As to each Series, this Agreement shall continue until the date set
forth opposite such Series' name on Schedule 1 hereto (the "Reapproval Date")
and thereafter shall continue automatically for successive annual periods ending
on the day of each year set forth opposite the Series' name on Schedule 1 hereto
(the "Reapproval Day"), provided such continuance is specifically approved at
least annually by (i) the Fund's Board or (ii) vote of a majority (as defined in
the 1940 Act) of such Series' outstanding voting securities, provided that in
either event its continuance also is approved by a majority of the Fund's Board
members who are not "interested persons" (as defined in the 1940 Act) of any
party to this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval. As to each Series, this Agreement is
terminable without penalty, on 60 days' notice, by the Fund's Board or by vote
of holders of a majority of such Series' shares or, upon not less than 90 days'
notice, by you. This Agreement also will terminate automatically, as to the
relevant Series, in the event of its assignment (as defined in the 1940 Act).
The Fund recognizes that from time to time your directors, officers
and employees may serve as directors, trustees, partners, officers and employees
of other business trusts, corporations, partnerships or other entities
(including other investment companies) and that such other entities may include
the name "MetaMarkets" as part of their name, and that your company or its
affiliates may enter into investment advisory or other agreements with such
other entities. If you cease to act as the Fund's investment adviser, the Fund
agrees that, at your request, the Fund will take all necessary action to change
the name of the Fund to a name not including "MetaMarkets" in any form or
combination of words.
This Agreement has been executed on behalf of the Fund by the
undersigned officer of the Fund in his capacity as an officer of the Fund. The
obligations of this Agreement shall only be binding upon the assets and property
of the Fund or the affected Series, as the case may be, and shall not be binding
upon any Board member, officer or shareholder of the Fund individually.
If the foregoing is in accordance with your understanding, will you
kindly so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
METAMARKETS.COM FUNDS
By:___________________________
Accepted:
METAMARKETS INVESTMENTS LLC
By: _____________________
<PAGE>
SCHEDULE 1
Annual Rate
of Fee as a
Percentage
of Average
Name of Daily Net Reapproval Reapproval
Series Assets Date Day
Communications * July 20, 2001 July 20th
Technology Fund
Media * July 20, 2001 July 20th
Technology Fund
Open Fund * July 20, 2001 July 20th
Open Fund II * July 20, 2001 July 20th
________________
* As to each Series, 1.00% on the first $250 million of average daily net
assets; .75% on the next $500 million of such assets; and .50% on assets in
excess of $750 million.
EXHIBIT 23(d)(2)
ADMINISTRATION AGREEMENT
THIS AGREEMENT is made as of July 20, 1999, by and between
METAMARKETS.COM FUNDS, a Massachusetts business trust (the "Company"), and BISYS
FUND SERVICES OHIO, INC., an Ohio corporation (the "Administrator").
WHEREAS, the Company is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), consisting of several series of shares of beneficial interest ("Shares");
and
WHEREAS, the Company desires the Administrator to provide, and the
Administrator is willing to provide, management and administrative services to
each currently existing series of the Company, and such additional series as the
Company and the Administrator may agree on ("Portfolios") and as listed on
Schedule A attached hereto and made a part of this Agreement, on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Company and the Administrator hereby agree as
follows:
ARTICLE 1. RETENTION OF THE ADMINISTRATOR. The Company hereby retains
the Administrator to act as the administrator of the Portfolios and to furnish
the Portfolios with the management and administrative services as set forth in
Article 2 below. The Administrator hereby accepts such employment to perform the
duties set forth below.
The Administrator shall, for all purposes herein, be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Company in any way and shall
not be deemed an agent of the Company.
ARTICLE 2. ADMINISTRATIVE SERVICES. The Administrator shall perform or
supervise the performance by others of other administrative services in
connection with the operations of the Portfolios, and, on behalf of the Company,
will investigate, assist in the selection of and conduct relations with
custodians, depositories, accountants, legal counsel, underwriters, brokers and
dealers, corporate fiduciaries, insurers, banks and persons in any other
capacity deemed to be necessary or desirable for the Portfolios' operations. The
Administrator shall provide the Board members of the Company with such reports
regarding investment performance as they may reasonably request but shall have
no responsibility for supervising the performance by any investment adviser or
sub-adviser of its responsibilities.
The Administrator shall provide the Company with regulatory reporting,
and, at the Company's request, all necessary office space, equipment, personnel,
compensation and facilities (including facilities for Shareholders' and Board
meetings) for handling the affairs of the Portfolios and such other services as
the Administrator shall, from time to time, determine to be necessary to perform
its obligations under this Agreement. In addition, at the request of the Board,
the Administrator shall make reports to the Company's Board members concerning
the performance of its obligations hereunder.
Without limiting the generality of the foregoing, the Administrator
shall:
(a) calculate contractual Company expenses and control all
disbursements for the Company, and as appropriate compute the
Company's yields, total return, expense ratios, portfolio,
turnover rate and, if required, portfolio average dollar-weighted
maturity;
(b) assist Company counsel with the preparation of prospectuses,
statements of additional information, registration statements and
proxy materials;
(c) prepare such reports, applications and documents (including
reports regarding the sale and redemption of Shares as may be
required in order to comply with Federal and state securities
law) as may be necessary or desirable to register the Company's
Shares with state securities authorities, monitor the sale of
Company Shares for compliance with state securities laws, and
file with the appropriate state securities authorities the
registration statements and reports for the Company and the
Company's Shares and all amendments thereto, as may be necessary
or convenient to register and keep effective the Company and the
Company's Shares with state securities authorities to enable the
Company to make a continuous offering of its Shares;
(d) develop and prepare, with the assistance of the Company's
investment adviser, communications to Shareholders, including the
annual report to Shareholders, coordinate the delivery of
prospectuses, notices, proxy statements, proxies and other
reports to Company Shareholders, and supervise and facilitate the
proxy solicitation process for all shareholder meetings,
including the tabulation of shareholder votes;
(e) administer contracts on behalf of the Company with, among
others, the Company's investment adviser, distributor, custodian,
transfer agent and fund accountant;
(f) supervise the Company's transfer agent with respect to the
payment of dividends and other distributions to Shareholders;
(g) calculate performance data of the Portfolios for
dissemination to information services covering the investment
company industry;
(h) coordinate and supervise the preparation and filing of the
Company's tax returns;
<PAGE>
(i) examine and review the operations and performance of the
various organizations providing services to the Company or any
Portfolio of the Company, including, without limitation, the
Company's investment adviser, distributor, custodian, fund
accountant, transfer agent, outside legal counsel and independent
public accountants, and at the request of the Board of Directors,
report to the Board on the performance of organizations;
(j) assist with the design, development, and operation of the
Portfolios, including new classes, investment objectives,
policies and structure;
(k) provide individuals reasonably acceptable to the Company's
Board to serve as officers of the Company, who will be
responsible for the management of certain of the Company's
affairs as determined by the Company's Board;
(l) advise the Company and its Board on matters concerning the
Company and its affairs;
(m) obtain and keep in effect fidelity bonds and directors and
officers/errors and omissions insurance policies for the Company
in accordance with the requirements of Rules 17g-1 and 17d-1(7)
under the 1940 Act as such bonds and policies are approved by the
Company's Board;
(n) monitor and advise the Company and its Portfolios on their
registered investment company status under the Internal Revenue
Code of 1986, as amended;
(o) perform all administrative services and functions of the
Company and each Portfolio to the extent administrative services
and functions are not provided to the Company or such Portfolio
pursuant to the Company's or such Portfolio's investment advisory
agreement, distribution agreement, custodian agreement, transfer
agent agreement and fund accounting agreement;
(p) furnish advice and recommendations with respect to other
aspects of the business and affairs of the Portfolios as the
Company and the Administrator shall determine desirable; and
(q) prepare and file with the SEC the semi-annual report for the
Company on Form N-SAR and all required notices pursuant to Rule
24f-2.
The Administrator shall perform such other services for the Company
that are mutually agreed upon by the parties from time to time. Such services
may include performing internal audit examinations; distributing the annual
reports of the Portfolios; preparing an annual list of Shareholders; and
distributing notices of Shareholders' meetings, proxies and proxy statements,
for all of which the Company will pay the Administrator's out-of-pocket
expenses, if any.
<PAGE>
ARTICLE 3. ALLOCATION OF CHARGES AND EXPENSES.
(A) THE ADMINISTRATOR. The Administrator shall furnish at its own
expense the executive, supervisory and clerical personnel necessary to perform
its obligations under this Agreement. The Administrator shall also provide the
items which it is obligated to provide under this Agreement, and shall pay all
compensation, if any, of officers of the Company as well as all Board members of
the Company who are affiliated persons of the Administrator or any affiliated
corporation of the Administrator; provided, however, that unless otherwise
specifically provided, the Administrator shall not be obligated to pay the
compensation of any employee of the Company retained by the Board of the Company
to perform services on behalf of the Company.
(B) THE COMPANY. The Company assumes and shall pay or cause to be paid
all other expenses of the Company not otherwise allocated herein, including,
without limitation, organization costs, taxes, expenses for legal and auditing
services, the expenses of preparing and distributing reports, prospectuses,
statements of additional information, proxy solicitation material and notices to
existing Shareholders, all expenses incurred in connection with issuing and
redeeming Shares, the costs of custodial services, the cost of initial and
ongoing registration of the Shares under Federal and state securities laws, fees
and out-of-pocket expenses of Board members who are not affiliated persons of
the Administrator or the investment adviser to the Company or any affiliated
corporation of the Administrator or the Company's investment adviser, insurance,
interest, brokerage costs, litigation and other extraordinary or nonrecurring
expenses, and all fees and charges of investment advisers to the Company.
ARTICLE 4. COMPENSATION OF THE ADMINISTRATOR.
(A) ADMINISTRATION FEE. For the services to be rendered, the
facilities furnished and the expenses assumed by the Administrator pursuant to
this Agreement, the Company shall pay to the Administrator compensation at an
annual rate specified in the Omnibus Fee Agreement attached hereto. Such
compensation shall also be in consideration for the fund accounting services and
transfer agency services provided by the Administrator pursuant to the Fund
Accounting Agreement and Transfer Agency Agreement, respectively, each dated
July 20, 1999, between the Administrator and the Company. Such compensation
shall be calculated and accrued daily, and paid to the Administrator monthly.
The Company shall also reimburse the Administrator for its reasonable
out-of-pocket expenses, including the travel and lodging expenses incurred by
officers and employees of the Administrator in connection with attendance at
Board meetings.
If this Agreement becomes effective subsequent to the first day of a
month or terminates before the last day of a month, the Administrator's
compensation for that part of the month in which this Agreement is in effect
shall be prorated in a manner consistent with the calculation of the fees as set
forth above. Payment of the Administrator's compensation for the preceding month
shall be made promptly.
<PAGE>
(B) SURVIVAL OF COMPENSATION RIGHTS. All rights of compensation under
this Agreement for services performed as of the termination date shall survive
the termination of this Agreement.
ARTICLE 5. LIMITATION OF LIABILITY OF THE ADMINISTRATOR. The duties of
the Administrator shall be confined to those expressly set forth herein, and no
implied duties are assumed by or may be asserted against the Administrator
hereunder. The Administrator shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any act or omission in carrying
out its duties hereunder, except a loss resulting from willful misfeasance, bad
faith or negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties hereunder, except as may otherwise be
provided under provisions of applicable law which cannot be waived or modified
hereby. (As used in this Article 5, the term "Administrator" shall include
directors, officers, employees and other agents of the Administrator as well as
the Administrator itself.)
So long as the Administrator acts in good faith and with due diligence
and without negligence, the Company assumes full responsibility and shall
indemnify the Administrator and hold it harmless from and against any and all
actions, suits and claims, whether groundless or otherwise, and from and against
any and all losses, damages, costs, charges, reasonable counsel fees and
disbursements, payments, expenses and liabilities (including reasonable
investigation expenses) arising directly or indirectly out of the
Administrator's actions taken or nonactions with respect to the performance of
services hereunder. The indemnity and defense provisions set forth herein shall
indefinitely survive the termination of this Agreement.
The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case the Company may be asked to indemnify or hold the
Administrator harmless, the Company shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and it is further
understood that the Administrator will use all reasonable care to identify and
notify the Company promptly concerning any situation which presents or appears
likely to present the probability of such a claim for indemnification against
the Company, but failure to do so in good faith shall not affect the rights
hereunder.
The Company shall be entitled to participate at its own expense or, if
it so elects, to assume the defense of any suit brought to enforce any claims
subject to this indemnity provision. If the Company elects to assume the defense
of any such claim, the defense shall be conducted by counsel chosen by the
Company and satisfactory to the Administrator, whose approval shall not be
unreasonably withheld. In the event that the Company elects to assume the
defense of any suit and retain counsel, the Administrator shall bear the fees
and expenses of any additional counsel retained by it. If the Company does not
elect to assume the defense of a suit, it will reimburse the Administrator for
the reasonable fees and expenses of any counsel retained by the Administrator.
<PAGE>
The Administrator may apply to the Company at any time for
instructions and may consult counsel for the Company or its own counsel and with
accountants and other experts with respect to any matter arising in connection
with the Administrator's duties, and the Administrator shall not be liable or
accountable for any action taken or omitted by it in good faith in accordance
with such instruction or with the opinion of such counsel, accountants or other
experts.
Also, the Administrator shall be protected in acting upon any document
which it reasonably believes to be genuine and to have been signed or presented
by the proper person or persons. The Administrator will not be held to have
notice of any change of authority of any officers, employees or agents of the
Company until receipt of written notice thereof from the Company.
ARTICLE 6. ACTIVITIES OF THE ADMINISTRATOR. The services of the
Administrator rendered to the Company are not to be deemed to be exclusive. The
Administrator is free to render such services to others and to have other
businesses and interests. It is understood that Board members, officers,
employees and Shareholders of the Company are or may be or become interested in
the Administrator, as officers, employees or otherwise and that directors,
officers and employees of the Administrator and its counsel are or may be or
become similarly interested in the Company, and that the Administrator may be or
become interested in the Company as a Shareholder or otherwise.
ARTICLE 7. DURATION OF THIS AGREEMENT. The Term of this Agreement
shall be as specified in Schedule A hereto.
ARTICLE 8. ASSIGNMENT. This Agreement shall not be assignable by
either party without the written consent of the other party; provided, however,
that the Administrator may, at its expense, subcontract with any entity or
person concerning the provision of the services contemplated hereunder. The
Administrator shall not, however, be relieved of any of its obligations under
this Agreement by the appointment of such subcontractor and provided further,
that the Administrator shall be responsible, to the extent provided in Article 5
hereof, for all acts of such subcontractor as if such acts were its own. This
Agreement shall be binding upon, and shall inure to the benefit of, the parties
hereto and their respective successors and permitted assigns.
