<PAGE>
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant |X|
Filed by a party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, For use of the
Commission Only (as permitted by
Rule 14a-6(e)(2)
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-12
- --------------------------------------------------------------------------------
X.COM FUNDS
(Name of Registrant as Specified in Charter)
- --------------------------------------------------------------------------------
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
|_| Fee paid previously with preliminary materials:
- --------------------------------------------------------------------------------
|_| Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
333-80205; 811-09381
- --------------------------------------------------------------------------------
(3) Filing Party:
X.COM FUNDS
- --------------------------------------------------------------------------------
(4) Date Filed:
MAY 3, 2000
- --------------------------------------------------------------------------------
<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
394 UNIVERSITY AVENUE
PALO ALTO, CALIFORNIA 94301
NOTICE OF SPECIAL MEETING
TO BE HELD ON JUNE 13, 2000
To the shareholders of each of the X.com Premier S&P 500 Fund, the
X.com U.S.A. Bond Fund and the X.com U.S.A. Money Market Fund (each, a "Fund"),
each a series of X.com Funds (the "Trust"), for a Special Meeting of the Funds
to be held on June 13, 2000:
Notice is hereby given that a Special Meeting (the "Meeting") of
shareholders of the Funds will be held on June 13, 2000, at 8:00 a.m., Pacific
Time, at the offices of the Trust, 394 University Avenue, Palo Alto, California
94301. At the Meeting, you and the other shareholders of each Fund will be asked
to consider and vote:
1. To approve a new Investment Advisory Agreement between the Trust and
X.com Asset Management, Inc. (the "Adviser") that is required for the
Adviser to continue to act as adviser after the merger of the parent
company of the Adviser, X.com Corporation, with Confinity, Inc., which
was completed on March 30, 2000. The new Investment Advisory Agreement
provides for higher fees for the X.com U.S.A. Money Market Fund to
compensate the Advisor for the additional shareholder services that are
contemplated for that Fund, and no change in the fees for each other
Fund.
2. To transact such other business as may properly come before the Meeting
or any adjournments thereof.
Shareholders of record of each Fund at the close of business on April
24, 2000, are entitled to notice of, and to vote at, the Meeting. Please read
the accompanying Proxy Statement. Regardless of whether you plan to attend the
Meeting, PLEASE COMPLETE THE ATTACHED PROXY AT https://secure.x.com/proxy.asp
AND RETURN IT PROMPTLY so that a quorum will be present and a maximum number of
shares may be voted. If you attend the Meeting in person, you may change your
vote at that time.
BY ORDER OF THE BOARD OF TRUSTEES
SUSAN MOSHER, SECRETARY
Palo Alto, California
May 19, 2000
<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
394 UNIVERSITY AVENUE
PALO ALTO, CALIFORNIA 94301
PROXY STATEMENT
To the shareholders of each of the X.com Premier S&P 500 Fund, the
X.com U.S.A. Bond Fund and the X.com U.S.A. Money Market Fund (each, a "Fund"),
each a series of X.com Funds (the "Trust"), for a Special Meeting of the Funds
to be held on June 13, 2000:
This Proxy Statement is furnished by the Trust to the shareholders of
each Fund on behalf of the Trust's Board of Trustees in connection with the
Funds' solicitation of voting instructions for use at a Special Meeting of
Shareholders of the Funds (the "Meeting") to be held on June 13, 2000 at 8:00
a.m., Pacific Time, at the offices of the Trust, 394 University Avenue, Palo
Alto, California 94301 for the purposes set forth below and in the accompanying
Notice of Special Meeting. The approximate mailing date of this Proxy Statement
is May 19, 2000. At the Meeting, the shareholders of each Fund will be asked:
1. To approve a new Investment Advisory Agreement between the Trust and
X.com Asset Management, Inc. (the "Adviser") that is required for the
Adviser to continue to act as adviser after the merger of the parent
company of the Adviser, X.com Corporation, with Confinity, Inc., which
was completed on March 30, 2000. The new Investment Advisory Agreement
provides for higher fees for the X.com U.S.A. Money Market Fund to
compensate the Advisor for the additional shareholder services that are
contemplated for that Fund, and no change in the fees for each other
Fund.
2. To transact such other business as may properly come before the Meeting
or any adjournments thereof.
Any voting instructions given to a Fund may be revoked at any time
before the Meeting by notifying the Secretary of the Trust.
The Trust will request broker-dealer firms, custodians, nominees and
fiduciaries to forward proxy materials to the beneficial owners of the shares of
each Fund held of record by those persons. The Adviser may reimburse those
broker-dealer firms, custodians, nominees and fiduciaries for their reasonable
expenses incurred in connection with that proxy solicitation. In addition to the
solicitation of proxies by electronic means,
<PAGE>
officers and employees of the Trust, without additional compensation, may
solicit proxies in person or by telephone. The costs associated with that
solicitation and the Meeting will be paid by the Adviser and not by the Trust or
any Fund.
If sufficient votes are not received by the date of the Meeting, a
person named as proxy may propose one or more adjournments of the Meeting for a
period or periods not more than 120 days in the aggregate to permit further
solicitation of proxies. The persons named as proxies will vote all proxies in
favor of adjournment that voted in favor of Proposal No. 1 (or abstained) and
vote against adjournment all proxies that voted against Proposal No. 1. The
Adviser, and not the Trust or any Fund, will pay any costs associated with such
adjournments and further solicitation.
