Filed with the Securities and Exchange Commission on July 14, 1999
1933 Act Registration File No.------------
1940 Act File No.------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No.------------ [ ]
Post-Effective Amendment No.----------- [ ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No.------------ [ ]
INGENUITY CAPITAL TRUST
(Exact Name of Registrant as Specified in Charter)
26888 Almaden Court
Los Altos, CA 94022
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (888) 884-8482
Kendrick W. Kam
Ingenuity Capital Management LLC
26888 Almaden Court
Los Altos, CA 94022
(Name and Address of Agent for Service)
Copies of all communications to:
Roy W. Adams, Jr.
Attorney At Law
1024 Country Club Drive
Suite 135
Moraga, CA 94556
Approximate Date of Proposed Public Offering: As soon as practical after the
effective date of this Registration Statement.
It is proposed that this filing will become effective
- ----- immediately upon filing pursuant to paragraph (b)
- ----- on --------------- pursuant to paragraph (b)
- ----- 60 days after filing pursuant to paragraph (a)(1)
- --X-- on September 15, 1999 pursuant to paragraph (a)(1)
- ----- 75 days after filing pursuant to paragraph (a)(2)
- ----- on --------------- pursuant to paragraph (a)(2) of Rule 485.
INGENUITY CAPITAL TRUST
THE MEDICAL SPECIALISTS FUND
PROSPECTUS
SEPTEMBER 15, 1999
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
Ingenuity Capital Trust (the "Trust") currently offers one series of shares to
investors, The Medical Specialists Fund (the "Fund"). The Fund is non-
diversified and its investment objective is long-term growth of capital.
Current income is not a consideration when selecting the Fund's investments.
TABLE OF CONTENTS
Risk/Return Summary 3
Additional Principal Investment Strategies and Risk Considerations 4
Operation of the Fund 6
How to Purchase Shares 7
How to Redeem Shares 8
Shareholder Services 10
Dividends and Distributions 10
Taxes 11
Calculation of Share Price 11
FOR INFORMATION OR ASSISTANCE IN OPENING AN ACCOUNT, PLEASE CALL: (Nationwide
Toll-Free): 1-888-884-8482
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVES?
The Medical Specialists Fund's investment objective is long-term growth of
capital.
WHAT IS THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
The Medical Specialists Fund seeks to achieve its objective by investing at
least 65% of its assets in securities of companies in the health and
biotechnology fields which the Investment Adviser considers to have a strong
earnings growth outlook and potential for capital appreciation. The health and
biotechnology fields include the cardiovascular medical device, minimally
invasive surgical tool, pharmaceutical, biotechnology, managed care provider and
generic drug segments of the technology industry.
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUND?
The return on and value of an investment in the Fund will fluctuate in response
to stock market movements. Stocks and other equity securities are subject to
market risks and fluctuations in value due to earnings, economic conditions and
other factors beyond the control of the Investment Adviser. As a result, there
is a risk that you could lose money by investing in the Fund.
The Fund will be subject to greater risk because of its concentration of
investments in the technology industry and within certain segments of the
technology industry. Although the Investment Adviser currently believes that
investments by the Fund in the medical and technology industry may offer greater
opportunity for growth of capital than investments in other industries, the
value of such investments can and often does fluctuate dramatically and may
expose you to greater than average financial and market risk.
The Fund may also invest a portion of its assets in securities that entail
certain risks, such as foreign securities and securities of small companies and
unseasoned issuers (including companies offering shares in initial public
offerings). Please see "Additional Investment Strategies and Risk
Considerations" in this Prospectus for additional information.
PERFORMANCE SUMMARY
No performance information is presented for the Fund, as the Fund has no
operating history as of the date of this Prospectus.
EXPENSE INFORMATION
This table describes the fees and expenses that you will pay if you buy and hold
shares of the Fund.
Shareholder Fees (fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases None
Maximum sales charge (load) imposed on reinvested dividends None
Maximum deferred sales charge (load) None
Exchange fee None
Redemption fee None*<F1>
*<F1> The fund's transfer agent charges a wire redemption fee of $12.
Estimated Annual Fund Operating Expenses (expenses that are deducted from Fund
assets)
Management Fees 1.50%
Distribution (12b-1) Fees None
Other Expenses .45%
Estimated Total Annual Fund Operating Expenses (A)<F2> 1.95%
(A)<F2> The Advisory Agreement limits the Fund's total annual operating expenses
to 1.95% of the Fund's average daily net assets up to $200 million, 1.90% of
such assets from $200 million to $500 million, 1.85% of such assets from $500
million to $1 billion, and 1.80% of such assets in excess of $1 billion.
Example:
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in a Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year, your dividends and distributions have been
reinvested, and that the Fund's operating expenses remain the same. Although
your actual cost may be higher or lower, based on these assumptions your costs
would be:
1 Year $198
3 Year 612
ADDITIONAL PRINCIPAL INVESTMENT STRATEGIES AND RISK CONSIDERATIONS
INVESTMENT TECHNIQUES AND STRATEGIES
The equity securities in which the Fund may invest include common stock,
convertible long-term corporate debt obligations, preferred stock, convertible
preferred stock and warrants. The securities selected will typically be traded
on a national securities exchange, the NASDAQ System or over-the-counter, and
may include securities of both large, well-known companies as well as smaller,
less well-known companies, including foreign securities listed on a foreign
securities exchange or traded in the United States. Although certain of the
Fund's investments may produce dividends, interest or other income, current
income is not a consideration in selecting the Fund's investments.
The Investment Adviser's analysis of a potential investment will focus on
valuing an enterprise and purchasing securities of the enterprise when the
Investment Adviser believes that value exceeds the market price. The Investment
Adviser intends to focus on the fundamental worth of the companies under
consideration, where fundamental worth is defined as the value of the basic
businesses of the firm, including products, technologies, customer relationships
and other sustainable competitive advantages. For purposes of the Investment
Adviser's analysis, fundamental worth is a reflection of the value of an enter-
prise's assets and its earning power, and will be determined by use of price-
earnings ratios and comparison with sales of comparable assets to independent
third party buyers in arms' length transactions. Balance sheet strength, the
ability to generate earnings and a strong competitive position are the major
factors the Investment Adviser will use in appraising an investment. Applicable
price-earnings ratios depend on the earnings potential of an enterprise as
determined by the Investment Adviser. For example, an enterprise that is a
relatively high growth company would normally command a higher price-earnings
ratio than lower growth companies because expected future profits would be
higher.
The Fund may purchase shares in initial public offerings (IPOs). Because IPO
shares frequently are volatile in price, the Fund may hold IPO shares for a very
short period of time. This may increase the turnover of the Fund's portfolio
and may lead to increased expenses to the Fund, such as commissions and
transaction costs. By selling shares, the Fund may realize taxable capital
gains that it will subsequently distribute to shareholders.
RISK CONSIDERATIONS
Equity Securities
The Fund invests primarily in equity securities, which by definition entail risk
of loss of capital. Investments in equity securities are subject to inherent
market risks and fluctuation in value due to earnings, economic conditions and
other factors beyond the control of the Investment Adviser. Securities in the
Fund's portfolio may not increase as much as the market as a whole and some
undervalued securities may continue to be undervalued for long periods of time.
Some securities may be inactively traded, and thus may not be readily bought or
sold. Although profits in some Fund holdings may be realized quickly, it is not
expected that most investments will appreciate rapidly. The Fund may invest up
to 15% of its net assets in illiquid securities.
Small Capitalization Companies
The Fund may, from time to time, invest a substantial portion of its assets in
small capitalization companies. While smaller companies generally have
potential for rapid growth, they often involve higher risks because they lack
the management experience, financial resources, product diversification and
competitive strengths of larger corporations. In addition, in many instances
the securities of smaller companies are traded only over-the-counter or on a
regional securities exchange, and the frequency and volume of their trading is
substantially less than is typical of larger companies. Therefore, the
securities of smaller companies may be subject to wider price fluctuations.
When making large sales, the Fund may have to sell portfolio holdings at
discounts from quoted prices or may have to make a series of small sales over an
extended period of time.
Foreign Securities
The Fund may purchase foreign securities that are listed on a foreign securities
exchange or over-the-counter market, or which are represented by American
Depository Receipts and are listed on a domestic securities exchange or traded
in the United States on over-the-counter markets. Foreign investments may be
subject to risks that are not typically associated with investing in domestic
companies. For example, such investment may be adversely affected by changes in
currency rates and exchange control regulations, future political and economic
developments and the possibility of seizure or nationalization of companies, or
the imposition of withholding taxes on income.
Temporary Defensive Measures
For defensive purposes, the Fund may temporarily hold all or a portion of its
assets in money market instruments. Such action may help the Fund minimize or
avoid losses during adverse market, economic or political conditions. During
such a period, the Fund may not achieve its investment objective. For example,
should the market advance during this period, the Fund may not participate as
much as it would have if it had been more fully invested.
Concentration of Investments in the Technology and Medical Industries
The Fund will invest primarily in companies within the health and biotechnology
segments. The Fund will be subject to greater risk because of its concentration
of investments in a single industry and within a certain segment of the
industry. Investments in the health and biotechnology segments include the risk
that the economic prospects, and the share prices, of health and biotechnology
companies can fluctuate dramatically due to changes in the regulatory or
competitive environments. Additionally, health and biotechnology segment
products and services are subject to risk of rapid obsolescence caused by
scientific developments and technological advances. Also, the technology and
medical industries are generally more susceptible to effects caused by changes
in the economic climate, broad market swings, moves in a dominant industry stock
or regulatory changes.
Although the Investment Adviser currently believes that investments by the Fund
in certain health, biotechnology and technology companies may offer greater
opportunities for growth of capital than investments in other industries, such
investments may also expose investors to greater than average financial and
market risk.
The Fund will invest primarily in the following health and biotechnology
segments. At any point in time, however, the Fund may invest more than 25% of
its assets in any one industry segment. This will further increase the Fund's
risk and will make the Fund more volatile.
Health and Biotechnology Segments
- ---------------------------------
o Cardiovascular Medical Device
o Minimally Invasive Surgical Tool
o Pharmaceutical
o Biotechnology
o Managed Care Provider
o Generic Drug
Year 2000 Problem
The Fund and its service providers depend upon the smooth functioning of their
computer systems. Unfortunately, because of the way dates are encoded and
calculated, many computer systems in use today cannot recognize the year 2000,
but revert to 1900 or another incorrect date. Computer failures due to the year
2000 problem could negatively impact the handling of securities trades and
pricing and account services.
The Fund's software vendors and service providers have assured the Fund that
their systems will be adapted in sufficient time to avoid serious problems.
There can be no guarantee, however, that all of their computer systems will be
adapted in time. The Fund does not expect year 2000 conversion costs to be
substantial for the Fund because those costs are borne by the Fund's vendors and
service providers and not directly by the Fund.
Brokers and other intermediaries that hold shareholder accounts may still
experience incompatibility problems. It is also important to keep in mind that
year 2000 issues may negatively impact the companies in which the Fund invests
and, by extension, the value of those companies' shares held by the Fund.
OPERATION OF THE FUND
The Trust retains Ingenuity Capital Management LLC (the "Investment Adviser"),
to manage the investments of the Fund. The Investment Adviser is controlled by
Kendrick W. Kam who also serves as a Trustee of the Trust. Mr. Kam served as a
portfolio manager for three Firsthand Funds, which were technology and medical
related mutual funds. Mr. Kam is the portfolio manager of The Medical
Specialists Fund. Prior to 1994, Mr. Kam was co-founder and Vice President of
Marketing and Finance for Novoste Corporation, a medical device company
headquartered in Aguadilla, Puerto Rico.
The Investment Adviser receives from the Fund a management fee at the annual
rate of 1.50% of its average daily net assets. The Advisory Agreement requires
the Investment Adviser to waive its management fees and, if necessary, reimburse
expenses of the Fund to the extent necessary to limit each Fund's total
operating expenses to 1.95% of its average net assets up to $200 million, 1.90%
of such assets from $200 million to $500 million, 1.85% of such assets from $500
million to $1 billion, and 1.80% of such assets in excess of $1 billion.
FUND ADMINISTRATION, FUND ACCOUNTING, TRANSFER AGENT, AND CUSTODY SERVICES
Firstar Mutual Fund Services, LLC, provides administrative, accounting, and
transfer agent services to the Fund and is located in Milwaukee, Wisconsin.
Firstar Bank, N.A., serves as custodian for the Fund.
DISTRIBUTOR
Rafferty Capital Markets, Inc. (the "Underwriter"), serves as principal
underwriter for the Fund and as such, is the exclusive agent for the
distribution of shares of the Fund.
HOW TO PURCHASE SHARES
You may purchase shares directly through the Fund's Transfer Agent or through a
brokerage firm or financial institution that has agreed to sell the Fund's
shares. Your initial investment in the Fund ordinarily must be at least $10,000
(or $2,000 for IRAs). Lower minimums are available to investors purchasing
shares of the Fund through certain brokerage firms. Shares of the Fund are
sold on a continuous basis at the net asset value next determined after receipt
of a purchase order by the Trust or an agent of the Trust. Any order placed
with such brokerage firm is treated as if it were placed directly with the
Trust. Your shares will be held in a pooled account in the broker's name, and
the broker will maintain your individual ownership information. In addition,
your brokerage firm may charge you a fee for handling your order. Your
brokerage firm is responsible for processing your order correctly and promptly,
keeping you advised of the status of your individual account, confirming your
transactions and ensuring that you receive copies of the Trust's Prospectus.
Purchase orders received by such agents prior to 4:00 p.m., eastern time, on any
business day are confirmed at the net asset value determined as of the close of
the regular session of trading on the New York Stock Exchange on that day. It
is the responsibility of agents to transmit properly completed orders promptly.
Agents may charge a fee (separately negotiated with their customers) for
effecting purchase orders. Direct purchase orders received by the Transfer
Agent by 4:00 p.m., eastern time, are confirmed at that day's net asset value.
You may open an account and make an initial investment in the Fund through
selected brokerage firms or financial intermediaries or by sending a check and a
completed account application form to Ingenuity Capital Trust, c/o Firstar
Mutual Fund Serivces, LLC, 615 East Michigan Street, Milwaukee, Wisconsin,
53202. Checks should be made payable to "Ingenuity Capital Trust." Third party
checks will not be accepted. An account application is included with this
Prospectus.
The Transfer Agent (or your broker) mails you confirmations of all purchases or
redemptions of Fund shares. Certificates representing shares are not issued.
The Trust reserves the rights to limit the amount of investments and to refuse
to sell to any person.
If an order to purchase shares is cancelled because your check does not clear,
you will be responsible for any resulting losses or fees incurred by the Trust
or the Transfer Agent in the transaction.
Provided the Trust has received a completed account application form, you may
also purchase shares of the Funds by bank wire. Please telephone the Transfer
Agent (Nationwide call toll-free 1-888-884-8482) for instructions. You should
be prepared to give the name of the Fund in which you wish to purchase shares,
the name in which the account is to be established, the address, telephone
number and taxpayer identification number for the account, and the name of the
bank which will wire the money. Your investment will be made at the next
determined net asset value after your wire is received together with the account
information indicated above. If the Transfer Agent does not receive timely and
complete account information, there may be a delay in the investment of your
money and any accrual of dividends. To make your initial wire purchase, you
must mail a completed account application to the Transfer Agent. Your bank may
impose a charge for sending your wire. There is presently no fee for receipt of
wired funds, but the Transfer Agent reserves the right to charge shareholders
for this service upon thirty days' prior notice to shareholders.
You may purchase and add shares to your account ($50 minimum) by mail or by bank
wire. Checks should be sent to Firstar Mutual Fund Services, LLC, 615 East
Michigan Street, Milwaukee, Wisconsin, 53202. Checks should be made payable to
"Ingenuity Capital Trust." Bank wires should be sent as outlined above. Each
additional purchase request must contain the account name and number to permit
proper crediting.
HOW TO REDEEM SHARES
You may redeem shares of the Fund on any day that the Trust is open for
business. You will receive the net asset value per share next determined after
receipt by the Transfer Agent of your redemption request in the form described
below. Payment is normally made within three business days after tender in such
form, provided that payment in redemption of shares purchased by check will be
effected only after the check has been collected, which may take up to fifteen
days from the purchase date. To eliminate this delay, you may purchase shares
of the Fund by certified check or wire.
By Telephone
You may redeem shares having a value of less than $50,000 by telephone. The
proceeds will be sent by mail to the address designated on your account or wired
directly to your existing account in any commercial bank or brokerage firm in
the United States as designated on your application. To redeem by telephone,
call the Transfer Agent (Nationwide call toll-free 1-888-884-8482). The
redemption proceeds will normally be sent by mail or by wire within three
business days after receipt of your telephone instructions. IRA accounts are
not redeemable by telephone.
The telephone redemption privilege is automatically available to all new
accounts. If you do not want the telephone redemption privilege, you must
indicate this in the appropriate area on your account application or you must
write to the Transfer Agent and instruct them to remove this privilege from your
account.
You may change the bank or brokerage account which you have designated at any
time by writing to the Transfer Agent with your signature guaranteed by any
eligible guarantor institution (including banks, brokers and dealers, credit
unions, national securities exchanges, registered securities associations,
clearing agencies and savings associations) or by completing a supplemental
telephone redemption authorization form. Contact the Transfer Agent to obtain
this form. Further documentation will be required to change the designated
account if shares are held by a corporation, fiduciary or other organization.
The Transfer Agent reserves the right to suspend the telephone redemption
privilege with respect to any account if the name(s) or the address on the
account has been changed within the previous 30 days.
Neither the Trust, the Transfer Agent, nor their respective affiliates will be
liable for complying with telephone instructions they reasonably believe to be
genuine or for any loss, damage, cost or expenses in acting on such telephone
instructions. The affected shareholders will bear the risk of any such loss.
The Trust or the Transfer Agent, or both, will employ reasonable procedures to
determine that telephone instructions are genuine. If the Trust and/or the
Transfer Agent do not employ such procedures, they may be liable for losses due
to unauthorized or fraudulent instructions. These procedures may include, among
others, requiring forms of personal identification prior to acting upon
telephone instructions, providing written confirmation of the transactions
and/or tape recording telephone instructions.
By Mail
You may redeem any number of shares from your account by sending a written
request to the Transfer Agent. The request must state the number of shares or
the dollar amount to be redeemed and your account number. The request must be
signed exactly as your name appears on the Trust's account records. If the
shares to be redeemed have a value of $50,000 or more, your signature must be
guaranteed by any of the eligible guarantor institutions outlined above. If the
name(s) or the address on your account has been changed within 30 days of your
redemption request, you will be required to request the redemption in writing
with your signature guaranteed, regardless of the value of the shares being
redeemed. Written redemption requests may also direct that the proceeds be
deposited directly in a domestic bank or brokerage account designated on your
account application for telephone redemptions. Proceeds of redemptions
requested by mail are normally mailed within three business days following
receipt of instructions in proper form.
