<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 13, 1999
File No. 333-84809
File No. 811-09527
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-effective Amendment No. 2 [X]
Post-effective Amendment No. ____ [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 2 [X]
(Check appropriate boxes)
DCM SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
7 WELLS AVENUE
NEWTON, MA 02459
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: 617-527-0033
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Carla B. Herwitz, Esq.
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, MA 02109
(Name and address of agent for service of process)
COPIES TO:
Jonathan J. Derby Michael Miola
Vice President President
Derby Capital Management American Data Services, Inc.
7 Wells Avenue Hauppauge Corporate Center
Newton, MA 02459 150 Motor Parkway
Hauppauge, NY 11788
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Approximate Date of Proposed Public Offering: As soon as practicable after
the effectiveness of this Registration Statement.
<PAGE> 2
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on ___________, 1999 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on ___________, 1999 pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on ___________, 1999 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
Pursuant to Section 24(f) and Rule 24f-2 under the Investment Company Act
of 1940, the Registrant elects to register an indefinite number of shares of
beneficial interest under the Securities Act of 1933. Registrant intends to file
the notice required by Rule 24f-2 within 90 days after the close of the
Registrant's fiscal year.
Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically 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 shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine.
================================================================================
<PAGE> 3
Prospectus
October , 1999
THE DCM GROWTH FUND
A SERIES OF THE
DCM SERIES TRUST
The DCM Series Trust (the "Trust") currently offers one series of shares
to investors, the DCM Growth Fund (the "Fund").
The Fund is designed for investors seeking long-term growth of capital.
This prospectus explains what you should know about this mutual fund
before you invest. Please read it carefully and keep it with your investment
records.
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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YOUR GUIDE TO THE PROSPECTUS
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This prospectus is designed to help you make an informed decision about
whether investing in the DCM Growth Fund (the "Fund") is appropriate for you.
The investment adviser for the Fund is Derby Capital Management ("DCM").
We have divided the prospectus into three sections to make it easy for you
to find what you are looking for.
The first section, THE FUND, contains a discussion of the objective,
principal risks and fees of the Fund. In particular, this section tells you four
important things about the Fund:
- THE FUND'S INVESTMENT GOAL - what the Fund is trying to achieve.
- THE PRINCIPAL INVESTMENT POLICIES OF THE FUND - how the Fund tries
to meet its investment goal.
- THE INVESTMENT SELECTION PROCESS USED BY THE FUND - this section
specifies the Fund's primary types of investments and principal
investment strategies.
- RISKS YOU SHOULD BE AWARE OF - the principal risks associated with
the Fund.
The other two sections of the prospectus - THE FUND'S MANAGEMENT and HOW
TO BUY AND SELL SHARES - provide detailed information about how the Fund is
managed, the services and privileges available to the Fund's shareholders, how
shares are priced and how to buy and sell shares.
2
<PAGE> 5
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
The Fund.................................................... 4
The Investment Objective and Philosophy of the
Fund................................................. 4
The Principal Investments and Policies of the Fund... 4
The Investment Selection Process Used by the Fund.... 5
The Principal Risks of Investing in the Fund......... 5
Evaluating Performance............................... 6
Fees and Expenses.................................... 7
Other Investment Policies of the Fund................ 9
Non-Principal Risks of Investing in the Fund......... 9
The Fund's Management....................................... 12
The Investment Adviser............................... 12
The Portfolio Manager................................ 12
The Administrator and Distributor.................... 12
How To Buy and Sell Shares.................................. 14
Determining Share Price.............................. 14
Purchasing Shares.................................... 15
How to Redeem Shares................................. 18
Shareholder Services................................. 20
Distributions and Taxes.............................. 21
General Information.................................. 23
</TABLE>
WHY YOU SHOULD READ THIS PROSPECTUS
Reading the prospectus will help you to decide whether the DCM Growth Fund
is the right investment for you. It allows you to compare the Fund's objective,
principal investment strategies, principal risks and performance with other
mutual funds. Please keep it for future reference.
3
<PAGE> 6
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THE FUND
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THE INVESTMENT OBJECTIVE AND PHILOSOPHY OF THE FUND
The Fund seeks long-term growth of capital by investing primarily in the
common stocks of 20-30 large companies that are selected for their long-term
growth potential. This type of investing is often referred to as "focus
investing." The Fund's objective may be changed by the Board of Trustees without
shareholder approval. You will receive advance written notice of any material
changes to the Fund's objective.
THE PRINCIPAL INVESTMENTS AND POLICIES OF THE FUND
Derby Capital Management ("DCM"), the Fund's investment adviser, seeks to
accomplish the Fund's investment objective by investing primarily in the equity
securities of large companies that DCM believes have earnings growth potential.
The Fund seeks to hold each investment indefinitely, which should produce a
lower turnover rate and, thus, lower taxable income. Large companies, or "large
capitalization" companies, typically have a market capitalization of $5 billion
or more. Market capitalization is calculated by multiplying the number of shares
outstanding by the stock price of the company.
All mutual funds must elect to be "diversified" or "non-diversified,"
which will affect the number and size of the positions that a fund can take in
the securities of different issuers. The Fund is a "non-diversified" portfolio,
which means that it can invest in fewer securities at any one time than
diversified portfolios. As a non-diversified fund, the Fund has the ability to
take larger positions in a smaller number of issuers than a diversified fund. As
a "non-diversified" portfolio, the Fund may invest, with respect to 50% of its
total assets, up to 5% of its total assets in the securities of any one issuer.
While the Fund typically will hold the securities of fewer companies than
a diversified fund, the Fund may invest up to 25% of its total assets in a
single issuer (other than U.S. government securities) and the Fund may own up to
10% of the outstanding voting shares of any issuer.
Under adverse market conditions or in the event of exceptional redemption
requests, the Fund may hold cash or cash-equivalents and invest in money market
securities, U.S. government obligations and short-term debt securities. Under
these circumstances, the Fund may not participate in stock market advances or
declines to the same extent that it would if it remained more fully invested in
common stocks. The Fund may also purchase high-grade commercial paper,
certificates of deposit, and may enter into repurchase agreements.
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<PAGE> 7
THE INVESTMENT SELECTION PROCESS USED BY THE FUND
DCM uses a "bottom-up" stock selection approach in constructing the
portfolio. Each selection, though, is then measured against a macroeconomic
analysis (often referred to as "top-down" analysis).
DCM's "bottom up" stock selection begins with a search for outstanding
companies that have achieved above average returns in the past and that have a
high probability of achieving those same returns in the future. In determining
whether a particular company is suitable for investment by the Fund, DCM focuses
on a number of different attributes, including the company's market dominance;
its franchise durability and pricing power; consistent earnings history; profit
margins; strong stable management; and reasonable valuations in the context of
projected growth rates.
As part of this fundamental, bottom-up research, DCM may contact various
levels of a company's management, as well as its customers, suppliers, and
competitors. After a business has been selected and reviewed, its prospects are
then measured against such macro-economic factors as interest rates, inflation,
the regulatory environment, and the global competitive landscape. In addition,
DCM also examines such factors as industry consolidation and the sustainability
of economic trends. As a result of the "top-down" analysis, DCM identifies
sectors, industries, and companies which should benefit from the overall trends
DCM has observed.
Although it is unlikely, the Fund may also invest its assets in other
securities or engage in different investment practices. These securities and
practices are not part of the Fund's principal investment strategies, but may be
used from time to time to supplement or enhance the Fund's principal investment
strategies in an effort to achieve the Fund's investment objectives. Please
refer to the Statement of Additional Information ("SAI") for more information on
these securities and investment practices.
THE PRINCIPAL RISKS OF INVESTING IN THE FUND
RISKS IN GENERAL
There are two basic risks prevalent in all mutual funds investing in
common stocks: general market risks and risks which arise from the investment
strategies of the adviser of the particular fund. Domestic and foreign economic
growth and market conditions, interest rate levels, and political events are
among the general market factors affecting the securities markets of the Fund's
investments. There is a risk that DCM's investment decisions may not accomplish
what they were intended to achieve in response to these factors. The Fund cannot
eliminate risk or assure achievement of its objective: therefore, you could lose
money investing in the Fund. You should consider your own investment goals, time
horizon, and risk tolerance before investing in the Fund.
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<PAGE> 8
Please note that an investment in the Fund is not a deposit in a bank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC)
or any other government agency.
COMMON STOCKS
The Fund invests primarily in common stocks of large companies, which
subjects the Fund and its shareholders to the risks associated with common stock
investing. These risks include the financial risk of selecting individual
companies that do not perform as anticipated, the risk that the stock markets in
which the Fund invests may experience periods of turbulence and instability, and
the general risk that domestic and global economies may go through periods of
decline and cyclical change.
Many factors affect an individual company's performance, such as the
strength of its management or the demand for its products or services. Negative
performance may affect the earnings growth potential anticipated by DCM in
picking the individual stocks in the Fund's portfolio.
There are overall stock market risks that may affect the value of the
Fund. Over time, stock markets tend to move in cycles, with periods when stock
prices rise generally and periods when stock prices decline generally. In
addition, for the reasons outlined above, the value of the Fund's investments
may increase and decrease more than the stock markets in general.
RISK OF NON-DIVERSIFICATION
As previously mentioned, the Fund is a non-diversified portfolio, which
means that, at any given time, it may hold fewer securities than portfolios that
are "diversified." Because the portfolio of the Fund may be invested in the
securities of a smaller number of issuers than in the case of a "diversified"
portfolio, the risk that the value of the Fund could go down because of the poor
performance of any one investment is greater.
EVALUATING PERFORMANCE
Because the Fund is new, it has no performance history as of the date of
this Prospectus. The Fund will provide a bar chart with past performance
information indicating the risks of an investment in the Fund once it has
completed a full year of operations.
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<PAGE> 9
FEES AND EXPENSES OF THE FUND
As an investor, you pay certain fees and expenses in connection with your
investment in the Fund, which are described in the table below. Fund operating
expenses are paid out of the assets of the Fund, so their effect is included in
each Fund's share price. Annual Fund operating expenses, indicated in the table
below, reflect estimated expenses for the Fund's first fiscal year.
SHAREHOLDER FEES
(fees paid directly from your investment)
<TABLE>
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as
a percentage of offering price) NONE
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends NONE
Maximum Deferred Sales Charge (Load) NONE
Redemption Fee (for redemptions occurring during the
1st six months) 1%
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<TABLE>
<S> <C>
Management Fees 1.00
Distribution (12b-1) Fees(a) 0.25
Other Expenses(b) 0.50
----
Total Fund Operating Expenses 1.75%
</TABLE>
(a) The Fund has adopted a Rule 12b-1 plan which allows the Fund to pay
distribution fees for the sale and distribution of its shares. The
maximum level of distribution expenses is 0.25% per year of the
Fund's average net assets. As these fees are paid out of the Fund's
assets on an on-going basis, over time these fees will increase the
cost of your investment and may cost you more than paying other
types of sales charges.
(b) These expenses include custodian, transfer agency, and
administration fees and other customary Fund expenses.
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<PAGE> 10
SHAREHOLDER TRANSACTION EXPENSES
EXAMPLE
This example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. It uses the same
hypothetical conditions that other funds use in their prospectuses:
- $10,000 initial investment
- 5% total return on your investment each year
- fund operating expenses remain the same
- redemption at the end of each time period
- reinvestment of all dividends and distributions.
You pay the same amount in expenses whether you hold your shares or sell
them at the end of each period. Your actual costs may be higher or lower because
fund operating expenses change, so use this example for comparison only. Based
on these assumptions at the end of each period your costs would be:
<TABLE>
<CAPTION>
One Year Three Years
-------- -----------
<S> <C> <C>
DCM Growth Fund $184 $597
</TABLE>
Please note that the above example is an estimate of the expenses to be
incurred by shareholders of the Fund.
In addition, the Fund will impose a 1% redemption fee for any redemptions
of Fund shares within the first six months of the Fund's operation.
OTHER INVESTMENT POLICIES OF THE FUND
In addition to the principal investment policies of the Fund described
above, the Fund may also implement other investment policies (as described below
and in the Fund's Statement of Additional Information) from time to time in
response to changing market conditions. The Fund does not anticipate that any of
these policies will, at any time, be a
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<PAGE> 11
principal policy or strategy of the Fund, or that, as described below, it will
invest more than 10% of its assets under any such policy.
The Fund may invest in foreign securities. These investments may be
publicly traded in the United States or on a foreign exchange, and may be bought
and sold in a foreign currency. DCM generally selects foreign securities on a
stock-by-stock basis based primarily on growth potential.
The Fund may invest in all types of fixed income instruments, including,
without limitation, government-backed securities and corporate bonds, debentures
and notes, which may include high-yield or "junk" bonds.
Primarily for hedging purposes, the Fund may use options, including
options on securities and securities indices, futures, and foreign currency
contracts.
The Fund may invest up to 15% of its net assets in illiquid investments,
which are securities that cannot be sold or disposed of in 7 days at or above
their original purchase price in the normal course of business.
The Fund may also invest in the securities of other investment companies.
The Fund may also invest in options, futures, and foreign currencies, and
may enter into certain types of short sale arrangements.
NON-PRINCIPAL RISKS OF INVESTING IN THE FUND
As indicated above, the Fund may implement other investment policies from
time to time in response to changing market conditions. While none of these
policies will, at any time, be a principal policy or strategy of the Fund, there
are, nevertheless, certain risks to the Fund. Because of the limited extent to
which the Fund will employ these policies (at no time will more than 5%, except
as indicated below, of the assets of the Fund be invested pursuant to any of
these policies), the Fund believes that these risks will be minimal.
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<PAGE> 12
RISKS OF FOREIGN INVESTING
The Fund may also invest in foreign securities. Foreign investments may be
riskier than U.S. investments because of factors such as:
- unstable international political and economic conditions,
- currency fluctuations,
- foreign controls on investment and currency exchange,
- withholding taxes,
- a lack of adequate company information,
- less liquid and more volatile markets, and
- a lack of government regulation.
Investments in emerging markets involve even greater risks such as immature
economic structures and different legal systems.
FIXED INCOME INVESTING
Fixed income investing may be employed, to a limited extent, by the Fund.
The following are some of the risks to the Fund from fixed income investing:
CREDIT RISK: The Fund could lose money if the issuer of a fixed
income security cannot meet its financial obligations or goes
bankrupt.
HIGH-YIELD SECURITIES: High-yield securities, also referred to as
"junk bonds," are considered to be more speculative than higher
quality securities. They are more susceptible to credit risk than
investment-grade securities. This is especially true during periods
of economic uncertainty or during economic downturns. High-yield
securities, or "junk bonds," are non-investment securities.
Non-investment grade securities are securities with ratings lower
than BBB by Standard & Poor's Rating Service, or lower than Baa by
Moody's Investor's Services, Inc. The value of lower quality
securities is subject to greater volatility and is generally more
dependent on the ability of the issuer to meet interest and
principal payments than is the case for the value of higher quality
securities. Issuers of high-yield securities may not be as strong
financially as those issuing bonds with higher credit ratings.
INTEREST RATE RISK: The value of a Fund's investments in fixed
income securities may fall when interest rates rise.
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<PAGE> 13
RISKS OF INVESTING IN OPTIONS AND FUTURES
These types of investments can be volatile and investment in them exposes
the assets invested in them to greater than average risk. The Fund will invest
in options and futures only if market conditions dictate and then only to a
limited extent.
RISKS OF INVESTING IN ILLIQUID SECURITIES
The Fund may be unable to dispose of its holdings in illiquid securities
at acceptable prices and may have to dispose of such securities over extended
periods of time. The Fund, however, is prohibited from investing more than 15%
of its net assets in illiquid investments.
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<PAGE> 14
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THE FUND'S MANAGEMENT
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THE INVESTMENT ADVISER
Derby Capital Management ("DCM"), a Massachusetts corporation located at 7
Wells Avenue, Newton, MA 02459, was formed in December 1986 and serves as the
investment adviser to the Fund. DCM will furnish continuous investment advisory
and management services to the Fund. In addition to the Fund, DCM provides
investment management services to private accounts and, as of June 30, 1999, had
approximately $450 million under management.
DCM manages the investment portfolio of the Fund, subject to policies
adopted by the Trust's Board of Trustees. DCM furnishes office space and all
necessary office facilities, equipment and executive personnel necessary for
managing the Fund. DCM also pays the salaries and fees of all officers and
trustees of the Trust who are also officers, directors, or employees of DCM. The
Trust pays the salaries and fees of all other trustees of the Trust. For its
services, DCM receives a fee of 1.00% per year of the average daily net assets
of the Fund.
THE PORTFOLIO MANAGER
Mark A. Derby and Jonathan J. Derby manage the investment program of the
Fund and are primarily responsible for the day-to-day management of the Fund's
portfolio. Since January 1989, Mark Derby has served as Vice President of Derby
Capital Management. Prior to that time, Mark Derby was the President of Mark
Derby & Associates, Ltd., a pension consulting firm. He is also a Certified
Public Accountant.
Jonathan J. Derby has been with Derby Capital Management since July 1992,
and serves as its legal counsel. Prior to joining Derby Capital Management,
Jonathan Derby was an attorney with the New York law firm of Schulte, Roth &
Zabel. He is admitted to the Bars of the State of New York and the Commonwealth
of Massachusetts.
THE ADMINISTRATOR AND DISTRIBUTOR
American Data Services, Inc. ("ADS"), which has its principal office at
The Hauppauge Corporate Center, 150 Motor Parkway, Hauppauge, NY 11788, serves
as the Fund's administrator, transfer agent and fund accounting agent.
Management and administrative services of ADS include (i) providing office
space, equipment and junior management and clerical personnel to the Fund, (ii)
obtaining valuations, calculating
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<PAGE> 15
net asset values and performing other accounting, tax and financial services,
(iii) recordkeeping, (iv) legal and regulatory services, (v) processing
shareholder account transactions and disbursing Fund distributions, and (vi)
supervising custodial and other third party services.
ADS Distributors, Inc. (the "Distributor"), an affiliate of ADS, has
entered into a distribution agreement with the Trust to serve as distributor for
the Fund's shares. The Distributor will be entitled to receive a distribution
fee equal to up to 0.25% of the Fund's average daily net assets. The Distributor
will pay the promotional and advertising expenses related to the distribution of
the Fund's shares and for the printing of all Fund prospectuses used in
connection with the distribution and sale of the Fund's shares. It is expected
that the Distributor will use a portion of the distribution fee to compensate
financial intermediaries for providing distribution assistance with respect to
the sale of the Fund's shares.
DCM and the Distributor may, out of their own assets, pay for certain
expenses incurred in connection with the distribution of Fund shares. In
particular, the Distributor may make payments out of its own assets to sales
representatives and other broker dealers in connection with their sales of Fund
shares.
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<PAGE> 16
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HOW TO BUY AND SELL SHARES
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DETERMINING SHARE PRICE
The price at which you buy or sell Fund shares is the net asset value per
share, or "NAV". The NAV is calculated at the close of regular trading of the
New York Stock Exchange "NYSE" (normally 4:00 p.m. Eastern standard time) each
day the NYSE is open. It is not calculated on days the NYSE is closed for
trading. Currently, the NYSE is closed for trading on weekends and certain
holidays. The price for a purchase or redemption of Fund shares is the NAV next
calculated after receipt of your request.
CALCULATING NAV
The price for the shares is determined by adding the value of the
investments, cash and other assets, deducting liabilities, and then dividing
that amount by the total number of shares outstanding.
In calculating NAV, portfolio securities are valued at the last current
sales price on the market where the security is normally traded, unless that
price is not representative of market values. This could be the case, for
example, if, after the close of the market, an event took place that had a major
impact on the price of the Fund's securities. Securities which cannot be valued
at closing prices will be valued by DCM at fair value in accordance with
procedures which have been adopted by the Trustees. If no sales occurred on a
particular day, the security is valued at the mean between the most recently
quoted bid and asked price.
DISTRIBUTION ARRANGEMENTS
DISTRIBUTION FEES
The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the
1940 Act (the "Plan"). Under the Plan, the Fund will pay on an annual basis up
to 0.25% of the average daily net assets of the Fund to reimburse the
distributor for expenses that it incurs to distribute and market shares of the
Fund.
The Plan provides that the Fund may finance activities which are primarily
intended to result in the sale of the Fund's shares. These services include,
among other things, processing new shareholder account applications, preparing
and transmitting to the Fund's transfer agent computer processable tapes of all
transactions by customers, and serving as
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<PAGE> 17
the primary source of information to customers in answering questions concerning
the Fund and their transactions with the Fund.
Payments under the Plan are not tied exclusively to the distribution
and/or shareholder servicing expenses actually incurred by DCM. The Trust's
Board of Trustees evaluates the Plan on a regular basis.
PURCHASING SHARES
GENERAL PURCHASE INFORMATION
The Fund's shares may be purchased at its public offering price, which is
the Fund's net asset value, from the Distributor, from other broker-dealers who
are members of the NASD and certain financial institutions each of which has
entered into selling agreements with the Distributor.
When orders are placed for shares of the Fund, the public offering price
used for the purchase will be the 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.
The minimum initial and additional investments, as well as minimum
balances, are as follows:
<TABLE>
<CAPTION>
Minimum Minimum Minimum
Initial Additional Balance
------- ---------- -------
<S> <C> <C> <C>
Regular Accounts $2,500 $100 $1,000
Traditional IRAs, and IRA
rollovers 1,000 100 500
Spousal IRAs 1,000 100 500
Roth IRAs 1,000 100 500
SEP-IRAs 1,000 100 500
Gifts to Minors 500 50 500
Automatic Investment Plans 1,000 50 1,000
</TABLE>
The Fund may waive account minimums if it is economically feasible and in
the best interests of the Fund's shareholders. The Fund has the right to reject
any purchase order, or limit or suspend the offering of its shares.
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<PAGE> 18
Shares of the Fund may be purchased by opening an account either directly
by mail or by phone using federal funds wire. Shares are deemed to be purchased
as of the time of determination of the Fund's net asset value on the day the
purchase order for the purchase of its shares is received, subject to
acceptance, in proper form by ADS as set out below.
Investors may make systematic investments in fixed amounts automatically
on a monthly basis through the Fund's Automatic Investment Plan. Additional
information is available from ADS.
PURCHASES BY TELEPHONE
To open an account by telephone, you must first call (888) 878-2696 to
obtain an account number and instructions. Information, including the
appropriate federal tax identification number, concerning the account will be
taken over the phone. Subject to acceptance by ADS, shares of the Fund may be
purchased by wiring immediately available federal funds (subject to the minimum
investment) to Firstar Bank, National Association, (the "Custodian Bank") from
your bank which may charge a fee for doing so (see instructions below). You
should provide your bank with the following information for purposes of wiring
your investment:
Firstar Bank, National Association
ABA# 0420-0001-3
-------------------------------
Account# 821253556
---------------------------
F/B/O DCM Growth Fund
F/F/C:
Shareholder Acct. No.
---------------
(write in account number)
Shareholder Acct. Name
-------------
(write in account name)
You are required to mail a signed application to ADS at the address
indicated below in order to complete your initial wire purchase. Wire orders
will be accepted only on a day on which the Fund, the Custodian Bank and ADS are
open for business. A wire purchase will not be considered made until the wired
money is received by the Fund. Any delays which may occur in wiring money,
including delays which may occur in processing by the banks, are not the
responsibility of the Fund or of ADS. There is presently no fee for the receipt
of wired funds, but the Fund reserves the right to charge shareholders for this
service.
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<PAGE> 19
PURCHASES BY MAIL
Subject to acceptance by ADS, 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 a check (subject to the Fund's minimum investment) payable
to:
DCM Growth Fund
c/o American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
Payment for the purchase of shares received by mail will be credited to a
shareholder's account at the net asset value per share next determined, after
receipt. All purchases must be made in U.S. dollars and all checks must be drawn
on U.S. banks. In the event that there are insufficient funds to cover a check,
such prospective investor will be assessed a $15.00 charge. If a purchase is
canceled due to non-payment, you will be responsible for any loss the Fund
incurs. The Fund does not accept cash or third-party checks for the purchase of
shares.
THIRD PARTY TRANSACTIONS
If you buy and redeem shares of the Fund through a member of the National
Association of Securities Dealers, Inc., or other financial institution, the
policies and fees charged by that institution may be different than those of the
Fund. Banks, brokers, retirement plans and financial advisers may charge
transaction fees and may set different investment minimums or limitations on
buying or selling shares. Consult a representative of your financial institution
or retirement plan for further information.
The Fund has authorized one or more brokers to accept on its behalf
purchase and redemption orders. Such brokers are authorized to designate
intermediaries to accept orders on the Fund's behalf. The Fund will be deemed to
have received the order when an authorized broker or a broker authorized
designee accepts your order. Your order will be priced at the Fund's net asset
value next computed after it is received by the authorized broker or broker
authorized designee.
ADDITIONAL INVESTMENTS
Additional investments of $100 or more ($50 or more for Gifts to Minors
and Automatic Investment Plan investments) may be made at any time by purchasing
shares of the Fund at net asset value, by mailing a check to the Fund at the
address noted under "Purchases by Mail" or by wiring monies to the Custodian
Bank as outlined above from a bank or other financial institution with which the
shareholder has an account and which is a member of the Federal Reserve system
with instructions to transmit Federal funds by wire to the Fund.
17
<PAGE> 20
OTHER PURCHASE INFORMATION
The Fund must receive an order by the close of any business day for the
purchase to be effective on that day. If funds are received after the close of
business, the purchase will become effective on the next business day.
All purchases of the Fund's shares will be made in full and fractional
shares calculated to three decimal places. The Fund will not issue stock
certificates evidencing ownership of Fund shares.
Investors purchasing Fund shares through a shareholder organization may be
charged a transaction-based fee or other fee by such organization for the
services of such organization. Each shareholder organization is responsible for
transmitting to its customers a schedule of any such fees and information
regarding any additional or different conditions regarding purchases. Customers
of shareholder organizations should read this prospectus in light of the terms
governing accounts with such organizations. The Fund does not pay to or receive
compensation from shareholder organizations for the sale of its shares.
HOW TO REDEEM SHARES
GENERAL REDEMPTION INFORMATION
You may redeem all or a portion of your shares on any day that the Fund
values its shares (please refer to "Determining Share Price" above for more
information). Your shares will be redeemed at the net asset value next
determined after receipt of your instructions in "good order" as explained
below. The Fund's net asset value will fluctuate on a daily basis. In addition,
you will be assessed a redemption fee of 1% of the value of the shares being
redeemed for any redemption (other than an involuntary redemption) which occurs
during the first six months of operation of the Fund.
To redeem your shares, you may either contact your broker-dealer or
financial institution with an oral request or send a written request directly to
ADS. This request should contain: the dollar amount or number of shares to be
redeemed, your Fund account number and either a social security or tax
identification number (as applicable). You should sign your request in exactly
the same way the account is registered. If there is more than one owner of the
shares, all owners must sign. A signature guarantee is required for redemptions
over $50,000. Please contact ADS or refer to the SAI for more details.
Shares of the Fund may be redeemed by mail, or, if authorized, by
telephone. 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.
BY MAIL
The Fund will redeem its shares at the net asset value next determined
after the request is received in "good order." The net asset value per share of
the Fund is determined
18
<PAGE> 21
as of 4:00 p.m., New York time, on each day that the NYSE is open for business.
Requests should be addressed to: DCM Growth Fund, c/o American Data Services,
Inc., P.O. Box 5536, Hauppauge, NY 11788-0132.
Requests in "good order" must include the following documentation:
(a) 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;
(b) any required signature guarantees (see "Signature Guarantees"
below); and
(c) other supporting legal documents, if required, in the case of
estates, trusts, guardianships, custodianships, corporations,
pension and profit sharing plans and other organizations.
SIGNATURE GUARANTEES
To protect shareholder accounts, the Fund and ADS from fraud, signature
guarantees are required to enable the Fund to verify the identity of a person
who has authorized a redemption of $50,000 or more from an account. Signature
guarantees are also required for (1) redemptions where the proceeds are to be
sent to someone other than the registered shareholder(s) and the registered
address, and (2) share transfer requests. Signature guarantees may be obtained
from certain eligible financial institutions, including but not limited to, the
following: banks, trust companies, credit unions, securities brokers and
dealers, savings and loan associations and participants in the Securities
Transfer Association Medallion Program ("STAMP"), the Stock Exchange Medallion
Program ("SEMP") or the New York Stock Exchange Medallion Signature Program
("MSP"). Shareholders may contact the Fund at (888) 878-2696 for further
details.
BY TELEPHONE
Provided the Telephone Redemption Option has been authorized, a redemption
of shares may be requested by calling the Fund and requesting that the
redemption proceeds be mailed to the primary registration address or wired per
the authorized instructions. If the Telephone Redemption Option is authorized,
the Fund and ADS may act on telephone instructions from any person representing
himself or herself to be the shareholder and believed by the Fund or ADS to be
genuine. ADS's records of such instructions are binding and each shareholder,
and not the Fund or ADS, bears the risk of loss in the event of unauthorized
instructions reasonably believed by the Fund or ADS to be genuine. The Fund will
employ reasonable procedures to confirm that instructions communicated are
genuine and, if it does not, it may be liable for any losses due to unauthorized
or fraudulent instructions. The procedures employed by the Fund in connection
with transactions initiated by telephone may include tape recording of telephone
instructions and requiring some form of personal identification prior to acting
upon instructions received by telephone.
19
<PAGE> 22
PAYMENT OF REDEMPTION PROCEEDS
After your shares have been redeemed, proceeds will normally be mailed
within three business days. In no event will payment be made more than seven
days after receipt of your order in good form, except that payment may be
postponed or the right of redemption suspended for more than seven days under
unusual circumstances, such as when trading is not taking place on the NYSE.
Payment of redemption proceeds may also be delayed if the shares to be redeemed
were purchased by a check drawn on a bank which is not a member of the Federal
Reserve System, or until such check has cleared the banking system (normally up
to 15 days from the purchase date).
Investors redeeming Fund shares through a shareholder organization may be
charged a transaction-based fee or other fee by such organization for the
services of such organization. Each shareholder organization is responsible for
transmitting to its customers a schedule of any such fees and information
regarding any additional or different conditions regarding redemptions.
Customers of shareholder organizations should read this prospectus in light of
the terms governing accounts with such organizations.
INVOLUNTARY REDEMPTION
The Fund reserves the right to redeem your account if at any time the net
asset value of the account falls below $1,000 ($500 for retirement accounts) as
the result of a redemption. You will be notified in writing prior to any such
redemption and will be allowed 30 days to make additional investments before the
redemption is processed.
SHAREHOLDER SERVICES
The Fund offers several shareholder service options to make your account
easier to manage which are listed on the account application. Please make note
of these options and select the ones that are appropriate for you.
AUTOMATIC INVESTMENT PROGRAM
You may arrange to make additional automated purchases of Fund shares by
completing the required section of the account application included with this
prospectus. You can automatically transfer $100 or more per month from your
bank, savings and loan or other financial institution to purchase additional
shares. You should contact your broker-dealer, financial institution or ADS to
obtain additional application forms or for additional information.
20
<PAGE> 23
TELEPHONE TRANSACTION PRIVILEGES
If you hold your shares in an account with ADS, you may authorize
telephone privileges by completing the required section of the account
application included with this prospectus. Please contact ADS for an additional
application or for more details. It may be difficult to reach the Fund by
telephone during periods when market or economic conditions lead to an unusually
large volume of telephone activity. If you cannot reach the Fund by telephone,
you should contact your broker-dealer, financial institution or issue written
instructions to ADS at the address set forth herein. The Fund reserves the right
to modify, suspend or terminate their telephone services at any time without
notice.
TAX-QUALIFIED RETIREMENT PLANS
The Fund is available for your tax-deferred retirement plan. Call or write
us and request the appropriate forms for:
- Individual Retirement Accounts ("IRAs"), Simple IRAs and Roth
IRAs;
- 403(b) plans for employees of public school systems and non-profit
organizations; or
- 401(k) plans;
- Profit-sharing plans and pension plans for corporations and other
employees.
You can also transfer your tax-deferred plan to us from another company or
custodian. Call or write us for a "Request to Transfer" form.
CONFIRMATION OF TRANSACTIONS AND REPORTING OF OTHER INFORMATION
The Fund will mail you confirmations of all of your purchases or
redemptions of Fund shares. In addition, you will also receive account
statements on a quarterly basis. This information will be provided to you from
either your broker-dealer, financial institution or ADS. You will also receive
various tax forms after the first of each year detailing important tax
information and the Fund is required to supply annual and semi-annual reports
that list securities held by the Fund and include its then current financial
statements.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
The Fund makes distributions to shareholders at least annually primarily
from two sources: net long-term capital gain and income dividends, if any.
Dividends from income and/or capital gains may also be paid at such other times
as may be necessary for the Fund to avoid federal income or excise taxes. Most
of the Fund's distributions are expected to be from net long-term capital gains.
21
<PAGE> 24
Unless you tell us that you want to receive your distributions in cash,
all distributions will be automatically reinvested in additional full and
fractional shares of the Fund. Your other options are to receive checks for
these payments or have them deposited directly into your bank account.
TAX CONSIDERATIONS
Unless your investment is in a tax-deferred account you may want to avoid:
- Investing a large amount in the Fund near the end of the calendar
year; if the Fund makes a capital gains distribution you will
receive some of your investment back as a taxable distribution.
- Selling shares at a loss for tax purposes and then making an
identical investment within 30 days. The result is a wash sale and
you will not be allowed to claim a tax loss.
TAX CONSEQUENCES
The buying, selling and holding of mutual fund shares may result in a gain
or a loss and is a taxable event. Distributions from the Fund, whether received
in cash or additional shares of the Fund, may be subject to federal income tax.
Any net investment income and net short-term capital gain distributions you
receive from the Fund are taxable as ordinary dividend income at your income tax
rate. Distributions of net capital gains are generally taxable as long-term
capital gains. This is generally true no matter how long you have owned your
shares and whether you reinvest your distributions or take them in cash. You may
also have to pay taxes when you exchange or sell shares if your shares have
increased in value since you bought them.
<TABLE>
<CAPTION>
Transaction Tax Status
- ----------- ---------------
<S> <C>
Income dividends Ordinary Income
Short-term capital gains Ordinary Income
Long-term capital gains Capital Gain
</TABLE>
If the Fund's (1) income distributions exceed its net investment income
and net short-term capital gains or (2) capital gain distributions exceed its
net capital gains in any one year, all or a portion of those distributions may
be treated as a return of capital to you. Although a return of capital is not
taxed, it will reduce the cost basis of your shares.
22
<PAGE> 25
"Cost Basis" is the amount you paid for your shares. When you sell shares,
you subtract the cost basis from the sale proceeds to determine whether you
realized an investment gain or loss. For example, if you bought $1000 worth of
shares of the Fund and sold them two years later at $1200, your cost basis is
$1000 and your gain is $200.
TAX-DEFERRAL
Generally, if your investment is in a traditional IRA or other
tax-deferred account, your dividends and distributions will not be taxed at the
time they are paid, but instead at the time you withdraw them from your account.