Shareholders of each Fund at the close of business on April 24, 2000,
will be entitled to be present and vote at the Meeting. Shareholders of each
Fund will vote separately only with other shareholders of that Fund. As of that
date, each of the Funds had outstanding and entitled to vote the number of
shares reflected in the following table, which represents total net assets of
each Fund as set forth below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NAME OF FUND SHARES OUTSTANDING TOTAL NET ASSETS
- --------------------------------------------------------------------------------
<S> <C> <C>
X.com Premier S&P 500 Fund 363,361.49 $4,069,648.64
X.com U.S.A. Bond Fund 37,690.49 $372,382.04
X.com U.S.A. Money Market Fund 18,114,626.01 $18,114,626.01
- --------------------------------------------------------------------------------
</TABLE>
To the knowledge of the Trust's management, at the close of business on
April 24, 2000, the officers and Trustees of the Trust or the Adviser owned, as
a group, the percentage of the aggregate shares of the Funds shown in the table
below. Also, to the knowledge of the Trust's management, at the close of
business on April 24, 2000, other persons owning beneficially more than 5% of
the outstanding shares of the Funds were as follows:
2
<PAGE>
X.COM PREMIER S&P 500 FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NUMBER OF PERCENT OF THE FUND
NAME AND ADDRESS SHARES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Elon R. Musk (Chairman of the Board of Trustees of the Trust, and 91,820.38 25.27%
director, President and Treasurer of the Adviser)
394 University Avenue, Palo Alto, California 94301
- --------------------------------------------------------------------------------------------------------------------
William Harris (President of X.com Corporation) 88,977.02 24.49%
394 University Avenue, Palo Alto, California 94301
- --------------------------------------------------------------------------------------------------------------------
All officers and Trustees of the Trust and the Adviser (including 181,508.11 49.95%
Mr. Musk and Mr. Harris), in the aggregate
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
X.COM U.S.A. BOND FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NUMBER OF PERCENT OF THE FUND
NAME AND ADDRESS SHARES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Elon R. Musk (Chairman of the Board of Trustees of the Trust, and 23,076.37 61.23%
director, President and Treasurer of the Adviser)
394 University Avenue, Palo Alto, California 94301
- --------------------------------------------------------------------------------------------------------------------
All officers and Trustees of the Trust and the Adviser (including Mr. 23,077.40 61.23%
Musk), in the aggregate
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
X.COM U.S.A. MONEY MARKET FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NUMBER OF PERCENT OF THE FUND
NAME AND ADDRESS SHARES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Elon R. Musk (Chairman of the Board of Trustees of the Trust, and 1,946,587.39 10.75%
director, President and Treasurer of the Adviser)
394 University Avenue, Palo Alto, California 94301
- --------------------------------------------------------------------------------------------------------------------
X.com Corporation/PayPal Corp. 15,000,000.00 82.81%
- --------------------------------------------------------------------------------------------------------------------
All officers and Trustees of the Trust and the Adviser (including Mr. 17,190,984.69 94.90%
Musk and including X.com/PayPal), in the aggregate
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
Because each Fund has only relatively recently commenced operations and
has not attracted substantial assets from shareholders unaffiliated with the
Adviser, shareholders affiliated with the Adviser are expected to cast votes
sufficient to approve Proposal No. 1 with respect to each Fund.
The Funds' current investment advisor and transfer agent is X.com Asset
Management, Inc. The Funds' current custodian and administrator is Investors
Bank & Trust Company, located at 200 Clarendon Street, Boston, Massachusetts
02117. Shares of each Fund are self-distributed by the Trust, without the use of
a broker-dealer that serves as the principal underwriter.
The persons named in the accompanying proxy will vote in each case as
directed in the proxy, but in the absence of any direction, they intend to vote
FOR Proposal No. 1 and may vote in their discretion with respect to other
matters not now known to the Board of Trustees that may be presented to the
Meeting.
4
<PAGE>
PROPOSAL NO. 1:
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
BETWEEN THE TRUST AND THE ADVISER
BACKGROUND
GENERAL. The Adviser has acted as the investment adviser with respect
to the assets of each Fund since November 17, 1999. The parent company of the
Adviser, X.com Corporation (the "Parent"), has acquired Confinity, Inc.
("Confinity"). To effect this acquisition, the Parent issued shares of its
common stock to the shareholders of Confinity, to acquire all of the outstanding
shares of Confinity (the "Merger"). As a result, more than 25% of the
outstanding shares of the Parent are now owned by new shareholders. This
constitutes a change in control of the Parent, as the term "control" is defined
under Section 2(a) of the Investment Company Act of 1940, as amended (the
"Investment Company Act"). The change in control of the Parent is deemed to be
an "indirect change in control" of the Adviser, which causes a deemed
assignment, and the automatic termination, of the investment advisory agreement.
The Merger was completed on March 30, 2000. Confinity owns the PayPal.com
website ("PayPal"), which offers an online payment service that allows customers
to send money instantly and securely to anyone with an email address. The PayPal
services allow customers to buy and sell items at online auctions, classified
sites and personal web sites as well as settle debts and collect money from
family and friends. As a result of the Merger, X.com Corporation customers,
which include investors in each of the X.com Funds, will have access to the
services offered by PayPal. In addition, as explained in more detail in this
Proxy Statement, X.com U.S.A. Money Market Fund investors will be offered these
and other services as part of a package for which they will pay no transaction
costs.
The Meeting has been called for the purpose of considering a new
investment advisory agreement for each Fund as a result of the Merger. The
Merger represented a change in control of the Adviser, as explained in the
immediately preceding paragraph and, as such, had the effect of terminating the
old Investment Advisory Agreement with respect to the Funds. Accordingly,
shareholders of each Fund are being asked to approve a new Investment Advisory
Agreement (the "New Investment Advisory Agreement") with respect to each Fund.
Since the termination of the old Investment Advisory Agreement, the Adviser has
continued to serve as the investment advisor for the Funds on an interim basis,
for compensation equal to the lesser of the Adviser's cost or the former fee, as
permitted by applicable law. Before the Merger, those actual costs were higher
than the contractual fee charged to customers. Therefore, the former fee is
being charged during the interim period.
With respect to each Fund other than the X.com U.S.A. Money Market Fund
(the "Money Market Fund"), the New Investment Advisory Agreement contains the
same terms and fees with the Adviser, differing only in the effective and
termination dates.
