AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 18, 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. 1 /X/
Post-Effective Amendment No. ___ / /
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 1 /X/
(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) 752-6900
John T. Story
X.com Corporation
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. John T. Story
Dechert Price & Rhoads X.com Corporation
1775 Eye Street, NW 394 University Avenue
Washington, DC 20006 Palo Alto, CA 94301
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.
- -----------
X.COM FUNDS
X.COM PREMIER S&P 500 FUND
X.COM U.S.A. BOND FUND
X.COM U.S.A. MONEY MARKET FUND
PROSPECTUS
November 17, 1999
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION...................................................................3
ABOUT EACH OF THE FUNDS........................................................4
THE X.COM PREMIER S&P 500 FUND...........................................4
THE X.COM U.S.A. BOND FUND...............................................6
THE X.COM U.S.A. MONEY MARKET FUND.......................................7
FEES AND EXPENSES..............................................................9
MORE ABOUT THE FUND'S INVESTMENT STRATEGIES AND RISKS.........................11
FUND MANAGEMENT...............................................................13
THE FUNDS' STRUCTURE..........................................................14
PRICING OF FUND SHARES........................................................15
HOW TO BUY AND SELL SHARES OF THE X.COM FUNDS.................................15
DIVIDENDS AND OTHER DISTRIBUTIONS.............................................19
TAX CONSEQUENCES..............................................................19
2
<PAGE>
INTRODUCTION
Who Can Invest in the Fund?
The Funds are for on-line investors that are customers of X.com Corporation
("X.com") and First Western National Bank (the "Bank"), which is under contract
to provide X.com customers with various banking and financial services. The Bank
is a member of the Federal Deposit Insurance Corporation ("FDIC"). To purchase
shares of the Fund, you must open an account with the Bank. Simply follow the
instructions on our website, www.X.com. You will also need to complete an X.com
Financial Services Account Application and follow the instructions provided
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 to receive this information electronically,
fail to maintain an e-mail account, or close your account, the Funds may, to the
extent permitted by the federal securities laws, redeem your shares, and will,
in any event, prohibit additional investments in the Funds, including the
reinvestment of dividends.
What is a Master/Feeder Fund Structure?
The X.com Funds described in this Prospectus are feeder funds that invest all of
their assets in a corresponding master fund. A master/feeder fund 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. Barclays
Global Fund Advisors ("BGFA") serves as the investment adviser to each of the
master funds. BGFA is a subsidiary of Barclays Global Investors, N.A., the
world's largest institutional investment adviser. As of August 31, 1999, BGFA
and its affiliates provided investment advisory services for over $681.4 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 X.com Premier S&P 500 Fund that benchmark is the Standard & Poor's
500 Composite Stock Price Index (the "S&P 500 Index"). For the X.com U.S.A. Bond
Fund the benchmark is the Lehman Brothers Government/Corporate Bond Index (the
"LB Bond Index").
______________
* The staff of the Securities and Exchange Commission (the "Staff") has
informally indicated its view that the Funds may not involuntarily redeem
your shares if you revoke your consent to receive shareholder documents
electronically or fail to maintain an e-mail account. However, should the
Staff's position on this issue change, the funds intend to involuntarily
redeem your shares under such circumstances.
3
<PAGE>
ABOUT EACH OF THE FUNDS
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.
Because the investment characteristics and investment risks of the Funds match
those of each Funds' corresponding Master Portfolio, the discussion of each
Fund's investment objectives, strategies and risks also includes a description
of the investment characteristics and risks associated with the investments of
the corresponding Master Portfolios. Each Fund's performance will correspond
directly to the performance of the related Portfolio.
Please note that your investments in the Funds are not deposits of the Bank or
any other bank or financial institution, and are not insured by the Federal
Deposit Insurance Corporation ("FDIC") or any other government agency. Because
each Fund is subject to investment risks, you may lose money if you invest in
the Funds.
The X.com Premier S&P 500 Fund
Investment Objective
The X.com Premier S&P 500 Fund (the "Premier S&P 500 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.** 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.
______________
* The Premier S&P 500 Fund is a "premier" fund because, because it
provides low-cost access to the S&P 500 Index. Initially, X.com Asset
Management, Inc., the Fund's adviser, will not charge a fee for the
services it provides, and it will also reimburse the Premier S&P 500
Fund for all operating expenses incurred at the master fund levels. In
addition, X.com Asset Management, Inc., will pay the Premier S&P 500
Fund one additional basis point.
** "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 Premier S&P 500 Fund. The Premier S&P 500 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 Premier S&P 500 Fund.
4
<PAGE>
Principal Strategies
The Premier S&P 500 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 individual interests 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
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.
Principal Risks
Market Risk: The value of an investment in the Premier S&P 500 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 Premier S&P 500 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 Premier S&P 500 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.
Index-Fund Risk: The Premier S&P 500 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 Premier S&P 500 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.
The Premier S&P 500 Fund's ability to track the performance of the S&P 500 Index
may also be affected by, among other things, transaction costs, the fees and
expenses of the Premier S&P 500 Fund and the S&P 500 Portfolio, changes in the
composition of the S&P 500 Index or the assets of the S&P 500 Portfolio, and the
timing, frequency and amount of investor purchases and redemptions of both the
Premier S&P 500 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.
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
Premier S&P 500 Fund.
5
<PAGE>
The X.com U.S.A. Bond Fund
Investment Objective
The X.com U.S.A. Bond Fund (the "U.S.A. Bond 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. 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 U.S.A. Bond 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 ("Bond Portfolio"), a series of MIP.
The Bond Portfolio seeks to replicate the total return of the LB Bond Index. To
do so, the 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
Bond Portfolio's total assets will be invested in fixed-income securities.
Securities are selected for investment by the 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.
Under normal market conditions, the 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 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 and that of the LB Bond Index. A correlation of 100%
would mean the total return of the Bond Portfolio's assets would increase and
decrease exactly the same as the LB Bond Index.
Principal Risks
Index Fund Risk: The U.S.A. Bond Fund is not actively managed through
traditional methods of securities selection and invests (through its investment
in the Bond Portfolio) in the fixed-income securities included in the LB Bond
Index regardless of their investment merit. Except to a limited extent, the
U.S.A. Bond 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 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.
The U.S.A. Bond 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 U.S.A. Bond Fund and the
6
<PAGE>
Bond Portfolio, the manner in which the total
return of the LB Bond Index is calculated, the size of the Bond Portfolio, and
the timing, frequency and amount of investor purchases and redemptions of both
the U.S.A. Bond Fund and the Bond Portfolio. Because the Bond Portfolio seeks to
track the performance of the LB Bond Index, the Bond Portfolio will not attempt
to judge the merits of any particular fixed income security included in the LB
Bond Index as an investment.
Interest Rate Risk: The debt instruments in which the U.S.A. Bond Fund (through
its investments in the 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 Bond Portfolio invests will go down. When
interest rates fall, the value of the Bond Portfolio's investments may rise.
Credit Risk: Credit risk is the risk that issuers of the debt instruments in
which the U.S.A. Bond Fund (through its investments in the Bond Portfolio) may
invest may default on the payment of principal and/or interest. The U.S.A. Bond
Fund could lose money if the issuer of a fixed-income security owned by the 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 Bond Portfolio may fall
in response to national and international economic or general market conditions.
In addition, the Bond Portfolio will need to maintain cash balances to pay
redemptions and expenses, which may affect the overall performance of the U.S.A.
Bond Fund.
7
<PAGE>
The X.com U.S.A. Money Market Fund
Investment Objectives/Goals
The X.com U.S.A. Money Market Fund (the "U.S.A. 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 U.S.A. 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 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.
Principal Risks
Although the U.S.A. Money Market Fund seeks to preserve the value of your
investment at $1 per share, the Fund can offer no guarantee that it will be able
to do so. It is possible to lose money by investing in the Fund.
Interest Rate Risk: The debt instruments in which the U.S.A. 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 U.S.A. Money Market Fund (through its investments in the Money Market
Portfolio) invests may default on the payment of principal and/or interest. The
U.S.A. 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.
8
<PAGE>
PERFORMANCE INFORMATION
The bar charts on this page show the annual returns of each of the Funds and how
their performance has varied from year to year.(*) The average annual return
tables compare each Fund's average annual return with the return of a
corresponding index for one and five years and since inception. How the Funds
have performed in the past is not necessarily an indication of how the Funds
will perform in the future.
Premier S&P 500 Fund
1994 0.98% 1997 33.27%
1995 37.35% 1998 28.61%
1996 22.82%
- --------------------------------------------------------------------------------
Premier S&P 500 Fund Average Annual Total Returns (As of December 31, 1998)
- --------------------------------------------------------------------------------
- --------------------- -------------- ---------------- ------------------------
One Year Five Years Since July 2, 1993
- --------------------- -------------- ---------------- ------------------------
- --------------------- -------------- ---------------- ------------------------
Premier S&P 500 Fund 28.61% 23.89% 22.76%
- --------------------- -------------- ---------------- ------------------------
- --------------------- -------------- ---------------- ------------------------
S&P 500 Index 28.58% 24.06% 22.95%
- --------------------- -------------- ---------------- ------------------------
U.S.A. Bond Fund
1994 - -3.53% 1997 10.00%
1995 19.03% 1998 9.57%
1996 2.36%
- --------------------------------------------------------------------------------
U.S.A. Bond Fund Portfolio Average Annual Total Returns (As of December 31,
1998)
- ------------------------------------------------------------------
- -------------------- -------------- ---------------- ------------------------
One Year Five Years Since July 2, 1993
- -------------------- -------------- ---------------- ------------------------
- -------------------- -------------- ---------------- ------------------------
U.S.A. Bond Fund 9.57% 7.11% 7.00%
- -------------------- -------------- ---------------- ------------------------
- -------------------- -------------- ---------------- ------------------------
LB Bond Index 9.47% 7.30% 7.15%
- -------------------- -------------- ---------------- ------------------------
________________
* The Funds did not offer shares to the public prior to November 17, 1999. Each
Fund's annual returns are based on the annual returns of each corresponding
Master Portfolio, but have not been adjusted to account for expenses payable at
the Fund level. As a result, the annual returns for the U.S.A. Bond Fund and
U.S.A. Money Market Fund would have been lower than those shown above because
the U.S.A. Bond Fund and U.S.A. Money Market Fund have higher expenses than
their corresponding portfolios. In contrast, because the Adviser does not charge
a fee for its services, reimburses the Premier S&P 500 Fund for all fees
incurred at the Master Portfolio level, and pays to the Premier S&P 500 Fund an
additional 0.01% of the Premier S&P 500 Fund's average daily net assets, the
annual returns for the Premier S&P 500 Fund would have been higher than those
shown above because it has lower expenses than the S&P 500 Portfolio.
9
<PAGE>
U.S.A. Money Market Fund
1994 4.38% 1997 5.78%
1995 6.11% 1998 5.71%
1996 5.55%
U.S.A. Money Market Fund Average Annual Total Returns (As of December 31, 1998)
- ------------------------- ---------- --------------- -----------------------
One Year Five Years Since July 2, 1993
- ------------------------- ---------- --------------- -----------------------
U.S.A. Money Market Fund 5.71% 5.50% 5.29%
- ------------------------- ---------- --------------- -----------------------
U.S. Treasury Bills 5.31% 5.32% 4.93%
(3-month)
- ------------------------- ---------- --------------- -----------------------
10
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds.
U.S.A.
Shareholder Fees Premier Money
(fees paid directly from S&P 500 U.S.A. Bond Market
your investment) Fund Fund Fund
---- ---- ----
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 90 days of purchase) None None None
Maximum Account Fee None $2.00 per None
(for accounts under $10,000) quarter(1)
Annual Fund Operating Expenses(2)
(expenses that are deducted from Fund assets)
Management Fees 0.28%(3) 0.40%(3) 0.60%(3)
Distribution (12b-1) Fees None None None
Other Expenses 0.00% 0.00% 0.00%
Total Annual Fund Operating Expenses 0.28% 0.40% 0.60%
Fee Waiver and Expense Reimbursement(4) 0.28% 0.21% 0.10%
Net Operating Expenses 0.00%(5) 0.19% 0.50%
_____________
1 The maximum account fee for the U.S.A. Bond Fund will be deducted from your
quarterly distribution of the Funds' dividends. If your distribution is
less than the fee, fractional shares will be automatically redeemed to make
up the difference.
2 The cost reflects the expenses at both the Fund and the Portfolio levels.
3 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, Bond Portfolio, and Money Market Portfolio,
respectively. Management fees also include a "unified" fee equal to 0.23%,
0.32% and 0.50% payable by the Premier S&P 500 Fund, U.S.A. Bond Fund, and
U.S.A. Money Market Fund, respectively, to X.com Asset Management, Inc.,
the Funds' investment adviser (the "Adviser"). Under the investment
advisory
11
<PAGE>
contract, the Adviser provides or arranges to be provided to the
Funds administration, transfer agency, pricing, custodial, auditing, and
legal services, and is responsible for payment of all of the operating
expenses of each Fund except the Portfolio management fees, brokerage fees,
taxes, interest and extraordinary expenses.
4 The fee waiver for each Fund is made pursuant to a written expense
limitation and reimbursement agreement, which is in effect for an initial
term of one year and will be renewed thereafter automatically for a one
year term on an annual basis. The agreement can be changed, terminated or
not renewed by either party only by giving 90 days' prior notice.
5 In addition to the reimbursement of expenses at the Master Portfolio level,
the Adviser will contribute to the Premier S&P 500 Fund an additional 0.01%
of the Premier S&P 500 Fund's average daily net assets.
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 for the time periods indicated;
o your investment has a 5% return each year;
o and 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(*)
--------- ----------
Premier S&P 500 Fund $0(**) $61(+)
U.S.A. Bond Fund $19 $107
U.S.A. Money Market Fund $51 $182
* Reflects costs at both the Fund and Portfolio levels.
** In addition to the waiver of fees and reimbursement of expenses,
pursuant to a written agreement, X.com Asset Management, Inc., will
contribute to the Premier S&P 500 Fund an additional 0.01% of the
Premier S&P 500 Fund's average daily net assets.
+ X.com Asset Management, Inc. anticipates that the expense limitation
and reimbursement agreement will be renewed for each of the second and
third year of the Premier S&P 500 Fund's operation. If the agreement
is renewed, your actual cost will be $0.
12
<PAGE>
MORE ABOUT THE FUND'S INVESTMENT STRATEGIES AND RISKS
Investment Strategies
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 Premier S&P Index Fund and U.S.A. Bond Fund (the "Index Funds"): The
investment adviser of the S&P 500 Portfolio and the 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.
Each Index 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.
Each Index Portfolio may use derivative instruments in order to: (i) simulate
full investment in its corresponding 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 its corresponding index. Such derivatives
include the purchase and sale of futures contracts and options on S&P 500 Index
futures contracts.
The U.S.A. Money Market Fund: The U.S.A. 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 Portfolio, however,
may invest in high-quality asset-backed securities and variable and floating
rate obligations, which are considered to be derivative instruments. The U.S.A.
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
13
<PAGE>
London Interbank Offered Rate, among others. Floating and variable rate
instruments are subject to interest rate and credit risks.
Investment Risks
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. The Funds' investments in
derivative instruments can significantly increase their 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 Funds'
corresponding indexes. In fact, the use of derivative instruments adversely
impact the value of the Funds' assets, which may reduce the return you receive
on your investment.
The Index Funds use of derivative instruments may affect the Funds' ability to
track their respective indexes less closely if the derivatives do not perform as
expected, or if the derivative instruments are timed incorrectly or are executed
under adverse market conditions.
The Money Market Portfolio may invest in high-quality 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. 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.
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 Funds' and the investment adviser are currently
Year 2000 compliant, and the service providers to the Funds and the Portfolios
have indicated that they are or expect to be Year 2000 compliant. There can, of
course, be no assurance that the Funds or the Portfolios will not experience any
problems as a result of the Year 2000 Problem. 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,
14
<PAGE>
especially foreign entities, which may be less prepared for the
Year 2000.
The extent of such impact cannot be predicted.
FUND MANAGEMENT
Investment Advisers. Under investment advisory agreements with the Funds, X.com
Asset Management, Inc. (the "Adviser"), a registered investment adviser,
provides investment advisory services to the Funds. The Adviser is a wholly
owned subsidiary of X.com and is located at 394 University Avenue, Palo Alto, CA
94301. The Adviser is newly formed and therefore has no prior experience as an
investment adviser.
X.com is the direct parent company of the Adviser. 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.
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 Adviser provides the Funds with ongoing investment guidance,
policy direction and monitoring of each of the Portfolios in which each Fund
invests. The Adviser may in the future manage cash and money market instruments
for cash flow purposes. The Adviser also provides or arranges for
administration, transfer agency, custody and all other services necessary for
the Funds to operate. For its advisory services, each Fund pays the Adviser an
investment advisory fee at an annual rate, after fee waivers and expense
reimbursements, equal to the following percentage of each Fund's average daily
net assets:
After Fee Waiver and
Fund Contractual Rate Expense Reimbursement
---- ---------------- ---------------------
(expressed as a
(expressed as a percentage of
percentage of average average daily net
daily net assets) assets)
Premier S&P 500 Fund 0.23% 0.00%*
U.S.A. Bond Fund 0.32% 0.11%*
U.S.A. Money Market Fund 0.50% 0.40%*
*The Adviser has entered into a written expense limitation and reimbursement
agreement with the Trust, under which it has agreed to waive a percentage of its
advisory fee received from the Funds. The expense limitation and reimbursement
agreement is in effect for an initial term of one year and will be renewed
thereafter automatically for one year terms on an annual basis. The agreement
can be changed, terminated or not renewed by either party only upon providing 90
days' prior notice.
Out of the fee received by the Adviser, the Adviser pays all expenses of
managing and operating the Funds except brokerage expenses, taxes, interest,
fees and expenses of the independent trustees (including legal counsel fees),
and extraordinary expenses. A portion of the advisory fee may be paid by the
Adviser to unaffiliated third parties who provide recordkeeping and
administrative services that would otherwise be performed by an affiliate of the
Adviser.
15
<PAGE>
Barclays Global Fund Advisors ("BGFA") 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) 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 June
30, 1999, BGFA and its affiliates provided investment advisory services for over
$687 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%*
Bond Portfolio 0.08%
U.S.A. Money Market Portfolio 0.10%
*The Adviser has entered into a written expense limitation and reimbursement
agreement with the Trust, under which it has agreed to reimburse the Premier S&P
500 Fund for all fees incurred at the Portfolio level. The agreement can be
changed, terminated or not renewed by either party only upon providing 90 day's
prior notice.
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 Securities and Exchange Commission ("SEC")
registration fees.
- --------------------------------------------------------------------------------
PREMIER. The Adviser has entered into a written expense limitation agreement,
under which it has agreed to (i) waive all management fees received from the
Premier S&P 500 Fund; (ii) reimburse the Premier S&P 500 Fund for all fees
incurred by the Premier S&P 500 Fund at the Portfolio level; and (iii) in
addition to this waiver and reimbursement, pay the Premier S&P 500 Fund an
additional 0.01% of the Premier S&P 500 Fund's average daily net assets.
The Adviser may extend, but may not during term of the expense limitation
agreement shorten, the duration of the expense waiver or reimbursement. The
expense limitation agreement is in effect for an initial term of one year, and
will be renewed thereafter automatically for one year terms on an annual basis.
The expense limitation agreement may be changed, terminated or not renewed by
either party only upon 90 days' prior written notice (by e-mail or other means),
to the other party at its principal place of business.
- --------------------------------------------------------------------------------
The Funds' Statement of Additional Information contains detailed information
about the Fund's investment adviser, administrator, and other service providers.
THE FUNDS' STRUCTURE
Each Fund is a separate series of X.com Funds. The Premier S&P 500 Fund, U.S.A.
Bond Fund, and U.S.A. Money Market Fund seek to achieve their investment
objectives by investing all of each Fund's assets in the S&P 500 Portfolio, the
Bond Portfolio, and the Money Market Portfolio, respectively. The Index
Portfolios and Money Market Portfolio are each a series of
16
<PAGE>
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
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.
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 Fund receives your
request in proper form. A request is received in proper form if it is placed
through your Bank account and specifies the number of shares or dollar amount of
shares to be purchased or redeemed. If the Fund 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 ownership interest in the net assets of the Master Portfolio. A Fund's
NAV per share is calculated by taking
17
<PAGE>
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. The NYSE is closed on national holidays and on Good Friday.
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 OF THE X.COM FUNDS
The Funds are available only to on-line investors that have established a
customer relationship with X.com and opened an account with the Bank, which is
under contract to provide X.com customers with various banking and financial
services.
On-Line Investor Requirements
The Funds are designed and built specifically for on-line investors. Each Fund
requires its shareholders to consent to receive all shareholder information
about the Fund electronically. Shareholder information includes, but is not
limited to, prospectuses, financial reports, confirmations, proxy solicitations,
and financial statements. Shareholders may also receive other correspondence
from X.com Funds or the Bank through their e-mail account. By purchasing shares
of the Fund, you certify that you have access to the Internet and a current
e-mail account, and you acknowledge that you have the sole responsibility for
providing a correct and operational e-mail address. You may incur costs for
on-line access to shareholder documents and maintaining an e-mail account.
If you rescind your consent to receive shareholder information electronically,
fail to maintain an e-mail account, or close your account, the Funds may, to the
extent permitted by the federal securities laws, redeem your position in the
Funds and, in any event, will prohibit additional investments in the Funds,
including the reinvestment of dividends.* Prior to revoking your consent, you
will be reminded of the Fund's involuntary redemption policy. If the Funds
involuntarily redeem your shares, you may experience adverse tax consequences.
If your shares are involuntarily redeemed, you will receive paper copies of all
shareholder information until all of your shares have been redeemed and the
proceeds have been credited to your account, or you
* The Staff has informally indicated its view that the Funds may not voluntarily
redeem your shares if you revoke your consent to receive shareholder documents
electronically or fail to maintain an e-mail account. However, should the
Staff's position on this issue change, the Funds intend to involuntarily redeem
your shares under such circumstances.
18
<PAGE>
have otherwise received the redemption proceeds. The Fund reserves the right to
deliver paper-based documents in certain circumstances, at no cost to the
investor.
Account Requirements
To register as a customer of X.com and open an account with the Bank, you must
complete and submit an X.com Financial Services Account Application (the
"Application"). The Application is available on the X.com website at www.X.com.
While you may submit the Application electronically, you must also complete,
sign and deliver a signature card. The signature card will be sent to your
address of record and must be returned promptly per the enclosed instructions.
For more detailed information on how to open an account with the Bank, visit the
X.com website (www.X.com).
Once you open your account, you will be subject to general account requirements
as described in the Application, and will have access to all the electronic
financial services offered over the Internet by X.com, including the opportunity
to invest in X.com Funds.
Placing an Order
You can begin purchasing shares of the Funds as soon as you open and fund your
account. 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.
You can place orders to purchase or redeem Fund shares by accessing our website
at www.X.com. At the time you log-on to the website, you will be prompted to
enter your personal identification password so that we can be sure each
transaction is secure. By clicking on the appropriate mutual fund order buttons,
you can quickly and easily place an order to purchase or redeem shares in a
Fund. When you first purchase shares in a Fund, you will be asked: (1) to
consent to receive all Fund documentation electronically; and (2) to affirm that
you have read the prospectus. The prospectus is readily available for viewing
and printing on our website. If you do not consent to receive all Fund
documentation electronically you will not be able to purchase shares of the
Fund. To complete a purchase transaction, you must transfer sufficient funds
from your X.com bank account to your mutual fund account. Notice of trade
confirmations will be sent electronically to the e-mail address you provided
when you opened your account.
19
<PAGE>
Minimum Investment Requirements
For your initial investment in a Fund $0
To buy additional shares of a Fund $0
Continuing minimum investment $0
To invest in a Fund for your IRA, Roth IRA, $0
or one-person SEP account
To invest in a Fund for your Education IRA account $0
To invest in a Fund for your UGMA/UTMA account $0
To invest in a Fund for your SIMPLE, SEP-IRA, Profit Sharing or Money $0
Purchase Pension Plan, or 401(k) account
Maximum Investment Limitations (For the Premier S&P 500 Fund Only)
Your investment in the Premier S&P 500 Fund will be limited to a total amount of
$15,000. For investors that also have established a direct deposit account with
the Bank, the maximum investment will be $50,000. The Premier S&P 500 Fund will
inform you when your investment reaches or exceeds the aggregate limit. The
Premier S&P 500 Fund will promptly credit any excess money received from you to
your U.S.A. Money Market Fund account.
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.
Accessing Account Information
For information on how to access account information and/or applications
electronically, please refer to our online assistant at www.X.com available 24
hours a day.
Redemptions
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. As soon as a Fund receives your
redemption request, your shares will be redeemed and the proceeds will be
credited to your account with the Bank. This usually occurs the business day
following the transaction. All redemption proceeds will be credited to your Bank
account.
Redemption Delays. You will have to wait to receive payment on redeemed shares
until the funds you used to buy the shares have cleared (e.g., if you opened
your Bank account with a check, until your check has cleared). The delay may
take up to fifteen (15) days from the date of purchase.
20
<PAGE>
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.
Redemption Fee. The Funds do not impose a redemption fee. The Index 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, in the
future the Index Funds may assess a 2.0% fee on redemptions of shares held for
less than 90 days.
Amending Your Application
For your protection, you will be required to submit an amended Application if
you desire to change certain information provided on your initial Application.
The amended Application is designed to protect you and the Funds against
fraudulent transactions by unauthorized persons. Specifically, the Funds will
require you to amend your Application in the following instances:
1. If you transfer the ownership of your account to another individual
or organization.
2. If you add or change your name or add or remove an owner on your
account.
3. If you add or change the beneficiary on your transfer-on-death account.
Closing your account
If you close your account with the Bank, the Fund may, to the extent permitted
by the federal securities laws, redeem all of your shares in your Fund account.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Premier S&P 500 Fund intends to pay dividends from net investment income
quarterly and distribute capital gains, if any, annually. The U.S.A. Bond Fund
and U.S.A. Money Market Fund intend to declare dividends daily and distribute
them monthly. The U.S.A. Bond Fund and U.S.A. 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. If you revoke your
consent to receive shareholder information electronically, fail to maintain an
e-mail account, or close your account, you will not be permitted to reinvest
your dividends in additional Fund shares.
21
<PAGE>
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 Premier S&P 500 Fund will distribute substantially all of its income and
gains to its shareholders every year. The U.S.A. Bond Fund and U.S.A. 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.
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.
22
<PAGE>
[Outside back cover page.]
The Statement of Additional Information for the Funds ("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 Corp.
394 University Avenue
Palo Alto, CA 94301
Toll-Free: (888) 447-8999
http://www.X.com
Investment Company Act file No.: 811-09381
STATEMENT OF ADDITIONAL INFORMATION
X.com Funds
X.com Premier S&P 500 Fund
X.com U.S.A. Bond Fund
X.com U.S.A. Money Market Fund
November 17, 1999
This Statement of Additional Information ("SAI") is not a prospectus. This SAI
should be read together with the Prospectus for the X.com Premier S&P 500 Fund
(the "Premier S&P 500 Fund"), the X.com U.S.A. Bond Fund (the "U.S.A. Bond
Fund"; collectively with the Premier S&P 500 Fund, the "Index Funds"), and the
X.com U.S.A. Money Market Fund (the "U.S.A. Money Market Fund"; collectively
with the Index Funds, the "Funds") dated November 17, 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. The Funds are for on-line investors that are
customers of First Western National Bank, which X.com Corporation ("X.com") has
agreed to acquire subject to regulatory and shareholder approval and with which
X.com has contracted to provide various financial services for its customers
(the "Bank"). Only investors who are customers of the Bank and who consent to
receive all information about the Funds electronically may invest in any of the
Funds.
<PAGE>
TABLE OF CONTENTS
Page
HISTORY OF THE FUNDS...........................................................1
THE FUNDS......................................................................1
INVESTMENT STRATEGIES AND RISKS................................................2
FUND POLICIES.................................................................13
TRUSTEES AND OFFICERS.........................................................20
INVESTMENT MANAGEMENT.........................................................22
SERVICE PROVIDERS.............................................................24
PORTFOLIO TRANSACTIONS AND BROKERAGE SELECTION................................26
ORGANIZATION, DIVIDEND AND VOTING RIGHTS......................................27
SHAREHOLDER INFORMATION.......................................................28
TAXATION......................................................................29
MASTER PORTFOLIO ORGANIZATION.................................................33
PERFORMANCE INFORMATION.......................................................35
FINANCIAL STATEMENTS..........................................................40
APPENDIX......................................................................41
<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 June 7, 1999.
