As Filed with the Securities and Exchange Commission on April 26, 2000
File Nos. 333-80205
811-09381
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 3
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 4
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 copy of all communications to:
Susan C. Mosher, Esq.
Investors Bank & Trust Company
200 Clarendon Street
Mail Stop: LEG13
Boston, MA 02116
(617) 330-6413
It is proposed that this filing will become effective:
____ immediately upon filing pursuant to Rule 485(b)
_X__ on May 1, 2000 pursuant to Rule 485(b)
____ 60 days after filing pursuant to Rule 485(a)(1)
____ 75 days after filing pursuant to Rule 485(a)(2)
____ on __________ pursuant to Rule 485(a)
<PAGE>
X.COM FUNDS
CONTENTS OF REGISTRATION STATEMENT
This registration statement contains the following documents:
Facing Sheet
Contents of Registration Statement
Part A - Combined Prospectus
Part B - Combined Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
Part A
Prospectus for
X.COM PREMIER S&P 500 FUND
X.COM U.S.A. BOND FUND
X.COM U.S.A. MONEY MARKET FUND
X.COM INTERNATIONAL INDEX FUND
<PAGE>
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
X.COM INTERNATIONAL INDEX FUND
PROSPECTUS
May 1, 2000
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
----
ABOUT EACH OF THE FUNDS 3
THE X.COM PREMIER S&P 500 FUND 3
THE X.COM U.S.A. BOND FUND 5
THE X.COM U.S.A. MONEY MARKET FUND 7
THE X.COM INTERNATIONAL INDEX FUND 8
PERFORMANCE INFORMATION 11
FEES AND EXPENSES 14
MORE ABOUT THE FUND'S INVESTMENT STRATEGIES AND RISKS 16
FUND MANAGEMENT 18
THE FUNDS' STRUCTURE 19
PRICING OF FUND SHARES 20
HOW TO BUY AND SELL SHARES OF THE X.COM FUNDS 21
DIVIDENDS AND OTHER DISTRIBUTIONS 24
TAX CONSEQUENCES 25
2
<PAGE>
ABOUT THE FUNDS
This portion of the Prospectus provides a description of each Fund's investment
objective, principal investment strategies and principal risks. Of course, there
can be no assurance that any Fund will achieve its investment objective.
WHAT IS A MASTER/FEEDER FUND STRUCTURE USED BY THE FUNDS?
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 instead of
directly buying portfolio securities. 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. As of December 31, 1999, BGFA and
its affiliates provided investment advisory services for over $750 billion in
assets.
The investment characteristics and investment risks of the Funds match those of
each Funds' corresponding master portfolio, which are series of Master
Investment Portfolios ("MIP"), a registered open-end management investment
company issuing individual interests in multiple series (each a "Master
Portfolio"). For that reason, the discussion of each Fund's investment
objectives, strategies and risks necessarily includes a description of the
investment characteristics and risks associated with the investments of the
corresponding Master Portfolio. Each Fund's performance will correspond directly
to the performance of the related Master 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")* is an "index fund."
Index funds are often described as "passively managed" in that they seek to
match the performance of a specific benchmark index holding either all the
securities that make up the targeted index or a highly representative sample. In
the case of the Premier S&P 500 Fund, that benchmark is the Standard & Poor's
500 Composite Stock Price Index (the S&P 500 Index"). The Premier S&P 500 Fund
seeks to approximate as closely as practicable, before fees and expenses, the
- --------------------------
* 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 Portfolio level. In addition,
X.com Asset Management, Inc., will pay the Premier S&P 500 Fund one
additional basis point.
3
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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.
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
MIP. 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
An investment in the Premier S&P 500 Fund is subject to investment risks,
including the loss of principal amount invested. The performance per share of
the Premium S&P 500 Fund and the S&P 500 Portfolio will change daily based on
many factors, including, but not limited to, the quality of the instruments held
by the S&P 500 Fund or the S&P 500 Portfolio and national and international
economic conditions and general market conditions.
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 change in
value more 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 prices of those securities rise and
fall. The value of your investment in 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.
- ----------------------------------
** "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>
INDEX-FUND RISK: The Premier S&P 500 Fund is not actively managed through
traditional methods of stock selection. Instead, the Premier S&P 500 Fund
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,
(including the need of the S&P 500 Portfolio to maintain cash balances to pay
redemptions and expenses) 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.
MANAGER RISK: 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. As a practical matter, the S&P 500 Portfolio cannot own all the
securities that make up the S&P 500 Index in perfect correlation to the index
and, in order to replicate the index, the manager uses computerized,
quantitative techniques establishing an "indexing" investment approach to
determine which securities are to be purchased or sold to achieve its goal. To
the extent that the these techniques fail to accurately replicate the S&P 500
Index or the manager errs in following the indexing approach to the investments,
the S&P 500 Portfolio may perform differently than the S&P 500 Index.
THE X.COM U.S.A. BOND FUND
INVESTMENT OBJECTIVE
The X.com U.S.A. Bond Fund (the "U.S.A. Bond Fund") is an "index fund." 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 the targeted index or a highly representative sample. In the case
of the U.S.A. Bond Fund, that benchmark is the Lehman Brothers
Government/Corporate Bond Index (the "LB Bond Index"). 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.
5
<PAGE>
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
An investment in the U.S.A. Bond Fund is subject to investment risks, including
the loss of principal amount invested. The performance per share of the U.S.A.
Bond Fund and the Bond Portfolio will change daily based on many factors,
including, but not limited to, the quality of the instruments held by the U.S.A.
Bond Fund or the Bond Portfolio and national and international economic
conditions and general market conditions.
INDEX FUND RISK: The U.S.A. Bond Fund is not actively managed through
traditional methods of securities selection. Instead, the U.S.A. Bond Fund
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 Bond Portfolio, changes in the composition of the
LB Bond Index or the assets of the Bond Portfolio, (including the need of the
Bond Portfolio to maintain cash balances to pay redemptions and expenses), 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.
6
<PAGE>
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 Standard & Poor's Corp. (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 value of an investment in the U.S.A. Bond Fund depends to a
great extent upon changes in market conditions. The value of your investment in
the U.S.A. Bond Fund will change daily based on many factors, including the
volatility of the fixed-income securities in the LB Bond Index, national and
international economic or general market conditions.
MANAGER RISK: The Bond Portfolio attempts to achieve, in both rising and falling
markets, a correlation of at least 95% between the total return of its assets
and that of the LB Bond Index. As a practical matter, the Bond Portfolio cannot
own all the securities that make up the LB Bond Index in perfect correlation to
the index and, in order to replicate the index, the manager uses computerized,
quantitative techniques establishing an "indexing" investment approach to
determine which securities are to be purchased or sold to achieve its goal. To
the extent that the these techniques fail to accurately replicate the LB Bond
Index or the manager errs in following the indexing approach to the investments,
the Bond Portfolio may perform differently than the LB Bond Index.
THE X.COM U.S.A. MONEY MARKET FUND
INVESTMENT OBJECTIVE
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 does not invest directly in a portfolio of
securities. Instead it seeks to achieve this investment objective by investing
7
<PAGE>
all of its assets in the Money Market Portfolio ("Money Market Portfolio"), a
series of MIP. The Money Market Portfolio 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's 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 the investment adviser of the Money Market
Portfolio, under guidelines adopted by the U.S.A. Money Market 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, it can offer no guarantee that it will be able to do
so. It is possible to lose money by investing in the U.S.A. Money Market 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 invests (through its investments in the Money
Market Portfolio) 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.
THE X.COM INTERNATIONAL INDEX FUND
INVESTMENT OBJECTIVE
The X.com International Index Fund (the "International Fund") is an "index
fund." 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 the targeted index or a highly representative sample. In
the case of the International Fund, that benchmark is the Morgan Stanley Capital
International EAFE(R) (Europe, Australasia, Far East) Index * (the "EAFE(
Index").
- ---------------------------
* "Morgan Stanley Capital International," "MSCI," "MSCI EAFE(R) (Europe,
Australia, Far East)" and "EAFE(" are trademarks of Morgan Stanley Capital
International. The Fund is not sponsored, endorsed, sold or promoted by
Morgan Stanley Capital International and Morgan Stanley Capital
International makes no representation regarding the advisability of
investing in the Fund.
8
<PAGE>
The International Fund seeks to approximate, as closely as practicable, after
fees and expenses, the CAPITALIZATION-WEIGHTED TOTAL RATE OF RETURN of the
EAFE(R) Index. The EAFE(R) Index, a widely recognized benchmark for foreign
stocks, includes over 1,000 established companies representing different sectors
of the world economy in 21 developed markets.
"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.
PRINCIPAL STRATEGIES
The International 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 EAFE(R) Index Master Portfolio ("EAFE(R) Portfolio"), a series of
MIP. The EAFE(R) Portfolio seeks to provide investment results that correspond,
after fees and expenses, to the total return of the publicly traded common
stocks, in the aggregate, as represented by the EAFE(R) Index. To do so, the
EAFE(R) Portfolio invests substantially all of its assets in the same stocks and
in substantially the same percentages as the EAFE(R) Index.
Under normal market conditions, the EAFE(R) Portfolio will invest at least 90%
of its assets in the stocks making up the EAFE(R) Index. Over time, the EAFE(R)
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 EAFE(R) Index. A correlation of 100% would mean the total return
of the EAFE(R) Portfolio's assets would increase and decrease exactly the same
as the EAFE(R) Index.
Principal Risks
MARKET RISK: The value of an investment in the International Fund depends to a
great extent upon changes in market conditions. Equity securities change in
value more than fixed-income securities and the value of the equity securities
held by the International Fund (through its investments in the EAFE(R)
Portfolio) will fluctuate as the market prices of those securities rise and
fall. The value of your investment in the International Fund will change daily
based on many factors, including the volatility of the securities in the EAFE(R)
Index, national and international economic conditions, and general market
conditions.
Foreign Risk: By emphasizing investments in foreign stocks, the International
Fund may expose shareholders to additional risks. Foreign stock markets tend to
be more volatile than the U.S. market due to economic and political instability
and regulatory conditions in some countries.
In addition, most of the securities in which the EAFE(R) Portfolio invests are
denominated in foreign currencies, whose values may decline against the U.S.
dollar.
INDEX-FUND RISK: The International Fund is not actively managed through
traditional methods of stock selection. Instead, the International Fund invests
(through its investments in the EAFE(R) Portfolio) in the stocks included in the
EAFE(R) Index regardless of their investment merits. Except to a limited extent,
the International Fund cannot modify its investment strategies to respond to
changes in the economy and may be particularly susceptible to a general decline
in the stock markets of one or more countries represented in the EAFE(R) Index.
9
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The International Fund's ability to track the performance of the EAFE(R) Index
may also be affected by, among other things, transaction costs, the fees and
expenses of the International Fund and the EAFE(R) Portfolio, changes in the
composition of the EAFE(R) Index or the assets of the EAFE(R) Portfolio,
(including the need of the EAFE(R) Portfolio to maintain cash balances to pay
redemptions and expenses) and the timing, frequency and amount of investor
purchases and redemptions of both the International Fund and EAFE(R) Portfolio.
Because the EAFE(R) Portfolio seeks to track the performance of the EAFE(R)
Index, the EAFE(R) Portfolio will not attempt to judge the merits of any
particular stock as an investment.
MANAGER RISK: The EAFE(R) 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 EAFE(R)
Index. As a practical matter, the EAFE(R) Portfolio cannot own all the
securities that make up the EAFE(R) Index in perfect correlation to the index
and, in order to replicate the index, the manager uses computerized,
quantitative techniques establishing an "indexing" investment approach to
determine which securities are to be purchased or sold to achieve its goal. To
the extent that the these techniques fail to accurately replicate the EAFE(R)
Index or the manager errs in following the indexing approach to the investments,
the EAFE(R) Portfolio may perform differently than the EAFE(R) Index.
10
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PERFORMANCE INFORMATION
The bar charts in this section 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 does not necessarily indicate how the Funds will
perform in the future.
PREMIER S&P 500 FUND
[BAR GRAPH]
Calendar Year Annual Return
- ------------- -------------
1994 0.93%
1995 37.30%
1996 22.77%
1997 33.22%
1998 28.56%
1999 20.59%
Premier S&P 500 Fund Average Annual Total Returns (As of December 31, 1999)
One Year Five Years Since Inception**
Premier S&P 500 Fund 20.59% 28.21% 22.25%
S&P 500 Index 21.04% 28.51% 22.43%
* The Premier S&P 500 Fund, U.S.A. Bond Fund and U.S.A. Money Market Fund (the
"Funds") did not offer shares to the public prior to November 18, 1999. As a
result, the annual returns for the Funds would have been different than those
shown because the Funds have different expenses than the feeder funds. The
returns shown are for the BGI S&P 500 Stock Fund, BGI Bond Index Fund and BGI
Money Market Fund, respectively, which are separate feeder funds that invest all
their assets in a corresponding Master Portfolio.
** The feeder fund commenced operations on July 2, 1993. The performance of the
index is computed from June 30, 1993.
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U.S.A. BOND FUND
[BAR GRAPH]
Calendar Year Annual Return
- ------------- -------------
1994 -3.61%
1995 18.95%
1996 2.28%%
1997 9.92%%
1998 9.49%%
1999 -2.69%%
U.S.A. Bond Fund Portfolio Average Annual Total Returns (As of December 31,
1999)
One Year Five Years Since Inception**
U.S.A. Bond Fund -2.69% 7.21% 5.25%
LB Bond Index -2.15% 7.61% 5.67%
** The feeder fund commenced operations on July 2, 1993. The performance of the
index is computed from June 30, 1993.