5
<PAGE>
With respect to the Money Market Fund, the New Investment Advisory Agreement
also provides for an increase in fees from 0.50% per annum to 1.80% per annum.
The first table below shows a comparison of the fees charged under the Old
Investment Advisory Agreement and the New Investment Advisory Agreement. By
unanimous written consent dated May 2, 2000, ratified at an in-person meeting on
May 17, 2000, the Trust's Board of Trustees, and a majority of the disinterested
Trustees, approved the New Investment Advisory Agreement and its submission to
shareholders for their approval.
OLD INVESTMENT ADVISORY AGREEMENT
The Adviser currently serves as the investment adviser for each Fund
under an Investment Advisory Agreement, dated November 17, 1999 (the "Old
Investment Advisory Agreement"). The Old Investment Advisory Agreement provides
for its automatic termination in the event of a legal assignment. A direct or
indirect change in ownership of 25% or more of the voting stock of the Adviser
would, therefore, terminate the Old Investment Advisory Agreement. Because the
Parent has undergone a change in control as a result of the Parent's acquisition
of Confinity, control of the Adviser has indirectly changed as well.
Under the Old Investment Advisory Agreement, the Adviser is entitled to
receive from the Trust an annual fee (payable monthly) of each Fund's average
daily net assets, as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NAME OF FUND ANNUAL ADVISORY FEE
- --------------------------------------------------------------------------------------------------------------------
OLD INVESTMENT ADVISORY NEW INVESTMENT ADVISORY
AGREEMENT AGREEMENT
- -------------------------------------------------
<S> <C> <C>
X.com Premier S&P 500 Fund 0.23% 0.23%
X.com U.S.A. Bond Fund 0.32% 0.32%
X.com U.S.A. Money Market Fund 0.50% 1.80%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table describes the annual operating expenses of the
Money Market Fund, before and after giving effect to the New Investment Advisory
Agreement, and including all fees payable at the Master Portfolio level, and
does not reflect the written fee waiver and reimbursement agreement that is in
effect for the current fiscal year and that is described in the Prospectus for
the Funds.
6
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING
EXPENSES(1) (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS) OLD INVESTMENT ADVISORY NEW INVESTMENT ADVISORY
AGREEMENT AGREEMENT
----------------------- -----------------------
<S> <C> <C>
Management Fees(2) 0.60% 1.90%
Distribution (12b-1) Fees None None
Other Expenses 0.00% 0.00%
Total Annual Fund Operating Expenses 0.60% 1.90%
</TABLE>
(1) The costs reflect the expenses at both the Fund and the Master Portfolio
levels.
(2) Management fees include a fee equal to 0.10% of the daily net assets
payable at the Master Portfolio level to the investment adviser for the
Money Market Portfolio.
Example
This Example compares the cost of investing in the Money Market Fund
under the New Investment Advisory Agreement with the cost of investing in the
Money Market Fund under the Old Investment Advisory Agreement. The Example
assumes that:
- you invest $10,000 in the Money Market Fund for the time periods
indicated;
- your investment has a 5% return each year;
- the Money Market Fund's operating expenses remain the same; and
- you redeem your shares at the end of the relevant period.
This Example does not take into account the effect of the written fee
waiver and reimbursement agreement that is in effect for the current
fiscal year and that is described in the Prospectus for the Funds. This
Example includes all fees payable at the Master Portfolio level.
7
<PAGE>
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
X.COM U.S.A. MONEY MARKET FUND 1 YEAR 3 YEARS
------ -------
<S> <C> <C>
OLD INVESTMENT ADVISORY AGREEMENT $61 $192
NEW INVESTMENT ADVISORY AGREEMENT $192 $595
</TABLE>
NEW INVESTMENT ADVISORY AGREEMENT
With respect to each Fund other than the Money Market Fund, the New
Investment Advisory Agreement contains the same terms and fees with the Adviser,
differing only in the effective and termination dates. With respect to the Money
Market Fund, the New Investment Advisory Agreement also provides for an increase
in fees from 0.50% per annum to 1.80% per annum. A form of the New Investment
Advisory Agreement is attached to this Proxy Statement as EXHIBIT A and the
description set forth in this Proxy Statement of the New Investment Advisory
Agreement is qualified in its entirety by reference to EXHIBIT A.
Under the New Investment Advisory Agreement, the Adviser will continue
to provide investment advisory services to each Fund, including deciding what
securities will be purchased and sold by the Funds, when such purchases and
sales are to be made, and arranging for such purchases and sales, all in
accordance with the provisions of the Investment Company Act and any rules or
regulations thereunder; any other applicable provisions of law; the provisions
of the Declaration of Trust and By-Laws of the Trust as amended from time to
time; any policies and determinations of the Board of Trustees; and the
fundamental policies of the Trust relating to the Funds, as reflected in the
Trust's Registration Statement under the Investment Company Act (including by
reference, the Funds' Statement of Additional Information) as such Registration
Statement is amended from time to time.
In addition, with respect to the Money Market Fund, the Adviser will
provide for a broad array of new and sophisticated financial services, including
debit cards, electronic transfers and checkwriting privileges for shareholders
of the Money Market Fund. These services, which incorporate the latest
technology and the synergy produced by the Merger and the new relationship with
PayPal, are expected to be provided to shareholders with no per-transaction
charges, and with no minimum investment.
8
<PAGE>
As compensation for its services to the Funds under the New Investment
Advisory Agreement, the Adviser will be entitled to receive from the Trust fees
as set forth in the table above. With respect to each Fund other than the Money
Market Fund, the fees are the same as those charged under the Old Investment
Advisory Agreement. With respect to the Money Market Fund, the fees will be
increased to compensate the Adviser for obtaining, supplying and administering
the new services described above. The New Investment Advisory Agreement provides
for an increase in fees from 0.50% per annum to 1.80% per annum for the Money
Market Fund.
