<PAGE> 1
Registration No.
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-Effetive Amendment No. / /
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /x/
Amendment No. / /
THE ALLIED OWNERS ACTION FUND INC.
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(Exact Name of Registrant as Specified in Charter)
215 West 91st Street, New York, New York 10024
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(Address of Principal Executive Officers) (Zip Code)
218-877-0727
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(Registrant's Telephone Number, including Area Code)
Friedman Siegelbaum LLP
399 Park Avenue - 20th Floor, New York, NY 10022
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
[x] Immediately upon filing pursuant to paragraph (b)
[ ] On pursuant to paragraph (b)
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[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] On pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph(a)(2)
[ ] On pursuant to paragraph (a)(2) of Rule 485.
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If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE> 2
THE ALLIED OWNERS ACTION FUND INC.
Prospectus This prospectus contains the most important things you should
know before becoming a shareholder in The Allied Owners Action
Fund Inc. (the "Fund"). Shareholders should keep it for
reference after they invest. The usual jargon and boilerplate
has been omitted in the hope that prospective investors will
read the prospectus carefully. They can request the Statement
of Additional Information ("SAI") by calling (800) __________.
Investors can also obtain this prospectus and the SAI or e-mail
questions to the Fund at http://www.eRaider.com., the website of
Fund affiliate eRaider.com Inc. ("eRaider").
The common practice of printing a drab prospectus and embellishing
it with full-color, expensive marketing materials has not been
followed here. Investors should consider the Fund soberly and
without distraction. All the reader will find in this package are
this prospectus, the SAI if requested, an account application and
an investor questionnaire. If reading the prospectus does not
persuade an investor, he or she should not proceed. If after
reading it interest is captured, such additional material should
also be reviewed.
Strategy The Fund's main investment strategy is to purchase relatively large
stakes in small and medium capitalization public companies and hold
them long-term. The Fund will select companies it believes will
benefit from aggressive shareholder oversight. It seeks to maximize
total return with only secondary regard for risk.
Affiliates The Fund will arrange with affiliate eRaider to provide
oversight through the Internet. The Fund will be managed by
affiliate Privateer Asset Management Inc. ("Privateer"). eRaider
and Privateer are described in this prospectus.
Suitability The Fund is intended for experienced investors with long
investment horizons and high risk tolerance. It is not prudent
for an investor to put more than 5% of his or her liquid
security investments in the Fund. It intends to invest in risky
securities, it is new, its strategy may prevent diversification
and it is attempting a new fund management strategy.
Inexperienced and risk-averse investors should find a more
suitable fund.
Opening An It is traditional to put the account opening instructions on the
Account front cover page of the prospectus. That only makes sense if a
fund does not expect persons to read any further. The Fund places
this information in the section "How to Purchase Shares."
These securities have not been approved or disapproved by the Securities and
Exchange Commission ("SEC"), nor has the SEC passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
<PAGE> 3
Table of Contents
<TABLE>
<S> <C>
THE ALLIED OWNERS ACTION FUND INC. ........................................ 1
SUMMARY OF INVESTMENTS AND RISKS .......................................... 2
FEES AND EXPENSES ......................................................... 3
SEC Fee Tables .......................................................... 3
Discussion of Fees ...................................................... 4
Transaction Costs ....................................................... 4
Tax Inefficiency Costs .................................................. 5
Effect of Costs ......................................................... 6
FUND OBJECTIVE AND STRATEGY ............................................... 6
COMPARISON TO OTHER FUNDS ................................................. 7
Objective ............................................................... 7
Strategy ................................................................ 8
Exceptions .............................................................. 8
Pledge to Fund Shareholders ............................................. 9
SUITABILITY ............................................................... 10
RISKS ..................................................................... 10
Risks of Common Stock Investments ....................................... 10
Additional Risks of the Fund: Selection, Strategy, Manager
and Start-Up .......................................................... 11
Other Risks: Interest Rates, Y2K and the Unknown ........................ 12
MANAGEMENT ................................................................ 12
Sponsors ................................................................ 13
Investment Adviser ...................................................... 13
Board of Directors ...................................................... 15
Duties of the Board ..................................................... 16
Compensation of the Board ............................................... 17
Fund Officers ........................................................... 17
Code of Ethics .......................................................... 17
Portfolio Transactions and Brokerage Commissions ........................ 18
Administrator ........................................................... 18
VALUATION OF SHARES ....................................................... 18
HOW TO PURCHASE SHARES .................................................... 19
General Purchase Information ............................................ 19
Purchase by Telephone ................................................... 19
Wiring Funds ............................................................ 20
Purchase by Mail ........................................................ 20
Additional Investments .................................................. 20
Other Purchase Information .............................................. 20
HOW TO REDEEM SHARES ...................................................... 21
General Redemption Information .......................................... 21
Redemption by Mail ...................................................... 21
Signature Guarantees .................................................... 22
Redemption by Telephone ................................................. 22
Payment of Redemption Proceeds .......................................... 22
Involuntary Redemption .................................................. 23
SHAREHOLDER SERVICES ...................................................... 23
Automatic Investment Program ............................................ 23
Telephone Transaction Privileges ........................................ 23
Tax-Qualified Retirement Plans .......................................... 23
Confirmation of Transactions and Reporting of Other Information ......... 23
DIVIDENDS AND DISTRIBUTIONS ............................................... 24
TAXES ..................................................................... 24
Status .................................................................. 24
Tax-Deferred Accounts ................................................... 24
Taxable Accounts: Income and Capital Gains .............................. 25
Long-Term versus Short-Term ............................................. 25
Disclaimer .............................................................. 25
GENERAL INFORMATION ....................................................... 26
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT .............................. 26
COUNSEL AND INDEPENDENT AUDITORS .......................................... 27
</TABLE>
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Prospectus Page 2 of 27
SUMMARY OF INVESTMENTS AND RISKS
This section summarizes the goals, policies and key personnel of the Fund.
Details can be found in the sections "Fund Objective and Strategy," "Risks"
and "Management."
The Fund's objective is to maximize total return with only secondary regard for
risk. Its investment strategy is to accumulate relatively large stakes in small
and medium capitalization publicly traded U.S. corporations that the Fund's
selection manager believes will benefit from shareholder oversight. After the
Fund has acquired its stake, it will arrange with affiliate eRaider to announce
the purchased company at eRaider's website, www.eRaider.com. eRaider will post
news, data and analysis of the Fund position and invite shareholders, both Fund
shareholders and purchased company shareholders, to post their thoughts on a
public Internet message board. eRaider has hired Martin Stoller, Ph.D. to
oversee communications at the site. Information about Dr. Stoller can be found
in the section "Management."
The Fund intends for eRaider to stimulate an informed and thoughtful discussion
of the purchased company. The Fund expects to attract a significant fraction of
that company's shareholders to the message board. Although companies have been
arranging Internet message boards to discuss their stocks for several years, the
effect of a large shareholder arranging for a board and inviting -- and
overseeing -- participation is a new concept. The Fund intends thereby to
improve communication of ideas and strategies between company management and
shareholders resulting in increased value of the purchased company's stock.
Privateer has been retained as the Fund management company. It has hired Aaron
Brown as selection manager to pick the stocks and his wife Deborah Pastor as
portfolio manager to purchase the stocks and manage the investment thereafter.
Information about Mr. Brown and Ms Pastor can be found in the section
"Management." The Fund intends to hold stocks long-term but may sell for various
reasons. It seeks to maximize total return and is willing to take on a high
degree risk to that end. Loss of money is a significant risk of investing in the
Fund.
Privateer is a newly formed Delaware corporation. It was formed by Mr. Brown and
Dr. Stoller who also formed and together own eRaider. When the Fund is declared
effective they intend to own 33% each of the stock of Privateer, which is
expected to decline to 20% each over the ensuing three years. A further
approximately 33%, which is expected to decline to approximately 20% of
Privateer stock, is intended to be distributed to persons who assist in
operating eRaider and the Fund including Fund directors and officers. The
remaining 40% of Privateer stock is intended to be distributed without charge
over three years to shareholders, including Fund shareholders, of funds managed
by Privateer. The Privateer stock distribution is to be entirely at the
discretion of Mr. Brown and Dr. Stoller. They intend to distribute the stock on
a purely subjective basis to such shareholders who participate in the venture of
Internet-assisted investment management through eRaider.com. They may but are
not committed to reward effort, effectiveness, professional skill or investment
acumen. Mr. Brown and Dr. Stoller reserve the right to issue or not issue stock
to any Fund shareholder, for any reason. They further reserve the right to
suspend or cancel distribution at any time for any reason.
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Prospectus Page 3 of 27
This information appears only to state the ownership and potential ownership of
companies affiliated with the Fund. No one should buy the Fund with the
expectation of receiving shares in Privateer, and this prospectus is not an
offer of shares in Privateer.
The Fund may select companies without regard to diversification except, as the
Fund intends, to the extent necessary to preserve its tax exempt status. In
order to be tax exempt, the Fund may not invest more than 5% of its total assets
in second-tier conduit securities. "Second tier" securities are securities not
rated in the highest category by at least two nationally recognized statistical
rating organizations, and "conduit" securities are securities of municipal
issuers where another party provides for their repayment. Additionally, for tax
purposes the Fund cannot invest more than the greater of $1 million and 1% of
its total assets in second-tier conduit securities of a single issuer. A
well-diversified equity fund should hold at least 20 stocks, none constituting
more than 5% of the portfolio, in a variety of industries. The Fund may hold
fewer stocks and they may be concentrated by industry or type of company. Fund
shareholders should diversify on their own by holding other investments and
making sure that the Fund does not represent more than 5% of their total liquid
securities.
Apart from the usual risks of investing in common stock, investment in the Fund
carries with it additional risks including riskier-than-average stocks, possible
lack of diversification and the facts that it is a new fund exposed to start-up
risk and attempting a new management strategy.
FEES AND EXPENSES
The SEC mandates that fees be described in a standardized format to make it easy
to compare funds. For experienced mutual fund investors who prefer the short
form, the Fund will pay a 1% management fee to Privateer, the management
company, based upon net asset value, computed and payable 1/12th monthly in
arrears. Privateer will be responsible for all out-of-pocket expenses of the
Fund including brokerage commissions, which are excluded from the expense ratio
and paid by some other funds.
SEC Fee Tables
This table describes the fees and expenses that a Fund shareholder may pay if he
or she buys and holds shares of the Fund.
Shareholder Fees (fees paid directly from investment):
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) None
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
- --------------------------------------------------------------------------------
Redemption Fee None
- --------------------------------------------------------------------------------
</TABLE>
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Prospectus Page 4 of 27
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Exchange Fee None
- --------------------------------------------------------------------------------
Total Shareholder Fees None
- --------------------------------------------------------------------------------
</TABLE>
Annual Fund Operating Expenses (expenses that are deducted from Fund assets):
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Management Fee 1%
- --------------------------------------------------------------------------------
Distribution None
- --------------------------------------------------------------------------------
Other Expenses None
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1%
- --------------------------------------------------------------------------------
</TABLE>
Example: This example is intended to help shareholders compare the cost of
investing in the Fund with the cost of investing in other mutual funds. The
example assumes that a shareholder invests $10,000 in the Fund for the time
periods indicated and then redeems all his or her shares at the ends of those
periods. The example also assumes that the investment has a uniformly-received
5% return each year and that the Fund's operating expenses remain the same, at
1%. Although actual costs may be higher or lower, based on these assumptions a
shareholder's costs for the $10,000 investment would be:
<TABLE>
<CAPTION>
<S> <C>
1 Year 3 Years
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$102 $323
</TABLE>
Discussion of Fees
The Fund will pay a 1% annual fee (computed based upon net asset value and
payable 1/12th monthly in arrears) to Privateer for all management services.
This fee includes all out-of-pocket Fund expenses. Many other funds exclude
certain charges from their expense ratios, such as brokerage commissions. The
Fund believes that it is actually cheaper than many other funds with lower
stated expense ratios.
In addition there are expenses that some other funds do not even disclose. The
biggest can be taxes. While taxes are hard to measure, studies show that in many
instances taxes can add substantially to the true cost to a fund investor. Taxes
are not included in the 1% fee. However the Fund will undertake to minimize
them, to the extent consistent with overall Fund investment goals, and to
disclose them.
Transaction Costs
The classic study of transaction costs, Thomas F. Loeb, "Trading Costs: The
Critical Link Between Investment Information and Results," Financial Analysts
Journal, 39 no. 3 (May/June 1983), found that (a) commissions, (b) bid/ask
spreads and (c) market movement costs command a minimum of 2.1% of investment
for round-trip transactions in institutional-sized blocks (over $1,000,000). If
you multiply this by a fund's turnover in such trading ratio you can approximate
its hidden transaction costs. For example, this study instructs that a fund with
100%
<PAGE> 7
Prospectus Page 5 of 27
turnover probably has hidden costs of at least 2.1%, yet may show a stated
expense ratio of only 1.5% or so. The Fund eliminates one transaction cost --
commissions -- by passing them on to Privateer.
The Fund will attempt to minimize the remaining transaction costs in three ways,
although there is no guarantee it will be successful. First, it will attempt to
maintain a low turnover ratio. It intends to buy and hold. Second, it intends to
accumulate positions over several months, thereby minimizing risk of price
run-up. The Loeb study cited above shows that purchasing in $250,000 blocks,
instead of $1,000,000 blocks, can reduce transaction costs by 40% or more.
Third, the Fund intends to buy relatively few stocks at any one time, which
gives the portfolio manager the opportunity to pay especially careful attention
to the trading characteristics of each stock. Since she is not responsible for
stock selection, she can concentrate exclusively on trading. The Fund hopes that
this will allow her to reduce significantly the costs of acquiring positions.
Although the Fund cannot promise it will be successful in reducing transaction
costs such as bid/ask spreads and market movement costs or keeping them lower
than other funds, it can and does promise to disclose them. Once the Fund has
acquired its desired position in a stock, it will disclose not only the position
- - estimate related transaction costs on www.eRaider.com.
Tax Inefficiency Costs
House Resolution number 1089, sponsored by Representative Paul E. Gillmore and
others, states, "Taxes can be the single biggest cost associated with mutual
funds," and goes on to note that tax cost is generally not disclosed by funds. A
recent major study of mutual fund taxation was undertaken by KPMG Peat Marwick
(reported in Mutual Funds, August 1999, Pp. 71-74). KPMG found that mutual fund
investors (other than those whose fund investments were qualified retirement
plan funds) paid substantially more in taxes than if they participated in
tax-managed or tax efficient funds, namely those where long-term price
appreciation and long-term realized gains from fund positions were a substantial
portion of overall fund returns. In short, according to KPMG, some mutual fund
investors paid high prices in taxes for mutual funds that generated substantial
income and short-term capital gains.
Currently, long-term capital gains from sale of mutual fund shares held longer
than one year are taxed at a maximum federal rate of 20%, while investors can
pay up to 39.6%, or more, on fund distributions of non-exempt interest income
and short-term capital gains.
Unfortunately, the Fund cannot be 100% tax-efficient. It may buy stocks that pay
dividends and it may sell shares at a short-term profit under some
circumstances. It may also earn interest on cash balances. These have to be
distributed for the Fund to avoid a tax penalty. The Fund will attempt to
maintain a low turnover to reduce tax costs, but this strategy cannot eliminate
taxes.
The Fund undertakes to do three things. First, it will consider the tax
consequences of all transactions and only execute them if, in the opinion of the
portfolio manager, the benefits outweigh the tax costs to taxable shareholders.
This may mean holding positions for over one year when, as it develops, they
could have been sold at higher short-term profits earlier to the relative
advantage of tax free accounts. Second, the Fund will match tax lots rather than
reporting distributed gains on an average cost basis.
<PAGE> 8
Prospectus Page 6 of 27
Third, the Fund will disclose tax costs as soon as it deems prudent, allowing
shareholders to improve their tax planning and evaluate the Fund's tax
performance instead of getting a big surprise at the end of the year.
Effect of Costs
Some of these costs may appear small compared to the 14.4% average annual return
of U.S. equity funds over the last 10 years (as reported by Morningstar, Inc.
through May 31, 1999). But this is not a fair comparison. In the first place, a
mutual fund participant could have earned 7.4% during this same period in the
average government bond fund with very little risk. So all the extra risks of
stock investing were repaid with an additional return of 7% per year. Studies
have shown that over longer time periods, this "risk premium" for investing in
stocks has averaged about 4% per year. So, given this long-term experience, an
extra 1% or 2% in fund costs may be a significant fraction of the reward stock
mutual fund investors can expect.
FUND OBJECTIVE AND STRATEGY
The Fund seeks to maximize total return with only secondary regard for risk. Its
principal investment strategy is to buy and hold publicly-traded common stock of
carefully-selected U.S. corporations, ones that evince substantial capacity for
appreciation as a result of aggressive shareholder oversight. The investment and
management process has three steps.
1) First, the selection manager will select companies that he believes will
benefit from aggressive shareholder oversight. The selection manager has
wide discretion because the criterion requires subjective judgment about
business and company management. However, the following list gives some of
the characteristics that the selection manager may consider:
- - Under-utilized capital. This would include unused fixed assets or
excessive inventory.
- - Unresponsive management. This is often reflected in low stock ownership by
institutions, uninformative public announcements or dismissive responses
to shareholders inquiries.
- - Management that can use help. Organized shareholders can provide
expertise, contacts, capital raising and marketing help, especially for
smaller companies. Without interfering with day-to-day operations the Fund
believes that this can make a significant difference in a company's
performance.
- - Passive board of directors. For example, few or no independent directors
with the knowledge and experience to double-check management, and low
stock ownership by directors.
2) Second, the portfolio manager will acquire stock in the selected
companies. This is generally expected to be a slow process (several
months) in order to acquire a large stake (typically up to 5%) without
pushing up the price. The portfolio manager is responsible for monitoring
news about the stock and deciding at which prices to buy.
<PAGE> 9
Prospectus Page 7 of 27
Although the plan is to acquire a large stake, it is possible that news,
price movements or other market conditions will cause the portfolio
manager to stop acquiring the stock or sell the existing position.
3) Third, when the portfolio manager has acquired the desired stake, the
stock will be announced at the eRaider Internet site. eRaider will
encourage Fund shareholders and all other holders of the stock to
participate in a message board to discuss the company. eRaider intends to
supply extensive information and analysis about the stock, and encourages
a thoughtful interchange of informed opinion through the use of expert
moderators. Neither the portfolio manager nor the Fund will take part in
these discussions. The portfolio manager will monitor news about the
stock, vote the shares in the best interests of Fund shareholders, even if
that opposes the consensus if any on the eRaider message board, and buy or
sell the stock only in exceptional situations.
COMPARISON TO OTHER FUNDS
Mutual funds are usually sorted into categories according to objective and
strategy. The Fund does not easily fit into these categories. This section is
intended to help investors understand the similarities and differences between
the Fund and the nomenclature currently in popular use for various fund
categories.
The objective of stock mutual funds is usually measured on a scale from growth
to income. Strategy is usually measured on a scale from growth to value. Just to
make things confusing, "growth" means different things in the two scales. For
example, many funds have a "growth" objective and a "value" strategy.
Objective is commonly taken from a fund's prospectus and therefore different
information sources such as Morningstar or Lipper Inc. generally classify funds
the same way. It sometimes bears little resemblance to the way the fund is
actually managed, although things have improved in this regard in recent years.
Strategy is usually assigned by the information source and thus may differ in
different listings. Because it is determined by a third party, it is often more
reliable than the objective. On the other hand to the extent the classification
is based on arbitrary statistical criteria, it may not capture subtleties of a
fund's style.
Objective
There are two ways to make money from a stock, income from dividends or growth
in value. Income is generally more predictable than growth. Historically many
companies have not reduced dividends even when business conditions worsened.
Theoretically, stock price is a function both of expected income and perceptions
of long-term future possibilities. But, perceptions and possibilities can change
in a hurry. As a general rule income stocks (stocks that pay high stable
dividends as a percentage of share price) are safer than growth stocks (stocks
that pay no dividends). Therefore funds that invest in companies with high,
stable dividends are generally less volatile than funds that invest in
non-dividend-paying stocks.
<PAGE> 10
Prospectus Page 8 of 27
From lowest-risk to highest, mutual fund objectives are often sorted equity
income, growth and income, growth and aggressive growth. If income funds buy
stocks with expected above average-dividend yields and growth funds buy stocks
with above-average capital gains, potential portfolio companies that are
below-average in both categories may be overlooked. In fact, these companies
tend to have low institutional ownership. The Fund intends to select mostly from
this group of companies, looking for small and medium cap companies with
problems that can be fixed by shareholder oversight. Thus, the Fund's objective
does not neatly fit any of these four categories. Since the Fund does not have a
performance history to estimate risk, investors should proceed on the basis that
it will be at least as risky as an aggressive growth fund.
Strategy
Funds with an objective from equity income to aggressive growth can choose
either a value or a growth strategy to achieve it. In this sense "value" means
choosing companies with substantial earnings or assets per dollar of purchase
price. "Growth" often means paying a lot per dollar of earnings or assets to get
companies whose earnings are expected to grow quickly in the future. Blend funds
adopt a mix of both approaches. The best way to describe the Fund in relation to
these categories is that it has a pre-value strategy. The selection manager will
look for companies in which value to shareholders is either obscured or impaired
by lack of oversight. The Fund intends that active, insightful participation on
the eRaider site will unlock that value, making the stock attractive to value
funds.
At that point a more aggressive fund might sell the investment. The Fund,
however, intends to hold the position on the theory that continuing oversight
will produce continuing good performance. The Fund expects to invest substantial
time and energy in understanding its portfolio companies and does not consider
it efficient to devote that expenditure to what may be a one-time bounce in
stock price. Finally, the Fund wishes to maintain a low turnover ratio to
minimize transaction costs and taxes.
The Fund intends to borrow only on an exception basis.
Exceptions
The Fund may deviate from its main strategy in the following or like
circumstances.
1. Shareholder redemptions or IRS-mandated distributions may force the Fund
to sell investments. A protracted period of small inflows might lead the
portfolio manager to sell older investments in order to free up cash for
new ones.
2. The Fund intends to be unleveraged, but unexpected redemptions might cause
the Fund to borrow money. The portfolio manager will weigh the risk of
leveraged investments against the loss from selling stocks too quickly.
Borrowed funds will be repaid as quickly as the portfolio manager deems
prudent.
3. The Fund intends to be fully invested, but it may hold cash balances
including in anticipation of redemptions, but not for defensive reasons.
The Fund will model inflows and outflows statistically and attempt to
optimize cash balances to minimize costs to shareholders.
<PAGE> 11
Prospectus Page 9 of 27
4. The Fund's investment acquisition strategy is to research a company and
then allow months to build up a significant equity stake without moving
the market. If shareholder purchases come in faster than the Fund can
accommodate in its main strategy, it will make temporary investments.
These will consist of liquid equity investments designed to track major
diversified stock indices. The investments could consist of investments in
common stocks of large corporations, diversified securities such as
Standard & Poor's Depositary Receipts or high-quality short-term
investments combined with stock index futures. If these balances become
too large in the judgment of the portfolio manager, the Fund will consider
declining new shareholder investments temporarily.
5. The types of companies the Fund invests in may be or become attractive as
takeover targets and merger partners. Moreover, the Fund's investment
itself may contribute to putting the company "in play," which could
trigger legal and corporate finance maneuvers by other investors or
company management. In some cases, the portfolio manager may decide that
it is in the Fund shareholders' interests to accept a tender offer, in
other cases to increase the Fund's investment. Although the Fund intends
to be a passive investor, the portfolio manager will act in the best
interests of Fund shareholders even if that means increasing or decreasing
the position.
Pledge to Fund Shareholders
The Fund will not:
1. Lend the Fund's securities to short-sellers or anyone else.
2. Use derivatives to gain portfolio leverage. The only derivatives the Fund
will use are major stock index futures matched against high-quality,
short-term investments equal to the full nominal value of the futures
contracts. For example, entering into one S&P 500 futures contract is
equivalent to betting on the change in value of a stock portfolio worth
approximately $130,000. If the S&P 500 goes up or down 1%, one can make or
lose about $1,300. Since a futures contract can be acquired by putting up
only a small margin deposit, futures allow an investor to take risk
disproportionate to the capital employed. The Fund will enter into such a
contract only if it has an equivalent amount ($130,000 in the example)
invested in high-quality, short-term investments matched against it. In
other words, the Fund will use the futures contract as a quick way to buy
stock equivalents with excess cash, not as a way to leverage its
investment in stocks.
3. Solicit or accept any hard-dollar or soft-dollar kickback from any firm or
individual to execute trades or provide professional services.
4. Offer or pay any hard-dollar or soft-dollar kickback to any firm or
individual to distribute the Fund.
5. Sell our shareholder list to third party marketers.
6. "Window-dress" the Fund's portfolio, manipulate performance or
categorization to gain better fund ratings, manipulate expenses to inflate
performance, use "ask" or "average of bid and ask" prices to inflate net
asset value and Fund performance, or attempt to communicate with Fund
shareholders in any other misleading way.
<PAGE> 12
Prospectus Page 10 of 27
SUITABILITY
The Fund is intended for experienced investors with long investment horizons and
high risk tolerance. It is not prudent for an investor to put more than 5% of
his or her liquid security investments in the Fund. The Fund will invest in
risky securities, it is a new fund, its strategy may prevent diversification and
it is attempting a new mutual fund management strategy. Inexperienced and
risk-averse investors should find a more suitable fund.
RISKS
Risks of Common Stock Investments
The Fund shares all the risks of investing in common stock. The Fund's value
will change daily based on the changes of the market prices of the Fund's
investments. An investor can lose all the money he or she invests, and lose it
suddenly. Even a diversified investment in common stock of the largest companies
can be very risky. Historically this type of investment has declined 23% in one
day (October 19, 1987), 43% in a year (1931) and 85% over the period from August
1929 to February 1933. Worse than these one-time crashes are extended periods of
negative returns. For example, the stock market gave a negative total return
over the 14-1/4 year period from December 1928 to February 1943.
It gets worse: Inflation can destroy the value of stock market returns. Over the
18-1/4 years from July 1964 to September 1982 a stock market investor would have
tripled her money, but even though the stock market increase helped protect
against inflation she would have been able to purchase less with the $3 she had
in 1982 than the $1 she had in 1964.
Taxes can make the situation even grimmer. While taxes vary among individual
investors, they can take a significant part of the return. For example, suppose
a long-term investor earns 10% per year over a 40-year period during which
inflation is 4% per year. A tax-free investor would have $45 for each $1
invested but inflation would take some 80% of that gain so he would have
adjusted purchasing power of only $9. An investor paying 39.6% federal income
tax every year on total returns would end up with only $10 for each $1 invested
instead of $45. Inflation would reduce the value of that down to $2. Doubling
your purchasing power in 40 years is not the kind of return most persons have
come to expect from the stock market.
The trouble is that under current laws, taxes and inflation combine
mathematically to more than the sum of their parts: 4% annual inflation plus
39.6% taxes each year can virtually eliminate respectable long-term investment
returns. The Fund hopes to select companies whose value will rise faster than
inflation, and hold them in a way that minimizes taxes, but it may not succeed.
Adding to the foregoing risks is the fact that, historically, funds have
consistently underperformed main indices such as the S&P 500. According to
Morningstar the average U.S. equity fund underperformed the S&P 500 by 4.8% per
year during the ten
<PAGE> 13
Prospectus Page 11 of 27
years ended May 31, 1999. The Fund hopes to beat broad stock indices but most
funds that try, fail.