Through Broker-Dealers
You may also redeem shares of the Fund by placing a wire redemption request
through a securities broker or dealer. Unaffiliated broker-dealers may charge
you a fee for this service. You will receive the net asset value per share next
determined after receipt by the Trust or its agent of your wire redemption
request. It is the responsibility of broker-dealers to promptly transmit wire
redemption orders.
Additional Redemption Information
If your instructions request a redemption by wire, the proceeds will be wired
directly to your existing account in any commercial bank or brokerage firm in
the United States as designated on your application and you will be charged a
$12 processing fee by the Fund's Transfer Agent. The Trust reserves the right,
upon thirty days' written notice, to change the processing fee. All charges
will be deducted from you account by redemption of shares in your account. Your
bank or brokerage firm may also impose a charge for processing the wire. In the
event that wire transfer of funds is impossible or impractical, the redemption
proceeds will be sent by mail to the designated account.
Redemption requests may direct that the proceeds be deposited directly in your
account with a commercial bank or other depository institution by way of an
Automated Clearing House (ACH) transaction. There is currently no charge for
ACH transactions. Contact the Transfer Agent for more information about ACH
transactions.
At the discretion of the Trust or the Transfer Agent, corporate investors and
other associations may be required to furnish an appropriate certification
authorizing redemptions to ensure proper authorization. The Trust reserves the
right to require you to close your account, other than an IRA account, if at any
time the value of your shares is less than $10,000 (based on actual amounts
invested, unaffected by market fluctuations), or such other minimum amount as
the Trust may determine from time to time. After notification to you of the
Trust's intention to close your account, you will be given sixty days to
increase the value of your account to the minimum amount.
The Trust reserves the right to suspend the right of redemption or to postpone
the date of payment for more than three business days under unusual
circumstances as determined by the Securities and Exchange Commission. Under
unusual circumstances, when the Board of Trustees deems it appropriate, the Fund
may make payment for shares redeemed in portfolio securities of the Fund taken
at current value.
SHAREHOLDER SERVICES
Contact the Transfer Agent (nationwide call toll-free 1-888-884-8482) for
additional information about the shareholder services described below.
Tax-Deferred Retirement Plans
Shares of the Fund are available for purchase in connection with the following
tax-deferred retirement plans:
o Keogh Plans for self-employed individuals
o Individual retirement account (IRA) plans for individuals and their non-
employed spouses, including Roth IRAs and Education IRAs
o Qualified pension and profit-sharing plans for employees, including those
profit-sharing plans with a 401(k) provision
o 403(b)(7) custodial accounts for employees of public school systems,
hospitals, colleges and other non-profit organizations meeting certain
requirements of the Internal Revenue Code (the "Code")
Direct Deposit Plans
Shares of the Fund may be purchased through direct deposit plans offered by
certain employers and government agencies. These plans enable a shareholder to
have all or a portion of his or her payroll or Social Security checks
transferred automatically to purchase shares of the Fund.
Automatic Investment Plan
By completing the Automatic Investment Plan section of the account application,
you may make automatic monthly investments in the Fund from your bank, savings
and loan or other depository institution account. The minimum investment must
be $50 under the plan. The Transfer Agent pays the costs associated with these
transfers, but reserves the right, upon thirty days' written notice, to make
reasonable charges for this service. Your depository institution may impose its
own charge for debiting your account which would reduce your return from an
investment in the Fund. You may change the amount of the investment or
discontinue the plan at any time by writing to the Transfer Agent.
DIVIDENDS AND DISTRIBUTIONS
The Fund expects to distribute substantially all of its net investment income
and net realized gains, if any, at least annually. Dividends and distributions
are automatically reinvested in additional shares of the Fund (the Share Option)
unless cash payments are specified on your application or are otherwise
requested by contacting the Transfer Agent. All distributions will be based on
the net asset value in effect on the payable date.
If you elect to receive dividends in cash and the U.S. Postal Service cannot
deliver your checks or if your checks remain uncashed for six months, your
dividends may be reinvested in your account at the then-current net asset value
and your account will be converted to the Share Option. No interest will accrue
on amounts represented by uncashed distribution checks.
TAXES
The Fund intends to continue to qualify and to be treated as a "regulated
investment company" under Subchapter M of the Code by annually distributing
substantially all of its net investment company taxable income, net tax-exempt
income and net capital gains in dividends to its shareholders and by satisfying
certain other requirements related to the sources of its income and the
diversification of its assets. By so qualifying, the Fund will not be subject
to federal income tax or excise tax on that part of its investment company
taxable income and net realized short-term and long-term capital gains which it
distributes to its shareholders in accordance with the Code's timing
requirements.
Dividends and distributions paid to shareholders (whether received in cash or
reinvested in additional shares) are generally subject to federal income tax and
may be subject to state and local income tax. Dividends from net investment
income and distributions from any excess of net realized short-term capital
gains over net realized capital losses are taxable to shareholders (other than
tax-exempt entities that have not borrowed to purchase or carry their shares of
the Fund) as ordinary income.
Distributions of net capital gains (the excess of net long-term capital gains
over net short-term capital losses) by the Fund to its shareholders are taxable
to you as capital gains, without regard to the length of time you have held your
Fund shares. Capital gains distributions may be taxable at different rates
depending on the length of time the Fund holds its assets.
Redemptions of shares of the Fund are taxable events on which you may realize a
gain or loss.
The Trust will mail a statement to you annually indicating the amount and
federal income tax status of all distributions made during the year. The Fund's
distributions may be subject to federal income tax whether received in cash or
reinvested in additional shares. In addition to federal taxes, you may be
subject to state and local taxes on distributions.
CALCULATION OF SHARE PRICE
The share price (net asset value) of the shares of the Fund is determined as of
the close of the regular session of trading on the New York Stock Exchange
(normally 4:00 p.m., Eastern Time) on each day the New York Stock Exchange is
open for business and may also be determined on any other day when there is
sufficient trading in a Fund's investments that its net asset value might be
materially affected. The net asset value per share of the Fund is calculated by
dividing the sum of the value of the securities held by the Fund plus cash or
other assets minus all liabilities (including estimated accrued expenses) by the
total number of shares outstanding of the Fund, rounded to the nearest cent.
The price at which a purchase or redemption of Fund shares is effected is based
on the next calculation of net asset value after the order is placed.
Portfolio securities are valued as follows: (1) securities which are traded on
stock exchanges or are quoted by NASDAQ are valued at the last reported sale
price as of the close of the regular session of trading on the New York Stock
Exchange on the day the securities are being valued, or, if not traded on a
particular day, at the most recent bid price, (2) securities traded in the over-
the-counter market, and which are not quoted by NASDAQ, are valued at the last
sale price (or, if the last sale price is not readily available, at the most
recent bid price as quoted by brokers that make markets in the securities) as of
the close of the regular session of trading on the New York Stock Exchange on
the day the securities are being valued, (3) securities which are traded both in
the over-the-counter market and on a stock exchange are valued according to the
broadest and most representative market, and (4) securities (and other assets)
for which market quotations are not readily available are valued at their fair
value as determined in good faith in accordance with consistently applied
procedures established by and under the general supervision of the Board of
Trustees. The net asset value per share of the Fund will fluctuate with the
value of the securities it holds.
Additional information about the Fund is included in the Statement of Additional
Information ("SAI"), which is incorporated by reference in its entirety.
Additional information about the Fund's investments will be available in the
Fund's annual and semiannual reports to shareholders once the Fund has been in
existence for the appropriate time period. In the Fund's annual report, you
will find a discussion of the market conditions and strategies that
significantly affected the Fund's performance during the last fiscal year.
To obtain a free copy of the SAI, the annual and semiannual reports or other
information about the Fund, or to make shareholder inquiries about the Fund,
please call 1-888-884-8482.
Information about the Fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's public reference room in Washington, D.C.
Information about the operation of the public reference room can be obtained by
calling the Commission at 1.800.SEC.0330. Reports and other information about
the Fund are available on the Commission's Internet site at http://www.sec.gov.
Copies of information on the Commission's Internet site may be obtained, upon
payment of a duplicating fee, by writing to: Securities and Exchange Commission,
Public Reference Section, Washington, D.C. 20549-6009.
INGENUITY CAPTIAL TRUST
THE MEDICAL SPECIALISTS FUND
STATEMENT OF ADDITIONAL INFORMATION
September 15, 1999
This Statement of Additional Information is not a Prospectus. It should be read
in conjunction with the Prospectus of Ingenuity Capital Trust dated September
15, 1999. A copy of the Prospectus can be obtained by writing the Trust at 26888
Almaden Court, Los Altos, CA 94022, or by calling the Trust toll-free at 1-
888-884-8482.
TABLE OF CONTENTS
THE TRUST 3
DEFINITIONS, POLICIES AND RISK 3
QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS 11
INVESTMENT RESTRICTIONS 12
TRUSTEES AND OFFICERS 13
INVESTMENT ADVISORY AND OTHER SERVICES 14
THE UNDERWRITER 15
SECURITIES TRANSACTIONS 15
PORTFOLIO TURNOVER 16
PURCHASE, REDEMPTION AND PRICING OF SHARES 16
TAXES 18
HISTORICAL PERFORMANCE INFORMATION 20
CUSTODIAN 22
LEGAL COUNSEL AND AUDITORS 22
FIRSTAR MUTUAL FUND SERVICES, LLC 22
THE TRUST
Ingenuity Capital Trust (the "Trust"), an open-end management investment
company, was organized as a Delaware business trust on June , 1999. The Trust
currently offers one series of shares to investors, The Medical Specialists
Fund. The Fund is a non-diversified series and has its own investment objective
and policies. The Trust may start another series and offer shares of a new fund
under the Trust at any time.
Shares of the Fund have equal voting rights and liquidation rights, and are
voted in the aggregate and not by Fund except in matters where a separate vote
is required by the Investment Company Act of 1940 (the "1940 Act") or when the
matter affects only the interest of a particular Fund. When matters are
submitted to shareholders for a vote, each shareholder is entitled to one vote
for each full share owned and fractional votes for fractional shares owned. The
Trust does not normally hold annual meetings of shareholders. The Trustees shall
promptly call and give notice of a meeting of shareholders for the purpose of
voting upon removal of any Trustee when requested to do so in writing by
shareholders holding 10% or more of the Trust's outstanding shares. The Trust
will comply with the provisions of Section 16(c) of the 1940 Act in order to
facilitate communications among shareholders.
Each share of the Fund represents an equal proportionate interest in the
assets and liabilities belonging to that Fund with each other share of that Fund
and is entitled to such dividends and distributions out of the income belonging
to the Fund as are declared by the Trustees. The shares do not have cumulative
voting rights or any preemptive or conversion rights, and the Trustees have the
authority from time to time to divide or combine the shares of any Fund into a
greater or lesser number of shares of that Fund so long as the proportionate
beneficial interests in the assets belonging to that Fund and the rights of
shares of any other Fund are in no way affected. In case of any liquidation of a
Fund, the holders of shares of the Fund being liquidated will be entitled to
receive as a class a distribution out of the assets, net of the liabilities,
belonging to that Fund. Expenses attributable to any Fund are borne by that
Fund. Any general expenses of the Trust not readily identifiable as belonging to
a particular Fund are allocated by or under the direction of the Trustees in
such manner as the Trustees allocate such expenses on the basis of relative net
assets or number of shareholders. No shareholder is liable to further calls or
to assessment by the Trust without his or her express consent.
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
A more detailed discussion of some of the terms used and investment
policies described in the Prospectus (see "Investment Objectives, Investment
Strategies and Risk Considerations") appears below:
MAJORITY. As used in the Prospectus and this Statement of Additional
Information, the term "majority" of the outstanding shares of the Trust (or of
the Fund) means the lesser of (1) two-thirds or more of the outstanding shares
of the Trust (or the Fund) present at a meeting, if the holders of more than 50%
of the outstanding shares of the Trust (or the Fund) are present or represented
at such meeting or (2) more than 50% of the outstanding shares of the Trust (or
the Fund).
DEBT SECURITIES. The Fund may invest in debt obligations of corporate
issuers, the U.S. Government, states, municipalities or state or municipal
government agencies that in the opinion of the Investment Adviser offer long-
term capital appreciation possibilities because of the timing of such
investments. The Fund intends that no more than 35% of its total assets will be
comprised of such debt securities. Investments in such debt obligations may
result in long-term capital appreciation because the value of debt obligations
varies inversely with prevailing interest rates. Thus, an investment in debt
obligations that is sold at a time when prevailing interest rates are lower than
they were at the time of investment will typically result in capital
appreciation. However, the reverse is also true, so that if an investment in
debt obligations is sold at a time when prevailing interest rates are higher
than they were at the time of investment, a capital loss will typically be
realized. Accordingly, if the Fund invests in the debt obligations described
above, such investments will generally be made when the Investment Adviser
expects that prevailing interest rates will be falling, and will generally be
sold when the Investment Adviser expects interest rates to rise.
The Fund's investments in this area will consist solely of investment grade
securities (rated BBB or higher by Standard & Poor's Ratings Group or Baa or
higher by Moody's Investors Service, Inc., or unrated securities determined by
the Investment Adviser to be of comparable quality). While securities in these
categories are generally accepted as being of investment grade, securities rated
BBB or Baa have speculative characteristics and changes in economic conditions
or other circumstances are more likely to lead to a weakened capacity to pay
principal and interest than is the case with higher grade securities. In the
event a security's rating is reduced below the Fund's minimum requirements, the
Fund will sell the security, subject to market conditions and the Investment
Adviser's assessment of the most opportune time for sale.
COMMERCIAL PAPER. Commercial paper consists of short-term (usually from one
to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. The Fund will only invest in commercial paper
rated A-1 by Standard & Poor's Ratings Group ("Standard & Poor's") or Prime-1
by Moody's Investors Service, Inc. ("Moody's") or unrated paper of issuers who
have outstanding unsecured debt rated AA or better by Standard & Poor's or Aa
or better by Moody's. Certain notes may have floating or variable rates.
Variable and floating rate notes with a demand notice period exceeding seven
days will be subject to each Fund's policy with respect to illiquid investments
unless, in the judgment of the Investment Adviser, such note is liquid.
The rating of 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: valuation of the management of the issuer; economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; evaluation of the issuer's products in
relation to competition and customer acceptance; liquidity; amount and quality
of long-term debt; trend of earnings over a period of 10 years; financial
strength of the issuer's parent company and the relationships which exist with
the issuer; and 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. These factors are all considered in determining
whether the commercial paper is rated Prime-1. Issuers of commercial paper rated
A (highest quality) by Standard & Poor's have the following characteristics:
liquidity ratios are adequate to meet cash requirements; long-term senior debt
is rated "A" or better, although in some cases "BBB" credits may be allowed; the
issuer has access to at least two additional channels of borrowing; basic
earnings and cash flow have an upward trend with allowance made for unusual
circumstances; typically, the issuer's industry is well established and the
issuer has a strong position within the industry; and the reliability and
quality of management are unquestioned. The relative strength or weakness of the
above factors determines whether the issuer's commercial paper is rated A-1.
BANK DEBT INSTRUMENTS. Bank debt instruments in which the Fund may invest
consist of certificates of deposit, bankers' acceptances and time deposits
issued by national banks and state banks, trust companies and mutual savings
banks, or by banks or institutions the accounts of which are insured by the
Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance
Corporation. Certificates of deposit are negotiable certificates evidencing the
indebtedness of a commercial bank to repay funds deposited with it for a
definite period of time (usually from 14 days to one year) at a stated or
variable interest rate. Bankers' acceptances are credit instruments evidencing
the obligation of a bank to pay a draft which has been drawn on it by a
customer, which instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. Time deposits
are non-negotiable deposits maintained in a banking institution for a specified
period of time at a stated interest rate. The Fund will not invest in time
deposits maturing in more than seven days if, as a result thereof, more than 15%
of the value of its net assets would be invested in such securities and other
illiquid securities.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which the
Fund purchases a security and simultaneously commits to resell that security to
the seller at an agreed upon time and price, thereby determining the yield
during the term of the agreement. In the event of a bankruptcy or other default
by the seller of a repurchase agreement, the Fund could experience both delays
in liquidating the underlying security and losses. To minimize these
possibilities, the Fund intends to enter into repurchase agreements only with
its Custodian, with banks having assets in excess of $10 billion and with
broker-dealers who are recognized as primary dealers in U.S. Government
obligations by the Federal Reserve Bank of New York. Collateral for
repurchase agreements is held in safekeeping in the customer-only account of
the Funds' Custodian at the Federal Reserve Bank. The Fund will not enter into
a repurchase agreement not terminable within seven days if, as a result
thereof, more than 15% of the value of its net assets would be invested in such
securities and other illiquid securities.
Although the securities subject to a repurchase agreement might bear
maturities exceeding one year, settlement for the repurchase would never be more
than one year after the Fund's acquisition of the securities and normally would
be within a shorter period of time. The resale price will be in excess of the
purchase price, reflecting an agreed upon market rate effective for the period
of time the Fund's money will be invested in the securities, and will not be
related to the coupon rate of the purchased security. At the time the Fund
enters into a repurchase agreement, the value of the underlying security,
including accrued interest, will equal or exceed the value of the repurchase
agreement, and, in the case of a repurchase agreement exceeding one day, the
seller will agree that the value of the underlying security, including
accrued interest, will at all times equal or exceed the value of the repurchase
agreement. The collateral securing the seller's obligation must be of a credit
quality at least equal to the Fund's investment criteria for portfolio
securities and will be held by the Custodian or in the Federal Reserve Book
Entry System.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a loan
from the Fund to the seller subject to the repurchase agreement and is
therefore subject to the Fund's investment restriction applicable to loans. It
is not clear whether a court would consider the securities purchased by the
Fund subject to a repurchase agreement as being owned by that Fund or as being
collateral for a loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the
seller of the securities before repurchase of the security under a repurchase
agreement, the Fund may encounter delay and incur costs before being able to
sell the security. Delays may involve loss of interest or decline in price of
the security. If a court characterized the transaction as a loan and the
Fund has not perfected a security interest in the security, that Fund may be
required to return the security to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, the Fund would be
at the risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt obligation purchased for the Fund,
the Investment Adviser seeks to minimize the risk of loss through repurchase
agreements by analyzing the creditworthiness of the obligor, in this case, the
seller. Apart from the risk of bankruptcy or insolvency proceedings, there
is also the risk that the seller may fail to repurchase the security, in which
case the Fund may incur a loss if the proceeds to the Fund of the sale of the
security to a third party are less than the repurchase price. However, if
the market value of the securities subject to the repurchase agreement
becomes less than the repurchase price (including interest), the Fund will
direct the seller of the security to deliver additional securities so that the
market value of all securities subject to the repurchase agreement will equal
or exceed the repurchase price. It is possible that the Fund will be
unsuccessful in seeking to enforce the seller's contractual obligation to
deliver additional securities.