OTHER TAX INFORMATION
The Fund may be subject to foreign withholding taxes or other foreign
taxes on some of its foreign investments. This will reduce the yield or total
return on those investments. In addition, we must withhold 31% of your
distributions and proceeds if (1) you are subject to backup withholding or (2)
you have not provided us with complete and correct taxpayer information such as
your Social Security Number (SSN) or Tax Identification Number (TIN).
Shareholders will be advised annually as to the federal tax status of
dividends and capital gain distributions made by the Fund for the preceding
year. Distributions by the Fund generally will be subject to state and local
taxes.
Additional tax information may be found in the SAI. Because everyone's tax
situation is unique, always consult your tax professional about federal, state,
and local tax consequences of an investment in the Fund.
GENERAL INFORMATION
YEAR 2000 COMPLIANCE
As the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this date.
Failure to adequately address this issue could have potentially serious
repercussions. DCM is in the process of working with the Fund's service
providers to prepare for the year 2000. In addition, year 2000 issues may
adversely affect the value of companies in which the Fund invests where, for
example, such companies incur substantial costs to address year 2000 issues or
suffer losses caused by the failure to do so in an adequate or timely manner.
Based on information currently available, DCM does not expect that the
Fund will incur significant operating expenses or be required to incur materials
costs to be year 2000 compliant. Although DCM does not anticipate that the year
2000 issue will have a material impact on the Fund's ability to provide service
at current levels, there can be no assurance that steps taken in preparation for
the year 2000 by the Fund, DCM, the service providers
23
<PAGE> 26
to the Fund or the companies in which the Fund invests, will be sufficient to
avoid any adverse impact on the Fund.
MISCELLANEOUS
The Trust is a non-diversified, open-end management investment company
which was organized as a business trust under the laws of the Commonwealth of
Massachusetts on August 5, 1999. The Trust's business and affairs are managed by
its officers under the direction of its Board of Trustees. The Trust currently
offers its shares in one series, the DCM Growth Fund, which is being offered for
sale in this prospectus. The Board of Trustees is authorized under the Trust's
Declaration of Trust to issue additional series of the Trust's shares of
beneficial interest without shareholder approval in order to create additional
funds. In addition, the Board of Trustees may, without shareholder approval,
create and issue one or more classes of shares within each series.
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 of Trustees, 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 the relative net asset values of the Fund's
shares. Cumulative voting is not authorized. This means that the holders of more
than 50% of the shares voting for the election of the Board of Trustees can
elect all of the trustees if they choose to do so, and, in such event, the
holders of the remaining shares will be unable to elect any trustees.
Except as may be required under the Investment Company Act, the Trust 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 Trustees or the appointment
of auditors. However, pursuant to the Trust's Bylaws, 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. The Trust will assist in
the communication with other shareholders. In addition, the Investment Company
Act requires a shareholder vote for any amendments to investment advisory
contracts.
The Company reserves the right to amend any of its non-fundamental
policies, practices and procedures described in this prospectus, including the
Fund's SAI, without shareholder approval.
24
<PAGE> 27
- --------------------------------------------------------------------------------
THE DCM GROWTH FUND
- --------------------------------------------------------------------------------
A SERIES OF THE
DCM SERIES TRUST
INVESTMENT ADVISER
Derby Capital Management
ADMINISTRATOR
American Data Services, Inc.
DISTRIBUTOR
ADS Distributors, Inc.
COUNSEL
Choate, Hall & Stewart
INDEPENDENT ACCOUNTANTS
Vitale, Caturano and Company
TRANSFER AND DIVIDEND DISBURSING AGENT
American Data Services, Inc.
CUSTODIAN BANK
Firstar Bank, National Association
25
<PAGE> 28
WHERE TO GO FOR MORE INFORMATION
You will find more information about the Fund in the following documents:
ANNUAL/SEMIANNUAL REPORTS: The Fund will publish annual and
semiannual reports to shareholders that contain detailed
information on the Fund's investments. The annual report will
contain a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance
during that fiscal year.
STATEMENT OF ADDITIONAL INFORMATION: The Statement of Additional
Information contains additional and more detailed information about
the Fund, and is considered to be a part of this prospectus.
THERE ARE THREE WAYS TO GET A COPY OF THESE DOCUMENTS:
1. Call or write for one, and a copy will be sent without charge.
The DCM Growth Fund
c/o American Data Services, Inc.
Hauppauge Corporate Center
150 Motor Parkway
Hauppauge, NY 11788-0132
2. Call or write to the Public Reference Section of the Securities and
Exchange Commission ("SEC") and ask them to mail you a copy. The
SEC charges a fee for this service. You can also drop by the Public
Reference Section and copy the documents while you are there.
Information about the Public Reference Section may be obtained by
calling the number below.
PUBLIC REFERENCE SECTION OF THE SEC
WASHINGTON, D.C. 20549-6009
1-800-SEC-0330
3. Go to the SEC's website (www.sec.gov) and download a free text-only
version.
The DCM Series Trust SEC file number: 811-09527
26
<PAGE> 29
DCM GROWTH FUND
NEW ACCOUNT APPLICATION FORM
- --------------------------------------------------------------------------------
Use this form only for individual, custodial, trust, profit-sharing, pension or
other plan accounts. Do NOT use this form for IRAs (unless the IRA is a
self-directed IRA with another trustee or custodian). A special form
is available for IRAs; please call
TOLL FREE 1-___-___-____FOR INFORMATION OR ASSISTANCE.
MAIL TO: DCM GROWTH FUND, C/O AMERICAN DATA SERVICES, INC., P.O. BOX 5536,
HAUPPAUGE, NY 11788-0132
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ACCOUNT (FOR
REGISTRATION INDIVIDUAL ------------------------------------------------------------------------------
OR FIRST NAME MIDDLE NAME LAST NAME SOCIAL SECURITY NUMBER
JOINT
OWNERS)
------------------------------------------------------------------------------
JOINT OWNER SOCIAL SECURITY NUMBER
REGISTRATION WILL BE "JOINT TENANTS WITH RIGHT OF
SURVIVORSHIP" UNLESS OTHERWISE SPECIFIED:
------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
(FOR UNIFORM
TRANSFERS/GIFTS ----------------------------------------------------------------------------
TO MINORS CUSTODIAN'S NAME (ONLY ONE ALLOWED)
ACT
ACCOUNTS) ------------------------------------------------------------------------------
MINOR'S NAME (ONLY ONE ALLOWED) MINOR'S SOCIAL SECURITY NUMBER
------------------------------------------------------------------------------
STATE OF RESIDENCE
--------------------------------------------------------------------------------------------
FOR
CORPORATE ------------------------------------------------------------------------------
TRUST OR NAME OF CORPORATION, TRUST, ETC.
OTHER
FIDUCIARY ------------------------------------------------------------------------------
ACCOUNTS) NAME AND DATE OF TRUST (CONTINUED)
------------------------------------------------------------------------------
NAME(S) OF TRUSTEE(S), BENEFICIARY, ETC. TAX ID NUMBER
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ADDRESS FOR
MAILINGS --------------------------------------------------------------------------------
NUMBER AND STREET
-----------------------------------------------------------
APARTMENT, FLOOR OR ROOM NUMBER TELEPHONE NO. (INCLUDE AREA CODE)
--------------------------------------------------------------------------------
CITY, STATE, ZIP
</TABLE>
- --------------------------------------------------------------------------------
INITIAL INVESTMENT
Amount ($2,500 Minimum)(1)
$
- --------------- [ ] By Check. Please make check payable to the DCM Growth
Fund and mail to the address above.
[ ] By wire or overnight courier please call 1-___-___-____
for instructions.
(1) $1,000 for retirement accounts or automatic investment plans, $500 for Gift
to Minors accounts
<PAGE> 30
- --------------------------------------------------------------------------------
DISTRIBUTIONS [ ] U.S. Citizen [ ] Other: ------------------------
(Country of Residence)
Dividends and distributions will be reinvested unless a box
is checked:
[ ] Dividends in cash; capital gains distributions
reinvested
[ ] Dividends and capital gain distributions in cash
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN (OPTIONAL)
[ ] Each month, I would like to have American Data Services draw an Automatic
Clearing House (ACH) debit electronically against the account of my Financial
Institution listed below, to purchase shares of THE DCM GROWTH FUND.
I understand that the shares of the Fund are purchased on the day of the
debit. I also understand that if the automatic purchase cannot be made due to
insufficient funds or stop payment, a $15.00 fee will be assessed.
Mark one of your personal checks "VOID" and attach the voided check to this
application, or fill in the information below. As soon as your Financial
Institution accepts your authorization, debits will be generated and purchases
of Fund shares will begin. Please note that your Financial Institution must be
able to accept ACH transactions. Please allow one month for processing of this
Automatic Investment Plan option before the first debit occurs.
Please begin Automatic Investing for me and invest $----------- ($50 minimum)
in shares of the Fund on the:
[ ] 10(th)
[ ] 20(th) of each month, or first business day
thereafter.
------------------------------------------------------------------------------
Name of my Financial Institution Address of my Financial Institution
------------------------------------------------------------------------------
Type of Account (checking/savings)
------------------------------------------------------------------------------
My Financial Institution's ABA Number My Account Number Name(s) on Account
I understand that my ACH debit will be dated each month on the day specified
above. I agree that if such debit is not honored upon presentation, American
Data Services may discontinue this service, and any purchase of Fund shares
may be reversed. I further understand that the net asset value of the shares
of the Fund at the time of such reversal may be less than the net asset value
on the day of the original purchase. American Data Services is authorized to
redeem sufficient additional full and fractional shares from my account to
make up the deficiency. The Automatic Investment Plan may be discontinued by
American Data Services upon 30 days written notice or by the investor by
written notice to American Data Services provided the notice is received no
later than 5 business days prior to the specified investment date.
------------------------------------------------------------------------------
Signature of Depositor
------------------------------------------------------------------------------
Signature of Co-Depositor (required for joint accounts) Date
- --------------------------------------------------------------------------------
REDEMPTIONS BY TELEPHONE (OPTIONAL)
[ ] I would like to be able to place a redemption order by telephone and have
the proceeds mailed to me or wired directly to my Financial Institution
account listed below. I understand that these procedures are offered as a
convenience to me, and I agree that neither the Fund nor American Data
Services will be liable for any loss, expense, or cost arising from one of
these transactions. If you choose to have redemption proceeds wired to your
account (you will be charged an $8.00 processing fee), please fill in the
following information:
------------------------------------------------------------------------------
Name of my Financial Institution Address of my Financial Institution
------------------------------------------------------------------------------
My Financial Institution's ABA Number My Account Number Name(s) on Account
------------------------------------------------------------------------------
Signature of Depositor
------------------------------------------------------------------------------
Signature of Co-Depositor (required for joint accounts) Date
- --------------------------------------------------------------------------------
IMPORTANT: THIS FORM IS CONTINUED
<PAGE> 31
- --------------------------------------------------------------------------------
SIGNATURES:
By signing this new account application, I/we certify under penalty of perjury
that:
-- I/We have full authority and legal capacity for myself/ourselves or
the organization named above, to purchase the Fund shares and to use
the options selected on this Application.
-- I/We have received and read a current prospectus of the Fund, agree to
be bound by its terms, and understand the risks associated with
investing in the Fund.
-- I/We hereby ratify any instructions given pursuant to this Application
and for myself/ourselves and any/our successors and assigns do hereby
release the Fund, its Investment Advisors, its Administrator, its
Transfer Agent, its Distributor, its Custodian, and their respective
officers, employees, agents and affiliates from any and all liability
in the performance of the acts instructed herein.
-- The following is required by Federal law to avoid backup withholding:
By signing below, I/We certify under penalties of perjury that
the taxpayer identification number entered above is correct and
that I/We have not been notified by the IRS as subject to backup
withholding unless the box below is checked.
IF NOTIFIED BY THE IRS THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING, CHECK
BOX: [ ]
PLEASE SIGN BELOW: (If joint account, both owners must sign.)
------------------------------------------------------------------------------
Signature (Owner, Trustee or Custodian)
------------------------------------------------------------------------------
Signature (Joint owner or Co-Trustee) Date
- --------------------------------------------------------------------------------
HOW DID YOU HEAR ABOUT OUR FUND?
Use this form only for individual, custodial, trust, profit sharing, pension or
other plan accounts,
but DO NOT use this form for IRAs unless self-directed with another trustee or
custodian.
A special application and disclosure document is available for IRAs.
FOR ALL INFORMATION AND ASSISTANCE PLEASE CALL TOLL FREE 1-___-___-____
<TABLE>
<CAPTION>
MAILING ADDRESS: OVERNIGHT COURIER:
---------------- ------------------
<S> <C>
DCM GROWTH FUND DCM GROWTH FUND
C/O AMERICAN DATA SERVICES, C/O AMERICAN DATA SERVICES, INC.
INC. 150 MOTOR PARKWAY, SUITE 109 W
P.O. BOX 5536 HAUPPAUGE, NY 11788-0132
HAUPPAUGE, NY 11788-0132
</TABLE>
<PAGE> 32
The DCM Growth Fund
[LOGO]
<PAGE> 33
THE DCM GROWTH FUND
A SERIES OF THE
DCM SERIES TRUST
STATEMENT OF ADDITIONAL INFORMATION
October __, 1999
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus for the DCM Growth Fund dated October
__, 1999, as amended from time to time, a copy of which may be obtained without
charge by calling 1-888-878-2696 or writing to American Data Services, Inc.,
Hauppauge Corporate Center, 150 Motor Parkway, Hauppauge, NY 11788-0132.
<PAGE> 34
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION.............................................................. 1
INVESTMENT OBJECTIVE AND POLICIES......................................... 1
TYPES OF SECURITIES AND INVESTMENT TECHNIQUES............................. 3
TRUSTEES AND OFFICERS..................................................... 24
COMPENSATION TABLE........................................................ 24
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SHARES........................... 25
INVESTMENT ADVISORY AND OTHER SERVICES.................................... 25
SHAREHOLDER SERVICING AND DISTRIBUTION PLAN............................... 27
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE........................ 29
PERFORMANCE INFORMATION................................................... 31
TAX STATUS................................................................ 33
NET ASSET VALUE........................................................... 38
CAPITAL STRUCTURE......................................................... 39
SHAREHOLDER AND TRUSTEE LIABILITY......................................... 40
HOW TO BUY AND SELL SHARES................................................ 41
SERVICE PROVIDERS......................................................... 42
FINANCIAL STATEMENTS...................................................... F-1
APPENDIX - A: GLOSSARY OF INVESTMENT TERMS................................ A-1
APPENDIX - B: RATINGS OF INVESTMENT SECURITIES............................ B-1
</TABLE>
ii
<PAGE> 35
INTRODUCTION
The DCM Growth Fund ("Fund") is a series of the DCM Series Trust (the
"Trust"), an open-end management investment company offering redeemable shares
of beneficial interest. The Trust is a Massachusetts business trust formed on
August 5, 1999. As of the date of this Statement of Additional Information
("SAI"), the Fund is the only series of the Trust.
INVESTMENT OBJECTIVE AND POLICIES
The Fund is a non-diversified fund that seeks long-term growth of
capital.
FUNDAMENTAL INVESTMENT RESTRICTIONS
The Fund is subject to certain fundamental policies and restrictions
that may not be changed without shareholder approval. Shareholder approval means
approval by the lesser of (i) more than 50% of the outstanding voting securities
of the Trust, or (ii) 67% or more of the voting securities present at a meeting
if the holders of more than 50% of the outstanding voting securities of the
Trust are present or represented by proxy. As fundamental policies, the Fund may
not:
(1) Invest 25% or more of the value of its total assets in
any particular industry (other than U.S. government
securities).
(2) Invest directly in real estate; however, the Fund may
own debt or equity securities issued by companies
engaged in those businesses.
(3) Purchase or sell physical commodities other than foreign
currencies unless acquired as a result of ownership of
securities (but this limitation shall not prevent the
Fund from purchasing or selling options, futures, swaps
and forward contracts or from investing in securities or
other instruments backed by physical commodities).
(4) Lend any security or make any other loan if, as a
result, more than 25% of the Fund's total assets would
be lent to other parties (but this limitation does not
apply to purchases of commercial paper, debt securities
or repurchase agreements).
(5) Act as an underwriter of securities issued by others,
except to the extent that the Fund may be deemed an
underwriter in connection with the disposition of
portfolio securities of the Fund.
(6) Issue senior securities, except as permitted under the
Investment Company Act of 1940, as amended (the "1940
Act").
<PAGE> 36
(7) Borrow money, except that the Fund may borrow money for
temporary or emergency purposes (not for leveraging or
investment) in an amount not exceeding 33 1/3% of the
value of its total assets (including the amount
borrowed) less liabilities (other than borrowings). If
borrowings exceed 33 1/3% of the value of the Fund's
total assets by reason of a decline in net assets, the
Fund will reduce its borrowings within three days to the
extent necessary to comply with the 33 1/3% limitation.
This policy shall not prohibit reverse repurchase
agreements, deposits of assets to margin or guarantee
positions in futures, options, swaps or forward
contracts, or the segregation of assets in connection
with such contracts. The Fund will not purchase
securities while its borrowings exceed 5% of the Fund's
total assets.
In addition, as a fundamental policy, the Fund may not own more than
10% of the outstanding voting securities of any one issuer and, as to 50% of the
value of its total assets, purchase the securities of any one issuer (except
cash items and "government securities" as defined under the 1940 Act), if
immediately after and as a result of such purchase, the value of the holdings of
the Fund in the securities of such issuer exceeds 5% of the value of the Fund's
total assets.
ADDITIONAL INVESTMENT RESTRICTIONS
The Trustees have adopted additional investment restrictions for the
Fund. These restrictions are operating policies of the Fund and may be changed
by the Trustees without shareholder approval. The additional investment
restrictions adopted by the Trustees to date include the following:
(a) The Fund will not (i) enter into any futures contracts and related
options for purposes other than bona fide hedging transactions within the
meaning of Commodity Futures Trading Commission ("CFTC") regulations if the
aggregate initial margin and premiums required to establish positions in futures
contracts and related options that do not fall within the definition of bona
fide hedging transactions will exceed 5% of the fair market value of the Fund's
net assets, after taking into account unrealized profits and unrealized losses
on any such contracts it has entered into; and (ii) enter into any futures
contracts if the aggregate amount of the Fund's commitments under outstanding
futures contracts positions would exceed the market value of its total assets.
(b) The Fund does not currently intend to sell securities short, unless
it owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short without the payment of any additional consideration
therefor, and provided that transactions in futures, options, swaps and forward
contracts are not deemed to constitute selling securities short.
(c) The Fund does not currently intend to purchase securities on
margin, except that the Fund may obtain such short-term credits as are necessary
for the clearance of transactions,
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and provided that margin payments and other deposits in connection with
transactions in futures, options, swaps and forward contracts shall not be
deemed to constitute purchasing securities on margin.
(d) The Fund may not mortgage or pledge any securities owned or held by
the Fund in amounts that exceed, in the aggregate, 15% of the Fund's net asset
value, provided that this limitation does not apply to reverse repurchase
agreements, deposits of assets to margin, guaranteed positions in futures,
options, swaps or forward contracts, or the segregation of assets in connection
with such contracts.
(e) The Fund does not currently intend to purchase any securities or
enter into a repurchase agreement if, as a result, more than 15% of its net
assets would be invested in repurchase agreements not entitling the holder to
payment of principal and interest within seven days and in securities that are
illiquid by virtue of legal or contractual restrictions on resale or the absence
of a readily available market. The Trustees, or the Fund's investment adviser
acting pursuant to authority delegated by the Trustees, may determine that a
readily available market exists for securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933, as amended, ("Rule 144A
Securities"), or any successor to such rule, and Section 4(2) commercial paper
issued in reliance on Section 4(2) of the Securities Act of 1933, as amended,
("Section 4(2) Commercial Paper"). Accordingly, such securities may not be
subject to the foregoing limitation.
(f) The Fund may not invest in companies for the purpose of exercising
control of management.
For purposes of the Fund's investing in a particular industry, the Fund
will rely primarily on industry classifications as published by Bloomberg L.P.
To the extent that Bloomberg L.P. classifications are so broad that the primary
economic characteristics in a single-class are materially different, the Fund
may further classify issuers in accordance with industry classifications as
published by the Securities and Exchange Commission ("SEC").
Except as otherwise noted herein and in the Fund's Prospectus, the
Fund's investment objectives and policies may be changed by a vote of the
Trustees without a vote of shareholders.
TYPES OF SECURITIES AND INVESTMENT TECHNIQUES
ILLIQUID INVESTMENTS
The Fund may invest up to 15% of its net assets in illiquid securities,
for which there is a limited trading market and for which a low trading volume
of a particular security may result in abrupt and erratic price movements. The
Fund may be unable to dispose of its holdings in illiquid securities at
acceptable prices and may have to dispose of such securities over extended
periods of time. Derby Capital Management, the Fund's investment adviser (the
"Adviser") will
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take reasonable steps to bring the Fund into compliance with this policy if the
level of illiquid investments were to exceed 15%. The Fund may invest in (i)
securities that are sold in private placement transactions between their issuers
and their purchasers and that are neither listed on an exchange nor traded
over-the-counter, and (ii) securities that are sold in transactions between
qualified institutional buyers pursuant to Rule 144A under the Securities Act of
1933, as amended (the "1933 Act"). Such securities are subject to contractual or
legal restrictions on subsequent transfer. As a result of the absence of a
public trading market, such restricted securities may in turn be less liquid and
more difficult to value than publicly traded securities. Although these
securities may be resold in privately negotiated transactions, the prices
realized from the sales could, due to illiquidity, be less than those originally
paid by the Fund or less than their fair value and in some instances, it may be
difficult to locate any purchaser. In addition, issuers whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements that may be applicable if their securities were publicly
traded. If any privately placed or Rule 144A Securities held by the Fund are
required to be registered under the securities laws of one or more jurisdictions
before being resold, the Fund may be required to bear the expenses of
registration. Securities which are freely tradable under Rule 144A may be
treated as liquid if the Trustees of the Fund are satisfied that there is
sufficient trading activity and reliable price information. Investing in Rule
144A Securities could have the effect of increasing the level of illiquidity of
the Fund's portfolio to the extent that qualified institutional buyers become,
for a time, uninterested in purchasing such 144A Securities.
See Appendix A for risks associated with certain other investments.
The Trustees have authorized the Adviser to make liquidity
determinations with respect to its securities, including Rule 144A Securities
and Section 4(2) Commercial Paper. Under the guidelines established by the
Trustees, the Adviser will consider the following factors: (1) the frequency of
trades and quoted prices for the security; (2) the number of dealers willing to
purchase or sell the security and the number of other potential purchasers; (3)
the willingness of dealers to undertake to make a market in the security; and
(4) the nature of the security and the nature of marketplace trades, including
the time needed to dispose of the security, the method of soliciting offers and
the mechanics of the transfer. In the case of Section 4(2) Commercial Paper, the
Adviser will also consider whether the paper is traded flat or in default as to
principal and interest and any ratings of the paper by a nationally recognized
statistical rating organization ("NRSRO"). A foreign security that may be freely
traded on or through the facilities of an offshore exchange or other established
offshore securities market is not deemed to be a restricted security subject to
these procedures.
ZERO COUPON, STEP COUPON SECURITIES AND PAY-IN-KIND
The Fund may invest up to 5% of its assets in zero coupon, pay-in-kind
and step coupon securities. Zero coupon bonds are issued and traded at a
discount from their face value and they do not entitle the holder to any
periodic payment of interest prior to maturity. Step coupon bonds trade at a
discount from their face value and pay coupon interest. The coupon rate is low
for an initial period and then increases to a higher coupon rate thereafter. The
discount from the face
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amount or par value depends on the time remaining until cash payments begin,
prevailing interest rates, liquidity of the security and the perceived credit
quality of the issuer. Pay-in-kind bonds normally give the issuer an option to
pay cash at a coupon payment date or give the holder of the security a similar
bond with the same coupon rate and a face value equal to the amount of the
coupon payment that would have been made.
Current federal income tax law requires holders of zero coupon
securities and step coupon securities to report the portion of the original
issue discount on such securities that accrues during a given year as interest
income, even though the holders receive no cash payments of interest during the
year. As a "regulated investment company" under the Internal Revenue Code of
1986, as amended, and the regulations thereunder (the "Code"), the Fund must
distribute its investment company taxable income, including the original issue
discount accrued on zero coupon or step coupon bonds to its shareholders.
Because the Fund will not receive cash payments on a current basis in respect of
accrued original issue discount payments, in some years the fund may have to
distribute cash obtained from other sources in order to satisfy the distribution
requirements under the code. The Fund might obtain such cash from selling other
portfolio holdings which might cause the Fund to incur capital gains or losses
on the sale. Additionally, these actions are likely to reduce the assets to
which Fund expenses could be allocated and to reduce the rate of return for the
Fund. In some circumstances, such sales might be necessary in order to satisfy
cash distribution requirements even though investment considerations might
otherwise make it undesirable for the Fund to sell the securities at the time.
Generally, the market prices of zero coupon, step coupon and
pay-in-kind securities are more volatile than the prices of securities that pay
interest periodically and in cash and are likely to respond to changes in
interest rates to a greater degree than other types of debt securities having
similar maturities and credit quality.
PASS-THROUGH SECURITIES
The Fund may invest up to 5% of its total assets in various types of
pass-through securities, such as mortgage-backed securities and asset-backed
securities. A pass-through security is a share or certificate of interest in a
pool of debt obligations that have been repackaged by an intermediary, such as a
bank or broker-dealer. The purchaser of a pass through security receives an
undivided interest in the underlying pool of securities. The issuers of the
underlying securities make interest and principal payments to the intermediary
which are passed through to purchasers, such as the Fund. The most common type
of pass-through securities are mortgage-backed securities. Government National
Mortgage Association ("GNMA") Certificates are mortgage-backed securities that
evidence an undivided interest in a pool of mortgage loans. GNMA Certificates
differ from bonds in that principal is paid back monthly by the borrowers over
the term of the loan rather than returned in a lump sum at maturity. The Fund
will generally purchase "modified pass-through" GNMA Certificates, which entitle
the holder to receive a share of all interest and principal payments paid and
owned on the mortgage pool, net of fees paid to the "issuer" and GNMA,
regardless of whether or not the mortgagor actually makes the
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payment. GNMA Certificates are backed as to the timely payment of principal and
interest by the full faith and credit of the U.S. government.
Freddie Mac issues two types of mortgage pass-through securities:
mortgage participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). PCs resemble GNMA Certificates in that each PC represents a pro rata
share of all interest and principal payments made and owned on the underlying
pool. Freddie Mac guarantees timely payments of interest on PCs and the full
return of principal. GMCs also represent a pro rata interest in a pool of
mortgages. However, these instruments pay interest semiannually and return
principal once a year in guaranteed minimum payments. This type of security is
guaranteed by FHLMC as to timely payment of principal and interest but it is not
guaranteed by the full faith and credit of the U.S. government.
Fannie Mae issues guaranteed mortgage pass-through certificates
("Fannie Mae Certificates"). Fannie Mae Certificates resemble GNMA Certificates
in that each Fannie Mae Certificate represents a pro rata share of all interest
and principal payments made and owned on the underlying pool. This type of
security is guaranteed by Fannie Mae as to timely payment of principal and
interest but it is not guaranteed by the full faith and credit of the U.S.
government.
Except for GMCs, each of the mortgage-backed securities described above
is characterized by monthly payments to the holder, reflecting the monthly
payments made by the borrowers who received the underlying mortgage loans. The
payments to the security holders (such as the Fund), like the payments on the
underlying loans, represent both principal and interest. Although the underlying
mortgage loans are for a specified period of time, such as 20 or 30 years, the
borrowers can, and typically do, pay them off sooner. Thus, the security holders
frequently receive prepayments of principal in addition to the principal that is
part of the regular monthly payments. The portfolio manager will consider
estimated prepayment rates in calculating the average weighted maturity of the
Fund. A borrower is more likely to prepay a mortgage that bears a relatively
high rate of interest. This means that in times of declining interest rates,
higher yielding mortgage-backed securities held by the Fund might be converted
to cash and that the Fund would be forced to accept lower interest rates when
that cash is used to purchase additional securities in the mortgage-backed
securities sector or in other investment sectors. Additionally, prepayments
during such periods will limit the Fund's ability to participate in as large a
market gain as may be experienced with a comparable security not subject to
prepayment.
Asset-backed securities represent interests in pools of consumer loans
and are backed by paper or accounts receivables originated by banks, credit card
companies or other providers of credit. Generally, the originating bank or
credit provider is neither the obligor nor the guarantor of the security, and
interest and principal payments ultimately depend upon payment of the underlying
loans by individuals.
OTHER INCOME-PRODUCING SECURITIES
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Other types of income producing securities that the Fund may purchase
include, but are not limited to, the following types of securities:
Variable and Floating Rate Obligations. These types of securities are
relatively long-term instruments that often carry demand features permitting the
holder to demand payment of principal at any time or at specified intervals
prior to maturity.
Standby Commitments. These instruments, which are similar to a put,
give the Fund the option to obligate a broker, dealer or bank to repurchase a
security held by that Fund at a specified price.
Tender Option Bonds. Tender option bonds are relatively long-term bonds
that are coupled with the agreement of a third party (such as a broker, dealer
or bank) to grant the holders of such securities the option to tender the
securities to the institution at periodic intervals.
Inverse Floaters. Inverse floaters are debt instruments whose interest
bears an inverse relationship to the interest rate on another security. The Fund
will not invest more than 5% of its net assets in inverse floaters.
The Fund will purchase standby commitments, tender option bonds and
instruments with demand features primarily for the purpose of increasing the
liquidity of the portfolio.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS
Futures Contracts. The Fund may enter into contracts for the purchase
or sale for future delivery of fixed-income securities, foreign currencies or
contracts based on financial indices, including indices of U.S. government
securities, foreign government securities, equity or fixed-income securities.
U.S. futures contracts are traded on exchanges which have been designated
"contract markets" by the CFTC and must be executed through a futures commission
merchant ("FCM"), or brokerage firm, which is a member of the relevant contract
market. Through their clearing corporations, the exchanges guarantee performance
of the contracts as between the clearing members of the exchange.
The buyer or seller of a futures contract is not required to deliver or
pay for the underlying instrument unless the contract is held until the delivery
date. However, both the buyer and seller are required to deposit "initial
margin" for the benefit of the FCM when the contract is entered into. Initial
margin deposits are equal to a percentage of the contract's value, as set by the
exchange on which the contract is traded, and may be maintained in cash or
certain other liquid assets by the Fund's custodian for the benefit of the FCM.
Initial margin payments are similar to good faith deposits or performance bonds.
Unlike margin extended by a securities broker, initial margin payments do not
constitute purchasing securities on margin for purposes of the Fund's investment
limitations. If the value of either party's position declines, that party will
be required to make additional "variation margin" payments for the benefit of
the FCM to settle the change in value on a daily basis. The party that has a
gain may be entitled to receive all or a portion of
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<PAGE> 42
this amount. In the event of the bankruptcy of the FCM that holds margin on
behalf of the Fund, the Fund may be entitled to return of margin owed to it only
in proportion to the amount received by the FCM's other customers. The Adviser
will attempt to minimize the risk by careful monitoring of the creditworthiness
of the FCMs with which the Fund does business and by depositing margin payments
in a segregated account with the Fund's custodian.
The Fund intends to comply with guidelines of eligibility for exclusion
from the definition of the term "commodity pool operator" adopted by the CFTC
and the National Futures Association, which regulate trading in the futures
markets. The Fund will use futures contracts and related options primarily for
bona fide hedging purposes within the meaning of CFTC regulations. To the extent
that the Fund holds positions in futures contracts and related options that do
not fall within the definition of bona fide hedging transactions, the aggregate
initial margin and premiums required to establish such positions will not exceed
5% of the fair market value of the Fund's net assets, after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into.
Although the Fund will segregate cash and liquid assets in an amount
sufficient to cover its open futures obligations, the segregated assets would be
available to the Fund immediately upon closing out the futures position, while
settlement of securities transactions could take several days. However, because
the Fund's cash that may otherwise be invested would be held uninvested or
invested in other liquid assets so long as the futures position remains open,
the Fund's return could be diminished due to the opportunity losses of foregoing
other potential investments.
The Fund's primary purpose in entering into futures contracts is to
protect it from fluctuations in the value of securities or interest rates
without actually buying or selling the underlying debt or equity security. For
example, if the Fund anticipates an increase in the price of stocks, and it
intends to purchase stocks at a later time, the Fund could enter into a futures
contract to purchase a stock index as a temporary substitute for stock
purchases. If an increase in the market occurs that influences the stock index
as anticipated, the value of the futures contracts will increase, thereby
serving as a hedge against the Fund not participating in a market advance. This
technique is sometimes known as an anticipatory hedge. To the extent the Fund
enters into futures contracts for this purpose, the segregated assets maintained
to cover the Fund's obligations with respect to the futures contracts will
consist of other liquid assets from its portfolio in an amount equal to the
difference between the contract price and the aggregate value of the initial and
variation margin payments made by the Fund with respect to the futures
contracts. Conversely, if the Fund holds stocks and seeks to protect itself from
a decrease in stock prices, the Fund might sell stock index futures contracts,
thereby hoping to offset the potential decline in the value of its portfolio
securities by a corresponding increase in the value of the futures contract
position. The Fund could protect against a decline in stock prices by selling
portfolio securities and investing in money market instruments, but the use of
futures contracts enables it to maintain a defensive position without having to
sell portfolio securities.
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If the Fund owns Treasury bonds and the portfolio manager expects
interest rates to increase, the Fund may take a short position in interest rate
futures contracts. Taking such a position would have much the same effect as the
Fund selling Treasury bonds in its portfolio. If interest rates increase as
anticipated, the value of the Treasury bonds would decline, but the value of the
Fund's interest rate futures contract would increase, thereby keeping the net
asset value of the Fund from declining as much as it may have otherwise. If, on
the other hand, the portfolio manager expects interest rates to decline, the
Fund may take a long position in interest rate futures contracts in anticipation
of later closing out the futures position and purchasing the bonds. Although the
Fund can accomplish similar results by buying securities with long maturities
and selling securities with short maturities, given the greater liquidity of the
futures market than the cash market, it may be possible to accomplish the same
result more easily and more quickly by using futures contracts as an investment
tool to reduce risk.
The ordinary spreads between prices in the cash and futures markets,
due to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial margin and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close out futures contracts through offsetting
transactions which could distort the normal price relationship between the cash
and futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery of the instrument underlying a futures contract. To the extent
participants decide to make or take delivery, liquidity in the futures market
could be reduced and prices in the futures market distorted. Third, from the
point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of the foregoing
distortions, a correct forecast of general price trends by the portfolio manager
still may not result in a successful use of futures.