Additional Risks of the Fund: Selection, Strategy, Manager and Start-up
The Fund adds four additional major risks to the ones above. First are risks of
the type of company the Fund selects. The Fund intends to invest in small and
medium capitalization companies with more problems than the large ones that
dominate the main indices. Although the Fund does not have size limits on the
companies it will buy, companies with market capitalizations above $500 million
are more likely than smaller companies to already have adequate shareholder
oversight. Also stable, well-managed companies are more likely than others to
attract institutional investment, which often leads to institutional shareholder
oversight. In other cases institutions can side with management, frustrating
effective oversight from individual shareholders. These factors encourage the
Fund to look for targets among smaller, less-stable companies with more problems
than average.
The second major additional risk factor results from the Fund's portfolio
strategy. The Fund will sacrifice diversification for companies the selection
manager believes have the highest return potential. Non-diversified portfolios
have much greater volatility than diversified ones. In addition, the Fund will
invite shareholders to use the eRaider.com message board to discuss company
positions held by the Fund. The effect of this experiment is unknown.
The eRaider message board may anger company management and thereby disrupt
rather than foster shareholder communication with management. Some Internet
message boards have attracted misinformation. Others have revealed confidential,
insider or stolen information. These types of posts could damage a company's
investment standing and business prospects. Another possibility is that too much
attention to the opinions of small shareholders could cause company management
to disregard their greater expertise and information and choose a popular
decision over a sound long-term strategy. While the Fund believes that this risk
exists in any event for all companies and that establishing a responsible forum
reduces them, the Fund may be wrong.
All mutual funds are exposed to manager risk. The selection manager may not
choose profitable companies for investment and the portfolio manager may not
execute the Fund's strategy effectively. The Fund is similar to an index fund in
that it intends a buy-and-hold strategy with the security selection decision
separated from the daily buying and selling. The Fund believes this reduces
manager risk.
All new funds are exposed to start-up risk. A new organization has more chance
of making mistakes than an established one. Plus inflows and outflows as a
percentage of total fund assets are more volatile in new funds. The Fund has
more start-up risk than many new funds since it is not part of an established
fund family and is pursuing an untested investment strategy.
<PAGE> 14
Prospectus Page 12 of 27
Other Risks: Interest Rates, Y2K and the Unknown
The Fund will be exposed to interest rate changes and other nominal
macroeconomic factors (that is, changes in numbers like inflation or interest
rates as opposed to events like layoffs or inventions). However, the type of
securities the Fund expects to buy have historically been more influenced by
company-specific risks, overall stock market fluctuations and changes in real
economic activity. All factors are interrelated so that, for example, a rise in
interest rates (a nominal macroeconomic factor) could reduce the credit sales of
one of the Fund's companies (a real microeconomic result). It is also important
to recognize that while certain risks may be smaller in stock market impact than
real risk, they can still be a significant risk in an absolute sense.
Many computer systems are unable to distinguish the year 2000 from the year
1900. This is popularly referred to as the "Y2K" problem. The Fund believes that
its internal management systems are not subject to this problem and has received
assurances from Privateer and eRaider that they have complied with industry
standards designed to prevent breakdown. However failure of computer systems
used for securities trading, such as the New York Stock Exchange ("NYSE")
systems, could prevent the Fund from making transactions, cast into doubt
transactions that were made and cause overall securities prices to fall. Also
the companies owned by the Fund may incur losses from Y2K problems. This could
reduce their market value and hence the market value of the Fund.
The Fund will also be subject to unknown future factors. There can be no
assurance that the Fund's investment strategy will address or address
effectively these or other risk factors.
MANAGEMENT
The Fund considers this the most important part of the prospectus. Throughout
this document, something called "the Fund" has made statements and promises.
But who will implement and carry out these promises?
The issue of honesty and trust should be addressed squarely. Before making an
investment in the Fund an investor should accept its approach to investing as
described in this prospectus and trust that the persons involved will carry out
that strategy in the shareholders' best interests. An investor should have good
reason to believe that Fund management and its board members are honest and
capable, and that they take their duties to shareholders seriously.
The Fund is a Maryland corporation owned by its shareholders, the persons who
invest in the Fund. It is incorporated in Maryland (as are many other mutual
funds) because that state does not require annual shareholder meetings. The
Fund's shareholder participation program is intended to ensure an adequate
opportunity for presentation of shareholder views.
The board of the Fund is the group charged with ultimate responsibility for
making sure the Fund acts in the best interests of Fund shareholders. Before
discussing the board itself, there are more fundamental questions. Who selected
the board? Who is writing this prospectus?
<PAGE> 15
Prospectus Page 13 of 27
Sponsors
This is the little secret left out of many other fund prospectuses. To start a
mutual fund requires substantial funding. Those -- the sponsors -- who put up
that money have wide discretion to set the rules of the fund and select its
directors, at least initially. Thus, it is important for investors to know who
they are and how they fit in, and who may profit from shareholder purchases so a
prospective investor can decide before making a decision to invest.
The reason this often is left out of most prospectuses may be that the sponsor
is not allowed to bill the fund start-up costs. Thus, the sponsor can only make
money by selling services to the fund above cost. Usually the sponsor acts as
the management company or the distributor or both.
This creates a potential conflict. A sponsor has an incentive to set the
management and distribution fees at a level to maximize its profit. Yet the
board is charged with running the fund solely for the benefit of fund
shareholders, which generally means they should try to keep these fees low. The
seller of services (the sponsor) wants as high a price as possible, the buyer
(the board) wants to pay a responsible minimum price. The trouble is that the
sponsor picks the initial board. With any mutual fund, including this one,
investors should ask themselves if they trust the board to deal at arm's length
with the sponsor and keep fees as low as possible given quality service. Even
more important, will the board actively seek the best service providers for the
fund, or will they automatically give all business to the sponsor?
This presents a dilemma even for the sponsor. If ethical, it will wish to
appoint a strong, knowledgeable board that will guard shareholder interests
fiercely. But the sponsor must negotiate with this same board to set the fees it
requires to recoup its investment in forming the Fund. A sponsor stands to
profit more if the board is packed with friends and employees.
Rather than sweeping this unpleasant topic under the rug, the Fund wishes to
address it squarely. The answer is not perfect. Some potential investors may
feel that it does not give them adequate protection. If this view persists, they
should find other investments. Anyone who invests in the Fund should be
compatible with the logic behind the management design.
Investment Adviser
The Fund has retained Privateer to act as investment adviser and manager. The
Fund sponsors and one of its directors are shareholders in Privateer. At present
Mr. Brown and Dr. Stoller each owns approximately 33% (which is expected to
decline over the next three years to 20% each) of Privateer's intended
capitalization; a further approximately 33%, which is expected to decline over
the next three years to 20%, is held by or reserved for Fund directors and
others who contribute time and services to Privateer, with the balance of what
will decline to 40% is reserved for distribution without charge to shareholders
in the fund and other funds that may be managed by Privateer. Such distribution
is planned to be made on a purely subjective basis by Mr. Brown and Dr. Stoller
to shareholders who participate with their views on the eRaider web site.
Privateer will furnish all investment, compliance and administrative services to
the Fund for a 1% management fee. This contract will remain in effect for two
years from the date of its initial approval, and is subject to annual approval
of the Fund board for one-year periods thereafter. It can be cancelled upon 60
days' written notice by either party.
<PAGE> 16
Prospectus Page 14 of 27
Privateer is permitted to subcontract such services as necessary. It
currently has contracts with American Data Systems, Inc. ("ADS"), to provide
administrative, stock transfer and accounting services. It has a contract
with Union Bank of California, N. A. ("Union Bank") to act as custodian.
Initially, Privateer's only business will be providing services to the Fund.
However, Privateer intends to engage in other investment management businesses
yet to be developed.
This prospectus was written by Aaron Brown (42) who will be employed by
Privateer to serve as the selection manager for the Fund. Mr. Brown is
instructor of finance at Yeshiva University in New York and writes a weekly
mutual fund advice column for Sage Online, where he also answers questions about
mutual fund investing on a message board. He has an M.B.A. in finance from the
University of Chicago and a S.B. in applied mathematics from Harvard College.
For the last ten years his only full-time employment has been with Yeshiva
University, but he has done consulting work for J. P. Morgan & Co., Rabobank
Nederland and other large banks, Prudential Insurance Company of America and
American Management Systems Incorporated. Prior to Yeshiva University, Mr. Brown
taught finance at Fordham School of Business in New York and was a director of
Lepercq de Neuflize Inc. For the past 12 years Mr. Brown has also managed
private money, and today has approximately $24 million under management. He has
worked strictly on a performance compensation basis for his private asset
management. As the strategies carried out by Mr. Brown in private asset
management differ from those intended for the Fund, no meaningful comparison
with respect to prospective Fund results can be made. Mr. Brown is in the
process of reorganizing his investment management business to devote more time
to the Fund.
Mr. Brown has been active in the design of every aspect of the Fund. He and his
partner, Martin Stoller (43), funded all start-up expenses. Dr. Stoller is a
clinical full professor of Communication at the Kellogg School of Management,
Northwestern University. He holds a B.S. and an M.A. in communication studies
and a Ph.D. in rhetoric from Northwestern University. Dr. Stoller also has
been a full-time college professor for the last ten years but does extensive
outside work in corporate communications and crisis management. Clients have
included a number of major companies including Microsoft, Hyatt Hotels, Apple
Computer, Kidder-Peabody, Bristol-Myers-Squibb, The Boston Consulting Group,
Continental Bank, Kraft General Foods and Abbott Laboratories. He currently
serves as a director of and special advisor to CyBear Inc. and member of the
advisory board and special communications manager for Andrix Pharmaceuticals.
Aside from funding and general advice, Dr. Stoller has not been directly
involved with the Fund, but he is indirectly involved through the eRaider
Internet site. He is an equal owner with Mr. Brown of eRaider.
Mr. Brown is married to Deborah Pastor (42), who will be employed by
Privateer to serve as portfolio manager. Ms Pastor has an M.B.A. in finance
from the University of Chicago and a B.A. from Yale University. In the last
ten years she has worked for the Bank of Montreal and J. P. Morgan & Co. At
both banks she gave advice to corporate treasury departments of large
companies and coordinated implementation with bank traders. She has also
worked as the foreign exchange manager of United Brands
<PAGE> 17
Prospectus Page 15 of 27
Incorporated and for European American Bank in commodity finance. For the past
two years, Ms Pastor has been working with Mr. Brown, managing some $24 million
for private clients and developing (but not practicing) the Internet mutual fund
idea that has become the Fund.
These three sponsors created the Fund primarily for the purpose of putting the
eRaider idea to work. Ms Pastor and Mr. Brown will each receive salaries of
$125,000 per year from Privateer, she as portfolio manager and he as selection
manager. As noted above (see "Management/Investment Adviser"), Mr. Brown and
Dr. Stoller own collectively 66% of Privateer and 100% of eRaider, businesses
whose value depends in part on the success of the Fund. There is no other
direct or indirect financial benefit that the sponsors will receive in
connection with the Fund.
Board of Directors
The next step in organizing the Fund was appointing the initial board of
directors. Being a director is a lot of work and carries substantial liability
risk. So the only persons who will agree to serve are those who like and trust
the sponsors. That means they may not truly be independent, and may be disposed
to care more about getting the sponsors' money back than defending interests of
Fund shareholders.
A related issue is pay. The Fund requires directors with top professional
credentials, who generally expect to be paid well. If the pay is too low, only
friends of the sponsor will serve. If the pay is too high, directors will
quickly become friendly with the sponsor. Also, high pay for directors can add
significantly to the expense ratio of a small fund.
Finally there is the issue of management consensus. It makes no sense to design
a fund one way, then appoint directors who will immediately change it. Investors
have a right to expect that directors agree with the ideas in the prospectus.
But a board of like-minded people may find it difficult to act independently of
management.
The Fund did not solve all these problems but it balanced each issue and came up
with what it considers a pretty good compromise. When the Fund is declared
effective it will have five directors. Mr. Brown will serve on the board because
he knows the most about the overall concept of the Fund and will be able, as
Fund president, to carry out the board's decisions efficiently. The other four
directors were selected so that collectively they could efficiently and
effectively oversee all aspects of the Fund themselves. They possess the
expertise to evaluate management's performance and, if necessary, change the
management company. They could even take over management of the Fund.
None of the four independent directors will receive any direct or indirect
financial compensation from the Fund, Privateer, the sponsors or eRaider except
as detailed here. They will meet monthly, so they were all selected from the New
York area. All are friends of Mr. Brown's, but they did not know each other
prior to being selected as directors and the Fund believes all have the
character to place duty above friendship. None of them has had prior business
dealings with each other or with any sponsors.
Rita Robbins (42) will serve as director and board chair. She has over 20 years'
experience in mutual fund operations and distribution. For the last five years
she has been sales & marketing manager for Washington Square Securities Inc. in
charge of
<PAGE> 18
Prospectus Page 16 of 27
over 3,000 registered representatives. Prior to that she was a regional manager
for Lord Abbett & Co. for ten years, director of mutual fund marketing for
Nathan & Lewis Securities, Inc. for a year and assistant operations manager
for PaineWebber Group Inc. for three years. She currently serves as a member
of the Securities Industry Institute of the Securities Industry Association.
Paul Zarowin (43) is assistant professor of accounting at the Stern School of
Business, New York University. He has a B.A. from the University of
Pennsylvania and an M.B.A. in finance and a Ph.D. in Business Economics from the
University of Chicago. For the last ten years he has been a full-time
professor at Stern. He is a leading expert in the use of financial statements
to predict securities prices. He is the author of two classic studies in the
field, "Does the Stock Market Overreact to Corporate Earnings Information?"
(Journal of Finance, December 1989, vol. XLIV, no. 5 pp. 1385-99) and "Size,
Seasonality and Market Overreaction" (Journal of Financial and Quantitative
Analysis, March 1990, vol. 25, no. 1, pp. 113-125).
Anne Miller (39) holds a B.S. in computer science from Duke University and an
M.B.A. from Harvard Business School. For the last five years she has been
president of the Oryx Group, Inc. a consulting company specializing in
evaluating business opportunities and acquisitions for pharmaceutical
companies. Prior to that she worked in strategic planning for Bristol-Myers
Squibb Company and automated measurement and manufacturing for General
Electric Company.
John Capela (51) holds B.A. and M.B.A. degrees from Long Island University.
He has over 30 years' experience in management, mostly outside the U.S. For
the last ten years he has devoted himself to teaching including at Yeshiva
University Sy Syms School of Business where he is an instructor in management
and at the New York Institute of Technology School of Management. He serves
as president of Cade International, which provides consulting and training
services. Through Cade his consulting clients have included the learning
Annex of New York, Inc., Nassau Community College, New York Institute of
Technology, St. John's University, YWCA, Fehrmann Industries and Hy-Tech
Industries.
Duties of the Board
The board will meet monthly for face-to-face meetings to review all matters
materially pertaining to the Fund. Between meetings, board members will keep in
touch with their particular areas of responsibility. If they feel it
appropriate, they will communicate with other board members to discuss events
and take action.
All board members will maintain up-to-date information pages at the eRaider
Internet site. These pages will analyze the Fund's performance. The areas will
be fund operations, shareholder services and fees (Ms Robbins), fund accounting
(Mr. Zarowin),business prospects of the fund's stocks (Ms Miller) and management
and oversight issues at the Fund's companies (Mr. Capela). Anything, including
stock selection, that does not fit into these categories will be addressed by
Mr. Brown. Each director will be responsible for her or his own Internet pages.
Each set of pages will be associated with a message board for Fund shareholders
and the public to ask questions
<PAGE> 19
Prospectus Page 17 of 27
and make comments or suggestions. Directors will read these messages and, if
they feel it appropriate, respond.
In keeping with eRaider philosophy, the Fund hopes that each Board member's area
will attract thoughtful discussion by shareholders who will provide collective
Fund oversight. The Fund hopes to recruit future directors from message board
participants. The message boards will serve as an important link between Fund
management and Fund shareholders.
Compensation of the Board
The outside directors will be given $150 in Fund shares for every monthly
meeting they attend in person plus a one-time grant of 500 shares in Privateer,
representing 0.5% of its authorized capital.
These arrangements are only for the first year of Fund operation. By the end of
the first year, the Fund hopes to have active oversight by Fund shareholders.
The Fund intends to encourage active discussion among such shareholders about
who should serve on the board and how they should be paid. The perfect solution
would be to find independent Fund shareholders with the necessary expertise who
are willing to serve merely to protect their own investment and for whatever
honor it confers. This is a Fund goal.
Fund Officers
The Fund has three officers, Mr. Brown, president, Ms. Pastor, vice
president and Dr. Stoller, secretary. The Fund business is managed by
Privateer.
Code of Ethics
The Fund has adopted a code of ethics that restricts personal trading by Fund
officers and directors and by Privateer and eRaider officers and directors and
persons associated therewith of stocks the Fund acquires or intends to acquire.
The officers, directors, the portfolio manager and selection manager have signed
the code. The Fund will attempt to ensure that all other persons with access to
investment information also sign the code. It also forbids disclosing the names
of prospective securities and commenting on the prospects of these securities to
anyone who has not signed the code. The code allows investments in broad-based
public mutual funds that may purchase or own such securities; investments in the
Fund itself, although this will represent an indirect purchase of such
securities; and trading such securities in an account where the code
signatory has no control over investment selection.
These provisions are designed to ensure that the interests of the Fund and its
shareholders come before the interests of persons who manage the Fund or its
affiliates. The board will, from year to year, re-approve the code after
consideration of any appropriate revisions. The board may also waive provisions
in specific cases.
<PAGE> 20
Prospectus Page 18 of 27
Portfolio Transactions and Brokerage Commissions
Portfolio transactions for the Fund will generally be executed with
broker/dealers on an agency basis. The portfolio manager will be responsible for
placing all orders for purchases and sales of the Fund's securities.
In selecting broker/dealers the portfolio manager will seek the most favorable
price and execution and may not consider research and brokerage services
furnished to the Fund or to Privateer or eRaider, or any of their affiliates.
The portfolio manager will not consider sales of the Fund's shares as a factor
in the selection of broker/dealers.
The portfolio manager will consider the total cost of acquiring the Fund's
desired stake, rather than the individual costs of each trade. Because the Fund
intends to acquire relatively large stakes, the portfolio manager may find it
useful to use several small broker/dealers to reduce price impact, even if this
increases brokerage commissions and bid/ask spreads. In other cases, the
portfolio manager may elect to steer all orders to a single large broker/dealer
in return for reduced fees and spreads. This is a matter of delicate trading
judgment and is left to the discretion of the portfolio manager.
Administrator
Privateer will subcontract administrative services to ADS, which has its
principal office at The Hauppauge Corporate Center, 150 Motor Parkway,
Hauppauge, New York 11788. ADS is primarily in the business of providing
administrative, fund accounting, state securities law and compliance and stock
transfer services to retail and institutional mutual funds with approximately $3
billion of total assets through its offices in New York, Denver, Tampa and Los
Angeles.
Pursuant to administrative service agreements with Privateer, ADS will provide
all administrative, blue sky, accounting and transfer services necessary for the
Fund for a minimum annual fee of $45,000 or 0.15% of Fund assets, whichever is
greater. Privateer will also reimburse ADS for any out-of-pocket expenses. In
addition, ADS will serve as the Fund's transfer agent and perform fund
accounting services for which it will be paid separately by Privateer. For
additional information, see section "Custodian Transfer Agent and Dividend
Agent."
VALUATION OF SHARES
The Fund will compute its net asset value, which, using the number of shares
outstanding, determines price per share on each day the New York Stock Exchange
is open for business as of the regular close of trading. Shareholders should be
aware that the major stock exchanges are considering changing their trading
hours. The Fund reserves the right to modify its pricing procedures to reflect
changes in stock trading practices.
Portfolio securities for which market quotations are readily available are
valued at "bid" price. "Bid" price is the price at which dealers are willing to
pay and "ask" price is the price at which dealers are willing to sell. The bid
price is almost always lower. The Fund believes that bid prices are a better
indication of what the Fund assets would actually fetch if they were sold, and
therefore a fairer reference for computing net asset value.
<PAGE> 21
Prospectus Page 19 of 27
Of course, shareholders should be aware that there is no guarantee the Fund
assets could be sold at the bid price. Since Fund shareholders will both buy and
sell at net asset values computed from bid prices, it will generally make no
difference to them on average that bid prices are used to compute net asset
value.
Portfolio securities for which market quotations are not considered readily
available are valued at fair value on the basis of valuations furnished by a
pricing service approved by the board of directors, which determines valuations
for normal, institutional-size trading units of such securities using methods
based on market transactions for comparable securities and various relationships
between securities that are generally recognized by institutional traders.
Short-term investments held by the Fund that mature in 60 days or less will be
valued at amortized cost, which approximates market value. All other securities,
assets and liabilities will be valued at their fair value following procedures
approved by the board.
HOW TO PURCHASE SHARES
General Purchase Information
The minimum initial investment in the Fund is $2,500. The Fund may waive such
minimum initial investment from time to time. As a "no-load" mutual fund, the
Fund's shares may be purchased at its net asset value per share next determined.
If an order is placed with a broker/dealer, or other financial institution, the
broker/dealer or other financial institution is responsible for promptly
transmitting the order to the Fund. It may charge a fee for executing that
order, but the Fund will neither share in that fee nor pay any additional fee.
Shares of the Fund may be purchased directly by an investor opening an account
by mail or by phone using federal funds wire transfer or check. Shares are
deemed to be purchased as of the time of determination of the Fund's net asset
value on the day the purchase order in good form for the purchase of its shares
and purchase funds are received. Investors may make systematic investments in
fixed amounts automatically on a monthly basis through the Fund's automatic
investment plan.
Purchase by Telephone
To open an account by telephone, investors may call (800) _________ or e-mail
[email protected] to obtain an account number and instructions. Information
including the appropriate federal tax identification number concerning the
account will be taken over the phone. Funds may be sent by check or wire.
Wiring Funds
After opening an account by telephone, shares of the Fund may be purchased by
wiring funds to Union Bank. The sending bank may charge a fee for doing so (see
instructions below). The purchase wire transfer instructions should be
formulated as follows:
<PAGE> 22
Prospectus Page 20 of 27
Union Bank of California, N.A.
ABA# 0420-0001-3
Acct No. ______________
F/B/O Imperial Bank Fund
_____________ F/F/C: ___________
Shareholder Acct. No. ___________
Shareholder Acct. Name: ______________________
Investors must mail a signed application to the transfer agent at the address
listed below in order to complete an initial wire purchase. Wire orders will be
accepted only on a day on which the Fund, the custodian and the transfer agent
are open for business. A wire purchase will not be considered made until the
wired money is received by the Fund, despite delays that may occur in bank
processing. There will be no fee for receipt of wired funds.
Purchase by Mail
Subject to acceptance by the Fund's transfer agent, an account may be opened by
completing and signing an account application and mailing it to the Fund at the
address noted below, together with wire transfer or a check payable to:
The Allied Owners Action Fund Inc.
c/o American Data Services, Inc.
P.O. Box 5536
Hauppauge, N.Y. 11788-0132
Payment for the purchase of shares received by mail will be credited to the
shareholder's account at the net asset value per share next determined after
receipt. Prospective investors will be assessed a $15 charge for returned
checks.
Additional Investments
Additional investments of $100 or more may be made at any time by mailing a
check to the Fund at the address noted above under "Purchase by Mail" or by
wiring funds to the custodian bank.
Other Purchase Information
Investors should be aware that the Fund's account application contains
provisions in favor of the Fund, the transfer agent and certain of their
affiliates, excluding such entities from certain liabilities (including losses
resulting from unauthorized shareholder transactions). The purchase price paid
for Fund shares is the net asset value of the shares next determined. The Fund
reserves the right to reject any subscription for shares.
<PAGE> 23
Prospectus Page 21 of 27
The Fund must receive an order by the close of business on any business day for
the purchase to be effective that day. If funds are received after the close of
business, the purchase will become effective on the next business day. All
purchases of the Fund's shares will be made in full and fractional shares
calculated to three decimal places.
Shares of the Fund may also be sold by the Fund at the current net asset value
to corporations or other institutions such as trusts, foundations or
broker/dealers purchasing for the account of others. Investors purchasing and
redeeming Fund shares through broker/dealers may be charged a transaction-based
fee or other fee for services. Each such entity shareholder is responsible for
transmitting to its customers a schedule of any such fees and information
regarding any additional or different conditions regarding purchases and
redemptions. Customers of such entities should read this prospectus in light of
the terms governing accounts with their organization. The Fund does not pay
compensation to, or receive compensation from, broker/dealers for the sale of
its shares.
HOW TO REDEEM SHARES
General Redemption Information
A Fund shareholder may redeem all or a portion of his or her shares on any day
that the Fund values its shares (please refer to section "Valuation of Shares"
above for more information). Shares will be redeemed at the net asset value next
determined after receipt of instructions in "good order" as explained below. The
Fund's net asset value is likely to fluctuate on a daily basis.
To redeem shares, a shareholder may either contact a broker/dealer or financial
institution with an oral request or send a written request directly to the
transfer agent. This request should contain the dollar amount or number of
shares to be redeemed, Fund account number and either a social security or tax
identification number. A redeeming shareholder should sign the redemption
request in exactly the same way the account is registered. If there is more than
one owner of Fund shares, all owners must sign. A signature guarantee is
required for redemptions over $5,000. Shareholders should contact the transfer
agent for more details. The value of shares redeemed may be more or less than
the purchase price, depending on the market value of the investment securities
held by the Fund.
Redemption by Mail
The Fund will redeem its shares at the net asset value next determined after the
request is received in "good order." Requests should be addressed to The Allied
Owners Action Fund Inc., c/o American Data Services, Inc., P.O. Box 5536,
Hauppauge, N.Y. 11788-0132.
Requests in "good order" must include the following documentation: a letter of
instruction specifying the number of shares or dollar amount to be redeemed,
signed by all registered owners of the shares in the exact names in which they
are registered and any required signature guarantees (see "Signature Guarantees"
below).
<PAGE> 24
Prospectus Page 22 of 27
Signature Guarantees
To protect shareholder accounts, signature guarantees are required to enable the
Fund to verify the identity of any shareholder who authorizes a redemption of
$5,000 or more from an account. Signature guarantees are also required for
redemptions where the proceeds are to be sent to someone other than the
registered shareholder at the registered address and for share transfer
requests. Signature guarantees may be obtained from eligible financial
institutions, including banks, trust companies, credit unions, brokers/dealers,
savings and loan associations and participants in the Securities Transfer
Association Medallion Program ("STAMP"), the Stock Exchange Medallion Program
("SEMP") or the New York Stock Exchange Medallion Signature Program ("MSP").
Shareholders may contact the Fund at (800) _________ or e-mail
[email protected] for further details.
Redemption by Telephone
If a shareholder elects to allow telephone redemptions shares may be redeemed by
calling the Fund at (800) _________ and requesting that the redemption proceeds
be mailed to the primary registration address or wired per the authorized
instructions.
If a shareholder authorizes telephone redemption, the Fund and the transfer
agent may act on telephone instructions from the shareholder subject to
appropriate verification. The transfer agent's records of such instructions are
binding and each shareholder bears the risk of loss in the event of unauthorized
instructions reasonably believed by the Fund or its transfer agent to be
genuine. The Fund will employ reasonable procedures to confirm that instructions
communicated are genuine. The procedures employed by the Fund in connection with
transactions initiated by telephone may include tape recording of telephone
instructions and requiring some evidence of personal identification prior to
acting upon instructions.
Payment of Redemption Proceeds
After investor shares have been redeemed, proceeds will normally be mailed
within three days but in any event not later than seven business days after
receipt of the redemption order in good form, except that payment may be
postponed or the right of redemption suspended for more than seven business days
under unusual circumstances, such as when NYSE trading is suspended. Payment of
redemption proceeds may also be delayed if the shares to be redeemed were
purchased by a check drawn on a bank that is not a member of the Federal Reserve
System, until such check has cleared the banking system (up to 15 business days
from the purchase date).
