<PAGE> 1
Registration No. 333-85367
File No. 811-09551
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No. /6/
Post-Effective Amendment No. / /
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /x/
Amendment No. /6/
THE ALLIED OWNERS ACTION FUND INC.
(Exact Name of Registrant as Specified in Charter)
372 Central Park West, Suite 9M, New York, NY 10025
(Address of Principal Executive Officers) (Zip Code)
(212) 865-7023
(Registrant's Telephone Number, including Area Code)
Friedman Siegelbaum LLP
399 Park Avenue - 20th Floor, New York, NY 10022
212-339-5923
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] On______ pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] As soon as practicable after the effective date
[ ] 75 days after filing pursuant to paragraph(a)(2)
[ ] On______ pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until Registrant files a further
amendment that states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until
the registration statement becomes effective on such date as the Commission,
acting pursuant to Section 8(a), may determine.
<PAGE> 2
THE ALLIED OWNERS ACTION FUND INC.
February 22, 2000
Objective The Fund seeks to maximize capital
appreciation and will accept high
risk.
Strategies The Fund's main investment strategies
are to purchase relatively large
stakes in small capitalization public
companies and hold them long-term.
The Fund will select companies it
believes will benefit from
shareholder scrutiny and debate.
Suitability The Fund is intended for experienced
investors with long investment
horizons and high risk tolerance.
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.
2
<PAGE> 3
Table of Contents
THE ALLIED OWNERS ACTION FUND INC ........................................ 1
SUMMARY OF INVESTMENTS AND RISKS ......................................... 6
Fund Objective .......................................................... 6
Principal Investment Strategies ......................................... 6
PRINCIPAL RISKS .......................................................... 6
Non-Diversification .................................................... 6
Suitability ............................................................ 6
Risks of Common Stock Investments ...................................... 6
Small Company Risk ..................................................... 7
Manager Risk ........................................................... 7
Historical Performance of Funds ........................................ 7
Viability Risk ......................................................... 7
Start-up Risk .......................................................... 7
Risks of Message Board ................................................. 7
Risks of Market Manipulation and Other Misuse .......................... 7
PERFORMANCE .............................................................. 7
FEES AND EXPENSES ........................................................ 8
Annual Fund Operating Expenses as a % of Net Assets .................... 8
FUND OBJECTIVE AND STRATEGIES ............................................ 8
Objective .............................................................. 8
Strategies - Steps to Reach Objective .................................. 8
Non-Principal Investment Strategies .................................... 10
Board of Directors Pledge to Fund Shareholders ......................... 10
RISKS .................................................................... 11
Historical Performance of Funds ........................................ 11
Small Company Risk ..................................................... 11
Start-up ............................................................... 11
3
<PAGE> 4
Risks of Message Board .............................................. 12
Risks of Market Manipulation and Other Misuse ....................... 6
Y2K.................................................................. 13
DISTRIBUTION PLAN ..................................................... 13
MANAGEMENT ............................................................ 13
Investment Adviser .................................................. 14
Selection and Portfolio Managers ................................... 14
Selection Manager ................................................ 14
Portfolio Manager ................................................ 15
Board of Directors .................................................. 15
Duties of the Board ................................................. 16
Compensation of the Board ........................................... 16
Fund Officers ....................................................... 16
Code of Ethics ...................................................... 16
ADMINISTRATION ........................................................ 17
Portfolio Transactions and Brokerage Commissions .................... 17
Administrator ....................................................... 17
Custodian ........................................................... 17
Transfer Agent and Dividend Agent ................................... 17
Counsel and Independent Auditors .................................... 17
VALUATION OF SHARES ................................................... 17
HOW TO PURCHASE SHARES ................................................ 18
General Purchase Information ........................................ 18
Purchase by Telephone or E-mail ....................................... 18
Wiring Funds ........................................................ 18
Purchase by Mail .................................................... 18
Additional Investments .............................................. 19
Other Purchase Information .......................................... 19
HOW TO REDEEM SHARES .................................................. 19
General Redemption Information ...................................... 19
Redemption by Mail .................................................. 19
Good Order .......................................................... 19
Signature Guarantees ................................................ 19
Redemption by Telephone ............................................. 20
Payment of Redemption Proceeds ...................................... 20
Involuntary Redemption .............................................. 20
SHAREHOLDER SERVICES .................................................. 20
Automatic Investment Program ........................................ 20
Telephone Transaction Privileges .................................... 20
Tax-Qualified Retirement Plans ...................................... 21
Confirmation of Transactions and Reporting of Other
Information ......................................................... 21
DIVIDENDS AND DISTRIBUTIONS ........................................... 21
TAXES ................................................................. 21
4
<PAGE> 5
Status .............................................................. 21
Tax-Deferred Accounts ............................................... 22
Taxable Accounts: Income and Capital Gains .......................... 22
Long-Term Versus Short-Term ......................................... 22
Disclaimer .......................................................... 22
GENERAL INFORMATION ................................................... 22
5
<PAGE> 6
SUMMARY OF INVESTMENTS AND RISKS
This section summarizes the goals, policies and risks of the Fund. Details can
be found in the sections "Fund Objective and Strategies" and "Risks."
Fund Objective
The Fund seeks to maximize capital appreciation and will accept high
risk.
Principal Investment Strategies
The Fund's primary investment strategy is to accumulate relatively large stakes
in publicly traded U.S. corporations that the Fund's selection manager believes
will benefit from improved analyst coverage as well as shareholder scrutiny and
debate. The Fund's managers intend to promote shareholder debate through an
affiliated website called "eRaider." The Fund intends to acquire generally up
to, but less than, 5% of the outstanding voting stock of each portfolio
company.
Although the Fund does not have size limits on the companies whose stocks it
will buy, it will primarily invest in smaller companies having market
capitalizations below $500 million. The manager believes companies with
larger capitalizations already have adequate shareholder scrutiny. The
manager believes stable, well-managed companies are more likely than others to
attract institutional investment, which often leads to institutional
shareholder scrutiny and therefore are of less interest to the Fund. The
manager believes institutions tend to side with management, frustrating
effective scrutiny from individual shareholders. These factors encourage the
Fund to look for targets among smaller, less-stable companies. Other factors
considered by the Fund in determining a target company's appropriateness for
the Fund's portfolio include under-utilized assets, unresponsive management
that can use assistance, passive boards of directors and companies overlooked
by income and growth funds.
The Fund will be non-diversified; however it will invest among several
companies.
PRINCIPAL RISKS
Investment in the Fund carries substantial risks. A significant risk of
investing in the Fund is that you may lose your investment. An investment in the
Fund is not a deposit in the bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Non-Diversification
The Fund will be non-diversified and therefore will be subject to greater
volatility than a diversified fund.
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 strategies may
prevent diversification and it is attempting new mutual fund management
strategies.
* Inexperienced and risk-averse investors should find a more suitable fund.
Risks of Common Stock Investments
As a general rule, growth stocks are less safe than income stocks. Therefore
funds, such as the Fund, that invest in growth stocks are generally more
volatile than funds that do not invest in growth stocks.
Common stocks can have sudden, unpredictable market movements and can be
sensitive to
6
<PAGE> 7
economic factors, legislation and world affairs. The Fund's value will change
daily based on changes in the market prices of the Fund's investments.
Small Company Risk
Smaller capitalization companies in which the Fund intends to invest tend to
have more risks than those of larger companies. They may be more susceptible
to market downturns and their prices may be more volatile.
Manager Risk
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 strategies effectively. The Fund is expected to hold most
investments long term, and security selection decisions (made by the selection
manager) will be separated from the daily buying and selling decisions (made by
the portfolio manager). The Fund believes these factors will reduce manager
risk.
Historical Performance of Funds
Historically, actively managed funds have consistently underperformed main
indices such as the S&P 500. The Fund hopes to beat the Russell 2000 index but
it may fail to do so.
Viability Risk
While the Fund's investment adviser has committed to pay all out-of-pocket
expenses including brokerage commissions of the Fund, there can be no assurance
that the investment adviser will be successful in keeping such expenses below
its 1% flat advisory fee. If the adviser fails to attract sufficient
investments to bring Fund assets to approximately $40 million, Fund expenses to
be paid by the adviser could exceed the 1% fee the Fund will pay to the adviser.
In that event, there can be no assurance that the Investment Adviser will
continue subsidizing the Fund's expenses beyond its one year commitment.
