Registration Nos. 333-_____
811-_____
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON June 8, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. /./
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Post-Effective Amendment No. ___ /./
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. /./
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(Check appropriate box or boxes)
X.COM FUNDS
(Exact name of Registrant as specified in charter)
394 University Avenue
Palo Alto, CA 94301
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (650) 842-2500
Harris A. Fricker
X.Com, Inc.
394 University Avenue
Palo Alto, CA 94301
(Name and address of agent for service)
Please send copies of all communications to:
David J. Harris, Esq. Harris A. Fricker
Dechert Price & Rhoads X.Com, Inc.
1775 Eye Street, NW 394 University Avenue
Washington, DC 20006 Palo Alto, CA 94303
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
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 this Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
It is proposed that this filing will become effective (check appropriate box):
______________ Immediately upon filing pursuant to paragraph (b)
______________ on (date) pursuant to paragraph (b)
______________ 60 days after filing pursuant to paragraph (a)(1)
______________ 75 days after filing pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
___________ previously filed post-effective amendment.
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X.COM FUNDS
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X.COM S&P 500 INDX FUND
X.COM BOND INDX FUND
X.COM MONEY MARKET FUND
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PROSPECTUS
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September 1, 1999
This Prospectus tells you about three investment portfolios offered by
X.com Funds: the X.com S&P 500 IndX Fund (the "S&P 500 IndX Fund"), the X.com
Bond IndX Fund (the "LB Bond IndX Fund"; collectively with the S&P 500 IndX
Fund, the "IndX Funds"), and the X.com Money Market Fund (the "Money Market
Fund"; collectively with the IndX Funds, the "Funds"). Each Fund is a separate
series of the X.com Funds, and each has its own investment objective and
strategies that are designed to meet different investment goals. This Prospectus
contains information you should know before investing. Please read this
Prospectus carefully before investing and keep it for future reference.
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You should be aware that the Securities and Exchange Commission has not approved
or disapproved these securities or determined if this Prospectus is accurate or
complete. Any representation to the contrary is a criminal offense.
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INTRODUCTION
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Who Can Invest in the Fund?
The Funds are for on-line investors that are customers of X.com Bank. In order
to purchase shares of the Fund, you must open an account with X.com Bank. Simply
follow the instructions on our website, www.X.com. You will need to complete an
account application and send or wire (from your X.com Bank account) your initial
investment to the Funds as described under "How to Buy and Sell Shares" later in
this Prospectus.
You are also required to consent to receive all information about the Fund
electronically, both to open an account and during the time you own shares of
the Fund. If you revoke your consent or fail to maintain an e-mail account, your
shares in the Funds will be redeemed and your X.com Funds account will be
closed. The IndX Funds are designed for long-term investors and the value of the
IndX Funds' shares will fluctuate over time. The Funds are true no-load funds,
which means you pay no sales charges or 12b-1 fees.
What is X.com?
X.com, Inc. ("X.com") is the direct parent company of X.com Asset Management,
Inc., the Funds' investment adviser. X.com also is the parent of X.com Bank, a
[type of financial institution] that provides on-line banking services. X.com is
dedicated to providing easy, low-cost financial services to on-line investors
through its continuous emphasis on technology. Through the world wide web, X.com
offers access to your X.com Funds account virtually anywhere, at any time.
What is a Master/Feeder Fund Structure?
A Master/Feeded structure is a two-tier fund structure made up of a master
portfolio that invests in securities, and a feeder fund that invests in the
master portfolio. The X.com Funds described in this Prospectus are feeder funds
that invest all of their assets in a corresponding master fund. Barclays Global
Fund Advisor ("BGFA") serves as the investment adviser to each of the master
funds. As of March 31, 1999, BGFA and its affiliates provided investment
advisory services for over $651 billion of assets.
By employing the master/feeder structure for the Funds, X.com is able to offer
investors not only leading-edge online products and services, but also the
economies of scale and, experience of an established mutual fund adviser like
BGFA.
What are Index Funds?
Index funds are often described as "passively managed" in that they seek to
match the performance of a specific benchmark index by holding either all the
securities that make up this index or a highly representative sample. In the
case of the S&P 500 IndX Fund that benchmark is the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500 Index"). For the LB Bond IndX Fund the
benchmark is the Lehman Brothers Government/Corporate Bond Index (the "LB Bond
Index").
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TABLE OF CONTENTS
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Page
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ABOUT EACH OF THE FUNDS.......................................................4
The S&P 500 IndX Fund....................................................4
The LB Bond IndX Fund....................................................6
The Money Market Fund....................................................8
FEES AND EXPENSES............................................................10
ADDITIONAL INVESTMENT STRATEGIES AND RISKS OF THE FUNDS......................12
FUND MANAGEMENT..............................................................14
THE FUNDS' STRUCTURE.........................................................15
PRICING OF FUND SHARES.......................................................16
HOW TO BUY AND SELL SHARES...................................................16
DIVIDENDS AND OTHER DISTRIBUTIONS............................................20
TAX CONSEQUENCES.............................................................20
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ABOUT EACH OF THE FUNDS
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This portion of the Prospectus provides a description of each Fund's investment
objective, principal investment strategies and risks. Of course, there can be no
assurance that any Fund will achieve its investment objective.
Please note that:
o A more complete description of each of the principal risks is included in
the section of the Prospectus "Additional Investment Strategies and Risks
of the Funds," which follows the descriptions of all the Funds.
o Additional information concerning each Fund's strategies, investments and
risks can also be found in the Statement of Additional Information.
o Investments in the Funds are not deposits of X.com Bank or any other
bank or financial institution, and are not insured by the Federal Deposit
Insurance Corporation ("FDIC") or any other government agency. Each Fund is
subject to investment risks and the possible loss of principal invested.
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The S&P 500 IndX Fund
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Investment Objective
The S&P 500 IndX Fund seeks to approximate as closely as practicable, before
fees and expenses, the capitalization-weighted total rate of return of the S&P
500 Index.1 The S&P 500 Index, a widely recognized benchmark for U.S. stocks,
currently represents about 75% of the market capitalization of all publicly
traded common stocks in the United States. The S&P 500 Index includes 500
established companies representing different sectors of the U.S. economy
(including industrial, utilities, financial, and transportation) selected by
Standard & Poor's.
"Capitalization-weighted total rate of return" means that each stock in the
index contributes to the index in the same proportion as the value of its
shares. Thus, if the shares of Company A are worth twice as much as the shares
of Company B, Company A's return will count twice as much as Company B's in
calculating the index's overall return.
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1 "Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's
500(R)," and "500" are trademarks of The McGraw-Hill Companies, Inc.
and have been licensed by X.com Asset Management, Inc. for use in
connection with the S&P 500 IndX Fund. The S&P 500 IndX Fund is not
sponsored, endorsed, sold, or promoted by Standard & Poor's and
Standard & Poor's makes no representation regarding the advisability of
investing in the S&P 500 IndX Fund.
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Principal Strategies
The S&P 500 IndX Fund does not invest directly in a portfolio of securities.
Instead, it seeks to achieve its investment objective by investing all of its
assets in the S&P 500 Index Master Portfolio ("S&P 500 Portfolio"), a series of
Master Investment Portfolio ("MIP"), a registered open-end management investment
company issuing shares in multiple series (each a "Portfolio"). The S&P 500
Portfolio seeks to provide investment results that correspond (before fees and
expenses) to the total return of the publicly traded common stocks, in the
aggregate, as represented by the S&P 500 Index. To do so, the S&P 500 Portfolio
invests substantially all of its assets in the same stocks and in substantially
the same percentages as the S&P 500 Index.
Under normal market conditions, the S&P 500 Portfolio will invest at least 90%
of its assets in the stocks making up the S&P 500 Index. Over time, the S&P 500
Portfolio attempts to achieve, in both rising and falling markets, a correlation
of at least 95% between the capitalization-weighted total return of its assets
(before deduction of fees and expenses) and that of the S&P 500 Index. A
correlation of 100% would mean the total return of the S&P 500 Portfolio's
assets would increase and decrease exactly the same as the S&P 500 Index.
The S&P 500 IndX Fund's ability to track the performance of the S&P 500 Index
may be affected by, among other things, transaction costs, the fees and expenses
of the S&P 500 IndX Fund and the S&P 500 Portfolio, changes in the composition
of the S&P 500 Index or the assets of the S&P Portfolio, and the timing,
frequency and amount of investor purchases and redemptions of both the S&P 500
IndX Fund and S&P 500 Portfolio. Because the S&P 500 Portfolio seeks to track
the performance of the S&P 500 Index, the S&P 500 Portfolio will not attempt to
judge the merits of any particular stock as an investment.
The S&P 500 Portfolio may invest up to 10% of its total assets in high quality
money market instruments to provide liquidity to meet redemption requests or to
facilitate investment in the stocks in the S&P 500 Index.
The S&P 500 Portfolio may also use derivative instruments in order to: (i)
simulate full investment in the S&P 500 Index while retaining a cash balance for
portfolio management purposes; (ii) facilitate trading; (iii) reduce transaction
costs; or (iv) seek higher investment returns when such instruments are priced
more attractively than the stocks in the S&P 500 Index. Such derivatives include
the purchase and sale of futures contracts and options on S&P 500 Index futures
contracts. The S&P 500 Portfolio may lend its portfolio securities.
Principal Risks
Market Risk: The value of an investment in the S&P 500 IndX Fund depends to a
great extent upon changes in market conditions. Equity securities have greater
price volatility than fixed-income securities and the value of the equity
securities held by the S&P 500 IndX Fund (through its investments in the S&P 500
Portfolio) will fluctuate as the market price of those securities rise and fall.
The performance per share of the S&P 500 IndX Fund will change daily based on
many factors, including the volatility of the securities in the S&P 500 Index,
national and international economic conditions, and general market conditions.
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<PAGE>
Index-Fund Risk: The S&P 500 IndX Fund is not actively managed through
traditional methods of stock selection and invests (through its investments in
the S&P 500 Portfolio) in the stocks included in the S&P 500 Index regardless of
their investment merits. Except to a limited extent, the S&P 500 IndX Fund
cannot modify its investment strategies to respond to changes in the economy and
may be particularly susceptible to a general decline in the U.S. stock market
segment relating to the S&P 500 Index.
Derivatives: The S&P 500 IndX Fund's investment (through its investments in the
S&P 500 Portfolio) in derivative instruments (e.g., futures and options) can
significantly increase its exposure to market risk or the credit risk of the
counterparty. Derivative instruments can also involve the risk of mispricing or
improper valuation and the risk that changes in the value of the derivative
instruments may not correlate perfectly with the S&P 500 Index.
In addition, the S&P 500 Portfolio will need to maintain cash balances to pay
redemptions and expenses, which may affect the overall performance of the S&P
500 IndX Fund.
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The LB Bond IndX Fund
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Investment Objective
The LB Bond IndX Fund seeks to approximate as closely as practicable, before
fees and expenses, the total rate of return of the U.S. market for issued and
outstanding U.S. government and high-grade corporate bonds as measured by the LB
Bond Index.2 The LB Bond Index includes approximately 6,500 fixed-income
securities, including U.S. Government securities and investment grade corporate
bonds, each with an outstanding market value of at least $25 million and
remaining maturity of greater than one year.
Principal Strategies
The LB Bond IndX Fund does not invest directly in a portfolio of securities.
Instead, it seeks to achieve its investment objective by investing all of its
assets in the Bond Index Master Portfolio ("LB Bond Portfolio"), a series of
MIP. The LB Bond Portfolio seeks to replicate the total return of the LB Bond
Index. To do so, the LB Bond Portfolio invests substantially all of its assets
in a representative sample of the securities that comprise the LB Bond Index, or
securities or other instruments that seek to approximate the performance and
investment characteristics of the LB Bond Index. Generally, at least 65% of the
LB Bond Portfolio's total assets will be invested in fixed-income securities.
Securities are selected for investment by the LB Bond Portfolio based on a
number of factors, including, among others, the relative proportion of such
securities in the LB Bond Index, credit quality, issuer sector, maturity
structure, coupon rates, and callability.
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2 "Lehman Brothers Government/Corporate Bond Index(R)" is a trademark of
Lehman Brothers, Inc. ("Lehman") and has been licensed for use by X.com
Asset Management, Inc. in connection with the LB Bond IndX Fund. The LB
Bond IndX Fund is not sponsored, endorsed, sold, or promoted by Lehman,
and Lehman makes no representation regarding the advisability of
investing in the LB Bond IndX Fund.
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<PAGE>
Under normal market conditions, the LB Bond Portfolio invests at least 90% of
its total assets in securities that are believed to represent the investment
characteristics of the LB Bond Index. The LB Bond Portfolio attempts to achieve,
in both rising and falling markets, a correlation of at least 95% between the
total return of its net assets (before deduction of fees and expenses) and that
of the LB Bond Index. A correlation of 100% would mean the total return of the
LB Bond Portfolio's assets would increase and decrease exactly the same as the
LB Bond Index.
The LB Bond IndX Fund's ability to track the performance of the LB Bond Index
may be affected by, among other things, transaction costs, the fees and expenses
of the LB Bond IndX Fund and the LB Bond Portfolio, the manner in which the
total return of the LB Bond Index is calculated, the size of the LB Bond
Portfolio, and the timing, frequency and amount of investor purchases and
redemptions of both the LB Bond IndX Fund and the LB Bond Portfolio. Because the
LB Bond Portfolio seeks to track the performance of the LB Bond Index, the LB
Bond Portfolio will not attempt to judge the merits of any particular fixed
income security included in the LB Bond Index as an investment.
The LB Bond Portfolio may invest up to 10% of its total assets in high quality
money market instruments to provide liquidity to meet redemption requests or to
facilitate investment in the securities in the LB Bond Index.
The LB Bond Portfolio may also use derivative instruments in order to: (i)
stimulate full investment in the LB Bond Index while retaining a cash balance
for portfolio management purposes; (ii) facilitate trading; (iii) reduce
transaction costs; or (iv) seek higher investment returns when such instruments
are priced more attractively than the securities in the LB Bond Index. Such
derivatives include the purchase and sale of interest rate futures contracts and
options on interest rate futures contracts, as well as interest rate and index
swaps.
Principal Risks
Index Fund Risk: The LB Bond IndX Fund is not actively managed through
traditional methods of stock selection and invests (through its investment in
the LB Bond Portfolio) in the fixed-income securities included in the LB Bond
Index regardless of their investment merit. Except to a limited extent, the LB
Bond IndX Fund cannot modify its investment strategies to respond to changes in
the economy and may be particularly susceptible to a general decline in the U.S.
fixed-income market segment relating to the LB Bond Index.
The investment adviser of the LB Bond Portfolio seeks to replicate the
performance of the LB Bond Index by investing in a representative sample of the
securities that comprise the LB Bond Index. This representative sample, however,
may not match the overall performance of the LB Bond Index.
Derivatives: The Fund's investment (through its investment in the LB Bond
Portfolio) in derivative instruments (e.g., futures and options) can
significantly increase its exposure to market risk or the credit risk of the
counterparty. Derivative instruments can also involve the risk of mispricing or
improper valuation and the risk that changes in the value of the derivative
instruments may not correlate perfectly with the LB Bond Index.
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<PAGE>
Interest Rate Risk: The debt instruments in which the LB Bond IndX Fund (through
its investments in the LB Bond Portfolio) invests are subject to interest rate
risk. Interest rate risk is the risk that when interest rates rise the value of
the debt instruments in which the LB Bond Portfolio invests will go down. When
interest rates fall, the value of the LB Bond Portfolio's investments may rise.
Credit Risk: Credit risk is the risk that issuers of the debt instruments in
which the LB Bond IndX Fund (through its investments in the LB Bond Portfolio)
may invest may default on the payment of principal and/or interest. The LB Bond
IndX Fund could lose money if the issuer of a fixed-income security owned by the
LB Bond Portfolio is unable or unwilling to meet its financial obligations by
making timely principal and/or interest payments. Investment-grade securities
that are rated BBB by S&P or an equivalent rating by any other nationally
recognized statistical rating organization ("NRSRO") are somewhat riskier than
higher rated obligations because they are regarded as having only an adequate
capacity to pay principal and interest, are considered to lack outstanding
investment characteristics, and may be speculative.
Market Risk: The market prices of securities held by the LB Bond Portfolio may
fall in response to national and international economic or general market
conditions.
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The Money Market Fund
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Investment Objectives/Goals
The Money Market Fund seeks to provide shareholders of the Fund with a high
level of current income, while preserving capital and liquidity, by investing in
high-quality short-term investments.
Principal Strategies
The Money Market Fund seeks to achieve this investment objective by investing
all of its assets in the Money Market Portfolio ("Money Market Portfolio"), a
series of MIP, which, in turn, invests its assets in U.S. dollar-denominated,
high-quality money market instruments with maturities of 397 days or less, and a
dollar-weighted average portfolio maturity of 90 days or less. The Money Market
Portfolio investments include obligations of the U.S. Government, its agencies
and instrumentalities (including government-sponsored enterprises), and high
quality debt obligations such as obligations of domestic and foreign banks,
commercial paper, corporate notes and repurchase agreements that represent
minimal credit risk.
"High quality" investments are investments rated in the top two rating
categories by the requisite NRSRO or, if unrated, determined to be of comparable
quality to such rated securities by Barclays Global Fund Advisors ("BGFA"), the
investment adviser of the Money Market Portfolio, under guidelines adopted by
the Fund's Board of Trustees and the Money Market Portfolio's Board of Trustees.
The Money Market Fund may not achieve as high a level of current income as other
mutual funds that do not limit their investment to high credit quality
instruments.
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The Money Market Portfolio may also invest in asset-backed securities.
Asset-backed securities represent interests in "pools" of assets in which
payments of both interest and principal on the securities are made monthly, thus
in effect "passing through" monthly payments made by the individual borrowers on
the assets that underlie the securities.
Pursuant to the Investment Company Act of 1940, as amended ("1940 Act"), the
Money Market Portfolio must comply with certain investment criteria designed to
provide liquidity and reduce risk so as to enable the Money Market Portfolio to
maintain a stable net asset value of $1.00 per share.
Principal Risks
Interest Rate Risk: The debt instruments in which the Money Market Fund invests
(through its investments in the Money Market Portfolio) are subject to interest
rate risk. Interest rate risk is the risk that when interest rates rise the
value of the debt instruments in which the Money Market Portfolio invests will
go down. Conversely, if interest rates fall, the value of the Money Market
Portfolio's investments may rise.
Credit Risk: Credit risk is the risk that issuers of the debt instruments in
which the Money Market Fund (through its investments in the Money Market
Portfolio) invests may default on the payment of principal and/or interest. The
Money Market Fund could be unable to maintain a stable net asset value of $1.00
per share and the Fund could lose money if the issuer of a fixed-income security
owned by the Money Market Portfolio is unable or unwilling to meet its financial
obligations.
Derivatives: As noted above, the Money Market Portfolio may invest in
asset-backed securities and variable and floating rate obligations, which are
considered to be derivative instruments. The value of these instruments are
particularly sensitive to changes in interest rate and general market
conditions. The value of asset-backed securities is also affected by the
creditworthiness of the individual borrowers.
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FEES AND EXPENSES
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This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Shareholder Fees Money
(fees paid directly from your investment) S&P 500 LB Bond Market
IndX Fund IndX Fund Fund
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Maximum Sales Charge (Load) Imposed on
Purchases None None None
Maximum Deferred Sales Charge (Load) None None None
Maximum Sales Charge (Load) Imposed
in Reinvested Dividends and other Distributions None None None
Redemption Fee
(within 120 days of purchase) $_____ $_____ $_____
Account Maintenance Fee $1.25 per $1.25 per None
(for accounts under $10,000) quarter+ quarter+
Annual Fund Operating Expenses*
(expenses that are deducted from Fund assets)
Management Fees 0.07%** 0.10%** 0.12%**
Distribution (12b-1) Fees None None None
Other Expenses (Administration) 0.___% 0.___% 0.___%
Total Annual Fund Operating Expenses 0.___% 0.___% 0.___%
</TABLE>
+ The account maintenance fee for an IndX Fund will be deducted from your
quarterly distribution of the Fund's dividends. If your distribution is
less than the fee, fractional shares will be automatically redeemed to make
up the difference.
* The cost reflects the expenses at both the Fund and the Portfolio levels.
** Management fees include a fee equal to 0.05%, 0.08%, and 0.10% of the daily
net assets payable at the Portfolio level to the investment adviser for the
S&P 500 Portfolio, LB Bond Portfolio, and Money Market Portfolio,
respectively. Management fees also include a fee equal to 0.___%, 0.___%,
and 0.___% payable by the S&P 500 IndX Fund, LB Bond IndX Fund, and Money
Market Fund, respectively, to X.com Asset Management, Inc, the Funds'
Adviser.
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<PAGE>
You should also know that the Funds do not charge investors any account set-up
fees, transaction fees or customer service fees. You will be responsible for
opening and maintaining an e-mail account and internet access at your own
expense.
Example
This Example is intended to help you compare the cost of investing in the Funds
with the cost of investing in other mutual funds. The Example assumes that:
o you invest $10,000 in each Fund;
o your investment has a 5% return each year; and
o each Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
Example 1 Year* 3 Years*
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S&P 500 IndX Fund
Assuming Redemption $_____ $_____
Assuming No Redemption $_____ $_____
LB Bond IndX Fund
Assuming Redemption $_____ $_____
Assuming No Redemption $_____ $_____
Money Market Fund
Assuming Redemption $_____ $_____
Assuming No Redemption $_____ $_____
*Reflects costs at both the Fund and Portfolio levels.
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ADDITIONAL INVESTMENT STRATEGIES AND RISKS OF THE FUNDS
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Since the investment characteristics and investment risks of the Funds match
those of each Funds' corresponding Portfolio, the following discussion also
includes a description of the investment characteristics and risks associated
with the investments of the corresponding Portfolios. Each Fund's performance
will correspond directly to the performance of the related Portfolio.
As with all mutual funds, there can be no assurance that the Funds will achieve
their respective investment objectives. The investment strategies of the Funds
are not fundamental and may be changed without approval of Fund shareholders. A
Fund may withdraw its investment in a Portfolio only if the Trust's Board of
Trustees determines that such action is in the best interests of the Fund and
its shareholders. If there is a change in the investment objective and
strategies of a Fund, shareholders should consider whether the Fund remains an
appropriate investment in light of their then current financial position and
needs.
The IndX Funds
The investment adviser of the S&P 500 Portfolio and the LB Bond Portfolio
(collectively, the "Index Portfolios") does not actively manage the assets of
each Portfolio, but seeks to achieve returns corresponding to the S&P 500 Index
and LB Bond Index, respectively. Instead, the Index Portfolios are managed by
utilizing an "indexing" investment approach to determine which securities are to
be purchased or sold to replicate, to the extent feasible, the investment
characteristics of the S&P 500 Index and the LB Bond Index through computerized,
quantitative techniques. The Index Portfolios cannot, as a practical matter, own
all the securities that make up their respective market indexes in perfect
correlation to the indexes. The Index Portfolios seek to track their respective
market indexes during down markets as well as during up markets. Consequently,
the returns of the Index Portfolios will be directly affected by the volatility
of the securities making up their respective market indexes.
The Money Market Fund
The Money Market Fund and Money Market Portfolio emphasize safety of principal
and high credit quality. In particular, the investment policies of the Fund and
Portfolio prohibit the purchase of many types of floating-rate instruments,
commonly referred to as derivatives, that are considered to be potentially
volatile. The Money Market Fund (through its investments in the Money Market
Portfolio) may only invest in floating-rate securities that bear interest at a
rate that resets quarterly or more frequently, and that resets based on changes
in standard money market rate indices such as U.S. Government Treasury bills and
London Interbank Offered Rate, among others. Floating and variable rate
instruments are subject to interest rate and credit risks.
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<PAGE>
Additional Investment Risks of the Funds
An investment in the Funds is subject to investment risks, including the loss of
the principal amount invested. The performance per share of the Funds and
Portfolios will change daily based on many factors, including, but not limited
to, the quality of the instruments held by each Portfolio, national and
international economic conditions and general market conditions.
Derivatives: Derivatives are financial instruments whose values are derived, at
least in part, from prices of other securities or specified assets, indices, or
rates. The use of derivative instruments is a highly specialized activity and
there can be no guarantee that their use will increase the return of the Funds,
or protect their assets from declining in value. In fact, the use of derivative
instruments may result in lower returns if they are timed incorrectly or are
executed under adverse market conditions. The IndX Funds could track their
respective indexes less closely if the derivatives do not perform as expected.
For further information pertaining to the use of derivative instruments used by
the Portfolios, please refer to the Statement of Additional Information.
Securities Lending: Each Portfolio in which the Funds invest may lend a portion
of their securities to certain financial institutions in order to earn income.
These loans are fully collateralized. However, if the institution defaults, the
Funds' performance could be reduced.