If the board determines that it would be detrimental to the best interests of
the remaining shareholders of the Fund to make a payment wholly or partly in
cash, the Fund may pay the redemption proceeds in whole or in part by a
distribution in-kind of readily marketable securities held by the Fund.
Investors generally will incur brokerage charges on the sale of portfolio
securities so received in payment of redemptions.
<PAGE> 25
Prospectus Page 23 of 27
Involuntary Redemption
The Fund reserves the right to redeem a shareholder account at any time the net
asset value of the account falls below $2,500 as the result of a redemption
request.
SHAREHOLDER SERVICES
The Fund offers several shareholder service options to make shareholder accounts
easier to manage, which are listed on the account application. Investors should
make note of these options and select the ones appropriate for them.
Automatic Investment Program
Investors may arrange to make additional automated purchases of Fund shares by
completing the required section of the account application included with this
prospectus. Investors can automatically transfer $100 or more per month from
their bank, savings and loan or other financial institution to purchase
additional shares.
Telephone Transaction Privileges
If a shareholder holds shares in an account with the transfer agent, he or she
may secure telephone privileges by completing the required section of the
account application included in the prospectus. The transfer agent can furnish
an additional application. It may be difficult to reach the Fund by telephone
during periods when market or economic conditions lead to an unusually large
volume of telephone activity. Shareholders who cannot reach the Fund by
telephone should contact their broker/dealer or financial institution or issue
written instructions to the transfer agent at the address set forth herein. See
sections "Management" and "Custodian, Transfer Agent and Dividend Agent." The
Fund reserves the right to modify, suspend or terminate telephone services at
any time without notice.
Tax-Qualified Retirement Plans
The Fund is available for tax-deferred retirement plans. If interested,
shareholders should communicate with the Fund and request the appropriate forms
for:
- - Individual Retirement Accounts ("IRAs") and Roth IRAs;
- - 403(b) plans for employees of public school systems and non-profit
organizations;
- - 401(k) plans; or
- - profit-sharing plans and pension plans.
Shareholders may also transfer their tax-deferred plan balance to the Fund from
another company or custodian. Call (800) __________, e-mail at
[email protected] or write the Fund for an account transfer form.
Confirmation of Transactions and Reporting of Other Information
The Fund will mail confirmations of all shareholder purchases or redemptions of
Fund shares. Shareholders will also receive account statements on a quarterly
basis. This
<PAGE> 26
Prospectus Page 24 of 27
information will be provided from the broker/dealer or financial institution.
Shareholders will also receive various IRS forms after the first of each year
detailing important tax information. The Fund will supply annual and semi-annual
reports that list securities held by the Fund and include its current financial
statements.
DIVIDENDS AND DISTRIBUTIONS
The Fund will distribute (or reinvest as directed) its net investment income and
net realized capital gains annually. Distributions from capital gains will be
made after applying any available capital loss carryovers.
As a shareholder, you can choose from three distribution options:
- - reinvest all distributions in additional Fund shares;
- - receive distributions from net investment income in cash while reinvesting
capital gains distributions in additional shares; or
- - receive all distributions in cash.
Shareholders can change their distribution option by notifying the Fund in
writing. If an option is selected when the account is opened, all distributions
will be reinvested in additional shares of the Fund at net asset value.
Shareholders will receive a statement confirming reinvestment of distributions
in additional shares promptly following the end of each calendar year.
If a check representing a distribution is not cashed within a specified period,
the transfer agent will notify shareholders that they have the option of
requesting another check or reinvesting the distribution in the Fund. If the
transfer agent does not receive notice of election, the distribution will be
reinvested in the Fund at the current net asset value per share. Similarly, if
correspondence sent by the Fund or the transfer agent is returned as
"undeliverable," all Fund distributions will automatically be reinvested in the
Fund.
TAXES
Status
The Fund is a corporation for federal income tax purposes under the Internal
Revenue Code of 1986, as amended. However, the Fund intends to qualify and to
elect to be treated as a regulated investment company. If so qualified, the Fund
will not be liable for federal income taxes to the extent it distributes its
taxable income to shareholders. State income taxes on mutual funds differ, but
most states follow the federal rules, except with regard to government-issued
bonds.
Tax-Deferred Accounts
Shareholders that hold Fund shares in a tax qualified account, such as an IRA or
a 401(k), will owe federal taxes if they withdraw the money and fail to reinvest
it during the permitted period. Those taxes will depend on the type of account:
deductible (all
<PAGE> 27
Prospectus Page 25 of 27
withdrawal taxed), non-deductible (only profit taxed) or Roth (no tax). Taxes
will not depend on how the mutual fund earned the money.
Taxable Accounts: Income and Capital Gains
When a shareholder invests in any mutual fund in a taxable account, he or she
pays two kinds of taxes.
1. Annually the Fund may make or credit the shareholder with a distribution.
Shareholders must pay tax on this amount even if they have the
distribution automatically reinvested in the Fund.
2. When shareholders sell their Fund shares they will owe tax on the profit,
if any. If a shareholder has a loss on sale of Fund shares, the loss will
be a capital loss that, subject to important restrictions, can be used to
reduce the shareholder's income taxes. The calculation of profit or loss
can be complicated if shareholders buy at more than one time, or reinvest
distributions. The Fund intends to offer on-line support at eRaider.com
for tax questions about the Fund.
For tax purposes, money can be either income or capital gain. Investment income
includes dividends from stocks and interest payments from bonds or CDs. Capital
gains represent profits from selling securities, either Fund shares sold by Fund
Investors or Fund positions sold by the Fund itself, at a gain. The computation
of the gain or loss and the distinction between income and gains are subject
sometimes complicated IRS rules and tax precedent.
Long-Term Versus Short-Term
A capital gain can either be long-term (more than one year) or short-term. For
most investors, short-term capital gains are taxed like income, but there are
important exceptions. Investors in federal tax brackets of 28% or above will pay
only 20% tax on long-term capital gains. Therefore, it makes sense for most
investors to get as much of their return as possible in the form of long-term
capital gains.
The distribution from the Fund will be accompanied by a statement that shows how
much is income, how much is short-term capital gain and how much is long-term
capital gain. These numbers will impact a shareholder's federal tax return as if
he or she had received them through direct purchases of stocks or bonds. Whether
a gain is long-term or short-term depends on how long the Fund held the
investment, so short-term Fund shareholders can receive long-term gain
distributions and long-term Fund shareholders can receive short-term gain
distributions.
The capital gain or loss when shareholders sell Fund shares will be short-term,
if held for less than one year, or long-term if held for more than one year.
There are special rules if a shareholder inherits Fund shares or receives the
shares through certain types of gift transactions.
Disclaimer
All the above applies to federal income tax for most U.S. citizens but there are
many exceptions. Most state and local income taxes are consistent with federal
rules but
<PAGE> 28
Prospectus Page 26 of 27
impose additional taxes on top of the federal. Shareholders should consult their
tax advisor, but also feel free to post questions at eRaider.com, which will
have links to Internet tax sites including those maintained by the IRS.
GENERAL INFORMATION
The Fund is a non-diversified, open-end investment company incorporated under
the laws of Maryland on July 12, 1999. The Fund's business and affairs are
managed by its officers under the direction of its board. The Fund offers its
shares in one series, which is being offered for sale in this prospectus.
All shares of the Fund, when issued, will be fully paid and nonassessable and
will be redeemable. They can be issued as full or fractional shares. A
fractional share has, pro rata, the same rights and privileges as a full share.
The shares possess no preemptive or conversion rights. The shares of the Fund
will share ratably in the dividends of the Fund, if any, as may be declared by
the board, and in the distribution of any net assets in liquidation of the Fund,
after the payment of all debts and liabilities of the Fund.
Each share of the Fund has one vote (with proportionate voting for fractional
shares) irrespective of purchase price. Cumulative voting is not authorized.
This means that the holders of more than 50% of the shares voting for the
election of the board can elect all the directors if they choose to do so and,
in such event, the holders of the remaining shares will be unable to elect any
director.
Except as may be required under the Investment Company Act of 1940, as amended,
the Fund will not hold annual meetings of shareholders. As a result,
shareholders may not vote each year on the election of members of the board of
directors or the appointment of auditors. However, pursuant to the Fund's
by-laws, the holders of shares representing at least 10% of the Fund's total
outstanding shares may request that the Fund hold a special meeting of
shareholders. In such event the Fund will assist in the communication with other
shareholders. In addition, the Investment Company Act requires a shareholder
vote for all amendments to the Fund's fundamental investment objective and
policies and investment restrictions and for any amendments to investment
advisory contracts.
The Company reserves the right to amend any of its non-fundamental policies,
practices and procedures described in this prospectus, including the SAI,
without shareholder approval.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
Union Bank will serve as custodian for the Fund's cash and securities. The
custodian does not assist in, and is not responsible for, investment decisions
involving assets of the Fund. ADS will act as the Fund's transfer and dividend
agent. Privateer will pay ADS the greater of $1,000 per month and $9 per year
per account, plus out-of-pocket expenses, for rendering such transfer and
dividend agency services.
<PAGE> 29
Prospectus Page 27 of 27
COUNSEL AND INDEPENDENT AUDITORS
Legal matters in connection with the issuance of shares of common stock of the
Fund will be passed upon by Friedman Siegelbaum LLP, 399 Park Avenue, New York,
NY 10022-4689. Ernst & Young, 787 Seventh Avenue, New York, NY has been selected
as independent accountants for the Fund.
<PAGE> 30
Prospectus Back Cover
The information on this back cover is required by the SEC.
A Statement of Additional Information (SAI) is available that provides
additional detail. Prospective investors can obtain the SAI by writing Privateer
at ____________, calling (800) ____________ or visiting http://www.eRaider.com.
Information about the Fund (including the SAI) can also be reviewed and copied
at the Securities and Exchange Commission's Public Reference Room in Washington,
DC. Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330. Reports and other information about the Fund are
available on the SEC's Internet site, http://www.sec.gov. Copies of this
information may be obtained upon payment of a duplicating fee, by writing the
Public Reference Section of the Commission, Washington, DC 20549-6009.
This is the only fine print you will find anywhere in this prospectus.
It is small in accordance with SEC rules.
The Allied Owners Action Fund Inc. Investment Company Act File Number: _____
<PAGE> 31
Prospectus Back Cover
<PAGE> 32
THE ALLIED OWNERS ACTION FUND INC. AUGUST 13, 1999
Statement This document describes The Allied Owners Action Fund Inc. (the
of "Fund"). It is not a prospectus. It contains additional
Additional information not found in the Fund's prospectus dated August __,
Information 1999 and should be read in conjunction with that document. You
can request the Fund's prospectus by calling (800) _______. You can
also read the prospectus and this statement of additional
information ("SAI") on, or e-mail questions to the Fund's directors
and officers at, http://www.eRaider.com.
The purpose of the SAI is to shorten the prospectus by moving some
of the more detailed and technical information to a separate
document.
<PAGE> 33
THE ALLIED OWNERS ACTION FUND INC. 1
AUGUST 13, 1999 1
HISTORY 1
DESCRIPTION OF FUND AND ITS INVESTMENTS AND RISKS 1
Classification 1
Investment Objective, Strategies and Risks 1
Policies 3
Temporary Positions 3
MANAGEMENT 4
Board of Directors 4
Management Information 4
Management Compensation 5
Control Persons 6
Investment Adviser 6
DISTRIBUTION 7
Portfolio Transactions and Brokerage Commissions 8
Capital Stock 8
GENERAL PURCHASE INFORMATION 8
TAXATION 9
i
<PAGE> 34
HISTORY
The Fund is a Maryland corporation created on July 12, 1999. It was created to
be an investment company and has never engaged in any other business, used any
other name or been involved in any reorganization or bankruptcy.
The Fund has contracted all management services to affiliate Privateer Asset
Management Inc. ("Privateer"), a Delaware corporation. It has arranged for
shareholder communications through affiliate eRaider.com Inc. ("eRaider"), a
Delaware corporation.
DESCRIPTION OF FUND AND ITS INVESTMENTS AND RISKS
Classification
The Fund is an open-end management investment company. It may not be
diversified. The Fund intends to meet the IRS diversification rules limiting
investment in certain municipal issuers necessary to avoid corporate income tax.
Investment Objective, Strategies and Risks
The Fund seeks to maximize total return with only secondary regard for risk. Its
principal investment strategy is to buy and hold publicly-traded common stock of
U.S. corporations that evince substantial capacity for appreciation as a result
of aggressive shareholder oversight.
The Fund intends to acquire relatively large stakes in these companies. Such
stocks when purchased will be liquid according to the normal meaning of that
term, namely, that buyers and sellers are easily found for normal transaction
sizes at a normal spread between bid and ask prices. However, the Fund's overall
position may be illiquid in total because of its size relative to the average
transaction volume in the security. It is also possible for liquidity in one of
the Fund's stocks to decline as a result of issuer problems, de-listings or
other events. The types of stocks the Fund selects may have more than average
risk of such events. The sale of illiquid positions often requires more time and
results in higher transaction costs than does the sale of liquid securities.
Large, unexpected redemptions might force the Fund to sell illiquid positions on
disadvantageous terms. This would likely result in losses to Fund shareholders
relative to the stated value of the securities before such dispositions.
The Fund intends to acquire relatively large stakes in companies, generally near
but less than 5% of the outstanding voting stock. While the Fund itself intends
to be a passive investor, it will supply the name of the stock to affiliate
eRaider. eRaider intends to invite company and Fund shareholders to participate
on an Internet message board organized by eRaider to discuss the company.
The message board will be open to the public. eRaider will not attempt to limit
participation in any way and will not take responsibility for the information
posted. Individual authors will retain full responsibility. It is possible that
message board participants will organize to attempt to influence company
management. It is also
<PAGE> 35
possible that facts and analysis provided at the eRaider site will influence
company shareholders as well as company management.
The result of the message board is unpredictable since not yet tested in
practice. eRaider's role is to provide a forum to encourage informed
and thoughtful discussion among shareholders. The results of those discussions
and the actions taken by individual participants or third parties are largely
beyond eRaider's control.
On the other hand, it would be disingenuous to assert -- and the Fund does not
- -- that eRaider will be entirely passive. eRaider will organize the message
board in the belief that improved shareholder communication will increase
shareholder value. eRaider will post analyses and opinions. Those opinions may
be accepted by company management or, despite management's initial disinterest,
may attract enough support among shareholders to end up being forced upon
company management. While eRaider itself will not own stock in the company, it
may communicate directly with company directors and officers as an unofficial
shareholder representative. As a registered investment company the Fund is
exempt from SEC Regulation 13 D-G filings if its position exceeds 5% in a
portfolio company but this exemption is lost for an investment company that
acquires such a position intending to change or influence the control of the
portfolio company or in connection with or as a participant with such purpose.
Thus, the Fund may on occassion consider it necessary to file such a disclosure
if its holdings exceeds 5% even if its ownership was not obtained with such
intent in mind.
While not so intended, the degree of control eRaider exercises over the website
may develop to be a matter of controversy and regulatory attention. The Fund
intends to stand above any such dispute. The portfolio manager will vote the
Fund's securities in her judgment of the Fund shareholders' best interest,
not necessarily in accordance with the consensus if any on the message board.
The Fund will assume no responsibility for eRaider's actions.
The Fund's only responsibility is to its shareholders. If eRaider triggers
unfavorable regulatory action or threatens to involve the Fund in litigation the
Fund is prepared to sever all connection, which is intended to be informal in
any event. Although the Fund and eRaider are affiliates who share key personnel,
the Fund will strive to act in the best interest of its shareholders at all
times.
The goal of eRaider, and of the Fund in associating with eRaider, is improved
shareholder value through improved shareholder communication. The Fund believes
this is a two-way street. Management may do a better job with the advice and
active support of shareholders. Shareholders may perceive more value in shares
when they understand management's strategy and know that their interests are
respected. The Fund believes that better shareholder value can lead to lower
cost of capital, which in turn can lead to further increase in shareholder
value. However noble this goal, the Fund recognizes that company management and
regulators may separately be at odds regarding eRaider's conduct. Company
management may view eRaider as an organizer of takeover activities or as
meddlesome in day-to-day corporate affairs. Regulators may determine that
bulletin board organizers assume some responsibility for board content and, if
affiliated with a mutual fund, attribute such content or portions to the fund
itself. The Fund intends at all times to remain separate from eRaider's
activities. However, since eRaider is a relatively new concept, Fund
shareholders cannot be given any assurance that it will work.
2
<PAGE> 36
Policies
The Fund will not:
- - Issue senior securities
- - Underwrite securities of other issuers
- - Purchase or sell real estate or commodities
- - Make loans of cash or securities
The Fund may:
- - Borrow money in order to fund redemptions if the portfolio manager deems
the risk of leveraged investments to be preferable to the loss of selling
investments too quickly. Borrowed funds will be repaid as quickly as the
portfolio manager deems prudent. To reduce its indebtedness, the Fund may
sell a portion of its investments at a time when it may be disadvantageous
to do so. In addition, interest paid by the Fund on borrowed funds will
decrease its net earnings. The Fund intends borrowing to be limited to 25%
of the Fund's total assets.
- - Concentrate investments in a particular industry. The Fund intends to buy
companies with certain characteristics set forth in the Fund's prospectus.
The Fund may determine to put 100% of its assets in one industry.
Because the Fund is new and innovative, the board of directors reserves the
right to change any of these policies, or the Fund's objectives and strategies.
Temporary Positions
The Fund may acquire, when appropriate, high-quality, short-term or
floating-rate instruments either to maintain liquidity for forecasted
redemptions or to hold cash inflows in money market positions while permanent
positions are being acquired. The first of these securities is subject to credit
risk, that the issuer will not make the promised payments, as well as interest
rate risk, that increases in market interest rates will cause the value of the
securities to decline. However, because the securities will be high quality and
short-term or floating-rate, these risks are smaller than for lower quality and
longer-term fixed-rate securities.
The Fund may also buy stocks in large corporations or diversified securities
such as depository receipts or enter into futures contracts on diversified stock
indices such as the S&P 500. These investments are subject to the risks of all
common stock investments, as described in the Fund's prospectus. In acquiring
such positions the Fund will attempt to match the performance of the overall
U.S. stock market, and it will rely on published research and historical
statistics to attain this goal.
Futures contracts are subject to the additional risk that they will not be
honored. This could occur through problems with the clearing corporation or
market
3
<PAGE> 37
disruption. To minimize these risks, the Fund will only enter into futures
contracts that are traded actively on major national exchanges. It is also
possible that the Fund will be unable to close out a futures position. The Fund
will attempt to mitigate this risk by avoiding futures contracts with delivery
dates more than one month later than the expected time needed to acquire more
permanent positions. Futures contracts are subject to margin calls. As the Fund
intends to hold high-quality, short-term investments in the full nominal value
of the futures contract, it should not be exposed to material risk from margin
calls. However, if the Fund is unable to meet a margin call, despite this
precaution, the futures contract could be closed out on disadvantageous terms.
The Fund may also hold temporary cash positions in anticipation of redemptions.
Small cash positions (less than 5% of total assets) may result from day-to-day
trading activity.
MANAGEMENT
Board of Directors
The board of directors will hold monthly meetings to review all matters
pertaining to the Fund. Each board member will be assigned an area of
responsibility. Initially these will be operations, shareholder services and
fees, fund accounting, stock selection, business prospects of the Fund's stocks
and management and oversight issues at the companies in which the Fund invests.
Each board member will maintain up-to-date information pages at the eRaider
Internet site relating to his or her area of responsibility, which will be
associated with a message board for Fund shareholder and public questions and
comments.
The Fund hopes that each board member's information pages will attract
thoughtful discussion by both Fund and company shareholders. The Fund hopes to
recruit future directors from message board participants. The Fund believes that
the message boards will also serve as an important link between Fund management
and Fund shareholders.
Management Information
<TABLE>
<CAPTION>
================================================================================
NAME, AGE AND ADDRESS POSITION HELD WITH FUND PRINCIPAL OCCUPATION
DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------
<S> <C> <C>
Aaron Brown (42) Director, President, Instructor of Finance at
500 West 185th Street Selection Manager for Yeshiva University
New York, NY 10033*,** Fund; employed by Consultant to J.P. Morgan
Privateer & Co. and Rabobank
Nederland
- --------------------------------------------------------------------------------
John Capela (51) Director Professor of Management
39 Ashwood CT at Sy Syms School of
================================================================================
</TABLE>
4
<PAGE> 38
<TABLE>
================================================================================
<S> <C> <C>
East Northport, NY 11731 Business, Yeshiva
University
- --------------------------------------------------------------------------------
Anne Miller (39) Director President of the Oryx
114 West Franklin Avenue Group, consulting firm
Pennington, NJ 08534 that evaluates business
opportunities and
acquisitions for
pharmaceutical companies
- --------------------------------------------------------------------------------
Deborah Pastor (42) Vice President, Portfolio Manager,
215 West 91st #112 Portfolio Manager for Fund; Corporate Sales Bank of
New York, NY 10024*,** employed by Privateer Montreal, J.P. Morgan & Co.
- --------------------------------------------------------------------------------
Rita Robbins (42) Director Sales & Marketing Manager
1600 Broadway # 706 for Washington Square
New York, NY 10019 Securities, Inc., a
securities distribution
firm
- --------------------------------------------------------------------------------
Martin Stoller (43) Secretary Clinical Full Professor
147 Robsart Place of Communication at
Kenilworth, IL 60043** Kellogg School of
Management, Northwestern
University
- --------------------------------------------------------------------------------
Paul Zarowin (43) Director Assistant Professor of
40 West 4th Street Accounting at Stern
New York, NY 10012 School of Business, New
York University
================================================================================
</TABLE>
* Mr. Brown is married to Dr. Pastor .
** Interested persons. Mr. Brown and Dr. Stoller collectively own 67% at
present of affiliate Privateer (taking into account 33% reserved for issuance
to persons who assist eRaider and the Fund includings its officers and
directors) and 100% of affiliate eRaider. Their combined position in
Privateer is intended to drop to 40% over three years. Ms Pastor will be
employed by Privateer and (since she is married to Mr. Brown) may be deemed to
have beneficial ownership in Privateer and eRaider.
Management Compensation
At this time the Fund has no pension or retirement benefits for directors or
officers. All salaries are paid by Privateer except for director fees of $150
per month in Fund shares.
5
<PAGE> 39
<TABLE>
<CAPTION>
================================================================================
NAME AND POSITION SHARES HELD IN PRIVATEER ESTIMATED AGGREGATE
(ONE-TIME GRANT, NOT COMPENSATION FROM
ANNUAL PAYMENT) PRIVATEER OR FUND
FOR SERVICES
RENDERED TO THE
FUND
- --------------------------------------------------------------------------------
<S> <C> <C>
Aaron Brown 18,000 $125,000 (as
Director, President, Selection Manager)
Selection Manager
- --------------------------------------------------------------------------------
John Capela 500 $1,800 (from Fund)
Director
- --------------------------------------------------------------------------------
Anne Miller 500 $1,800 (from Fund)
Director
- --------------------------------------------------------------------------------
Deborah Pastor 0 $125,000 (as
Portfolio Manager, Portfolio Manager)
Vice President
- --------------------------------------------------------------------------------
Rita Robbins 500 $1,800 (from Fund)
Director
- --------------------------------------------------------------------------------
Martin Stoller* 18,000 $0
Secretary
- --------------------------------------------------------------------------------
Paul Zarowin 500 $1,800 (from Fund
Director
================================================================================
</TABLE>
* Subject to revenue Dr. Stoller is expected to receive a salary of
$125,000 from affiliate eRaider.
Control Persons
Initially the Fund will be controlled by its initial investors, Mr. Brown and
Dr. Stoller. However, their control position is expected to be quickly
eliminated once additional Fund shares are sold. They are expected to
continue to control the Fund's investment adviser Privateer. They will also
control affiliate eRaider.
Investment Adviser
The Fund has retained Privateer, a newly-created Delaware corporation, to act
as investment adviser. Mr. Brown and Dr. Stoller control Privateer and such
control is expected to continue in light of their intention to reduce their
combined holdings to no lower 40% as described below.
The Fund will have a management contract with Privateer as described in the
prospectus. The Fund, Privateer and eRaider will share office space.
Privateer trading operations will be segregated from the Fund and eRaider.
Mr. Brown is an officer and director of all three entities. His wife Ms
Pastor is an officer of the Fund and Privateer. Dr. Stoller is an officer
(but not a director) of the Fund and a
6
<PAGE> 40
director and officer of eRaider. Certain employees may share duties for the
three companies.
There is no contractual relationship between eRaider and either Privateer or the
Fund. The Fund intends to pass the names of its stocks to eRaider for public
announcement, but on an uncompensated, voluntary basis. eRaider will, gratis,
make Fund information available at the site. Mr. Brown and Dr. Stoller each own
50% of eRaider. They will each own up to 50% of Privateer when the Fund is
declared effective, although this will decline to approximately 20% each over
three years as Privateer shares are given away. Fund directors excluding
Mr. Brown will initially hold approximately 4% of Privateer following the
distribution of free shares. Persons who provide content for eRaider or
otherwise help in the development will participate in the free distribution of
Privateer shares. eRaider intends to earn revenue through the provision of
financial services including Internet services to companies other than the Fund.
Privateer will furnish all investment, compliance and administrative services to
the Fund in exchange for a 1% management fee. This contract will remain in
effect for two years from the date of its initial approval, and subject to
annual approval of the board of directors for one-year periods thereafter. It
can be cancelled upon 60 days' written notice by either party.
Privateer is allowed to subcontract all compliance and administrative services.
Privateer has subcontracted these services to American Data Services, Inc.
("ADS"), which has its principal office at The Hauppauge Corporate Center, 150
Motor Parkway, Hauppauge, New York 11788. ADS is primarily in the business of
providing administrative, fund accounting and stock transfer services to retail
and institutional mutual funds with approximately $3 billion of total assets
through its offices in New York, Denver, Tampa and Los Angeles.
Pursuant to the ADS agreements, ADS will provide all administrative, blue-sky,
accounting and transfer services necessary for the Fund. Privateer will pay ADS
a minimum annual fee of $45,000 or 0.15% of Fund assets, whichever is greater.
Privateer will also reimburse ADS for any out-of-pocket expenses. In addition,
ADS will serve as the Fund's transfer agent and perform fund accounting services
for which it will be paid separately.
Privateer has contracted with Union Bank of California, N.A., to act as
custodian of the Fund assets. Union Bank of California is located at 350
California Street, San Francisco, CA 94104. Compensation for its services is
being negotiated.
The Fund will use Ernst & Young to audit its financials.
DISTRIBUTION
The Fund has adopted a plan whereby it will distribute its own securities
without retaining an outside underwriter. This is expected to generate
substantial savings since Privateer will absorb out of it 1% management fee all
self-distribution costs. The self-distribution activities are expected to
include public
7
<PAGE> 41
relations and, as the need arises, print and radio media, although no direct
marketing efforts along such lines are intended initially. No special sales
force is contemplated. No brokers/dealers will be paid to place Fund shares. The
eRaider website is expected to become a substantial source of (unpaid) referrals
to the Fund. No officer or director of the Fund, Privateer or eRaider will
benefit financially from implementation of the self-distribution plan except to
the extent of the increase in Privateer's management fee, which is a fixed 1% of
Fund net assets, will increase as investments in the Fund increase.
Portfolio Transactions and Brokerage Commissions
Portfolio transactions for the Fund will generally be executed with
broker/dealers on an agency basis. The portfolio manager, or a designated
subordinate, will be responsible for placing all orders for purchases and sales
of the Fund's securities.
In selecting broker/dealers, the portfolio manager will seek the most favorable
price and execution. She may not consider research and brokerage services
furnished to the Fund, Privateer or eRaider, or any of their affiliates or
consider sales of the Fund's shares or any other fund's shares as a factor in
the selection of broker/dealers.