Futures contracts entail risks. Although the Fund believes that use of
such contracts will benefit the Fund, the Fund's overall performance could be
adversely affected by entering into such contracts if the portfolio manager's
investment judgment proves incorrect. For example, if the Fund has hedged
against the effects of a possible decrease in prices of securities held in its
portfolio and prices increase instead, the Fund will lose part or all of the
benefit of the increased value of these securities because of offsetting losses
in its futures positions. In addition, if the Fund has insufficient cash, it may
have to sell securities from its portfolio to meet daily variation margin
requirements. Those sales may be, but will not necessarily be, at increased
prices which reflect the rising market and may occur at a time when the sales
are disadvantageous to such Fund.
The prices of futures contracts depend primarily on the value of their
underlying instruments. Because there are a limited number of types of futures
contracts, it is possible that the standardized futures contracts available to
the Fund will not match exactly such Fund's current or potential investments.
The Fund may buy and sell futures contracts based on underlying instruments with
different characteristics from the securities in which it typically
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invests--for example, by hedging investments in portfolio securities with a
futures contract based on a broad index of securities--which involves a risk
that the futures position will not correlate precisely with the performance of
the Fund's investments.
Futures prices can also diverge from the prices of their underlying
instruments, even if the underlying instruments closely correlate with the
Fund's investments. Futures prices are affected by factors such as current and
anticipated short-term interest rates, changes in volatility of the underlying
instruments and the time remaining until expiration of the contract. Those
factors may affect securities prices differently from futures prices. Imperfect
correlations between the Fund's investments and its futures positions also may
result from differing levels of demand in the futures markets and the securities
markets, from structural differences in how futures and securities are traded,
and from imposition of daily price fluctuation limits for futures contracts. The
Fund may buy or sell futures contracts with a greater or lesser value than the
securities it wishes to hedge or is considering purchasing in order to attempt
to compensate for differences in historical volatility between the futures
contract and the securities, although this may not be successful in all cases.
If price changes in the Fund's futures positions are poorly correlated with its
other investments, its futures positions may fail to produce desired gains or
result in losses that are not offset by the gains in the Fund's other
investments.
Because futures contracts are generally settled within a day from the
date they are closed out, compared with a settlement period of three days for
some types of securities, the futures markets can provide superior liquidity to
the securities markets. Nevertheless, there is no assurance that a liquid
secondary market will exist for any particular futures contract at any
particular time. In addition, futures exchanges may establish daily price
fluctuation limits for futures contracts and may halt trading if a contract's
price moves upward or downward more than the limit in a given day. On volatile
trading days when the price fluctuation limit is reached, it may be impossible
for the Fund to enter into new positions or close out existing positions. If the
secondary market for a futures contract is not liquid because of price
fluctuation limits or otherwise, the Fund may not be able to promptly liquidate
unfavorable futures positions and potentially could be required to continue to
hold a futures position until the delivery date, regardless of changes in its
value. As a result, the Fund's access to other assets held to cover its futures
positions also could be impaired.
Options on Futures Contracts. The Fund may buy and write put and call
options on futures contracts. An option on a future gives the Fund the right
(but not the obligation) to buy or sell a futures contract at a specified price
on or before a specified date. The purchase of a call option on a futures
contract is similar in some respects to the purchase of a call option on an
individual security. Depending on the pricing of the option compared to either
the price of the futures contract upon which it is based or the price of the
underlying instrument, ownership of the option may or may not be less risky than
ownership of the futures contract or the underlying instrument. As with the
purchase of futures contracts, when the Fund is not fully invested it may buy a
call option on a futures contract to hedge against a market advance.
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The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the security or foreign currency which
is deliverable under, or of the index comprising, the futures contract. If the
futures' price at the expiration of the option is below the exercise price, the
Fund will retain the full amount of the option premium which provides a partial
hedge against any decline that may have occurred in the Fund's portfolio
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security or foreign currency
which is deliverable under, or of the index comprising, the futures contract. If
the futures' price at expiration of the option is higher than the exercise
price, the Fund will retain the full amount of the option premium which provides
a partial hedge against any increase in the price of securities which the Fund
is considering buying. If a call or put option the Fund has written is
exercised, the Fund will incur a loss which will be reduced by the amount of the
premium it received. Depending on the degree of correlation between the change
in the value of its portfolio securities and changes in the value of the futures
positions, the Fund's losses from existing options on futures may to some extent
be reduced or increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, the Fund may buy a put option on a futures contract to hedge its
portfolio against the risk of falling prices or rising interest rates.
The amount of risk the Fund assumes when it buys an option on a futures
contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of an option
also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the options bought.
Forward Contracts. A forward contract is an agreement between two
parties in which one party is obligated to deliver a stated amount of a stated
asset at a specified time in the future and the other party is obligated to pay
a specified amount for the assets at the time of delivery. The Fund may enter
into forward contracts to purchase and sell government securities, equity or
income securities, foreign currencies or other financial instruments. Forward
contracts generally are traded in an interbank market conducted directly between
traders (usually large commercial banks) and their customers. Unlike futures
contracts, which are standardized contracts, forward contracts can be
specifically drawn to meet the needs of the parties that enter into them. The
parties to a forward contract may agree to offset or terminate the contract
before its maturity, or may hold the contract to maturity and complete the
contemplated exchange.
The Fund may enter into forward currency contracts with stated contract
values of up to the value of the Fund's assets. A forward currency contract is
an obligation to buy or sell an amount of a specified currency for an agreed
price (which may be in U.S. dollars or a foreign currency). The Fund will
exchange foreign currencies for U.S. dollars and for other foreign currencies in
the normal course of business and may buy and sell currencies through forward
currency contracts in order to fix a price for securities it has agreed to buy
or sell ("transaction hedge"). The Fund also may hedge some or all of its
investments denominated in a foreign
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currency or exposed to foreign currency fluctuations against a decline in the
value of that currency relative to the U.S. dollar by entering into forward
currency contracts to sell an amount of that currency (or a proxy currency whose
performance is expected to replicate or exceed the performance of that currency
relative to the U.S. dollar) approximating the value of some or all of its
portfolio securities denominated in that currency ("position hedge") or by
participating in options or futures contracts with respect to the currency. The
Fund also may enter into a forward currency contract with respect to a currency
where the Fund is considering the purchase or sale of investments denominated in
that currency but has not yet selected the specific investments ("anticipatory
hedge"). In any of these circumstances the Fund may, alternatively, enter into a
forward currency contract to purchase or sell one foreign currency for a second
currency that is expected to perform more favorably relative to the U.S. dollar
if the portfolio manager believes there is a reasonable degree of correlation
between movements in the two currencies ("cross-hedge").
These types of hedging minimize the effect of currency appreciation as
well as depreciation, but do not eliminate fluctuations in the underlying U.S.
dollar equivalent value of the proceeds of or rates of return on the Fund's
foreign currency denominated portfolio securities. The matching of the increase
in value of a forward contract and the decline in the U.S. dollar equivalent
value of the foreign currency denominated asset that is the subject of the hedge
generally will not be precise. Shifting the Fund's currency exposure from one
foreign currency to another removes the Fund's opportunity to profit from
increases in the value of the original currency and involves a risk of increased
losses to the Fund if its portfolio manager's projection of future exchange
rates is inaccurate. Proxy hedges and cross-hedges may result in losses if the
currency used to hedge does not perform similarly to the currency in which
hedged securities are denominated. Unforeseen changes in currency prices may
result in poorer overall performance for the Fund than if it had not entered
into such contracts.
The Fund will cover outstanding forward currency contracts by
maintaining liquid portfolio securities denominated in or whose value is tied
to, the currency underlying the forward contract or the currency being hedged.
To the extent that the Fund is not able to cover its forward currency positions
with underlying portfolio securities, the Fund's custodian will segregate cash
or other liquid assets having a value equal to the aggregate amount of such
Fund's commitments under forward contracts entered into with respect to position
hedges, cross-hedges and anticipatory hedges. If the value of the securities
used to cover a position or the value of segregated assets declines, the Fund
will find alternative cover or segregate additional cash or liquid assets on a
daily basis so that the value of the covered and segregated assets will be equal
to the amount of the Fund's commitments with respect to such contracts. As an
alternative to segregating assets, the Fund may buy call options permitting the
Fund to buy the amount of foreign currency being hedged by a forward sale
contract or the Fund may buy put options permitting it to sell the amount of
foreign currency subject to a forward buy contract.
While forward contracts are not currently regulated by the CFTC, the
CFTC may in the future assert authority to regulate forward contracts. In such
event, the Fund's ability to utilize forward contracts may be restricted. In
addition, the Fund may not always be able to enter into
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forward contracts at attractive prices and may be limited in its ability to use
these contracts to hedge Fund assets.
Options on Foreign Currencies. The Fund may buy and write options on
foreign currencies in a manner similar to that in which futures or forward
contracts on foreign currencies will be utilized. For example, a decline in the
U.S. dollar value of a foreign currency in which portfolio securities are
denominated will reduce the U.S. dollar value of such securities, even if their
value in the foreign currency remains constant. In order to protect against such
diminutions in the value of portfolio securities, the Fund may buy put options
on the foreign currency. If the value of the currency declines, the Fund will
have the right to sell such currency for a fixed amount in U.S. dollars, thereby
offsetting, in whole or in part, the adverse effect on its portfolio.
Conversely, when a rise in the U.S. dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Fund may buy call options on the foreign currency.
The purchase of such options could offset, at least partially, the effects of
the adverse movements in exchange rates. As in the case of other types of
options, however, the benefit to the Fund from purchases of foreign currency
options will be reduced by the amount of the premium and related transaction
costs. In addition, if currency exchange rates do not move in the direction or
to the extent desired, the Fund could sustain losses on transactions in foreign
currency options that would require the Fund to forego a portion or all of the
benefits of advantageous changes in those rates.
The Fund may also write options on foreign currencies. For example, to
hedge against a potential decline in the U.S. dollar value of foreign currency
denominated securities due to adverse fluctuations in exchange rates, the Fund
could, instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most likely not be
exercised and the decline in value of portfolio securities will be offset by the
amount of the premium received.
Similarly, instead of purchasing a call option to hedge against a
potential increase in the U.S. dollar cost of securities to be acquired, the
Fund could write a put option on the relevant currency which, if rates move in
the manner projected, will expire unexercised and allow the Fund to hedge the
increased cost up to the amount of the premium. As in the case of other types of
options, however, the writing of a foreign currency option will constitute only
a partial hedge up to the amount of the premium. If exchange rates do not move
in the expected direction, the option may be exercised and the Fund would be
required to buy or sell the underlying currency at a loss which may not be
offset by the amount of the premium. Through the writing of options on foreign
currencies, the Fund also may lose all or a portion of the benefits which might
otherwise have been obtained from favorable movements in exchange rates.
The Fund may write covered call options on foreign currencies. A call
option written on a foreign currency by the Fund is "covered" if the Fund owns
the foreign currency underlying the call or has an absolute and immediate right
to acquire that foreign currency without additional cash consideration (or for
additional cash consideration held in a segregated account by its
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<PAGE> 48
custodian) upon conversion or exchange of other foreign currencies held in its
portfolio. A call option is also covered if the Fund has a call on the same
foreign currency in the same principal amount as the call written if the
exercise price of the call held (i) is equal to or less than the exercise price
of the call written or (ii) is greater than the exercise price of the call
written, if the difference is maintained by the Fund in cash or other liquid
assets in a segregated account with the Fund's custodian.
The Fund also may write call options on foreign currencies for
cross-hedging purposes. A call option on a foreign currency is for cross-hedging
purposes if it is designed to provide a hedge against a decline due to an
adverse change in the exchange rate in the U.S. dollar value of a security which
the Fund owns or has the right to acquire and which is denominated in the
currency underlying the option. Call options on foreign currencies which are
entered into for cross-hedging purposes are not covered. However, in such
circumstances, the Fund will collateralize the option by segregating cash or
other liquid assets in an amount not less than the value of the underlying
foreign currency in U.S. dollars marked-to-market daily.
Options on Securities. The Fund may write covered put and call options
and buy put and call options on securities that are traded on United States and
foreign securities exchanges and over-the-counter. The Fund may write and buy
options on the same types of securities that the Fund may purchase directly.
A put option written by the Fund is "covered" if the Fund (i)
segregates cash not available for investment or other liquid assets with a value
equal to the exercise price of the put with the Fund's custodian or (ii) holds a
put on the same security and in the same principal amount as the put written and
the exercise price of the put held is equal to or greater than the exercise
price of the put written. The premium paid by the buyer of an option will
reflect, among other things, the relationship of the exercise price to the
market price and the volatility of the underlying security, the remaining term
of the option, supply and demand and interest rates.
A call option written by the Fund is "covered" if the Fund owns the
underlying security covered by the call or has an absolute and immediate right
to acquire that security without additional cash consideration (or for
additional cash consideration held in a segregated account by the Fund's
custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also deemed to be covered if the Fund holds a call
on the same security and in the same principal amount as the call written and
the exercise price of the call held (i) is equal to or less than the exercise
price of the call written or (ii) is greater than the exercise price of the call
written if the difference is maintained by the Fund in cash and other liquid
assets in a segregated account with its custodian.
The Fund also may write call options that are not covered for
cross-hedging purposes. The Fund collateralizes its obligation under a written
call option for cross-hedging purposes by segregating cash or other liquid
assets in an amount not less than the market value of the underlying security,
marked-to-market daily. The Fund would write a call option for cross-hedging
purposes, instead of writing a covered call option, when the premium to be
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<PAGE> 49
received from the cross-hedge transaction would exceed that which would be
received from writing a covered call option and its portfolio manager believes
that writing the option would achieve the desired hedge.
The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or bought, in the case of
a put option, since with regard to certain options, the writer may be assigned
an exercise notice at any time prior to the termination of the obligation.
Whether or not an option expires unexercised, the writer retains the amount of
the premium. This amount, of course, may, in the case of a covered call option,
be offset by a decline in the market value of the underlying security during the
option period. If a call option is exercised, the writer experiences a profit or
loss from the sale of the underlying security. If a put option is exercised, the
writer must fulfill the obligation to buy the underlying security at the
exercise price, which will usually exceed the then-current market value of the
underlying security.
The writer of an option that wishes to terminate its obligation may
effect a "closing purchase transaction." This is accomplished by buying an
option of the same series as the option previously written. The effect of the
purchase is that the writer's position will be canceled by the clearing
corporation. However, a writer may not effect a closing purchase transaction
after being notified of the exercise of an option. Likewise, an investor who is
the holder of an option may liquidate its position by effecting a "closing sale
transaction." This is accomplished by selling an option of the same series as
the option previously bought. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected.
In the case of a written call option, effecting a closing transaction
will permit the Fund to write another call option on the underlying security
with either a different exercise price or expiration date or both. In the case
of a written put option, such transaction will permit the Fund to write another
put option to the extent that the exercise price is secured by other liquid
assets. Effecting a closing transaction also will permit the Fund to use the
cash or proceeds from the concurrent sale of any securities subject to the
option for other investments. If the Fund desires to sell a particular security
from its portfolio on which it has written a call option, the Fund will effect a
closing transaction prior to or concurrent with the sale of the security.
The Fund will realize a profit from a closing transaction if the price
of the purchase transaction is less than the premium received from writing the
option or the price received from a sale transaction is more than the premium
paid to buy the option. The Fund will realize a loss from a closing transaction
if the price of the purchase transaction is more than the premium received from
writing the option or the price received from a sale transaction is a less than
the premium paid to buy the option. Because increases in the market of a call
option generally will reflect increases in the market price of the underlying
security, any loss resulting from the repurchase of a call option is likely to
be offset in whole or in part by appreciation of the underlying security owned
by the Fund.
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An option position may be closed out only where a secondary market for
an option of the same series exists. If a secondary market does not exist, the
Fund may not be able to effect closing transactions in particular options and
the Fund would have to exercise the options in order to realize any profit. If
the Fund is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise. The absence of a
liquid secondary market may be due to the following: (i) insufficient trading
interest in certain options, (ii) restrictions imposed by a national securities
exchange ("Exchange") on which the option is traded on opening or closing
transactions or both, (iii) trading halts, suspensions or other restrictions
imposed with respect to particular classes or series of options or underlying
securities, (iv) unusual or unforeseen circumstances that interrupt normal
operations on an Exchange, (v) the facilities of an Exchange or of the Options
Clearing Corporation ("OCC") may not at all times be adequate to handle current
trading volume, or (vi) one or more Exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that Exchange (or in that class or series of options) would
cease to exist, although outstanding options on that Exchange that had been
issued by the OCC as a result of trades on that Exchange would continue to be
exercisable in accordance with their terms.
The Fund may write options in connection with buy-and-write
transactions. In other words, the Fund may buy a security and then write a call
option against that security. The exercise price of such call will depend upon
the expected price movement of the underlying security. The exercise price of a
call option may be below ("in-the-money"), equal to ("at-the-money") or above
("out-of-the-money") the current value of the underlying security at the time
the option is written. Buy-and-write transactions using in-the-money call
options may be used when it is expected that the price of the underlying
security will remain flat or decline moderately during the option period.
Buy-and-write transactions using at-the-money call options may be used when it
is expected that the price of the underlying security will remain fixed or
advance moderately during the option period. Buy-and-write transactions using
out-of-the-money call options may be used when it is expected that the premiums
received from writing the call option plus the appreciation in the market price
of the underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. If the call options
are exercised in such transactions, the Fund's maximum gain will be the premium
received by it for writing the option, adjusted upwards or downwards by the
difference between the Fund's purchase price of the security and the exercise
price. If the options are not exercised and the price of the underlying security
declines, the amount of such decline will be offset by the amount of premium
received.
The writing of covered put options is similar in terms of risk and
return characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and the Fund's gain will be limited to the premium
received. If the market price of the underlying security declines or otherwise
is below the exercise price, the Fund may elect to close the position or take
delivery of the security
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at the exercise price and the Fund's return will be the premium received from
the put options minus the amount by which the market price of the security is
below the exercise price.
The Fund may buy put options to hedge against a decline in the value of
its portfolio. By using put options in this way, the Fund will reduce any profit
it might otherwise have realized in the underlying security by the amount of the
premium paid for the put option and by transaction costs.
The Fund may buy call options to hedge against an increase in the price
of securities that it may buy in the future. The premium paid for the call
option plus any transaction costs will reduce the benefit, if any, realized by
the Fund upon exercise of the option, and, unless the price of the underlying
security rises sufficiently, the option may expire worthless to the Fund.
Eurodollar Instruments. The Fund may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated futures
contracts or options thereon which are linked to the London Interbank Offered
Rate ("LIBOR"), although foreign currency-denominated instruments are available
from time to time. Eurodollar futures contracts enable purchasers to obtain a
fixed rate for the lending of funds and sellers to obtain a fixed rate for
borrowings. The Fund might use Eurodollar futures contracts and options thereon
to hedge against changes in LIBOR, to which many interest rate swaps and
fixed-income instruments are linked.
Swaps and Swap-related Products. The Fund may enter into interest rate
swaps, caps and floors on either an asset-based or liability-based basis,
depending upon whether it is hedging its assets or its liabilities, and will
usually enter into interest rate swaps on a net basis (i.e., the two payment
streams are netted out, with the Fund receiving or paying, as the case may be,
only the net amount of the two payments). The net amount of the excess, if any,
of the Fund's obligations over its entitlement with respect to each interest
rate swap will be calculated on a daily basis and an amount of cash or other
liquid assets having an aggregate net asset value at least equal to the accrued
excess will be maintained in a segregated account by the Fund's custodian. If
the Fund enters into an interest rate swap on other than a net basis, it would
maintain a segregated account in the full amount accrued on a daily basis of its
obligations with respect to the swap. The Fund will not enter into any interest
rate swap, cap or floor transaction unless the unsecured senior debt or the
claims-paying ability of the other party thereto is rated in one of the three
highest rating categories of at least one NRSRO at the time of entering into
such transaction. The Adviser will monitor the creditworthiness of all
counterparties on an ongoing basis. If there is a default by the other party to
such a transaction, the Fund will have contractual remedies pursuant to the
agreements related to the transaction.
The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and as
agents utilizing standardizing swap documentation. The Adviser has determined
that, as a result, the swap market has become relatively liquid. Caps and floors
are more recent innovations for which standardized documentation has not yet
been developed and, accordingly, they are less liquid than swaps. To
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the extent the Fund sells (i.e., writes) caps and floors, it will segregate cash
or other liquid assets having an aggregate net asset value at least equal to the
full amount accrued on a daily basis, of its obligations with respect to any
caps or floors.
There is no limit on the amount of interest rate swap transactions that
may be entered into by the Fund. These transactions may in some instances
involve the delivery of securities or other underlying assets by the Fund or its
counterparty to collateralize obligations under the swap. Under the
documentation currently used in those markets, the risk of loss with respect to
interest rate swaps is limited to the net amount of the payments that the Fund
is contractually obligated to make. If the other party to an interest rate swap
that is not collateralized defaults, the Fund would risk the loss of the net
amount of the payments that it contractually is entitled to receive. The Fund
may buy and sell (i.e., write) caps and floors without limitation, subject to
the segregation requirement described above.
Additional Risks of Options on Foreign Currencies, Forward Contracts
and Foreign Instruments. Unlike transactions entered into by the Fund in futures
contracts, options on foreign currencies and forward contracts are not traded on
contract markets regulated by the CFTC or (with the exception of certain foreign
currency options) by the SEC. Such instruments are traded through financial
institutions acting as market-makers, although foreign currency options are also
traded on certain Exchanges, such as the Philadelphia Stock Exchange and the
Chicago Board Options Exchange, subject to SEC regulation. Similarly, options on
currencies may be traded over-the-counter. In an over-the-counter trading
environment, many of the protections afforded to Exchange participants will not
be available. For example, there are no daily price fluctuation limits, and
adverse market movements could therefore continue to an unlimited extent over a
period of time. Although the buyer of an option cannot lose more than the amount
of the premium plus related transaction costs, this entire amount could be lost.
Moreover, an option writer and buyer or seller of futures or forward contracts
could lose amounts substantially in excess of any premium received or initial
margin or collateral posted due to the potential additional margin and
collateral requirements associated with such positions.
Options on foreign currencies traded on Exchanges are within the
jurisdiction of the SEC, as are other securities traded on Exchanges. As a
result, many of the protections provided to traders on organized Exchanges will
be available with respect to such transactions. In particular, all foreign
currency option positions entered into on an Exchange are cleared and guaranteed
by the OCC, thereby reducing the risk of counterparty default. Further, a liquid
secondary market in options traded on an Exchange may be more readily available
than in the over-the-counter market, potentially permitting the Fund to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies
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involve certain risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in applicable foreign countries
for this purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on the OCC
or its clearing member, impose special procedures on exercise and settlement,
such as technical changes in the mechanics of delivery of currency, the fixing
of dollar settlement prices or prohibitions on exercise.
In addition, options on U.S. government securities, futures contracts,
options on futures contracts, forward contracts and options on foreign
currencies may be traded on foreign exchanges and over-the-counter in foreign
countries. Such transactions are subject to the risk of governmental actions
affecting trading in or the prices of foreign currencies or securities. The
value of such positions also could be adversely affected by (i) other complex
foreign political and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non-business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) low trading volume.
ADDITIONAL DERIVATIVE INSTRUMENT RISKS
Additional risks inherent in the use of derivative instruments include:
- the risk that interest rates, securities prices and currency markets
will not move in the direction that the portfolio manager
anticipates;
- imperfect correlation between the price of derivative instruments
and movement in the prices of the securities, interest rates or
currencies being hedged;
- the fact that skills needed to use these strategies are different
from those needed to select portfolio securities;
- inability to close out certain hedged positions to avoid adverse tax
consequences;
- the possible absence of a liquid secondary market for any particular
instrument and possible exchange-imposed price fluctuation limits,
either of which may make it difficult or impossible to close out a
position when desired;
- leverage risk, or the risk that adverse price movements in an
instrument can result in a loss substantially greater than the
Fund's initial investment in that instrument (in some cases, the
potential loss is unlimited); and
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- particularly in the case of privately negotiated instruments, the
risk that the counterparty will fail to perform its obligations,
which could leave the Fund worse off than if it had not entered into
the position.
Although the Fund believes the use of derivative instruments will benefit it,
the Fund's performance could be worse than if the Fund had not used such
instruments if the portfolio manager's judgment proves incorrect. When the Fund
invests in a derivative instrument, it may be required to segregate cash and
other liquid assets or certain portfolio securities with its custodian to
"cover" the Fund's position. Assets segregated or set aside generally may not be
disposed of so long as the Fund maintains the positions requiring segregation or
cover. Segregating assets could diminish the Fund's return due to the
opportunity losses of foregoing other potential investments with the segregated
assets.
SHORT SALES
The Fund may engage in "short sales against the box." This technique
involves selling either a security that the Fund owns, or a security equivalent
in kind and amount to the security sold short that the Fund has the right to
obtain, for delivery at a specified date in the future, without the payment of
additional cost. The Fund will enter into a short sale against the box to hedge
against anticipated declines in the market price of portfolio securities. If the
value of the securities sold short increases prior to the scheduled delivery
date, the Fund loses the opportunity to participate in the gain.
DEPOSITARY RECEIPTS
The Fund may invest in sponsored and unsponsored American Depositary
Receipts ("ADRs"), which are receipts issued by an American bank or trust
company evidencing ownership of underlying securities issued by a foreign
issuer. ADRs, in registered form, are designed for use in U.S. securities
markets. Unsponsored ADRs may be created without the participation of the
foreign issuer. Holders of these ADRs generally bear all the costs of the ADR
facility, whereas foreign issuers typically bear certain costs in a sponsored
ADR. The bank or trust company depositary of an unsponsored ADR may be under no
obligation to distribute shareholder communications received from the foreign
issuer or to pass through voting rights. The Fund may also invest in European
Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") and in other
similar instruments representing securities of foreign companies. EDRs are
receipts issued by a European financial institution evidencing an arrangement
similar to that of ADRs. EDRs, in bearer form, are designed for use in European
securities markets.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
In a repurchase agreement, the Fund purchases a security and
simultaneously commits to resell that security to the seller at an agreed-upon
price on an agreed upon date within a number of days (usually not more than
seven) from the date of purchase. The resale price reflects the purchase price
plus an agreed-upon incremental amount that is unrelated to the coupon rate or
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maturity of the purchased security. A repurchase agreement involves the
obligation of the seller to pay the agreed-upon price, which obligation is in
effect secured by the value (at least equal to the amount of the agreed-upon
resale price and marked-to-market daily) of the underlying security or
"collateral." The Fund may engage in a repurchase agreement with respect to any
security in which it is authorized to invest. A risk associated with repurchase
agreements is the failure of the seller to repurchase the securities as agreed,
which may cause the Fund to suffer a loss if the market value of such securities
decline before they can be liquidated on the open market. In the event of
bankruptcy or insolvency of the seller, the Fund may encounter delays and incur
costs in liquidating the underlying security. Repurchase agreements that mature
in more than seven days will be subject to the 15% limit on illiquid
investments. While it is not possible to eliminate all risks from these
transactions, it is the policy of the Fund to limit repurchase agreements to
those parties whose creditworthiness has been reviewed and found satisfactory by
the Adviser.
The Fund may use reverse repurchase agreements to provide cash to
satisfy unusually heavy redemption requests or for other temporary or emergency
purposes without the necessity of selling portfolio securities, or to earn
additional income on portfolio securities, such as Treasury bills or notes. In a
reverse repurchase agreement, the Fund sells a portfolio security to another
party, such as a bank or broker-dealer, in return for cash and agrees to
repurchase the instrument at a particular price and time. While a reverse
repurchase agreement is outstanding, the Fund will maintain cash and appropriate
liquid assets in a segregated custodial account to cover its obligation under
the agreement. The Fund will enter into reverse repurchase agreements only with
parties that the Adviser deems creditworthy. Using reverse repurchase agreements
to earn additional income involves the risk that the interest earned on the
invested proceeds is less than the expense of the reverse repurchase agreement
transaction. This technique may also have a leveraging effect on the Fund's
portfolio, although the Fund's intent to segregate assets in the amount of the
reverse repurchase agreement minimizes this effect.
HIGH-YIELD/HIGH-RISK SECURITIES
The Fund may invest up to 5% of its total assets in debt securities
that are rated below investment grade (i.e., securities rated BB or lower by
Standard & Poor's Ratings Services ("Standard & Poor's") or Ba or lower by
Moody's Investors Service, Inc. ("Moody's")). Lower-rated securities involve a
higher degree of credit risk, which is the risk that the issuer will not make
interest or principal payments when due. In the event of an unanticipated
default, the Fund would experience a reduction in its income, and could expect a
decline in the market value of the securities so affected. The Fund will not
purchase debt securities rated lower than "CCC-" by Standard & Poor's or "Caa"
by Moody's. The Fund may invest in unrated debt securities of foreign and
domestic issuers. Unrated debt, while not necessarily of lower quality than
rated securities, may not have as broad a market. Unrated debt securities will
be included in the stated limit for investments in high-yield investments by the
Fund unless the portfolio manager deems such securities to be the equivalent of
investment grade securities.
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Financial and Market Risks. Investments in high-yield/high risk
securities involve a high degree of financial and market risks that can result
in substantial or, at times, even total losses. High-yield securities are more
vulnerable to real or perceived economic changes, political changes or adverse
developments specific to the issuer. Issuers of such securities may have
substantial capital needs and may become involved in bankruptcy or
reorganization proceedings. Among the problems involved in investments in such
issuers is the fact that it may be difficult to obtain information about the
condition of such issuers. The market prices of such securities also are subject
to abrupt and erratic movements and above average price volatility, and the
spread between the bid and asked prices of such securities may be greater than
normally expected.
Disposition of High Yield/High Risk Securities. Although the Fund
generally will purchase securities for which the portfolio manager expects an
active market to be maintained, high-yield/high-risk securities may be less
actively traded than other securities and it may be difficult to dispose of
substantial holdings of such securities at prevailing market prices. The Fund
will limit holdings of any securities to amounts that the portfolio manager
believes could be readily sold, and holdings of such securities would, in any
event, be limited so as not to limit the Fund's ability to readily dispose of
securities to meet redemptions.
Credit Risk. The value of lower quality securities generally is more
dependent on the ability of the issuer to meet interest and principal payments
than is the case for higher quality securities. Conversely, the value of higher
quality securities may be more sensitive to interest rate movements than lower
quality securities. Issuers of high-yield securities may not be as strong
financially as those issuing bonds with higher credit ratings. Investments in
such companies are considered to be more speculative than higher quality
investments.
GENERAL CHARACTERISTICS OF FOREIGN SECURITIES
Foreign securities involve certain inherent risks that are different
from those of domestic issuers, including political or economic instability of
the issuer or the country of issue, diplomatic developments which could affect
U.S. investments in those countries, changes in foreign currency and exchange
rates and the possibility of adverse changes in investment or exchange control
regulations. As a result of these and other factors, foreign securities
purchased by the Fund may be subject to greater price fluctuation than
securities of U.S. companies.
Most foreign stock markets are not as large or liquid as in the United
States, fixed commissions on foreign stock exchanges are generally higher than
the negotiated commissions on U.S. exchanges, and there is generally less
government supervision and regulation of foreign stock exchanges, brokers and
companies than in the United States. Investors should recognize that foreign
markets have different clearance and settlement procedures and in certain
markets there have been times when settlements have been unable to keep pace
with the volume of securities transactions, making it difficult to conduct such
transactions. Delays in settlement could result in temporary periods when assets
of the Fund is uninvested and no return is earned thereon. The inability of the
Fund to make intended security purchases due to settlement problems could cause
the Fund to miss investment opportunities. Inability to dispose of portfolio
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securities due to settlement problems either could result in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in a possible
liability to the purchaser. Payment for securities without delivery may be
required in certain foreign markets. Further, the Fund may encounter
difficulties or be unable to pursue legal remedies and obtain judgments in
foreign courts. Foreign governments can also levy confiscatory taxes,
expropriate assets, and limit repatriations of assets. Typically, there is less
publicly available information about a foreign company than about a U.S.
company, and foreign companies may be subject to less stringent reserve,
auditing and reporting requirements. It may be more difficult for the Fund's
agents to keep currently informed about corporate actions such as stock
dividends or other matters which may affect the prices of portfolio securities.
Communications between the United States and foreign countries may be less
reliable than within the United States, thus increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. Individual foreign economies may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross national product, rate
of inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
Because investments in foreign securities will usually involve
currencies of foreign countries, and because the Fund may hold foreign
currencies, the value of the assets of the Fund as measured in U.S. dollars may
be affected favorably or unfavorably by changes in foreign currency exchange
rates and exchange control regulations, and the Fund may incur costs in
connection with conversions between various currencies. Although the Fund values
assets daily in terms of U.S. dollars, it does not intend to convert its
holdings of foreign currencies into U.S. dollars on a daily basis. The Fund will
do so from time to time, and investors should be aware of the costs of currency
conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer. The Fund will conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through entering into forward foreign
currency exchange contracts or purchasing or writing put or call options on
foreign currencies.
INVESTMENTS IN THE SHARES OF OTHER INVESTMENT COMPANIES
To a limited extent, the Fund may purchase securities of other
investment companies. The Adviser does not expect the Fund to invest more than
10% of its total assets in shares issued by other investment companies and, in
no instance, will such investments exceed the levels permitted under the 1940
Act. The Adviser anticipates investing in shares of other investment companies
primarily as a means to invest cash in funds consisting of short-term money
market instruments and U.S. government securities. To the extent that the Fund
invests in other investment companies, the Fund may incur duplicate investment
advisory and other fees.
23
<PAGE> 58
TRUSTEES AND OFFICERS
The business and affairs of the Fund are managed under the direction of
the Board of Trustees. The Trustees and Officers of the Fund and their principal
occupations during the past five years are set forth below.
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE WITH THE FUND DURING THE PAST FIVE YEARS
- --------------------- ------------- --------------------------
<S> <C> <C>
Mark Alan Derby, 39 Trustee and President Vice President, Derby and
7 Wells Avenue Company, Inc.
Newton, MA 02459
Jonathan Jay Derby, 35 Trustee and Vice President Vice President and Legal
7 Wells Avenue counsel, Derby and
Newton, MA 02459 Company, Inc.
Stuart N. Cole, Esq., 39 Trustee Partner in the law firm of
1172 Beacon Street Barr & Cole, Chief Executive
Newton, MA 02461 Officer of County Mortgage
Trust, Partner and founder
of H&S Investments, President of
Washington Realty, Inc.
Ronald L. Cooper, D.M.D., 51 Trustee Partner of Cooper and Spiller,
22 Wabanaki Way P.C. Board member, Massachusetts
Andover, MA 01810 Dental Society Board of
Legislation. Past president,
Second New England Study Club
of Dentistry. Member, the
Massachusetts Dental Society.
Stephen Dephoure, 57 Trustee Managed D4 Film Studios, Inc.
749 Charles River Street for over 27 years. Principal
Needham, MA 02492 of Dephoure & Company.