THE FUNDS
Each of the Funds is classified as a diversified open-end, management investment
company.
Premier S&P 500 Fund. As its investment objective, the Premier S&P 500 Fund
seeks to approximate as closely as practicable, before fees and expenses, the
capitalization-weighted total rate of return(1) of Standard & Poor's 500
Composite Stock Price Index (the "S&P 500 Index")(2). 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 Premier S&P
500 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.
_____________
1 "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.
2 "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 Premier S&P 500 Fund. The Premier S&P 500 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 Premier S&P 500 Fund.
U.S.A. Bond Fund. As its investment objective, the U.S.A. Bond 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
Government/Corporate Bond Index ("LB Bond Index"). The LB Bond Index includes
approximately 6,500 fixed-income securities,
<PAGE>
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.
U.S.A. Money Market Fund. As its investment objective, the U.S.A. Money Market
Fund seeks to provide shareholders of the Fund with a high level of current
income, while preserving capital and liquidity. The U.S.A. 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 Investment
Company Act of 1940, as amended (the "1940 Act")) of that Fund's outstanding
voting interests.
INVESTMENT STRATEGIES AND RISKS
Since each Fund invests all its assets in its corresponding Master Portfolio,
the investment characteristics and investment risks of a Fund correspond to
those of the Master Portfolio in which the Fund invests. The following
supplements the discussion in the Prospectus of the principal investment
strategies, policies and risks that pertain to the Portfolios and, accordingly,
to the Funds that invest in the Portfolios. In addition to discussing the
principal risks of investing in the Portfolios and the Funds, this section also
describes the non-principal risks of such investments. These investment
strategies and policies may be changed without shareholder approval unless
otherwise noted and apply to all of the Portfolios unless otherwise noted.
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
2
<PAGE>
a particular commodity or financial instrument 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
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.
3
<PAGE>
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
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
4
<PAGE>
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 Securities and Exchange Commission ("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 Index 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
Portfolios 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. 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.
5
<PAGE>
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.
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.
6
<PAGE>
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
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
7
<PAGE>
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 100% 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.
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.
8
<PAGE>
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
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
9
<PAGE>
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
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
10
<PAGE>
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.
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.
11
<PAGE>
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 of Trustees 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 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,
12
<PAGE>
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.
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.
13
<PAGE>
Unless indicated otherwise below, each of the Funds 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. 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 voting securities of any one issuer;
3. issue senior securities, except as permitted under the 1940 Act;
4. borrow money, except to the extent permitted under the 1940 Act, provided
that (i) the U.S.A. Bond 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 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
(ii) the Premier S&P 500 Fund 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);
5. act as an underwriter of another issuer's securities, except to the extent
that the Fund may be deemed to be an underwriter within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), in connection with
the disposition of portfolio securities;
6. 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 investment) would
be invested in the securities of issuers in any particular industry, provided,
however, that (i) 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 U.S.A. Money Market Fund,
obligations of domestic banks, to the extent that the SEC, by rule or
interpretation, permits funds to reserve freedom to concentrate in such
obligations; and (ii) the Premier S&P 500 Fund and U.S.A. Bond Fund will
concentrate in obligations to the same degree that their respective Indexes
concentrate in those obligations during the same period;
7. 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;
8. invest in commodities. This restriction shall not prohibit the Premier S&P
500 and U.S.A. Bond Funds, subject to restrictions described in the Prospectus
and elsewhere in this Statement of Additional Information, from purchasing,
selling or entering into futures
14
<PAGE>
contracts, options on futures contracts and other derivative instruments,
subject to compliance with any applicable provisions of the federal securities
or commodities laws;
9. 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 SEC and the Trustees of the Funds ((c) is not
permitted for the U.S.A. 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.
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's 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.
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.
15
<PAGE>
PORTFOLIO POLICIES
The S&P 500 and LB Bond Portfolios: Fundamental Investment Restrictions
The Master 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 LB 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;
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;
16
<PAGE>
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 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 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 may be deemed to give rise to a
senior security; and
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
17
<PAGE>
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.
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 domestic banks, to the extent that the 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 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);
18
<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.
Money Market 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.
19
<PAGE>
TRUSTEES AND OFFICERS
The Trust's Board of Trustees 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 of Trustees 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 (*):
<PAGE>
<TABLE>
<S> <C> <C>
- ------------------------- ----------------------------------- ------------------------------------------
Name, Address, and Age Position(s) Held with the Fund Principal Occupation(s) During the Past
5 Years
- ------------------------- ----------------------------------- ------------------------------------------
Nicole E. Faucher Trustee President, Nicole E Faucher & Associates
(Internet company) (1998-present);
formerly, President, R.V. Kohn's &
Associates (investment consulting)
(1996-98); Managing Director, Western
Region, SEI Capital Resources
(investment consulting) (1993-96)
Kevin T. Hamilton Trustee Principal and Portfolio Manager, Messner
& Smith Investment Management Limited
(1998-present); formerly, Executive Vice
President, Montgomery Asset Management,
LLC (1991-98).
Elon R. Musk* Trustee, Director, President, and Treasurer,
Chairman of the Board of Trustees X.com Asset Management, Inc.
(1999-present); Chairman and Chief
Executive Officer, X.com (1999-present);
Executive Vice President and Principal
Founder, Zip2 Corp. (1995-99); Teaching
Assistant, Business Education, Wharton
School of Business, University of
Pennsylvania (1994-95)
20
<PAGE>
Gregory N. River Trustee Founder, Owner, and President, Paladin
Consulting Company (1996-present);
Consultant (investment services),
Self-Employed (1994-96).
John T. Story* Trustee; President Executive Vice President, X.com,
(1999-present); President, John T. Story
& Associates (mutual fund consulting)
(1998-99); Executive Vice President,
Montgomery Asset Management (1994-1998).
</TABLE>
*Each of Mr. Musk and Mr. Story is an "interested person" of the Trust (as that
term is defined in the 1940 Act) because of his affiliations with the Fund.
The Trust pays each non-affiliated Trustee a quarterly fee of $500 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:
21
<PAGE>
Estimated Compensation Table
- ------------------- --------------------------- -----------------------------
Total Compensation From
Name of Person, Aggregate Compensation Funds and Trust Expected to
Position from the Funds be Paid to Trustees (1)
- ------------------- --------------------------- -----------------------------
Nicole E. Faucher $2,000 $2,000
Kevin T. Hamilton $2,000 $2,000
Gregory N. River $2,000 $2,000
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 December 31, 1999.
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 September 30, 1999, X.com Asset Management, Inc.,
the Funds' investment adviser, owned 100% of the Funds' outstanding shares.
There are no other shareholders holding 25% or more.
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, a Delaware corporation.
Subject to general supervision of the Trust's 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 also provides or arranges for
administration, transfer agency, custody and all other services necessary for
the Funds to operate. The Investment Adviser has not previously had
responsibility for managing a mutual fund. For its services, the Premier S&P 500
Fund pays the Investment Adviser an investment advisory fee at an annual rate
equal to 0.23% of its average daily net assets; the U.S.A. Bond Fund pays the
22
<PAGE>
Investment Adviser an investment advisory fee at an annual rate equal to 0.32%
of its average daily net assets and the U.S.A. Money Market Fund pays the
Investment Adviser an investment advisory fee at an annual rate equal to 0.50%
of its average daily net assets.
The Investment Adviser has entered into an expense limitation and reimbursement
agreement with the Trust, under which the Investment Adviser will waive all
investment advisory fees payable to it by the Premier S&P 500 Fund, 0.21% of the
investment advisory fees payable to it by the U.S.A. Bond Fund, and 0.10% of the
investment advisory fees payable to it by the U.S.A. Money Market Fund.
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
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 Investment Adviser has entered into an expense limitation and reimbursement
agreement with the Trust, under which the Investment Adviser will reimburse the
Premier S&P 500 Fund for all fees incurred at the Master Portfolio level.
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.
23
<PAGE>
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
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. The Investment Adviser pays
IBT for all administrative services provided to the Funds.
Administrator 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 of Trustees. 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,
24
<PAGE>
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.
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. The
Investment Adviser pays IBT for all custodial services provided to the Funds.
Transfer Agent and Dividend Disbursing Agent. X.com Asset Management, Inc., 394
University Avenue, Palo Alto, California 94301, acts as transfer agent and
dividend disbursing agent for the Funds.
Fund Shareholder Servicing Agent. Under a Shareholder Servicing Agreement, the
Bank acts as shareholder servicing agent for the Fund. As shareholder servicing
agent, the 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 Auditors. KPMG LLP, 99 High Street, Boston, Massachusetts, 02110,
acts as independent auditors for the Fund.
Legal Counsel. Dechert Price & Rhoads, 1775 Eye Street N.W., Washington, DC
20006-2401, acts as legal counsel for the Fund.
25
<PAGE>
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
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.
26
<PAGE>
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
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"), an open-end
investment company, organized as a Delaware business trust on June 7, 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.
27
<PAGE>
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,
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 the Bank and are distributed by the Funds.
Pricing of Fund Shares. The net asset value of the Premier S&P 500 and U.S.A.
Bond 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
U.S.A. 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 U.S.A. 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
28
<PAGE>
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 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 of Trustees is
required to establish procedures designed to stabilize, to the extent reasonably
possible, the U.S.A. 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
U.S.A. Money Market Fund's portfolio holdings by the Board of Trustees, at such
intervals as it may deem appropriate, to determine whether the U.S.A. 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 of Trustees will promptly consider what action, if any,
will be initiated. In the event the Board of Trustees determines that a
deviation exists that may result in material dilution or other unfair results to
shareholders, the Board of Trustees 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.
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.
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
29
<PAGE>
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
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
30
<PAGE>
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.
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
31
<PAGE>
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
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
32
<PAGE>
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
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
33
<PAGE>
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 Trustees 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 of
Trustees 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 Trustees determines that such action is in the best interests of such
Fund and its shareholders. Upon any such withdrawal, the Trust's Board of
Trustees 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.
34
<PAGE>
PERFORMANCE INFORMATION
The Premier S&P 500 and U.S.A. Bond 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 Premier S&P 500 and U.S.A. Bond 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 $10,000
T = average annual total return
N = number of years
ERV = ending redeemable value of a hypothetical $10,000 payment
made at the beginning of the applicable period at the end of the
period.
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 Premier S&P 500 and U.S.A. Bond 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 $10,000) ("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.
35
<PAGE>
Distribution Rate. The distribution rate for each of the Premier S&P 500 and
U.S.A. Bond 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 U.S.A. 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);
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 Index 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 Index Funds' net
investment income.
Current yield for the U.S.A. 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 U.S.A. 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
36
<PAGE>
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
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.
37
<PAGE>
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
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",
38
<PAGE>
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.
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
The statements of assets and liabilities of the Funds as of September 10, 1999,
and related notes to the statements of assets and liabilities, and the
independent auditors' report, are included herein.
39
<PAGE>
X.com Funds
Statements of Assets and Liabilities
September 10, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Free +1 U.S. Bond Money Market
S&P 500 Fund Fund
Fund
ASSETS:
Cash......................................................... $ 35,000 35,000 30,000
-------- ---------- -----------
Total Assets................................................. 35,000 35,000 30,000
LIABILITIES:
Total Liabilities...................................................... 0 0 0
-------- --------- -----------
NET ASSETS...........................................................$ 35,000 35,000 30,000
========= ========== ===========
Net assets consist of.
Paid-in Capital......................................................$ 35,000 35,000 30,000
--------- ---------- -------------
NET ASSETS:..........................................................$ 35,000 35,000 30,000
========= ========== =============
Shares issued and outstanding (unlimited shares authorized): 3,500 3,500 30,000
========= ========== ============
NET ASSET VALUE: $ 10.00 10.00 1.00
========= ========== ============
</TABLE>
See Notes to Statement of Assets and Liabilities
40
<PAGE>
X.com Funds
Notes to Statements of Assets and Liabilities
September 10, 1999
I. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
X.com Funds (the "Trust"), is a diversified open-end management investment
company registered under the Investment Company Act of 1940, as amended. The
Trust was established as a Delaware business trust organized pursuant to a
Declaration of Trust on June 3, 1999. The Trust currently offers three Funds;
the Free +1 S&P 500 Fund, the U.S. Bond Fund, and the Money Market Fund (each, a
"Fund", collectively the "Funds"). Each Fund is a diversified series of the
Trust. The investment objectives of each Fund are as follows;
Free +1 S&P 500 Fund - seeks to approximate as closely as practicable, before
fees and expenses, the capitalization-weighted total rate of return of the
Standard and Poor's 500 Composite Stock Price Index.
US. Bond Fund - seeks to approximate as closely as practicable, before fees and
expenses, the total rate of return of the of the U.S. market for issued and
outstanding U.S. government and high grade corporate bonds as measured by the
Lehman Brothers Corporate Bond Index.
Money Market Fund - seeks to provide a high level of income while preserving
capital and liquidity and maintaining, a stable net asset value by investing in
high quality, short-term securities.
Each fund is a "'feeder" fund in a "master-feeder" structure. Instead of
investing directly in individual securities, a feeder fund, which is offered to
the public, invests in a Master Portfolio that has substantially the same
investment objectives as the feeder fund. It is the Master Portfolio that
actually invests in the individual securities. The Free +1 S&P 500 Fund, the
U.S. Bond Fund, and the Money Market Fund pursue their investment objectives by
investing all of their assets in the S&P 500 Index Master Portfolio, the Bond
Index Master Portfolio, and the Money Market Master Portfolio (each a "Master
Portfolio", collectively the "Master Portfolios"), respectively. Each Master
Portfolio is a separate series of Master Investment Portfolio ("MIP"). Barclays
Global Fund Advisors (BGFA), an indirect subsidiary of Barclays Bank PLC, is the
investment advisor for the Master Portfolios.
As of September 10, 1999, the Trust had no operations other than organizational
matters, including the issuance of seed money shares to X.com Asset Management,
Inc.
41
<PAGE>
2. AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
X.com Asset Management, Inc. ("XAM"), a wholly owned subsidiary of Xcom, Inc.
serves as the Funds' investment adviser. For their services, XAM is paid a fee
at an annual rate of 0.02% of each Fund's average daily net assets.
Pursuant to an Investment Advisory Contract with each Master Portfolio, BGFA
provides investment guidance and policy direction in connection with the
management of each Master Portfolio's assets. For its services, BGFA is entitled
to receive 0.05%, 0.08% and 0. 10%, of the average daily net assets of the S&P
500 Index Master Portfolio, the Bond Index Master Portfolio, and the Money
Market Master Portfolio, respectively.
Each Fund bears a pro rata portion of the investment advisory fees paid by its
corresponding Master Portfolio as well as certain other fees paid by each
Portfolio, such as accounting, legal, and SEC registration fees.
Under an Administrative Services Agreement between the Trust and XAM, XAM
assumes all ordinary recurring operating expenses of the Trust, such as
administration fees, custodian fees, director's fees, transfer agency fees and
accounting fees. As compensation for these services, XAM receives a monthly fee
from each Fund at an annual rate based on the average daily net assets of each
Fund as follows; 0.23%, 0.32%, and 0.35% for the S&P 500 IndX Fund, the Bond
IndX Fund, and the Money Market Fund, respectively.
Investors Bank & Trust Company (the "Administrator") provides administrative
services to the Fund. Services provided by the Administrator include, but are
not limited to: managing the daily operations and business affairs of the Fund,
subject to the supervision of the Board of Trustees; overseeing the preparation
and maintenance of all documents and records required to be maintained by the
Fund; preparing or assisting in the preparation of regulatory filings,
prospectuses and shareholder reports; and preparing and disseminating material
for meetings of the Board of Trustees and shareholders.
X.com Bank serves as the shareholder-servicing agent for the Fund. X.com Bank is
also responsible for maintaining the Fund's shareholder accounts.
3. FEDERAL TAXES
The Funds have elected and intend to qualify each year as "regulated investment
companies" under Subchapter M of the Internal Revenue Code. If so qualified, the
Funds will not be subject to federal income tax to the extent they distribute
their net investment income to shareholders.
42
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees
X.com Funds
We have audited the accompanying statements of assets and liabilities of X.com
Free +1 S&P 500 Fund, X.com U.S. Bond Fund, and X.com Money Market Fund (each a
series of X.com Funds) as of September 10, 1999. These financial statements are
the responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and the perform the audit to obtain
reasonable assurance about whether the statements of assets and liabilities are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statements of assets and
liabilities. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the statements of assets and liabilities referred to above
present fairly, in all material respects, the financial position of X.com Free
+1 S&P 500 Fund, X.com U.S. Bond Fund, and X.com Money Market Fund as of
September 10, 1999, in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Boston, Massachusetts
September 10, 1999
43
<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 liquidity 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; and
o 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 o inherent in certain
areas;
o evaluation of the issuer's products in relation to competition and
customer acceptance; 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.
44
<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.
The rating C1 is reserved for income bonds on which no interest is being paid.
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.
45
<PAGE>
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.
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.
46
PART C:
OTHER INFORMATION
Item 23. Exhibits
(a) Articles of Incorporation
(i) Certificate of Trust -- 1
(ii) Trust Instrument -- 1
(iii) Amended and Restated Trust Instrument
(b) By-laws -- 1
(c) Instruments Defining Rights of Security Holders -- 1
(d) Form of Investment Advisory Contract between X.com Asset Management, Inc.
and the Registrant
(e) Underwriting Contracts: Not applicable
(f) Bonus or Profit Sharing Contracts: Not applicable
(g) Form of Custodian Agreement between X.com Asset Management, Inc., Investors
Bank & Trust Company, and the Registrant
(h) Other Material Contracts:
(i) Form of Administration Agreement between X.com Asset Management,
Inc., Investors Bank & Trust, and the Registrant
(ii) Form of Transfer Agency Agreement between X.com Asset
Management, Inc. and the Registrant
(iii)Form of X.com Funds Electronic Delivery Consent Agreement
(iv) Form of Third Party Feeder Fund Agreement between X.com
Asset Management, Inc., Master Investment Portfolio, and the
Registrant
(i) Opinion and Consent of Counsel
(j) Consent of Independent Auditors
(k) Omitted Financial Statements: Not applicable
(l) Form of Subscription Agreement between Elon R. Musk and the Registrant
(m) Rule 12b-1 Plan: Not applicable
(n) Financial Data Schedules: Not applicable
(o) Rule 18f-3 Plan: Not applicable
(p) Powers of Attorney
(i) Form of Power of Attorney for Nicole E. Faucher
(ii) Form of Power of Attorney for Kevin T. Hamilton
(iii) Form of Power of Attorney for Elon R. Musk
(iv) Form of Power of Attorney for Gregory N. River
(v) Form of Power of Attorney for John T. Story
1. Filed with initial registration statement on Form N-1A on June 8, 1999.
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 394 University Avenue, Palo Alto, CA 94301. The directors
and officers of the Investment Adviser and their business and other connections
are as follows:
<TABLE>
<S> <C> <C>
Directors and Officers of Investment Title/Status with Investment Adviser Other Business Connections
Adviser
Elon R. Musk Director; President; Treasurer Trustee and Chairman of the Board,
X.com Funds; Chairman and Chief
Executive Officer, X.com Corporation
John T. Story Chief Operating Officer and Trustee and President, X.com Funds;
Chief Financial Officer Executive Vice President, X.com
Corporation
Mark Sullivan Secretary; Assistant Treasurer Vice President, Operations, X.com
Corporation
</TABLE>
Item 27. Principal Underwriters
Shares of the Fund are self-distributed.
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 the offices of X.com Asset
Management, Inc., 394 University Drive, Palo Alto, California 94301, and
Investors Bank & Trust Company, 200 Clarendon Street, Boston, Massachusetts,
02111.
Item 29. Management Services
Not applicable
Item 30. Undertakings:
Not applicable
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 17th day of November, 1999
X.COM FUNDS
(Registrant)
By: /s/ John T. Story
-----------------------------
Name: John T. Story
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/ John T. Story Trustee and President November 17, 1999
- ------------------------------
John T. Story
/s/ Jeff J. Gaboury
- ------------------------------ Treasurer and November 17, 1999
Jeff J. Gaboury Chief Financial Officer
<PAGE>
EXHIBIT LIST
Exhibit No. Exhibit Name
23(a)(iii) Amended and Restated Trust Instrument
23(d)(i) Form of Investment Advisory Contract
23(g) Form of Custodian Agreement
23(h)(i) Form of Administration Agreement
23(h)(ii) Form of Transfer Agency Agreement
23(h)(iii) Form of X.com Funds Electronic Delivery Consent
Agreement
23(h)(iv) Form of Third Party Feeder Fund Agreement
23(i) Opinion and Consent of Counsel
23(j)(i) Consent of Independent Auditors
23(l) Form of Subscription Agreement
23(p)(i) Form of Power of Attorney for Nicole E. Faucher
23(p)(ii) Form of Power of Attorney for Kevin T. Hamilton
23(p)(iii) Form of Power of Attorney for Elon R. Musk
23(p)(iv) Form of Power of Attorney for Gregory N. River
23(p)(v) Form of Power of Attorney for John T. Story
24
X.COM FUNDS
AMENDED AND RESTATED TRUST INSTRUMENT
Dated as of September 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...............................5
Section 3.02 Initial Trustees......................................6
Section 3.03 Term of Office........................................6
Section 3.04 Vacancies and Appointments............................6
Section 3.05 Number of Trustees....................................7
Section 3.06 Effect of Ending of a Trustee's Service...............7
Section 3.07 Ownership of Assets of the Trust......................7
ARTICLE IV POWER OF THE TRUSTEES............................................7
Section 4.01 Powers................................................7
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...............................10
Section 4.05 Chairman of the Trustees.............................10
Section 4.06 Principal Transactions...............................11
ARTICLE V EXPENSES OF THE TRUST............................................11
ARTICLE VI INVESTMENT ADVISER, PRINCIPAL UNDERWRITER, ADMINISTRATOR AND
TRANSFER AGENT................................................11
Section 6.01 Investment Adviser...................................11
Section 6.02 Principal Underwriter................................12
Section 6.03 Administration.......................................12
Section 6.04 Transfer Agent.......................................12
Section 6.05 Parties to Contract..................................12
Section 6.06 Provisions and Amendments............................13
ARTICLE VII SHAREHOLDER VOTING POWERS AND MEETINGS..........................13
Section 7.01 Voting Powers........................................13
Section 7.02 Meetings.............................................14
Section 7.03 Quorum and Required Vote.............................14
ARTICLE VIII CUSTODIAN.....................................................14
Section 8.01 Appointment and Duties...............................14
Section 8.02 Central Certificate System...........................15
ARTICLE IX DISTRIBUTIONS AND REDEMPTIONS...................................15
Section 9.01 Distributions.........................................15
Section 9.02 Redemptions..........................................15
Section 9.03 Determination of Net Asset Value and Valuation of
Portfolio Assets.....................................16
Section 9.04 Suspension of the Right of Redemption................16
<PAGE>
Page
ARTICLE X LIMITATION OF LIABILITY AND INDEMNIFICATION......................17
Section 10.01 Limitation of Liability.............................17
Section 10.02 Indemnification.....................................17
Section 10.03 Shareholders........................................18
ARTICLE XI MISCELLANEOUS...................................................18
Section 11.01 Trust Not A Partnership.............................18
Section 11.02 Trustee's Good Faith Action, Expert Advice, No Bond
or Surety.........................................19
Section 11.03 Establishment of Record Dates.......................19
Section 11.04 Termination of Trust................................19
Section 11.05 Reorganization......................................20
Section 11.06 Filing of Copies, References, Headings..............20
Section 11.07 Applicable Law......................................21
Section 11.08 Amendments..........................................21
Section 11.09 Fiscal Year.........................................22
Section 11.10 Provisions in Conflict With Law......................22
<PAGE>
X.COM FUNDS
September 3, 1999
TRUST INSTRUMENT, made by Elon R. Musk (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.
<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.
<PAGE>
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
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
2
<PAGE>
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
issue certificates. At any time that there are no
3
<PAGE>
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
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.
4
<PAGE>
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
possessions of the United States of
5
<PAGE>
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. Each Trustee shall hold office for a term of
three years from the date of his or her appointment as Trustee; 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.
6
<PAGE>
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 present or future law or custom
7
<PAGE>
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;
8
<PAGE>
(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
9
<PAGE>
(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
at all meetings of the Trustees, shall be responsible for the execution of
policies established by the Trustees and the
10
<PAGE>
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
respect to the Trust or any Series whereby the other party or parties to such
contract or contracts shall undertake to furnish
11
<PAGE>
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
character described in Article VIII hereof may be entered into with any
corporation, firm, partnership, trust or association,
12
<PAGE>
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
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
13
<PAGE>
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).
<PAGE>
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
custodian, and upon such terms
14
<PAGE>
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
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
15
<PAGE>
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
as the Trustees shall specify but not later than the close of business on the
business day next following the declaration of suspension,
16
<PAGE>
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
duties involved in the conduct of his office, (A) by the court
17
<PAGE>
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
bind personally either the Trust officers or any Shareholder.
18
<PAGE>
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
<PAGE>
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 corporation, or to a separate series of shares thereof,
organized under the laws of any state which trust, partnership,
19
<PAGE>
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.
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
20
<PAGE>
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
filed with the Commission, and (d) on any amendment submitted to them by the
21
<PAGE>
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.
22
<PAGE>
IN WITNESS WHEREOF, the undersigned, being all of the initial Trustees of
the Trust, have executed this instrument as of date first written above.
Elon R. Musk, as Trustee
and not individually
FORM OF INVESTMENT ADVISORY AGREEMENT
X.COM FUNDS
AGREEMENT, effective commencing as of September __, 1999 between X.com
Asset Management, Inc. (the "Adviser") and X.com Funds (the "Trust") with
respect to the series listed on Exhibit A ("Funds").
WHEREAS, the Trust is a Delaware business trust organized pursuant to a
Declaration of Trust dated July 7, 1999 (the "Declaration of Trust"), and is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end, diversified management investment company; and
WHEREAS, the Trust wishes to retain the Adviser to render investment
advisory services to the Funds, and the Adviser is willing to furnish such
services to the Funds; and
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended ("Advisers Act");
NOW THEREFORE, in consideration of the promises and mutual covenants herein
contained, it is agreed between the Trust and the Adviser as follows:
1. Appointment. The Trust hereby appoints the Adviser to act as investment
adviser to the Funds for the periods and on the terms set forth in this
Agreement. The Adviser accepts such appointment and agrees to furnish the
services herein set forth, for the compensation herein provided.
2. Investment Advisory Duties.
(a) Subject to the supervision of the Trustees of the Trust, the Adviser
will provide a program of continuous investment management for the Fund in
accordance with each Fund's investment objective, policies and limitations as
stated in the Fund's Prospectus and Statement of Additional Information included
as part of the Trust's Registration Statement filed with the Securities and
Exchange Commission ("SEC") and as the Prospectus and Statement of Additional
Information may be amended from time to time, copies of which shall be provided
to the Adviser by the Trust. Subject to approval by the Trustees of the Trust,
the Adviser for each Fund may select a master fund having substantially the same
investment objective and policies as the Fund into which all or substantially
all of the Fund's assets may be invested, or select and manage investment
subadvisers who may be granted discretionary investment authority with respect
to the assets of the Fund.
(b) In performing its investment management services to the Funds
hereunder, the Adviser will provide the Funds with ongoing investment guidance,
policy direction, including oral and written research, monitoring of any master
funds, analysis, advice, statistical and economic data and judgments regarding
individual investments, general economic conditions and trends and long-range
investment policy.
(c) To the extent permitted by the Adviser's Form ADV as filed with the SEC
and subject to the approval of the Trustees of the Trust, the Adviser shall have
the authority to manage cash and money market instruments for cash flow
purposes.
(d) To the extent permitted by the Adviser's current Form ADV as filed with
the SEC, the Adviser will advise as to the securities, instruments, repurchase
agreements, options and other investments and techniques that each Fund will
purchase, sell, enter into or use, and will provide an ongoing evaluation of the
Fund's portfolio. The Adviser will advise as to what portion of the Fund's
portfolio shall be invested in securities and other assets, and what portion if
any, should be held uninvested.
(e) The Adviser shall provide or arrange for administration, transfer
agency, custody and all other services necessary for the Funds to operate, and
shall be responsible for the payment of all expenses associated with such
services, subject to Section 5 of this Investment Advisory Agreement.