Year 2000: Like other mutual funds, financial and business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by their investment adviser, the Funds' other service
providers, or persons with whom they deal, do not properly process and calculate
date-related information and data on and after January 1, 2000. This possibility
is commonly known as the "Year 2000 Problem." Virtually all operations of the
Funds are computer reliant. The investment adviser, administrator, transfer
agent and custodian have informed the Funds that they are actively taking steps
to address the Year 2000 Problem with regard to their respective computer
systems. The Funds are also taking measures to obtain assurances that comparable
steps are being taken by the Funds' other significant service providers. While
there can be no assurance that the Funds' service providers will be Year 2000
compliant, the Funds' service providers expect that their plans to be compliant
will be achieved. Each of the Portfolio's investment advisers and principal
service providers have also advised the Portfolios that they are working on any
necessary changes to their systems and that they expect their systems to be Year
2000 compliant in time. There can, of course, be no assurance of success by
either the Funds' or the Portfolios' service providers. In addition, because the
Year 2000 Problem affects virtually all organizations, the companies or entities
in which each of the Portfolios invest also could be adversely impacted by the
Year 2000 Problem, especially foreign entities, which may be less prepared for
the Year 2000. The extent of such impact cannot be predicted.
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FUND MANAGEMENT
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Investment Advisers. Under investment advisory agreements with the Funds, X.com
Asset Management, Inc. ("Investment Adviser"), a registered investment adviser,
provides investment advisory services to the Funds. The Investment Adviser is a
wholly owned subsidiary of X.com, Inc. and is located at 394 University Avenue,
Palo Alto, CA 94301. The Investment Adviser is newly formed and therefore has no
prior experience as an investment adviser.
Subject to general supervision of the X.com Funds' Board of Trustees and in
accordance with the investment objective, policies and restrictions of each of
the Funds, the Investment Adviser provides the Funds with ongoing investment
guidance, policy direction and monitoring of each of the Portfolios in which
each Fund invests. The Investment Adviser may in the future manage cash and
money market instruments for cash flow purposes. For its advisory services, each
Fund pays the Investment Adviser an investment advisory fee at an annual rate
equal to the following percentage of each Fund's average daily net assets:
Percentage of
Fund Average Daily Net Assets
---- ------------------------
S&P 500 IndX Fund 0.02%
LB Bond IndX Fund 0.02%
Money Market Fund 0.02%
BFGA is the investment adviser for each Portfolio. BGFA is a direct subsidiary
of Barclays Global Investors, N.A. (which, in turn, is an indirect subsidiary of
Barclays Bank PLC ("Barclays")) and is located at 45 Fremont Street, San
Francisco, California 94105. BGFA has provided asset management, administration
and advisory services for over 25 years. As of December 31, 1998, BGFA and its
affiliates provided investment advisory services for over $615 billion of
assets. BGFA receives a fee from each Portfolio at an annual rate equal to the
following percentage of each Portfolio's average daily net assets:
Percentage of
Portfolio Average Daily Net Assets
--------- ------------------------
S&P 500 Portfolio 0.05%
LB Bond Portfolio 0.08%
Money Market Portfolio 0.10%
Each Fund bears a pro rata portion of the investment advisory fees paid by its
corresponding Portfolio, as well as certain other fees paid by each Portfolio,
such as accounting, legal, and SEC registration fees.
Each Fund's Statement of Additional Information contains detailed information
about the Fund's investment adviser, administrator, distributor and other
service providers.
- 14
<PAGE>
- --------------------------------------------------------------------------------
THE FUNDS' STRUCTURE
- --------------------------------------------------------------------------------
Each Fund is a separate series of X.com Funds. The S&P 500 IndX Fund, LB Bond
IndX Fund, and Money Market Fund seek to achieve their investment objectives by
investing all of each Fund's assets in the S&P 500 Portfolio, the LB Bond
Portfolio, and the Money Market Portfolio, respectively. The Index Portfolios
and Money Market Portfolio are each a series of MIP, a separate open-end
investment company with the same investment objective as the corresponding Fund.
This two-tier fund structure is commonly referred to as a "master/feeder"
structure because one fund (the "feeder" fund) invests all of its assets in a
second fund (the "master fund"). In addition to selling its shares to the Fund,
each corresponding Portfolio has sold and is expected to continue to sell its
shares to certain other mutual funds or other accredited investors. The expenses
paid by these mutual funds and accredited investors may differ from the expenses
paid by a Fund; consequently, the returns received by shareholders of other
mutual funds or other accredited investors may differ from those received by
shareholders of the Fund.
The X.com Funds Board of Trustees (the "Board") believes that, as other
investors invest their assets in the Portfolios, certain economic efficiencies
may be realized with respect to each Portfolio. For example, fixed expenses that
otherwise would have been borne solely by a Fund (and the other existing
interest-holders in its corresponding Portfolio) would be spread across a larger
asset base as more funds or other accredited investors invest in the particular
Portfolio. However, if a mutual fund or other investor withdraws its investment
from a Portfolio, the economic efficiencies (e.g., spreading fixed expenses
across a larger asset base) that the Board believes should be available through
investment in a Portfolio may not be fully achieved or maintained.
Each Fund may be asked to vote on matters concerning the Portfolio. Except as
permitted by the SEC, whenever a Fund is requested to vote on a matter
pertaining to a Portfolio, that Fund will hold a meeting of its shareholders,
and, at the meeting of investors in the Portfolio, will cast all of its votes in
the same proportion as the votes of the Fund's shareholders.
Each Fund may withdraw its investments in its corresponding Portfolio if the
Board determines that it is in the best interests of the Fund and its
shareholders to do so. Upon any such withdrawal, the Board would consider what
action might be taken, including the investment of all the assets of the Fund in
another pooled investment entity having the same investment objective as the
Fund, direct management of the Fund or other pooled investment entity by the
Investment Adviser or the hiring of a sub-adviser to manage the Fund's assets.
Investment of the Funds' assets in the Portfolios is not a fundamental policy of
the Funds and a shareholder vote is not required for a Fund to withdraw its
investment from a Portfolio.
- 15 -
<PAGE>
- --------------------------------------------------------------------------------
PRICING OF FUND SHARES
- --------------------------------------------------------------------------------
The Funds are true no-load funds, which means you may buy or sell shares
directly at the net asset value ("NAV") determined after the Distributor
receives your request in proper form. If the Distributor receives such request
prior to the close of the New York Stock Exchange, Inc. ("NYSE") on a day on
which the NYSE is open, your share price will be the NAV determined that day.
Shares will not be priced on the days on which the NYSE is closed for trading.
Each Fund's investment in its corresponding Portfolio is valued based on the
Fund's proportionate interest in the NAV of the Portfolio. A Fund's NAV per
share is calculated by taking the value of each Fund's net assets and dividing
by the number of shares outstanding. Expenses are accrued daily and applied when
determining the Fund's NAV. The NAV for each Fund is determined as of the close
of trading on the floor of the NYSE (generally 4:00 p.m., Eastern Time), each
day the NYSE is open. Each Fund reserves the right to change the time at which
purchases and redemptions are priced if the NYSE closes at a time other than
4:00 p.m. Eastern Time or if an emergency exists.
Each Portfolio calculates its NAV on the same day and at the same time as its
corresponding Fund. Each Portfolio's investments are valued each day the NYSE is
open for business. Each Index Portfolio's assets are valued generally by using
available market quotations or at fair value as determined in good faith by the
Board of Directors of MIP. Bonds and notes with remaining maturities of 60 days
or less are valued at amortized cost. The Money Market Portfolio values its
securities at amortized cost to account for any premiums or discounts above or
below the face value of the securities it buys. The amortized cost method does
not reflect daily fluctuations in market value.
- --------------------------------------------------------------------------------
HOW TO BUY AND SELL SHARES
- --------------------------------------------------------------------------------
The Funds are designed and built specifically for on-line investors. In order to
buy shares of a Fund, you will need to be a customer of X.com Bank and to open
an account with the Funds. Each Fund also requires its shareholders to consent
to receive all shareholder information about the Fund electronically.
Shareholder information includes prospectuses, financial reports, confirmations
and statements. Shareholders may also choose to receive other correspondences
from X.com Funds or X.com Bank through their e-mail account. X.com Bank will
offer its customers a secure e-mail account free of charge.
If a shareholder wishes to rescind his or her consent to receive shareholder
information electronically or fails to maintain an e-mail account, the Funds
will redeem the shareholder's position in any Fund in which the shareholder has
invested. Shareholders required to redeem their shares because they revoked
their consent to receive Fund information electronically or failed to maintain
an e-mail account may experience adverse tax consequences. [The Funds'
Distributor] reserves the right to deliver paper-based documents in certain
circumstances, at no cost to the investor.
- 16 -
<PAGE>
In order to buy shares, you will need to (1) be a customer of X.com Bank and
open an account with the Funds; (2) deposit money in the account; and (3)
execute an order to buy shares.
STEP 1: How to Open an Account
- ------------------------------
To open an account with X.com Bank, you must complete the application available
through our Website. You will be subject to general account requirements as
described in the customer agreement.
Whether you are investing in a Fund for the first time or adding to an existing
investment, each Fund provides you with several methods to buy its shares.
Because a Fund's net asset value changes daily, your purchase price will be the
next NAV determined after a Fund receives and accepts your purchase order.
On-line. You can access an online application through multiple electronic
gateways on the internet, including: [WebTV, Prodigy, AT&T Worldnet, Microsoft
Investor, by GO X.com on CompuServe, and with the keyword "X.com" on America
Online.] For more information on how to access account information and/or
applications electronically, please refer to our online assistant at
www.X.com.com available 24 hours a day or call 1-800-___-_____between 5:00 a.m.
and 6 p.m. (pacific time), Monday - Friday.
By Mail. You can request an application by visiting the "Open an Account" area
of our Website, or by calling 1-800-___-_____ . Complete and sign the
application. Make your check or money order payable to [X.com Bank]. Mail to
X.com Funds, 394 University Avenue, Palo Alto, CA 94301.
Telephone. Request a new account kit by calling 1-800-___-_____ between 5:00
a.m. and 6 p.m., Monday - Friday (pacific time).
STEP 2: Funding Your Account.
- -----------------------------
By check or money order. Make your check or money order payable to [X.com Bank]
and mail it to X.com Funds, 394 University Avenue, Palo Alto, CA 94301.
Wire. After your account is opened, X.com Funds will contact you with an account
number so that you can immediately wire funds. The Fund will accept wire
transfers only from X.com Bank. Send wired funds to:
c/o ____________X.com Funds
- 17 -
<PAGE>
ABA #______________
A/C #______________ for further credit to (your name and account number).
STEP 3: Execute an Order to Buy/Sell Shares
- ------------------------------------------
Minimum Investment Requirements:
For your initial investment in a Fund $_____
To buy additional shares of a Fund $_____
Continuing minimum investment* $_____
To invest in a Fund for your IRA, Roth IRA,
or one-person SEP account $_____
To invest in a Fund for your Education IRA account $_____
To invest in a Fund for your UGMA/UTMA account $_____
To invest in a Fund for your SIMPLE, SEP-IRA, Profit Sharing or Money Purchase
Pension Plan,
or 401(a) account $_____
* Your shares may be automatically redeemed if, as a result of selling shares,
you no longer meet a Fund's minimum balance requirements. Before taking such
action, the Fund will provide you with written notice and at least 30 days to
purchase more shares to bring your investment up to $_____.
After your account is established you may use any of the methods described below
to buy or sell shares. You can only sell shares of the Funds that you own; that
means you cannot "short" shares of the Fund.
You can access the money you have invested in a Fund at any time by selling some
or all of your shares back to the Fund. Please note that a Fund may assess a
$_____ fee on redemptions of Fund shares held for less than ____ days. As soon
as [the Distributor] receives the shares or the proceeds from the Fund, the
transaction will appear in your account. This usually occurs the business day
following the transaction, but in any event, no later than three days
thereafter.
On-line. You can access secure trading pages at www.X.com via the internet at
[WebTV, Prodigy, AT&T Worldnet, Microsoft Investor, by GO X.com on CompuServe,
with the keyword "X.com" on America Online.] By clicking on one of several
mutual fund order buttons, you can quickly and easily place a buy or sell order
for shares in a Fund. You will be prompted to enter your trading password
whenever you perform a transaction so that we can be sure each buy or sell is
secure. It is for your own protection to make sure you or your co-account
holder(s) are the only people who can place orders in your X.com account. When
- 18 -
<PAGE>
you buy shares, you will be asked to: (1) affirm your consent to receive all
Fund documentation electronically; (2) provide an e-mail address; and (3) affirm
that you have read the prospectus. The prospectus will be readily available for
viewing and printing on our Website.
Telephone.
The Funds and their Distributor reserve the right to refuse a telephone purchase
or redemption request if either believes that it is advisable to do so.
Investors will bear the risk of loss from fraudulent or unauthorized
instructions received over the telephone provided that the Funds reasonably
believe that such instructions are genuine. Telephone calls may be recorded. The
Funds and their transfer agents employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. The Funds may incur
liability if it does not follow these procedures.
Due to increased telephone volume during periods of dramatic economic or market
changes, you may experience difficulty in implementing a broker-assisted
telephone redemption. In these situations, investors may want to consider
trading online
Signature Guarantee. For your protection, certain requests may require a
signature guarantee.
A signature guarantee is designed to protect you and the Funds against
fraudulent transactions by unauthorized persons. In the following instances, the
Funds will require a signature guarantee for all authorized owners of an
account:
1. If you transfer the ownership of your account to another individual or
organization.
2. When you submit a written redemption for more than $25,000.
3. When you request that redemption proceeds be sent to a different name
or address than is registered on your account.
4. If you add or change your name or add or remove an owner on your
account.
5. If you add or change the beneficiary on your transfer-on-death
account.
For other registrations, access our Website or call _______________ for
instructions.
Redemption Delays. You will have to wait to redeem your shares until the funds
you use to buy them have cleared (e.g., your check has cleared).
The right of redemption may be suspended during any period in which (i) trading
on the NYSE is restricted, as determined by the SEC, or the NYSE is closed for
other than weekends and holidays; (ii) the SEC has permitted such suspension by
order; or (iii) an emergency as determined by the SEC exists, making disposal of
portfolio securities or valuation of net assets of the Fund not reasonably
practicable.
- 19 -
<PAGE>
Redemption Fee. The IndX Funds can experience substantial price fluctuations and
are intended for long-term investors. Short-term "market timers" who engage in
frequent purchases and redemptions can disrupt a Fund's investment program and
create additional transaction costs that are borne by all shareholders. For
these reasons, the IndX Funds may assess a $____ fee on redemptions of fund
shares held for less than 120 days.
Any redemption fees imposed will be paid to the IndX Funds to help offset
transaction costs. Each Fund will use the "first-in, first-out" (FIFO) method to
determine the ___-day holding period. Under this method, the date of the
redemption will be compared with the earliest purchase date of shares held in
the account. If this holding period is less than ___ days, the fee may be
assessed. The fee may apply to shares held through omnibus accounts or certain
retirement plans.
Closing your account. If you close your account with X.com Bank, you will be
required to redeem your shares in your Fund account.
- --------------------------------------------------------------------------------
DIVIDENDS AND OTHER DISTRIBUTIONS
- --------------------------------------------------------------------------------
The IndX Funds intend to pay dividends from net investment income quarterly and
distribute capital gains, if any, annually. The Money Market Fund intends to
declare dividends daily and distribute them monthly. The Money Market Fund will
distribute capital gains, if any, at least annually. The Funds may make
additional distributions if necessary.
Unless you choose otherwise, all your dividends and capital gain distributions
will be automatically reinvested in additional Fund shares. Shares are purchased
at the net asset value determined on the reinvestment date.
- --------------------------------------------------------------------------------
TAX CONSEQUENCES
- --------------------------------------------------------------------------------
The following information is meant as a general summary for U.S. taxpayers.
Please see the Funds' Statement of Additional Information for more information.
You should rely on your own tax advisor for advice about the particular federal,
state and local tax consequences to you of investing in the Funds.
Each Fund generally will not have to pay income tax on amounts it distributes to
shareholders, although shareholders will be taxed on distributions they receive.
The IndX Funds will distribute substantially all of its income and gains to its
shareholders every year. The Money Market Fund will distribute dividends
monthly. If a Fund declares a dividend in October, November or December but pays
it in January, you may be taxed on the dividend as if you received it in the
previous year.
You will generally be taxed on dividends you receive from a Fund, regardless of
whether they are paid to you in cash or are reinvested in additional Fund
shares. If a Fund designates a dividend as a capital gain distribution, you will
pay tax on that dividend at the long-term capital gains tax rate, no matter how
long you have held your Fund shares.
- 20 -
<PAGE>
If you invest through a tax-deferred retirement account, such as an IRA, you
generally will not have to pay tax on dividends until they are distributed from
the account. These accounts are subject to complex tax rules, and you should
consult your tax advisor about investment through a tax-deferred account.
There may be tax consequences to you if you dispose of your Fund shares, for
example, through redemption, exchange or sale. You will generally have a capital
gain or loss from a disposition. The amount of the gain or loss and the rate of
tax will depend mainly upon how much you paid for the shares, how much you sold
them for, and how long you held them.
Each Fund will send you a tax report each year that will tell you which
dividends must be treated as ordinary income and which (if any) are long-term
capital gain.
As with all mutual funds, a Fund may be required to withhold U.S. federal income
tax at the rate of 31% of all taxable distributions payable to you if you fail
to provide the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the IRS that you are
subject to backup withholding. Backup withholding is not an additional tax, but
is a method in which the IRS ensures that it will collect taxes otherwise due.
Any amounts withheld may be credited against your U.S. federal income tax
liability.
- 21 -
<PAGE>
[Outside back cover page.]
The Statement of Additional Information for the Funds, dated __________, 1999
("SAI"), contains further information about each Fund. The SAI is incorporated
into this Prospectus by reference (that means it is legally considered part of
this Prospectus). Additional information about the Funds' investments will be
available in the Funds' annual and semi-annual reports to shareholders. In a
Fund's annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance during
its fiscal year.
Additional information including the SAI and the most recent annual and
semi-annual reports (when available), may be obtained without charge at our
Website (www.X.com). Shareholders will be alerted by e-mail when a prospectus
amendment, annual or semi-annual report is available. Shareholders may also call
the toll-free number listed below for additional information or with any
inquiries.
Further information about the Funds (including the SAI) can also be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. You may call
1-800-SEC-0330 for information about the operations of the public reference
room. Reports and other information about the Funds are also available on the
SEC's Website (http://www.sec.gov) or copies can be obtained, upon payment of a
duplicating fee, by writing the Public Reference Section of the SEC, Washington,
D.C. 20549-6009.
X.com, Inc.
394 University Avenue
Palo Alto, CA 94301
Toll-Free: (800) ___-____
http://www.X.com
Investment Company Act file No.: 811-_________
- 22-
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
X.com Funds
X.com S&P 500 IndX Fund
X.com Bond IndX Fund
X.com Money Market Fund
September 1, 1999
This Statement of Additional Information ("SAI") is not a prospectus. This SAI
should be read together with the Prospectus for the X.com S&P 500 IndX Fund (the
"S&P 500 IndX Fund"), the X.com Bond IndX Fund (the "LB Bond IndX Fund";
collectively with the S&P 500 IndX Fund, the "IndX Funds"), and the X.com Money
Market Fund (the "Money Market Fund"; collectively with the IndX Funds, the
"Funds") dated September 1, 1999 (as amended from time to time).
To obtain a copy of the Funds' Prospectus and the Funds' most recent
shareholders' report (when issued) free of charge, please access our Website
online (www.X.com) via e-mail or our toll-free number at (800) ___-____. Only
investors who are customers of X.com Bank and who consent to receive all
information about the Funds electronically may invest in any of the Funds.
<PAGE>
TABLE OF CONTENTS
HISTORY OF THE FUNDS.......................................................1
THE FUNDS..................................................................1
INVESTMENT STRATEGIES AND RISKS............................................2
FUND POLICIES.............................................................13
TRUSTEES AND OFFICERS.....................................................21
INVESTMENT MANAGEMENT.....................................................22
SERVICE PROVIDERS.........................................................23
PORTFOLIO TRANSACTIONS AND BROKERAGE SELECTION............................25
ORGANIZATION, DIVIDEND AND VOTING RIGHTS..................................27
SHAREHOLDER INFORMATION...................................................28
TAXATION..................................................................29
MASTER PORTFOLIO ORGANIZATION.............................................33
PERFORMANCE INFORMATION...................................................34
FINANCIAL STATEMENTS......................................................39
APPENDIX..................................................................40
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<PAGE>
HISTORY OF THE FUNDS
Each of the Funds is a diversified series of X.com Funds (the "Trust"). The
Trust is organized as a Delaware business trust and was formed on May __, 1999.
THE FUNDS
Each of the Funds is classified as a diversified open-end, management investment
company.
S&P 500 IndX Fund. As its investment objective, the S&P 500 IndX Fund seeks to
approximate as closely as practicable, before fees and expenses, the
capitalization-weighted total rate of return1 of Standard & Poor's 500 Composite
Stock Price Index (the "S&P 500 Index").1 The S&P 500 Index, a widely
recognized benchmark for U.S. stocks, currently represents about 75% of the
market capitalization of all publicly traded common stocks in the United States.
The S&P 500 Index includes 500 established companies representing different
sectors of the U.S. economy (including industrial, utilities, financial, and
transportation) selected by Standard & Poor's. The S&P 500 IndX Fund seeks to
achieve its objective by investing in S&P 500 Index Master Portfolio ("S&P 500
Portfolio"), a series of Master Investment Portfolio ("MIP"), a registered
open-end management investment company issuing shares in multiple series (each a
"Portfolio"). The S&P 500 Portfolio seeks to provide investment results that
correspond (before fees and expenses) to the total return of the publicly traded
common stocks, in the aggregate, as represented by the S&P 500 Index. To do so,
the S&P 500 Portfolio invests substantially all of its assets in the same stocks
and in substantially the same percentages as the S&P 500 Index.
LB Bond IndX Fund. As its investment objective, the LB Bond IndX Fund seeks to
approximate as closely as practicable, before fees and expenses, the total rate
of return of the U.S. market for issued and outstanding U.S. government and
high-grade corporate bonds as measured by the Lehman Brothers
"Capitalization-weighted total rate of return" means that each stock in the
index contributes to the index in the same proportion as the value of its
shares. Thus, if the shares of Company A are worth twice as much as the shares
of Company B, Company A's return will count twice as much as Company B's in
calculating the index's overall return.
[FN]
- ----------
1 "Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's
500(R)," and "500" are trademarks of The McGraw-Hill Companies, Inc.
and have been licensed by X.com Asset Management, Inc. for use in
connection with the S&P 500 IndX Fund. The S&P 500 IndX Fund is not
sponsored, endorsed, sold, or promoted by Standard & Poor's and
Standard & Poor's makes no representation regarding the advisability of
investing in the S&P 500 IndX Fund.
</FN>
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<PAGE>
Government/Corporate Bond Index ("LB Bond Index").2 The LB Bond Index includes
approximately 6,500 fixed-income securities, including U.S. Government
securities and investment grade corporate bonds, each with an outstanding market
value of at least $25 million and remaining maturity of greater than one year.
seeks to achieve its investment objective by investing all of its assets in the
Bond Index Master Portfolio ("LB Bond Portfolio"), a series of MIP. The LB Bond
Portfolio seeks to replicate the total return of the LB Bond Index. To do so,
the LB Bond Portfolio invests substantially all of its assets in a
representative sample of the securities that comprise the LB Bond Index, or
securities or other instruments that seek to approximate the performance and
investment characteristics of the LB Bond Index.
Money Market Fund. As its investment objective, the Money Market Fund seeks to
provide shareholders of the Fund with a high level of current income, while
preserving capital and liquidity. The Money Market Fund seeks to achieve this
investment objective by investing all of its assets in the Money Market
Portfolio ("Money Market Portfolio"), a series of MIP, which, in turn, invests
its assets in U.S. dollar-denominated, high-quality money market instruments
with maturities of 397 days or less, and a dollar-weighted average portfolio
maturity of 90 days or less. The Money Market Portfolio, LB Bond Portfolio and
S&P 500 Portfolio are collectively referred to herein as the "Portfolios".
Master Investment Portfolio. MIP is an open-end management investment company
organized as a Delaware business trust. The policy of each of the Funds to
invest all of its assets in a Portfolio of MIP is not a fundamental policy of
any of the Funds and a shareholder vote is not required for any Fund to withdraw
its investment from the Portfolio in which it invests.
The investment objective of each of the Funds is fundamental and, therefore,
cannot be changed without approval of a majority (as defined in the 1940 Act, as
amended) of that Fund's outstanding voting interests.
INVESTMENT STRATEGIES AND RISKS
The following supplements the discussion in the Prospectus of the investment
strategies, policies and risks which pertain to the Portfolios and, accordingly,
to the Funds which invest in such Portfolios. These investment strategies and
policies may be changed without shareholder approval unless otherwise noted and
apply to all of the Portfolios unless otherwise noted.
[FN]
- ----------
2 "Lehman Brothers Government/Corporate Bond Index(R)" is a trademark of
Lehman Brothers, Inc. ("Lehman") and has been licensed for use by X.com
Asset Management, Inc. in connection with the LB Bond IndX Fund. The LB
Bond IndX Fund is not sponsored, endorsed, sold, or promoted by Lehman,
and Lehman makes no representation regarding the advisability of
investing in the LB Bond IndX Fund.
</FN>
- 2 -
<PAGE>
Futures Contracts and Options Transactions. The S&P 500 and LB Bond Portfolios
may use futures as a substitute for a comparable market position in the
underlying securities.
A futures contract is an agreement between two parties, a buyer and a seller, to
exchange a particular commodity or financial statement at a specific price on a
specific date in the future. An option transaction generally involves a right,
which may or may not be exercised, to buy or sell a commodity or financial
instrument at a particular price on a specified future date. Futures contracts
and options are standardized and traded on exchanges, where the exchange serves
as the ultimate counterparty for all contracts. Consequently, the primary credit
risk on futures contracts is the creditworthiness of the exchange. Futures
contracts are subject to market risk (i.e., exposure to adverse price changes).