</TABLE>
COMPENSATION TABLE
The Trust pays no salaries or compensation to any of its officers. The
Fund will pay an annual trustee's fee of $2,000 to each Trustee who is not
affiliated with the Adviser or American Data Services, Inc. The following table
estimates the amount of compensation to be paid by the Trust during its fiscal
year ended December 31, 1999 to the persons who are to serve as Trustees during
such period:
<TABLE>
<CAPTION>
PENSION OR TOTAL COMPENSATION
ESTIMATED RETIREMENT BENEFITS ESTIMATED ANNUAL FROM THE TRUST AND
NAME OF PERSON AND COMPENSATION ACCRUED AS PART OF BENEFITS UPON FUND COMPLEX PAID
POSITION FROM THE TRUST* FUND EXPENSES RETIREMENT TO TRUSTEE
-------- -------------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Mark A. Derby $ 0 None None $ 0
Trustee,
Vice-President
Jonathan J. Derby $ 0 None None $ 0
Trustee,
Vice-President
Stuart N. Cole, Esq. $ 2,000 None None $2,000
Trustee
Ronald L. Cooper D.M.D. $ 2,000 None None $2,000
Trustee
Stephen Dephoure $ 2,000 None None $2,000
Trustee
</TABLE>
- ----------------------
* The estimated compensation information is furnished for the fiscal year
ended December 31, 1999.
24
<PAGE> 59
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SHARES
As of October 12, 1999, Derby Capital Management owns 100% of the
initial outstanding shares of the Fund, and no officer or Trustee of the Trust
directly owns any shares of the Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Advisory Agreement. The Adviser of the Fund is Derby Capital
Management. Under the terms of the Advisory Agreement, the Adviser furnishes
overall investment management for the Fund, provides research and credit
analysis, oversees the purchase and sales of portfolio securities, maintains
books and records with respect to the Fund's securities transactions and
provides periodic and special reports to the Board of Trustees as required.
For the advisory services provided and expenses assumed by it, the
Adviser has agreed to a fee from the Fund, computed daily and payable monthly,
at an annual rate of 1.00% of average daily net assets.
The Investment Advisory Agreement, which was approved by the
shareholders of the Trust, will continue in effect for a period of two years
from its effective date, unless a period of shorter duration is agreed to by the
Trust and the Adviser. If not sooner terminated, the Advisory Agreement will
continue in effect for successive one year periods thereafter, provided that
each continuance is specifically approved annually by (a) the vote of a majority
of the Board of Trustees who are not parties to the Advisory Agreement or
interested persons (as defined in the 1940 Act), cast in person at a meeting
called for the purpose of voting on approval, and (b) either (i) the vote of a
majority of the outstanding voting securities of the Fund, or (ii) the vote of a
majority of the Board of Trustees. The Advisory Agreement is terminable by vote
of the Board of Trustees, by the holders of a majority of the outstanding voting
securities of the Fund, at any time without penalty, on 60 days' written notice
to the Adviser. The Adviser may also terminate its advisory relationship with
the Fund without penalty on 90 days' written notice to the Trust. The Advisory
Agreement terminates automatically in the event of its assignment (as defined in
the 1940 Act).
ADMINISTRATOR
The Administrator for the Fund is American Data Services, Inc. (the
"Administrator"), which has its principal office at The Hauppauge Corporate
Center, 150 Motor Parkway, Hauppauge, New York 11788, and is primarily in the
business of providing administrative, fund accounting and stock transfer
services to retail and institutional mutual funds through its offices in New
York, Denver and Los Angeles.
25
<PAGE> 60
Pursuant to an Administrative Service Agreement with the Fund, the
Administrator provides all administrative services necessary for the Fund,
subject to the supervision of the Board of Trustees.
The Administrative Service Agreement is terminable by the Board of
Trustees of the Fund or the Administrator on sixty days' written notice and may
be assigned provided the non-assigning party provides prior written consent. The
Agreement shall remain in effect for two years from the date of its initial
approval, and subject to annual approval of the Board of Trustees for one-year
periods thereafter. The Agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of the Administrator or
reckless disregard of its obligations thereunder, the Administrator shall not be
liable for any action or failure to act in accordance with its duties
thereunder.
Under the Administrative Service Agreement, the Administrator provides
all administrative services, including, without limitation: (i) services of
persons competent to perform such administrative and clerical functions as are
necessary to provide effective administration of the Fund; (ii) overseeing the
performance of administrative and professional services to the Fund by others,
including the Fund's custodian; (iii) preparing, but not paying for, the
periodic updating of the Fund's Registration Statement, Prospectus and SAI in
conjunction with Fund counsel, including the printing of such documents for the
purpose of filings with the SEC and state securities administrators, preparing
the Fund's tax returns, and preparing reports to the Fund's shareholders and the
SEC; (iv) preparing in conjunction with Fund counsel, but not paying for, all
filings under the securities or "Blue Sky" laws of such states or countries as
are designated by the distributor, which may be required to register or qualify,
or continue the registration or qualification, of the Fund and/or its shares
under such laws; (v) preparing notices and agendas for meetings of the Board of
Trustees and minutes of such meetings in all matters required by the 1940 Act to
be acted upon by the Board; and (vi) monitoring daily and periodic compliance
with respect to all requirements and restrictions of the 1940 Act, the Code and
the Prospectus.
The Administrator, pursuant to the Administrative Service Agreement,
provides the Fund with all accounting services, including, without limitation:
(i) daily computation of net asset value; (ii) maintenance of security ledgers
and books and records as required by the 1940 Act; (iii) production of the
Fund's listing of portfolio securities and general ledger reports; (iv)
reconciliation of accounting records; (v) calculation of yield and total return
for the Fund; (vi) maintaining certain books and records described in Rule 31a-1
under the 1940 Act, and reconciling account information and balances among the
Fund's custodian and Adviser; and (vii) monitoring and evaluating daily income
and expense accruals, and sales and redemptions of shares of the Fund.
26
<PAGE> 61
ADMINISTRATOR'S FEES
For the services rendered to the Fund by the Administrator, the Fund
pays the Administrator a monthly fee based on the Fund's average net assets. The
Fund also pays the Administrator for any out-of-pocket expenses.
In return for providing the Fund with all accounting related services,
the Fund pays the Administrator a monthly fee based on the Fund's average net
assets, plus any out-of-pocket expenses for such services.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
Firstar Bank, National Association (the "Custodian") serves as
custodian for the Fund's cash and securities. Pursuant to a Custody Agreement,
it is responsible for maintaining the books and records of the Fund's portfolio
securities and cash. The Custodian does not assist in, and is not responsible
for, investment decisions involving assets of the Fund. American Data Services,
Inc., the Administrator, also acts as the Fund's transfer and dividend agent.
DISTRIBUTION AGREEMENT
Pursuant to an Underwriting Agreement, ADS Distributors, Inc. (the
"Distributor") has agreed to act as the principal underwriter for the Fund in
the sale and distribution to the public of shares of the Fund, either through
dealers or otherwise. The Distributor has agreed to offer such shares for sale
at all times when such shares are available for sale and may lawfully be offered
for sale and sold.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution (the "Plan"), which was
reviewed and approved by a majority of the disinterested Trustees of the Fund,
pursuant to Rule 12b-1 under the 1940 Act (the "Rule"). The Rule provides that
an investment company which bears any direct or indirect expense of distributing
its shares must do so only in accordance with a plan permitted by the Rule. The
Plan provides that the Fund will reimburse the Distributor for certain expenses
and costs incurred in connection with providing marketing and promotional
support to the Fund, shareholder servicing and maintaining shareholder accounts,
to compensate parties with which it has written agreements and whose clients own
shares of the Fund for providing servicing to their clients ("shareholder
servicing") and financial institutions with which it has written agreements and
whose clients are Fund shareholders (each a "broker-dealer") for providing
distribution assistance and promotional support to the Fund, which is subject to
a maximum of 0.25% per annum of the Fund's average daily net assets. Fees paid
under the Plan may not be waived for individual shareholders.
27
<PAGE> 62
Each shareholder servicing agent and broker-dealer will, as agent for
its customers, among other things: answer customer inquiries regarding account
status and history, the manner in which purchases and redemptions of shares of
the Fund may be effected and certain other matters pertaining to the Fund;
assist shareholders in designating and changing dividend options, account
designations and addresses; provide necessary personnel and facilities to
establish and maintain shareholder accounts and records; assist in processing
purchase and redemption transactions; arrange for the wiring of funds; transmit
and receive funds in connection with customer orders to purchase or redeem
shares; verify and guarantee shareholder signatures in connection with
redemption orders and transfers and changes in shareholder designated accounts;
furnish quarterly and year-end statements and confirmations within five business
days after activity in the account; transmit to shareholders of the Fund proxy
statements, annual reports, updated prospectuses and other communications;
receive, tabulate and transmit proxies executed by shareholders with respect to
meetings of shareholders of the Fund; and provide such other related services as
the Fund or a shareholder may request.
The Plan, the shareholder servicing agreements and the form of
distribution agreement each provide that the Adviser or the Distributor may make
payments from time to time from their own resources which may include the
advisory fee and the asset based sales charges and past profits for the
following purposes: (i) to defray the costs of and to compensate others,
including financial intermediaries with whom the Distributor has entered into
written agreements, for performing shareholder servicing and related
administrative functions of the Fund; to compensate certain financial
intermediaries for providing assistance in distributing Fund shares; (ii) to pay
the costs of printing and distributing the Fund's Prospectus to prospective
investors; and (iii) to defray the cost of the preparation and printing of
brochures and other promotional materials, mailings to prospective shareholders,
advertising, and other promotional activities, including the salaries and/or
commissions of sales personnel in connection with the distribution of the Fund's
shares. The Distributor will determine the amount of such payments made pursuant
to the Plan with the shareholder servicing agents and broker-dealers with whom
it has contracted, provided that such payments made pursuant to the Plan will
not increase the amount which the Fund is required to pay the Distributor for
any fiscal year under the shareholder servicing agreements or otherwise.
Shareholder servicing agents and broker-dealers may charge investors a
fee in connection with their use of specialized purchase and redemption
procedures offered to investors by the shareholder servicing agents and
broker-dealers. In addition, shareholder servicing agents and broker-dealers
offering purchase and redemption procedures similar to those offered to
shareholders who invest in the Fund directly may impose charges, limitations,
minimums and restrictions in addition to or different from those applicable to
shareholders who invest in the Fund directly. Accordingly, the net yield to
investors who invest through shareholder servicing agents and broker-dealers may
be less than realized by investing in the Fund directly. An investor should read
the Prospectus in conjunction with the materials provided by the shareholder
servicing agent and broker-dealer describing the procedures under which Fund
shares may be purchased and redeemed through the shareholder servicing agent and
broker-dealer.
28
<PAGE> 63
In accordance with the Rule, the Plan provides that all written
agreements relating to the Plan entered into by the Fund, the Distributor or the
Adviser, and the shareholder servicing agents, broker-dealers, or other
organizations, must be in a form satisfactory to the Board of Trustees. In
addition, the Plan requires the Fund and the Distributor to prepare, at least
quarterly, written reports setting forth all amounts expended for distribution
purposes by the Fund and the Distributor pursuant to the Plan and identifying
the distribution activities for which those expenditures were made for review by
the Board of Trustees.
OTHER EXPENSES
The Fund pays certain operating expenses that are not assumed by the
Adviser, the Administrator or any of their respective affiliates. These
expenses, together with fees paid to the Adviser, the Administrator, the
Distributor and the Transfer Agent, are deducted from income of the Fund before
dividends are paid. These expenses include, but are not limited to,
organizational costs, fees and expenses of officers and Trustees who are not
affiliated with the Adviser, the Administrator or any of their respective
affiliates, taxes, interest, legal fees, custodian fees, audit fees, brokerage
fees and commissions, fees and expenses of registering and qualifying the Fund
and its shares for distribution under federal and state securities laws, the
expenses of reports to shareholders, shareholders' meetings and proxy
solicitations.
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
The Fund's assets are invested by the Adviser in a manner consistent
with its investment objectives, policies, and restrictions and with any
instructions the Board of Trustees may issue from time to time. Within this
framework, the Adviser is responsible for making all determinations as to the
purchase and sale of portfolio securities and for taking all steps necessary to
implement securities transactions on behalf of the Fund.
U.S. Government securities generally are traded in the over-the-counter
market through broker-dealers. A broker-dealer is a securities firm or bank that
makes a market for securities by offering to buy at one price and sell at a
slightly higher price. The difference between the prices is known as a spread.
In placing orders for the purchase and sale of portfolio securities for
the Fund, the Adviser will use its best efforts to obtain the best possible
price and execution and will otherwise place orders with broker-dealers subject
to and in accordance with any instructions the Board of Trustees may issue from
time to time. The Adviser will select broker-dealers including, the Distributor,
to execute portfolio transactions on behalf of the Fund primarily on the basis
of best price and execution.
Transactions on U.S. stock exchanges, commodities markets and futures
markets and other agency transactions involve the payment by the Fund of
negotiated brokerage commissions. Such commissions vary among different brokers.
A particular broker may charge
29
<PAGE> 64
different commissions according to such factors as the difficulty and size of
the transaction. Transactions in foreign investments often involve the payment
of fixed brokerage commissions, which may be higher than those in the United
States. There is generally no stated commission in the case of securities traded
in the over-the-counter markets, but the price paid by the Fund usually includes
an undisclosed dealer commission or mark-up. In underwritten offerings, the
price paid by the Fund includes a disclosed, fixed commission or discount
retained by the underwriter or dealer.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive brokerage and research services (as defined in the Securities
Exchange Act of 1934, as amended (the "1934 Act")) from broker-dealers that
execute portfolio transactions for the clients of such advisers and from third
parties with which such broker-dealers have arrangements. Consistent with this
practice, the Adviser may receive brokerage and research services and other
similar services from many broker-dealers with which the Adviser may place the
Fund's portfolio transactions and from third parties with which these
broker-dealers have arrangements. These services include such matters as general
economic and market reviews, industry and company reviews, evaluations of
investments, recommendations as to the purchase and sale of investments,
newspapers, magazines, pricing services, quotation services, news services and
personal computers utilized by the Adviser. Where the services referred to above
are not used exclusively by the Adviser for research purposes, the Adviser,
based upon its own allocations of expected use, bears that portion of the cost
of these services which directly relates to their non-research use. Some of
these services are of value to the Adviser and its affiliates in advising
various of its clients (including the Fund), although not all of these services
are necessarily useful and of value in managing the Fund. The management fee
paid by the Fund is not reduced because the Adviser and its affiliates receive
these services even though the Adviser might otherwise be required to purchase
some of these services for cash.
As permitted by Section 28(e) of the 1934 Act, the Adviser may cause
the Fund to pay a broker-dealer which provides "brokerage and research services"
(as defined in the 1934 Act) to the Adviser an amount of disclosed commission
for effecting securities transactions on stock exchanges and other transactions
for the Fund on an agency basis in excess of the commission which another
broker-dealer would have charged for effecting that transaction. The Adviser's
authority to cause the Fund to pay any such greater commissions is also subject
to such policies as the Trustees may adopt from time to time. The Adviser does
not currently intend to cause the Fund to make such payments. It is the position
of the staff of the SEC that Section 28(e) does not apply to the payment of such
greater commissions in "principal" transactions. Accordingly, the Adviser will
use its best effort to obtain the most favorable price and execution available
with respect to such transactions, as described above.
Consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc. and subject to seeking the most favorable price and
execution available and such other policies
30
<PAGE> 65
as the Trustees may determine, the Adviser may consider sales of shares of the
Fund as a factor in the selection of broker-dealers to execute portfolio
transactions for the Fund.
PERFORMANCE INFORMATION
From time to time, quotations of the Fund's performance may be included
in advertisements, sales literature or reports to shareholders or prospective
investors. These performance figures are calculated in the following manner.
AVERAGE ANNUAL TOTAL RETURN
Average annual total return is the average annual compounded rate of
return for periods of one year, five years and ten years, all ended on the last
day of a recent calendar quarter. Average annual total return quotations reflect
changes in the price of the Fund's shares and assume that all dividends and
capital gains distributions during the respective periods were reinvested in
Fund shares. Average annual total return is calculated by computing the average
annual compounded rates of return of a hypothetical investment over such
periods, according to the following formula (average annual total return is then
expressed as a percentage):
1/n
-----
T = (ERV/P)-1
Where:
T = average annual total return
P = a hypothetical initial investment of $1,000
n = number of years
ERV = ending redeemable value: ERV is the value, at the end of
the applicable period, of a hypothetical $1,000 investment
made at the beginning of the applicable period.
It should be noted that average annual total return is based on
historical earnings and is not intended to indicate future performance. Average
annual total return for the Fund will vary based on changes in market conditions
and the level of the Fund's expenses.
In connection with communicating its average annual total return to
current or prospective shareholders, the Fund also may compare these figures to
the performance of other mutual funds tracked by mutual fund rating services or
to unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.
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<PAGE> 66
COMPARISON OF PORTFOLIO PERFORMANCE
Comparison of the quoted non-standardized performance of various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effect of the methods used to calculate performance when comparing
performance of the Fund with performance quoted with respect to other investment
companies or types of investments.
In connection with communicating its performance to current or
prospective shareholders, the Fund also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends or
interest but generally do not reflect deductions for administrative and
management costs. Examples include, but are not limited to the Dow Jones
Industrial Average, the Consumer Price Index, Standard & Poor's 500 Composite
Stock Price Index (S&P 500), the NASDAQ OTC Composite Index, the NASDAQ
Industrials Index, and the Russell 2000 Index.
From time to time, in advertising, marketing and other Fund literature,
the performance of the Fund may be compared to the performance of broad groups
of mutual funds with similar investment goals, as tracked by independent
organizations such as Investment Company Data, Inc., Lipper Analytical Services,
Inc., CDA Investment Technologies, Inc., Morningstar, Inc., Value Line Mutual
Fund Survey and other independent organizations. When these organizations'
tracking results are used, the Fund will be compared to the appropriate fund
category, that is, by fund objective and portfolio holdings or the appropriate
volatility grouping, where volatility is a measure of the Fund's risk. From time
to time, the average price-earnings ratio and other attributes of the Fund's or
the model portfolio's securities, may be compared to the average price-earnings
ratio and other attributes of the securities that comprise the S&P 500 Index.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Fund. The
description may include a "risk/return spectrum" which compares the Fund to
broad categories of funds, such as money market, bond or equity funds, in terms
of potential risks and returns. Money market funds are designed to maintain a
constant $1.00 share price and have a fluctuating yield. Share price, yield and
total return of a bond fund will fluctuate. The share price and return of an
equity fund also will fluctuate. The description may also compare the Fund to
bank products, such as certificates of deposit. Unlike mutual funds,
certificates of deposit are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.
Risk/return spectrums also may depict funds that invest in both
domestic and foreign securities or a combination of bond and equity securities.
32
<PAGE> 67
The investment return and principal value of an investment in the Fund
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
TAX STATUS
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Code. Accordingly, the Fund generally must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to certain securities loans, and
gains from the sale or other disposition of stock, securities or foreign
currencies, or other income derived with respect to its business of investing in
such stock, securities or currencies; and (b) diversify its holdings so that, at
the end of each fiscal quarter, (i) at least 50% of the market value of its
assets is represented by cash, U.S. Government securities, the securities of
other regulated investment companies and other securities, with such other
securities limited, in respect of any one issuer, to an amount not greater than
5% of the value of the Fund's total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities and the securities of other regulated investment
companies).
As a regulated investment company, the Fund generally will not be
subject to U.S. federal income tax on income and gains that it distributes to
shareholders, if at least 90% of the Fund's investment company taxable income
(which includes, among other items, dividends, interest and the excess of any
net short-term capital gains over net long-term capital losses) for the taxable
year is distributed. The Fund intends to distribute substantially all of such
income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year an amount equal to the sum of (1) at least 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (2) at
least 98% of its capital gains in excess of its capital losses (adjusted for
certain ordinary losses) for a one-year period generally ending on October 31 of
the calendar year, and (3) all ordinary income and capital gains for previous
years that were not distributed during such years. To avoid application of the
excise tax, the Fund intends to make distributions in accordance with the
calendar year distribution requirement. A distribution will be treated as paid
on December 31 of the current calendar year if it is declared by the Fund in
October, November or December of that year with a record date in such a month
and paid by the Fund during January of the following year. Such distributions
will be taxable to shareholders in the calendar year in which the distributions
are declared, rather than the calendar year in which the distributions are
received.
Original Issue Discount. Certain debt securities acquired by the Fund
may be treated as debt securities that were originally issued at a discount.
Original issue discount can generally be defined as the difference between the
price at which a security was issued and its stated redemption price at
maturity. Although no cash income is actually received by the Fund, original
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<PAGE> 68
issue discount that accrues on a debt security in a given year generally is
treated for federal income tax purposes as interest and, therefore, such income
would be subject to the distribution requirements applicable to regulated
investment companies.
Some debt securities may be purchased by the Fund at a discount that
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes.
The gain realized on the disposition of any taxable debt security having market
discount generally will be treated as ordinary income to the extent it does not
exceed the accrued market discount on such debt security. Generally, market
discount accrues on a daily basis for each day the debt security is held by the
Fund at a constant rate over the time remaining to the debt security's maturity
or, at the election of the Fund, at a constant yield to maturity which takes
into account the semi-annual compounding of interest.
Options, Futures and Foreign Currency Forward Contracts; Straddles. The
Fund's transactions in foreign currencies, forward contracts, options and
futures contracts (including options and futures contracts on foreign
currencies) will be subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the Fund (i.e.,
may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund, defer Fund losses, and affect the
determination of whether capital gains and losses are characterized as long-term
or short-term capital gains or losses. These rules could therefore, in turn,
affect the character, amount, and timing of distributions to shareholders. These
provisions also may require the Fund to mark-to-market certain types of the
positions in its portfolio (i.e., treat them as if they were closed out), which
may cause the Fund to recognize income without receiving cash with which to make
distributions in amounts necessary to satisfy its distribution requirements for
relief from income and excise taxes. The Fund will monitor its transactions and
may make such tax elections as Fund management deems appropriate with respect to
foreign currency, options, futures contracts, forward contracts, or hedged
investments. The Fund's status as a regulated investment company may limit its
transactions involving foreign currency, futures, options, and forward
contracts.
Certain transactions undertaken by the Fund may result in "straddles"
for federal income tax purposes. The straddle rules may affect the character of
gains (or losses) realized by the Fund, and losses realized by the Fund on
positions that are part of a straddle may be deferred under the straddle rules,
rather than being taken into account in calculating the taxable income for the
taxable year in which the losses are realized. In addition, certain carrying
charges (including interest expense) associated with positions in a straddle may
be required to be capitalized rather than deducted currently. Certain elections
that the Fund may make with respect to its straddle positions may also affect
the amount, character and timing of the recognition of gains or losses from the
affected positions.
Under certain circumstances, the Fund may recognize gain from a
constructive sale of an "appreciated financial position" it holds if it enters
into a short sale, forward contract or other transaction that substantially
reduces the risk of loss with respect to the appreciated position. In that
event, the Fund would be treated as if it had sold and immediately repurchased
the property
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<PAGE> 69
and would be taxed on any gain (but not loss) from the constructive sale. The
character of gain from a constructive sale would depend upon the Fund's holding
period in the property. Loss from a constructive sale would be recognized when
the property was subsequently disposed of, and its character would depend on the
Fund's holding period and the application of various loss deferral provisions of
the Code. Constructive sale treatment does not apply to transactions closed in
the 90-day period ending with the 30th day after the close of the taxable year,
if certain conditions are met.
Currency Fluctuations--"Section 988" Gains or Losses. The Fund will
maintain accounts and calculate income by reference to the U.S. dollar for U.S.
federal income tax purposes. Some of the Fund's investments will be maintained
and income therefrom calculated by reference to certain foreign currencies, and
such calculations will not necessarily correspond to the Fund's distributable
income and capital gains for U.S. federal income tax purposes as a result of
fluctuations in currency exchange rates. Furthermore, exchange control
regulations may restrict the ability of the Fund to repatriate investment income
or the proceeds of sales of securities. These restrictions and limitations may
limit the Fund's ability to make sufficient distributions to satisfy the 90%
distribution requirement for qualification as a regulated investment company.
Even if a fund so qualified, these restrictions could inhibit its ability to
distribute all of its income in order to be fully relieved of tax liability.
Gains or losses attributable to fluctuations in exchange rates which
occur between the time the Fund accrues income or other receivables (including
dividends) or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of some investments, including debt securities and
certain forward contracts denominated in a foreign currency, gains or losses
attributable to fluctuations in the value of the foreign currency between the
date of the acquisition of the security or other instrument and the date of
disposition also are treated as ordinary gain or loss. These gains and losses,
referred to under the Code as "section 988" gains or losses, increase or
decrease the amount of the Fund's investment company taxable income available to
be distributed to its shareholders as ordinary income. If section 988 losses
exceed other investment company taxable income during a taxable year, the Fund
would not be able to make any ordinary dividend distributions, or distributions
made before the losses were realized would be recharacterized as a return of
capital to shareholders, or, in some cases, as capital gain, rather than as an
ordinary dividend.
Passive Foreign Investment Companies. The Fund may invest in shares of
foreign corporations which may be classified under the Code as passive foreign
investment companies ("PFICs"). In general, a foreign corporation is classified
as a PFIC if at least one-half of its assets constitute investment-type assets,
or 75% or more of its gross income is investment-type income. If the Fund
receives a so-called "excess distribution" with respect to PFIC stock, the Fund
itself may be subject to a tax on a portion of the excess distribution, whether
or not the corresponding income is distributed by the Fund to shareholders. In
general, under the PFIC rules, an excess distribution is treated as having been
realized ratably over the period during which the Fund held
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the PFIC shares. The Fund itself will be subject to tax on the portion, if any,
of an excess distribution that is so allocated to prior Fund taxable years and
an interest factor will be added to the tax, as if the tax had been payable in
such prior taxable years. Certain distributions from a PFIC as well as gain from
the sale of PFIC shares are treated as excess distributions. Excess
distributions are characterized as ordinary income even though, absent
application of the PFIC rules, certain distributions might have been classified
as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. Under an election that currently is available in some
circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions were received from the PFIC in a given year. If this
election were made, the special rules, discussed above, relating to the taxation
of excess distributions, would not apply. In addition, another election would
involve marking to market the Fund's PFIC shares at the end of each taxable
year, with the result that unrealized gains would be treated as though they were
realized and reported as ordinary income. Any mark-to-market losses and any loss
from an actual disposition of Fund shares would be deductible as ordinary losses
to the extent of any net mark-to-market gains included in income in prior years.
Because the application of the PFIC rules may affect, among other
things, the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC shares, as well as subject the Fund
itself to tax on certain income from PFIC shares, the amount that must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gains, may be increased or decreased substantially
as compared to a fund that did not invest in PFIC shares.
Distributions. Distributions of investment company taxable income are
taxable to a U.S. shareholder as ordinary income, whether paid in cash or
shares. Dividends paid by the Fund to a corporate shareholder, to the extent
such dividends are attributable to dividends received from U.S. corporations by
the Fund, may qualify for the dividends received deduction. However, the revised
alternative minimum tax applicable to corporations may reduce the value of the
dividends received deduction. Distributions of net capital gains (the excess of
net long-term capital gains over net short-term capital losses), if any,
designated by the Fund as capital gain dividends, are taxable to shareholders at
the applicable mid-term or long-term capital gains rate, whether paid in cash or
in shares, regardless of how long the shareholder has held the Fund's shares,
and they are not eligible for the dividends received deduction. Shareholders
will be notified annually as to the U.S. federal tax status of distributions,
and shareholders receiving distributions in the form of newly issued shares will
receive a report as to the net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Investors should
be careful to consider the tax implications of buying shares of the Fund just
prior to a distribution. The price of shares purchased at this time may
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reflect the amount of the forthcoming distribution. Those purchasing just prior
to a distribution will receive a distribution which generally will be taxable to
them.
Disposition of Shares. Upon a redemption, sale or exchange of shares of
the Fund, a shareholder will realize a taxable gain or loss depending upon the
amount realized and the shareholder's basis in the shares. A gain or loss will
be treated as capital gain or loss if the shares are capital assets in the
shareholder's hands and generally will be long-term or short-term, depending
upon the shareholder's holding period for the shares. Any loss realized on a
redemption, sale or exchange will be disallowed to the extent the shares
disposed of are replaced (including through reinvestment of dividends) within a
period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Any loss realized by a shareholder on
the disposition of the Fund's shares held by the shareholder for six months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any distributions of capital gain dividends received or treated as having
been received by the shareholder with respect to such shares.
Backup Withholding. The Fund will be required to report to the Internal
Revenue Service (the "IRS") all distributions and gross proceeds from the
redemption of the Fund's shares, except in the case of certain exempt
shareholders. All distributions and proceeds from the redemption of the Fund's
shares will be subject to withholding of federal income tax at a rate of 31%
("backup withholding") in the case of non-exempt shareholders if (1) the
shareholder fails to furnish the Fund with and to certify the shareholder's
correct taxpayer identification number or social security number, (2) the IRS
notifies the shareholder or the Fund that the shareholder has failed to report
properly certain interest and dividend income to the IRS and to respond to
notices to that effect, or (3) when required to do so, the shareholder fails to
certify that he or she is not subject to backup withholding. If the withholding
provisions are applicable, any such distributions or proceeds, whether
reinvested in additional shares or taken in cash, will be reduced by the amounts
required to be withheld.
Other Taxation. Distributions may also be subject to additional state,
local and foreign taxes depending on each shareholder's particular situation.
Non-U.S. shareholders may be subject to U.S. tax rules that differ significantly
from those summarized above. This discussion does not address all of the tax
consequences applicable to the Fund or shareholders, and shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
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NET ASSET VALUE
Shares are purchased at their net asset value per share. The Fund
calculates its net asset value (NAV) as follows:
NAV = (Value of Fund Assets) - (Fund Liabilities)
---------------------------------------------
Number of Outstanding Shares
Net asset value is determined as of the end of trading hours on the NYSE
(currently 4:00 p.m. New York City time) on days that the NYSE is open.
A security listed or traded on a recognized stock exchange or quoted on
NASDAQ is valued at its last sale price prior to the time when assets are valued
on the principal exchange on which the security is traded or on NASDAQ. If no
sale is reported at that time the most current bid price will be used. All other
securities for which over-the-counter market quotations are readily available
are valued at the most current bid price. Where quotations are not readily
available, the Fund's investments are valued at fair value as determined by
management and approved in good faith by the Trustees pursuant to guidelines
adopted by the Fund. Debt securities which will mature in more than 60 days are
valued at prices furnished by a pricing service approved by the Trustees subject
to review and determination of the appropriate price by the Adviser, whenever a
furnished price is significantly different from the previous day's furnished
price. Securities which will mature in 60 days or less are valued at amortized
cost, which approximates market value.
Generally, trading in foreign securities, as well as U.S. Government
securities and certain cash equivalents and repurchase agreements, is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value of the
shares of the Fund is determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of the NYSE.
Occasionally, events affecting the value of such securities and such exchange
rates may occur between the times at which they are determined and at the close
of the NYSE, which will not be reflected in the computation of net asset value.
If during such periods, events occur which materially affect the value of such
securities, the securities will be valued at their fair market value as
determined by management and approved in good faith by the Trustees.
For purposes of determining the net asset value per share of the Fund,
all assets and liabilities initially expressed in foreign currencies will be
converted into United States dollars at the mean between the bid and offer
prices of such currencies against United States dollars furnished by a pricing
service approved by the Trustees.
CAPITAL STRUCTURE
The Trust's Declaration of Trust permits the Board of Trustees to
authorize the issuance of an unlimited number of full and fractional shares of
beneficial interest which may be divided
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into such separate series as the Trustees may establish. Currently, the Trust
consists of only one series. The Trustees may, however, establish additional
series of shares, and may divide or combine the shares into a greater or lesser
number of shares without thereby changing the proportionate beneficial interests
in the Trust. The Declaration of Trust further authorizes the Trustees to
classify or reclassify any series of the shares into one or more classes. Each
share of the Fund represents an equal proportionate interest in the assets of
the Fund. Upon liquidation of the Trust, shareholders of the Fund are entitled
to share pro rata in the Fund's net assets allocable to such class available for
distribution to shareholders. The Trust reserves the right to create and issue
additional series or classes of shares, in which case the shares of each class
of a series would participate equally in the earnings, dividends and assets
allocable to that class of the particular series.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted by the provisions of the 1940 Act or applicable state law, or
otherwise, to the holders of the outstanding voting securities of an investment
company such as the Trust shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each class or series affected by such matter. Rule 18f-2 further provides that a
class or series shall be deemed to be affected by a matter unless the interests
of each class or series in the matter are substantially identical or the matter
does not affect any interest of such class or series. However, Rule 18f-2
exempts the selection of independent public accountants, the approval of
principal distribution contracts and the election of trustees from the separate
voting requirements of Rule 18f-2.
The Trust is not required to hold annual meetings of shareholders and
does not intend to hold such meetings. In the event that a meeting of
shareholders is held, each share of the Trust will be entitled, as determined by
the Trustees, either to one vote for each share or to one vote for each dollar
of net asset value represented by such shares on all matters presented to
shareholders including the elections of Trustees (this method of voting being
referred to as "dollar based voting"). However, to the extent required by the
1940 Act or otherwise determined by the Trustees, series and classes of the
Trust will vote separately from each other. Shareholders of the Trust do not
have cumulative voting rights in the election of Trustees. Meetings of
shareholders of the Trust, or any series or class thereof, may be called by the
Trustees, certain officers or upon the written request of holders of 10% or more
of the shares entitled to vote at such meetings. The shareholders of the Trust
will have voting rights only with respect to the limited number of matters
specified in the Declaration of Trust and such other matters as the Trustees may
determine or may be required by law.
The Declaration of Trust provides for indemnification of Trustees and
officers of the Trust unless the recipient is adjudicated (i) to be liable by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such person's office or (ii) not to
have acted in good faith in the reasonable belief that such person's actions
were in the best interest of the Trust. The Declaration of Trust provides that,
if any shareholder or former shareholder of any series is held personally liable
solely by reason of being or having been a shareholder and not because of the
shareholder's acts or omissions or for
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some other reason, the shareholder or former shareholder (or heirs, executors,
administrators, legal representatives or general successors) shall be held
harmless from and indemnified against all loss and expense arising from such
liability.
The Declaration of Trust permits the termination of the Trust or of any
series or class of the Trust (i) by a majority of the affected shareholders at a
meeting of shareholders of the Trust, series or class; or (ii) by a majority of
the Trustees without shareholder approval if the Trustees determine that such
action is in the best interest of the Trust or its shareholders.
The Declaration of Trust authorizes the Trustees, with shareholder
approval to cause the Trust, or any series thereof, to merge or consolidate with
any corporation, association, trust or other organization or sell or exchange
all or substantially all of the property belonging to the Trust or any series
thereof. In addition, the Trustees, without shareholder approval, may adopt a
master-feeder structure by investing all or a portion of the assets of a series
of the Trust in the securities of another open-end investment company.
The Declaration of Trust permits the Trustees to amend the Declaration
of Trust without a shareholder vote. However, shareholders of the Trust have the
right to vote on any amendment (i) that would affect the voting rights of
shareholders; (ii) that is required by law to be approved by shareholders; (iii)
that would amend the voting provisions of the Declaration of Trust; or (iv) that
the Trustees determine to submit to shareholders.