(f) The Adviser may engage and remove one or more subadvisers, subject to
the legally required approvals of the Trust and its shareholders, and the
Adviser shall monitor the performance of any subadviser and report to the Trust
thereon.
(g) The Adviser further agrees that, in performing its duties hereunder, it
will:
(i) comply with the 1940 Act and all rules and regulations thereunder,
the Advisers Act, the Internal Revenue Code (the "Code") and all other
applicable federal and state laws and regulations, and with any applicable
procedures adopted by the Trustees;
(ii) use reasonable efforts to manage each Fund so that it will
qualify, and continue to qualify, as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder; (iii) place
orders pursuant to each Fund's investment determinations as approved by the
Trustees for the Fund directly with the issuer, or with any broker or
dealer, in accordance with applicable policies expressed in the Fund's
Prospectus and/or Statement of Additional Information and in accordance
with applicable legal requirements; (iv) furnish to the Trust whatever
statistical information the Trust may reasonably request with respect to
each Fund's assets or contemplated investments. In addition, the Adviser
will keep the Trust and the Trustees informed of developments materially
affecting each Fund's portfolio and shall, on the Adviser's own initiative,
furnish to the Trust from time to time whatever information the Adviser
believes appropriate for this purpose; (v) make available to the Trust's
administrator (the "Administrator") and the Trust, promptly upon their
request, such copies of its investment records and ledgers with respect to
each Fund as may be required to assist the Administrator and the Trust in
their compliance with applicable laws and regulations. The Adviser will
furnish the Trustees with such periodic and special reports regarding the
Fund and any subadviser as they may reasonably request; (vi) immediately
notify the Trust in the event that the Adviser or any of its affiliates:
(1) becomes aware that it is subject to a statutory disqualification that
prevents the Adviser from serving as investment adviser pursuant to this
Agreement; or (2) becomes aware that it is the subject of an administrative
proceeding or enforcement action by the SEC or other regulatory authority.
The Adviser further agrees to notify the Trust immediately of any material
fact known to the Adviser respecting or relating to the Adviser that is not
contained in the Trust's Registration Statement regarding the Funds, or any
amendment or supplement thereto, but that is required to be disclosed
thereon, and of any statement contained therein that becomes untrue in any
material respect; and (vii) in providing investment advice to the Funds,
use no inside information that may be in its possession or in the
possession of any of its affiliates, nor will the Adviser seek to obtain
any such information. 3. Futures and Options. The Adviser's investment
authority shall include advice with regard to purchasing, selling, covering
open positions, and generally dealing in financial futures contracts and
options thereon, or master funds which do so in accordance with Rule 4.5 of
the Commodity Futures Trading Commission.
The Adviser's authority shall include authority to: (i) open and maintain
brokerage accounts for financial futures and options (such accounts hereinafter
referred to as "Brokerage Accounts") on behalf of and in the name of the Fund;
and (ii) execute for and on behalf of the Brokerage Accounts, standard customer
agreements with a broker or brokers. The Adviser may, using such of the
securities and other property in the Brokerage Accounts as the Adviser deems
necessary or desirable, direct the custodian to deposit on behalf of a Fund,
original and maintenance brokerage deposits and otherwise direct payments of
cash, cash equivalents and securities and other property into such brokerage
accounts and to such brokers as the Adviser deems desirable or appropriate.
4. Use of Securities Brokers and Dealers. The Adviser will monitor the use by
master funds of broker-dealers. To the extent permitted by the Adviser's Form
ADV as filed with the SEC, purchase and sale orders will usually be placed with
brokers who are selected by the Adviser as able to achieve "best execution" of
such orders. "Best execution" shall mean prompt and reliable execution at the
most favorable securities price, taking into account the other provisions
hereinafter set forth. Whenever the Adviser places orders, or directs the
placement of orders, for the purchase or sale of portfolio securities on behalf
of a Fund, in selecting brokers or dealers to execute such orders, the Adviser
is expressly authorized to consider the fact that a broker or dealer has
furnished statistical, research or other information or services which enhance
the Adviser's research and portfolio management capability generally. It is
further understood in accordance with Section 28(e) of the Securities Exchange
Act of 1934, as amended, that the Adviser may negotiate with and assign to a
broker a commission which may exceed the commission which another broker would
have charged for effecting the transaction if the Adviser determines in good
faith that the amount of commission charged was reasonable in relation to the
value of brokerage and/or research services (as defined in Section 28(e))
provided by such broker, viewed in terms either of the Fund or the Adviser's
overall responsibilities to the Adviser's discretionary accounts.
Neither the Adviser nor any parent, subsidiary or related firm shall act as
a securities broker with respect to any purchases or sales of securities which
may be made on behalf of a Fund, provided that this limitation shall not prevent
the Adviser from utilizing the services of a securities broker which is a
parent, subsidiary or related firm, provided such broker effects transactions on
a "cost only" or "nonprofit" basis to itself and provides competitive execution.
Unless otherwise directed by the Trust in writing, the Adviser may utilize the
service of whatever independent securities brokerage firm or firms it deems
appropriate to the extent that such firms are competitive with respect to price
of services and execution.
5. Allocation of Charges and Expenses.
The Adviser will pay all of the expenses of each class of each series of
the Trust's shares that it shall manage other than interest, taxes, brokerage
commissions, extraordinary expenses, the fees and expenses of those directors
who are not "interested persons" as defined in the 1940 Act, including counsel
fees, and expenses incurred in connection with the provision of shareholder
services and distribution services.
6. Compensation.
As compensation for the services provided and expenses assumed by the
Adviser under this Agreement, the Trust will arrange for each Fund to pay the
Adviser at the end of each calendar month an advisory fee computed daily at an
annual rate equal to the amount of average daily net assets listed opposite each
Fund's name in Exhibit A, attached hereto. The "average daily net assets" of a
Fund shall mean the average of the values placed on the Fund's net assets as of
4:00 p.m. (New York time) on each day on which the net asset value of the Fund
is determined consistent with the provisions of Rule 22c-1 under the 1940 Act
or, if the Fund lawfully determines the value of its net assets as of some other
time on each business day, as of such other time. The value of net assets of
each Fund shall always be determined pursuant to the applicable provisions of
the Declaration of Trust and the Registration Statement. If, pursuant to such
provisions, the determination of net asset value is suspended for any particular
business day, then for the purposes of this section 6, the value of the net
assets of a Fund as last determined shall be deemed to be the value of its net
assets as of the close of the New York Stock Exchange, or as of such other time
as the value of the net assets of the Fund's portfolio may lawfully be
determined, on that day. If the determination of the net asset value of the
shares of a Fund has been so suspended for a period including any month end when
the Adviser's compensation is payable pursuant to this section 6, then the
Adviser's compensation payable at the end of such month shall be computed on the
basis of the value of the net assets of the Fund as last determined (whether
during or prior to such month). If a Fund determines the value of the net assets
of its portfolio more than once on any day, then the last such determination
thereof on that day shall be deemed to be the sole determination thereof on that
day for the purposes of this section 6.
7. Books and Records. The Adviser agrees to maintain such books and records with
respect to its services to the Funds as are required by Section 31 under the
1940 Act, and rules adopted thereunder, and by other applicable legal
provisions, and to preserve such records for the periods and in the manner
required by that Section, and those rules and legal provisions. The Adviser also
agrees that records it maintains and preserves pursuant to Rules 31a-1 and Rule
31a-2 under the 1940 Act and otherwise in connection with its services hereunder
are the property of the Trust and will be surrendered promptly to the Trust upon
its request. The Adviser further agrees that it will furnish to regulatory
authorities having the requisite authority any information or reports in
connection with its services hereunder which may be requested in order to
determine whether the operations of the Funds are being conducted in accordance
with applicable laws and regulations.
8. Aggregation of Orders. Provided that the investment objective, policies and
restrictions of the Funds are adhered to, the Trust agrees that the Adviser may
aggregate sales and purchase orders of securities held in the Funds with similar
orders being made simultaneously for other accounts managed by the Adviser or
with accounts of the affiliates of the Adviser, if in the Adviser's reasonable
judgment such aggregation shall result in an overall economic benefit to the
respective Fund taking into consideration the advantageous selling or purchase
price, brokerage commission and other expenses. The Trust acknowledges that the
determination of such economic benefit to a Fund by the Adviser represents the
Adviser's evaluation that the Fund is benefited by relatively better purchase or
sales prices, lower commission expenses and beneficial timing of transactions or
a combination of these and other factors.
9. Standard of Care and Limitation of Liability. The Adviser shall exercise its
best judgment in rendering the services provided by it under this Agreement. The
Adviser shall not be liable for any error of judgment or mistake of law or for
any loss suffered by a Fund or the holders of the Fund's shares in connection
with the matters to which this Agreement relates, provided that nothing in this
Agreement shall be deemed to protect or purport to protect the Adviser against
any liability to the Trust, the Fund or to holders of the Fund's shares to which
the Adviser would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or by
reason of the Adviser's reckless disregard of its obligations and duties under
this Agreement. As used in this Section 9, the term "Adviser" shall include any
officers, directors, employees or other affiliates of the Adviser performing
services with respect to the Fund.
10. Services Not Exclusive. It is understood that the services of the Adviser
are not exclusive, and that nothing in this Agreement shall prevent the Adviser
from providing similar services to other investment companies or to other series
of investment companies, including the Trust (whether or not their investment
objectives and policies are similar to those of the Fund) or from engaging in
other activities, provided such other services and activities do not, during the
term of this Agreement, interfere in a material manner with the Adviser's
ability to meet its obligations to the Funds hereunder. When the Adviser
recommends the purchase or sale of a security for other investment companies and
other clients, and at the same time the Adviser recommends the purchase or sale
of the same security for a Fund, it is understood that in light of its fiduciary
duty to the Fund, such transactions will be executed on a basis that is fair and
equitable to the Fund. In connection with purchases or sales of portfolio
securities for the account of a Fund, neither the Adviser nor any of its
directors, officers or employees shall act as a principal or agent or receive
any commission. If the Adviser provides any advice to its clients concerning the
shares of a Fund, the Adviser shall act solely as investment counsel for such
clients and not in any way on behalf of the Trust or the Fund.
11. Duration and Termination.
(a) This Agreement shall continue for a period of two years from the date
of commencement, and thereafter shall continue automatically for successive
annual periods, provided such continuance is specifically approved at least
annually by (i) the Trustees or (ii) a vote of a "majority" (as defined in the
1940 Act) of the Funds' outstanding voting securities (as defined in the 1940
Act), provided that in either event the continuance is also approved by a
majority of the Trustees who are not parties to this Agreement or "interested
persons" (as defined in the 1940 Act) of any party to this Agreement, by vote
cast in person (to the extent required by the 1940 Act) at a meeting called for
the purpose of voting on such approval.
(b) Notwithstanding the foregoing, this Agreement may be terminated: (a) at
any time without penalty by the Funds upon the vote of a majority of the
Trustees or by vote of the majority of the Funds' outstanding voting securities,
upon sixty (60) days' written notice to the Adviser or (b) by the Adviser at any
time without penalty, upon sixty (60) days' written notice to the Trust. This
Agreement will also terminate automatically in the event of its assignment (as
defined in the 1940 Act).
12. Amendments. This Agreement may be amended at any time but only by the mutual
agreement of the parties to this Agreement and in accordance with any applicable
legal or regulatory requirements.
13. Proxies. Unless the Trust gives written instructions to the contrary, the
Adviser shall vote all proxies solicited by or with respect to the issuers of
securities in which assets of a Fund may be invested in a manner which best
serves the interests of the Fund's shareholders. The Adviser shall use its best
good faith judgment to vote such proxies in a manner which best serves the
interests of the Fund's shareholders. 14.
Use of "S&P 500" Name.
It is understood that the Adviser has entered into a licensing agreement
with The McGraw-Hill Companies, Inc., for use of the terms "S&P 500", "S&P",
"Standard & Poor's", and "Standard & Poor's 500" (the "license"). In accordance
with such license, the Adviser shall permit the Trust, on behalf of the Fund, to
use the terms "S&P 500", "S&P", "Standard & Poor's", and "Standard & Poor's
500", so long as the license and this Agreement shall continue in effect.
15. Failure to Perform; Force Majeure.
No failure or omission by either party hereto in the performance of any
obligation of this Agreement (other than payment obligations) shall be deemed a
breach of this Agreement or create any liability if the same shall arise from
any cause or causes beyond the control of the party, including but not limited
to, the following: acts of God, acts or omissions of any governmental agency;
any rules, regulations, or orders issued by any governmental authority or by any
officer, department, agency or instrumentality thereof; fire; storm; flood;
earthquake, war; rebellion; insurrection; riot; and invasion and provided that
such failure or omission resulting from one of the above causes is cured as soon
as is practicable after the occurrence of one or more of the above-mentioned
causes.
16. Year 2000 Preparedness.
The Adviser warrants and represents that the Adviser has adopted a written
plan for Year 2000 compliance for the correct operation of the Adviser's
computer systems because of the approaching millennium (the "Plan"), that the
Plan provides for the identification, testing and, where appropriate, upgrading
of the Adviser's computer systems, in accordance with reasonable industry
standards, so that both the Adviser's computer systems and their interfaces with
third party computer systems will function accurately and without interruption
before, during and after December 31, 1999 and that the Adviser is actively in
the process of implementing the Plan and presently has no reason to believe that
the Adviser's computer systems and their interfaces with third party computer
systems will not be able to function accurately and without interruption before,
during and after such date. The Adviser will continue to implement the Plan and
take such other steps as may be necessary and appropriate to be Year 2000
compliant in a timely and efficient manner and will notify the Trust of any Year
2000 compliance problems and the nature thereof on or before October 1, 1999 if
the Adviser determines that it is not or is not likely to be Year 2000 compliant
in a timely and efficient manner. The failure of the Adviser to be Year 2000
compliant shall not be deemed to be a force majeure event or provide a defense
to performance hereunder.
17. Miscellaneous.
(a) This Agreement shall be governed by the laws of the State of
California, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Advisers Act, or rules or orders of the SEC
thereunder.
(b) The captions of this Agreement are included for convenience only and in
no way define or limit any of the provisions hereof or otherwise affect their
construction or effect.
(c) If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected hereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable.
(d) Nothing herein shall be construed as constituting the Adviser as an
agent of the Trust or the Fund.
(e) All liabilities of the Trust hereunder are limited to the assets of the
Fund.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of __________, 1999.
X.COM FUNDS
By:
------------------------
Name:
Title:
X.COM ASSET MANAGEMENT, INC.
By:
-------------------------
Name:
Title:
<PAGE>
EXHIBIT A
Name of Fund Advisory Fee
------------ ------------
X.com Premier S&P 500 Fund 0.23%
X.com U.S.A. Bond Fund 0.32%
X.com U.S.A. Money Market Fund 0.50%
FORM OF CUSTODIAN AGREEMENT
CUSTODIAN AGREEMENT ("Agreement") made as of this ___ day of September,
1999, between X.COM FUNDS, a business trust organized under the laws of the
State of Delaware (the "Trust"), and INVESTORS BANK & TRUST COMPANY, a
Massachusetts trust company (the "Bank").
WHEREAS, the Trust is a registered investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"), consisting of each of the
separate series listed on Appendix A hereto (as such Appendix A may be amended
from time to time) (each a "Fund" and collectively, the "Funds");
WHEREAS, pursuant to an Investment Advisory Agreement between the Trust and
X.com Asset Management, Inc (the "Adviser"), dated September __, 1999, the
Adviser has agreed to provide or procure custodial services for the Trust;
WHEREAS, the Adviser desires to appoint the Bank as the Trust's custodian,
and the Trust desires to place and maintain all of its portfolio securities and
cash in the custody of the Bank; and.
WHEREAS, the Bank has at least the minimum qualifications required by
Section 17(f)(1) of the Investment Company Act of 1940, as amended, ("1940 Act")
to act as custodian of the portfolio securities and cash of the Trust, and has
indicated its willingness to so act, subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the promises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. Bank Appointed Custodian. The Adviser hereby appoints the Bank as
custodian of the portfolio securities and cash of each of its Funds delivered to
the Bank as hereinafter described, and the Trust hereby approves such
appointment. The Bank agrees to act as custodian upon the terms and conditions
hereinafter set forth. For the services rendered pursuant to this Agreement the
Adviser agrees to pay to the Bank the fees set forth on Appendix B hereto.
2. Definitions. Whenever used herein, the terms listed below will have the
following meaning:
2.1 Authorized Person. "Authorized Person" will mean any of the persons
duly authorized to give Proper Instructions or otherwise act on behalf of the
Trust by appropriate resolution of its Board, and set forth in a certificate as
required by Section 4 hereof.
2.2 Board. "Board" will mean the Board of Trustees of the Trust.
2.3 Security. The term "security" as used herein will have the same meaning
assigned to such term in the Securities Act of 1933, as amended ("1933 Act"),
including, without limitation, any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, certificate of interest or participation in any profit
sharing agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege on
any security, certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange or in the
over-the-counter market relating to a foreign currency, or, in general, any
interest or instrument commonly known as a "security", or any certificate of
interest or participation in, temporary or interim certificate for, receipt for,
guarantee of, or warrant or right to subscribe to, or option contract to
purchase or sell any of the foregoing, and futures contracts, forward contracts
and options thereon.
2.4 Portfolio Security. "Portfolio Security" will mean any security owned
by any Fund.
2.5 Officers' Certificate. "Officers' Certificate" will mean, unless
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any Authorized Person of the Trust.
2.6 Book-Entry System. "Book-Entry System" shall mean the Federal
Reserve-Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Bank, its
successor or successors and its nominee or nominees.
2.7 Depository. "Depository" shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934 ("1934
Act"), its successor or successors and its nominee or nominees. The term
"Depository" shall further mean and include any other person authorized to act
as a depository under the 1940 Act, its successor or successors and its nominee
or nominees, specifically identified in a certified copy of a resolution of the
Board.
2.8 Proper Instructions. "Proper Instructions" shall mean (i) instructions
regarding the purchase or sale of Portfolio Securities, and payments and
deliveries in connection therewith, given by an Authorized Person, such
instructions to be given in such form and manner as the Bank and the Trust shall
agree upon from time to time, and (ii) instructions (which may be continuing
instructions) regarding other matters signed or initialed by an Authorized
Person. Oral instructions will be considered Proper Instructions if the Bank
reasonably believes them to have been given by an Authorized Person. The Trust
shall cause all oral instructions to be promptly confirmed in writing. The Bank
shall act upon and comply with any subsequent Proper Instruction which modifies
a prior Proper Instruction and the sole obligation of the Bank with respect to
any follow-up or confirmatory Proper Instruction shall be to make reasonable
efforts to detect any discrepancy between the original Proper Instruction and
such confirming Proper Instruction and to report such discrepancy to the Trust.
The Trust shall be responsible, at the Trust's expense, for taking any action,
including any reprocessing, necessary to correct any such discrepancy or error
which has resulted because of an error or omission on the part of the Trust, and
to the extent such action requires the Bank to act, the Trust shall give the
Bank specific Proper Instructions as to the action required. Upon receipt by the
Bank of an Officers' Certificate as to the authorization by the Board to utilize
the services of the Bank for the purposes set forth herein accompanied by a
detailed description of procedures approved by the Trust, Proper Instructions
may include communication effected directly between electro-mechanical or
electronic devices provided that the Board and the Bank agree in writing that
such procedures afford adequate safeguards for the Trust's assets.
3. Separate Accounts. The Bank will segregate the assets of each Fund to
which this Agreement relates into a separate account for each such Fund
containing the assets of such Fund (and all investment earnings thereon). Unless
the context otherwise requires, any reference in this Agreement to any actions
to be taken by the Trust shall be deemed to refer to the Trust acting on behalf
of one or more of its Funds, any reference in this Agreement to any assets of
the Trust, including, without limitation, any portfolio securities and cash and
earnings thereon, shall be deemed to refer only to assets of the applicable
Fund, any duty or obligation of the Bank hereunder to the Trust shall be deemed
to refer to duties and obligations with respect to such individual Fund and any
obligation or liability of the Trust hereunder shall be binding only with
respect to such individual Funds, and shall be discharged only out of the assets
of such Funds.
4. Certification as to Authorized Persons. The Secretary or Assistant
Secretary of the Trust will at all times maintain on file with the Bank his or
her certification to the Bank, in such form as may be acceptable to the Bank, of
(i) the names and signatures of the Authorized Persons and (ii) the names of the
members of the Board, it being understood that upon the occurrence of any change
in the information set forth in the most recent Officers' Certificate on file
(including without limitation any person named in the most recent Officers'
Certificate who is no longer an Authorized Person as designated therein), the
Secretary or Assistant Secretary of the Trust will sign a new or amended
Officers' Certificate setting forth the change and the new, additional or
omitted names or signatures. The Bank will be entitled to rely and act upon any
Officers' Certificate given to it by the Trust which has been signed by
Authorized Persons named in the most recent Officers' Certificate received by
the Bank.
5. Custody of Cash. As Custodian for the Trust, the Bank will open and
maintain a separate account or accounts in the name of the Trust or in the name
of the Bank, as Custodian of the Trust, and will deposit to the account of the
Trust all of the cash of the Trust, except for cash held by a subcustodian
appointed pursuant to Sections 14.2 hereof, including borrowed funds, delivered
to the Bank, subject only to draft or order by the Bank acting pursuant to the
terms of this Agreement. Pursuant to the Bank's internal policies regarding the
management of cash accounts, the Bank may segregate certain portions of the cash
of the Trust into a separate savings deposit account upon which the Bank
reserves the right to require seven (7) days notice prior to withdrawal of cash
from such an account. Upon receipt by the Bank of Proper Instructions (which may
be continuing instructions) or in the case of payments for redemptions and
repurchases of outstanding shares of common stock of the Trust, notification
from the Trust's transfer agent as provided in Section 7, requesting such
payment, designating the payee or the account or accounts to which the Bank will
release funds for deposit, and stating that it is for a purpose permitted under
the terms of this Section 5, specifying the applicable subsection, the Bank will
make payments of cash held for the accounts of the Trust, insofar as funds are
available for that purpose, only as permitted in subsections 5.1-5.9 below.
5.1 Purchase of Securities. Upon the purchase of securities for the Trust,
against contemporaneous receipt of such securities by the Bank or against
delivery of such securities to the Bank in accordance with generally accepted
settlement practices and customs in the jurisdiction or market in which the
transaction occurs, registered in the name of the Trust or in the name of, or
properly endorsed and in form for transfer to, the Bank, or a nominee of the
Bank, or receipt for the account of the Bank pursuant to the provisions of
Section 6 below, each such payment to be made at the purchase price shown on a
broker's confirmation of purchase of the securities received by the Bank or
transaction report in the case of Book Entry Paper (as that term is defined in
Section 6.6 hereof) before such payment is made, as confirmed in the Proper
Instructions received by the Bank before such payment is made.
5.2 Redemptions. In such amount as may be necessary for the repurchase or
redemption of shares of the Trust offered for repurchase or redemption in
accordance with Section 7 of this Agreement.
5.3 Distributions and Expenses of Trust. For the payment on the account of
the Trust of dividends or other distributions to shareholders as may from time
to time be declared by the Board, interest, taxes, management or supervisory
fees, distribution fees, fees of the Bank for its services hereunder and
reimbursement of the expenses and liabilities of the Bank as provided hereunder,
fees of any transfer agent, fees for legal, accounting, and auditing services,
or other operating expenses of the Trust.
5.4 Payment in Respect of Securities. For payments in connection with the
conversion, exchange or surrender of Portfolio Securities or securities
subscribed to by the Trust, which are held by or to be delivered to the Bank.
5.5 Repayment of Loans. To repay loans of money made to the Trust, but, in
the case of final payment, only upon redelivery to the Bank of any Portfolio
Securities pledged or hypothecated therefor and upon surrender of documents
evidencing the loan;
5.6 Repayment of Cash. To repay the cash delivered to the Trust for the
purpose of collateralizing the obligation to return to the Trust certificates
borrowed from the Trust representing Portfolio Securities, but only upon
redelivery to the Bank of such borrowed certificates.
5.7 Foreign Exchange Transactions.
(a) For payments in connection with foreign exchange contracts or options
to purchase and sell foreign currencies for spot and future delivery
(collectively, "Foreign Exchange Agreements") which may be entered into by the
Bank on behalf of the Trust upon the receipt of Proper Instructions, such Proper
Instructions to specify the currency broker or banking institution (which may be
the Bank, or any other subcustodian or agent hereunder, acting as principal)
with which the contract or option is made, and the Bank shall have no duty with
respect to the selection of such currency brokers or banking institutions with
which the Trust deals or for their failure to comply with the terms of any
Foreign Exchange Agreement.
(b) In order to secure any payments in connection with Foreign Exchange
Agreements which may be entered into by the Bank, pursuant to Proper
Instructions, the Trust agrees that the Bank shall have a continuing lien and
security interest, to the extent of any payment due under any Foreign Exchange
Agreement, in and to any property at any time held by the Bank for the Trust's
benefit or in which the Trust has an interest and which is then in the Bank's
possession or control (or in the possession or control of any third party acting
on the Bank's behalf). The Trust authorizes the Bank, in the Bank's sole
discretion, at any time to charge any such payment due under any Foreign
Exchange Agreement against any balance of account standing to the credit of the
Trust on the Bank's books.
5.8 Other Authorized Payments. For other authorized transactions of the
Trust or other obligations of the Trust incurred for proper Trust purposes;
provided that before making any such payment the Bank will also receive a
certified copy of a resolution of the Board signed by an Authorized Person and
certified by its Secretary or Assistant Secretary, naming the person or persons
to whom such payment is to be made, and either describing the transaction for
which payment is to be made and declaring it to be an authorized transaction of
the Trust, or specifying the amount of the obligation for which payment is to be
made, setting forth the purpose for which such obligation was incurred and
declaring such purpose to be a proper corporate purpose.
5.9 Termination: Upon the termination of this Agreement as hereinafter set
forth pursuant to Section 8 and Section 16 of this Agreement.
6. Securities.
----------
6.1 Segregation and Registration. Except as otherwise provided herein, the
Bank as custodian will receive and hold pursuant to the provisions hereof, in a
separate account or accounts and physically segregated at all times from those
of other persons, any and all Portfolio Securities which may now or hereafter be
delivered to it by or for the account of each Fund. All such Portfolio
Securities will be held or disposed of by the Bank for, and subject at all times
to, the instructions of the Trust pursuant to the terms of this Agreement.
Subject to the specific provisions herein relating to Portfolio Securities that
are not physically held by the Bank, the Bank will register all Portfolio
Securities (unless otherwise directed by Proper Instructions or an Officers'
Certificate), in the name of a registered nominee of the Bank as defined in the
Internal Revenue Code of 1986, as amended and any Regulations of the U.S.
Treasury Department or Internal Revenue Service issued thereunder, and will
execute and deliver all such certificates in connection therewith as may be
required by such laws or regulations or under the laws of any state.
The Trust will, from time to time, furnish to the Bank appropriate
instruments to enable it to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee, any Portfolio Securities which
may from time to time be registered in the name of each appropriate Fund of the
Trust.
6.2 Voting and Proxies. Neither the Bank nor any nominee of the Bank will
vote any of the Portfolio Securities held hereunder, except in accordance with
Proper Instructions or an Officers' Certificate. The Bank will execute and
deliver, or cause to be executed and delivered, to the Trust all notices,
proxies and proxy soliciting materials delivered to the Bank with respect to
such Portfolio Securities, such proxies to be executed by the registered holder
of such Portfolio Securities (if registered otherwise than in the name of the
Trust), but without indicating the manner in which such proxies are to be voted.
6.3 Corporate Action. If at any time the Bank is notified that an issuer of
any Portfolio Security has taken or intends to take a corporate action (a
"Corporate Action") that affects the rights, privileges, powers, preferences,
qualifications or ownership of a Portfolio Security, including without
limitation, liquidation, consolidation, merger, recapitalization,
reorganization, reclassification, subdivision, combination, stock split or stock
dividend, which Corporate Action requires an affirmative response or action on
the part of the holder of such Portfolio Security (a "Response"), the Bank shall
notify the Trust promptly of the Corporate Action, the Response requested in
connection with the Corporate Action and the Bank's deadline for receipt from
the Trust of Proper Instructions regarding the Response (the "Response
Deadline"). The Bank shall forward to the Trust via telecopier and/or overnight
courier all notices, information statements or other materials relating to the
Corporate Action promptly after receipt of such materials by the Bank.