ALL MONEY MARKET FUND INVESTORS, IRRESPECTIVE OF WHETHER THEY TAKE
ADVANTAGE OF THE ADDITIONAL SERVICES, WILL BE CHARGED THE SAME FEES. A MONEY
MARKET FUND INVESTOR WHO DOES NOT EXPECT TO USE THE NEW SERVICES MAY WISH TO
CONSIDER INVESTING IN ANOTHER MONEY MARKET FUND THAT DOES NOT PROVIDE FOR
FINANCIAL SERVICES AND THAT DOES NOT CHARGE ANY FEES RELATED TO SUCH SERVICES.
If few or no Money Market Fund investors use the additional services
that are to be provided, the actual cost to the Adviser of obtaining, supplying
and administering these services will be lower than anticipated, resulting in
greater profits to the Adviser that will be retained by the Adviser.
The New Investment Advisory Agreement will continue in effect for a
period not to exceed two years from its effective date, and will continue in
effect thereafter for successive annual periods, so long as its continuance is
specifically approved at least annually by (1) a majority vote, cast in person
at a meeting called for that purpose, of the Trust's Board of Trustees or (2) a
vote of the holders of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Fund, and (3) in either event by a
majority of the Trustees who are not parties to the New Investment Advisory
Agreement or interested persons of the Trust or of any such party (the
"Disinterested Trustees").
The New Investment Advisory Agreement generally provides that it may be
terminated by the Trust or the Adviser at any time, without penalty, by giving
the other parties 60 days' written notice.
The Adviser will continue to carry out its duties under the New
Investment Advisory Agreement at its own expense and will pay the operating
expenses of each Fund, such as legal and auditing fees, fees and expenses of the
Adviser, its custodian, accounting services and third-party shareholder
servicing agents, Trustees' fees, the cost of communicating with shareholders
and registration fees, as well as its other operating expenses; but not the
advisory fees or expenses of the master portfolios in which each Fund invests
substantially all of its assets.
In addition, with respect to the Money Market Fund, the Adviser will
provide for a broad array of new and sophisticated financial services, including
debit cards, electronic transfers and checkwriting privileges for shareholders
of the Money Market Fund. These
9
<PAGE>
services, which incorporate the latest technology and the synergy produced by
the Merger and the new relationship with PayPal, are expected to be provided to
shareholders with no per-transaction charges, and with no minimum investment.
The New Investment Advisory Agreement provides that the Adviser will
not be liable for any loss sustained by reason of any error of judgment or
mistake of law, or for any loss suffered by a Fund or a Fund's shareholders in
connection with the investment advisory services provided by the Adviser. The
New Investment Advisory Agreement, however, provides that nothing contained in
the New Investment Advisory Agreement shall be construed to protect the Adviser
against any liability to the Trust, any Fund or the shareholders of the Funds by
reason of willful misfeasance, bad faith, or gross negligence in the performance
of its duties, or by reason of its reckless disregard of obligations and duties
under the New Investment Advisory Agreement.
LEGAL REQUIREMENTS UNDER THE INVESTMENT COMPANY ACT
Section 15(f) of the Investment Company Act provides that, when a
change in control of an investment adviser occurs, the investment adviser or any
of its affiliated persons may receive any amount or benefit in connection with
the change in control as long as two conditions are satisfied. The first
condition specifies that no "unfair burden" may be imposed on the investment
company as a result of the transaction relating to the change of control, or any
express or implied terms, conditions or understandings. The term "unfair
burden," as defined in the Investment Company Act, includes any arrangement
during the two-year period after the change in control whereby the investment
adviser (or predecessor or successor adviser), or any interested person of any
such adviser, receives or is entitled to receive any compensation, directly or
indirectly, from the investment company or its security holders (other than fees
for bona fide investment advisory or other services) or from any person in
connection with the purchase or sale of securities or other property to, from,
or on behalf of the investment company (other than fees for bona fide principal
underwriting services). No such compensation arrangements are contemplated in
the Merger. The Adviser has agreed to use its best efforts to ensure that the
Merger will not cause the imposition of an unfair burden, as that term is
defined in Section 15(f) of the Investment Company Act, on any of the Funds. For
each Fund other than the Money Market Fund, there will be no increase in fees or
other compensation under the New Investment Advisory Agreement. With respect to
the Money Market Fund, the New Investment Advisory Agreement provides for an
increase in fees from 0.50% to 1.80%, but this increase is directly related to
the additional services to be provided to Money Market Fund investors. The Board
of Trustees has compared the fees of other money market funds that provide cash
management services with the fees provided for in the New Investment Advisory
Agreement and the additional services that are contemplated and has determined
the increased fees do not constitute an "unfair burden" on Money Market Fund
investors and the fees remain reasonable, particularly in light of the services
to be provided. More
10
<PAGE>
detail on the Board of Trustee's determination in this matter is given in this
Proxy Statement in the section titled "Trustee's Consideration."
The second condition specifies that, during the three-year period
immediately following consummation of the transaction, at least 75% of the
investment company's board of directors must not be "interested persons" of the
investment adviser or predecessor investment adviser within the meaning of the
Investment Company Act ("Disinterested Trustees"). The Board of Trustees of the
Trust will meet this 75% requirement before the Meeting through the resignation
of one of the interested Trustees.
If the New Investment Advisory Agreement is not approved by the Funds'
shareholders, the Trustees will promptly seek to enter into a new investment
advisory arrangement for the Funds, subject to approval by the Funds'
shareholders.
For the fiscal year ended December 31, 1999 and the quarter ended March
31, 2000, the Adviser was paid the advisory fees shown in the table below by the
Trust under the Old Investment Advisory Agreement.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
PERIOD ENDING DECEMBER THREE-MONTH PERIOD
NAME OF FUND 31, 1999 ENDING MARCH 31, 2000
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
X.com Premier S&P 500 Fund ($8) ($118)
X.com U.S.A. Bond Fund $17 $41
X.com U.S.A. Money Market Fund $162 $309
</TABLE>
INFORMATION REGARDING THE ADVISER
The Adviser, X.com Asset Management, Inc., is a wholly owned subsidiary
of X.com Corporation and is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended. The Adviser's address is 394
University Avenue, Palo Alto, California 94301.