Upon exercise of an option on a futures contract, the writer of the option
delivers to the holder of the option the futures position and the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of options on
futures contracts is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the time of
sale, there are no daily cash payments to reflect changes in the value of the
underlying contract; however, the value of the option does change daily and that
change would be reflected in the net asset value of the relevant Portfolio.
Although the S&P 500 and LB Bond Portfolios intend 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 these Portfolios to substantial losses. If it is not possible, or if
a Portfolio determines not to close a futures position in anticipation of
adverse price movements, the Portfolio will be required to make daily cash
payments on variation margin.
The S&P 500 Portfolio may invest in stock index futures and options on stock
index futures as a substitute for a comparable market position in the underlying
securities. A stock index future obligates the seller to deliver (and the
purchaser to take), effectively, an amount of cash equal to a specific dollar
amount times the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of the underlying stocks in the index is
made. With respect to stock indices that are permitted investments, the
- 3 -
<PAGE>
Portfolios intend to purchase and sell futures contracts on the stock index for
which it can obtain the best price with consideration also given to liquidity.
There can be no assurance that a liquid market will exist at the time when the
S&P 500 Portfolio seeks to close out a futures contract or a futures option
position. Lack of a liquid market may prevent liquidation of an unfavorable
position.
Interest-Rate Futures Contracts and Options on Interest-Rate Futures Contracts.
The LB Bond Portfolio may invest in interest-rate futures contracts and options
on interest-rate futures contracts as a substitute for a comparable market
position in the underlying securities. The LB Bond Portfolio may also sell
options on interest-rate futures contracts as part of closing purchase
transactions to terminate their options positions. No assurance can be given
that such closing transactions can be effected or the degree of correlation
between price movements in the options on interest rate futures or price
movements in the LB Bond Portfolio's securities which are the subject of the
transactions.
Interest-Rate and Index Swaps. The LB Bond Portfolio may enter into
interest-rate and index swaps in pursuit of its investment objectives.
Interest-rate swaps involve the exchange by the LB Bond Portfolio with another
party of their respective commitments to pay or receive interest (for example,
an exchange of floating-rate payments or fixed-rate payments). Index swaps
involve the exchange by the LB Bond Portfolio with another party of cash flows
based upon the performance of an index of securities or a portion of an index of
securities that usually include dividends or income. In each case, the exchange
commitments can involve payments to be made in the same currency or in different
currencies. The LB Bond Portfolio will usually enter into swaps on a net basis.
In so doing, the two payment streams are netted out, with the LB Bond Portfolio
receiving or paying, as the case may be, only the net amount of the two
payments. If the LB Bond Portfolio enters into a swap, it will maintain a
segregated account on a gross basis, unless the contract provides for a
segregated account on a net basis. If there is a default by the other party to
such a transaction, the LB Bond Portfolio will have contractual remedies
pursuant to the agreements related to the transaction.
The use of interest-rate and index swaps is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio security transactions. There is no limit, except as provided
below, on the amount of swap transactions that may be entered into by the LB
Bond Portfolio. These transactions generally do not involve the delivery of
securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to swaps generally is limited to the net amount of principal.
Accordingly, the risk of loss with respect to swaps generally is limited to the
net amount of payments that the LB Bond Portfolio is contractually obligated to
make. There is also a risk of a default by the other party to a swap, in which
case the LB Bond Portfolio may not receive the net amount of payments that the
LB Bond Portfolio contractually is entitled to receive.
The S&P 500 and LB Bond Portfolios' futures transactions must constitute
permissible transactions pursuant to regulations promulgated by the Commodity
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Futures Trading Commission ("CFTC"). In addition, these Portfolio may not engage
in futures transactions if the sum of the amount of initial margin deposits and
premiums paid for unexpired options on futures contracts, other than those
contracts entered into for bona fide hedging purposes, would exceed 5% of the
liquidation value of these Portfolios' assets, after taking into account
unrealized profits and unrealized losses on such contracts; provided, however,
that in the case of an option on a futures contract that is in-the-money at the
time of purchase, the in-the-money amount may be excluded in calculating the 5%
liquidation limit. Pursuant to regulations and/or published positions of the
SEC, the S&P 500 and LB Bond Portfolios may be required to segregate cash or
high quality money market instruments in connection with its futures
transactions in an amount generally equal to the entire value of the underlying
security.
Future Developments. The S&P 500 and LB Bond Portfolios may take advantage of
opportunities in the area of options and futures contracts and options on
futures contracts and any other derivative investments which are not presently
contemplated for use by such Portfolio or which are not currently available but
which may be developed, to the extent such opportunities are both consistent
with the respective Portfolio's investment objective and legally permissible for
that Portfolio. Before entering into such transactions or making any such
investment, the IndX Funds will provide appropriate disclosure in their
prospectus.
Forward commitments, when-issued purchases and delayed-delivery transactions.
The Portfolios may purchase or sell securities on a when-issued or
delayed-delivery basis and make contracts to purchase or sell securities for a
fixed price at a future date beyond customary settlement time. Securities
purchased or sold on a when-issued, delayed-delivery or forward commitment basis
involve a risk of loss if the value of the security to be purchased declines, or
the value of the security to be sold increases, before the settlement date.
Although the Portfolios will generally purchase securities with the intention of
acquiring them, the Portfolios may dispose of securities purchased on a
when-issued, delayed-delivery or a forward commitment basis before settlement
when deemed appropriate by the Portfolio's investment advisor.
When-issued securities are subject to market fluctuation, and no income accrues
to the purchaser during the period before the securities are paid for and
delivered on the settlement date. The purchase price and the interest rate that
will be received on debt securities are fixed at the time the purchaser enters
into the commitment.
Securities purchased on a when-issued or forward commitment basis may expose the
Money Market Portfolio to risk because they may experience fluctuations in value
prior to their actual delivery. Purchasing a security on a when-issued basis can
involve a risk that the market price at the time of delivery may be lower than
the agreed-upon purchase price, in which case there could be an unrealized loss
at the time of delivery. None of the Portfolios currently intend on investing
more than 5% of its assets in when-issued securities during the coming year.
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Each of the Portfolios will establish a segregated account in which it will
maintain cash or liquid securities in an amount at least equal in value to that
Portfolio's commitments to purchase when-issued securities. If the value of
these assets declines, that Portfolio will place additional liquid assets in the
account on a daily basis so that the value of the assets in the account is equal
to the amount of such commitments. Because the Money Market Portfolio will set
aside cash and other high quality liquid debt securities as described above, the
liquidity of the Money Market Portfolio's investment portfolio may decrease as
the proportion of securities in the Money Market Portfolio's portfolio purchased
on a when-issued or forward commitment basis increases.
The value of the securities underlying a when-issued purchase or a forward
commitment to purchase securities, and any subsequent fluctuations in their
value, is taken into account when determining the Money Market Portfolio's net
asset value starting on the day the Money Market Portfolio agrees to purchase
the securities. When the Money Market Portfolio makes a forward commitment to
sell securities it owns, the proceeds to be received upon settlement are not
reflected in the Money Market Portfolio's net asset value as long as the
commitment remains in effect.
Short-term instruments and temporary investments. Although the Money Market
Portfolio will primarily invest in money market instruments, the other
Portfolios may also invest in high-quality money market instruments on an
ongoing basis to provide liquidity or for temporary purposes when there is an
unexpected level of shareholder purchases or redemptions. The instruments in
which the Portfolios may invest include: (i) short-term obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities (including
government-sponsored enterprises); (ii) negotiable certificates of deposit
("CDs"), banker's acceptances, fixed time deposits and other obligations of
domestic banks (including foreign branches) that have more than $1 billion in
total assets at the time of investment and that are members of the Federal
Reserve System or are examined by the Comptroller of the Currency or whose
deposits are insured by the FDIC; (iii) commercial paper rated at the date of
purchase "Prime-1" by Moody's or "A-1+" or "A-1" by S&P, or, if unrated, of
comparable quality as determined by Portfolio's investment advisor; (iv)
non-convertible corporate debt securities (e.g., bonds and debentures) with
remaining maturities at the date of purchase of not more than one year that are
rated at least "Aa" by Moody's or "AA" by S&P; (v) repurchase agreements; and
(vi) short-term, U.S. dollar-denominated obligations of foreign banks (including
U.S. branches) that, at the time of investment have more than $10 billion, or
the equivalent in other currencies, in total assets and that, in the opinion of
the Portfolio's investment advisor, are of comparable quality to obligations of
U.S. banks which may be purchased by the Portfolios.
Bank Obligations. The Portfolios may invest in bank obligations, including
certificates of deposit, time deposits, banker's acceptances and other
short-term obligations of domestic banks, foreign subsidiaries of domestic
banks, foreign branches of domestic banks, and domestic and foreign branches of
foreign banks, domestic savings and loan associations and other banking
institutions.
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Certificates of deposit are negotiable certificates evidencing the obligation of
a bank to repay funds deposited with it for a specified period of time. Time
deposits are non-negotiable deposits maintained in a banking institution for a
specified period of time at a stated interest rate. Time deposits which may be
held by the Portfolios will not benefit from insurance from the Bank Insurance
Fund or the Savings Association Insurance Fund administered by the Federal
Deposit Insurance Corporation. Banker's acceptances are credit instruments
evidencing the obligation of a bank to pay a draft drawn on it by a customer.
These instruments reflect the obligation both of the bank and of the drawer to
pay the face amount of the instrument upon maturity. The other short-term
obligations may include uninsured, direct obligations, bearing fixed, floating-
or variable-interest rates.
Investments in foreign obligations involve certain considerations that are not
typically associated with investing in domestic obligations. There may be less
publicly available information about a foreign issuer than about a domestic
issuer. Foreign issuers also are not generally subject to uniform accounting,
auditing and financial reporting standards or governmental supervision
comparable to those applicable to domestic issuers. In addition, with respect to
certain foreign countries, taxes may be withheld at the source under foreign
income tax laws, and there is a possibility of expropriation or confiscatory
taxation, political or social instability or diplomatic developments that could
adversely affect investments in, the liquidity of, and the ability to enforce
contractual obligations with respect to, securities of issuers located in those
countries. The Money Market Portfolio may invest up to 25% of its assets in
foreign obligations.
Obligations of foreign banks and foreign branches of U.S. banks involve somewhat
different investment risks from those affecting obligations of U.S. banks,
including the possibilities that liquidity could be impaired because of future
political and economic developments; the obligations may be less marketable than
comparable obligations of U.S. banks; a foreign jurisdiction might impose
withholding taxes on interest income payable on those obligations; foreign
deposits may be seized or nationalized; foreign governmental restrictions (such
as foreign exchange controls) may be adopted which might adversely affect the
payment of principal and interest on those obligations; and the selection of
those obligations may be more difficult because there may be less publicly
available information concerning foreign banks. In addition, the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign banks may differ from those applicable to U.S. banks. In
that connection, foreign banks are not subject to examination by an U.S.
Government agency or instrumentality.
Commercial Paper and Short-Term Corporate Debt Instruments. In addition to the
Money Market Portfolio which will generally invest in these types of
instruments, the S&P 500 and LB Bond Portfolios may invest in commercial paper
(including variable amount master demand notes), which consists of short-term,
unsecured promissory notes issued by corporations to finance short-term credit
needs. Commercial paper is usually sold on a discount basis and has a maturity
at the time of issuance not exceeding nine months. Variable amount master demand
notes are demand obligations that permit the investment of fluctuating amounts
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at varying market rates of interest pursuant to arrangements between the issuer
and a commercial bank acting as agent for the payee of such notes whereby both
parties have the right to vary the amount of the outstanding indebtedness on the
notes. The investment adviser to the Portfolios monitors on an ongoing basis the
ability of an issuer of a demand instrument to pay principal and interest on
demand.
The Portfolios also may invest in non-convertible corporate debt securities
(e.g., bonds and debentures) with not more than one year remaining to maturity
at the date of settlement. The Portfolios will invest only in such corporate
bonds and debentures that are rated at the time of purchase at least "Aa" by
Moody's or "AA" by S&P. Subsequent to its purchase by a Portfolio, an issuer of
securities may cease to be rated or its rating may be reduced below the minimum
rating required for purchase by the Portfolio. The investment adviser to the
Portfolios will consider such an event in determining whether a Portfolio should
continue to hold the obligation. To the extent a Portfolio continues to hold
such obligations, it may be subject to additional risk of default.
To the extent the ratings given by Moody's or S&P may change as a result of
changes in such organizations or their rating systems, the Portfolios will
attempt to use comparable ratings as standards for investments in accordance
with the investment policies contained in its Prospectus and in this SAI. The
ratings of Moody's and S&P and other nationally recognized statistical rating
organizations are more fully described in the attached Appendix.
Repurchase Agreements. All of the Portfolios may enter into a repurchase
agreement wherein the seller of a security to a Portfolio agrees to repurchase
that security from the Portfolio at a mutually-agreed upon time and price. The
period of maturity is usually quite short, often overnight or a few days,
although it may extend over a number of months. Each of the Portfolios may enter
into repurchase agreements only with respect to securities that could otherwise
be purchased by the respective Portfolio, including government securities and
mortgage-related securities, regardless of their remaining maturities, and
requires that additional securities be deposited with the custodian if the value
of the securities purchased should decrease below the repurchase price.
The Portfolios may incur a loss on a repurchase transaction if the seller
defaults and the value of the underlying collateral declines or is otherwise
limited or if receipt of the security or collateral is delayed. The Portfolio's
custodian has custody of, and holds in segregated accounts, securities acquired
as collateral by each of the Portfolios under a repurchase agreement. Repurchase
agreements are considered loans by the Portfolios. All repurchase transactions
must be collateralized.
In an attempt to reduce the risk of incurring a loss on a repurchase agreement,
the Portfolios limit investments in repurchase agreements to selected
creditworthy securities dealers or domestic banks or other recognized financial
institutions. The Portfolio's advisor monitors on an ongoing basis the value of
the collateral to assure that it always equals or exceeds the repurchase price.
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Floating- and variable- rate obligations. All of the Portfolios may purchase
floating-rate and variable-rate obligations as described in the Prospectus. The
Portfolios may purchase debt instruments with interest rates that are
periodically adjusted at specified intervals or whenever a benchmark rate or
index changes. These adjustments generally limit the increase or decrease in the
amount of interest received on the debt instruments. The Portfolios may purchase
floating- and variable-rate demand notes and bonds, which are obligations
ordinarily having stated maturities in excess of thirteen months, but which
permit the holder to demand payment of principal at any time, or at specified
intervals not exceeding thirteen months. Variable-rate demand notes include
master demand notes that are obligations that permit a Portfolio to invest
fluctuating amounts, which may change daily without penalty, pursuant to direct
arrangements between the Portfolio, as lender, and the borrower.
Floating- and variable-rate instruments are subject to interest-rate risk and
credit risk. The issuer of such obligations ordinarily has a corresponding
right, after a given period, to prepay in its discretion the outstanding
principal amount of the obligations plus accrued interest upon a specified
number of day's notice to the holders of such obligations. The interest rate on
a floating-rate demand obligation is based on a known leading rate, such as a
bank's prime rate, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable-rate demand obligation is adjusted
automatically at specified intervals. Frequently, such obligations are secured
by letters of credit or other credit support arrangements provided by banks.
Because these obligations are direct lending arrangements between the lender and
borrower, it is not contemplated that such instruments generally will be traded,
and there generally is no established secondary market for these obligations,
although they are redeemable at face value. Accordingly, where these obligations
are not secured by letters of credit or other credit support arrangements, the
Portfolio's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Such obligations frequently are not rated by
credit rating agencies and the Portfolios may invest in obligations which are
not so rated only if BGFA determines that at the time of investment the
obligations are of comparable quality to the other obligations in which that
Portfolio may invest. BGFA, on behalf of the Portfolios, considers on an ongoing
basis the creditworthiness of the issuers of the floating- and variable-rate
demand obligations in the Portfolios' portfolio. None of the Portfolios will
invest more than 10% of the value of its total net assets in floating- or
variable-rate demand obligations whose demand feature is not exercisable within
seven days. Such obligations may be treated as liquid, provided that an active
secondary market exists.
Loans of portfolio securities. The S&P 500 and LB Bond Portfolios may lend
securities from their portfolios to brokers, dealers and financial institutions
(but not individuals) in order to increase the return on their portfolios. The
value of the loaned securities may not exceed one-third of the respective
Portfolio's total assets and loans of portfolio securities are fully
collateralized based on values that are marked-to-market daily. Neither of these
Portfolios will enter into any portfolio security lending arrangement having a
duration of longer than one year. The principal risk of portfolio lending is
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potential default or insolvency of the borrower. In either of these cases, a
Portfolio could experience delays in recovering securities or collateral or
could lose all or part of the value of the loaned securities. The S&P 500 and LB
Bond Portfolios may pay reasonable administrative and custodial fees in
connection with loans of portfolio securities and may pay a portion of the
interest or fee earned thereon to the borrower or a placing broker.
The Money Market Portfolio may lend its securities to brokers, dealers and
financial institutions, provided (1) the loan is secured continuously by
collateral consisting of cash, U.S. Government securities or an irrevocable
letter of credit which is marked to market daily to ensure that each loan is
fully collateralized; (2) the Money Market Portfolio may at any time recall the
loan and obtain the return of the securities loaned within five business days;
(3) the Money Market Portfolio will receive any interest or dividends paid on
the securities loaned; and (4) the aggregate market value of securities loaned
will not at any time exceed one-third of the total assets of the Money Market
Portfolio. The Money Market Portfolio may earn income in connection with
securities loans either through the reinvestment of the cash collateral or the
payment of fees by the borrower. The Money Market Portfolio does not currently
intend to lend its portfolio securities.
In determining whether to lend a security to a particular broker, dealer or
financial institution, the Portfolio's investment advisor considers all relevant
facts and circumstances, including the size, creditworthiness and reputation of
the broker, dealer, or financial institution. Any loans of portfolio securities
are fully collateralized and marked to market daily. The Portfolios will not
enter into any portfolio security lending arrangement having a duration of
longer than one year. Any securities that a Portfolio may receive as collateral
will not become part of the Portfolio's investment portfolio at the time of the
loan and, in the event of a default by the borrower, the Portfolio will, if
permitted by law, dispose of such collateral except for such part thereof that
is a security in which the Portfolio is permitted to invest. During the time
securities are on loan, the borrower will pay the Portfolio any accrued income
on those securities, and the Portfolio may invest the cash collateral and earn
income or receive an agreed upon fee from a borrower that has delivered
cash-equivalent collateral.
Investment company securities. The S&P 500 and LB Bond Portfolios may invest in
securities issued by other open-end management investment companies which
principally invest in securities of the type in which such Portfolio invests.
Under the 1940 Act, a Portfolio's investment in such securities currently is
limited to, subject to certain exceptions, (i) 3% of the total voting stock of
any one investment company, (ii) 5% of that Portfolio's net assets with respect
to any one investment company and (iii) 10% of that Portfolio's net assets in
the aggregate. Investments in the securities of other investment companies
generally will involve duplication of advisory fees and certain other expenses.
These Portfolios may also purchase shares of exchange-listed closed-end funds.
Illiquid securities. To the extent that such investments are consistent with its
respective investment objective, the S&P 500 and LB Bond Portfolios may invest
up to 15% of the value of their respective net assets in securities as to which
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a liquid trading market does not exist. Such securities may include securities
that are not readily marketable, such as privately issued securities and other
securities that are subject to legal or contractual restrictions on resale,
floating- and variable-rate demand obligations as to which that Portfolio cannot
exercise a demand feature on not more than seven day's notice and as to which
there is no secondary market and repurchase agreements providing for settlement
more than seven days after notice.
Foreign Securities. Since the stocks of some foreign issuers may be included in
the S&P 500 Index, the S&P 500 Portfolio's portfolio may contain securities of
such foreign issuers, as well as American Depositary Receipts and similar
instruments, which may subject the S&P 500 Portfolio to additional investment
risks with respect to those securities that are different in some respects from
those incurred by a fund which invests only in securities of domestic issuers.
Such risks include possible adverse political and economic developments, seizure
or nationalization of foreign deposits or adoption of governmental restrictions
which might adversely affect the value of the securities of a foreign issuer to
investors located outside the country of the issuer, whether from currency
blockage or otherwise. These securities may not necessarily be denominated in
the same currency as the securities into which they may be converted. ADRs
(sponsored or unsponsored) are receipts typically issued by a U.S. bank or trust
company and traded on a U.S. Stock Exchange, that evidence ownership of
underlying foreign securities. Issuers of unsponsored ADRs are not contractually
obligated to disclose material information in the U.S. and, therefore, such
information may not correlate to the market value of the unsponsored ADR.
Obligations of Foreign Governments, Banks and Corporations. The S&P 500 and LB
Bond Portfolios may invest in U.S. dollar-denominated short-term obligations
issued or guaranteed by one or more foreign governments or any of their
political subdivisions, agencies or instrumentalities that are determined by
their investment advisor to be of comparable quality to the other obligations in
which these Portfolios may invest. To the extent that such investments are
consistent with its investment objective, each of the S&P 500 and LB Bond
Portfolios may also invest in 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. The percentage of these
Portfolios' assets invested in obligations of foreign governments and
supranational entities will vary depending on the relative yields of such
securities, the economic and financial markets of the countries in which the
investments are made and the interest rate climate of such countries.
Each of the S&P 500 and LB Bond Portfolios may also invest a portion of its
total assets in high quality, short-term (one year or less) debt obligations of
foreign branches of U.S. banks or U.S. branches of foreign banks that are
denominated in and pay interest in U.S. dollars.
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U.S. Government Obligations. The Portfolios may invest in various types of U.S.
Government obligations. U.S. Government obligations include securities issued or
guaranteed as to principal and interest by the U.S. Government and supported by
the full faith and credit of the U.S. Treasury. U.S. Treasury obligations differ
mainly in the length of their maturity. Treasury bills, the most frequently
issued marketable government securities, have a maturity of up to one year and
are issued on a discount basis. U.S. Government obligations also include
securities issued or guaranteed by federal agencies or instrumentalities,
including government-sponsored enterprises. Some obligations of such agencies or
instrumentalities of the U.S. Government are supported by the full faith and
credit of the United States or U.S. Treasury guarantees. Other obligation of
such agencies or instrumentalities of the U.S. Government are supported by the
right of the issuer or guarantor to borrow from the U.S. Treasury. Others are
supported by the discretionary authority of the U.S. Government to purchase
certain obligations of the agency or instrumentality or only by the credit of
the agency or instrumentality issuing the obligation.
In the case of obligations not backed by the full faith and credit of the United
States, the investor must look principally to the agency or instrumentality
issuing or guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the U.S.
Government would provide financial support to its agencies or instrumentalities
(including government-sponsored enterprises) where it is not obligated to do so.
In addition, U.S. government obligations are subject to fluctuations in market
value due to fluctuations in market interest rates. As a general matter, the
value of debt instruments, including U.S. government obligations, declines when
market interest rates increase and rises when market interest rates decrease.
Certain types of U.S. government obligations are subject to fluctuations in
yield or value due to their structure or contract terms.
Unrated, Downgraded and Below Investment Grade Investments. The Portfolios may
purchase instruments that are not rated if, in the opinion of their investment
advisor, such obligations are of investment quality comparable to other rated
investments that are permitted to be purchased by the Portfolios. The Money
Market Portfolio may purchase such instruments if they are purchased in
accordance with the Money Market Portfolio's procedures in accordance with Rule
2a-7 of the 1940 Act. After purchase by a Portfolio, a security may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Portfolio. Neither event will require a sale of such security by the
Portfolio provided that when a security ceases to be rated, the Board of
Trustees for that Portfolio determines that such security presents minimal
credit risks and provided further that, when a security is downgraded below the
eligible quality for investment or no longer presents minimal credit risks, the
Board finds that the sale of such security would not be in that Portfolio's best
interests. In no event will such securities exceed 5% of any Portfolio's net
assets. To the extent the ratings given by Moody's or S&P may change as a result
of changes in such organizations or their rating systems, the Portfolios will
attempt to use comparable ratings as standards for investments in accordance
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with the investment policies contained in this SAI. The ratings of Moody's and
S&P are more fully described in the Appendix to this SAI.
Because the Portfolios are not required to sell downgraded securities, the
Portfolios could hold up to 5% of each of their net assets in debt securities
rated below "Baa" by Moody's or below "BBB" by S&P or in unrated, low quality
(below investment grade) securities. Although they may offer higher yields than
do higher rated securities, low rated, and unrated, low quality debt securities
generally involve greater volatility of price and risk of principal and income,
including the possibility of default by, or bankruptcy of, the issuers of the
securities. In addition, the markets in which low rated and unrated, low quality
debt are traded are more limited than those in which higher rated securities are
traded. The existence of limited markets for particular securities may diminish
the Portfolio's ability to sell the securities at fair value either to meet
redemption requests or to respond to changes in the economy or in the financial
markets and could adversely affect and cause fluctuations in the daily net asset
value of the Portfolio's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of low rated or unrated, low
quality debt securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low rated or unrated, low quality debt securities
may be more complex than for issuers of higher rated securities, and the ability
of a Portfolio to achieve its investment objective may, to the extent such
Portfolio holds low rated or unrated low quality debt securities, be more
dependent upon such creditworthiness analysis than would be the case if that
Portfolio held exclusively higher rated or higher quality securities.