Accordingly, if Fund expenses (including brokerage fees) exceed and remain
above 1% of net asset value, this may have an adverse impact on the Fund and
its shareholders.
Start-up Risk
Since the Fund is a new fund, it is exposed to start-up risk. While the
investment adviser has managers with certain experience in the mutual fund
industry, management of investor assets and institutional trading (see
"Management" section), the investment adviser's managers have not managed a
public mutual fund. Further, since the Fund is not part of an established fund
family and is pursuing untested investment strategies, it has additional
start-up risks.
Although Privateer is bound to pay all the Fund's expenses during
the Fund's first year of effectiveness, if Privateer fails the Fund may be
subject to the payment of such expenses.
Risks of Message Board
Fund acquisitions, and news, data and analysis of the Fund relating to such
acquisitions will be posted at the eRaider website. Fund shareholders and
purchased company shareholders will be invited to post their thoughts on
eRaider's public Internet message board. While the Fund intends to improve
communication of ideas and strategies between company management and
shareholders as a result of the message board, resulting in increased value of
the purchased company's stock, this cannot be assured even if the message board
is well-organized and well-run. The eRaider message board may anger company
management and thereby disrupt rather than foster shareholder communication with
management.
Risks of Market Manipulation and Other Misuse
Some Internet message boards have attracted misinformation. Others have revealed
confidential, insider or stolen information. Persons accessing the eRaider
website could misuse eRaider to manipulate prices, disseminate misleading or
false information or conduct improper proxy solicitations. Such misuse could be
detrimental to the Fund. The Fund could be subject to suit or potential
liability for stock manipulation or other alleged misconduct.
The Fund has furnished eRaider with a "No Market Manipulation" warning for
message board users. Misuse is often difficult to spot. The Fund will take all
reasonable measures through its affiliate eRaider to detect and remove promptly
all messages that appear to violate laws regarding manipulation or that raise
reasonable suspicion that the user is attempting to run up or down the price of
a particular stock. The Fund will also arrange with eRaider to warn users that
public Internet financial sites can easily be used for misinformation and
manipulation, and that viewers should consider all postings with a degree of
skepticism.
PERFORMANCE
7
<PAGE> 8
The Fund has not commenced operations as of the date of this Prospectus and,
therefore, has no performance information to report.
FEES AND EXPENSES
The table below describes the fees and expenses that you may pay if you buy and
hold shares of the Fund. While the Fund has no sales charge (load), redemption
fees or exchange fees, other institutions may charge you a fee for shares you
buy through them. Shareholder fees are paid directly from your investment.
Annual fund operating expenses are paid from Fund assets.
Annual Fund Operating Expenses as a % of Net Assets
Management Fee(1): 1%
Distribution (12b-1) Fees(2): $0
Other Expenses: None
Total Operating Expenses: 1%
(1) Privateer Asset Management Inc. ("Privateer"), the investment adviser for
the Fund, will be paid this fee. Privateer has contracted with the Fund to be
the Fund's investment adviser for a period of two years. This contract is
subject to annual approval by the Fund board for one-year periods after such
two-year term. Pursuant to such contract, during the contract term Privateer has
volunteered and agreed to pay all Fund expenses. The Fund may cancel this
contract at any time on 60 days' written notice to Privateer, and after the
first anniversary of the date the Fund is declared effective, Privateer may
terminate the contract on 60 days' written notice to the Fund.
(2) All Fund distribution expenses will be paid by Privateer during the term of
the Fund's contract with Privateer (see previous footnote). The Fund has a 12b-1
plan allowing the adviser to spend up to 1% of the Fund's net assets on
distribution activities.
Example
This example is intended to help investors compare the cost of investing in the
Fund to the cost of investing in other mutual funds. The example assumes that an
investor invests $10,000 in the Fund for the time periods indicated and then
redeems all his or her shares at the end of those periods. The example also
assumes that the investment has a 5% return each year and the Fund's operating
expenses remain the same as shown in the table above. Although an investor's
actual costs and return on investment may be higher or lower, based on these
assumptions the costs would be:
Year
1 $102
3 $323
FUND OBJECTIVE AND STRATEGIES
Objective
The Fund seeks to maximize capital appreciation and will accept high risk. This
Fund objective may be changed by the Fund board without shareholder approval.
Strategies - Steps to Reach Objective
The Fund's principal investment strategy is to buy and hold publicly-traded
common stock of carefully-selected U.S. corporations, ones the Fund believes
will appreciate as a result of shareholder scrutiny and debate. The investment
and management strategies adopted by the Fund to carry out its objective involve
four steps.
First, the selection manager will select companies that he believes will
benefit from increased public analysis and shareholder scrutiny and debate.
The selection manager will also determine the desired aggregate position to
be held by the Fund in such companies. The selection manager has wide
discretion because the criteria require subjective judgment about business
and company management. However, the following list gives some of the
characteristics that the selection manager may consider:
8
<PAGE> 9
- - Under-utilized assets. 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. The Fund believes that this can make a significant difference in
a company's performance without interfering with day-to-day operations.
- - Passive board of directors. For example, companies that have few or no
independent directors with the knowledge and experience to double-check
management, and have low stock ownership by directors.
- - Companies Overlooked by Other Funds. If funds buy stocks with expected
above-average dividend yields or 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 smaller capitalization companies with problems that may be
resolved with increased public analysis and shareholder input.
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, but less than, 5%) without pushing up the price.
If the portfolio manager determines that, for whatever reason, including price
sensitivity or inadequate float, it appears impracticable to acquire the desired
position, she will abstain from entering the market or continuing to add to the
position. Instead, the portfolio manager will seek revised instructions from the
selection manager if no portion of the intended position has been acquired or
hold or dispose of the existing position as the portfolio manager determines.
The portfolio manager is responsible for monitoring news about the stock and
deciding at which prices to buy.
Although the plan is to acquire a large stake in target stock(s), it is possible
that news, price movements or other market conditions will cause the portfolio
manager to stop acquiring the stock(s) or sell the existing position(s).
Third, when the portfolio manager has acquired the desired stake, the stock will
be announced at the eRaider Internet website, www.eRaider.com. eRaider will
encourage Fund shareholders and all other holders of the stock to participate in
a message board to discuss the Fund companies. The Fund intends to post on
eRaider extensive information and analysis about the Fund's portfolio companies.
eRaider will encourage a thoughtful interchange of informed opinion through the
use of expert moderators. Moderators are expected from time to time to voice
their opinions, and their opinions will be clearly labeled as such. Neither the
portfolio manager, the selection manager nor the Fund will take part in message
board discussions relating to specific portfolio companies. 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. eRaider
has hired Martin Stoller, Ph.D. to oversee communications at the site.
Information about Dr. Stoller can be found in the section "Management."
Fourth, the Fund intends that active, insightful participation on the eRaider
site will unlock the value of the companies in which the Fund invests. 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 for a possible gain from short term
trading. Finally, the Fund wishes to maintain a low turnover ratio to minimize
taxes. If, however, the portfolio manager determines that the Fund has achieved
its objective, or that contrary to its hopes continuing shareholder oversight
is not likely to lead to significant improvement in performance, or that
liquidation of the accumulated position is indicated for other reasons such as
poor company performance or to acquire superior investment opportunities, the
selling process will be pursued in the best manner to protect Fund performance.
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. 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.
9
<PAGE> 10
Non-Principal Investment Strategies
The Fund may pursue other strategies in the following or like circumstances, but
intends to do so only occasionally as follows:
First, 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.
Second, the Fund intends to be fully invested, but it may hold relatively
minor cash or cash equivalent balances in anticipation of redemptions. The
minor cash positions for this purpose would likely be comprised of money
market instruments, time deposits, Treasury bills or commercial paper, or
combinations thereof. The Fund will attempt to minimize cash balances.
Third, the Fund's investment acquisition strategies include researching a
company and then allowing 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 strategies, it will make short-term, high
quality investments identical to those used for minor cash positions. If
these balances become too large in the judgment of the portfolio manager,
the Fund will consider declining new shareholder investments temporarily.
Fourth, the types of companies the Fund invests in may be or become
attractive as takeover targets and merger partners. Moreover, the Fund's
investments may contribute to putting its portfolio companies "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 for shares
in a portfolio company, and in other cases to increase the Fund's investment.