U.S.A. MONEY MARKET FUND
[BAR GRAPH]
Calendar Year Annual Return
- ------------- -------------
1994 4.28%
1995 6.01%
1996 5.45%
1997 5.68%
1998 5.61%
1999 4.92%
U.S.A. Money Market Fund Average Annual Total Returns (As of December 31, 1999)
One Year Five Years Since Inception**
U.S.A. Money Market Fund 4.92% 5.24% 4.85%
U.S. Treasury Bills (3-month) 4.90% 5.24% 4.90%
** The feeder fund commenced operations on July 2, 1993. The performance of the
index is computed from June 30, 1993.
12
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INTERNATIONAL FUND
The International Fund commenced operations on March 31, 2000. Performance
results have not been provided because neither the International Fund nor a
feeder fund has been in existence for at least a full calendar year.
13
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FEES AND EXPENSES
This table describes the fees and expenses that you may incur if you buy and
hold shares of the Funds.
<TABLE>
<CAPTION>
Shareholder Fees
(fees paid directly Premier S&P U.S.A. U.S.A. Money International
from your investment) 500 Fund Bond Fund Market Fund Fund
----------- --------- ------------ --------------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases None None None None
Maximum Deferred Sales
Charge (Load) None None None None
Maximum Sales Charge
(Load) Imposed in
Reinvested Dividends
and other Distributions None None None None
Redemption Fee (within
90 days of purchase) None None None None
Maximum Account Fee None None None None
Annual Fund Operating
Expenses(1)
(expenses that are
deducted from Fund assets)
Management Fees 0.28%(2) 0.40%(2) 0.60%(2) 0.60%(2)
Distribution (12b-1) Fees None None None None
Other Expenses 0.00% 0.00% 0.00% 0.00%
Total Annual Fund
Operating Expenses 0.28% 0.40% 0.60% 0.60%
Fee Waiver and
Expense Reimbursement(3) 0.28% 0.21% 0.10% 0.27%
NET OPERATING EXPENSES 0.00%(4) 0.19% 0.50% 0.33%
</TABLE>
1 The cost reflects the expenses at both the Fund and the Master Portfolio
levels.
2 Management fees include a fee equal to 0.05%, 0.08%, 0.10%, and 0.25% of
the daily net assets payable at the Master Portfolio level to the
investment adviser for the S&P 500 Portfolio, Bond Portfolio, Money Market
Portfolio and the EAFE(R) Portfolio, respectively. Management fees also
include a "unified" fee equal to 0.23%, 0.32%, 0.50% and 0.35% payable by
the Premier S&P 500 Fund, U.S.A. Bond Fund, U.S.A. Money Market Fund and
the International Fund, respectively, to X.com Asset Management, Inc., the
Funds' investment adviser (the "Adviser"). Under the investment advisory
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 Master Portfolio management fees, brokerage fees,
taxes, interest and extraordinary expenses.
3 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, during which, it can be terminated only by the Board. If
neither the Board nor the Adviser terminates the agreement at the end of
the year, it will be renewed thereafter automatically for a one year term
on an annual basis.
4 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.
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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 each Fund's operating expenses remain the same, except for the fee
reduction, which for the purposes of the example is assumed to be
applicable to only the first year; and
o you redeem your shares at the end of the relevant period.
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
INTERNATIONAL INDEX FUND $34 $165
* Reflects costs at both the Fund and Master 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.
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<PAGE>
MORE ABOUT EACH FUND'S INVESTMENT STRATEGIES AND RISKS
INVESTMENT OBJECTIVES AND STRATEGIES
As with all mutual funds, there can be no assurance that the Funds will achieve
their respective investment objectives. The investment objective of each Fund is
fundamental and may not be changed without approval of Fund shareholders. 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 the Fund and
its shareholders. If there is a change in the investment objective or 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 500 FUND, U.S.A. BOND FUND AND INTERNATIONAL FUND (THE "INDEX
FUNDS"): The assets of the S&P 500 Portfolio, the Bond Portfolio and the EAFE(R)
Portfolio (collectively, the "Index Portfolios") are not actively managed.
Instead, the manager of each Index Portfolio seeks to achieve returns
corresponding to the S&P 500 Index, LB Bond Index and the EAFE(R) Index,
respectively, 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 that Index through computerized, quantitative
techniques. The Index Portfolios cannot, as a practical matter, own all the
securities that make up their respective market indices in perfect correlation
to the indices. The Index Portfolios seek to track their respective market
indices 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 indices.
ADDITIONAL STRATEGIES USED BY THE INDEX PORTFOLIOS:
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 targeted 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. Those derivatives
include the purchase and sale of futures contracts and options on the targeted
Index.
THE U.S.A. MONEY MARKET FUND: The U.S.A. Money Market Fund and its Master
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 investment in the Money Market Portfolio) may
only invest in floating-rate securities that bear interest at a rate that resets
quarterly or more frequently, and that resets based on changes in standard money
market rate indices such as U.S. Government Treasury bills and London Interbank
Offered Rate, among others. Floating and variable rate instruments are subject
to interest rate and credit risks.
16
<PAGE>
INVESTMENT RISKS OF ADDITIONAL STRATEGIES
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 indices. In fact, the use of derivative instruments may adversely
impact the value of the Funds' assets, which would in turn reduce the return you
receive on your investment.
The Master Portfolios' use of derivative instruments may adversely affect the
Funds' ability to track their respective indices closely if the derivatives do
not perform as expected, or if the derivative instruments are timed incorrectly
or are executed under adverse market conditions. Further, the use of derivative
instruments may adversely impact the value of a Master Portfolio, which would
cause the value of your investment in the related Fund to decline.
ASSET-BACKED SECURITIES: 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 Master Portfolio may lend a portion of its 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.
17
<PAGE>
FUND MANAGEMENT
INVESTMENT ADVISER FOR THE FUNDs. 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 Corporation ("X.com") and is located at 394
University Avenue, Palo Alto, CA 94301. The Adviser was formed in 1999 and
therefore has limited experience as an investment adviser.
X.com, a holding company, is the parent company of both the Adviser and First
Western National Bank (the "Bank"). 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, the Adviser 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 Master 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, any sub-adviser 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:
Contractual Rate After Fee Waiver and
(expressed as a Expense Reimbursement
percentage of (expressed as a
average daily net percentage of average
Fund assets) daily net 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%*
International Fund 0.35% 0.08%*
*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, DURING WHICH, IT CAN BE
TERMINATED ONLY BY THE BOARD. IF NEITHER THE BOARD NOR THE ADVISER TERMINATES
THE AGREEMENT AT THE END OF THE YEAR, IT WILL BE RENEWED THEREAFTER
AUTOMATICALLY FOR ONE YEAR TERMS ON AN ANNUAL BASIS.
Out of the fee received by the Adviser, the Adviser pays all expenses of
managing and operating the Funds except Master Portfolio expenses, 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.
18
<PAGE>
INVESTMENT ADVISER FOR THE MASTER PORTFOLIOS. Barclays Global Fund Advisors
("BGFA") is the investment adviser for each Master 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 December 31, 1999, BGFA and its
affiliates provided investment advisory services for over $750 billion in
assets. BGFA receives a fee from each Master Portfolio at an annual rate equal
to the following percentage of each Master Portfolio's average daily net assets:
Percentage of
Master Portfolio Average Daily Net Assets
- ---------------- ------------------------
S&P 500 Portfolio 0.05%
Bond Portfolio 0.08%
U.S.A. Money Market Portfolio 0.10%
EAFE(R) Portfolio 0.25%
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 MASTER 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 the 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.
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
Master Portfolio, such as accounting, legal, and Securities and Exchange
Commission ("SEC") registration fees.
The Funds' Statement of Additional Information contains detailed information
about the Funds' 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, U.S.A. Money Market Fund and International Fund seek to achieve their
investment objectives by investing all of their assets in the S&P 500 Portfolio,
the Bond Portfolio, the Money Market Portfolio and the EAFE(R) Portfolio,
respectively. Each of the Index Portfolios and Money Market Portfolio is a
series of MIP, a registered open-end management investment company, with the
19
<PAGE>
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 Master 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 a Fund.
The X.com Funds' Board of Trustees (the "Board") believes that, as other
investors invest their assets in the Master Portfolios, certain economic
efficiencies may be realized with respect to each Master Portfolio. For example,
fixed expenses that otherwise would have been borne solely by a Fund (and the
other existing interest-holders in its corresponding Master Portfolio) would be
spread across a larger asset base as more funds or other accredited investors
invest in the particular Master Portfolio. However, if a mutual fund or other
investor withdraws its investment from a Master 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 Master Portfolio
may not be fully achieved or maintained.
Each Fund may be asked to vote on matters concerning the Master Portfolio.
Except as permitted by the SEC, whenever a Fund is requested to vote on a matter
pertaining to a Master Portfolio, that Fund will hold a meeting of its
shareholders, and, at the meeting of investors in the Master 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 Master 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 Master 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 Master 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") next determined after the Fund receives
your request in proper form. A request is received in proper form if it is
placed electronically through the X.com website and specifies the number of
shares or dollar amount of shares to be purchased or redeemed. If the Fund
receives such request before 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 generally not be priced on the days on which
the NYSE is closed for trading.
Each Fund's investment in its corresponding Master 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 the value of each Fund's net assets
and dividing by the number of shares outstanding. A market price may not be
available for securities that trade infrequently. In the absence of market
20
<PAGE>
pricing, the Adviser, subject to the supervision of the Board of Trustees or
Pricing Committee, will make a good-faith estimate of the security's "fair
value." That value may be higher or lower than the security's closing price in
its relevant market. 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 most national holidays and
on Good Friday.
Each Master Portfolio calculates its NAV on the same day and at the same time as
its corresponding Fund. Each Master 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
WHO CAN INVEST IN THE FUND?
The Funds are for on-line investors who 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"). You will need
to do the following to purchase shares of the Funds:
o Open an account with the Bank.
o Complete an X.com Account Application.
o Simply follow the instructions on the X.com website, www.X.com.
o You are also required to consent to receive all information about
the Funds electronically, both to open an account and during the
time you own shares of the Funds. 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.*
ON-LINE INVESTOR REQUIREMENTS
- -----------------------------
* 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.
21
<PAGE>
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 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 Bank 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.* If it becomes lawful to involuntarily
redeem in these circumstances, prior to revoking your consent, you will be
reminded of the Funds' 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 have otherwise received the redemption
proceeds. The Funds reserve 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 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 made available over the Internet by X.com, including the
opportunity to invest in X.com Funds.
- -----------------------
* 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.
22
<PAGE>
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 NAV next determined after a Fund receives and accepts your purchase
order.
You can place orders to purchase or redeem Fund shares by accessing the X.com
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 purchase shares in a Fund, you will be asked: (1) to confirm
your 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 the X.com 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 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.
MINIMUM INVESTMENT REQUIREMENTS
For your initial investment in a Fund $1
To buy additional shares of a Fund $1
Continuing minimum investment $1
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 a Fund.
ACCESSING ACCOUNT INFORMATION
For information on how to access account information and/or applications
electronically, please refer to the online assistant at WWW.X.COM available 24
hours a day.
23
<PAGE>
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.
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, a 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 and the International Fund intend 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.
24
<PAGE>
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.
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 be required 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 and the International 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 be required 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.
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The Statement of Additional Information for the Funds ("SAI"), contains further
information about each Fund. The SAI is incorporated by reference into this
Prospectus (that means it is legally considered part of this Prospectus).
Additional information about the Funds' investments is available in the Funds'
annual report to shareholders which is incorporated by reference. In the annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected each Fund's performance during its fiscal
year.
Additional information including the SAI and the most recent annual report, 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.
The Securities and Exchange Commission (SEC) maintains an Internet website
(http://www.sec.gov) that contains the SAI, material incorporated by reference,
and other information about the Funds. You can also copy and review this
information at the SEC's Public Reference Room in Washington, D.C., or you can
obtain copies, upon payment of a duplicating fee, by writing to the Public
Reference Room of the SEC, Washington, D.C., 20549-0102 or by electronic request
at the following E-mail address: [email protected]. You can obtain information
on the operation of the Public Reference Room by calling the SEC at
1-202-942-8090.
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
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Part B
Statement of Additional Information for
X.COM PREMIER S&P 500 FUND
X.COM U.S.A. BOND FUND
X.COM U.S.A. MONEY MARKET FUND
X.COM INTERNATIONAL INDEX FUND
<PAGE>
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
X.COM INTERNATIONAL INDEX FUND
MAY 1, 2000
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"), the X.com International Index Fund (the "International Fund");
collectively with the Premier S&P 500 Fund and the U.S.A. Bond 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 May 1, 2000 (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 (the "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. 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
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HISTORY OF THE FUNDS 1
THE FUNDS 1
INVESTMENT STRATEGIES AND RISKS 2
FUND POLICIES 13
MASTER PORTFOLIO POLICIES 16
TRUSTEES AND OFFICERS 20
INVESTMENT MANAGEMENT 23
SERVICE PROVIDERS 25
MASTER PORTFOLIO TRANSACTIONS AND BROKERAGE SELECTION 27
ORGANIZATION, DIVIDEND AND VOTING RIGHTS 28
SHAREHOLDER INFORMATION 30
TAXATION 33
MASTER PORTFOLIO ORGANIZATION 37
PERFORMANCE INFORMATION 38
FINANCIAL STATEMENTS 43
APPENDIX 44
-i-
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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, after 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 "Master 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.
U.S.A. BOND FUND. As its investment objective, the U.S.A. Bond Fund seeks to
approximate as closely as practicable, after 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
- ----------------------
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.
<PAGE>
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.
The U.S.A. Bond Fund 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, S&P 500 Portfolio and the EAFE(R) Portfolio are collectively referred
to herein as the "Master Portfolios".
MASTER PORTFOLIO. 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 Master 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 Master 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
Because 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 Master Portfolios and,
accordingly, to the Funds that invest in the Master Portfolios. In addition to
discussing the principal risks of investing in the Master 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 Master Portfolios unless
otherwise noted.
FUTURES CONTRACTS AND OPTIONS TRANSACTIONS. The S&P 500, LB Bond and EAFE(R)
Portfolios may use futures as a substitute for a comparable market position in
the underlying securities.