ARTICLE 9. AMENDMENTS. This Agreement may be amended by the parties
hereto only if such amendment is specifically approved (i) by the vote of a
majority of the Board members of the Company, and (ii) by the vote of a majority
of the Board members of the Company who are not parties to this Agreement or
interested persons of any such party, cast in person at a Board meeting called
for the purpose of voting on such approval.
For special cases, the parties hereto may amend such procedures set
forth herein as may be appropriate or practical under the circumstances, and the
Administrator may conclusively assume that any special procedure which has been
approved by the Company does not conflict with or violate any requirements of
its Agreement and Declaration of Trust or then current prospectuses, or any
rule, regulation or requirement of any regulatory body.
<PAGE>
ARTICLE 10. CERTAIN RECORDS. The Administrator shall maintain
customary records in connection with its duties as specified in this Agreement.
Any records required to be maintained and preserved pursuant to Rules 31a-1 and
31a-2 under the 1940 Act which are prepared or maintained by the Administrator
on behalf of the Company shall be prepared and maintained at the expense of the
Administrator, but shall be the property of the Company and will be made
available to or surrendered promptly to the Company on request.
In case of any request or demand for the inspection of such records by
another party, the Administrator shall notify the Company and follow the
Company's instructions as to permitting or refusing such inspection; provided
that the Administrator may exhibit such records to any person in any case where
it is advised by its counsel that it may be held liable for failure to do so,
unless (in cases involving potential exposure only to civil liability) the
Company has agreed to indemnify the Administrator against such liability.
ARTICLE 11. DEFINITIONS OF CERTAIN TERMS. The terms "interested
person" and "affiliated person," when used in this Agreement, shall have the
respective meanings specified in the 1940 Act and the rules and regulations
thereunder, subject to such exemptions as may be granted by the Securities and
Exchange Commission.
ARTICLE 12. NOTICE. Any notice required or permitted to be given by
either party to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice to the
other party at the following address: 3435 Stelzer Road, Columbus, Ohio 43219,
or at such other address as such party may from time to time specify in writing
to the other party pursuant to this Section.
ARTICLE 13. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Ohio and the applicable provisions of
the 1940 Act. To the extent that the applicable laws of the State of Ohio, or
any of the provisions herein, conflict with the applicable provisions of the
1940 Act, the latter shall control.
ARTICLE 14. MULTIPLE ORIGINALS. This Agreement may be executed in two
or more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
ARTICLE 15. MISCELLANEOUS. This Agreement has been executed on behalf
of the Company by the undersigned officer of the Company in his capacity as an
officer of the Company. The obligations of this Agreement shall only be binding
upon the assets and property of the Company and shall not be binding upon any
Board member, officer or shareholder of the Company individually.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the day and year first above written.
METAMARKETS.COM FUNDS
By: _____________________________
Title: ____________________________
BISYS FUND SERVICES OHIO, INC.
By: ______________________________
Title: ____________________________
<PAGE>
SCHEDULE A
TO THE ADMINISTRATION AGREEMENT
BETWEEN METAMARKETS.COM FUNDS
AND
BISYS FUND SERVICES OHIO, INC.
Portfolios: This Agreement shall apply to all Portfolios of the Company
either now or hereafter created. The current Portfolios of
the Company are set forth below:
OpenFund
Media Technology Fund
Communications Technology Fund
OpenFund II
Fees: Pursuant to Article 4, in consideration of the services
rendered and expenses assumed pursuant to this Agreement,
the Fund Accounting Agreement and the Transfer Agency
Agreement, each dated July 20, 1999 between the
Administrator and the Company, the Company will pay the
Administrator on the first business day of each month, or at
such time(s) as the Administrator shall request and the
parties hereto shall agree, the fee set forth in the Omnibus
Fee Agreement attached hereto.
The fee for the period from the day of the month this
Agreement is entered into until the end of that month shall
be prorated according to the proportion which such period
bears to the full monthly period. Upon any termination of
this Agreement before the end of any month, the fee for such
part of a month shall be prorated according to the
proportion which such period bears to the full monthly
period and shall be payable upon the date of termination of
this Agreement.
For purposes of determining the fees payable to the
Administrator, the value of the net assets of a particular
Portfolio shall be computed in the manner described in the
Company's Prospectus or Statement of Additional Information
respecting that Portfolio as from time to time is in effect
for the computation of the value of such net assets in
connection with the determination of the liquidating value
of the shares of such Portfolio.
The parties hereby confirm that the fees payable hereunder
shall be applied to each Portfolio as a whole, and not to
separate classes of shares within the Portfolios.
The fee payable by the Company hereunder shall be allocated
to each Portfolio based upon its pro rata share of the total
fee payable hereunder. Such fee as is attributable to each
Portfolio shall be a separate (and not joint or joint and
several) obligation of each such Portfolio. The
Administrator may agree, from time to time, to waive any
fees payable under this Agreement. Such waiver shall be at
the Administrator's sole discretion.
Term: Pursuant to Article 7, the term of this Agreement shall
commence on July 20, 1999, and shall remain in effect until
July 20, 2004 ("Initial Term"). Thereafter, unless otherwise
terminated as provided herein, this Agreement shall be
renewed automatically for successive one-year periods
("Rollover Periods"). This Agreement may be terminated
without penalty (i) by provision of a notice of nonrenewal
in the manner set forth below, (ii) by mutual agreement of
the parties or (iii) for "cause," as defined below, upon the
provision of 60 days advance written notice by the party
alleging cause. Written notice of nonrenewal must be
provided at least 60 days prior to the end of the Initial
Term or any Rollover Period, as the case may be.
For purposes of this Agreement, "cause" shall mean (a) a
material breach of this Agreement that has not been remedied
for thirty (30) days following written notice of such breach
from the non-breaching party; (b) a final, unappealable
judicial, regulatory or administrative ruling or order in
which the party to be terminated has been found guilty of
criminal or unethical behavior in the conduct of its
business; (c) financial difficulties on the part of the
party to be terminated which are evidenced by the
authorization or commencement of, or involvement by way of
pleading, answer, consent or acquiescence in, a voluntary or
involuntary case under Title 11 of the United States Code,
as from time to time is in effect, or any applicable law,
other than said Title 11, of any jurisdiction relating to
the liquidation or reorganization of debtors or to the
modification or alteration of the rights of creditors; (d)
any failure on the part of the Company to collect from the
investment adviser any payment or reimbursement that is due
and payable by the investment adviser to the Company
(including an amount due the Company that directly or
indirectly represents amounts payable to the Administrator
in its capacity as fund administrator to the Company) within
60 days following the due date; or (e) any failure on the
part of its affiliates under any other agreement to which
the Company is a party within 60 days following the due
date. For purposes of this definition of "cause," a material
breach shall include, but not be limited to, any failure on
the part of the Company to pay fees due and payable to the
Administrator pursuant to Article 4 hereunder within 60 days
following the due date.
Notwithstanding the foregoing, after such termination for so
long as the Administrator, with the written consent of the
Company, in fact continues to perform any one or more of the
services contemplated by this Agreement or any schedule or
exhibit hereto, the provisions of this Agreement, including
without limitation the provisions dealing with
indemnification, shall continue in full force and effect.
Compensation due the Administrator and unpaid by the Company
upon such termination shall be immediately due and payable
upon and notwithstanding such termination. The Administrator
shall be entitled to collect from the Company, in addition
to the compensation described in this Schedule A, the amount
of all of the Administrator's cash disbursements for
services in connection with the Administrator's activities
in effecting such termination, including without limitation,
the delivery to the Company and/or its designees of the
Company's property, records, instruments and documents.
If, for any reason other than nonrenewal, mutual agreement
of the parties or "cause," as defined above, the
Administrator is replaced as fund administrator, or if a
third party is added to perform all or a part of the
services provided by the Administrator under this Agreement
(excluding any sub-administrator appointed by the
Administrator as provided in Article 7 hereof), then the
Company shall make a one-time cash payment, in consideration
of the fee structure and services to be provided under this
Agreement, and not as a penalty, to the Administrator equal
to the balance due the Administrator for the remainder of
the then-current term of this Agreement, assuming for
purposes of calculation of the payment that such balance
shall be based upon the average amount of the Company's
assets for the twelve months prior to the date the
Administrator is replaced or a third party is added.
In the event the Company is merged into another legal entity
in part or in whole pursuant to any form of business
reorganization or is liquidated in part or in whole prior to
the expiration of the then-current term of this Agreement,
the parties acknowledge and agree that the liquidated
damages provision set forth above shall be applicable in
those instances in which the Administrator is not retained
by the surviving entity to provide administration services
consistent with this Agreement. The one-time cash payment
referenced above shall be due and payable on the day prior
to the first day in which the Administrator is replaced or a
third party is added.
The parties acknowledge and agree that, in the event the
Administrator is replaced, or a third party is added, as set
forth above, (i) a determination of actual damages incurred
by the Administrator would be extremely difficult, and (ii)
the liquidated damages provision contained herein is
intended to adequately compensate the Administrator for
damages incurred and is not intended to constitute any form
of penalty.
<PAGE>
OMNIBUS FEE AGREEMENT
THIS AGREEMENT is made as of this 20th day of July, 1999 by and
between METAMARKETS.COM FUNDS (the "Trust"), a Massachusetts business trust, and
BISYS FUND SERVICES OHIO, INC. ("BISYS"), an Ohio corporation.
WHEREAS, the Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), consisting of several series of shares of beneficial interest;
WHEREAS, the Trust and BISYS have entered into an Administration
Agreement, dated July 20, 1999 concerning the provision of management and
administrative services for the investment portfolios of the Trust (individually
referred to herein as a "Fund" and collectively as the "Funds");
WHEREAS, the Trust and BISYS have entered into a Fund Accounting
Agreement and a Transfer Agency Agreement, each of which is dated July 20, 1999
concerning the provision of fund accounting and transfer agency services,
respectively, for the Funds; and
WHEREAS, the parties desire to set forth the compensation payable by
the Trust under the foregoing agreements in a separate written document.
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. The Administration Agreement, Fund Accounting Agreement, and
Transfer Agency Agreement referred to herein shall be referred to collectively
as the "Service Agreements."
2. The Trust shall pay to BISYS on the first business day of each
month, or at such time(s) as BISYS shall request and the parties hereto shall
agree, an annual asset-based fee, computed daily, at the rate of:
13 one-hundredths of one percent (.13%) of each Fund's daily net
asset value up to $500 million.
10 one-hundredths of one percent (.10%) of each Fund's daily net
asset value in excess of $500 million up to $750 million.
8.5 one-hundredths of one percent (.085%) of each Fund's daily
net asset value in excess of $750 million up to $1 billion.
7.5 one-hundreth of one percent (.075%) of each Fund's daily net
asset value in excess of $1 billion.
<PAGE>
The above-referenced fee shall be subject to an annual aggregate minimum fee of
$75,000 for the first year, $162,000 for the second year and $187,000 for the
years three, four and five. BISYS shall also be entitled to receive $12.50 per
account payable monthly.
3. The fees set forth above shall be in addition to the payment of
out-of-pocket expenses, as provided for in the Service Agreements.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be fully executed as of the day and year first written above.
METAMARKETS.COM FUNDS
By:_______________________________
Name:_____________________________
Title:____________________________
BISYS FUND SERVICES OHIO, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
EXHIBIT 23(e)(1)
DISTRIBUTION AGREEMENT
AGREEMENT made as of July 20, 1999 between METAMARKETS.COM FUNDS (the
"Company"), a Massachusetts business trust having its principal place of
business at 400 Oyster Point Blvd., Suite 414, South San Francisco, California
94080, and BISYS FUND SERVICES LIMITED PARTNERSHIP D/B/A/ BISYS FUND SERVICES
(the "Distributor"), having its principal place of business at 3435 Stelzer
Road, Columbus, Ohio 43219.
WHEREAS, the Company is an open-end management investment company
registered with the Securities and Exchange Commission (the "Commission") under
the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, it is intended that Distributor act as the distributor of the
shares of beneficial interest ("Shares") of each of the investment portfolios of
the Company (such portfolios being referred to individually as a "Fund" and
collectively as the "Funds").
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. SERVICES AS DISTRIBUTOR.
1.1 Distributor will act as agent for the distribution of the
Shares covered by the registration statement and prospectus of the Company then
in effect under the Securities Act of 1933, as amended (the "Securities Act").
As used in this Agreement, the term "registration statement" shall mean Parts A
(the prospectus), B (the Statement of Additional Information) and C of each
registration statement that is filed on Form N-1A, or any successor thereto,
with the Commission, together with any amendments thereto. The term "prospectus"
shall mean each form of prospectus and Statement of Additional Information used
by the Funds for delivery to shareholders and prospective shareholders after the
effective dates of the above referenced registration statements, together with
any amendments and supplements thereto.
1.2 Distributor agrees to use appropriate efforts to solicit
orders for the sale of the Shares and will undertake such advertising and
promotion as it believes reasonable in connection with such solicitation. The
Company understands that Distributor is now and may in the future be the
distributor of the shares of several investment companies or series (together,
"Investment Companies") including Investment Companies having investment
objectives similar to those of the Funds. The Company further understands that
investors and potential investors in the Company may invest in shares of such
other Investment Companies. The Company agrees that Distributor's duties to such
Investment Companies shall not be deemed in conflict with its duties to the
Company under this paragraph 1.2.
Distributor shall, at its own expense, finance appropriate activities
which it deems reasonable, which are primarily intended to result in the sale of
the Shares, including, but not limited to, advertising, compensation of
underwriters, dealers and sales personnel, the printing and mailing of
prospectuses to other than current Shareholders, and the printing and mailing of
sales literature.
1.3 In its capacity as distributor of the Shares, all activities
of Distributor and its partners, agents, and employees shall comply with all
applicable laws, rules and regulations, including, without limitation, the 1940
Act, all rules and regulations promulgated by the Commission thereunder and all
rules and regulations adopted by any securities association registered under the
Securities Exchange Act of 1934.
1.4 Distributor will provide one or more persons, during normal
business hours, to respond to telephone questions with respect to the Company.
1.5 Distributor will transmit any orders received by it for
purchase or redemption of the Shares to the transfer agent and custodian for the
Funds.