(a) The Bank shall act upon a requested Response only after receipt by the
Bank of Proper Instructions from the Trust no later than 5:00 p.m. on the date
specified as the Response Deadline and only if the Bank (or its agent or
subcustodian hereunder) has actual possession of all Portfolio Securities,
consents and other materials needed in order to provide a Response no later than
5:00 p.m. on the date specified as the Response Deadline.
(b) The Bank shall have no duty to act upon a requested Response if Proper
Instructions relating to such Response and all necessary Portfolio Securities,
consents and other materials needed in order to provide a Response are not
received and in the possession of the Bank by no later than 5:00 p.m. on the
date specified as the Response Deadline. Notwithstanding, the Bank may, in its
sole discretion, use its best efforts to act upon a Response for which Proper
Instructions and/or necessary Portfolio Securities, consents or other materials
are received by the Bank after 5:00 p.m. on the date specified as the Response
Deadline, it being acknowledged and agreed by the parties that any undertaking
by the Bank to use its best efforts in such circumstances shall in no way create
any duty upon the Bank to complete such Response prior to the Response Deadline.
(c) In the event that the Trust notifies the Bank of a Corporate Action
requiring a Response and the Bank has received no other notice of such Corporate
Action, the Response Deadline shall be 48 hours prior to the Response expiration
time set by the Depository processing such Corporate Action.
6.4 Book-Entry System. Provided (i) the Bank has received a certified copy
of a resolution of the Board specifically approving deposits of Trust assets in
the Book-Entry System, and (ii) for any subsequent changes to such arrangements
following such approval, the Board has reviewed and approved the arrangement and
has not delivered an Officer's Certificate to the Bank indicating that the Board
has withdrawn its approval:
(a) The Bank may keep Portfolio Securities in the Book-Entry System
provided that such Portfolio Securities are represented in an account
("Account") of the Bank (or its agent) in such System which shall not include
any assets of the Bank (or such agent) other than assets held as a fiduciary,
custodian, or otherwise for customers;
(b) The records of the Bank (and any such agent) with respect to the
Trust's participation in the Book-Entry System through the Bank (or any such
agent) will identify by book entry the Portfolio Securities which are included
with other securities deposited in the Account and shall at all times during the
regular business hours of the Bank (or such agent) be open for inspection by
duly authorized officers, employees or agents of the Trust. Where securities are
transferred to the Trust's account, the Bank shall also, by book entry or
otherwise, identify as belonging to the Trust a quantity of securities in a
fungible bulk of securities (i) registered in the name of the Bank or its
nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve
Bank;
(c) The Bank (or its agent) shall pay for securities purchased for the
account of the Trust or shall pay cash collateral against the return of
Portfolio Securities loaned by the Trust upon (i) receipt of advice from the
Book-Entry System that such Portfolio Securities have been transferred to the
Account, and (ii) the making of an entry on the records of the Bank (or its
agent) to reflect such payment and transfer for the account of the Trust. The
Bank (or its agent) shall transfer securities sold or loaned for the account of
the Trust upon
(i) receipt of advice from the Book-Entry System that payment for
securities sold or payment of the initial cash collateral against the
delivery of Portfolio Securities loaned by the Trust has been transferred
to the Account; and
(ii) the making of an entry on the records of the Bank (or its agent)
to reflect such transfer and payment for the account of the Trust. Copies
of all advices from the Book-Entry System of transfers of Portfolio
Securities for the account of the Trust shall identify the Trust, be
maintained for the Trust by the Bank and shall be provided to the Trust at
its request. The Bank shall send the Trust a confirmation, as defined by
Rule 17f-4 of the 1940 Act, of any transfers to or from the account of the
Trust;
(d) The Bank will promptly provide the Trust with any report obtained by
the Bank or its agent on the Book-Entry System's accounting system, internal
accounting control and procedures for safeguarding Portfolio Securities
deposited in the Book-Entry System;
6.5 Use of a Depository. Provided (i) the Bank has received a certified
copy of a resolution of the Board specifically approving deposits in DTC or
other such Depository and (ii) for any subsequent changes to such arrangements
following such approval, the Board has reviewed and approved the arrangement and
has not delivered an Officer's Certificate to the Bank indicating that the Board
has withdrawn its approval:
(a) The Bank may use a Depository to hold, receive, exchange, release,
lend, deliver and otherwise deal with Portfolio Securities including stock
dividends, rights and other items of like nature, and to receive and remit to
the Bank on behalf of the Trust all income and other payments thereon and to
take all steps necessary and proper in connection with the collection thereof;
(b) Registration of Portfolio Securities may be made in the name of any
nominee or nominees used by such Depository;
(c) Payment for securities purchased and sold may be made through the
clearing medium employed by such Depository for transactions of participants
acting through it. Upon any purchase of Portfolio Securities, payment will be
made only upon delivery of the Portfolio Securities to or for the account of the
Trust and the Trust shall pay cash collateral against the return of Portfolio
Securities loaned by the Trust only upon delivery of the Portfolio Securities to
or for the account of the Trust; and upon any sale of Portfolio Securities,
delivery of the Portfolio Securities will be made only against payment therefor
or, in the event Portfolio Securities are loaned, delivery of Portfolio
Securities will be made only against receipt of the initial cash collateral to
or for the account of the Trust; and
(d) The Bank shall use its best efforts to provide that:
(i) The Depository obtains replacement of any certificated Portfolio
Security deposited with it in the event such Portfolio Security is lost,
destroyed, wrongfully taken or otherwise not available to be returned to
the Bank upon its request;
(ii) Proxy materials received by a Depository with respect to
Portfolio Securities deposited with such Depository are forwarded
immediately to the Bank for prompt transmittal to the Trust;
(iii) Such Depository promptly forwards to the Bank confirmation of
any purchase or sale of Portfolio Securities and of the appropriate book
entry made by such Depository to the Trust's account;
(iv) Such Depository prepares and delivers to the Bank such records
with respect to the performance of the Bank's obligations and duties
hereunder as may be necessary for the Trust to comply with the
recordkeeping requirements of Section 31(a) of the 1940 Act and Rule 31(a)
thereunder; and
(v) Such Depository delivers to the Bank all internal accounting
control reports, whether or not audited by an independent public
accountant, as well as such other reports as the Trust may reasonably
request in order to verify the Portfolio Securities held by such
Depository.
6.6 Use of Book-Entry System for Commercial Paper. Provided (i) the Bank
has received a certified copy of a resolution of the Board specifically
approving participation in a system maintained by the Bank for the holding of
commercial paper in book-entry form ("Book-Entry Paper") and (ii) for each year
following such approval the Board has reapproved the arrangements, the Bank,
upon receipt of Proper Instructions and upon receipt of confirmation from an
"Issuer" (as defined below) that the Trust has purchased such Issuer's
Book-Entry Paper, shall issue and hold in book-entry form, on behalf of the
Trust and each of its Funds, commercial paper issued by issuers with whom the
Bank has entered into a book-entry agreement ("Issuers"). In maintaining
procedures for Book-Entry Paper, the Bank agrees that:
(a) The Bank will maintain all Book-Entry Paper held by the Trust in
an account of the Bank that includes only assets held by it for customers;
(b) The records of the Bank with respect to the Trust's purchase of
Book-Entry Paper through the Bank will identify, by book-entry, commercial
paper belonging to the Trust and each of its Funds which is included in the
Book-Entry System and shall at all times during the regular business hours
of the Bank be open for inspection by duly authorized officers, employees
or agents of the Trust;
(c) The Bank shall pay for Book-Entry Paper purchased for the account
of the Trust contemporaneous with (i) receipt of advice from the Issuer
that such sale of Book-Entry Paper has been effected, and (ii) the making
of an entry on the records of the Bank to reflect such payment and transfer
for the account of the Trust;
(d) The Bank shall cancel such Book-Entry Paper obligation upon the
maturity thereof contemporaneous with (i) receipt of advice that payment
for such Book-Entry Paper has been transferred to the Trust, and (ii) the
making of an entry on the records of the Bank to reflect such payment for
the account of the Trust; and
(e) The Bank will send to the Trust such reports on its system of
internal accounting control with respect to the Book-Entry Paper as the
Trust may reasonably request from time to time.
6.7 Use of Immobilization Programs. Provided (i) the Bank has
received a certified copy of a resolution of the Board specifically approving
the maintenance of Portfolio Securities in an immobilization program operated by
a bank which meets the requirements of Section 26(a)(1) of the 1940 Act, and
(ii) for each year following such approval the Board has reapproved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval, the Bank shall enter into
such immobilization program with such bank acting as a subcustodian hereunder.
6.8 Eurodollar CDs. Any Portfolio Securities which are Eurodollar CDs
may be physically held by the European branch of the U.S. banking institution
that is the issuer of such Eurodollar CD (a "European Branch"), provided that
such Portfolio Securities are identified on the books of the Bank as belonging
to the Trust and that the books of the Bank identify the European Branch holding
such Portfolio Securities. Notwithstanding any other provision of this Agreement
to the contrary, except as stated in the first sentence of this subsection 6.8,
the Bank shall be under no other duty with respect to such Eurodollar CDs
belonging to the Trust.
6.9 Options and Futures Transactions.
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or
Over-the-Counter.
(i) The Bank shall take action as to put options ("puts") and
call options ("calls") purchased or sold (written) by the Trust
regarding escrow or other arrangements (i) in accordance with the
provisions of any agreement entered into upon receipt of Proper
Instructions among the Bank, any broker-dealer which is a member of
the National Association of Securities Dealers, Inc. (the "NASD"), and
registered with the Securities and Exchange Commission ("SEC") under
the 1934 Act and, if necessary, the Trust, relating to the compliance
with the rules of the Options Clearing Corporation and of any
applicable registered national securities exchange or of any similar
organization.
(ii) Unless another agreement requires the Bank to do so, the
Bank shall be under no duty or obligation to see that the Trust has
deposited or is maintaining adequate margin, if required, with any
broker in connection with any option, nor shall the Bank be under duty
or obligation to present such option to the broker for exercise unless
it receives Proper Instructions from the Trust. The Bank shall have no
responsibility for the legality of any put or call purchased or sold
on behalf of the Trust, the propriety of any such purchase or sale, or
the adequacy of any collateral delivered to a broker in connection
with an option or deposited to or withdrawn from a Segregated Account
(as defined in subsection 6.10 below). The Bank specifically, but not
by way of limitation, shall not be under any duty or obligation to:
(i) periodically check or notify the Trust that the amount of such
collateral held by a broker or held in a Segregated Account is
sufficient to protect such broker or the Trust against any loss; (ii)
effect the return of any collateral delivered to a broker; or (iii)
advise the Trust that any option it holds, has or is about to expire.
Such duties or obligations shall be the sole responsibility of the
Trust.
(b) Puts, Calls and Futures Traded on Commodities Exchanges
(i) The Bank shall take action as to puts, calls and futures
contracts ("Futures") purchased or sold by the Trust in accordance
with the provisions of any agreement entered into upon the receipt of
Proper Instructions among the Trust, the Bank and a futures commission
merchant ("FCM") registered under the Commodity Exchange Act, relating
to compliance with the rules of the Commodity Futures Trading
Commission ("CFTC") and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in
connection with transactions by the Trust.
(ii) The responsibilities of the Bank as to Futures, puts and
calls traded on commodities exchanges, any FCM account and the
Segregated Account as defined below shall be limited as set forth in
subparagraph (a)(ii) of this Section 6.9 as if such subparagraph
referred to FCMs rather than brokers, and Futures and puts and calls
thereon instead of options.
6.10 Segregated Account. The Bank shall, upon receipt of Proper
Instructions, establish and maintain a Segregated Account or Accounts for and on
behalf of the Trust.
(a) Cash and/or Portfolio Securities may be transferred into a
Segregated Account upon receipt of Proper Instructions in the
following circumstances:
(i) in accordance with the provisions of any agreement among the
Trust, the Bank and a broker-dealer registered with the SEC under the
1934 Act and a member of the NASD or any FCM registered under the
Commodity Exchange Act, relating to compliance with the rules of the
Options Clearing Corporation and of any registered national securities
exchange or the Commodity Futures Trading Commission or any registered
Contract Market, or of any similar organizations regarding escrow or
other arrangements in connection with transactions by the Trust;
(ii) for the purpose of segregating cash or Portfolio Securities
in connection with options purchased or written by the Trust or
commodity Futures purchased or written by the Trust;
(iii) for the deposit of liquid assets, such as cash, U.S.
Government securities or other high grade debt obligations, having a
market value (marked to market on a daily basis) at all times equal to
not less than the aggregate purchase price due on the settlement dates
of all the Trust's then outstanding forward commitment or
"when-issued" agreements relating to the purchase of Portfolio
Securities and all the Trust's then outstanding commitments under
reverse repurchase agreements entered into with broker-dealer firms;
(iv) for the purposes of compliance by the Trust with the
procedures required by Investment Company Act Release No. 10666, or
any subsequent release of the SEC or written interpretation by the SEC
or its Staff relating to the maintenance of Segregated Accounts by
registered investment companies;
(v) for other proper corporate purposes, but only, in the case of
this clause (v), upon receipt of, in addition to Proper Instructions,
a certified copy of a resolution of the Board, or of the executive
committee of the Board signed by an officer of the Trust and certified
by the Secretary or an Assistant Secretary, setting forth the purpose
or purposes of such Segregated Account and declaring such purposes to
be proper corporate purposes.
(b) Cash and/or Portfolio Securities may be withdrawn from a Segregated
Account pursuant to Proper Instructions in the following circumstances:
(i) with respect to assets deposited in accordance with the
provisions of any agreements referenced in (a)(i) or (a)(ii) above, in
accordance with the provisions of such agreements;
(ii) with respect to assets deposited pursuant to (a)(iii) or
(a)(iv) above, for sale or delivery to meet the Trust's obligations
under outstanding forward commitment or when-issued agreements for the
purchase of Portfolio Securities and under reverse repurchase
agreements;
(iii) for exchange for other liquid assets of equal or greater
value deposited in the Segregated Account;
(iv) to the extent that the Trust's outstanding forward
commitment or when-issued agreements for the purchase of Portfolio
Securities or reverse repurchase agreements are sold to other parties
or the Trust's obligations thereunder are satisfied by using assets of
the Trust other than those in the Segregated Account or otherwise;
(v) for delivery upon settlement of a forward commitment or
when-issued agreement for the sale of Portfolio Securities; or
(vi) with respect to assets deposited pursuant to (a)(v) above,
in accordance with the purposes of such account as set forth in Proper
Instructions.
6.11 Interest Bearing Call or Time Deposits. The Bank shall, upon receipt
of Proper Instructions relating to the purchase by the Trust of interest-bearing
fixed-term and call deposits, transfer cash, by wire or otherwise, in such
amounts and to such bank or banks as shall be indicated in such Proper
Instructions. The Bank shall include in its records with respect to the assets
of the Trust appropriate notation as to the amount of each such deposit, the
banking institution with which such deposit is made ("Deposit Bank"), and shall
retain such forms of advice or receipt evidencing the deposit, if any, as may be
forwarded to the Bank by the Deposit Bank. Such deposits shall be deemed
Portfolio Securities of the Trust and the responsibility of the Bank therefor
shall be the same as and no greater than the Bank's responsibility in respect of
other Portfolio Securities of the Trust and its Funds.
6.12 Transfer of Securities. The Bank will transfer, exchange, deliver or
release Portfolio Securities held by it hereunder, insofar as such Portfolio
Securities are available for such purpose, provided that before making any
transfer, exchange, delivery or release under this provision of the Agreement
only upon receipt of Proper Instructions. The Proper Instructions shall state
that such transfer, exchange or delivery is for a purpose permitted under the
terms of this Section 6.12, and shall specify the applicable subsection, or
describe the purpose of the transaction with sufficient particularity to permit
the Bank to ascertain the applicable subsection. After receipt of such Proper
Instructions, the Bank will transfer, exchange, deliver or release Portfolio
Securities only in the following circumstances:
(a) Upon sales of Portfolio Securities for the account of the Trust,
against contemporaneous receipt by the Bank of payment therefor in full, or
against payment to the Bank in accordance with generally accepted
settlement practices and customs in the jurisdiction or market in which the
transaction occurs, each such payment to be in the amount of the sale price
shown in a broker's confirmation of sale received by the Bank before such
payment is made, as confirmed in the Proper Instructions received by the
Bank before such payment is made;
(b) In exchange for or upon conversion into other Portfolio Securities
alone or other Portfolio Securities and cash pursuant to any plan of
merger, consolidation, reorganization, share split-up, change in par value,
recapitalization or readjustment or otherwise, upon exercise of
subscription, purchase or sale or other similar rights represented by such
Portfolio Securities, or for the purpose of tendering shares in the event
of a tender offer therefor, provided, however, that in the event of an
offer of exchange, tender offer, or other exercise of rights requiring the
physical tender or delivery of Portfolio Securities, the Bank shall have no
liability for failure to so tender in a timely manner unless such Proper
Instructions are received by the Bank at least two business days prior to
the date required for tender, and unless the Bank (or its agent or
subcustodian hereunder) has actual possession of such Portfolio Security at
least two business days prior to the date of tender;
(c) Upon conversion of Portfolio Securities pursuant to their terms
into other securities;
(d) For the purpose of redeeming in-kind shares of the Trust upon
authorization from the Trust;
(e) In the case of option contracts owned by the Trust, for
presentation to the endorsing broker;
(f) When such Portfolio Securities are called, redeemed or retired or
otherwise become payable;
(g) For the purpose of effectuating the pledge of Portfolio Securities
held by the Bank in order to collateralize loans made to the Trust by any
bank, including the Bank; provided, however, that such Portfolio Securities
will be released only upon payment to the Bank for the account of the Trust
of the moneys borrowed; provided further, however, that in cases where
additional collateral is required to secure a borrowing already made, and
such fact is made to appear in the Proper Instructions, Portfolio
Securities may be released for that purpose without any such payment. In
the event that any pledged Portfolio Securities are held by the Bank, they
will be so held for the account of the lender, and after prior written
notice to the Trust from the lender, in accordance with the normal
procedures of the lender and any loan agreement between the Trust and the
lender, that an event of deficiency or default on the loan has occurred,
the Bank may deliver such pledged Portfolio Securities to or for the
account of the lender;
(h) for the purpose of releasing certificates representing Portfolio
Securities, against contemporaneous receipt by the Bank of the fair market
value of such Portfolio Securities, as set forth in the Proper Instructions
received by the Bank before such payment is made;
(i) for the purpose of delivering Portfolio Securities lent by the
Trust to a bank or broker dealer, but only against receipt in accordance
with street delivery custom except as otherwise provided herein, of
adequate collateral as agreed upon from time to time by the Trust and the
Bank, and upon receipt of payment in connection with any repurchase
agreement relating to such Portfolio Securities entered into by the Trust;
(j) for other authorized transactions of the Trust or for other proper
corporate purposes; provided that before making such transfer, the Bank
will also receive a certified copy of resolutions of the Board, signed by
an authorized officer of the Trust and certified by its Secretary or
Assistant Secretary, specifying the Portfolio Securities to be delivered,
setting forth the transaction in or purpose for which such delivery is to
be made, declaring such transaction to be an authorized transaction of the
Trust or such purpose to be a proper corporate purpose, and naming the
person or persons to whom delivery of such securities shall be made; and
(k) upon termination of this Agreement as hereinafter set forth
pursuant to Section 8 and Section 16 of this Agreement.
As to any deliveries made by the Bank pursuant to this Section 6.12,
securities or cash receivable in exchange therefor shall be delivered to the
Bank.
7. Redemptions. In the case of payment of assets of the Trust held by the
Bank in connection with redemptions and repurchases by the Trust of outstanding
shares, the Bank will rely on notification by the Trust's transfer agent of
receipt of a request for redemption and certificates, if issued, in proper form
for redemption before such payment is made. Payment shall be made in accordance
with the Declaration of Trust and By-laws of the Trust ("Declaration"), from
assets available for said purpose.
8. Merger, Dissolution, etc. of Trust. In the case of the following
transactions, not in the ordinary course of business, namely, the merger of the
Trust into or the consolidation of the Trust with another investment company,
the sale by the Trust of all, or substantially all, of its assets to another
investment company, or the liquidation or dissolution of the Trust and
distribution of its assets, the Bank will deliver the Portfolio Securities held
by it under this Agreement and disburse cash only upon the order of the Trust
set forth in an Officers' Certificate, accompanied by a certified copy of a
resolution of the Board authorizing any of the foregoing transactions. Upon
completion of such delivery and disbursement and the payment of the fees,
disbursements and expenses of the Bank, this Agreement will terminate and the
Bank shall be released from any and all obligations hereunder.
9. Actions of Bank Without Prior Authorization. Notwithstanding anything
herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, the Bank will take the following actions without
prior authorization or instruction of the Trust or the transfer agent:
9.1 Endorse for collection and collect on behalf of and in the name of the
Trust all checks, drafts, or other negotiable or transferable instruments or
other orders for the payment of money received by it for the account of the
Trust and hold for the account of the Trust all income, dividends, interest and
other payments or distributions of cash with respect to the Portfolio Securities
held thereunder;
9.2 Present for payment all coupons and other income items held by it for
the account of the Trust which call for payment upon presentation and hold the
cash received by it upon such payment for the account of the Trust;
9.3 Receive and hold for the account of the Trust all securities received
as a distribution on Portfolio Securities as a result of a stock dividend, share
split-up, reorganization, recapitalization, merger, consolidation, readjustment,
distribution of rights and similar securities issued with respect to any
Portfolio Securities held by it hereunder.
9.4 Execute as agent on behalf of the Trust all necessary ownership and
other certificates and affidavits required by the Internal Revenue Code of 1986,
as amended or the regulations of the U.S. Treasury Department or the Internal
Revenue Service issued thereunder, or by the laws of any state, now or hereafter
in effect, inserting the Trust's name on such certificates as the owner of the
securities covered thereby, to the extent it may lawfully do so and as may be
required to obtain payment in respect thereof. The Bank will execute and deliver
such certificates in connection with Portfolio Securities delivered to it or by
it under this Agreement as may be required under the provisions of the Internal
Revenue Code of 1986, as amended and any regulations issued thereunder, or under
any applicable laws of any State;
9.5 Present for payment all Portfolio Securities which are called,
redeemed, retired or otherwise become payable, and hold cash received by it upon
payment for the account of the Trust; and
9.6 Exchange interim receipts or temporary securities for definitive
securities.
10. Collections and Defaults. The Bank will use reasonable efforts to
collect any funds which may, to its knowledge, become collectible arising from
Portfolio Securities, including dividends, interest and other income, and to
transmit to the Trust notice actually received by it of any call for redemption,
offer of exchange, right of subscription, reorganization or other proceedings
affecting such Portfolio Securities. If Portfolio Securities upon which such
income is payable are in default or payment is refused after due demand or
presentation, the Bank will promptly notify the Trust in writing of any default
or refusal to pay within two business days from the day on which it receives
knowledge of such default or refusal.
11. Maintenance of the Trust's Records and Accounting Services. The Bank
will maintain the Trust's records with respect to transactions for which the
Bank is responsible pursuant to the terms and conditions of this Agreement, and
in compliance with the applicable rules and regulations under the 1940 Act. The
books and records of the Trust maintained by the Bank pertaining to its actions
under this Agreement and reports by the Bank or its independent accountants
concerning its accounting system, procedures for safeguarding securities and
internal accounting controls will be open to inspection and audit at reasonable
times by officers of or auditors employed by the Trust and will be preserved by
the Bank in the manner and in accordance with the applicable rules and
regulations under the 1940 Act.
The Bank shall perform fund accounting and shall keep the Trust's books of
account and render statements or copies from time to time as reasonably
requested by the Trust's Treasurer or any other executive officer of the Trust.
The Bank shall assist generally in the preparation of reports to
shareholders of each Fund of the Trust and others, audits of accounts, and other
ministerial matters of like nature.
12. Trust Evaluation and Yield Calculations
12.1 Trust Evaluation. The Bank shall compute and, unless otherwise
directed by the Board, determine as of the close of regular trading on the New
York Stock Exchange on each day on which said exchange is open for unrestricted
trading and as of such other days, or hours, if any, as may be authorized by the
Board, the net asset value and the public offering price of a share of stock of
the Trust, such determination to be made in accordance with the provisions of
the Declaration of the Trust and the Prospectus and Statement of Additional
Information relating to the Trust, as they may from time to time be amended, and
any applicable resolutions of the Board at the time in force and applicable; and
promptly to notify the Trust, the proper exchange and the NASD or such other
persons as the Trust may request of the results of such computation and
determination. In computing the net asset value hereunder, the Bank may rely in
good faith upon information furnished to it by any Authorized Person in respect
of (i) the manner of accrual of the liabilities of the Trust and in respect of
liabilities of the Trust not appearing on its books of account kept by the Bank,
(ii) reserves, if any, authorized by the Board or that no such reserves have
been authorized, (iii) the source of the quotations to be used in computing the
net asset value, (iv) the value to be assigned to any security for which no
readily available market price can be obtained, and (v) the method of
computation of the public offering price on the basis of the net asset value of
the shares. The Bank shall not be responsible for any loss occasioned by such
reliance or for any good faith reliance on any quotations received from a source
pursuant to (iii) above.
12.2. Yield and Average Total Return Calculation. The Bank will compute the
yield and average annual total return performance results of the Trust ("Return
Calculation") in accordance with the provisions of Release No. 33-6753 and
Release No. IC-16245 (February 2, 1988) (the "Releases") promulgated by the
Securities and Exchange Commission, and any subsequent amendments thereto,
published interpretations of or general conventions accepted by the staff of the
SEC with respect to such releases or the subject matter thereof ("Subsequent
Staff Positions"), subject to the terms set forth below:
(a) The Bank shall compute the Return Calculations for each Fund of
the Trust for the stated periods of time as shall be mutually agreed upon,
and communicate to the Trust in a timely manner the results of each
computation.
(b) In performing the Return Calculations, the Bank will derive the
items of data necessary for the computation from the records it generates
and maintains for each Fund of the Trust pursuant Section 11 hereof. The
Bank shall have no responsibility to review, confirm, or otherwise assume
any duty or liability with respect to the accuracy or correctness of any
such data supplied to it by the Trust, any of the Trust's designated agents
or any of the Trust's designated third party providers.
(c) At the request of the Bank, the Trust shall provide, and the Bank
shall be entitled to rely on, written standards and guidelines to be
followed by the Bank in interpreting and applying the computation methods
set forth in the Releases or any Subsequent Staff Positions as they
specifically apply to each Fund of the Trust. In the event that the
computation methods in the Releases or the Subsequent Staff Positions or
the application to each Fund of the Trust of a standard or guideline is not
free from doubt or in the event there is any question of interpretation as
to the characterization of a particular security or any aspect of a
security or a payment with respect thereto (e.g., original issue discount,
participating debt security, income or return of capital, etc.) or
otherwise or as to any other element of the computation which is pertinent
to the Trust, the Trust or its designated agent shall have the full
responsibility for making the determination of how the security or payment
is to be treated for purposes of the computation and how the computation is
to be made and shall inform the Bank thereof on a timely basis. The Bank
shall have no responsibility to make independent determinations with
respect to any item which is covered by this Section, and shall not be
responsible for its computations made in accordance with such
determinations so long as such computations are mathematically correct.
(d) The Trust shall keep the Bank informed of all publicly available
information and of any non-public advice, or information obtained by the
Trust from its independent auditors or by its personnel or the personnel of
its investment adviser, or Subsequent Staff Positions related to the
computations to be undertaken by the Bank pursuant to this Agreement and
the Bank shall not be deemed to have knowledge of such information (except
as contained in the Releases) unless it has been furnished to the Bank in
writing.
13. Additional Services. The Bank shall perform the additional services for
the Trust as are set forth on Appendix C hereto. Appendix C may be amended from
time to time upon agreement of the parties to include further additional
services to be provided by the Bank to the Trust, at which time the fees set
forth in Appendix B shall be appropriately increased as agreed to in writing by
the Bank and the Trust.
14. Duties of the Bank.
14.1 Performance of Duties and Standard of Care. The Bank will perform all
of its duties hereunder in a timely manner as determined by industry standards
in the relevant market as applied to the specific transaction, taking into
account relevant facts and circumstances.
In performing its duties hereunder and any other duties listed on any
Schedule hereto, if any, the Bank will be entitled to receive and act upon the
advice of independent counsel of its own selection, which may be counsel for the
Trust, and will be without liability for any action taken or thing done or
omitted to be done in accordance with this Agreement in good faith in conformity
with such advice.