The portfolio manager will consider the total cost of acquiring the Fund's
desired stake, rather than the individual costs of each trade. Because the Fund
intends to acquire relatively large stakes, the portfolio manager may find it
useful to use several small broker/dealers to reduce price impact, even if this
increases brokerage commissions and bid/ask spreads. In other cases, the
portfolio manager may direct orders to a single large broker/dealer in return
for reduced fees and spreads. This is a matter of delicate trading judgment and
is left entirely to the discretion of the portfolio manager.
Capital Stock
The Fund is authorized to issue one million shares of common stock, $.001 par
value. Holders of common stock are entitled to dividends and distributions in
the amount and at the times determined by the board of directors. Each
shareholder is entitled to one vote per share. Upon a liquidation or dissolution
of the Fund shareholders will share ratably in any remaining assets after
payment of liabilities.
GENERAL PURCHASE INFORMATION
The minimum initial investment in the Fund is $2,500. The Fund may waive or
reduce such minimum initial investments from time to time. As a "no-load" fund
the Fund's shares may be purchased at its net asset value.
Prior to investment by the Fund shares will be offered at $10 per share.
Thereafter, the purchase price will be based on the net asset value per share as
8
<PAGE> 42
determined following placement of an order. Purchase and redemption information
is set forth in the Fund's prospectus.
TAXATION
The Fund is treated as a corporation for federal income tax purposes under the
Internal Revenue Code of 1986, as amended. The Fund intends to qualify and to
elect to be treated as a regulated investment company under Subchapter M of the
Internal Revenue Code. If so qualified, the Fund will not be liable for federal
income taxes to the extent it distributes its taxable income to shareholders.
State income taxes on mutual funds differ, but most states follow the general
federal rules, except with regard to government-issued bonds, and add additional
taxes. If the Fund fails to qualify as a regulated investment company it would
owe corporate income tax on most income and all realized capital gains. This
could significantly reduce return to Fund shareholders.
9
<PAGE> 43
Item 23. Exhibits
- -----------------
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
DESCRIPTION OF EXHIBIT EXHIBIT NUMBER
- ---------------------- --------------
<S> <C>
Articles of Incorporation........................................................................ A
By-laws.......................................................................................... B
Instruments Defining Rights of Security Holders.................................................. C
Investment Advisory Contracts.................................................................... D
Underwriting Contracts........................................................................... E*
Bonus or Profit Sharing Contracts................................................................ F*
Custodian Agreements............................................................................. G
Other Material Contracts ........................................................................ H
Legal Opinion.................................................................................... I
Other Opinions................................................................................... J*
Omitted Financial Statements..................................................................... K*
Initial Capital Agreements....................................................................... L
Rule 12b-1 Plan.................................................................................. M
Financial Data Schedule.......................................................................... N*
Rule 18f-3 Plan.................................................................................. O*
- --------------
* Not Applicable
</TABLE>
<PAGE> 44
Exhibit A
ARTICLES OF INCORPORATION
OF
THE ALLIED OWNERS ACTION FUND INC.
The undersigned incorporator, whose address is set forth on the
signature page, being at least eighteen years of age, hereby acts as an
incorporator under the general laws of Maryland authorizing the formation of
corporations with the intention of forming a corporation.
ARTICLE I
NAME
The name of the corporation is The Allied Owners Action Fund Inc. (the
"Corporation").
ARTICLE II
PURPOSE, POWERS AND BUSINESS
The purposes for which the Corporation is formed, the powers that the
Corporation is authorized to exercise and the business to be transacted by it
are as follows:
(1) to carry on the business of an investment company;
(2) to hold, invest and reinvest its assets in securities, and in
connection therewith to hold part of or all its assets in cash;
(3) to issue and sell shares of its capital stock in such amounts and
on such terms and conditions, for such purposes and for such consideration
permitted by the general laws of Maryland (such general laws, now or hereafter
in force, hereinafter called Maryland General Law) and by the Corporation's
articles of incorporation (this "Charter"), as its board of directors (the
"Board") may determine;
(4) to exchange, classify, reclassify, change the designation of,
convert, rename, redeem, purchase or otherwise acquire, hold, dispose of,
resell, transfer, reissue or cancel (all without the vote or consent of the
shareholders of the Corporation) shares of its issued or unissued capital stock,
in any manner and to the extent now or hereafter permitted by Maryland General
Law and by this Charter;
(5) to do such further acts and to exercise any such further powers as
may be necessary or appropriate for the accomplishment of the foregoing
purposes; and
(6) in general, to exercise the powers authorized to be exercised by
corporations by Maryland General Law.
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ARTICLE III
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal office of the Corporation in
Maryland is c/o CSC - Lawyers Incorporating Service Company, a Maryland
corporation with its principal address at 11 East Chase Street, Baltimore,
Maryland 21202. The name of the resident agent of the Corporation in Maryland is
such Service Company at such address.
ARTICLE IV
CAPITAL STOCK
(1) The number of shares of capital stock that the Corporation has
authority to issue is 1,000,000 shares, par value of $.001 per share, with an
aggregate par value of $1,000. The capital stock is initially classified into
one class, that of common stock.
(2) The holders of capital stock shall be entitled to dividends and
distributions in such amounts and at such times as may be determined by the
Board. Dividends shall be declared and paid only out of net assets.
(3) Each holder of a share of capital stock of the Corporation shall be
entitled to one vote for each share registered in such holder's name on the
books of the Corporation on the record date on each matter submitted to a vote
of shareholders.
(4) Pursuant to section 2-104(b)(5) of the Maryland General Corporation
Law and subject to the requirements of the Investment Company Act of 1940, as
amended, and any rules, regulations and orders issued thereunder (the "1940
Act"), the Corporation is authorized to take such action as is approved by a
majority of the votes entitled to be cast by holders of capital stock of the
Corporation notwithstanding any provision in such General Corporation Law
requiring a greater proportion of such shareholder approval.
(5) Upon a liquidation, dissolution or winding up of the Corporation,
voluntary or involuntary, the holders of capital stock of the Corporation shall
be entitled, after payment or provision for payment of the debts and other
liabilities of the Corporation, to share ratably in the remaining assets of the
Corporation.
(6) Any fractional shares of capital stock shall carry proportionately
the rights of a whole share including the right to vote and receive dividends
provided that fractional shares shall not be issued.
(7) The presence in person or by proxy of the holders of shares of
capital stock entitled to cast one-third of the votes entitled to be cast shall
constitute a quorum at any meeting of shareholders.
ARTICLE V
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<PAGE> 46
COMPOSITION AND CERTAIN POWERS OF BOARD OF DIRECTORS;
INDEMNIFICATION OF DIRECTORS AND OFFICERS
(1) The initial number of directors of the Corporation shall be five,
which number may be increased or decreased pursuant to the by-laws of the
Corporation but shall not be less than the minimum number permitted by the
general laws of Maryland. The names of the directors who shall act until their
successors are duly elected and qualify are Aaron Brown, John Capela, Anne
Miller, Rita Robbins and Paul Zarowin.
(2) The Board is empowered to authorize the issuance from time to time
of shares of capital stock for such consideration as the Board may deem
advisable subject to such limitations as may be set forth in this Charter or
by-laws of the Corporation or in Maryland General Law.
(3) No holder of stock of the Corporation shall have, as such holder,
any right to purchase any shares of the capital stock of the Corporation or any
other security of the Corporation that it may issue or sell other than such
right if any as the Board may determine.
(4) Subject to the 1940 Act each director and officer of the
Corporation shall be indemnified and advanced expenses by the Corporation to the
fullest extent permitted by Maryland General Law.
(5) Subject to the 1940 Act to the fullest extent of protections
permitted by Maryland General Law, no director or officer of the Corporation
shall be personally liable to the Corporation or its security holders for money
damages. No amendment of this Charter shall limit or eliminate the protection
provided to directors and officers under this provision in connection with any
act or omission that occurred prior to such amendment.
(6) Subject to the 1940 Act the Board may without shareholder approval
adopt and amend the by-laws of the Corporation except a by-law provision if any
stated to be subject to amendment only upon shareholder approval.
(7) The Board may if permitted by Maryland General Law change the
Corporation's name without shareholder approval.
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<PAGE> 47
ARTICLE VI
REDEMPTION
(1) Each holder of shares of capital stock of the Corporation shall be
entitled to require the Corporation to redeem any part of or all the shares of
capital stock of the Corporation registered in the name of such holder on the
books of the Corporation at the redemption price of such shares as in effect
from time to time as may be determined by the Board in accordance with the
provisions hereof, subject to the right of the Board to suspend the right of
redemption of such shares or postpone the date of payment of such redemption
price in accordance with the by-laws and Maryland General Law. The redemption
price of shares of capital stock of the Corporation shall be the net asset value
thereof as determined by the Board from time to time in accordance with the
by-laws and Maryland General Law less fees if any as may be approved by the
Board. Payment of the redemption price shall be made by the Corporation in cash
at such time and in such manner as may be determined thereby.
(2) The Corporation may at any time redeem the shares owned by any
holder of capital stock of the Corporation (i) if the redemption is determined
by the Board to be necessary or appropriate prevent the Corporation from being
deemed a "personal holding company" within the meaning of the Internal Revenue
Code of 1986, as amended, or (ii) if the value of the shares in the account
maintained by the Corporation or its transfer agent for the shareholder is below
the minimum amount determined by the Board and the shareholder has been given
written notice of the redemption as required by Maryland General Law and has
failed to make additional purchases of shares in an amount sufficient to bring
the value in his account to at least such minimum amount before the redemption
is effected by the Corporation.
ARTICLE VII
BOARD DETERMINATIONS BINDING
Any determination made in good faith, in accordance with generally
accepted accounting principles, as the case may be, as to (i) the amount of
assets, obligations or liabilities of the Corporation, (ii) the amount of net
income of the Corporation from dividends and interest for any period or amounts
at any time legally available for the payment of dividends, (iii) the amount of
any reserves or charges set up and the propriety thereof, (iv) the timing or
purpose of creating reserves, (v) the use, alteration or cancellation of any
reserves or charges (whether or not any obligation or liability for which such
reserves or charges have been created is paid or discharged), (vi) the cost of
any security owned by the Corporation or (vii) any other matter relating to the
issuance, sale, redemption or other acquisition or disposition of securities or
shares of capital stock of the Corporation, and any determination made in good
faith by the Board whether to purchase securities on "margin," or sell
securities "short," or participate in any underwriting or selling group in
connection with the public distribution of any securities, shall be final with
respect to the holders of its capital stock, past, present and future, and
shares of capital stock of the Corporation are issued on the understanding that
all
4
<PAGE> 48
such determinations shall be binding on such holders provided that no provision
of this Charter or the by-laws shall be effective to (a) waive compliance with
any provision of the Securities Act of 1933, as amended, or the 1940 Act, or any
rule, regulation or order of the Securities and Exchange Commission thereunder
or (b) protect any director or officer of the Corporation against any liability
to the Corporation or its shareholders to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, breach of fiduciary
obligation, gross negligence or reckless disregard of the duties of his or her
office.
ARTICLE VIII
PERPETUAL EXISTENCE
The duration of the Corporation shall be perpetual.
ARTICLE IX
AMENDMENT
The Corporation reserves the right to amend this Charter pursuant to
Maryland General Law including any amendment that alters the rights, as set
forth in this Charter, of any outstanding shares of capital stock or
substantially adversely affects a shareholder's rights. All rights conferred
hereby to shareholders shall be subject to this reservation.
In witness whereof the undersigned incorporator of The Allied Owners
Action Fund Inc. hereby executes these Articles of Incorporation and
acknowledges the same to be his act.
Dated:
July 2, 1999 /s/ Aaron C. Brown
------------------------------
Aaron C. Brown, Incorporator
215 West 91st Street (Apt. 112)
New York, NY 10024
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<PAGE> 49
I hereby consent to my designation in this document as resident agent
for this corporation.
CSC-Lawyers Incorporating Service Company
Signed
By: /s/ Doreen Haeselin
---------------------------------------
Doreen Haeselin, Authorized Representative
<PAGE> 50
Exhibit B
BY-LAWS
OF
THE ALLIED OWNERS ACTION FUND INC.
Article I
Offices
Section 1.01. Principal Office. The principal office of The Allied
Owners Action Fund Inc. (the "Corporation") shall be located at 215 West 91st
Street, Apt. 112, New York, New York 10024.
Section 1.02. Other Offices. The Corporation may have such other
offices in such places as the Board of Directors from time to time may
determine.
Article II
Meetings of Stockholders
Section 2.01. Annual Meeting. The Corporation shall not be required to
hold an annual meeting of its stockholders in any year in which the election of
directors is not required to be acted upon under the Investment Company Act of
1940, as amended (the "Investment Company Act"). In the event that the
Corporation shall be required to hold an annual meeting of stockholders to elect
directors by the Investment Company Act, such meeting shall be held no later
than 120 days after the occurrence of the event requiring the meeting. Any
stockholders' meeting held in accordance with this Section for all purposes
shall constitute the annual meeting of stockholders for the year in which the
meeting is held.
Section 2.02. Special Meetings. Special meetings of the stockholders,
unless otherwise provided by law, may be called for any purpose or purposes by a
majority of the Board of Directors, the President, the Chairman or upon the
written request of the holders of at least a majority of the outstanding shares
of capital stock of the Corporation entitled to vote at such meeting if they
comply with Section 2-502(b) of the Maryland General Corporation Law.
Section 2.03. Place of Meetings. Meetings of the stockholders shall be
held at such place within the United States as the Board of Directors from time
to time may determine.
Section 2.04. Notice of Meetings; Waiver of Notice. Notice of the
place, date and time of the holding of each stockholders' meeting and, if the
meeting is a special meeting, the purpose or purposes of the special meeting,
shall be given personally or by mail, not less than 10 nor more than 90 days
before the date of such meeting, to each stockholder entitled to vote at such
meeting and to each other stockholder entitled to notice of the meeting. Notice
by mail shall be deemed to be duly given when deposited in the United States
mail addressed to the stockholder
<PAGE> 51
at his or her address as it appears on the records of the Corporation, with
postage thereon prepaid.
Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who, either
before or after the meeting, shall submit a signed waiver of notice which is
filed with the records of the meeting. When a meeting is adjourned to another
time and place, unless the Board of Directors, after the adjournment, shall fix
a new record date for an adjourned meeting, or the adjournment is for more than
120 days after the original record date, notice of such adjourned meeting need
not be given if the time and place to which the meeting shall be adjourned were
announced at the meeting at which the adjournment is taken.
Section 2.05. Quorum. The presence in person or by proxy of the holders
of shares entitled to cast one-third of the votes entitled to be cast shall
constitute a quorum at any meeting of stockholders, except with respect to any
matter which requires approval by a separate vote of one or more classes or
series of stock, in which case the presence in person or by proxy of the holders
of shares entitled to cast one-third of the votes entitled to be cast by each
class or series entitled to vote as a separate class or series shall constitute
a quorum. In the absence of a quorum no business may be transacted, except that
the holders of a majority of the shares of stock present in person or by proxy
and entitled to vote may adjourn the meeting from time to time, without notice
other than announcement thereat except as otherwise required by these by-laws,
until the holders of the requisite amount of shares of stock shall be so
present. At any such adjourned meeting at which a quorum may be present any
business may be transacted which might have been transacted at the meeting as
originally called. The absence from any meeting, in person or by proxy, of
holders of the number of shares of stock of the Corporation in excess of a
majority thereof which may be required by the general laws of the State of
Maryland, the Investment Company Act, or other applicable statute, the Articles
of Incorporation, or these by-laws, for action upon any given matter shall not
prevent action at such meeting upon any other matter or matters which properly
may come before the meeting, if there shall be present thereat, in person or by
proxy, holders of the number of shares of stock of the Corporation required for
action in respect of such other matter or matters.
Section 2.06. Organization. At each meeting of the stockholders, the
Chairman of the Board (if one has been designated by the Board), or in his or
her absence or inability to act, the President, or in the absence or inability
to act of the Chairman of the Board and the President, a Vice President, shall
act as chairman of the meeting. The Secretary, or in his or her absence or
inability to act, any person appointed by the chairman of the meeting, shall act
as secretary of the meeting and keep the minutes thereof.
Section 2.07. Order of Business. The order of business at all meetings
of the stockholders shall be as determined by the chairman of the meeting.
Section 2.08. Voting. Except as otherwise provided by statute or by the
Articles of Incorporation, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every share of such stock standing in his or her
name on the record of stockholders of the Corporation as of the record date
determined pursuant to Section 2.09 or if such record date shall not have been
so fixed, then at
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<PAGE> 52
the later of (i) the close of business on the day on which notice of the
meeting is mailed or (ii) the 30th day before the meeting.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him or her by a proxy signed by
such stockholder or his or her attorney-in-fact. No proxy shall be valid after
the expiration of 11 months from the date thereof, unless otherwise provided in
the proxy. Every proxy shall be revocable at the option of the stockholder
executing it, except in those cases where such proxy states that it is
irrevocable and where an irrevocable proxy is permitted by law. Except as
otherwise provided by statute, the Articles of Incorporation or these by-laws,
any corporate action to be taken by vote of the stockholders (other than the
election of directors, which shall be by plurality vote) may be authorized by a
majority of the total votes cast at a meeting of stockholders by the holders of
shares present in person or represented by proxy and entitled to vote on such
action.
If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute or
by these by-laws, or determined by the chairman of the meeting to be advisable,
any such vote need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his or her proxy, if there be such
proxy, and shall state the number of shares voted.
Section 2.09. Fixing of Record Date. The Board of Directors may set a
record date for the purpose of determining stockholders entitled to vote at any
meeting of the stockholders. The record date, which may not be prior to the
close of business on the day the record date is fixed, shall be not more than 90
days nor less than 10 days before the date of the meeting of the stockholders.
All persons who were holders of record of shares at such time, and not others,
shall be entitled to vote at such meeting and any adjournment thereof.
Section 2.10. Inspectors. The Board, in advance of any meeting of
stockholders, may appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may appoint
inspectors. Each inspector, before entering upon the discharge of his or her
duties, may be required to take and sign an oath to execute faithfully the
duties of inspector at such meeting with strict impartiality and according to
the best of his or her ability. The inspectors may be empowered to determine the
number of shares outstanding and the voting powers of each, the number of shares
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the result and do such acts
as are proper to conduct the election or vote with fairness to all stockholders.
On request of the chairman of the meeting or any stockholder entitled to vote
thereat, the inspectors shall make a report in writing of any challenge, request
or matter determined by them and shall execute a certificate of any fact found
by them. No director or candidate for the office of director shall act as
inspector of an election of directors. Inspectors do not have to be
stockholders.
Section 2.11. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided by statute or by the Articles of Incorporation, any action
required to be taken at any meeting of stockholders or any action which may be
taken at any meeting of such stockholders,
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<PAGE> 53
may be taken without a meeting, without prior notice and without a vote if the
following are filed with the records of stockholders meetings: (i) a unanimous
written consent which sets forth the action and is signed by each stockholder
entitled to vote on the matter and (ii) a written waiver of any right to dissent
signed by each stockholder entitled to notice of the meeting but not entitled to
vote thereat.
Article III
Board of Directors
Section 3.01. General Powers. Except as otherwise provided in the
Articles of Incorporation, the business and affairs of the Corporation shall be
managed under the direction of the Board of Directors. All powers of the
Corporation may be exercised by or under authority of the Board of Directors
except as conferred on or reserved to the stockholders by law or by the Articles
of Incorporation or these by-laws.
Section 3.02. Number of Directors. The number of directors shall be
fixed from time to time by resolution of the Board of Directors adopted by a
majority of the entire Board of Directors; provided, however, that in no event
shall the number of directors be less than the minimum permitted by the General
Law of the State of Maryland nor more than fifteen. Any vacancy created by an
increase in directors may be filled in accordance with Section 3.06. No
reduction in the number of directors shall have the effect of removing any
director from office prior to the expiration of his or her term unless such
director is specifically removed pursuant to Section 3.05 at the time of such
decrease. Directors do not need to be stockholders.
Section 3.03. Election and Term of Directors. Directors shall be
elected annually at a meeting of stockholders held for that purpose; provided,
however, that if no meeting of the stockholders of the Corporation is required
to be held in a particular year pursuant to Section 2.01, directors shall be
elected at the next meeting held. The term of office of each director shall be
from the time of his or her election and qualification until: (a) the election
of directors next succeeding his or her election and until his or her successor
shall have been elected and shall have qualified, (b) his or her death, (c) he
or she shall have resigned (d) he or she shall have been removed as hereinafter
provided in these by-laws or (e) on such date as otherwise provided by statute
or by the Charter.
Section 3.04. Resignation. A director of the Corporation may resign at
any time by giving written notice of his or her resignation to the Board,
Chairman of the Board, President or Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt, and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 3.05. Removal of Directors. Any director of the Corporation may
be removed with or without cause by the stockholders by a vote of a majority of
the votes entitled to be cast for the election of directors.
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<PAGE> 54
Section 3.06. Vacancies. Any vacancies in the Board, whether arising
from death, resignation, removal, an increase in the number of directors or any
other cause, may be filled by a vote of the majority of the Board of Directors
then in office even though such majority is less than a quorum, provided that no
vacancies shall be filled by action of the remaining directors, if after the
filling of said vacancy or vacancies, less than two-thirds of the directors then
holding office shall have been elected by the stockholders of the Corporation.
In the event that at any time there is a vacancy in any office of a director
which vacancy may not be filled by the remaining directors, a special meeting of
the stockholders shall be held as promptly as possible and in any event within
60 days, for the purpose of filling said vacancy or vacancies.
Section 3.07. Place of Meetings. Meetings of the Board may be held at
such place as the Board from time to time may determine or as shall be specified
in the notice of such meeting.
Section 3.08. Regular Meetings. Regular meetings of the Board may be
held without notice at such time and place as may be determined by the Board.
Section 3.09. Special Meetings. Special meetings of the Board may be
called by two or more directors or by the Chairman of the Board or the
President.
Section 3.10. Telephone Meetings. Members of the Board or of any
committee thereof may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time. Subject to the applicable
provisions of the Investment Company Act and Maryland General Corporation Law
participation in a meeting by these means shall constitute presence in person at
the meeting.
Section 3.11. Notice of Special Meetings. Notice of each special
meeting of the Board shall be given by the Secretary as hereinafter provided, in
which notice shall be stated the time and place of the meeting. Notice of each
such meeting shall be delivered to each director, either personally or by
telephone or any standard form of telecommunication, at least 24 hours before
the time at which such meeting is to be held, or by first-class mail, postage
prepaid, addressed to him or her at his or her residence or usual place of
business, at least three days before the day on which such meeting is to be
held.
Section 3.12. Waiver of Notice of Meetings. Notice of any special
meeting need not be given to any director who, either before or after the
meeting, shall sign a written waiver of notice which is filed with the records
of the meeting or who shall attend such meeting. Except as otherwise
specifically required by these by-laws, a notice or waiver or notice of any
meeting need not state the purposes of such meeting.
Section 3.13. Quorum and Voting. One-third, but not less than two
(unless there is only one director), of the members of the entire Board shall be
present in person at any meeting of the Board in order to constitute a quorum
for the transaction of business at such meeting, and except as otherwise
expressly required by statute, the Articles of Incorporation, these by-laws or
the Investment Company Act, the act of a majority of the directors present at
any meeting at which a quorum is present shall be the act of the Board. In the
absence of a quorum at any meeting of the Board, a majority of the directors
present thereat may adjourn such meeting to another time and
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<PAGE> 55
place until a quorum shall be present thereat. Notice of the time and place of
any such adjourned meeting shall be given to the directors who were not present
at the time of the adjournment and, unless such time and place were announced at
the meeting at which the adjournment was taken, to the other directors. At any
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called.
Section 3.14. Organization. The Board, by resolution adopted by a
majority of the entire Board, may designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President or, in his or her
absence or inability to act, another director chosen by a majority of the
directors present, shall act as chairman of the meeting and preside thereat. The
Secretary (or, in his or her absence or inability to act, any person appointed
by the Chairman) shall act as secretary of the meeting and keep the minutes
thereof.
Section 3.15. Written Consent of Directors in Lieu of a Meeting.
Subject to the provisions of the Investment Company Act, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writings or
writing are filed with the minutes of the proceedings of the Board or committee.
Section 3.16. Compensation. Directors may receive compensation for
services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the Board.
Section 3.17. Investment Policies. It shall be the duty of the Board of
Directors to direct that the purchase, sale, retention and disposal of portfolio
securities and the other investment practices of the Corporation at all times
are consistent with the investment policies and restrictions with respect to
securities investments and otherwise of the Corporation, as recited in the
Prospectus of the Corporation included in the Registration Statement of the
Corporation, as recited in the current Prospectus and Statement of Additional
Information of the Corporation, as filed from time to time with the Securities
and Exchange Commission, and as required by the Investment Company Act. The
Board, however, may delegate the duty of management of the assets and the
administration of its day-to-day operations to an individual or corporate
management company and/or investment adviser pursuant to a written contract or
contracts which have obtained the requisite approvals, including the requisite
approvals of renewals thereof, of the Board of Directors and/or the stockholders
of the Corporation in accordance with the provisions of the Investment Company
Act.
Article IV
Committees
Section 4.01. Executive Committee. The Board, by resolution adopted by
a majority of the entire board, may designate an Executive Committee consisting
of two or more of the directors of the Corporation, which committee shall have
and may exercise all of the powers and authority of the Board with respect to
all matters other than:
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(a) the submission to stockholders of any action requiring
authorization of stockholders pursuant to statute or the
Articles of Incorporation,
(b) the filling of vacancies on the Board of Directors;
(c) the fixing of compensation of the directors for serving on the
Board or on any committee of the Board, including the
Executive Committee;
(d) the approval or termination of any contract with an investment
adviser or principal underwriter, as such terms are defined in
the Investment Company Act, or the taking of any other action
required to be taken by the Board of Directors by the
Investment Company Act;
(e) the amendment or repeal of these by-laws or the adoption of
new by-laws;
(f) the amendment or repeal of any resolution of the Board which
by its terms may be amended or repealed only by the Board;
(g) the declaration of dividends and the issuance of capital stock
of the Corporation; and
(h) the approval of any merger or share exchange which does not
require stockholder approval.
The Executive Committee shall keep written minutes of its proceedings
and shall report such minutes to the Board. All such proceedings shall be
subject to revision or alteration by the Board; provided, however, that third
parties shall not be prejudiced by such revision or alteration.
Section 4.02. Other Committees of the Board. The Board of Directors
from time to time, by resolution adopted by a majority of the whole Board, may
designate one or more other committees of the Board, each such committee to
consist of one or more directors and to have such powers and duties as the Board
of Directors, by resolution, may prescribe.
Section 4.03. General. One-third, but not less than two (unless there
is only one member), of the members of any committee shall be present in person
at any meeting of such committee in order to constitute a quorum for the
transaction of business at such meeting, and the act of a majority present shall
be the act of such committee. The Board may designate a chairman of any
committee and such chairman or any two members of any committee may fix the time
and place of its meetings unless the Board shall otherwise provide. In the
absence or disqualification of any member of any committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or she or they constitute a quorum, unanimously may appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. The Board shall have the power at any time to
change the membership of any committee, to fill all vacancies, to designate
alternate members to replace any absent or disqualified member, or to dissolve
any such committee. Nothing herein shall be deemed to prevent the Board from
appointing one or more committees consisting in whole or in part of persons who
are not directors of the Corporation; provided, however, that no such committee
shall have or may exercise any authority or power of the Board in the
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management of the business or affairs of the Corporation, except as may be
prescribed by the Board.