2
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A futures contract is an agreement between two parties, a buyer and a seller, to
exchange 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 Master
Portfolio.
Although the S&P 500, LB Bond and EAFE(R) 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 Master Portfolios to substantial losses. If it is
not possible, or if a Master Portfolio determines not to close a futures
position in anticipation of adverse price movements, the Master Portfolio will
be required to make daily cash payments on variation margin.
The S&P 500 and EAFE(R) Portfolios 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 Master
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 or EAFE(R) 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, LB Bond and EAFE(R) Portfolios' futures transactions must
constitute permissible transactions pursuant to regulations promulgated by the
Commodity Futures Trading Commission ("CFTC"). In addition, these Master
Portfolios 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 Master Portfolios'
assets, after taking into account unrealized profits and unrealized losses on
4
<PAGE>
such contracts; provided, however, that in the case of an option on a futures
contract that is in-the-money at the time of purchase, the in-the-money amount
may be excluded in calculating the 5% liquidation limit. Pursuant to regulations
and/or published positions of the Securities and Exchange Commission ("SEC"),
related Master Portfolios may be required to designate cash or liquid securities
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, LB Bond and EAFE(R) 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 Master Portfolio or which are not
currently available but which may be developed, to the extent such opportunities
are both consistent with the respective Master Portfolio's investment objective
and legally permissible for that Master 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 Master 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 Master Portfolios will generally purchase securities with the
intention of acquiring them, the Master Portfolios may dispose of securities
purchased on a when-issued, delayed-delivery or a forward commitment basis
before settlement when deemed appropriate by the Master 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
Master 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 Master Portfolios currently intend to
invest more than 5% of its assets in when-issued securities during the coming
year. Each of the Master Portfolios will designate cash or liquid securities in
an amount at least equal in value to that Master Portfolio's commitments to
purchase when-issued securities. If the value of these assets declines, that
Master Portfolio will designate additional liquid assets 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 designate cash and other
liquid securities as described above, the liquidity of the Money Market
Portfolio's investment Master Portfolio may decrease as the proportion of
securities in the Money Market Portfolio's Master 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 Master
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 Master 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 the Master 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 Master Portfolio's investment advisor, are of comparable quality to
obligations of U.S. banks which may be purchased by the Master Portfolios.
BANK OBLIGATIONS. The Master 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 Master 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
6
<PAGE>
instruments evidencing the obligation of a bank to pay a draft drawn on it by a
customer. These instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. The other
short-term obligations may include uninsured, direct obligations, bearing fixed,
floating- or variable-interest rates.
Investments in foreign obligations involve certain considerations that are not
typically associated with investing in domestic obligations. There may be less
publicly available information about a foreign issuer than about a domestic
issuer. Foreign issuers also are not generally subject to uniform accounting,
auditing and financial reporting standards or governmental supervision
comparable to those applicable to domestic issuers. In addition, with respect to
certain foreign countries, taxes may be withheld at the source under foreign
income tax laws, and there is a possibility of expropriation or confiscatory
taxation, political or social instability or diplomatic developments that could
adversely affect investments in, the liquidity of, and the ability to enforce
contractual obligations with respect to, securities of issuers located in those
countries. The Money Market Portfolio may invest up to 25% of its assets in
foreign obligations.
Obligations of foreign banks and foreign branches of U.S. banks involve somewhat
different investment risks from those affecting obligations of U.S. banks,
including the possibilities that liquidity could be impaired because of future
political and economic developments; the obligations may be less marketable than
comparable obligations of U.S. banks; a foreign jurisdiction might impose
withholding taxes on interest income payable on those obligations; foreign
deposits may be seized or nationalized; foreign governmental restrictions (such
as foreign exchange controls) may be adopted which might adversely affect the
payment of principal and interest on those obligations; and the selection of
those obligations may be more difficult because there may be less publicly
available information concerning foreign banks. In addition, the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign banks may differ from those applicable to U.S. banks. In
that connection, foreign banks are not subject to examination by an U.S.
Government agency or instrumentality.
COMMERCIAL PAPER AND SHORT-TERM CORPORATE DEBT INSTRUMENTS. In addition to the
Money Market Portfolio which will generally invest in these types of
instruments, the S&P 500, LB Bond and EAFE(R) 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 Master Portfolios
monitors on an ongoing basis the ability of an issuer of a demand instrument to
pay principal and interest on demand.
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<PAGE>
The Master 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 Master 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 Master
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 Master Portfolio.
The investment adviser to the Master Portfolios will consider such an event in
determining whether a Master Portfolio should continue to hold the obligation.
To the extent a Master 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 Master 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 Master Portfolios may enter into a repurchase
agreement wherein the seller of a security to a Master Portfolio agrees to
repurchase that security from the Master 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
Master Portfolios may enter into repurchase agreements only with respect to
securities that could otherwise be purchased by the respective Master 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 Master 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 Master
Portfolio's custodian has custody of, and holds in segregated accounts,
securities acquired as collateral by each of the Master Portfolios under a
repurchase agreement. Repurchase agreements are considered loans by the Master
Portfolios. All repurchase transactions must be 100% collateralized.
In an attempt to reduce the risk of incurring a loss on a repurchase agreement,
the Master Portfolios limit investments in repurchase agreements to selected
creditworthy securities dealers or domestic banks or other recognized financial
institutions. The Master Portfolios' 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 Master Portfolios may
purchase floating-rate and variable-rate obligations as described in the
Prospectus. The Master Portfolios may purchase debt instruments with interest
rates that are periodically adjusted at specified intervals or whenever a
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<PAGE>
benchmark rate or index changes. These adjustments generally limit the increase
or decrease in the amount of interest received on the debt instruments. The
Master 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
Master Portfolio to invest fluctuating amounts, which may change daily without
penalty, pursuant to direct arrangements between the Master Portfolio, as
lender, and the borrower.
Floating- and variable-rate instruments are subject to interest-rate risk and
credit risk. The issuer of such obligations ordinarily has a corresponding
right, after a given period, to prepay in its discretion the outstanding
principal amount of the obligations plus accrued interest upon a specified
number of day's notice to the holders of such obligations. The interest rate on
a floating-rate demand obligation is based on a known leading rate, such as a
bank's prime rate, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable-rate demand obligation is adjusted
automatically at specified intervals. Frequently, such obligations are secured
by letters of credit or other credit support arrangements provided by banks.
Because these obligations are direct lending arrangements between the lender and
borrower, it is not contemplated that such instruments generally will be traded,
and there generally is no established secondary market for these obligations,
although they are redeemable at face value. Accordingly, where these obligations
are not secured by letters of credit or other credit support arrangements, the
Master 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 Master Portfolios may invest in
obligations which are not so rated only if the Master Portfolio's investment
adviser, Barclays Global Fund Advisors ("BGFA"), determines that at the time of
investment the obligations are of comparable quality to the other obligations in
which that Master Portfolio may invest. BGFA, on behalf of the Master
Portfolios, considers on an ongoing basis the creditworthiness of the issuers of
the floating- and variable-rate demand obligations in the Master Portfolios'
portfolio. None of the Master 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 MASTER PORTFOLIO SECURITIES. The S&P 500, LB Bond and EAFE(R)
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 Master Portfolio's total assets and loans of portfolio securities
are fully collateralized based on values that are marked-to-market daily. None
of these Master Portfolios will enter into any Master 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 Master 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, LB Bond and EAFE(R) 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.
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The Money Market Portfolio may lend its securities to brokers, dealers and
financial institutions, provided (1) the loan is secured continuously by
collateral consisting of cash, U.S. Government securities or an irrevocable
letter of credit which is marked to market daily to ensure that each loan is
fully collateralized; (2) the Money Market Portfolio may at any time recall the
loan and obtain the return of the securities loaned within five business days;
(3) the Money Market Portfolio will receive any interest or dividends paid on
the securities loaned; and (4) the aggregate market value of securities loaned
will not at any time exceed one-third of the total assets of the Money Market
Portfolio. The Money Market Portfolio may earn income in connection with
securities loans either through the reinvestment of the cash collateral or the
payment of fees by the borrower. The Money Market Portfolio does not currently
intend to lend its portfolio securities.
In determining whether to lend a security to a particular broker, dealer or
financial institution, a Master Portfolio's investment adviser 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
Master Portfolios will not enter into any portfolio security lending arrangement
having a duration of longer than one year. Any securities that a Master
Portfolio may receive as collateral will not become part of the Master
Portfolio's investment portfolio at the time of the loan and, in the event of a
default by the borrower, the Master Portfolio will, if permitted by law, dispose
of such collateral except for such part thereof that is a security in which the
Master Portfolio is permitted to invest. During the time securities are on loan,
the borrower will pay the Master Portfolio any accrued income on those
securities, and the Master 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, LB Bond and EAFE(R) Portfolios may
invest in securities issued by other open-end management investment companies
which principally invest in securities of the type in which such Master
Portfolio invests. Under the 1940 Act, a Master 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 Master
Portfolio's net assets with respect to any one investment company and (iii) 10%
of that Master 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 Master 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, LB Bond and EAFE(R) 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
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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. The EAFE(R) Portfolio emphasizes the stocks of foreign
issuers and the stocks of some foreign issuers may be included in the S&P 500
Index. As a result, the S&P 500 Portfolio's portfolio may contain and the
EAFE(R) Portfolio will contain securities of foreign issuers, as well as
American Depositary Receipts and similar instruments, which may subject the
related Master 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. These risks include
possible adverse political and economic developments, seizure or nationalization
of foreign deposits or adoption of governmental restrictions which might
adversely affect the value of the securities of a foreign issuer to investors
located outside the country of the issuer, whether from currency blockage or
otherwise. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs (sponsored or
unsponsored) are receipts typically issued by a U.S. bank or trust company and
traded on a U.S. Stock Exchange, that evidence ownership of underlying foreign
securities. Issuers of unsponsored ADRs are not contractually obligated to
disclose material information in the U.S. and, therefore, such information may
not correlate to the market value of the unsponsored ADR.
OBLIGATIONS OF FOREIGN GOVERNMENTS, BANKS AND CORPORATIONS. The S&P 500, LB Bond
and EAFE(R) 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 Master Portfolios may invest. To the extent that such investments
are consistent with its investment objective, each of the S&P 500, LB Bond and
EAFE(R) 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
Master 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, LB Bond and EAFE(R) Portfolios may also invest a portion of
its total assets in high quality, short-term (one year or less) debt obligations
of foreign branches of U.S. banks or U.S. branches of foreign banks that are
denominated in and pay interest in U.S. dollars.
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U.S. GOVERNMENT OBLIGATIONS. The Master Portfolios may invest in various types
of U.S. Government obligations. U.S. Government obligations include securities
issued or guaranteed as to principal and interest by the U.S. Government and
supported by the full faith and credit of the U.S. Treasury. U.S. Treasury
obligations differ mainly in the length of their maturity. Treasury bills, the
most frequently issued marketable government securities, have a maturity of up
to one year and are issued on a discount basis. U.S. Government obligations also
include securities issued or guaranteed by federal agencies or
instrumentalities, including government-sponsored enterprises. Some obligations
of such agencies or instrumentalities of the U.S. Government are supported by
the full faith and credit of the United States or U.S. Treasury guarantees.
Other obligation of such agencies or instrumentalities of the U.S. Government
are supported by the right of the issuer or guarantor to borrow from the U.S.
Treasury. Others are supported by the discretionary authority of the U.S.
Government to purchase certain obligations of the agency or instrumentality or
only by the credit of the agency or instrumentality issuing the obligation.
In the case of obligations not backed by the full faith and credit of the United
States, the investor must look principally to the agency or instrumentality
issuing or guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the U.S.
Government would provide financial support to its agencies or instrumentalities
(including government-sponsored enterprises) where it is not obligated to do so.
In addition, U.S. government obligations are subject to fluctuations in market
value due to fluctuations in market interest rates. As a general matter, the
value of debt instruments, including U.S. government obligations, declines when
market interest rates increase and rises when market interest rates decrease.
Certain types of U.S. government obligations are subject to fluctuations in
yield or value due to their structure or contract terms.
UNRATED, DOWNGRADED AND BELOW INVESTMENT GRADE INVESTMENTS. The Master
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 Master
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 Investment Company Act of 1940, (the "1940
Act"). After purchase by a Master Portfolio, a security may cease to be rated or
its rating may be reduced below the minimum required for purchase by the Master
Portfolio. Neither event will require a sale of such security by the Master
Portfolio provided that when a security ceases to be rated, the Board of
Trustees for that Master 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 Master Portfolio's best interests. In no event will such securities
exceed 5% of any Master 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 Master 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 Master Portfolios are not required to sell downgraded securities,
the Master 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 Master 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 Fund's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of low rated or unrated, low
quality debt securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low rated or unrated, low quality debt securities
may be more complex than for issuers of higher rated securities, and the ability
of a Master Portfolio to achieve its investment objective may, to the extent
such Master Portfolio holds low rated or unrated low quality debt securities, be
more dependent upon such creditworthiness analysis than would be the case if
that Master 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 Master Portfolio may incur additional expenses to
seek recovery.
FUND POLICIES
FUNDAMENTAL INVESTMENT RESTRICTIONS OF THE FUNDS
The following are the Funds' fundamental investment restrictions which, along
with the Funds' investment objectives, cannot be changed without shareholder
approval which would require a vote of a majority of the outstanding shares of
the applicable Fund, as set forth in the 1940 Act.
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Unless noted otherwise, if a percentage restriction is adhered to at the time of
investment, a later increase or decrease in percentage resulting from a change
in a Fund's assets (i.e., due to cash inflows or redemptions) or in market value
of the investment or the Fund's assets will not constitute a violation of that
restriction.