Low rated or unrated low quality debt securities may be more susceptible to real
or perceived adverse economic and competitive industry conditions than
investment grade securities. The prices of such debt securities have been found
to be less sensitive to interest rate changes than higher rated or higher
quality investments, but more sensitive to adverse economic downturns or
individual corporate developments. A projection of an economic downturn or of a
period of rising interest rates, for example, could cause a decline in low rated
or unrated, low quality debt securities prices because the advent of a recession
could dramatically lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. If the issuer of the
debt securities defaults, a Portfolio may incur additional expenses to seek
recovery.
FUND POLICIES
Fundamental Investment Restrictions of the Funds
The following are the Funds' fundamental investment restrictions which, along
with the Funds' investment objectives, cannot be changed without shareholder
approval which would require a vote of a majority of the outstanding shares of
the applicable Fund, as set forth in the 1940 Act.
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Unless noted otherwise, if a percentage restriction is adhered to at the time of
investment, a later increase or decrease in percentage resulting from a change
in a Fund's assets (i.e., due to cash inflows or redemptions) or in market value
of the investment or the Fund's assets will not constitute a violation of that
restriction.
Unless indicated otherwise below, each of the Funds:
1. may not invest more than 5% of its assets in the obligations of any single
issuer, except that up to 25% of the value of its total assets may be
invested, and securities issued or guaranteed by the U.S. government, or
its agencies or instrumentalities may be purchased, without regard to any
such limitation;
2. may not with respect to 75% of its total assets, invest in a security if,
as a result of such investment, it would hold more than 10% (taken at the
time of such investment) of the outstanding securities of any one issuer;
3. may not issue senior securities, except as permitted under the 1940 Act;
4. may (1) borrow money from banks and (2) make other investments or engage in
other transactions permissible under the 1940 Act which may involve a
borrowing, provided that the combination of (1) and (2) shall not exceed 33
1/3% of the value of the Fund's total assets (including the amount
borrowed), less the Fund's liabilities (other than borrowings), except that
the Fund may borrow up to an additional 5% of its total assets (not
including the amount borrowed) from a bank for temporary or emergency
purposes (but not for leverage or the purchase of investments) (applies to
the S&P 500 IndX Fund only). The S&P 500 IndX Fund may also borrow money
from other persons to the extent permitted by applicable law;
5. may not borrow money, except to the extent permitted under the 1940 Act,
provided that the Fund may borrow from banks up to 10% of the current value
of its net assets for temporary purposes only in order to meet redemptions,
and these borrowings may be secured by a pledge of up to 10% of the current
value of its net assets (but investments may not be purchased while any
such outstanding borrowing in excess of 5% of its net assets exists). This
investment restriction applies only to the LB Bond IndX Fund. For purposes
of this investment restriction, the LB Bond IndX Fund's entry into options,
forward contracts, futures contracts, including those relating to indexes,
and options on futures contracts or indexes shall not constitute borrowing
to the extent certain segregated accounts are established and maintained by
that Fund;
6. may not act as an underwriter of another issuer's securities, except to the
extent that the Fund may be deemed to be an underwriter within the meaning
of the Securities Act of 1933, as amended, in connection with the
disposition of portfolio securities;
7. may not purchase the securities of any issuer if, as a result, more than
25% of the Fund's total assets (taken at market value at the time of such
- 14 -
<PAGE>
investment) would be invested in the securities of issuers in any
particular industry, except that this restriction does not apply to
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities (or repurchase agreements thereto), or (for the Money
Market Fund) obligations of banks, to the extent that the SEC, by rule or
interpretation, permits funds to reserve freedom to concentrate in such
obligations provided, however, that there shall be no such limitations for
the LB Bond IndX Fund in any industry in which the LB Bond Index becomes
concentrated to the same degree during the same period. The LB Bond IndX
Fund will be concentrated as specified above only to the extent the
percentage of its assets invested in those categories of investments is
sufficiently large that 25% or more of its total assets would be invested
in a single industry;
8. may not purchase or sell real estate, although it may purchase securities
secured by real estate or interests therein, or securities issued by
companies which invest in real estate, or interests therein;
9. may not invest in commodities. This restriction shall not prohibit the S&P
500 and LB Bond IndX Funds, subject to restrictions described in the
Prospectus and elsewhere in this Statement of Additional Information, from
purchasing, selling or entering into futures contracts, options on futures
contracts and other derivative instruments, subject to compliance with any
applicable provisions of the federal securities or commodities laws;
10. may not lend any funds or other assets, except that the Funds may,
consistent with its investment objective and policies: (a) invest in
certain short-term or temporary debt obligations, even though the purchase
of such obligations may be deemed to be the making of loans, (b) enter into
repurchase agreements, and (c) lend its portfolio securities in an amount
not to exceed 33 1/3% of the Fund's total assets, provided such loans are
made in accordance with applicable guidelines established by the Securities
and Exchange Commission and the directors of the Funds ((c) is not
permitted for the Money Market Fund).
Non-Fundamental Investment Restrictions of the Funds
The following are the Funds' non-fundamental operating restrictions, which may
be changed by the Funds' Board of Trustees without shareholder approval.
Unless indicated otherwise below, each of the Funds may not:
1. The Funds may invest in shares of other open-end management investment
companies, subject to the limitations of Section 12(d)(1) of the 1940
Act. Under the 1940 Act, a Fund's investment in such securities
currently is limited, subject to certain exceptions, to (i) 3% of the
total voting stock of any one investment company; (ii) 5% of such
Fund' net assets with respect to any one investment company; and
(iii) 10% of such Fund's net assets in the aggregate. Other investment
companies in which the Funds invest can be expected to charge fees for
operating expenses, such as investment advisory and administration
fees that would be in additions to those charged by the Fund.
2. Each Fund may not invest more than 15% of its net assets in illiquid
securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on
resale, (b) fixed time deposits that are subject to withdrawal
penalties an that have maturities of more than seven days, and (c)
repurchase agreements not terminable within seven days.
- 15 -
<PAGE>
3. Each Fund may lend securities from its portfolio to brokers, dealers,
financial institutions, in amounts not to exceed (in the aggregate)
one-third of a Fund's total assets. Any such loans of portfolio
securities will be fully collateralized based on values that are
marked to market daily. The Funds will not enter into any portfolio
security lending arrangement having a duration of longer than one
year.
PORTFOLIO POLICIES
S&P 500 and LB Bond Portfolios: Fundamental Investment Restrictions
The S&P 500 and Bond Portfolios are subject to the following fundamental
investment restrictions which cannot be changed without approval by the holders
of a majority (as defined in the 1940 Act) of these Portfolio's outstanding
voting securities. 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.
Each of the S&P 500 and Bond Portfolios may not:
1. invest more than 5% of its assets in the obligations of any single issuer,
except that up to 25% of the value of its total assets may be invested, and
securities issued or guaranteed by the U.S. government, or its agencies or
instrumentalities may be purchased, without regard to any such limitation;
2. hold more than 10% of the outstanding voting securities of any single
issuer. This investment restriction applies only with respect to 75% of
each Portfolio's total assets;
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<PAGE>
3. invest in commodities, except that each Portfolio may purchase and sell
(i.e., write) options, forward contracts, futures contracts, including
those relating to indexes, and options on futures contracts or indexes;
4. purchase, hold or deal in real estate, or oil, gas or other mineral leases
or exploration or development programs, but each Portfolio may purchase and
sell securities that are secured by real estate or issued by companies that
invest or deal in real estate;
5. borrow money, except to the extent permitted under the 1940 Act, provided
that the LB Bond Portfolio may borrow from banks up to 10% of the current
value of its net assets for temporary purposes only in order to meet
redemptions, and these borrowings may be secured by the pledge of up to 10%
of the current value of its net assets (but investments may not be
purchased while any such outstanding borrowing in excess of 5% of its net
assets exists), and except that the S&P 500 Portfolio may borrow up to 20%
of the current value of its net assets for temporary purposes only in order
to meet redemptions, and these borrowings may be secured by the pledge of
up to 20% of the current value of its net assets (but investments may not
be purchased while any such outstanding borrowing in excess of 5% of its
net assets exists). For purposes of this investment restriction, a
Portfolio's entry into options, forward contracts, futures contracts,
including those relating to indexes, and options on futures contracts or
indexes shall not constitute borrowing to the extent certain segregated
accounts are established and maintained by such Portfolio;
6. make loans to others, except through the purchase of debt obligations and
the entry into repurchase agreements. However, each of the S&P 500 and LB
Bond Portfolios may lend its portfolio securities in an amount not to
exceed one-third of the value of its total assets. Any loans of portfolio
securities will be made according to guidelines established by the SEC and
the Portfolios' Board of Trustees;
7. act as an underwriter of securities of other issuers, except to the extent
that the Portfolio may be deemed an underwriter under the Securities Act of
1933, as amended, by virtue of disposing of portfolio securities;
8. invest 25% or more of its total assets in the securities of issuers in any
particular industry or group of closely related industries, except that
there shall be no limitation with respect to investments in (i) obligations
of the U.S. Government, its agencies or instrumentalities; (ii) in the case
of the S&P 500 Stock Master Portfolio, any industry in which the S&P 500
Index becomes concentrated to the same degree during the same period; and
(iii) in the case of the LB Bond Portfolio, any industry in which the LB
Bond Index becomes concentrated to the same degree during the same period;
9. 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 such
Portfolio's Fundamental Investment Restrictions Nos. 3 and 5 and
Non-Fundamental Investment Restrictions (2) and (3), may be deemed to give
rise to a senior security; and
- 17 -
<PAGE>
10. purchase securities on margin, but each Portfolio may make margin deposits
in connection with transactions in options, forward contracts, futures
contracts, including those related to indexes, and options on futures
contracts or indexes;
S&P 500 and LB Bond Portfolios: Non-Fundamental Investment Restrictions
The S&P 500 and LB Bond Portfolios are subject to the following non-fundamental
operating policies which may be changed by the Board of Trustees of these
Portfolios without the approval of the holders of such Portfolio's outstanding
securities.
1. The Portfolios may invest in shares of other open-end management
investment companies, subject to the limitations of Section 12(d)(1)
of the 1940 Act. Under the 1940 Act, a Portfolio's investment in such
securities currently is limited, subject to certain exceptions, to (i)
3% of the total voting stock of any one investment company; (ii) 5% of
such Portfolio's net assets with respect to any one investment
company; and (iii) 10% of such Portfolio's net assets in the
aggregate. Other investment companies in which the Portfolios invest
can be expected to charge fees for operating expenses, such as
investment advisory and administration fees that would be in additions
to those charged by the Portfolio.
2. Each Portfolio may not invest more than 15% of its net assets in
illiquid securities. For this purpose, illiquid securities include,
among others, (a) securities that are illiquid by virtue of the
absence of a readily available market or legal or contractual
restrictions on resale, (b) fixed time deposits that are subject to
withdrawal penalties an that have maturities of more than seven days,
and (c) repurchase agreements not terminable within seven days.
3. Each Portfolio may lend securities from its portfolio to brokers,
dealers, financial institutions, in amounts not to exceed (in the
aggregate) one-third of a Portfolio's total assets. Any such loans of
portfolio securities will be fully collateralized based on values that
are marked to market daily. The Portfolios will not enter into any
portfolio security lending arrangement having a duration of longer
than one year.
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<PAGE>
Money Market Portfolio: Fundamental Investment Restrictions
The Money Market Portfolio may not:
1. purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a
result thereof, the value of the Money Market Portfolio's investments in
that industry would be 25% or more of the current value of the Money Market
Portfolio's total assets, provided that there is no limitation with respect
to investments in (i) obligations of the U.S. Government, its agencies or
instrumentalities; and (ii) obligations of banks, to the extent that the
U.S. Securities and Exchange Commission ("SEC"), by rule or interpretation,
permits funds to reserve freedom to concentrate in such obligations;
2. purchase or sell real estate or real estate limited partnerships (other
than securities secured by real estate or interests therein or securities
issued by companies that invest in real estate or interests therein);
3. purchase commodities or commodity contracts (including futures contracts),
except that the Money Market Portfolio may purchase securities of an issuer
which invests or deals in commodities or commodity contracts;
4. purchase interests, leases, or limited partnership interests in oil, gas,
or other mineral exploration or development programs;
5. purchase securities on margin (except for short-term credits necessary for
the clearance of transactions and except for margin payments in connection
with options, futures and options on futures) or make short sales of
securities;
6. underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from
an underwriter for an issuer and the later disposition of such securities
in accordance with the Money Market Portfolio's investment program may be
deemed to be an underwriting;
7. make investments for the purpose of exercising control or management;
8. borrow money or issue senior securities as defined in the Investment
Company Act of 1940 (the "1940 Act"), except that the Money Market
Portfolio may borrow from banks up to 10% of the current value of its net
assets for temporary purposes only in order to meet redemptions, and these
borrowings may be secured by the pledge of up to 10% of the current value
of its net assets (but investments may not be purchased while any such
outstanding borrowings in excess of 5% of its net assets exists);
- 19 -
<PAGE>
9. write, purchase or sell puts, calls, straddles, spreads, warrants, options
or any combination thereof, except that the Money Market Portfolio may
purchase securities with put rights in order to maintain liquidity;
10. purchase securities of any issuer (except securities issued or guaranteed
by the U.S. Government, its agencies and instrumentalities) if, as a
result, with respect to 75% of its total assets, more than 5% of the value
of the Money Market Portfolio's total assets would be invested in the
securities of any one issuer or, with respect to 100% of its total assets
the Money Market Portfolio's ownership would be more than 10% of the
outstanding voting securities of such issuer; or
11. make loans, except that the Money Market Portfolio may purchase or hold
debt instruments or lend its portfolio securities in accordance with its
investment policies, and may enter into repurchase agreements.
MoneyMarket Portfolio: Non-Fundamental Investment Restrictions. The Money
Market Portfolio is subject to the following investment restrictions, all
of which are non-fundamental policies.
As a matter of non-fundamental policy:
1. The Money Market Portfolio may invest in shares of other open-end
management investment companies, subject to the limitations of Section
12(d)(1) of the 1940 Act. Under the 1940 Act, the Money Market Portfolio's
investment in such securities currently is limited, subject to certain
exceptions, to (i) 3% of the total voting stock of any one investment
company, (ii) 5% of the Money Market Portfolio's net assets with respect to
any one investment company; and (iii) 10% of the Money Market Portfolio's
net assets in the aggregate. Other investment companies in which the Money
Market Portfolio invests can be expected to charge fees for operating
expenses, such as investment advisory and administration fees, that would
be in addition to those charged by the Money Market Portfolio.
2. The Money Market Portfolio may not invest more than 10% of its net assets
in illiquid securities. For this purpose, illiquid securities include,
among others, (i) securities that are illiquid by virtue of the absence of
a readily available market or legal or contractual restrictions on resale,
(ii) fixed time deposits that are subject to withdrawal penalties and that
have maturities of more than seven days, and (iii) repurchase agreements
not terminable within seven days.
3. The Money Market Portfolio may lend securities from its portfolio to
brokers, dealers and financial institutions, in amounts not to exceed (in
the aggregate) one-third of the Money Market Portfolio's total assets. Any
such loans of portfolio securities will be fully collateralized based on
values that are marked to market daily. The Money Market Portfolio will not
enter into any portfolio security lending arrangement having a duration of
longer than one year.
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<PAGE>
TRUSTEES AND OFFICERS
The Board has the responsibility for the overall management of the Funds,
including general supervision and review of its investment activities and the
conformity with Delaware Law and the stated policies of the Funds. The Board
elects the officers of the Trust who are responsible for administering the
Funds' day-to-day operations. Trustees and officers of the Funds, together with
information as to their principal business occupations during the last five
years, and other information are shown below. Each "interested or affiliated
person," as defined in the 1940 Act, is indicated by an asterisk (*):
<TABLE>
<CAPTION>
<S> <C> <C>
- ----------------------------- -------------------------------------- ------------------------------------------
Name, Address, and Age Position(s) Held with the Fund Principal Occupation(s) During the Past
5 Years
- ----------------------------- -------------------------------------- ------------------------------------------
</TABLE>
The Trust pays each non-affiliated Trustee a quarterly fee of $_____ per Board
meeting for the Funds. In addition, the Trust reimburses each of the
non-affiliated Trustee for travel and other expenses incurred in connection with
attendance at such meetings. Other officers and Trustees of the Trust receive no
compensation or expense reimbursement. The following table provides an estimate
of each Trustee's compensation for the current fiscal year:
<TABLE>
<CAPTION>
Estimated Compensation Table
<S> <C> <C>
- ------------------------------ ----------------------------- -----------------------------
Total Compensation From
Name of Person, Position Aggregate Compensation from Funds and Trust Paid to
the Funds Directors
Expected to be Paid to
Trustees (1)
- ------------------------------ ----------------------------- -----------------------------
$---- $-----
$---- $-----
$---- $-----
</TABLE>
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<PAGE>
No Trustee will receive any benefits upon retirement. Thus, no pension or
retirement benefits have accrued as part of the Funds' expenses. ------------
(1) This amount represents the estimated aggregate amount of compensation paid
to each non-affiliated Trustee for service on the Board of Trustees for the
fiscal year ending _______________.
Control Persons and Principal Holders of Securities
A shareholder that owns 25% or more of any Funds' voting securities is in
control of that Fund on matters submitted to a vote of shareholders. To satisfy
regulatory requirements, as of _____________, 1999, ___________________ owned
100% of the Funds' outstanding shares. There are no other shareholders holding
25% or more. [Add information re seed capital investor]
INVESTMENT MANAGEMENT
Investment Advisers. Under an investment advisory agreement with the Trust,
X.com Asset Management, Inc. ("Investment Adviser") provides investment advisory
services to the Funds. The Investment Adviser is a wholly owned subsidiary of
X.com, Inc. a Delaware corporation.
Subject to general supervision of the X.com Funds' Board of Trustees and in
accordance with the investment objective, policies and restrictions of each of
the Funds, the Investment Adviser provides the Funds with ongoing investment
guidance, policy direction and monitoring of each of the Portfolios. The
Investment Adviser may in the future manage cash and money market instruments
for cash flow purposes. The Investment Adviser has not previously had
responsibility for managing a mutual fund. For its advisory services, the S&P
500 IndX Fund pays the Investment Adviser an investment advisory fee at an
annual rate equal to 0.__% of its average daily net assets; the LB Bond IndX
Fund pays the Investment Adviser an investment advisory fee at an annual rate
equal to 0.__% of its average daily net assets and the Money Market Fund pays
the Investment Adviser an investment advisory fee at an annual rate equal to
0.__% of its average daily net assets.
The Portfolio's Investment Adviser. The Portfolio's investment advisor is
Barclays Global Fund Advisors ("BGFA"). BGFA is a direct subsidiary of Barclays
Global Investors, N.A. (which, in turn, is an indirect subsidiary of Barclays
Bank PLC ("Barclays")) and is located at 45 Fremont Street, San Francisco,
California 94105. BFGA has provided assets management, administration and
advisory services for over 25 years. As of March 31, 1999, BGFA and its
affiliates provided investment advisory services for over $651 billion of
- 22 -
<PAGE>
assets. Barclays Bank PLC has been involved in banking in the United Kingdom for
over 300 years. Pursuant to an Investment Advisory Contract dated January 1,
1996 (the "Advisory Contract") with the Portfolios, BGFA provides investment
guidance and policy direction in connection with the management of the
Portfolio's assets. Pursuant to the Advisory Contract, BGFA furnishes to the
Portfolio's Board of Trustees periodic reports on the investment strategy and
performance of the Portfolios. BGFA receives fees from the S&P 500 Portfolio,
the LB Bond Portfolio and the Money Market Portfolio at an annual rate equal to
0.05%, 0.08% and 0.10%, respectively, of the Portfolio's average daily net
assets. This advisory fee is an expense of each Portfolio borne proportionately
by its interestholders, including each of the respective Funds.
The Advisory Contract for the Portfolios provides that if, in any fiscal year,
the total expenses of the S&P 500 or LB Bond Portfolio (excluding taxes,
interest, brokerage commissions and extraordinary expenses but including the
fees provided for in the Advisory Contract) exceed the most restrictive expense
limitation applicable to the applicable Portfolio imposed by the securities laws
or regulations of the states having jurisdiction over that Portfolio, BGFA shall
waive its fees under the Advisory Contract for the fiscal year to the extent of
the excess or reimburse the excess of such Portfolio, but only to the extent of
its fees.
BGFA has agreed to provide to each Portfolio, among other things, money market
security and fixed-income research, analysis and statistical and economic data
and information concerning interest rate and security market trends, portfolio
composition, credit conditions and average maturities of each Portfolio's
investment portfolio.
The Advisory Contract will continue in effect for more than two years for each
Portfolio provided the continuance is approved annually (i) by the holders of a
majority of the applicable Portfolio's outstanding voting securities or by the
applicable Portfolio's Board of Trustees and (ii) by a majority of the Trustees
of the applicable Portfolio who are not parties to the Advisory Contract or
affiliated of any such party. The Advisory Contract may be terminated on 60
day's written notice by either party and will terminate automatically if
assigned.
Asset allocation and modeling strategies are employed by BGFA for other
investment companies and accounts advised or sub-advised by BGFA. If these
strategies indicate particular securities should be purchased or sold at the
same time by a Portfolio and one or more of these investment companies or
accounts, available investments or opportunities for sales will be allocated
equitably to each by BGFA. In some cases, these procedures may adversely affect
the size of the position obtained for or disposed of by a Portfolio or the price
paid or received by a Portfolio.
SERVICE PROVIDERS
Principal Underwriter. Under a Distribution Agreement with the Funds
("Distribution Agreement"), _______________ (the "Distributor") acts as
underwriter of the Funds' shares. The Distribution Agreement provides that the
Distributor will use its best efforts to distribute the Funds' shares.
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<PAGE>
The Funds are no-load funds, therefore investors pay no sales charges when
buying or selling shares of the Funds. The Distribution Agreement further
provides that the Distributor will bear the additional costs of printing
prospectuses and shareholder reports which are used for selling purposes, as
well as advertising and any other costs attributable to the distribution of the
Funds' shares. The Distribution Agreement is subject to the same termination and
renewal provisions as are described above with respect to the Advisory
Agreement.
Administrator of the Fund. Investors Bank & Trust Company ("IBT"), 200 Clarendon
Street, Boston, MA 02111, serves as the Funds' administrator. As the Funds'
administrator, IBT provides administrative services directly or through
sub-contracting, including: (i) general supervision of the operation of the
Funds, including coordination of the services performed by the investment
adviser, transfer and dividend disbursing agent, custodian, shareholder
servicing agent, independent auditors and legal counsel; (ii) general
supervision of regulatory compliance matters, including the compilation of
information for documents such as reports to, and filings with, the SEC and
state securities commissions; and (iii) periodic reviews of management reports
and financial reporting. IBT also furnishes office space and certain facilities
required for conducting the business of the Fund. Pursuant to an agreement with
the Fund, IBT receives a fee equal to ______% of the average daily net assets of
the Fund.
Administrator and Placement Agent of the Portfolios. Stephens, Inc.
("Stephens"), and Barclays Global Investors, N.A. ("BGI") serve as
co-administrators on behalf of the Portfolios. Under the Co-Administration
Agreement between Stephens, BGI and the Portfolios, Stephens and BGI provide as
administrative services, among other things: (i) general supervision of the
operation of the Portfolios, including coordination of the services performed by
the investment adviser, transfer and dividend disbursing agent, custodian,
shareholder servicing agent(s), independent auditors and legal counsel; (ii)
general supervision of regulatory compliance matters, including the compilation
of information for documents such as reports to, and filings with, the SEC and
state securities commissions; and preparation of proxy statements and
shareholder reports for the Portfolios; and (iii) general supervision relative
to the compilation of data required for the preparation of periodic reports
distributed to the Portfolio's officers and Board. Stephens also furnishes
office space and certain facilities required for conducting the business of the
Portfolios together with those ordinary clerical and bookkeeping services that
are not furnished by BGFA. Stephens also pays the compensation of the
Portfolio's trustees, officers and employees who are affiliated with Stephens.
Furthermore, except as provided in the advisory contract, Stephens and BGI bear
substantially all costs of the Portfolios and the Portfolio's operations.
However, Stephens and BGI are not required to bear any cost or expense which a
majority of the non-affiliated trustees of the Portfolios deem to be an
extraordinary expense.
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<PAGE>
Stephens also acts as the placement agent of each of the Portfolio's shares
pursuant to a Placement Agency Agreement (the "Placement Agency Agreement") with
the Portfolios.
Custodian and Fund Accounting Services Agent. IBT also serves as custodian of
the assets of the Funds and the Portfolios. As a result, IBT has custody of all
securities and cash of the Funds and the Portfolios, delivers and receives
payment for securities sold, receives and pays for securities purchased,
collects income from investments, and performs other duties, all as directed by
the officers of the Funds and the Portfolios. The custodian has no
responsibility for any of the investment policies or decisions of the Funds and
the Portfolios. IBT also acts as the Funds' Accounting Services Agent.
Transfer Agent and Dividend Disbursing Agent. BISYS Fund Services, 3435 Stelzer
Road, Columbus, Ohio 43219, acts as transfer agent and dividend disbursing agent
for the Funds.