The Adviser's principal executive officers and directors are shown
below. The address of each, as it relates to his duties at the Adviser, is the
same as that of the Adviser.
11
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
NAME AND POSITION WITH THE ADVISER PRINCIPAL OCCUPATION
- ------------------------------------------------------------------------------------------------------------------
<S> <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, Chief Financial Trustee and President, X.com Funds, Executive
Officer Vice President, X.com Corporation
Mark Sullivan, Secretary, Assistant Treasurer Vice President, Operations, X.com Corporation
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
TRUSTEES' CONSIDERATION
By unanimous written consent dated May 2, 2000, ratified at an
in-person meeting on May 17, 2000, the Board of Trustees and a majority of the
disinterested Trustees approved the New Investment Advisory Agreement and its
submission for shareholder approval.
If the New Investment Advisory Agreement is not approved by the Funds'
shareholders, the Trustees will promptly seek to enter into a new investment
advisory arrangement for the Funds, subject to approval by the Funds'
shareholders. The costs of soliciting the approval of any new investment
advisory arrangement and of any meeting of shareholders to approve such new
arrangement will be paid by the Adviser, and not by the Trust or any of the
Funds.
The Board of Trustees has been presented with information that they
believe demonstrates that the terms of the New Investment Advisory Agreement are
fair to, and in the best interest of, the Trust, the Funds and the shareholders
of each Fund. Preliminary information was presented in connection with the May
2, 2000 written consent of the Board of Trustees and detailed information was
presented at the May 17, 2000 meeting of the Board of Trustees with respect to
the Merger and the proposed services, and fees related to those services, for
the Money Market Fund. Specific details about the information considered by the
Board of Trustees is given in the next paragraph. In addition to the information
presented on those occasions, the Board of Trustees has been presented with
further information by telephone, email and other communications. The Adviser
has advised the Board of Trustees that there has been, and the Adviser expects
that there will be, no diminution in the scope and quality of advisory services
provided to the Funds as a result of the Merger, or as a result of the increased
services to be made available to Money Market Fund investors.
12
<PAGE>
In considering the New Investment Advisory Agreement, the Board of
Trustees had before them information that allowed them to evaluate the
experience of the Adviser's key personnel, the quality of services the Adviser
has provided and is expected to provide to the Funds, and the compensation
proposed to be paid to the Adviser. The Trustees were asked to give equal
consideration to all factors deemed to be relevant to the Funds, including, but
not limited to the following: (1) the favorable quality of services provided to
each Fund since its respective commencement of operations; (2) the positive
relationship of the Adviser with the Trust; (3) the performance of the Funds
since commencement of operations; (4) the competitive compensation payable by
the Trust to the Adviser under the proposed New Investment Advisory Agreement
which, except for the Money Market Fund, will be at the same rate as the
compensation now payable by the Trust to the Adviser under the Old Investment
Advisory Agreement; (5) the additional services to be provided to the
shareholders of the Money Market Fund and the increase in compensation to the
Adviser relative to the increase in services that it expects to provide; (6) the
terms of the Old Investment Advisory Agreement, which will be unchanged under
the New Investment Advisory Agreement except for different effective and
termination dates and an increase in the fees payable with respect to the Money
Market Fund, as discussed above; and (7) the favorable history, reputation,
qualification and background of the Adviser, as well as the qualifications of
its personnel and financial condition. In addition, with particular reference to
the Money Market Fund, the Board of Trustees has considered the additional
services that will be provided to Money Market Fund investors, including the
costs to the Adviser of obtaining, supplying and administering such services and
the costs that an investor would be expected to pay for such services if
obtained separately. The Board considered whether the Money Market Fund
investors would benefit from the additional services, which necessarily included
a consideration of whether the services should be offered at all and whether
they should be offered as part of a package of services or whether investors
would derive greater benefit from the same services offered on a per-transaction
cost basis, and whether PayPal was the appropriate provider of the services,
which included consideration of other service providers and the cost of
obtaining similar services from them. The Board of Trustees has considered the
broad array of new and sophisticated financial services to be offered to Money
Market Fund investors, including debit cards, electronic transfers and
checkwriting privileges for shareholders of the Money Market Fund. The Board of
Trustees considered that the Money Market Fund investors are uniquely positioned
to benefit from the services because these investors already realize the
advantages of the full range of X.com Corporation's online financial services.
The Board of Trustees has also taken into consideration that the proposed
services, which incorporate the latest technology and the synergy produced by
the Merger and the new relationship with PayPal, are expected to be provided
with no per-transaction charges, and with no minimum investment.