SHAREHOLDER AND TRUSTEE LIABILITY
As a Massachusetts business trust, the Trust's operations are governed
by its Declaration of Trust dated August 5, 1999, a copy of which is on file
with the office of the Secretary of State of The Commonwealth of Massachusetts.
Theoretically, shareholders of a Massachusetts business trust may, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust contains an express disclaimer of shareholder
liability for acts or obligations of the Trust or any series of the Trust and
provides that notice of such disclaimer may be given in each agreement,
obligation or instrument entered into or executed by the Trust or its Trustees.
Moreover, the Declaration of Trust provides for the indemnification out of Trust
property of any shareholders held personally liable for any obligations of the
Trust or any series of the Trust. The Declaration of Trust also provides that
the Trust shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Trust and satisfy any judgment
thereon. Thus, the risk of a shareholder incurring financial loss beyond his or
her investment because of shareholder liability would be limited to
circumstances in which the Trust itself will be unable to meet its obligations.
In light of the nature of the Trust's business and the nature and amount of its
assets, the possibility of the Trust's liabilities exceeding its assets, and
therefore a shareholder's risk of personal liability, is remote.
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The Declaration of Trust further provides that the Trust shall
indemnify each of its Trustees and officers against liabilities and expenses
reasonably incurred by them, in connection with, or arising out of, any action,
suit or proceeding, threatened against or otherwise involving such Trustee or
officer, directly or indirectly, by reason of being or having been a Trustee or
officer of the Trust. The Declaration of Trust does not authorize the Trust to
indemnify any Trustee or officer against any liability to which he or she would
otherwise be subject by reason of or for willful misfeasance, bad faith, gross
negligence or reckless disregard of such person's duties.
HOW TO BUY AND SELL SHARES
PURCHASE OF SHARES
Shares of the Fund may be purchased at the net asset value per share
next determined, after receipt of an order by the Fund's Transfer Agent in
proper form with accompanying check or other bank wire payment arrangements
satisfactory to the Fund. The Fund's minimum initial investment is $2,500
(except for retirement accounts for which the minimum initial investment is
$1,000 and for gifts to minors accounts for which the minimum initial investment
is $500) and the minimum subsequent investment is $100, $50 for gifts to minors
accounts and for automatic investment plan investments.
REDEMPTION OF SHARES
Redemption of shares, or payment for redemptions, may be suspended at
times (a) when the New York Stock Exchange is closed for other than customary
weekend or holiday closings, (b) when trading on said Exchange is restricted,
(c) when an emergency exists, as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable, or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or (d)
during any other period when the SEC, by order, so permits, provided that
applicable rules and regulations of the SEC shall govern as to whether the
conditions prescribed in (b) or (c) exist.
Shareholders who purchased shares through a broker-dealer may also
redeem such shares by written request to the Transfer Agent which shares are
held by the Transfer Agent at the address set forth in the Prospectus. To be
considered in "good order", written requests for redemption should indicate the
dollar amount or number of shares to be redeemed and refer to the shareholder's
Fund account number, including either the social security or tax identification
number. The request should be signed in exactly the same way the account is
registered. If there is more than one owner of the shares, all owners must sign.
If shares to be redeemed have a value of $50,000 or more or redemption proceeds
are to be paid to someone other than the shareholder at the shareholder's
address of record, the signature(s) must be guaranteed by an "eligible guarantor
institution," which includes a commercial bank that is a member of the Federal
Deposit Insurance Corporation, a trust company, a member firm of a domestic
stock exchange, a savings association or a credit union that is authorized by
its charter to provide a signature guarantee. The Transfer Agent may reject
redemption instructions if the guarantor is
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neither a member of nor a participant in a signature guarantee program.
Signature guarantees by notaries public are not acceptable. The purpose of a
signature guarantee is to protect shareholders against the possibility of fraud.
Further documentation will be requested from corporations, administrators,
executors, personal representatives, trustees and custodians. Redemption
requests given by facsimile will not be accepted. Unless other instructions are
given in proper form, a check for the proceeds of the redemption will be sent to
the shareholder's address of record.
Shareholders who redeem their shares during the first six months of
operation of the Fund will be charged a 1% redemption fee.
Share purchases and redemptions are governed by Massachusetts law.
SERVICE PROVIDERS
INVESTMENT ADVISER
Derby Capital Management, 7 Wells Avenue, Newton, MA 02459
ADMINISTRATOR
American Data Services, Inc., Hauppauge Corporate Center, 150 Motor Parkway,
Hauppauge, NY 11788-0132
COUNSEL
Choate, Hall & Stewart, Exchange Place, 53 State Street, Boston, MA 02109
CUSTODIAN
Firstar Bank, National Association, 425 Walnut Street, Cincinnati, OH, 45202
INDEPENDENT ACCOUNTS
Vitale, Caturano and Company, 210 Commercial Street, Boston, MA, 02109
TRANSFER AND DIVIDEND DISBURSING AGENT
American Data Services, Inc., Hauppauge Corporate Center, 150 Motor Parkway,
Hauppauge, NY 11788-0132
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APPENDIX - A
GLOSSARY OF INVESTMENT TERMS
This glossary provides a more detailed description of some of the types
of securities and other instruments in which the Fund may invest. The Fund may
invest in these instruments to the extent permitted by its investment objective
and policies. The Fund is not limited by this discussion and may invest in any
other types of instruments not precluded by the policies discussed elsewhere in
the SAI. Please refer to the SAI for a more detailed discussion of certain
instruments.
I. EQUITY AND DEBT SECURITIES
BONDS are debt securities issued by a company, municipality, government or
government agency. The issuer of a bond is required to pay the holder the amount
of the loan (or par value) at a specified maturity and to make scheduled
interest payments.
COMMERCIAL PAPER is a short-term debt obligation with a maturity ranging from 1
to 270 days issued by banks, corporations and other borrowers to investors
seeking to invest idle cash. For example, the Fund may purchase commercial paper
issued under Section 4(2) of the 1933 Act.
COMMON STOCK represents a share of ownership in a company and usually carries
voting rights and earns dividends. Unlike preferred stock, dividends on common
stock are not fixed but are declared at the discretion of the issuer's board of
directors.
CONVERTIBLE SECURITIES are preferred stocks or bonds that pay a fixed dividend
or interest payment and are convertible into common stock at a specified price,
or conversion ratio.
DEPOSITARY RECEIPTS are receipts for shares of a foreign-based corporation that
entitle the holder to dividends and capital gains on the underlying security.
Receipts include those issued by domestic banks (American Depositary Receipts),
foreign banks (Global or European Depositary Receipts) and broker-dealers
(depositary shares).
FIXED-INCOME SECURITIES are securities that pay a specified rate of return. The
term generally includes short- and long-term government, corporate and municipal
obligations that pay a specified rate of interest or coupons for a specified
period of time and preferred stock, which pays fixed dividends.
HIGH-YIELD/HIGH-RISK SECURITIES are securities that are rated below investment
grade by the primary rating agencies or unrated securities of equivalent risk
(e.g., BB or lower by Standard & Poor's and Ba or lower by Moody's). Other terms
commonly used to describe such securities include "lower rated bonds,"
"noninvestment grade bonds" and "junk bonds."
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INVERSE FLOATERS are debt instruments whose interest bears an inverse
relationship to the interest rate on another security.
MORTGAGE- AND ASSET-BACKED SECURITIES are shares in a pool of mortgages or other
debt. These securities are generally pass-through securities, which means that
principal and interest payments on the underlying securities (less servicing
fees) are passed through to shareholders on a pro rata basis. These securities
involve prepayment risk, which is the risk that the underlying mortgages or
other debt may be refinanced or paid off prior to their maturities during
periods of declining interest rates. In that case, the portfolio manager may
have to reinvest the proceeds from the securities at a lower rate. Potential
market gains on a security subject to prepayment risk may be more limited than
potential market gains on a comparable security that is not subject to
prepayment risk.
PASSIVE FOREIGN INVESTMENT COMPANIES ("PFICS") are any foreign corporations
which generate certain amounts of passive income or hold certain amounts of
assets for the production of passive income. Passive income includes dividends,
interest, royalties, rents and annuities. Income tax regulations may require the
Fund to recognize income associated with the PFIC prior to the actual receipt of
any such income.
PAY-IN-KIND BONDS are debt securities that normally give the issuer an option to
pay cash at a coupon payment date or give the holder of the security a similar
bond with the same coupon rate and a face value equal to the amount of the
coupon payment that would have been made.
PREFERRED STOCK is a class of stock that generally pays dividends at a specified
rate and has preference over common stock in the payment of dividends and
liquidation. Preferred stock generally does not carry voting rights.
REPURCHASE AGREEMENTS involve the purchase of a security by the Fund and a
simultaneous agreement by the seller (generally a bank or dealer) to repurchase
the security from the Fund at a specified date or upon demand. This technique
offers a method of earning income on idle cash. These securities involve the
risk that the seller will fail to repurchase the security, as agreed. In that
case, the Fund will bear the risk of market value fluctuations until the
security can be sold and may encounter delays and incur costs in liquidating the
security.
REVERSE REPURCHASE AGREEMENTS involve the sale of a security by the Fund to
another party (generally a bank or dealer) in return for cash and an agreement
by the Fund to buy the security back at a specified price and time. This
technique will be used primarily to provide cash to satisfy unusually heavy
redemption requests.
RULE 144A SECURITIES are securities that are not registered for sale to the
general public under the 1933 Act, but that may be resold to certain
institutional investors.
STANDBY COMMITMENTS are obligations purchased by the Fund from a dealer that
give the Fund the option to sell a security to the dealer at a specified price.
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STEP COUPON BONDS are debt securities that trade at a discount from their face
value and pay coupon interest. The discount from the face value depends on the
time remaining until cash payments begin, prevailing interest rates, liquidity
of the security and the perceived credit quality of the issuer.
STRIP BONDS are debt securities that are stripped of their interest (usually by
a financial intermediary) after the securities are issued. The discount
approximates the total amount of interest the security will accrue from the date
of issuance to maturity. The market value of these securities generally
fluctuates more in response to changes in interest rates than interest-paying
securities of comparable maturity.
TENDER OPTION BONDS are relatively long-term bonds that are coupled with the
agreement of a third party (such as a broker, dealer or bank) to grant the
holders of such securities the option to tender the securities to the
institution at periodic intervals.
U.S. GOVERNMENT SECURITIES include direct obligations of the U.S. government
that are supported by its full faith and credit. Treasury bills have initial
maturities of less than one year, Treasury notes have initial maturities of one
to ten years, and Treasury bonds may be issued with any maturity but generally
have maturities of at least ten years. U.S. government securities also include
indirect obligations of the U.S. government that are issued by federal agencies
and government sponsored entities. Unlike Treasury securities, agency securities
generally are not backed by the full faith and credit of the U.S. government.
Some agency securities are supported by the right of the issuer to borrow from
the Treasury, others are supported by the discretionary authority of the U.S.
government to purchase the agency's obligations and others are supported only by
the credit of the sponsoring agency.
VARIABLE AND FLOATING RATE SECURITIES have variable or floating rates of
interest and, under certain limited circumstances, may have varying principal
amounts. These securities pay interest at rates that are adjusted periodically
according to a specified formula, usually with reference to some interest rate
index or market interest rate. The floating rate tends to decrease the
security's price sensitivity to changes in interest rates.
WARRANTS are securities, typically issued with preferred stocks or bonds, that
give the holder the right to buy a proportionate amount of common stock at a
specified price, usually at a price that is higher than the market price at the
time of issuance of the warrant. The right may last for a period of years or
indefinitely.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD TRANSACTIONS generally involve the
purchase of a security with payment and delivery at some time in the
future--i.e., beyond normal settlement. The Fund does not earn interest on such
securities until settlement, and the Fund bears the risk of market value
fluctuations in between the purchase and settlement dates. New issues of stocks
and bonds, private placements and U.S. government securities may be sold in this
manner.
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ZERO COUPON BONDS are debt securities that do not pay interest at regular
intervals, but are issued at a discount from face value. The discount
approximates the total amount of interest the security will accrue from the date
of issuance to maturity. The market value of these securities generally
fluctuates more in response to changes in interest rates than in interest-paying
securities of comparable maturity.
II. FUTURES, OPTIONS AND OTHER DERIVATIVES
FORWARD CONTRACTS are contracts to purchase or sell a specified amount of
property for an agreed upon price at a specified time. Forward contracts are not
currently exchange traded and are typically negotiated on an individual basis.
The Fund may enter into forward currency contracts to hedge against declines in
the value of securities denominated in, or whose value is tied to, a currency
other than the U.S. dollar or to reduce the impact of currency appreciation on
purchases of such securities. It may also enter into forward contracts to
purchase or sell securities or other financial indices.
FUTURES CONTRACTS are contracts that obligate the buyer to receive and the
seller to deliver an instrument or money at a specified price on a specified
date. The Fund may buy and sell futures contracts on foreign currencies,
securities and financial indices including interest rates or an index of U.S.
government, foreign government, equity or fixed-income securities. The Fund may
also buy options on futures contracts. An option on a futures contract gives the
buyer the right, but not the obligation, to buy or sell a futures contract at a
specified price on or before a specified date. Futures contracts and options on
futures are standardized and traded on designated exchanges.
INDEXED/STRUCTURED SECURITIES are typically short- to intermediate-term debt
securities whose value at maturity or interest rate is linked to currencies,
interest rates, equity securities, indices, commodity prices or other financial
indicators. Such securities may be positively or negatively indexed (i.e., their
value may increase or decrease if the reference index or instrument
appreciates). Indexed/structured securities may have return characteristics
similar to direct investments in the underlying instruments and may be more
volatile than the underlying instruments. The Fund bears the market risk of an
investment in the underlying instruments, as well as the credit risk of the
issuer.
INTEREST RATE SWAPS involve the exchange by two parties of their respective
commitments to pay or receive interest (e.g., an exchange of floating rate
payments for fixed rate payments).
OPTIONS are the right, but not the obligation, to buy or sell a specified amount
of securities or other assets on or before a fixed date at a predetermined
price. The Fund may purchase and write put and call options on securities,
securities indices and foreign currencies.
A-4
<PAGE> 81
APPENDIX - B
RATINGS OF INVESTMENT SECURITIES
A rating of a rating service represents the service's opinion as to the
credit quality of the security being rated. However, the ratings are general and
are not absolute standards of quality or guarantees as to the creditworthiness
of an issuer. Consequently, the Fund's investment adviser believes that the
quality of debt securities in which the Fund invests should be continuously
reviewed. A rating is not a recommendation to purchase, sell or hold a security,
because it does not take into account market value or suitability for a
particular investor. When a security has received a rating from more than one
service, each rating should be evaluated independently. Ratings are based on
current information furnished by the issuer or obtained by the ratings services
from other sources which they consider reliable. Ratings may be changed,
suspended or withdrawn as a result of changes in or unavailability of such
information, or for other reasons.
The following is a description of the characteristics of ratings used
by Moody's Investors Service, Inc. and Standard & Poor's Corporation.
MOODY'S INVESTORS SERVICE, INC. RATINGS
Aaa--Bonds rated Aaa are judged to be the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt-edge".
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. Although the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such bonds.
Aa--Bonds rated Aa are judged to be high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa bonds or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the long
term risk appear somewhat larger than in Aaa bonds.
A--Bonds rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa--Bonds rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
B-1
<PAGE> 82
Ba--Bonds rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B--Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds rated Caa are of poor standing. Such bonds may be in default
or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds rated Ca represent obligations which are speculative in a
high degree. Such bonds are often in default or have other marked shortcomings.
STANDARD & POOR'S CORPORATION RATING
AAA--Bonds rated AAA have the highest rating. Capacity to pay principal
and interest is extremely strong.
AA--Bonds rated AA have a very strong capacity to pay principal and
interest and differ from AAA bonds only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in higher rated categories.
BB-- B-- CCC-- CC--Bonds rated BB, B, CCC and CC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation among such bonds and CC the
highest degree of speculation. Although such bonds will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
B-2
<PAGE> 83
PART C
OTHER INFORMATION
ITEM 23. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements
Report of Independent Certified Public Accountants
(2) Exhibits:
(a) Declaration of Trust*
(b) By-Laws
(c) Not Applicable
(d) Investment Advisory Agreement between Registrant and Derby Capital
Management
(e) Underwriting Agreement
(f) Not Applicable
(g) Custody Agreement
(h)(1) Administrative Service Agreement
(2) Transfer Agency and Service Agreement
(i) Opinion of Choate, Hall & Stewart
(j) Consent of Independent Accountants
(k) Not Applicable
(l) Initial Capital Agreement
(m) Rule 12b-1 Plan
(n) Not Applicable
(o) Not Applicable
(p) Powers of Attorney*
- ----------------
* Previously filed.
<PAGE> 84
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 25. INDEMNIFICATION
Article V of the Registrant's Declaration of Trust (filed as an exhibit to
this Registration Statement) provides for indemnification of the Trustees,
officers, employees and agents of the Trust against expense or liability in any
action arising out of such persons' activities on behalf of the Trust or Fund,
except to the extent arising from his or her own bad faith, willful misfeasance,
gross negligence or reckless disregard of duties.
Article V also provides for the indemnification of each shareholder of the
Trust for all claims and liabilities to which such shareholder may become
subject by reason of his being or having been a shareholder, and shall reimburse
such shareholder for all legal and other expenses incurred by him in connection
with any claim or liability.
The Trust currently maintains director and officer liability insurance
which protects its Trustees and officers against certain liabilities incurred in
serving in such capacities with specific exceptions.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant by the Registrant pursuant to the Trust's Declaration of Trust,
By-laws or otherwise, the Registrant is aware that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and, therefore, is unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by trustees, officers or
controlling persons of the Registrant in connection with the successful defense
of any act, suit or proceeding) is asserted by such trustees, officers or
controlling persons in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issues.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Derby Capital Management serves as the investment adviser for the
Registrant. The business and other connections of Derby Capital Management are
set forth in the Uniform Application for Investment Adviser Registration ("Form
ADV") of Derby and Company, Inc. as currently filed with the SEC which is
incorporated by reference herein.
ITEM 27. PRINCIPAL UNDERWRITER
(a) ADS Distributors, Inc. ("ADSD") serves as Distributor of shares of the
Registrant. ADSD also serves as principal underwriter for other investment
companies.
ADSD is registered with the Securities and Exchange Commission ("SEC") as
a broker-dealer and is a member of the National Association of Securities
Dealers. ADSD is located at Hauppauge Corporate Center, 150 Motor Parkway,
Hauppauge, NY 11788-0132.
<PAGE> 85
(b) No director, officer or partner of ADSD holds a position or office
with the Registrant.
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are in the possession of: (1) Derby Capital Management, 7 Wells
Avenue, Newton, MA 02459 (records relating to its function as investment
adviser); (2) American Data Services, Inc., Hauppauge Corporate Center, 150
Motor Parkway, Hauppauge, NY 11788-0132 (records relating to its functions as
Administrator and Transfer Agent), and (3) ADS Distributors, Inc., Hauppauge
Corporate Center, 150 Motor Parkway, Hauppauge, NY 11788-0132 (records relating
to its function as distributor).
ITEM 29. MANAGEMENT SERVICES
Not Applicable.
ITEM 30. UNDERTAKINGS
(a) Registrant undertakes to furnish each person to whom a prospectus is
delivered a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
(b) Registrant undertakes to call a meeting of Shareholders for the
purpose of voting upon the question of removal of a Trustee or
Trustees when requested to do so by the holders of at least 10% of
the Registrant's outstanding shares of beneficial interest and in
connection with such meeting to comply with the shareholders
communications provisions of Section 16(c) of the Investment Company
Act of 1940.
<PAGE> 86
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Pre-Effective Amendment No. 2 to Registration Statement on Form N-1A
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Newton, in the Commonwealth of Massachusetts, on this 13th day of
October, 1999.
DCM SERIES TRUST
By: /s/ Jonathan J. Derby
---------------------------------------
Jonathan J. Derby
Vice President and Trustee
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, this Amendment No. 2 to
Registration Statement on Form N-1A has been signed below by the following
persons in the capacities and on the dates indicated:
/s/ Mark A. Derby President and October 13, 1999
- ------------------------------ Trustee
Mark A. Derby
/s/ Jonathan J. Derby Vice President and October 13, 1999
- ------------------------------ Trustee
Jonathan J. Derby
/s/ Dr. Ronald Cooper Trustee October 13, 1999
- ------------------------------
Dr. Ronald Cooper
/s/ Stephen Dephoure Trustee October 13, 1999
- ------------------------------
Stephen Dephoure
/s/ Stuart Cole Trustee October 13, 1999
- ------------------------------
Stuart Cole
<PAGE> 87
EXHIBIT INDEX
(b) By-Laws
(d) Investment Advisory Agreement between Registrant and Derby Capital
Management
(e) Underwriting Agreement
(g) Custody Agreement
(h)(1)Administrative Service Agreement
(2)Transfer Agency and Service Agreement
(i) Opinion of Choate, Hall & Stewart
(j) Consent of Independent Accountants
(l) Initial Capital Agreement
(m) Rule 12b-1 Plan
<PAGE> 88
- --------------------------------------------------------------------------------
THE DCM GROWTH FUND
BALANCE SHEET
October 7, 1999
- --------------------------------------------------------------------------------
<PAGE> 89
THE DCM GROWTH FUND
BALANCE SHEET
October 7, 1999
- --------------------------------------------------------------------------------
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Report .............................................................................................. 1
Balance Sheet ............................................................................................................. 2
Notes to the Balance Sheet ................................................................................................ 3-4
</TABLE>
<PAGE> 90
[VITALE CATURANO LOGO]
INDEPENDENT AUDITOR'S REPORT
Board of Trustees
The DCM Growth Fund
Newton, Massachusetts
We have audited the accompanying balance sheet of The DCM Growth Fund (a series
of DCM Series Trust, a Massachusetts business trust) as of October 7, 1999. This
balance sheet is the responsibility of the Fund's Jnanagement. Our
responsibility is to express an opinion on this balance sheet 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 balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of The DCM Growth Fund as of October
7, 1999, in conformity with generally accepted accounting principles.
/s/ Vitale, Caturano and Company, P.C.
VITALE, CATURANO AND COMPANY, P.C.
October 7, 1999
Boston, Massachusetts
Certified Public Accountants
and Business Advisors
210 Commercial Street
Boston, Massachusetts 02109-1314
(617) 912-9000 - Fax (617) 912-9001
Member
- ----------------------------
Division for CPA Firms AICPA
<PAGE> 91
Page 2
THE DCM GROWTH FUND
Balance Sheet
October 7, 1999
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Cash $ 100,000
----------
Total assets 100,000
----------
Net assets:
Total net assets (consisting of paid-in capital
for 10,000 shares outstanding) $ 100,000
==========
Net assets value per share
(10,000 shares issued, an unlimited number of shares
authorized, $10 par value) $ 10
==========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
<PAGE> 92
Page 3
THE DCM GROWTH FUND
Notes to the Balance Sheet
October 7, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION
The DCM Growth Fund (the "Fund") is a diversified series of the DCM Series
Trust (the "Trust"). The Trust was organized as a Massachusetts business
trust on August 5, 1999, and is being registered with the Securities and
Exchange Commission under the Investment Company Act of 1940 (the 1940 Act)
as a diversified open-ended management investment company. Since August 5,
1999, the Fund's activities have been limited to organizational matters
with no operating activities. The Fund intends to qualify under Sub chapter
M of the Internal Revenue Code of 1986, as amended. Of the 10,000 initial
shares outstanding to Derby and Company, Inc. a/k/a Derby Capital
Management. The investment objective of the Fund is to seek long-term
growth of capital by investing primarily in common stocks of 20-30 large
companies that are selected for their long-term growth potential. The Fund
seeks to hold each investment indefinitely, which should produce a lower
turnover rate and, thus, lower taxable income.
2. FUND SHARES
The board of trustees has authorized the issuance of an unlimited number of
one series of shares. The Trustees may, however establish additional series
of shares and may combine the shares into a greater or lesser number of
shares without thereby changing the proportionate beneficial interest in
the Trust.
3. MANAGEMENT AGREEMENT
The board of trustees of the Trust have overall responsibility for
management and supervision of the Fund. Derby Capital Management, a
Massachusetts corporation, acts as the Fund's advisor pursuant to an
advisory agreement between Derby Capital Management and the Trust. Under
the terms of the advisory agreement with the Trust. Derby Capital
Management is responsible for supervising the investment activities of the
Fund and is authorized in its discretion to determine the securities to be
purchased, sold, o r otherwise disposed of by the Fund, and the timing of
such purchases, sales, and dispositions. Derby Capital Management is
responsible for all the expenses related to its services for the Fund, with
the exception of certain expenses which are to be paid by the Fund,
including but not limited to taxes, certificate printing costs, and
regulatory fees.
As compensation for its management services and certain expenses which
Derby Capital Management incurs, Derby Capital Management is entitled to a
management fee equal to 1% of the Fund's average daily net assets. This fee
is calculated and accrued daily and paid monthly.
<PAGE> 93
Page 4
THE DCM GROWTH FUND
Notes to the Balance Sheet
October 7, 1999
- --------------------------------------------------------------------------------
4. TRANSFER AGENT AND ADMINISTRATOR
American Data Services, Inc. (ADS) serves as the Fund's administrator
pursuant to an administration agreement with the Fund for clerical help,
accounting, data processing, internal auditing, providing office space, and
certain other services. In addition, American Data Services, Inc., acts as
transfer agent of the Fund. The Fund has agreed to pay the administrator
administration fees based on the value of the prior months average net
assets of the Fund, payable monthly at a rate of.175% of the first 20 mil
lion of average net assets; .095% of next 80 million of average net assets;
.045% of next 200 million average net assets; .02% of all average monthly
net assets in excess of $300 million, subject to a minimum annual charge of
$45,000. In addition, transfer agency fees are between $9 and $16 per open
account per annum and $2 per closed account per annum, subject to a minimum
of $12,000 per Fund per annum. In addition, the Fund will reimburse
American Data Services for certain out-of-pocket expenses and other costs.
5. DISTRIBUTION PLAN
The trustees of the Fund have adopted a distribution plan (the Plan) with
respect to shares of the Fund pursuant to Section 12(b) of the 1940 Act and
Rule 12b-1 thereunder. Under the plan, the Fund pays ADS Distributors,
Inc., distributor of the Fund, a fee at an annual rate of .25% of the value
of the average daily net assets of the Fund fbr certain service and
distribution expenses borne or paid to others by ADS Distributors, Inc.
<PAGE> 1
Exhibit (b)
BY-LAWS
OF
DCM SERIES TRUST
ARTICLE I
DEFINITIONS
The terms "Commission," "Declaration," "Distributor," "Investment
Adviser," "1940 Act," "Shareholder," "Shares," "Transfer Agent," "Trust," "Trust
Property" and "Trustees" have the respective meanings given them in the
Declaration of Trust of DCM Series Trust dated August 5, 1999.
ARTICLE II
OFFICES
SECTION 2.1. Principal Office. Until changed by the Trustees, the
principal office of the Trust in the Commonwealth of Massachusetts shall be in
Newton, Massachusetts.
SECTION 2.2. Other Offices. In addition to its principal office in the
Commonwealth of Massachusetts, the Trust may have an office or offices at such
other places within and without the Commonwealth as the Trustees may from time
to time designate or the business of the Trust may require.
ARTICLE III
SHAREHOLDERS' MEETINGS
SECTION 3.1. Place of Meetings. Meetings of Shareholders shall be held
at such place, within or without the Commonwealth of Massachusetts, as may be
designated from time to time by the Trustees.
SECTION 3.2. Meetings. Meetings of Shareholders of the Trust shall be
held whenever called by the Trustees or the President of the Trust and whenever
election of a Trustee or Trustees by Shareholders is required by the provisions
of Section 16(a) of the 1940 Act, for that purpose. Meetings of Shareholders
shall also be called by the Secretary upon the written request of the holders of
Shares entitled to vote as otherwise required by Section 16(c) of the 1940 Act
and to the extent required by the corporate or business statute of any state in
which the Shares of the Trust are sold, as made applicable to the Trust by the
provisions of Section 2.3 of the Declaration. Such request shall state the
purpose or purposes of such meeting and the matters proposed to be acted on
thereat. Except to the extent otherwise required by Section 16(c) of the 1940
Act, as made
<PAGE> 2
applicable to the Trust by the provisions of Section 2.3 of the Declaration, the
Secretary shall inform such Shareholders of the reasonable estimated cost of
preparing and mailing such notice of the meeting, and upon payment to the Trust
of such costs, the Secretary shall give notice stating the purpose or purposes
of the meeting to all entitled to vote at such meeting. No meeting need be
called upon the request of the holders of Shares entitled to cast less than a
majority of all votes entitled to be cast at such meeting, to consider any
matter which is substantially the same as a matter voted upon at any meeting of
Shareholders held during the preceding twelve months.
SECTION 3.3. Notice of Meetings. Written or printed notice of every
Shareholders' meeting stating the place, date, and purpose or purposes thereof,
shall be given by the Secretary not less than ten (10) nor more than ninety (90)
days before such meeting to each Shareholder entitled to vote at such meeting.
Such notice shall be deemed to be given when deposited in the United States
mail, postage prepaid, directed to the Shareholder at his, her or its address as
it appears on the records of the Trust.
SECTION 3.4. Quorum and Adjournment of Meetings. Except as otherwise
provided by law, by the Declaration or by these By-Laws, at all meetings of
Shareholders the holders of a majority of the Shares issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall be
requisite to and shall constitute a quorum for the transaction of business. In
the absence of a quorum, the Shareholders present or represented by proxy and
entitled to vote thereat shall have power to adjourn the meeting from time to
time. Any adjourned meeting may be held as adjourned without further notice. At
any adjourned meeting at which a quorum shall be present, any business may be
transacted as if the meeting had been held as originally called.
SECTION 3.5. Proxies. Subject to the provisions of the Declaration,
every Person entitled to vote for Trustees or on any other matter shall have the
right to do so either in person or by proxy, provided that either (i) an
instrument authorizing such a proxy to act is executed by the Shareholder in
writing and dated not more than eleven (11) months before the meeting, unless
the instrument specifically provides for a longer period or (ii) the Trustees
adopt an electronic, telephonic, computerized or other alternative to execution
of a written instrument authorizing the proxy to act which authorization is
received not more than eleven (11) months before the meeting. A proxy shall be
deemed executed by a Shareholder if the Shareholder's name is placed on the
proxy (whether by manual signature, typewriting, telegraphic transmission or
otherwise by the Shareholder or the Shareholder's attorney-in-fact or other
authorized agent. A valid proxy that does not state that it is irrevocable shall
continue in full force and effect unless (i) revoked by the person executing it
before the vote pursuant to that proxy by a writing delivered to the Trust
stating that the proxy is revoked by a subsequent proxy executed by, or
attendance at the meeting and voting in person by, the person executing that
proxy or revoked by such person using any electronic, telephonic, computerized
or other alternative means authorized by the Trustees for authorizing the proxy
to act; or (ii) written notice of the death or incapacity of the maker of that
proxy is received by the Trust before the vote pursuant to that proxy is
counted. A proxy with respect to Shares held in the name of two or more Persons
shall be valid if executed by any one of them unless at or prior to exercise of
the proxy the Trust receives a specific written notice to the contrary from any
of them. A proxy purporting to be executed by or on behalf of a Shareholder
shall be deemed valid unless challenged at or prior to its exercise and the
burden of proving invalidity shall rest on the challenger. Proxies shall be
delivered
2
<PAGE> 3
to the Secretary of the Trust or other person responsible for recording the
proceedings before being voted. Unless otherwise specifically limited by their
terms, proxies shall entitle the holder thereof to vote at any adjournment of a
meeting. At all meetings of the Shareholders, unless the voting is conducted by
inspectors, all questions relating to the qualifications of voters, the validity
of proxies, and the acceptance or rejection of votes shall be decided by the
chairman of the meeting.
SECTION 3.6. Inspectors of Election. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the chairman of any meeting of Shareholders may, and on the request
of any Shareholder or any Shareholder's proxy shall, appoint Inspectors of
Election of the meeting. In case any person appointed as Inspector fails to
appear or fails or refuses to act, the vacancy may be filled by appointment made
by the Trustees in advance of the convening of the meeting or at the meeting by
the person acting as chairman. The Inspectors of Election shall determine the
number of Shares outstanding, the Shares represented at the meeting, the
existence of a quorum, the authenticity, validity and effect of proxies, shall
receive votes, ballots or consents, shall hear and determine all challenges and
questions in any way arising in connection with the right to vote, shall count
and tabulate all votes or consents, determine the results, and do such other
acts as may be proper to conduct the election or vote with fairness to all
Shareholders. On request of the chairman of the meeting, or of any Shareholder
or any Shareholder's proxy, the Inspectors of Election shall make a report in
writing of any challenge, question or matter determined by them and shall
execute a certificate of any facts found by them.
SECTION 3.7. Inspection of Books and Records. Shareholders shall have
such rights and procedures of inspection of the books and records of the Trust
as are granted to Shareholders under Section 32 of the Business Corporations Law
of the Commonwealth of Massachusetts.
SECTION 3.8. Action by Shareholders Without Meeting. Except as
otherwise provided by law, the provisions of these By-Laws relating to notices
and meetings to the contrary notwithstanding, any action required or permitted
to be taken at any meeting of Shareholders may be taken without a meeting if all
of the Shareholders entitled to vote upon the action consent to the action in
writing and such consents are filed with the records of the Trust. Such consent
shall be treated for all purposes as a vote taken at a meeting of Shareholders.
SECTION 3.9. Presence at Meetings. Presence at meetings of Shareholders
requires physical attendance by the Shareholder or his or her proxy at the
meeting site and does not encompass attendance by telephonic or other electronic
means.
ARTICLE IV
TRUSTEES
SECTION 4.1. Meetings of the Trustees. The Trustees may in their
discretion provide for regular or special meetings of the Trustees. Regular
meetings of the Trustees may be held at such time and place as shall be
determined from time to time by the Trustees without further notice.
3
<PAGE> 4
Special meetings of the Trustees may be called at any time by either of the
Co-Chairmen and shall be called by either of the Co-Chairmen or the Secretary
upon the written request of any two (2) Trustees.
SECTION 4.2. Notice of Special Meetings. Written notice of special
meetings of the Trustees, stating the place, date and time thereof, shall be
given not less than two (2) days before such meeting to each Trustee,
personally, by telegram, by facsimile, by mail, or by leaving such notice at the
Trustee's place of residence or usual place of business. If mailed, such notice
shall be deemed to be given when deposited in the United States mail, postage
prepaid, directed to the Trustee at the Trustee's address as it appears on the
records of the Trust. Subject to the provisions of the 1940 Act, notice or
waiver of notice need not specify the purpose of any special meeting.