Unless indicated otherwise below, none of the Funds may:
1. with respect to 75% of its total assets, invest in the securities of any one
issuer (other than the U.S. Government and its agencies and instrumentalities)
if immediately after and as a result of such investment more than 5% of the
total assets of the Fund would be invested in such issuer and the Fund would
hold more than 10% of the outstanding voting securities of that issuer. There
are no limitations with respect to the remaining 25% of its total assets, except
to the extent other investment restrictions may be applicable;
2. issue senior securities, as defined in the 1940 Act, except that this
restriction will not be deemed to prohibit a Fund from (a) making any permitted
borrowings, mortgages or pledges, or (b) entering into permissible repurchase
and dollar roll transactions;
3. 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 and the International Fund may borrow up to 20% of
the current value of its respective 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 such net assets (but investments may not be
purchased while any such outstanding borrowing in excess of 5% of its net assets
exists);
4. 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;
5. 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 provided further that (ii) the Premier S&P 500 Fund, U.S.A.
Bond Fund and the International Fund will concentrate in obligations to the same
degree that their respective Master Portfolios concentrate in those obligations
during the same period;
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6. 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;
7. invest in commodities. This restriction does not prohibit the Premier S&P
500, U.S.A. Bond or International Funds, subject to restrictions described in
the Prospectus and elsewhere in this Statement of Additional Information, from
purchasing, selling or entering into futures contracts, options on futures
contracts and other derivative instruments, subject to compliance with any
applicable provisions of the federal securities or commodities laws;
8. 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).
9. borrow money, except for temporary or emergency purposes from a bank, or
pursuant to reverse repurchase agreements or dollar roll transactions and then
not in excess of one-third of the value of the total assets of the related Fund
(including the proceeds of such borrowings, at the lower of cost or market
value). Any such borrowing will be made only if immediately thereafter there is
an asset coverage of at least 300% of all borrowings, and no additional
investments may be made while any such borrowings are in excess of 10% of total
assets. Transactions that are fully collateralized in a manner that does not
involved the prohibited issuance of a "senior security" within the meaning of
Section 18(f) of the 1940 Act will not be regarded as borrowings for the
purposes of this restriction; or
10. mortgage, pledge or hypothecate any of its assets except in connection with
permissible borrowings and permissible forward contracts, futures contracts or
other hedging transactions.
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.
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2. Each Fund may not invest more than 15% of its net assets (10% for the U.S.A.
Money Market Fund) 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.
MASTER PORTFOLIO POLICIES
THE S&P 500, LB BOND AND EAFE(R) 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 Master 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.
None of the S&P 500, LB Bond or EAFE(R) Portfolios may:
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 Master
Portfolio's total assets;
3. invest in commodities, except that each Master 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 Master Portfolio may purchase and
sell securities that are secured by real estate or issued by companies that
invest or deal in real estate;
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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 and EAFE(R) Portfolios may borrow up to 20% of the current value of
its respective 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 Master 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 Master 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, LB Bond and
EAFE(R) Portfolios may lend its portfolio securities in an amount not to exceed
one-third of the value of its total assets. Any loans of Master Portfolio
securities will be made according to guidelines established by the SEC and the
Master Portfolios' Board of Trustees;
7. act as an underwriter of securities of other issuers, except to the extent
that the Master 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; (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; and (iv) in the case of the EAFE(R)
Portfolio, any industry in which the EAFE(R) 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 Master
Portfolio's Fundamental Investment Restrictions Nos. 3 and 5 may be deemed to
give rise to a senior security; or
10. purchase securities on margin, but each Master 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.
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S&P 500 LB BOND AND EAFE(R) PORTFOLIOS: NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
The S&P 500, LB Bond and EAFE(R) Portfolios are subject to the following
non-fundamental operating policies which may be changed by the Board of Trustees
of these Master Portfolios without the approval of the holders of such Master
Portfolio's outstanding securities.
1. The Master 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 Master 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 Master Portfolio's
net assets with respect to any one investment company; and (iii) 10% of such
Master Portfolio's net assets in the aggregate. Other investment companies in
which the Master 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 Master Portfolio.
2. Each Master 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 Master Portfolio may lend securities from its portfolio to brokers,
dealers, financial institutions, in amounts not to exceed (in the aggregate)
one-third of a Master Portfolio's total assets. Any such loans of portfolio
securities will be fully collateralized based on values that are marked to
market daily. The Master 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;
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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);
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.
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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.
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 (*):
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<TABLE>
<CAPTION>
Position(s) Held Principal Occupation(s)
Name, Address, and Age with the Fund During the Past 5 Years
- ---------------------- ----------------- ------------------------
<S> <C> <C>
Nicole E. Faucher (43) Trustee President and Chief Executive Officer,
Capspring.com, Inc, (institutional investment services)
394 University Avenue (1999-present); President, Nicole E. Faucher & Associates
Palo Alto, CA 94301 (Internet company) (1998-1999); President, R.V. Kohn's &
Associates (investment consulting) (1996-98); Managing
Director, Western Region, SEI Capital Resources (investment
consulting) (1993-96).
Kevin T. Hamilton (38) Trustee Principal and Portfolio Manager, Messner &
Smith Investment Management Limited (1998-present);
394 University Avenue Executive Vice President, Montgomery Asset Management,
Palo Alto, CA 94301 LLC (1991-98).
Elon R. Musk* (28) Trustee, Director, President, and Treasurer, X.com Asset
Chairman of the Management, Inc. (1999-present);
394 University Avenue Board of Trustees Chairman and Chief Executive Officer,
Palo Alto, CA 94301 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).
Gregory N. River (45) Trustee Founder, Owner, and President,
Paladin Consulting Company (1996-present);
394 University Avenue Consultant (investment services),
Palo Alto, CA 94301 Self-Employed (1994-96).
21
<PAGE>
John T. Story* (59) Trustee, President Executive Vice President, X.com,
(1999-present); President, John T. Story
394 University Avenue & Associates (mutual fund consulting) (1998-99);
Palo Alto, CA 94301 Executive Vice President, Montgomery Asset
Management (1994-1998).
Jeff Gaboury (31) CFO, Treasurer Senior Manager, Reporting and Compliance,
Investors Bank & Trust Company (1996-present);
200 Clarendon Street Compliance Manager, Scudder Kemper Investments,
Boston, MA 02116 Inc. (1995-1996).
Susan C. Mosher (45) Secretary Director and Senior Counsel, Mutual Fund
Administration - Legal Administration,
200 Clarendon Street Investors Bank & Trust Company (1995 - present).
Boston, MA 02116
</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.
22
<PAGE>
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:
ESTIMATED COMPENSATION TABLE
Total Compensation
From Funds and Trust
Name of Person, Aggregate Compensation Expected to be Paid
Position from the Funds 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, 2000.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Control is defined by the 1940 Act as the beneficial ownership, either directly
or through one or more controlled companies, of more than 25 percent of the
voting securities of the company.
As of April 7, 2000, Pamela A. Story of 2304 Washington Street, San Francisco,
California, 94115, was record owner of 100% of the International Fund and as
such, could be deemed to control the International Fund within the meaning of
the 1940 Act. There are no other shareholders holding 25% or more.
As of April 7, 2000, Elon R. Musk of 365 Forest Avenue, #2C, Palo Alto,
California, 94301, beneficially owned more than 5% of the outstanding shares of
the U.S.A. Bond Fund.
As of April 7, 2000, John T. Story of 2304 Washington Street, San Francisco,
California, 94115, beneficially owned more than 5% of the outstanding shares of
the U.S.A. Money Market Fund.
23
<PAGE>
INVESTMENT MANAGEMENT
INVESTMENT ADVISERS. Under an Investment Advisory Agreement (the "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 Corporation, 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 Master 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 only limited experience
managing mutual funds, beginning in November 1999. 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 Investment Adviser an investment advisory fee at an annual rate equal to
0.32% of its average daily net assets; 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; and the International Fund pays the Investment
Adviser an investment advisory fee at an annual rate equal to 0.35% of its
average daily net assets.
In addition, 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,
0.10% of the investment advisory fees payable to it by the U.S.A. Money Market
Fund and all investment advisory fees payable to it by the International Fund
over 0.60%.
THE MASTER PORTFOLIO'S INVESTMENT ADVISER. The Master Portfolio's investment
adviser is 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 December 31, 1999, BGFA and its affiliates provided investment
advisory services for over $750 billion in 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 Master Portfolios, BGFA provides investment guidance and policy
direction in connection with the management of the Master Portfolio's assets.
Pursuant to the Advisory Contract, BGFA furnishes to the Master Portfolio's
Board of Trustees periodic reports on the investment strategy and performance of
the Master Portfolios. BGFA receives fees from the S&P 500 Portfolio, the LB
Bond Portfolio; the Money Market Portfolio and the EAFE(R) Portfolio at an
annual rate equal to 0.05%, 0.08%, 0.10%, and 0.25%, respectively, of the Master
Portfolio's average daily net assets. This advisory fee is an expense of each
Master Portfolio borne proportionately by its interestholders, including each of
the respective Funds.
26
<PAGE>
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 Master 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 Master Portfolio imposed by the
securities laws or regulations of the states having jurisdiction over that
Master 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 Master
Portfolio, but only to the extent of its fees.
BGFA has agreed to provide to each Master 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 Master
Portfolio's investment portfolio.
The Advisory Contract will continue in effect for each Master Portfolio provided
the continuance is approved annually (i) by the holders of a majority of the
applicable Master Portfolio's outstanding voting securities or by the applicable
Master Portfolio's Board of Trustees and (ii) by a majority of the Trustees of
the applicable Master Portfolio who are not parties to the Advisory Contract or
affiliated with any such party. The Advisory Contract may be terminated on 60
days' 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 Master 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 Master Portfolio or
the price paid or received by a Master Portfolio.
SERVICE PROVIDERS
ADMINISTRATOR OF THE FUND. Investors Bank & Trust Company ("IBT"), 200 Clarendon
Street, Boston, MA 02116, 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.
25
<PAGE>
ADMINISTRATOR OF THE MASTER PORTFOLIOS. Stephens, Inc. ("Stephens"), and
Barclays Global Investors, N.A. ("BGI") serve as co-administrators on behalf of
the Master Portfolios. Under the Co-Administration Agreement between Stephens,
BGI and the Master Portfolios, Stephens and BGI provide as administrative
services, among other things: (i) general supervision of the operation of the
Master 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 Master Portfolios; and (iii) general supervision
relative to the compilation of data required for the preparation of periodic
reports distributed to the Master Portfolio's officers and Board of Trustees.
Stephens also furnishes office space and certain facilities required for
conducting the business of the Master Portfolios together with those ordinary
clerical and bookkeeping services that are not furnished by BGFA. Stephens also
pays the compensation of the Master Portfolio's Trustees, officers and employees
who are affiliated with Stephens. Furthermore, except as provided in the
advisory contract, Stephens and BGI bear substantially all costs of the Master
Portfolios and the Master 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 Master 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 Master Portfolios. As a result, IBT has custody
of all securities and cash of the Funds and the Master 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 Master Portfolios. The custodian
has no responsibility for any of the investment policies or decisions of the
Funds and the Master 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
26
<PAGE>
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, 3 Embarcadero Center, San Francisco, California
94105, acts as independent auditors for the Funds.
LEGAL COUNSEL. Paul, Hastings, Janofsky & Walker LLP, 345 California Street, San
Francisco, California 94104, acts as legal counsel for the Trust and the Funds.
MASTER PORTFOLIO TRANSACTIONS AND BROKERAGE SELECTION
The Master 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 Master Portfolios' Board of Trustees, BGFA as
investment adviser to the Master Portfolios (the "Master Adviser"), is
responsible for the Master Portfolios' investment portfolio decisions and the
placing of portfolio transactions. In placing orders, it is the policy of the
Master 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 the Master Adviser generally seeks
reasonably competitive spreads or commissions, the Master Portfolios will not
necessarily be paying the lowest spread or commission available.
Purchase and sale orders of the securities held by the Master Portfolios may be
combined with those of other accounts that the Master Adviser manages, and for
which it has brokerage placement authority, in the interest of seeking the most
favorable overall net results. When the Master Adviser determines that a
particular security should be bought or sold for a Master Portfolio and other
accounts managed by the MasterAdviser, the Master Adviser undertakes to allocate
those transactions among the participants equitably.
Under the 1940 Act, persons affiliated with the Master Portfolios such as
Stephens, the Master Adviser and their affiliates are prohibited from dealing
with the Master 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.
27
<PAGE>
Except in the case of equity securities purchased by a Master Portfolio,
purchases and sales of securities usually will be principal transactions. Master
Portfolio securities normally will be purchased or sold from or to dealers
serving as market makers for the securities at a net price. The Master
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 Master
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, affiliates of the Master Adviser. In the
over-the-counter market, securities are generally traded on a "net" basis with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price that includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount.
In placing orders for portfolio securities of the Master Portfolios, the Master
Adviser is required to give primary consideration to obtaining the most
favorable price and efficient execution. This means that the Master Adviser
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 the Master Adviser generally seeks reasonably competitive
spreads or commissions, the Master Portfolios will not necessarily be paying the
lowest spread or commission available. In executing portfolio transactions and
selecting brokers or dealers, the Master Adviser seeks to obtain the best
overall terms available for the Master Portfolios. In assessing the best overall
terms available for any transaction, the Master Adviser 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 Master Portfolio's Board of Trustees.
Certain of the brokers or dealers with whom the Master Portfolios may transact
business offer commission rebates to the Master Portfolios. The Master Adviser
considers such rebates in assessing the best overall terms available for any
transaction. The overall reasonableness of brokerage commissions paid is
evaluated by the Master Adviser based upon its knowledge of available
information as to the general level of commission paid by other institutional
investors for comparable services.
28
<PAGE>
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.
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 Trust
Instrument 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 Trust Instrument 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.
29
<PAGE>
SHAREHOLDER INFORMATION
Shares are sold through the Bank and are distributed by the Funds.