MONEY MARKET FUNDS. The Fund may under certain circumstances invest a
portion of its assets in money market investment companies. The 1940 Act
prohibits the Fund from investing more than 5% of the value of its total assets
in any one investment company, or more than 10% of the value of its total assets
in investment companies in the aggregate, and also restricts its investment in
any investment company to 3% of the voting securities of such investment
company. Investment in a money market investment company involves payment
of such company's pro rata share of advisory and administrative fees charged
by such company, in addition to those paid by the Fund.
WARRANTS. The Fund may invest a portion of its assets in warrants, but
only to the extent that such investments do not exceed 5% of the Fund's net
assets at the time of purchase. A warrant gives the holder a right to purchase
at any time during a specified period a predetermined number of shares of
common stock at a fixed price. Unlike convertible debt securities or
preferred stock, warrants do not pay a fixed coupon or dividend. Investments
in warrants involve certain risks, including the possible lack of a liquid
market for resale of the warrants, potential price fluctuations as a result
of speculation or other factors, and failure of the price of the underlying
security to reach or have reasonable prospects of reaching a level at which
the warrant can be prudently exercised (in which event the warrant may
expire without being exercised, resulting in a loss of the Fund's entire
investment therein).
FOREIGN SECURITIES. Subject to the Fund's investment policies and quality
standards, the Fund may invest in the securities of foreign issuers. Because
the Fund may invest in foreign securities, an investment in the Fund involves
risks that are different in some respects from an investment in a fund which
invests only in securities of U.S. domestic issuers. Foreign investments may be
affected favorably or unfavorably by changes in currency rates and exchange
control regulations. There may be less publicly available information about a
foreign company than about a U.S. company, and foreign companies may not be
subject to accounting, auditing and financial reporting standards and
requirements comparable to those applicable to U.S. companies. There may be less
governmental supervision of securities markets, brokers and issuers of
securities. Securities of some foreign companies are less liquid or more
volatile than securities of U.S. companies, and foreign brokerage commissions
and custodian fees are generally higher than in the United States. Settlement
practices may include delays and may differ from those customary in United
States markets. Investments in foreign securities may also be subject to other
risks different from those affecting U.S. investments, including local political
or economic developments, expropriation or nationalization of assets,
restrictions on foreign investment and repatriation of capital, imposition of
withholding taxes on dividend or interest payments, currency blockage (which
would prevent cash from being brought back to the United States), and difficulty
in enforcing legal rights outside the United States.
NON-DIVERSIFICATION OF INVESTMENTS. The Fund is operated as a "non-
diversified" portfolio. As a non-diversified investment company, the Fund may
be subject to greater risks than diversified companies because of the
possible fluctuation in the values of securities of fewer issuers. However, at
the close of each fiscal quarter at least 50% of the value of the Fund's total
assets will be represented by one or more of the following: (i) cash and cash
items, including receivables; (ii) U.S. Government securities; (iii) securities
of other regulated investment companies; and (iv) securities (other than U.S.
Government securities and securities of other regulated investment companies) of
any one or more issuers which meet the following limitations: (a) the Fund will
not invest more than 5% of its total assets in the securities of any such issuer
and (b) the entire amount of the securities of such issuer owned by the Fund
will not represent more than 10% of the outstanding voting securities of such
issuer. Additionally, not more than 25% of the value of a Fund's total assets
may be invested in the securities of any one issuer.
WRITING COVERED CALL OPTIONS The Fund may write covered call options on
equity securities or futures contracts to earn premium income, to assure a
definite price for a security that the Fund has considered selling, or to
close out options previously purchased. A call option gives the holder (buyer)
the right to purchase a security or futures contract at a specified price (the
exercise price) at any time until a certain date (the expiration date). A
call option is "covered" if the Fund owns the underlying security subject
to the call option at all times during the option period. A covered call
writer is required to deposit in escrow the underlying security in accordance
with the rules of the exchanges on which the option is traded and the
appropriate clearing agency.
The writing of covered call options is a conservative investment technique
which the Investment Adviser believes involves relatively little risk. However,
there is no assurance that a closing transaction can be effected at a favorable
price. During the option period, the covered call writer has, in return for the
premium received, given up the opportunity for capital appreciation above the
exercise price should the market price of the underlying security increase, but
has retained the risk of loss should the price of the underlying security
decline.
WRITING COVERED PUT OPTIONS The Fund may write covered put options on
equity securities and futures contracts to assure a definite price for a
security if they are considering acquiring the security at a lower price than
the current market price or to close out options previously purchased. A put
option gives the holder of the option the right to sell, and the writer has
the obligation to buy, the underlying security at the exercise price at any
time during the option period. The operation of put options in other
respects is substantially identical to that of call options. When the Fund
writes a covered put option, it maintains in a segregated account with its
Custodian cash or liquid securities in an amount not less than the exercise
price at all times while the put option is outstanding.
The risks involved in writing put options include the risk that a closing
transaction cannot be effected at a favorable price and the possibility that the
price of the underlying security may fall below the exercise price, in which
case a Fund may be required to purchase the underlying security at a higher
price than the market price of the security at the time the option is exercised.
OPTIONS TRANSACTIONS GENERALLY. Option transactions in which the Fund may
engage involve the specific risks described above as well as the following
risks: the writer of an option may be assigned an exercise at any time during
the option period; disruptions in the markets for underlying instruments could
result in losses for options investors; imperfect or no correlation between the
option and the securities being hedged; the insolvency of a broker could present
risks for the broker's customers; and market imposed restrictions may prohibit
the exercise of certain options. In addition, the option activities of the
Fund may affect its portfolio turnover rate and the amount of brokerage
commissions paid by the Fund. The success of the Fund in using the option
strategies described above depends, among other things, on the Investment
Adviser's ability to predict the direction and volatility of price movements in
the options, futures contracts and securities markets and the Investment
Adviser's ability to select the proper time, type and duration of the options.
By writing options, the Fund forgoes the opportunity to profit from
an increase in the market price of the underlying security or stock index above
the exercise price except insofar as the premium represents such a profit. The
Fund may also seek to earn additional income through receipt of premiums by
writing covered put options. The risk involved in writing such options is
that there could be a decrease in the market value of the underlying
security or stock index. If this occurred, the option could be exercised and
the underlying security would then be sold to the Fund at a higher price than
its then current market value. The Fund may purchase put and call options to
attempt to provide protection against adverse price effects from anticipated
changes in prevailing prices of securities or stock indices. The purchase of a
put option generally protects the value of portfolio holdings in a falling
market, while the purchase of a call option generally protects cash reserves
from a failure to participate in a rising market. In purchasing a call option,
the Fund would be in a position to realize a gain if, during the option
period, the price of the security or stock index increased by an amount greater
than the premium paid. The Fund would realize a loss if the price of the
security or stock index decreased or remained the same or did not increase
during the period by more than the amount of the premium. If a put or call
option purchased by the Fund were permitted to expire without being sold or
exercised, its premium would represent a realized loss to the Fund. When
writing put options the Fund will be required to segregate cash and/or
liquid securities to meet its obligations. When writing call options the
Fund will be required to own the underlying financial instrument or
segregate with its Custodian cash and/or liquid securities to meet its
obligations under written calls. By so doing, the Fund's ability to meet
current obligations, to honor redemptions or to achieve its investment
objective may be impaired. The staff of the Securities and Exchange
Commission has taken the position that over-the-counter options and the assets
used as "cover" for over-the-counter options are illiquid securities.
The imperfect correlation in price movement between an option and the
underlying financial instrument and/or the costs of implementing such an option
may limit the effectiveness of the strategy. The Fund's ability to establish
and close out options positions will be subject to the existence of a
liquid secondary market. Although the Fund generally will purchase or sell only
those options for which there appears to be an active secondary market, there
is no assurance that a liquid secondary market on an exchange will exist
for any particular option or at any particular time. If an option purchased
by the Fund expires unexercised, the Fund will lose the premium it paid. In
addition, the Fund could suffer a loss if the premium paid by the Fund in a
closing transaction exceeds the premium income it received. When the Fund
writes a call option, its ability to participate in the capital appreciation of
the underlying obligation is limited.
It is the present intention of the Adviser not to commit greater than 30%
of the Fund's net assets to option strategies.
BORROWING. The Fund may borrow from banks for temporary or emergency
purposes in an aggregate amount not to exceed 25% of its total assets. Borrowing
magnifies the potential for gain or loss on the portfolio securities of the
Fund and, therefore, if employed, increases the possibility of fluctuation
in the Fund's net asset value. This is the speculative factor known as
leverage. To reduce the risks of borrowing, the Fund will limit its borrowings
as described above. The Fund may pledge its assets in connection with
borrowings. While the Fund's borrowings exceed 5% of its total assets, it will
not purchase additional portfolio securities.
The use of borrowing by the Fund involves special risk considerations that
may not be associated with other funds having similar policies. Since
substantially all of the Fund's assets fluctuate in value, whereas the
interest obligation resulting from a borrowing will be fixed by the terms of
the Fund's agreement with their lender, the asset value per share of the Fund
will tend to increase more when its portfolio securities increase in value and
decrease more when its portfolio securities decrease in value than would
otherwise be the case if the Fund did not borrow funds. In addition, interest
costs on borrowings may fluctuate with changing market rates of interest and
may partially offset or exceed the return earned on borrowed funds. Under
adverse market conditions, the Fund might have to sell portfolio securities
to meet interest or principal payments at a time when fundamental investment
considerations would not favor such sales.
LOANS OF PORTFOLIO SECURITIES. The Fund may make short-term loans of its
portfolio securities to banks, brokers and dealers. Lending portfolio securities
exposes a Fund to the risk that the borrower may fail to return the loaned
securities or may not be able to provide additional collateral or that the
Fund may experience delays in recovery of the loaned securities or loss of
rights in the collateral if the borrower fails financially. To minimize these
risks, the borrower must agree to maintain collateral marked to market daily,
in the form of cash and/or U.S. Government obligations, with the Fund's
Custodian in an amount at least equal to the market value of the loaned
securities. The Fund will limit the amount of its loans of its portfolio
securities to no more than 30% of its total assets.
Under applicable regulatory requirements (which are subject to change), the
loan collateral must, on each business day, at least equal the value of the
loaned securities. To be acceptable as collateral, letters of credit must
obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. Such terms and the issuing bank must be satisfactory to the
Fund. The Fund receive amounts equal to the dividends or interest on
loaned securities and also receive one or more of (a) negotiated loan
fees, (b) interest on securities used as collateral, or (c) interest on short-
term debt securities purchased with such collateral; either type of interest
may be shared with the borrower. The Fund may also pay fees to placing brokers
as well as custodian and administrative fees in connection with loans.
Fees may only be paid to a placing broker provided that the Trustees
determine that the fee paid to the placing broker is reasonable and based solely
upon services rendered, that the Trustees separately consider the propriety
of any fee shared by the placing broker with the borrower, and that the
fees are not used to compensate the Adviser or any affiliated person of
the Trust or an affiliated person of the Adviser or other affiliated person.
The terms of the Fund's loans must meet applicable tests under the Internal
Revenue Code and permit the Fund to reacquire loaned securities on five
days' notice or in time to vote on any important matter.
ILLIQUID SECURITIES. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the Securities Act of 1933 (the "Securities
Act"), securities which are otherwise not readily marketable and securities such
as repurchase agreements having a maturity of longer than seven days. Securities
which have not been registered under the Securities Act are referred to as
private placements or restricted securities and are purchased directly from the
issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemption requirements. A mutual fund might also have to register such
restricted securities in order to dispose of them, resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. The Board of Trustees may determine that such securities are not
illiquid securities notwithstanding their legal or contractual
restrictions on resale. In all other cases, however, securities subject to
restrictions on resale will be deemed illiquid.
QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS
THE RATINGS OF MOODY'S AND STANDARD & POOR'S FOR CORPORATE BONDS IN WHICH
THE FUNDS MAY INVEST ARE AS FOLLOWS:
Moody's
-------
Aaa - 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 edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what 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.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Standard & Poor's
-----------------
AAA - Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
THE RATINGS OF MOODY'S AND STANDARD & POOR'S FOR PREFERRED STOCKS IN WHICH
THE FUNDS MAY INVEST ARE AS FOLLOWS:
Moody's
-------
aaa - An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa - An issue which is rated aa is considered a high-grade preferred stock.
This rating indicates that there is reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
a - An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the aaa
and aa classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
baa - An issue which is rated baa is considered to be medium grade, neither
highly protected nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any great length of time.
Standard & Poor's
-----------------
AAA - This is the highest rating that may be assigned by Standard & Poor's
to a preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA - A preferred stock issue rated AA also qualifies as a high-quality
fixed-income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A - An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the diverse
effects of changes in circumstances and economic conditions.
BBB - An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.
INVESTMENT RESTRICTIONS
The Trust has adopted certain fundamental investment restrictions designed
to reduce the risk of an investment in the Fund. These restrictions may not be
changed with respect to the Fund without the affirmative vote of a majority of
the outstanding voting securities of the Fund. The Fund may not:
1. Underwrite the securities of other issuers, except that the Fund may,
as indicated in the Prospectus, acquire restricted securities under
circumstances where, if such securities are sold, the Fund might be deemed to
be an underwriter for purposes of the Securities Act of 1933.
2. Purchase or sell real estate or interests in real estate, but the Fund
may purchase marketable securities of companies holding real estate or interests
in real estate.
3. Purchase or sell commodities or commodity contracts, including futures
contracts, except that the Fund may purchase and sell futures contracts to the
extent authorized by the Board of Trustees.
4. Make loans to other persons except (i) by the purchase of a portion of
an issue of publicly distributed bonds, debentures or other debt
securities or privately sold bonds, debentures or other debt
securities immediately convertible into equity securities, such purchases
of privately sold debt securities not to exceed 5% of the Fund's total
assets, and (ii) the entry into portfolio lending agreements (i.e.,
loans of portfolio securities) provided that the value of securities subject
to such lending agreements may not exceed 30% of the value of the Fund's total
assets.
5. Purchase securities on margin, but the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities.
6. Borrow money from banks except for temporary or emergency (not
leveraging) purposes, including the meeting of redemption requests that
might otherwise require the untimely disposition of securities, in an
aggregate amount not exceeding 25% of the value of the Fund's total assets
at the time any borrowing is made. While the Fund's borrowings are in
excess of 5% of its total assets, the Fund will not purchase portfolio
securities.
7. Purchase or sell puts and calls on securities, except that the Fund
may purchase and sell puts and calls on stocks and stock indices.
8. Make short sales of securities.
9. Participate on a joint or joint and several basis in any securities
trading account.
10. Purchase the securities of any other investment company except in
compliance with the 1940 Act.
With respect to the percentages adopted by the Trust as maximum limitations
on the Fund's investment policies and restrictions, an excess above the
fixed percentage (except for the percentage limitations relative to the
borrowing of money) will not be a violation of the policy or restriction
unless the excess results immediately and directly from the acquisition of
any security or the action taken.
TRUSTEES AND OFFICERS
The business of the Trust is managed under the direction of the Board of
Trustees in accordance with the Declaration of Trust of the Trust, which
Declaration of Trust has been filed with the Securities and Exchange Commission
and is available upon request. Pursuant to the Declaration of Trust, the
Trustees shall elect officers including a president, secretary and treasurer.
The Board of Trustees retains the power to conduct, operate and carry on the
business of the Trust and has the power to incur and pay any expenses which, in
the opinion of the Board of Trustees, are necessary or incidental to carry out
any of the Trust's purposes. The Trustees, officers, employees and agents of the
Trust, when acting in such capacities, shall not be subject to any personal
liability except for his or her own bad faith, willful misfeasance, gross
negligence or reckless disregard of his or her duties. Following is a list of
the Trustees and executive officers of the Trust and their compensation from the
Trust for the fiscal year ended December 31, 1998.
NAME AGE POSITION HELD AGGREGATE COMPENSATION**<F4>
- ---- --- ------------- ----------------------------
*<F3>Kendrick W. Kam 38 Trustee/President None
- -------------------- --- ----------------- ------
- -------------------- --- ----------------- ------
*<F3> Kendrick W. Kam, as an affiliated person of Ingenuity Capital
Management LLC, the Fund's investment adviser, is an "interested persons" of
the Trust within the meaning of Section 2(a)(19) of the 1940 Act.
**<F4> The Trust does not maintain pension or retirement plans.
The principal occupations of the Trustees and executive officers of the
Trust during the past five years are set forth below:
KENDRICK W. KAM, 26888 Almaden Court, Los Altos, California 94022, has
been President of Ingenuity Capital Management LLC. since its founding in July
1999. Prior to that, from 1993 to 1999, Mr. Kam was President of Interactive
Research Advisers, Inc. and a co-portfolio manager for three mutual funds
managed by Interactive Research Advisers, Inc.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INVESTMENT ADVISORY AND OTHER SERVICES
Ingenuity Capital Management LLC (the "Investment Adviser"), is
registered as an investment adviser with the Securities and Exchange
Commission under the Investment Advisers Act of 1940. The Investment
Adviser is controlled by Kendrick W. Kam.
Under the terms of the Investment Advisory and Management Agreement (the
"Advisory Agreement") between the Trust and the Investment Adviser, the
Investment Adviser (i) manages the investment operations of the Fund and the
composition of its portfolio, including the purchase, retention and disposition
of securities in accordance with the Fund's investment objective, (ii) provides
all statistical, economic and financial information reasonably required by the
Fund and reasonably available to the Investment Adviser, (iii) provides the
Custodian of the Fund's securities on each business day with a list of trades
for that day, and (iv) provides persons satisfactory to the Trust's Board of
Trustees to act as officers and employees of the Trust.
Pursuant to the Advisory Agreement, the Fund pays to the Investment
Adviser, on a monthly basis, an advisory fee at an annual rate of 1.50% of its
average daily net assets. The Advisory Agreement requires the Investment Adviser
to waive its management fees and, if necessary, reimburse expenses of the Fund
to the extent necessary to limit each Fund's total operating expenses to 1.95%
of its average net assets up to $200 million, 1.90% of such assets from $200
million to $500 million, 1.85% of such assets from $500 million to $1 billion,
and 1.80% of such assets in excess of $1 billion.
By its terms, the Advisory Agreement remains in force from year to year,
subject to annual approval by (a) the Board of Trustees or (b) a vote of the
majority of the Fund's outstanding voting securities; provided that in
either event continuance is also approved by a majority of the Trustees who
are not interested persons of the Trust, by a vote cast in person at a meeting
called for the purpose of voting such approval. The Advisory Agreement
may be terminated at any time, on 60 days' written notice, without the payment
of any penalty, by the Board of Trustees, by a vote of the majority of
the Fund's outstanding voting securities, or by the Investment Adviser.