Of the factors listed above, the Board of Trustees noted that their
determination to approve the New Investment Advisory Agreement in general was
largely based on the positive experience enjoyed by the Trust with the Adviser
under the Old Investment Advisory Agreement. In considering the proposed
increased fee for the Money Market
13
<PAGE>
Fund, the Board of Trustees compared the fees of other money market funds that
provide cash management services with the fees provided for in the New
Investment Advisory Agreement and the additional services that are contemplated
and determined that the increased fees do not constitute an "unfair burden" on
Money Market Fund investors and the fees remain reasonable, particularly in
light of the additional services to be provided. The Board of Trustees based
this decision primarily on the comparison of services offered and fees charged,
and found that the proposed fee to Money Market Fund investors is reasonable and
competitive, taking into account that the proposed fee is an "all-in" fee that
includes all expenses of operation and administration. Examples were presented
to the Board of Trustees of other money market funds that offer shareholder
services similar to those contemplated for the Money Market Fund and, although
the examples included funds with both lower and higher fees, the Board of
Trustees found that the examples they considered often included significant
restrictions on shareholders, whether through a minimum required balance (and
attendant higher fees if the account balance drops below the stated minimum),
limitations on the number of checks that may be written or the number of fund
transfers in any period, per-transaction charges (or charges per-transaction
over a specific number of transactions), or significant account maintenance fees
which are often structured as flat fees that represent a higher percentage cost
to smaller investors. The Board of Trustees found that when they compared the
proposed fee under the New Investment Advisory Agreement with the restrictions
and extra charges described above, the proposed fee was particularly competitive
for small investors who expected to make use of the proposed additional
services. The determination that no "unfair burden" will be imposed on the Money
Market Fund investors is necessarily a prospective one, and the Board of
Trustees will monitor the Money Market Fund over the statutory two-year period
to assure that no "unfair burden" will result. In particular, the Board of
Trustees will review investors' level of use of the additional services and the
actual costs and actual profits to the Adviser of obtaining, supplying and
administering the Money Market Fund and the services and, if the Board of
Trustees finds that the Adviser's actual profits are unacceptably high, the
Board of Trustees may terminate or not renew the New Investment Advisory
Agreement or may negotiate to reduce the fees payable to the Adviser under the
New Investment Advisory Agreement.
Along with the approval of the Board of Trustees of the Trust, the
affirmative vote of the holders of a majority of the outstanding shares of each
Fund is required for the New Investment Advisory Agreement with respect to that
Fund to become effective. "Majority" for this purpose under the Investment
Company Act means the lesser of (i) 67% of the shares represented at the meeting
if more than 50% of the outstanding shares is represented, or (ii) shares
representing more than 50% of the outstanding shares. Abstentions will count as
votes present at the Meeting for quorum purposes. All properly executed proxies
received prior to the Meeting will be voted at the Meeting in accordance with
the instructions marked thereon. Proxies received prior to the Meeting on which
no vote is indicated will be voted in favor of each proposal as to which it is
entitled to vote. Abstentions do not constitute votes in favor of a proposal and
are treated as votes against
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<PAGE>
a proposal. Broker non-votes (i.e., proxies from brokers or nominees indicating
that those persons have not received instructions from the beneficial owner or
other person entitled to vote shares on a particular matter with respect to
which the broker or nominees do not have discretionary power) do not constitute
votes in favor of or against a proposal and are disregarded in determining the
votes cast when the voting requirement for a proposal is based on achieving a
percentage of the outstanding shares entitled to vote present in person or by
proxy at the Meeting. Broker non-votes do not constitute votes in favor of a
proposal and are treated as votes against a proposal when the voting requirement
for a proposal is based on achieving a percentage of the outstanding shares
entitled to vote. Forty percent of the outstanding shares entitled to vote on a
proposal must be present in person or by proxy to have a quorum to conduct
business at the Meeting. Broker non-votes will count as votes present at the
Meeting for quorum purposes.
ADDITIONAL INFORMATION ON THE TRUST AND THE ADVISER
The following is a list of the executive officers and Trustees of the
Trust, their positions with the Trust, and their positions with the Adviser, if
any:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
NAME POSITION WITH TRUST POSITION WITH ADVISER
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nicole E. Faucher Trustee None
Kevin T. Hamilton Trustee None
Elon R. Musk Trustee, Chairman of the Board of Director, President and Treasurer
Trustees
Gregory N. River Trustee None
John T. Story Trustee, President Chief Operating Officer, Chief
Financial Officer
Jeff J. Gaboury Treasurer None
Jack W. Clark Assistant Treasurer None
Susan C. Mosher Secretary None
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
GENERAL INFORMATION
OTHER MATTERS TO COME BEFORE THE MEETING
The Trust's management does not know of any matters to be presented at
the Meeting other than those described in this Proxy Statement. If other
business should
15
<PAGE>
properly come before the Meeting, the proxyholders will vote thereon in
accordance with their best judgment.
SHAREHOLDER PROPOSALS
The Meeting is a special meeting of shareholders. The Trust is not
required to, nor does it intend to, hold regular annual meetings of its
shareholders. If such a meeting is called, any shareholder who wishes to submit
a proposal for consideration at the meeting should submit the proposal promptly
to the Trust. Any proposal to be considered for submission to shareholders must
comply with Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as
amended.
REPORTS TO SHAREHOLDERS
Each Fund will furnish, without charge, a copy of the most recent
Statement of Additional Information, including the most recent audited financial
statements of the Funds, on request. Requests for such reports should be
directed to X.com Funds, 394 University Avenue, Palo Alto, California 94301
(888) 447-8999. Such information is also available on the website at
http://www.X.com.
IN ORDER THAT THE PRESENCE OF A QUORUM AT THE MEETING MAY BE ASSURED,
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY AT
https://secure.x.com/proxy.asp IS REQUESTED.
SUSAN MOSHER, SECRETARY
Palo Alto, California
May 19, 2000
16
<PAGE>
EXHIBIT LIST
Exhibit A FORM OF NEW INVESTMENT ADVISORY AGREEMENT.
<PAGE>
INVESTMENT ADVISORY AGREEMENT
X.COM FUNDS
This is an INVESTMENT ADVISORY AGREEMENT, dated as of June 13, 2000,
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;
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;
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended ("Advisers Act");
WHEREAS, the Advisor has provided investment advisory and other
management services to the Funds pursuant to that certain Investment Advisory
Agreement, dated as of November 17, 1999 (the "Old Investment Advisory
Agreement");
WHEREAS, the Old Investment Advisory Agreement has terminated in
accordance with its terms pursuant to a change of control of the parent company
of the Advisor;
WHEREAS, the parties hereto wish to reinstate the agreement evidenced
by the Old Investment Advisory Agreement on substantially the same terms, with
certain modifications as contemplated in the next paragraph; and
WHEREAS, the Trust has determined to increase the services to be
provided by the Advisor hereunder for the X.com U.S.A. Money Market Fund and,
subject to requisite shareholder approval, to compensate the Advisor for such
increased services.