PRICING OF FUND SHARES. The net asset value per share of the Fund is calculated
as follows: all liabilities incurred or accrued are deducted from the valuation
of total assets, which includes accrued but undistributed income; the resulting
net assets are divided by the number of shares of the Fund outstanding at the
time of the valuation and the result (adjusted to the nearest cent) is the net
asset value per share.
As noted in the Prospectus, the net asset value of the Premier S&P 500, U.S.A.
Bond and International Funds will be determined as of the close of trading on
each day the New York Stock Exchange ("NYSE") is open for trading. It is
expected that the NYSE will be closed on Saturdays and Sundays and for New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas. The national
bank holidays also include: Columbus Day and Veterans' Day. The Funds may, but
do not expect to, determine the net asset values of their shares on any day when
the NYSE is not open for trading if there is sufficient trading in their
portfolio securities on such days to materially affect per-share net asset
value. The Funds will use the net asset value reported by the related Master
Portfolio for its shares in calculating the related Fund's net asset values.
Generally, the Funds' investments are valued at market value or, in the absence
of a market value, at fair value as determined in good faith by the Investment
Adviser and the Trust's Board of Trustees or Pricing Committee pursuant to
procedures approved by or under the direction of the Board.
The Funds' equity securities, including ADRs, EDRs and GDRs, that are traded on
securities exchanges are valued at the last sale price on the exchange on which
such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any reported sales, at the mean between
the last available bid and asked price. Equity securities that are traded on
more than one exchange are valued on the exchange determined by the Investment
Adviser to be the primary market. Securities traded in the over-the-counter
market are valued at the mean between the last available bid and asked price
prior to the time of valuation. Securities and assets for which market
quotations are not readily available (including restricted securities that are
subject to limitations as to their sale) are valued at fair value as determined
in good faith by or under the direction of the Board.
Generally, trading in and valuation of foreign securities is substantially
completed each day at various times prior to the close of the NYSE. In addition,
trading in and valuation of foreign securities may not take place on every day
30
<PAGE>
in which the NYSE is open for trading. Furthermore, trading takes place in
various foreign markets on days in which the NYSE is not open for trading and on
which the Funds' net asset values are not calculated. Occasionally, events
affecting the values of such securities in U.S. dollars on a day on which the
Funds calculates their net asset value may occur between the times when such
securities are valued and the close of the NYSE and will not be reflected in the
computation of the Funds' net asset value unless the Board or its delegates deem
that such events would materially affect the net asset value, in which case an
adjustment would be made.
Short-term debt obligations with remaining maturities in excess of 60 days are
valued at current market prices, as discussed above. Short-term securities with
60 days or less remaining to maturity are, unless conditions indicate otherwise,
amortized to maturity based on their cost to the Funds if acquired within 60
days of maturity or, if already held by a Fund on the 60th day, based on the
value determined on the 61st day.
Corporate debt securities, U.S. government securities, mortgage-related
securities and asset-backed fixed-income securities held by a Fund are valued on
the basis of valuations provided by dealers in those instruments, by an
independent pricing service, or at fair value as determined in good faith by
procedures approved by the Board. Any such pricing service, in determining
value, will use information with respect to transactions in the securities being
valued, quotations from dealers, market transactions in comparable securities,
analyses and evaluations of various relationships between securities and
yield-to-maturity information.
An option that is written by a Fund is generally valued at the last sale price
or, in the absence of the last sale price, the last offer price. An option that
is purchased by a Fund is generally valued at the last sale price or, in the
absence of the last sale price, the last bid price. The value of a futures
contract equals the unrealized gain or loss on the contract that is determined
by marking the contract to the current settlement price for a like contract on
the valuation date of the futures contract if the securities underlying the
futures contract experience significant price fluctuations after the
determination of the settlement price. When a settlement price cannot be used,
futures contracts will be valued at their fair market value as determined by or
under the direction of the Boards.
If any securities held by a Fund are restricted as to resale or do not have
readily available market quotations, the Investment Adviser and the Trust's
Board or Pricing Committee determine their fair value, following procedures
approved by the Board. The Trustees periodically review such valuations and
valuation procedures. The fair value of such securities is generally determined
as the amount which the related Fund could reasonably expect to realize from an
orderly disposition of such securities over a reasonable period of time. The
valuation procedures applied in any specific instance are likely to vary from
case to case. However, consideration is generally given to the financial
position of the issuer and other fundamental analytical data relating to the
investment and to the nature of the restrictions on disposition of the
securities (including any registration expenses that might be borne by such Fund
in connection with such disposition). In addition, specific factors are also
generally considered, such as the cost of the investment, the market value of
any unrestricted securities of the same class (both at the time of purchase and
at the time of valuation), the size of the holding, the prices of any recent
transactions or offers with respect to such securities and any available
analysts' reports regarding the issuer.
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<PAGE>
Any assets or liabilities initially expressed in terms of foreign currencies are
translated into U.S. dollars at the official exchange rate or, alternatively, at
the mean of the current bid and asked prices of such currencies against the U.S.
dollar last quoted by a major bank that is a regular participant in the foreign
exchange market or on the basis of a pricing service that takes into account the
quotes provided by a number of such major banks. If neither of these
alternatives is available or both are deemed not to provide a suitable
methodology for converting a foreign currency into U.S. dollars, the Board in
good faith will establish a conversion rate for such currency.
All other assets of the Funds are valued in such manner as the Board in good
faith deems appropriate to reflect their fair value.
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 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.
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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 FUNDS. Each Fund intends to be taxed as a regulated investment
company under Subchapter M of the Code. Accordingly, each Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to certain securities loans, and
gains from the sale or other disposition of stock, securities or foreign
currencies, or other income derived with respect to its business of investing in
such stock, securities or currencies; and (b) diversify its holdings so that, at
the end of each fiscal quarter, (i) at least 50% of the value of the Fund's
total assets is represented by cash and cash items, U.S. Government securities,
the securities of other regulated investment companies and other securities,
with such other securities limited, in respect of any one issuer, to an amount
not greater than 5% of the value of the Fund's total assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities and the securities of other regulated investment
companies).
As regulated investment companies, the Funds generally are not subject to U.S.
federal income tax on income and gains that it distributes to shareholders, if
at least 90% of 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 Funds intend to distribute substantially all of such income.
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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, each 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 Funds intend 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 a 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 a Fund in October, November or December of that year
with a record date in such a month and paid by the Fund during January of the
following year. Such distributions will be taxable to shareholders in the
calendar year in which the distributions are declared, rather than the calendar
year in which the distributions are received.
If the net asset value of shares is reduced below a shareholder's cost as a
result of a distribution by a 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 a 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 a 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
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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 Funds 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 related Fund with the shareholder's correct
taxpayer identification number or social security number, (2) the IRS notifies
the shareholder or the related 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 a 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 such Fund in
each taxable year in which the Fund owns an interest in such debt security and
receives a principal payment on it. In particular, the Fund will be required to
allocate that principal payment first to the portion of the market discount on
the debt security that has accrued but has not previously been includable in
income. In general, the amount of market discount that must be included for each
period is equal to the lesser of (i) the amount of market discount accruing
during such period (plus any accrued market discount for prior periods not
previously taken into account) or (ii) the amount of the principal payment with
respect to such period. Generally, market discount accrues on a daily basis for
each day the debt security is held by the Fund at a constant rate over the time
remaining to the debt security's maturity or, at the election of the Fund, at a
constant yield to maturity which takes into account the semi-annual compounding
of interest. Gain realized on the disposition of a market discount obligation
must be recognized as ordinary interest income (not capital gain) to the extent
of the "accrued market discount."
ORIGINAL ISSUE DISCOUNT. Certain debt securities acquired by the Funds 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 Funds, 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 Funds 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).
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OPTIONS, FUTURES AND FORWARD CONTRACTS. Any regulated futures contracts and
certain options (namely, nonequity options and dealer equity options) in which a
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 a 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 Funds
may result in "straddles" for federal income tax purposes. The straddle rules
may affect the character of gains (or losses) realized by a 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 Funds 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 a Fund are not entirely
clear. The straddle rules may increase the amount of short-term capital gain
realized by the Fund, which is taxed as ordinary income when distributed to
shareholders. Because application of the straddle rules may affect the character
of gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
CONSTRUCTIVE SALES. Under certain circumstances, a 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.
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MASTER PORTFOLIO ORGANIZATION
The Master 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 Trust Instrument
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 Trust Instrument 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 Trust Instrument 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 Master Portfolios have substantially identical voting and
other rights as those rights enumerated above for shares of the Funds. 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 one of the Funds is requested to vote on a
matter with respect to the Master 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 as a result 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.
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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.
PERFORMANCE INFORMATION
The Premier S&P 500, U.S.A. Bond and International 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, U.S.A. Bond and International
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
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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, U.S.A. Bond and
International 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.
DISTRIBUTION RATE. The distribution rate for each of the Premier S&P 500, U.S.A.
Bond and International 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.
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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 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.
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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.
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.
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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",
xi = each individual return during the time period,
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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.
FEEDER FUND PERFORMANCE. The Funds intend to disclose historical performance of
the other feeder funds that invest all of their assets in a related Master
Portfolio, including the average annual and cumulative returns which reflect the
expense ratio of such feeder funds. The feeder funds are distinct mutual funds
and have different fees, expenses and returns than the Funds. Historical
performance of substantially similar mutual funds is not indicative of future
performance of the Funds.
FINANCIAL STATEMENTS
The financial statements, financial highlights and independent auditors' report
thereon for the Premier S&P 500 Fund, U.S.A. Bond Fund and U.S.A. Money Market
Fund are incorporated by reference to the Fund's Annual Report as of and for the
period ended December 31, 1999, and have been incorporated by reference into
this SAI. The International Fund had not commenced operations as of December 31,
1999.
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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 inherent in certain
areas;
o evaluation of the issuer's products in relation to competition and
customer acceptance;
o liquidity;
o amount and quality of long-term debt;
o trend of earnings over a period of ten years;
o financial strength of parent company and the relationships which exist
with the issuer; and
o recognition by the management of obligations which may be present or
may arise as a result of public interest questions and preparations to
meet such obligations.
44
<PAGE>
DESCRIPTION OF BOND RATINGS
Bonds are considered to be "investment grade" if they are in one of the top four
ratings.
S&P's ratings are as follows:
o Bonds rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
o Bonds rated AA have a very strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds
in higher rated categories.
o Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds
in higher rated categories.
o Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than in higher
rated categories.
o Debt rated BB, B, CCC, CC or C is regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the
obligation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse debt conditions.
o The rating C1 is reserved for income bonds on which no interest is
being paid.
o Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.
Moody's ratings are as follows:
o Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt-edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
o Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long
term risks appear somewhat larger than in Aaa securities.
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
<PAGE>
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 -- 2
(b) By-laws - 3
(c) Instruments Defining Rights of Security Holders -- 1
(d) Investment Advisory Agreement, dated November 17, 1999, between
X.com Asset Management, Inc. and the Registrant -- filed herewith
(e) Underwriting Contracts: Not applicable
(f) Bonus or Profit Sharing Contracts: Not applicable
(g) Custodian Agreement, dated November 17, 1999, between X.com Asset
Management, Inc., Investors Bank & Trust Company, and the
Registrant - filed herewith
(h) Other Material Contracts:
(i) Administration Agreement, dated November 17, 1999, between
X.com Asset Management, Inc., Investors Bank & Trust
Company, and the Registrant - filed herewith
(ii) Transfer Agency Agreement, dated November 17, 1999, between
X.com Asset Management, Inc. and the Registrant -- filed
herewith
(iii) Form of X.com Funds Electronic Delivery Consent Agreement
-- 2
(iv) Third Party Feeder Fund Agreement between X.com Asset
Management, Inc., Master Investment Portfolio, and the
Registrant - filed herewith
(i) Opinion and Consent of Counsel - filed herewith
(j) Consent of Independent Auditors - filed herewith
(k) Omitted Financial Statements: Not applicable
(l) Form of Subscription Agreement between Elon R. Musk and the
Registrant -- 2
(m) Rule 12b-1 Plan: Not applicable
(n) Financial Data Schedules: Not applicable
(o) Rule 18f-3 Plan: Not applicable
(p) Powers of Attorney and Code of Ethics
<PAGE>
(i) Power of Attorney, dated March 6, 2000, for Nicole E.
Faucher, Kevin T. Hamilton, Elon R. Musk, Gregory N. River
and John T. Story - filed herewith
(ii) Code of Ethics -filed herewith
1. Filed with initial Registration Statement on Form N-1A on June 8, 1999.
2. Filed with Pre-Effective Amendment No. 1 filed with the SEC on November 18,
1999.
3. Filed with Post-Effective Amendment No. 2 filed with the SEC on March 23,
2000.
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>
<CAPTION>
Name Title/Status with Investment Adviser Other Business Connections
- ---- ------------------------------------ ---------------------------
<S> <C> <C>
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
<PAGE>
Shares of the Registrant (of each 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,
02116.
Item 29. Management Services
Not applicable
Item 30. Undertakings:
Not applicable
<PAGE>
EXHIBIT INDEX
(d) Investment Advisory Agreement
(g) Custodian Agreement
(h)(i) Administration Agreement
(h)(ii) Transfer Agency Agreement
(h)(iv) Third Party Feeder Fund Agreement
(i)(i) Opinion and Consent of Counsel
(j) Consent of Independent Auditors
(p)(i) Powers of Attorney
(p)(ii) Code of Ethics
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirement for effectiveness of this registration statement under rule
485(b) under the Securities Act of 1933 and 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 26th day of April 2000.
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
amendment to the 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 April 26, 2000
- -----------------
John T. Story
/s/ Jeff J. Gaboury Treasurer and April 26, 2000
- ------------------- Chief Financial Officer
Jeff J. Gaboury
/s/ Nicole E. Faucher* Trustee April 26, 2000
- ----------------------
Nicole E. Faucher
/s/ Kevin T. Hamilton* Trustee April 26, 2000
- ---------------------
Kevin T. Hamilton
/s/ Elon R. Musk* Trustee April 26, 2000
- ----------------
Elon R. Musk
/s/ Gregory N. River* Trustee April 26, 2000
- --------------------
Gregory N. River
*By: /s/Susan C. Mosher
-------------------
Susan C. Mosher,
Attorney-in-Fact, pursuant to
Power of Attorney filed herewith.