Fund Shareholder Servicing Agent. Under a Shareholder Servicing Agreement with
the Distributor, X.com Bank acts as shareholder servicing agent for the Fund. As
shareholder servicing agent, X.com Bank provides personal services to the Funds'
shareholders and maintains the Funds' shareholder accounts. Such services
include, (i) answering shareholder inquiries regarding account status and
history, the manner in which purchases and redemptions of the Funds' shares may
be effected, and certain other matters pertaining to the Funds; (ii) assisting
shareholders in designating and changing dividend options, account designations
and addresses; (iii) providing necessary personnel and facilities to coordinate
the establishment and maintenance of shareholder accounts and records with the
Funds' transfer agent; (iv) transmitting shareholder's purchase and redemption
orders to the Funds' transfer agent; (v) arranging for the wiring or other
transfer of funds to and from shareholder accounts in connection with
shareholder orders to purchase or redeem shares of the Fund; (vi) verifying
purchase and redemption orders, transfers among and changes in
shareholder-designated accounts; (vii) informing the distributor of the Fund of
the gross amount of purchase and redemption orders for the Funds' shares; (viii)
provide certain printing and mailing services, such as printing and mailing of
shareholder account statements, checks, and tax forms; and (ix) providing such
other related services as the Fund or a shareholder may reasonably request, to
the extent permitted by applicable law.
Independent Accountants. KPMG Peat Marwick LLP, Three Embarcadero Center, San
Francisco, California 94111 acts as independent accountants for the Fund.
Legal Counsel. Dechert Price & Rhoads, 1775 Eye Street N.W., Washington, DC
20006-2401, acts as legal counsel for the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE SELECTION
The Portfolios have no obligation to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities. Subject to policies
- 25 -
<PAGE>
established by the Portfolios' Board of Trustees, BGFA as advisor to the
Portfolios, is responsible for the Portfolios' investment portfolio decisions
and the placing of portfolio transactions. In placing orders, it is the policy
of the Portfolios to obtain the best results taking into account the
broker/dealer's general execution and operational facilities, the type of
transaction involved and other factors such as the broker/dealer's risk in
positioning the securities involved. While BGFA generally seeks reasonably
competitive spreads or commissions, the Portfolios will not necessarily be
paying the lowest spread or commission available.
Purchase and sale orders of the securities held by the Portfolios may be
combined with those of other accounts that BGFA manages, and for which it has
brokerage placement authority, in the interest of seeking the most favorable
overall net results. When BGFA determines that a particular security should be
bought or sold for a Portfolio and other accounts managed by BGFA, BGFA
undertakes to allocate those transactions among the participants equitably.
Under the 1940 Act, persons affiliated with the Portfolios such as Stephens,
BGFA and their affiliates are prohibited from dealing with the Portfolios as a
principal in the purchase and sale of securities unless an exemptive order
allowing such transactions is obtained from the SEC or an exemption is otherwise
available.
Except in the case of equity securities purchased by the S&P 500 Portfolio,
purchases and sales of securities usually will be principal transactions.
Portfolio securities normally will be purchased or sold from or to dealers
serving as market makers for the securities at a net price. The Portfolios also
will purchase portfolio securities in underwritten offerings and may purchase
securities directly from the issuer. Generally, money market securities,
adjustable rate mortgage securities ("ARMS"), municipal obligations, and
collateralized mortgage obligations ("CMOs") are traded on a net basis and do
not involve brokerage commissions. The cost of executing the Portfolio's
investment portfolio securities transactions will consist primarily of dealer
spreads and underwriting commissions.
Purchases and sales of equity securities on a securities exchange are effected
through brokers who charge a negotiated commission for their services. Orders
may be directed to any broker including, to the extent and in the manner
permitted by applicable law, Stephens or BGI. In the over-the-counter market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price that includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount.
In placing orders for portfolio securities of the Portfolios, BGFA is required
to give primary consideration to obtaining the most favorable price and
efficient execution. This means that BGFA seeks to execute each transaction at a
price and commission, if any, that provide the most favorable total cost or
proceeds reasonably attainable in the circumstances. While BGFA generally seeks
- 26
<PAGE>
reasonably competitive spreads or commissions, the Portfolios will not
necessarily be paying the lowest spread or commission available. In executing
portfolio transactions and selecting brokers or dealers, BGFA seeks to obtain
the best overall terms available for the Portfolios. In assessing the best
overall terms available for any transaction, BGFA considers factors deemed
relevant, including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. Rates are established pursuant to
negotiations with the broker based on the quality and quantity of execution
services provided by the broker in the light of generally prevailing rates. The
allocation of orders among brokers and the commission rates paid are reviewed
periodically by the Portfolio's Board of Trustees.
Certain of the brokers or dealers with whom the Portfolios may transact business
offer commission rebates to the Portfolios. BGFA considers such rebates in
assessing the best overall terms available for any transaction. The overall
reasonableness of brokerage commissions paid is evaluated by BGFA based upon its
knowledge of available information as to the general level of commission paid by
other institutional investors for comparable services.
ORGANIZATION, DIVIDEND AND VOTING RIGHTS
The Funds are diversified series of X.com Funds (the "Trust" or the "Fund"), an
open-end investment company, organized as a Delaware business trust on May __,
1999. The Trust may issue additional series and classes.
All shareholders may vote on each matter presented to shareholders. Fractional
shares have the same rights proportionately as do full shares. Shares of the
Trust have no preemptive, conversion, or subscription rights. If the Trust
issues additional series, each series of shares will be held separately by the
custodian, and in effect each series will be a separate fund.
All shares of the Trust have equal voting rights. Approval by the shareholders
of a Fund is effective as to that Fund whether or not sufficient votes are
received from the shareholders of the other investment portfolios to approve the
proposal as to those investment portfolios.
Generally, the Trust will not hold an annual meeting of shareholders unless
required by the 1940 Act. The Trust will hold a special meeting of its
shareholders for the purpose of voting on the question of removal of a Trustee
or Trustees if requested in writing by the holders of at least 10% of the
Trust's outstanding voting securities, and to assist in communicating with other
shareholders as required by Section 16(c) of the 1940 Act.
Each share of the Funds represents an equal proportional interest in that Fund
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to that Fund as are declared in the discretion of the
Trustees. In the event of the liquidation or dissolution of the Trust,
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shareholders of a Fund are entitled to receive the assets attributable to that
Fund that are available for distribution, and a distribution of any general
assets not attributable to a particular investment portfolio that are available
for distribution in such manner and on such basis as the Trustees in their sole
discretion may determine.
Shareholders are not entitled to any preemptive rights. All shares, when issued,
will be fully paid and non-assessable by the Trust.
Under Delaware law, the shareholders of the Funds are not generally subject to
liability for the debts or obligations of the Trust. Similarly, Delaware law
provides that a series of the Trust will not be liable for the debts or
obligations of any other series of the Trust. However, no similar statutory or
other authority limiting business trust shareholder liability exists in other
states. As a result, to the extent that a Delaware business trust or a
shareholder is subject to the jurisdiction of courts of such other states, the
courts may not apply Delaware law and may thereby subject the Delaware business
trust shareholders to liability. To guard against this risk, the Declaration of
Trust contains an express disclaimer of shareholder liability for acts or
obligations of a Fund. Notice of such disclaimer will generally be given in each
agreement, obligation or instrument entered into or executed by a series or the
Trustees. The Declaration of Trust also provides for indemnification by the
relevant series for all losses suffered by a shareholder as a result of an
obligation of the series. In view of the above, the risk of personal liability
of shareholders of a Delaware business trust is remote.
SHAREHOLDER INFORMATION
Shares are sold through ____________________.
Pricing of Fund Shares. The net asset value of the S&P 500 and LB Bond IndX
Funds will be determined as of the close of trading on each day the New York
Stock Exchange ("NYSE") is open for trading. The NYSE is open for trading Monday
through Friday except on national holidays observed by the NYSE. The Money
Market Fund uses the amortized cost method to determine the value of its
portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The amortized
cost method involves valuing a security at its cost and amortizing any discount
or premium over the period until maturity, regardless of the impact of
fluctuating interest rates on the market value of the security. The yield to a
shareholder may differ somewhat from that which could be obtained from a similar
fund that uses a method of valuation based upon market prices.
Rule 2a-7 provides that in order to value its portfolio using the amortized cost
method, the Money Market Fund must maintain a dollar-weighted average portfolio
maturity of 90 days or less, purchase securities having remaining maturities (as
defined in Rule 2a-7) of thirteen months or less and invest only in those
high-quality securities that are determined by the Board of Trustees to present
minimal credit risks. The maturity of an instrument is generally deemed to be
the period remaining until the date when the principal amount thereof is due or
the date on which the instrument is to be redeemed. However, Rule 2a-7 provides
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that the maturity of an instrument may be deemed shorter in the case of certain
instruments, including certain variable- and floating-rate instruments subject
to demand features. Pursuant to the Rule, the Board is required to establish
procedures designed to stabilize, to the extent reasonably possible, the Money
Market Fund's price per share as computed for the purpose of sales and
redemptions at $1.00. Such procedures include review of the Money Market Fund's
portfolio holdings by the Board of Trustees, at such intervals as it may deem
appropriate, to determine whether the Money Market Fund's net asset value
calculated by using available market quotations deviates from the $1.00 per
share based on amortized cost. The extent of any deviation will be examined by
the Board of Trustees. If such deviation exceeds 1/2 of 1%, the Board will
promptly consider what action, if any, will be initiated. In the event the Board
determines that a deviation exists that may result in material dilution or other
unfair results to shareholders, the Board will take such corrective action as it
regards as necessary and appropriate, including the sale of portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity, withholding dividends or establishing a net asset
value per share by using available market quotations.
Telephone and Internet Redemption Privileges. The Trust employs reasonable
procedures to confirm that instructions communicated by telephone or the
Internet are genuine. The Trust and the Funds may not be liable for losses due
to unauthorized or fraudulent instructions. Such procedures include but are not
limited to requiring a form of personal identification prior to acting on
instructions received by telephone or the Internet, providing written
confirmations of such transactions to the address of record, tape recording
telephone instructions and backing up Internet transactions.
[Retirement Plans. You can find information about the retirement plans offered
by ____________________ by accessing our Website. You may fill out an IRA
application online or request our IRA application kit by mail.]
TAXATION
Set forth below is a discussion of certain U.S. federal income tax issues
concerning the Fund and the purchase, ownership, and disposition of Fund shares.
This discussion does not purport to be complete or to deal with all aspects of
federal income taxation that may be relevant to shareholders in light of their
particular circumstances. This discussion is based upon present provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the regulations
promulgated thereunder, and judicial and administrative ruling authorities, all
of which are subject to change, which change may be retroactive. Prospective
investors should consult their own tax advisors with regard to the federal tax
consequences of the purchase, ownership, or disposition of Fund shares, as well
as the tax consequences arising under the laws of any state, foreign country, or
other taxing jurisdiction.
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Taxation of the Fund. The Fund intends to be taxed as a regulated investment
company under Subchapter M of the Code. Accordingly, the Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to certain securities loans, and
gains from the sale or other disposition of stock, securities or foreign
currencies, or other income derived with respect to its business of investing in
such stock, securities or currencies; and (b) diversify its holdings so that, at
the end of each fiscal quarter, (i) at least 50% of the value of the Fund's
total assets is represented by cash and cash items, U.S. Government securities,
the securities of other regulated investment companies and other securities,
with such other securities limited, in respect of any one issuer, to an amount
not greater than 5% of the value of the Fund's total assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities and the securities of other regulated investment
companies).
As a regulated investment company, the Fund generally is not subject to U.S.
federal income tax on income and gains that it distributes to shareholders, if
at least 90% of the Fund's investment company taxable income (which includes,
among other items, dividends, interest and the excess of any net short-term
capital gains over net long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute substantially all of such income.
Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax at the
Fund level. To avoid the tax, the Fund must distribute during each calendar year
an amount equal to the sum of (1) at least 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (2) at
least 98% of its capital gains in excess of its capital losses (adjusted for
certain ordinary losses) for a one-year period generally ending on October 31 of
the calendar year, and (3) all ordinary income and capital gains for previous
years that were not distributed during such years. To avoid application of the
excise tax, the Fund intends to make distributions in accordance with the
calendar year distribution requirement.
Distributions. Distributions of investment company taxable income (including net
short-term capital gains) are taxable to a U.S. shareholder as ordinary income,
whether paid in cash or shares. Dividends paid by the Fund to a corporate
shareholder, to the extent such dividends are attributable to dividends received
by the Fund from U.S. corporations, may, subject to limitation, be eligible for
the dividends received deduction. However, the alternative minimum tax
applicable to corporations may reduce the value of the dividends received
deduction. Distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses) designated by the Fund as
capital gain dividends, whether paid in cash or reinvested in Fund shares, will
generally be taxable to shareholders as long-term capital gain, regardless of
how long a shareholder has held Fund shares.
Shareholders will be notified annually as to the U.S. federal tax status of
distributions, and shareholders receiving distributions in the form of newly
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issued shares will receive a report as to the net asset value of the shares
received. A distribution will be treated as paid on December 31 of a calendar
year if it is declared by the Fund in October, November or December of that year
with a record date in such a month and paid by the Fund during January of the
following year. Such distributions will be taxable to shareholders in the
calendar year in which the distributions are declared, rather than the calendar
year in which the distributions are received.
If the net asset value of shares is reduced below a shareholder's cost as a
result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Investors should
be careful to consider the tax implications of buying shares of the Fund just
prior to a distribution. The price of shares purchased at this time will include
the amount of the forthcoming distribution, but the distribution will generally
be taxable to the shareholder.
Dispositions. Upon a redemption, sale or exchange of shares of the Fund, a
shareholder will realize a taxable gain or loss depending upon his or her basis
in the shares. A gain or loss will be treated as capital gain or loss if the
shares are capital assets in the shareholder's hands, and will be long-term
capital gain or loss if the shares are held for more than one year and
short-term capital gain or loss if the shares are held for not more than one
year. Any loss realized on a redemption, sale or exchange will be disallowed to
the extent the shares disposed of are replaced (including through reinvestment
of dividends) within a period of 61 days, beginning 30 days before and ending 30
days after the shares are disposed of. In such a case the basis of the shares
acquired will be adjusted to reflect the disallowed loss. If a shareholder holds
Fund shares for six months or less and during that period receives a
distribution taxable to the shareholder as long-term capital gain, any loss
realized on the sale of such shares during such six-month period would be a
long-term loss to the extent of such distribution.
Backup Withholding. The Fund generally will be required to withhold federal
income tax at a rate of 31% ("backup withholding") from dividends paid, capital
gain distributions, and redemption proceeds to shareholders if (1) the
shareholder fails to furnish the Fund with the shareholder's correct taxpayer
identification number or social security number, (2) the IRS notifies the
shareholder or the Fund that the shareholder has failed to report properly
certain interest and dividend income to the IRS and to respond to notices to
that effect, or (3) when required to do so, the shareholder fails to certify
that he or she is not subject to backup withholding. Any amounts withheld may be
credited against the shareholder's federal income tax liability.
Other Taxation. Distributions may be subject to additional state, local and
foreign taxes, depending on each shareholder's particular situation.
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Market Discount. If the Fund purchases a debt security at a price lower than the
stated redemption price of such debt security, the excess of the stated
redemption price over the purchase price is "market discount". If the amount of
market discount is more than a de minimis amount, a portion of such market
discount must be included as ordinary income (not capital gain) by the Fund in
each taxable year in which the Fund owns an interest in such debt security and
receives a principal payment on it. In particular, the Fund will be required to
allocate that principal payment first to the portion of the market discount on
the debt security that has accrued but has not previously been includable in
income. In general, the amount of market discount that must be included for each
period is equal to the lesser of (i) the amount of market discount accruing
during such period (plus any accrued market discount for prior periods not
previously taken into account) or (ii) the amount of the principal payment with
respect to such period. Generally, market discount accrues on a daily basis for
each day the debt security is held by the Fund at a constant rate over the time
remaining to the debt security's maturity or, at the election of the Fund, at a
constant yield to maturity which takes into account the semi-annual compounding
of interest. Gain realized on the disposition of a market discount obligation
must be recognized as ordinary interest income (not capital gain) to the extent
of the "accrued market discount."
Original Issue Discount. Certain debt securities acquired by the Fund may be
treated as debt securities that were originally issued at a discount. Very
generally, original issue discount is defined as the difference between the
price at which a security was issued and its stated redemption price at
maturity. Although no cash income on account of such discount is actually
received by the Fund, original issue discount that accrues on a debt security in
a given year generally is treated for federal income tax purposes as interest
and, therefore, such income would be subject to the distribution requirements
applicable to regulated investment companies. Some debt securities may be
purchased by the Fund at a discount that exceeds the original issue discount on
such debt securities, if any. This additional discount represents market
discount for federal income tax purposes (see above).
Options, Futures and Forward Contracts. Any regulated futures contracts and
certain options (namely, nonequity options and dealer equity options) in which
the Fund may invest may be "section 1256 contracts." Gains (or losses) on these
contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses. Also, section 1256 contracts held by the Fund at the
end of each taxable year (and on certain other dates prescribed in the Code) are
"marked to market" with the result that unrealized gains or losses are treated
as though they were realized.
Transactions in options, futures and forward contracts undertaken by the Fund
may result in "straddles" for federal income tax purposes. The straddle rules
may affect the character of gains (or losses) realized by the Fund, and losses
realized by the Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized. In
addition, certain carrying charges (including interest expense) associated with
positions in a straddle may be required to be capitalized rather than deducted
currently. Certain elections that the Fund may make with respect to its straddle
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positions may also affect the amount, character and timing of the recognition of
gains or losses from the affected positions.
Because only a few regulations implementing the straddle rules have been
promulgated, the consequences of such transactions to the Fund are not entirely
clear. The straddle rules may increase the amount of short-term capital gain
realized by the Fund, which is taxed as ordinary income when distributed to
shareholders. Because application of the straddle rules may affect the character
of gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Constructive Sales. Under certain circumstances, the Fund may recognize gain
from a constructive sale of an "appreciated financial position" it holds if it
enters into a short sale, forward contract or other transaction that
substantially reduces the risk of loss with respect to the appreciated position.
In that event, the Fund would be treated as if it had sold and immediately
repurchased the property and would be taxed on any gain (but not loss) from the
constructive sale. The character of gain from a constructive sale would depend
upon the Fund's holding period in the property. Loss from a constructive sale
would be recognized when the property was subsequently disposed of, and its
character would depend on the Fund's holding period and the application of
various loss deferral provisions of the Code. Constructive sale treatment does
not apply to transactions closed in the 90-day period ending with the 30th day
after the close of the taxable year, if certain conditions are met.
MASTER PORTFOLIO ORGANIZATION
The Portfolios are series of Master Investment Portfolio ("MIP"), an open-end,
series management investment company organized as Delaware business trust. MIP
was organized on October 21, 1993. In accordance with Delaware law and in
connection with the tax treatment sought by MIP, the Declaration of Trust
provides that its investors are personally responsible for Trust liabilities and
obligations, but only to the extent the Trust property is insufficient to
satisfy such liabilities and obligations. The Declaration of Trust also provides
that MIP must maintain appropriate insurance (for example, fidelity bonding and
errors and omissions insurance) for the protection of the Trust, its investors,
trustees, officers, employees and agents covering possible tort and other
liabilities, and that investors will be indemnified to the extent they are held
liable for a disproportionate share of MIP's obligations. Thus, the risk of an
investor incurring financial loss on account of investor liability is limited to
circumstances in which both inadequate insurance existed and MIP itself was
unable to meet its obligations.
The Declaration of Trust further provides that obligations of MIP are not
binding upon its trustees individually but only upon the property of MIP and
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that the trustees will not be liable for any action or failure to act, but
nothing in the Declarations of Trust protects a trustee against any liability to
which the trustee would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in the
conduct of the trustee's office.
The interests in the Portfolios have substantially identical voting and other
rights as those rights enumerated above for shares of the Fund. MIP is generally
not required to hold annual meetings, but is required by Section 16(c) of the
1940 Act to hold a special meeting and assist investor communications under
certain circumstances. Whenever the one of the Funds is requested to vote on a
matter with respect to the Portfolio in which it invests, that Fund will hold a
meeting of Fund shareholders and will cast its votes as instructed by such
shareholders.
In a situation where a Fund does not receive instruction from certain of its
shareholders on how to vote the corresponding shares of the applicable
Portfolio, such Fund will vote such shares in the same proportion as the shares
for which the Fund does receive voting instructions.
Master/Feeder Structure. Each Fund seeks to achieve its investment objective by
investing all of its assets into the corresponding Master Portfolio of MIP. The
Funds and other entities investing in a Master Portfolio are each liable for all
obligations of such Master Portfolio. However, the risk of a Fund incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance existed and MIP itself is unable to meet its
obligations. Accordingly, the Trust's Board of Directors believes that neither a
Fund nor its shareholders will be adversely affected by investing Fund assets in
a Master Portfolio. However, if a mutual fund or other investor withdraws its
investment from such Master Portfolio, the economic efficiencies (e.g.,
spreading fixed expenses among a larger asset base) that the Trust's Board
believes may be available through investment in the Master Portfolio may not be
fully achieved. In addition, given the relative novelty of the master/feeder
structure, accounting or operational difficulties, although unlikely, could
arise.
A Fund may withdraw its investment in a Master Portfolio only if the Trust's
Board of Directors determines that such action is in the best interests of such
Fund and its shareholders. Upon any such withdrawal, the Trust's Board would
consider alternative investments, including investing all of the Fund's assets
in another investment company with the same investment objective as the Fund or
hiring an investment adviser to manage the Fund's assets in accordance with the
investment policies described below with respect to the Master Portfolio.
Certain policies of the Master Portfolio which are non-fundamental may be
changed by vote of a majority of MIP's Trustees without interestholder approval.
If the Master Portfolio's investment objective or fundamental or non-fundamental
policies are changed, the Fund may elect to change its objective or policies to
correspond to those of the Master Portfolio. A Fund also may elect to redeem its
interests in the corresponding Master Portfolio and either seek a new investment
company with a matching objective in which to invest or retain its own
investment adviser to manage the Fund's portfolio in accordance with its
objective. In the latter case, a Fund's inability to find a substitute
investment company in which to invest or equivalent management services could
adversely affect shareholders' investments in the Fund. The Funds will provide
shareholders with 30 days' written notice prior to the implementation of any
change in the investment objective of the Fund or the Master Portfolio, to the
extent possible.
PERFORMANCE INFORMATION
The S&P 500 and LB Bond IndX Funds may advertise a variety of types of
performance information as more fully described below. All of the Funds'
performance is historical and past performance does not guarantee the future
performance of the Funds. From time to time, the Investment Adviser may agree to
waive or reduce its management fee and/or to reimburse certain operating
expenses of the Funds. Waivers of management fees and reimbursement of other
expenses will have the effect of increasing the Funds' performance.
Average Annual Total Return. The S&P 500 and LB Bond IndX Funds' average annual
total return quotation will be computed in accordance with a standardized method
prescribed by rules of the SEC. The average annual total return for these Funds
for a specific period is calculated as follows:
P(1+T)(To the power of n) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the applicable period at the end of the period.
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The calculation assumes that all income and capital gains dividends paid by
these Funds have been reinvested at net asset value on the reinvestment dates
during the period and all recurring fees charges to all shareholder accounts are
included.
Total Return. Calculation of each of the S&P 500 and LB Bond IndX Funds' total
return is not subject to a standardized formula. Total return performance for a
specific period will be calculated by first taking an investment (assumed below
to be $1,000) ("initial investment") in these Funds' shares on the first day of
the period and computing the "ending value" of that investment at the end of the
period. The total return percentage is then determined by subtracting the
initial investment from the ending value and dividing the remainder by the
initial investment and expressing the result as a percentage. The calculation
assumes that all income and capital gains dividends paid by these Funds have
been reinvested at net asset value of the Funds on the reinvestment dates during
the period. Total return may also be shown as the increased dollar value of the
hypothetical investment over the period.
Cumulative Total Return. Cumulative total return represents the simple change in
value of an investment over a stated period and may be quoted as a percentage or
as a dollar amount. Total returns and cumulative total returns may be broken
down into their components of income and capital (including capital gains and
changes in share price) in order to illustrate the relationship between these
factors and their contributions to total return.
Distribution Rate. The distribution rate for each of the S&P 500 and LB Bond
IndX Funds will be computed, according to a non-standardized formula by dividing
the total amount of actual distributions per share paid by the applicable Fund
over a twelve month period by that Fund's net asset value on the last day of the
period. The distribution rate differs from these Funds' yield because the
distribution rate includes distributions to shareholders from sources other than
dividends and interest, such as short-term capital gains. Therefore, these
Funds' distribution rate may be substantially different than its yield. Both the
Funds' yield and distribution rates will fluctuate.
Yield. The yield for the Funds, including the Money Market Fund, fluctuates from
time to time, unlike bank deposits or other investments that pay a fixed yield
for a stated period of time, and does not provide a basis for determining future
yields since it is based on historical data. Yield is generally a function of
portfolio quality, composition, maturity and market conditions as well as the
expenses allocated to the particular Fund. The yield will be calculated based on
a 30-day (or one-month) period, computed by dividing the net investment income
per share earned during the period by the maximum offering price per share on
the last day of the period and annualizing the result, according to the
following formula:
YIELD = 2[(a-b+1)(To the power of 6)-1],
cd
where:
a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
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c = the average daily number of shares outstanding during the period that were
entitled to receive dividends;
d = the maximum offering price per share on the last day of the period.