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
1
<PAGE>
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.
(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:
2
<PAGE>
(i) comply with the 1940 Act and all rules and regulations
thereunder, the Advisers Act, the Internal Revenue Code (the "Code") and all
other applicable federal and state laws and regulations, and with any applicable
procedures adopted by the Trustees;
(ii) use reasonable efforts to manage each Fund so that it
will qualify, and continue to qualify, as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder;
(iii) place orders pursuant to each Fund's investment
determinations as approved by the Trustees for the Fund directly with the
issuer, or with any broker or dealer, in accordance with applicable policies
expressed in the Fund's Prospectus and/or Statement of Additional Information
and in accordance with applicable legal requirements;
(iv) furnish to the Trust whatever statistical information the
Trust may reasonably request with respect to each Fund's assets or contemplated
investments. In addition, the Adviser will keep the Trust and the Trustees
informed of developments materially affecting each Fund's portfolio and shall,
on the Adviser's own initiative, furnish to the Trust from time to time whatever
information the Adviser believes appropriate for this purpose;
(v) make available to the Trust's administrator (the
"Administrator") and the Trust, promptly upon their request, such copies of its
investment records and ledgers with respect to each Fund as may be required to
assist the Administrator and the Trust in their compliance with applicable laws
and regulations. The Adviser will furnish the Trustees with such periodic and
special reports regarding the Fund and any subadviser as they may reasonably
request;
(vi) immediately notify the Trust in the event that the
Adviser or any of its affiliates: (1) becomes aware that it is subject to a
statutory disqualification that prevents the Adviser from serving as investment
adviser pursuant to this Agreement; or (2) becomes aware that it is the subject
of an administrative proceeding or enforcement action by the SEC or other
regulatory authority. The Adviser further agrees to notify the Trust immediately
of any material fact known to the Adviser respecting or relating to the Adviser
that is not contained in the Trust's Registration Statement regarding the Funds,
or any amendment or supplement thereto, but that is required to be disclosed
thereon, and of any statement contained therein that becomes untrue in any
material respect; and
(vii) in providing investment advice to the Funds, use no
inside information that may be in its possession or in the possession of any of
its affiliates, nor will the Adviser seek to obtain any such information.
3. FUTURES AND OPTIONS.
The Adviser's investment authority shall include advice with regard to
purchasing, selling, covering open positions, and generally dealing in financial
futures contracts and options
3
<PAGE>
thereon, or master funds which do so in accordance with Rule 4.5 of the
Commodity Futures Trading Commission.
The Adviser's authority shall include authority to: (i) open and
maintain brokerage accounts for financial futures and options (such accounts
hereinafter referred to as "Brokerage Accounts") on behalf of and in the name of
the Fund; and (ii) execute for and on behalf of the Brokerage Accounts, standard
customer agreements with a broker or brokers. The Adviser may, using such of the
securities and other property in the Brokerage Accounts as the Adviser deems
necessary or desirable, direct the custodian to deposit on behalf of a Fund,
original and maintenance brokerage deposits and otherwise direct payments of
cash, cash equivalents and securities and other property into such brokerage
accounts and to such brokers as the Adviser deems desirable or appropriate.
4. USE OF SECURITIES BROKERS AND DEALERS.
The Adviser will monitor the use by master funds of broker-dealers. To
the extent permitted by the Adviser's Form ADV as filed with the SEC, purchase
and sale orders will usually be placed with brokers who are selected by the
Adviser as able to achieve "best execution" of such orders. "Best execution"
shall mean prompt and reliable execution at the most favorable securities price,
taking into account the other provisions hereinafter set forth. Whenever the
Adviser places orders, or directs the placement of orders, for the purchase or
sale of portfolio securities on behalf of a Fund, in selecting brokers or
dealers to execute such orders, the Adviser is expressly authorized to consider
the fact that a broker or dealer has furnished statistical, research or other
information or services which enhance the Adviser's research and portfolio
management capability generally. It is further understood in accordance with
Section 28(e) of the Securities Exchange Act of 1934, as amended, that the
Adviser may negotiate with and assign to a broker a commission which may exceed
the commission which another broker would have charged for effecting the
transaction if the Adviser determines in good faith that the amount of
commission charged was reasonable in relation to the value of brokerage and/or
research services (as defined in Section 28(e)) provided by such broker, viewed
in terms either of the Fund or the Adviser's overall responsibilities to the
Adviser's discretionary accounts.
Neither the Adviser nor any parent, subsidiary or related firm shall
act as a securities broker with respect to any purchases or sales of securities
which may be made on behalf of a Fund, provided that this limitation shall not
prevent the Adviser from utilizing the services of a securities broker which is
a parent, subsidiary or related firm, provided such broker effects transactions
on a "cost only" or "nonprofit" basis to itself and provides competitive
execution. Unless otherwise directed by the Trust in writing, the Adviser may
utilize the service of whatever independent securities brokerage firm or firms
it deems appropriate to the extent that such firms are competitive with respect
to price of services and execution.
4
<PAGE>
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:
- interest;
- taxes;
- brokerage commissions;
- insurance and bonding premiums;
- fees and expenses of those trustees who are not "interested
persons" as defined in the 1940 Act, including counsel fees;
- extraordinary expenses approved by those disinterested trustees;
and
- 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 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,
5
<PAGE>
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.
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.
6
<PAGE>
9. STANDARD OF CARE AND LIMITATION OF LIABILITY.
The Adviser shall exercise its best judgment in rendering the services
provided by it under this Agreement. The Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by a Fund or the
holders of the Fund's shares in connection with the matters to which this
Agreement relates, provided that nothing in this Agreement shall be deemed to
protect or purport to protect the Adviser against any liability to the Trust,
the Fund or to holders of the Fund's shares to which the Adviser would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence on
its part in the performance of its duties or by reason of the Adviser's reckless
disregard of its obligations and duties under this Agreement. As used in this
Section 9, the term "Adviser" shall include any officers, directors, employees
or other affiliates of the Adviser performing services with respect to the Fund.