INVESTMENT ADVISORY AGREEMENT
X.COM FUNDS
This is an INVESTMENT ADVISORY AGREEMENT, effective as of November 17,
1999 between X.com Asset Management, Inc. (the "Adviser") and X.com Funds (the
"Trust") with respect to the series listed on Exhibit A (the "Funds"), which
---------
Exhibit A may be amended from time to time to add or delete Funds with mutual
- ---------
consent of the parties.
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 and other management services required for the ordinary
operations of the Funds, and the Adviser is willing to furnish those 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 and
manager 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 and Management 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.
1
<PAGE>
(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;
2
<PAGE>
(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,
3
<PAGE>
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 the following expenses:
o interest;
o taxes;
o brokerage commissions;
o insurance and bonding premiums;
o fees and expenses of those trustees who are not "interested persons"
as defined in the 1940 Act, including counsel fees;
o extraordinary expenses approved by those disinterested trustees; and
o fees and expenses of any master portfolio into which that series
invests all or substantially all of its assets.
The Adviser also will pay expenses incurred in connection with the
provision of shareholder services and distribution services.
To the extent the Adviser incurs any costs by assuming expenses that
are an obligation of a Fund as set forth herein, such Fund shall promptly
reimburse the Adviser for those costs and expenses, except to the extent the
Adviser has otherwise agreed to bear those expenses. To the extent the services
for which a Fund is obligated to pay are performed by the Adviser, the
4
<PAGE>
Adviser shall be entitled to recover from that Fund to the extent of the
Adviser's actual costs for providing those services.
6. Compensation.
-------------
(a) 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.
(b) The Adviser voluntarily may reduce any portion of the compensation
or reimbursement of expenses due to it pursuant to this Agreement and may agree
to make payments to limit the expenses that are the responsibility of a Fund
under this Agreement. Any such reduction or payment shall be applicable only to
such specific reduction or payment and shall not constitute an agreement to
reduce any future compensation or reimbursement due to the Adviser hereunder or
to continue future payments.
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.
5
<PAGE>
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.
6
<PAGE>
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 affected Funds, 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
7
<PAGE>
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 immediately 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 Funds, but this shall not be interpreted to conflict with each Fund's
maintaining its separate assets and liabilities.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of November 17, 1999.
X.COM FUNDS
By: /s/ John T. Story
-----------------
Name: John T. Story
Title: Executive Vice President
X.COM ASSET MANAGEMENT, INC.
By: /s/ John T. Story
-----------------
Name: John T. Story
Title: President
9
<PAGE>
EXHIBIT A
NAME OF FUND ADVISORY FEE EFFECTIVE DATE
- ------------ ------------ ---------------
X.com Premier S&P 500 Fund 0.23% November 17, 1999
X.com U.S.A. Bond Fund 0.32% November 17, 1999
X.com U.S.A. Money Market Fund 0.50% November 17, 1999
X.com International Index Fund 0.35% March 27, 2000
X.COM FUNDS
By: /s/ John T. Story
-----------------
Name: John T. Story
Title: Executive Vice President
X.COM ASSET MANAGEMENT, INC.
By: /s/ John T. Story
-----------------
Name: John T. Story
Title: President
10
CUSTODIAN AGREEMENT
CUSTODIAN AGREEMENT ("Agreement") made as of this 17th day of November,
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 November 17, 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
<PAGE>
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
2
<PAGE>
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, notificat 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.
3
<PAGE>
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
4
<PAGE>
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
5
<PAGE>
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:
6
<PAGE>
(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:
7
<PAGE>
(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
8
<PAGE>
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
9
<PAGE>
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
10
<PAGE>
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
11
<PAGE>
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.
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<PAGE>
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,
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<PAGE>
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
14
<PAGE>
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
15
<PAGE>
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;
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(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.
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(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
<PAGE>
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 A. Hearth, Paul, Hastings,
Janofsky & Walker LLP
Facsimile: (415) 217-5333
(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 A. Hearth, Paul, Hastings,
Janofsky & Walker LLP
Facsimile: (415) 217-5333
(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
19
<PAGE>
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.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
X.COM FUNDS
By: /s/ John T. Story
--------------------------
Name: John T. Story
Title: Executive Vice President
X.COM ASSET MANAGEMENT, INC.
By: /s/ John T. Story
--------------------------
Name: John T. Story
Title: President
INVESTORS BANK & TRUST COMPANY
By: /s/ Andrew M. Nesvet
--------------------------
Name: Andrew M. Nesvet
Title: Senior Director
21
<PAGE>
Appendices
----------
Appendix A...................................... Funds
Appendix B...................................... Fee Schedule
Appendix C...................................... Additional Services
22
<PAGE>
Appendix A
FUNDS OF X.COM FUNDS
Fund Effective Date
---- --------------
1) X.com Premier S&P 500 Fund November 17, 1999
2) X.com U.S.A. Bond Fund November 17, 1999
3) X.com U.S.A. Money Market Fund November 17, 1999
4) X.com International Index Fund March 27, 2000
X.COM FUNDS
By: /s/ John T. Story
--------------------------
Name: John T. Story
Title: Executive Vice President
X.COM ASSET MANAGEMENT, INC.
By: /s/ John T. Story
--------------------------
Name: John T. Story
Title: President
INVESTORS BANK & TRUST COMPANY
By: /s/ Andrew M. Nesvet
--------------------------
Name: Andrew M. Nesvet
Title: Senior Director
23
<PAGE>
Appendix B
X.COM FUNDS
ANNUAL FEE SCHEDULE
NOVEMBER 17, 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
24
<PAGE>
- 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.
25
ADMINISTRATION AGREEMENT
ADMINISTRATION AGREEMENT ("Agreement") made as of November 17, 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 November 17, 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
<PAGE>
(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.
<PAGE>
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 reckle 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
<PAGE>
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 A Hearth, Paul, Hastings, Janofsky &
Walker LLP
Facsimile: (415) 217-5333
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 A Hearth, Paul, Hastings, Janofsky &
Walker LLP
Facsimile: (415) 217-5333
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
<PAGE>
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.
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: /s/ John T. Story
------------------------
Name: John T. Story
Title: Executive Vice President
X.COM ASSET MANAGEMENT, INC.
By: /s/ John T. Story
------------------------
Name: John T. Story
Title: President
INVESTORS BANK & TRUST COMPANY
By: /s/ Andrew M. Nesvet
------------------------
Name: Andrew M. Nesvet
Title: Senior Director
<PAGE>
APPENDICES
Appendix A.............................. Funds
Appendix B.............................. Services
Appendix C.............................. Fee Schedule
<PAGE>
Appendix A
FUNDS OF X.COM FUNDS
Funds Effective Date
----- --------------
1) X.com Premier S&P 500 Fund November 17, 1999
2) X.com U.S.A. Bond Fund November 17, 1999
3) X.com U.S.A. Money Market Fund November 17, 1999
4) X.com International Index Fund March 27, 2000
X.COM FUNDS
By: /s/ John T. Story
------------------------
Name: John T. Story
Title: Executive Vice President
X.COM ASSET MANAGEMENT, INC.
By: /s/ John T. Story
------------------------
Name: John T. Story
Title: President
INVESTORS BANK & TRUST COMPANY
By: /s/ Andrew M. Nesvet
------------------------
Name: Andrew M. Nesvet
Title: Senior Director
<PAGE>
<TABLE>
<CAPTION>
Appendix B
SERVICES
<S> <C> <C> <C>
SUGGESTED FUND AUDITOR
FUNCTION INVESTORS BANK & TRUST X.COM OR COUNSEL
- -------------------------- ------------------------------------ -------------------------- ---------------------------------
- --------------------------
MANAGEMENT REPORTING
& TREASURY ADMINISTRATION
- --------------------------
Monitor portfolio Perform tests of certain specific Oversee BGI's continuous A/C - Provide consultation as
compliance in accordance portfolio activity designed from monitoring of portfolio needed on compliance issues.
with the current provisions of the Fund's activity and Fund
Prospectus and SAI. Prospectus and SAI. Follow-up on operations in conjunction
potential violations. with 1940 Act, Prospectus,
FREQUENCY: BI-MONTHLY SAI and any other
applicable laws and
regulations. Monitor
testing results and
approve resolution of
compliance issues.
Provide compliance Provide a report of compliance Review report. A/C - Provide consultation as
summary package. testing results. needed.
FREQUENCY: MONTHLY
Perform asset Perform asset diversification Oversee BGI's continuous A - Provide consultation as
diversification testing to tests at each tax quarter end. monitoring of portfolio needed in establishing positions
establish qualification as Follow-up on issues. activity in conjunction to be taken in tax treatment of
a RIC. with IRS requirements. particular issues. Review
Review test results and quarter end tests on a
FREQUENCY: QUARTERLY take any necessary action. current basis.
Approve tax positions
taken.
<PAGE>
SUGGESTED FUND AUDITOR
FUNCTION INVESTORS BANK & TRUST X.COM OR COUNSEL
- -------------------------- ------------------------------------ -------------------------- ---------------------------------
- --------------------------
MANAGEMENT REPORTING
& TREASURY ADMINISTRATION
(Continued)
- --------------------------
Perform qualifying income Perform qualifying income testing Oversee BGI's continuous A- Consult as needed on tax
testing to establish (on book basis income, unless monitoring of portfolio accounting positions to be
qualification as a RIC. material differences are activity in conjunction taken. Review in conjunction
anticipated) on quarterly basis with IRS requirements. with year-end audit.
FREQUENCY: QUARTERLY and as may otherwise be Review test results and
necessary. Follow-up on issues. take any necessary action.
Approve tax positions
taken.
Prepare the Fund's Prepare preliminary expense Provide asset level
annual expense budget. budget. Notify fund accounting projections. Approve
Establish daily accruals. of new accrual rates. expense budget.
FREQUENCY: ANNUALLY
Monitor the Fund's Monitor actual expenses updating Provide asset level C/A - Provide consultation as
expense budget. budgets/ expense accruals. projections quarterly. requested.
Provide vendor
FREQUENCY: QUARTERLY information as
necessary. Review expense
analysis and approve
budget revisions.
Receive and coordinate Propose allocations of invoice Approve invoices and
payment of fund expenses. among Funds and obtain authorized allocations of payments.
approval to process payment. Send invoices to IBT in a
FREQUENCY: AS NECESSARY timely manner.
<PAGE>
SUGGESTED FUND AUDITOR
FUNCTION INVESTORS BANK & TRUST X.COM OR COUNSEL
- -------------------------- ------------------------------------ -------------------------- ---------------------------------
- --------------------------
MANAGEMENT REPORTING
& TREASURY ADMINISTRATION
(Continued)
- --------------------------
Calculate periodic Calculate amounts available for Establish and maintain C - Review dividend resolutions
dividend rates and capital distribution. Coordinate review dividend and distribution in conjunction with Board
gains distributions to be by management and/or auditors. policies. Approve approval.
declared in accordance Notify custody and transfer agent distribution rates per
with management guidelines. of authorized dividend rates in share and aggregate A - Review and concur with
accordance with Board approved amounts. Obtain Board proposed distributions, annual
FREQUENCY: QUARTERLY/ policy. Report dividends to approval when required. and excise only.
ANNUALLY Board as required.
Calculate total return Provide total return Review total return
information on Funds as calculations. Returns consist information.
defined in the current of monthly, quarterly, YTD,
Prospectus and SAI. since inception and average Identify the services
annual since inception. to which the Funds
FREQUENCY: MONTHLY report. Provide
Prepare, coordinate as information as requested.
Prepare responses to necessary, and submit responses
major industry to the appropriate agency.
questionnaires.
FREQUENCY: AS OFTEN AS
NECESSARY
Prepare disinterested Summarize amounts paid to Provide social security
trustee Form 1099-Misc. trustees during the calendar numbers and current
year. Prepare and mail Form mailing address for
FREQUENCY: ANNUALLY 1099-Misc. trustees. Review and
approve information
provided for Form 1099-
Misc.
<PAGE>
SUGGESTED FUND AUDITOR
FUNCTION INVESTORS BANK & TRUST X.COM OR COUNSEL
- -------------------------- ------------------------------------ -------------------------- ---------------------------------
- --------------------------
FINANCIAL REPORTING
- --------------------------
Prepare financial Prepare information as required. Review financial
information for information.
presentation to Fund
Management and Board of
Directors.
FREQUENCY: AS NEEDED
Coordinate the annual Coordinate the creation of Provide information A - Perform audit and issue
audit and semi-annual templates reflecting client- required to create opinion on annual financial
preparation and printing selected standardized templates, including statements.
of financial statements appearance and text of report style and graphics.
and notes with financial statements and Approve format and text A/C - Review reports.
management, fund footnotes. Draft and manage as standard. Approve
accounting and the production cycle. Coordinate production cycle and
fund auditors. with IBT fund accounting the assist in managing to the
electronic receipt of portfolio cycle. Coordinate review
FREQUENCY: ANNUALLY/ and general ledger information. and approval by portfolio
SEMI-ANNUALLY Assist in resolution of managers of portfolio
accounting issues. Using listings to be included
templates, draft financial in financial statements.
statements, coordinate auditor Prepare appropriate
and management review, and clear management letter and
comments. Coordinate printing of coordinate production of
with reports and EDGAR Management Discussion
conversion outside printer and and Analysis. Review
filing with the SEC via EDGAR. and approve entire report.
Make appropriate
representations in
conjunction with audit.