The Advisory Agreement automatically terminates in the event of its assignment,
as defined by the 1940 Act and the rules thereunder.
The Board of Trustees of the Trust has approved an Administration Agreement
with the Investment Adviser wherein the Investment Adviser is responsible for
the provision of administrative and supervisory services to the Fund. The
Investment Adviser, at its expense, shall supply the Trustees and the officers
of the Trust with all statistical information and reports reasonably required by
it and reasonably available to the Investment Adviser. The Investment Adviser
shall oversee the maintenance of all books and records with respect to the
Fund's security transactions and the Fund's books of account in accordance with
all applicable federal and state laws and regulations. The Investment Adviser
will arrange for the preservation of the records required to be maintained by
the 1940 Act.
Pursuant to the Administration Agreement, the Fund will pay to the
Investment Adviser, on a monthly basis, a fee equal to .45% per annum of its
average daily net assets up to $200 million, .40% of such assets from $200
million to $500 million, .35% of such assets from $500 million to $1 billion,
and .30% of such assets in excess of $1 billion.
The Administration Agreement may be terminated by the Trust at any time, on
60 days' notice to the Investment Adviser, without penalty either (a) by vote of
the Board of Trustees of the Trust, or (b) by vote of a majority of the
outstanding voting securities of a Fund. It may be terminated at any time by the
Investment Adviser on 60 days' written notice to the Trust.
THE UNDERWRITER
Rafferty Capital Markets, Inc. (the "Underwriter"), 1311 Mamaroneck Ave,
White Plains, New York 10605, serves as principal underwriter for the Trust
pursuant to an Underwriting Agreement. Shares are sold on a continuous basis by
the Underwriter. The Underwriter has agreed to use its best efforts to solicit
orders for the sale of Trust shares, but it is not obliged to sell any
particular amount of shares. The Underwriting Agreement provides that, unless
sooner terminated, it will continue in effect from year to year, subject to
annual approval by (a) the Board of Trustees or a vote of a majority of the
outstanding shares, and (b) by a majority of the Trustees who are not interested
persons of the Trust or of the Underwriter by vote cast in person at a meeting
called for the purpose of voting on such approval.
The Underwriting Agreement may be terminated by the Trust at any time,
without the payment of any penalty, by vote of a majority of the entire Board of
Trustees of the Trust or by vote of a majority of the outstanding shares of the
Fund on 60 days' written notice to the Underwriter, or by the Underwriter at
any time, without the payment of any penalty, on 60 days' written notice to the
Trust. The Underwriting Agreement will automatically terminate in the event of
its assignment.
SECURITIES TRANSACTIONS
The Investment Adviser furnishes advice and recommendations with respect to
the Fund's portfolio decisions and, subject to the supervision of the Board of
Trustees of the Trust, determines the broker to be used in each specific
transaction. In executing the Fund's portfolio transactions, the Investment
Adviser seeks to obtain the best net results for the Fund, taking into account
such factors as the overall net economic result to the Fund (involving both
price paid or received and any commissions and other costs paid), the efficiency
with which the specific transaction is effected, the ability to effect the
transaction where a large block is involved, the known practices of brokers and
the availability to execute possibly difficult transactions in the future and
the financial strength and stability of the broker. While the Investment Adviser
generally seeks reasonably competitive commission rates, the Fund does
not necessarily pay the lowest commission or spread available.
The Investment Adviser may direct the Fund's portfolio transactions to
persons or firms because of research and investment services provided by such
persons or firms if the amount of commissions in effecting the transactions is
reasonable in relationship to the value of the investment information provided
by those persons or firms. Such research and investment services are those which
brokerage houses customarily provide to institutional investors and include
statistical and economic data and research reports on particular companies and
industries. These services may be used by the Investment Adviser in connection
with all of its investment activities, and some of the services obtained in
connection with the execution of transactions for the Fund may be used in
managing the Investment Adviser's other investment accounts.
The Fund may deal in some instances in securities which are not listed on
a national securities exchange but are traded in the over-the-counter market.
The Fund may also purchase listed securities through the "third market" (i.e.,
otherwise than on the exchanges on which the securities are listed). When
transactions are executed in the over-the-counter market or the third market,
the Investment Adviser will seek to deal with primary market makers and to
execute transactions on the Fund's own behalf, except in those circumstances
where, in the opinion of the Investment Adviser, better prices and executions
may be available elsewhere. The Fund does not allocate brokerage business
in return for sales of the Fund's shares.
Neither the Investment Adviser nor any affiliated person thereof will
participate in commissions paid by the Fund to brokers or dealers or will
receive any reciprocal business, directly or indirectly, as a result of such
commissions.
The Board of Trustees reviews periodically the allocation of brokerage
orders to monitor the operation of these policies.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate is calculated by dividing the lesser
of purchases or sales of portfolio securities for the fiscal year by the
monthly average of the value of the portfolio securities owned by the Fund
during the fiscal year. High portfolio turnover involves correspondingly
greater brokerage commissions and other transaction costs, which will be
borne directly by the Fund. A 100% turnover rate would occur if all of the
Fund's portfolio securities were replaced once within a one year period.
Generally, the Fund intends to invest for long-term purposes. However, the
rate of portfolio turnover will depend upon market and other conditions, and it
will not be a limiting factor when the Adviser believes that portfolio changes
are appropriate.
PURCHASE, REDEMPTION AND PRICING OF SHARES
CALCULATION OF SHARE PRICE
The share price (net asset value) of the shares of the Fund is determined
as of the close of the regular session of trading on the New York Stock Exchange
(currently 4:00 p.m., eastern time), on each day the Trust is open for business.
The Trust is open for business on every day except Saturdays, Sundays and the
following holidays: New Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. The Trust may also be open for business on other days in which there
is sufficient trading in the Fund's portfolio securities that its net asset
value might be materially affected. For a description of the methods used to
determine the share price, see "Calculation of Share Price" in the Prospectus.
In valuing the Fund's assets for the purpose of determining net asset
value, readily marketable portfolio securities listed on a national securities
exchange are valued at the last sale price on such exchange on the business
day as of which such value is being determined. If there has been no sale on
such exchange on such day, the security is valued at the closing bid price on
such day. If no bid price is quoted on such exchange on such day, then the
security is valued by such method as the Investment Adviser under the
supervision of the Board of Trustees determines in good faith to reflect its
fair value. Readily marketable securities traded only in the over-the-
counter market are valued at the last sale price, if available,
otherwise at the most recent bid price. If no bid price is quoted on such day,
then the security is valued by such method as the Investment Adviser under the
supervision of the Board of Trustees determines in good faith to reflect its
fair value. All other assets of the Fund, including restricted securities and
securities that are not readily marketable, are valued in such manner as the
Investment Adviser under the supervision of the Board of Trustees in good faith
deems appropriate to reflect their fair value.
PURCHASE OF SHARES
Orders for shares received by the Trust in proper form prior to the close
of business on the New York Stock Exchange (the "Exchange") on each day during
such periods that the Exchange is open for trading are priced at net asset value
per share computed as of the close of the regular session of trading on the
Exchange. Orders received in proper form after the close of the Exchange, or on
a day it is not open for trading, are priced at the close of such Exchange on
the next day on which it is open for trading at the next determined net asset
value per share.
REDEMPTION OF SHARES
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven calendar days after a shareholder's
redemption request made in accordance with the procedures set forth in the
Prospectus, except for any period during which the Exchange is closed (other
than customary weekend and holiday closing) or during which the Securities and
Exchange Commission determines that trading thereon is restricted, or for any
period during which an emergency (as determined by the Securities and Exchange
Commission) exists as a result of which disposal by a Fund of securities owned
by it is not reasonably practicable or as a result of which it is not reasonably
practicable for the Fund to fairly determine the value of its net assets, or
for such other period as the Securities and Exchange Commission may by order
permit for the protection of security holders of the Fund.
The Trust will redeem all or any portion of a shareholder's shares of the
Fund when requested in accordance with the procedures set forth in the "How to
Redeem Shares" section of the Prospectus.
REDEMPTION IN KIND
Payment of the net redemption proceeds may be made either in cash or in
portfolio securities (selected in the discretion of the Investment Adviser under
supervision of the Board of Trustees and taken at their value used in
determining the net asset value), or partly in cash and partly in portfolio
securities. However, payments will be made wholly in cash unless the Board of
Trustees believes that economic conditions exist which would make such a
practice detrimental to the best interests of the Fund. If payment for
shares redeemed is made wholly or partly in portfolio securities, brokerage
costs may be incurred by the investor in converting the securities to cash. The
Trust has filed an election with the Securities and Exchange Commission
pursuant to which the Fund will effect a redemption in portfolio securities
only if the particular shareholder of record is redeeming more than $250,000
or 1% of net assets, whichever is less, during any 90-day period. The Trust
expects, however, that the amount of a redemption request would have to be
significantly greater than $250,000 or 1% of net assets before a redemption
wholly or partly in portfolio securities would be made.
TAXES
The Fund has elected, and intends to qualify annually, for the special tax
treatment afforded regulated investment companies under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). To qualify as a
regulated investment company, the Fund must, among other things, (a) derive
in each taxable year at least 90% of its gross income from dividend,
interest, payments with respect to securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or
other income (including gains from options, futures and forward contracts)
derived with respect to their business of investing in such stock, securities
or currencies; (b) diversify its holdings so that, at the end of each quarter
of the taxable year, (i) at least 50% of the market value of the Fund's assets
are represented by cash, U.S. Government securities, the securities of
other regulated investment companies, and other securities, with such other
securities of any one issuer limited for the purposes of this calculation to an
amount not greater than 5% of the value of the Fund's total assets or 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets are invested in the securities of any one issuer
(other than U.S. Government securities or the securities of other regulated
investment companies) or in two or more issuers which the Funds control and
which are engaged in the same or similar trades or businesses; and (c)
distribute at least 90% of its investment company taxable income (which
includes dividends, interest and net short-term capital gains in excess of
any net long-term capital losses) each taxable year.
As regulated investment companies, the Fund will not be subject to U.S.
Federal income tax on its investment company taxable income and net capital
gains (any long-term capital gains in excess of the sum of net short-term
capital losses and capital loss carryovers available from the eight prior
years), if any, that it distributes to shareholders. The Fund intends to
distribute annually to its shareholders substantially all of its investment
company taxable income and any net capital gains. In addition, amounts not
distributed by the Fund on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax. To
avoid the tax, the Fund must distribute during each calendar year an amount
equal to the sum of (1) at least 98% of its ordinary income (with
adjustment) for the calendar year and (2) at least 98% of its capital gains in
excess of its capital losses (and adjusted for certain ordinary losses) for the
12 month period 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. In order to avoid application of the excise tax, the Fund
intends to make distributions in accordance with these distribution
requirements.
In view of the Fund's investment policies, it is expected that dividends
received from domestic and certain foreign corporations will be part of the
Fund's gross income. Distributions by the Fund of such dividends to corporate
shareholders may be eligible for the "70% dividends received" deduction, subject
to the holding period and debt-financing limitations of the Code. However, the
portion of the Fund's gross income attributable to dividends received from
qualifying corporations is largely dependent on its investment activities for a
particular year and therefore cannot be predicted with certainty. In addition,
for purposes of the dividends received deduction available to corporations, a
capital gain dividend received from a regulated investment company is not
treated as a dividend. Corporate shareholders should be aware that availability
of the dividends received deduction is subject to certain restrictions. For
example, the deduction is not available if Fund shares are deemed to have been
held for less than 46 days (within the 90-day period that begins 45 days before
the ex-dividend date and ends 45 days after the ex-dividend date) and is reduced
to the extent such shares are treated as debt-financed under the Code.
Dividends, including the portions thereof qualifying for the dividends received
deduction, are includable in the tax base on which the federal alternative
minimum tax is computed. Dividends of sufficient aggregate amount received
during a prescribed period of time and qualifying for the dividends received
deduction may be treated as "extraordinary dividends" under the Code, resulting
in a reduction in a corporate shareholder's federal tax basis in its Fund
shares.
The Fund may invest as much as 15% of its net assets in securities of
foreign companies and may therefore be liable for foreign withholding and other
taxes, which will reduce the amount available for distribution to shareholders.
Tax conventions between the United States and various other countries may reduce
or eliminate such taxes. A foreign tax credit or deduction is generally allowed
for foreign taxes paid or deemed to be paid. A regulated investment company may
elect to have the foreign tax credit or deduction claimed by the shareholders
rather than the company if certain requirements are met, including the
requirement that more than 50% of the value of the company's total assets at the
end of the taxable year consist of securities in foreign corporations. Because
the Fund does not anticipate investment in securities of foreign corporations
to this extent, the Fund will likely not be able to make this election and
foreign tax credits will be allowed only to reduce the Fund's tax liability, if
any.
Under the Code, upon disposition of certain securities denominated in a
foreign currency, gains or losses attributable to fluctuations in the value of
the foreign currency between the date of acquisition of the securities and the
date of disposition are treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "Section 988" gains or losses, may increase or
decrease the amount of the Fund's investment company taxable income.
Any dividend or distribution received shortly after a share purchase will
have the effect of reducing the net asset value of such shares by the amount of
such dividend or distribution. Such dividend or distribution is fully taxable.
Accordingly, prior to purchasing shares of the Fund, an investor should
carefully consider the amount of dividends or capital gains distributions which
are expected to be or have been announced.
Generally, the Code's rules regarding the determination and character of
gain or loss on the sale of a capital asset apply to a sale, redemption or
repurchase of shares of the Fund that are held by the shareholder as capital
assets. However, if a shareholder sells shares of the Fund which he has held
for less than six months and on which he has received distributions of capital
gains, any loss on the sale or exchange of such shares must be treated as
long-term capital loss to the extent of such distributions. Any loss realized on
the sale of shares of the Fund will be disallowed by the "wash sale" rules to
the extent the shares sold are replaced (including through the receipt of
additional shares through reinvested dividends) within a period of time
beginning 30 days before and ending 30 days after the shares are sold. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The Trust is required to withhold and remit to the U.S. Treasury a portion
(31%) of dividend income on any account unless the shareholder provides a
taxpayer identification number and certifies that such number is correct and
that the shareholder is not subject to backup withholding.
Provided that the Fund qualifies as a regulated investment company under
the Code, it will not be liable for California corporate taxes, other than a
minimum franchise tax, if all of its income is distributed to shareholders
for each taxable year. Shareholders, however, may be liable for state and
local income taxes on distributions from the Fund.
The above discussion and the related discussion in the Prospectus are not
intended to be complete discussions of all applicable federal tax consequences
of an investment in the Fund. The law has expressed no opinion in respect
thereof. Nonresident aliens and foreign persons are subject to different tax
rules, and may be subject to withholding of up to 30% on certain payments
received from the Fund. Shareholders are advised to consult with their own tax
advisors concerning the application of foreign, federal, state and local
taxes to an investment in the Fund.
HISTORICAL PERFORMANCE INFORMATION
The Fund's total returns are based on the overall dollar or percentage
change in value of a hypothetical investment in the Fund, assuming all
dividends and distributions are reinvested. Average annual total return
reflects the hypothetical annually compounded return that would have
produced the same cumulative total return if the Fund's performance had been
constant over the entire period presented. Because average annual total returns
tend to smooth out variations in the Fund's returns, investors should
recognize that they are not the same as actual year-by-year returns.
For the purposes of quoting and comparing the performance of the Fund to
that of other mutual funds and to other relevant market indices in
advertisements, performance will be stated in terms of average annual total
return. Under regulations adopted by the Securities and Exchange Commission,
funds that intend to advertise performance must include average annual total
return quotations calculated according to the following formula:
n
P(1+T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5, or 10)
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1-, 5-, or 10- year period, at the end of such period (or
fractional portion thereof).
Under the foregoing formula, the time periods used in advertising will be
based on rolling calendar quarters, updated to the last day of the most recent
quarter prior to submission of the advertising for publication, and will cover
1, 5, and 10 year periods of the Fund's existence or shorter periods dating
from the commencement of the Fund's operations. In calculating the ending
redeemable value, all dividends and distributions by the Fund are assumed
to have been reinvested at net asset value as described in the Prospectus on the
reinvestment dates during the period. Additionally, redemption of shares is
assumed to occur at the end of each applicable time period.
The foregoing information should be considered in light of the
Fund's investment objectives and policies, as well as the risks incurred in the
Fund's investment practices. Future results will be affected by the future
composition of a Fund's portfolio, as well as by changes in the general level
of interest rates, and general economic and other market conditions.
The Fund may also advertise total return (a "nonstandardized quotation")
which is calculated differently from average annual total return. A
nonstandardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. A nonstandardized quotation may
also indicate average annual compounded rates of return over periods other than
those specified for average annual total return. A nonstandardized quotation
of total return will always be accompanied by the Fund's average annual total
return as described above.
The performance quotations described above are based on historical earnings
and are not intended to indicate future performance of the Fund.
To help investors better evaluate how an investment in the Fund might
satisfy their investment objective, advertisements regarding the Fund may
discuss various measures of Fund performance, including current performance
ratings and/or rankings appearing in financial magazines, newspapers and
publications which track mutual fund performance. Advertisements may also
compare performance (using the calculation methods set forth in the Prospectus)
to performance as reported by other investments, indices and averages. When
advertising current ratings or rankings, the Fund may use the following
publications or indices to discuss or compare Fund performance:
Lipper Mutual Fund Performance Analysis measures total return and average
current yield for the mutual fund industry and ranks individual mutual fund
performance over specified time periods assuming reinvestment of all
distributions, exclusive of sales loads. The Fund may provide comparative
performance information appearing in any appropriate category published by
Lipper Analytical Services, Inc. In addition, the Fund may use comparative
performance information of relevant indices, including the S&P 500 Index, the
Dow Jones Industrial Average, the Russell 2000 Index, the NASDAQ Composite Index
and the Value Line Composite Index. The S&P 500 Index is an unmanaged index of
500 stocks, the purpose of which is to portray the pattern of common stock price
movement. The Dow Jones Industrial Average is a measurement of general market
price movement for 30 widely held stocks listed on the New York Stock Exchange.
The Russell 2000 Index, representing approximately 11% of the U.S. equity
market, is an unmanaged index comprised of the 2,000 smallest U.S. domiciled
publicly-traded common stocks in the Russell 3000 Index (an unmanaged index of
the 3,000 largest U.S. domiciled publicly-traded common stocks by market
capitalization representing approximately 98% of the U.S. publicly-traded equity
market). The NASDAQ Composite Index is an unmanaged index which averages the
trading prices of more than 3,000 domestic over-the-counter companies. The Value
Line Composite Index is an unmanaged index comprised of approximately 1,700
stocks, the purpose of which is to portray the pattern of common stock price
movement.