SECTION 4.3. Telephone Meetings. Subject to the provisions of the 1940
Act, any Trustee, or any member or members of any committee designated by the
Trustees, may participate in a meeting of the Trustees, or any such committee,
as the case may be, 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. Participation in a meeting by these means constitutes presence in
person at the meeting.
SECTION 4.4. Quorum, Voting and Adjournment of Meetings. At all
meetings of the Trustees, a majority of the Trustees shall be requisite to and
shall constitute a quorum for the transaction of business. If a quorum is
present, the affirmative vote of a majority of the Trustees present shall be the
act of the Trustees, unless the concurrence of a greater proportion is expressly
required for such action by law, the Declaration or these By- Laws. If at any
meeting of the Trustees there be less than a quorum present, the Trustees
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall have been obtained.
SECTION 4.5. Action by Trustees Without Meeting. The provisions of
these By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at any
meeting of the Trustees may be taken without a meeting if a consent in writing
setting forth the action shall be signed by all of the Trustees entitled to vote
upon the action and such written consent is filed with the minutes of
proceedings of the Trustees.
SECTION 4.6. Expenses and Fees. Each Trustee may be allowed expenses,
if any, for attendance at each regular or special meeting of the Trustees, and
each Trustee who is not an officer or employee of the Trust or of its investment
manager or underwriter or of any corporate affiliate of any of said persons
shall receive for services rendered as a Trustee of the Trust such compensation
as may be fixed by the Trustees. Nothing herein contained shall be construed to
preclude any Trustee from serving the Trust in any other capacity and receiving
compensation therefor.
SECTION 4.7. Execution of Instruments and Documents and Signing of
Checks and Other Obligations and Transfers. All instruments, documents and other
papers shall be executed in the
4
<PAGE> 5
name and on behalf of the Trust and all checks, notes, drafts and other
obligations for the payment of money by the Trust shall be signed, and all
transfer of securities standing in the name of the Trust shall be executed, by
either of the Co-Chairmen, the President, any Vice President or the Treasurer or
by any one or more officers or agents of the Trust as shall be designated for
that purpose by vote of the Trustees; notwithstanding the above, nothing in this
Section 4.7 shall be deemed to preclude the electronic authorization, by
designated persons, of the Trust's Custodian (as described herein in Section
9.1) to transfer assets of the Trust, as provided for herein in Section 9.1.
SECTION 4.8. Indemnification of Trustees, Officers, Employees and
Agents. (a) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Trust) by reason of the fact
that he is or was a Trustee, officer, employee, or agent of the Trust. The
indemnification shall be against expenses, including attorneys' fees, judgments,
fines, and amounts paid in settlement, actually and reasonably incurred by such
Trustee, officer, employee or agent in connection with the action, suit, or
proceeding, if such Trustee, officer, employee or agent acted in good faith and
in a manner reasonably believed to be in or not opposed to the best interests of
the Trust, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the Trust, and, with
respect to any criminal action or proceeding, had reasonable cause to believe
that such conduct was unlawful.
(b) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or on behalf of the Trust to obtain a judgment or decree in its favor by
reason of the fact that such person is or was a Trustee, officer, employee, or
agent of the Trust. The indemnification shall be against expenses, including
attorneys' fees actually and reasonably incurred by such person in connection
with the defense or settlement of the action or suit, if such person acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the Trust; except that no indemnification shall be made in
respect of any claim, issue, or matter as to which the person has been adjudged
to be liable for negligence or misconduct in the performance of such person's
duty to the Trust, except to the extent that the court in which the action or
suit was brought, or a court of equity in the county in which the Trust has its
principal office, determines upon application that, despite the adjudication of
liability but in view of all circumstances of the case, the person is fairly and
reasonably entitled to indemnity for those expenses which the court shall deem
proper, provided such Trustee, officer, employee or agent is not adjudged to be
liable by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such person's office.
(c) To the extent that a Trustee, officer, employee, or agent of the
Trust has been successful on the merits or otherwise in defense of any action,
suit or proceeding referred to in subsection (a) or (b) or in defense of any
claim, issue or matter therein, such Trustee, officer, employee or agent shall
be indemnified against expenses, including, attorneys' fees, actually and
reasonably incurred in connection therewith.
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(d) (1) Unless a court orders otherwise, any indemnification under
subsections (a) or (b) of this section may be made by the Trust only as
authorized in the specific case after a determination that
indemnification of the Trustee, officer, employee, or agent is proper
in the circumstances because the applicable standard of conduct set
forth in subsections (a) or (b) has been met.
(2) The determination shall be made:
(i) By the Trustees, by a majority vote of a quorum
which consists of Trustees who were not parties to the action,
suit or proceeding; or
(ii) If the required quorum is not obtainable, or if
a quorum of disinterested Trustees so directs, by independent
legal counsel in a written opinion; or
(iii) By the Shareholders.
(3) Notwithstanding any provision of this Section 4.8, no
person shall be entitled to indemnification for any liability, whether
or not there is an adjudication of liability, arising by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard
of duties as described in Section 17(h) and (i) of the 1940 Act
("disabling conduct"). A person shall be deemed not liable by reason of
disabling conduct if, either:
(i) a final decision on the merits is made by a court
or other body before whom the proceeding was brought that the
person to be indemnified ("indemnitee") was not liable by
reason of disabling conduct; or
(ii) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the
indemnitee was not liable by reason of disabling conduct, is
made by either
(A) a majority of a quorum of Trustees who
are neither "interested persons" of the Trust, as
defined in Section 2(a)(19) of the 1940 Act, nor
parties to the action, suit or proceeding, or
(B) an independent legal counsel in a
written opinion.
(e) Expenses, including attorneys' fees, incurred by a Trustee,
officer, employee or agent of the Trust in defending a civil or criminal action,
suit or proceeding may be paid by the Trust in advance of the final disposition
thereof if:
(1) authorized in the specific case by the Trustees; and
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(2) the Trust receives an undertaking by or on behalf of the
Trustee, officer, employee or agent of the Trust to repay the advance
if it is not ultimately determined that such person is entitled to be
indemnified by the Trust; and
(3) either, (i) such person provides a security for such
undertaking, or
(ii) the Trust is insured against losses by reason
of any lawful advances, or
(iii) a determination, based on a review of readily
available facts, that there is reason to believe that such
person ultimately will be found entitled to indemnification,
is made by either--
(A) a majority of a quorum which consists of
Trustees who are neither "interested persons" of the
Trust, as defined in Section 2(a)(19) of the 1940
Act, nor parties to the action, suit or proceeding,
or
(B) an independent legal counsel in a
written opinion.
(f) The indemnification provided by this Section shall not be deemed
exclusive of any other rights to which a person may be entitled under any
by-law, agreement, vote of Shareholders or disinterested Trustees or otherwise,
both as to action in such person's official capacity and as to action in another
capacity while holding the office, and shall continue as to a person who has
ceased to be a Trustee, employee, or agent and inure to the benefit of the
heirs, executors and administrators of such person; provided that no person may
satisfy any right of indemnity or reimbursement granted herein or to which such
person may be otherwise entitled except out of the property of the Trust, and no
Shareholder shall be personally liable with respect to any claim for indemnity
or reimbursement or otherwise.
(g) The Trust may purchase and maintain insurance on behalf of any
person who is or was a Trustee, officer, employee, or agent of the Trust,
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such. However,
in no event will the Trust purchase insurance to indemnify any officer or
Trustee against liability for any act for which the Trust itself is not
permitted to indemnify such person.
(h) Nothing contained in this Section shall be construed to protect any
Trustee or officer of the Trust against any liability to the Trust or to its
security holders to which such Trustee or officer 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.
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ARTICLE V
COMMITTEES
SECTION 5.1. Executive and Other Committees. The Trustees, by
resolution adopted by a majority of the Trustees, may designate an Executive
Committee, Audit Committee, Nominating Committee, Pricing Committee, and/or
other committees, each committee to consist of two (2) or more of the Trustees
of the Trust and may delegate to such committees, in the intervals between
meetings of the Trustees, any or all of the powers of the Trustees in the
management of the business and affairs of the Trust. In the absence of any
member of any such committee, the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint a Trustee to act in place
of such absent member. Each such committee shall keep a record of its
proceedings.
The Executive Committee and any other committee shall fix its own rules
or procedure, but the presence of at least fifty percent (50%) of the members of
the whole committee shall in each case be necessary to constitute a quorum of
the committee and the affirmative vote of the majority of the members of the
committee present at the meeting shall be necessary to take action.
All actions of the Executive Committee shall be reported to the
Trustees at the meeting thereof next succeeding to the taking of such action.
SECTION 5.2. Advisory Committee. The Trustees may appoint an advisory
committee which shall be composed of persons who do not serve the Trust in any
other capacity and which shall have advisory functions with respect to the
investments of the Trust but which shall have no power to determine that any
security or other investment shall be purchased, sold or otherwise disposed of
by the Trust. The number of persons constituting any such advisory committee
shall be determined from time to time by the Trustees. The members of any such
advisory committee may receive compensation for their services and may be
allowed such fees and expenses for the attendance at meetings as the Trustees
may from time to time determine to be appropriate.
SECTION 5.3. Committee Action Without Meeting. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at any
meeting of any Committee of the Trustees appointed pursuant to Section 5.1 of
these By-Laws may be taken without a meeting if a consent in writing setting
forth the action shall be signed by all members of the Committee entitled to
vote upon the action and such written consent is filed with the records of the
proceedings of the Committee.
ARTICLE VI
OFFICERS
SECTION 6.1. Executive Officers. The executive officers of the Trust
shall be two Co-Chairmen, a President, one or more Vice Presidents, a Secretary
and a Treasurer. The Co-Chairmen shall be selected from among the Trustees but
none of the other executive officers need be a Trustee. Two
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or more offices, except those of President and any Vice President, may be held
by the same person, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity. The executive officers of the Trust shall
be elected annually by the Trustees and each executive officer so elected shall
hold office until a successor is elected and has qualified.
SECTION 6.2. Other Officers and Agents. The Trustees may also elect one
or more Assistant Vice Presidents, Assistant Secretaries and Assistant
Treasurers and may elect, or may delegate to the Co-Chairmen the power to
appoint, such other officers and agents as the Trustees shall at any time or
from time to time deem advisable.
SECTION 6.3. Term and Removal and Vacancies. Each officer of the Trust
shall hold office until a successor is elected and has qualified. Any officer or
agent of the Trust may be removed by the Trustees whenever, in their judgment,
the best interests of the Trust will be served thereby, but such removal shall
be without prejudice to the contractual rights, if any, of the person so
removed.
SECTION 6.4. Compensation of Officers. The compensation of officers and
agents of the Trust shall be fixed by the Trustees, or by the Co-Chairmen to the
extent provided by the Trustees with respect to officers appointed by the
Co-Chairman.
SECTION 6.5. Power and Duties. All officers and agents of the Trust, as
between themselves and the Trust, shall have such authority and perform such
duties in the management of the Trust as may be provided in or pursuant to these
By-Laws, or to the extent not so provided, as may be prescribed by the Trustees;
provided, that no rights of any third party shall be affected or impaired by any
such By-Law or resolution of the Trustees unless such third party has knowledge
thereof.
SECTION 6.6. The Co-Chairmen. (a) The Co-Chairmen shall be the co-chief
executive officers of the Trust; they shall preside at all meetings of the
Shareholders and of the Trustees; they shall have general and active management
of the business of the Trust, shall see that all orders and resolutions of the
Trustees are carried into effect, and, in connection therewith, shall be
authorized to delegate to the President or to one or more Vice Presidents such
powers and duties at such times and in such manner as they may deem advisable;
they shall be signatories on all Annual and Semi-Annual Reports as may be sent
to Shareholders, and they shall perform such other duties as the Trustees may
from time to time prescribe.
(b) In the absence of on of the Co-Chairmen, the other Co-Chairman
shall preside at all meetings of the Shareholders and the Board of Trustees. In
the absence of both Co-Chairmen, the Board shall determine who shall preside at
all meetings of the Shareholders and the Board of Trustees.
SECTION 6.7. The President. The President shall perform such duties as
the Board of Trustees and the Co-Chairmen may from time to time prescribe.
SECTION 6.8. The Vice Presidents. The Vice Presidents shall be of such
number and shall have such titles as may be determined from time to time by the
Trustees. The Vice President, or, if there be more than one, the Vice Presidents
in the order of their seniority as may be determined from
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time to time by the Trustees or the Co-Chairmen, shall, in the absence or
disability of the President, exercise the powers and perform the duties of the
President, and such officer or officers shall perform such other duties as the
Trustees or the Co-Chairman may from time to time prescribe.
SECTION 6.9. The Assistant Vice Presidents. The Assistant Vice
President, or, if there be more than one, the Assistant Vice Presidents, shall
perform such duties and have such powers as may be assigned them from time to
time by the Trustees or the Co-Chairmen.
SECTION 6.10. The Secretary. The Secretary shall attend all meetings of
the Trustees and all meetings of the Shareholders and record all the proceedings
of the meetings of the Shareholders and of the Trustees in a book to be kept for
that purpose, and shall perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the Shareholders and special meetings of the Trustees, and shall perform such
other duties and have such powers as the Trustees, or the Co-Chairmen, may from
time to time prescribe. The Secretary shall keep in safe custody the seal of the
Trust and affix or cause the same to be affixed to any instrument requiring it,
and, when so affixed, it shall be attested by the Secretary's signature or by
the signature of an Assistant Secretary.
SECTION 6.11. The Assistant Secretaries. The Assistant Secretary, or,
if there be more than one, the Assistant Secretaries in the order determined by
the Trustees or the Co-Chairmen, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary and shall
perform such duties and have such other powers as the Trustees or the
Co-Chairmen may from time to time prescribe.
SECTION 6.12. The Treasurer. The Treasurer shall be the chief financial
officer of the Trust. The Treasurer shall keep or cause to be kept full and
accurate accounts of receipts and disbursements in books belonging to the Trust,
and shall render to the Trustees and the Co-Chairmen, whenever any of them
require it, an account of all transactions as Treasurer and of the financial
condition of the Trust; and the Treasurer shall perform such other duties as the
Trustees, or the Co-Chairman, may from time to time prescribe.
SECTION 6.13. The Assistant Treasurers. The Assistant Treasurer, or, if
there shall be more than one, the Assistant Treasurers in the order determined
by the Trustees or the Co-Chairmen, shall, in the absence or disability of the
Treasurer, perform the duties and exercise the powers of the Treasurer and shall
perform such other duties and have such other powers as the Trustees, or the
Co-Chairmen, may from time to time prescribe.
SECTION 6.14. Delegation of Duties. Whenever an officer is absent or
disabled, or whenever for any reason the Trustees may deem it desirable, the
Trustees may delegate the powers and duties of an officer or officers to any
other officer or officers or to any Trustee or Trustees.
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ARTICLE VII
DIVIDENDS AND DISTRIBUTIONS
Subject to any applicable provisions of law and the Declaration,
dividends and distributions upon the Shares may be declared at such intervals as
the Trustees may determine, in cash, in securities or other property, or in
Shares, from any sources permitted by law, all as the Trustees shall from time
to time determine.
Inasmuch as the computation of net income and net profits from the
sales of securities or other properties for federal income tax purposes may vary
from the computation thereof on the records of the Trust, the Trustees shall
have power, in their discretion, to distribute as income dividends and as
capital gain distributions, respectively, amounts sufficient to enable the Trust
to avoid or reduce liability for federal income taxes.
ARTICLE VIII
CUSTODIAN
SECTION 8.1. Appointment and Duties. The Trust shall at all times
employ a bank or trust company having capital, surplus and undivided profits of
at least five million dollars ($5,000,000) as custodian with authority as its
agent, but subject to such restrictions, limitations and other requirements, if
any, as may be contained in these By-Laws and the 1940 Act:
(1) to receive and hold the securities owned by the Trust and
deliver the same upon written or electronically transmitted order;
(2) to receive and receipt for any moneys due to the Trust and
deposit the same in its own banking department or elsewhere as the
Trustees may direct; and
(3) to disburse such funds upon orders or vouchers;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. If so directed by a majority vote of Shareholders, the
custodian shall deliver and pay over all property of the Trust held by it as
specified in such vote.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian and upon such terms and conditions as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees.
SECTION 8.2. Central Certificate System. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a
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national securities exchange or a national securities association registered
with the Commission under the Securities Exchange Act of 1934,as amended, or
such other person as may be permitted by the Commission, or otherwise in
accordance with the 1940 Act, pursuant to which system all securities of any
particular class or series of any issuer deposited within the system are treated
as fungible and may be transferred or pledged by bookkeeping entry without
physical delivery of such securities, provided that all such deposits shall be
subject to withdrawal only upon the order of the Trust.
ARTICLE IX
WAIVER OF NOTICE
Whenever any notice of the time, place or purpose of any meeting of
Shareholders, Trustees, or of any committee is required to be given in
accordance with law or under the provisions of the Declaration or these By-
Laws, a waiver thereof in writing, signed by the person or persons entitled to
such notice and filed with the records of the meeting, whether before or after
the holding thereof, or actual attendance at the meeting of Shareholders,
Trustees or committee, as the case may be, in person, shall be deemed equivalent
to the giving of such notice to such person.
ARTICLE X
MISCELLANEOUS
SECTION 10.1. Location of Books and Records. The books and records of
the Trust may be kept outside the Commonwealth of Massachusetts at such place or
places as the Trustees may from time to time determine, except as otherwise
required by law.
SECTION 10.2. Record Date. The Trustees may fix in advance a date as
the record date for the purpose of determining Shareholders entitled to notice
of, or to vote at, any meeting of Shareholders, or Shareholders entitled to
receive payment of any dividend or the allotment of any rights, or in order to
make a determination of Shareholders for any other proper purpose. Such date, in
any case, shall be not more than ninety (90) days, and in case of a meeting of
Shareholders not less than ten (10) days, prior to the date on which particular
action requiring such determination of Shareholders is to be taken. In lieu of
fixing a record date the Trustees may provide that the transfer books shall be
closed for a stated period but not to exceed, in any case, twenty (20) days. If
the transfer books are closed for the purpose of determining Shareholders
entitled to notice of a vote at a meeting of Shareholders, such books shall be
closed for at least ten (10) days immediately preceding such meeting.
SECTION 10.3. Seal. The Trustees shall adopt a seal, which shall be in
such form and shall have such inscription thereon as the Trustees may from time
to time provide. The seal of the Trust may be affixed to any document, and the
seal and its attestation may be lithographed, engraved or otherwise printed on
any document with the same force and effect as if it had been imprinted and
attested manually in the same manner and with the same effect as if done by a
Massachusetts business corporation under Massachusetts law.
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SECTION 10.4. Fiscal Year. The fiscal year of the Trust shall end on
such date as the Trustees may by resolution specify, and the Trustees may by
resolution change such date for future fiscal years at any time and from time to
time.
SECTION 10.5. Orders for Payment of Money. All orders or instructions
for the payment of money of the Trust, and all notes or other evidences of
indebtedness issued in the name of the Trust, shall be signed by such officer or
officers or such other person or persons as the Trustees may from time to time
designate, or as may be specified in or pursuant to the agreement between the
Trust and the bank or trust company appointed as custodian of the securities and
funds of the Trust.
ARTICLE XI
COMPLIANCE WITH FEDERAL REGULATIONS
The Trustees are hereby empowered to take such action as they may deem
to be necessary, desirable or appropriate so that the Trust is or shall be in
compliance with any federal or state statute, rule or regulation with which
compliance by the Trust is required.
ARTICLE XII
AMENDMENTS
These By-Laws may be amended, altered, or repealed, or new By-Laws may
be adopted, by the Trustees; provided, however, that no By-Law may be amended,
adopted or repealed by the Trustees if such amendment, adoption or repeal
requires, pursuant to law, the Declaration, or these By-Laws, a vote of the
Shareholders. The Trustees shall in no event adopt ByLaws which are in conflict
with the Declaration, and any apparent inconsistency shall be construed in favor
of the related provisions in the Declaration.
ARTICLE XIII
DECLARATION OF TRUST
The Declaration of Trust establishing DCM Series Trust, a copy of which
is on file in the office of the Secretary of the Commonwealth of Massachusetts,
provides that the name DCM Series Trust refers to the Trustees under the
Declaration collectively as Trustees, and not as individuals or personally; and
no Trustee, Shareholder, officer, employee or agent of the Trust shall be held
to any personal liability, nor shall resort be had to their private property for
the satisfaction of any obligation or claim or otherwise, in connection with the
affairs of the Trust.
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Exhibit (d)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of this 12th day of October, 1999 between the DCM
Series Trust, an unincorporated business trust organized under the laws of the
Commonwealth of Massachusetts (hereinafter called the "Trust"), and Derby
Capital Management, a Massachusetts corporation, (hereinafter called the
"Adviser");
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act")
and is authorized to issue shares ("Shares") in separate series and classes; and
WHEREAS, a series of the Trust has been created under the name DCM
Growth Fund (the "Fund"); and
WHEREAS, the Adviser is registered as an Adviser under the Investment
Advisers Act of 1940, as amended (the "Advisers Act"); and
WHEREAS, the Trust desires to retain the Adviser to render advisory
services to the Fund in the manner and on the terms and conditions hereinafter
set forth; and
WHEREAS, the Adviser is willing to perform such services on said terms
and conditions;
NOW THEREFORE, in consideration of the mutual promises and agreements
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed between the
Trust and the Adviser, as follows:
1. The Trust hereby retains the Adviser, and the Adviser hereby agrees,
to act as investment adviser to the Trust and, subject to such limitations as
the Board of Trustees of the Trust (the "Trustees") may impose, to assume all
investment duties and have full discretionary power and authority with respect
to investment of the assets of the Fund. Without limiting the generality of the
foregoing, the Adviser shall (i) obtain and evaluate such information and advice
relating to the economy and securities markets and securities as it deems
necessary or useful to discharge its duties hereunder; (ii) continuously invest
the assets of the Fund in a manner consistent with the investment objective and
policies thereof as stated in the Fund's Prospectus and Statement of Additional
Information on file with the Securities and Exchange Commission, as the same may
be amended from time to time; (iii) determine the securities to be purchased,
sold or otherwise disposed of by the Fund and the timing of such purchases,
sales and dispositions; (iv) vote all proxies for securities held by the Fund
and exercise all other voting rights with respect to such securities in the
manner it deems appropriate; (v) issue settlement instructions to custodians
designated by the Trust; (vi) evaluate the credit worthiness of securities
dealers, banks and other entities with which the Fund may engage in repurchase
agreements and monitor the status of such agreements; and (vii) take such
further action, including the placing of purchase and sale orders and the
selection of broker-dealers to execute such orders on behalf of the Fund, as the
Adviser shall deem necessary or appropriate, in its sole discretion, to carry
out its duties under this Agreement. The Adviser shall also furnish to or place
at the disposal of the Trust such information, evaluations, analyses and options
formulated or
<PAGE> 2
obtained by the Adviser in the discharge of its duties, as the Trust may, from
time to time, reasonably request.
The Adviser agrees, that in performing its duties hereunder, it will
comply with (i) the 1940 Act and the Advisers Act, and all rules and regulations
promulgated thereunder; (ii) all other applicable federal and state laws and
regulations, (iii) the provisions of the Declaration of Trust and By-Laws of the
Trust, as amended from time to time; and (iv) any applicable procedures adopted
by the Trust or the Adviser.
2. The Adviser is responsible for broker-dealer selection in its sole
discretion, and is not obligated to deal with any broker or group of brokers in
executing portfolio transactions for the Fund. In selecting broker-dealers, the
Adviser will generally seek the best combination of net price and execution and
may consider other factors, including: the broker's trading expertise, stature
in the industry, execution ability, facilities, clearing capabilities and
financial services offered, long-term relations with the Adviser, reliability
and financial responsibility, timing and size of order and execution, difficulty
of execution, current market conditions and depth of the market. Transaction
charges, being a component of price, may also be considered as a factor in
making such determination. Accordingly, the price to the Fund in any transaction
may be less favorable than that available from another broker-dealer if the
difference is reasonably justified by other aspects of the portfolio execution
services offered. Subject to such policies as the Trustees may determine, the
Adviser shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of its having
caused the Fund to pay a broker or dealer that provides brokerage or research
services to the Adviser an amount of commission for effecting a portfolio
transaction in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction, if the Adviser determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research services provided by such broker and dealer, viewed
in terms of either that particular transaction or the Adviser's overall
responsibilities with respect to the Trust. The Adviser is further authorized to
allocate the orders placed by it on behalf of the Fund to such brokers or
dealers who also provide research or statistical material, or other services, to
the Trust, the Adviser, or any affiliate of either. Such allocation shall be in
such amounts and proportions as the Adviser shall determine, and the Adviser
shall report on such allocations regularly to the Trust, indicating the
broker-dealers to whom such allocations have been made and the basis therefor.
The Adviser is also authorized to consider sales of shares as a factor in the
selection of brokers or dealers to execute portfolio transactions, subject to
the requirements of best execution, i.e., that such brokers or dealers are able
to execute the order promptly and at the best obtainable securities price.
3. The Adviser agrees to maintain and to preserve for the periods
prescribed under the 1940 Act any such records as are required to be maintained
by the Adviser with respect to the Fund by the 1940 Act. The Adviser further
agrees that all records which it maintains for the Fund are the property of the
Fund and it will promptly surrender any of such records upon request.
4. The Adviser shall bear the cost of rendering the advisory services
to be performed by it under this Agreement, and shall, at its own expense, pay
the compensation of any Trustees,
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officers and employees, if any, of the Trust who are affiliated persons of the
Adviser. All other operating costs and expenses relating to the Fund shall be
paid by the Trust from the assets of the Fund, including without limitation: (i)
the charges and expenses of any registrar, any custodian or depository appointed
by the Fund for the safekeeping of its cash, portfolio securities and other
property, and any stock transfer or dividend agent or agents appointed by the
Fund; (ii) brokers' commissions chargeable to the Fund in connection with
portfolio transactions to which the Fund is a party; (iii) all taxes, including
securities issuance and transfer taxes, and fees payable by the Fund to federal,
state or other governmental agencies; (iv) the cost and expense of engraving or
printing of certificates representing shares of the Fund; (v) all costs and
expenses in connection with the registration and maintenance of registration of
the Fund and its shares with the Securities and Exchange Commission and various
states and other jurisdictions (including filing fees and legal fees and
disbursements of counsel and the costs and expenses of preparation, printing
(including typesetting) and distributing prospectuses for such purposes); (vi)
all expenses of shareholders' and Trustees' meetings and preparing, printing and
mailing proxy statements and reports to shareholders; fees and travel expenses
of Trustees or members of any advisory board or committee who are not employees
of the Adviser; (vii) all expenses which the Trust or the Fund agrees to bear
pursuant to any plan adopted by the Trust and/or the Fund pursuant to Rule 12b-1
of the 1940 Act or any other dividend or distribution program or agreement;
(viii) charges and expenses of any outside service used for pricing of the
Fund's shares; (ix) charges and expenses of legal counsel, including counsel to
the Trustees who are not "interested persons" (as defined in the 1940 Act) of
the Fund or the Adviser, and of independent accountants, in connection with any
matter relating to the Fund; (x) membership dues of industry associations; (xi)
interest payable on Fund borrowings; (xii) postage; (xiii) insurance premiums on
property or personnel (including officers and Trustees) of the Fund which inure
to its benefit; (xiv) extraordinary expenses (including, but not limited to,
legal claims and liabilities and litigation costs and any indemnification
related thereto); and (xv) all other charges and costs of the Fund's operation
unless otherwise explicitly provided herein.
Notwithstanding anything in the immediately preceding paragraph to the
contrary, the Adviser hereby undertakes to limit total Fund expenses, including
the investment advisory fee set forth in Paragraph 5 below, to 1.75% of the
average daily net assets annually for the Fund.
5. For the services to be rendered by the Adviser to the Fund, the
Trust shall pay to the Adviser monthly compensation, calculated from the day of
commencement of operations of the Fund, determined by applying the annual rate
of one percent (1%) of the Fund's average daily net assets. Except as
hereinafter set forth, compensation under this Agreement shall be calculated and
accrued daily and paid monthly. If this Agreement becomes effective subsequent
to the First day of a month or shall terminate before the last day of a month,
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fees as set forth
above.
3
<PAGE> 4
The Adviser may reduce any portion of the compensation or reimbursement of
expenses due to it under this agreement, or may agree to make payments to limit
the expenses which are the responsibility of the Fund. Any such reduction or
payment shall be applicable only to such specific reduction or payment shall be
applicable only to such specific reduction or payment and shall not constitute
an agreement to reduce any future compensation or reimbursement due to the
Adviser hereunder or to continue future payments.
6. The Adviser will use its best judgment and effort in its investment
of the Fund's assets, but in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations and duties hereunder,
the Adviser shall not be liable to the Trust, the Fund or any of its
shareholders for any error of judgment or mistake of law or for any act or
omission by the Adviser or for any losses sustained by any of them.
7. Nothing contained in this Agreement shall prevent the Adviser or any
affiliated person of the Adviser (as defined in the 1940 Act) from acting as
investment adviser or manager for any other investment companies and other
clients, whether or not the investment objectives or policies of any such other
clients are similar to those of the Fund, and shall not in any way bind or
restrict the Adviser or any such affiliated person from buying, selling or
trading any securities for their own accounts or for the account of others for
whom the Adviser or any such affiliated person may be acting. Nothing in this
Agreement shall limit or restrict the right of the Adviser or any manager,
officer or employee of the Adviser to engage in any other business or to devote
time and attention in part to the management or other aspects of any other
business whether of a similar or dissimilar nature, so long as the Adviser's
services hereunder are not impaired thereby.
8. This Agreement shall become effective on the date hereof and shall
continue in effect, unless sooner terminated as herein provided, for two (2)
years from such date, and from year to year thereafter provided such continuance
is approved at least annually by the vote of a majority of the Trustees,
including a majority of the Trustees who are not parties to this Agreement or
"interested persons" (as defined in the 1940 Act) of any such party, which vote
must be cast in person at a meeting called for the purpose of voting on such
approval, or by a majority of the outstanding voting securities of the Fund;
provided, however, that (a) the Fund may, at any time and without the payment of
any penalty, terminate this Agreement upon sixty (60) days' written notice to
the Adviser, either by majority vote of the Trustees or by the vote of a
majority of the outstanding voting securities of the Fund; (b) this Agreement
shall immediately terminate in the event of its assignment (to the extent
required by the 1940 Act and the rules thereunder) unless such automatic
termination shall be prevented by
4
<PAGE> 5
an exemptive order of the Securities and Exchange Commission; and (c) the
Adviser may terminate this Agreement without payment of penalty on sixty (60)
days written notice to the Trust.
9. Any notice to be given by the Adviser to the Trust under this
Agreement shall be given in writing, addressed and hand delivered or mailed
certified mail, to 7 Wells Avenue, Newton, Massachusetts 02459, or such other
address as shall be specified in writing to the Adviser. Any notice to be given
by the Trust or the Fund to the Adviser under this Agreement shall be given in
writing, addressed and delivered or mailed certified mail, to 7 Wells Avenue,
Newton, Massachusetts 02459, or such other address as shall be specified in
writing to the Trust.
10. No provision of this Agreement may be changed, waived, discharged
or terminated orally, but only by an instrument in writing signed by both
parties hereto, and no amendment of this Agreement shall be effective with
respect to the Fund until approved by an affirmative vote of (i) a majority of
the outstanding voting securities of the Fund, and (ii) a majority of the
Trustees, including a majority of Trustees who are not interested persons of any
party to this Agreement, cast in person at a meeting called for the purpose of
voting on such approval, if such approval is required by applicable law.
Notwithstanding anything herein to the contrary, this Agreement may be amended
by the parties without the vote or consent of the shareholders of the Fund to
supply any immaterial omission, to cure, correct or supplement any ambiguous,
defective or inconsistent provision hereof, or if they deem it necessary to
conform this Agreement to the requirements of applicable federal laws or
regulations, but neither the Fund nor the Adviser shall be liable for failing to
do so.
11. It is understood that the name "Derby Capital Management" and any
derivative thereof including any logo associated with that name, including
without limitation "DCM", Derby and Company, Inc. and "Derby", are the valuable
property of the Adviser and its affiliates, and that the Fund has the right to
use such names (or derivative thereof or associated logo) only so long as this
Agreement shall continue with respect to the Fund. Upon termination of this
Agreement, the Fund shall forthwith cease to use such name (or derivative
thereof or associated logo) and the Trust shall promptly amend its Declaration
of Trust to change its name and the name of the Fund to comply herewith.
12. This Agreement shall be construed in accordance with the laws of
the Commonwealth of Massachusetts. To the extent the applicable law of the
Commonwealth of Massachusetts, or any of the provisions herein, conflict with
the applicable provisions of the 1940 Act, the Advisers Act or any rules,
regulations or orders of the Securities and Exchange Commission, the latter
shall control.
13. The Adviser understands that the obligations of this Agreement are
not binding upon any shareholder of the Trust personally, but bind only the
Trust's property; the Adviser acknowledges that it has notice of the provisions
of the Trust's Declaration of Trust disclaiming shareholder liability for acts
or obligations of the Trust or any series of the Trust, including, without
limitation, the Fund. This Agreement has been executed by or with reference to
any Trustee in such person's capacity as a Trustee, and the Trustees shall not
be personally liable hereon.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the day and year first above written in Boston, Massachusetts.
THE DCM SERIES TRUST
By: /s/ Jonathan Derby
-----------------------
Name: Jonathan Derby
Attest: ---------------------
/s/ Frederick P. Callori Title: Vice President
- -------------------------- --------------------
Frederick P. Callori
DERBY CAPITAL MANAGEMENT
By: /s/ Jonathan Derby
-----------------------
Attest: Name: Jonathan Derby
/s/ Frederick P. Callori ---------------------
- -------------------------- Title:
Frederick P. Callori --------------------
6
<PAGE> 1
Exhibit (e)
UNDERWRITING AGREEMENT
BETWEEN
DCM SERIES TRUST
AND
ADS DISTRIBUTORS, INC.
[LOGO]
<PAGE> 2
UNDERWRITING AGREEMENT
AGREEMENT made as of this 12th day of October, 1999 by and between DCM Series
Trust (the "Trust"), and ADS Distributors, Inc., (the "Underwriter").
BACKGROUND
WHEREAS, the Trust is offering shares of beneficial interest (the
"Shares") in an investment portfolio known as the "DCM Growth Fund" (the
"Fund"), which is a series of the Trust; and
WHEREAS, the Fund is a non-diversified open-end management investment
company registered with the United States Securities and Exchange Commission
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Underwriter is a corporation experienced in providing
distribution services to mutual funds and possesses facilities sufficient to
provide such services; and
WHEREAS, the Trust desires that the Fund avail itself of the
experience, assistance and facilities of the Underwriter and have the
Underwriter perform for the Fund certain services appropriate to the operations
of the Fund and the Underwriter is willing to furnish such services in
accordance with the terms hereinafter set forth, the Trust and the Underwriter
agree to the following terms.