<PAGE>
SUGGESTED FUND AUDITOR
FUNCTION INVESTORS BANK & TRUST X.COM OR COUNSEL
- -------------------------- ------------------------------------ -------------------------- ---------------------------------
- --------------------------
LEGAL
- --------------------------
Prepare and file Form Prepare form for filing. Obtain Provide appropriate C - Review initial filing.
N-SAR. any necessary supporting responses. Provide A - Provide annual audit internal
documents. File with SEC via applicable Exhibits to control letter to accompany the
FREQUENCY: SEMI-ANNUALLY EDGAR. attach to filing. Review annual filing.
and authorize filing.
Assist the preparation Accumulate capital stock Review and approve A/C - Review informally when
and filing of Form 24f-2 information. capital stock worksheet. requested.
Notice.
FREQUENCY: ANNUALLY
Respond to regulatory or Compile and provide Coordinate with C - Provide consultation as
auditor examinations and documentation pursuant to regulatory authorities needed.
requests. examinations, audits and and auditors to provide
requests from regulators or requested
FREQUENCY: AS NEEDED auditors. Assist client and documentation and
(AT LEAST ANNUALLY) legal counsel in resolution of resolutions to inquiries.
regulatory and audit inquiries.
Proxy material/shareholder Prepare drafts of proxy material Review and approve proxy. C - Review and approve proxy.
meetings. for review, file materials or
coordinate filing with the SEC and
FREQUENCY: AS NEEDED coordinate printing. Assist proxy
solicitation firm and prepare
scripts. Attend meeting and
prepare minutes.
<PAGE>
SUGGESTED FUND AUDITOR
FUNCTION INVESTORS BANK & TRUST X.COM OR COUNSEL
- -------------------------- ------------------------------------ -------------------------- ---------------------------------
- --------------------------
LEGAL
(Continued)
- --------------------------
Prepare amendments to Coordinate the preparation and Review and approve. C - Review and approve filings.
Registration Statement. filing of post-effective
amendments. Coordinate with A/C - Provide consents as
FREQUENCY: ANNUAL UPDATES outside printers the EDGAR appropriate.
(INCLUDES UPDATING conversion, filing with the SEC
FINANCIAL HIGHLIGHTS, and printing of prospectus.
EXPENSE TABLES, RATIOS)
PLUS ONE ADDITIONAL
FILING PER FISCAL YEAR.
Prepare prospectus/SAI Coordinate the preparation and Review and approve. C - Review and approve
supplements. filing of prospectus and SAI filings.
supplements. File with the
FREQUENCY: AS OFTEN AS SEC via EDGAR. A/C - Provide consents as
REQUIRED appropriate.
Prepare agenda and board Maintain annual calendar of Review and approve board C - Review agenda, board material
materials for quarterly required quarterly and annual materials. and board and committee minutes.
board meetings. approvals. Prepare agenda, Ensure board material contains
resolutions and other board all required information that the
FREQUENCY: QUARTERLY materials for quarterly board members of the board must review
meetings. Prepare supporting and/or approve to perform their
information and materials when duties as directors/trustees.
necessary. Assemble, check
and distribute books in
advance of meeting. Attend
board and committee meetings
and prepare minutes.
<PAGE>
SUGGESTED FUND AUDITOR
FUNCTION INVESTORS BANK & TRUST X.COM OR COUNSEL
- -------------------------- ------------------------------------ -------------------------- ---------------------------------
- --------------------------
LEGAL
(Continued)
- --------------------------
Furnish Trust officers. Furnish appropriate personnel as Furnish appropriate
officers of the Trust. personnel as officers of
FREQUENCY: AS NEEDED the Trust.
Assist in updating of Make annual filing of fidelity Obtain required fidelity
fidelity bond insurance insurance material with the SEC. bond insurance coverage.
coverage. Monitor level of fidelity
bond insurance maintained
FREQUENCY: ANNUALLY in accordance with
required coverage.
<PAGE>
SUGGESTED FUND AUDITOR
FUNCTION INVESTORS BANK & TRUST X.COM OR COUNSEL
- -------------------------- ------------------------------------ -------------------------- ---------------------------------
- --------------------------
TAX
- --------------------------
Prepare income tax Calculate investment company Provide transaction A - Provide consultation as
provisions. taxable income, net tax exempt information as requested. needed in establishing positions
interest, net capital gain and Approve tax accounting to be taken in tax treatment of
FREQUENCY: ANNUALLY spillback dividend requirements. positions to be taken. particular issues. Perform
Identify book-tax accounting Approve provisions. review in conjunction with the
differences. Track required PFIC's to be identified year-end audit.
information relating to at the Portfolio (HUB)
accounting differences. level.
Calculate excise tax Calculate required distributions Provide transaction A - Provide consultation as
distributions. to avoid imposition of excise tax. information as requested. needed in establishing positions
- Calculate capital gain net Passive Foreign to be taken in tax treatment of
FREQUENCY: ANNUALLY income and foreign currency Investment Companies particular issues. Review and
gain/loss through October 31. (PFICs) to be identified concur with proposed
- Calculate ordinary income and at the Portfolio (HUB) distributions.
distributions through a level. Approve tax
specified cut off date. accounting positions to
- Project ordinary income from be taken. Review and
cut off date to December 31. approve all income and
- Ascertain dividend shares. distribution
Identify book-tax accounting calculations, including
differences. Track required projected income and
information relating to accounting dividend shares. Approve
differences. Coordinate review by distribution rates per
management and fund auditors. share and aggregate
Notify custody and transfer agent amounts. Obtain Board
of authorized dividend rates in approval when required.
accordance with Board approved
policy. Report dividends to Board
as required.
<PAGE>
SUGGESTED FUND AUDITOR
FUNCTION INVESTORS BANK & TRUST X.COM OR COUNSEL
- -------------------------- ------------------------------------ -------------------------- ---------------------------------
- --------------------------
TAX
(Continued)
- --------------------------
Prepare tax returns. Prepare excise and RIC tax returns. Review and sign tax A - Review and sign tax return
return. as preparer.
FREQUENCY: ANNUALLY
Prepare Form 1099. Obtain yearly distribution Review and approve
information. Calculate 1099 information provided for
FREQUENCY: ANNUALLY reclasses and coordinate with Form 1099.
transfer agent.
Prepare other year-end Obtain yearly income distribution Review and approve
tax-related disclosures. information. Calculate information provided.
disclosures (i.e., dividend
FREQUENCY: ANNUALLY received deductions, foreign tax
credits, tax-exempt income, income
by jurisdiction) and coordinate
with transfer agent.
<PAGE>
SUGGESTED FUND AUDITOR
FUNCTION INVESTORS BANK & TRUST X.COM OR COUNSEL
- -------------------------- ------------------------------------ -------------------------- ---------------------------------
- --------------------------
BLUE SKY
- --------------------------
Maintain effective Blue Maintain records of fund sales for Identify states in which C- Provide consultation as
Sky notification filings client designated states via PW filings are to be made. needed on Blue Sky issues.
for states in which Fund Blue2 compliance system. File
Management intends to annual notification renewal Identify exempt C- Provide consultation on
solicit sales of fund documents and annual sales reports. transactions to transfer product and institutional
shares. File amendments to increase dollar agent for appropriate exemptions.
amounts authorized for sales by exclusion from blue sky
FREQUENCY: ON-GOING funds, based upon client reporting.
instruction. File notifications to
states for new funds and/or classes,
mergers and liquidations. Provide
periodic reports on state
authorization amounts and sales
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 File updated registration Inform IBT of filings C- Provide consultation as
registration statement statements, prospectus, SAIs, prior to SEC filing. needed on Blue Sky filing issues.
with the applicable supplements thereto, and annual
state securities reports to shareholders upon
commissions in approval/authorization by client.
coordination with SEC
filing.
FREQUENCY: ANNUAL
UPDATES (INCLUDES
REGISTRATION
STATEMENT, PROSPECTUS,
SAI) PLUS AN ADDITIONAL
FILING PER FISCAL YEAR
</TABLE>
<PAGE>
Appendix C
X.COM FUNDS
ANNUAL FEE SCHEDULE
NOVEMBER 17, 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 Funds 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
<PAGE>
- 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.
TRANSFER AGENCY AGREEMENT
X.COM FUNDS
This TRANSFER AGENCY AGREEMENT is made this 17th day of November, 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 November 17, 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 those 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.
1
<PAGE>
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.
5. 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.
6. 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.
7. 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.
2
<PAGE>
8. 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.
9. 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.
10. 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.
3
<PAGE>
11. 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.
12. 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.
13. 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.
14. 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.
15. 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
4
<PAGE>
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.
16. 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.
17. 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.
5
<PAGE>
18. 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.
19. 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 17 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.
20. 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 17 and 19 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 17 and 19 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.
21. Compliance with Law.
--------------------
Except for the obligations of XAM set forth in Section 9 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
6
<PAGE>
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.
22. 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.
23. Headings.
---------
Paragraph headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
24. 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 24 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.
25. Governing Law.
--------------
This Agreement shall be governed by and provisions shall be construed
in accordance with the laws of the State of California.
7
<PAGE>
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: /s/ John T. Story
----------------------
Name: John T. Story
Title: Executive Vice President
X.COM ASSET MANAGEMENT, INC.
By: /s/ John T. Story
----------------------
Name: John T. Story
Title: President
8
<PAGE>
APPENDIX A
----------
NAME OF FUND EFFECTIVE DATE
- ------------ --------------
X.com Premier S&P 500 Fund November 17, 1999
X.com U.S.A. Bond Fund November 17, 1999
X.com U.S.A. Money Market Fund November 17, 1999
X.com International Index Fund March 27, 2000
X.COM FUNDS
By: /s/ John T. Story
----------------------
Name: John T. Story
Title: Executive Vice President
X.COM ASSET MANAGEMENT, INC.
By: /s/ John T. Story
----------------------
Name: John T. Story
Title: President
9
<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.
10
<PAGE>
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.
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.
11
<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.
12
EXHIBIT H(IV)
THIRD PARTY FEEDER FUND AGREEMENT
among
X.COM FUNDS,
X.COM ASSET MANAGEMENT, INC.
and
MASTER INVESTMENT PORTFOLIO
dated as of
November 17, 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 12
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
i
<PAGE>
AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of the 17th
day of November, 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' investment
adviser, 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
1
<PAGE>
accordance with its terms. 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 terms. No
meeting of, or consent by, interestholders of any Portfolio is necessary to
2
<PAGE>
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 with all
5
<PAGE>
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
6
<PAGE>
that one of the following changes is likely to occur more 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,
7
<PAGE>
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 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
9
<PAGE>
enforce any such liability, but if Manager 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
10
<PAGE>
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 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
other 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
X.com Funds
394 University Avenue
Palo Alto, CA 94303
Facsimile (650) 833-5470
If to Manager:
Attention: John T. Story
13
<PAGE>
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: /s/John T. Story
-------------------
Name: John T. Story
Title: Executive Vice President
X.COM ASSET MANAGEMENT, INC.
By: /s/John T. Story
------------------
Name: John T. Story
Title: President
MASTER INVESTMENT PORTFOLIO
By: /s/Richard H. Blank
----------------------
Name: Richard H. Blank
Title: COO, Secretary, Treasurer
15
<PAGE>
SCHEDULE A
to Agreement between X.com Funds (the "Company")
and Master Investment Portfolios ("MIP")
dated as of November 17, 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:
Fund Effective Date
- ---- ---------------
X.com Premier S&P 500 Fund November 17, 1999
X.com U.S.A. Bond Fund November 17, 1999
X.com U.S.A. Money Market Fund November 17, 1999
X.com International Index Fund March 27, 2000
X.COM FUNDS
By: /s/John T. Story
----------------
Name: John T. Story
Title: Executive Vice President
X.COM ASSET MANAGEMENT, INC.
By: /s/John T. Story
----------------
Name: John T. Story
Title: President
MASTER INVESTMENT PORTFOLIO
By: /s/Richard H. Blank
-------------------
Name: Richard H. Blank
Title: COO, Secretary, Treasurer
1
<PAGE>
SCHEDULE B
to Agreement between X.com Funds (the "Company")
and Master Investment Portfolios ("MIP")
dated as of November 17, 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.
Portfolio Effective Date
S&P 500 Index Master Portfolio November 17, 1999
Bond Index Master Portfolio November 17, 1999
Money Market Master Portfolio November 17, 1999
EAFE(R) Master Portfolio March 27, 2000
X.COM FUNDS
By: /s/John T. Story
----------------------
Name: John T. Story
Title: Executive Vice President
X.COM ASSET MANAGEMENT, INC.
By: /s/John T. Story
---------------------
Name: John T. Story
Title: President
MASTER INVESTMENT PORTFOLIO
By: /s/Richard H. Blank
----------------------
Name: Richard H. Blank
Title: COO, Secretary, Treasurer
2
Law Offices of Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, California 94104-2635
Telephone: (415) 835-1600
Facsimile: (415) 217-5333
Internet: www.phjw.com
April 14, 2000
X.com Funds
394 University Avenue
Palo Alto, California 94301
Re: X.com Funds
Ladies and Gentlemen:
We have acted as counsel to X.com Funds, a Delaware business trust (the
"Trust"). We hereby consent to (i) the continued use of our legal opinion dated
March 24, 2000, previously included as an exhibit to Post-Effective Amendment
No. 2 to the Trust's Registration Statement filed on Form N-1A with the
Securities and Exchange Commission, and (ii) references to our firm as legal
counsel included in that Registration Statement.
We hereby consent to the filing of this consent as an exhibit to
Post-Effective Amendment No. 3 to that Registration Statement and its continued
validity until expressly withdrawn.
Very truly yours,
/s/ PAUL, HASTINGS, JANOFSKY & WALKER LLP
CONSENT OF INDEPENDENT AUDITORS
The Board of Trustees
X.com Funds:
We consent to the use of our reports dated February 11, 2000 for X.com Funds
(comprising respectively, X.com Premier S&P 500 Fund, X.com U.S.A Bond and X.com
Money Market Fund) incorporated by reference herein.