In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the Fund's portfolios, that the averages are
generally unmanaged and that the items included in the calculations of such
averages may not be identical to the formula used by the Fund to calculate
their performance. In addition, there can be no assurance that the Funds will
continue this performance as compared to such other averages.
CUSTODIAN
Firstar Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45201, has been
retained to act as Custodian for the Fund's investments. Firstar Bank, N.A.
act as the Fund's depository, safekeeps its portfolio securities, collects all
income and other payments with respect thereto, disburses funds as instructed
and maintains records in connection with its duties.
LEGAL COUNSEL AND AUDITORS
The law offices of Roy W. Adams, Attorney At Law, 1024 Country Club Drive,
Suite 135, Moraga, California, 94556, acts as legal counsel for the Trust.
The firm of Tait, Weller & Baker, Eight Penn Center Plaza, Philadelphia,
Pennsylvania, 19103, has been selected as independent auditors for the Trust.
FIRSTAR MUTUAL FUND SERVICES, LLC
Firstar Mutual Fund Services, LLC ("Firstar"), 615 East Michigan Street,
Milwaukee, Wisconsin 53202, is retained by the Investment Adviser to maintain
the records of each shareholder's account, process purchases and redemptions of
the Fund's shares and act as dividend and distribution disbursing agent.
Firstar also provides administrative services to the Fund, calculates daily
net asset value per share and maintains such books and records as are necessary
to enable Firstar to perform its duties. For the performance of these
services, the Investment Adviser (not the Fund) pays Firstar (1) a fee for
administrative services at the annual rate of ------% of the average value of
each Fund's daily net assets up to $------; (2) a fee for transfer agency and
shareholder services at the annual rate of $------ per shareholder account
of the Fund; and (3) a monthly fee for accounting and pricing services
which will vary according to each Fund's average net assets during such month.
In addition, the Investment Adviser reimburses Firstar for out-of-pocket
expenses, including but not limited to, postage, stationery, checks, drafts,
forms, reports, record storage, communication lines and the costs of external
pricing services.
Firstar is an indirect wholly-owned subsidiary of Firstar Corporation
principally engaged in the business of commercial banking.
INGENUITY CAPITAL TRUST
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Declaration of Trust
(i) Certificate of Trust--Filed herewith
(ii) Agreement and Declaration of Trust--Filed herewith
(b) Bylaws
(i) By-Laws--To be filed by amendment
(c) Instruments Defining Rights of Security Holders--Incorporated by
reference to Agreements and Declaration of Trust and Bylaws
(d) Advisory Agreement--To be filed by amendment
(e) Underwriting Agreement--To be filed by amendment
(f) Inapplicable
(g) Custody Agreement--To be filed by amendment
(h) (i) Administration Agreement--To be filed by amendment
(ii) Transfer Agent Servicing Agreement--To be filed by amendment
(iii) Fund Accounting Services Agreement--To be filed by amendment
(i) Opinion and Consent of Counsel--To be filed by amendment
(j) Consent of Independent Public Accountants--To be filed by amendment
(k) Inapplicable
(l) Agreement Relating to Initial Capital--To be filed by amendment
(m) Inapplicable
(n) Inapplicable
(o) Inapplicable
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
No person is directly or indirectly controlled by or under common
control with the Registrant.
ITEM 25. INDEMNIFICATION.
Reference is made to Article VII, Section 7.02 of the Registrant's
Agreement and Declaration of Trust.
Pursuant to Rule 484 under the Securities Act of 1933, as amended, the
Registrant furnishes the following undertaking: "Insofar as indemnification for
liability arising under the Securities Act of 1933 (the "Act") may be permitted
to trustees, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that, in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a trustee,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such trustee, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue."
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
(a) Inapplicable
(b) Inapplicable
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) Rafferty Capital Markets, Inc., 1311 Mamaroneck Avenue, White
Plains, New York 10605, serves as principal underwriter for the
Ingenuity Capital Trust, Potomac Funds, Badgley Funds, Homestate
Group, Texas Capital Value Funds, Brazos Mutual Funds, Bremer
Investment Funds, Inc., Bearguard Funds, Inc., Kirr Marbach
Partners Funds, Inc., Golf Associated Fund and Leuthold Funds.
(b) The director and officers of Rafferty Capital Markets, Inc. are:
Positions and Offices Position and Offices
Name With Underwriter With Registrant
- ---- --------------------- --------------------
Thomas A. Mulrooney President None
Lawrence C. Rafferty Director None
Stephen P. Sprague CFO/FINOP None
The principal business address of each of the persons listed above is
1311 Mamaroneck Avenue, White Plains, New York 10605.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
The books and records required to be maintained by Section 31(a) of
the Investment Company Act of 1940 are maintained in the physical possession of
the Ingenuity Capital Trust's investment adviser, administrator, custodian,
subcustodian, or transfer agent.
ITEM 29. MANAGEMENT SERVICES NOT DISCUSSED IN PARTS A AND B.
Inapplicable
ITEM 30. UNDERTAKINGS.
The Registrant hereby undertakes to furnish each person to whom a
Prospectus for one or more of the series of the Registrant is delivered with a
copy of the relevant latest annual report to shareholders, upon request and
without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Registration Statement to be signed below on its behalf by the undersigned,
thereunto duly authorized, in the City of Los Altos and the State of California
on the 14th of July, 1999.
INGENUITY CAPITAL TRUST
By: /s/ Kendrick W. Kam
-----------------------
Kendrick W. Kam, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Kendrick W. Kam President and July 14, 1999
- --------------------- Trustee
Kendrick W. Kam
EXHIBIT A(i)
CERTIFICATE OF TRUST
OF
INGENUITY CAPITAL TRUST
A Delaware Business Trust
THIS Certificate of Trust of Ingenuity Capital Trust (the "Trust"), dated
as of this 9th day of July, 1999, is being duly executed and filed, in order to
form a business trust pursuant to the Delaware Business Trust Act (the "Act"),
Del. Code Ann.tit. 12, Sections 3801-3819.
1. NAME. The name of the business trust formed hereby is "Ingenuity
Capital Trust."
2. REGISTERED OFFICE AND REGISTERED AGENT. The Trust will become, prior
to the issuance of shares of beneficial interest, a registered investment
company under the Investment Company Act of 1940, as amended. Therefore, in
accordance with section 3807(b) of the Act, the Trust has and shall maintain in
the State of Delaware a registered office and a registered agent for service of
process.
(a) REGISTERED OFFICE. The registered office of the Trust in
Delaware is The Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware 19801.
(b) REGISTERED AGENT. The registered agent for service of process
on the Trust in Delaware is The Corporation Trust Company, 1209 Orange
Street, Wilmington, Delaware 19801.
3. LIMITATION OF LIABILITY. Pursuant to section 3804(a) of the Act, the
debts, liabilities, obligations and expenses incurred, contracted for or
otherwise existing with respect to a particular series of the Trust, established
pursuant to the terms of the Agreement and Declaration of Trust, shall be
enforceable against the assets of such series only and not against the assets of
the Trust generally.
IN WITNESS WHEREOF, the Trustee named below does hereby execute this
Certificate of Trust as of the date first-above written.
/s/ Kendrick W. Kam
-------------------
Kendrick W. Kam
EXHIBIT A(ii)
AGREEMENT AND DECLARATION OF TRUST
----------------------------------
of
INGENUITY CAPITAL TRUST
a Delaware Business Trust
TABLE OF CONTENTS
-----------------
Page
ARTICLE I. NAME AND DEFINITIONS 1
Section 1. Name 1
Section 2. Registered Agent and Registered Office;
Principal Place of Business 1
(a) Registered Agent and Registered Office 1
(b) Principal Place of Business 1
Section 3. Definitions 2
(a) "1940 Act" 2
(b) "Affiliate" 2
(c) "Board of Trustees" 2
(d) "By-Laws" 2
(e) "Certificate of Trust" 2
(f) "Code" 2
(g) "Commission" 2
(h) "DBTA" 2
(i) "Declaration of Trust" 2
(j) "General Liabilities" 2
(k) "Interested Person" 2
(l) "Investment Adviser" or "Adviser" 2
(m) "National Financial Emergency" 2
(n) "Person" 3
(o) "Principal Underwriter" 3
(p) "Series" 3
(q) "Shares" 3
(r) "Shareholder" 3
(s) "Trust" 3
(t) "Trust Property" 3
(u) "Trustee" or "Trustees" 3
ARTICLE II. PURPOSE OF TRUST 3
ARTICLE III. SHARES 6
Section 1. Division of Beneficial Interest 6
Section 2. Ownership of Shares 8
Section 3. Investments in the Trust 8
Section 4. Status of Shares and Limitation of Personal Liability 8
Section 5. Power of Board of Trustees to Change
Provisions Relating to Shares 8
Section 6. Establishment and Designation of Series 9
(a) Assets Held with Respect to a Particular Series 9
(b) Liabilities Held with Respect to a Particular Series 10
(c) Dividends, Distributions, Redemptions and Repurchases 11
(d) Voting 11
(e) Equality 11
(f) Fractions 11
(g) Exchange Privilege 11
(h) Combination of Series 12
(i) Elimination of Series 12
Section 7. Indemnification of Shareholders 12
ARTICLE IV. THE BOARD OF TRUSTEES 12
Section 1. Number, Election and Tenure 12
Section 2. Effect of Death, Resignation, Removal, etc. of a Trustee 13
Section 3. Powers 13
Section 4. Payment of Expenses by the Trust 14
Section 5. Payment of Expenses by Shareholders 15
Section 6. Ownership of Trust Property 15
Section 7. Service Contracts 15
ARTICLE V. SHAREHOLDERS' VOTING POWERS AND MEETINGS 16
Section 1. Voting Powers 16
Section 2. Meetings 17
Section 3. Quorum and Required Vote 17
Section 4. Shareholder Action by Written Consent without a Meeting 17
Section 5. Record Dates 17
Section 6. Additional Provisions 18
ARTICLE VI. NET ASSET VALUE, DISTRIBUTIONS AND REDEMPTIONS 18
Section 1. Determination of Net Asset Value, Net Income and Distributions18
Section 2. Redemptions at the Option of a Shareholder 19
Section 3. Redemptions at the Option of the Trust 20
ARTICLE VII. COMPENSATION AND LIMITATION OF LIABILITY OF
OFFICERS AND TRUSTEES 20
Section 1. Compensation 20
Section 2. Indemnification and Limitation of Liability 20
Section 3. Officers and Trustees' Good Faith Action,
Expert Advice, No Bond or Surety 21
Section 4. Insurance 21
ARTICLE VIII. MISCELLANEOUS 21
Section 1. Liability of Third Persons Dealing with Trustees 21
Section 2. Dissolution of Trust or Series 21
Section 3. Merger and Consolidation; Conversion 22
(a) Merger and Consolidation. 22
(b) Conversion 22
Section 4. Reorganization 22
Section 5. Amendments 23
Section 6. Filing of Copies, References, Headings 23
Section 7. Applicable Law 24
Section 8. Provisions in Conflict with Law or Regulations 24
Section 9. Business Trust Only 24
Section 10. Use of the Name "Ingenuity" 24
AGREEMENT AND DECLARATION OF TRUST
INGENUITY CAPITAL TRUST
AGREEMENT AND DECLARATION OF TRUST made as of the 9th day of July 1999 by
the Trustees hereunder, and by the holders of shares of beneficial interest
issued hereunder as hereinafter provided. This Agreement and Declaration of
Trust was made be effective upon the filing of the Certificate of Trust in the
office of the Secretary of State of the State of Delaware.
W I T N E S S E T H:
WHEREAS this Trust has been formed to carry on the business of an investment
company; and
WHEREAS this Trust is authorized to issue its shares of beneficial interest
in separate Series, and to issue classes of Shares of any Series or divide
Shares of any Series into two or more classes, all in accordance with the
provisions hereinafter set forth; and
WHEREAS the Trustees have agreed to manage all property coming into their
hands as trustees of a Delaware business trust in accordance with the provisions
of the Delaware Business Trust Act (12 Del. C. Section3801, et seq.), as from
time to time amended and including any successor statute of similar import (the
"DBTA"), and the provisions hereinafter set forth;
NOW, THEREFORE, the Trustees hereby declare that they will hold all cash,
securities and other assets which they may from time to time acquire in any
manner as Trustees hereunder IN TRUST to manage and dispose of the same upon the
following terms and conditions for the benefit of the holders from time to time
of shares of beneficial interest in this Trust and the Series created hereunder
as hereinafter set forth.
ARTICLE I.
Name and Definitions
Section 1. Name. This trust shall be known as "Ingenuity Capital Trust"
----
and the Trustees shall conduct the business of the Trust under that name, or any
other name as they may from time to time determine.
Section 2. Registered Agent and Registered Office; Principal Place of
----------------------------------------------------------
Business.
- --------
(a) Registered Agent and Registered Office. The name of the registered
agent of the Trust and the address of the registered office of the Trust are as
set forth on the Certificate of Trust.
(b) Principal Place of Business. The principal place of business of the
Trust is 26888 Almaden Court, Los Altos, California, 94002 or such other
location within or outside of the State of Delaware as the Board of Trustees may
determine from time to time.
Section 3. Definitions. Whenever used herein, unless otherwise required by
-----------
the context or specifically provided:
(a) "1940 Act" shall mean the Investment Company Act of 1940 and the rules
and regulations thereunder, all as adopted or amended from time to time.
(b) "Affiliate" shall have the meaning given to "Affiliated Person" in
Section 2(a)(3) of the 1940 Act when used with reference to a specified Person.
(c) "Board of Trustees" shall mean the governing body of the Trust, which is
comprised of the Trustees of the Trust.
(d) "By-Laws" shall mean the By-Laws of the Trust, as amended from time to
time in accordance with Article X of the By-Laws, and incorporated herein by
reference.
(e) "Certificate of Trust" shall mean the certificate of trust filed with
the Office of the Secretary of State of the State of Delaware as required under
the DBTA to form the Trust.
(f) "Code" shall mean the Internal Revenue Code of 1986, and the rules and
regulations thereunder, all as adopted or amended from time to time.
(g) "Commission" shall have the meaning given to it in Section 2(a)(7) of
the 1940 Act.
(h) "DBTA" shall mean the Delaware Business Trust Act, (12 Del. C.
Section 3801, et seq.), as amended from time to time.
(i) "Declaration of Trust" shall mean this Agreement and Declaration of
Trust, as amended or restated from time to time.
(j) "General Liabilities" shall have the meaning given it in Article III,
Section 6(b) of this Declaration of Trust.
(k) "Interested Person" shall have the meaning given to it in Section
2(a)(19) of the 1940 Act.
(l) "Investment Adviser" or "Adviser" shall mean a party furnishing services
to the Trust pursuant to any contract described in Article IV, Section 7(a)
hereof.
(m) "National Financial Emergency" shall mean the whole or any part of any
period set forth in Section 22(e) of the 1940 Act. The Board of Trustees may,
in its discretion, declare that the suspension relating to a National Financial
Emergency shall terminate, as the case may be, on the first business day on
which the New York Stock Exchange shall have reopened or the period specified in
Section 22(e) of the 1940 Act shall have expired (as to which, in the absence of
an official ruling by the Commission, the determination of the Board of Trustees
shall be conclusive).
(n) "Person" shall include a natural person, partnership, limited
partnership, trust, estate, association, corporation, custodian, nominee or any
other individual or entity in its own or any representative capacity.
(o) "Principal Underwriter" shall have the meaning given to it in Section
2(a)(29) of the 1940 Act.
(p) "Series" shall refer to each Series of Shares established and designated
under or in accordance with the provisions of Article III and shall mean an
entity such as that described in Section 18(f)(2) of the 1940 Act, and subject
to Rule 18f-2 thereunder.
(q) "Shares" shall mean the outstanding shares of beneficial interest into
which the beneficial interest in the Trust shall be divided from time to time,
and shall include fractional and whole shares.
(r) "Shareholder" shall mean a record owner of Shares.
(s) "Trust" shall refer to the Delaware business trust established by this
Declaration of Trust, as amended or restated from time to time.
(t) "Trust Property" shall mean any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or one or more of any Series, including, without limitation, the rights
referenced in Article VIII, Section 2 hereof.
(u) "Trustee" or "Trustees" shall refer to each signatory to this
Declaration of Trust as a trustee, so long as such signatory continues in office
in accordance with the terms hereof, and all other Persons who may, from time to
time, be duly elected or appointed, qualified and serving on the Board of
Trustees in accordance with the provisions hereof. Reference herein to a
Trustee or the Trustees shall refer to such Person or Persons in their capacity
as trustees hereunder.
ARTICLE II.