The selection manager will act in the best interests of Fund shareholders,
increasing or decreasing the Fund's position as appropriate.
Board of Directors Pledge to Fund Shareholders
The Fund will not:
- Alter its fundamental investment policies without prior shareholder
approval.
- Lend the Fund's securities to short-sellers or anyone else.
- Solicit or accept any hard-dollar or soft-dollar payments from any firm
or individual to execute trades or provide professional services.
- Offer or pay any hard-dollar or soft-dollar payments to any firm or
individual to distribute the Fund.
- Sell our shareholder list to third party marketers.
- "Window-dress" the Fund's portfolio, manipulate performance or
categorization to gain better fund ratings, 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.
10
<PAGE> 11
RISKS
Historical Performance of Funds
Historically, managed equity 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 years ended May
31, 1999. The Fund hopes to beat the Russell 2000 index but it may fail.
Small Company Risk
Another risk relates to the type of company the Fund selects. The Fund intends
to invest in small and medium capitalization companies. Although the Fund does
not have size limits on the companies it will buy, it will invest primarily in
companies with market capitalizations below $500 million. Such companies may be
more susceptible to market downturns and more volatile than larger companies due
to inexperienced management, lack of a successful track record or limited
financial backing.
Start-up
11
<PAGE> 12
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 untested investment strategies.
Risks of Message Board
Once the Fund has acquired its stake in a target company, 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 eRaider's public Internet message
board. The Fund intends for eRaider to stimulate informed and thoughtful
discussions of the Fund's portfolio companies. The Fund expects to attract a
significant fraction of its portfolio companies' 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 and untested
concept. While the eRaider message board is intended to improve communication
of ideas and strategies between company management and shareholders resulting
in increased value of the purchased company's stock, this cannot be assured
even if the message board is well organized and well run. This is true because,
among other reasons, even worthy comments may not be viewed as constructive by
company management and may only serve to stiffen resolve not to change
policies, thereby validating the criticism. The eRaider message board may anger
company management and disrupt rather than foster shareholder communication
with management. Another possibility is that too much attention to the opinions
of small shareholders could cause company management to disregard their greater
expertise and choose a popular decision over sound long-term strategies.
There is also a risk that publishing the Fund's purchases and sales on the
eRaider website could drive prices up or down to the detriment of the Fund.
While the Fund believes these risks exist in any event for all companies and
that establishing a responsible forum reduces them, the Fund may be
wrong.
Risks of Market Manipulation and Other Misuse
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, which could adversely
affect the Fund's value. Persons accessing the eRaider website could seek to
influence market prices or otherwise misuse eRaider to the detriment of the Fund
and the Fund could thereby be subject to suit or potential liability for stock
manipulation or other alleged misconduct.
The Fund's board of directors has considered the eRaider relationship to the
Fund and the investment adviser, and the Fund's method for picking stocks, and
has determined that the use of the eRaider website is nonetheless in the best
interests of the Fund and its shareholders. The board will monitor the Fund's
connection with the eRaider web site to determine that eRaider continues to be
in the best interests of the Fund and its shareholders.
12
<PAGE> 13
The Fund has furnished eRaider with a "No Market Manipulation" warning for
message board users. Users will be warned that U.S. securities laws make it
unlawful, among other things, for anyone to engage in any act that would be
considered market manipulation pursuant to such securities laws. Misuse is often
difficult to spot. The Fund will take all reasonable measures through its
affiliate eRaider to detect and remove promptly all messages that appear to
violate U.S. securities laws or that raise reasonable suspicion that the user is
attempting to run up or down the price of a particular stock. The Fund will also
arrange with eRaider to warn users that public Internet financial sites can
easily be used for misinformation and manipulation, and that viewers should
consider all postings with a degree of skepticism.
Y2K
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.
DISTRIBUTION PLAN
Although the Fund will not directly pay any fees, it has adopted a plan
(called a 12b-1 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 its 1% management fee all
distribution costs. The distribution activities contemplated by the plan are
expected to include public 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.
MANAGEMENT
Fund management considers this the most important part of the prospectus.
Throughout this document, you will find many 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 Fund's board of directors and
investment adviser will carry out those strategies 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.
While the Fund will not have shareholder meetings, its shareholder
participation program is intended to ensure an adequate opportunity for
presentation of shareholder views.
The board of directors of the Fund is the group charged with ultimate
responsibility for making sure the Fund acts in the best interests of Fund
shareholders.
13
<PAGE> 14
Investment Adviser
The Fund has retained Privateer to act as investment adviser and manager.
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. Pursuant to such contract,
during the contract term Privateer has agreed to pay all Fund expenses.
The Fund may cancel this contract at any time on 60 days' written
notice to Privateer, and after the first anniversary of the date the Fund is
declared effective, Privateer may terminate the contract on 60 days' written
notice to the Fund.
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. The Privateer advisory contract is not assignable and
terminates if an assignment is made.
Selection and Portfolio Managers
The respective duties of the selection and portfolio managers are set forth
under "Fund Objective and Strategies, Strategies - Steps to Reach Objective."
Deborah Pastor and Aaron Brown will each receive salaries of $125,000 per year
from Privateer, Ms Pastor as portfolio manager and Mr. Brown as selection
manager. Mr. Brown and Dr. Stoller each own 50% of Privateer and 50% of
eRaider, businesses whose value depends in part on the success of the Fund.
Selection Manager
This prospectus was written by Aaron Brown (43) 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, until recently, when he stepped
out of the business to devote full time to the Fund and his teaching
responsibilities, Mr. Brown managed private money, and had 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 former investment management
business to permit him 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 Andrx 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.
14
<PAGE> 15
Portfolio Manager
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. From May 1997, Ms Pastor
has worked with Mr. Brown managing approximately $24 million for private clients
and developing (but not practicing) the Internet mutual fund idea that has
become the Fund. Prior thereto, over the preceding ten years she worked for the
Bank of Montreal where she was a director (senior foreign exchange advisor) from
August 1993 to May 1997, and for J. P. Morgan & Co. where she was vice president
of the foreign exchange department for nearly seven years until August 1993. 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, Incorporated and for European
American Bank in commodity finance. In her bank careers she has marketed foreign
exchange options, advised corporations on their foreign exchange exposure and,
working with bank traders, facilitated the execution of foreign exchange and
option trades for bank clients.
The chief distinction between the selection manager (Mr. Brown) and the
portfolio manager (Ms Pastor) is that the former is responsible for stock
selection and the latter for acquisition and disposition of selected stocks.
Board of Directors
The next step in organizing the Fund is 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, even if under the Investment Company Act of 1940, as
amended (the "1940 Act"), they are not classified as interested persons with
respect to the Fund, they may nonetheless 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.
Except as detailed in the section "Compensation of the Board" (below), none of
the four independent directors will receive any direct or indirect financial
compensation from the Fund, Privateer, the sponsors or eRaider. They will meet
monthly, and 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 any sponsor.
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.
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 three
years and assistant operations manager for PaineWebber Group Inc. for three
years. Until recently she had served for seven years 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
15
<PAGE> 16
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 generally will meet monthly in 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. Topics will
include 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).
Topics including stock selection that do 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 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
topic 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
At this time the outside directors will be given $150 in Fund shares (as a
directed investment of their attendance honorarium), payable by Privateer, for
every monthly meeting they attend in person; however, outside directors may opt
instead at any time to receive such honorarium in cash.
These arrangements may remain in effect 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 as board members 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 are bound
by the code, as are all other persons with access to investment information. It
also forbids disclosing the names of prospective securities and commenting on
the prospects of these securities to anyone who has not signed an
acknowledgement by which they have agreed to be bound by 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
16
<PAGE> 17
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.
ADMINISTRATION
Portfolio Transactions and Brokerage Commissions
Portfolio transactions for the Fund will generally be executed with
broker/dealers on an agency basis, but will be executed with principals if the
portfolio manager determines this will result in a better all-in price. 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 -- up to but less than 5%-- 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. If in the
judgment of the portfolio manager, a 4.9% stake in a prospective company
investment cannot be obtained, or obtained without moving the market
unacceptably, the portfolio manager will not proceed until acquisition
conditions are more favorable. 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 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, accounting and transfer services necessary for the Fund for
a minimum annual fee of $60,000 or 0.15% of Fund assets, whichever is greater.
Privateer will also 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.