1.6 Whenever in their judgment such action is warranted by
unusual market, economic or political conditions, or by abnormal circumstances
of any kind, the Company's officers may decline to accept any orders for, or
make any sales of, the Shares until such time as those officers deem it
advisable to accept such orders and to make such sales.
1.7 Distributor will act only on its own behalf as principal if
it chooses to enter into selling agreements with selected dealers or others.
1.8 The Company agrees at its own expense to execute any and all
documents and to furnish any and all information and otherwise to take all
actions that may be reasonably necessary in connection with the qualification of
the Shares for sale in such states as Distributor may designate.
1.9 The Company shall furnish from time to time, for use in
connection with the sale of the Shares, such information with respect to the
Funds and the Shares as Distributor may reasonably request; and the Company
warrants that the statements contained in any such information shall fairly show
or represent what they purport to show or represent. The Company shall also
furnish Distributor upon request with: (a) unaudited semi-annual statements of
the Funds' books and accounts prepared by the Company, (b) a monthly itemized
list of the securities in the Funds, (c) monthly balance sheets as soon as
practicable after the end of each month, and (d) from time to time such
additional information regarding the financial condition of the Funds as
Distributor may reasonably request.
1.10 The Company represents to Distributor that, with respect to
the Shares, all registration statements and prospectuses filed by the Company
with the Commission under the Securities Act have been carefully prepared in
conformity with requirements of said Act and rules and regulations of the
Commission thereunder. The registration statement and prospectus contain all
statements required to be stated therein in conformity with said Act and the
rules and regulations of said Commission and all statements of fact contained in
any such registration statement and prospectus are true and correct.
Furthermore, neither any registration statement nor any prospectus includes an
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
to a purchaser of the Shares. The Company may, but shall not be obligated to,
propose from time to time such amendment or amendments to any registration
statement and such supplement or supplements to any prospectus as, in the light
of future developments, may, in the opinion of the Company's counsel, be
necessary or advisable. If the Company shall not propose such amendment or
amendments and/or supplement or supplements within fifteen days after receipt by
the Company of a written request from Distributor to do so, Distributor may, at
its option, terminate this Agreement. The Company shall not file any amendment
to any registration statement or supplement to any prospectus without giving
Distributor reasonable notice thereof in advance; provided, however, that
nothing contained in this Agreement shall in any way limit the Company's right
to file at any time such amendments to any registration statement and/or
supplements to any prospectus, of whatever character, as the Company may deem
advisable, such right being in all respects absolute and unconditional.
1.11 The Company authorizes Distributor and dealers to use any
prospectus in the form furnished from time to time in connection with the sale
of the Shares. The Company agrees to indemnify, defend and hold Distributor, its
several partners and employees, and any person who controls Distributor within
the meaning of Section 15 of the Securities Act free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which Distributor, its partners
and employees, or any such controlling person, may incur under the Securities
Act or under common law or otherwise, arising out of or based upon any untrue
statement, or alleged untrue statement, of a material fact contained in any
registration statement or any prospectus or arising out of or based upon any
omission, or alleged omission, to state a material fact required to be stated in
either any registration statement or any prospectus or necessary to make the
statements in either thereof not misleading; provided, however, that the
Company's agreement to indemnify Distributor, its partners or employees, and any
such controlling person shall not be deemed to cover any claims, demands,
liabilities or expenses arising out of any statements or representations as are
contained in any prospectus and in such financial and other statements as are
furnished in writing to the Company by Distributor and used in the answers to
the registration statement or in the corresponding statements made in the
prospectus, or arising out of or based upon any omission or alleged omission to
state a material fact in connection with the giving of such information required
to be stated in such answers or necessary to make the answers not misleading;
and further provided that the Company's agreement to indemnify Distributor and
the Company's representations and warranties hereinbefore set forth in paragraph
1.10 shall not be deemed to cover any liability to the Company or its
Shareholders to which Distributor would otherwise be subject by reason of
willful misfeasance, bad faith or negligence in the performance of its duties,
or by reason of Distributor's reckless disregard of its obligations and duties
under this Agreement. The Company's agreement to indemnify Distributor, its
partners and employees and any such controlling person, as aforesaid, is
expressly conditioned upon the Company being notified of any action brought
against Distributor, its partners or employees, or any such controlling person,
such notification to be given by letter or by telegram addressed to the Company
at its principal office in Columbus, Ohio and sent to the Company by the person
against whom such action is brought, within 10 days after the summons or other
first legal process shall have been served. The failure to so notify the Company
of any such action shall not relieve the Company from any liability which the
Company may have to the person against whom such action is brought by reason of
any such untrue, or allegedly untrue, statement or omission, or alleged
omission, otherwise than on account of the Company's indemnity agreement
contained in this paragraph 1.11. The Company will be entitled to assume the
defense of any suit brought to enforce any such claim, demand or liability, but,
in such case, such defense shall be conducted by counsel of good standing chosen
by the Company and approved by Distributor, which approval shall not be
unreasonably withheld. In the event the Company elects to assume the defense of
any such suit and retain counsel of good standing approved by Distributor, the
defendant or defendants in such suit shall bear the fees and expenses of any
additional counsel retained by any of them; but in case the Company does not
elect to assume the defense of any such suit, or in case Distributor reasonably
does not approve of counsel chosen by the Company, the Company will reimburse
Distributor, its partners and employees, or the controlling person or persons
named as defendant or defendants in such suit, for the fees and expenses of any
counsel retained by Distributor or them. The Company's indemnification agreement
contained in this paragraph 1.11 and the Company's representations and
warranties in this Agreement shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of Distributor, its
partners and employees, or any controlling person, and shall survive the
delivery of any Shares.
This Agreement of indemnity will inure exclusively to
Distributor's benefit, to the benefit of its several partners and employees, and
their respective estates, and to the benefit of the controlling persons and
their successors. The Company agrees promptly to notify Distributor of the
commencement of any litigation or proceedings against the Company or any of its
officers or Board members in connection with the issue and sale of any Shares.
1.12 Distributor agrees to indemnify, defend and hold the
Company, its several officers and Board members and any person who controls the
Company within the meaning of Section 15 of the Securities Act free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the costs of investigating or defending such claims, demands, or
liabilities and any counsel fees incurred in connection therewith) which the
Company, its officers or Board members or any such controlling person, may incur
under the Securities Act or under common law or otherwise, but only to the
extent that such liability or expense incurred by the Company, its officers or
Board members or such controlling person resulting from such claims or demands,
shall arise out of or be based upon any untrue, or alleged untrue, statement of
a material fact contained in information furnished in writing by Distributor to
the Company and used in the answers to any of the items of the registration
statement or in the corresponding statements made in the prospectus, or shall
arise out of or be based upon any omission, or alleged omission, to state a
material fact in connection with such information furnished in writing by
Distributor to the Company required to be stated in such answers or necessary to
make such information not misleading. Distributor's agreement to indemnify the
Company, its officers and Board members, and any such controlling person, as
aforesaid, is expressly conditioned upon Distributor being notified of any
action brought against the Company, its officers or Board members, or any such
controlling person, such notification to be given by letter or telegram
addressed to Distributor at its principal office in Columbus, Ohio, and sent to
Distributor by the person against whom such action is brought, within 10 days
after the summons or other first legal process shall have been served.
Distributor shall have the right of first control of the defense of such action,
with counsel of its own choosing, satisfactory to the Company, if such action is
based solely upon such alleged misstatement or omission on Distributor's part,
and in any other event the Company, its officers or Board members or such
controlling person shall each have the right to participate in the defense or
preparation of the defense of any such action. The failure to so notify
Distributor of any such action shall not relieve Distributor from any liability
which Distributor may have to the Company, its officers or Board members, or to
such controlling person by reason of any such untrue or alleged untrue
statement, or omission or alleged omission, otherwise than on account of
Distributor's indemnity agreement contained in this paragraph 1.12.
1.13 No Shares shall be offered by either Distributor or the
Company under any of the provisions of this Agreement and no orders for the
purchase or sale of Shares hereunder shall be accepted by the Company if and so
long as the effectiveness of the registration statement then in effect or any
necessary amendments thereto shall be suspended under any of the provisions of
the Securities Act or if and so long as a current prospectus as required by
Section 10(b)(2) of said Act is not on file with the Commission; provided,
however, that nothing contained in this paragraph 1.13 shall in any way restrict
or have an application to or bearing upon the Company's obligation to repurchase
Shares from any Shareholder in accordance with the provisions of the Company's
prospectus, Agreement and Declaration of Trust, or Bylaws.
1.14 The Company agrees to advise Distributor as soon as
reasonably practical by a notice in writing delivered to Distributor or its
counsel:
(a) of any request by the Commission for amendments to the
registration statement or prospectus then in effect or for
additional information;
(b) in the event of the issuance by the Commission of any stop
order suspending the effectiveness of the registration
statement or prospectus then in effect or the initiation by
service of process on the Company of any proceeding for that
purpose;
(c) of the happening of any event that makes untrue any
statement of a material fact made in the registration
statement or prospectus then in effect or which requires the
making of a change in such registration statement or
prospectus in order to make the statements therein not
misleading; and
(d) of all action of the Commission with respect to any
amendment to any registration statement or prospectus which
may from time to time be filed with the Commission.
<PAGE>
For purposes of this section, informal requests by or acts of the
Staff of the Commission shall not be deemed actions of or requests by the
Commission.
1.15 Distributor agrees on behalf of itself and its partners and
employees to treat confidentially and as proprietary information of the Company
all records and other information relative to the Company and its prior, present
or potential Shareholders, and not to use such records and information for any
purpose other than performance of its responsibilities and duties hereunder,
except, after prior notification to and approval in writing by the Company,
which approval shall not be unreasonably withheld and may not be withheld where
Distributor may be exposed to civil or criminal contempt proceedings for failure
to comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Company.
1.16 This Agreement shall be governed by the laws of the State of
Ohio.
1.17 In the event Distributor purchases the initial shares of the
Company for purposes of satisfying the minimum net worth requirements set forth
in Section 14 (a) of the 1940 Act, and a notice of termination is subsequently
given or this Agreement is otherwise terminated pursuant to Section 6 herein for
any reason prior to the time that organizational expenses incurred by the
Company have been fully amortized, then the Company shall either (i) cause the
successor distributor of the shares (the "Successor Distributor") to pay to
Distributor, within ten (10) days prior to the termination of this Agreement, an
amount of cash that is sufficient to purchase the initial shares that are held
by Distributor or (ii) enable Distributor to redeem the initial shares of the
Company that it holds by causing the Successor Distributor to contribute to the
Company, within ten (10) days prior to the termination of this Agreement, any
unamortized organizational costs in the same proportion as the number of initial
shares being redeemed bears to the number of initial shares outstanding at the
time of such contribution. In the latter case, Distributor shall be entitled to
redeem any or all of the initial shares that it holds and receive redemption
proceeds without any reduction in the amount of such proceeds, prior to the
termination of this Agreement.
2. FEE.
Distributor shall receive from the Funds identified in the
Distribution and Servicing Plan attached as Exhibit A hereto (the "Distribution
Plan Funds") a distribution fee at the rate and upon the terms and conditions
set forth in such Plan. The distribution fee shall be accrued daily and shall be
paid on the first business day of each month, or at such time(s) as the
Distributor shall reasonably request.
3. SALE AND PAYMENT.
Shares of a Fund may be subject to a sales load and may be
subject to the imposition of a distribution fee pursuant to a Distribution and
Servicing Plan referred to above. To the extent that Shares of a Fund are sold
at an offering price which includes a sales load or at net asset value subject
to a contingent deferred sales load with respect to certain redemptions (either
within a single class of Shares or pursuant to two or more classes of Shares),
such Shares shall hereinafter be referred to collectively as "Load Shares" (in
the case of Shares that are sold with a front-end sales load or Shares that are
sold subject to a contingent deferred sales load), "Front-End Load Shares" or
"CDSL Shares" and individually as a "Load Share," a "Front-End Load Share" or a
"CDSL Share." A Fund that contains Front-End Load Shares shall hereinafter be
referred to collectively as "Load Funds" or "Front-End Load Funds" and
individually as a "Load Fund" or a "Front-end Load Fund." A Fund that contains
CDSL Shares shall hereinafter be referred to collectively as "Load Funds" or
"CDSL Funds" and individually as a "Load Fund" or a "CDSL Fund." Under this
Agreement, the following provisions shall apply with respect to the sale of, and
payment for, Load Shares.
3.1 Distributor shall have the right to purchase Load Shares at
their net asset value and to sell such Load Shares to the public against orders
therefor at the applicable public offering price, as defined in Section 4
hereof. Distributor shall also have the right to sell Load Shares to dealers
against orders therefor at the public offering price less a concession
determined by Distributor, which concession shall not exceed the amount of the
sales charge or underwriting discount, if any, referred to in Section 4 below.
3.2 Prior to the time of delivery of any Load Shares by a Load
Fund to, or on the order of, Distributor, Distributor shall pay or cause to be
paid to the Load Fund or to its order an amount in Boston or New York clearing
house funds equal to the applicable net asset value of such Shares. Distributor
may retain so much of any sales charge or underwriting discount as is not
allowed by Distributor as a concession to dealers.
4. PUBLIC OFFERING PRICE.
The public offering price of a Load Share shall be the net asset
value of such Load Share, plus any applicable sales charge, all as set forth in
the current prospectus of the Load Fund. The net asset value of Shares shall be
determined in accordance with the provisions of the Agreement and Declaration of
Trust and Bylaws of the Company and the then-current prospectus of the Load
Fund.
5. ISSUANCE OF SHARES.
The Company reserves the right to issue, transfer or sell Load
Shares at net asset value (a) in connection with the merger or consolidation of
the Company or the Load Fund(s) with any other investment company or the
acquisition by the Company or the Load Fund(s) of all or substantially all of
the assets or of the outstanding Shares of any other investment company; (b) in
connection with a pro rata distribution directly to the holders of Shares in the
nature of a stock dividend or split; (c) upon the exercise of subscription
rights granted to the holders of Shares on a pro rata basis; (d) in connection
with the issuance of Load Shares pursuant to any exchange and reinvestment
privileges described in any then-current prospectus of the Load Fund; and (e)
otherwise in accordance with any then-current prospectus of the Load Fund.
<PAGE>
6. TERM, DURATION AND TERMINATION.
This Agreement shall become effective with respect to each Fund
listed on Schedule A hereto as of the date first written above or, if a
particular Fund is not in existence on such date, on the date an amendment to
Schedule A to this Agreement relating to that Fund is executed and, unless
sooner terminated as provided herein, shall continue until July 20, 2001.