Purpose of Trust
The purpose of the Trust is to conduct, operate and carry on the business of
a management investment company registered under the 1940 Act through one or
more Series investing primarily in securities and, in addition to any authority
given by law, to exercise all of the powers and to do any and all of the things
as fully and to the same extent as any private corporation organized for profit
under the general corporation law of the State of Delaware, now or hereafter in
force, including, without limitation, the following powers:
(a) To invest and reinvest cash, to hold cash uninvested, and to subscribe
for, invest in, reinvest in, purchase or otherwise acquire, own, hold, pledge,
sell, assign, mortgage, transfer, exchange, distribute, write options on, lend
or otherwise deal in or dispose of contracts for the future acquisition or
delivery of fixed income or other securities, and securities or property of
every nature and kind, including, without limitation, all types of bonds,
debentures, stocks, preferred stocks, negotiable or non-negotiable instruments,
obligations, evidences of indebtedness, certificates of deposit or indebtedness,
commercial paper, repurchase agreements, bankers' acceptances, and other
securities of any kind, issued, created, guaranteed, or sponsored by any and all
Persons, including, without limitation, states, territories, and possessions of
the United States and the District of Columbia and any political subdivision,
agency, or instrumentality thereof, any foreign government or any political
subdivision of the U.S. Government or any foreign government, or any
international instrumentality, or by any bank or savings institution, or by any
corporation or organization organized under the laws of the United States or of
any state, territory, or possession thereof, or by any corporation or
organization organized under any foreign law, or "when issued" contracts for any
such securities, or to change the investments of the assets of the Trust;
(b) To exercise any and all rights, powers and privileges with reference to
or incident to ownership or interest, use and enjoyment of any of such
securities and other instruments or property of every kind and description,
including, but without limitation, the right, power and privilege to own, vote,
hold, purchase, sell, negotiate, assign, exchange, lend, transfer, mortgage,
hypothecate, lease, pledge or write options with respect to or otherwise deal
with, dispose of, use, exercise or enjoy any rights, title, interest, powers or
privileges under or with reference to any of such securities and other
instruments or property, the right to consent and otherwise act with respect
thereto, with power to designate one or more Persons, to exercise any of said
rights, powers, and privileges in respect of any of said instruments, and to do
any and all acts and things for the preservation, protection, improvement and
enhancement in value of any of such securities and other instruments or
property;
(c) To sell, exchange, lend, pledge, mortgage, hypothecate, lease or write
options with respect to or otherwise deal in any property rights relating to any
or all of the assets of the Trust or any Series, subject to any requirements of
the 1940 Act;
(d) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
proxies or powers of attorney to such person or persons as the Trustees shall
deem proper, granting to such person or persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;
(e) To exercise powers and right of subscription or otherwise which in any
manner arise out of ownership of securities;
(f) To hold any security or property in a form not indicating that it is
trust property, whether in bearer, unregistered or other negotiable form, or in
its own name or in the name of a custodian or subcustodian or a nominee or
nominees or otherwise or to authorize the custodian or a subcustodian or a
nominee or nominees to deposit the same in a securities depository, subject in
each case to proper safeguards according to the usual practice of investment
companies or any rules or regulations applicable thereto;
(g) To consent to, or participate in, any plan for the reorganization,
consolidation or merger of any corporation or issuer of any security which is
held in the Trust; to consent to any contract, lease, mortgage, purchase or sale
of property by such corporation or issuer; and to pay calls or subscriptions
with respect to any security held in the Trust;
(h) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees shall deem
proper, and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the Trustees shall deem
proper;
(i) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including but not limited to
claims for taxes;
(j) To enter into joint ventures, general or limited partnerships and any
other combinations or associations;
(k) To endorse or guarantee the payment of any notes or other obligations of
any Person; to make contracts of guaranty or suretyship, or otherwise assume
liability for payment thereof;
(l) To purchase and pay for entirely out of Trust Property such insurance as
the Trustees may deem necessary or appropriate for the conduct of the business,
including, without limitation, insurance policies insuring the assets of the
Trust or payment of distributions and principal on its portfolio investments,
and insurance policies insuring the Shareholders, Trustees, officers, employees,
agents, Investment Advisers, Principal Underwriters, or independent contractors
of the Trust, individually against all claims and liabilities of every nature
arising by reason of holding Shares, holding, being or having held any such
office or position, or by reason of any action alleged to have been taken or
omitted by any such Person as Trustee, officer, employee, agent, Investment
Adviser, Principal Underwriter, or independent contractor, to the fullest extent
permitted by this Declaration of Trust, the Bylaws and by applicable law;
(m) To adopt, establish and carry out pension, profit-sharing, share bonus,
share purchase, savings, thrift and other retirement, incentive and benefit
plans, trusts and provisions, including the purchasing of life insurance and
annuity contracts as a means of providing such retirement and other benefits,
for any or all of the Trustees, officers, employees and agents of the Trust;
(n) To purchase or otherwise acquire, own, hold, sell, negotiate, exchange,
assign, transfer, mortgage, pledge or otherwise deal with, dispose of, use,
exercise or enjoy, property of all kinds;
(o) To buy, sell, mortgage, encumber, hold, own, exchange, rent or otherwise
acquire and dispose of, and to develop, improve, manage, subdivide, and
generally to deal and trade in real property, improved and unimproved, and
wheresoever situated; and to build, erect, construct, alter and maintain
buildings, structures, and other improvements on real property;
(p) To borrow or raise moneys for any of the purposes of the Trust, and to
mortgage or pledge the whole or any part of the property and franchises of the
Trust, real, personal, and mixed, tangible or intangible, and wheresoever
situated;
(q) To enter into, make and perform contracts and undertakings of every kind
for any lawful purpose, without limit as to amount; and
(r) To issue, purchase, sell and transfer, reacquire, hold, trade and deal
in Shares, bonds, debentures and other securities, instruments or other property
of the Trust, from time to time, to such extent as the Board of Trustees shall,
consistent with the provisions of this Declaration of Trust, determine; and to
repurchase, re-acquire and redeem, from time to time, its Shares or, if any, its
bonds, debentures and other securities.
The Trust shall not be limited to investing in obligations maturing before
the possible dissolution of the Trust or one or more of its Series. The Trust
shall not in any way be bound or limited by any present or future law or custom
in regard to investment by fiduciaries. Neither the Trust nor the Trustees
shall be required to obtain any court order to deal with any assets of the Trust
or take any other action hereunder.
The foregoing clauses shall each be construed as purposes, objects and
powers, and it is hereby expressly provided that the foregoing enumeration of
specific purposes, objects and powers shall not be held to limit or restrict in
any manner the powers of the Trust, and that they are in furtherance of, and in
addition to, and not in limitation of, the general powers conferred upon the
Trust by the DBTA and the other laws of the State of Delaware or otherwise; nor
shall the enumeration of one thing be deemed to exclude another, although it be
of like nature, not expressed.
ARTICLE III.
Shares
Section 1. Division of Beneficial Interest. The beneficial interest in the
-------------------------------
Trust shall at all times be divided into Shares, with a par value of $0.001 per
share. The number of Shares authorized hereunder is unlimited. The Board of
Trustees may authorize the division of Shares into separate and distinct Series
and the division of any Series into separate classes of Shares. The different
Series and classes shall be established and designated, and the variations in
the relative rights and preferences as between the different Series and classes
shall be fixed and determined by the Board of Trustees without the requirement
of Shareholder approval. If no separate Series or classes shall be established,
the Shares shall have the rights and preferences provided for herein and in
Article III, Section 6 hereof to the extent relevant and not otherwise provided
for herein, and all references to Series and classes shall be construed (as the
context may require) to refer to the Trust. The fact that a Series shall have
initially been established and designated without any specific establishment or
designation of classes (i.e., that all Shares of such Series are initially of a
single class) shall not limit the authority of the Board of Trustees to
establish and designate separate classes of said Series. The fact that a Series
shall have more than one established and designated class, shall not limit the
authority of the Board of Trustees to establish and designate additional classes
of said Series, or to establish and designate separate classes of the previously
established and designated classes.
The Board of Trustees shall have the power to issue Shares of the Trust, or
any Series or class thereof, from time to time for such consideration (but not
less than the net asset value thereof) and in such form as may be fixed from
time to time pursuant to the direction of the Board of Trustees.
The Board of Trustees may hold as treasury shares, reissue for such
consideration and on such terms as they may determine, or cancel, at their
discretion from time to time, any Shares of any Series reacquired by the Trust.
The Board of Trustees may classify or reclassify any unissued Shares or any
Shares previously issued and reacquired of any Series or class into one or more
Series or classes that may be established and designated from time to time.
Notwithstanding the foregoing, the Trust and any Series thereof may acquire,
hold, sell and otherwise deal in, for purposes of investment or otherwise, the
Shares of any other Series of the Trust or Shares of the Trust, and such Shares
shall not be deemed treasury shares or cancelled.
Subject to the provisions of Section 6 of this Article III, each Share shall
have voting rights as provided in Article V hereof, and the Shareholders of any
Series shall be entitled to receive dividends and distributions, when, if and as
declared with respect thereto in the manner provided in Article IV, Section 3
hereof. No Share shall have any priority or preference over any other Share of
the same Series or class with respect to dividends or distributions paid in the
ordinary course of business or distributions upon dissolution of the Trust or of
such Series or class made pursuant to Article VIII, Section 2 hereof. All
dividends and distributions shall be made ratably among all Shareholders of a
particular class of Series from the Trust Property held with respect to such
Series according to the number of Shares of such class of such Series held of
record by such Shareholders on the record date for any dividend or distribution.
Shareholders shall have no preemptive or other right to subscribe to new or
additional Shares or other securities issued by the Trust or any Series. The
Trustees may from time to time divide or combine the Shares of any particular
Series into a greater or lesser number of Shares of that Series. Such division
or combination may not materially change the proportionate beneficial interests
of the Shares of that Series in the Trust Property held with respect to that
Series or materially affect the rights of Shares of any other Series.
Pursuant to the powers contained herein, a single initial series of shares
of beneficial interest of the Trust shall be established and designated as The
Medical Specialists Fund series and an unlimited number of shares of beneficial
interest are hereby allocated to such Series.
Any Trustee, officer or other agent of the Trust, and any organization in
which any such Person is interested, may acquire, own, hold and dispose of
Shares of the Trust to the same extent as if such Person were not a Trustee,
officer or other agent of the Trust; and the Trust may issue and sell or cause
to be issued and sold and may purchase Shares from any such Person or any such
organization subject only to the general limitations, restrictions or other
provisions applicable to the sale or purchase of such Shares generally.
Section 2. Ownership of Shares. The ownership of Shares shall be recorded
-------------------
on the books of the Trust kept by the Trust or by a transfer or similar agent
for the Trust, which books shall be maintained separately for the Shares of each
Series and class thereof that has been established and designated. No
certificates certifying the ownership of Shares shall be issued except as the
Board of Trustees may otherwise determine from time to time. The Board of
Trustees may make such rules not inconsistent with the provisions of the 1940
Act as they consider appropriate for the issuance of Share certificates, the
transfer of Shares of each Series or class and similar matters. The record
books of the Trust as kept by the Trust or any transfer or similar agent, as the
case may be, shall be conclusive as to who are the Shareholders of each Series
or class thereof and as to the number of Shares of each Series or class thereof
held from time to time by each such Shareholder.
Section 3. Investments in the Trust. Investments may be accepted by the
------------------------
Trust from such Persons, at such times, on such terms, and for such
consideration as the Board of Trustees may, from time to time, authorize. Each
investment shall be credited to the individual Shareholder's account in the form
of full and fractional Shares of the Trust, in such Series or class as the
purchaser may select, at the net asset value per Share next determined for such
Series or class after receipt of the investment; provided, however, that the
-----------------
Principal Underwriter may, in its sole discretion, impose a sales charge upon
investments in the Trust.
Section 4. Status of Shares and Limitation of Personal Liability. Shares
-----------------------------------------------------
shall be deemed to be personal property giving to Shareholders only the rights
provided in this Declaration of Trust and under applicable law. Every
Shareholder by virtue of having become a Shareholder shall be held to have
expressly assented and agreed to the terms hereof and to have become a party
hereto. The death of a Shareholder during the existence of the Trust shall not
operate to dissolve the Trust or any Series, nor entitle the representative of
any deceased Shareholder to an accounting or to take any action in court or
elsewhere against the Trust or the Trustees or any Series, but entitles such
representative only to the rights of said deceased Shareholder under this
Declaration of Trust. Ownership of Shares shall not entitle the Shareholder to
any title in or to the whole or any part of the Trust Property or right to call
for a partition or division of the same or for an accounting, nor shall the
ownership of Shares constitute the Shareholders as partners. Neither the Trust
nor the Trustees, nor any officer, employee or agent of the Trust, shall have
any power to bind personally any Shareholder, nor, except as specifically
provided herein, to call upon any Shareholder for the payment of any sum of
money or assessment whatsoever other than such as the Shareholder may at any
time personally agree to pay. All Shares, when issued on the terms determined
by the Board of Trustees, shall be fully paid and nonassessable. As provided in
the DBTA, Shareholders of the Trust shall be entitled to the same limitation of
personal liability extended to stockholders of a private corporation organized
for profit under the general corporation law of the State of Delaware.
Section 5. Power of Board of Trustees to Change Provisions Relating to
-----------------------------------------------------------
Shares. Notwithstanding any other provisions of this Declaration of Trust and
- ------
without limiting the power of the Board of Trustees to amend this Declaration of
Trust or the Certificate of Trust as provided elsewhere herein, the Board of
Trustees shall have the power to amend this Declaration of Trust, or the
Certificate of Trust, at any time and from time to time, in such manner as the
Board of Trustees may determine in its sole discretion, without the need for
Shareholder action, so as to add to, delete, replace or otherwise modify any
provisions relating to the Shares contained in this Declaration of Trust;
provided that before adopting any such amendment without Shareholder approval,
- --------
the Board of Trustees shall determine that it is consistent with the fair and
equitable treatment of all Shareholders and that Shareholder approval is not
otherwise required by the 1940 Act or other applicable law. If Shares have been
issued, Shareholder approval shall be required to adopt any amendments to this
Declaration of Trust which would adversely affect to a material degree the
rights and preferences of the Shares of any Series or class already issued;
provided, however, that in the event that the Board of Trustees determines that
- -----------------
the Trust shall no longer be operated as an investment company in accordance
with the provisions of the 1940 Act, the Board of Trustees may adopt such
amendments to this Declaration of Trust to delete those terms the Board of
Trustees identifies as being required by the 1940 Act.
Subject to the foregoing Paragraph, the Board of Trustees may amend the
Declaration of Trust to amend any of the provisions set forth in paragraphs (a)
through (i) of Section 6 of this Article III.
The Board of Trustees shall have the power, in its discretion, to make such
elections as to the tax status of the Trust as may be permitted or required
under the Code as currently in effect or as amended, without the vote of any
Shareholder.
Section 6. Establishment and Designation of Series. The establishment and
---------------------------------------
designation of any Series or class of Shares shall be effective upon the
resolution by a majority of the then Board of Trustees, adopting a resolution
which sets forth such establishment and designation and the relative rights and
preferences of such Series or class. Each such resolution shall be incorporated
herein by reference upon adoption.
Each Series shall be separate and distinct from any other Series and shall
maintain separate and distinct records on the books of the Trust, and the assets
and liabilities belonging to any such Series shall be held and accounted for
separately from the assets and liabilities of the Trust or any other Series.
Shares of each Series or class established pursuant to this Section 6,
unless otherwise provided in the resolution establishing such Series, shall have
the following relative rights and preferences:
(a) Assets Held with Respect to a Particular Series. All consideration
received by the Trust for the issue or sale of Shares of a particular Series,
together with all assets in which such consideration is invested or reinvested,
all income, earnings, profits, and proceeds thereof from whatever source
derived, including, without limitation, any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or payments derived from
any reinvestment of such proceeds in whatever form the same may be, shall
irrevocably be held with respect to that Series for all purposes, subject only
to the rights of creditors with respect to that Series, and shall be so recorded
upon the books of account of the Trust. Such consideration, assets, income,
earnings, profits and proceeds thereof, from whatever source derived, including,
without limitation, any proceeds derived from the sale, exchange or liquidation
of such assets, and any funds or payments derived from any reinvestment of such
proceeds, in whatever form the same may be, are herein referred to as "assets
held with respect to" that Series. In the event that there are any assets,
income, earnings, profits and proceeds thereof, funds or payments which are not
readily identifiable as assets held with respect to any particular Series
(collectively "General Assets"), the Board of Trustees shall allocate such
General Assets to, between or among any one or more of the Series in such manner
and on such basis as the Board of Trustees, in its sole discretion, deems fair
and equitable, and any General Asset so allocated to a particular Series shall
be held with respect to that Series. Each such allocation by the Board of
Trustees shall be conclusive and binding upon the Shareholders of all Series for
all purposes.
(b) Liabilities Held with Respect to a Particular Series. The assets of the
Trust held with respect to each particular Series shall be charged against the
liabilities of the Trust held with respect to that Series and all expenses,
costs, charges and reserves attributable to that Series, and any liabilities,
expenses, costs, charges and reserves of the Trust that are not readily
identifiable as being held with respect to any particular Series (collectively
"General Liabilities") shall be allocated and charged by the Board of Trustees
to and among any one or more of the Series in such manner and on such basis as
the Board of Trustees in its sole discretion deems fair and equitable. The
liabilities, expenses, costs, charges, and reserves so charged to a Series are
herein referred to as "liabilities held with respect to" that Series. Each
allocation of liabilities, expenses, costs, charges and reserves by the Board of
Trustees shall be conclusive and binding upon the Shareholders of all Series for
all purposes. All Persons who have extended credit that has been allocated to a
particular Series, or who have a claim or contract that has been allocated to
any particular Series, shall look, and shall be required by contract to look
exclusively, to the assets of that particular Series for payment of such credit,
claim, or contract. In the absence of an express contractual agreement so
limiting the claims of such creditors, claimants and contract providers, each
creditor, claimant and contract provider will be deemed nevertheless to have
impliedly agreed to such limitation unless an express provision to the contrary
has been incorporated in the written contract or other document establishing the
creditor, claimant or contract provider relationship.
Subject to the right of the Board of Trustees in its discretion to allocate
General Liabilities as provided herein, the debts, liabilities, obligations and
expenses incurred, contracted for or otherwise existing with respect to a
particular Series, whether such Series is now authorized and existing pursuant
to this Declaration of Trust or is hereafter authorized and existing pursuant to
this Declaration of Trust, shall be enforceable against the assets held with
respect to that Series only, and not against the assets of any other Series or
the Trust generally and none of the debts, liabilities, obligations and expenses
incurred, contracted for or otherwise existing with respect to the Trust
generally or any other Series thereof shall be enforceable against the assets
held with respect to such Series. Notice of this limitation on liabilities
between and among Series shall be set forth in the Certificate of Trust of the
Trust (whether originally or by amendment) as filed or to be filed in the Office
of the Secretary of State of the State of Delaware pursuant to the DBTA, and
upon the giving of such notice in the Certificate of Trust, the statutory
provisions of Section 3804 of the DBTA relating to limitations on liabilities
between and among Series (and the statutory effect under Section 3804 of setting
forth such notice in the Certificate of Trust) shall become applicable to the
Trust and each Series.
(c) Dividends, Distributions, Redemptions and Repurchases. Notwithstanding
any other provisions of this Declaration of Trust, including, without
limitation, Article VI, no dividend or distribution, including without
limitation, any distribution paid upon dissolution of the Trust or of any Series
with respect to, nor any redemption or repurchase of, the Shares of any Series
or class shall be effected by the Trust other than from the assets held with
respect to such Series, nor, except as specifically provided in Section 7 of
this Article III, shall any Shareholder of any particular Series otherwise have
any right or claim against the assets held with respect to any other Series or
the Trust generally except to the extent that such Shareholder has such a right
or claim hereunder as a Shareholder of such other Series. The Board of Trustees
shall have full discretion, to the extent not inconsistent with the 1940 Act, to
determine which items shall be treated as income and which items as capital, and
each such determination and allocation shall be conclusive and binding upon the
Shareholders.
(d) Voting. All Shares of the Trust entitled to vote on a matter shall vote
on the matter, separately by Series and, if applicable, by class; provided that
(1) where the 1940 Act requires all Shares of the Trust to be voted in the
aggregate, without differentiation between the separate Series or classes, on
any matter, then all of the Trust's Shares shall be entitled to vote in the
aggregate on the matter; and (2) if any matter affects only the interests of
some but not all Series or classes, then only the Shares of such affected Series
or classes shall be entitled to vote on the matter.
(e) Equality. All Shares of each particular Series shall represent an equal
proportionate undivided beneficial interest in the assets held with respect to
that Series (subject to the liabilities held with respect to that Series and
such rights and preferences as may have been established and designated with
respect to classes of Shares within such Series), and each Share of any
particular Series shall be equal to each other Share of that Series (subject to
the rights and preferences with respect to separate classes of such Series).