Article V
Officers, Agents and Employees
Section 5.01. Number and Qualifications. The officers of the
Corporation shall be a President, a Secretary and a Treasurer, each of whom
shall be elected by the Board of Directors. The Board of Directors may elect or
appoint such other officers, assistant officers, agents and employees as it may
deem necessary or proper. Any two or more offices may be held by the same
person, except the offices of President and Vice President. Such officers shall
be elected by the Board of Directors each year at a meeting of the Board of
Directors, each to hold office for the ensuing year and until his or her
successor shall have been duly elected and shall have qualified, or until his or
her death, or until he or she shall have resigned, or have been removed, as
hereinafter provided in these by-laws. Such officers and agents shall have such
duties and shall hold their offices for such terms as may be prescribed by the
Board or by the appointing authority.
Section 5.02. Resignations. Any officer of the Corporation may resign
at any time by giving written notice of resignation to the Board, the Chairman
of the Board, President or the Secretary. Any such resignation shall take effect
at the time specified therein or, if the time when it shall become effective
shall not be specified therein, immediately upon its receipt; and, unless
otherwise specified therein, the acceptance of such resignation shall be
necessary to make it effective.
Section 5.03. Removal of Officer, Agent or Employee. Any officer, agent
or employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate such power of removal as
to agents and employees not elected or appointed by the Board of Directors. Such
removal shall be without prejudice to such person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.
Section 5.04. Vacancies. A vacancy in any office, whether arising from
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of the office which shall be vacant, in the manner
prescribed in these by-laws for the regular election or appointment to such
office.
Section 5.05. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer in respect of other officers under his or her control.
Section 5.06. Bonds or Other Security. If required by the Board, any
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his or her duties, in such amount and
with such surety or sureties as the Board may require.
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Section 5.07. President. The President shall be the chief executive
officer of the Corporation. The Corporation may elect a Chief Executive Officer
in lieu of or in addition to a President, in which case such officer shall have
the same duties, authority, rights and responsibilities as the office of
President. In the absence of the Chairman of the Board (or if there be none), he
or she shall preside at all meetings of the stockholders and of the Board of
Directors. He or she shall have, subject to the control of the Board of
Directors, general charge of the business and affairs of the Corporation. He or
she may employ and discharge employees and agents of the Corporation, except
such as shall be appointed by the Board, and he or she may delegate these
powers.
Section 5.08. Vice President. Each Vice President shall have such
powers and perform such duties as the Board of Directors or the President from
time to time may prescribe.
Section 5.09. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all of the
funds and securities of the Corporation, except those which
the Corporation has placed in the custody of a bank or trust
company or member of a national securities exchange (as that
term is defined in the Securities Exchange Act of 1934, as
amended) pursuant to a written agreement designating such bank
or trust company or member of a national securities exchange
as custodian of the property of the Corporation;
(b) keep full and accurate accounts of receipts and disbursements
in books belonging to the Corporation;
(c) cause all moneys and other valuables to be deposited to the
credit of the Corporation;
(d) receive, and give receipts for, moneys due and payable, to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investment of its funds as ordered or authorized by the Board,
taking proper vouchers therefor; and
(f) in general, perform all of the duties incident to the office
of Treasurer and such other duties as from time to time may be
assigned to him or her by the Board or the President.
The Corporation may elect a Chief Financial Officer in lieu of or in addition to
a Treasurer, in which case such officer shall have the same duties, authority,
rights and responsibilities as the office of Treasurer.
Section 5.10. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the
committees of the Board and the stockholders;
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(b) see that all notices are duly given in accordance with the
provisions of these by-laws and as required by law;
(c) be custodian of' the records and the seal of the Corporation
mid affix and attest the seal to all stock certificates of the
Corporation (unless the seal of the Corporation on such
certificates shall be a facsimile, as hereinafter provided)
and affix and attest the seal to all other documents to be
executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and
other documents and records required by law to be kept and
filed are properly kept and filed; and
(e) in general, perform all of the duties incident to the office
of Secretary and such other duties as from time to time may be
assigned to him or her by the Board or the President.
Section 5.11. Delegation of Duties. In case of the absence of any
officer of the Corporation, or for any other reason that the Board may deem
sufficient, the Board may confer for the time being the powers or duties, or any
of them, of such officer upon any other officer or upon any director.
Article VI
Indemnification
Section 6.01. General Indemnification. Each officer and director of the
Corporation shall be indemnified by the Corporation to the full extent permitted
under the Maryland General Corporation Law, except that such indemnity shall not
protect any such person against any liability to the Corporation or any
stockholder thereof 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 his or her office. Absent a court
determination that an officer or director seeking indemnification was not liable
on the merits or guilty of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office,
the decision by the Corporation to indemnify such person must be based upon the
reasonable determination of independent legal counsel or the vote of a majority
of a quorum of the directors who are neither "interested persons," as defined in
Section 2(a)(19) of the Investment Company Act, nor parties to the proceeding
("non-party independent directors"), after review of the facts, that such
officer or director is not guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
Each officer and director of the Corporation claiming indemnification
within the scope of this Article VI shall be entitled to advances from the
Corporation for payment of the reasonable expenses incurred by him or her in
connection with proceedings to which he or she is a party in the manner and to
the full extent permitted under the Maryland General Corporation Law without a
preliminary determination as to his or her ultimate entitlement to
indemnification (except as set forth below); provided, however, that the person
seeking indemnification shall
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provide to the Corporation a written affirmation of his or her good faith belief
that the standard of conduct necessary for indemnification by the Corporation
has been met and a written undertaking to repay any such advance, if it should
ultimately he determined that the standard of conduct has not been met, and
provided further that at least one of the following additional conditions is
met: (a) the person seeking indemnification shall provide a security in form and
amount acceptable to the Corporation for his or her undertaking; (b) the
Corporation is insured against losses arising by reason of the advance; (c) a
majority of a quorum of non-party independent directors, or independent legal
counsel in a written opinion, shall determine, based on a review of facts
readily available to the Corporation at the time the advance is proposed to be
made, that there is reason to believe that the person seeking indemnification
will ultimately be found to be entitled to indemnification.
The Corporation may purchase insurance on behalf of an officer or
director protecting such person to the full extent permitted under the General
Laws of the State of Maryland, from liability arising from his or her activities
as officer or director of the Corporation. The Corporation, however, may not
purchase insurance on behalf of any officer or director of the Corporation that
protects or purports to protect such person from liability to the Corporation or
to its stockholders to which such officer or director would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office.
The Corporation may indemnify, make advances or purchase insurance to
the extent provided in this Article VI on behalf of an employee or agent who is
not an officer or director of the Corporation.
Section 6.02. Other Rights. The indemnification provided by this
Article VI shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may be
entitled under any insurance or other agreement, vote of stockholders or
disinterested directors or otherwise, both as to action by a director or officer
of the Corporation in his or her official capacity and as to action by such
person in another capacity while holding such office or position, and shall
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of the heirs, executors and administrators of such person.
Article VII
Capital Stock
Section 7.01. Stock Certificates. Each holder of stock of the
Corporation shall be entitled upon request to have a certificate or
certificates, in such form as shall be approved by the Board, representing the
number of shares of stock of the Corporation owned by him or her, provided,
however, that certificates for fractional shares will not be delivered in any
case. The certificates representing shares of stock shall be signed by or in the
name of the Corporation by the Chairman, President or a Vice President and by
the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer and sealed with the seal of the Corporation. Any or all of the
signatures or the seal on the certificate may be a facsimile. In case any
officer, transfer agent or
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registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate shall be issued, it may be issued by the Corporation
with the same effect as if such officer, transfer agent or registrar were still
in office at the date of issue.
Section 7.02. Books of Account and Record of Stockholders. There shall
be kept at the principal executive office of the Corporation correct and
complete books and records of account of all of the business and transactions of
the Corporation.
Section 7.03. Transfers of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his or her attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary or with a transfer
agent or transfer clerk, and on surrender of the certificate or certificates, if
issued, for such shares properly endorsed or accompanied by a duly executed
stock transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person in whose name any share or shares stand on the record of
stockholders as the owner of such share or shares for all purposes, including,
without limitation, the rights to receive dividends or other distributions, and
to vote as such owner, and the Corporation shall not be bound to recognize any
equitable or legal claim to or interest in any such share or shares on the part
of any other person.
Section 7.04. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these by-laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer clerks and one
or more registrars and may require all certificates for shares of stock to bear
the signature or signatures of any of them.
Section 7.05. Lost, Destroyed or Mutilated Certificates. The holder of
any certificates representing shares of stock of the Corporation shall
immediately notify the Corporation of any loss, destruction or mutilation of
such certificate, and the Corporation may issue a new certificate of stock in
the place of any certificate theretofore issued by it which the owner thereof
shall allege to have been lost or destroyed or which shall have been mutilated,
and the Board, in its discretion, may require such owner or his or her legal
representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
Section 7.06. Fixing of a Record Date for Dividends and Distributions.
The Board may fix, in advance, a date not more than 90 days preceding the date
fixed for the payment of any dividend or the making of any distribution or the
allotment of rights to subscribe for securities of the Corporation, or for the
delivery of evidences of rights or evidences of interests arising out of any
change, conversion or exchange of common stock or other securities, as the
record date for the determination of the stockholders entitled to receive any
such dividend, distribution,
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allotment, rights or interests, and in such case only the stockholders of record
at the time so fixed shall be entitled to receive such dividend, distribution,
allotment, rights or interests.
Section 7.07. Information to Stockholders and Others. Any stockholder
of the Corporation or his or her agent may inspect and copy during usual
business hours the Corporation's by-laws, minutes of the proceedings of its
stockholders, annual statements of its affairs, and voting trust agreements on
file at its principal office.
Article VIII
Seal
The seal of the Corporation shall be circular in form and shall bear,
in addition to any other emblem or device approved by the Board of Directors,
the name of the Corporation, the year of its incorporation and the words
"Corporate Seal" and "Maryland." Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner reproduced.
Article IX
Fiscal Year
The Board of Directors shall have the power from time to time to fix
the fiscal year of the Corporation by a duly adopted resolution.
Article X
Depositories and Custodians
Section 10.01. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of the
Corporation from time to time may determine,
Section 10.02. Custodians. All securities and other investments shall
be deposited in the safekeeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every arrangement
entered into with any bank or other company for the safekeeping of the
securities and investments of the Corporation shall contain provisions complying
with the Investment Company Act and the general rules and regulations
thereunder.
Article XI
Execution of Instruments
Section 11.01. Checks, Notes, Drafts, etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors from time to time shall designate by resolution.
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Section 11.02. Sale or Transfer of Securities. Stock certificates,
bonds or other securities at any time owned by the Corporation may be held on
behalf of the Corporation or sold, transferred or otherwise disposed of subject
to any limits imposed by these by-laws and pursuant to authorization by the
Board and, when so authorized to be held on behalf of the Corporation or sold,
transferred or otherwise disposed of, may be transferred from the name of the
Corporation by the signature of the President or a Vice President or the
Treasurer or pursuant to any procedure approved by the Board of Directors,
subject to applicable law.
Article XII
Independent Public Accountants
The firm of independent public accountants which shall sign or certify
the financial statements of the Corporation which are filed with the Securities
and Exchange Commission shall be selected annually by the Board of Directors
and, if required by the provisions of the Investment Company Act, ratified by
the stockholders.
Article XIII
Annual Statement
The books of account of the Corporation shall be examined by an
independent firm of public accountants at the close of each annual period of the
Corporation and at such other times as may be directed by the Board. A report to
the stockholders based upon each such examination shall be mailed to each
stockholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his or her address as the same
appears on the books of the Corporation. Such annual statement shall also be
available at any annual meeting of stockholders and shall be placed on file at
the Corporation's principal office in the State of Maryland, and if no annual
meeting is held pursuant to Section 2.01, such annual statement of affairs shall
be placed on file at the Corporation's principal office within 120 days after
the end of the Corporation's fiscal year. Each such report shall show the assets
and liabilities of the Corporation as of the close of the annual or quarterly
period covered by the report and the securities in which the funds of the
Corporation were then invested. Such report also shall show the Corporation's
income and expenses for the period from the end of the Corporation's preceding
fiscal year to the close of the annual or quarterly period covered by the report
and any other information required by the Investment Company Act, and shall set
forth such other matters as the Board or such firm of independent public
accountants shall determine.
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Article XIV
Amendments
These by-laws or any of them may be amended, altered or repealed by the
affirmative vote of a majority of the Board of Directors. The stockholders shall
have no power to make, amend, alter or repeal by-laws.
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Exhibit C
Shareholders Agreement dated as of the date set forth on the
signature page between Aaron C. Brown ("Brown"), residing at 215 W.
91st St., New York, New York 10024, and Martin Stoller ("Stoller"),
residing at 147 Robsart Place, Kenilworth, Illinois 60043 (Brown and
Stoller are sometimes referred to as the shareholders and individually
as a shareholder)
Whereas the shareholders have formed eRaider.com Inc., a Delaware
corporation (the "Company"), that is intended among other business
matters to coordinate oversight via the Internet by shareholders of The
Allied Owners Action Fund Inc., a newly-formed mutual fund, and wish to
set forth certain rights and obligations with respect to their share
ownership;
Now therefore the parties agree as follows:
1. Stock Purchase. Upon execution hereof each shareholder shall
purchase 1,000 shares of the Company's common stock at $5 per share for a total
capital investment by each shareholder of $5,000.
2. Additional Stock Purchases. Additional stock purchases may be
mutually agreed upon from time to time by the shareholders in which event,
absent agreement to the contrary, their purchases shall be equal provided that
if the parties cannot agree on the need for additional capital, one shareholder
may after 60 day's notice to the other contribute what he considers to be
minimally necessary to the capital of the Company, in which event such
shareholder shall be issued additional shares of common stock to reflect his
increased equity in the Company in proportion to the shareholders' relative
capital contributions, and provided further that in the event of such additional
capital
<PAGE> 66
contribution by a shareholder the other shareholder may, within six
months, reimburse the contributing shareholder for 50% of his additional capital
contribution, in which event additional shares of common stock shall be issued
to reflect their equal equity ownership of the Company.
3. Governance. The Company's board of directors shall initially be
comprised of Brown and Stoller and board decisions including all decisions on
major matters shall be taken only upon the unanimous vote of the shareholders
provided that, subject to board oversight, Brown shall be in charge of
day-to-day management of the Company and shall have the authority to perform the
necessary acts to carry on the business of the Company on a single-signature
basis. Among other matters within the normal cognizance of the board, the
Company shall not pay shareholder salaries or dissolve or issue additional
shares or transfer any substantial portion of the assets of the Company without
affirmative board approval.
4. Accounting and Tax Matters. The Company shall adopt the accrual
method of accounting and maintain its books and records at its principal office.
Brown shall be responsible for preparing or causing to be prepared and making or
causing to be made timely filings of all necessary tax returns.
5. Disposition of Earnings. Upon board decision and subject to
reasonable reserve for proximate capital needs, earnings available for the
purpose may be distributed as dividends to the shareholders.
6. Restrictions on Transfers. (a) First Refusal; Co-Sale. Neither
shareholder may transfer any shares held by him without first offering by notice
such shares to the other shareholder who shall have 60 days to determine whether
to purchase such shares in
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whole or part, in which event, upon declination to purchase all the shares so
offered such initiating shareholder may sell such shares to a third party upon
the price and settlement terms offered to the other shareholder provided such
sale closes within three months, provided further that the declining shareholder
shall have a right of pro rata co-sale with respect to any such sale by the
other and provided further that such first refusal right shall not apply to
transfer to a trust whose beneficiary is a shareholder wife or child.
(b) Incompetency; Bankruptcy. Upon the adjucated incompetency of a
shareholder or filing of a petition in bankruptcy, the other shareholder shall
have an option continuing throughout such incompetency or until discharge in
bankruptcy to purchase at fair market value all or any portion of the common
stock held by such shareholder, with fair market value being determined by a
"Big 5" accounting firm or a "first bracket" underwriting firm selected by
notice by the purchasing shareholder who shall be responsible for its fees and
disbursements provided that within 10 days of such notice the guardian or other
shareholder as the case may be may seek agreement to use another firm and to
share such expenses in which case, failing agreement within 15 days on another
firm, the guardian or other shareholder may select at its own expense for such
determination another firm so qualified, in which case fair market value shall
be the average of the two figures so determined. During the period of
incompetency or bankruptcy the shares of common stock held by such shareholder
shall be voted by the other.
(c) Death. Upon the death of a shareholder the other shareholder shall
have an option exercisable within 9 months of death to purchase at fair market
value determined pursuant to section 6(b). During such 9-month period, or until
such shares
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are purchased by the shareholder, the shares of common stock held by the estate
or any legatee or beneficiary shall be voted by the surviving shareholder.
(d) Disability. Upon the disability of a shareholder (defined to mean
the substantial inability for at least 6-consecutive months or 9 months in a
12-month period by reason of injury or illness to perform such shareholder's
duties with respect to the Company), the other shareholder shall have the option
exercisable for 12 months after the lapse of such 9-consecutive month period or
the passage of such 9th month as the case may be to purchase all or a portion of
the shares of common stock of the disabled shareholder at fair market value
determined pursuant to section 6(b).
(e) Precedence. Options resulting from incompetency, bankruptcy, death
or disability shall take precedence over a right of first refusal.
(f) Co-Sale. Each shareholder shall have a right of pro rata co-sale
with respect to any sale of common stock by the other including a sale following
a declination to exercise a first refusal right.
(g) Payment. Payment for shares of common stock purchased pursuant to
this section shall be in cash at the closing provided that if the payment
required exceeds $100,000, payment of 80% thereof may be made pursuant to a
series up to four promissory notes requiring payment of at least 25% of the
balance at the end of each calendar quarter after closing.
7. Miscellaneous. Notices hereunder shall be effective if given by fax
to a number supplied by notice, personal delivery or by overnight mail to the
shareholder's residence set forth in the preamble (or such other address
furnished by notice). This agreement constitutes the entire agreement between
the parties with respect to its subject
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matter. No amendment shall be effective unless committed in writing and signed
by the parties. New York law shall govern. Friedman Siegelbaum LLP has acted as
counsel to the Company in the preparation of this agreement and has advised each
shareholder of his right to retain to independent legal counsel to review this
agreement. Each shareholder represents that he has either consulted with
independent counsel or waived his right to so consult. This agreement may be
executed in counterparts.
The parties have executed this agreement intending to be legally bound
as of the date set forth below.
Dated:
July __, 1999
________________________
Aaron C. Brown
________________________
Martin Stoller
Approved:
eRaider.com Inc.
by______________________
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Exhibit D
MANAGEMENT AGREEMENT
Management Agreement dated as of the date set forth on the
signature page between The Allied Owners Action Fund Inc., a Maryland
corporation (the "Fund"), and Privateer Asset Management Inc., a
Delaware corporation (the "Manager")
Whereas the Fund is expected to be engaged in business as a diversed,
open-end investment company to be registered under the Investment Company Act of
1940, as amended (the "Investment Company Act");
Whereas the Manager is engaged principally in rendering management and
investment advisory services and is expected to be registered as an investment
adviser under the Investment Advisers Act of 1940, as amended (the "Advisers
Act");
Whereas the Fund wishes to retain the Manager to provide management and
investment advisory services to the Fund in the manner and on the terms
hereinafter set forth; and
Whereas the Manager is willing to provide such services to the Fund on
such terms and conditions hereinafter set forth;
Now therefore the parties hereby agree as follows:
1. Appointment and Duties of Manager. The Fund hereby appoints the
Manager, and the Manager accepts such appointment, to act as a manager of and
investment adviser to the Fund and to furnish or arrange for affiliates or third
parties to furnish the management and investment advisory services described
below, subject to the policies and overall control of the board of directors of
the Fund (the "Board") on the terms set forth in this Agreement. The Manager
shall at its own expense provide or arrange for the provision of such services,
and assume the obligations set forth, for the compensation provided for
hereunder. The Manager and its affiliates if any shall be deemed to be an
independent contractor and shall, unless expressly authorize or as contemplated
hereby have no authority to act for or represent the Fund or otherwise be deemed
an agent of the Fund.
2. Management and Administrative Services. The Manager shall provide
(or arrange for affiliates or third parties to provide management and
administrative services necessary or appropriate for the operation of the Fund
including the administration of shareholder accounts and handling shareholder
relations. The Manager shall provide the Fund with office space, equipment and
facilities and such other services as the Manager shall from time to time
determine to be necessary or appropriate to perform its obligations under this
Agreement. The Manager shall also, on behalf of the Fund, maintain relations
with custodians, depositories, transfer agents, dividend disbursing agents,
other shareholder service agents, accountants, attorneys, underwriters, brokers
and dealers, corporate fiduciaries, insurers, banks and such other persons
determined by the Manager to be necessary or appropriate for the
<PAGE> 71
performance of its duties hereunder. The Manager shall monitor the Fund's
compliance with investment policies and restrictions set forth in the current
prospectus and statement of additional information relating to the shares of the
Fund under the Securities Act of 1933, as amended (the "Prospectus" and
"Statement of Additional Information," respectively). The Manager shall make
reports to the Board relating to the performance of its obligations hereunder
and furnish advice and recommendations with respect to other aspects of the
business and affairs of the Fund as it shall determine to be appropriate.
3. Investment Advisory Services. (a) The Manager shall provide (or
arrange for affiliates or third parties to provide) the Fund with such
investment research, advice and supervision as it may from time to time consider
necessary or appropriate for the proper deployment and supervision of the assets
of the Fund, shall furnish and regularly update as appropriate an investment
program for the Fund and to determine from time to time which securities shall
be purchased, sold or exchanged and the portion of the assets of the Fund to be
held in the various portfolio securities the Fund, or in cash, subject to the
restrictions set forth in the articles of incorporation and by-laws of the Fund,
as amended form time to time, the provisions of the Investment Company Act and
the statements relating to the Fund's investment objectives, investment policies
and investment restrictions set forth in the Prospectus and Statement of
Additional Information.
(b) The Manager shall also make decisions for the Fund as to the manner
in which voting rights, rights to consent to corporate action and any other
rights pertaining to the Fund's portfolio securities are exercised provided that
if the Board notifies the Manager in writing regarding investment policy the
Manager shall be bound by such determination for the period if any specified in
such notice or until similarly notified that such determination has been amended
or such notice withdrawn. The Manager shall take on behalf of the Fund all
actions that it deems necessary or appropriate to implement the investment
policies of the Fund and to place all orders for the purchase or sale of
portfolio securities for the Fund's account with brokers or dealers selected by
it and, to that end, the Manager is authorized to give instructions to the
custodian of the Fund as to deliveries of securities and payments of cash for
the account of the Fund. In connection with the selection of such brokers or
dealers and the placing of such orders with respect to assets of the Fund, the
Manager shall seek to obtain best execution within the policy guidelines
determined by the Board and as set forth in the Prospectus and Statement of
Additional Information. Subject to this requirement and the provisions of the
Investment Company Act, the Securities Exchange Act of 1934, as amended, and
other applicable provisions of law, the Manager may select brokers or dealers
with which it or the Fund is affiliated.
4. Notice Upon Change in Control of Manager. The Manager represents to
the Fund that it is a Delaware corporation and that Aaron C. Brown and Martin
Stoller own 100% of its outstanding shares. The Manager shall promptly notify
the Fund of any change in control of the Manager.
5. Allocation of Charges and Expenses. (a) The Manager. The Manager
shall pay for maintaining the staff and personnel necessary to perform its
obligations under this Agreement, and shall at its own expense provide the
office space, equipment and facilities that it
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is obligated to provide hereunder and pay all compensation of officers and
employees of the Fund.
(b) The Fund. The Fund shall pay (or reimburse the Manager for) or
cause to be paid all other expenses of the Fund including redemption expenses,
expenses of portfolio transactions, expenses or registering shares under federal
and state securities laws, pricing costs (including the daily calculation of net
asset value), expenses of printing shareholder reports, stock certificates,
prospectuses and statements of additional information, Securities and Exchange
Commission fees, interest, taxes, custodian and transfer agency fees, fees and
actual out-of-pocket expenses of directors who are not affiliated persons of the
Manager, fees for legal accounting and audit services, litigation expenses,
costs of printing proxies and other expenses related to shareholder meetings,
and other expenses properly payable by the Fund.
3. Compensation of Manager. For its services hereunder including the
facilities and expenses assumed by the Manager, the Fund shall pay to the
Manager at the end of each month a fee of 1/12th of 1% of the average daily
value of the net assets of the Fund for the preceding month, determined in
accordance with the determination of net asset value set forth in the Prospectus
and Statement of Additional Information provided that if this Agreement become
effective subsequent to the first day of a month or terminates before the last
day of a month, monthly compensation for such shall be prorated in a manner
consistent with the calculation of the fee as set forth above. During any period
when the determination of net asset value is suspended by the Fund, the net
asset value of a share as of the last business day prior to such suspension
shall for this purpose be deemed to be the net asset value at the close of each
succeeding business day until it is again determined.
4. Sub-Advisory Agreement. The Manager may enter into separate
sub-advisory agreements for sub-advisory services and pay to such sub-adviser
compensation for such services out of the compensation received hereunder
provided that the term of such sub-advisory agreement shall not extend beyond
this Agreement.
5. Limitation of Liability of Manager. The Manager shall not be liable
for any error of judgment or mistake or for any loss arising out of any
investment or for any act or omission in the management of the Fund, except for
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or for breach of fiduciary duty or by reason of reckless disregard of
its obligations hereunder. For the purposes of this section Manager shall
include any affiliates of the Manager performing services for the Fund
contemplated hereby and directors, officers and employees of the Manager and
such affiliates.
6. Outside Activities of Manager. The Manager and any affiliate are
free to render to others the service or services similar to those called for
hereunder. Directors, officers, employees and shareholders of the Fund are or
may become interested in the Manager and its affiliates as directors, officers,
employees and shareholders of the Manager and they and their directors,
officers, employees and shareholders may become shareholders of the Fund.
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7. Duration and Termination. (a) This Agreement shall become effective
as of the date and shall continue in force for two years provided that it shall
continue thereafter only upon Board approval or approval by majority vote of the
outstanding voting securities of the Fund.
(b) This Agreement may be terminated at any time, without payment of
any penalty, by the Board or by vote of a majority of the outstanding voting
securities of the Fund, or by the Manager, on 60 days' written notice to the
other party. This Agreement may not be assigned and shall automatically
terminate in the event of its assignment.
8. Amendments. This Agreement may be amended by the parties upon
approval by (i) a majority of outstanding voting securities of the Fund and (ii)
the Board upon a vote cast in person at a meeting called for the purpose of
voting thereon.
9. Board Determinations. References herein to a required vote or
determination by the Board shall mean the affirmative majority votes of both the
Board's members and the group comprising the disinterested members thereof, the
latter defined as members of the Board who have no direct or indirect financial
interest in the operation of the Fund or in any agreement related thereto, and
additionally who are not "interested persons" with respect to the Fund as
defined in section 2(19)(A) of the Investment Company Act.
10. Definition of Certain Terms. The terms "vote of a majority of the
outstanding voting securities," "assignment," "affiliated person" and
"interested person," when used in this Agreement, shall have the respective
meanings given in the Investment Company Act and subject to such exemptions as
may be granted by the Securities and Exchange Commission thereunder.
11. Governing Law. This Agreement shall be construed in accordance with
the law of New York and the Investment Company Act provided that if New York law
conflicts with the Investment Company Act, the latter shall control.
The parties hereto have executed and delivered this Agreement as of the
day and year set forth below.
Dated: The Allied Owners Action Fund Inc.