The Bank will be under no duty or obligation to inquire into and will not
be liable for:
(a) the validity of the issue of any Portfolio Securities purchased by
or for each Fund of the Trust, the legality of the purchases thereof or the
propriety of the price incurred therefor;
(b) the legality of any sale of any Portfolio Securities by or for
each Fund of the Trust or the propriety of the amount for which the same
are sold;
(c) the legality of an issue or sale of any shares of each Fund of the
Trust or the sufficiency of the amount to be received therefor;
(d) the legality of the repurchase of any shares of each Fund of the
Trust or the propriety of the amount to be paid therefor;
(e) the legality of the declaration of any dividend by each Fund of
the Trust or the legality of the distribution of any Portfolio Securities
as payment in kind of such dividend; and
(f) any property or moneys of each Fund of the Trust unless and until
received by it, and any such property or moneys delivered or paid by it
pursuant to the terms hereof.
Moreover, the Bank will not be under any duty or obligation to ascertain
whether any Portfolio Securities at any time delivered to or held by it for the
account of the Trust are such as may properly be held by the Trust under the
provisions of its Articles any federal or state statutes or any rule or
regulation of any governmental agency.
14.2 Agents and Subcustodians with Respect to Property of the Trust Held in
the United States. The Bank may employ agents of its own selection in the
performance of its duties hereunder and shall be responsible for the acts and
omissions of such agents as if performed by the Bank hereunder. Without limiting
the foregoing, certain duties of the Bank hereunder may be performed by one or
more affiliates of the Bank.
Upon receipt of Proper Instructions, the Bank may employ subcustodians
selected by or at the direction of the Trust, provided that any such
subcustodian meets at least the minimum qualifications required by Section
17(f)(1) of the 1940 Act to act as a custodian of the Trust's assets with
respect to property of the Trust held in the United States. The Bank shall have
no liability to the Trust or any other person by reason of any act or omission
of any such subcustodian and the Trust shall indemnify the Bank and hold it
harmless from and against any and all actions, suits and claims, arising
directly or indirectly out of the performance of any subcustodian. Upon request
of the Bank, the Trust shall assume the entire defense of any action, suit, or
claim subject to the foregoing indemnity. The Trust shall pay all fees and
expenses of any subcustodian as agreed to in writing by the Trust.
14.3 Insurance. The Bank shall use the same care with respect to the
safekeeping of Portfolio Securities and cash of the Trust held by it as it uses
in respect of its own similar property, including the maintenance of fidelity
bond insurance. The Bank intends to maintain fidelity bond insurance at all
times during the term of the Agreement. Upon reasonable request, the Bank will
provide a description of the Bank's safeguards and procedures including specific
insurance policy information.
14.4 Fees and Expenses of the Bank. The Adviser will pay or reimburse the
Bank from time to time for any transfer taxes payable upon transfer of Portfolio
Securities made hereunder, and for all necessary proper disbursements, expenses
and charges made or incurred by the Bank in the performance of this Agreement
(including any duties listed on any Schedule hereto, if any) including any
indemnities for any loss, liabilities or expense to the Bank as provided above.
For the services rendered by the Bank hereunder, the Adviser will pay to the
Bank such compensation or fees at such rate and at such times as shall be agreed
upon in writing by the parties from time to time. The Bank will also be entitled
to reimbursement by the Adviser for all reasonable expenses incurred in
conjunction with termination of this Agreement.
14.5 Advances by the Bank. The Bank may, in its sole discretion, advance
funds on behalf of the Trust to make any payment permitted by this Agreement
upon receipt of any proper authorization required by this Agreement for such
payments by the Trust. Should such a payment or payments, with advanced funds,
result in an overdraft (due to insufficiencies of the Trust's account with the
Bank, or for any other reason) this Agreement deems any such overdraft or
related indebtedness a loan made by the Bank to the Trust payable on demand.
Such overdraft shall bear interest at the current rate charged by the Bank for
such loans unless the Trust shall provide the Bank with agreed upon compensating
balances. The Trust agrees that the Bank shall have a continuing lien and
security interest to the extent of any overdraft or indebtedness or to the
extent required by law, whichever is greater, in and to any property at any time
held by it for the Trust's benefit or in which the Trust has an interest and
which is then in the Bank's possession or control (or in the possession or
control of any third party acting on the Bank's behalf). The Trust authorizes
the Bank, in the Bank's sole discretion, at any time to charge any overdraft or
indebtedness, together with interest due thereon, against any balance of account
standing to the credit of the Trust on the Bank's books.
15. Limitation of Liability and Indemnification.
15.1 Notwithstanding anything in this Agreement to the contrary, in no
event shall the Bank or any of its officers, directors, employees or agents
(collectively, the "Indemnified Parties") be liable to the Trust, the Adviser or
any third party, and the Trust and Adviser shall indemnify and hold the Bank and
the Indemnified Parties harmless from and against any and all loss, damage,
liability, actions, suits, claims, costs and expenses, including legal fees, (a
"Claim") arising as a result of any act or omission of the Bank or any
Indemnified Party under this Agreement, except for any Claim resulting from the
willful misconduct, bad faith or negligence of the Bank or any Indemnified Party
in the performance of its obligations and duties under this Agreement, or by
reason of the Bank's or any Indemnified Party's reckless disregard thereof.
Without limiting the foregoing, neither the Bank nor the Indemnified Parties
shall be liable for, and the Bank and the Indemnified Parties shall be
indemnified against, any Claim arising as a result of:
(a) Any act or omission by the Bank or any Indemnified Party in good
faith reliance upon the terms of this Agreement, any Officer's Certificate,
Proper Instructions, resolution of the Board, telegram, telecopier, notice,
request, certificate or other instrument reasonably believed by the Bank to
genuine;
(b) Any act or omission of any subcustodian selected by or at the
direction of the Trust, except that the Bank will be liable as described in
paragraph 14.2 of this Agreement;
(c) Any Corporate Action, distribution or other event related to
Portfolio Securities which, at the direction of the Trust, have not been
registered in the name of the Bank or its nominee;
(d) Any Corporate Action requiring a Response for which the Bank has
not received Proper Instructions or obtained actual possession of all
necessary Portfolio Securities, consents or other materials by 5:00 p.m. on
the date specified as the Response Deadline;
(e) Any act or omission of any European Branch of a U.S. banking
institution that is the issuer of Eurodollar CDs in connection with any
Eurodollar CDs held by such European Branch;
(f) Information relied on in good faith by the Bank and supplied by
any Authorized Person in connection with the calculation of (i) the net
asset value and public offering price of the shares of stock of the Trust
or (ii) the Return Calculation; or
(g) Any acts of God, earthquakes, fires, floods, storms or other
disturbances of nature, epidemics, strikes, riots, nationalization,
expropriation, currency restrictions, acts of war, civil war or terrorism,
insurrection, nuclear fusion, fission or radiation, the interruption, loss
or malfunction of utilities, transportation or computers (hardware or
software) and computer facilities, the unavailability of energy sources and
other similar happenings or events.
15.2 The Bank will indemnify each of the Trust and the Adviser, and its
directors officers, employees and agents against and hold it and them harmless
from any and all losses, claims, damages, liabilities or expenses (including
legal fees and expenses) resulting from the willful misconduct, bad faith or
negligence of the Bank or any Indemnified Party in the performance of its
obligations and duties under this Agreement, or by reason of the Bank's or any
Indemnified Party's reckless disregard thereof.
15.3 Notwithstanding anything to the contrary in this Agreement, in no
event shall the Bank or the Indemnified Parties be liable to the Trust, the
Adviser or any third party for any special, consequential, or punitive damages
of any kind whatsoever in connection with this Agreement or any activities
hereunder.
16. Termination.
16.1 The term of this Agreement shall be three years commencing upon the
date hereof (the "Initial Term"), unless earlier terminated as provided herein.
After the expiration of the Initial Term, the term of this Agreement shall
automatically renew for successive one-year terms (each a "Renewal Term") unless
notice of non-renewal is delivered by the non-renewing party to the other party
no later than sixty (60) days prior to the expiration of the Initial Term or any
Renewal Term, as the case may be.
(a) Either party hereto may terminate this Agreement prior to the
expiration of the Initial Term (i) in the event the other party violates
any material provision of this Agreement or is unable to continue to
fulfill its obligation and duties under the Agreement; provided that a
violating party shall for its first material violation of this Agreement
have the opportunity to cure such violation within forty-five (45) days of
receipt of written notice from the non-violating party of such violation,
or (ii) after the second anniversary hereof, upon ninety (90) days written
notice to the other party.
(b) Either party may terminate this Agreement during any Renewal Term
upon sixty (60) days written notice to the other party. Any termination
pursuant to this paragraph 16.1(b) shall be effective upon expiration of
such sixty (60) days, provided, however, that the effective date of such
termination may be postponed to a date not more than one hundred twenty
(120) days after delivery of the written notice: (i) at the request of the
Bank, in order to prepare for the transfer by the Bank of all of the assets
of the Trust held hereunder; or (ii) at the request of the Trust, in order
to give the Trust an opportunity to make suitable arrangements for a
successor custodian.
16.2 In the event of the termination of this Agreement, the Bank will
immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Trust. The obligation of the Bank to deliver and transfer over the assets of the
Trust held by it directly to such successor custodian will commence as soon as
such successor is appointed and will continue until completed as aforesaid. If
the Trust does not select a successor custodian within sixty (60) days from the
date of delivery of notice of termination, the Bank may, subject to the
provisions of subsection 16.3, deliver the Portfolio Securities and cash of the
Trust held by the Bank to a bank or trust company of the Bank's own selection,
with approval by the Trust, which meets the requirements of Section 17(f)(1) of
the 1940 Act and has a reported capital, surplus and undivided profits
aggregating not less than $2,000,000, to be held as the property of the Trust
under terms similar to those on which they were held by the Bank, whereupon such
bank or trust company so selected by the Bank will become the successor
custodian of such assets of the Trust with the same effect as though selected by
the Board. Thereafter, the Bank shall be released from any and all obligations
under this Agreement.
16.3 Prior to the expiration of sixty (60) days after notice of termination
has been given, the Trust may furnish the Bank with an order of the Trust
advising that a successor custodian cannot be found willing and able to act upon
reasonable and customary terms and that there has been submitted to the
shareholders of the Trust the question of whether the Trust will be liquidated
or will function without a custodian for the assets of the Trust held by the
Bank. In that event the Bank will deliver the Portfolio Securities and cash of
the Trust held by it, subject as aforesaid, in accordance with one of such
alternatives which may be approved by the requisite vote of shareholders, upon
receipt by the Bank of a copy of the minutes of the meeting of shareholders at
which action was taken, certified by the Trust's Secretary and an opinion of
counsel to the Trust in form and content satisfactory to the Bank. Thereafter,
the Bank shall be released from any and all obligations under this Agreement.
16.4 The party initiating a termination of this Agreement shall reimburse
the other party for any reasonable expenses incurred by the other party in
connection with the termination of this Agreement.
16.5 At any time after the termination of this Agreement, the Trust may,
upon written request, have reasonable access to the records of the Bank relating
to its performance of its duties as custodian.
17. Year 2000 Readiness Disclosure. The Bank represents that the occurrence
in or use by the Bank's own proprietary internal systems (the "Systems") of
dates on or after January 1, 2000 (the "Millennial Dates") will not adversely
affect the performance of the Systems with respect to date dependent data,
computations, output or other functions (including, without limitation,
calculating, computing and sequencing) and that the Systems will create, store
and generate output data related to or including Millennial Dates without errors
or omissions ("Year 2000 Compliance"). The Bank shall promptly notify the Trust
of any lack of Year 2000 Compliance of which it becomes aware that impact the
Bank's services hereunder.
The parties to this Agreement acknowledge that the Bank can make no
certification as to the Year 2000 Compliance of third-party systems utilized by
the Bank in its day to day operations or with which the Systems interact or
communicate, from which the Systems receive data or to which the Systems send
data. The parties further acknowledge that while the Bank has contacted such
third-party providers regarding Year 2000 Compliance and will use reasonable
efforts to monitor the status of such third-party providers' Year 2000
Compliance, failure by such third-party providers to achieve timely Year 2000
Compliance could adversely affect the Bank's performance of its obligations
hereunder. The Bank shall promptly notify the Trust of any lack of Year 2000
Compliance of any third-party provider of which it becomes aware that impact the
Bank's services hereunder.
18. Confidentiality. Both parties hereto agree than any non-public
information obtained hereunder concerning the other party is confidential and
may not be disclosed without the consent of the other party, except as may be
required by applicable law or at the request of a governmental agency. The
parties further agree that a breach of this provision would irreparably damage
the other party and accordingly agree that each of them is entitled, in addition
to all other remedies at law or in equity to an injunction or injunctions
without bond or other security to prevent breaches of this provision.
19. Notices. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and delivered via (I) United
States Postal Service registered mail, (ii) telecopier with written
confirmation, (iii) hand delivery with signature to such party at its office at
the address set forth below, namely:
(a) In the case of notices sent to the Trust to:
X.COM Funds
394 University Avenue
Palo Alto, CA 94301
Attention: John T. Story
Facsimile: (650) 833-5470
With a copy to: David J. Harris, Dechert Price & Rhoads
Facsimile: (202) 261-3333
(b) In the case of notices sent to the Adviser to:
X.COM Asset Management, Inc.
394 University Avenue
Palo Alto, CA 94301
Attention: John T. Story
Facsimile: (650) 833-5470
With a copy to: David J. Harris, Dechert Price & Rhoads
Facsimile: (202) 261-3333
(c) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
200 Clarendon Street, P.O. Box 9130
Boston, Massachusetts 02117-9130
Attention: Paula A. Lordi, Director - Client Management
Facsimile: (617) 330-6033
With a copy to: Andrew S. Josef, Assistant General Counsel
Facsimile: (617) 351-4314
or at such other place as such party may from time to time designate
in writing.
20. Amendments. This Agreement may not be altered or amended, except by an
instrument in writing, executed by both parties.
21. Parties. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Trust
without the written consent of the Bank or by the Bank without the written
consent of the Trust, authorized and approved by its Board; and provided further
that termination proceedings pursuant to Section 16 hereof will not be deemed to
be an assignment within the meaning of this provision.
22. Governing Law. This Agreement and all performance hereunder will be
governed by the laws of the Commonwealth of Massachusetts, without regard to
conflict of laws provisions.
23. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
24. Entire Agreement. This Agreement, together with its Appendices,
constitutes the sole and entire agreement between the parties relating to the
subject matter herein and does not operate as an acceptance of any conflicting
terms or provisions of any other instrument and terminates and supersedes any
and all prior agreements and undertakings between the parties relating to the
subject matter herein.
25. Limitation of Liability. The Bank agrees that the obligations assumed
by the Trust hereunder shall be limited in all cases to the assets of the Trust
and that the Bank shall not seek satisfaction of any such obligation from the
officers, agents, employees, trustees, or shareholders of the Trust.
26. Several Obligations of the Funds. This Agreement is an agreement
entered into between the Bank and the Trust with respect to each Fund. With
respect to any obligation of the Trust on behalf of any Fund arising out of this
Agreement, the Bank shall look for payment or satisfaction of such obligation
solely to the assets of the Fund to which such obligation relates as though the
Bank had separately contracted with the Trust by separate written instrument
with respect to each Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
X.COM FUNDS
By:
--------------------------------------
Name:
Title:
X.COM ASSET MANAGEMENT, INC.
By:
--------------------------------------
Name:
Title:
INVESTORS BANK & TRUST COMPANY
By:
--------------------------------------
Name:
Title:
<PAGE>
Appendices
----------
Appendix A............................................... Funds
Appendix B............................................... Fee Schedule
Appendix C.......................................... .... Additional Services
<PAGE>
Appendix A
FUNDS OF X.COM FUNDS
1) X.com Premier S&P 500 Fund
2) X.com U.S.A. Bond Fund
3) X.com U.S.A. Money Market Fund
<PAGE>
Appendix B
X.Com Funds
Annual Fee Schedule
________________, 1999
A. Trust Accounting, Custody and Calculation of N.A.V.
The Annual Fee for Trust Accounting, Custody and Calculation of N.A.V. for
three Feeder Trusts will be charged according to the following schedule.
The following schedule is exclusive of transaction costs and out-of-pocket
expenses.
Annual
------
Fee
- ---
Annual Fee per feeder fund $12,000
For each additional class added beyond the first one class there will be an
annual fee of $6,000 for the above services.
B. Trust Administration, Compliance, Financial Statement Preparation, Legal
Administration, and Blue Sky.
The Annual Fee for Trust Administration, Financial Statement Preparation,
Legal Administration, and Blue Sky for three Feeder Trusts will be charged
according to the following schedule.
Annual
------
Fee
- ---
Annual Fee per feeder fund $50,000
For each additional class added beyond the first one class there will be an
annual fee of $10,000 for the above services.
C. Miscellaneous
1. Out-of-Pocket
For purposes of this Agreement, out-of-pocket charges consist of: -
Telephone - Ad Hoc Reporting - Third Party Review - Forms and Supplies -
Printing/Postage/Delivery - Systems Development/Reports/Transmissions -
Equipment Rental - Legal costs associated with substantial alterations of
IBT's standard agreements
2. Balance Credits
We allow use of balance credit against fees (excluding out-of-pocket
charges) for collected fund balances arising out of the custody
relationship. The monthly earnings allowance is equal to 75% of the 90-day
T-bill rate.
3. Systems
The details of any systems work required to service this fund will be
determined after a thorough business analysis. All systems work, including
creating customized reports and establishing systems/communications
interfaces with X.Com, other providers, etc., will be billed on a time and
materials basis.
4. Billing and Payment
The above fees will be charged against the Funds' custodian checking
account five business days after the invoice is mailed to the fund.
All charges will be billed monthly. The fee schedule will be effective upon
start-up of the Funds.
26
<PAGE>
Appendix C
SERVICES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Function X.COM Suggested Fund Auditor or
Counsel
- ---------------------------------- ------------------------------ ----------------------------- ------------------------------
- ----------------------------------
MANAGEMENT REPORTING
& TREASURY ADMINISTRATION
- ----------------------------------
Monitor portfolio compliance in Perform tests of certain Oversee BGI's continuous A/C - Provide consultation as
accordance with the current specific portfolio activity monitoring of portfolio needed on compliance issues.
Prospectus and SAI. designed from provisions of activity and Fund
the Fund's Prospectus and operations in conjunction
Frequency: Bi-monthly SAI. Follow-up on potential with 1940 Act, Prospectus,
violations. SAI and any other
applicable laws and
regulations. Monitor
testing results and approve
resolution of compliance
issues.
Provide compliance summary Provide a report of Review report. A/C - Provide consultation as
package. compliance testing results. needed.
Frequency: Monthly
Perform asset diversification Perform asset Oversee BGI's continuous A - Provide consultation as
testing to establish diversification tests at monitoring of portfolio needed in establishing
qualification as a RIC. each tax quarter end. activity in conjunction positions to be taken in tax
Follow-up on issues. with IRS requirements. treatment of particular issues.
Frequency: Quarterly Review test results and Review quarter end tests on a
take any necessary action. current basis.
Approve tax positions taken.
Perform qualifying income Perform qualifying income Oversee BGI's continuous A- Consult as needed on tax
testing to establish testing (on book basis monitoring of portfolio accounting positions to be
qualification as a RIC. income, unless material activity in conjunction taken. Review in conjunction
differences are anticipated) with IRS requirements. with year-end audit.
Frequency: Quarterly on quarterly basis and as Review test results and
may otherwise be take any necessary action.
necessary. Follow-up on Approve tax positions taken.
issues.
Prepare the Fund's annual Prepare preliminary expense Provide asset level
expense budget. Establish daily budget. Notify fund projections. Approve
accruals. accounting of new accrual expense budget.
rates.
Frequency: Annually
Monitor the Fund's expense Monitor actual expenses Provide asset level C/A - Provide consultation as
budget. updating budgets/ expense projections quarterly. requested.
accruals. Provide vendor information
Frequency: Quarterly as necessary. Review
expense analysis and
approve budget revisions.
Receive and coordinate payment Propose allocations of Approve invoices and
of fund expenses. invoice among Funds and allocations of payments.
obtain authorized approval Send invoices to IBT in a
Frequency: As necessary to process payment. timely manner.
Calculate periodic dividend Calculate amounts available Establish and maintain C - Review dividend
rates and capital gains for distribution. dividend and distribution resolutions in conjunction with
distributions to be declared in Coordinate review by policies. Approve Board approval.
accordance with management management and/or auditors. distribution rates per
guidelines. Notify custody and transfer share and aggregate A - Review and concur with
agent of authorized dividend amounts. Obtain Board proposed distributions, annual
Frequency: Quarterly/Annually rates in accordance with approval when required. and excise only.
Board approved policy.
Report dividends to Board as
required.
Calculate total return Provide total return Review total return
information on Funds as defined calculations. Returns information.
in the current Prospectus and consist of monthly,
SAI. quarterly, YTD, since
inception and average annual
Frequency: Monthly since inception.
Prepare responses to major Prepare, coordinate as Identify the services to
industry questionnaires. necessary, and submit which the Funds report.
responses to the appropriate Provide information as
Frequency: As often as necessary agency. requested.
Prepare disinterested trustee Summarize amounts paid to Provide social security
Form 1099-Misc. trustees during the calendar numbers and current mailing
year. Prepare and mail Form address for trustees.
Frequency: Annually 1099-Misc. Review and approve
information provided for
Form 1099-Misc.
- ----------------------------------
FINANCIAL REPORTING
- ----------------------------------
Prepare financial information Prepare information as Review financial
for presentation to Fund required. information.
Management and Board of
Directors.
Frequency: As needed
Coordinate the annual audit and Coordinate the creation of Provide information A - Perform audit and issue
semi-annual preparation and templates reflecting required to create opinion on annual financial
printing of financial statements client-selected standardized templates, including report statements.
and notes with management, fund appearance and text of style and graphics.
accounting and the fund auditors. financial statements and Approve format and text as A/C - Review reports.
footnotes. Draft and manage standard. Approve
Frequency: production cycle. production cycle and assist
Annually/semi-annually Coordinate with IBT fund in managing to the cycle.
accounting the electronic Coordinate review and
receipt of portfolio and approval by portfolio
general ledger information. managers of portfolio
Assist in resolution of listings to be included in
accounting issues. Using financial statements.
templates, draft financial Prepare appropriate
statements, coordinate management letter and
auditor and management coordinate production of
review, and clear comments. Management Discussion and
Coordinate printing of Analysis. Review and
reports and EDGAR conversion approve entire report.
with outside printer and Make appropriate
filing with the SEC via representations in
EDGAR. conjunction with audit.
- ----------------------------------
LEGAL
- ----------------------------------
Prepare and file Form N-SAR. Prepare form for filing. Provide appropriate C - Review initial filing.
Obtain any necessary responses. Provide A - Provide annual audit
Frequency: Semi-annually supporting documents. File applicable Exhibits to internal control letter to
with SEC via EDGAR. attach to filing. Review accompany the annual filing.
and authorize filing.
Assist the preparation and Accumulate capital stock Review and approve capital A/C - Review informally when
filing of Form 24f-2 Notice. information. stock worksheet. requested.
Frequency: Annually
Respond to regulatory or auditor Compile and provide Coordinate with regulatory C - Provide consultation as
examinations and requests. documentation pursuant to authorities and auditors to needed.
examinations, audits and provide requested
Frequency: As needed (at least requests from regulators or documentation and
annually) auditors. Assist client and resolutions to inquiries.
legal counsel in resolution
of regulatory and audit
inquiries.
Proxy material/shareholder Prepare drafts of proxy Review and approve proxy. C - Review and approve proxy.
meetings. material for review, file
materials or coordinate
Frequency: As needed filing with the SEC and
coordinate printing. Assist
proxy solicitation firm and
prepare scripts. Attend
meeting and prepare minutes.
Prepare amendments to Coordinate the preparation Review and approve. C - Review and approve filings.
Registration Statement. and filing of post-effective
amendments. Coordinate with A/C - Provide consents as
Frequency: Annual updates outside printers the EDGAR appropriate.
(includes updating financial conversion, filing with the
highlights, expense tables, SEC and printing of
ratios) plus one additional prospectus.
filing per fiscal year.
Prepare prospectus/SAI Coordinate the preparation Review and approve. C - Review and approve filings.
supplements. and filing of prospectus and
SAI supplements. File with A/C - Provide consents as
Frequency: As often as required the SEC via EDGAR. appropriate.
Prepare agenda and board Maintain annual calendar of Review and approve board C - Review agenda, board
materials for quarterly board required quarterly and materials. material and board and
meetings. annual approvals. Prepare committee minutes. Ensure
agenda, resolutions and board material contains all
Frequency: Quarterly other board materials for required information that the
quarterly board meetings. members of the board must
Prepare supporting review and/or approve to
information and materials perform their duties as
when necessary. Assemble, directors/trustees.
check and distribute books
in advance of meeting.
Attend board and committee
meetings and prepare minutes.
Furnish Trust officers. Furnish appropriate Furnish appropriate
personnel as officers of the personnel as officers of
Frequency: As needed Trust. the Trust.
Assist in updating of fidelity Make annual filing of Obtain required fidelity
bond insurance coverage. fidelity bond insurance bond insurance coverage.
material with the SEC. Monitor level of fidelity
Frequency: Annually bond insurance maintained
in accordance with required
coverage.
- ----------------------------------
TAX
- ----------------------------------
Prepare income tax provisions. Calculate investment company Provide transaction A - Provide consultation as
taxable income, net tax information as requested. needed in establishing
Frequency: Annually exempt interest, net capital Approve tax accounting positions to be taken in tax
gain and spillback dividend positions to be taken. treatment of particular
requirements. Identify Approve provisions. PFIC's issues. Perform review in
book-tax accounting to be identified at the conjunction with the year-end
differences. Track required Portfolio (HUB) level. audit.
information relating to
accounting differences.
Calculate excise tax Calculate required Provide transaction A - Provide consultation as
distributions. distributions to avoid information as requested. needed in establishing
imposition of excise tax. Passive Foreign Investment positions to be taken in tax
Frequency: Annually - Calculate capital gain Companies (PFICs) to be treatment of particular
net income and foreign identified at the Portfolio issues. Review and concur with
currency gain/loss (HUB) level. Approve tax proposed distributions.
through October 31. accounting positions to be
- Calculate ordinary taken. Review and approve
income and all income and distribution
distributions through a calculations, including
specified cut off date . projected income and
- Project ordinary dividend shares. Approve
income from cut off distribution rates per
date to December 31. share and aggregate
- Ascertain dividend amounts. Obtain Board
shares. approval when required.
Identify book-tax accounting differences.
Track required information relating to
accounting differences. Coordinate review
by management and fund auditors. Notify
custody and transfer agent of authorized
dividend rates in accordance with Board
approved policy. Report dividends to Board
as required.
Prepare tax returns. Prepare excise and RIC tax Review and sign tax return. A - Review and sign tax return
returns. as preparer.
Frequency: Annually
Prepare Form 1099. Obtain yearly distribution Review and approve
information. Calculate 1099 information provided for
reclasses and coordinate Form 1099.
with transfer agent.
Frequency: Annually
Prepare other year-end Obtain yearly income Review and approve
tax-related disclosures. distribution information provided.
information. Calculate
Frequency: Annually disclosures
(i.e., dividend received
deductions,
foreign tax credits,
tax-exempt
income, income by
jurisdiction) and
coordinate with transfer
agent.
- ----------------------------------
BLUE SKY
- ----------------------------------
Maintain effective Blue Sky Maintain records of fund Identify states in which C- Provide consultation as
notification filings for states sales for client designated filings are to be made. needed on Blue Sky issues.
in which Fund Management intends states via PW Blue2
to solicit sales of fund shares. compliance system. File Identify exempt C- Provide consultation on
annual notification renewal transactions to transfer product and institutional
Frequency: On-going documents and annual sales agent for appropriate exemptions.
reports. File amendments to exclusion from blue sky
increase dollar amounts reporting.
authorized for sales by
funds, based upon client
instruction. File
notifications to states for
new funds and/or classes,
mergers and liquidations. Provide periodic
reports on state authorization amounts and
slaes amounts. Determine state filing
requirements by using CCH Blue Sky Law
Reporter, ICI memoranda and state
securities commission directives (both
written and oral).