The net investment income of the IndX Funds include actual interest income, plus
or minus amortized purchase discount (which may include original issue discount)
or premium, less accrued expenses. Realized and unrealized gains and losses on
portfolio securities are not included in the IndX Funds' net investment income.
Current yield for the Money Market Fund is calculated based on the net changes,
exclusive of capital changes, over a seven day and/or thirty day period, in the
value of a hypothetical pre-existing account having a balance of one share at
the beginning of the period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return, and then multiplying the base period return by (365/7) with the
resulting yield figure carried to at least the nearest hundredth of one percent.
Effective yield for the Money Market Fund is calculated by determining the net
change exclusive of capital changes in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding one, raising the same to a power
equal to 365 divided by seven, and subtracting one from the result.
Performance Comparisons:
Certificates of Deposit. Investors may want to compare a Fund's performance to
that of certificates of deposit offered by banks and other depositary
institutions. Certificates of deposit may offer fixed or variable interest rates
and principal is guaranteed and may be insured. Withdrawal of the deposits prior
to maturity normally will be subject to a penalty. Rates offered by banks and
other depositary institutions are subject to change at any time specified by the
issuing institution.
Money Market Funds. Investors may also want to compare performance of a Fund to
that of money market funds. Money market fund yields will fluctuate and shares
are not insured, but share values usually remain stable.
Lipper Analytical Services, Inc. ("Lipper") and Other Independent Ranking
Organizations. From time to time, in marketing and other fund literature, a
Fund's performance may be compared to the performance of other mutual funds in
general or to the performance of particular types of mutual funds with similar
investment goals, as tracked by independent organizations. Among these
organizations, Lipper, a widely used independent research firm which ranks
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mutual funds by overall performance, investment objectives, and assets, may be
cited. Lipper performance figures are based on changes in net asset value, with
all income and capital gains dividends reinvested. Such calculations do not
include the effect of any sales charges imposed by other funds. A Fund may be
compared to Lipper's appropriate fund category, that is, by fund objective and
portfolio holdings. A Fund's performance may also be compared to the average
performance of its Lipper category.
Morningstar, Inc. A Fund's performance may also be compared to the performance
of other mutual funds by Morningstar, Inc., which rates funds on the basis of
historical risk and total return. Morningstar's ratings range from five stars
(highest) to one star (lowest) and represent Morningstar's assessment of the
historical risk level and total return of a fund as a weighted average for 3, 5,
and 10 year periods. Ratings are not absolute and do not represent future
results.
Independent Sources. Evaluations of fund performance made by independent sources
may also be used in advertisements concerning the Funds, including reprints of,
or selections from, editorials or articles about the Funds, especially those
with similar objectives. Sources for fund performance and articles about the
Funds may include publications such as Money, Forbes, Kiplinger's, Smart Money,
Financial World, Business Week, U.S. News and World Report, The Wall Street
Journal, Barron's, and a variety of investment newsletters.
Indices. The Funds may compare their performance to a wide variety of indices.
There are differences and similarities between the investments that a Fund may
purchase and the investments measured by the indices.
Historical Asset Class Returns. From time to time, marketing materials may
portray the historical returns of various asset classes. Such presentations will
typically compare the average annual rates of return of inflation, U.S. Treasury
bills, bonds, common stocks, and small stocks. There are important differences
between each of these investments that should be considered in viewing any such
comparison. The market value of stocks will fluctuate with market conditions,
and small-stock prices generally will fluctuate more than large-stock prices.
Stocks are generally more volatile than bonds. In return for this volatility,
stocks have generally performed better than bonds or cash over time. Bond prices
generally will fluctuate inversely with interest rates and other market
conditions, and the prices of bonds with longer maturities generally will
fluctuate more than those of shorter-maturity bonds. Interest rates for bonds
may be fixed at the time of issuance, and payment of principal and interest may
be guaranteed by the issuer and, in the case of U.S. Treasury obligations,
backed by the full faith and credit of the U.S. Treasury.
The historical S&P 500 data presented from time to time is not intended to
suggest that an investor would have achieved comparable results by investing in
any one equity security or in managed portfolios of equity securities, such as
the Fund, during the periods shown.
Portfolio Characteristics. In order to present a more complete picture of a
Fund's portfolio, marketing materials may include various actual or estimated
- 37 -
<PAGE>
portfolio characteristics, including but not limited to median market
capitalizations, earnings per share, alphas, betas, price/earnings ratios,
returns on equity, dividend yields, capitalization ranges, growth rates,
price/book ratios, top holdings, sector breakdowns, asset allocations, quality
breakdowns, and breakdowns by geographic region.
Measures of Volatility and Relative Performance. Occasionally statistics may be
used to specify fund volatility or risk. The general premise is that greater
volatility connotes greater risk undertaken in achieving performance. Measures
of volatility or risk are generally used to compare a fund's net asset value or
performance relative to a market index. One measure of volatility is beta. Beta
is the volatility of a fund relative to the total market as represented by the
Standard & Poor's 500 Stock Index. A beta of more than 1.00 indicates volatility
greater than the market, and a beta of less than 1.00 indicates volatility less
than the market. Another measure of volatility or risk is standard deviation.
Standard deviation is a statistical tool that measures the degree to which a
fund's performance has varied from its average performance during a particular
time period.
Standard deviation is calculated using the following formula:
Standard deviation = the square root of S(xi - xm)2
-----------
n-1
Where: S = "the sum of",
xi = each individual return during the time period,
xm = the average return over the time period, and
n = the number of individual returns during the time period.
Statistics may also be used to discuss a Fund's relative performance. One such
measure is alpha. Alpha measures the actual return of a fund compared to the
expected return of a fund given its risk (as measured by beta). The expected
return is based on how the market as a whole performed, and how the particular
fund has historically performed against the market. Specifically, alpha is the
actual return less the expected return. The expected return is computed by
multiplying the advance or decline in a market representation by the fund's
beta. A positive alpha quantifies the value that the fund manager has added, and
a negative alpha quantifies the value that the fund manager has lost. Other
measures of volatility and relative performance may be used as appropriate.
However, all such measures will fluctuate and do not represent future results.
Discussions of economic, social, and political conditions and their impact on
the Funds may be used in advertisements and sales materials. Such factors that
may impact the Funds include, but are not limited to, changes in interest rates,
political developments, the competitive environment, consumer behavior, industry
trends, technological advances, macroeconomic trends, and the supply and demand
of various financial instruments. In addition, marketing materials may cite the
portfolio management's views or interpretations of such factors.
- 38 -
<PAGE>
Master Fund Performance. The Funds intend to disclose historical performance of
the Portfolios, including the average annual and cumulative returns restated to
reflect the expense ratio of the Funds. This information will be included by
amendment. Although the investments of the Portfolios will be reflected in the
Funds, the Funds are distinct mutual funds and have different fees, expenses and
returns than the Portfolios. Historical performance of substantially similar
mutual funds is not indicative of future performance of the Funds.
Portfolio performance will be supplied by the Portfolio.
FINANCIAL STATEMENTS
Since the Funds have not yet commenced operations, there are no financial
statements at this time.
- 39 -
<PAGE>
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
A-1 and Prime-1 Commercial Paper Ratings
The rating A-1 (including A-1+) is the highest commercial paper rating assigned
by S&P. Commercial paper rated A-1 by S&P has the following characteristics:
o lquidity ratios are adequate to meet cash requirements;
o long-term senior debt is rated "A" or better;
o the issuer has access to at least two additional channels of
borrowing;
o basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances;
o typically, the issuer's industry is well established and the
issuer has a strong position within the industry;
o and the reliability and quality of management are unquestioned.
Relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A-1, A-2 or A-3. Issues rated A-1 that are
determined by S&P to have overwhelming safety characteristics are designated
A-1+.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the following:
o evaluation of the management of the issuer;
o economic evaluation of the issuer's industry or industries
and an appraisal of speculative-type risks which may be inherent
in certain areas;
o evaluation of the issuer's products in relation to competition
and customer acceptance;
o liquidity;
o amount and quality of long-term debt;
o trend of earnings over a period of ten years;
o financial strength of parent company and the relationships which
exist with the issuer; and
o recognition by the management of obligations which may be
present or may arise as a result of public interest questions
and preparations to meet such obligations.
DESCRIPTION OF BOND RATINGS
Bonds are considered to be "investment grade" if they are in one of the top four
ratings.
- 40 -
<PAGE>
S&P's ratings are as follows:
o Bonds rated AAA have the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
o Bonds rated AA have a very 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 bonds in higher rated categories.
o 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 bonds in higher rated categories.
o 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 in higher rated categories.
o Debt rated BB, B, CCC, CC or C is regarded, on balance, as
predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal in accordance with the terms
of the obligation. While such debt will likely have some quality
and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse debt conditions.
o The rating C1 is reserved for income bonds on which no interest
is being paid.
o Debt rated D is in default and payment of interest and/or
repayment of principal is in arrears.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.
Moody's ratings are as follows:
o Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt-edged." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
o Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which
make the long term risks appear somewhat larger than in Aaa
securities.
o Bonds which are rated A possess many favorably investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate but elements may be present which suggest
a susceptibility to impairment some time in the future.
o 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.
o Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
o 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.
o 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.
o Bonds which are rated Ca represent obligations which are
speculative to a high degree. Such issues are often in default or
have other marked shortcomings.
o Bonds which are rated C are the lowest class of bonds and issues
so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
- 41 -
<PAGE>
Moody's applies modifiers to each rating classification from Aa through B to
indicate relative ranking within its rating categories. The modifier "1"
indicates that a security ranks in the higher end of its rating category; the
modifier "2" indicates a mid-range ranking and the modifier "3" indicates that
the issue ranks in the lower end of its rating category.
- 42 -
<PAGE>
- ---------------
Palo Alto, CA 94303
Telephone: (650) ___-_____
Toll-Free: (800) ___-____
Internet: http://www.X.com
- 43 -
<PAGE>
PART C:
OTHER INFORMATION
Item 23. Exhibits
(a) Articles of Incorporation
(i) Certificate of Trust
(ii) Trust Instrument
(b) By-laws -- 1
(c) Instruments Defining Rights of Security Holders -- 1
(d) Investment Advisory Contracts:
(i) Form of Investment Advisory Contract -- 1
(ii) Form of Sub-Advisory Agreement -- 1
(e) Underwriting Contracts: -- 1
(f) Bonus or Profit Sharing Contracts: Not applicable
(g) Custodian Agreements -- 1
(h) Other Material Contracts:
(i) Form of Administration Agreement -- 1
(ii) Form of Transfer Agency Agreement -- 1
(i) Opinion of Counsel
(j) Other Opinions:
(k) Omitted Financial Statements: Balance Sheet -- 1
(l) Initial Capital Agreements -- 1
(m) Rule 12b-1 Plan: Not applicable
(n) Financial Data Schedules: Not applicable
(o) Rule 18f-3 Plan -- 1
(p) Powers of Attorney and Secretary's Certificate -- 1
1. To be filed by amendment.
<PAGE>
Item 24. Persons Controlled by or Under Common Control With Registrant
No person is controlled by or under common control with the Registrant.
Item 25. Indemnification
Reference is made to Article X of the Registrant's Trust Instrument.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant by the Registrant pursuant to the Declaration of Trust or otherwise,
the Registrant is aware that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and, public policy as expressed in the Act and, therefore, is 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 trustees,
officers or controlling persons of the Registrant in connection with the
successful defense of any act, suit or proceeding) is asserted by such trustees,
officers or controlling persons in connection with the shares 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 the Act and will be governed by the final adjudication of such
issues.
Item 26. Business and Other Connections of Investment Adviser
X.Com Asset Management, Inc. (the "Investment Adviser") is a Delaware
corporation that offers investment advisory services. The Investment Adviser's
offices are located at [Address], Palo Alto, CA 94303. The directors and
officers of the Investment Adviser and their business and other connections are
as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Directors and Officers of Title/Status with Investment Other Business Connections
Investment Adviser Adviser --------------------------
- ------------------- -------
- ------------------- ------------------- -------------------
- ------------------- ------------------- -------------------
- ------------------- ------------------- -------------------
</TABLE>
Item 27. Principal Underwriters
(a) [__________________] (the "Distributor") serves as Distributor of
Shares of the Trust. The Distributor is [general information
regarding Distributor to be provided by amendment].
(b) The officers and directors of [the Distributor]. are:
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ------------------- ------------------- ---------------
- ------------------- ------------------- -------------------
- ------------------- ------------------- -------------------
- ------------------- ------------------- -------------------
* The business address of all officers of the Distributor is [insert address].
Item 28. Location of Accounts and Records
The account books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the Rules thereunder will be maintained at ________________________.
Item 29. Management Services
Not applicable
Item 30. Undertakings:
Not applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, duly authorized, in the
City of Palo Alto in the State of California on the 3rd day of June, 1999
X.COM FUNDS
(Registrant)
By: /s/ Harris A. Fricker
-----------------------------
Name: Harris A. Fricker
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
/s/ Harris A. Fricker Trustee and President June 3, 1999
- -------------------------- (Principal Executive Officer)
Hrris A. Fricker
/s/ See Hon Tung Treasurer June 3, 1999
- --------------------------- (Principal Financial and
See Hon Tung Accounting Officer)
<PAGE>
EXHIBIT LIST
Exhibit No. Exhibit Name
- ----------- ------------
(a)(i) Certificate of Trust
(a)(ii) Trust Instrument
(i) Opinion of Counsel
STATE OF DELAWARE
CERTIFICATE OF TRUST
This Certificate of Trust is filed in accordance with the provisions of the
Delaware Business Trust Act (12 Del. C. Section 3801 et seq.) and sets forth the
following:
FIRST: The name of the trust is X.com Funds.
SECOND: The business address of the Registered Agent and Registered Office
is located at 1209 Orange Street, Wilmington, Delaware 19801. The name of the
registered agent of the Trust for service of process at such location is The
Corporation Trust Company.
THIRD: This Certificate shall be effective immediately upon filing.
FOURTH: The business trust intends to become a registered investment company
under the Investment Company Act of 1940, as amended, within 180 days following
the first issuance of beneficial interests.
FIFTH: Notice of Limitation of Liabilities of Series. Notice is hereby given
that the Trust is or may hereafter be constituted a series trust. The debts,
liabilities, obligations, and expenses incurred, contracted for or otherwise
existing with respect to any particular series of the Trust shall be enforceable
against the assets of such series only, and not against the assets of the Trust
generally.
SIXTH: The trustees of the Trust, as set forth in its governing instrument,
reserve the right to amend, alter, change, or repeal any provisions contained in
this Certificate of Trust, in the manner now or hereafter prescribed by statute.
IN WITNESS WHEREOF, the undersigned, being the trustees of the Trust, have duly
executed this Certificate of Trust as of this 3rd day of June, 1999.
TRUSTEE(S):
/s/Harris A. Fricker
- --------------------
Harris A. Fricker, as Trustee and not individually
X.COM FUNDS
TRUST INSTRUMENT
Dated as of June 3,1999
<PAGE>
X.COM FUNDS
TABLE OF CONTENTS
Page
ARTICLE I NAME AND DEFINITIONS................................................1
Section 1.01 Name....................................................1
Section 1.02 Definitions.............................................1
ARTICLE II BENEFICIAL INTEREST................................................2
Section 2.01 Shares of Beneficial Interest...........................2
Section 2.02 Issuance of Shares......................................2
Section 2.03 Register of Shares and Share Certificates...............3
Section 2.04 Transfer of Shares......................................3
Section 2.05 Treasury Shares.........................................3
Section 2.06 Establishment of Series.................................3
Section 2.07 Investment in the Trust.................................4
Section 2.08 Assets and Liabilities of Series........................4
Section 2.09 No Preemptive Rights....................................5
Section 2.10 No Personal Liability of Shareholder....................5
Section 2.11 Assent to Trust Instrument..............................5
ARTICLE III THE TRUSTEES......................................................5
Section 3.01 Management of the Trust.................................6
Section 3.02 Initial Trustees........................................6
Section 3.03 Term of Office..........................................6
Section 3.04 Vacancies and Appointments..............................6
Section 3.06 Number of Trustees......................................7
Section 3.07 Effect of Ending of a Trustee's Service.................7
Section 3.08 Ownership of Assets of the Trust........................7
ARTICLE IV POWER OF THE TRUSTEES..............................................7
Section 4.01 Powers..................................................8
Section 4.02 Issuance and Repurchase of Shares......................10
Section 4.03 Trustees and Officers as Shareholders..................10
Section 4.04 Action by the Trustees.................................11
Section 4.05 Chairman of the Trustees...............................11
Section 4.06 Principal Transactions.................................11
ARTICLE V EXPENSES OF THE TRUST..............................................11
ARTICLE VI INVESTMENT ADVISER, PRINCIPAL UNDERWRITER, ADMINISTRATOR AND
TRANSFER AGENT................................................................12
Section 6.01 Investment Adviser.....................................12
Section 6.02 Principal Underwriter..................................12
Section 6.03 Administration.........................................13
Section 6.04 Transfer Agent.........................................13
Section 6.05 Parties to Contract....................................13
Section 6.06 Provisions and Amendments..............................13
- i -
ARTICLE VII SHAREHOLDER VOTING POWERS AND MEETINGS............................14
Section 7.01 Voting Powers..........................................14
Section 7.02 Meetings...............................................14
Section 7.03 Quorum and Required Vote...............................14
ARTICLE VIII CUSTODIAN.......................................................15
Section 8.01 Appointment and Duties.................................15
Section 8.02 Central Certificate System.............................15
ARTICLE IX DISTRIBUTIONS AND REDEMPTIONS.....................................15
Section 9.01 Distributions...........................................16
Section 9.02 Redemptions............................................16
Section 9.03 Determination of Net Asset Value and Valuation of
Portfolio Assets.......................................16
Section 9.04 Suspension of the Right of Redemption..................17
ARTICLE X LIMITATION OF LIABILITY AND INDEMNIFICATION........................17
Section 10.01 Limitation of Liability...............................17
Section 10.02 Indemnification.......................................18
Section 10.03 Shareholders..........................................19
ARTICLE XI MISCELLANEOUS.....................................................19
Section 11.01 Trust Not A Partnership...............................19
Section 11.02 Trustee's Good Faith Action, Expert Advice,
No Bond or Surety.....................................19
Section 11.03 Establishment of Record Dates.........................20
Section 11.04 Termination of Trust..................................20
Section 11.05 Reorganization........................................21
Section 11.06 Filing of Copies, References, Headings................21
Section 11.07 Applicable Law........................................22
Section 11.08 Amendments............................................22
Section 11.09 Fiscal Year...........................................23
Section 11.10 Provisions in Conflict With Law........................23
- ii -
<PAGE>
X.COM FUNDS
June 3, 1999
TRUST INSTRUMENT, made by Harris A. Fricker (a "Trustee").
WHEREAS, the Trustee desires to establish a business trust for the
investment and reinvestment of funds contributed thereto;
NOW THEREFORE, the Trustee declares that all money and property contributed
to the Trust hereunder shall be held and managed in trust under this Trust
Instrument as herein set forth below.
ARTICLE I
NAME AND DEFINITIONS
Section 1.01 Name. The name of the Trust created hereby is X.com Funds.
Section 1.02 Definitions. Wherever used herein, unless otherwise required
by the context or specifically provided:
(a) "Bylaws" means the Bylaws of the Trust as adopted by the Trustees, as
amended from time to time.
(b) "Commission" has the meaning given it in the 1940 Act. "Affiliated
Person," "Assignment," "Interested Person" and "Principal Underwriter" shall
have the respective meanings given them in the 1940 Act, as modified by or
interpreted by any applicable order or orders of the Commission or any rules or
regulations adopted by or interpretive releases of the Commission thereunder.
"Majority Shareholder Vote" shall have the same meaning as the term "vote of a
majority of the outstanding voting securities" is given in the 1940 Act, as
modified by or interpreted by any applicable order or orders of the Commission
or any rules or regulations adopted by or interpretive releases of the
Commission thereunder.
(c) "Delaware Act" refers to Chapter 38 of Title 12 of the Delaware Code
entitled "Treatment of Delaware Business Trusts," as amended from time to time.
(d) "Net Asset Value" means the net asset value of each Series of the Trust
determined in the manner provided in Article IX, Section 9.03 hereof.
(e) "Outstanding Shares" means those Shares shown from time to time in the
books of the Trust or its transfer agent as then issued and outstanding, but
shall not include Shares which have been redeemed or repurchased by the Trust
and which are at the time held in the treasury of the Trust.
(f) "Principal Underwriter" means a party, other than the Trust, to a
contract described in Article VI, Section 6.02 hereof.
- 1 -
<PAGE>
(g) "Series" means a series of Shares of the Trust established in
accordance with the provisions of Article II, Section 2.06 hereof.
(h) "Shareholder" means a record owner of Outstanding Shares of the Trust.
(i) "Shares" means the equal proportionate transferable units of beneficial
interest into which the beneficial interest of each Series of the Trust or class
thereof shall be divided and may include fractions of Shares as well as whole
Shares.
(j) The "Trust" means the X.com Funds and reference to the Trust, when
applicable to one or more Series of the Trust, shall refer to any such Series.
(k) The "Trustees" means the person or persons who has or have signed this
Trust Instrument, so long as he or they shall continue in office in accordance
with the terms hereof, and all other persons who may from time to time be duly
qualified and serving as Trustees in accordance with the provisions of Article
III hereof and reference herein to a Trustee or to the Trustees shall refer to
the individual Trustees in their capacity as Trustees hereunder.
(l) "Trust Property" means any and all property, real or personal, tangible
or intangible, which is owned or held by or for the account of one or more of
the Trust or any Series, or the Trustees on behalf of the Trust or any Series.
(m) The "1940 Act" means the Investment Company Act of 1940, as amended
from time to time.
ARTICLE II
BENEFICIAL INTEREST
Section 2.01 Shares of Beneficial Interest. The beneficial interest in the
Trust shall be divided into such transferable Shares of one or more separate and
distinct Series or classes of a Series as the Trustees shall from time to time
create and establish. The number of Shares of each Series, and class thereof,
authorized hereunder is unlimited and each Share shall have a par value of
$0.01. All Shares issued hereunder, including without limitation, Shares issued
in connection with a dividend in Shares or a split or reverse split of Shares,
shall be fully paid and nonassessable.
Section 2.02 Issuance of Shares. The Trustees in their discretion may, from
time to time, without vote of the Shareholders, issue Shares, in addition to the
then issued and Outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount and type of consideration, subject to
applicable law, including cash or securities, at such time or times and on such
terms as the Trustees may deem appropriate, and may in such manner acquire other
assets (including the acquisition of assets subject to, and in connection with,
the assumption of liabilities) and businesses. In connection with any issuance
of Shares, the Trustees may issue fractional Shares and Shares held in the
treasury. The Trustees may from time to time divide or combine the Shares into a
greater or lesser number without thereby changing the proportionate beneficial
- 2 -
<PAGE>
interests in the Trust. Contributions to the Trust may be accepted for, and
Shares shall be redeemed as, whole Shares and/or 1/1,000th of a Share or
integral multiples thereof. The Trustees, the Principal Underwriter or any other
person the Trustees may authorize for the purpose may, in their discretion,
reject any application for the issuance of Shares.
Section 2.03 Register of Shares and Share Certificates. A register shall be
kept at the principal office of the Trust or at the office of the Trust's
transfer agent which shall contain the names and addresses of the Shareholders
of each Series, the number of Shares of that Series (or any class or classes
thereof) held by them respectively and a record of all transfers thereof. As to
Shares for which no certificate has been issued, such register shall be
conclusive as to who are the holders of the Shares and who shall be entitled to
receive dividends or other distributions or otherwise to exercise or enjoy the
rights of Shareholders. No Shareholder shall be entitled to receive payment of
any dividend or other distribution, nor to have notice given to him as herein or
in the Bylaws provided, until he has given his address to the transfer agent or
such officer or other agent of the Trustees as shall keep the said register for
entry thereon. It is not contemplated that certificates will be issued for the
Shares; however, the Trustees, in their discretion, may authorize the issuance
of Share certificates and promulgate appropriate rules and regulations as to
their use.
Section 2.04 Transfer of Shares. Except as otherwise provided by the
Trustees, Shares shall be transferable on the records of the Trust only by the
record holder thereof or by his agent thereunto duly authorized in writing, upon
delivery to the Trustees or the Trust's transfer agent of a duly executed
instrument of transfer and such evidence of the genuineness of such execution
and authorization and of such other matters as may be required. Upon such
delivery, the transfer shall be recorded on the register of the Trust, after
which the transferee of Shares will be regarded as a Shareholder. Until such
record is made, the Shareholder of record shall be deemed to be the holder of
such Shares for all purposes hereunder and neither the Trustees nor the Trust,
nor any transfer agent or registrar nor any officer, employee or agent of the
Trust shall be affected by any notice of the proposed transfer.
Section 2.05 Treasury Shares. Shares held in the treasury shall not, until
reissued pursuant to Section 2.02 hereof, confer any voting rights on the
Trustees, nor shall such Shares be entitled to any dividends or other
distributions declared with respect to the Shares.