August ___, 1999 by ________________________________
Privateer Asset Management Inc.
by ________________________________
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Exhibit E
N/A
<PAGE> 75
Exhibit F
N/A
<PAGE> 76
Exhibit G
MUTUAL FUND CUSTODY AGREEMENT
This AGREEMENT is entered into as of ____, 199_, between
________________ (the "Trust"), a ______________ business trust, having its
principal office and place of business at __________ and Union Bank of
California, N.A. (the "Bank"), a National Banking Association organized under
the laws of the United States with its principal place of business at 350
California Street, San Francisco, CA 94104.
In consideration of the mutual promises set forth below, the Trust and the Bank
agree as follows:
1. Definitions.
Whenever used in this Agreement or in any Schedules to this Agreement, the words
and phrases set forth below shall have the following meanings, unless the
context otherwise requires:
1.1 "Authorized Person" shall be deemed to include the President, and
any Vice President, the Secretary, the Assistant Secretary, the Treasurer and
any Assistant Treasurer of the Trust, or any other person, including persons
employed by the Investment Adviser, whether or not any such person is an officer
of the Trust, duly authorized by the Board of Trustees of the Trust to give Oral
Instructions and Written Instructions on behalf of the Trust and listed in the
certification annexed hereto as Schedule A or such other successor certification
as may be received by the Bank from time-to-time.
1.2 "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency securities, its successor
or successors and its nominee or nominees.
1.3 "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange Commission under
Section 17(a) of the Securities Exchange Act of 1934, as amended, its successor
or successors and its nominee or nominees, in which the Bank is hereby
specifically authorized to make deposits. The term "Depository" shall further
mean and include any other person to be named in Written Instructions authorized
to act as a depository under the 1940 Act, its successor or successors and its
nominee or nominees.
1.4 "Money Market Security" shall be deemed to include, without
limitation, debt obligations issued or guaranteed as to interest and principal
by the Government of the United States or agencies or instrumentalities thereof,
and repurchase and reverse repurchase agreements with respect to any of the
foregoing types of securities, commercial paper, bank certificates of deposit,
bankers' acceptances and short-term corporate obligations, where the purchase or
sale of such securities normally requires settlement in federal funds on the
same day as such purchase or sale.
1.5 "Prospectus" shall mean the Series' current prospectus and
statement of additional information relating to the registration of the Series'
Shares under the Securities Act of 1933, as amended.
1.6 "Security" or "Securities" shall be deemed to include bonds,
debentures, notes, stocks, shares, evidences of indebtedness, and other
securities and investments from time-to-time owned by each Series.
1.7 "Shares" refers to the shares of beneficial interest of a Series of
the Trust.
1.8 "Series" refers to Funds shown on Schedule B, attached hereto and
made a part hereof by this reference, and any such other Series as may from
time-to-time be created and designated in accordance with the provisions of the
Declaration of Trust.
1.9 "Transfer Agent" shall mean the person which performs the transfer
agent, dividend disbursing agent and shareholder servicing agent functions for
the Trust.
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1.10 "Written Instructions" shall mean a written or electronic
communication actually received by the Bank from an Authorized Person or from a
person reasonably believed by the Bank to be an Authorized Person by telex or
any other such system whereby the receiver of such communication is able to
verify through codes or otherwise with a reasonable degree of certainty the
authenticity of the sender of such communication.
1.11 The "1940 Act" refers to the Investment Company Act of 1940, and
the rules and regulations thereunder, all as amended from time-to-time.
2. Appointment of Custodian.
2.1 The Trust hereby constitutes and appoints the Bank as Custodian of
all the Securities and moneys owned by or in the possession of the Trust during
the period of this Agreement.
2.2 The Bank hereby accepts appointment as Custodian for the Trust and
agrees to perform the duties thereof as hereinafter set forth.
3. Compensation.
3.1 The Trust will compensate the Bank for its services rendered under
this Agreement in accordance with the fees set forth in the Fee Schedule
attached as Schedule C and made a part of this Agreement by this reference.
3.2 The parties to this Agreement will agree upon the compensation for
acting as Custodian for any Series hereafter established and designated, and at
the time that the Bank commences serving as such for said Series, such agreement
shall be reflected in a Fee Schedule for the Trust, which shall be attached to
Schedule C of this Agreement.
3.3 Any compensation agreed to hereunder may be adjusted from
time-to-time by not less than 90 days advance written notice of such fee
increase from Bank to Trust.
3.4 The Bank will bill the Trust as soon as practicable after the end
of each month, and said billings will be detailed in accordance with the Fee
Schedule. The Trust will promptly pay to the Bank the amount of such billing. In
the event such bill is not promptly paid, the Bank may charge against any money
specifically allocated to the Trust such compensation and any expenses incurred
by the Bank in the performance of its duties pursuant to such agreement. The
Bank shall also be entitled to charge against any money held by it and
specifically allocated to the Trust the amount of any loss, damage, liability or
expense incurred with respect to such Trust, including counsel fees, for which
it shall be entitled to reimbursement under the provision of this Agreement.
The expenses which the Bank may charge against such account include,
but are not limited to, the expenses of Sub-Custodians and foreign branches of
the Bank incurred in settling transactions outside of San Francisco or New York
City involving the purchase and sale of Securities of the Trust.
4. Custody of Cash and Securities.
4.1 Receipt and Holding of Assets. The Trust will deliver or cause to
be delivered to the Bank all Securities and moneys owned by it, including cash
received from the issuance's of its Shares, at any time during the period of
this Agreement and shall specify the Series to which the Securities and moneys
are to be specifically allocated. The Bank shall physically segregate and keep
apart on its books, the assets of each Series, including separate identification
of Securities held in the Book-Entry System. The Bank will not be responsible
for such Securities and moneys until actually received by it. The Trust shall
instruct the Bank from time-to-time in its sole discretion, by means of Written
Instructions as to the manner in which and in what amounts Securities and moneys
of a Series are to be deposited on behalf of such Series in the Book-Entry
System or the Depository and specifically allocated on the books of the Bank to
such Series. Securities and moneys of the Trust deposited in the Book-Entry
System or the Depository will be represented in accounts which include only
assets held by the Bank for customers, including but not limited to accounts in
which the Bank acts in a fiduciary or representative capacity.
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<PAGE> 78
4.2 Accounts and Disbursements. The Bank shall establish and maintain a
separate account for each Series and shall credit to the separate account of
each Series all moneys received by it for the account of such Series and shall
disburse the same only:
4.2.1 In payment for Securities purchased for such Series, as
provided in Section 5 hereof;
4.2.2 In payment of dividends or distributions with respect to
the Shares of such Series;
4.2.3 In payment of original issue or other taxes with respect
to the Shares of such Series;
4.2.4 In payment for Shares which have been redeemed by such
Series;
4.2.5 Pursuant to Written Instructions, setting forth the name
of such Series, the name and address of the person to whom the payment is to be
made, the amount to be paid and the purpose for which payment is to be made; or
4.2.6 In payment of fees and in reimbursement of the expenses
and liabilities of the Bank attributable to such Series.
4.3 Confirmations and Statements. Promptly after the close of business
each day, the Bank shall make available to the Trust information with respect to
all transfers to and from the account of a Series during that day. The Bank need
not send written confirmation or a summary of all such transfers to or from the
account of each Series. Provided, however, that upon the written request of
Trust, Bank shall provide within 5 business days of such written request a copy
of any confirmations which include transactions of the Trust. At least monthly,
the Bank shall furnish the Trust with a detailed statement of the Securities and
moneys held for each Series under this Agreement.
4.4 Registration of Securities and Physical Separation.
All Securities held for a Series which are issued or issuable only in
bearer form, except such Securities as are held in the Book-Entry System, shall
be held by the Bank in that form; all other Securities held for a Series may be
registered in the name of any duly appointed registered nominee of the Bank as
the Bank may from time-to-time determine, or in the name of the Book-Entry
System or the Depository of their successor or successors, or their nominee or
nominees. When a reference is made in this Agreement to an action to be taken by
Bank, it is understood by the parties that the action may be taken directly or
in the case of book-entry Securities, through the appropriate depository. The
Trust agrees to furnish to the Bank appropriate instruments to enable the Bank
to hold or deliver in proper form for transfer, or to register in the name of
its registered nominee or in the name of the Book-Entry System or the
Depository, any Securities which it may hold for the account of a Series. The
Bank (or its Sub-Custodians) shall hold all such Securities specifically
allocated to a Series which are not held in the Book-Entry System or the
Depository in a separate account for such Series in the name of such Series
physically segregated at all times from those of any other person or persons.
Where Securities purchased by a Series are in a fungible bulk of Securities
registered in the name of the Bank (or its nominee) or shown on the Bank's
account on the books of the Depository or the Book-Entry System, the Bank shall
by book entry or otherwise identify the quantity of those Securities belonging
to such Series.
4.5 Collection of Income and Other Matters Affecting Securities. Unless
otherwise instructed to the contrary by Written Instructions, the Bank shall
with respect to all Securities held for a Series in accordance with this
Agreement:
4.5.1 Collect all income due or payable and credit such income
promptly on the contractual settlement date, whether or not actually received,
to the account of the appropriate Series, except for income from foreign issues.
Income which has not been collected after reasonable effort, within a time
agreed upon between the parties, shall be repaid to the Bank pending final
collection at such date as may be mutually agreed upon by the Trust and the
Bank.
4.5.2 Present for payment and collect the amount payable upon
all Securities which may mature or be called, redeemed or retired, or otherwise
become payable. Bank shall make a good faith effort to inform Trust of any call,
redemption or retirement date with respect to Securities which are owned by a
Series
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and held by the Bank or its nominee. Notwithstanding the foregoing, the Bank
shall have no responsibility to the Trust or a Series for monitoring or
ascertaining of any call, redemption or retirement date with respect to
Securities which are held by a Series and held by Bank or its nominee. Nor shall
the Bank have any responsibility or liability to the Trust or to a Series for
any loss by a Series for any missed payment or other default resulting therefrom
unless the Bank received timely notification, which shall not be less than 5
business days, from the Trust or the Series specifying the time, place and
manner for the presentment of any put bond owned by a Series and held by the
Bank or its nominee. The Bank shall not be responsible and assumes no liability
to the Trust or a Series for the accuracy or completeness of any notification
the Bank shall provide to the Trust or a Series with respect to put Securities;
4.5.3 Execute any necessary declarations or certificates of
ownership under the Federal income tax laws or the laws or regulations of any
other taxing authority now or hereafter in effect; and
4.5.4 Hold for the account of each Series all rights and other
Securities issued with respect to any Securities held by the Bank hereunder for
such Series.
4.6 Delivery of Securities and Evidence of Authority. Upon receipt of
Written Instructions, the Bank shall:
4.6.1 Execute and deliver or cause to be executed and
delivered to such persons as may be designated in such Written Instructions,
proxies, consents, authorization, and any other instruments whereby the
authority of the Trust as owner of any Securities may be exercised;
4.6.2 Deliver or cause to be delivered any Securities held for
a Series in exchange for other Securities or cash issued or paid in connection
with the liquidation, reorganization, refinancing, merger, consolidation or
recapitalization of any corporation, or the exercise of any conversion
privilege;
4.6.3 Deliver or cause to be delivered any Securities held for
a Series to any protective committee, reorganization committee or other person
in connection with the reorganization, refinancing, merger, consolidation or
recapitalization or sale of assets of any corporation, and receive and hold
under the terms of this Agreement in the separate (bookkeeping) account for each
Series such certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery;
4.6.4 Make or cause to be made such transfers or exchanges of
the assets and take such steps as shall be stated in said Written Instructions
to be for the purpose of effectuating any duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of the Trust;
4.6.5 Deliver Securities owned by any Series upon sale of such
Securities for the account of such Series pursuant to Section 5;
4.6.6 Deliver Securities owned by any Series upon the receipt
of payment in connection with any repurchase agreement related to such
Securities entered into by such Series;
4.6.7 Deliver Securities owned by any Series to the issuer
thereof or its agent when such Securities are called, redeemed, retired or
otherwise become payable; provided, however, that in any such case the cash or
other consideration is be delivered to the Bank.
4.6.8 Deliver Securities owned by any Series in connection
with any loans of Securities made by such Series but only against receipt of
adequate collateral as agreed upon from time-to-time by the Bank and the Trust
which may be in any form permitted under the 1940 Act or any interpretations
thereof issued by the Securities and Exchange Commission or its staff;
4.6.9 Deliver Securities owned by any Series for delivery as
security in connection with any borrowings by such Series requiring a pledge of
Series assets, but only against receipt of amount borrowed;
4.6.10 Deliver Securities owned by any Series upon receipt of
instructions from such Series for delivery to the Transfer Agent or to the
holders of Shares of such Series in connection with distributions in kind,
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as may be described from time-to-time in the Series' Prospectus, in satisfaction
of requests by holders of Shares for repurchase or redemption; and
4.6.11 Deliver Securities owned by any Series for any other
proper business purpose, but only upon receipt of, in addition to Written
Instructions, a certified copy of a resolution of the Board of Trustees signed
by an Authorized Person and certified by the Secretary or Assistant Secretary of
the Trust, specifying the Securities to be delivered, setting forth the purpose
for which such delivery is to be made, declaring such purpose to be a proper
business purpose, and naming the person or persons to whom delivery of such
Securities shall be made.
4.7 Endorsement and Collection of Checks, Etc. The Bank is hereby
authorized to endorse and collect all checks, drafts or other orders for the
payment of money received by the Bank for the account of a Series.
5. Purchase and Sale of Investments of the Series.
5.1 Promptly after each purchase of Securities for a Series, the Trust
shall deliver to the Bank Written Instructions specifying with respect to each
purchase: (1) the name of the Series to which such Securities are to be
specifically allocated; (2) the name of the issuer and the title of the
Securities; (3) the number of shares or the principal amount purchased and
accrued interest, if any; (4) the date of purchase and settlement; (5) the
purchase price per unit; (6) the total amount payable upon such purchase; (7)
the name of the person from whom or the broker through whom the purchase was
made, if any; (8) whether or not such purchase is to be settled through the
Book-Entry System or the Depository; and (9) whether the Securities purchased
are to be deposited in the Book-Entry System or the Depository. The Bank shall
receive all Securities purchased by or for a Series and upon receipt of such
Securities shall pay out of the moneys held for the account of such Series the
total amount payable upon such purchase, provided that the same conforms to the
total amount payable as set forth in such Written Instructions.
5.2 Promptly after each sale of Securities of a Series, the Trust shall
deliver to the Bank Written Instructions specifying with respect to such sale:
(1) the name of the Series to which the Securities sold were specifically
allocated; (2) the name of the issuer and the title of the Securities; (3) the
number of shares or principal amount sold, and accrued interest, if any; (4) the
date of sale; (5) the sale price per unit; (6) the total amount payable to the
Series upon such sale; (7) the name of the broker through whom or the person to
whom the sale was made; and (8) whether or not such sale is to be settled
through the Book-Entry System or the Depository. The Bank shall deliver or cause
to be delivered the Securities to the broker or other person designated by the
Trust upon receipt of the total amount payable to such Series upon such sale,
provided that the same conforms to the total amount payable to such Series as
set forth in such Written Instructions. Subject to the foregoing, the Bank may
accept payment in such form as shall be satisfactory to it, and may deliver
Securities and arrange for payment in accordance with the customs prevailing
among dealers in Securities.
6. Payment of Dividends or Distributions.
6.1 The Trust shall furnish to the Bank the resolution of the Board of
Trustees of the Trust certified by the Secretary or Assistant Secretary (i)
authorizing the declaration of dividends or distribution with respect to a
Series on a specified periodic basis and authorizing the Bank to rely on Written
Instructions specifying the date of the declaration of such dividend or
distribution, the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined, the amount payable per
share to the shareholders of record as of the record date and the total amount
payable per share to the shareholders of record as of the record date and the
total amount payable to the Transfer Agent on the payment date, or (ii) setting
forth the date of declaration of any dividend or distribution by a Series, the
date of payment thereof, the record date as of which shareholders entitled to
payment shall be determined, the amount payable per share to the shareholders of
record as of the record date and the total amount payable to the Transfer Agent
on the payment date.
6.2 Upon the payment date specified in such resolution or Written
Instructions the Bank shall pay out the moneys specifically allocated to and
held for the account of the appropriate Series the total amount payable to the
Transfer Agent of the Trust.
7. Sale and Redemption of Shares of a Series.
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7.1 Whenever the Trust shall sell or redeem any Shares of a Series, the
Trust shall deliver or cause to be delivered to the Bank Written Instructions
duly specifying:
(1) The name of the Series whose Shares were sold or redeemed;
(2) The number of Shares sold or redeemed, trade date, and
price; and
(3) The amount of money to be received or paid by the Bank for
the sale or redemption of such Shares.
7.2 Upon receipt of such money from the Transfer Agent, the Bank shall
credit such money to the separate account of the Series.
7.3 Upon issuance of any Shares of a Series in accordance with the
foregoing provisions of this Section 7, the Bank shall pay, out of the moneys
specifically allocated and held for the account of such Series, all original
issue or other taxes required to be paid in connection with such issuance upon
the receipt of Written Instructions specifying the amount to be paid.
7.4 Upon receipt from the Transfer Agent of advice setting forth the
number of Shares of a Series received by the Transfer Agent for redemption and
that such Shares are valid and in good form for redemption, the Bank shall make
payment to the Transfer Agent out of the moneys specifically allocated to and
held for the account of the Series.
8. Indebtedness.
8.1 The Trust will cause to be delivered to the Bank by any bank
(excluding the Bank) from which the Trust borrows money for temporary
administrative or emergency purposes using Securities as collateral for such
borrowings, a notice or undertaking in the form currently employed by any such
bank setting forth the amount which such bank will loan to the Trust against
delivery of a stated amount of collateral. The Trust shall promptly deliver to
the Bank Written Instructions stating with respect to each such borrowing: (1)
the name of the Series for which the borrowing is to be made; (2) the name of
the bank; (3) the amount and terms of the borrowing, which may be set forth by
incorporating by reference an attached promissory note, duly endorsed by the
Trust, or other loan agreement; (4) the time and date, if known, on which the
loan is to be entered into (the "borrowing date"); (5) the date on which the
loan becomes due and payable; (6) the total amount payable to the Trust for the
separate account of the Series on the borrowing date; (7) the market value of
Securities to be delivered as collateral for such loan, including the name of
the issuer, the title and the number of shares or the principal amount of any
particular Securities; (8) whether the Bank is to deliver such collateral
through the Book-Entry System or the Depository; and (9) a statement that such
loan is in conformance with the 1940 Act and the Series' Prospectus.
8.2 Upon receipt of the Written Instructions referred to above, the
Bank shall deliver on the borrowing date the specified collateral and the
executed promissory note, if any, against delivery by the lending bank of the
total amount of the loan payable, provided that the same conforms to the total
amount payable as set forth in the Written Instructions. The Bank may, at the
option of the lending bank, keep such collateral in its possession, but such
collateral shall be subject to all rights therein given the lending bank by
virtue of any promissory note or loan agreement. The Bank shall deliver as
additional collateral in the manner directed by the Trust from time-to-time such
Securities specifically allocated to such Series as may be specified in Written
Instructions to collateralize further any transaction described in this Section
8. The Trust shall cause all Securities released from collateral status to be
returned directly to the Bank, and the Bank shall receive from time-to-time such
return of collateral as may be tendered to it. In the event that the Trust fails
to specify in Written Instructions all of the information required by this
Section 8, the Bank shall not be under any obligation to deliver any Securities.
Collateral returned to the Bank shall be held hereunder as it was prior to being
used as collateral.
9. Persons Having Access to Assets of the Series.
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9.1 No Trustee, officer, employee or agent of the Trust, and no
officer, director, employee or agent of the Advisor, shall have physical access
to the assets of the Trust held by the Bank or be authorized or permitted to
withdraw any investments of the Trust, nor shall the Bank deliver any assets of
the Trust to any such person. No officer, director, employee or agent of the
Bank who holds any similar position with the Trust or the Advisor shall have
access to the assets of the Trust.
9.2 The individual employees of the Bank initially duly authorized by
the Board of Directors of the Bank to have access to the assets of the Trust are
listed on Schedule A which is attached and made a part of this Agreement by this
reference. The Bank shall advise the Trust of any change in the individuals
authorized to have access to the assets of the Trust by written notice to the
Trust.
9.3 Nothing in this Section 9 shall prohibit any officer, employee or
agent of the Trust, or any officer, director, employee or agent of the Advisor,
from giving Written Instructions to the Bank so long as it does not result in
delivery of or access to assets of the Trust prohibited by this Section 9.
10. Concerning the Bank.
10.1 Standard of Conduct. The Bank shall not be responsible for the
title, validity or genuineness of any property or evidence of title thereto
received by it or delivered by it pursuant to this Agreement and reasonably
believed by it to be valid or genuine and shall be held harmless in acting upon
proper instructions, resolutions, any notice, request, consent, certificate or
other instrument reasonably believed by it to be genuine and to be signed by the
proper party or parties and shall be entitled to receive as conclusive proof of
any fact or matter required to be ascertained by it hereunder, a certificate
signed by the President, a Vice President, the Treasurer, the Secretary or an
Assistant Secretary of the Trust. The Bank may receive and accept a resolution
as conclusive evidence (a) of the authority of any person to act in accordance
with such vote or (b) of any determination or of any action by the Board of
Trustees pursuant to the Declaration of Trust as described in such vote, and
such vote may be considered as in full force and effect until receipt by the
Bank of written notice from the Secretary or an Assistant Secretary to the
contrary.
The Bank shall be entitled to rely on and may act upon advice of
counsel (who may be counsel for the Trust) on all matters, and shall be without
liability for any action reasonably taken or omitted pursuant to such advice.
Provided, however, that if such reliance involves a potential material loss to
the Trust, the Bank shall advise the Trust of any such actions to be taken in
accordance with such advice of counsel to the Bank.
The Bank shall be held to the exercise of reasonable care in carrying
out the provisions of this Agreement but shall be liable only for its own
negligent or bad faith acts or wilful misconduct or wilful failures to act by
the Bank and its agents or Employees. Bank shall have no responsibility for
reviewing or questioning the acts or records of any prior Custodian. The Trust
shall indemnify the Bank and hold it harmless from and against all losses,
liabilities, demands, claims, actions, expenses, attorneys' fees, and taxes with
respect to each Series which the Bank may suffer or incur on account of being
Bank hereunder except to the extent that such losses, liabilities, demands,
claims, actions, expenses, attorneys fees or taxes arise from the Bank's own
gross negligence or bad faith. Notwithstanding the foregoing the Bank shall be
liable to the Trust for any loss or damage resulting from the use of the
Book-Entry System or the Depository arising by reason of any negligence,
misfeasance or misconduct on the part of the Bank or any of its employees or
agents.
If a Series requires the Bank to take any action with respect to
Securities, which action involves the payment of money or which action may, in
the opinion of the Bank, result in the Bank or its nominee assigned to such
Series being liable for the payment of money or incurring liability of some
other form, such Series, as a prerequisite to requiring the Bank to take such
action, shall, prior to the Bank taking such action, provide indemnity in
writing to the Bank in an amount and form satisfactory to it.
10.2 Limit of Duties. Without limiting the generality of the foregoing,
the Bank shall be under no duty or obligation to inquire into, and shall not be
liable for:
10.2.1 The validity of the issue of any Securities purchased
by any Series, the legality of the purchase thereof, the permissibility of the
purchase thereof under the Trust's governing documents, or the propriety of the
amount paid therefor;
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10.2.2 The legality of the sale of any Securities by any
Series, the permissibility of such sale under the Trust's governing documents,
or the propriety of the amount for which the same are sold;
10.2.3 The legality of the issue or the sale of any Shares, or
the sufficiency of the amount to be received therefor;
10.2.4 The legality of the redemption of any Shares, or the
sufficiency of the amount to be paid therefor;
10.2.5 The legality of the declaration or payment of any
dividend or other distribution of any Series;
10.2.6 The legality of any borrowing for temporary or
emergency administrative purposes.
10.3 No Liability Until Receipt. The Bank shall not be liable for, or
considered to be the Custodian of, any money, whether or not represented by any
check, draft, or other instrument for the payment of money, received by it on
behalf of any Series until the Bank actually receives and collects such money
directly or by the final crediting of the account representing the Trust's
interest in the Book-Entry System or the Depository.
10.4 Collection Where Payment Refused. The Bank shall not be under any
duty or obligation to take action to effect collection of any amount, if the
Securities upon which such amount is payable are in default, or if payment is
refused after due demand or presentation, unless and until (a) it shall be
directed to take such action by Written Instructions and (b) it shall be assured
to its satisfaction of reimbursement of its costs and expenses in connection
with any such action.
10.5 Appointment of Agents and Sub-Custodians. The Bank may appoint one
or more banking institutions, including but not limited to banking institutions
located in foreign countries, to act as Depository or Depositories or as
Sub-Custodian or as Sub-Custodians of Securities and moneys at any time owned by
any Series, upon terms and conditions specified in Written Instructions. The
Bank shall use reasonable care in selecting a Depository and/or Sub-Custodian
located in a country other than the United States ("Foreign Sub-Custodian"), and
shall oversee the maintenance of any Securities or moneys of the Trust by any
Foreign Sub-Custodian.
10.6 No Duty to Ascertain Authority. The Bank shall not be under any
duty or obligation to ascertain whether any Securities at any time delivered to
or held by it for the Trust and specifically allocated to a Series are such as
may properly be held by the Series and specifically allocated to such Series
under the provisions of the Declaration of Trust and the Series' Prospectus.
10.7 Reliance on Certificates and Instructions. The Bank shall be
entitled to rely upon any Written Instructions or Oral Instructions actually
received by the Bank pursuant to the applicable Sections of this Agreement and
reasonably believed by the Bank to be genuine and to be given by an Authorized
Person. The Trust agrees to forward to the Bank Written Instructions from an
Authorized Person confirming such Oral Instructions in such manner so that such
Written Instructions are received by the Bank, whether by hand delivery, telex,
or otherwise, by the close of business on the same day that such Oral
Instructions are given to the Bank. The Trust agrees that if such confirming
instructions are not received by the Bank that it shall in no way affect the
validity for the transactions or enforceability of the transactions hereby
authorized by the Trust. The Trust agrees that the Bank shall incur no liability
to the Trust in acting upon Oral Instructions given to the Bank hereunder
concerning such transactions provided such instructions reasonably appear to
have been received from a duly Authorized Person.
10.8 Inspection of Books and Records. The books and records of the Bank
regarding the Trust shall be open to inspection and audit at reasonable times by
officers and auditors employed by the Trust and by employees of the Securities
and Exchange Commission. The Bank shall provide the Trust, upon request, with
any report obtained by the Bank on the system of internal accounting control of
the Book-Entry System or the Depository and with such reports on its own systems
of internal accounting control as the Trust may reasonably request from
time-to-time. Provided, however, that in the event that the Trust shall require
a report of internal
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accounting control produced by the auditors of the Series rather than of the
Bank, then such report shall be prepared at the expense of the Series, and the
Series agrees to pay for the time expended by Bank on such audit and report at
the hourly rate set forth on the Fee agreement.
11. Term and Termination.
11.1 This Agreement shall become effective on the date first set forth
above (the "Effective Date") and shall continue in effect thereafter as the
parties may mutually agree.
11.2 Either of the parties hereto may terminate this Agreement with
respect to any Series by giving to the other party a notice in writing
specifying the date of such termination, which shall be not less than 90 days
after the date of receipt of such notice. In the event such notice is given by
the Trust, it shall designate a Successor Custodian or Custodians, which shall
be a person qualified to so act under the 1940 Act. In the event such notice is
given by the Bank, the Trust shall, on or before the termination date, deliver
to the Bank Written Instructions designating a Successor Custodian or
Custodians. In the absence of such designation by the Trust, the Bank may
designate a Successor Custodian, which shall be a person qualified to so act
under the 1940 Act. If the Trust fails to designate a Successor Custodian for
any Series, the Trust shall upon the date specified in the notice of termination
of this Agreement and upon the delivery by the Bank of all Securities (other
than Securities held in the Book-Entry Systems which cannot be delivered to the
Trust) and moneys then owned by such Series, be deemed to be its own Custodian,
and the Bank shall thereby be relieved of all duties and responsibilities
pursuant to this Agreement, other than the duty with respect to Securities held
in the Book-Entry system which cannot be delivered to the Trust.