State securities law or Blue Sky compliance services if requested will be
handled by ADS and paid for by Privateer on a negotiated fee basis. 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."
Custodian
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. For its services, Privateer will pay Union Bank
0.02% of net asset value per year.
Transfer Agent and Dividend Agent
ADS will act as the Fund's transfer and dividend
agent.
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. Arthur Andersen, 1345 Avenue of the Americas, New York, NY 10105
has been selected as independent accountants for the Fund.
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 NYSE is open for
business as of the regular close of trading. Additionally, shares will not be
priced on days on which the NYSE is closed for trading, including most U.S.
national holidays and Good Friday. Shareholders should also 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.
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
17
<PAGE> 18
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 Fund receives the purchase order 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 or E-mail
To open an account by telephone, investors may call toll free (877) 575-3137 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 or internet. Funds may be
sent by check or wire.
Wiring Funds
After opening an account by telephone or e-mail, 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:
Union Bank of California, N.A.
ABA# 122000496
Acct No. 280021520
F/B/O Allied Owners Action Fund Inc.
_____________ 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.
18
<PAGE> 19
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 by the Fund. 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 after the
Fund receives your order. The Fund reserves the right to reject any subscription
for shares.
The Fund must receive an order by the close of business on any business day for
the purchase price to be determined that day. If funds are received after the
close of business, the purchase price will be that determined 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 accounts 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.
Good Order
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).
Signature Guarantees
To protect shareholder accounts, signature guarantees are required to enable the
Fund to verify the identity of any shareholder who
19
<PAGE> 20
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 toll free at (877) 575-3137 or e-mail
[email protected] for further details.
Redemption by Telephone
If a shareholder elects to allow telephone redemptions, subject to the
signature guarantee requirement set forth above shares may be redeemed by
calling the Fund toll free at (877) 575-3137 and requesting that the redemption
proceeds be mailed to the primary registration address or wired per the
authorized instructions. Requests for redemption that are subject to signature
guarantees will only be effective once proper signature guarantees are
received.
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.
The investment adviser will be responsible for losses that result from
unauthorized access if the investment adviser does not follow reasonable
procedures designed to verify the shareholder's identity.
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 days after receipt of
the redemption order, except that payment may be postponed or the right of
redemption suspended for more than seven 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, which may take up to 15 calendar 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.
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
20
<PAGE> 21
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 toll free, (877) 575-3137, 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 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
21
<PAGE> 22
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 annually distributes substantially all its investment company 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), may owe federal taxes and possibly penalties if they withdraw the
money and fail to reinvest it during the permitted period. Those taxes will
depend on the type of IRA account, age of the shareholder and other factors.
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.
Distributions from the Fund will be taxable as ordinary income or as capital
gains or losses. Dividends from stocks and interest payments from bonds or CDs
will be taxed as ordinary income. 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 or loss. The computation of the gain or loss and the
distinction between ordinary income and capital gains and losses are subject
sometimes to 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 ordinary 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, many investors prefer to receive 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 impacting taxation 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 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.
22
<PAGE> 23
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 1940 Act 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 1940
Act requires a shareholder vote for all amendments to the Fund's fundamental
investment objective and policies and investment restrictions and for certain
amendments to investment advisory contracts.
The Fund reserves the right to amend any of its non-fundamental policies,
practices and procedures described in this prospectus, including the SAI,
without shareholder approval.
23
<PAGE> 24
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 372 Central Park West, Suit 9M, New York New York 10025, calling toll free
(877) 575-3137 , sending an email to [email protected] or visiting
http://www.eRaider.com. Once it is operational, additional information about the
Fund's investments will be available in the Fund's annual and semi-annual
reports to shareholders. In the Fund's annual report prospective investors will
find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. The
SAI and the Fund's annual and semi-annual reports are available, without charge,
upon request by contacting Privateer, and other inquiries may also be directed
to Privateer.
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 (202) 942-8090. Reports and other information about the Fund are
available on the EDGAR Database on the SEC's Internet site, http://www.sec.gov.
Copies of this information may be obtained upon payment of a duplicating fee,
by electronic request to [email protected] or by writing the Public Reference
Section of the Commission, Washington, DC 20549-6009.
The Allied Owners Action Fund Inc. Investment Company Act File Number: 811-09551
24
<PAGE> 25
Prospectus Back Cover
25
<PAGE> 26
THE ALLIED OWNERS ACTION FUND INC.
FEBRUARY 22, 2000
Statement This document describes The Allied Owners Action Fund Inc.
of (the "Fund"). It is not a prospectus. It contains
Additional additional information not found in the Fund's
Information prospectus dated February 22, 2000, and should be
read in conjunction with that document. You can
request the Fund's prospectus by calling toll free
(877) 575-3137 or sending an email to
[email protected]. 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.
The common practice of printing a drab prospectus
and embellishing it with full-color, expensive
marketing materials has not been followed by the
Fund. Investors should consider the Fund soberly
and without distraction. All the reader will find
in this package are the SAI, an account
application and an investor questionnaire. If
reading the prospectus and SAI 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.
1
<PAGE> 27
THE ALLIED OWNERS ACTION FUND INC.
FEBRUARY 22, 2000
HISTORY 3
DESCRIPTION OF FUND AND ITS INVESTMENTS AND RISKS 3
Classification 3
Investments 3
Positions for Liquidity 3
Depository Receipts; Indexes; and Futures. 3
Risks 3
Potential Illiquidity 3
Inflation 3
Taxes 3
Interest Rates 3
Unknown Future Factors 3
Risk of Message Board 3
POLICIES 4
Discussion of Fees 5
Transaction Costs 5
Tax Inefficiency Costs 6
MANAGEMENT 6
Board of Directors 6
Management Information 7
Management Compensation 7
Control Persons 8
Investment Adviser 8
DISTRIBUTION 9
Portfolio Transactions and Brokerage Commissions 9
Capital Stock 9
GENERAL PURCHASE INFORMATION 9
TAXATION 9
2
<PAGE> 28
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, non-diversified management investment company. By the
Investment Company Act of 1940, as amended (the "1940 Act"), definitions, it is
non-diversified since it may hold positions in a single issuer amounting to over
5% of its total assets. The Fund intends to meet the IRS diversification rules
necessary to avoid corporate income tax.
Investments
The principal and some non-principal strategies of the Fund have been described
in the prospectus. Below are some non-principal strategies of the Fund.
Positions for Liquidity
While not part of its principal strategies, 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. These securities
are 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. Also, small cash
positions (less than 5% of total assets) may result from day-to-day trading
activity.
Depository Receipts; Indexes; and Futures.
Also, as non-principal strategies, the Fund may 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 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.
Risks
Potential Illiquidity
The Fund intends to acquire relatively large stakes in its portfolio 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 or become 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 maximum percentage of the Fund that
will be invested in illiquid securities at the time of investment is 15%. In the
event the percentage of the Fund's investment in illiquid securities exceeds
15%, it will promptly take prudent measures to bring its illiquid portion under
15% by disposition of portions or all of one or more positions.
Inflation
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
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. 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.
Interest Rates
The Fund will be exposed to interest rate changes, inflation, stock market
fluctuations and other economic factors as well as company specific events like
layoffs, sales reductions or inventions. All factors are interrelated so that,
for example, a rise in interest rates could reduce the credit sales of one of
the Fund's companies . It is important to recognize that the stock market may be
performing well, company specific risks, may still be significant.
Unknown Future Factors
The Fund will also be subject to unknown future factors. There can be
no assurance that the Fund's investment strategies will address or address
effectively these or other risk factors.
Risk of Message Board
While the Fund itself intends to be a passive investor, it will supply the name
of the stock to affiliate eRaider, which 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 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 dismissal,
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 in such purpose.
Thus, the Fund may on occasion consider it necessary to file such a disclosure
if its holdings exceed 5% even if its ownership was not obtained with such
intent in mind.
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
3
<PAGE> 29
shareholders. Shareholders may perceive more value in shares when they
understand management's strategies 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.
POLICIES
The Fund is subject to the investment limitations enumerated in this section,
which may be changed only by a vote of the holders of a majority of the Fund's
outstanding shares. As used in this SAI and in the Prospectus, a "majority of
the outstanding shares" of the Fund means the lesser of (a) 67% of the shares of
the Fund represented at a meeting at which the holders of more than 50% of the
outstanding shares of the Fund are present in person or by proxy, or (b) more
than 50% of the outstanding shares of the Fund.