Thereafter, if not terminated, this Agreement shall continue with respect to a
particular Fund automatically for successive one-year terms, provided that such
continuance is specifically approved at least annually by (a) by the vote of a
majority of those members of the Company's Board who are not parties to this
Agreement or interested persons of any such party, cast in person at a meeting
for the purpose of voting on such approval and (b) by the vote of the Company's
Board members or the vote of a majority of the outstanding voting securities of
such Fund. This Agreement is terminable without penalty, on not less than sixty
days' prior written notice, by the Company's Board, by vote of a majority of the
outstanding voting securities of the Company or by the Distributor. This
Agreement will also terminate automatically in the event of its assignment. (As
used in this Agreement, the terms "majority of the outstanding voting
securities," "interested persons" and "assignment" shall have the same meanings
as ascribed to such terms in the 1940 Act.)
7. MISCELLANEOUS.
This Agreement has been executed on behalf of the Fund by the
undersigned officer of the Fund in his capacity as an officer of the Fund. The
obligations of this Agreement shall only be binding upon the assets and property
of the Fund and shall not be binding upon any Board member, officer or
shareholders of the Fund individually.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first written above.
METAMARKETS.COM FUNDS BISYS FUND SERVICES LIMITED
PARTNERSHIP
BY: BISYS FUND SERVICES, INC.
GENERAL PARTNER
By:_______________________ By:________________________
Title:____________________ Title:_____________________
Date:_____________________ Date:______________________
<PAGE>
SCHEDULE A
OpenFund
Communications Technology Fund
Media Technology Fund
OpenFund II
Exhibit 23(e)(2)
METAMARKETS.COM FUNDS
DISTRIBUTION AND SERVICING PLAN AGREEMENT
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, Ohio 43219-3035
Ladies and Gentlemen:
We wish to enter into this Agreement with you for distribution
and certain other services with respect to each series set forth on Schedule 1
hereto, as such Schedule may be revised from time to time (each, a "Series"), of
MetaMarkets.com Funds (the "Fund") of which you are the principal underwriter as
defined in the Investment Company Act of 1940, as amended (the "Act"), and the
exclusive agent for the continuous distribution of its shares.
The terms and conditions of this Agreement are as follows:
1. We agree to provide reasonable assistance in connection with
the sale of the Series' shares, which assistance may include distributing sales
literature, marketing and advertising. If we are restricted or unable to provide
the services contemplated above, we agree not to perform such services and not
to accept fees thereafter. Our acceptance of any fees hereunder shall constitute
our representation (which shall survive any payment of such fees and any
termination of this Agreement and shall be reaffirmed each time we accept a fee
hereunder) that our receipt of such fee is lawful.
2. We agree to provide shareholder and administrative services
for our clients who own shares of any Series ("clients"), which services may
include, without limitation, answering client inquiries about the Fund or any
Series; assisting clients in changing dividend options, account designations and
addresses; performing sub-accounting; establishing and maintaining shareholder
accounts and records; processing purchase and redemption transactions; investing
client account cash balances automatically in Series' shares; providing periodic
statements showing a client's account balance and integrating such statements
with those of other transactions and balances in the client's other accounts
serviced by us; arranging for bank wires; and providing such other information
and services as the Fund reasonably may request, to the extent we are permitted
by applicable statute, rule or regulation. In this regard, you recognize that to
the extent we are subject to the provisions of the Glass-Steagall Act and other
laws governing, among other things, the conduct of activities we may undertake
and for which we may be paid, we intend to perform only those activities as are
consistent with our statutory and regulatory obligations. We shall provide to
clients a schedule of the services and of any fees that we may charge directly
to them for such services.
3. We shall provide such office space and equipment, telephone
facilities and personnel (which may be all or any part of the space, equipment
and facilities currently used in our business, or all or any personnel employed
by us) as is necessary or beneficial in order to provide such services
contemplated hereunder.
4. We agree that neither we nor any of our employees or agents
are authorized to make any representation concerning the Series' shares, except
those contained in the Fund's then-current Prospectus and Statement of
Additional Information, copies of which will be supplied by you to us, or in
such supplemental literature or advertising materials as may be authorized by
you in writing.
5. For all purposes of this Agreement, we will be deemed to be
an independent contractor, and will have no authority to act as agent for you or
the Fund in any matter or in any respect. We and our employees will, upon
request, be available during normal business hours to consult with you or your
designees concerning the performance of our responsibilities under this
Agreement.
6. In consideration of the services and facilities described
herein, we shall be entitled to receive from you, and you agree to pay to us
with respect to each Series, the fees set forth opposite such Series' name on
Schedule 1 hereto. We understand that the payment of these fees has been
authorized and will be paid pursuant to a Distribution and Servicing Plan
approved by the Fund's Board, and any payments pursuant to this Agreement shall
be paid only so long as this Agreement and the Distribution and Servicing Plan
adopted by the Fund is in effect.
7. You reserve the right, at your discretion and without
notice, to suspend or withdraw the sale of any Series' shares.
8. We acknowledge that this Agreement shall become effective,
as to a Series, only when approved by vote of a majority of (i) the Fund's Board
and (ii) the Board members who are not "interested persons" (as defined in the
Act) of the Fund and have no direct or indirect financial interest in this
Agreement, cast in person at a meeting called for the purpose of voting on such
approval.
9. As to each Series, this Agreement shall continue until the
last day of the calendar year next following the date of execution, and
thereafter shall continue automatically for successive annual periods ending on
the last day of each calendar year, provided such continuance is approved
specifically at least annually by a vote of a majority of (i) the Fund's Board
and (ii) the Board members who are not "interested persons" (as defined in the
Act) of the Fund and have no direct or indirect financial interest in this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. As to each Series, this Agreement is terminable without
penalty, at any time, by vote of a majority of the Board members who are not
"interested persons" (as defined in the Act) and have no direct or indirect
financial interest in this Agreement or, on not more than 60 days' written
notice, by vote of holders of a majority of a Series' outstanding shares, or,
upon 15 days' notice, by you. Notwithstanding anything contained herein, if the
Distribution and Servicing Plan adopted by the Fund is terminated by the Fund's
Board, or the Distribution and Servicing Plan, or any part thereof, is found
invalid or is ordered terminated by any regulatory or judicial authority, or we
fail to perform the distribution and servicing functions contemplated by the
Fund or by you, this Agreement shall be terminable effective upon receipt of
notice thereof by us. This Agreement also shall terminate automatically, as to
the relevant Series, in the event of its assignment (as defined in the Act).
10. We understand that the Fund's Board will review, at least
quarterly, a written report of the amounts expended pursuant to this Agreement
and the purposes for which such expenditures were made. In connection with such
reviews, we will furnish you or your designees with such information as you or
they may reasonably request and will otherwise cooperate with you and your
designees (including, without limitation, any auditors designated by you), in
connection with the preparation of reports to the Fund's Board concerning this
Agreement and the monies paid or payable by you pursuant hereto, as well as any
other reports or filings that may be required by law.
11. All communications to you shall be sent to you at the
address set forth above. Any notice to us shall be duly given if mailed or
telegraphed to us at the address set forth below.
12. This Agreement shall be construed in accordance with the
internal laws of the State of Ohio, without giving effect to principles of
conflict of laws.
Very truly yours,
-------------------------------------
(Please Print or Type Name of Entity)
-------------------------------------
Address
-------------------------------------
City State Zip Code
Date____________________ By:___________________________________
Authorized Signature
NOTE: Please return both signed copies of this Agreement to
BISYS Fund Services Ohio, Inc. Upon acceptance one
countersigned copy will be returned for your files.
Accepted:
BISYS FUND SERVICES OHIO, INC.
Date ------------------- By:____________________________
<PAGE>
SCHEDULE 1
Distribution and Servicing Plan Agreement
between
BISYS FUND SERVICES OHIO, INC.
and
------------------------------
Name of Signatory
Fee at an Annual Rate as a
Percentage of Average Daily
Net Asset Value Of Shares
Name of Series* Owned by Clients**
- ----------------------- -------------------------
OpenFund
Communications Technology Fund
Media Technology Fund
OpenFund II
- --------
* If the Fund at any time offers shares of one or more series not listed
on this Schedule 1 (each, a "New Series"), each New Series shall be
deemed to be subject to this Agreement and, unless notified to the
contrary by BISYS Fund Services Ohio, Inc., the undersigned may sell
shares of the New Series in accordance with the terms of this
Agreement and shall be entitled to receive with respect to such New
Series the fees set forth on this Schedule 1.
** For purposes of determining the fees payable hereunder, the average
daily net asset value of each series' shares shall be computed in the
manner specified in the Fund's charter documents and then-current
Prospectus and Statement of Additional Information.
EXHIBIT 23(g)
CUSTODIAN AGREEMENT
AGREEMENT made as of this 20th day of July, 1999, between
METAMARKETS.COM FUNDS, an unincorporated business trust organized under the laws
of the Commonwealth of Massachusetts (the "Fund"), and INVESTORS BANK & TRUST
COMPANY, a Massachusetts trust company (the "Bank").
The Fund, an open-end management investment company, on behalf of the
series listed on APPENDIX A hereto (as such APPENDIX A may be amended from time
to time) (each a "Portfolio" and collectively, the "Portfolios"), desires to
place and maintain all of its portfolio securities and cash in the custody of
the Bank. The Bank has at least the minimum qualifications required by Section
17(f)(1) of the Investment Company Act of 1940, as amended (the "1940 Act"), to
act as custodian of the portfolio securities and cash of the Fund, and has
indicated its willingness to so act, subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. BANK APPOINTED CUSTODIAN. The Fund hereby appoints the Bank as
custodian of its portfolio securities and cash delivered to the Bank as
hereinafter described and the Bank agrees to act as such upon the terms and
conditions hereinafter set forth. For the services rendered pursuant to this
Agreement the Fund agrees to pay to the Bank the fees set forth on APPENDIX B
hereto.
2. DEFINITIONS. Whenever used herein, the terms listed below will have
the following meaning:
2.1 AUTHORIZED PERSON. Authorized Person will mean any of the
persons duly authorized to give Proper Instructions or otherwise act on behalf
of the Fund by appropriate resolution of its Board, and set forth in a
certificate as required by Section 4 hereof.
2.2 BOARD. Board will mean the Fund's Board of Trustees.
2.3 SECURITY. The term security as used herein will have the
same meaning assigned to such term in the Securities Act of 1933, as amended,
including, without limitation, any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, certificate of interest or participation in any profit
sharing agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege on
any security, certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
a foreign currency, or, in general, any interest or instrument commonly known as
a "security", or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to, or option contract to purchase or sell any of the foregoing, and
futures, forward contracts and options thereon.
2.4 PORTFOLIO SECURITY. Portfolio Security will mean any
security owned by the Fund.
2.5 OFFICERS' CERTIFICATE. Officers' Certificate will mean,
unless otherwise indicated, any request, direction, instruction, or
certification in writing signed by any two Authorized Persons of the Fund.
2.6 BOOK-ENTRY SYSTEM. Book-Entry System shall mean the
Federal Reserve- Treasury Department Book Entry System for United States
government, instrumentality and agency securities operated by the Federal
Reserve Bank, its successor or successors and its nominee or nominees.
2.7 DEPOSITORY. Depository shall mean The Depository Trust
Company ("DTC"), a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934, as amended
("Exchange Act"), its successor or successors and its nominee or nominees. The
term "Depository" shall further mean and include any other person authorized to
act as a depository under the 1940 Act, its successor or successors and its
nominee or nominees, specifically identified in a certified copy of a resolution
of the Board.
2.8 PROPER INSTRUCTIONS. Proper Instructions shall mean (i)
instructions regarding the purchase or sale of Portfolio Securities, and
payments and deliveries in connection therewith, given by an Authorized Person,
such instructions to be given in such form and manner as the Bank and the Fund
shall agree upon from time to time, and (ii) instructions (which may be
continuing instructions) regarding other matters signed or initialed by an
Authorized Person. Oral instructions will be considered Proper Instructions if
the Bank reasonably believes them to have been given by an Authorized Person.
The Fund shall cause all oral instructions to be promptly confirmed in writing.
The Bank shall act upon and comply with any subsequent Proper Instruction which
modifies a prior instruction and the sole obligation of the Bank with respect to
any follow-up or confirmatory instruction shall be to make reasonable efforts to
detect any discrepancy between the original instruction and such confirmation
and to report such discrepancy to the Fund. The Fund shall be responsible, at
the Fund's expense, for taking any action, including any reprocessing, necessary
to correct any such discrepancy or error, and to the extent such action requires
the Bank to act, the Fund shall give the Bank specific Proper Instructions as to
the action required. Upon receipt by the Bank of an Officers' Certificate as to
the authorization by the Board accompanied by a detailed description of
procedures approved by the Fund, Proper Instructions may include communication
effected directly between electro-mechanical or electronic devices provided that
the Board and the Bank agree in writing that such procedures afford adequate
safeguards for the Fund's assets.
3. SEPARATE ACCOUNTS. If the Fund has more than one series or
portfolio, the Bank will segregate the assets of each series or portfolio to
which this Agreement relates into a separate account for each such series or
portfolio containing the assets of such series or portfolio (and all investment
earnings thereon). Unless the context otherwise requires, any reference in this
Agreement to any actions to be taken by the Fund shall be deemed to refer to the
Fund acting on behalf of one or more of its series, any reference in this
Agreement to any assets of the Fund, including, without limitation, any
portfolio securities and cash and earnings thereon, shall be deemed to refer
only to assets of the applicable series, any duty or obligation of the Bank
hereunder to the Fund shall be deemed to refer to duties and obligations with
respect to such individual series and any obligation or liability of the Fund
hereunder shall be binding only with respect to such individual series, and
shall be discharged only out of the assets of such series.
4. CERTIFICATION AS TO AUTHORIZED PERSONS. The Secretary or Assistant
Secretary of the Fund will at all times maintain on file with the Bank his or
her certification to the Bank, in such form as may be acceptable to the Bank, of
(i) the names and signatures of the Authorized Persons and (ii) the names of the
members of the Board, it being understood that upon the occurrence of any change
in the information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Fund will sign a new or amended certification setting forth the
change and the new, additional or omitted names or signatures. The Bank will be
entitled to rely and act upon any Officers' Certificate given to it by the Fund
which has been signed by Authorized Persons named in the most recent
certification received by the Bank.