11.3 Upon the date set forth in such notice under paragraph (b) of this
Section, this Agreement shall terminate to the extent specified in such notice,
and the Bank shall upon receipt of a notice of acceptance by the Successor
Custodian on that date deliver directly to the Successor Custodian all
Securities and moneys then held by the Bank and specifically allocated to the
Series or Series specified, after deducting all fees, expenses and other amounts
for the payment or reimbursement of which it shall then be entitled with respect
to such Series or Series.
12. Additional Services by Bank.
12.1 If allowed by the prospectus, Investment Adviser may direct that
the assets of any Series be invested in deposits in Bank or its affiliates
bearing a reasonable rate of interest.
12.2 Other Bank Services. Any Authorized Person may direct Bank to
utilize other services or facilities provided by UnionBanCal Corporation
("UBCC"), its subsidiaries or affiliates including Bank. Such services shall
include, but not be limited to (1) the placing of orders for the purchase, sale
exchange, investment or reinvestment of Securities through any brokerage service
conducted by, or (2) the purchase of units of any investment company managed or
advised by Bank, UBCC, or their subsidiaries or affiliates and/or for which
Bank, UBCC, or their subsidiaries or affiliates act as Custodian or provide
investment advice or other services for a fee, including, without limitation,
the HighMark Funds. Trust hereby acknowledges that Bank, UBCC or their
subsidiaries or affiliates will receive fees for such services in addition to
the fees payable under this Agreement. Fee Schedules for such additional
directed services shall be delivered to the Authorized Person before provision
of such services.
13. Miscellaneous.
13.1 Annexed hereto as Schedule A is a certification signed by two of
the present Trustees of the Trust setting forth the names and the signatures of
the present Authorized Persons. The Trust agrees to furnish to the Bank a new
certification in similar form in the event that any such present Authorized
Person ceases to be such an Authorized Person or in the event that other or
additional Authorized Persons are elected or appointed. Until such new
certification shall be received, the Bank shall be fully protected in acting
under the provisions of this Agreement upon Oral Instructions or signatures of
the present Authorized Persons as set forth in the last delivered certification.
13.2 Annexed hereto as Schedule D is a certification signed by two of
the present Trustees of the Trust setting forth the names and the signatures of
the present Trustees of the Trust. The Trust agrees to
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furnish to the Bank a new certification in similar form in the event any such
present Trustee ceases to be a Trustee of the Trust or in the event that other
or additional Trustees are elected or appointed. Until such new certification
shall be received, the Bank shall be fully protected in acting under the
provisions of this Agreement upon the signature of the officers as set forth in
the last delivered certification.
13.3 Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Bank, shall be sufficiently given if
addressed to the Bank and mailed or delivered to it at its offices at:
Union Bank of California, N.A.
Mutual Fund Services Dept., Trust Group
475 Sansome Street, 15th Floor
San Francisco, California 94111
or such other place as the Bank may from time-to-time designate in writing.
13.4 Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Trust, shall be sufficiently given if
addressed to the Trust and mailed or delivered to it at its offices at
___________________________________________________or at such other place as the
Trust may from time-to-time designate in writing.
13.5 This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the same formality as this
Agreement, and as may be permitted or required by the 1940 Act.
13.6 This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by the Trust without the written
consent of the Bank, or by the Bank without the written consent of the Trust
authorized or approved by a resolution of the Board of Trustees of the Trust,
and any attempted assignment without such written consent shall be null and
void.
13.7 This Agreement shall be construed in accordance with the laws of
the State of California.
13.8 It is expressly agreed to that the obligations of the Trust
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents, or employees of the Trust, personally, but bind only the
property of the Trust, as provided in the Declaration of Trust of the Trust. The
execution and delivery of this Agreement have been authorized by the Trustees of
the Trust and signed by an authorized officer of the Trust, acting as such, and
neither such authorization by such Trustees nor such execution and delivery by
such officer shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the trust
property of the Trust as provided in its Declaration of Trust.
13.9 The captions of the Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
13.10 This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
14. Dispute Resolution Provision
14.1 Jury Waiver. The parties hereby waive their respective rights to a
jury trial in any litigation arising out of or relating to this Agreement or any
related agreements or instruments, including without limitation any claim based
on or arising out of an alleged tort.
14.2 Judicial Reference. If any such litigation is commenced in a
California state court, any party may also elect to have all decisions of fact
and law determined by a referee appointed by the court in accordance with
applicable state reference procedures. The referee shall be a retired judge,
agreed upon by the parties, from either the American Arbitration Association
(AAA) or J.A.M.S./Endispute, Inc. (JAMS). If the parties cannot agree, the party
who initially selected the reference procedure shall request a panel of ten
retired judges from either AAA or JAMS and the court shall select the referee
from that panel. The costs of the reference
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procedure, including the fee for the court reporter, shall be borne equally by
all parties as the costs are incurred. The Referee shall hear all pre-trial and
post-trial matters, including requests for equitable relief, conduct a non-jury
trial, prepare an award with written findings of fact and conclusions of law,
and award attorney fees and costs to the prevailing party. Judgment upon the
award shall be entered in the court in which such proceeding was commenced and
all parties shall have full rights of appeal.
15. Merger or Consolidation of Bank.
Any corporation or association (i) into which the Bank may be merged or
with which it may be consolidated, (ii) resulting from any merger,
consolidation, or reorganization to which the Bank may be a party, or (iii) to
which all or substantially all of the fiduciary business of the Bank may be
transferred shall become a Successor Custodian under this Agreement without the
necessity of executing any instrument or performing any further act subject to
the provision of this Agreement concerning resignation or removal of the
Custodian.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunder duly authorized as of the day
and year first above written.
UNION BANK OF CALIFORNIA, N.A.
- --------------------------------
BY: BY:
- -------------------------------- --------------------------------------
, Vice President
DATE: DATE:
--------------------------- ------------------------------------
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Schedule A
Authorized Persons
Part I - Access Persons of Bank
Part II - Authorized Persons of the Trust
Part III - Trustees
- -------------------------------------
BY:
- -------------------------------------
DATE:
- -------------------------------------
UNION BANK OF CALIFORNIA, N.A.
BY:
- -------------------------------------
, Vice President
DATE:
- -------------------------------------
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Schedule B - Funds
- -------------------------------------
BY:
- -------------------------------------
DATE:
- -------------------------------------
UNION BANK OF CALIFORNIA, N.A.
BY:
- -------------------------------------
, Vice President
DATE:
- -------------------------------------
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<PAGE> 89
Schedule C
Mutual Fund Services
Schedule of Fees
Custody
Transactions*
Depository Eligible $
Depository Ineligible $
Disbursements $
Minimum Fee $
*A transaction is defined as any activity affecting assets, such as purchase,
sale tender offer, stock dividend, free deliveries, maturity, exchange,
redemption, etc. Fees for foreign securities, foreign exchange transactions,
international wires and nonstandard services are quoted separately.
- -------------------------------------
BY:
- -------------------------------------
DATE:
- -------------------------------------
UNION BANK OF CALIFORNIA, N.A.
BY:
- -------------------------------------
, Vice President
DATE:
- -------------------------------------
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<PAGE> 90
Schedule D
Certification
Names and Signatures of Current Trustees
- -------------------------------- ----------------------------------
(Typed name of Trustee) (Signature of Trustee)
- -------------------------------- ----------------------------------
(Typed name of Trustee) (Signature of Trustee)
- -------------------------------- ----------------------------------
(Typed name of Trustee) (Signature of Trustee)
- -------------------------------- ----------------------------------
(Typed name of Trustee) (Signature of Trustee)
- -------------------------------- ----------------------------------
(Typed name of Trustee) (Signature of Trustee)
- -------------------------------- ----------------------------------
(Typed name of Trustee) (Signature of Trustee)
- -------------------------------- ----------------------------------
(Typed name of Trustee) (Signature of Trustee)
- -------------------------------- ----------------------------------
(Typed name of Trustee) (Signature of Trustee)
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Exhibit H
ADMINISTRATIVE SERVICE AGREEMENT
BETWEEN
AND
AMERICAN DATA SERVICES, INC.
[LOGO]
<PAGE> 92
INDEX
1. DUTIES OF THE ADMINISTRATOR.........................................3
ADMINISTRATION..........................................................3
FUND ACCOUNTING.........................................................4
2. COMPENSATION OF THE ADMINISTRATOR...................................5
3. RESPONSIBILITY AND INDEMNIFICATION..................................5
4. REPORTS.............................................................5
5. ACTIVITIES OF THE ADMINISTRATOR.....................................6
6. RECORDS.............................................................6
7. CONFIDENTIALITY.....................................................6
8. DURATION AND TERMINATION OF THE AGREEMENT...........................6
9. ASSIGNMENT..........................................................7
10. NEW YORK LAWS TO APPLY..............................................7
11. AMENDMENTS TO THIS AGREEMENT........................................7
12. MERGER OF AGREEMENT.................................................7
13. NOTICES.............................................................7
SCHEDULE A..............................................................9
(A) ADMINISTRATIVE SERVICE FEE..........................................8
FEE INCREASES.......................................................8
(B) EXPENSES............................................................8
(C) STATE REGISTRATION (BLUE SKY) SURCHARGE ...........................10
(D) SPECIAL REPORTS....................................................10
(E) SERVICE DEPOSIT....................................................10
SCHEDULE B.............................................................11
2
<PAGE> 93
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT made the ______ day of _________ 1999, by and between Privateer Asset
Management Inc. (the "Company") a Delaware corporation having its principal
office and place of business at 215 West 91st Street, Apt 112, and American Data
Services, Inc., a New York corporation having its principal office and place of
business at the Hauppauge Corporate Center, 150 Motor Parkway, Suite 109,
Hauppauge, New York 11788 (the "Administrator").
BACKGROUND
WHEREAS, The Allied Owners Action Fund, Inc. (the "Fund") is a
diversified open-end management investment company registered with the United
States Securities and Exchange Commission under the Investment Company Act of
1940, as amended (the "1940 Act"); and
WHEREAS, the Administrator is a corporation experienced in
providing administrative services to mutual funds and possesses facilities
sufficient to provide such services; and
WHEREAS, the Company desires to avail itself of the experience,
assistance and facilities of the Administrator and to have the Administrator
perform for the Fund, on behalf of the Company, certain services appropriate to
the operations of the Co. and the Administrator is willing to furnish such
services in accordance with the terms hereinafter set forth.
TERMS
NOW, THEREFORE, in consideration of the promises and mutual
covenants hereinafter contained, the Fund and the Administrator hereby agree to
the following:
1. DUTIES OF THE ADMINISTRATOR.
ADMINISTRATION
The Administrator will provide the Fund with the necessary office
space, communication facilities and personnel to perform the following services
for the Fund:
(a) Monitor all regulatory (1940 Act and IRS) and prospectus
restrictions for compliance;
(b) Prepare and coordinate the printing of semi-annual and annual
financial statements;
(c) Prepare selected management reports for performance and compliance
analyses as agreed upon by the Company and Administrator from time
to time;
(d) Prepare Directors meeting agendas and selected financial data
required for directors' meetings as agreed upon by the Company and
the Administrator from time to time, attend and conduct all fund
business at Board meetings, and prepare Board minutes;
(e) Determine income and capital gains available for distribution and
calculate distributions required to meet regulatory, income, and
excise tax requirements, to be reviewed by the Fund's independent
public accountants;
(f) Prepare the Fund's federal, state, and local tax returns to be
reviewed by the Fund's independent public accountants;
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<PAGE> 94
(g) Prepare and maintain the Fund's operating expense budget to
determine proper expense accruals to be charged to the Fund in order
to calculate it's daily net asset value;
(h) 1940 ACT filings -
- Prepare the Fund's Form N-SAR reports and file with SEC via
EDGAR;
- Update annually Form N-1a and the Fund's Statement of
Additional Information and File with SEC via EDGAR;
- Prepare and file with SEC via EDGAR annual update to Fund's
24f-2 filing (if applicable);
(i) Monitor services provided by the Fund's custodian bank as well as
any other service providers to the Fund or the Company;
(j) The Administrator shall assist the Fund's independent auditors, or,
upon approval of the Company, any regulatory body, in any requested
review of the Fund's accounts and records. Provide appropriate
financial schedules (as requested by the Fund's independent public
accountants or SEC examiners), coordinate the Fund's annual or SEC
audit, and provide office facilities as may be required;
(k) The preparation and filing (registration and ADS filing fees to be
paid by the Fund) of applications and reports as necessary to
register or maintain the Funds registration under the securities or
"Blue Sky" laws of the various states selected by the Fund.
FUND ACCOUNTING
(a) Timely calculate and transmit to the Company the Fund's daily net
asset value and communicate such value to the Fund and its transfer
agent;
(b) Maintain and keep current all books and records of the Fund as
required by Rule 31a-1 under the 1940 Act, as such rule or any
successor rule may be amended from time to time ("Rule 31a-1"), that
are applicable to the fulfillment of ADS's duties hereunder, as well
as any other documents necessary or advisable for compliance with
applicable regulations as may be mutually agreed to between the
Company and ADS. Without limiting the generality of the foregoing,
ADS will prepare and maintain the following records upon receipt of
information in proper form from the Company:
- Cash receipts journal
- Cash disbursements journal
- Dividend record
- Purchase and sales - portfolio securities journals
- Subscription and redemption journals
- Security ledgers
- Broker ledger
- General ledger
- Daily expense accruals
- Daily income accruals
- Securities and monies borrowed or loaned and collateral
therefore
- Foreign currency journals
- Trial balances
(c) Provide the Fund and its investment adviser with daily portfolio
valuation, net asset value calculation and other standard
operational reports as requested from time to time.
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The Administrator shall, for all purposes herein, be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Company or the Fund in any way or
otherwise be deemed an agent of the Company or the Fund.
2. COMPENSATION OF THE ADMINISTRATOR.
In consideration of the services to be performed by the Administrator
as set forth herein for each portfolio listed in Schedule B, the Administrator
shall be entitled to receive compensation and reimbursement for all reasonable
out-of-pocket expenses. The Company agrees to pay the Administrator the fees and
reimbursement of out-of-pocket expenses as set forth in the fee schedule
attached hereto as Schedule A.
3. RESPONSIBILITY AND INDEMNIFICATION.
(a) The Administrator shall be held to the exercise of reasonable care
in carrying out the provisions of the Agreement, but shall be without liability
to the Fund or the Company for any action taken or omitted by it in good faith
without gross negligence, bad faith, willful misconduct or reckless disregard of
its duties hereunder. It shall be entitled to rely upon and may act upon the
accounting records and reports generated by the Fund or Company, advice of the
Fund or Company, or of counsel for the Fund or Company and upon statements of
the Fund's independent accountants, and shall be without liability for any
action reasonably taken or omitted pursuant to such records and reports or
advice, provided that such action is not, to the knowledge of the Administrator,
in violation of applicable federal or state laws or regulations, and provided
further that such action is taken without gross negligence, bad faith, willful
misconduct or reckless disregard of its duties.
(b) The Administrator shall not be liable to the Company or Fund for
any error of judgment or mistake of law or for any loss arising out of any act
or omission by the Administrator in the performance of its duties hereunder
except as hereinafter set forth. Nothing herein contained shall be construed to
protect the Administrator against any liability to the Fund or Company or its
security holders to which the Administrator shall otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence in the performance of its
duties on behalf of the Fund or Company, reckless disregard of the
Administrator's obligations and duties under this Agreement or the willful
violation of any applicable law.
(c) Except as may otherwise be provided by applicable law, neither the
Administrator nor its stockholders, officers, directors, employees or agents
shall be subject to, and the Company shall indemnify and hold such persons
harmless from and against, any liability for and any damages, expenses or losses
incurred by reason of the inaccuracy of information furnished to the
Administrator by the Company or its authorized agents or in connection with any
error in judgment or mistake of law or any act or omission in the course of,
connected with or arising out of any services to be rendered hereunder, except
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, by reason of reckless disregard of the
Administrator's obligations and duties under this Agreement or the willful
violation of any applicable law.
4. REPORTS.
(a) The Company shall provide to the Administrator on a quarterly basis
a report of a duly authorized officer of the Company representing that all
information furnished to the Administrator during the preceding quarter was
true, complete and correct to the best of its knowledge. The Administrator shall
not be responsible for the accuracy of any information furnished to it by the
Fund, and the Fund shall hold the Administrator harmless in regard to any
liability incurred by reason of the inaccuracy of such information.
(b) The Administrator shall provide to the Board of Directors of the
Fund, on a quarterly basis, a report, in such a form as the Administrator and
the Company shall from time to time agree, representing
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<PAGE> 96
that, to its knowledge, the Fund was in compliance with all requirements of
applicable federal and state law, including without limitation, the rules and
regulations of the Securities and Exchange Commission and the Internal Revenue
Service, or specifying any instances in which the Fund was not so in compliance.
Whenever, in the course of performing its duties under this Agreement, the
Administrator determines, on the basis of information supplied to the
Administrator by the Company, that a violation of applicable law has occurred,
or that, to its knowledge, a possible violation of applicable law may have
occurred or, with the passage of time, could occur, the Administrator shall
promptly notify the Company and its and the Fund's counsel of such violation.
5. ACTIVITIES OF THE ADMINISTRATOR.
The Administrator shall be free to render similar services to others so
long as its services hereinunder are not impaired thereby.
6. RECORDS.
The records maintained by the Administrator shall be the property of
the Fund, and shall be surrendered to the Fund, upon request by the Fund in the
form in which such accounts and records have been maintained or preserved
(including any necessary instructions on how to access such information) at the
reasonable expense of the Fund which shall not exceed $_______________________
in the aggregate.
The Administrator shall provide the Company, on a monthly basis, with a
copy of all records for the month then ended on CD-ROM together with any
necessary instructions on how to access such records.
The Administrator shall preserve the accounts and records as they are
required to be maintained and preserved by Rule 31a-1.
7. CONFIDENTIALITY.
The Administrator agrees that it will, on behalf of itself and its
officers and employees, treat all transactions contemplated by this Agreement
all documents and information (written or oral) transferred in connection with
its association with the Fund, and all other information germane thereto, as
confidential and such information shall not be disclosed to any person except as
may be authorized in writing by the Company.
Administrator agrees to use and to cause its representative to use such
documents and information solely for the purposes expressly set forth herein and
not to use, and to cause its representatives not to use, same in any way
detrimental to the Fund. At the requests of the Company. Administrator shall,
and shall cause its representatives to, promptly redeliver to the Company all
documents and information and any other material containing or reflecting any
information relating thereto (whether prepared by the Company or otherwise) and
will into retain any copies, extracts or other reproductions in whole or in part
of such material. At the request of the Company, all documents, memoranda, notes
and other writings whatsoever prepped by the Administrator or its
representatives relating to the Fund or the Company shall be destroyed, and
such destruction shall be certified in writing to the Company by an authorized
representative of Administrator supervising such destruction. The agreements set
forth in this Section 7 shall survive termination of this Agreement.
8. DURATION AND TERMINATION OF THE AGREEMENT.
This Agreement shall become effective as of the date hereof and shall
remain in force for a period of three (3) years, provided however, that both
parties to this Agreement have the option to terminate the Agreement, upon
ninety (90) days prior written notice. Should the Company give notice of
termination of this Agreement, Administrator shall cooperate and use best
efforts to effect the Company's transition from Administrator. The Fund shall
not be obligated to use the services of Administrator during the ninety (90)
days following notice of termination.
6
<PAGE> 97
Should the Company exercise its right to terminate, all reasonable
out-of-pocket expenses associated with the movement of records and material will
be borne by the Fund which amount shall not exceed $_______ in the aggregate.
Additionally, the Administrator reserves the right to charge for any other
reasonable expenses associated with such _______. Notwithstanding anything
contained herein to the contrary, the Fund shall have the right to immediately
terminate this Agreement in the event of a [material] breach of this Agreement
by Administrator. [EXPENSES]
9. ASSIGNMENT.
This Agreement shall extend to and shall be binding upon the parties
hereto and their respective successors and assigns; provided, however, that this
Agreement shall not be assignable by the Fund without the prior written consent
of the Administrator.
10. NEW YORK LAWS TO APPLY
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York (excluding principles of
conflict of laws) as at the time in effect and the applicable provisions of the
1940 Act. To the extent that the applicable law of the State of New York or any
of the provisions herein, conflict with the applicable provisions of the 1940
Act, the latter shall control.
11. AMENDMENTS TO THIS AGREEMENT.
This Agreement may be amended by the parties hereto only if such
amendment is in writing and signed by both parties.
12. MERGER OF AGREEMENT
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof whether oral or written.
13. NOTICES.
All notices and other communications hereunder shall be in writing,
shall be deemed to have been given when delivered in person or by certified
mail, return receipt requested, and shall be given to the following addresses
(or such other addresses as to which notice is given):
To the Company: To the Administrator:
Privateer Asset Management Inc. Michael Miola
Aaron C. Brown President
American Data Services, Inc.
150 Motor Parkway, Suite 109
Hauppauge, NY 11788
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
PRIVATEER ASSET MANAGEMENT, INC. AMERICAN DATA SERVICES, INC.
By:____________________________ By:__________________________
Aaron Brown, President Michael Miola, President
7
<PAGE> 98
SCHEDULE A
(a) ADMINISTRATIVE SERVICE FEE:
For the services rendered by the Administrator in its capacity as
administrator, as specified in Paragraph 1. DUTIES OF THE ADMINISTRATOR., the
Fund shall pay the Administrator within ten (10) days after receipt of an
invoice from the Administrator at the beginning of each month, a fee equal to
the greater of:
CALCULATED FEE WILL BE BASED UPON PRIOR MONTH AVERAGE NET ASSETS:
(No prorating partial months)
- NOTE: The following administrative service fees are per portfolio
serviced plus out-of-pocket expenses.
MINIMUM FEE:
Under $5 million ............................. $3,000
From $5 million to $10 Million ................ 3,500
From $10 million to $20 million................ 4,000
From $20 million on............................ 4,500
OR,
NET ASSET CHARGE:
- FIRST $75 MILLION of average monthly net assets of Fund 1/12th of
0.15% (15 basis points), plus
- NEXT $75 MILLION of average monthly net assets of Fund 1/12th of
0.10% (10 basis points), plus
- OVER $150 MILLION of average monthly net assets of Fund 1/12th of
0.07% (7 basis points).
FEE INCREASES
On each annual anniversary date of this Agreement, the fees enumerated above
will be increased by the change in the Consumer Price Index for the Northeast
region (CPI) for the twelve-month period ending with the month preceding such
annual anniversary date.
(b) EXPENSES.
The following expenses will be charged to the Fund as incurred by ADS in
connection with the performance of its duties to include
The Fund shall reimburse the Administrator for any out-of-pocket expenses ,
exclusive of salaries, advanced by the Administrator in connection with but not
limited to the printing or filing of documents for the Fund, travel, daily
quotation fees (currently $0.10 for equity & $0.58 for debt positions), capital
change
8
<PAGE> 99
information, telephone toll charges, facsimile transmissions, supplies (related
to fund records), record storage, postage and courier charges, pro-rata portion
of SAS 70 review, and NASDAQ insertion fee ($22 per month) incurred in
connection with the performance of its duties hereunder. The Administrator shall
provide the Fund with a monthly invoice of such expenses and the Fund shall
reimburse the Administrator within fifteen (15) days after receipt thereof.
(c) STATE REGISTRATION (BLUE SKY) SURCHARGE:
The fees enumerated in paragraph (a) above do not include the initial
state registration, renewal and maintenance of registrations (as detailed in
Paragraph 1(I) DUTIES OF THE ADMINISTRATOR). Each state registration requested
will be subject to the following fees:
Initial registration ............... $295.00
Registration renewal ............... $150.00
Sales reports (if required) ........ $ 25.00
(d) SPECIAL REPORTS.
All reports and/or analyses requested by the Fund, its auditors, legal
counsel, portfolio manager, or any regulatory agency having jurisdiction over
the Fund, that are not in the normal course of fund administrative activities as
specified in Section 1 of this Agreement shall be subject to an additional
charge, agreed upon in advance, based upon the following rates:
Labor:
Senior staff - $150.00/hr.
Junior staff - $ 75.00/hr.
Computer time - $45.00/hr.
(e) SERVICE DEPOSIT.
The Fund will remit to the Administrator upon execution of this
Agreement a security deposit equal to one (1) month's minimum fee under this
Agreement, computed in accordance with the number of portfolios listed in
Schedule B of this Agreement. The Fund will have the option to have the security
deposit applied to the last month's service fee, or applied to any new contract
between the Fund and the Administrator.
However, if the Fund elects or is forced to terminate this Agreement for any
reason what-so-ever (including, but not limited to, the voluntary or involuntary
termination of the Fund, liquidation of the Fund's assets, the sale or merger of
the Fund or it's assets to any successor entity) prior to the termination date
of this Agreement as specified in Paragraph 8 of this Agreement, the Fund will
forfeit the Security Deposit paid to the Administrator upon execution of this
Agreement
9
<PAGE> 100
SCHEDULE B
PORTFOLIOS TO BE SERVICED UNDER THIS AGREEMENT:
10
<PAGE> 101
Exhibit H
TRANSFER AGENCY AND SERVICE AGREEMENT
BETWEEN
AND
AMERICAN DATA SERVICES, INC.
[LOGO]
<PAGE> 102
INDEX
1. TERMS OF APPOINTMENT; DUTIES OF ADS.....................................3
2. FEES AND EXPENSES.......................................................4
3. REPRESENTATIONS AND WARRANTIES OF ADS...................................4
4. REPRESENTATIONS AND WARRANTIES OF THE FUND..............................5
5. INDEMNIFICATION.........................................................5
6. COVENANTS OF THE FUND AND ADS...........................................6
7. TERMINATION OF AGREEMENT................................................7
8. ASSIGNMENT..............................................................7
9. AMENDMENT...............................................................7
10. NEW YORK LAWS TO APPLY.................................................7
11. MERGER OF AGREEMENT....................................................7
12. NOTICES................................................................8
FEE SCHEDULE................................................................9
(A) ACCOUNT MAINTENANCE CHARGE:.............................................9
PLUS,.......................................................................9
(B) TRANSACTION FEES:.......................................................9
(C) 24 HOUR AUTOMATED VOICE RESPONSE:......................................10
(D) FUND/SERV..............................................................10
(E) INTERNET ACCESS:.......................................................10
FEE INCREASES..........................................................10
(F) IRA PLAN FEES:.........................................................10
(G) EXPENSES:..............................................................11
(H) SPECIAL REPORTS:.......................................................11
(I) SERVICE DEPOSIT:.......................................................11
(J) CONVERSION CHARGE: (EXISTING FUNDS ONLY, NEW FUNDS PLEASE IGNORE)......11
SCHEDULE A.................................................................13
2
<PAGE> 103
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made the ______ day of _________ 1999, by and between Privateer Asset
Management Inc. (the "Company") a ______________Corporation / Business Trust,
having its principal office and place of business at XXXXXXXXX (the "Fund"), and
American Data Services, Inc., a New York corporation having its principal office
and place of business at the Hauppauge Corporate Center, 150 Motor Parkway,
Suite 109, Hauppauge, New York 11788 ("ADS")
WHEREAS, the Company desires to appoint ADS as a transfer agent,
dividend disbursing agent and agent in connection with certain activities, and
ADS desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. TERMS OF APPOINTMENT; DUTIES OF ADS
1.01 Subject to the terms and conditions set forth in this agreement,
the Fund hereby employs and appoints ADS to act as, and ADS agrees to act as
its, transfer agent for The Allied Owners Action Fund's (the "Fund") authorized
and issued shares of its common stock, ("Shares"), dividend disbursing agent and
agent in connection with any accumulation, open-account or similar plans
provided to the shareholders of the Fund ("Shareholders") set out in the
currently effective prospectus and statement of additional information
("prospectus") of the Fund.