The following are Fund fundamental policies:
- The Fund may not issue senior securities or borrow money (as defined in
the 1940 Act) except the Fund may borrow money on a temporary basis to
fund redemptions if the portfolio manager deems the risk of leverage to
be preferable to the loss of selling investments too quickly. Borrowings
will be limited to 5% of the Fund's total assets not to exceed if a
lesser figure, 33 1/3% of net assets (total assets less all liabilities
and indebtedness other than this borrowing).
- Not more than 25% of the value of the Fund's total assets will be
invested in the securities of any one issuer.
- The Fund will not invest 25% or more of its total assets in any one
industry (securities issued or guaranteed by the United States
Government, its agencies or instrumentalities are not considered to
represent industries).
- The Fund may not purchase or sell real estate or any interest therein,
including interests in real estate limited partnerships, except
securities issued by companies (including real estate investment trusts)
that invest in real estate or interests therein.
- The Fund may not pledge, mortgage or hypothecate its assets other than
to secure borrowings permitted by investment limitation as set forth in
the first bullet above (collateral arrangements with respect to margin
requirements for options and futures transactions are not deemed to be
pledges or hypothecations for this purpose).
- The Fund may not make loans of securities to other persons. The Fund,
however, may make margin deposits in connection with transactions in
options, futures and options on futures, pursuant to which certain of
the Fund's securities may be pledged to secure margin calls.
- The Fund may not underwrite securities of other issuers, except insofar
as the Fund may be deemed an underwriter under the Securities Act of
1933, as amended, in selling portfolio securities.
- The Fund may not invest in commodities or commodity futures contracts.
Futures on the S&P 500 indexes will not be deemed to be commodities or
commodities future contracts for the purpose of this fundamental
policy.
The following are Fund non-fundamental policies that may be changed by the
board of directors. The Fund may not:
- Invest more than 15% of its net assets (taken at market value at the
time of purchase) in securities that cannot be readily sold or disposed
of within the ordinary course of business within seven days at
approximately the value at which the Fund has valued the investment;
4
<PAGE> 30
- Purchase securities when borrowings exceed 5% of the Fund's total
assets or when the amount by which the Fund is leveraged is more than
5% of the Fund's total assets; or,
- Invest in other investment companies except as permitted under the 1940
Act.
With regard to both fundamental and non-fundamental policies, if a percentage
limitation is satisfied at the time of investment, a later increase or decrease
in such percentage resulting from a change in the value of the Fund's
investments will not constitute a violation of such limitation, except that
levels of investments in illiquid securities and any borrowing by the Fund that
exceeds the investment limitations stated above must be reduced to meet such
limitations within the period required by the 1940 Act (currently three days).
The investment adviser will act in the best interests of the Fund to decrease
the amount of illiquid securities held by the Fund as soon as reasonably
practicable. Otherwise, the Fund may continue to hold a security even though it
causes the Fund to exceed a percentage limitation because of fluctuation in the
value of the Fund's assets. Because the Fund is new and innovative, the board of
directors reserves the right, subject to shareholder approval where required, to
change any of these policies, or the Fund's objectives and strategies.
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 including brokerage.
Transaction Costs
The Fund will attempt to minimize 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. 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. Although it cannot promise it will be successful, the Fund
will make diligent efforts to reduce transaction costs such as bid/ask spreads
and market movement costs.
Tax Inefficiency Costs
Taxes are hard to measure but studies show that in many instances taxes can add
substantially to the true cost to a fund investor. The Fund will undertake to
minimize taxes to the extent consistent with overall Fund investment goals. The
Fund undertakes to do the following: 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.
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
6
<PAGE> 31
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 (43) Director, President, Instructor of Finance at
215 West 91st Street Selection Manager for Yeshiva University
New York, NY 10024*,** 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
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 Street 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 Ms Pastor.
** Interested persons. Mr. Brown and Dr. Stoller collectively own 100% at
present of affiliate Privateer and 100% of affiliate eRaider.
Management Compensation
At this time the Fund has no pension or retirement benefits for directors or
officers. All salaries are paid by Privateer.
7
<PAGE> 32
<TABLE>
<CAPTION>
NAME AND POSITION SHARES HELD IN PRIVATEER ESTIMATED AGGREGATE
COMPENSATION FROM
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 0 $1,800
Director
Anne Miller 0 $1,800
Director
Deborah Pastor 0 $125,000 (as
Portfolio Manager, Portfolio Manager)
Vice President
Rita Robbins 0 $1,800
Director
Martin Stoller* 18,000 $0
Secretary
Paul Zarowin 0 $1,800
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 will also control
affiliates Privateer and 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.
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 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.
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 the Fund to Privateer, and
after the first anniversary of the date the Fund is declared effective,
Privateer may terminate the contract on 60 days' written notice to the Fund.
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, accounting
and transfer services necessary for the Fund. Privateer will pay ADS a minimum
annual fee of $60,000 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 and blue sky
services for which it will be paid separately. Privateer will also 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. Assuming
average net asset value of $40 million per year, and average account investment
of $10,000, estimated costs for ADS administrative and transfer services and
Union Bank custodian services are $116,000 per year.
8
<PAGE> 33
The Fund will use Arthur Andersen to audit its financial statements.
DISTRIBUTION
Although the Fund will not directly pay any fees, it has adopted a plan
(called a 12b-1 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 its 1% management fee all
distribution costs. The distribution activities contemplated by the plan are
expected to include public 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.
Portfolio Transactions and Brokerage Commissions
Portfolio transactions for the Fund will generally be executed with
broker/dealers on an agency basis but will be executed with principals if the
portfolio manager determines this will result in a better all-in price. 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 $100 per share.
Thereafter, the purchase price will be based on the net asset value per share as
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 annually distributes substantially all its
investment company 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> 34
AUDITED FINANCIAL STATEMENT
ARTHUR ANDERSEN LLP
Report of Independent Public Accountants
To the Board of Directors and
Shareholder of the Allied Owners Action Fund Inc.:
We have audited the accompanying statement of assets and liabilities of the
Allied Owners Action Fund Inc. as of December 2, 1999. This financial statement
is the responsibility of the Fund's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets and liabilities are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of the Allied
Owners Action Fund Inc. as of December 2, 1999 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
December 10, 1999
THE ALLIED OWNERS ACTION FUND INC.
Statement of Assets and Liabilities
December 2, 1999
================================================================================
Assets
Cash .................................................. $100,000
--------
Net Assets ............................................ $100,000
========
Shares of common stock outstanding (1,000,000
Authorized, $0.001 par value) ..................... 10,000
========
Net asset value, offering price and redemption
price per share .................................. $ 10.00
========
The accompanying notes are an integral part of this statement
THE ALLIED OWNERS ACTION FUND INC.
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 2, 1999
================================================================================
1. The Allied Owners Action Fund Inc. (the "Fund"), is a no-load,
non-diversified, open-end management investment company organized as a
Maryland Corporation under articles of incorporation dated July 12, 1999.
On December 2, 1999, 10,000 shares of the Fund were issued for cash at
$10.00 per share. The Fund has had no operations except for the Initial
issuance of shares.
2. Expenses incurred in connection with the organization of the Fund and the
initial offering of shares will be permanently absorbed by Privateer
Asset Management Inc. (the "Manager"). As of December 2, 1999, all
outstanding shares of the Fund were held by Mr. Martin Stoller, a
co-sponsor and Secretary of the Fund, who purchased these initial shares
in order to provide the Fund with its required capital.
3. Reference is made to the Prospectus and the Statement of Additional
Information for a description of the Management Agreement, the
Administration Agreement, the Transfer, Dividend Disbursing, Shareholder
Service and Plan Agency Agreement, tax aspects of the Fund and the
calculation of the net asset value of the shares of the Fund.
<PAGE> 35
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> 36
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.
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
<PAGE> 37
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
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
<PAGE> 38
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.
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 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.
<PAGE> 39
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
372 Central Park West, Suite 9M
New York, NY 10025
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> 40
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 372 Central Park West,
Suite 9M, New York, NY 10025.
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 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-
<PAGE> 41
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 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.
<PAGE> 42
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, 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.
<PAGE> 43
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.
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 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
<PAGE> 44
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:
(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.
<PAGE> 45
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 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
<PAGE> 46
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.