We also consent to the reference to our Firm under the heading "Independent
Auditors" in the Statement of Additional Information.
/s/ KPMG LLP
San Francisco, California
April 26, 2000
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned trustees of X.com
Funds (the "Trust") hereby individually and severally appoint each of David
Hearth, Julie Allecta, John T. Story, Susan C. Mosher and Bradley J. MacKenzie
with full power of substitution, their true and lawful attorney to execute in
their name, place and stead and on their 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-effective 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.
/s/ Elon R. Musk
Elon R. Musk, Trustee
/s/ John T. Story
John T. Story, Trustee and President
/s/ Kevin T. Hamilton
Kevin T. Hamilton, Trustee
/s/ Nicole E. Faucher
Nicole E. Faucher, Trustee
/s/ Gregory N. River
Gregory N. River, Trustee
Date: March 6, 2000
X.COM FUNDS
X.COM ASSET MANAGEMENT, INC.
CODE OF ETHICS
I. STATEMENT OF POLICY
It is one of the fundamental policies of our business to avoid any
conflict of interest or even the appearance of such a conflict in connection
with our performance as an investment company or the provision of investment
advisory and portfolio management services for our clients. This Code of Ethics
(this "Code") is intended to govern the issues outlined below and, in
particular, the provision of investment and advisory services. In addition,
this Code is specifically intended to provide guidance to Covered Persons
(defined below) of X.com Funds (the "Trust"), each of its series or funds (a
"Fund") and X.com Asset Management, Inc. (the "Manager") for their activities
in order to eliminate the possibility of conduct occurring that places, or
appears to place, them in conflict with the interests of the Funds and their
shareholders.
II. LEGAL REQUIREMENTS
An investment company, like the Trust, registered under the Investment
Company Act of 1940 (the "Investment Company Act") must adopt a Code to address
issues of conflicts of interest that may arise from the personal trading
activities of its personnel. Rule 17j-1 under the Investment Company Act ("Rule
17j-1") prohibits investment company personnel from engaging in any fraudulent
activities in connection with their respective personal transactions that may
include securities held or to be acquired by a Fund. Specifically, it is
unlawful for any of these persons to:
(a) employ any device, scheme or artifice to defraud a Fund;
(b) make any untrue statement of a material fact to a Fund or omit to
state a material fact necessary in order to make the statements
made to a Fund, in light of the circumstances under which they are
made, not misleading;
(c) to engage in any act, practice or course of business that
operates or would operate as a fraud or deceit on a Fund; or
(d) to engage in any manipulative practice with respect to a Fund.
THE TRUST IS EXCEPTED FROM THE REQUIREMENTS OF RULE 17J-1 BECAUSE THE
FUNDS LIMIT THEIR INVESTMENT ACTIVITIES TO SECURITIES OF OTHER MUTUAL FUNDS,
I.E., THE FUNDS INVEST EXCLUSIVELY IN MASTER FUNDS NOT ADVISED BY THE MANAGER.
Therefore, the Trust is not required to adopt a Code. Further, Covered Persons
of the Trust are not subject to the pre-clearance
1
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and various reporting requirements for transactions involving any securities,
provided that the Trust continues to be excepted from the provisions of Rule
17j-1.
Despite the Trust's exemption under Rule 17j-1, the Manager remains
subject to the recordkeeping rules under Rule 204-2(12) of the Investment
Advisers Act of 1940, as amended, for personal securities transactions by
Covered Persons.
Although not required to adopt a Code, the Trust and the Manager believe
that is prudent to do so and, therefore, has decided to adopt this Code that
covers the Manager's recordkeeping obligations and certain conduct by Covered
Persons.
Rule 17j-1 does not prescribe the exact details that should be included in
a code, but, where codes are mandated, they usually address the following:
A. procedures governing the personal investment activities of Covered
Persons (defined below) that are designed to ensure the code is not
violated (such as through pre-clearance of personal transactions and
black-out periods);
B. all Covered Persons must (i) provide a report detailing their
securities holdings upon commencement of their employment with a Fund
or its adviser; (ii) update this report annually; and (iii) report
all their securities transactions on a quarterly basis. The report
must be reviewed by a designated and appropriate management or
compliance personnel; and
C. all employees of a Fund or its adviser who make or participate in
making any recommendations regarding the purchase or sale of
securities for the Fund ("investment personnel") must be pre-approved
before being permitted to participate in any IPOs or private
placements. Although pre-approval is only necessary for IPOs, it is
usually recommended that these procedure are adopted for all
securities transactions of investment personnel and also for all
Covered Persons.
Personnel of service providers to the Trust and the Funds that otherwise
would constitute Covered Persons, such as personnel of Investors Bank & Trust,
are excluded from coverage by this Code provided they are covered by a code of
ethics of their employer reasonably designed to meet applicable legal
requirements.
III. DEFINITIONS
As used herein, the following terms are defined as follows:
A. COVERED PERSON: Any director, officer, general partner or employee of
the Trust or the Manager or any person who, in the ordinary course of
business, makes, participates in or obtains information regarding,
the purchase or sale of Covered Securities by X.com Funds, or whose
functions or duties in the ordinary course of business relate to the
making of any recommendation to the
2
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<PAGE>
Funds or the Manager regarding the purchase or sale of Covered
Securities. A list of Covered Persons is attached as Appendix 1.
B. COVERED SECURITY: Includes a security within the meaning of Section
2(a)(9) of the Investment Company Act, but does not include (i)
direct obligations of the Government of the United States; (ii)
bankers' acceptances, bank certificates of deposit, commercial paper
and high quality short-term debt instruments, including repurchase
agreements; and (iii) shares issued by open-end investment companies
(i.e., mutual funds).
IV. GENERAL PRINCIPLES UNDER THE CODE
Each Covered Person shall be governed by the following principles:
A. The interest of the Funds and their shareholders are paramount and
come before the interest of any Covered Persons or employees.
B. No Covered Person shall engage in any act, practice or course of
conduct that would violate the provisions of Rule 17j-1.
C. Personal investing activities of all Covered Persons and employees
shall be conducted in a manner that shall avoid actual or potential
conflicts of interest with the the Funds and the shareholders.
D. Covered Persons shall not use such positions, or any investment
opportunities presented by virtue of such positions, to the detriment
of the Funds and their shareholders.
V. SUBSTANTIVE RESTRICTIONS
A. NO PRE-CLEARANCE REQUIRED: No Covered Person is required to obtain
pre-clearance to purchase or sell any public or privately placed
securities.
B. GIFTS: A Covered Person shall not accept gifts in excess of $100 from
any person doing business with or on behalf of the Funds or the
Manager. Subject to reasonable discretion, a Covered Person may
accept invitations for dinners, entertainment, sports outings and
events, the theatre or other similar activities provided the person
extending the invitation also attends.
C. SERVICE ON BOARDS: A Covered Person shall not serve on the board of
directors of ANY publicly trade companies, or in any similar
capacity, without prior approval by the Compliance Officer upon
receiving a written request for such approval. If such a request is
approved, procedures shall be developed to avoid any potential
conflicts of interests that may arise before the commencement of
service as a director by the Covered Person.
3
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<PAGE>
VI. PENALTIES FOR NONCOMPLIANCE
A. FORFEITURE OF GIFTS: Gifts accepted in violation the Code shall be
forfeited if practicable and, if not, the existing market value if
determinable, or an equivalent amount, must be collected and paid to
a predetermined charity.
B. SANCTIONS BY THE BOARD: The Board may also impose sanctions as it
deems appropriate, including sanctions against the Compliance Officer
for failure to adequately supervise Covered Persons
VII. ADMINISTRATION OF THE CODE-
REPORTING VIOLATIONS AND CERTIFYING COMPLIANCE
A. The Compliance Officer shall be the person responsible for
implementing the provisions of the Code as adopted.
B. The Compliance Officer shall distribute to all current and
prospective Covered Persons a copy of this Code, explaining its
significance and the consequences that will result if it is violated.
C. Each Covered Person who receives a copy of the Code must sign and
acknowledge that its provisions has been read and understood. A copy
of the signed acknowledgment must be given to the Covered Person and
also must be retained in the respective personnel files.
D. All Covered Persons are required to submit the following reports to
the Compliance Officer for themselves and any immediate family member
residing at the same address. In lieu of providing a report, the
Covered person may submit brokerage statements or duplicate
transaction confirmations that contain the required information:
1. QUARTERLY TRANSACTION REPORTS: Within ten days after the end of
each calendar quarter, each Covered Person must report the
following information:
(a) With respect to any transaction during the quarter in a
Covered Security in which the Covered Person had any direct
or indirect beneficial ownership:
(i) The date of the transaction, the title, the interest
rate and maturity date (if applicable), the number of
shares and the principal amount of each Covered
Security involved;
(ii) The nature of the transaction (i.e., purchase, sale);
(iii) The price of the Covered Security at which the
transaction was effected;
4
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<PAGE>
(iv) The name of the broker, dealer or bank with or through
which the transaction was effected; and
(v) The date that the report is submitted by the Covered
Person.
(b) With respect to any account established by the Covered
Person in which any securities were held during the quarter
for the direct or indirect benefit of the Covered Person:
(i) The name of the broker, dealer or bank with whom the
Covered Person established the account;
(ii) The date the account was established; and
(iii) the date that the report is submitted by the Covered
Person.
A form of the QUARTERLY TRANSACTION REPORT is attached as Appendix 2.
E. On an annual basis, the Compliance Officer shall prepare and submit
to the Board of the Trust for review a written report describing any
issues arising under the Code, including information about any
material violations of its underlying procedures and any sanctions
imposed due to such violations.
F. On an annual basis, the Compliance Officer shall certify to the Board
that the procedures outlined in the Code have been implemented as
described.
VIII. COMPLIANCE WITH OTHER SECURITIES LAWS
This Code is not intended to cover all possible areas of potential
liability under the Investment Company Act or under the federal securities laws
in general. For example, other provisions of Section 17 of the Investment
Company Act prohibit various transactions between a Fund and affiliated
persons, including the knowing sale or purchase of property to or from a Fund
on a principal basis, and joint transactions (i.e., combining to achieve a
substantial position in a security or commingling of funds) between a Fund and
an affiliated person. Covered Persons covered by this Code are advised to seek
advice before engaging in any transactions involving securities held or under
consideration for purchase or sale by a Fund or if a transaction directly or
indirectly involves themselves and a Fund other than the purchase or redemption
of shares of its shares or the performance of their normal business duties.
In addition, the Securities Exchange Act of 1934 may impose fiduciary
obligations and trading restrictions on Covered Persons and others in certain
situations. It is expected that Covered Persons will be sensitive to these
areas of potential conflict, even though this Code does not address
specifically these other areas of fiduciary responsibility.
5
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<PAGE>
IX. EXCEPTIONS TO REPORTING REQUIREMENTS
A. INDEPENDENT DIRECTOR: All independent directors of the Trust who are
not "interested persons" within the meaning of Section 2(a)(19) of
the Investment Company Act are not required to file a QUARTERLY
TRANSACTION REPORT as prescribed in this Code.
X. AMENDING THE CODE
This Code shall remain in force and shall be applicable to all Covered
Persons until such time as it is amended or withdrawn by a majority of the
Board of Directors of the Trust.
ACKNOWLEDGED AND AGREED:
I have read, and I understand the terms of, this Code of Ethics.
By:
-------------------------------------------
Print Name:
Title:
Date:
6
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<PAGE>
APPENDIX 1
LIST OF COVERED PERSONS
- -------------------------------------------------------------------------------
ACKN. RECEIPT
NAME TITLES WITH TRUST OF CODE OF
AND MANAGER ETHICS
(DATE)
- -------------------------------------------------------------------------------
ELON R. MUSK TRUSTEE; CHAIRMAN OF TRUST
DIRECTOR, PRESIDENT, AND
TREASURER OF MANAGER
JOHN T. STORY TRUSTEE AND PRESIDENT
OF TRUST
E.V.P. OF MANAGER
[OTHERS]
1
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<PAGE>
APPENDIX 2 (CONT.)
FORM OF AUTHORIZATION LETTER
Date
Name of Broker
Address
Re: Brokerage Statements of [name of employee]
Ladies and Gentlemen:
The above referenced person is an employee of [name of Fund
Organization]. Federal securities laws require that we monitor the personal
securities transactions of certain key personnel. By this Authorization Letter,
and the acknowledgement of the employee below, please forward duplicate copies
of the employee's brokerage statements and transaction confirmations to:
[Compliance Officer]
[Fund Organization]
[Address]
Should you have any questions, please contact the undersigned at
[number].
Very truly yours,
AUTHORIZATION:
I hereby authorize you to release duplicate brokerage statements and
transaction confirmations to my employer.
Signature:
---------------------------
Name:
SSN:
Account Number:
1
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<PAGE>
APPENDIX 2 (CONCL.)
QUARTERLY TRANSACTION REPORT
(complete within ten days of the quarter)
Date:
-----------
NOTE: IN LIEU OF THIS REPORT, YOU MAY SUBMIT DUPLICATE COPIES OF YOUR
BROKERAGE STATEMENTS
1. TRANSACTIONS
- -------------------------------------------------------------------------------
NAME OF COVERED BROKER NUMBER OF NATURE OF PURCHASE DATE OF
SECURITY SHARES TRANSACTION PRICE TRANSACTION
(I.E, BUY, SALE)
- -------------------------------------------------------------------------------
2. BROKERAGE ACCOUNTS OPENED DURING QUARTER
- -------------------------------------------------------------------------------
NAME OF INSTITUTION AND ACCOUNT HAVE YOU REQUESTED
ACCOUNT HOLDERS' NAME (I.E., YOU, SPOUSE, NUMBER DUPLICATE
CHILD) STATEMENTS?
- -------------------------------------------------------------------------------
REVIEWED:
---------------------------------
(COMPLIANCE OFFICER SIGNATURE)
DATE:
------------------------------------
2
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