1.02 ADS agrees that it will perform the following services:
(a) In accordance with procedures established from time to
time by agreement between the Company and ADS, ADS shall:
I. Receive for acceptance, orders for the purchase of Shares, and promptly
deliver payment and appropriate documentation therefore to the Custodian
of the Fund authorized by the Board of Directors of the Fund (the
"Custodian");
II. Pursuant to purchase orders, issue the appropriate number of Shares and
hold such Shares in the appropriate Shareholder account;
III. Receive for acceptance redemption requests and redemption directions and
deliver the appropriate documentation therefore to the Custodian;
IV. At the appropriate time as and when it receives monies paid to it by the
Custodian with respect to any redemption, pay over or cause to be paid
over in the appropriate manner such monies as instructed by the redeeming
Shareholders;
V. Effect transfers of Shares by the registered owners thereof upon receipt
of appropriate instructions;
VI. Prepare and transmit payments for dividends and distributions declared by
the Fund;
VII. Maintain records of account for and advise the Fund and its Shareholders
as to the foregoing; and
VIII. Record the issuance of shares of the Fund and maintain pursuant to SEC
Rule 17Ad-10(e) a record of the total number of shares of the Fund which
are authorized, based upon data provided to it by the Fund, and issued and
outstanding. ADS shall also provide the Fund on a regular basis with the
total number of shares which are authorized and issued and outstanding and
shall have no obligation, when recording the issuance of shares, to
monitor the issuance of such shares or to take cognizance of any
3
<PAGE> 104
laws relating to the issue or sale of such shares, which functions shall
be the sole responsibility of the Fund.
(b) In addition to and not in lieu of the services set forth in the
above paragraph (a), ADS shall:
Perform all of the customary services of a transfer agent, dividend
disbursing agent, including but not limited to: maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies, receiving and
tabulating proxies, mailing Shareholder reports and prospectuses to current
Shareholders, withholding taxes on U.S. resident and non-resident alien
accounts, preparing and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect to dividends and distributions by
federal authorities for all Shareholders, preparing and mailing confirmation
forms and statements of account to Shareholders for all purchases redemption's
of Shares and other confirmable transactions in Shareholder accounts, preparing
and mailing activity statements for Shareholders, and providing Shareholder
account information and (ii) provide a system and reports which will enable the
Fund to monitor the total number of Shares sold in each State.
(c) The Company shall (i) identify to ADS in writing those transactions
and shares to be treated as exempt from blue sky reporting for each
State and (ii) verify the establishment of such transactions for
each State on the system prior to activation and thereafter monitor
the daily activity for each State as provided by ADS. The
responsibility of ADS for the Fund's blue sky State registration
status is solely limited to the initial establishment of
transactions subject to blue sky compliance by the Fund and the
reporting of such transactions to the Fund as provided above.
Procedures applicable to certain of these services may be established
from time to time by agreement between the Company and ADS.
2. FEES AND EXPENSES
2.01 For performance by ADS pursuant to this Agreement, the Company
agrees to pay ADS an annual maintenance fee for each Shareholder account and
transaction fees for each portfolio or class of shares serviced under this
Agreement (See Schedule A) as set out in the fee schedule attached hereto. Such
fees and out-of pocket expenses and advances identified under Section 2.02 below
may be changed from time to time subject to mutual written agreement between the
Company and ADS.
2.02 In addition to the fee paid under Section 2.01 above, the Company
agrees to reimburse ADS for out-of-pocket expenses or advances incurred by ADS
for the items set out in the fee schedule attached hereto. In addition, any
other expenses incurred by ADS at the request or with the consent of the
Company, will be reimbursed by the Company.
2.03 The Company agrees to pay all fees and reimbursable expenses
within five days following the receipt of the respective billing notice. Postage
for mailing of dividends, proxies, Fund reports and other mailings to all
shareholder accounts shall be advanced to ADS by the Company at least seven (7)
days prior to the mailing date of such materials.
3. REPRESENTATIONS AND WARRANTIES OF ADS
ADS represents and warrants to the Company that:
3.01 It is empowered under applicable laws and by its charter and
by-laws to enter into and perform this Agreement.
3.02 All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement.
4
<PAGE> 105
3.03 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
3.04 ADS is duly registered as a transfer agent under the Securities
Act of 1934 and shall continue to be registered throughout the remainder of this
Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE FUND
The Company represents and warrants to ADS that:
4.01 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement.
4.02 All proceedings required by said Articles of Incorporation and
By-Laws have been taken to authorize it to enter into and perform this
Agreement.
4.03 The Fund is an open-end management investment company intending to
be registered under the Investment Company Act of 1940.
4.04 A registration statement under the Securities Act of 1933 will
become effective and will remain effective for the Fund, and appropriate state
securities law filings as required, have been or will be made and will continue
to be made, with respect to all Shares of the Fund being offered for sale.
5. INDEMNIFICATION
5.01 ADS shall not be responsible for, and the Company shall indemnify
and hold ADS harmless from and against, any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
(a) All actions of ADS or its agents or subcontractors required to be taken
pursuant to this Agreement, provided that such actions are taken in
good faith and without gross negligence or willful misconduct.
(b) The Company's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Company's lack good faith, gross
negligence or willful misconduct or which arise out of the breach of
any representation or warranty of the Company hereunder.
(c) The reliance on or use by ADS or its agents or subcontractors of
information, records and documents which (i) are received by ADS or its
agents or subcontractors and furnished to it by or on behalf of the
Fund or the Company and (ii) have been prepared and/or maintained by
the Company or any other person or firm on behalf of the Fund.
(d) The reliance on, or the carrying out by ADS or its agents or
subcontractors of any instructions or requests of the Company.
(e) The offer or sale of Shares in violation of any requirement under the
federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state
or in violation of any stop order or other determination or ruling by
any federal agency or any state with respect to the offer or sale of
such Shares in such state.
5.02 ADS shall indemnify and hold the Company harmless from and against
any and all losses, damages, costs, charges, counsel fees, payments, expenses
and liability arising out of or attributable to any
5
<PAGE> 106
action or failure or omission to act by ADS as a result of ADS's lack of good
faith, gross negligence or willful misconduct.
5.03 At any time ADS may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by ADS under this
Agreement, and ADS and its agents or subcontractors shall not be liable and
shall be indemnified by the Company for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel. ADS, its
agents and subcontractors shall be protected and indemnified in acting upon any
paper or document furnished by or on behalf of the Company or the Fund,
reasonably believed to be genuine and to have been signed by the proper person
or persons, or upon any instruction, information, data, records or documents
provided ADS or its agents or subcontractors by machine readable input, telex,
CRT data entry or other similar means authorized by the Company, and shall not
be held to have notice of any change of authority of any person, until receipt
of written notice thereof from the Company. ADS, its agents and subcontractors
shall also be protected and indemnified in recognizing stock certificates which
are reasonably believed to bear the proper manual or facsimile signatures of the
officers of the Company, and the proper countersignature of any former transfer
agent or registrar, or of a co-transfer agent or co-registrar.
5.04 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
5.05 Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or for any act
or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party of seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
6. COVENANTS OF THE COMPANY AND ADS
6.01 The Company shall promptly furnish to ADS a certified copy of the
resolution of the Board of Directors of the Company authorizing the appointment
of ADS and the execution and delivery of this Agreement.
6.02 ADS hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, if any, check forms and facsimile signature imprinting devices, if
any; and for the preparation or use, and for keeping account of, such
certificates, forms and devices.
6.03 ADS shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Company Act of 1940, as amended, and
the Rules thereunder, ADS agrees that all such records prepared or maintained by
ADS relating to the services to be performed by ADS hereunder are the property
of the Fund and will be preserved, maintained and made available in accordance
with such Section and Rules, and will be surrendered promptly to the Fund on and
in accordance with its request (including any necessary instructions on how to
access such information).
6
<PAGE> 107
6.04 ADS and the Fund agree that all books, records, information and
data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed to any other person,
except as may be required by law.
[CONFORM CORRESPONDING INSERT 7]
6.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, ADS will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. ADS reserves the right, however, to exhibit the Shareholder records
to any person whenever it is advised by its counsel that it may be held liable
for the failure to exhibit the Shareholder records to such person, and shall
promptly notify the Fund of any unusual request to inspect or copy the
shareholder records of the Fund or the receipt of any other unusual request to
inspect, copy or produce the records of the Fund.
7. TERMINATION OF AGREEMENT
7.01 This Agreement shall become effective as of the date hereof and
shall remain in force for a period of three (3) years, provided however, that
both parties to this Agreement have the option to terminate the Agreement upon
ninety (90) days prior written notice.
7.02 Should the Fund exercise its right to terminate, all reasonable
out-of-pocket expenses associated with the movement of records and material will
be borne by the Fund which amount shall not exceed $_______ in the aggregate.
Additionally, ADS reserves the right to charge for any other reasonable expenses
associated with such termination.
[CONFORM CORRESPONDING INSERT 8a AND 8b
8. ASSIGNMENT
8.01 Neither this Agreement nor any rights or obligations hereunder may
be assigned by either party without the written consent of the other party.
8.02 This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
9. AMENDMENT
9.01 This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the Board
of Directors.
10. NEW YORK LAWS TO APPLY
10.01 The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of New York (excluding
principles of conflict of laws) as at the time in effect and the applicable
provisions of the 1940 Act. To the extent that the applicable law of the State
of New York, or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control.
11. MERGER OF AGREEMENT
7
<PAGE> 108
11.01 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
12. NOTICES.
All notices and other communications hereunder shall be in writing,
shall be deemed to have been given when received or when sent by telex or
facsimile, and shall be given to the following addresses (or such other
addresses as to which notice is given):
To the Company: To ADS:
PRIVATEER ASSET MANAGEMENT INC. Michael Miola
Aaron Brown President
American Data Services, Inc.
150 Motor Parkway, Suite 900
Hauppauge, NY 11788
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
PRIVATEER ASSET MANAGEMENT INC. AMERICAN DATA SERVICES, INC.
By:____________________________ By:__________________________
Aaron Brown, President Michael Miola, President
8
<PAGE> 109
FEE SCHEDULE
For the services rendered by ADS in its capacity as transfer agent, the
Fund shall pay ADS, within ten (10) days after receipt of an invoice from ADS at
the beginning of each month, a fee, calculated as a combination of account
maintenance charges plus transaction charges as follows:
(a) ACCOUNT MAINTENANCE CHARGE:
The Greater of (No prorating for partial months):
(1) Minimum maintenance charge per portfolio/class $1,000.00/ month
OR,
(2) Based upon the total of all open/closed accounts (1) per portfolio/class
upon the following annual rates (billed monthly):
FUND TYPE:
Dividend calculated and
paid annually, semi-annually, quarterly ................ $ 9.00 per account
Dividend calculated and paid monthly ..................... $12.00 per account
Dividend accrued daily and paid monthly .................. $16.00 per account
Closed accounts ................ $ 2.00 per account (2)
(1) All accounts closed during a month will be considered as open accounts for
billing purposes in the month the account is closed.
(2) Closed accounts remain on the shareholder files until all 1099's and
5498's have been distributed to the shareholders and send via mag-media to
the IRS.
PLUS,
(b) TRANSACTION FEES:
<TABLE>
<S> <C>
Trade Entry (purchase/liquidation) and maintenance transactions .. $ 1.50 each
New account set-up ............................................... $ 3.00 each
Customer service calls ........................................... $ 1.25 each
Correspondence/ information requests ............................. $ 1.75 each (2)
Check preparation ................................................ $ .50 each
Liquidation's paid by wire transfer .............................. $ 3.00 each
ACH charge ....................................................... $ .45 each
SWP .............................................................. $ 1.00 each
</TABLE>
9
<PAGE> 110
(c) 24 HOUR AUTOMATED VOICE RESPONSE:
Initial set-up (one-time) charge per portfolio - $750.00
Monthly maintenance charge per portfolio - $50.00
All calls processed through automated voice response will be billed as a
customer service call listed above.
(d) FUND/SERV
All portfolios processed through Fund/SERV will be subject to an additional
monthly charge of $250.00
All transactions processed through Fund/SERV will be billed at the transaction
fee rates listed in (b) above.
(e) INTERNET ACCESS:
Each shareholder/adviser/broker hit billed at $0.25 per hit.
FEE INCREASES
On each annual anniversary date of this Agreement, the fees enumerated above
will be increased by the change in the Consumer Price Index for the Northeast
region (CPI) for the twelve month period ending with the month preceding such
annual anniversary date.
(f) IRA PLAN FEES:
The following fees will be charged directly to the shareholder account:
Annual maintenance fee ............................. $15.00 /account *
Incoming transfer from prior custodian ............. $12.00
Distribution to a participant ...................... $15.00
Refund of excess contribution ...................... $15.00
Transfer to successor custodian .................... $15.00
Automatic periodic distributions .................. $15.00/year per account
* Includes $8.00 Bank Custody Fee.
10
<PAGE> 111
(g) EXPENSES:
The Fund shall reimburse ADS for any out-of-pocket expenses, exclusive
of salaries, advanced by ADS in connection with but not limited to the costs for
printing fund documents, (i.e. printing of confirmation forms, shareholder
statements, redemption/dividend checks, envelopes, financial statements, proxy
statement, fund prospectus, etc.) proxy solicitation and mailing expenses,
travel requested by the Fund, telephone toll charges, 800-line costs and fees,
facsimile and data transmission costs, stationery and supplies (related to Fund
records), record storage, postage (plus a $0.085 service charge for all
mailings), pro-rata portion of annual SAS-70 audit letter, telex and courier
charges incurred in connection with the performance of its duties hereunder. ADS
shall provide the Fund with a monthly invoice of such expenses and the Fund
shall reimburse ADS within fifteen (15) days after receipt thereof.
(h) SPECIAL REPORTS:
All reports and/or analyses requested by the Fund that are not included
in the fee schedule, shall be subject to an additional charge, agreed upon in
advance, based upon the following rates:
Labor:
Senior staff - $150.00/hr.
Junior staff - $ 75.00/hr.
Computer time - $45.00/hr.
(i) SERVICE DEPOSIT:
The Fund will remit to ADS upon execution of this Agreement a security
deposit of equal to one (1) month's shareholder service fee. The service deposit
computation will be based either on the total number of shareholder accounts
(open and closed) of each portfolio to be serviced or the minimum fee, whichever
is greater, as of the execution date of this Agreement. The Fund will have the
option to have the security deposit applied to the last month's service fee, or
applied to any new contract between the Fund and ADS.
However, if the Fund elects or is forced to terminate this Agreement for any
reason what-so-ever other than a material breach by ADS (including, but not
limited to, the voluntary or involuntary termination of the Fund, liquidation of
the Fund's assets, the sale or merger of the Fund or it's assets to any
successor entity) prior to the termination date of this Agreement as specified
in Paragraph 7 of this Agreement, the Fund will forfeit the Security Deposit
paid to ADS upon execution of this Agreement
(j) CONVERSION CHARGE: (EXISTING FUNDS ONLY, NEW FUNDS PLEASE IGNORE)
There will be a charge to convert the Fund's shareholder accounting
records on to the ADS stock transfer system. In addition, ADS will be reimbursed
for all out-of-pocket expenses, enumerated in paragraph (b) above and data media
conversion costs, incurred during the conversion process.
11
<PAGE> 112
The conversion charge will be estimated and agreed upon in advance by
the Fund and ADS. The charge will be based upon the quantity of records to be
converted and the condition of the previous service agents records.
12
<PAGE> 113
SCHEDULE A
PORTFOLIOS TO BE SERVICED UNDER THIS AGREEMENT:
13
<PAGE> 114
Exhibit I
July ___, 1999
_________________________
_________________________
_________________________
_________________________
Dear Sirs/Mesdames:
We have acted as counsel for The Allied Owners Action Fund, Inc., a
corporation organized under the laws of the State of Maryland (the "Fund"), in
connection with the organization of the Fund and its registration as an open-end
investment company under the Investment Company Act of 1940, as amended. This
opinion is being furnished in connection with the registration of an indefinite
number of shares of common stock, par value $.001 per share, of the Fund (the
"Shares") under the Securities Act of 1933, as amended, which registration is
being effected pursuant to a registration statement of Form N-1A (File No.
__________), as amended (the "Registration Statement").
As counsel for the Fund, we are familiar with the proceedings taken by
it in connection with the authorization, issuance and sale of the Shares. In
addition, we have examined and are familiar with the Articles of Incorporation
of the Fund, as amended, the By-Laws of the Fund and such other documents as we
have deemed relevant to the matters referred to in this opinion.
Based upon the foregoing, we are of the opinion that the Shares, upon
issuance and sale in the manner referred to in the Registration Statement for
consideration not less than the par value thereof, will be legally issued, fully
paid and non-assessable shares of common stock of the Fund.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
FRIEDMAN SIEGELBAUM LLP
<PAGE> 115
Exhibit J
N/A
<PAGE> 116
Exhibit K
N/A
<PAGE> 117
Exhibit L
Sponsor Funding Agreement
Whereas the undersigned are sponsors of The Allied Owners Action Fund
Inc. (the "Fund"); and
Whereas they wish to set forth the terms of their initial investment in
the Fund in accordance with section 14 of the Investment Company Act of 1940, as
amended;
Now therefore they agree as follows:
1. Upon the effective date of registration of the Fund, Stoller shall
invest $1 million in the Fund before any subscriptions are accepted by the Fund.
Brown has not committed to any investment therein but reserves the right to
invest with Stoller or subsequently.
2. Neither Brown nor Stoller has a present intent to redeem the common
stock of the Fund to be owned by either of them. Their investment in the Fund
shall be made for investment purposes only.
The parties have executed and delivered this agreement on the date set
forth below.
Dated:
_______________________________________
Aaron C. Brown
August __, 1999
_______________________________________
Martin Stoller
<PAGE> 118
Exhibit M
The Allied Owners Action Fund Inc. Self-Distribution Plan
dated the date set forth on the signature page adopted on such date in
accordance with Rule 12b-1(b) promulgated pursuant to section 12 of the
Investment Company Act of 1940, as amended (the "1940 Act"), by
unanimous vote cast in person of the directors of such Fund, a Maryland
corporation (the "Fund"), at a meeting of the Fund's board of directors
(the "Board") called for the purpose of voting on this Plan. This Plan
has also been approved by vote of a majority of the outstanding voting
securities of the Fund.
1. This Plan shall continue in effect for a period of one year from the
date hereof. Thereafter, this Plan and any related agreement shall continue only
if such continuation is approved by the Board upon a vote cast in person at a
meeting called for the purpose of voting thereon and any such related agreement.
2. Any person authorized to direct the disposition of amounts paid or
payable by the Fund pursuant to this Plan or any related agreement shall provide
to the Board and the Board shall review, at least quarterly, a written report of
the amounts so expended and the purposes for which such expenditures were made.
3. This Plan may be terminated at any time by vote of the Board or by
vote of a majority of the outstanding voting securities of the Fund.
4. Any agreement related to the Plan shall contain a provision (a)
permitting it to be terminated at any time, without payment of any penalty, by
vote of the Board or by vote of a majority of the outstanding voting securities
of the Fund on not more than 60
<PAGE> 119
days' written notice to the other party or parties thereto and (b) whereby it is
terminated automatically in the event of its assignment.
5. This Plan may not be amended to increase materially the amount to be
spent for distribution of Fund securities without the approval of a majority of
the outstanding voting securities of the Fund. All material amendments to this
Plan must be approved by the Board.
6. This Plan shall be implemented and continued in a manner consistent
with each of the following provisions:
(a) The Fund's disinterested directors (as defined in section
9) shall nominate and select replacement and additional directors of
the Fund.
(b) In considering whether the Fund should continue this Plan
the Board shall request and evaluate, and any person who is a party to
any agreement related to this Plan shall have a duty to furnish, such
information as may reasonably be necessary to an informed determination
whether this Plan should be continued, and in connection therewith the
Board shall consider and give appropriate weight to all pertinent
factors including (i) the need for independent counsel or experts to
assist the Board, (ii) the nature of the problems or circumstances that
purportedly make implementation or continuation of this Plan necessary
or appropriate, (iii) the causes of such problems or circumstances,
(iv) how this Plan would address such problems or circumstances and how
it would be expected to alleviate them, (v) the merits of possible
alternative plans, (vi) the interrelationship between this Plan and the
activities of other persons who finance or have financed distribution
of Fund shares including whether payments by the
2
<PAGE> 120
Fund to such other persons would constitute the indirect financing of
self distribution of Fund shares, (vii) the possible benefits of this
Plan to any other person relative to those expected to inure to the
Fund, (viii) the effect of this Plan on existing and future
shareholders and (ix) whether this Plan will produce the anticipated
benefits for the Fund and its shareholders. Minutes of the Board
describing the factors considered and the basis for the decision to use
Fund assets for distribution shall be made and retained in accordance
with subsection c provided that the Fund may continue this Plan only if
the Board concludes, in the exercise of reasonable business judgment
and in light of the fiduciary duties of the directors thereof under
state law and under section 36(a) and (b) of the 1940 Act, that there
is a reasonable likelihood that this Plan will benefit the Fund and its
shareholders.
(c) The Fund shall retain in an easily accessible place copies
of this Plan and any amendments thereto, and any agreement or report
related thereto, at least six years from the date of such document.
7. [For Brown: Describe material aspects of terms of distribution and
its financing of the distribution (and use of Fund assets)]
8. [For Brown: Describe all material aspects of actual or proposed
agreements related to the Plan. All arrangements relating to distribution must
be in writing. Discuss approval of all related agreements.]
9. References herein to a required vote or determination by the Board
shall mean the affirmative majority votes of both the Board's members and the
group comprising the disinterested members thereof, the latter defined as
members of the Board
3
<PAGE> 121
who have no direct or indirect financial interest in the operation of the Plan
or in any agreement related thereto, and additionally who are not "interested
persons" with respect to the Fund as defined in section 2(19)(A) of the 1940
Act.
10. The Board and the proper officers of the Fund are authorized to do
each such act and to execute and file each such document that is necessary or
appropriate to implement this Plan or the transactions contemplated hereby.
Dated: The Allied Owners Action Fund Inc.
July __, 1999
by____________________________
Aaron C. Brown, President
Certificate of Secretary
of
The Allied Owners Action Fund, Inc.
The undersigned secretary of the above-captioned fund (the "Fund"),
duly sworn, hereby certifies that the Fund's Self-Distribution Plan of which
this certificate is a part was adopted by the board of directors of the Fund
pursuant to Rule 12b-1(b) promulgated pursuant to section 12 of the Investment
Company Act of 1940, as amended, and in compliance therewith.
Dated:
July ___, 1999 ______________________________
4
<PAGE> 122
24. Persons Controlled by or Common Control With the Fund
-----------------------------------------------------
The Fund does not control any other person. The Fund, however,
is under common control with other entities. The
director/president/selection manager (Aaron Brown) and secretary
(Martin Stoller) of the Fund collectively own at present 100% each of
affiliate Privateer and affiliate eRaider (both of which are Delaware
corporations). Their combined position in Privateer is intended to drop
to 40% over three years. Ms Pastor will be employed by Privateer and
(since she is married to Mr. Brown) may be deemed have beneficial
ownership of Privateer and eRaider. She denies such beneficial
ownership.
25. Indemnification
---------------
Section 2-418 of the General Corporation Law of Maryland authorizes the
Fund to indemnify its directors and officers under specified
circumstances. Section (4) of Article V of the Articles of
Incorporation of the Fund (Exhibit A to the registration statement) and
Section 6.01 of Article VI of the By-laws of the Fund (Exhibit B to the
registration statement) provide that the Fund shall provide certain
indemnification to its directors and officers. In accordance with
section 17(h) of the Investment Company Act, this provision of the
by-laws may not protect any person against any liability to the Fund or
its shareholders to which he or she would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence ro reckless
disregard of the duties involved in the conduct of his or her office.
26. Business and other Connections of the Investment Adviser
--------------------------------------------------------
The investment adviser (Privateer) does not engage and has not engaged
in any other business, profession, vocation or employment. Within the
last two years the directors and officers of Privateer have engaged in
the following business, professions, vocations or employment:
<TABLE>
<CAPTION>
================================================================================
Name Position Held With Fund Substantial Business
During Past Two Years
- --------------------------------------------------------------------------------
<S> <C> <C>
Aaron Brown Director, President, Instructor of Finance at
Selection Manager for Yeshiva University,
Fund; employed by 500 West 185th Street
Privateer New York, NY 10033;
private investment manager
with Ms Pastor
- --------------------------------------------------------------------------------
John Capela Director Professor of Management
at Sy Syms School of
Business, Yeshiva
University,
500 West 185th Street
New York, NY 10033
================================================================================
</TABLE>
<PAGE> 123
<TABLE>
==================================================================================
<S> <C> <C>
Anne Miller Director President of Oryx
Group
114 West Franklin Avenue
Pennington, NJ 08534
- ----------------------------------------------------------------------------------
Deborah Pastor Vice President, Private investment manager
Portfolio Manager for Fund; with Mr. Brown, 215 West
employed by Privateer 91st Street,#112
New York, NY 10024
- ----------------------------------------------------------------------------------
Rita Robbins Director Sales & Marketing Manager,
Washington Square
Securities, Inc.,
1600 Broadway # 706
New York, NY 10019
- ----------------------------------------------------------------------------------
Martin Stoller Secretary Clinical Full Professor
of Communication, at
Kellogg School of
Management, Northwestern
University 633 Clark Street,
Evanston, IL 60208
- ----------------------------------------------------------------------------------
Paul Zarowin Director Assistant Professor of
Accounting, Stern
School of Business, New York
University, 44 West 4th
Street, New York, NY 10012
==================================================================================
</TABLE>
27. Principal Underwriters
----------------------
N/A
28. Location of Accounts and Records
--------------------------------
Privateer will maintain possession of all documents and records
required by section 31(a) of the Investment Company Act and the rules
promulgatyed thereunder at its offices located at 372 Central Park West, 9th
floor, Room M, New York New York 10025, except that documents and records
relating to administrative, blue-sky, fund accounting and stock transfer
services will be maintained by the Fund's transfer and dividend agent, American
Data Services, Inc., The Hauppauge Corporate Center, 150 Motor Parkway,
Hauppauge, New York 11788, and certain documents and records relating to Fund
assets will be maintained by the Fund's custodian, Union Bank of California,
N.A., 350 California St., San Francisco, CA 94104. To the extent required by
Section 31 of the Investment Company Act, and agreement between the parties,
records maintained by ADS and Union Bank in connection with the services
rendered by them to the Fund are the property of the Fund and will be
preserved and made available in accordance with applicable law and are required
to be surrendered promptly to the Fund upon request.
29. Management Services
-------------------
N/A
30. Undertakings
------------
N/A
<PAGE> 124
SIGNATURE
---------
Pursuant to the requirements of the Investment Company Act, the Fund
has duly caused this registration statement to be signed on its behalf by the
undersigned, duly authorized in the City of New York and State of New York on
the 13th day of August, 1999.
THE ALLIED OWNERS ACTION FUND, INC.
By:/s/ Aaron C. Brown
---------------------------------
Aaron C. Brown, President
Pursuant to the requirements of the Securities Act, this registration
statement has been signed below by the following person in the capacity and on
the date indicated.
Aaron C. Brown, President 8/13/99
- -------------------------- ------------
Aaron C. Brown, President Date