(f) Fractions. Any fractional Share of a Series shall carry proportionately
to the fractional amount of such Share all the rights and obligations of a whole
Share of that Series, including rights with respect to voting, receipt of
dividends and distributions, redemption of Shares and dissolution of the Trust
or that Series.
(g) Exchange Privilege. The Board of Trustees shall have the authority to
provide that the holders of Shares of any Series shall have the right to
exchange said Shares for Shares of one or more other Series in accordance with
such requirements and procedures as may be established by the Board of Trustees,
and in accordance with the 1940 Act and the rules and regulations thereunder.
(h) Combination of Series. The Board of Trustees shall have the authority,
without the approval of the Shareholders of any Series unless otherwise required
by applicable law, to combine the assets and liabilities held with respect to
any two or more Series into assets and liabilities held with respect to a single
Series; provided that upon completion of such combination of Series, the
proportionate interest of each Shareholder of each Series that is combined, in
the assets and liabilities held with respect to the combined Series shall equal
the proportionate interest that such Shareholder held in the assets and
liabilities held with respect to the Series that is combined.
(i) Elimination of Series. At any time that there are no Shares outstanding
of any particular Series or class previously established and designated, the
Board of Trustees may by resolution of a majority of the then Board of Trustees
abolish that Series or class and rescind the establishment and designation
thereof. Each such resolution shall be incorporated herein by reference upon
adoption.
Section 7. Indemnification of Shareholders. If any Shareholder or former
-------------------------------
Shareholder shall be exposed to liability by reason of a claim or demand
relating solely to his or her being or having been a Shareholder of the Trust
(or by having been a Shareholder of a particular Series), and not because of
such Person's acts or omissions, the Shareholder or former Shareholder (or, in
the case of a natural person, his or her heirs, executors, administrators, or
other legal representatives or, in the case of a corporation or other entity,
its corporate or other general successor) shall be entitled to be held harmless
from, and indemnified out of the assets of the Trust or out of the assets of the
applicable Series (as the case may be) against, all loss and expense arising
from such claim or demand; provided, however, that there shall be no liability
-----------------
or obligation of the Trust (or any particular Series) arising hereunder to
reimburse any Shareholder for taxes paid by reason of such Shareholder's
ownership of any Shares.
ARTICLE IV.
The Board of Trustees
Section 1. Number, Election and Tenure. The number of Trustees
---------------------------
constituting the Board of Trustees may be fixed from time to time by a written
instrument signed, or by resolution approved at a duly constituted meeting, by a
majority of the Board of Trustees, provided, however, that the number of
Trustees shall in no event be less than one (1) nor more than fifteen (15). The
Board of Trustees, by action of a majority of the then Trustees at a duly
constituted meeting, may fill vacancies in the Board of Trustees or remove any
Trustee with or without cause. The Shareholders may elect Trustees, including
filling any vacancies in the Board of Trustees, at any meeting of Shareholders
called by the Board of Trustees for that purpose. A meeting of Shareholders for
the purpose of electing one or more Trustees may be called by the Board of
Trustees or, to the extent provided by the 1940 Act and the rules and
regulations thereunder, by the Shareholders. Shareholders shall have the power
to remove a Trustee only to the extent provided by the 1940 Act and the rules
and regulations thereunder.
Each Trustee shall serve during the continued lifetime of the Trust until he
or she dies, resigns, is declared bankrupt or incompetent by a court of
appropriate jurisdiction, or is removed, or, if sooner than any of such events,
until the next meeting of Shareholders called for the purpose of electing
Trustees and until the election and qualification of his or her successor. Any
Trustee may resign at any time by written instrument signed by him or her and
delivered to any officer of the Trust or to a meeting of the Board of Trustees.
Such resignation shall be effective upon receipt unless specified to be
effective at some later time. Except to the extent expressly provided in a
written agreement with the Trust, no Trustee that resigns or is removed shall
have any right to any compensation for any period following any such event or
any right to damages on account of such events or any actions taken in
connection therewith following his or her resignation or removal.
Section 2. Effect of Death, Resignation, Removal, etc. of a Trustee. The
--------------------------------------------------------
death, declination, resignation, retirement, removal, declaration as bankrupt or
incapacity of one or more Trustees, or of all of them, shall not operate to
dissolve the Trust or any Series or to revoke any existing agency created
pursuant to the terms of this Declaration of Trust. Whenever a vacancy in the
Board of Trustees shall occur, until such vacancy is filled as provided in this
Article IV, Section 1, the Trustee(s) in office, regardless of the number, shall
have all the powers granted to the Board of Trustees and shall discharge all the
duties imposed upon the Board of Trustees by this Declaration of Trust. In the
event of the death, declination, resignation, retirement, removal, declaration
as bankrupt or incapacity of all of the then Trustees, the Trust's Investment
Adviser or Advisers is or are, as the case may be, empowered to appoint new
Trustees subject to the provisions of Section 16(a) of the 1940 Act.
Section 3. Powers. Subject to the provisions of this Declaration of Trust,
------
the business of the Trust shall be managed by the Board of Trustees, and such
Board of Trustees shall have all powers necessary or convenient to carry out
that responsibility, including, without limitation, the power to engage in
securities or other transactions of all kinds on behalf of the Trust. The Board
of Trustees shall have full power and authority to do any and all acts and to
make and execute any and all contracts and instruments that it may consider
necessary or appropriate in connection with the administration of the Trust.
The Trustees shall not be bound or limited by present or future laws or customs
with regard to investment by trustees or fiduciaries, but shall have full
authority and absolute power and control over the assets of the Trust and the
business of the Trust to the same extent as if the Trustees were the sole owners
of the assets and business of the Trust in their own right, including such
authority, power and control to do all acts and things as they, in their sole
discretion, shall deem proper to accomplish the purposes of this Trust. Without
limiting the foregoing, the Trustees may (1) adopt, amend and repeal By-Laws,
not inconsistent with this Declaration of Trust, that provide for the regulation
and management of the affairs of the Trust; (2) fill vacancies in or remove from
their number in accordance with this Declaration of Trust or the By-Laws, and
may elect and remove such officers and appoint and terminate such agents as they
consider appropriate; (3) appoint from their own number and establish and
terminate one or more committees consisting of two or more Trustees which may
exercise the powers and authority of the Board of Trustees to the extent that
the Board of Trustees determine; (4) employ one or more custodians of the Trust
Property and may authorize such custodians to employ subcustodians and to
deposit all or any part of such Trust Property in a system or systems for the
central handling of securities or with a Federal Reserve Bank; (5) retain a
transfer agent, dividend disbursing agent, a shareholder servicing agent or
administrative services agent, or all of them; (6) provide for the issuance and
distribution of Shares by the Trust directly or through one or more Principal
Underwriters or otherwise; (7) retain one or more Investment Advisers; (8)
redeem, repurchase or transfer Shares pursuant to applicable law; (9) set record
dates for the determination of Shareholders with respect to various matters, in
the manner provided in Article V, Section 5 of this Declaration of Trust; (10)
declare and pay dividends and distributions to Shareholders from the Trust
Property; (11) establish from time to time, in accordance with the provisions of
Article III, Section 6 hereof, any Series or class of Shares, each such Series
to operate as a separate and distinct investment medium and with separately
defined investment objectives and policies and distinct investment purposes; and
(12) in general delegate such authority as they consider desirable to any
officer of the Trust, any committee of the Board of Trustees, any agent or
employee of the Trust, or any such custodian, transfer agent, dividend
disbursing agent, shareholder servicing agent, administrative services agent,
Principal Underwriter or Investment Adviser. Any determination as to what is in
the best interests of the Trust made by the Board of Trustees in good faith
shall be conclusive.
In construing the provisions of this Declaration of Trust, the presumption
shall be in favor of a grant of power to the Trustees. Unless otherwise
specified herein or required by law, any action by the Board of Trustees shall
be deemed effective if approved or taken by a majority of the Trustees then in
office.
Any action required or permitted to be taken by the Board of Trustees, or a
committee thereof, may be taken without a meeting if a majority of the members
of the Board of Trustees, or committee thereof, as the case may be, shall
individually or collectively consent in writing to that action. Such action by
written consent shall have the same force and effect as a majority vote of the
Board of Trustees, or committee thereof, as the case may be. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board of Trustees, or committee thereof, as the case may be.
The Trustees shall devote to the affairs of the Trust such time as may be
necessary for the proper performance of their duties hereunder, but the Trustees
are not expected to devote their full time to the performance of such duties.
The Trustees, or any Affiliate partner or employee thereof, may engage in, or
possess an interest in, any other business or venture of any nature and
description, independently or with or for the account of others.
Section 4. Payment of Expenses by the Trust. The Board of Trustees is
--------------------------------
authorized to pay or cause to be paid out of the principal or income of the
Trust or any particular Series or class of Shares, or partly out of the
principal and partly out of the income of the Trust or any particular Series or
class of Shares and to charge or allocate the same to, between or among such one
or more of the Series or classes of Shares, as the Board of Trustees deems fair
and in compliance with this Declaration of Trust, including particularly Article
III, Section 6 hereof, all expenses, fees, charges, taxes and liabilities
incurred by or arising in connection with the maintenance or operation of the
Trust or a particular Series or class of Shares, or in connection with the
management thereof, including, but not limited to, the Trustees' compensation
and such expenses, fees, charges, taxes and liabilities for the services of the
Trust's officers, employees, Investment Adviser, Principal Underwriter,
auditors, counsel, custodian, sub-custodian (if any), transfer agent, dividend
disbursing agent, shareholder servicing agent, administrative services agent,
and such other agents or independent contractors and such other expenses, fees,
charges, taxes and liabilities as the Board of Trustees may deem necessary or
proper to incur.
Section 5. Payment of Expenses by Shareholders. The Board of Trustees
-----------------------------------
shall have the power, as frequently as it may determine, to cause each
Shareholder of the Trust, or each Shareholder of any particular Series, to pay
directly, in advance or arrears, for charges of the Trust's custodian or
transfer, dividend disbursing, shareholder servicing, administrative services or
similar agent, an amount fixed from time to time by the Board of Trustees, by
setting off such charges due from such Shareholder from declared but unpaid
dividends or distributions owed such Shareholder and/or by reducing the number
of Shares in the account of such Shareholder by that number of full and/or
fractional Shares which represents the outstanding amount of such charges due
from such Shareholder.
Section 6. Ownership of Trust Property. Legal title to all of the Trust
---------------------------
Property shall at all times be considered to be vested in the Trust, except that
the Board of Trustees shall have the power to cause legal title to any Trust
Property to be held by or in the name of any Person as nominee, on such terms as
the Board of Trustees may determine, in accordance with applicable law.
Section 7. Service Contracts.
-----------------
(a) Subject to such requirements and restrictions as may be set forth in the
By-Laws and/or the 1940 Act, the Board of Trustees may, at any time and from
time to time, contract for exclusive or nonexclusive advisory, management and/or
administrative services for the Trust or for any Series with any corporation,
trust, association or other organization, including any Affiliate; and any such
contract may contain such other terms as the Board of Trustees may determine,
including without limitation, authority for the Investment Adviser or
administrator to determine from time to time without prior consultation with the
Board of Trustees what securities and other instruments or property shall be
purchased or otherwise acquired, owned, held, invested or reinvested in, sold,
exchanged, transferred, mortgaged, pledged, assigned, negotiated, or otherwise
dealt with or disposed of, and what portion, if any, of the Trust Property shall
be held uninvested and to make changes in the Trust's or a particular Series'
investments, or such other activities as may specifically be delegated to such
party.
(b) The Board of Trustees may also, at any time and from time to time,
contract with any corporation, trust, association or other organization,
including any Affiliate, appointing it or them as the exclusive or nonexclusive
distributor or Principal Underwriter for the Shares of the Trust or one or more
of the Series or classes thereof or for other securities to be issued by the
Trust, or appointing it or them to act as the custodian, transfer agent,
dividend disbursing agent and/or shareholder servicing agent for the Trust or
one or more of the Series or classes thereof.
(c) The Board of Trustees is further empowered, at any time and from time to
time, to contract with any Persons to provide such other services to the Trust
or one or more of its Series, as the Board of Trustees determines to be in the
best interests of the Trust or one or more of its Series.
(d) The fact that:
(i) any of the Shareholders, Trustees, employees or officers of the
Trust is a shareholder, director, officer, partner, trustee, employee, manager,
Adviser, Principal Underwriter, distributor, or Affiliate or agent of or for any
corporation, trust, association, or other organization, or for any parent or
Affiliate of any organization, with which an Adviser's, management or
administration contract, or Principal Underwriter's or distributor's contract,
or custodian, transfer, dividend disbursing, shareholder servicing or other type
of service contract may have been or may hereafter be made,
(ii) any such organization, or any parent or Affiliate thereof, is a
Shareholder or has an interest in the Trust, or
(iii) any corporation, trust, association or other organization with
which an Adviser's, management or administration contract or Principal
Underwriter's or distributor's contract, or custodian, transfer, dividend
disbursing, shareholder servicing or other type of service contract may have
been or may hereafter be made also has an Adviser's, management or
administration contract, or Principal Underwriter's or distributor's contract,
or custodian, transfer, dividend disbursing, shareholder servicing or other
service contract with one or more other corporations, trusts, associations, or
other organizations, or has other business or interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee, employee or officer of the Trust from voting upon or
executing the same, or create any liability or accountability to the Trust or
its Shareholders, provided that the establishment of and performance under each
such contract is permissible under the provisions of the 1940 Act.
(e) Every contract referred to in this Section 7 shall comply with such
requirements and restrictions as may be set forth in the By-Laws or the 1940 Act
or stipulated by resolution of the Board of Trustees. Any such contract may
contain such other terms as the Board of Trustees may determine.
ARTICLE V.
Shareholders' Voting Powers and Meetings
Section 1. Voting Powers. Subject to the provisions of Article III,
-------------
Section 6(d), the Shareholders shall have power to vote only (i) for the
election of Trustees, including the filling of any vacancies in the Board of
Trustees, as provided in Article IV, Section 1; (ii) with respect to such
additional matters relating to the Trust as may be required by this Declaration
of Trust, the By-Laws, the 1940 Act or any registration statement of the Trust
filed with the Commission; and (iii) on such other matters as the Board of
Trustees may consider necessary or desirable. The Shareholder of record (as of
the record date established pursuant to Section 5 of this Article V) of each
Share shall be entitled to one vote for each full Share, and a fractional vote
for each fractional Share. Shareholders shall not be entitled to cumulative
voting in the election of Trustees or on any other matter. Shares may be voted
in person or by proxy.
Section 2. Meetings. Meetings of the Shareholders may be called by the
--------
Board of Trustees for the purpose of electing Trustees as provided in Article
IV, Section 1 and for such other purposes as may be prescribed by law, this
Declaration of Trust or the By-Laws. Meetings of the Shareholders may also be
called by the Board of Trustees from time to time for the purpose of taking
action upon any other matter deemed by the Board of Trustees to be necessary or
desirable.
Section 3. Quorum and Required Vote. Except when a larger quorum is
------------------------
required by applicable law, the By-Laws or this Declaration of Trust,
thirty-three and one-third percent (33-1/3%) of the Shares present in person or
represented by proxy and entitled to vote at a Shareholders' meeting shall
constitute a quorum at such meeting. When a separate vote by one or more Series
or classes is required, thirty-three and one-third percent (33-1/3%) of the
Shares of each such Series or class present in person or represented by proxy
and entitled to vote shall constitute a quorum at a Shareholders' meeting of
such Series or class. Subject to the provisions of Article III, Section 6(d),
Article VIII, Section 4 and any other provision of this Declaration of Trust,
the By-Laws or applicable law which requires a different vote: (1) in all
matters other than the election of Trustees, the affirmative vote of the
majority of votes cast at a Shareholders' meeting at which a quorum is present
shall be the act of the Shareholders; and (2) Trustees shall be elected by a
plurality of the votes cast at a Shareholders' meeting at which a quorum is
present.
Section 4. Shareholder Action by Written Consent without a Meeting.
-------------------------------------------------------
Subject to the provisions of the 1940 Act and other applicable law, any action
which may be taken at any meeting of Shareholders may be taken without a meeting
and without prior notice if a consent in writing setting forth the action so
taken is signed by the holders of Shares having not less than the minimum number
of votes that would be necessary to authorize or take that action at a meeting
at which all Shares entitled to vote on that action were present and voted. All
such consents shall be filed with the secretary of the Trust and shall be
maintained in the Trust's records. Any Shareholder giving a written consent, the
Shareholder's proxy holders, a transferee of the Shares (prior to the record
date), a personal representative of the Shareholder or its respective
proxy-holder may revoke the consent by a writing received by the secretary of
the Trust before written consents of the number of Shares required to authorize
the proposed action have been filed with the secretary.
If the consents of all Shareholders entitled to vote have not been solicited
in writing and if the unanimous written consent of all such Shareholders shall
not have been received, the secretary shall give prompt notice of the action
taken without a meeting to such Shareholders. This notice shall be given in the
manner specified in the By-Laws.
Section 5. Record Dates. For purposes of determining the Shareholders
------------
entitled to notice of any meeting, to vote at any meeting, or to give consent to
action without a meeting, the Board of Trustees may fix in advance a record date
which shall not be more than one hundred eighty (180) days nor less than seven
(7) days before the date of any such meeting.
If the Board of Trustees does not so fix a record date:
(a) The record date for determining Shareholders entitled to notice of or to
vote at a meeting of Shareholders shall be at the close of business on the
business day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the business day which is five (5) business
days next preceding to the day on which the meeting is held.
(b) The record date for determining Shareholders entitled to give consent to
action in writing without a meeting, (i) when no prior action by the Board of
Trustees has been taken, shall be the day on which the first written consent is
given, or (ii) when prior action of the Board of Trustees has been taken, shall
be at the close of business on the day on which the Board of Trustees adopts the
resolution taking such prior action or the seventy-fifth (75th) day before the
date of such other action, whichever is later.
For the purpose of determining the Shareholders of any Series or class who
are entitled to receive payment of any dividend or of any other distribution,
the Board of Trustees may from time to time fix a date, which shall be before
the date for the payment of such dividend or such other distribution, as the
record date for determining the Shareholders of such Series or class having the
right to receive such dividend or distribution. Nothing in this Section shall
be construed as precluding the Board of Trustees from setting different record
dates for different Series or classes.
Section 6. Additional Provisions. The By-Laws may include further
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provisions for Shareholders' votes, meetings and related matters.
ARTICLE VI.
Net Asset Value, Distributions and Redemptions
Section 1. Determination of Net Asset Value, Net Income and Distributions.