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;
(b) see that all notices are duly given in accordance with the provisions
of these by-laws and as required by law;
<PAGE> 47
(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 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.
<PAGE> 48
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 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
<PAGE> 49
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, 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.
<PAGE> 50
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.
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.
<PAGE> 51
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
1.1. 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.
1.2. Legend on Shares. The secretary of the Company shall place the
following legend on each share certificate prior to its delivery to a
shareholder:
"The shares of stock evidenced by this certificate may not be
transferred, pledged, assigned or encumbered except in accordance with
the terms of the shareholders agreement to which the registered owner
is a party.
1.3. Additional Stock Purchases. Additional stock purchases may be mutually
agreed upon from time to time by the shareholders in which event,
absent
<PAGE> 52
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 days' 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
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.
2. Directors; Governance
2.1. Directors.The Company shall initially have two directors. Each
shareholder shall be entitled to nominate one director including to
fill a vacancy caused by the resignation or death of a director so
nominated and shall vote for the director nominated by the other.
2.2. 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 authority to perform the necessary acts including those set forth
in section 2.4 to carry on the business of the Company on a
single-signature basis. Among other matters within the normal
cognizance of
2
<PAGE> 53
the board, the Company shall not pay shareholder salaries or dissolve
or (except pursuant to section 1.3) issue additional shares or
transfer any substantial portion of the assets of the Company without
unanimous board approval.
2.3. Officers. The Company shall have a president, vice president,
secretary and treasurer whose responsibilities and duties shall be as
determined from time to time by the board, and may have such
additional officers as the board from time to time determines. The
initial officers of the Company shall be:
President Aaron Brown
Vice President Melissa Stoller
Secretary Martin Stoller
Treasurer Deborah Pastor
Such person shall serve in such positions at the discretion of the board, and
their replacements shall be made by the board.
2.4. Day-to-Day Management. As part of his day-to-day management
responsibilities (subject to review and modification by the board)
Brown shall:
2.4.1. engage all employees necessary to manage the ordinary business and
affairs of the Company;
2.4.2. pay and discharge all indebtedness;
2.4.3. prepare and file all requisite tax returns required by
governmental authorities having jurisdiction over the operations
and the Company, and
3
<PAGE> 54
pay and discharge all taxes and assessments levied and assessed
against the Company's assets;
2.4.4. keep all books of account and other appropriate and required books
and records;
2.4.5. coordinate the services of all employees, consultants,
accountants, attorneys and other persons necessary or appropriate
to carry out the business of the Company;
2.4.6. maintain all funds of the Company in a separate account or
accounts at a bank or banks selected by the Company;
2.4.7. perform such other duties and functions consistent with the
provisions of this agreement and as may be reasonably necessary or
appropriate to carry out the objects and purposes of the Company,
including sales and marketing activities.
3. 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.
4. 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.
5. Restrictions on Transfers
4
<PAGE> 55
5.1. 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 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 (or stepchild) or to a spouse or child (or stepchild).
5.2. Incompetence; 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
5
<PAGE> 56
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.
5.3. 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 all or any portion of the common stock held by such
shareholder, with fair market value being determined pursuant to
section 5.2. During such 9-month period, or until such shares 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.
5.4. 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, with
fair market value being determined pursuant to section 5.2.
5.5. Precedence. Options resulting from incompetency, bankruptcy, death or
disability shall take precedence over a right of first refusal.
5.6. 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.
6
<PAGE> 57
5.7. Transfer of Entire Position. If a shareholder proposes to sell his
entire common stock position, at the option of the other shareholder
such sale may not occur unless the selling shareholder arranges for
his buyer (or others) to also acquire all common stock held by the
other shareholder.
5.8. Successors and Transferees Bound. Successors to the shareholders and
transferees of common stock hereunder (except a transferee or
transferees acquiring all common stock pursuant to section 5.7) shall
be bound by this agreement and shall as a condition to transfer
execute this agreement.
5.9. Payments. Payment for shares of common stock purchased pursuant to
sections 5.1 - 5.4 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.
6. 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 matter. No amendment shall be
effective unless 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
7
<PAGE> 58
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:
November __, 1999
- ------------------------
Aaron C. Brown
- ------------------------
Martin Stoller
Approved:
eRaider.com Inc.
by
---------------------
8
<PAGE> 59
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
non-diversified, 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 independent contractors and
shall, unless expressly authorized 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 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 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 from time to time, the provisions
<PAGE> 60
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. The Manager shall pay Fund
expenses, including the costs to maintain the staff and personnel necessary to
perform the Manager's obligations under this Agreement, and shall at its own
expense provide the office space, equipment and facilities that it is obligated
to provide hereunder and pay all compensation of officers and employees of the
Fund.
The Manager shall also pay 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, brokerage fees and commissions, fees
and actual out-of-pocket expenses of directors who are not affiliated persons
of the Manager, fees for legal accounting and audit services, costs of
printing proxies and other expenses related to shareholder meetings, and other
operational expenses incurred by the Fund.
6. 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.
7. 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.
8. 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
<PAGE> 61
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.
9. 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.
10. 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, on 60 days' written notice to the Manager. The Manager
may terminate this Agreement on 60 days' written notice to the Fund, provided
that such notice may not be given prior to the first anniversary of the
effective date of the Fund's registration statement. This Agreement may not be
assigned and shall automatically terminate in the event of its assignment.
11. 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.
12. 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.
13. 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.
14. 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
--------------------------------
<PAGE> 62
EXHIBIT E
N/A
<PAGE> 63
EXHIBIT F
N/A
<PAGE> 64
EXHIBIT G
MUTUAL FUND CUSTODY AGREEMENT
This AGREEMENT is entered into as of December 1, 1999, between Allied
Owners Action Fund Inc. (the "Fund"), a Maryland Corporation, having its
principal office and place of business at 372 Central Park West, Suite 9M, New
York, NY 10025 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 Fund 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 Fund, or any other person, including persons employed
by the Investment Adviser, whether or not any such person is an officer of the
Fund, duly authorized by the Board of Directors of the Fund to give Oral
Instructions and Written Instructions on behalf of the Fund 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 Fund.
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
Articles of Incorporation.
1.9 "Transfer Agent" shall mean the person which performs the transfer
agent, dividend disbursing agent and shareholder servicing agent functions for
the Fund.
-1-
<PAGE> 65
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 Fund hereby constitutes and appoints the Bank as Custodian of all
the Securities and moneys owned by or in the possession of the Fund during the
period of this Agreement.
2.2 The Bank hereby accepts appointment as Custodian for the Fund and
agrees to perform the duties thereof as hereinafter set forth.
3. Compensation.
3.1 The Fund 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 Fund, 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 Fund.
3.4 The Bank will bill the Fund as soon as practicable after the end of
each month, and said billings will be detailed in accordance with the Fee
Schedule. The Fund 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 Fund 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 Fund the amount of any loss, damage, liability or
expense incurred with respect to such Fund, 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 Fund.
4. Custody of Cash and Securities.
4.1 Receipt and Holding of Assets. The Fund 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 Fund 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 Fund 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.
-2-
<PAGE> 66
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 Fund 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
Fund, Bank shall provide within 5 business days of such written request a copy
of any confirmations which include transactions of the Fund. At least monthly,
the Bank shall furnish the Fund 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
Fund 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 Fund 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 Fund of any call,
redemption or retirement date with respect to Securities which are owned by a
Series and held by the Bank or its nominee. Notwithstanding the foregoing, the
Bank shall have no responsibility to the
-3-
<PAGE> 67
Fund 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 Fund 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 Fund 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 Fund or a Series for the accuracy or
completeness of any notification the Bank shall provide to the Fund 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 Fund 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 Fund;
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 Fund 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, 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-
<PAGE> 68
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 Directors signed by an
Authorized Person and certified by the Secretary or Assistant Secretary of the
Fund, 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 Fund
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 Fund 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
Fund 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 Fund shall furnish to the Bank the resolution of the Board of
Directors of the Fund 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 Fund.
7. Sale and Redemption of Shares of a Series.
7.1 Whenever the Fund shall sell or redeem any Shares of a Series, the
Fund shall deliver or cause to be delivered to the Bank Written Instructions
duly specifying:
-5-
<PAGE> 69
(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 Fund will cause to be delivered to the Bank by any bank (excluding
the Bank) from which the Fund 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 Fund against delivery of a stated amount
of collateral. The Fund 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 Fund, 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 Fund 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 Fund 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 Fund 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 Fund 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.