5. CUSTODY OF CASH. As custodian for the Fund, the Bank will open and
maintain a separate account or accounts in the name of the Fund or in the name
of the Bank, as Custodian of the Fund, and will deposit to the account of the
Fund all of the cash of the Fund, except for cash held by a subcustodian
appointed pursuant to Sections 14.2 or 14.3 hereof, including borrowed funds,
delivered to the Bank, subject only to draft or order by the Bank acting
pursuant to the terms of this Agreement. Pursuant to the Bank's internal
policies regarding the management of cash accounts, the Bank may segregate
certain portions of the cash of the Fund into a separate savings deposit account
upon which the Bank reserves the right to require seven (7) days notice prior to
withdrawal of cash from such an account. Upon receipt by the Bank of Proper
Instructions (which may be continuing instructions) or in the case of payments
for redemptions and repurchases of outstanding shares of the Fund, notification
from the Fund's transfer agent as provided in Section 7, requesting such
payment, designating the payee or the account or accounts to which the Bank will
release funds for deposit, and stating that it is for a purpose permitted under
the terms of this Section 5, specifying the applicable subsection, the Bank will
make payments of cash held for the accounts of the Fund, insofar as funds are
available for that purpose, only as permitted in subsections 5.1 through 5.9
below.
5.1 PURCHASE OF SECURITIES. Upon the purchase of securities
for the Fund, against contemporaneous receipt of such securities by the Bank or
against delivery of such securities to the Bank in accordance with generally
accepted settlement practices and customs in the jurisdiction or market in which
the transaction occurs registered in the name of the Fund or in the name of, or
properly endorsed and in form for transfer to, the Bank, or a nominee of the
Bank, or receipt for the account of the Bank pursuant to the provisions of
Section 6 below, each such payment to be made at the purchase price shown on a
broker's confirmation (or transaction report in the case of Book Entry Paper (as
that term is defined in Section 6.6 hereof)) of purchase of the securities
received by the Bank before such payment is made, as confirmed in the Proper
Instructions received by the Bank before such payment is made.
5.2 REDEMPTIONS. In such amount as may be necessary for the
repurchase or redemption of shares of the Fund offered for repurchase or
redemption in accordance with Section 7 of this Agreement.
5.3 DISTRIBUTIONS AND EXPENSES OF FUND. For the payment on the
account of the Fund of dividends or other distributions to shareholders as may
from time to time be declared by the Board, interest, taxes, management or
supervisory fees, distribution fees, fees of the Bank for its services hereunder
and reimbursement of the expenses and liabilities of the Bank as provided
hereunder, fees of any transfer agent, fees for legal, accounting, and auditing
services, or other operating expenses of the Fund.
5.4 PAYMENT IN RESPECT OF SECURITIES. For payments in
connection with the conversion, exchange or surrender of Portfolio Securities or
securities subscribed to by the Fund held by or to be delivered to the Bank.
5.5 REPAYMENT OF LOANS. To repay loans of money made to the
Fund, but, in the case of final payment, only upon redelivery to the Bank of any
Portfolio Securities pledged or hypothecated therefor and upon surrender of
documents evidencing the loan.
5.6 REPAYMENT OF CASH. To repay the cash delivered to the Fund
for the purpose of collateralizing the obligation to return to the Fund
certificates borrowed from the Fund representing Portfolio Securities, but only
upon redelivery to the Bank of such borrowed certificates.
5.7 FOREIGN EXCHANGE TRANSACTIONS.
(a) For payments in connection with foreign exchange contracts or
options to purchase and sell foreign currencies for spot and future delivery
(collectively, "Foreign Exchange Agreements") which may be entered into by the
Bank on behalf of the Fund upon the receipt of Proper Instructions, such Proper
Instructions to specify the currency broker or banking institution (which may be
the Bank, or any other subcustodian or agent hereunder, acting as principal)
with which the contract or option is made, and the Bank shall have no duty with
respect to the selection of such currency brokers or banking institutions with
which the Fund deals or for their failure to comply with the terms of any
contract or option.
(b) In order to secure any payments in connection with Foreign
Exchange Agreements which may be entered into by the Bank pursuant to Proper
Instructions, the Fund agrees that the Bank shall have a continuing lien and
security interest, to the extent of any payment due under any Foreign Exchange
Agreement, in and to any property at any time held by the Bank for the Fund's
benefit or in which the Fund has an interest and which is then in the Bank's
possession or control (or in the possession or control of any third party acting
on the Bank's behalf). The Fund authorizes the Bank, in the Bank's sole
discretion, at any time to charge any such payment due under any Foreign
Exchange Agreement against any balance of account standing to the credit of the
Fund on the Bank's books.
5.8 OTHER AUTHORIZED PAYMENTS. For other authorized
transactions of the Fund, or other obligations of the Fund incurred for proper
Fund purposes; provided that before making any such payment the Bank will also
receive a certified copy of a resolution of the Board signed by an Authorized
Person (other than the Person certifying such resolution) and certified by its
Secretary or Assistant Secretary, naming the person or persons to whom such
payment is to be made, and either describing the transaction for which payment
is to be made and declaring it to be an authorized transaction of the Fund, or
specifying the amount of the obligation for which payment is to be made, setting
forth the purpose for which such obligation was incurred and declaring such
purpose to be a proper corporate purpose.
5.9 TERMINATION: Upon the termination of this Agreement as
hereinafter set forth pursuant to Section 8 and Section 16 of this Agreement.
6. SECURITIES.
6.1 SEGREGATION AND REGISTRATION. Except as otherwise provided
herein, and except for securities to be delivered to any subcustodian appointed
pursuant to Sections 14.2 or 14.3 hereof, the Bank as custodian will receive and
hold pursuant to the provisions hereof, in a separate account or accounts and
physically segregated at all times from those of other persons, any and all
Portfolio Securities which may now or hereafter be delivered to it by or for the
account of the Fund. All such Portfolio Securities will be held or disposed of
by the Bank for, and subject at all times to, the instructions of the Fund
pursuant to the terms of this Agreement. Subject to the specific provisions
herein relating to Portfolio Securities that are not physically held by the
Bank, the Bank will register all Portfolio Securities (unless otherwise directed
by Proper Instructions or an Officers' Certificate), in the name of a registered
nominee of the Bank as defined in the Internal Revenue Code and any Regulations
of the Treasury Department issued thereunder, and will execute and deliver all
such certificates in connection therewith as may be required by such laws or
regulations or under the laws of any state.
The Fund will from time to time furnish to the Bank
appropriate instruments to enable it to hold or deliver in proper form for
transfer, or to register in the name of its registered nominee, any Portfolio
Securities which may from time to time be registered in the name of the Fund.
6.2 VOTING AND PROXIES. Neither the Bank nor any nominee of
the Bank will vote any of the Portfolio Securities held hereunder, except in
accordance with Proper Instructions or an Officers' Certificate. The Bank will
execute and deliver, or cause to be executed and delivered, to the Fund all
notices, proxies and proxy soliciting materials delivered to the Bank with
respect to such Securities, such proxies to be executed by the registered holder
of the Portfolio Securities (if registered otherwise than in the name of the
Fund), but without indicating the manner in which such proxies are to be voted.
6.3 CORPORATE ACTION. If at any time the Bank is notified that
an issuer of any Portfolio Security has taken or intends to take a corporate
action (a "Corporate Action") that affects the rights, privileges, powers,
preferences, qualifications or ownership of a Portfolio Security, including
without limitation, liquidation, consolidation, merger, recapitalization,
reorganization, reclassification, subdivision, combination, stock split or stock
dividend, which Corporate Action requires an affirmative response or action on
the part of the holder of such Portfolio Security (a "Response"), the Bank shall
notify the Fund promptly of the Corporate Action, the Response required in
connection with the Corporate Action and the Bank's deadline for receipt from
the Fund of Proper Instructions regarding the Response (the "Response
Deadline"). The Bank shall forward to the Fund via telecopier and/or overnight
courier all notices, information statements or other materials relating to the
Corporate Action promptly after receipt of such materials by the Bank.
(a) The Bank shall act upon a required Response only
after receipt by the Bank of Proper Instructions from the Fund no later than
5:00 p.m. on the date specified as the Response Deadline and only if the Bank
(or its agent or subcustodian hereunder) has actual possession of all necessary
Portfolio Securities, consents and other materials no later than 5:00 p.m. on
the date specified as the Response Deadline.
(b) The Bank shall have no duty to act upon a
Response if Proper Instructions relating to such Response and all necessary
Portfolio Securities, consents and other materials are not received by and in
the possession of the Bank no later than 5:00 p.m. on the date specified as the
Response Deadline. Notwithstanding, the Bank may, in its sole discretion, use
its best efforts to act upon a Response for which Proper Instructions and/or
necessary Portfolio Securities, consents or other materials are received by the
Bank after 5:00 p.m. on the date specified as the Response Deadline, it being
acknowledged and agreed by the parties that any undertaking by the Bank to use
its best efforts in such circumstances shall in no way create any duty upon the
Bank to complete such Response prior to its expiration.
(c) In the event that the Fund notifies the Bank of a
Corporate Action requiring a Response and the Bank has received no other notice
of such Corporate Action, the Response Deadline shall be 48 hours prior to the
Response expiration time set by the depository processing such Corporate Action.
(d) Section 14.3(e) of this Agreement shall govern
any Corporate Action involving Foreign Portfolio Securities held by a Selected
Foreign Sub-Custodian.
6.4 BOOK-ENTRY SYSTEM. Provided (i) the Bank has received a
certified copy of a resolution of the Board specifically approving deposits of
Fund assets in the Book-Entry System, and (ii) for any subsequent changes to
such arrangements following such approval, the Board has reviewed and approved
the arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may keep Portfolio Securities in the
Book-Entry System provided that such Portfolio Securities are represented in an
account ("Account") of the Bank (or its agent) in such System which shall not
include any assets of the Bank (or such agent) other than assets held as a
fiduciary, custodian, or otherwise for customers;
(b) The records of the Bank (and any such agent) with
respect to the Fund's participation in the Book-Entry System through the Bank
(or any such agent) will identify by book entry the Portfolio Securities which
are included with other securities deposited in the Account and shall at all
times during the regular business hours of the Bank (or such agent) be open for
inspection by duly authorized officers, employees or agents of the Fund. Where
securities are transferred to the Fund's account, the Bank shall also, by book
entry or otherwise, identify as belonging to the Fund a quantity of securities
in a fungible bulk of securities (i) registered in the name of the Bank or its
nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve
Bank;
(c) The Bank (or its agent) shall pay for securities
purchased for the account of the Fund or shall pay cash collateral against the
return of Portfolio Securities loaned by the Fund upon (i) receipt of advice
from the Book-Entry System that such Securities have been transferred to the
Account, and (ii) the making of an entry on the records of the Bank (or its
agent) to reflect such payment and transfer for the account of the Fund. The
Bank (or its agent) shall transfer securities sold or loaned for the account of
the Fund upon:
(i) receipt of advice from the Book-Entry
System that payment for securities sold or payment of the initial cash
collateral against the delivery of securities loaned by the Fund has been
transferred to the Account; and
(ii) the making of an entry on the records
of the Bank (or its agent) to reflect such transfer and payment for the account
of the Fund. Copies of all advices from the Book-Entry System of transfers of
securities for the account of the Fund shall identify the Fund, be maintained
for the Fund by the Bank and shall be provided to the Fund at its request. The
Bank shall send the Fund a confirmation, as defined by Rule 17f-4 of the 1940
Act, of any transfers to or from the account of the Fund; and
(d) The Bank will promptly provide the Fund with any
report obtained by the Bank or its agent on the Book-Entry System's accounting
system, internal accounting control and procedures for safeguarding securities
deposited in the Book-Entry System.
6.5 USE OF A DEPOSITORY. Provided (i) the Bank has received a
certified copy of a resolution of the Board specifically approving deposits in
DTC or other such Depository and (ii) for any subsequent changes to such
arrangements following such approval, the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may use a Depository to hold, receive,
exchange, release, lend, deliver and otherwise deal with Portfolio Securities
including stock dividends, rights and other items of like nature, and to receive
and remit to the Bank on behalf of the Fund all income and other payments
thereon and to take all steps necessary and proper in connection with the
collection thereof;
(b) Registration of Portfolio Securities may be made
in the name of any nominee or nominees used by such Depository;
(c) Payment for securities purchased and sold may be
made through the clearing medium employed by such Depository for transactions of
participants acting through it. Upon any purchase of Portfolio Securities,
payment will be made only upon delivery of the securities to or for the account
of the Fund and the Fund shall pay cash collateral against the return of
Portfolio Securities loaned by the Fund only upon delivery of the Portfolio
Securities to or for the account of the Fund; and upon any sale of Portfolio
Securities, delivery of the Portfolio Securities will be made only against
payment therefor or, in the event Portfolio Securities are loaned, delivery of
Portfolio Securities will be made only against receipt of the initial cash
collateral to or for the account of the Fund; and
(d) The Bank shall use its best efforts to provide
that:
(i) The Depository obtains replacement of
any certificated Portfolio Security deposited with it in the event such Security
is lost, destroyed, wrongfully taken or otherwise not available to be returned
to the Bank upon its request;
(ii) Proxy materials received by a
Depository with respect to Portfolio Securities deposited with such Depository
are forwarded immediately to the Bank for prompt transmittal to the Fund;
(iii) Such Depository promptly forwards to
the Bank confirmation of any purchase or sale of Portfolio Securities and of the
appropriate book entry made by such Depository to the Fund's account;
(iv) Such Depository prepares and delivers
to the Bank such records with respect to the performance of the Bank's
obligations and duties hereunder as may be necessary for the Fund to comply with
the recordkeeping requirements of Section 31(a) of the 1940 Act and Rule 31(a)
thereunder; and
(v) Such Depository delivers to the Bank all
internal accounting control reports, whether or not audited by an independent
public accountant, as well as such other reports as the Fund may reasonably
request in order to verify the Portfolio Securities held by such Depository.