File amendments to registration File updated registration Inform IBT of filings prior C- Provide consultation as
statement with the applicable statements, prospectus, to SEC filing. needed on Blue Sky filing
state securities commissions in SAIs, supplements thereto, issues.
coordination with SEC filing. and annual reports to
shareholders upon
Frequency: Annual updates approval/authorization by
(includes registration client.
statement, prospectus, SAI) plus
an additional filing per fiscal
year
</TABLE>
FORM OF ADMINISTRATION AGREEMENT
ADMINISTRATION AGREEMENT ("Agreement") made as of September __, 1999 by and
between X.COM FUNDS, a business trust organized under the laws of Delaware (the
"Trust"), and INVESTORS BANK & TRUST COMPANY, a Massachusetts trust company (the
"Bank").
WHEREAS, the Trust is a registered investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"), consisting of each of the
separate series listed on Appendix A hereto (as such Appendix A may be amended
from time to time) (each a "Fund" and collectively, the "Funds");
WHEREAS, pursuant to an Investment Advisory Agreement between the Trust and
X.com Asset Management, Inc (the "Adviser"), dated September __, 1999, the
Adviser has agreed to provide or procure administrative services for the Trust;
and
WHEREAS, the Adviser desires to retain the Bank to render certain
administrative services to the Trust, the Bank is willing to render such
services, and the Trust desires to approve the Bank's appointment as
administrator.
NOW, THEREFORE, in consideration of the mutual covenants herein set forth,
it is agreed between the parties hereto as follows:
1. Appointment. The Adviser hereby appoints the Bank to act as
Administrator of the Trust on the terms set forth in this Agreement, and the
Trust hereby approves such appointment. The Bank accepts such appointment and
agrees to render the services herein set forth for the compensation herein
provided.
2. Delivery of Documents. The Trust has furnished the Bank with copies
properly certified or authenticated of each of the following:
(a) Resolutions of the Trust's Board of Trustees authorizing the
appointment of the Bank to provide certain administrative services to the
Trust and each of its Funds and approving this Agreement;
(b) The Trust's formation documents filed with the State of Delaware
on June 6, 1999 and all amendments thereto (the "Articles");
(c) The Trust's by-laws and all amendments thereto (the "By-Laws");
(d) The Trust's agreements with all service providers which include
any investment advisory agreements, sub-investment advisory agreements,
custody agreements, distribution agreements and transfer agency agreements
(collectively, the "Agreements");
(e) The Trust's most recent Registration Statement on Form N-1A (the
"Registration Statement") under the Securities Act of 1933 as amended, (the
"1933 Act") and under the 1940 Act and all amendments thereto; and
(f) The Trust's most recent definitive prospectus and statement of
additional information (the "Prospectus"); and
(g) Such other certificates, documents or opinions as may mutually be
deemed reasonable, necessary and appropriate for the Bank to request in the
proper performance of its duties hereunder.
The Trust will promptly furnish the Bank with copies of all amendments of
or supplements to the foregoing.
Furthermore, either party will notify the other as soon as reasonably
practicable of any matter which may materially affect the performance its
services under this Agreement.
3. Duties of Administrator. Subject to the supervision and direction of the
Board of Trustees of the Trust, the Bank, as Administrator, will conduct and
perform various aspects of the Trust's administrative operations described in
Appendix B hereto. The Bank may, from time to time, perform additional duties
and functions which shall be set forth in an amendment to such Appendix B
executed by both parties. At such time, the fee schedule included in Appendix C
hereto shall be appropriately amended as agreed to in writing by both parties.
In performing all services under this Agreement, the Bank shall act in
conformity with the Trust's Articles and By-Laws and the 1933 Act, the
Securities and Exchange Act of 1934, as amended and the 1940 Act, as the same
may be amended from time to time, and the investment objectives, investment
policies and other practices and policies set forth in the Trust's Registration
Statement, as the same may be amended from time to time. Notwithstanding any
item discussed herein, the Bank has no discretion over the Trust's assets or
choice of investments and cannot be held liable for any problem relating to such
investments, except as such problem relates to the services required to be
provided by the Bank under this Agreement.
4. Duties of the Trust.
(a) The Trust is solely responsible (through its transfer agent or
otherwise) for (i) providing accurate daily reports ("Daily Sales Reports")
which will enable the Bank as Administrator to monitor the total number of
shares sold in each state on a daily basis and (ii) identifying any exempt
transactions ("Exempt Transactions") which are to be excluded from the
Daily Sales Reports.
(b) The Trust agrees to make its legal counsel reasonably available to
the Bank for advice with respect to any matter of law arising in connection
with the Bank's duties hereunder, and the Trust further agrees that the
Bank shall be entitled to rely on such instruction without further
investigation on the part of the Bank.
5. Fees and Expenses.
(a) For the services to be rendered and the facilities to be furnished
by the Bank, as provided for in this Agreement, the Adviser will compensate
the Bank in accordance with the fee schedule attached as Appendix C hereto.
Such fees do not include out-of-pocket disbursements (as delineated in the
fee schedule), or other expenses of the Bank with the prior approval of the
Trust's management for which the Bank shall be entitled to bill the Trust
separately and for which the Trust shall reimburse the Bank.
(b) The Bank shall not be required to pay any expenses incurred by the
Trust.
6. Limitation of Liability.
(a) The Bank, its directors, officers, employees and agents shall not
be liable for any error of judgment or mistake of law or for any loss
suffered by the Trust or any third party in connection with the performance
of the Bank's obligations and duties under this Agreement, except a loss
resulting from willful misconduct, bad faith or negligence in the
performance of such obligations and duties, or by reason of its reckless
disregard thereof.
(b) The Trust will indemnify the Bank, its directors, officers,
employees and agents against and hold it and them harmless from any and all
losses, claims, damages, liabilities or expenses (including legal fees and
expenses) resulting from any claim, demand, action or suit (i) arising out
of the actions or omissions of the Trust, including, but not limited to,
inaccurate Daily Sales Reports and misidentification of Exempt
Transactions; (ii) arising out of the offer or sale of any securities of
the Trust in violation of (x) any requirement under the federal securities
laws or regulations, (y) any requirement under the securities laws or
regulations of any state, or (z) any stop order or other determination or
ruling by any federal or state agency with respect to the offer or sale of
such securities; except for any claim, demand, action or suit resulting
from the willful misconduct, bad faith or negligence of the Bank in the
performance of its obligations and duties, or by reason of its reckless
disregard thereof.
(c) The Adviser will indemnify the Bank, its directors, officers,
employees and agents against and hold it and them harmless from any and all
losses, claims, damages, liabilities or expenses (including legal fees and
expenses) resulting from any claim, demand, action or suit arising out of
the actions or omissions of the Adviser, except for any claim, demand,
action or suit resulting from the willful misconduct, bad faith or
negligence of the Bank in the performance of its obligations and duties, or
by reason of its reckless disregard thereof.
(c) The Bank will indemnify each of the Trust and the Advisor, and its
directors, officers, employees and agents against and hold it and them
harmless from any and all losses, claims, damages, liabilities or expenses
(including legal fees and expenses) resulting from the willful misconduct,
bad faith or negligence of the Bank in the performance of its obligations
and duties under this Agreement, or by reason of the Bank's reckless
disregard thereof.
(d) The Bank may apply to the Trust or the Adviser at any time for
written instructions and may consult counsel for the Trust or the Adviser,
and with accountants and other experts employed by the Trust or Adviser
with respect to any matter arising in connection with its duties hereunder,
and the Bank shall not be liable or accountable for any action taken or
omitted by it in good faith in accordance with such written instruction, or
with the written opinion of such counsel, accountants, or other experts.
The Bank shall not be liable for any act or omission taken or not taken in
reliance upon any document, certificate or instrument which it reasonably
believes to be genuine and to be signed or presented by the proper person
or persons. The Bank shall not be held to have notice of any change of
authority of any officers, employees, or agents of the Trust or Adviser
until receipt of written notice thereof has been received by the Bank.
(e) In the event the Bank is unable to perform, or is delayed in
performing, its obligations under the terms of this Agreement because of
acts of God, strikes, legal constraint, government actions, war, emergency
conditions, interruption of electrical power or other utilities, equipment
or transmission failure or damage reasonably beyond its control or other
causes reasonably beyond its control, the Bank shall not be liable to the
Trust or Adviser for any damages resulting from such failure to perform,
delay in performance, or otherwise from such causes.
(f) The Bank represents that the occurrence in or use by the Bank's
own proprietary internal systems (the "Systems") of dates on or after
January 1, 2000 (the "Millennial Dates") will not adversely affect the
performance of the Systems with respect to date dependent data,
computations, output or other functions (including, without limitation,
calculating, computing and sequencing) and that the Systems will create,
store and generate output data related to or including Millennial Dates
without errors or omissions ("Year 2000 Compliance"). The Bank shall
promptly notify the Trust of any lack of Year 2000 Compliance of which it
becomes aware that impact the Bank's services hereunder.
The parties to this Agreement acknowledge that the Bank can make no
certification as to the Year 2000 Compliance of third-party systems utilized by
the Bank in its day to day operations or with which the Systems interact or
communicate, from which the Systems receive data or to which the Systems send
data. The parties further acknowledge that while the Bank has contacted such
third-party providers regarding Year 2000 Compliance and will use reasonable
efforts to monitor the status of such third-party providers' Year 2000
Compliance, failure by such third-party providers to achieve timely Year 2000
Compliance could adversely affect the Bank's performance of its obligations
hereunder. The Bank shall promptly notify the Trust of any lack of Year 2000
Compliance of any third-party provider of which it becomes aware that impacts
the Bank's services hereunder.
(g) Notwithstanding anything to the contrary in this Agreement, in no
event shall the Bank be liable for special, incidental or consequential
damages, even if advised of the possibility of such damages.
7. Termination of Agreement.
(a) The term of this Agreement shall be three years commencing upon
the date hereof (the "Initial Term"), unless earlier terminated as provided
herein. After the expiration of the Initial Term, the term of this
Agreement shall automatically renew for successive one-year terms (each a
"Renewal Term") unless notice of non-renewal is delivered by the
non-renewing party to the other party no later than sixty (60) days prior
to the expiration of the Initial Term or any Renewal Term, as the case may
be.
(i) Either party hereto may immediately terminate this Agreement
prior to the expiration of the Initial Term (x) in the event the other
party violates any material provision of this Agreement or is unable
to continue to fulfill its obligation and duties under the Agreement;
provided that a violating party shall for its first material violation
of this Agreement have the opportunity to cure such violation within
forty-five (45) days of receipt of written notice from the
non-violating party of such violation, or (y) after the second
anniversary hereof, upon ninety (90) days written notice to the other
party.
(ii) Either party may terminate this Agreement during any Renewal
Term upon sixty (60) days written notice to the other party. Any
termination pursuant to this paragraph 7(a)(ii) shall be effective
upon expiration of such sixty (60) days, provided, however, that the
effective date of such termination may be postponed, at the request of
the Trust, to a date not more than one hundred twenty (120) days after
delivery of the written notice in order to give the Trust an
opportunity to make suitable arrangements for a successor
administrator.
(b) The Trust may, upon written request, have reasonable access to the
records of the Bank relating to its performance of its duties as
Administrator. At all times such records shall be the property of the
Trust.
8. Miscellaneous.
(a) Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Trust or the Bank shall be
sufficiently given if addressed to that party and received by it at its
office set forth below or at such other place as it may from time to time
designate in writing.
To the Trust:
X.com Funds
394 University Avenue
Palo Alto, CA 94301
Attention: John T. Story
Facsimile: (650) 833-5470
With a copy to: David J. Harris, Dechert Price & Rhoads
Facsimile: (202) 261-3333
To the Adviser:
X.com Asset Management, Inc.
394 University Avenue
Palo Alto, CA 94301
Attention: John T. Story
Facsimile: (650) 833-5470
With a copy to: David J. Harris, Dechert Price & Rhoads
Facsimile: (202) 261-3333
To the Bank:
Investors Bank & Trust Company
200 Clarendon Street, P.O. Box 9130
Boston, MA 02117-9130
Attention: Paula A. Lordi, Director, Client Management
Facsimile: (617) 330-6033
With a copy to: Andrew S. Josef, Assistant General Counsel
Facsimile: (617) 351-4314
(b) This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable without the written
consent of the other party.
(c) This Agreement shall be construed in accordance with the laws of
the Commonwealth of Massachusetts, without regard to its conflict of laws
provisions.
(d) This Agreement may be executed in any number of counterparts each
of which shall be deemed to be an original and which collectively shall be
deemed to constitute only one instrument.
(e) The captions of this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect.
9. Confidentiality. All books, records, information and data pertaining to
the business of the other party which are exchanged or received pursuant to the
negotiation or the carrying out of this Agreement shall remain confidential, and
shall not be voluntarily disclosed to any other person, except as may be
required in the performance of duties hereunder or as otherwise required by law.
10. Use of Name. The Trust shall not use the name of the Bank or any of its
affiliates in any prospectus, sales literature or other material relating to the
Trust in a manner not approved by the Bank prior thereto in writing; provided
however, that the approval of the Bank shall not be required for any use of its
name which merely refers in accurate and factual terms to its appointment
hereunder or which is required by the Securities and Exchange Commission or any
state securities authority or any other appropriate regulatory, governmental or
judicial authority; provided further, that in no event shall such approval be
unreasonably withheld or delayed. The Bank shall not use the name of the Trust
or any of its affiliates in any sales literature or other material relating to
the Bank and its services in a manner not approved by the Trust prior thereto in
writing; provided however, that the approval of the Trust shall not be required
for any use of its name which merely refers in accurate and factual terms to its
appointment hereunder or which is required by the Securities and Exchange
Commission or any state securities authority or any other appropriate
regulatory, governmental or judicial authority; provided further, that in no
event shall such approval be unreasonably withheld or delayed.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed and delivered by their duly authorized officers as of the date
first written above.
X.COM FUNDS
By:
---------------------------
Name:
Title:
X.COM ASSET MANAGEMENT, INC.
By:
---------------------------
Name:
Title:
INVESTORS BANK & TRUST COMPANY
By:
---------------------------
Name:
Title:
<PAGE>
APPENDICES
Appendix A....................................................... Funds
Appendix B....................................................... Services
Appendix C....................................................... Fee Schedule
<PAGE>
Appendix A
FUNDS OF X.COM FUNDS
1) X.com Premier S&P 500 Fund
2) X.com U.S.A. Bond Fund
3) X.com U.S.A. Money Market Fund
September ___, 1999
Date
X.com Funds Investors Bank & Trust Company
- ------------------------------------ ------------------------------
Signed Signed
<PAGE>
Appendix B
SERVICES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Function X.COM Suggested Fund Auditor or
Counsel
- ---------------------------------- ------------------------------ ----------------------------- ------------------------------
- ----------------------------------
MANAGEMENT REPORTING
& TREASURY ADMINISTRATION
- ----------------------------------
Monitor portfolio compliance in Perform tests of certain Oversee BGI's continuous A/C - Provide consultation as
accordance with the current specific portfolio activity monitoring of portfolio needed on compliance issues.
Prospectus and SAI. designed from provisions of activity and Fund
the Fund's Prospectus and operations in conjunction
Frequency: Bi-monthly SAI. Follow-up on potential with 1940 Act, Prospectus,
violations. SAI and any other
applicable laws and
regulations. Monitor
testing results and approve
resolution of compliance
issues.
Provide compliance summary Provide a report of Review report. A/C - Provide consultation as
package. compliance testing results. needed.
Frequency: Monthly
Perform asset diversification Perform asset Oversee BGI's continuous A - Provide consultation as
testing to establish diversification tests at monitoring of portfolio needed in establishing
qualification as a RIC. each tax quarter end. activity in conjunction positions to be taken in tax
Follow-up on issues. with IRS requirements. treatment of particular issues.
Frequency: Quarterly Review test results and Review quarter end tests on a
take any necessary action. current basis.
Approve tax positions taken.
Perform qualifying income Perform qualifying income Oversee BGI's continuous A- Consult as needed on tax
testing to establish testing (on book basis monitoring of portfolio accounting positions to be
qualification as a RIC. income, unless material activity in conjunction taken. Review in conjunction
differences are anticipated) with IRS requirements. with year-end audit.
Frequency: Quarterly on quarterly basis and as Review test results and
may otherwise be take any necessary action.
necessary. Follow-up on Approve tax positions taken.
issues.
Prepare the Fund's annual Prepare preliminary expense Provide asset level
expense budget. Establish daily budget. Notify fund projections. Approve
accruals. accounting of new accrual expense budget.
rates.
Frequency: Annually
Monitor the Fund's expense Monitor actual expenses Provide asset level C/A - Provide consultation as
budget. updating budgets/ expense projections quarterly. requested.
accruals. Provide vendor information
Frequency: Quarterly as necessary. Review
expense analysis and
approve budget revisions.
Receive and coordinate payment Propose allocations of Approve invoices and
of fund expenses. invoice among Funds and allocations of payments.
obtain authorized approval Send invoices to IBT in a
Frequency: As necessary to process payment. timely manner.
Calculate periodic dividend Calculate amounts available Establish and maintain C - Review dividend
rates and capital gains for distribution. dividend and distribution resolutions in conjunction with
distributions to be declared in Coordinate review by policies. Approve Board approval.
accordance with management management and/or auditors. distribution rates per
guidelines. Notify custody and transfer share and aggregate A - Review and concur with
agent of authorized dividend amounts. Obtain Board proposed distributions, annual
Frequency: Quarterly/Annually rates in accordance with approval when required. and excise only.
Board approved policy.
Report dividends to Board as
required.
Calculate total return Provide total return Review total return
information on Funds as defined calculations. Returns information.
in the current Prospectus and consist of monthly,
SAI. quarterly, YTD, since
inception and average annual
Frequency: Monthly since inception.
Prepare responses to major Prepare, coordinate as Identify the services to
industry questionnaires. necessary, and submit which the Funds report.
responses to the appropriate Provide information as
Frequency: As often as necessary agency. requested.
Prepare disinterested trustee Summarize amounts paid to Provide social security
Form 1099-Misc. trustees during the calendar numbers and current mailing
year. Prepare and mail Form address for trustees.
Frequency: Annually 1099-Misc. Review and approve
information provided for
Form 1099-Misc.
- ----------------------------------
FINANCIAL REPORTING
- ----------------------------------
Prepare financial information Prepare information as Review financial
for presentation to Fund required. information.
Management and Board of
Directors.
Frequency: As needed
Coordinate the annual audit and Coordinate the creation of Provide information A - Perform audit and issue
semi-annual preparation and templates reflecting required to create opinion on annual financial
printing of financial statements client-selected standardized templates, including report statements.
and notes with management, fund appearance and text of style and graphics.
accounting and the fund auditors. financial statements and Approve format and text as A/C - Review reports.
footnotes. Draft and manage standard. Approve
Frequency: production cycle. production cycle and assist
Annually/semi-annually Coordinate with IBT fund in managing to the cycle.
accounting the electronic Coordinate review and
receipt of portfolio and approval by portfolio
general ledger information. managers of portfolio
Assist in resolution of listings to be included in
accounting issues. Using financial statements.
templates, draft financial Prepare appropriate
statements, coordinate management letter and
auditor and management coordinate production of
review, and clear comments. Management Discussion and
Coordinate printing of Analysis. Review and
reports and EDGAR conversion approve entire report.
with outside printer and Make appropriate
filing with the SEC via representations in
EDGAR. conjunction with audit.
- ----------------------------------
LEGAL
- ----------------------------------
Prepare and file Form N-SAR. Prepare form for filing. Provide appropriate C - Review initial filing.
Obtain any necessary responses. Provide A - Provide annual audit
Frequency: Semi-annually supporting documents. File applicable Exhibits to internal control letter to
with SEC via EDGAR. attach to filing. Review accompany the annual filing.
and authorize filing.
Assist the preparation and Accumulate capital stock Review and approve capital A/C - Review informally when
filing of Form 24f-2 Notice. information. stock worksheet. requested.
Frequency: Annually
Respond to regulatory or auditor Compile and provide Coordinate with regulatory C - Provide consultation as
examinations and requests. documentation pursuant to authorities and auditors to needed.
examinations, audits and provide requested
Frequency: As needed (at least requests from regulators or documentation and
annually) auditors. Assist client and resolutions to inquiries.
legal counsel in resolution
of regulatory and audit
inquiries.
Proxy material/shareholder Prepare drafts of proxy Review and approve proxy. C - Review and approve proxy.
meetings. material for review, file
materials or coordinate
Frequency: As needed filing with the SEC and
coordinate printing. Assist
proxy solicitation firm and
prepare scripts. Attend
meeting and prepare minutes.
Prepare amendments to Coordinate the preparation Review and approve. C - Review and approve filings.
Registration Statement. and filing of post-effective
amendments. Coordinate with A/C - Provide consents as
Frequency: Annual updates outside printers the EDGAR appropriate.
(includes updating financial conversion, filing with the
highlights, expense tables, SEC and printing of
ratios) plus one additional prospectus.
filing per fiscal year.
Prepare prospectus/SAI Coordinate the preparation Review and approve. C - Review and approve filings.
supplements. and filing of prospectus and
SAI supplements. File with A/C - Provide consents as
Frequency: As often as required the SEC via EDGAR. appropriate.
Prepare agenda and board Maintain annual calendar of Review and approve board C - Review agenda, board
materials for quarterly board required quarterly and materials. material and board and
meetings. annual approvals. Prepare committee minutes. Ensure
agenda, resolutions and board material contains all
Frequency: Quarterly other board materials for required information that the
quarterly board meetings. members of the board must
Prepare supporting review and/or approve to
information and materials perform their duties as
when necessary. Assemble, directors/trustees.
check and distribute books
in advance of meeting.
Attend board and committee
meetings and prepare minutes.
Furnish Trust officers. Furnish appropriate Furnish appropriate
personnel as officers of the personnel as officers of
Frequency: As needed Trust. the Trust.
Assist in updating of fidelity Make annual filing of Obtain required fidelity
bond insurance coverage. fidelity bond insurance bond insurance coverage.
material with the SEC. Monitor level of fidelity
Frequency: Annually bond insurance maintained
in accordance with required
coverage.
- ----------------------------------
TAX
- ----------------------------------
Prepare income tax provisions. Calculate investment company Provide transaction A - Provide consultation as
taxable income, net tax information as requested. needed in establishing
Frequency: Annually exempt interest, net capital Approve tax accounting positions to be taken in tax
gain and spillback dividend positions to be taken. treatment of particular
requirements. Identify Approve provisions. PFIC's issues. Perform review in
book-tax accounting to be identified at the conjunction with the year-end
differences. Track required Portfolio (HUB) level. audit.
information relating to
accounting differences.
Calculate excise tax Calculate required Provide transaction A - Provide consultation as
distributions. distributions to avoid information as requested. needed in establishing
imposition of excise tax. Passive Foreign Investment positions to be taken in tax
Frequency: Annually - Calculate capital gain Companies (PFICs) to be treatment of particular
net income and foreign identified at the Portfolio issues. Review and concur with
currency gain/loss (HUB) level. Approve tax proposed distributions.
through October 31. accounting positions to be
- Calculate ordinary taken. Review and approve
income and all income and distribution
distributions through a calculations, including
specified cut off date . projected income and
- Project ordinary dividend shares. Approve
income from cut off distribution rates per
date to December 31. share and aggregate
- Ascertain dividend amounts. Obtain Board
shares. approval when required.
Identify book-tax accounting differences.
Track required information relating to
accounting differences. Coordinate review
by management and fund auditors. Notify
custody and transfer agent of authorized
dividend rates in accordance with Board
approved policy. Report dividends to Board
as required.
Prepare tax returns. Prepare excise and RIC tax Review and sign tax return. A - Review and sign tax return
returns. as preparer.
Frequency: Annually
Prepare Form 1099. Obtain yearly distribution Review and approve
information. Calculate 1099 information provided for
reclasses and coordinate Form 1099.
with transfer agent.
Frequency: Annually
Prepare other year-end Obtain yearly income Review and approve
tax-related disclosures. distribution information provided.
information. Calculate
Frequency: Annually disclosures
(i.e., dividend received
deductions,
foreign tax credits,
tax-exempt
income, income by
jurisdiction) and
coordinate with transfer
agent.
- ----------------------------------
BLUE SKY
- ----------------------------------
Maintain effective Blue Sky Maintain records of fund Identify states in which C- Provide consultation as
notification filings for states sales for client designated filings are to be made. needed on Blue Sky issues.
in which Fund Management intends states via PW Blue2
to solicit sales of fund shares. compliance system. File Identify exempt C- Provide consultation on
annual notification renewal transactions to transfer product and institutional
Frequency: On-going documents and annual sales agent for appropriate exemptions.
reports. File amendments to exclusion from blue sky
increase dollar amounts reporting.
authorized for sales by
funds, based upon client
instruction. File
notifications to states for
new funds and/or classes,
mergers and liquidations. Provide periodic
reports on state authorization amounts and
slaes amounts. Determine state filing
requirements by using CCH Blue Sky Law
Reporter, ICI memoranda and state
securities commission directives (both
written and oral).
File amendments to registration File updated registration Inform IBT of filings prior C- Provide consultation as
statement with the applicable statements, prospectus, to SEC filing. needed on Blue Sky filing
state securities commissions in SAIs, supplements thereto, issues.
coordination with SEC filing. and annual reports to
shareholders upon
Frequency: Annual updates approval/authorization by
(includes registration client.
statement, prospectus, SAI) plus
an additional filing per fiscal
year
</TABLE>
<PAGE>
Appendix C
X.Com Funds
Annual Fee Schedule
________________, 1999
A. Trust Accounting, Custody and Calculation of N.A.V.
The Annual Fee for Trust Accounting, Custody and Calculation of N.A.V. for
three Feeder Trusts will be charged according to the following schedule.
The following schedule is exclusive of transaction costs and out-of-pocket
expenses.
Annual Fee
----------
Annual Fee per feeder fund
$12,000
For each additional class added beyond the first one class there will be an
annual fee of $6,000 for the above services.
B. Trust Administration, Compliance, Financial Statement Preparation,
Legal Administration, and Blue Sky.
The Annual Fee for Trust Administration, Financial Statement Preparation,
Legal Administration, and Blue Sky for three Feeder Trusts will be charged
according to the following schedule.
Annual Fee
Annual Fee per feeder fund
$50,000
For each additional class added beyond the first one class there will be an
annual fee of $10,000 for the above services.
C. Miscellaneous
1. Out-of-Pocket
For purposes of this Agreement, out-of-pocket charges consist of:
- Telephone
- Ad Hoc Reporting
- Third Party Review
- Forms and Supplies
- Printing/Postage/Delivery
- Systems Development/Reports/Transmissions
- Equipment Rental
- Legal costs associated with substantial alterations of IBT's
standard agreements
2. Balance Credits
The use of balance credit against fees (excluding out-of-pocket charges)
for collected fund balances arising out of the custody relationship is
permitted. The monthly earnings allowance is equal to 75% of the 90-day
T-bill rate.
3. Systems
The details of any systems work required to service this fund will be
determined after a thorough business analysis. All systems work, including
creating customized reports and establishing systems/communications
interfaces with X.com, other providers, etc., will be billed on a time and
materials basis.
4. Billing and Payment
The above fees will be charged against the Funds' custodian checking
account five business days after the invoice is mailed to the fund.
All charges will be billed monthly. The fee schedule will be effective upon
start-up of the Funds.
FORM OF TRANSFER AGENCY AGREEMENT
---------------------------------
AGREEMENT made this day of September, 1999 between X.com Funds (the
"Trust"), a Delaware business trust having its principal place of business at
394 University Avenue, Palo Alto, CA 94303, and X.com Asset Management, Inc.
("XAM"), a Delaware corporation having its principal place of business at 394
University Avenue, Palo Alto, CA 94303.
WHEREAS, the Trust is a registered investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"), consisting of each of the
separate series listed on Appendix A hereto (as such Appendix A may be amended
from time to time) (each a "Fund" and collectively, the "Funds");
WHEREAS, pursuant to an Investment Advisory Agreement between the Trust and
XAM, dated September __, 1999 (the "Advisory Agreement"), XAM has agreed to
provide or procure transfer agency services for the Trust; and
WHEREAS, the Trust and XAM desire to set forth the terms and conditions on
which XAM shall provide such services.
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services.
XAM shall perform for the Trust the transfer agent services set forth in
Schedule A hereto. XAM also agrees to perform for the Trust such special
services incidental to the performance of the services enumerated herein as
agreed to by the parties from time to time.
XAM may, in its discretion, appoint in writing other parties qualified to
perform transfer agency services reasonably acceptable to the Trust
(individually, a "Sub-transfer Agent") to carry out some or all of its
responsibilities under this Agreement with respect to a Fund; provided, however,
that the Sub-transfer Agent shall be the agent of XAM and not the agent of the
Trust or such Fund, and that XAM shall be fully responsible for the acts of such
Sub-transfer Agent and shall not be relieved of any of its responsibilities
hereunder by the appointment of such Sub-transfer Agent.