TERMS
A: UNDERWRITING ACTIVITIES:
1. The Underwriter will receive orders from purchasers for, and the Fund will
sell, issue and deliver from time to time to such purchasers, such part of
the authorized Shares remaining un-issued as from time to time shall be
effectively registered under the Securities Act of 1933, as amended (the
"1933 Act"), at prices determined as hereinafter provided and on the terms
hereinafter set forth, all subject to applicable Federal and State laws and
regulations and to the Declaration of Trust of the Trust.
2. The Underwriter shall present all orders received by it for Shares to the
Fund by telegraphic or written purchase orders and each such order shall be
subject to the acceptance or rejection by the Fund in the Fund's sole
discretion
2.1 Notwithstanding any other provision hereof, whenever in the judgment of
the Fund such action is warranted by market, economic or political
conditions or by abnormal circumstances of any kind, the Fund may suspend
the offer of shares in effect and may, without liability under any provision
of this Agreement, decline to accept or confirm any orders or make any sales
of Shares under this
<PAGE> 3
Agreement until such time as the Fund shall deem it advisable to resume the
offering of such Shares, provided that as soon as practicable after the
taking of any such action a special meeting of the Board of Trustees of the
Trust shall be called to be held as soon as practicable thereafter to
determine whether or not such action shall then continue to be effective,
and the period during, or the circumstance under, which such action shall
continue or cease to be effective. During any period during which the offer
of Shares shall be suspended or the Fund shall decline to accept or confirm
any such orders or make any such sales, the Fund shall be under no
obligation to confirm or accept any such orders or make any such sale at any
price.
2.2 The Fund will use its best efforts to keep effectively registered under
the 1933 Act for sale as herein contemplated such Shares as the Underwriter
shall reasonably request and as the Securities and Exchange Commission (the
"SEC") shall permit to be so registered.
3. Sales by the Underwriter shall be made as agent for the Fund and all such
sales be made to or through qualified dealers or others in such manner, not
inconsistent with the provisions hereof and the then effective registration
statement of the Fund under the 1933 Act, (and related prospectus), as the
Underwriter may determine from time to time.
4. All Shares offered for sale or sold by the Underwriter shall be so offered
or sold at a price per share (the "Offering Price") equal to the net asset
value per Share (determined as authorized from time to time by the Board of
Trustees of the Trust pursuant to its charter).
4.1 For the purpose of determining the Offering Price, the net asset value
of any such Shares shall be so determined in accordance with the then
current offering prospectus. The Fund, or its authorized agent, will
promptly furnish to the Underwriter a statement of the Offering Price as
often as such net asset value is determined and such statement shall, at the
request of the Underwriter, show the basis of computation of the Offering
Price.
4.2 Orders presented by the Underwriter for Shares, if accepted by the Fund,
shall be accepted and confirmed by the Fund or its duly authorized agent at
the Offering Price in effect at the time of its receipt of such order at its
principal office.
4.3 The Underwriter will not in any event (a) offer for sale or sell Shares
in excess of the number then effectively registered under the 1933 Act, and
available for sale, or (b) offer for sale or sell any Shares in violation of
any applicable Federal or State law, rule or regulation.
5. The Fund will execute any and all documents and furnish any and all
information which may be reasonably necessary in connection with rendering
its Shares eligible for sale in such states as the Underwriter may
reasonably request (it being
<PAGE> 4
understood that the Fund shall not be required without its consent to
qualify to do business in any jurisdiction or to comply with any requirement
which, in its opinion, is unduly burdensome). The Underwriter, at its own
expense, will effect all qualifications as dealer or broker.
6. The Fund will furnish to the Underwriter from time to time such information
with respect to its Shares as the Underwriter may reasonably request for use
in connection with the sale of Shares. The Underwriter will not use,
distribute, disseminate or authorize the use, distribution or dissemination
by its dealers or others in connection with such sale of any literature,
advertising or selling aids in any form or through any medium, written or
oral, without prior written specific approval thereof by the Fund.
7. Nothing herein contained shall limit the right of the Fund, in its absolute
discretion, to issue or sell Shares for such other considerations (whether
in connection with the acquisition of assets or shares or securities of
another corporation or entity or with the merger or consolidation of any
other corporation into or with the Fund, or otherwise) as and to the extent
permitted by its charter and any applicable laws, or to issue or sell any
such Shares directly to the shareholders of the Fund, upon such terms and
conditions and for such consideration, if any, as may be determined by the
Board of Trustees, whether pursuant to the distribution of subscription or
purchase rights to such holders or by way of dividends or otherwise.
8. At the request of the Fund, the Underwriter agrees to act as agent for the
Fund for the repurchase or redemption of Shares of the Fund at such prices
as the Fund from time to time shall prescribe.
9. In selling or reacquiring shares, the Underwriter agrees to conform to the
requirements of all state and Federal laws relating to such sale or
reacquisition, as the case may be, and will indemnify and hold the Fund
harmless from any damage or expense on account of any wrongful act by the
Underwriter or any employee, representative or agent of the Underwriter. The
Underwriter will observe and be bound by all the provisions of the charter
of the Trust and any fundamental policies adopted by the Fund pursuant to
the 1940 Act, or otherwise, notice of which has been given to the
Underwriter.
10. Neither the Underwriter, any dealer nor any other person is authorized by
the Fund to give any information or to make any representation other than
those contained (a) in the latest effective registration statement (and
related prospectus) filed with the SEC under the 1933 Act as such
registration statement (and prospectus) may be amended from time to time, or
(b) in any statement expressly authorized by the Fund for use in connection
with any sale or reacquisition of Shares for the account of the Fund.
B. COMPENSATION AND OTHER:
1. In consideration of the agreements on the part of the Underwriter herein
contained, the Underwriter shall receive payment in the amount of $10,000
for the first portfolio, plus $5,000 for each additional portfolio or
1 basis point of the combined average net assets of the fund/trust,
<PAGE> 5
whichever is greater, per annum billed monthly, plus reimbursement of all
reasonable out-of-pocket expenses incurred at the request of the Fund in
fulfillment of its responsibilities in this Agreement.
2. This Agreement shall continue in effect until such time as there remains no
unsold balance of Shares effectively registered under the 1933 Act;
provided, however, that (a) this Agreement shall continue in effect for a
period more than two years from the date hereof only so long as such
continuance is specifically approved at least annually by the Board of
Trustees, including by a majority of the "disinterested Trustees" or a
majority of the outstanding voting securities of the Fund, and (b) either
party hereto may terminate this Agreement on any date by giving the other
party at least ninety (90) days prior written notice of such termination
specifying the date fixed therefor.
2.1 This Agreement shall automatically terminate in the event of its
assignment, the term "assignment" having the meaning defined in Section
2(a)(4) of the 1940 Act.
3. Any notice under this Agreement shall be in writing addressed and delivered
by mail, postage prepaid, to the party to whom addressed at the address
given below, or at such other address as such party shall theretofore have
designated (by notice given to the other party as herein provided) in
writing for the receipt of such notice:
TO THE ADVISER: TO THE UNDERWRITER:
Jonathan J. Derby Mr. Michael Rogan
Co-Chairman and Vice President President
DCM Growth Fund ADS Distributors, Inc.
7 Wells Avenue c/o American Data Services, Inc.
Newton, MA 02459 150 Motor Parkway
Hauppauge, New York 11788
IN WITNESS WHEREOF, the Trust and the Underwriter have each
caused this Agreement to be executed on its behalf by an officer thereunto duly
authorized on the day and year first above written.
DCM Series Trust ADS Distributors, Inc.
By: /s/ Jonathan J. Derby By: /s/ Michael Miola
------------------------------- -------------------------
Jonathan J. Derby Michael Miola, Treasurer
Co-Chairman and Vice President
<PAGE> 1
Exhibit (g)
Page 1
CUSTODY AGREEMENT
This agreement (the "Agreement") is entered into as of the 7th of October,
1999, by and between DCM Series Trust, (the "Trust") and Firstar Bank, National
Association, (the "Custodian"), a national banking association having its
principal office at 425 Walnut Street, Cincinnati, Ohio, 45202.
WHEREAS, the Trust and the Custodian desire to enter into this Agreement
to provide for the custody and safekeeping of the assets of the Trust as
required by the Act (as hereafter defined).
THEREFORE, in consideration of the mutual promises hereinafter set forth,
the Trust and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
The following words and phrases, when used in this Agreement, unless the
context otherwise requires, shall have the following meanings:
Act - the Investment Company Act of 1940, as amended.
1934 Act - the Securities and Exchange Act of 1934, as amended.
Authorized Person - any (i) Officer of the Trust or (ii) any other person,
whether or not any such person is an officer or employee of the Trust, who is
duly authorized by the Board of Trustees of the Trust to give Oral Instructions
and Written Instructions on behalf of the Trust or the Fund, and named in
Appendix A attached hereto and as amended from time to time by resolution of the
Board of Trustees, certified by an Officer, and received by the Custodian.
Board of Trustees - the Trustees from time to time serving under the
Trust's Agreement and Declaration of Trust, as from time to time amended.
Book-Entry System - a federal book-entry system as provided in Subpart O
of Treasury
<PAGE> 2
Page 2
Circular No. 300, 31 CFR 306, in Subpart B of 31 CFR Part 350, or in such
book-entry regulations of federal agencies as are substantially in the form of
Subpart O.
Business Day - any day recognized as a settlement day by The New York
Stock Exchange, Inc. and any other day for which the Trust computes the net
asset value of Shares of any fund.
Depository - The Depository Trust Company ("DTC"), a limited purpose trust
company, its successor(s) and its nominee(s). Depository shall include any other
clearing agency registered with the SEC under Section 17A of the 1934 Act which
acts as a system for the central handling of Securities where all Securities of
any particular class or series of an issuer deposited within the system are
treated as fungible and may be transferred or pledged by bookkeeping entry
without physical delivery of the Securities provided that the Custodian shall
have received a copy of a resolution of the Board of Trustees, certified by an
Officer, specifically approving the use of such clearing agency as a depository
for the Funds.
Dividend and Transfer Agent - the dividend and transfer agent appointed,
from time to time, pursuant to a written agreement between the dividend and
transfer agent and the Trust.
Foreign Securities - a) securities issued and sold primarily outside of
the United States by a foreign government, a national of any foreign country, or
a trust or other organization incorporated or organized under the laws of any
foreign country or; b) securities issued or guaranteed by the government of the
United States, by any state, by any political subdivision or agency thereof, or
by any entity organized under the laws of the United States or of any state
thereof, which have been issued and sold primarily outside of the United States.
Fund - each series of the Trust listed in Appendix B and any additional
series added pursuant to Proper Instructions. A series is individually referred
to as a "Fund" and collectively referred to as the "Funds."
<PAGE> 3
Page 3
Money Market Security - debt obligations issued or guaranteed as to
principal and/or interest by the government of the United States or agencies or
instrumentalities thereof, commercial paper, obligations (including certificates
of deposit, bankers' acceptances, repurchase agreements and reverse repurchase
agreements with respect to the same), and time deposits of domestic banks and
thrift institutions whose deposits are insured by the Federal Deposit Insurance
Corporation, and short-term corporate obligations where the purchase and sale of
such securities normally require settlement in federal funds or their equivalent
on the same day as such purchase and sale, all of which mature in not more than
thirteen (13) months.
NASD - the National Association of Securities Dealers, Inc.
Officer - Either of the Co-Chairmen, President, Secretary, Treasurer, any
Vice President, Assistant Secretary or Assistant Treasurer of the Trust.
Oral Instructions - instructions orally transmitted to and received by the
Custodian from an Authorized Person (or from a person that the Custodian
reasonably believes in good faith to be an Authorized Person) identified by a
previously agreed to Personal Identification Number or Password and confirmed by
Written Instructions in such a manner that such Written Instructions are
received by the Custodian on the Business Day immediately following receipt of
such Oral Instructions.
Proper Instructions - Oral Instructions or Written Instructions. Proper
Instructions may be continuing Written Instructions when deemed appropriate by
both parties.
Prospectus - the Trust's then currently effective prospectus and Statement
of Additional Information, as filed with and declared effective from time to
time by the Securities and Exchange Commission.
Security or Securities - Money Market Securities, common stock, preferred
stock, options, financial futures, bonds, notes, debentures, corporate debt
securities, mortgages, bank certificates of deposit, bankers' acceptances,
mortgage-backed securities or other obligations and
<PAGE> 4
Page 4
any certificates, receipts, warrants, or other instruments or documents
representing rights to receive, purchase, or subscribe for the same or
evidencing or representing any other rights or interest therein, or any similar
property or assets that the Custodian has the facilities to clear and to
service.
SEC - the Securities and Exchange Commission of the United States of
America.
Shares - with respect to a Fund, the units of beneficial interest issued
by the Trust on account of such Fund.
Trust - the DCM Series Trust a business trust organized under the laws of
Massachusetts which is an open-end management investment company registered
under the Act.
Written Instructions - communications in writing actually received by the
Custodian from an Authorized Person. A communication in writing includes a
communication by facsimile, telex or between electro-mechanical or electronic
devices (where the use of such devices have been approved by resolution of the
Trustee and the resolution is certified by an Officer and delivered to the
Custodian). All written communications shall be directed to the Custodian,
attention: Mutual Fund Custody Department.
ARTICLE II
APPOINTMENT; ACCEPTANCE; AND FURNISHING OF DOCUMENTS
A. Appointment of Custodian. The Trust hereby constitutes and appoints the
Custodian as custodian of all Securities and cash owned by the Trust at any time
during the term of this Agreement.
B. Acceptance of Custodian. The Custodian hereby accepts appointment as
such custodian and agrees to perform the duties thereof as hereinafter set
forth.
C. Documents to be Furnished. The following documents, including any
amendments thereto, will be provided contemporaneously with the execution of the
Agreement,
<PAGE> 5
Page 5
to the Custodian by the Trust:
1. A copy of the Declaration of Trust of the Trust certified by
the Secretary.
2. A copy of the By-Laws of the Trust certified by the Secretary.
3. A copy of the resolution of the Board of Trustees of the Trust
appointing the Custodian, certified by the Secretary.
4. A copy of the then current Prospectus.
5. A Certificate of the President and Secretary of the Trust
setting forth the names and signatures of the current Officers
of the Trust and other Authorized Persons.
D. Notice of Appointment of Dividend and Transfer Agent. The Trust agrees
to notify the Custodian in writing of the appointment, termination or change in
appointment of any Dividend and Transfer Agent.
ARTICLE III
RECEIPT OF TRUST ASSETS
A. Delivery of Moneys. During the term of this Agreement, the Trust will
deliver or cause to be delivered to the Custodian all moneys to be held by the
Custodian for the account of the Fund. The Custodian shall be entitled to
reverse any deposits made on the Fund's behalf where such deposits have been
entered and moneys are not finally collected within 30 days of the making of
such entry.
B. Delivery of Securities. During the term of this Agreement, the Trust
will deliver or cause to be delivered to the Custodian all Securities to be held
by the Custodian for the account of the Fund. The Custodian will not have any
duties or responsibilities with respect to such Securities until actually
received by the Custodian.
<PAGE> 6
Page 6
C. Payments for Shares. As and when received, the Custodian shall deposit
to the account(s) of the Fund any and all payments for Shares of the Fund issued
or sold from time to time as they are received from the Trust's distributor or
Dividend and Transfer Agent or from the Trust itself.
D. Duties Upon Receipt. The Custodian shall not be responsible for any
Securities, moneys or other assets of any Fund until actually received by it.
E. Validity of Title. The Custodian shall not be responsible for the
title, validity or genuineness of any property or evidence of title thereto
received or delivered by it pursuant to this Agreement.
ARTICLE IV
DISBURSEMENT OF TRUST ASSETS
A. Declaration of Dividends by Trust. The Trust shall furnish to the
Custodian a copy of the resolution of the Board of Trustees of the Trust,
certified by the Trust's Secretary, either (i) setting forth the date of the
declaration of any dividend or distribution in respect of Shares of the Fund,
the date of payment thereof, the record date as of which the Fund shareholders
entitled to payment shall be determined, the amount payable per share to Fund
shareholders of record as of that date, and the total amount to be paid by the
Dividend and Transfer Agent on the payment date, or (ii) authorizing the
declaration of dividends and distributions in respect of Shares of the Fund on a
daily basis and authorizing the Custodian to rely on Written Instructions
setting forth the date of the declaration of any such dividend or distribution,
the date of payment thereof, the record date as of which the Fund shareholders
entitled to payment shall be determined, the amount payable per share to Fund
shareholders of record as of that date, and the total amount to be paid by the
Dividend and Transfer Agent on the payment date.
<PAGE> 7
Page 7
On the payment date specified in the resolution or Written Instructions
described above, the Custodian shall segregate such amounts from moneys held for
the account of the Fund so that they are available for such payment.
B. Segregation of Redemption Proceeds. Upon receipt of Proper Instructions
so directing it, the Custodian shall segregate amounts necessary for the payment
of redemption proceeds to be made by the Dividend and Transfer Agent from moneys
held for the account of the Fund so that they are available for such payment.
C. Disbursements of Custodian. Upon receipt of a Certificate directing
payment and setting forth the name and address of the person to whom such
payment is to be made, the amount of such payment, the name of the Fund from
which payment is to be made, and the purpose for which payment is to be made,
the Custodian shall disburse amounts as and when directed from the assets of
that Fund. The Custodian is authorized to rely on such directions and shall be
under no obligation to inquire as to the propriety of such directions.
D. Payment of Custodian Fees. Upon receipt of Written Instructions
directing payment, the Custodian shall disburse moneys from the assets of the
Trust in payment of the Custodian's fees and expenses as provided in Article
VIII hereof.
ARTICLE V
CUSTODY OF TRUST ASSETS
A. Assets Separate. The Custodian shall keep all assets of the Fund
separate from the assets of the Custodian and separate from the assets of other
accounts maintained by the Custodian in accordance with 12 CFR 9.13, and all
provisions of this Article V shall be limited by and subject to this
requirement.
B. Separate Accounts for Each Fund. As to each Fund, the Custodian shall
open and maintain a separate bank account or accounts in the United States in
the name of the Trust coupled with the name of such Fund, subject only to draft
or order by the Custodian acting pursuant to the terms of this Agreement, and
shall hold all cash received by it from or for the account of the Fund, other
than cash maintained by the Fund in a bank account established and used by the
Fund in accordance with Rule 17f-3 under the Act. Moneys held by the Custodian
<PAGE> 8
Page 8
on behalf of a Fund may be deposited by the Custodian to its credit as Custodian
in the banking department of the Custodian. Such moneys shall be deposited by
the Custodian in its capacity as such, and shall be withdrawable by the
Custodian only in such capacity.
C. Segregation of Non-Cash Assets. All Securities and non-cash property
held by the Custodian for the account of the Fund (other than Securities
maintained in a Depository or Book-entry System) shall be physically segregated
from other Securities and non-cash property in the possession of the Custodian,
including the Securities and non-cash property of the other Fund and shall be
identified as subject to this Agreement.
D. Securities in Bearer and Registered Form. All Securities held which are
issued or issuable only in bearer form, shall be held by the Custodian in that
form; all other Securities held for the Fund may be registered in the name of
the Custodian, any sub-custodian appointed in accordance with this Agreement, or
the nominee of any of them. The Trust agrees to furnish to the Custodian
appropriate instruments to enable the Custodian to hold, or deliver in proper
form for transfer, any Securities that it may hold for the account of the Fund
and which may, from time to time, be registered in the name of the Fund.
E. Duties of Custodian As to Securities. Unless otherwise instructed by
the Trust, with respect to all Securities held for the Trust, the Custodian
shall on a timely basis (concerning items 1 and 2 below, as defined in the
Custodian's Standards of Service Guide, as amended from time to time, annexed
hereto as Appendix D):
1.) Collect all income due and payable with respect to such
Securities;
2.) Present for payment and collect amounts payable upon all
Securities which may mature or be called, redeemed, or
retired, or otherwise become payable;
3.) Surrender interim receipts or Securities in temporary form for
Securities in
<PAGE> 9
Page 9
definitive form; and
4.) Execute, as Custodian, any necessary declarations or
certificates of ownership under the Federal income tax laws or
the laws or regulations of any other taxing authority,
including any foreign taxing authority, now or hereafter in
effect.
F. Certain Actions Upon Written Instructions. Upon receipt of Written
Instructions and not otherwise, the Custodian shall:
1.) Execute and deliver to such persons as may be designated in
such Written Instructions proxies, consents, authorizations,
and any other instruments whereby the authority of the Trust
as beneficial owner of any Securities may be exercised;
2.) Deliver any Securities in exchange for other Securities or
cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation, or
recapitalization of any trust, or the exercise of any
conversion privilege;
3.) Deliver any Securities to any protective committee,
reorganization committee, or other person in connection
with the reorganization, refinancing, merger,
consolidation, recapitalization, or sale of assets of any
trust, and receive and hold under the terms of this
Agreement such certificates of deposit, interim receipts or
other instruments or documents as may be issued to it to
evidence such delivery;
4.) Make such transfers or exchanges of the assets of any Fund and
take such other steps as shall be stated in the Written
Instructions to be for the purpose of effectuating any duly
authorized plan of liquidation,
<PAGE> 10
Page 10
reorganization, merger, consolidation or recapitalization of
the Trust; and
5.) Deliver any Securities held for the Fund to the depository
agent for tender or other similar offers.
G. Custodian to Deliver Proxy Materials. The Custodian shall promptly
deliver to the Trust all notices, proxy material and executed but unvoted
proxies pertaining to shareholder meetings of Securities held by the Fund. The
Custodian shall not vote or authorize the voting of any Securities or give any
consent, waiver or approval with respect thereto unless so directed by Written
Instructions.
H. Custodian to Deliver Tender Offer Information. The Custodian shall
promptly deliver to the Trust all information received by the Custodian and
pertaining to Securities held by the Fund with respect to tender or exchange
offers, calls for redemption or purchase, or expiration of rights. If the Trust
desires to take action with respect to any tender offer, exchange offer or other
similar transaction, the Trust shall notify the Custodian at least five Business
Days prior to the date on which the Custodian is to take such action. The Trust
will provide or cause to be provided to the Custodian all relevant information
for any Security which has unique put/option provisions at least five Business
Days prior to the beginning date of the tender period.
ARTICLE VI
PURCHASE AND SALE OF SECURITIES
A. Purchase of Securities. Promptly after each purchase of Securities by
the Trust, the Trust shall deliver to the Custodian (i) with respect to each
purchase of Securities which are not Money Market Securities, Written
Instructions, and (ii) with respect to each purchase of Money Market Securities,
Proper Instructions, specifying with respect to each such purchase:
1.) the name of the issuer and the title of the Securities,
2.) the number of shares, principal amount purchased (and accrued
interest, if
<PAGE> 11
Page 11
any) or other units purchased,
3.) date of purchase and settlement,
4.) purchase price per unit,
5.) total amount payable,
6.) name of the person from whom, or the broker through which, the
purchase was made, and
7.) the name of the person to whom such amount is payable.
The Custodian shall, against receipt of Securities purchased by or for the
Trust, pay out of the moneys held for the account of such Fund the total amount
specified in the Written Instructions, or Oral Instructions, if applicable, to
the person named therein. The Custodian shall not be under any obligation to pay
out moneys to cover the cost of a purchase of Securities for the Fund, if in the
relevant Fund custody account there is insufficient cash available to the Fund
for which such purchase was made.
B. Sale of Securities. Promptly after each sale of Securities by a Fund,
the Trust shall deliver to the Custodian (i) with respect to each sale of
Securities which are not Money Market Securities, Written Instructions, and (ii)
with respect to each sale of Money Market Securities, Proper Instructions,
specifying with respect to each such sale the:
1.) name of the issuer and the title of the Securities,
2.) number of shares, principal amount sold (and accrued interest,
if any) or other units sold,
3.) date of sale and settlement,
4.) sale price per unit,
5.) total amount receivable,
<PAGE> 12
Page 12
6.) name of the person to whom, or the broker through which, the
sale was made, and
7.) name of the person to whom such Securities are to be
delivered.
The Custodian shall deliver the Securities against receipt of the total amount
specified in the Written Instructions, or Oral Instructions, if applicable.
Notwithstanding any other provision of this Agreement, the Custodian, when
properly instructed as provided herein to deliver Securities against payment,
shall be entitled, if in accordance with generally accepted market practice, to
deliver such Securities prior to actual receipt of final payment therefor. In
any such case, the Fund shall bear the risk that final payment for the
Securities may not be made or that the Securities may be returned or otherwise
held or disposed of by or through the person to whom they were delivered, and
the Custodian shall have no liability for any of the foregoing.
C. Payment on Settlement Date. On contractual settlement date, the account
of the Fund will be charged for all purchased Securities settling on that day,
regardless of whether or not delivery is made. Likewise, on contractual
settlement date, proceeds from the sale of Securities settling that day will be
credited to the account of the Fund, irrespective of delivery. Any such credit
shall be conditioned upon actual receipt by Custodian of final payment and may
be reversed if final payment is not actually received in full.
D. Credit of Moneys Prior to Receipt. With respect to any credit given
prior to actual receipt of final payment, the Custodian may, in its sole
discretion and from time to time, permit the Fund to use funds so credited to
its Fund custody account in anticipation of actual receipt of final payment. Any
such funds shall be deemed a loan from the Custodian to the Trust payable on
demand and bearing interest accruing from the date such loan is made up to but
not
<PAGE> 13
Page 13
including the date on which such loan is repaid at the rate per annum
customarily charged by the Custodian on similar loans.
E. Segregated Accounts. The Custodian shall, upon receipt of Proper
Instructions so directing it, establish and maintain a segregated account or
accounts for and on behalf of the Fund. Cash and/or Securities may be
transferred into such account or accounts for specific purposes, to-wit:
1.) in accordance with the provision of any agreement among the
Trust, the Custodian, and a broker-dealer registered under
the 1934 Act, and also a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange
Act), relating to compliance with the rules of the Options
Clearing Corporation and of any registered national
securities exchange, the Commodity Futures Trading
Commission, any registered contract market, or any similar
organization or organizations requiring escrow or other
similar arrangements in connection with transactions by the
Fund;
2.) for purposes of segregating cash or Securities in connection
with options purchased, sold, or written by the Fund or
commodity futures contracts or options thereon purchased or
sold by the Fund;
3.) for the purpose of compliance by the Fund with the procedures
required for reverse repurchase agreements, firm commitment
agreements, standby commitment agreements, and short sales by
Act Release No. 10666, or any subsequent release or releases
or rule of the SEC relating to the maintenance of segregated
accounts by registered investment companies;
4.) for the purpose of segregating collateral for loans of
Securities made by
<PAGE> 14
Page 14
the Fund; and
5.) for other proper corporate purposes, but only upon receipt of,
in addition to Proper Instructions, a copy of a resolution of
the Board of Trustees, certified by an Officer, setting forth
the purposes of such segregated account.
Each segregated account established hereunder shall be established and
maintained for a single Fund only. All Proper Instructions relating to a
segregated account shall specify the Fund involved.
F. Advances for Settlement. Except as otherwise may be agreed upon by the
parties hereto, the Custodian shall not be required to comply with any Written
Instructions to settle the purchase of any Securities on behalf of the Fund
unless there is sufficient cash in the account(s) pertaining to the Fund at the
time or to settle the sale of any Securities from such an account(s) unless such
Securities are in deliverable form. Notwithstanding the foregoing, if the
purchase price of such Securities exceeds the amount of cash in the account(s)
at the time of such purchase, the Custodian may, in its sole discretion, advance
the amount of the difference in order to settle the purchase of such Securities.
The amount of any such advance shall be deemed a loan from the Custodian to the
Trust payable on demand and bearing interest accruing from the date such loan is
made up to but not including the date such loan is repaid at the rate per annum
customarily charged by the Custodian on similar loans.
ARTICLE VII
TRUST INDEBTEDNESS
In connection with any borrowings by the Trust, the Trust will cause to be
delivered to the Custodian by a bank or broker requiring Securities as
collateral for such borrowings
<PAGE> 15
Page 15
(including the Custodian if the borrowing is from the Custodian), a notice or
undertaking in the form currently employed by such bank or broker setting forth
the amount of collateral. The Trust shall promptly deliver to the Custodian
Written Instructions specifying with respect to each such borrowing: (a) the
name of the bank or broker, (b) the amount and terms of the borrowing, which may
be set forth by incorporating by reference an attached promissory note duly
endorsed by the Trust, or a loan agreement, (c) the date, and time if known, on
which the loan is to be entered into, (d) the date on which the loan becomes due
and payable, (e) the total amount payable to the Trust on the borrowing date,
and (f) the description of the Securities securing the loan, including the name
of the issuer, the title and the number of shares or other units or the
principal amount. The Custodian shall deliver on the borrowing date specified in
the Written Instructions the required collateral against the lender's delivery
of the total loan amount then payable, provided that the same conforms to that
which is described in the Written Instructions. The Custodian shall deliver, in
the manner directed by the Trust, such Securities as additional collateral, as
may be specified in Written Instructions, to secure further any transaction
described in this Article VII. The Trust shall cause all Securities released
from collateral status to be returned directly to the Custodian and the
Custodian shall receive from time to time such return of collateral as may be
tendered to it.
The Custodian may, at the option of the lender, keep such collateral in
its possession, subject to all rights therein given to the lender because of the
loan. The Custodian may require such reasonable conditions regarding such
collateral and its dealings with third-party lenders as it may deem appropriate.
<PAGE> 16
Page 16
ARTICLE VIII
CONCERNING THE CUSTODIAN
A. Limitations on Liability of Custodian. Except as otherwise provided
herein, the Custodian shall not be liable for any loss or damage resulting from
its action or omission to act or otherwise, except for any such loss or damage
arising out of its own gross negligence or willful misconduct. The Trust shall
defend, indemnify and hold harmless the Custodian and its directors, officers,
employees and agents with respect to any loss, claim, liability or cost
(including reasonable attorneys' fees) arising or alleged to arise from or
relating to the Trust's duties hereunder or any other action or inaction of the
Trust or its Trustees, officers, employees or agents, except such as may arise
from the grossly negligent action or omission, willful misconduct or breach of
this Agreement by the Custodian. Upon the assertions of a claim for which the
Trust may be required to indemnify the Custodian, the Custodian shall promptly
notify the Trust of such assertion, and shall keep the Trust advised with
respect to all developments concerning such claim. The Trust shall have the
option to participate with the Custodian in the defense of such claim. The
Custodian shall in no case confess any claim or make any compromise in any case
in which the Trust may be required to indemnify it except with the Trust's prior
written consent, and except in cases where the Custodian is required to take
immediate or mandatory action. The Custodian shall be entitled to rely on and
may act upon the advice and opinion of counsel on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice or opinion of counsel. The provisions under this paragraph shall survive
the termination of this Agreement.
B. Actions Not Required By Custodian. Without limiting the generality of
the foregoing, the Custodian, acting in the capacity of Custodian hereunder,
shall be under no obligation to inquire into, and shall not be liable for:
1.) The validity of the issue of any Securities purchased by or
for the account of the Fund, the legality of the purchase
thereof, or the propriety of the amount paid therefor;
2.) The legality of the sale of any Securities by or for the
account of the Fund, or the propriety of the amount for
which the same are sold;
3.) The legality of the issue or sale of any Shares of the Fund,
or the
<PAGE> 17
Page 17
sufficiency of the amount to be received therefor;
4.) The legality of the redemption of any Shares of any Fund, or
the propriety of the amount to be paid therefor;
5.) The legality of the declaration or payment of any dividend by
the Trust in respect of Shares of the Fund;
6.) The legality of any borrowing by the Trust on behalf of the
Trust or the Fund, using Securities as collateral;
7.) Whether the Trust or the Fund is in compliance with the 1940
Act, the regulations thereunder, the provisions of the Trust's
charter documents or by-laws, or its investment objectives and
policies as then in effect.
C. No Duty to Collect Amounts Due From Dividend and Transfer Agent. The
Custodian shall not be under any duty or obligation to take action to effect
collection of any amount due to the Trust from any Dividend and Transfer Agent
of the Trust nor to take any action to effect payment or distribution by any
Dividend and Transfer Agent of the Trust of any amount paid by the Custodian to
any Dividend and Transfer Agent of the Trust in accordance with this Agreement.
D. No Enforcement Actions. Notwithstanding Section D of Article V, the
Custodian shall not be under any duty or obligation to take action, by legal
means or otherwise, 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 (i) it shall be directed to take such
action by Written Instructions and (ii) it shall be assured to its satisfaction
(including prepayment thereof) of reimbursement of its costs and expenses in
connection with any such action.
E. Authority to Use Agents and Sub-Custodians. The Trust acknowledges and
<PAGE> 18
Page 18
hereby authorizes the Custodian to hold Securities through its various agents
described in Appendix C annexed hereto. The Fund hereby represents that such
authorization has been duly approved by the Board of Trustees of the Trust as
required by the Act.
In addition, the Trust acknowledges that the Custodian may appoint one or
more financial institutions, as agent or agents or as sub-custodian or
sub-custodians, including, but not limited to, banking institutions located in
foreign countries, for the purpose of holding Securities and moneys at any time
owned by the Fund. The Custodian shall not be relieved of any obligation or
liability under this Agreement in connection with the appointment or activities
of such agents or sub-custodians. Any such agent or sub-custodian shall be
qualified to serve as such for assets of investment companies registered under
the Act. The Funds shall reimburse the Custodian for all costs incurred by the
Custodian in connection with opening accounts with any such agents or
sub-custodians. Upon request, the Custodian shall promptly forward to the Trust
any documents it receives from any agent or sub-custodian appointed hereunder
which may assist trustees of registered investment companies to fulfill their
responsibilities under Rule 17f-5 of the Act.
F. No Duty to Supervise Investments. The Custodian shall not be under any
duty or obligation to ascertain whether any Securities at any time delivered to
or held by it for the account of the Trust are such as properly may be held by
the Trust under the provisions of the Declaration of Trust and the Trust's
By-Laws.
G. All Records Confidential. The Custodian shall treat all records and
other information relating to the Trust and the assets of the Fund as
confidential and shall not disclose any such records or information to any other
person unless (i) the Trust shall have consented thereto in writing or (ii) such
disclosure is required by law.
H. Compensation of Custodian. The Custodian shall be entitled to receive
and the Trust agrees to pay to the Custodian such compensation as shall be
determined pursuant to
<PAGE> 19
Appendix E attached hereto, or as shall be determined pursuant to amendments to
Appendix E. The Custodian shall be entitled to charge against any money held by
it for the account of the Fund, the amount of any of its fees, any loss, damage,
liability or expense, including counsel fees. The expenses which the Custodian
may charge against the account of the Fund include, but are not limited to, the
expenses of agents or sub-custodians incurred in settling transactions involving
the purchase and sale of Securities of the Fund.
I. Reliance Upon Instructions. The Custodian shall be entitled to rely
upon any Proper Instructions. The Trust agrees to forward to the Custodian
Written Instructions confirming Oral Instructions in such a manner so that such
Written Instructions are received by the Custodian, whether by hand delivery,
telex, facsimile or otherwise, on the same Business Day on which such Oral
Instructions were given. The Trust agrees that the failure of the Custodian to
receive such confirming instructions shall in no way affect the validity of the
transactions or enforceability of the transactions hereby authorized by the
Trust. The Trust agrees that the Custodian shall incur no liability to the Trust
for acting upon Oral Instructions given to the Custodian hereunder concerning
such transactions.