10. SERVICES NOT EXCLUSIVE.
It is understood that the services of the Adviser are not exclusive,
and that nothing in this Agreement shall prevent the Adviser from providing
similar services to other investment companies or to other series of investment
companies, including the Trust (whether or not their investment objectives and
policies are similar to those of the Fund) or from engaging in other activities,
provided such other services and activities do not, during the term of this
Agreement, interfere in a material manner with the Adviser's ability to meet its
obligations to the Funds hereunder. When the Adviser recommends the purchase or
sale of a security for other investment companies and other clients, and at the
same time the Adviser recommends the purchase or sale of the same security for a
Fund, it is understood that in light of its fiduciary duty to the Fund, such
transactions will be executed on a basis that is fair and equitable to the Fund.
In connection with purchases or sales of portfolio securities for the account of
a Fund, neither the Adviser nor any of its directors, officers or employees
shall act as a principal or agent or receive any commission. If the Adviser
provides any advice to its clients concerning the shares of a Fund, the Adviser
shall act solely as investment counsel for such clients and not in any way on
behalf of the Trust or the Fund.
11. DURATION AND TERMINATION.
(a) This Agreement shall continue for a period of two years from the
date of commencement, and thereafter shall continue automatically for successive
annual periods, provided such continuance is specifically approved at least
annually by (i) the Trustees or (ii) a vote of a "majority" (as defined in the
1940 Act) of the Funds' outstanding voting securities (as defined in the 1940
Act), provided that in either event the continuance is also approved by a
majority of the Trustees who are not parties to this Agreement or "interested
persons" (as defined in the 1940 Act) of any party to this Agreement, by vote
cast in person (to the extent required by the 1940 Act) at a meeting called for
the purpose of voting on such approval.
(b) Notwithstanding the foregoing, this Agreement may be terminated:
(a) at any time without penalty by the Funds upon the vote of a majority of the
Trustees or by vote of the majority of the Funds' outstanding voting securities,
upon sixty (60) days' written notice to the
7
<PAGE>
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 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. [RESERVED.]
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.
8
<PAGE>
(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.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of June 13, 2000.
X.COM FUNDS
By:___________________________________
Name:
Title:
X.COM ASSET MANAGEMENT, INC.
By:___________________________________
Name:
Title:
10
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
NAME OF FUND ADVISORY FEE EFFECTIVE DATE
- ------------ ------------ --------------
<S> <C> <C>
X.com Premier S&P 500 Fund 0.23% June 13, 2000
X.com U.S.A. Bond Fund 0.32% June 13, 2000
X.com U.S.A. Money Market Fund 1.80% June 13, 2000
X.com International Index Fund 0.35% June 13, 2000
</TABLE>
X.COM FUNDS
By:___________________________________
Name:
Title:
X.COM ASSET MANAGEMENT, INC.
By:___________________________________
Name:
Title:
1
<PAGE>
PROXY
X.COM PREMIER S&P 500 FUND
X.COM U.S.A. BOND FUND
X.COM U.S.A. MONEY MARKET FUND
SPECIAL MEETING OF SHAREHOLDERS
JUNE 13, 2000
SOLICITED ON BEHALF OF
THE BOARD OF TRUSTEES OF
X.COM FUNDS
The undersigned hereby appoints Elon R. Musk, John T. Story and Susan
B. Mosher, and each of them, as proxies of the undersigned, each with the power
to appoint his or her substitute, for the Special Meeting of Shareholders of
X.com Premier S&P 500 Fund, X.com U.S.A. Bond Fund and X.com U.S.A. Money Market
Fund (each, a "Fund"), each a series of X.com Funds (the "Trust"), to be held on
June 13, 2000 at the offices of the Trust, 394 University Avenue, Palo Alto,
California 94301, or at any and all adjournments thereof (the "Meeting"), to
vote, as designated below, all shares of the Funds held by the undersigned at
the close of business on April 24, 2000. Capitalized terms used without
definition have the meanings given to them in the accompanying Proxy Statement.
PLEASE RETURN A SEPARATE PROXY FOR EACH FUND IN WHICH YOU OWN SHARES.
AN EXECUTED PROXY WILL BE VOTED IN FAVOR OF THE PROPOSAL LISTED BELOW
UNLESS YOU HAVE SPECIFIED OTHERWISE. PLEASE COMPLETE, DATE AND RETURN THIS PROXY
PROMPTLY. YOU MAY VOTE ONLY IF YOU HELD SHARES IN THE FUND AT THE CLOSE OF
BUSINESS ON APRIL 24, 2000. YOUR RETURN OF A COMPLETED PROXY AUTHORIZES THE
PROXIES TO VOTE IN THEIR DISCRETION UPON SUCH OTHER BUSINESS AS MAY PROPERLY
COME BEFORE THE MEETING, INCLUDING WITHOUT LIMITATION ALL MATTERS INCIDENT TO
THE CONDUCT OF THE MEETING.
<PAGE>
Dated: ________, 2000
_____________________________________________
Type Name
_____________________________________________
_____________________________________________
_____________________________________________
_____________________________________________
_____________________________________________
_____________________________________________
E-Mail Address
X.COM PREMIER S&P FUND
1. Approval of the New Investment Advisory Agreement between the
Trust and the Adviser.
FOR / / AGAINST / / ABSTAIN / /
X.COM U.S.A. BOND FUND
1. Approval of the New Investment Advisory Agreement between the
Trust and the Adviser.
FOR / / AGAINST / / ABSTAIN / /
X.COM U.S.A. MONEY MARKET FUND
1. Approval of the New Investment Advisory Agreement between the
Trust and the Adviser.
FOR / / AGAINST / / ABSTAIN / /