6.6 USE OF BOOK-ENTRY SYSTEM FOR COMMERCIAL PAPER. Provided
(i) the Bank has received a certified copy of a resolution of the Board
specifically approving participation in a system maintained by the Bank for the
holding of commercial paper in book-entry form ("Book- Entry Paper") and (ii)
for each year following such approval the Board has received and approved the
arrangements, upon receipt of Proper Instructions and upon receipt of
confirmation from an Issuer (as defined below) that the Fund has purchased such
Issuer's Book-Entry Paper, the Bank shall issue and hold in book-entry form, on
behalf of the Fund, commercial paper issued by issuers with whom the Bank has
entered into a book-entry agreement (the "Issuers"). In maintaining procedures
for Book-Entry Paper, the Bank agrees that:
(a) The Bank will maintain all Book-Entry Paper held
by the Fund in an account of the Bank that includes only assets held by it for
customers;
(b) The records of the Bank with respect to the
Fund's purchase of Book-Entry Paper through the Bank will identify, by
book-entry, commercial paper belonging to the Fund which is included in the
Book-Entry System and shall at all times during the regular business hours of
the Bank be open for inspection by duly authorized officers, employees or agents
of the Fund;
(c) The Bank shall pay for Book-Entry Paper purchased
for the account of the Fund upon contemporaneous (i) receipt of advice from the
Issuer that such sale of Book-Entry Paper has been effected, and (ii) the making
of an entry on the records of the Bank to reflect such payment and transfer for
the account of the Fund;
(d) The Bank shall cancel such Book-Entry Paper
obligation upon the maturity thereof upon contemporaneous (i) receipt of advice
that payment for such Book-Entry Paper has been transferred to the Fund, and
(ii) the making of an entry on the records of the Bank to reflect such payment
for the account of the Fund; and
(e) The Bank will send to the Fund such reports on
its system of internal accounting control with respect to the Book-Entry Paper
as the Fund may reasonably request from time to time. . 6.7 USE OF
IMMOBILIZATION PROGRAMS. Provided (i) the Bank has received a certified copy of
a resolution of the Board specifically approving the maintenance of Portfolio
Securities in an immobilization program operated by a bank which meets the
requirements of Section 26(a)(1) of the 1940 Act, and (ii) for each year
following such approval the Board has reviewed and approved the arrangement and
has not delivered an Officer's Certificate to the Bank indicating that the Board
has withdrawn its approval, the Bank shall enter into such immobilization
program with such bank acting as a subcustodian hereunder.
6.8 EURODOLLAR CDS. Any Portfolio Securities which are
Eurodollar CDs may be physically held by the European branch of the U.S. banking
institution that is the issuer of such Eurodollar CD (a "European Branch"),
provided that such Portfolio Securities are identified on the books of the Bank
as belonging to the Fund and that the books of the Bank identify the European
Branch holding such Portfolio Securities. Notwithstanding any other provision of
this Agreement to the contrary, except as stated in the first sentence of this
subsection 6.8, the Bank shall be under no other duty with respect to such
Eurodollar CDs belonging to the Fund.
6.9 OPTIONS AND FUTURES TRANSACTIONS.
(a) Puts and Calls Traded on Securities Exchanges,
NASDAQ or Over-the-Counter.
(i) The Bank shall take action as to put
options ("puts") and call options ("calls") purchased or sold (written) by the
Fund regarding escrow or other arrangements (i) in accordance with the
provisions of any agreement entered into upon receipt of Proper Instructions
among the Bank, any broker-dealer registered with the National Association of
Securities Dealers, Inc. (the "NASD"), and, if necessary, the Fund, relating to
the compliance with the rules of the Options Clearing Corporation and of any
registered national securities exchange, or of any similar organization or
organizations.
(ii) Unless another agreement requires it to
do so, the Bank shall be under no duty or obligation to see that the Fund has
deposited or is maintaining adequate margin, if required, with any broker in
connection with any option, nor shall the Bank be under duty or obligation to
present such option to the broker for exercise unless it receives Proper
Instructions from the Fund. The Bank shall have no responsibility for the
legality of any put or call purchased or sold on behalf of the Fund, the
propriety of any such purchase or sale, or the adequacy of any collateral
delivered to a broker in connection with an option or deposited to or withdrawn
from a Segregated Account (as defined in subsection 6.10 below). The Bank
specifically, but not by way of limitation, shall not be under any duty or
obligation to: (i) periodically check or notify the Fund that the amount of such
collateral held by a broker or held in a Segregated Account is sufficient to
protect such broker or the Fund against any loss; (ii) effect the return of any
collateral delivered to a broker; or (iii) advise the Fund that any option it
holds, has or is about to expire. Such duties or obligations shall be the sole
responsibility of the Fund.
(b) Puts, Calls and Futures Traded on Commodities
Exchanges.
(i) The Bank shall take action as to puts,
calls and futures contracts ("Futures") purchased or sold by the Fund in
accordance with the provisions of any agreement entered into upon the receipt of
Proper Instructions among the Fund, the Bank and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any Contract Market, or
any similar organization or organizations, regarding account deposits in
connection with transactions by the Fund.
(ii) The responsibilities of the Bank as to
futures, puts and calls traded on commodities exchanges, any Futures Commission
Merchant account and the Segregated Account shall be limited as set forth in
subparagraph (a)(ii) of this Section 6.9 as if such subparagraph referred to
Futures Commission Merchants rather than brokers, and Futures and puts and calls
thereon instead of options.
6.10 SEGREGATED ACCOUNT. The Bank shall upon receipt of Proper
Instructions establish and maintain a Segregated Account or Accounts for and on
behalf of the Fund.
(a) Cash and/or Portfolio Securities may be
transferred into a Segregated Account upon receipt of Proper Instructions in the
following circumstances:
(i) in accordance with the provisions of any
agreement among the Fund, the Bank and a broker-dealer registered under the
Exchange Act and a member of the NASD or any Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance with the
rules of the Options Clearing Corporation and of any registered national
securities exchange or the Commodity Futures Trading Commission or any
registered Contract Market, or of any similar organizations regarding escrow or
other arrangements in connection with transactions by the Fund;
(ii) for the purpose of segregating cash or
securities in connection with options purchased or written by the Fund or
commodity futures purchased or written by the Fund;
(iii) for the deposit of liquid assets, such
as cash, U.S. Government securities or other high grade debt obligations, having
a market value (marked to market on a daily basis) at all times equal to not
less than the aggregate purchase price due on the settlement dates of all the
Fund's then outstanding forward commitment or "when-issued" agreements relating
to the purchase of Portfolio Securities and all the Fund's then outstanding
commitments under reverse repurchase agreements entered into with broker-dealer
firms;
(iv) for the purposes of compliance by the
Fund with the procedures required by Investment Company Act Release No. 10666,
or any subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of Segregated Accounts by registered investment
companies; or
(v) for other proper corporate purposes, but
only, in the case of this clause (v), upon receipt of, in addition to Proper
Instructions, a certified copy of a resolution of the Board, or of the executive
committee of the Board signed by an officer of the Fund and certified by the
Secretary or an Assistant Secretary, setting forth the purpose or purposes of
such Segregated Account and declaring such purposes to be proper corporate
purposes.
(b) Cash and/or Portfolio Securities may be withdrawn
from a Segregated Account pursuant to Proper Instructions in the following
circumstances:
(i) with respect to assets deposited in
accordance with the provisions of any agreements referenced in (a)(i) or (a)(ii)
above, in accordance with the provisions of such agreements;
(ii) with respect to assets deposited
pursuant to (a)(iii) or (a)(iv) above, for sale or delivery to meet the Fund's
obligations under outstanding forward commitment or when-issued agreements for
the purchase of Portfolio Securities and under reverse repurchase agreements;
(iii) for exchange for other liquid assets
of equal or greater value deposited in the Segregated Account;
(iv) to the extent that the Fund's
outstanding forward commitment or when-issued agreements for the purchase of
Portfolio Securities or reverse repurchase agreements are sold to other parties
or the Fund's obligations thereunder are met from assets of the Fund other than
those in the Segregated Account;
(v) for delivery upon settlement of a
forward commitment or when-issued agreement for the sale of Portfolio
Securities; or
(vi) with respect to assets deposited
pursuant to (a)(v) above, in accordance with the purposes of such account as set
forth in Proper Instructions.
6.11 INTEREST BEARING CALL OR TIME DEPOSITS. The Bank shall,
upon receipt of Proper Instructions relating to the purchase by the Fund of
interest-bearing fixed-term and call deposits, transfer cash, by wire or
otherwise, in such amounts and to such bank or banks as shall be indicated in
such Proper Instructions. The Bank shall include in its records with respect to
the assets of the Fund appropriate notation as to the amount of each such
deposit, the banking institution with which such deposit is made (the "Deposit
Bank"), and shall retain such forms of advice or receipt evidencing the deposit,
if any, as may be forwarded to the Bank by the Deposit Bank. Such deposits shall
be deemed Portfolio Securities of the Fund and the responsibility of the Bank
therefore shall be the same as and no greater than the Bank's responsibility in
respect of other Portfolio Securities of the Fund.
6.12 TRANSFER OF SECURITIES. The Bank will transfer, exchange,
deliver or release Portfolio Securities held by it hereunder, insofar as such
Securities are available for such purpose, provided that before making any
transfer, exchange, delivery or release under this Section only upon receipt of
Proper Instructions. The Proper Instructions shall state that such transfer,
exchange or delivery is for a purpose permitted under the terms of this Section
6.12, and shall specify the applicable subsection, or describe the purpose of
the transaction with sufficient particularity to permit the Bank to ascertain
the applicable subsection. After receipt of such Proper Instructions, the Bank
will transfer, exchange, deliver or release Portfolio Securities only in the
following circumstances:
(a) Upon sales of Portfolio Securities for the
account of the Fund, against contemporaneous receipt by the Bank of payment
therefor in full, or against payment to the Bank in accordance with generally
accepted settlement practices and customs in the jurisdiction or market in which
the transaction occurs, each such payment to be in the amount of the sale price
shown in a broker's confirmation of sale received by the Bank before such
payment is made, as confirmed in the Proper Instructions received by the Bank
before such payment is made;
(b) In exchange for or upon conversion into other
securities alone or other securities and cash pursuant to any plan of merger,
consolidation, reorganization, share split-up, change in par value,
recapitalization or readjustment or otherwise, upon exercise of subscription,
purchase or sale or other similar rights represented by such Portfolio
Securities, or for the purpose of tendering shares in the event of a tender
offer therefor; provided, however, that in the event of an offer of exchange,
tender offer, or other exercise of rights requiring the physical tender or
delivery of Portfolio Securities, the Bank shall have no liability for failure
to so tender in a timely manner unless such Proper Instructions are received by
the Bank at least two business days prior to the date required for tender, and
unless the Bank (or its agent or subcustodian hereunder) has actual possession
of such Security at least two business days prior to the date of tender;
(c) Upon conversion of Portfolio Securities pursuant
to their terms into other securities;
(d) For the purpose of redeeming in-kind shares of
the Fund upon authorization from the Fund;
(e) In the case of option contracts owned by the
Fund, for presentation to the endorsing broker;
(f) When such Portfolio Securities are called,
redeemed or retired or otherwise become payable;
(g) For the purpose of effectuating the pledge of
Portfolio Securities held by the Bank in order to collateralize loans made to
the Fund by any bank, including the Bank; provided, however, that such Portfolio
Securities will be released only upon payment to the Bank for the account of the
Fund of the moneys borrowed; provided further, however, that in cases where
additional collateral is required to secure a borrowing already made, and such
fact is made to appear in the Proper Instructions, Portfolio Securities may be
released for that purpose without any such payment. In the event that any
pledged Portfolio Securities are held by the Bank, they will be so held for the
account of the lender, and after notice to the Fund from the lender in
accordance with the normal procedures of the lender and any loan agreement
between the fund and the lender that an event of deficiency or default on the
loan has occurred, the Bank may deliver such pledged Portfolio Securities to or
for the account of the lender;
(h) for the purpose of releasing certificates
representing Portfolio Securities, against contemporaneous receipt by the Bank
of the fair market value of such security, as set forth in the Proper
Instructions received by the Bank before such payment is made;
(i) for the purpose of delivering securities lent by
the Fund to a bank or broker dealer, but only against receipt in accordance with
street delivery custom except as otherwise provided herein, of adequate
collateral as agreed upon from time to time by the Fund and the Bank, and upon
receipt of payment in connection with any repurchase agreement relating to such
securities entered into by the Fund;
(j) for other authorized transactions of the Fund or
for other proper corporate purposes; provided that before making such transfer,
the Bank will also receive a certified copy of resolutions of the Board, signed
by an authorized officer of the Fund (other than the officer certifying such
resolution) and certified by its Secretary or Assistant Secretary, specifying
the Portfolio Securities to be delivered, setting forth the transaction in or
purpose for which such delivery is to be made, declaring such transaction to be
an authorized transaction of the Fund or such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made; and
(k) upon termination of this Agreement as hereinafter
set forth pursuant to Section 8 and Section 16 of this Agreement.
As to any deliveries made by the Bank pursuant to this Section 6.12,
securities or cash receivable in exchange therefor shall be delivered to the
Bank.
7. REDEMPTIONS. In the case of payment of assets of the Fund held by
the Bank in connection with redemptions and repurchases by the Fund of its
outstanding shares, the Bank will rely on notification by the Fund's transfer
agent of receipt of a request for redemption and certificates, if issued, in
proper form for redemption before such payment is made. Payment shall be made in
accordance with the Declaration of Trust and By-laws of the Fund (the
"Articles"), from assets available for said purpose.
8. MERGER, DISSOLUTION, ETC. OF FUND. In the case of the following
transactions, not in the ordinary course of business, namely, the merger of the
Fund into or the consolidation of the Fund with another investment company, the
sale by the Fund of all, or substantially all, of its assets to another
investment company, or the liquidation or dissolution of the Fund and
distribution of its assets, the Bank will deliver the Portfolio Securities held
by it under this Agreement and disburse cash only upon the order of the Fund set
forth in an Officers' Certificate, accompanied by a certified copy of a
resolution of the Board authorizing any of the foregoing transactions. Upon
completion of such delivery and disbursement and the payment of the fees,
disbursements and expenses of the Bank, this Agreement will terminate and the
Bank shall be released from any and all obligations hereunder.
9. ACTIONS OF BANK WITHOUT PRIOR AUTHORIZATION. Notwithstanding
anything herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, the Bank will take the following actions without
prior authorization or instruction of the Fund or the transfer agent:
9.1 Endorse for collection and collect on behalf of and in the
name of the Fund all checks, drafts, or other negotiable or transferable
instruments or other orders for the payment of money received by it for the
account of the Fund and hold for the account of the Fund all income, dividends,
interest and other payments or distributions of cash with respect to the
Portfolio Securities held thereunder;
9.2 Present for payment all coupons and other income items
held by it for the account of the Fund which call for payment upon presentation
and hold the cash received by it upon such payment for the account of the Fund;
9.3 Receive and hold for the account of the Fund all
securities received as a distribution on Portfolio Securities as a result of a
stock dividend, share split-up, reorganization, recapitalization, merger,
consolidation, readjustment, distribution of rights and similar securities
issued with respect to any Portfolio Securities held by it hereunder.