9.1 No Director, officer, employee or agent of the Fund, and no officer,
director, employee or agent of the Advisor, shall have physical access to the
assets of the Fund held by the Bank or be authorized or permitted to withdraw
any investments of the Fund, nor shall the Bank deliver any assets of the Fund
to any such person. No officer, director, employee or agent of the Bank who
holds any similar position with the Fund or the Advisor shall have access to the
assets of the Fund.
-6-
<PAGE> 70
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 Fund are
listed on Schedule A which is attached and made a part of this Agreement by this
reference. The Bank shall advise the Fund of any change in the individuals
authorized to have access to the assets of the Fund by written notice to the
Fund.
9.3 Nothing in this Section 9 shall prohibit any officer, employee or
agent of the Fund, 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 Fund 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 Fund. 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 Directors
pursuant to the Declaration of Fund 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 Fund) 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 Fund,
the Bank shall advise the Fund 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 wilfulmisconduct 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 Fund 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 Fund
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 Fund's governing documents, or the propriety of the amount
paid therefor;
10.2.2 The legality of the sale of any Securities by any Series, the
permissibility of such sale under the Fund'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;
-7-
<PAGE> 71
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; and
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 Fund'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 Fund 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 Fund 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 Fund 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
Fund 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 Fund 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
Fund. The Fund agrees that the Bank shall incur no liability to the Fund 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 Fund shall be open to inspection and audit at reasonable times by
officers and auditors employed by the Fund and by employees of the Securities
and Exchange Commission. The Bank shall provide the Fund, 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 Fund may reasonably request from
time-to-time. Provided, however, that in the event that the Fund shall require a
report of internal 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.
-8-
<PAGE> 72
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 Fund, 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
Fund 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 Fund, the Bank may designate a Successor Custodian,
which shall be a person qualified to so act under the 1940 Act. If the Fund
fails to designate a Successor Custodian for any Series, the Fund 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 Fund) 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 Fund.
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.
Fund 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 Directors of the Fund setting forth the names and the signatures of the
present Authorized Persons. The Fund 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 Directors of the Fund setting forth the names and the signatures of the
present Directors of the Fund. The Fund agrees to furnish to the Bank a new
certification in similar form in the event any such present Director ceases to
be a Director of the Fund or in the event that other or additional Directors 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:
-9-
<PAGE> 73
Union Bank of California, N.A.
Mutual Fund Services Dept., Fund 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 Fund, shall be sufficiently given if addressed
to the Fund and mailed or delivered to it at its offices at 372 Central Park
West, Suite 9M, New York, New York 10025 or at such other place as the Fund 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 Fund without the written consent
of the Bank, or by the Bank without the written consent of the Fund authorized
or approved by a resolution of the Board of Directors of the Fund, 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 Fund hereunder
shall not be binding upon any of the Directors, shareholders, nominees,
officers, agents, or employees of the Fund, personally, but bind only the
property of the Fund, as provided in the Articles of Incorporation of the Fund.
The execution and delivery of this Agreement have been authorized by the
Directors of the Fund and signed by an authorized officer of the Fund, acting as
such, and neither such authorization by such officer 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 property of the Fund as provided in its Articles of Incorporation.
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 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.
-10-
<PAGE> 74
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.
THE ALLIED OWNERS ACTION FUND INC. UNION BANK OF CALIFORNIA, N.A.
BY: /s/ Aaron C. Brown BY:
------------------------------ ---------------------------
, Vice President
DATE: 12/9/99 DATE:
------------------------------ ---------------------------
-11-
<PAGE> 75
Schedule A
Authorized Persons
Part I - Access Persons of Bank
Moon Lee
Libby Guida
Mark Peterson
Gina Almonte
John Kramon
Marsha Aronovsky
Part II - Authorized Persons of the Fund
Aaron Brown
Deborah Pastor
Reuven Hahn
Part III - Directors
Aaron Brown
John Capela
Anne Miller
Rita Robbins
Paul Zarowin
THE ALLIED OWNERS ACTION FUND INC.
BY:
------------------------------
DATE:
----------------------------
UNION BANK OF CALIFORNIA, N.A.
BY:
------------------------------
, Vice President
DATE:
----------------------------
-12-
<PAGE> 76
Schedule B - Funds
The Allied Owners Action Fund Inc.
THE ALLIED OWNERS ACTION FUND INC.
BY: /s/ Aaron C. Brown
------------------------------
DATE: 12/9/99
----------------------------
UNION BANK OF CALIFORNIA, N.A.
BY:
------------------------------
, Vice President
DATE:
----------------------------
-13-
<PAGE> 77
Schedule C
Mutual Fund Services
Schedule of Fees
Custody (2) basis points of the market value
Calculated and charged monthly in arrears
Transactions* Fee waived
Depository Eligible $
Depository Ineligible $
Disbursements $15
Minimum Fee $3500 per annum
*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.
THE ALLIED OWNERS ACTION FUND INC.
BY: /s/ Aaron C. Brown
------------------------------
DATE: 12/9/99
----------------------------
UNION BANK OF CALIFORNIA, N.A.
BY:
------------------------------
, Vice President
DATE:
----------------------------
-14-
<PAGE> 78
Schedule D
Certification
Names and Signatures of Current Directors
Aaron C Brown
- --------------------------------- ------------------------------
(Typed name of Director) (Signature of Director)
John Capela
- --------------------------------- ------------------------------
(Typed name of Director) (Signature of Director)
Paul Zarowin
- --------------------------------- ------------------------------
(Typed name of Directors) (Signature of Director)
Anne Miller
- --------------------------------- ------------------------------
(Typed name of Director) (Signature of Director)
Rita Robbins
- --------------------------------- ------------------------------
(Typed name of Director) (Signature of Director)
-15-
<PAGE> 79
EXHIBIT H
ADMINISTRATIVE SERVICE AGREEMENT
BETWEEN
PRIVATEER ASSET MANAGEMENT INC.
AND
AMERICAN DATA SERVICES, INC.
[LOGO]
<PAGE> 80
INDEX
<TABLE>
<CAPTION>
<S> <C>
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..................................................................8
(A) ADMINISTRATIVE SERVICE FEE:.............................................8
FEE INCREASES...........................................................8
(B) EXPENSES................................................................8
(C) STATE REGISTRATION (BLUE SKY) SURCHARGE:................................9
(D) SPECIAL REPORTS.........................................................9
(E) SERVICE DEPOSIT.........................................................9
SCHEDULE B.................................................................10
</TABLE>
2
<PAGE> 81
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT made the 2nd day of December 1999, by and between Privateer Asset
Management Inc., a Delaware Corporation, having its principal office and place
of business at 372 Central Park West, Suite 9M, New York, NY 10025 (the
"Adviser"), 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 Inc. (the "Fund") is an 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 Adviser has entered into an agreement to provide investment
advisory services to the Fund and under the terms of that investment advisory
agreement has undertaken to engage other services providers for the Fund, and
pay all expenses of the Fund; 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 Adviser 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 Adviser, certain services appropriate to the
operations of the Fund 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 Adviser 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 Fund, the Adviser and
Administrator from time to time;
(d) Prepare Directors meeting agendas and selected financial data required
for directors' meetings as agreed upon by the Fund, the Adviser
and the Administrator from time to time, attend and conduct all
fund business at Board meetings, and prepare Board minutes;
3
<PAGE> 82
(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;
(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 Adviser;
(j) The Administrator shall assist the Fund's independent auditors, or,
upon approval of the Fund, 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 NASDAQ 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
Adviser 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 Fund:
- 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
4
<PAGE> 83
- Securities and monies borrowed or loaned and collateral
therefore
- Foreign currency journals
- Trial balances
(c) Provide the Fund and the Adviser with daily portfolio valuation, net
asset value calculation and other standard operational reports as
requested from time to time.
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 Adviser or the Fund in any way or
otherwise be deemed an agent of the Adviser 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 Adviser shall pay
the Administrator the fees and reimburse the Administrator's 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 Adviser 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 the Adviser, advice of
the Fund or the Adviser, or of counsel for the Fund or Adviser 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 Adviser 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 Adviser 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 Adviser, 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 Adviser 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 Fund, the Adviser or their 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 Adviser shall provide to the Administrator on a quarterly basis a
report of a duly authorized officer of the Adviser 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 or the Adviser, and the
5
<PAGE> 84
Adviser 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 Fund, the Adviser and the
Administrator shall from time to time agree, representing that, to the Adviser's
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
Fund or the Adviser, 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 Adviser 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 how to access such information, at the reasonable
expense of the Fund which shall not exceed $100,000 in the aggregate, provided
that all service fees and expenses charged by the Administrator in the
performance of its duties hereunder have been fully paid to the satisfaction of
the Administrator.