2. Fees and Expenses.
XAM shall be compensated for the services to be provided by XAM under this
Agreement, and shall be reimbursed for its out-of-pocket expenses in connection
with the provision of such services, from the fees paid to XAM under the
Advisory Agreement.
3. Effective Date.
This Agreement shall become effective as of the date first written above
(the "Effective Date").
4. Term.
This Agreement shall continue in effect with respect to a Fund for an
initial period of two years from the date of commencement. Thereafter, unless
otherwise terminated as provided herein, this Agreement shall be renewed
automatically for successive one-year periods. This Agreement may be terminated
without penalty by mutual agreement of the parties or upon the provision of 60
days advance written notice by one party to the other.
6. Uncontrollable Events.
XAM assumes no responsibility hereunder, and shall not be liable for any
damage, loss of data, delay or any other loss whatsoever caused by events beyond
its reasonable control.
7. Legal Advice.
XAM shall notify the Trust at any time XAM believes that it is in need of
the advice of counsel (other than counsel in the regular employ of XAM or any
affiliated companies) with regard to XAM's responsibilities and duties pursuant
to this Agreement; and after so notifying the Trust, XAM, at its discretion,
shall be entitled to seek, receive and act upon advice of legal counsel of its
choosing, such advice to be at the expense of the Trust or Funds unless relating
to a matter involving XAM's willful misfeasance, bad faith, gross negligence or
reckless disregard with respect to XAM's responsibilities and duties hereunder
and XAM shall in no event be liable to the Trust or any Fund or any shareholder
or beneficial owner of the Trust for any action reasonably taken pursuant to
such advice.
8. Instructions.
Whenever XAM is requested or authorized to take action hereunder pursuant
to instructions from a shareholder, or a properly authorized agent of a
shareholder ("shareholder's agent"), concerning an account in a Fund, XAM shall
be entitled to rely upon any certificate, letter or other instrument or
communication, believed by XAM to be genuine and to have been properly made,
signed or authorized by an officer or other authorized agent of the Trust or by
the shareholder or shareholder's agent, as the case may be, and shall be
entitled to receive as conclusive proof of any fact or matter required to be
ascertained by it hereunder a certificate signed by an officer of the Trust or
any other person authorized by the Trust's Board of Trustees (the "Trustees") or
by the shareholder or shareholder's agent, as the case may be.
As to the services to be provided hereunder, XAM may rely conclusively upon
the terms of the Prospectuses and Statement of Additional Information of the
Trust relating to the Funds to the extent that such services are described
therein unless XAM receives written instructions to the contrary in a timely
manner from the Trust.
9. Standard of Care; Reliance on Records and Instructions; Indemnification.
XAM shall use its best efforts to ensure the accuracy of all services
performed under this Agreement, but shall not be liable to the Trust for any
action taken or omitted by XAM in the absence of bad faith, willful misfeasance,
negligence or from reckless disregard by it of its obligations and duties. The
Trust agrees to indemnify and hold harmless XAM, its employees, agents,
directors, officers and nominees from and against any and all claims, demands,
actions and suits, whether groundless or otherwise, and from and against any and
all judgments, liabilities, losses, damages, costs, charges, counsel fees and
other expenses of every nature and character arising out of or in any way
relating to XAM's actions taken or nonactions with respect to the performance of
services under this Agreement or based, if applicable, upon reasonable reliance
on information, records, instructions or requests given or made to XAM by the
Trust, the investment adviser and on any records provided by any fund accountant
or custodian thereof; provided that this indemnification shall not apply to
actions or omissions of XAM in cases of its own bad faith, willful misfeasance,
negligence or from reckless disregard by it of its obligations and duties; and
further provided that prior to confessing any claim against it which may be the
subject of this indemnification, XAM shall give the Trust written notice of and
reasonable opportunity to defend against said claim in its own name or in the
name of XAM.
10. Record Retention and Confidentiality.
XAM shall keep and maintain on behalf of the Trust all books and records
which the Trust or XAM is, or may be, required to keep and maintain pursuant to
any applicable statutes, rules and regulations, including without limitation
Rules 31a-1 and 31a-2 under the Investment Company Act of 1940, as amended (the
"1940 Act"), relating to the maintenance of books and records in connection with
the services to be provided hereunder. XAM further agrees that all such books
and records shall be the property of the Trust and to make such books and
records available for inspection by the Trust or by the Securities and Exchange
Commission (the "Commission") at reasonable times and otherwise to keep
confidential all books and records and other information relative to the Trust
and its shareholders, except when requested to divulge such information by
duly-constituted authorities or court process, or requested by a shareholder or
shareholder's agent with respect to information concerning an account as to
which such shareholder has either a legal or beneficial interest or when
requested by the Trust, the shareholder, or shareholder's agent, or the dealer
of record as to such account.
11. Reports.
XAM will furnish to the Trust and to its properly-authorized auditors,
investment advisers, examiners, distributors, dealers, underwriters, salesmen,
insurance companies and others designated by the Trust in writing, such reports
at such times as are prescribed in Schedule B attached hereto, or as
subsequently agreed upon by the parties pursuant to an amendment to Schedule B.
The Trust agrees to examine each such report or copy promptly and will report or
cause to be reported any errors or discrepancies therein.
12. Rights of Ownership.
All computer programs and procedures developed to perform services required
to be provided by XAM under this Agreement are the property of XAM. All records
and other data except such computer programs and procedures are the exclusive
property of the Trust and all such other records and data will be furnished to
the Trust in appropriate form as soon as practicable after termination of this
Agreement for any reason.
13. Return of Records.
XAM may at its option at any time, and shall promptly upon the Trust's
demand, turn over to the Trust and cease to retain XAM's files, records and
documents created and maintained by XAM pursuant to this Agreement which are no
longer needed by XAM in the performance of its services or for its legal
protection. If not so turned over to the Trust, such documents and records will
be retained by XAM for six years from the year of creation. At the end of such
six-year period, such records and documents will be turned over to the Trust
unless the Trust authorizes in writing the destruction of such records and
documents.
14. Bank Accounts.
The Trust and the Funds shall establish and maintain such bank accounts
with such bank or banks as are selected by the Trust, as are necessary in order
that XAM may perform the services required to be performed hereunder. To the
extent that the performance of such services shall require XAM directly to
disburse amounts for payment of dividends, redemption proceeds or other
purposes, the Trust and Funds shall provide such bank or banks with all
instructions and authorizations necessary for XAM to effect such disbursements.
15. Representations of the Trust.
The Trust certifies to XAM that: (a) as of the close of business on the
Effective Date, each Fund which is in existence as of the Effective Date has
authorized unlimited shares, and (b) by virtue of its Trust Instrument, shares
of each Fund which are redeemed by the Trust may be sold by the Trust from its
treasury, and (c) this Agreement has been duly authorized by the Trust and, when
executed and delivered by the Trust, will constitute a legal, valid and binding
obligation of the Trust, enforceable against the Trust in accordance with its
terms, subject to bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting the rights and remedies of creditors and
secured parties.
16. Representations of XAM.
XAM represents and warrants that: (a) XAM has been in, and shall continue
to be in, substantial compliance with all provisions of law, including Section
17A(c) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
required in connection with the performance of its duties under this Agreement;
and (b) the various procedures and systems which XAM has implemented with regard
to safekeeping from loss or damage attributable to fire, theft or any other
cause of the blank checks, records, and other data of the Trust and XAM's
records, data, equipment, facilities and other property used in the performance
of its obligations hereunder are adequate and that it will make such changes
therein from time to time as are required for the secure performance of its
obligations hereunder.
17. Insurance.
XAM shall notify the Trust should its insurance coverage with respect to
professional liability or errors and omissions coverage be canceled or reduced.
Such notification shall include the date of change and the reasons therefor. XAM
shall notify the Trust of any material claims against it with respect to
services performed under this Agreement, whether or not they may be covered by
insurance, and shall notify the Trust from time to time as may be appropriate of
the total outstanding claims made by XAM under its insurance coverage.
18. Information to be Furnished by the Trust and Funds.
The Trust has furnished to XAM the following:
(a) Copies of the Trust Instrument of the Trust and of any amendments
thereto, certified by the proper official of the state in which filed.
(b) Copies of the following documents:
1. The Trust's Bylaws and any amendments thereto;
2. Certified copies of resolutions of the Trustees covering the
following matters:
A. Approval of this Agreement and authorization of a specified
officer of the Trust to execute and deliver this Agreement
and authorization for specified officers of the Trust to
instruct XAM hereunder; and
B. Authorization of XAM to act as Transfer Agent for the Trust
on behalf of the Funds.
(c) A list of all officers of the Trust, together with specimen signatures
of those officers, who are authorized to instruct XAM in all matters.
(d) Prospectus and Statement of Additional Information;
(e) A certificate as to shares of beneficial interest or common stock of
the Trust authorized, issued, and outstanding as of the Effective Date
of XAM's appointment as Transfer Agent (or as of the date on which
XAM's services are commenced, whichever is the later date) and as to
receipt of full consideration by the Trust for all shares outstanding,
such statement to be certified by the Treasurer of the Trust.
19. Information Furnished by XAM.
XAM has furnished to the Trust the following:
(a) XAM's Articles of Incorporation.
(b) XAM's Bylaws and any amendments thereto.
(c) Certified copies of actions of XAM covering the following matters:
1. Approval of this Agreement, and authorization of a specified
officer of XAM to execute and deliver this Agreement;
2. Authorization of XAM to act as Transfer Agent for the Trust.
(d) A copy of the most recent independent accountants' report relating to
internal accounting control systems as filed with the Commission
pursuant to Rule 17Ad-13 under the Exchange Act.
20. Amendments to Documents.
The Trust shall furnish XAM written copies of any amendments to, or changes
in, any of the items referred to in Section 18 hereof forthwith upon such
amendments or changes becoming effective. In addition, the Trust agrees that no
amendments will be made to the Prospectus or Statement of Additional Information
of the Trust which might have the effect of changing the procedures employed by
XAM in providing the services agreed to hereunder or which amendment might
affect the duties of XAM hereunder unless the Trust first obtains XAM's approval
of such amendments or changes.
21. Reliance on Amendments.
XAM may rely on any amendments to or changes in any of the documents and
other items to be provided by the Trust pursuant to Sections 18 and 20 of this
Agreement and the Trust hereby indemnifies and holds harmless XAM from and
against any and all claims, demands, actions, suits, judgments, liabilities,
losses, damages, costs, charges, counsel fees and other expenses of every nature
and character which may result from actions or omissions on the part of XAM in
reasonable reliance upon such amendments and/or changes. Although XAM is
authorized to rely on the above-mentioned amendments to and changes in the
documents and other items to be provided pursuant to Sections 18 and 20 hereof,
XAM shall be under no duty to comply with or take any action as a result of any
of such amendments or changes unless the Trust first obtains XAM's written
consent to and approval of such amendments or changes.
22. Compliance with Law.
Except for the obligations of XAM set forth in Section 10 hereof, the Trust
assumes full responsibility for the preparation, contents, and distribution of
each prospectus of the Trust as to compliance with all applicable requirements
of the Securities Act of 1933, as amended (the "1933 Act"), the 1940 Act, and
any other laws, rules and regulations of governmental authorities having
jurisdiction. XAM shall have no obligation to take cognizance of any laws
relating to the sale of the Trust's shares. The Trust represents and warrants
that no shares of the Trust will be offered to the public until the Trust's
registration statement under the 1933 Act and the 1940 Act has been declared or
becomes effective.
23. Notices.
Any notice provided hereunder shall be sufficiently given when sent by
registered or certified mail to the party required to be served with such notice
at the following address: 394 University Avenue, Palo Alto, CA 94301, or at such
other address as such party may from time to time specify in writing to the
other party pursuant to this Section.
24. Headings.
Paragraph headings in this Agreement are included for convenience only and
are not to be used to construe or interpret this Agreement.
25. Assignment.
This Agreement and the rights and duties hereunder shall not be assignable
by either of the parties hereto except by the specific written consent of the
other party. This Section 25 shall not limit or in any way affect XAM's right to
appoint a Sub-transfer Agent pursuant to Section 1 hereof. This Agreement shall
be binding upon, and shall inure to the benefit of, the parties hereto and their
respective successors and permitted assigns.
26. Governing Law.
This Agreement shall be governed by and provisions shall be construed in
accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
X.COM FUNDS
By:
---------------------------------
Title:
------------------------------
X.COM ASSET MANAGEMENT, INC.
By:
---------------------------------
Title:
------------------------------
<PAGE>
SCHEDULE A
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
X.COM FUNDS
AND
X.COM ASSET MANAGEMENT, INC.
TRANSFER AGENCY SERVICES
------------------------
1. Shareholder Transactions
------------------------
a. Process shareholder purchase and redemption orders.
b. Set up account information, including address, dividend option,
taxpayer identification numbers and wire instructions.
c. Issue confirmations in compliance with Rule 10b-10 under the
Securities Exchange Act of 1934, as amended.
d. Issue periodic statements for shareholders.
e. Process transfers and exchanges.
f. Process dividend payments, including the purchase of new shares,
through dividend reimbursement.
2. Shareholder Information Services
--------------------------------
a. Make information available to shareholder servicing unit and other
remote access units regarding trade date, share price, current
holdings, yields, and dividend information.
b. Produce detailed history of transactions through duplicate or special
order statements upon request.
c. Provide mailing labels for distribution of financial reports,
prospectuses, proxy statements or marketing material to current
shareholders.
3. Compliance Reporting
--------------------
a. Provide reports to the Securities and Exchange Commission, the
National Association of Securities Dealers and the States in
which the Fund is registered.
b. Prepare and distribute appropriate Internal Revenue Service forms
for corresponding Fund and shareholder income and capital gains.
c. Issue tax withholding reports to the Internal Revenue Service.
4. Dealer/Load Processing (if applicable)
-------------------------------------
a. Provide reports for tracking rights of accumulation and purchases made
under a Letter of Intent.
b. Account for separation of shareholder investments from transaction
sale charges for purchase of Fund shares.
c. Calculate fees due under 12b-1 plans for distribution and marketing
expenses.
d. Track sales and commission statistics by dealer and provide for
payment of commissions on direct shareholder purchases in a load Fund.
A-1
<PAGE>
5. Shareholder Account Maintenance
-------------------------------
a. Maintain all shareholder records for each account in the Trust.
b. Issue customer statements on scheduled cycle, providing duplicate
second and third party copies if required.
c. Record shareholder account information changes.
d. Maintain account documentation files for each shareholder.
A-2
<PAGE>
SCHEDULE B
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
X.COM FUNDS
AND
X.COM ASSET MANAGEMENT, INC.
REPORTS
-------
1. Daily Shareholder Activity Journal
2. Daily Fund Activity Summary Report
a. Beginning Balance
b. Dealer Transactions
c. Shareholder Transactions
d. Reinvested Dividends
e. Exchanges
f. Adjustments
g. Ending Balance
3. Daily Wire and Check Registers
4. Monthly Dealer Processing Reports
5. Monthly Dividend Reports
6. Sales Data Reports for Blue Sky Registration
7. Annual report by independent public accountants concerning XAM's
shareholder system and internal accounting control systems to be filed with
the Securities and Exchange Commission pursuant to Rule 17Ad-13 of the
Securities Exchange Act of 1934, as amended.
8. Such special reports and additional information that the parties may agree
upon, from time to time.
C-1
FORM OF THIRD PARTY FEEDER FUND AGREEMENT
among
X.COM FUNDS,
X.COM ASSET MANAGEMENT, INC.
and
MASTER INVESTMENT PORTFOLIO
dated as of
September 1, 1999
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I REPRESENTATIONS AND WARRANTIES.........................1
1.1 Company................................................1
1.2 MIP....................................................2
1.3 Manager................................................3
ARTICLE II COVENANTS..............................................4
2.1 Company................................................4
2.2 MIP....................................................5
2.3 Reasonable Actions.....................................7
ARTICLE III INDEMNIFICATION........................................7
3.1 Company................................................7
3.2 Manager................................................9
3.3 MIP...................................................10
ARTICLE IV ADDITIONAL AGREEMENTS.................................11
4.1 Access to Information.................................11
4.2 Confidentiality.......................................12
4.3 Obligations of Company and MIP........................12
ARTICLE V TERMINATION, AMENDMENT................................12
5.1 Termination...........................................12
5.2 Amendment.............................................12
ARTICLE VI GENERAL PROVISIONS....................................12
6.1 Expenses..............................................13
6.2 Headings..............................................13
6.3 Entire Agreement......................................13
6.4 Successors............................................13
6.5 Governing Law.........................................13
6.6 Counterparts..........................................13
6.7 Third Parties.........................................13
6.8 Notices...............................................13
6.9 Interpretation........................................14
6.10 Operation of Fund.....................................14
6.11 Relationship of Parties; No Joint Venture, Etc........14
6.12 Use of Name...........................................14
Signatures
Schedule A
Schedule B
<PAGE>
AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of the 1st day
of September, 1999, by and among X.com Funds, a Delaware business trust (the
"Company"), for itself and on behalf of its series set forth on Schedule A
hereto (each a "Fund" and collectively, the "Funds"), the Funds' asset manager
- -- X.com Asset Management, Inc. ("Manager"), a Delaware corporation, and Master
Investment Portfolio ("MIP"), a Delaware business trust, for itself and on
behalf of its series set forth on Schedule B (each a "Portfolio" and
collectively, the "Portfolios").
WITNESSETH
WHEREAS, Company and MIP are each registered under the Investment Company
Act of 1940, as amended (the "1940 Act") as open-end management investment
companies;
WHEREAS, each Fund has the same investment objective and substantially the
same investment policies as the corresponding Portfolio;
WHEREAS, each Fund desires to invest on an ongoing basis all or
substantially all of its investable assets (the "Assets") in exchange for a
beneficial interest in the corresponding Portfolio (the "Investment") on the
terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing, the mutual promises made
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES
1.1 Company. Company represents and warrants to MIP that:
(a)......Organization. Company is a business trust duly organized, validly
existing and in good standing under the laws of the State of Delaware, and each
of the Funds is a duly and validly designated series of Company. Company and
each Fund has the requisite power and authority to own its property and conduct
its business as proposed to be conducted pursuant to this Agreement.
(b)......Authorization of Agreement. The execution and delivery of this
Agreement by Company for itself and on behalf of each Fund and the conduct of
business contemplated hereby have been duly authorized by all necessary action
on the part of the Company's Board of Trustees and no other action or proceeding
is necessary for the execution and delivery of this Agreement by the Funds, or
the performance by the Funds of its obligations hereunder. This Agreement when
executed and delivered by Company on behalf of each Fund shall constitute a
legal, valid and binding obligation of Company, enforceable against each Fund in
accordance with its terms.
<PAGE>
No meeting of, or consent by, shareholders of the Funds is necessary to approve
or implement the Investments.
(c)......1940 Act Registration. Company is duly registered under the 1940
Act as an open-end management investment company, and such registration is in
full force and effect.
(d)......SEC Filings. Company has duly filed all forms, reports, proxy
statements and other documents (collectively, the "SEC Filings") required to be
filed with the Securities and Exchange Commission (the "SEC"), from time to
time, under the Securities Act of 1933 (the "1933 Act"), the Securities Exchange
Act of 1934 (the "1934 Act") and the 1940 Act, and the rules and regulations
thereunder, (collectively, the "Securities Laws") in connection with the
registration of each Fund's shares, any meetings of its shareholders and its
registration as a series of an investment company. All SEC Filings relating to
each Fund comply in all material respects with the requirements of the
applicable Securities Laws and do not, as of the date of this Agreement, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(e)......Fund Assets. Each Fund currently intends to invest its Assets on
an ongoing basis solely in the corresponding Portfolio, although it reserves the
right to invest its Assets in other securities and other assets and/or to redeem
any or all units of the corresponding Portfolio at any time and without notice.
(f)......Registration Statement. Company has reviewed MIP's and Portfolio's
registration statement on -------------------------- Form N-lA, as filed with
the SEC.
(g)......Insurance. Company has in force an errors and omissions liability
insurance policy insuring each Fund against loss of up to $150,000 for
negligence or wrongful acts.
1.2 MIP. ...MIP represents and warrants to Company that: ---
(a)......Organization. MIP is a trust duly organized, validly existing and
in good standing under the laws of the State of Delaware and each Portfolio is a
duly and validly designated series of MIP. MIP and each Portfolio has the
requisite power and authority to own its property and conduct its business as
now being conducted and as proposed to be conducted pursuant to this Agreement.
(b)......Authorization of Agreement. The execution and delivery of this
Agreement by MIP for itself and on behalf of each Portfolio and the conduct of
business contemplated hereby have been duly authorized by all necessary action
on the part of MIP's Board of Trustees and no other action or proceeding is
necessary for the execution and delivery of this Agreement by any Portfolio, or
the performance by any Portfolio of its obligations hereunder and the
consummation by the Portfolios of the transactions contemplated hereby. This
Agreement when executed and delivered by MIP on behalf of each Portfolio shall
constitute a legal, valid and binding obligation of MIP and each Portfolio,
enforceable against MIP and each Portfolio in accordance with its
2
<PAGE>
terms. No meeting of, or consent by, interestholders of any Portfolio is
necessary to approve the issuance of the Interests (as defined below) to the
corresponding Fund.
(c)......Issuance of Beneficial Interest. The issuance by MIP of beneficial
interests in each Portfolio ("Interests") in exchange for the Investment by the
corresponding Fund of its Assets has been duly authorized by all necessary
action on the part of the Board of Trustees of MIP. When issued in accordance
with the terms of this Agreement, the Interests will be validly issued, fully
paid and non-assessable.
(d)......1940 Act Registration. MIP is duly registered as an open-end
management investment company under the 1940 Act and such registration is in
full force and effect.
(e)......SEC Filings; Securities Exemptions. MIP has duly filed all SEC
Filings, as defined herein, relating to each Portfolio required to be filed with
the SEC under the Securities Laws. Interests in each Portfolio are not required
to be registered under the 1933 Act, because such Interests are offered solely
in private placement transactions which do not involve any "public offering"
within the meaning of Section 4(2) of the 1933 Act. In addition, Interests in
each Portfolio are either noticed or qualified for sale or exempt from notice or
qualification requirements under applicable securities laws in those states or
jurisdictions in which Interests are offered and sold. All SEC Filings relating
to each Portfolio comply in all material respects with the requirements of the
applicable Securities Laws and do not, as of the date of this Agreement, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(f)......Tax Status. Each Portfolio is taxable as a partnership for federal
income tax purposes under the Internal Revenue Code of 1986, as amended (the
"Code").
(g)......Taxable and Fiscal Year. The taxable and fiscal year end of each
Portfolio is December 31. -----------------------
(h)......Insurance. MIP has in force an errors and omissions policy
insuring each Portfolio against loss of up to $5.0 million for negligence and
wrongful acts.
1.3 Manager. Manager represents and warrants to MIP that the execution and
delivery of this Agreement by Manager have been duly authorized by all necessary
action on the part of Manager and no other action or proceeding is necessary for
the execution and delivery of this Agreement by Manager, or the performance by
Manager of its obligations hereunder. This Agreement when executed and delivered
by Manager shall constitute a legal, valid and binding obligation of Manager,
enforceable against Manager in accordance with its terms.
3
<PAGE>
ARTICLE II
COVENANTS
2.1 Company. Company covenants that:
(a) Advance Review of Certain Documents. Company will furnish MIP at least
ten (10) business days prior to the earlier of filing or first use, with drafts
of each Fund's registration statement on Form N-lA and any amendments thereto,
and also will furnish MIP at least five (5) business days' prior to the earlier
of filing or first use, with drafts of any prospectus or statement of additional
information supplements. In addition, Company will furnish or will cause to be
furnished to MIP at least five (5) business days prior to the earlier of filing
or first use, as the case may be, any proposed advertising or sales literature
that contains language that describes or refers to MIP or any Portfolio and that
was not previously approved by MIP. Company agrees that it will include in all
such Fund documents any disclosures that may be required by law, and that it
will incorporate in all such Fund documents any material and reasonable comments
made by MIP. MIP will not, however, in any way be liable to Company for any
errors or omissions in such documents, whether or not MIP makes any objection
thereto, except to the extent such errors or omissions result from information
provided in a Portfolio's 1940 Act registration statement or otherwise provided
by MIP for inclusion therein. In addition, neither the Funds, nor Manager will
make any other written or oral representations about MIP or the Portfolios other
than those contained in such documents without MIP's prior written consent.
(b) SEC and Blue Sky Filings. Company will file all SEC Filings required to
be filed with the SEC under the Securities Laws in connection with the
registration of each Fund's shares, any meetings of its shareholders, and its
registration as a series of an investment company. Company will file such
similar or other documents as may be required to be filed with any securities
commission or similar authority by the laws or regulations of any state,
territory or possession of the United States, including the District of
Columbia, in which shares of each Fund are or will be noticed for sale ("State
Filings"). Each Fund's SEC Filings will comply in all material respects with the
requirements of the applicable Securities Laws, and, insofar as they relate to
information other than that supplied or required to be supplied by MIP, will
not, at the time they are filed or used to offer Fund shares, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Each Fund's State
Filings will be prepared in accordance with the requirements of applicable state
and federal law and the rules and regulations thereunder.
(c) 1940 Act Registration. Company will be duly registered as an open-end
management investment company under the 1940 Act.
(d) Tax Status. Each Fund will qualify for treatment as a regulated
investment company under Subchapter M of the Code for any taxable year during
which this Agreement continues in effect, except to the extent that a failure to
so qualify may result from any action or omission of the corresponding Portfolio
or MIP.
4
<PAGE>
(e) Fiscal Year. Each Fund shall take appropriate action to adopt and
maintain the same fiscal year end as Portfolio (currently the last day of
December).
(f) Proxy Voting. If requested to vote on matters pertaining to MIP or the
Portfolios, each Fund will either seek instructions from its shareholders and
vote its Interests in accordance with such instructions or vote its Interests in
the same proportion as the vote of all other holders of Interests, in accordance
with applicable law.
(g) Compliance with Laws. Company shall comply, in all material respects,
with all applicable laws, rules and regulations in connection with conducting
its operations as a registered investment company.
(h) Insurance. Company will maintain in full force and effect for so long
as this Agreement is in effect insurance coverage against liabilities that may
arise as a result of each Fund's business, in such amount, and covering such
liabilities as the Board of Trustees of Company deems reasonable.
2.2 MIP. MIP covenants that:
(a) Signature Pages. MIP shall promptly provide all required signature
pages to Company for inclusion in any SEC Filings of Company, provided Company
is in material compliance with its covenants and other obligations under this
Agreement at the time such signature pages are provided and included in the SEC
Filing. Company and Manager acknowledge and agree that the provision of such
signature pages do not constitute a representation by MIP, its Trustees or
Officers, that such SEC Filing complies with the requirements of the applicable
Securities Laws, or that such SEC Filing does not contain any untrue statement
of a material fact or does not omit to the state any material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading, except with
respect to information provided by MIP for inclusion in such SEC Filing or for
use by Company in preparing such filing, which shall in any event include any
written information obtained from MIP's current registration statement on Form
N-1A.
(b) Redemption. Except as otherwise provided in this Section 2.2(b),
redemptions of Interests owned by any Fund will be effected pursuant to Section
2.2(c). In the event any Fund desires to withdraw its entire Investment from the
corresponding Portfolio, either by submitting a redemption request or by
terminating this Agreement in accordance with Section 5.1 hereof, the
corresponding Portfolio, unless otherwise agreed to by the parties, and in all
cases subject to Sections 17 and 18 of the 1940 Act and the rules and
regulations thereunder, will effect such redemption "in kind" and in such a
manner that the securities delivered to the Fund or its custodian for the
account of the Fund mirror, as closely as practicable, the composition of the
Portfolio immediately prior to such redemption. Each Portfolio further agrees
that, to the extent legally possible, it will not take or cause to be taken any
action without Company's prior approval that would cause the withdrawal of the
corresponding Fund's Investments to be treated as a taxable event to the Fund.
Each Portfolio further agrees to conduct its activities in accordance
5
<PAGE>
with all
applicable requirements of Regulation 1.731-2(e) under the Code or any successor
regulation.