9.4 Execute as agent on behalf of the Fund all necessary
ownership and other certificates and affidavits required by the Internal Revenue
Code or the regulations of the Treasury Department issued thereunder, or by the
laws of any state, now or hereafter in effect, inserting the Fund's name on such
certificates as the owner of the securities covered thereby, to the extent it
may lawfully do so and as may be required to obtain payment in respect thereof.
The Bank will execute and deliver such certificates in connection with Portfolio
Securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any State;
9.5 Present for payment all Portfolio Securities which are
called, redeemed, retired or otherwise become payable, and hold cash received by
it upon payment for the account of the Fund; and
9.6 Exchange interim receipts or temporary securities for
definitive securities.
10. COLLECTIONS AND DEFAULTS. The Bank will use reasonable efforts to
collect any funds which may to its knowledge become collectible arising from
Portfolio Securities, including dividends, interest and other income, and to
transmit to the Fund notice actually received by it of any call for redemption,
offer of exchange, right of subscription, reorganization or other proceedings
affecting such Securities. If Portfolio Securities upon which such income is
payable are in default or payment is refused after due demand or presentation,
the Bank will notify the Fund in writing of any default or refusal to pay within
two business days from the day on which it receives knowledge of such default or
refusal.
11. MAINTENANCE OF RECORDS AND ACCOUNTING SERVICES. The Bank will
maintain records with respect to transactions for which the Bank is responsible
pursuant to the terms and conditions of this Agreement, and in compliance with
the applicable rules and regulations of the 1940 Act. The books and records of
the Bank pertaining to its actions under this Agreement and reports by the Bank
or its independent accountants concerning its accounting system, procedures for
safeguarding securities and internal accounting controls will be open to
inspection and audit at reasonable times by officers of or auditors employed by
the Fund and will be preserved by the Bank in the manner and in accordance with
the applicable rules and regulations under the 1940 Act.
The Bank shall assist generally in the preparation of reports to
shareholders and others, audits of accounts, and other ministerial matters of
like nature.
12. [Reserved]
13. ADDITIONAL SERVICES. The Bank shall perform the additional
services for the Fund as are set forth on APPENDIX C hereto. APPENDIX C may be
amended from time to time upon agreement of the parties to include further
additional services to be provided by the Bank to the Fund, at which time the
fees set forth in APPENDIX B shall be appropriately increased.
14. DUTIES OF THE BANK.
14.1 PERFORMANCE OF DUTIES AND STANDARD OF CARE. In performing
its duties hereunder and any other duties listed on any Schedule hereto, if any,
the Bank will be entitled to receive and act upon the written advice of
independent counsel of its own selection, which shall be experienced in the
matter to which this contract relates and which may be counsel for the Fund, and
will be without liability for any action taken or thing done or omitted to be
done in accordance with this Agreement in good faith in conformity with such
advice.
The Bank will be under no duty or obligation to inquire into and will
not be liable for:
(a) the validity of the issue of any Portfolio
Securities purchased by or for the Fund, the legality of the purchases thereof
or the propriety of the price incurred therefor;
(b) the legality of any sale of any Portfolio
Securities by or for the Fund or the propriety of the amount for which the same
are sold;
(c) the legality of an issue or sale of any shares of
the Fund or the sufficiency of the amount to be received therefor;
(d) the legality of the redemption or repurchase of
any shares of the Fund or the propriety of the amount to be paid therefor;
(e) the legality of the declaration of any dividend
by the Fund or the legality of the distribution of any Portfolio Securities as
payment in kind of such dividend; and
(f) any property or moneys of the Fund unless and
until received by it, and any such property or moneys delivered or paid by it
pursuant to the terms hereof.
Moreover, the Bank will not be under any duty or obligation to
ascertain whether any Portfolio Securities at any time delivered to or held by
it for the account of the Fund are such as may properly be held by the Fund
under the provisions of its Articles, By-laws, any federal or state statutes or
any rule or regulation of any governmental agency.
14.2 AGENTS AND SUBCUSTODIANS WITH RESPECT TO PROPERTY OF THE
FUND HELD IN THE UNITED STATES. The Bank may employ agents of its own selection
in the performance of its duties hereunder and shall be responsible for the acts
and omissions of such agents as if performed by the Bank hereunder. Without
limiting the foregoing, certain duties of the Bank hereunder may be performed by
one or more affiliates of the Bank.
Upon receipt of Proper Instructions, the Bank may employ
subcustodians selected by or at the direction of the Fund, provided that any
such subcustodian meets at least the minimum qualifications required by Section
17(f)(1) of the 1940 Act to act as a custodian of the Fund's assets with respect
to property of the Fund held in the United States. The Bank shall have no
liability to the Fund or any other person by reason of any act or omission of
any such subcustodian and the Fund shall indemnify the Bank and hold it harmless
from and against any and all actions, suits and claims, arising directly or
indirectly out of the performance of any subcustodian. Upon request of the Bank,
the Fund shall assume the entire defense of any action, suit, or claim subject
to the foregoing indemnity. The Fund shall pay all fees and expenses of any
subcustodian.
14.3 DUTIES OF THE BANK WITH RESPECT TO PROPERTY OF THE FUND
HELD OUTSIDE OF THE UNITED STATES.
(a) APPOINTMENT OF FOREIGN CUSTODY MANAGER.
(i) If the Fund has appointed the Bank
Foreign Custody Manager (as that term is defined in Rule 17f-5 under the 1940
Act), the Bank's duties and obligations with respect to the Fund's Portfolio
Securities and other assets maintained outside the United States shall be, to
the extent not set forth herein, as set forth in the Delegation Agreement
between the Fund and the Bank (the "Delegation Agreement").
(ii) If the Fund has appointed any other
person or entity Foreign Custody Manager, the Bank shall act only upon Proper
Instructions from the Fund with regard to any of the Fund's Portfolio Securities
or other assets held or to be held outside of the United States, and the Bank
shall be without liability for any Claim (as that term is defined in Section 15
hereof) arising out of maintenance of the Fund's Portfolio Securities or other
assets outside of the United States. The Fund also agrees that it shall enter
into a written agreement with such Foreign Custody Manager that shall obligate
such Foreign Custody Manager to provide to the Bank in a timely manner all
information required by the Bank in order to complete its obligations hereunder.
The Bank shall not be liable for any Claim arising out of the failure of such
Foreign Custody Manager to provide such information to the Bank.
(b) SEGREGATION OF SECURITIES. The Bank shall
identify on its books as belonging to the Fund the Foreign Portfolio Securities
held by each foreign sub-custodian (each an "Eligible Foreign Custodian")
selected by the Foreign Custody Manager, subject to receipt by the Bank of the
necessary information from such Eligible Foreign Custodian if the Foreign
Custody Manager is not the Bank.
(c) ACCESS OF INDEPENDENT ACCOUNTANTS OF THE FUND. If
the Bank is the Fund's Foreign Custody Manager, upon request of the Fund, the
Bank will use its best efforts to arrange for the independent accountants of the
Fund to be afforded access to the books and records of any foreign banking
institution employed as an Eligible Foreign Custodian insofar as such books and
records relate to the performance of such foreign banking institution with
regard to the Fund's Portfolio Securities and other assets.
(d) REPORTS BY BANK. If the Bank is the Fund's
Foreign Custody Manager, the Bank will supply to the Fund the reports required
under the Delegation Agreement.
(e) TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT.
Transactions with respect to the assets of the Fund held by an Eligible Foreign
Custodian shall be effected pursuant to Proper Instructions from the Fund to the
Bank and shall be effected in accordance with the applicable agreement between
the Foreign Custody Manager and such Eligible Foreign Custodian. If at any time
any Foreign Portfolio Securities shall be registered in the name of the nominee
of the Eligible Foreign Custodian, the Fund agrees to hold any such nominee
harmless from any liability by reason of the registration of such securities in
the name of such nominee.
Notwithstanding any provision of this Agreement to the
contrary, settlement and payment for Foreign Portfolio Securities received for
the account of the Fund and delivery of Foreign Portfolio Securities maintained
for the account of the Fund may be effected in accordance with the customary
established securities trading or securities processing practices and procedures
in the jurisdiction or market in which the transaction occurs, including,
without limitation, delivering securities to the purchaser thereof or to a
dealer therefor (or an agent for such purchaser or dealer) against a receipt
with the expectation of receiving later payment for such securities from such
purchaser or dealer.
In connection with any action to be taken with respect to the
Foreign Portfolio Securities held hereunder, including, without limitation, the
exercise of any voting rights, subscription rights, redemption rights, exchange
rights, conversion rights or tender rights, or any other action in connection
with any other right, interest or privilege with respect to such Securities
(collectively, the "Rights"), the Bank shall promptly transmit to the Fund such
information in connection therewith as is made available to the Bank by the
Eligible Foreign Custodian, and shall promptly forward to the applicable
Eligible Foreign Custodian any instructions, forms or certifications with
respect to such Rights, and any instructions relating to the actions to be taken
in connection therewith, as the Bank shall receive from the Fund pursuant to
Proper Instructions. Notwithstanding the foregoing, the Bank shall have no
further duty or obligation with respect to such Rights, including, without
limitation, the determination of whether the Fund is entitled to participate in
such Rights under applicable U.S. and foreign laws, or the determination of
whether any action proposed to be taken with respect to such Rights by the Fund
or by the applicable Eligible Foreign Custodian will comply with all applicable
terms and conditions of any such Rights or any applicable laws or regulations,
or market practices within the market in which such action is to be taken or
omitted.
(f) TAX LAW. The Bank shall have no responsibility or
liability for any obligations now or hereafter imposed on the Fund or the Bank
as custodian of the Fund by the tax laws of any jurisdiction, and it shall be
the responsibility of the Fund to notify the Bank of the obligations imposed on
the Fund or the Bank as the custodian of the Fund by the tax law of any non-U.S.
jurisdiction, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and governmental
reporting. The sole responsibility of the Eligible Foreign Custodian with regard
to such tax law shall be to use reasonable efforts to assist the Fund with
respect to any claim for exemption or refund under the tax law of jurisdictions
for which the Fund has provided such information.
14.4 INSURANCE. The Bank shall use the same care with respect
to the safekeeping of Portfolio Securities and cash of the Fund held by it as it
uses in respect of its own similar property but it need not maintain any special
insurance for the benefit of the Fund.
14.5 FEES AND EXPENSES OF THE BANK. The Fund will pay or
reimburse the Bank from time to time for any transfer taxes payable upon
transfer of Portfolio Securities made hereunder, and for all necessary proper
disbursements, expenses and charges made or incurred by the Bank in the
performance of this Agreement (including any duties listed on any Schedule
hereto, if any) including any indemnities for any loss, liabilities or expense
to the Bank as provided above. For the services rendered by the Bank hereunder,
the Fund will pay to the Bank such compensation or fees at such rate and at such
times as shall be agreed upon in writing by the parties from time to time. The
Bank will also be entitled to reimbursement by the Fund for all reasonable
expenses incurred in conjunction with termination of this Agreement.
14.6 ADVANCES BY THE BANK. The Bank may, in its sole
discretion, advance funds on behalf of the Fund to make any payment permitted by
this Agreement upon receipt of any proper authorization required by this
Agreement for such payments by the Fund. Should such a payment or payments, with
advanced funds, result in an overdraft (due to insufficiencies of the Fund's
account with the Bank, or for any other reason) this Agreement deems any such
overdraft or related indebtedness a loan made by the Bank to the Fund payable on
demand. Such overdraft shall bear interest at the current rate charged by the
Bank for such loans unless the Fund shall provide the Bank with agreed upon
compensating balances. The Fund agrees that the Bank shall have a continuing
lien and security interest to the extent of any overdraft or indebtedness or to
the extent required by law, whichever is greater, in and to any property at any
time held by it for the Fund's benefit or in which the Fund has an interest and
which is then in the Bank's possession or control (or in the possession or
control of any third party acting on the Bank's behalf). The Fund authorizes the
Bank, in the Bank's sole discretion, at any time to charge any overdraft or
indebtedness, together with interest due thereon, against any balance of account
standing to the credit of the Fund on the Bank's books.
15. LIMITATION OF LIABILITY.
15.1 Notwithstanding anything in this Agreement to the
contrary, in no event shall the Bank or any of its officers, directors,
employees or agents (collectively, the "Indemnified Parties") be liable to the
Fund or any third party, and the Fund shall indemnify and hold the Bank and the
Indemnified Parties harmless from and against any and all loss, damage,
liability, actions, suits, claims, costs and expenses, including legal fees, (a
"Claim") arising as a result of any act or omission of the Bank or any
Indemnified Party under this Agreement, except for any Claim resulting solely
from the negligence, willful misfeasance or bad faith of the Bank or any
Indemnified Party. Without limiting the foregoing, neither the Bank nor the
Indemnified Parties shall be liable for, and the Bank and the Indemnified
Parties shall be indemnified against, any Claim arising as a result of:
(a) Any act or omission by the Bank or any
Indemnified Party in good faith reliance upon the terms of this Agreement, or
any Officer's Certificate, Proper Instructions, resolution of the Board, notice
or other instrument in writing received by the Bank and reasonably believed by
the Bank to be genuine and to be signed by an Authorized Person of the Fund;
(b) Any act or omission of any subcustodian selected
by or at the direction of the Fund;
(c) Any act or omission of any Foreign Custody
Manager other than the Bank or any act or ommission of any Eligible Foreign
Custodian if the Bank is not the Foreign Custody Manager;
(d) Any Corporate Action, distribution or other event
related to Portfolio Securities which, at the direction of the Fund, have not
been registered in the name of the Bank or its nominee;
(e) Any Corporate Action requiring a Response for
which the Bank has not received Proper Instructions or obtained actual
possession of all necessary Portfolio Securities, consents or other materials by
5:00 p.m. on the date specified as the Response Deadline;
(f) Any act or omission of any European Branch of a
U.S. banking institution that is the issuer of Eurodollar CDs in connection with
any Eurodollar CDs held by such European Branch; or
(g) Any acts of God, earthquakes, fires, floods,
storms or other disturbances of nature, epidemics, strikes, riots,
nationalization, expropriation, currency restrictions, acts of war, civil war or
terrorism, insurrection, nuclear fusion, fission or radiation, the interruption,
loss or malfunction of utilities, transportation or computers (hardware or
software) and computer facilities, the unavailability of energy sources and
other similar happenings or events.
15.2 The Bank shall indemnify and hold the Fund and any of its
officers, trustees, employees or agents harmless from and against any and all
Claims arising as a result of the negligence, willful misfeasance or bad faith
of the Bank or any of its officers, directors, employees or agents under this
Agreement.