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 Fund or the Adviser.
8. DURATION AND TERMINATION OF THE AGREEMENT.
a. 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.
b. Should the Adviser 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 shall not exceed $100,000 in the aggregate.
6
<PAGE> 85
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 Adviser: To the Administrator:
Privateer Asset Management Inc. American Data Services, Inc
372 Central Park West, Suit 9M 150 Motor Parkway, Suite 109
New York, NY 10025 Hauppauge, NY 11788
Attn: Aaron Brown Attn: Michael Miola
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
PRIVATEER ASSET AMERICAN DATA SERVICES, INC.
MANAGEMENT INC.
By: By:
---------------------------- --------------------------
Aaron C. Brown, President Michael Miola, President
7
<PAGE> 86
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
Adviser 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:
<TABLE>
<S> <C>
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
</TABLE>
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 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
8
<PAGE> 87
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(l) DUTIES OF THE ADMINISTRATOR). Each state registration requested will be
subject to the following fees:
<TABLE>
<S> <C>
Initial registration ............... $295.00
Registration renewal ............... $150.00
Sales reports (if required) ........ $ 25.00
</TABLE>
(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> 88
SCHEDULE B
PORTFOLIOS TO BE SERVICED UNDER THIS AGREEMENT:
The Allied Owners Action Fund Inc.
10
<PAGE> 89
TRANSFER AGENCY AND SERVICE AGREEMENT
BETWEEN
PRIVATEER ASSET MANAGEMENT INC.
AND
AMERICAN DATA SERVICES, INC.
[LOGO]
<PAGE> 90
INDEX
1. TERMS OF APPOINTMENT; DUTIES OF ADS.......................................3
2. FEES AND EXPENSES.........................................................4
3. REPRESENTATIONS AND WARRANTIES OF ADS.....................................5
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....................................................8
11. MERGER OF AGREEMENT.......................................................8
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> 91
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made the 2nd day of December 1999, by and between Privateer Asset
Management Inc., a Delaware Corporation, having its principal office and place
of business at 372 Central Park West, Suite 9M, New York, NY 10025 (the
"Adviser"), 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").
WHEREAS, Allied Owners Action Inc. (the 'Fund") is an open-end management
investment company to be registered with the United States Securities and
Exchange Commission under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Adviser has entered into an agreement to provide investment
advisory services to the Fund and under the terms of that investment advisory
agreement has undertaken to engage other services providers for the Fund, and
pay all expenses of the Fund; and,
WHEREAS, the Adviser 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 Fund's 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 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 Fund, the Adviser 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;
3
<PAGE> 92
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 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 Adviser 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 Adviser and ADS.
2. FEES AND EXPENSES
2.01 For performance by ADS pursuant to this Agreement, the Adviser 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
Adviser and ADS.
2.02 In addition to the fee paid under Section 2.01 above, the Adviser
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 Fund
and/or the Adviser, will be reimbursed by the Fund.
2.03 The Adviser 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 Adviser 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 Adviser that:
4
<PAGE> 93
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.
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 ADVISER
The Adviser 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 Adviser 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 Adviser's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack good faith, gross
negligence or willful misconduct or which arise out of the breach of any
representation or warranty of the Adviser 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 Adviser, and (ii) have been prepared and/or maintained by the Adviser
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 Adviser.
(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
5
<PAGE> 94
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 Fund and the Adviser harmless from
and against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to any 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 Adviser 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 Adviser 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 Adviser 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 Adviser, and shall not
be held to have notice of any change of authority of any person, until receipt
of written notice thereof from the Adviser. 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 Fund, 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 Adviser shall promptly furnish to ADS a certified copy of the
resolution of the Board of Directors of the Fund 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
6
<PAGE> 95
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).
6.04 ADS and the Fund agree that all books, records, information and data
pertaining to the business of the Fund, the Adviser or ADS 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.
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.
SECTION 7. EFFECTIVENESS, DURATION, AND TERMINATION
7.01 This Agreement shall become effective on the date first above written.
7.02 This Agreement shall remain in effect for a period of three (3) years
from the date of its effectiveness (the "Initial Term") and shall continue in
effect for successive twelve-month periods; provided that such continuance is
specifically approved at least annually by the Board of Directors of the Fund
(the "Board") and by a majority of the Directors who are not parties to this
Agreement or interested persons of any such party.
7.03 After the Initial Term, this Agreement may be terminated at anytime
(i) by the Board on 90 days' written notice to ADS or (ii) by ADS on 90 days'
written notice to the Fund. The obligations of Sections 2 and 5 shall survive
any termination of this Agreement
7.04 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 shall not exceed $100,000 in the aggregate.
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 of the Fund.
10. NEW YORK LAWS TO APPLY
7
<PAGE> 96
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
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 Adviser: To ADS:
Privateer Asset Management Inc. American Data Services, Inc.
372 Central Park West, Suite 9M 150 Motor Parkway, Suite 900
New York, NY 10025 Hauppauge, NY 11788
Attn: Aaron Brown Attn: Michael Miola
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> 97
FEE SCHEDULE
For the services rendered by ADS in its capacity as transfer agent, the
Adviser 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 ........................................................ $ 1.50 each
Correspondence/ information requests .......................................... $ 1.75 each
Check preparation ............................................................. $ .50 each
Liquidation's paid by wire transfer ........................................... $ 3.00 each
ACH charge .................................................................... $ .45 each
SWP ............................................................................ $ 1.00 each
</TABLE>
9
<PAGE> 98
(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:
<TABLE>
<S> <C>
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
</TABLE>
* Includes $8.00 Bank Custody Fee.
10
<PAGE> 99
(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, 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> 100
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 agent's records.
12
<PAGE> 101
SCHEDULE A
PORTFOLIOS TO BE SERVICED UNDER THIS AGREEMENT:
The Allied Owners Action Fund Inc.
13
<PAGE> 102
EXHIBIT I
December ___, 1999
The Allied Owners Action Fund, Inc.
372 Central Park West, Suite 9M
New York, New York 10025
Attn: Mr. Aaron Brown, President
Dear Mr. Brown:
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 (File1 No.
811-09551; 333-85367), 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> 103
EXHIBIT J
N/A
<PAGE> 104
EXHIBIT K
N/A
<PAGE> 105
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
December 10, 1999
----------------------------------------
Martin Stoller
<PAGE> 106
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 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 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. Privateer Asset Management Inc. ("Privateer") will distribute the Fund's
securities without retaining an outside underwriter. Privateer shall absorb,
including out of its 1% management fee, all self-distribution costs. The
self-distribution activities contemplated are expected to include public
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.
<PAGE> 107
8. Agreements to be entered into by the Fund in relation to this Plan shall
be approved by the board of directors, including a majority of the disinterested
directors of the Fund.
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 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 -------------------------
2
<PAGE> 108
EXHIBIT N
N/A
<PAGE> 109
EXHIBIT O
N/A
<PAGE> 110
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). 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 1940 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 or 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:
NAME POSITION HELD WITH FUND SUBSTANTIAL BUSINESS
DURING PAST TWO YEARS
------------------- ----------------------- ---------------------------
Aaron Brown Director, President, Instructor of Finance,
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
Anne Miller Director President of Oryx
Group
114 West Franklin Avenue
Pennington, NJ 08534
Deborah Pastor Vice President, Private investment manager
Portfolio Manager for with Mr. Brown, 215 West
Fund; 91st Street, #112
employed by Privateer 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,
Kellogg School of
Management, Northwestern
University 633 Clark
Street,
Evanston, IL 60208
<PAGE> 111
Paul Zarowin Director Assistant Professor of
Accounting, Stern
School of Business, New
York
University, 44 West 4th
Street, New York, NY 10012
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 1940 Act 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 1940 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> 112
SIGNATURE
Pursuant to the requirements of the 1940 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 16th day of
December, 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 2/22/00
- ------------------------- --------
Aaron C. Brown, President Date