Section 2.06 Establishment of Series. The Trust created hereby shall
consist of one or more Series and separate and distinct records shall be
maintained by the Trust for each Series and the assets associated with any such
Series shall be held and accounted for separately from the assets of the Trust
or any other Series. The Trustees shall have full power and authority, in their
sole discretion, and without obtaining any prior authorization or vote of the
Shareholders of any Series of the Trust, to establish and designate and to
change in any manner any such Series of Shares or any classes of initial or
additional Series and to fix such preferences, voting powers, rights and
privileges of such Series or classes thereof as the Trustees may from time to
time determine, to divide or combine the Shares or any Series or classes thereof
into a greater or lesser number, to classify or reclassify any issued Shares or
any Series or classes thereof into one or more Series or classes of Shares, and
to take such other action with respect to the Shares as the Trustees may deem
desirable. The establishment and designation of any Series shall be effective
upon the adoption of a resolution by a majority of the Trustees setting forth
such establishment and designation and the relative rights and preferences of
the Shares of such Series. A Series may issue any number of Shares and need not
- 3 -
<PAGE>
issue certificates. At any time that there are no Shares outstanding of any
particular Series previously established and designated, the Trustees may by a
majority vote abolish that Series and the establishment and designation thereof.
All references to Shares in this Trust Instrument shall be deemed to be
Shares of any or all Series, or classes thereof, as the context may require. All
provisions herein relating to the Trust shall apply equally to each Series of
the Trust, and each class thereof, except as the context otherwise requires.
Each Share of a Series of the Trust shall represent an equal beneficial
interest in the net assets of such Series. Each holder of Shares of a Series
shall be entitled to receive his pro rata share of all distributions made with
respect to such Series. Upon redemption of his Shares, such Shareholder shall be
paid solely out of the funds and property of such Series of the Trust.
Section 2.07 Investment in the Trust. The Trustees shall accept investments
in any Series of the Trust from such persons and on such terms as they may from
time to time authorize. At the Trustees' discretion, such investments, subject
to applicable law, may be in the form of cash or securities in which the
affected Series is authorized to invest, valued as provided in Article IX,
Section 9.03 hereof. Investments in a Series shall be credited to each
Shareholder's account in the form of full Shares at the Net Asset Value per
Share next determined after the investment is received or accepted as may be
determined by the Trustees; provided, however, that the Trustees may, in their
sole discretion, (a) fix the Net Asset Value per Share of the initial capital
contribution, (b) impose a sales charge upon investments in the Trust in such
manner and at such time determined by the Trustees, or (c) issue fractional
Shares.
Section 2.08 Assets and Liabilities of Series. All consideration received
by the Trust for the issue or sale of Shares of a particular Series, together
with all assets in which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof, including any proceeds derived
from the sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same may be,
shall be held and accounted for separately from the other assets of the Trust
and of every other Series and may be referred to herein as "assets belonging to"
that Series. The assets belonging to a particular Series shall belong to that
Series for all purposes, and to no other Series, subject only to the rights of
creditors of that Series. In addition, any assets, income, earnings, profits or
funds, or payments and proceeds with respect thereto, which are not readily
identifiable as belonging to any particular Series shall be allocated by the
Trustees between and among one or more of the Series in such manner as the
Trustees, in their sole discretion, deem fair and equitable. Each such
allocation shall be conclusive and binding upon the Shareholders of all Series
for all purposes, and such assets, income, earnings, profits or funds, or
payments and proceeds with respect thereto, shall be assets belonging to that
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Series. The assets belonging to a particular Series shall be so recorded upon
the books of the Trust, and shall be held by the Trustees in trust for the
benefit of the holders of Shares of that Series. The assets belonging to each
particular Series shall be charged with the liabilities of that Series and all
expenses, costs, charges and reserves attributable to that Series. Any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular Series shall be allocated
and charged by the Trustees between or among any one or more of the Series in
such manner as the Trustees in their sole discretion deem fair and equitable.
Each such allocation shall be conclusive and binding upon the Shareholders of
all Series for all purposes. Without limitation of the foregoing provisions of
this Section 2.08, but subject to the right of the Trustees in their discretion
to allocate general liabilities, expenses, costs, charges or reserves as herein
provided, the debts, liabilities, obligations and expenses incurred, contracted
for or otherwise existing with respect to a particular Series shall be
enforceable against the assets of such Series only, and not against the assets
of the Trust generally. Notice of this contractual limitation on inter-Series
liabilities may, in the Trustees' sole discretion, be set forth in the
Certificate of Trust of the Trust (whether originally or by amendment) as filed
or to be filed in the Office of the Secretary of State of the State of Delaware
pursuant to the Delaware Act, and upon the giving of such notice in the
certificate of trust, the statutory provisions of Section 3804 of the Delaware
Act relating to limitations on inter-Series liabilities (and the statutory
effect under Section 3804 of setting forth such notice in the certificate of
trust) shall become applicable to the Trust and each Series. Any person
extending credit to, contracting with or having any claim against any Series may
look only to the assets of that Series to satisfy or enforce any debt,
liability, obligation or expense incurred, contracted for or otherwise existing
with respect to that Series. No Shareholder or former Shareholder of any Series
shall have a claim on or any right to any assets allocated or belonging to any
other Series.
Section 2.09 No Preemptive Rights. Shareholders shall have no preemptive or
other right to subscribe to any additional Shares or other securities issued by
the Trust or the Trustees, whether of the same or other Series.
Section 2.10 No Personal Liability of Shareholder. Each Shareholder of the
Trust and of each Series shall not be personally liable for the debts,
liabilities, obligations and expenses incurred by, contracted for, or otherwise
existing with respect to, the Trust or by or on behalf of any Series. The
Trustees shall have no power to bind any Shareholder personally or to call upon
any Shareholder for the payment of any sum of money or assessment whatsoever
other than such as the Shareholder may at any time personally agree to pay by
way of subscription for any Shares or otherwise. Every note, bond, contract or
other undertaking issued by or on behalf of the Trust or the Trustees relating
to the Trust or to a Series shall include a recitation limiting the obligation
represented thereby to the Trust or to one or more Series and its or their
assets (but the omission of such a recitation shall not operate to bind any
Shareholder or Trustee of the Trust).
Section 2.11 Assent to Trust Instrument. Every Shareholder, by virtue of
having purchased a Share, shall become a Shareholder and shall be held to have
expressly assented and agreed to be bound by the terms hereof.
ARTICLE III
THE TRUSTEES
Section 3.01 Management of the Trust. The Trustees shall have exclusive and
absolute control over the Trust Property and over the business of the Trust to
the same extent as if the Trustees were the sole owners of the Trust Property
and business in their own right, but with such powers of delegation as may be
permitted by this Trust Instrument. The Trustees shall have power to conduct the
business of the Trust and to carry on its operations in any and all of its
branches and maintain offices both within and without the State of Delaware, in
any and all states of the United States of America, in the District of Columbia,
in any and all commonwealths, territories, dependencies, colonies, or
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possessions of the United States of America, and in any foreign jurisdiction and
to do all such other things and execute all such instruments as they deem
necessary, proper or desirable in order to promote the interests of the Trust
although such things are not herein specifically mentioned. Any determination as
to what is in the interests of the Trust made by the Trustees in good faith
shall be conclusive. In construing the provisions of this Trust Instrument, the
presumption shall be in favor of a grant of power to the Trustees.
The enumeration of any specific power in this Trust Instrument shall not be
construed as limiting the aforesaid power. The powers of the Trustees may be
exercised without order of or resort to any court.
Except for the Trustees named herein or appointed to fill vacancies
pursuant to Section 3.04 of this Article III, the Trustees shall be elected by
the Shareholders owning of record a plurality of the Shares voting at a meeting
of Shareholders. Such a meeting shall be held on a date fixed by the Trustees.
In the event that less than a majority of the Trustees holding office have been
elected by Shareholders, the Trustees then in office will call a Shareholders'
meeting for the election of Trustees.
Section 3.02 Initial Trustees. The initial Trustees shall be the persons
named herein. On a date fixed by the Trustees, the Shareholders shall elect at
least one (1) but not more than fifteen (15) Trustees, as specified by the
Trustees pursuant to Section 3.05 of this Article III.
Section 3.03 Term of Office. The Trustees shall hold office during the
lifetime of this Trust, and until its termination as herein provided; except (a)
that any Trustee may resign his trust by written instrument signed by him and
delivered to the other Trustees, which shall take effect upon such delivery or
upon such later date as is specified therein; (b) that any Trustee may be
removed at any time by written instrument, signed by at least two-thirds of the
number of Trustees prior to such removal, specifying the date when such removal
shall become effective; (c) that any Trustee who requests in writing to be
retired or who has died, become physically or mentally incapacitated by reason
of disease or otherwise, or is otherwise unable to serve, may be retired by
written instrument signed by a majority of the other Trustees, specifying the
date of his retirement; and (d) that a Trustee may be removed at any meeting of
the Shareholders of the Trust by a vote of Shareholders owning at least
two-thirds of the Outstanding Shares.
Section 3.04 Vacancies and Appointments. In case of the declination to
serve, death, resignation, retirement, removal, physical or mental incapacity by
reason of disease or otherwise, other inability of a Trustee to serve, or an
increase in the number of Trustees, a vacancy shall occur. Whenever a vacancy in
the Board of Trustees shall occur, until such vacancy is filled, the other
Trustees shall have all the powers hereunder and the certification of the other
Trustees of such vacancy shall be conclusive. In the case of an existing
vacancy, the remaining Trustees shall fill such vacancy by appointing such other
person as they in their discretion shall see fit consistent with the limitations
under the 1940 Act. Such appointment shall be evidenced by a written instrument
signed by a majority of the Trustees in office or by resolution of the Trustees,
duly adopted, which shall be recorded in the minutes of a meeting of the
Trustees, whereupon the appointment shall take effect.
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An appointment of a Trustee may be made by the Trustees then in office in
anticipation of a vacancy to occur by reason of retirement, resignation or
increase shall become effective only at or after the effective date of said
retirement, resignation or increase in number of Trustees. As soon as any
Trustee appointed pursuant to this Section 3.04 shall have accepted this Trust,
the Trust estate shall vest in the new Trustee or Trustees, together with the
continuing Trustees, without any further act or conveyance, and he or she shall
be deemed a Trustee hereunder. The power to appoint a Trustee pursuant to this
section 3.04 is subject to the provisions of Section 16(a) of the 1940 Act.
Section 3.05 Number of Trustees. The number of Trustees shall be at least
one (1), and thereafter shall be such number as shall be fixed from time to time
by a majority of the Trustees, provided, however, that the number of Trustees
shall in no event be more than fifteen (15).
Section 3.06 Effect of Ending of a Trustee's Service. The disinclination to
serve, death, resignation, retirement, removal, incapacity, or inability of the
Trustees, or any one of them, shall not operate to terminate the Trust or to
revoke any existing agency created pursuant to the terms of this Trust
Instrument.
Section 3.07 Ownership of Assets of the Trust. The assets of the Trust and
of each Series shall be held separate and apart from any assets now or hereafter
held in any capacity other than as Trustee hereunder by the Trustees or any
successor Trustees. Legal title in all of the assets of the Trust and the right
to conduct any business shall at all times be considered as vested in the
Trustees on behalf of the Trust, except that the Trustees may cause legal title
to any Trust Property to be held by or in the name of the Trust, or in the name
of any person as nominee. No Shareholder shall be deemed to have a severable
ownership in any individual asset of the Trust or of any Series or any right of
partition or possession thereof, but each Shareholder shall have, except as
otherwise provided for herein, a proportionate undivided beneficial interest in
the Trust or Series. The Shares shall be personal property giving only the
rights specifically set forth in this Trust Instrument.
ARTICLE IV
POWERS OF THE TRUSTEES
Section 4.01 Powers. The Trustees in all instances shall act as principals,
and are and shall be free from the control of the Shareholders. The Trustees
shall have full power and authority to do any and all acts and to make and
execute any and all contracts and instruments that they may consider necessary
or appropriate in connection with the management of the Trust, and to vary the
investments of any Series in accordance with the prospectus applicable to such
Series. The Trustees shall not in any way be bound or limited by present or
future laws or customs in regard to Trust investments, but shall have full
authority and power to make any and all investments which they, in their sole
discretion, shall deem proper to accomplish the purpose of this Trust without
recourse to any court or other authority. Subject to any applicable limitation
in this Trust Instrument or the Bylaws of the Trust, the Trustees shall have the
power and authority:
(a) To invest and reinvest cash and other property, and to hold cash or
other property uninvested, without in any event being bound or limited by any
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present or future law or custom in regard to investments by Trustees, and to
sell, exchange, lend, pledge, mortgage, hypothecate, write options on and lease
any or all of the assets of the Trust;
(b) To operate as and carry on the business of an investment company, and
exercise all the powers necessary and appropriate to the conduct of such
operations;
(c) To borrow money and in this connection issue notes or other evidence of
indebtedness; to secure borrowings by mortgaging, pledging or otherwise
subjecting as security the Trust Property; to endorse, guarantee, or undertake
the performance of an obligation or engagement of any other person and to lend
Trust Property;
(d) To provide for the distribution of interests of the Trust either
through a Principal Underwriter in the manner hereinafter provided for or by the
Trust itself, or both, or otherwise pursuant to a plan of distribution of any
kind;
(e) To adopt Bylaws not inconsistent with this Trust Instrument providing
for the conduct of the business of the Trust and to amend and repeal them to the
extent that they do not reserve that right to the Shareholders; such Bylaws
shall be deemed incorporated and included in this Trust Instrument;
(f) To elect and remove such officers and appoint and terminate such agents
as they consider appropriate;
(g) To employ one or more banks, trust companies or companies that are
members of a national securities exchange or such other entities as the
Commission may permit as custodians of any assets of the Trust subject to any
conditions set forth in this Trust Instrument or in the Bylaws;
(h) To retain one or more transfer agents, shareholder servicing agents,
and/or fund accountants;
(i) To set record dates in the manner provided herein or in the Bylaws;
(j) To delegate such authority as they consider desirable to any officers
of the Trust and to any investment adviser, manager, custodian, underwriter or
other agent or independent contractor;
(k) To sell or exchange any or all of the assets of the Trust, subject to
the provisions of Article XI, Subsection 11.04(b) hereof;
(l) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property, and to execute and deliver
powers of attorney to such person or persons as the Trustees shall deem proper,
granting to such person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper;
(m) To exercise powers and rights of subscription or otherwise which in any
manner arise out of ownership of securities;
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(n) To hold any security or property in a form not indicating any trust,
whether in bearer, book entry, unregistered or other negotiable form; or either
in the name of the Trust or in the name of a custodian or a nominee or nominees,
subject in either case to proper safeguards according to the usual practice of
Delaware business trusts or investment companies;
(o) To establish separate and distinct Series with separately defined
investment objectives and policies and distinct investment purposes in
accordance with the provisions of Article II hereof and to establish classes of
such Series having relative rights, powers and duties as they may provide
consistent with applicable law;
(p) Subject to the provisions of Section 3804 of the Delaware Act, to
allocate assets, liabilities and expenses of the Trust to a particular Series or
to apportion the same between or among two or more Series, provided that any
liabilities or expenses incurred by a particular Series shall be payable solely
out of the assets belonging to that Series as provided for in Article II hereof;
(q) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern, any security of which is
held in the Trust; to consent to any contract, lease, mortgage, purchase, or
sale of property by such corporation or concern; and to pay calls or
subscriptions with respect to any security held in the Trust;
(r) To compromise, arbitrate, or otherwise adjust claims in favor of or
against the Trust or any matter in controversy including, but not limited to,
claims for taxes;
(s) To make distributions of income and of capital gains to Shareholders in
the manner provided herein;
(t) To establish, from time to time, a minimum investment for Shareholders
in the Trust or in one or more Series or classes, and to require the redemption
of the Shares of any Shareholders whose investment is less than such minimum, or
who does not satisfy any other criteria the Trustees may set from time to time,
upon giving notice to such Shareholder;
(u) To establish one or more committees, to delegate any of the powers of
the Trustees to said committees and to adopt a committee charter providing for
such responsibilities, membership (including Trustees, officers or other agents
of the Trust therein) and any other characteristics of said committees as the
Trustees may deem proper. Notwithstanding the provisions of this Article IV, and
in addition to such provisions or any other provision of this Trust Instrument
or of the Bylaws, the Trustees may by resolution appoint a committee consisting
of less than the whole number of Trustees then in office, which committee may be
empowered to act for and bind the Trustees and the Trust, as if the acts of such
committee were the acts of all the Trustees then in office, with respect to the
institution, prosecution, dismissal, settlement, review or investigation of any
action, suit or proceeding which shall be pending or threatened to be brought
before any court, administrative agency or other adjudicatory body;
(v) To interpret the investment policies, practices or limitations of any
Series;
(w) To establish a registered office and have a registered agent in the
state of Delaware; and
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(x) In general to carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything necessary, suitable
or proper for the accomplishment of any purpose or the attainment of any object
or the furtherance of any power hereinbefore set forth, either alone or in
association with others, and to do every other act or thing incidental or
appurtenant to or growing out of or connected with the aforesaid business or
purposes, objects or powers.
The foregoing clauses shall be construed as objects and powers, and the
foregoing enumeration of specific powers shall not be held to limit or restrict
in any manner the general powers of the Trustees. Any action by one or more of
the Trustees in their capacity as such hereunder shall be deemed an action on
behalf of the Trust or the applicable Series, and not an action in an individual
capacity. The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust.
No one dealing with the Trustees shall be under any obligation to make any
inquiry concerning the authority of the Trustees, or to see to the application
of any payments made or property transferred to the Trustees or upon their
order.
Section 4.02 Issuance and Repurchase of Shares. The Trustees shall have the
power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold, resell,
reissue, dispose of, and otherwise deal in Shares and, subject to the provisions
set forth in Article II and Article IX, to apply to any such repurchase,
redemption, retirement, cancellation or acquisition of Shares any funds or
property of the Trust, or the particular Series of the Trust, with respect to
which such Shares are issued.
Section 4.03 Trustees and Officers as Shareholders. Any Trustee, officer or
other agent of the Trust may acquire, own and dispose of Shares to the same
extent as if he were not a Trustee, officer or agent; and the Trustees may issue
and sell or cause to be issued and sold, Shares, to and buy such Shares from,
any such person or any firm or company in which he is interested, subject only
to the general limitations herein contained as to the sale and purchase of such
Shares; and all subject to any restrictions which may be contained in the
Bylaws.
Section 4.04 Action by the Trustees. Except as otherwise provided herein or
in the Bylaws, any action to be taken by the Trustees may be taken by a majority
of the Trustees present at a meeting of Trustees (a quorum being present),
including any meeting held by means of a conference telephone circuit or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, or by written consents of the entire number of
Trustees then in office. The Trustees may adopt Bylaws not inconsistent with
this Trust Instrument to provide for the conduct of the business of the Trust
and may amend or repeal such Bylaws to the extent such power is not reserved to
the Shareholders.
Section 4.05 Chairman of the Trustees. The Trustees shall appoint one of
their number to be Chairman of the Board of Trustees. The Chairman shall preside
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at all meetings of the Trustees, shall be responsible for the execution of
policies established by the Trustees and the administration of the Trust, and
may be (but is not required to be) the chief executive, financial and/or
accounting officer of the Trust.
Section 4.06 Principal Transactions. Except to the extent prohibited by
applicable law, the Trustees may, on behalf of the Trust, buy any securities
from or sell any securities to, or lend any assets of the Trust to, any Trustee
or officer of the Trust or any firm of which any such Trustee or officer is a
member acting as principal, or have any such dealings with any investment
adviser, administrator, distributor or transfer agent for the Trust or with any
Interested Person of such person; and the Trust may employ any such person, or
firm or company in which such person is an Interested Person, as broker, legal
counsel, registrar, investment adviser, administrator, distributor, transfer
agent, dividend disbursing agent, custodian or in any other capacity upon
customary terms.
ARTICLE V
EXPENSES OF THE TRUST
Subject to the provisions of Article II, Section 2.08 hereof, the Trustees
shall be reimbursed from the Trust estate or the assets belonging to the
appropriate Series for their expenses and disbursements, including, without
limitation, interest charges, taxes, brokerage fees and commissions; expenses of
issue, repurchase and redemption of shares; certain insurance premiums;
applicable fees, interest charges and expenses of third parties, including the
Trust's investment advisers, managers, administrators, distributors, custodian,
transfer agent and fund accountant; fees of pricing, interest, dividend, credit
and other reporting services; costs of membership in trade associations;
telecommunications expenses; funds transmission expenses; auditing, legal and
compliance expenses; costs of forming the Trust and maintaining corporate
existence; costs of preparing and printing the Trust's prospectuses, statements
of additional information and shareholder reports and delivering them to
existing shareholders; expenses of meetings of shareholders and proxy
solicitations therefore; costs of maintaining books and accounts; costs of
reproduction, stationery and supplies; fees and expenses of the Trustees;
compensation of the Trust's officers and employees and costs of other personnel
performing services for the Trust; costs of Trustee meetings; Securities and
Exchange Commission registration fees and related expenses; state or foreign
securities laws registration fees and related expenses; and for such
non-recurring items as may arise, including litigation to which the Trust (or a
Trustee acting as such) is a party, and for all losses and liabilities by them
incurred in administering the Trust, and for the payment of such expenses,
disbursements, losses and liabilities the Trustees shall have a lien on the
assets belonging to the appropriate Series, or in the case of an expense
allocable to more than one Series, on the assets of each such Series, prior to
any rights or interests of the Shareholders thereto. This section shall not
preclude the Trust from directly paying any of the aforementioned fees and
expenses.
ARTICLE VI
INVESTMENT ADVISER, PRINCIPAL UNDERWRITER,
ADMINISTRATOR AND TRANSFER AGENT
Section 6.01 Investment Adviser. The Trustees may in their discretion, from
time to time, enter into an investment advisory contract or contracts with
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respect to the Trust or any Series whereby the other party or parties to such
contract or contracts shall undertake to furnish the Trustees with such
investment advisory, statistical and research facilities and services and such
other facilities and services, if any, all upon such terms and conditions as may
be prescribed in the Bylaws or as the Trustees may in their discretion determine
(such terms and conditions not to be inconsistent with the provisions of this
Trust Instrument or of the Bylaws). Notwithstanding any other provision of this
Trust Instrument, the Trustees may authorize any investment adviser (subject to
such general or specific instructions as the Trustees may from time to time
adopt) to effect purchases, sales or exchanges of portfolio securities, other
investment instruments of the Trust, or other Trust Property on behalf of the
Trustees, or may authorize any officer, agent, or Trustee to effect such
purchases, sales or exchanges pursuant to recommendations of the investment
adviser (and all without further action by the Trustees). Any such purchases,
sales and exchanges shall be deemed to have been authorized by all of the
Trustees.
The Trustees may, subject to the requirements of the 1940 Act, authorize
the investment adviser to employ, from time to time, one or more sub-advisers to
perform such of the acts and services of the investment adviser, and upon such
terms and conditions, as may be agreed upon between the investment adviser and
sub-adviser (such terms and conditions not to be inconsistent with the
provisions of this Trust Instrument or of the Bylaws). Any reference in this
Trust Instrument to the investment adviser shall be deemed to include such
sub-advisers, unless the context otherwise requires.
Section 6.02 Principal Underwriter. The Trustees may in their discretion
from time to time enter into an exclusive or non-exclusive underwriting contract
or contracts providing for the sale of Shares, whereby the Trust may either
agree to sell Shares to the other party to the contract or appoint such other
party as its sales agent for such Shares. In either case, the contract shall be
on such terms and conditions as may be prescribed in the Bylaws and as the
Trustees may in their discretion determine (such terms and conditions not to be
inconsistent with the provisions of this Trust Instrument or of the Bylaws); and
such contract may also provide for the repurchase or sale of Shares by such
other party as principal or as agent of the Trust.
Section 6.03 Administration. The Trustees may in their discretion from time
to time enter into one or more management or administrative contracts whereby
the other party or parties shall undertake to furnish the Trustees with
management or administrative services. The contract or contracts shall be on
such terms and conditions as may be prescribed in the Bylaws and as the Trustees
may in their discretion determine (such terms and conditions not to be
inconsistent with the provisions of this Trust Instrument or of the Bylaws).
Section 6.04 Transfer Agent. The Trustees may in their discretion from time
to time enter into one or more transfer agency and shareholder service contracts
whereby the other party or parties shall undertake to furnish the Trustees with
transfer agency and shareholder services. The contract or contracts shall be on
such terms and conditions as may be prescribed in the Bylaws and as the Trustees
may in their discretion determine (such terms and conditions not to be
inconsistent with the provisions of this Trust Instrument or of the Bylaws).
Section 6.05 Parties to Contract. Any contract of the character described
in Sections 6.01, 6.02, 6.03 and 6.04 of this Article VI or any contract of the
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character described in Article VIII hereof may be entered into with any
corporation, firm, partnership, trust or association, although one or more of
the Trustees or officers of the Trust may be an officer, director, trustee,
shareholder, or member of such other party to the contract, and no such contract
shall be invalidated or rendered void or voidable by reason of the existence of
any relationship, nor shall any person holding such relationship be disqualified
from voting on or executing the same in his capacity as Shareholder and/or
Trustee, nor shall any person holding such relationship be liable merely by
reason of such relationship for any loss or expense to the Trust under or by
reason of said contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was not
inconsistent with the provisions of this Article VI or Article VIII hereof or of
the Bylaws. The same person (including a firm, corporation, partnership, trust,
or association) may be the other party to contracts entered into pursuant to
Sections 6.01, 6.02, 6.03 and 6.04 of this Article VI or pursuant to Article
VIII hereof, and any individual may be financially interested or otherwise
affiliated with persons who are parties to any or all of the contracts mentioned
in this Section 6.05.