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Subject to Article III, Section 6 hereof, the Board of Trustees shall have the
power to fix an initial offering price for the Shares of the Trust, or any
Series or class thereof which shall yield to the Trust, such Series or class not
less than the net asset value thereof, at which price the Shares of the Trust,
such Series or class shall be offered initially for sale, and to determine from
time to time thereafter the offering price which shall yield to the Trust, such
Series or class not less than the net asset value thereof from sales of the
Shares of the Trust, such Series or class; provided, however, that no Shares of
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the Trust or Series or class thereof shall be issued or sold for consideration
which shall yield to the Trust, such Series or class less than the net asset
value of the Shares of the Trust, such Series or class next determined after the
receipt of the order (or at such other times set by the Board of Trustees),
except in the case of Shares of the Trust, such Series or class issued in
payment of a dividend properly declared and payable.
Subject to Article III, Section 6 hereof, the Board of Trustees, in their
absolute discretion, may prescribe and shall set forth in the By-laws or in a
duly adopted vote of the Board of Trustees such bases and time for determining
the per Share or net asset value of the Shares of the Trust, any Series or class
of a Series or net income attributable to the Shares of the Trust, any Series or
class of a Series, or the declaration and payment of dividends and distributions
on the Shares of the Trust, any Series or class of a Series, as they may deem
necessary or desirable.
Section 2. Redemptions at the Option of a Shareholder. Unless otherwise
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provided in the prospectus of the Trust relating to the Shares of the Trust or
Series thereof, as such prospectus may be amended from time to time
("Prospectus"):
(a) The Trust shall purchase such Shares as are offered by any Shareholder
for redemption, upon the presentation of a proper instrument of transfer
together with a request directed to the Trust or a Person designated by the
Trust that the Trust purchase such Shares or in accordance with such other
procedures for redemption as the Board of Trustees may from time to time
authorize; and the Trust will pay therefor the net asset value thereof, in
accordance with the By-Laws and applicable law. Payment for said Shares shall
be made by the Trust to the Shareholder within seven days after the date on
which the request is received in proper form. The obligation set forth in this
Section 2 is subject to the provision that (i) in the event that the New York
Stock Exchange (the "Exchange") is closed for other than weekends or holidays,
(ii) if permitted by the Rules of the Commission during periods when trading on
the Exchange is restricted or during any National Financial Emergency which
makes it impracticable for the Trust to dispose of the investments of the Trust
or applicable Series or to determine fairly the value of the net assets of the
Trust or held with respect to such Series, or (iii) during any other period
permitted by order of the Commission for the protection of investors, such
obligations may be suspended or postponed by the Board of Trustees. If
certificates have been issued to a Shareholder, any such request by such
Shareholder must be accompanied by surrender of any outstanding certificate or
certificates for such Shares in form for transfer, together with such proof of
the authenticity of signatures as may reasonably be required on such Shares and
accompanied by proper stock transfer stamps, if applicable.
(b) Payments for Shares so redeemed by the Trust shall be made in cash,
except payment for such Shares may, at the option of the Board of Trustees, or
such officer or officers as the Board of Trustees may duly authorize in its
complete discretion, be made in kind, or partially in cash and partially in
kind. In case of any payment in kind, the Board of Trustees, or its delegate,
shall have absolute discretion as to what security or securities of the Trust
shall be distributed in kind and the amount of the same; and the securities
distributed shall be valued for purposes of distribution at the value at which
they were appraised in computing the then current net asset value of the Shares,
provided that any Shareholder who cannot legally acquire securities so
distributed in kind by reason of the prohibitions of the 1940 Act or the
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), shall receive cash. Shareholders shall bear the expenses of in-kind
transactions, including, but not limited to, transfer agency fees, custodian
fees and costs of disposition of such securities.
(c) Payment for Shares so redeemed by the Trust shall be made by the Trust
as provided above within seven days after the date on which the redemption
request is received in good order; provided, however, that if payment shall be
made other than exclusively in cash, any securities to be delivered as part of
such payment shall be delivered as promptly as any necessary transfers of such
securities on the books of the several corporations whose securities are to be
delivered practicably can be made, which may not necessarily occur within such
seven-day period. Moreover, redemptions may be suspended in the event of a
National Financial Emergency. In no case shall the Trust be liable for any
delay of any corporation or other Person in transferring securities selected for
delivery as all or part of any payment in kind.
(d) The right of Shareholders to receive dividends or other distributions on
Shares may be set forth in a Plan adopted by the Board of Trustees and amended
from time to time pursuant to Rule 18f-3 under the 1940 Act. The right of any
Shareholder of the Trust to receive dividends or other distributions on Shares
redeemed and all other rights of such Shareholder with respect to the Shares so
redeemed by the Trust, except the right of such Shareholder to receive payment
for such Shares, shall cease at the time as of which the purchase price of such
Shares shall have been fixed, as provided above.
Section 3. Redemptions at the Option of the Trust. The Board of Trustees
--------------------------------------
may, from time to time, without the vote or consent of the Shareholders, and
subject to the 1940 Act, redeem Shares or authorize the closing of any
Shareholder account, subject to such conditions as may be established by the
Board of Trustees.
ARTICLE VII.
Compensation and Limitation of Liability of
Officers and Trustees
Section 1. Compensation. Except as set forth in the last sentence of this
------------
Section 1, the Board of Trustees may, from time to time, fix a reasonable amount
of compensation to be paid by the Trust to the Trustees and officers of the
Trust. Nothing herein shall in any way prevent the employment of any Trustee
for advisory, management, legal, accounting, investment banking or other
services and payment for the same by the Trust.
Section 2. Indemnification and Limitation of Liability.
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(a) To the fullest extent that limitations on the liability of Trustees and
officers are permitted by the DBTA, the officers and Trustees shall not be
responsible or liable in any event for any act or omission of any agent,
employee, Investment Adviser or Principal Underwriter of the Trust; or with
respect to each Trustee and officer, the act or omission of any other Trustee or
officer, respectively. The Trust, out of the Trust Property, shall indemnify
and hold harmless each and every officer and Trustee from and against any and
all claims and demands whatsoever arising out of or related to such officer's or
Trustee's performance of his or her duties as an officer or Trustee of the
Trust. This limitation on liability applies to events occurring at the time a
Person serves as a Trustee or officer of the Trust whether or not such Person is
a Trustee or officer at the time of any proceeding in which liability is
asserted. Nothing herein contained shall indemnify, hold harmless or protect
any officer or Trustee from or against any liability to the Trust or any
Shareholder to which such Person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such Person's office.
(b) Every note, bond, contract, instrument, certificate or undertaking and
every other act or document whatsoever issued, executed or done by or on behalf
of the Trust, the officers or the Trustees or any of them in connection with the
Trust shall be conclusively deemed to have been issued, executed or done only in
such Person's capacity as Trustee and/or as officer, and such Trustee or
officer, as applicable, shall not be personally liable therefore, except as
described in the last sentence of the first paragraph of this Section 2 of this
Article VII.
Section 3. Officers and Trustees' Good Faith Action, Expert Advice, No Bond
----------------------------------------------------------------
or Surety. The exercise by the Trustees of their powers and discretions
- ---------
hereunder shall be binding upon everyone interested. An officer or Trustee
shall be liable to the Trust and to any Shareholder solely for such officer's or
Trustee's own willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of such officer or
Trustee, and for nothing else, and shall not be liable for errors of judgment or
mistakes of fact or law. The officers and Trustees may obtain the advice of
counsel or other experts with respect to the meaning and operation of this
Declaration of Trust and their duties as officers or Trustees. No such officer
or Trustee shall be liable for any act or omission in accordance with such
advice and no inference concerning liability shall arise from a failure to
follow such advice. The officers and Trustees shall not be required to give any
bond as such, nor any surety if a bond is required.
Section 4. Insurance. To the fullest extent permitted by applicable law,
---------
the officers and Trustees shall be entitled and have the authority to purchase
with Trust Property, insurance for liability and for all expenses reasonably
incurred, paid or expected to be paid by a Trustee or officer in connection with
any claim, action, suit or proceeding in which such Person becomes involved by
virtue of such Person's capacity or former capacity with the Trust, whether or
not the Trust would have the power to indemnify such Person against such
liability under the provisions of this Article.
ARTICLE VIII.
Miscellaneous
Section 1. Liability of Third Persons Dealing with Trustees. No person
------------------------------------------------
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any actions made or to be made by the Trustees.
Section 2. Dissolution of Trust or Series. Unless dissolved as provided
------------------------------
herein, the Trust shall have perpetual existence. The Trust may be dissolved at
any time by vote of a majority of the Shares of the Trust entitled to vote or by
the Board of Trustees by written notice to the Shareholders. Any Series may be
dissolved at any time by vote of a majority of the Shares of that Series or by
the Board of Trustees by written notice to the Shareholders of that Series.
Upon dissolution of the Trust (or a particular Series, as the case may be),
the Trustees shall (in accordance with Section 3808 of the DBTA) pay or make
reasonable provision to pay all claims and obligations of the Trust and/or each
Series (or the particular Series, as the case may be), including all contingent,
conditional or unmatured claims and obligations known to the Trust, and all
claims and obligations which are known to the Trust but for which the identity
of the claimant is unknown. If there are sufficient assets held with respect to
the Trust and/or each Series of the Trust (or the particular Series, as the case
may be), such claims and obligations shall be paid in full and any such
provisions for payment shall be made in full. If there are insufficient assets
held with respect to the Trust and/or each Series of the Trust (or the
particular Series, as the case may be), such claims and obligations shall be
paid or provided for in accordance with Article III, Section 6, according to
their priority and, among claims and obligations of equal priority, ratably to
the extent of assets available therefor. Any remaining assets (including
without limitation, cash, securities or any combination thereof) held with
respect to the Trust and/or each Series of the Trust (or the particular Series,
as the case may be) shall be distributed to the Shareholders of the Trust and/or
such Series (or the particular Series) in accordance with Article III, Section
6, and ratably according to the number of Shares of the Trust and/or such Series
(or the particular Series) held by the several Shareholders on the record date
for such dissolution distribution.
Section 3. Merger and Consolidation; Conversion.
------------------------------------
(a) Merger and Consolidation. Pursuant to an agreement of merger or
consolidation, the Trust, or any one or more Series, may, by act of a majority
of the Board of Trustees, merge or consolidate with or into one or more business
trusts or other business entities formed or organized or existing under the laws
of the State of Delaware or any other state or the United States or any foreign
country or other foreign jurisdiction. Any such merger or consolidation shall
not require the vote of the Shareholders affected thereby, unless such vote is
required by the 1940 Act, or unless such merger or consolidation would result in
an amendment of this Declaration of Trust which would otherwise require the
approval of such Shareholders. In accordance with Section 3815(f) of the DBTA,
an agreement of merger or consolidation may effect any amendment to this
Declaration of Trust or the By-Laws or effect the adoption of a new declaration
of trust or by-laws of the Trust if the Trust is the surviving or resulting
business trust. Upon completion of the merger or consolidation, the Trustees
shall file a certificate of merger or consolidation in accordance with Section
3810 of the DBTA.
(b) Conversion. A majority of the Board of Trustees may, without the vote
or consent of the Shareholders, cause (i) the Trust to convert to a common-law
trust, a general partnership, limited partnership or a limited liability company
organized, formed or created under the laws of the State of Delaware as
permitted pursuant to Section 3821 of the DBTA; (ii) the Shares of the Trust or
any Series to be converted into beneficial interests in another business trust
(or series thereof) created pursuant to this Section 3 of this Article VIII, or
(iii) the Shares to be exchanged under or pursuant to any state or federal
statute to the extent permitted by law; provided, however, that if required by
--------
the 1940 Act, no such statutory conversion, Share conversion or Share exchange
shall be effective unless the terms of such transaction shall first have been
approved at a meeting called for that purpose by the "vote of a majority of the
outstanding voting securities," as such phrase is defined in the 1940 Act, of
the Trust or Series, as applicable; provided, further, that in all respects not
-----------------
governed by statute or applicable law, the Board of Trustees shall have the
power to prescribe the procedure necessary or appropriate to accomplish a sale
of assets, merger or consolidation including the power to create one or more
separate business trusts to which all or any part of the assets, liabilities,
profits or losses of the Trust may be transferred and to provide for the
conversion of Shares of the Trust or any Series into beneficial interests in
such separate business trust or trusts (or series thereof).
Section 4. Reorganization. A majority of the Board of Trustees may cause
--------------
the Trust to sell, convey and transfer all or substantially all of the assets of
the Trust, or all or substantially all of the assets held with respect to any
one or more Series (the "Acquired Series"), to another trust, business trust,
partnership, limited partnership, limited liability company, association or
corporation organized under the laws of any state, or to one or more separate
series thereof, or to the Trust to be held as assets held with respect to one or
more other Series of the Trust, in exchange for cash, shares or other securities
(including, without limitation, in the case of a transfer to another Series of
the Trust, Shares of such other Series) with such transfer either (a) being made
subject to, or with the assumption by the transferee of, the liabilities of the
Trust or the liabilities held with respect to each Acquired Series, or (b) not
being made subject to, or not with the assumption of, such liabilities;
provided, however, that, if required by the 1940 Act, no assets held with
respect to any particular Series shall be so sold, conveyed or transferred
unless the terms of such transaction shall first have been approved at a meeting
called for that purpose by the "vote of a majority of the outstanding voting
securities," as such phrase is defined in the 1940 Act, of that Series.
Following such sale, conveyance and transfer, the Board of Trustees shall
distribute such cash, shares or other securities (giving due effect to the
assets and liabilities held with respect to the Acquired Series, and any other
differences between or among the Acquired Series), ratably among the
Shareholders of the Trust or the Acquired Series, (giving due effect to the
differences among the various classes within the Trust or each such Acquired
Series); and if all of the assets of the Trust have been so sold, conveyed and
transferred, the Trust shall be dissolved.
Section 5. Amendments. Subject to the provisions of the second paragraph
----------
of this Section 5 of this Article VIII, this Declaration of Trust may be
restated and/or amended at any time by an instrument in writing signed by a
majority of the then Board of Trustees and, if required, by approval of such
amendment by Shareholders in accordance with Article V, Section 3 hereof. Any
such restatement and/or amendment hereto shall be effective immediately upon
execution and approval or upon such future date and time as may be stated
therein. The Certificate of Trust of the Trust may be restated and/or amended
by a similar procedure, and any such restatement and/or amendment shall be
effective immediately upon filing with the Office of the Secretary of State of
the State of Delaware or upon such future date as may be stated therein.
Notwithstanding the above, the Board of Trustees expressly reserves the
right to amend or repeal any provisions contained in this Declaration of Trust
or the Certificate of Trust, in accordance with the provisions of Section 5 of
Article III hereof, and all rights, contractual and otherwise, conferred upon
Shareholders are granted subject to such reservation. The Board of Trustees
further expressly reserves the right to amend or repeal any provision of the By-
Laws pursuant to Article X of the By-Laws.
Section 6. Filing of Copies, References, Headings. The original or a copy
--------------------------------------
of this Declaration of Trust and of each restatement and/or amendment hereto
shall be kept at the principal executive office of the Trust where it may be
inspected by any Shareholder. Anyone dealing with the Trust may rely on a
certificate by an officer of the Trust as to whether or not any such
restatements and/or amendments have been made and as to any matters in
connection with the Trust hereunder; and, with the same effect as if it were the
original, may rely on a copy certified by an officer of the Trust to be a copy
of this instrument or of any such restatements and/or amendments. In this
Declaration of Trust and in any such restatements and/or amendments, references
to this instrument, and all expressions of similar effect to "herein," "hereof"
and "hereunder," shall be deemed to refer to this instrument as amended or
affected by any such restatements and/or amendments. Headings are placed herein
for convenience of reference only and shall not be taken as a part hereof or
control or affect the meaning, construction or effect of this instrument.
Whenever the singular number is used herein, the same shall include the plural;
and the neuter, masculine and feminine genders shall include each other, as
applicable. This instrument may be executed in any number of counterparts, each
of which shall be deemed an original.
Section 7. Applicable Law. This Declaration of Trust is created under and
--------------
is to be governed by and construed and administered according to the laws of the
State of Delaware and the applicable provisions of the 1940 Act and the Code.
The Trust shall be a Delaware business trust pursuant to the DBTA, and without
limiting the provisions hereof, the Trust may exercise all powers that are
ordinarily exercised by such a business trust.
Section 8. Provisions in Conflict with Law or Regulations.
----------------------------------------------
(a) The provisions of this Declaration of Trust are severable, and if the
Board of Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the 1940 Act, the Code, the DBTA, or with other
applicable laws and regulations, the conflicting provision shall be deemed not
to have constituted a part of this Declaration of Trust from the time when such
provisions became inconsistent with such laws or regulations; provided, however,
that such determination shall not affect any of the remaining provisions of this
Declaration of Trust or render invalid or improper any action taken or omitted
prior to such determination.
(b) If any provision of this Declaration of Trust shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration of Trust in any jurisdiction.
Section 9. Business Trust Only. It is the intention of the Trustees to
-------------------
create a business trust pursuant to the DBTA, and thereby to create the
relationship of trustee and beneficial owners within the meaning of the DBTA
between the Trustees and each Shareholder. It is not the intention of the
Trustees to create a general or limited partnership, limited liability company,
joint stock association, corporation, bailment, or any form of legal
relationship other than a business trust pursuant to the DBTA. Nothing in this
Declaration of Trust shall be construed to make the Shareholders, either by
themselves or with the Trustees, partners or members of a joint stock
association.
Section 10. Use of the Name "Ingenuity". The name "Ingenuity" and all
--------------------------
rights to the use of the name "Ingenuity" belong to Ingenuity Capital
Management LLC, the Manager of the Trust. Ingenuity Capital Management LLC has
consented to the use by the Trust of the identifying word "Ingenuity" and has
granted to the Trust a non-exclusive license to use the name "Ingenuity" as part
of the name of the Trust and the name of any Series of Shares. In the event
Ingenuity Capital Management LLC or an affiliate of Ingenuity Capital
Management LLC is not appointed as Manager or ceases to be the Manager of the
Trust or of any Series using such name, the non-exclusive license granted herein
may be revoked by Ingenuity Capital Management LLC. Upon receipt of such a
written revocation from Ingenuity Capital Management LLC or any successor to its
interests in such name, the Trustees agreed to execute such amendment to the
Trust's Certificate of Trust and this Declaration of Trust as may be required to
effect a change in the name of Trust or any Series of Shares of the Trust, and
the Trust promptly shall cease using the name "Ingenuity" as part of its name or
the name of any Series of Shares.
IN WITNESS WHEREOF, the Trustees named below do hereby amend and restate
this Declaration of Trust as of the 9th day of July, 1999, which Declaration of
Trust was first made and entered into as of the date first written above.
/s/ Kendrick W. Kam
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Kendrick W. Kam
Chairman and Trustee