(c) Ordinary Course Redemptions. Each Portfolio will effect redemptions of
Interests in accordance with the provisions of the 1940 Act and the rules and
regulations thereunder, including, without limitation, Section 17 thereof. All
redemption requests other than a withdrawal of a Fund's entire Investment in
Portfolio under Section 2.2(b) or, at the sole discretion of MIP, a withdrawal
(or series of withdrawals over any three (3) consecutive business days) of an
amount that exceeds 10% of a Portfolio's net asset value, will be effected in
cash at the next determined net asset value after the redemption request is
received. Each Portfolio will use its best efforts to settle redemptions on the
business day following the receipt of a redemption request by its corresponding
Fund and if such next business day settlement is not practicable, will
immediately notify the Fund regarding the anticipated settlement date, which
shall in all events be a date permitted under the 1940 Act.
(d) SEC Filings. MIP will file all SEC Filings required to be filed with
the SEC under the Securities Laws in connection with any meetings of each
Portfolio's investors and its registration as an investment company and will
provide copies of all such definitive filings to Company. Each Portfolio's SEC
Filings will comply in all material respects with the requirements of the
applicable Securities Laws, and will not, at the time they are filed or used,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(e) 1940 Act Registration. MIP will remain duly registered as an open-end
management investment company under the 1940 Act.
(f) Tax Status. Based upon applicable IRS interpretations and rulings, each
Portfolio will conduct its business and activities so as to be taxable as a
partnership for federal income tax purposes under the Code. Each Portfolio will
continue to satisfy (i) the income test imposed on regulated investment
companies under Section 851(b)(2) of the Code and (ii) the asset test imposed on
regulated investment companies under Section 851(b)(3) of the Code as if such
Sections applied to it for so long as this Agreement continues in effect. MIP
agrees to forward to each Fund prior to the Fund's initial Investment a copy of
its opinion of counsel or private letter ruling relating to the tax status of
the corresponding Portfolio and agrees that the Fund may rely upon such opinion
or ruling during the term of this Agreement.
(g) Securities Exemptions. Interests in each Portfolio have been and will
continue to be offered and sold solely in private placement transactions which
do not involve any "public offering" within the meaning of Section 4(2) of the
1933 Act or require registration or notification under any state law.
(h) Advance Notice of Certain Changes. MIP shall provide Company with at
least one hundred twenty (120) days' advance notice, or such lesser time as may
be agreed to by the parties, of any change in any Portfolio's investment
objective, and at least sixty (60) days' advance notice, or if MIP has knowledge
that one of the following changes is likely to occur more
6
<PAGE>
than sixty (60) days
in advance of such event, notice shall be provided as soon as reasonably
possible after MIP obtains such knowledge, of any material change in any
Portfolio's investment policies or activities, any material increase in any
Portfolio's fees or expenses, or any change in any Portfolio's fiscal year or
time for calculating net asset value for purposes of Rule 22c-1.
(i) Compliance with Laws. MIP shall comply, in all material respects, with
all applicable laws, rules and regulations in connection with conducting its
operations as a registered investment company.
(j) Proxy Costs. If and to the extent that: (i) MIP submits a matter to a
vote of any Portfolio's Interestholders; (ii) the corresponding Fund determines
that it is necessary or appropriate to solicit proxies from its shareholders in
order to vote its Interest; and (iii) MIP agrees to assume the costs associated
with soliciting proxies from the shareholders of any other feeder fund that
invests substantially all of its investable assets in the same Portfolio, then
MIP shall assume the costs associated with soliciting proxies from the
shareholders of the corresponding Fund.
(k) Year 2000 Readiness. MIP shall use its best efforts to ensure the
readiness of its computer systems, or those used by it in the performance of its
duties, to properly process information and data from and after January 1, 2000.
MIP shall promptly notify Company of any significant problems that arise in
connection with such readiness.
2.3 Reasonable Actions. Each party covenants that it will, subject to the
provisions of this Agreement, from time to time, as and when requested by
another party or in its own discretion, as the case may be, execute and deliver
or cause to be executed and delivered all such documents, assignments and other
instruments, take or cause to be taken such actions, and do or cause to be done
all things reasonably necessary, proper or advisable in order to conduct the
business contemplated by this Agreement and to carry out its intent and purpose.
ARTICLE III
INDEMNIFICATION
3.1 Company
(a) Company agrees to indemnify and hold harmless MIP, each Portfolio and
each Portfolio's investment adviser, and any director/trustee, officer, employee
or agent of MIP, each Portfolio or each Portfolio's investment adviser (in this
Section, each, a "Covered Person" and collectively, "Covered Persons"), against
any and all losses, claims, demands, damages, liabilities or expenses
(including, with respect to each Covered Person, the reasonable cost of
investigating and defending against any claims therefor and reasonable counsel
fees incurred in connection therewith, except as provided in subparagraph (b)),
that:
(i) arise out of or are based upon any violation or alleged violation
of any of the Securities Laws, or any other applicable statute, rule,
regulation or common law, or are incurred in connection with or as a result
of any formal or informal administrative
7
<PAGE>
proceeding or investigation by a
regulatory agency, insofar as such violation or alleged violation,
proceeding or investigation arises out of or is based upon any direct or
indirect omission or commission (or alleged omission or commission) by
Company with respect to the Funds or by any of its trustees, officers,
employees or agents, but only insofar as such omissions or commissions
relate to any Fund; or
(ii) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any advertising or sales
literature, prospectus, registration statement, or any other SEC Filing
relating to any Fund, or any amendments or supplements to the foregoing (in
this Section, collectively "Offering Documents"), or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein in light of the circumstances under which they were made not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged
omission was not made in the Offering Documents in reliance upon and in
conformity with MIP's registration statement on Form N-1A and other written
information furnished by MIP to any Fund or by any service provider of MIP
for use therein or for use by any Fund in preparing such documents,
including but not limited to any written information contained in MIP's
current registration statement on Form N-1A;
provided, however, that in no case shall Company be liable for
indemnification hereunder with respect to any claims made against any Covered
Person unless a Covered Person shall have notified Company in writing within a
reasonable time after the summons, other first legal process, notice of a
federal, state or local tax deficiency, or formal initiation of a regulatory
investigation or proceeding giving information of the nature of the claim shall
have properly been served upon or provided to a Covered Person seeking
indemnification. Failure to notify Company of such claim shall not relieve
Company from any liability that it may have to any Covered Person otherwise than
on account of the indemnification contained in this Section.
(b) Company will be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if Company elects to assume the defense, such
defense shall be conducted by counsel chosen by Company, as applicable. In the
event Company elects to assume the defense of any such suit and retain such
counsel, each Covered Person in the suit may retain additional counsel but shall
bear the fees and expenses of such counsel unless (A) Company shall have
specifically authorized the retaining of and payment of fees and expenses of
such counsel or (B) the parties to such suit include any Covered Person and
Company, and any such Covered Person has been advised in a written opinion by
counsel reasonably acceptable to Company that one or more legal defenses may be
available to it that may not be available to Company, in which case Company
shall not be entitled to assume the defense of such suit notwithstanding their
obligation to bear the reasonable fees and expenses of one counsel to such
persons. Company shall not be required to indemnify any Covered Person for any
settlement of any such claim effected without its written consent, which
consent, shall not be unreasonably withheld or delayed. The indemnities set
forth in paragraph (a) will be in addition to any liability that Company might
otherwise have to Covered Persons.
8
<PAGE>
3.2 Manager
(a) Manager agrees to indemnify and hold harmless MIP, each Portfolio and
each Portfolio's investment adviser, and any director/trustee, officer, employee
or agent of MIP, each Portfolio or each Portfolio's investment adviser (in this
Section, each, a "Covered Person" and collectively, "Covered Persons"), against
any and all losses, claims, demands, damages, liabilities or expenses
(including, with respect to each Covered Person, the reasonable cost of
investigating and defending against any claims therefor and any counsel fees
incurred in connection therewith, except as provided in subparagraph (b))
("Losses"), that:
(i) arise out of or are based upon any violation or alleged violation
of any of the Securities Laws, or any other applicable statute, rule,
regulation or common law, or are incurred in connection with or as a result
of any formal or informal administrative proceeding or investigation by a
regulatory agency, insofar as such violation or alleged violation,
proceeding or investigation arises out of or is based upon any direct or
indirect omission or commission (or alleged omission or commission) by
Company or Manager or by any of its or their trustees/directors, officers,
employees or agents, but only insofar as such omissions or commissions
relate to any Fund; or
(ii) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any advertising or sales
literature, prospectus, registration statement, or any other SEC Filing
relating to any Fund, or any amendments or supplements to the foregoing (in
this Section, collectively "Offering Documents"), or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein in light of the circumstances under which they were made, not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged
omission was not made in the Offering Documents in reliance upon and in
conformity with MIP's registration statement on Form N-1A and other written
information furnished by MIP to any Fund or by any service provider of MIP
for use therein or for use by Fund in preparing such documents, including
but not limited to any written information contained in MIP's current
registration statement on Form N-1A;
provided, however, that in no case shall Manager be liable for Losses to
the extent Company pays the amount of such Losses to the Covered Person under
Section 3.1(a) hereof, nor shall Manager be liable for indemnification hereunder
with respect to any claims made against any Covered Person unless a Covered
Person shall have notified Manager in writing within a reasonable time after the
summons, other first legal process, notice of a federal, state or local tax
deficiency, or formal initiation of a regulatory investigation or proceeding
giving information of the nature of the claim shall have properly been served
upon or provided to a Covered Person seeking indemnification. Failure to notify
Manager of such claim shall not relieve Manager from any liability that it may
have to any Covered Person otherwise than on account of the indemnification
contained in this Section.
(b) Manager will be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if Manager
9
<PAGE>
elects to assume the defense, such defense shall be conducted by counsel chosen
by Manager. In the event Manager elects to assume the defense of any such suit
and retain such counsel, each Covered Person in the suit may retain additional
counsel but shall bear the fees and expenses of such counsel unless (A) Manager
shall have specifically authorized the retaining of and payment of fees and
expenses of such counsel or (B) the parties to such suit include any Covered
Person and Manager, and any such Covered Person has been advised in a written
opinion by counsel reasonably acceptable to Manager that one or more legal
defenses may be available to it that may not be available to Manager, in which
case Manager shall not be entitled to assume the defense of such suit
notwithstanding its obligation to bear the fees and expenses of one counsel to
all such persons. Manager shall not be required to indemnify any Covered Person
for any settlement of any such claim effected without its written consent, which
consent shall not be unreasonably withheld or delayed. The indemnities set forth
in paragraph (a) will be in addition to any liability that Manager might
otherwise have to Covered Persons, provided that, in no event shall MIP's
Covered Persons be entitled to recover, hereunder or elsewhere, more than the
amount of their Losses.
3.3 MIP.
(a) MIP agrees to indemnify and hold harmless Company, each Fund, Manager
and any affiliate providing services to Company and/or any Fund, and any
trustee, officer, employee or agent of any of them (in this Section, each, a
"Covered Person" and collectively, "Covered Persons"), against any and all
losses, claims, demands, damages, liabilities or expenses (including, with
respect to each Covered Person, the reasonable cost of investigating and
defending against any claims therefor and reasonable counsel fees incurred in
connection therewith, except as provided in subparagraph (b)), that:
(i) arise out of or are based upon any violation or alleged violation
of any of the Securities Laws, or any other applicable statute, rule,
regulation or common law or are incurred in connection with or as a result
of any formal or informal administrative proceeding or investigation by a
regulatory agency, insofar as such violation or alleged violation,
proceeding or investigation arises out of or is based upon any direct or
indirect omission or commission (or alleged omission or commission) by MIP,
or any of its trustees, officers, employees or agents; or
(ii) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any advertising or sales
literature, or any other SEC Filing relating to any Portfolio, or any
amendments to the foregoing (in this Section, collectively, the "Offering
Documents") relating to any Portfolio, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein in light
of the circumstances under which they were made not misleading; or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any Offering Documents
relating to Company, any Fund or any of their affiliates, or arise out of
or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary
10
<PAGE>
to make the
statements therein in light of the circumstances under which they were made
not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written
information furnished to any Fund by MIP for use therein or for use by any
Fund in preparing such documents, including but not limited to any written
information contained in MIP's current registration statement on Form N-1A.
provided, however, that in no case shall MIP be liable for indemnification
hereunder with respect to any claims made against any Covered Person unless a
Covered Person shall have notified MIP in writing within a reasonable time after
the summons, other first legal process, notice of a federal, state or local tax
deficiency, or formal initiation of a regulatory investigation or proceeding
giving information of the nature of the claim shall have properly been served
upon or provided to a Covered Person seeking indemnification. Without limiting
the generality of the foregoing, a Portfolio's indemnity to Covered Persons
shall include all relevant liabilities of Covered Persons under the Securities
Laws, as if the Offering Documents constitute a "prospectus" within the meaning
of the 1933 Act, and MIP had registered its interests under the 1933 Act
pursuant to a registration statement meeting the requirements of the 1933 Act.
Failure to notify MIP of such claim shall not relieve MIP from any liability
that it may have to any Covered Person otherwise than on account of the
indemnification contained in this Section.
(b) MIP will be entitled to participate at its own expense in the defense
or, if it so elects, to assume the defense of any suit brought to enforce any
such liability, but, if MIP elects to assume the defense, such defense shall be
conducted by counsel chosen by MIP. In the event MIP elects to assume the
defense of any such suit and retain such counsel, each Covered Person in the
suit may retain additional counsel but shall bear the fees and expenses of such
counsel unless (A) MIP shall have specifically authorized the retaining of and
payment of fees and expenses of such counsel or (B) the parties to such suit
include any Covered Person and MIP, and any such Covered Person has been advised
in a written opinion by counsel reasonably acceptable to MIP that one or more
legal defenses may be available to it that may not be available to MIP, in which
case MIP shall not be entitled to assume the defense of such suit
notwithstanding its obligation to bear the reasonable fees and expenses of one
counsel to such persons. MIP shall not be required to indemnify any Covered
Person for any settlement of any such claim effected without its written
consent, which consent shall not be unreasonably withheld or delayed. The
indemnities set forth in paragraph (a) will be in addition to any liability that
MIP might otherwise have to Covered Persons.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 Access to Information. Throughout the life of this Agreement, Company
and MIP shall afford each other reasonable access at all reasonable times to
such party's officers, employees, agents and offices and to all relevant books
and records and shall furnish each other party with all relevant financial and
other data and information as such other party may reasonably request.
11
<PAGE>
4.2 Confidentiality. Each party agrees that it shall hold in strict
confidence all data and information obtained from another party (unless such
information is or becomes readily ascertainable from public or published
information or trade sources or public disclosure of such information is
required by law) and shall ensure that its officers, employees and authorized
representatives do not disclose such information to others without the prior
written consent of the party from whom it was obtained, except if disclosure is
required by the SEC, any other regulatory body, any Fund's or any Portfolio's
respective auditors, or in the opinion of counsel to the disclosing party such
disclosure is required by law, and then only with as much prior written notice
to the other parties as is practical under the circumstances. Each party hereto
acknowledges that the provisions of this Section 4.2 shall not prevent Company
or MIP from filing a copy of this Agreement as an exhibit to a registration
statement on Form N-1A as it relates to any Fund or any Portfolio, respectively,
and that such disclosure by Company or MIP shall not require any additional
consent from the other parties.
4.3 Obligations of Company and MIP. MIP agrees that the financial
obligations of Company under this Agreement shall be binding only upon the
assets of the Fund to which they relate, and that except to the extent liability
may be imposed under relevant Securities Laws, MIP shall not seek satisfaction
of any such obligation from the officers, agents, employees, trustees or
shareholders of Company, any of the other Funds or other classes or series of
Company. Company agrees that the financial obligations of MIP under this
Agreement shall be binding only upon the assets of the Portfolio to which they
relate and that, except to the extent liability may be imposed under relevant
Securities Laws, Company shall not seek satisfaction of any such obligation from
the officers, agents, employees, trustees or shareholders of MIP, any of the
other Portfolios or other classes or series of MIP.
ARTICLE V
TERMINATION, AMENDMENT
5.1 Termination. This Agreement may be terminated at any time by the mutual
agreement in writing of all parties, or by any party on ninety (90) days'
advance written notice to the other parties hereto; provided, however, that
nothing in this Agreement shall limit Company's right to redeem all or a portion
of any Fund's Interest in the corresponding Portfolio in accordance with the
1940 Act and the rules thereunder. The provisions of Article III and Sections
4.2 and 4.3 shall survive any termination of this Agreement.
5.2 Amendment. This Agreement may be amended, modified or supplemented at
any time in such manner as may be mutually agreed upon in writing by the
parties.
ARTICLE VI
GENERAL PROVISIONS
6.1 Expenses. All costs and expenses incurred in connection with this
Agreement and the conduct of business contemplated hereby shall be paid by the
party incurring such costs and expenses.
12
<PAGE>
6.2 Headings. The headings and captions contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
6.3 Entire Agreement. This Agreement sets forth the entire understanding
between the parties concerning the subject matter of this Agreement and
incorporates or supersedes all prior negotiations and understandings. There are
no covenants, promises, agreements, conditions or understandings, either oral or
written, between the parties relating to the subject matter of this Agreement
o0her than those set forth herein and the terms, conditions and descriptions set
forth in MIP's Registration Statement, as in effect from time to time.
6.4 Successors. Each and all of the provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that neither this Agreement, nor any
rights herein granted may be assigned to, transferred to or encumbered by any
party, without the prior written consent of the other parties hereto.
6.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California without regard to the
conflict of laws provisions thereof; provided, however, that in the event of any
conflict between the 1940 Act and the laws of California, the 1940 Act shall
govern.
6.6 Counterparts. This Agreement may be executed in any number of
counterparts, all of which shall constitute one and the same instrument, and any
party hereto may execute this Agreement by signing one or more counterparts.
6.7 Third Parties. Nothing herein expressed or implied is intended or shall
be construed to confer upon or give any person, other than the parties hereto
and their successors or assigns, any rights or remedies under or by reason of
this Agreement.
6.8 Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
when delivered in person or three days after being sent by certified or
registered United States mail, return receipt requested, postage prepaid,
addressed:
If to Company or any Fund:
Attention: John T. Story
13
<PAGE>
X.com Funds
394 University Avenue
Palo Alto, CA 94303
Facsimile (650) 833-5470
If to Manager:
Attention: John T. Story
X.com Asset Management, Inc.
394 University Avenue
Palo Alto, CA 94303
Facsimile (650) 833-5470
If to MIP or any Portfolio:
Attention: Chief Operating Officer
Master Investment Portfolio
c/o Stephens Inc.
111 Center Street
Little Rock, AR 72201
Facsimile (501) 377-2331
6.9______Interpretation. Any uncertainty or ambiguity existing herein shall
not be interpreted against any party, but shall be interpreted according to the
application of the rules of interpretation for arms' length agreements.
6.10_____Operation of Fund. Except as otherwise provided herein, this
Agreement shall not limit the authority of a Fund, Company or Manager to take
such action as it may deem appropriate or advisable in connection with all
matters relating to the operation of the Fund and the sale of its shares.
6.11_____Relationship of Parties; No Joint Venture, Etc. It is understood
and agreed that neither Company nor Manager shall not hold itself out as an
agent of MIP with the authority to bind such party, nor shall MIP hold itself
out as an agent of Company or Manager with the authority to bind such party.
6.12_____Use of Name. Except as otherwise provided herein or required by
law (e.g., in Company's Registration Statement on Form N-1A), neither Company,
the Funds, nor Manager shall describe or refer to the name of MIP, any Portfolio
or any derivation thereof, or any affiliate thereof, or to the relationship
contemplated by this Agreement in any advertising or promotional materials
without the prior written consent of MIP, nor shall MIP describe or refer to the
name of Company, the Funds or Manager or any derivation thereof, or any
affiliate thereof, or to the relationship contemplated by this Agreement in any
advertising or promotional materials without the prior written consent of
Company, the Funds or Manager, as the case may be. In no case shall any such
consents be unreasonably withheld or delayed. In addition, the party required to
give its consent shall have at least three (3) business days prior to the
earlier of filing or first use, as the case may be, to review the proposed
advertising or promotional materials.
14
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers, thereunto duly authorized, as of the date first
written above.
X.COM FUNDS
By:
--------------------------------
Name:
Title:
X.COM ASSET MANAGEMENT, INC.
By:
--------------------------------
Name:
Title:
MASTER INVESTMENT PORTFOLIO
By:
---------------------------------
Name:
Title:
15
<PAGE>
SCHEDULE A
to Agreement between X.com Funds (the "Company") and Master Investment
Portfolios ("MIP")
dated as of September 1, 1999 (the "Agreement")
The Company has entered into the Agreement on behalf of the following
series of the Company (each a "Fund" and, collectively, the "Funds"), each of
which will invest all or substantially all its investable assets in interests of
the corresponding series of MIP (each a "Portfolio" and, collectively, the
"Portfolios") set forth on Schedule B to the Agreement:
X.com Premier S&P 500 Fund;
X.com U.S.A. Bond Fund; and
X.com U.S.A. Money Market Fund.
Effective as of September 1, 1999.
<PAGE>
SCHEDULE B
to Agreement between X.com Funds (the "Company") and Master Investment
Portfolios ("MIP")
dated as of September 1, 1999 (the "Agreement")
MIP has entered into the Agreement on behalf of the following series of MIP
(each a "Portfolio" and, collectively, the "Portfolios"), into interests of
which the corresponding series of the Company (each a "Fund" and, collectively,
the "Funds") set forth on Schedule A to the Agreement, will invest all or
substantially all its investable assets.
S&P 500 Index Master Portfolio;
Bond Index Master Portfolio; and
Money Market Master Portfolio.
Effective as of September 1, 1999.
30
OPINION AND CONSENT OF COUNSEL
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, DC 20006-2401
November 17, 1999
X.com Funds
394 University Avenue
Palo Alto, California 94301
Re: X.com Funds (the "Trust")
(File Nos. 333-80205 and 811-09381)
Dear Sirs:
We have examined such documents and records as we deemed necessary to
render this opinion. Based upon the foregoing, we are of the opinion that the
shares to be sold pursuant to the Trust's Registration Statement, when paid for
as contemplated in its Registration Statement, will be legally and validly
issued, fully paid and non-assessable by the Trust.
We hereby consent to the filing of this opinion as an exhibit to
Pre-Effective Amendment No. 1 to the Trust's Registration Statement, and to all
references to our firm therein. In giving such consent, however, we do not admit
that we are within the category of persons whose consent is required by Section
7 of the Securities Act of 1933, as amended, and the rules and regulations
thereunder.
Very truly yours,
/s/ Dechert Price & Rhoads
CONSENT OF INDEPENDENT AUDITORS
The Board of Trustees
X.com Funds
We consent to the use of our report dated September 10, 1999 for X.com Funds
(comprising respectively, X.com Premier S&P Fund (formerly X.com Free + 1 S&P
500 Fund), X.com U.S.A Bond Fund (formerly X.com U.S. Bond Fund)and X.com Money
Market Fund) included herein.
We also consent to the reference to our Firm under the heading "Independent
Auditors" in the Statement of Additional Information.
/s/ KPMG
32
FORM OF SUBSCRIPTION AGREEMENT
THIS AGREEMENT by and between Elon R. Musk and X.com Funds (the "Trust"), a
business trust organized and existing under and by virtue of the laws of the
State of Delaware.
In consideration of the mutual promises set forth herein, the parties agree
as follows:
1. The Trust agrees to sell to Elon R. Musk and Elon R. Musk hereby
subscribes to purchase 3,500 shares of beneficial interest ("Shares") of X.com
Premier S&P 500 Fund, 3,500 Shares of X.com U.S.A. Bond Fund, and 3,000 Shares
of X.com U.S.A. Money Market Fund, each a series of the Trust, each with a par
value of $0.01 per Share, at a price of ten dollars ($10.00) per each Share.
2. Elon R. Musk agrees to pay $100,000 for all such Shares at the time of
their issuance, which shall occur upon call of the President of the Trust, at
any time on or before the effective date of the Trust's Registration Statement
filed by the Trust on Form N-1A with the Securities and Exchange Commission
("Registration Statement").
3. Elon R. Musk acknowledges that the Shares to be purchased hereunder have
not been, and will not be, registered under the federal securities laws and
that, therefore, the Trust is relying on certain exemptions from such
registration requirements, including exemptions dependent on the intent of the
undersigned in acquiring the Shares. Elon R. Musk also understands that any
resale of the Shares, or any part thereof, may be subject to restrictions under
the federal securities laws, and that Elon R. Musk may be required to bear the
economic risk of any investment in the Shares for an indefinite period of time.
4. Elon R. Musk represents and warrants that he is acquiring the Shares
solely for his own account and solely for investment purposes and not with a
view to the resale or disposition of all or any part there of, and that he has
no present plan or intention to sell or otherwise dispose of the Shares or any
part thereof at any time in the near future.
5. Elon R. Musk agrees that he will not sell or dispose of the Shares or
any part thereof, except to the Trust itself, unless the Registration Statement
with respect to such Shares is then in effect under the Securities Act of 1933,
as amended.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this __ day of September, 1999.
By:
-------------------------
Elon R. Musk
X.COM FUNDS
By:
-------------------------
Name:
Title:
FORM OF POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned trustee of X.com Funds
(the "Trust") hereby appoints each of David J. Harris, Jane A. Kanter, and David
J. Lekich, with full power of substitution, her true and lawful attorney to
execute in her name, place and stead and on her behalf a registration statement
on Form N-1A for the registration, pursuant to the Securities Act of 1933 and
the Investment Company Act of 1940, of said Trust's shares of beneficial
interest, and any and all amendments to said Registration Statement, including
pre- or post-effective amendments, and to file the same with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, whereby ratifying and conforming all that said attorney-in-fact, or
his or her substitute of substitutes, may do or cause to be done by virtue
hereof.
----------------------
Nicole E. Faucher
Date: September __, 1999
FORM OF POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned trustee of X.com Funds
(the "Trust") hereby appoints each of David J. Harris, Jane A. Kanter, and David
J. Lekich, with full power of substitution, his true and lawful attorney to
execute in his name, place and stead and on his behalf a registration statement
on Form N-1A for the registration, pursuant to the Securities Act of 1933 and
the Investment Company Act of 1940, of said Trust's shares of beneficial
interest, and any and all amendments to said Registration Statement, including
pre- or post-effective amendments, and to file the same with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, whereby ratifying and conforming all that said attorney-in-fact, or
his or her substitute of substitutes, may do or cause to be done by virtue
hereof.
-------------------------
Kevin T. Hamilton
Date: September __, 1999
FORM OF POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned trustee of X.com Funds
(the "Trust") hereby appoints each of David J. Harris, Jane A. Kanter, and David
J. Lekich, with full power of substitution, his true and lawful attorney to
execute in his name, place and stead and on his behalf a registration statement
on Form N-1A for the registration, pursuant to the Securities Act of 1933 and
the Investment Company Act of 1940, of said Trust's shares of beneficial
interest, and any and all amendments to said Registration Statement, including
pre- or post-effective amendments, and to file the same with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, whereby ratifying and conforming all that said attorney-in-fact, or
his or her substitute of substitutes, may do or cause to be done by virtue
hereof.
-------------------------
Elon R. Musk
Date: September __, 1999
FORM OF POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned trustee of X.com Funds
(the "Trust") hereby appoints each of David J. Harris, Jane A. Kanter, and David
J. Lekich, with full power of substitution, his true and lawful attorney to
execute in his name, place and stead and on his behalf a registration statement
on Form N-1A for the registration, pursuant to the Securities Act of 1933 and
the Investment Company Act of 1940, of said Trust's shares of beneficial
interest, and any and all amendments to said Registration Statement, including
pre- or post-effective amendments, and to file the same with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, whereby ratifying and conforming all that said attorney-in-fact, or
his or her substitute of substitutes, may do or cause to be done by virtue
hereof.
----------------------
Gregory N. River
Date: September __, 1999
FORM OF POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned trustee of X.com Funds
(the "Trust") hereby appoints each of David J. Harris, Jane A. Kanter, and David
J. Lekich, with full power of substitution, his true and lawful attorney to
execute in his name, place and stead and on his behalf a registration statement
on Form N-1A for the registration, pursuant to the Securities Act of 1933 and
the Investment Company Act of 1940, of said Trust's shares of beneficial
interest, and any and all amendments to said Registration Statement, including
pre- or post-effective amendments, and to file the same with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, whereby ratifying and conforming all that said attorney-in-fact, or
his or her substitute of substitutes, may do or cause to be done by virtue
hereof.
----------------------
John T. Story
Date: September __, 1999