15.3 Notwithstanding anything to the contrary in this
Agreement, in no event shall the Bank or the Indemnified Parties be liable to
the Fund or any third party, nor shall the Fund be liable to the Bank or any
Indemnified Party, for lost profits or lost revenues or any special,
consequential, punitive or incidental damages of any kind whatsoever in
connection with this Agreement or any activities hereunder.
16. TERMINATION.
16.1 The term of this Agreement shall be three years
commencing upon the date hereof (the "Initial Term"), unless earlier terminated
as provided herein. After the expiration of the Initial Term, the term of this
Agreement shall automatically renew for successive one-year terms (each a
"Renewal Term") unless notice of non-renewal is delivered by the non-renewing
party to the other party no later than ninety days prior to the expiration of
the Initial Term or any Renewal Term, as the case may be.
(a) Either party hereto may terminate this Agreement
prior to the expiration of the Initial Term in the event the other party
violates any material provision of this Agreement, provided that the
non-violating party gives written notice of such violation to the violating
party and the violating party does not cure such violation within 90 days of
receipt of such notice.
(b) Either party may terminate this Agreement during
any Renewal Term upon ninety days written notice to the other party. Any
termination pursuant to this paragraph 16.1(b) shall be effective upon
expiration of such ninety days, provided, however, that the effective date of
such termination may be postponed to a date not more than one hundred twenty
days after delivery of the written notice: (i) at the request of the Bank, in
order to prepare for the transfer by the Bank of all of the assets of the Fund
held hereunder; or (ii) at the request of the Fund, in order to give the Fund an
opportunity to make suitable arrangements for a successor custodian.
16.2 In the event of the termination of this Agreement, the
Bank will immediately upon receipt or transmittal, as the case may be, of notice
of termination, commence and prosecute diligently to completion the transfer of
all cash and the delivery of all Portfolio Securities duly endorsed and all
records maintained under Section 11 to the successor custodian when appointed by
the Fund. The obligation of the Bank to deliver and transfer over the assets of
the Fund held by it directly to such successor custodian will commence as soon
as such successor is appointed and will continue until completed as aforesaid.
If the Fund does not select a successor custodian within 90 days from the date
of delivery of notice of termination the Bank may, subject to the provisions of
subsection 16.3, deliver the Portfolio Securities and cash of the Fund held by
the Bank to a bank or trust company of the Bank's own selection which meets the
requirements of Section 17(f)(1) of the 1940 Act and has a reported capital,
surplus and undivided profits aggregating not less than $2,000,000, to be held
as the property of the Fund under terms similar to those on which they were held
by the Bank, whereupon such bank or trust company so selected by the Bank will
become the successor custodian of such assets of the Fund with the same effect
as though selected by the Board. Thereafter, the Bank shall be released from any
and all obligations under this Agreement.
16.3 Prior to the expiration of 90 days after notice of
termination has been given, the Fund may furnish the Bank with an order of the
Fund advising that a successor custodian cannot be found willing and able to act
upon reasonable and customary terms and that there has been submitted to the
shareholders of the Fund the question of whether the Fund will be liquidated or
will function without a custodian for the assets of the Fund held by the Bank.
In that event the Bank will deliver the Portfolio Securities and cash of the
Fund held by it, subject as aforesaid, in accordance with one of such
alternatives which may be approved by the requisite vote of shareholders, upon
receipt by the Bank of a copy of the minutes of the meeting of shareholders at
which action was taken, certified by the Fund's Secretary and an opinion of
counsel to the Fund in form and content satisfactory to the Bank. Thereafter,
the Bank shall be released from any and all obligations under this Agreement.
16.4 The Fund shall reimburse the Bank for any reasonable
expenses incurred by the Bank with respect to transferring Portfolio Securities
in connection with the termination of this Agreement.
16.5 At any time after the termination of this Agreement, the
Fund may, upon written request, have reasonable access to the records of the
Bank relating to its performance of its duties as custodian.
17. CONFIDENTIALITY. Both parties hereto agree than any non-public
information obtained hereunder concerning the other party is confidential and
may not be disclosed without the consent of the other party, except as may be
required by applicable law or at the request of a governmental agency. The
parties further agree that a breach of this provision would irreparably damage
the other party and accordingly agree that each of them is entitled, in addition
to all other remedies at law or in equity to an injunction or injunctions
without bond or other security to prevent breaches of this provision.
18. NOTICES. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and delivered via (i) United
States Postal Service registered mail, (ii) telecopier with written
confirmation, (iii) hand delivery with signature to such party at its office at
the address set forth below, namely:
(a) In the case of notices sent to the Fund to:
MetaMarkets.com Funds
400 Oyster Point Blvd., Suite 414
South San Francisco, California 94080
Attention: Matthew A. Shelton
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
200 Clarendon Street, P.O. Box 9130
Boston, Massachusetts 02117-9130
Attention: __________________, Director -
Client Management
With a copy to: John E. Henry,
General Counsel
or at such other place as such party may from time to
time designate in writing.
19. AMENDMENTS. This Agreement may not be altered or amended, except
by an instrument in writing, executed by both parties.
20. PARTIES. This Agreement will be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the written consent of the Bank or by the Bank without the written
consent of the Fund, authorized and approved by its Board; and provided further
that termination proceedings pursuant to Section 16 hereof will not be deemed to
be an assignment within the meaning of this provision.
21. GOVERNING LAW. This Agreement and all performance hereunder will
be governed by the laws of the Commonwealth of Massachusetts, without regard to
conflict of laws provisions.
22. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
23. ENTIRE AGREEMENT. This Agreement, together with its Appendices,
constitutes the sole and entire agreement between the parties relating to the
subject matter herein and does not operate as an acceptance of any conflicting
terms or provisions of any other instrument and terminates and supersedes any
and all prior agreements and undertakings between the parties relating to the
subject matter herein.
24. LIMITATION OF LIABILITY. The Bank agrees that the obligations
assumed by the Fund hereunder shall be limited in all cases to the assets of the
Fund and that the Bank shall not seek satisfaction of any such obligation from
the officers, agents, employees, trustees, or shareholders of the Fund.
25. SEVERAL OBLIGATIONS OF THE PORTFOLIOS. This Agreement is an
agreement entered into between the Bank and the Fund with respect to each
Portfolio. With respect to any obligation of the Fund on behalf of any Portfolio
arising out of this Agreement, the Bank shall look for payment or satisfaction
of such obligation solely to the assets of the Portfolio to which such
obligation relates as though the Bank had separately contracted with the Fund by
separate written instrument with respect to each Portfolio.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the day
and year first written above.
METAMARKETS.COM FUNDS
By:____________________________
Name:
Title:
INVESTORS BANK & TRUST COMPANY
By: ____________________________
Name:
Title:
<PAGE>
APPENDICES
Appendix A............................Portfolios
Appendix B............................Fee Schedule
Appendix C............................Additional Services
EXHIBIT 23(i)
STROOCK & STROOCK & LAVAN LLP
180 MAIDEN LANE
NEW YORK, NY 10038-4982
PHONE 212-806-5400
FAX 212-806-6006
August 2, 1999
MetaMarkets.com Funds
400 Oyster Point Blvd.
Suite 414
South San Francisco, CA 94080
Ladies and Gentlemen:
We have acted as counsel to MetaMarkets.com Funds (the "Fund") in connection
with the preparation of a Registration Statement on Form N-1A, Registration Nos.
811-09351; 333-79045 (the "Registration Statement"), covering shares of
beneficial interest (the "Shares") of the Fund.
We have examined copies of the Amended and Restated Agreement and Declaration of
Trust and By-Laws of the Fund, the Registration Statement and such other
documents, records, papers, statutes and authorities as we deemed necessary to
form a basis for the opinion hereinafter expressed. In our examination of such
material, we have assumed the genuineness of all signatures and the conformity
to original documents of all copies submitted to us. As to various questions of
fact material to such opinion, we have relied upon statements and certificates
of officers and representatives of the Fund and others.
Based upon the foregoing, we are of the opinion that the Fund is authorized to
issue an unlimited number of Shares, and that, when the Shares are issued and
sold and the authorized consideration therefor is received by the Fund, they
will be validly issued, fully paid and nonassessable by the Fund.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the Prospectus included in
the Registration Statement, and to the filing of this opinion as an exhibit to
any application made by or on behalf of the Fund or any distributor or dealer in
connection with the registration and qualification of the Fund or its Shares
under the securities laws of any state or jurisdiction. In giving such
permission, we do not admit hereby that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933 or the
rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
STROOCK & STROOCK & LAVAN LLP
Exhibit 23(J)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion in this Pre-Effective Amendment No. 3 to the
registration statement on Form N1-A (the "Registration Statement") of our report
dated August 9, 1999, relating to the financial statement of the OpenFund, the
Communications Technology Fund, the Media Technology Fund and the OpenFund II
(each a series of MetaMarkets.com Funds) which is also included in the
Registration Statement. We also consent to the references to us under the
headings "Independent Auditors" in the Statement of Additional Information.
- ---------------------------
PricewaterhouseCoopers LLP
San Francisco, California
August 9, 1999
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion in this Pre-Effective Amendment No. 3 to the
registration statement on Form N1-A (the "Registration Statement") of our report
dated August 9, 1999, relating to the financial statement of the OpenFund, a
series of MetaMarkets.com Funds, which is also included in the Registration
Statement. We also consent to the references to us under the headings
"Independent Auditors" in the Statement of Additional Information.
- ---------------------------
PricewaterhouseCoopers LLP
San Francisco, California
August 9, 1999
Exhibit 23(m)
METAMARKETS.COM FUNDS
DISTRIBUTION AND SERVICING PLAN
INTRODUCTION: It has been proposed that the above-captioned investment
company (the "Fund") adopt a Distribution and Servicing Plan (the "Plan") in
accordance with Rule 12b-1, promulgated under the Investment Company Act of
1940, as amended (the "Act"), with respect to each series of the Fund set forth
on Exhibit A hereto, as such Exhibit may be revised from time to time (each, a
"Series"). Under the Plan, the Fund would pay the Fund's distributor (the
"Distributor") for (a) advertising, marketing and distributing shares of each
Series and (b) providing services to shareholders of each Series. The
Distributor would be permitted to pay third parties in respect of these
services. If this proposal is to be implemented, the Act and said Rule 12b-1
require that a written plan describing all material aspects of the proposed
financing be adopted by the Fund. The Fund's Board, in considering whether the
Fund should implement a written plan, has requested and evaluated such
information as it deemed necessary to an informed determination as to whether a
written plan should be implemented and has considered such pertinent factors as
it deemed necessary to form the basis for a decision to use assets attributable
to the Series for such purposes.
In voting to approve the implementation of such a plan, the Board
members have concluded, in the exercise of their reasonable business judgment
and in light of their respective fiduciary duties, that there is a reasonable
likelihood that the plan set forth below will benefit each Series and its
shareholders.
THE PLAN: The material aspects of this Plan are as follows:
1. As to each Series, the Fund shall pay to the Distributor a fee at
the annual rate set forth opposite each Series' name on Exhibit A hereto of the
value of the relevant Series' average daily net assets for (i) advertising,
marketing and distributing such shares and (ii) the provision of personal
services to shareholders and/or the maintenance of shareholder accounts. The
Distributor may pay third parties a fee in respect of these services. The
Distributor shall determine the amounts to be paid to third parties and the
basis on which such payments will be made. Payments to third parties are subject
to compliance by each such party with the terms of any related Plan agreement
between it and the Distributor.
2. For the purpose of determining the fees payable under this Plan,
the value of the net assets of a Series' shares shall be computed in the manner
specified in the Fund's charter documents for the computation of net asset
value.
3. The Board shall be provided, at least quarterly, with a written
report of all amounts expended with respect to each Series pursuant to this
Plan. The report shall state the purpose for which the amounts were expended.
4. As to each Series, this Plan will become effective upon approval by
a majority of the Board members, including a majority of the Board members who
are not "interested persons" (as defined in the Act) of the Fund and have no
direct or indirect financial interest in the operation of this Plan or in any
agreements entered into in connection with this Plan, pursuant to a vote cast in
person at a meeting called for the purpose of voting on the approval of this
Plan.
5. As to each Series, this Plan shall continue for a period of one
year from its effective date, unless earlier terminated in accordance with its
terms, and thereafter shall continue automatically for successive annual
periods, provided such continuance is approved at least annually in the manner
provided in paragraph 4 hereof.
6. As to each Series, this Plan may be amended at any time by the
Board, provided that (a) any amendment to increase materially the costs which a
Series may bear pursuant to this Plan shall be effective only upon approval by a
vote of the holders of a majority of the Series' outstanding shares, and (b) any
material amendments of the terms of this Plan shall become effective only upon
approval as provided in paragraph 4 hereof.
7. As to each Series, this Plan is terminable without penalty at any
time by (a) vote of a majority of the Board members who are not "interested
persons" (as defined in the Act) of the Fund and have no direct or indirect
financial interest in the operation of this Plan or in any agreements entered
into in connection with this Plan, or (b) vote of the holders of a majority of
the Series' outstanding shares.
Effective: July 20, 1999
<PAGE>
EXHIBIT A
Fee as a
Percentage of
Average Daily
Name of Series Net Assets
- --------------- -----------------
OpenFund .25%
Communications Technology Fund .25%
Media Technology Fund .25%
OpenFund II .25%
OTHER EXHIBIT
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
NOTIFICATION OF ELECTION PURSUANT TO RULE 18f-1
UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED
METAMARKETS.COM FUNDS
Exact Name of Registrant
<PAGE>
NOTIFICATION OF ELECTION
MetaMarkets.com Funds (the "Fund"), an open-end investment company
registered with the Securities and Exchange Commission (the "Commission") under
the Investment Company Act of 1940, as amended (the "1940 Act"), hereby notifies
the Commission that it elects to commit itself to pay in cash all redemptions by
a shareholder of record as provided by Rule 18f-1 under the 1940 Act (the
"Rule"). The Fund understands that this election is irrevocable while the Rule
is in effect unless the Commission by order upon application permits the
withdrawal of this Notification of Election.
SIGNATURE
Pursuant to the requirements of Rule 18f-1 under the 1940 Act, the
Fund has caused this Notification of Election to be duly executed on its behalf
in the City of South San Francisco and the State of California on July 20, 1999.
METAMARKETS.COM FUNDS
By:/s/ Donald L. Luskin
---------------------------
Name: Donald L. Luskin
Title:President and Treasurer
Attest: /s/ Alaina Metz
-----------------------------------
Name: Alaina Metz
Title: Assistant Secretary