Section 6.06 Provisions and Amendments. Any contract entered into pursuant
to Sections 6.01 or 6.02 of this Article VI shall be consistent with and subject
to the requirements of Section 15 of the 1940 Act, if applicable, or other
applicable Act of Congress hereafter enacted with respect to its continuance in
effect, its termination, and the method of authorization and approval of such
contract or renewal thereof, and no amendment to any contract entered into
pursuant to Section 6.01 of this Article VI shall be effective unless assented
to in a manner consistent with the requirements of said Section 15, as modified
by any applicable rule, regulation or order of the Commission.
ARTICLE VII
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 7.01 Voting Powers. The Shareholders shall have power to vote only
(a) for the election of Trustees as provided in Article III, Sections 3.01 and
3.02 hereof, (b) for the removal of Trustees as provided in Article III,
Subsection 3.03(d) hereof, (c) with respect to any investment advisory contract
as provided in Article VI, Section 6.01 hereof, and (d) with respect to such
additional matters relating to the Trust as may be required by law, by this
Trust Instrument, or the Bylaws or any registration of the Trust with the
Commission or any state, or as the Trustees may consider desirable.
On any matter submitted to a vote of the Shareholders, all Shares shall be
voted separately by individual Series, except (i) when required by the 1940 Act,
Shares shall be voted in the aggregate and not by individual Series; and (ii)
when the Trustees have determined that the matter affects the interests of more
than one Series, then the Shareholders of all such Series shall be entitled to
vote thereon. The Trustees may also determine that a matter affects only the
interests of one or more classes of a Series, in which case any such matter
shall be voted on by such class or classes. Each whole Share shall be entitled
to one vote as to any matter on which it is entitled to vote, and each
fractional Share shall be entitled to a proportionate fractional vote. There
shall be no cumulative voting in the election of Trustees. Shares may be voted
in person or by proxy or in any manner provided for in the Bylaws. A proxy may
be given in writing. The Bylaws may provide that proxies may also, or may
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instead, be given by any electronic or telecommunications device or in any other
manner. Notwithstanding anything else herein or in the Bylaws, in the event a
proposal by anyone other than the officers or Trustees of the Trust is submitted
to a vote of the Shareholders of one or more Series or of the Trust, or in the
event of any proxy contest or proxy solicitation or proposal in opposition to
any proposal by the officers or Trustees of the Trust, Shares may be voted only
in person or by written proxy. Until Shares are issued, the Trustees may
exercise all rights of Shareholders and may take any action required or
permitted by law, this Trust Instrument or any of the Bylaws of the Trust to be
taken by Shareholders.
Section 7.02 Meetings. A meeting of the Shareholders shall be held at such
times, on such day and at such hour as the Trustees may from time to time
determine, either at the principal office of the Trust, or at such other place,
within or without the State of Delaware, as may be designated by the Trustees,
for such purposes as may be specified by the Trustees.
Section 7.03 Quorum and Required Vote. One-third of Shares entitled to vote
in person or by proxy shall be a quorum for the transaction of business at a
Shareholders' meeting, except that where any provision of law or of this Trust
Instrument permits or requires that holders of any Series shall vote as a Series
(or that holders of a class shall vote as a class), then one-third of the
aggregate number of Shares of that Series (or that class) entitled to vote shall
be necessary to constitute a quorum for the transaction of business by that
Series (or that class). Any lesser number shall be sufficient for adjournments.
Any adjourned session or sessions may be held, within a reasonable time after
the date set for the original meeting, without the necessity of further notice.
Except when a larger vote is required by law or by any provision of this Trust
Instrument or the Bylaws, a majority of the Shares voted in person or by proxy
shall decide any questions and a plurality shall elect a Trustee, provided that
where any provision of law or of this Trust Instrument permits or requires that
the holders of any Series shall vote as a Series (or that the holders of any
class shall vote as a class), then a majority of the Shares present in person or
by proxy of that Series (or class) or, if required by law, a majority of the
Shares of that Series (or class), voted on the matter in person or by proxy
shall decide that matter insofar as that Series (or class) is concerned.
Shareholders may act by unanimous written consent. Actions taken by Series (or
class) may be consented to unanimously in writing by Shareholders of that Series
(or class).
ARTICLE VIII
CUSTODIAN
Section 8.01 Appointment and Duties. Except to the extent not required with
respect to any Series that is a feeder fund, the Trustees shall employ a bank, a
company that is a member of a national securities exchange, or a trust company
that has capital, surplus and undivided profits of at least two million dollars
($2,000,000) and is a member of the Depository Trust Company, as custodian with
authority as its agent, but subject to such restrictions, limitations and other
requirements, if any, as may be contained in the Bylaws of the Trust. Said
custodian shall be authorized: (a) to hold the securities owned by the Trust and
deliver the same upon written order or oral order confirmed in writing; (b) to
receive and receipt for any moneys due to the Trust and deposit the same in its
own banking department or elsewhere as the Trustees may direct; and (c) to
disburse such funds upon orders or vouchers.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
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custodian, and upon such terms and conditions, as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees, subject to such
restrictions, limitations and other requirements, if any, as may be contained in
the Bylaws of the Trust.
Section 8.02 Central Certificate System. Subject to such rules, regulations
and orders as the Commission may adopt, the Trustees may direct the custodian to
deposit all or any part of the securities owned by the Trust in a system for the
central handling of securities established by a national securities exchange or
a national securities association registered with the Commission under the
Securities Exchange Act of 1934, as amended, or such other person as may be
permitted by the Commission, or otherwise in accordance with the 1940 Act,
pursuant to which system all securities of any particular class or series of any
issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust or its custodians, sub-custodians or other agents.
ARTICLE IX
DISTRIBUTIONS AND REDEMPTIONS
Section 9.01 Distributions.
(a) The Trustees may from time to time declare and pay dividends or other
distributions with respect to any Series. The amount of such dividends or
distributions and the payment of them and whether they are in cash or any other
Trust Property shall be within the sole discretion of the Trustees.
(b) Dividends and other distributions may be paid or made to the
Shareholders of record at the time of declaring a dividend or other distribution
or among the Shareholders of record at such other date or time or dates or times
as the Trustees shall determine, which dividends or distributions, at the
election of the Trustees, may be paid pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Trustees may
determine. The Trustees may adopt and offer to Shareholders such dividend
reinvestment plans, cash dividend payout plans or related plans as the Trustees
shall deem appropriate.
(c) Anything in this Trust Instrument to the contrary notwithstanding, the
Trustees may at any time declare and distribute a stock dividend pro rata among
the Shareholders of a particular Series, or class thereof, as of the record date
of that Series fixed as provided in Subsection 9.01(b) hereof.
Section 9.02 Redemptions. In case any holder of record of Shares of a
particular Series desires to dispose of his Shares or any portion thereof, he
may deposit at the office of the transfer agent or other authorized agent of
that Series a written request or such other form of request as the Trustees may
from time to time authorize, requesting that the Series purchase the Shares in
accordance with this Section 9.02; and the Shareholder so requesting shall be
entitled to require the Series to purchase, and the Series or the Principal
Underwriter of the Series shall purchase his said Shares, but only at the Net
Asset Value thereof (as described in Section 9.03 of this Article IX). Any
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Shareholder may be required to redeem some or all of his shares involuntarily
under such circumstances as the Trustees may determine from time to time. The
Series shall make payment for any such Shares to be redeemed, as aforesaid, in
cash or property from the assets of that Series and payment for such Shares
shall be made by the Series or the Principal Underwriter of the Series to the
Shareholder of record within seven (7) days after the date upon which the
request is effective, or such longer period as may be permitted. Upon
redemption, Shares shall become Treasury shares and may be re-issued from time
to time.
Section 9.03 Determination of Net Asset Value and Valuation of Portfolio
Assets. The term "Net Asset Value" of any Series shall mean that amount by which
the assets of that Series exceed its liabilities, all as determined by or under
the direction of the Trustees. Such value shall be determined separately for
each Series and shall be determined on such days and at such times as the
Trustees may determine. Such determination shall be made with respect to
securities for which market quotations are readily available, at the market
value of such securities; and with respect to other securities and assets, at
the fair value as determined in good faith by the Trustees; provided, however,
that the Trustees, without Shareholder approval, may alter the method of valuing
portfolio securities insofar as permitted under the 1940 Act and the rules,
regulations and interpretations thereof promulgated or issued by the Commission
or insofar as permitted by any Order of the Commission applicable to the Series.
The Trustees may delegate any of their powers and duties under this Section 9.03
with respect to valuation of assets and liabilities. The resulting amount, which
shall represent the total Net Asset Value of the particular Series, shall be
divided by the total number of Shares of that Series outstanding at the time and
the quotient so obtained shall be the Net Asset Value per Share of that Series.
At any time the Trustees may cause the Net Asset Value per Share last determined
to be determined again in similar manner and may fix the time when such
redetermined value shall become effective. If, for any reason, the net income of
any Series, determined at any time, is a negative amount, the Trustees shall
have the power with respect to that Series (a) to offset each Shareholder's pro
rata share of such negative amount from the accrued dividend account of such
Shareholder; (b) to reduce the number of Outstanding Shares of such Series by
reducing the number of Shares in the account of each Shareholder by a pro rata
portion of that number of full and fractional Shares which represents the amount
of such excess negative net income; (c) to cause to be recorded on the books of
such Series an asset account in the amount of such negative net income (provided
that the same shall thereupon become the property of such Series with respect to
such Series and shall not be paid to any Shareholder), which account may be
reduced by the amount, of dividends declared thereafter upon the Outstanding
Shares of such Series on the day such negative net income is experienced, until
such asset account is reduced to zero; (d) to combine the methods described in
clauses (a) and (b) and (c) of this sentence; or (e) to take any other action
they deem appropriate, in order to cause (or in order to assist in causing) the
Net Asset Value per Share of such Series to remain at a constant amount per
Outstanding Share immediately after each such determination and declaration. The
Trustees shall also have the power not to declare a dividend out of net income
for the purpose of causing the Net Asset Value per Share to be increased. The
Trustees shall not be required to adopt, but may at any time adopt, discontinue
or amend the practice of maintaining the Net Asset Value per Share of the Series
at a constant amount.
Section 9.04 Suspension of the Right of Redemption. The Trustees may
declare a suspension of the right of redemption or postpone the date of payment
as permitted under the 1940 Act. Such suspension shall take effect at such time
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as the Trustees shall specify but not later than the close of business on the
business day next following the declaration of suspension, and thereafter there
shall be no right of redemption or payment until the Trustees shall declare the
suspension at an end. In the case of a suspension of the right of redemption, a
Shareholder may either withdraw his request for redemption or receive payment
based on the Net Asset Value per Share next determined after the termination of
the suspension. In the event that any Series is divided into classes, the
provisions of this Section 9.03, to the extent applicable as determined in the
discretion of the Trustees and consistent with applicable law, may be equally
applied to each such class.
ARTICLE X
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 10.01 Limitation of Liability. A Trustee, when acting in such
capacity, shall not be personally liable to any person other than the Trust or a
beneficial owner for any act, omission or obligation of the Trust or any
Trustee. A Trustee shall not be liable for any act or omission or any conduct
whatsoever in his capacity as Trustee, provided that nothing contained herein or
in the Delaware Act shall protect any Trustee against any liability to the Trust
or to Shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee hereunder.
Section 10.02 Indemnification.
(a) Subject to the exceptions and limitations contained in Subsection
10.02(b):
(i) every person who is, or has been, a Trustee or officer of the
Trust (hereinafter referred to as a "Covered Person") shall be
indemnified by the Trust to the fullest extent permitted by law
against liability and against all expenses reasonably incurred or paid
by him in connection with any claim, action, suit or proceeding in
which he becomes involved as a party or otherwise by virtue of his
being or having been a Trustee or officer and against amounts paid or
incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal or
other, including appeals), actual or threatened while in office or
thereafter, and the words "liability" and "expenses" shall include,
without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office or (B) not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
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duties involved in the conduct of his office, (A) by the court or other
body approving the settlement; (B) by at least a majority of those
Trustees who are neither Interested Persons of the Trust nor are
parties to the matter based upon a review of readily available facts
(as opposed to a full trial-type inquiry); or (C) by written opinion of
independent legal counsel based upon a review of readily available
facts (as opposed to a full trial-type inquiry); provided, however,
that any Shareholder may, by appropriate legal proceedings, challenge
any such determination by the Trustees or by independent counsel.
(c) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not be exclusive of
or affect any other rights to which any Covered Person may now or hereafter be
entitled, shall continue as to a person who has ceased to be a Covered Person
and shall inure to the benefit of the heirs, executors and administrators of
such a person. Nothing contained herein shall affect any rights to
indemnification to which Trust personnel, other than Covered Persons, and other
persons may be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character described in
Subsection 10.02(a) of this Section 10.02 may be paid by the Trust or Series
from time to time prior to final disposition thereof upon receipt of an
undertaking by or on behalf of such Covered Person that such amount will be paid
over by him to the Trust or Series if it is ultimately determined that he is not
entitled to indemnification under this Section 10.02; provided, however, that
either (i) such Covered Person shall have provided appropriate security for such
undertaking, (ii) the Trust is insured against losses arising out of any such
advance payments, or (iii) either a majority of the Trustees who are neither
Interested Persons of the Trust nor parties to the matter, or independent legal
counsel in a written opinion, shall have determined, based upon a review of
readily available facts (as opposed to a trial-type inquiry or full
investigation), that there is reason to believe that such Covered Person will be
found entitled to indemnification under Section 10.02.
Section 10.03 Shareholders. In case any Shareholder of any Series shall be
held to be personally liable solely by reason of his being or having been a
Shareholder of such Series and not because of his acts or omissions or for some
other reason, the Shareholder or former Shareholder (or his heirs, executors,
administrators or other legal representatives, or, in the case of a corporation
or other entity, its corporate or other general successor) shall be entitled out
of the assets belonging to the applicable Series to be held harmless from and
indemnified against all loss and expense arising from such liability. The Trust,
on behalf of the affected Series, shall, upon request by the Shareholder, assume
the defense of any claim made against the Shareholder for any act or obligation
of the Series and satisfy any judgment thereon from the assets of the Series.
ARTICLE XI
MISCELLANEOUS
Section 11.01 Trust Not A Partnership. It is hereby expressly declared that
a trust and not a partnership is created hereby; provided, however, that it is
acknowledged that, for federal tax purposes, the trust created hereby may be
characterized as a corporation. No Trustee hereunder shall have any power to
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bind personally either the Trust officers or any Shareholder. All persons
extending credit to, contracting with or having any claim against the Trust or
the Trustees shall look only to the assets of the appropriate Series or (if the
Trustees shall have yet to have established Series) of the Trust for payment
under such credit, contract or claim; and neither the Shareholders nor the
Trustees, nor any of their agents, whether past, present or future, shall be
personally liable therefor.
Section 11.02 Trustee's Good Faith Action, Expert Advice, No Bond or
Surety. The exercise by the Trustees of their powers and discretion hereunder in
good faith and with reasonable care under the circumstances then prevailing
shall be binding upon everyone interested. Subject to the provisions of Article
X hereof and to Section 11.01 of this Article XI, the Trustees shall not be
liable for errors of judgment or mistakes of fact or law. The Trustees may take
advice of counsel or other experts with respect to the meaning and operation of
this Trust Instrument, and subject to the provisions of Article X hereof and
Section 11.01 of this Article XI, shall be under no liability for any act or
omission in accordance with such advice or for failing to follow such advice.
The Trustees shall not be required to give any bond as such, nor any surety if a
bond is obtained.
Section 11.03 Establishment of Record Dates. The Trustees may close the
Share transfer books of the Trust for a period not exceeding sixty (60) days
preceding the date of any meeting of Shareholders, or the date for the payment
of any dividends or other distributions, or the date for the allotment of
rights, or the date when any change or conversion or exchange of Shares shall go
into effect. In lieu of closing the stock transfer books as aforesaid, the
Trustees may fix in advance a date, not exceeding sixty (60) days preceding the
date of any meeting of Shareholders, or the date for payment of any dividend or
other distribution, or the date for the allotment of rights, or the date when
any change or conversion or exchange of Shares shall go into effect, as a record
date for the determination of the Shareholders entitled to notice of, and to
vote at, any such meeting, or entitled to receive payment of any such dividend
or other distribution, or to any such allotment of rights, or to exercise the
rights in respect of any such change, conversion or exchange of Shares, and in
such case such Shareholders and only such Shareholders as shall be Shareholders
of record on the date so fixed shall be entitled to such notice of, and to vote
at, such meeting, or to receive payment of such dividend or other distribution,
or to receive such allotment or rights, or to exercise such rights, as the case
may be, notwithstanding any transfer of any Shares on the books of the Trust
after any such record date fixed as aforesaid.
Section 11.04 Termination of Trust.
(a) This Trust shall continue without limitation of time but subject to the
provisions of Subsection 11.04(b).
(b) The Trustees may, subject to a Majority Shareholder Vote of each Series
affected by the matter or, if applicable, to a Majority Shareholder Vote of the
Trust, and subject to a vote of a majority of the Trustees,
(i) sell and convey all or substantially all of the assets of the
Trust or any affected Series to another trust, partnership, association or
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corporation, or to a separate series of shares thereof, organized under the
laws of any state which trust, partnership, association or corporation is
an open-end management investment company as defined in the 1940 Act, or is
a series thereof, for adequate consideration which may include the
assumption of all outstanding obligations, taxes and other liabilities,
accrued or contingent, of the Trust or any affected Series, and which may
include shares of beneficial interest, stock or other ownership interests
of such trust, partnership, association or corporation or of a series
thereof; or
(ii) at any time sell and convert into money all of the assets of the
Trust or any affected Series.
Upon making reasonable provision, in the determination of the Trustees, for the
payment of all such liabilities in either (i) or (ii), by such assumption or
otherwise, the Trustees shall distribute the remaining proceeds or assets (as
the case may be) of each Series (or class) ratably among the holders of Shares
of that Series then outstanding.
(c) Upon completion of the distribution of the remaining proceeds or the
remaining assets as provided in Subsection 11.05(b), the Trust or any affected
Series shall terminate and the Trustees and the Trust shall be discharged of any
and all further liabilities and duties hereunder and the right, title and
interest of all parties with respect to the Trust or Series shall be canceled
and discharged.
Upon termination of the Trust, following completion of the winding up of
its business, the Trustees shall cause a certificate of cancellation of the
Trust's Certificate of Trust to be filed in accordance with the Delaware Act,
which certificate of cancellation may be signed by any one Trustee.
Without limiting the generality of the foregoing, the existence of the
Trust shall not be affected by sales or purchases of Shares or status of any
Shareholders.
Section 11.05 Reorganization. Notwithstanding anything else herein, the
Trustees, in order to change the form of organization of the Trust, may, without
prior Shareholder approval, (a) cause the Trust to merge or consolidate with or
into one or more trusts, partnerships, associations or corporations so long as
the surviving or resulting entity is an open-end management investment company
under the 1940 Act, or is a series thereof, that will succeed to or assume the
Trust's registration under that Act and which is formed, organized or existing
under the laws of a state, commonwealth, possession or colony of the United
States or (b) cause the Trust to incorporate under the laws of Delaware. Any
agreement of merger or consolidation or certificate of merger may be signed by a
majority of Trustees and facsimile signatures conveyed by electronic or
telecommunication means shall be valid.
Pursuant to and in accordance with the provisions of Section 3815(f) of the
Delaware Act, and notwithstanding anything to the contrary contained in this
Trust Instrument, an agreement of merger or consolidation approved by the
Trustees in accordance with this Section 11.05 may effect any amendment to the
Trust Instrument or effect the adoption of a new trust instrument of the Trust
if it is the surviving or resulting trust in the merger or consolidation.
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Section 11.06 Filing of Copies, References, Headings. The original or a
copy of this Trust Instrument and of each amendment hereof or Trust Instrument
supplemental hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. Anyone dealing with the Trust may rely on a
certificate by an officer or Trustee of the Trust as to whether or not any such
amendments or supplements have been made and as to any matters in connection
with the Trust hereunder, and with the same effect as if it were the original,
may rely on a copy certified by an officer or Trustee of the Trust to be a copy
of this Trust Instrument or of any such amendment or supplemental Trust
Instrument. In this Trust Instrument or in any such amendment or supplemental
Trust Instrument, references to this Trust Instrument, and all expressions like
"herein," "hereof" and "hereunder," shall be deemed to refer to this Trust
Instrument as amended or affected by any such supplemental Trust Instrument. All
expressions like "his", "he" and "him", shall be deemed to include the feminine
and neuter, as well as masculine, genders. Headings are placed herein for
convenience of reference only and in case of any conflict, the text of this
Trust Instrument, rather than the headings, shall control. This Trust Instrument
may be executed in any number of counterparts each of which shall be deemed an
original.
Section 11.07 Applicable Law. The Trust set forth in this instrument is
made in the State of Delaware, and the Trust and this Trust Instrument, and the
rights and obligations of the Trustees and Shareholders hereunder, are to be
governed by and construed and administered according to the Delaware Act and the
laws of said State; provided, however, that there shall not be applicable to the
Trust, the Trustees or this Trust Instrument (a) the provisions of Section 3540
of Title 12 of the Delaware Code or (b) any provisions of the laws (statutory or
common) of the State of Delaware (other than the Delaware Act) pertaining to
trusts which relate to or regulate (i) the filing with any court or governmental
body or agency of trustee accounts or schedules of trustee fees and charges,
(ii) affirmative requirements to post bonds for trustees, officers, agents or
employees of a trust, (iii) the necessity for obtaining court or other
governmental approval concerning the acquisition, holding or disposition of real
or personal property, (iv) fees or other sums payable to trustees, officers,
agents or employees of a trust, (v) the allocation of receipts and expenditures
to income or principal, (vi) restrictions or limitations on the permissible
nature, amount or concentration of trust investments or requirements relating to
the titling, storage or other manner of holding of trust assets, or (vii) the
establishment of fiduciary or other standards of responsibilities or limitations
on the acts or powers of trustees, which are inconsistent with the limitations
or liabilities or authorities and powers of the Trustees set forth or referenced
in this Trust Instrument. The Trust shall be of the type commonly called a
"business trust", and without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a trust under
Delaware law. The Trust specifically reserves the right to exercise any of the
powers or privileges afforded to trusts or actions that may be engaged in by
trusts under the Delaware Act, and the absence of a specific reference herein to
any such power, privilege or action shall not imply that the Trust may not
exercise such power or privilege or take such actions.
Section 11.08 Amendments. Except as specifically provided herein, the
Trustees may, without Shareholder vote, amend or otherwise supplement this Trust
Instrument by making an amendment, a Trust Instrument supplemental hereto or an
amended and restated Trust Instrument. Shareholders shall have the right to vote
(a) on any amendment which would affect their right to vote granted in Section
7.01 of Article VII hereof, (b) on any amendment to this Section 11.08, (c) on
any amendment as may be required by law or by the Trust's registration statement
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filed with the Commission, and (d) on any amendment submitted to them by the
Trustees. Any amendment required or permitted to be submitted to Shareholders
which, as the Trustees determine, shall affect the Shareholders of one or more
Series (or classes) shall be authorized by vote of the Shareholders of each
Series (or class) affected and no vote of Shareholders of a Series (or class)
not affected shall be required. Notwithstanding anything else herein, any
amendment to Article X hereof shall not limit the rights to indemnification or
insurance provided therein with respect to action or omission of Covered Persons
prior to such amendment.
Section 11.09 Fiscal Year. The fiscal year of the Trust shall end on a
specified date as set forth in the Bylaws, provided, however, that the Trustees
may, without Shareholder approval, change the fiscal year of the Trust.
Section 11.10 Provisions in Conflict With Law. The provisions of this Trust
Instrument are severable, and if the Trustees shall determine, with the advice
of counsel, that any of such provisions is in conflict with the 1940 Act, the
regulated investment company provisions of the Internal Revenue Code or with
other applicable laws and regulations, the conflicting provision shall be deemed
never to have constituted a part of this Trust Instrument; provided, however,
that such determination shall not affect any of the remaining provisions of this
Trust Instrument or render invalid or improper any action taken or omitted prior
to such determination. If any provision of this Trust Instrument shall be held
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction and
shall not in any matter affect such provisions in any other jurisdiction or any
other provision of this Trust Instrument in any jurisdiction.
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IN WITNESS WHEREOF, the undersigned, being all of the initial Trustees of
the Trust, have executed this instrument as of date first written above.
/s/ Harris A. Fricker
---------------------------------
Harris A. Fricker, as Trustee
and not individually
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Form of Opinion of Counsel
June ____, 1999
X.com Funds
394 University Drive
Palo Alto, CA 94301
Dear Gentlemen:
This consent is given in connection with the filing by X.com Funds, a
Delaware business trust ("Trust"), of the Registration Statement on Form N-1A
("Registration Statement") under the Securities Act of 1933 and under the
Investment Company Act of 1940.
We consent to the use of this letter as an exhibit to the Registration
Statement and to the reference to Dechert Price & Rhoads under the caption
"Counsel" in the Statement of Additional Information, which is incorporated by
reference into the Prospectus comprising a part of the Registration Statement.
Very truly yours,
/s/ DECHERT PRICE & RHOADS
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