J. Books and Records. The Custodian will (i) set up and maintain proper
books of account and complete records of all transactions in the accounts
maintained by the Custodian hereunder in such manner as will meet the
obligations of the Fund under the Act, with particular attention to Section 31
thereof and Rules 3la-1 and 3la-2 thereunder and those records are the property
of the Trust, and (ii) preserve for the periods prescribed by applicable Federal
statute or regulation all records required to be so preserved. All such books
and records shall be the property of the Trust, and shall be available, upon
request, for inspection by duly authorized officers, employees or agents of the
Trust and employees of the SEC.
K. Internal Accounting Control Systems. The Custodian shall send to the
Trust any
<PAGE> 20
report received on the systems of internal accounting control of the Custodian,
or its agents or sub-custodians, as the Trust may reasonably request from time
to time.
L. No Management of Assets By Custodian. The Custodian performs only the
services of a custodian and shall have no responsibility for the management,
investment or reinvestment of the Securities or other assets from time to time
owned by the Fund. The Custodian is not a selling agent for Shares of the Fund
and performance of its duties as custodian shall not be deemed to be a
recommendation to the Fund's depositors or others of Shares of the Fund as an
investment. The Custodian shall have no duties or obligations whatsoever except
such duties and obligations as are specifically set forth in this Agreement, and
no covenant or obligation shall be implied in this Agreement against the
Custodian.
M. Assistance to Trust. The Custodian shall take all reasonable action,
that the Trust may from time to time request, to assist the Trust in obtaining
favorable opinions from the Trust's independent accountants, with respect to the
Custodian's activities hereunder, in connection with the preparation of the
Fund's Form N-1A, Form N-SAR, or other annual reports to the SEC.
N. Grant of Security Interest. The Trust hereby pledges to and grants the
Custodian a security interest in the assets of any Fund to secure the payment of
any liabilities of the Trust to the Custodian, whether acting in its capacity as
Custodian or otherwise, or on account of money borrowed from the Custodian. This
pledge is in addition to any other pledge of collateral by the Trust to the
Custodian.
ARTICLE IX
INITIAL TERM; TERMINATION
A. Initial Term. This Agreement shall become effective as of its
execution and shall continue in full force and effect until terminated as
hereinafter provided.
<PAGE> 21
B. Termination. Either party hereto may terminate this Agreement after the
Initial Term for any reason by giving to the other party a notice in writing
specifying the date of such termination, which shall be not less than ninety
(90) days after the date of giving of such notice. If such notice is given by
the Trust, it shall be accompanied by a copy of a resolution of the Board of
Trustees of the Trust, certified by the Secretary of the Trust, electing to
terminate this Agreement and designating a successor custodian or custodians. In
the event such notice is given by the Custodian, the Trust shall, on or before
the termination date, deliver to the Custodian a copy of a resolution of the
Board of Trustees of the Trust, certified by the Secretary, designating a
successor custodian or custodians to act on behalf of the Trust. In the absence
of such designation by the Trust, the Custodian may designate a successor
custodian which shall be a bank or trust company having not less than
$100,000,000 aggregate capital, surplus, and undivided profits. Upon the date
set forth in such notice this Agreement shall terminate, and the Custodian,
provided that it has received a notice of acceptance by the successor custodian,
shall deliver, on that date, directly to the successor custodian all Securities
and moneys then owned by the Fund and held by it as Custodian. Upon termination
of this Agreement, the Trust shall pay to the Custodian on behalf of the Trust
such compensation as may be due as of the date of such termination. The Trust
agrees on behalf of the Trust that the Custodian shall be reimbursed for its
reasonable costs in connection with the termination of this Agreement.
C. Failure to Designate Successor Custodian. If a successor custodian is
not designated by the Trust, or by the Custodian in accordance with the
preceding paragraph, or the designated successor cannot or will not serve, the
Trust shall, upon the delivery by the Custodian to the Trust of all Securities
(other than Securities held in the Book-Entry System which cannot be delivered
to the Trust) and moneys then owned by the Trust, be deemed to be the custodian
for the Trust, and the Custodian shall thereby be relieved of all duties and
responsibilities pursuant
<PAGE> 22
to this Agreement, other than the duty with respect to Securities held in the
Book-Entry System, which cannot be delivered to the Trust, which shall be held
by the Custodian in accordance with this Agreement.
ARTICLE X
FORCE MAJEURE
Neither the Custodian nor the Trust shall be liable for any failure or
delay in performance of its obligations under this Agreement arising out of or
caused, directly or indirectly, by circumstances beyond its reasonable control,
including, without limitation, acts of God; earthquakes; fires; floods; wars;
civil or military disturbances; sabotage; strikes; epidemics; riots; power
failures; computer failure and any such circumstances beyond its reasonable
control as may cause interruption, loss or malfunction of utility,
transportation, computer (hardware or software) or telephone communication
service; accidents; labor disputes; acts of civil or military authority;
governmental actions; or inability to obtain labor, material, equipment or
transportation; provided, however, that the Custodian, in the event of a failure
or delay, shall use its best efforts to ameliorate the effects of any such
failure or delay.
ARTICLE XI
MISCELLANEOUS
A. Designation of Authorized Persons. Appendix A sets forth the names and
the signatures of all Authorized Persons as of this date, as certified by the
Secretary of the Trust. The Trust agrees to furnish to the Custodian a new
Appendix A in form similar to the attached Appendix A, if any present Authorized
Person ceases to be an Authorized Person or if any other or additional
Authorized Person is elected or appointed. Until such new Appendix A shall be
received, the Custodian shall be fully protected in acting under the provisions
of this Agreement upon Oral Instructions or signatures of the then current
Authorized Persons as set forth in the last
<PAGE> 23
delivered Appendix A.
B. Limitation of Personal Liability. No recourse under any obligation of
this Agreement or for any claim based thereon shall be had against any
organizer, shareholder, officer, trustee, past, present or future as such, of
the Trust or of any predecessor or successor, either directly or through the
Trust or any such predecessor or successor, whether by virtue of any
constitution, statute or rule of law or equity, or by the enforcement of any
assessment or penalty or otherwise; it being expressly agreed and understood
that this Agreement and the obligations thereunder are enforceable solely
against the Trust, and that no such personal liability whatever shall attach to,
or is or shall be incurred by, the organizers, shareholders, officers, or
trustees of the Trust or of any predecessor or successor, or any of them as
such. To the extent that any such liability exists, it is hereby expressly
waived and released by the Custodian as a condition of, and as a consideration
for, the execution of this Agreement.
C. Authorization By Board. The obligations set forth in this Agreement as
having been made by the Trust have been made by the Board of Trustees, acting as
such Trustees for and on behalf of the Trust, pursuant to the authority vested
in them under the laws of the Commonwealth of Massachusetts, the Declaration of
Trust and the By-Laws of the Trust. This Agreement has been executed by officers
of the Trust as officers, and not individually, and the obligations contained
herein are not binding upon any of the Trustees, officers, agents or holders of
shares, personally, but bind only the Trust.
D. Custodian's Consent to Use of Its Name. The Trust shall review with the
Custodian all provisions of the Prospectus and any other documents (including
advertising material) specifically mentioning the Custodian (other than merely
by name and address) and shall obtain the Custodian's consent prior to the
publication and/or dissemination or distribution thereof.
<PAGE> 24
E. Notices to Custodian. Any notice or other instrument in writing,
authorized or required by this Agreement to be given to the Custodian, shall be
sufficiently given if addressed to the Custodian and mailed or delivered to it
at its offices at Firstar Bank Center, 425 Walnut Street, M. L. 6118,
Cincinnati, Ohio 45202, attention Mutual Fund Custody Department, or at such
other place as the Custodian may from time to time designate in writing.
F. Notices to Trust. Any notice or other instrument in writing, authorized
or required by this Agreement to be given to the Trust shall be sufficiently
given when delivered to the Trust or on the second Business Day following the
time such notice is deposited in the U.S. mail postage prepaid and addressed to
the Trust at its office at 7 Wells Avenue, Newton, MA 02459 or at such other
place as the Trust may from time to time designate in writing.
G. Amendments In Writing. This Agreement, with the exception of the
Appendices, 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 authorized and approved by a resolution of the Board of Trustees of the
Trust.
H. Successors and Assigns. This Agreement shall extend to and shall be
binding upon the parties hereto, and their respective successors and assigns;
provided, however, that this Agreement shall not be assignable by the Trust or
by the Custodian, and no attempted assignment by the Trust or the Custodian
shall be effective without the written consent of the other party hereto.
I. Governing Law. This Agreement shall be construed in accordance
with the laws of the State of Ohio.
J. Jurisdiction. Any legal action, suit or proceeding to be instituted by
either party with respect to this Agreement shall be brought by such party
exclusively in the courts of the Commonwealth of Massachusetts or in the courts
of the United States for the District of Massachusetts, and each
<PAGE> 25
party, by its execution of this Agreement, irrevocably (i) submits to such
jurisdiction and (ii) consents to the service of any process or pleadings by
first class U.S. mail, postage prepaid and return receipt requested, or by any
other means from time to time authorized by the laws of such jurisdiction.
K. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
L. Headings. The headings of paragraphs in this Agreement are for
convenience of reference only and shall not affect the meaning or
construction of any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers, thereunto duly authorized as of the day
and year first above written.
ATTEST: TRUST: DCM Series Trust
-----------------------
By: __________________________
Title: _______________________
ATTEST: CUSTODIAN: Firstar Bank, N.A.
By: __________________________
Title: _______________________
<PAGE> 26
APPENDIX A
Authorized Persons Specimen Signatures
President: __________________ ___________________
Vice President: __________________ ___________________
Secretary: __________________ ___________________
Treasurer: __________________ ___________________
Assistant
Treasurer: __________________ ___________________
Adviser
Employees: __________________ ___________________
Transfer Agent/Fund Accountant
Employees: __________________ ___________________
__________________ ___________________
__________________ ___________________
__________________ ___________________
* Authority restricted; does not include: ______________________________________
________________________________________________________________________________
<PAGE> 27
APPENDIX B
SERIES OF THE TRUST
The DCM Growth Fund
<PAGE> 28
APPENDIX C
AGENTS OF THE CUSTODIAN
The following agents are employed currently by Firstar Bank, N.A. for
securities processing and control ...
The Depository Trust Company (New York)
7 Hanover Square
New York, NY 10004
The Federal Reserve Bank
Cincinnati and Cleveland Branches
Bankers Trust Company
16 Wall Street
New York, NY 10005
(For Foreign Securities and certain non-DTC eligible Securities)
<PAGE> 29
APPENDIX D
STANDARDS OF SERVICE GUIDE
<PAGE> 1
EXHIBIT (h)(1)
ADMINISTRATIVE SERVICE AGREEMENT
BETWEEN
DCM SERIES TRUST
AND
AMERICAN DATA SERVICES, INC.
[LOGO]
1
<PAGE> 2
INDEX
<TABLE>
<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......................................................... 6
10. NEW YORK LAWS TO APPLY............................................ 7
11. AMENDMENTS TO THIS AGREEMENT....................................... 7
12. MERGER OF AGREEMENT................................................ 7
14. NOTICES............................................................ 7
SCHEDULE A............................................................. 8
(A) ADMINISTRATIVE SERVICE FEE:........................................ 8
FEE INCREASES...................................................... 8
(B) EXPENSES........................................................... 8
(C) STATE REGISTRATION (BLUE SKY):..................................... 9
(D) SPECIAL REPORTS.................................................... 9
(E) SERVICE DEPOSIT.................................................... 9
SCHEDULE B............................................................. ?
</TABLE>
2
<PAGE> 3
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT made the 12th day of October 1999, by and between DCM Series Trust, a
Massachusetts business trust, having its principal office and place of business
at 7 Wells Avenue, Newton, MA 02459 (the "Trust"), 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 Trust is offering shares of beneficial interest (the
"Shares") in an investment portfolio known as the "DCM Growth Fund" (the
"Fund"), which is a series of the Trust; and
WHEREAS, the Fund is a non-diversified open-end management
investment company registered with the United States Securities and Exchange
Commission (the "SEC") under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Administrator is a corporation experienced in
providing administrative services to mutual funds and possesses facilities
sufficient to provide such services; and
WHEREAS, the Trust desires to avail itself of the experience,
assistance and facilities of the Administrator and to have the Administrator
perform for the Fund 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 Trust 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 and notify the Fund of all regulatory (1940 Act and
Internal Revenue Service ("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 and
Administrator from time to time;
(d) Prepare Trustees meeting agendas and selected financial data
required for Trustees' meetings as agreed upon by the Fund
and the Administrator from time to time, attend and conduct
all Fund business at Board meetings, and prepare Board
minutes;
(e) Determine income and capital gains available for distribution
and calculate distributions required to meet regulatory,
income, and excise tax requirements, to be reviewed by the
Fund's independent public accountants;
(f) Prepare the Fund's federal, state, and local tax returns to be
reviewed by the Fund's
3
<PAGE> 4
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) 1933 and 1940 Act filings -
- Prepare the Fund's Form N-SAR reports and file with the SEC
via EDGAR;
- Prepare all financial information required by Fund counsel to
complete annual update to Form N-1A and the Fund's Statement
of Additional Information and arrange for filing with the SEC
via EDGAR;
- Prepare and file with SEC via EDGAR annual update to Fund's
24f-2 filing (if applicable); and
- Update Fund prospectus and proxy financial sections;
(i) Monitor services provided by the Fund's custodian bank as well
as any other service providers to the Fund and provide
information concerning such services to the Fund;
(j) 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) Prepare and file (registration filing fees to be paid by the
Fund) notices and reports as necessary to render the Fund's
Shares eligible for sale or maintain such eligibility under
the securities or "Blue Sky" laws of the various states
selected by the Fund;
(l) Provide notice of Board meetings, agendas and minutes; and
(m) Coordinate printing of all Fund materials with printer selected
by the Fund.
FUND ACCOUNTING
The Administrator will provide the Fund with the following
accounting services:
(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 the
Administrator'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 Fund and the Administrator. Without limiting the
generality of the foregoing, Administrator will prepare and
maintain the following records upon receipt of information in
proper form from the Fund or its authorized agents:
- Cash receipts journal
- Cash disbursements journal
- Dividend record
- Purchase and sales - portfolio securities journals
- Subscription and redemption journals
- Security ledgers
- Broker ledger
- General ledger
- Daily expense accruals
- Daily income accruals
- Securities and monies borrowed or loaned and
collateral therefore
- Foreign currency journals
- Trial balances
4
<PAGE> 5
(c) Provide the Fund and its investment adviser with daily
portfolio valuation, net asset value calculation and other
standard operational reports, including daily cash forecast
report, securities transaction reports and daily expense and
income accrual report 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 Fund in any way or otherwise be deemed an
agent of the Fund.
2. COMPENSATION OF THE ADMINISTRATOR.
In consideration of the services to be performed by the Administrator as
set forth herein for the Fund, the Administrator shall be entitled to receive
compensation and reimbursement for all reasonable out-of-pocket expenses. The
Fund agrees to pay the Administrator the fees and reimbursement of out-of-pocket
expenses as set forth in the fee schedule attached hereto as Schedule A.
3. RESPONSIBILITY AND INDEMNIFICATION.
(a) The Administrator shall be held to the exercise of reasonable care in
carrying out the provisions of the Agreement, but shall be without liability to
the Fund 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, advice of the Fund, or of counsel for
the Fund 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 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 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, 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 Fund 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 or its authorized agents or in connection with any error in judgment or
mistake of law or any act or omission in the course of, connected with or
arising out of any services to be rendered hereunder, except by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties, by reason of reckless disregard of the Administrator's obligations and
duties under this Agreement or the willful violation of any applicable law.
4. REPORTS.
(a) The Fund shall provide to the Administrator on a quarterly basis a
report of a duly authorized officer of the Fund representing that all
information furnished to the Administrator during the preceding quarter was
true, complete and correct to the best of its knowledge. The Administrator shall
not be responsible for the accuracy of any information furnished to it by the
Fund, and the Fund shall hold the
5
<PAGE> 6
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 Trustees of the Trust,
on a quarterly basis, a report, in such a form as the Administrator and the Fund
shall from time to time agree, representing that, to its knowledge, the Fund was
in compliance with all requirements of applicable federal and state law,
including without limitation, the rules and regulations of the SEC and the IRS,
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, 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 Fund and its 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, at the
expense of the Fund, 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 of the 1940 Act.
7. CONFIDENTIALITY.
The Administrator agrees that it will, on behalf of itself and its
officers and employees, treat all transactions contemplated by this Agreement,
and all other information germane thereto, as confidential and such information
shall not be disclosed to any person except as may be authorized by the Fund.
8. DURATION AND TERMINATION OF THE AGREEMENT.
This Agreement shall become effective as of the date hereof and shall
remain in force for a period of three (3) years, provided however, that both
parties to this Agreement have the option to terminate the Agreement, upon
ninety (90) days prior written notice. At the end of the first three (3) years
of this Agreement and each annual anniversary date thereafter, unless this
Agreement is replaced by a new agreement or notice is formally given to
terminate this Agreement by either party, this Agreement will automatically be
renewed for an additional twelve (12) months.
Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be borne by
the Fund. Additionally, the Administrator reserves the right to charge for any
other reasonable costs and expenses associated with such termination.
9. ASSIGNMENT.
6
<PAGE> 7
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 or by the Administrator without the prior written consent
of the Fund.
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 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. REGARDING THE ADMINISTRATOR
The Administrator warrants and represents that it is duly authorized and
permitted to act as transfer agent and dividend disbursing agent under all
applicable laws and that it will immediately notify the Fund of any revocation
of such authority or permission or of the commencement of any proceeding or
other action which may lead to such revocation.
14. 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 Trust: To the Administrator:
Jonathan J. Derby Michael Miola
Co-Chairman and Vice President President
DCM Series Trust American Data Services, Inc.
7 Wells Avenue 150 Motor Parkway, Suite 109
Newton, MA 02459 Hauppauge, NY 11788
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
DCM SERIES TRUST AMERICAN DATA SERVICES, INC.
By: /s/ Jonathan J. Derby By: /s/ Michael Miola
------------------------------ --------------------------
Jonathan J. Derby Michael Miola, President
Co-Chairman and Vice President
7
<PAGE> 8
SCHEDULE A
(a) ADMINISTRATIVE SERVICE FEE:
For the services rendered by the Administrator in its capacity as
administrator, as specified in Paragraph 1. DUTIES OF THE ADMINISTRATOR., the
Fund shall pay the Administrator within ten (10) days after receipt of an
invoice from the Administrator at the beginning of each month, a fee equal to
the greater of:
CALCULATED FEE WILL BE BASED UPON PRIOR MONTH AVERAGE NET ASSETS:
(No prorating partial months)
- NOTE: The following administrative service fees are per portfolio
serviced plus out-of-pocket expenses.
MINIMUM FEE - $45,000.00
OR,
NET ASSET CHARGE:
- - 1/12th of 0.175% (17.5 basis points) of first $20 million of average net
assets of Fund for month; plus
- - 1/12th of 0.095% (9.5 basis points) of next $80 million of average net
assets of Fund for month; plus
- - 1/12th of 0.045% (4.8 basis points) of next $200 million of average net
assets of Fund for month;
- - 1/12th of 0.02% (2 basis points) of all average net assets of Fund for
month in excess of $300 million.
(b) EXPENSES.
The following expenses will be charged to the Fund as incurred by the
Administrator in connection with the performance of its duties to include but
are 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 per
month). 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.
8
<PAGE> 9
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 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).
The fees enumerated in paragraph (a) above do not include the service fees
for the initial state registration, renewal and maintenance of registrations (as
detailed in Paragraph 1(k) 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 Paragraph 1 DUTIES OF THE ADMINISTRATOR 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.
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 whatsoever (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 its assets to any successor entity) prior to the termination date of
this Agreement as specified in Paragraph 8 DURATION AND TERMINATION OF THE
AGREEMENT, the Fund will forfeit the security deposit paid to the Administrator
upon execution of this Agreement
9
<PAGE> 1
EXHIBIT (h)(2)
TRANSFER AGENCY AND SERVICE AGREEMENT
BETWEEN
DCM SERIES TRUST
AND
AMERICAN DATA SERVICES, INC.
[LOGO]
1
<PAGE> 2
INDEX
1. TERMS OF APPOINTMENT; DUTIES OF ADS.................................... 3
2. FEES AND EXPENSES...................................................... 4
3. REPRESENTATIONS AND WARRANTIES OF ADS.................................. 4
4. REPRESENTATIONS AND WARRANTIES OF THE FUND............................. 5
5. INDEMNIFICATION........................................................ 5
6. COVENANTS OF THE FUND AND ADS.......................................... 6
7. TERMINATION OF AGREEMENT............................................... 7
8. ASSIGNMENT............................................................. 7
9. AMENDMENT.............................................................. 7
10. NEW YORK LAWS TO APPLY................................................ 7
11. MERGER OF AGREEMENT................................................... 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> 3
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made the 12th day of October 1999, by and between DCM Series Trust, a
Massachusetts business trust, having its principal office and place of business
at 7 Wells Avenue, Newton, MA 02459 (the "Trust"), and American Data Services,
Inc., a New York corporation having its principal office and place of business
at the Hauppauge Corporate Center, 150 Motor Parkway, Suite 109, Hauppauge, New
York 11788 ("ADS")
WHEREAS, the Trust is offering shares of beneficial interest (the
"Shares") in an investment portfolio known as the "DCM Growth Fund" (the
"Fund"), which is a series of the Trust; and
WHEREAS, the Fund desires to appoint ADS as its transfer agent,
dividend disbursing agent and agent in connection with certain other 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
transfer agent for the Fund's authorized and issued Shares, dividend disbursing
agent and agent in connection with any accumulation, open-account or similar
plans provided to the shareholders of the Fund ("Shareholders") set out in the
currently effective prospectus and statement of additional information
("prospectus") of the Fund.
1.02 ADS agrees that it will perform the following services:
(a) In accordance with procedures established from time to
time by agreement between the Fund 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 Trustees of the Trust (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 or pursuant to applicable law;
VI. Prepare and transmit payments for dividends and distributions declared by
the Fund;
VII. Maintain records of account for and advise the Fund and its Shareholders as
to the foregoing; and
VIII.Record the issuance of Shares of the Fund and maintain pursuant to Rule
17Ad-10(e) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") a record of the total number of Shares of the Fund which
are authorized, based upon data provided to it by the Fund,
3
<PAGE> 4
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 issuance 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 and 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 and redemptions of Shares and other
confirmable transactions in Shareholder accounts, preparing and
mailing activity statements for Shareholders, and providing
Shareholder account information and providing a system and reports
which will enable the Fund to monitor the total number of Shares sold
in each State.
(c) In addition, the Fund 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
eligibility 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 Fund and ADS.
2. FEES AND EXPENSES
2.01 For performance by ADS pursuant to this Agreement, the Trust
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
Trust and ADS.
2.02 In addition to the fee paid under Section 2.01 above, the Fund
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,
will be reimbursed by the Fund.
2.03 The Fund agrees to pay all fees and reimbursable expenses within
five (5) 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 Fund 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 Fund that:
4
<PAGE> 5
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 Exchange Act
and shall continue to be registered throughout the remainder of this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE TRUST
The Trust represents and warrants to ADS that:
4.01 It is empowered under applicable laws and by its By-Laws and
Declaration of Trust to enter into and perform this Agreement.
4.02 All proceedings required by said By-Laws and Declaration of Trust
have been taken to authorize it to enter into and perform this Agreement.
4.03 It is an open-end management investment company registered under
the Investment Company Act of 1940 as amended (the "1940 Act").
4.04 A registration statement under the Securities Act of 1933, as
amended is currently or will become effective and will remain effective, 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 Fund 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 Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack of good faith, gross
negligence or willful misconduct or which arise out of the breach of
any representation or warranty of the Fund 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, and (ii) have been prepared and/or maintained by the Fund 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 Fund.
5
<PAGE> 6
(e) The offer or sale of Shares in violation of any requirement under the
federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state
or in violation of any stop order or other determination or ruling by
any federal agency or any state with respect to the offer or sale of
such Shares in such state.
5.02 ADS shall indemnify and hold the Fund 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 Trust 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 Fund 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 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 Fund, and shall not be held to have notice of
any change of authority of any person, until receipt of written notice thereof
from the Fund. ADS, its agents and subcontractors shall also be protected and
indemnified in recognizing share 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 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 in 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 TRUST AND ADS
6.01 The Trust shall promptly furnish to ADS a certified copy of the
resolution of the Board of Trustees of the Trust 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 share
certificates, 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
<PAGE> 7
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 1940 Act, as amended, and the Rules thereunder,
ADS agrees that all such records prepared or maintained by ADS relating to the
services to be performed by ADS hereunder are the property of the Fund and will
be preserved, maintained and made available in accordance with such Section and
Rules, and will be surrendered promptly to the Fund on and in accordance with
its request.
6.04 ADS and the Trust agree that all books, records, information and
data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed to any other person,
except as may be required by law.
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 Trust as to such
inspection. ADS reserves the right, however, to exhibit the Shareholder records
to any person whenever it is advised by its counsel that it may be held liable
for the failure to exhibit the Shareholder records to such person, and shall
promptly notify the Fund of any unusual request to inspect or copy the
Shareholder records of the Fund or the receipt of any other unusual request to
inspect, copy or produce the records of the Fund.
7. TERMINATION OF AGREEMENT
7.01 This Agreement shall become effective as of the date hereof and
shall remain in force for a period of three (3) years, provided however, that
both parties to this Agreement have the option to terminate the Agreement upon
ninety (90) days prior written notice. At the end of the first three (3) years
of this Agreement and each anniversary date thereafter, unless this Agreement is
replaced by a new agreement or notice is formally given to terminate this
Agreement by either party, this Agreement will automatically be renewed for an
additional twelve (12) months.
7.02 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be borne by
the Fund. Additionally, ADS reserves the right to charge for any other
reasonable costs and expenses associated with such termination.
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 Trustees of the Trust.
10. NEW YORK LAWS TO APPLY
7
<PAGE> 8
10.01 The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of New York 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 Trust: To ADS:
Jonathan J. Derby Michael Miola
Co-Chairman and Vice President President
DCM Series Trust American Data Services, Inc.
7 Wells Avenue 150 Motor Parkway, Suite 900
Newton, MA 02459 Hauppauge, NY 11788
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
DCM Series Trust AMERICAN DATA SERVICES, INC.
By: /s/ Jonthan J. Derby By: /s/ Michael Miola
------------------------------ ------------------------
Jonathan J. Derby Michael Miola, President
Co-Chairman and Vice President
8
<PAGE> 9
FEE SCHEDULE
For the services rendered by ADS in its capacity as transfer agent, the
Fund shall pay ADS, within ten (10) days after receipt of an invoice from ADS at
the beginning of each month, a fee, calculated as a combination of account
maintenance charges plus transaction charges as follows:
(a) ACCOUNT MAINTENANCE CHARGE:
The greater of (no prorating for partial months):
(1) Minimum maintenance charge per portfolio/class ($1,000.00/ month)
OR,
(2) Based upon the total of all open/closed accounts (1) per portfolio/class
upon the following annual rates (billed monthly):
FUND TYPE:
----------
<TABLE>
<S> <C>
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
</TABLE>
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 Forms 1099
and 5498 have been distributed to the shareholders and sent via
mag-media to the IRS.
PLUS,
(b) TRANSACTION FEES:
<TABLE>
<S> <C>
Trade Entry (purchase/liquidation) and maintenance transactions $ 1.50 each
New account set-up ........................................... $ 3.00 each
Customer service calls ........................................ $ 1.25 each
Correspondence/ information requests .......................... $ 1.75 each
Check preparation ............................................. $ .50 each
Liquidations paid by wire transfer ............................ $ 3.00 each
ACH charge .................................................... $ .45 each
SWP ........................................................... $ 1.00 each
</TABLE>
9
<PAGE> 10
(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 in (b) 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.
(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>
10
<PAGE> 11
* Includes $8.00 Bank Custody Fee.
(g) EXPENSES:
The Fund shall reimburse ADS for any out-of-pocket expenses, exclusive
of salaries, advanced by ADS in connection with but not limited to the costs for
printing Fund documents, (i.e. printing of confirmation forms, shareholder
statements, redemption/dividend checks, envelopes, financial statements, proxy
statement, Fund prospectus, etc.) proxy solicitation and mailing expenses,
travel requested by the Fund, telephone toll charges, 800-line costs and fees,
facsimile and data transmission costs, stationery and supplies (related to Fund
records), record storage, postage (plus a $0.085 service charge for all
mailings), pro-rata portion of annual SAS-70 audit letter, telex and courier
charges incurred in connection with the performance of its duties hereunder. ADS
shall provide the Fund with a monthly invoice of such expenses and the Fund
shall reimburse ADS within fifteen (15) days after receipt thereof.
(h) SPECIAL REPORTS:
All reports and/or analyses requested by the Fund that are not included
in the fee schedule, shall be subject to an additional charge, agreed upon in
advance, based upon the following rates:
Labor:
Senior staff - $150.00/hr.
Junior staff - $ 75.00/hr.
Computer time - $ 45.00/hr.
(i) SERVICE DEPOSIT:
The Fund will remit to ADS upon execution of this Agreement a security
deposit of equal to one (1) month's shareholder service fee. The service deposit
computation will be based either on the total number of shareholder accounts
(open and closed) of each portfolio to be serviced or the minimum fee, whichever
is greater, as of the execution date of this Agreement. The Fund will have the
option to have the security deposit applied to the last month's service fee, or
applied to any new contract between the Fund and ADS.
However, if the Fund elects or is forced to terminate this Agreement
for any reason what-so-ever other than a material breach by ADS (including, but
not limited to, the voluntary or involuntary termination of the Fund,
liquidation of the Fund's assets, the sale or merger of the Fund or its 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)
11
<PAGE> 12
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.
The conversion charge will be estimated and agreed upon in advance by
the Fund and ADS. The charge will be based upon the quantity of records to be
converted and the condition of the previous service agents records.
12
<PAGE> 13
SCHEDULE A
PORTFOLIOS TO BE SERVICED UNDER THIS AGREEMENT:
DCM Growth Fund
13
<PAGE> 1
Exhibit (i)
CHOATE, HALL & STEWART
A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
EXCHANGE PLACE
53 STATE STREET
BOSTON, MASSACHUSETTS 02109-2891
TELEPHONE (617) 248-5000
FACSIMILE (617) 248-4000
October 12, 1999
DCM Series Trust
7 Wells Avenue
Newton, MA 02459
Dear Sirs:
With respect to the Registration Statement on Form N-1A (File No.
333-84809) the ("Registration Statement") filed by the DCM Series Trust (the
"Trust") with the Securities and Exchange Commission for the purpose of
registering under the Securities Act of 1933, as amended, an indefinite number
of shares of Beneficial Interest of $0.001 par value of the Trust (the
"Shares"), we have examined such Trust records and other documents and reviewed
such questions of law as we have considered necessary or appropriate for the
purposes of this opinion, and on the basis of such examination and review, we
advise you that, in our opinion, proper trust proceedings have been taken by the
Trust so that the Shares have been validly authorized, and when the Shares have
been issued and sold in accordance with the terms contained in the Registration
Statement, the Shares will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Counsel" in the Statement of Additional Information forming a part of the
Registration Statement. In giving this consent, we do not thereby admit that we
are within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Choate, Hall & Stewart
Choate, Hall & Stewart
<PAGE> 1
[VITALE CATURANO LOGO]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
the DCM Series Trust, the DCM Growth Fund:
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made as part of this
registration statement.
/s/ Vitale, Caturano and Co., P.C.
VITALE, CATURANO AND CO., P.C.
October 7, 1999
Boston, Massachusetts
Certified Public Accountants
and Business Advisors
210 Commercial Street
Boston, Massachusetts 02109-1314
(617) 912-9000 - Fax (617) 912-9001
Member
- ----------------------------
Division for CPA Firms AICPA
<PAGE> 1
Exhibit (l)
PURCHASE AGREEMENT
DCM Series Trust (the "Trust"), a Massachusetts business trust, on
behalf of the DCM Growth Fund (the "Fund"), and Derby Capital Management
(together, the "Purchaser") hereby agree as follows:
1. The Trust hereby offers to the Purchaser and the Purchaser
hereby agree to purchase that number of shares set forth next
to the Purchaser's name on Addendum A to this Purchase
Agreement at $10.00 per share (hereafter "Shares"). The Shares
are the "initial shares" of the Fund. The Trust hereby
represents that Firstar Bank, National Association has
acknowledged receipt of a purchase confirmation reflecting the
purchase of the Shares, and the Trust hereby acknowledges
receipt from the Purchaser of funds in the aggregate amount of
$100,000 in full payment for the Shares.
2. The Purchaser represents and warrants to the Trust that the
Shares are being acquired for investment purposes and not for
the purpose of distribution.
3. The Purchaser agrees that if it or any direct or indirect
transferee of the Shares held by it redeems the Shares prior
to the fifth anniversary of the date that the Fund begins its
investment activities, the redemption proceeds payable to the
Purchaser or such transferee will be reduced by an amount
equal to the number resulting from multiplying the Fund's
total unamortized costs by a fraction, the numerator of which
is equal to the number of Shares redeemed by the Purchaser or
such transferee and the denominator of which is equal to the
number of Shares of the Fund outstanding as of the date of
such redemption, as long as the administrative position of the
staff of the Securities and Exchange Commission requires
reimbursement to the Trust of such unamortized costs.
4. The Trust represents that a copy of its Declaration of Trust
is on file at the Office of the Secretary of State of the
Commonwealth of Massachusetts.
5. This Agreement has been executed on behalf of the Trust by the
undersigned officer of the Trust in his capacity as an officer
of the Trust. The obligations of this Agreement shall be
binding only upon the assets and property of the Fund and
shall not be binding upon any individual Trustee, officer or
shareholder of the Fund or the Trust.
6. This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the Commonwealth
of Massachusetts.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 8th day of October, 1999.
Attest: DCM SERIES TRUST
/s/ Frederick P. Callori By: /s/ Jonathan J. Derby
- ---------------------------- ----------------------------
Frederick P. Callori Name: Jonathan J. Derby
--------------------------
Title: Vice President
-------------------------
Attest:
/s/ Frederick P. Callori Derby Capital Management
- ----------------------------
Frederick P. Callori
By: /s/ Jonathan J. Derby
----------------------------
Name: Jonathan J. Derby
--------------------------
Title: ________________________
2
<PAGE> 3
ADDENDUM A TO PURCHASE AGREEMENT
<TABLE>
<CAPTION>
PURCHASER NUMBER OF SHARES TOTAL PURCHASE PRICE
- --------- ---------------- --------------------
<S> <C> <C>
Derby Capital Management 10,000 $100,000
</TABLE>
3
<PAGE> 1
Exhibit (m)
PLAN OF DISTRIBUTION PURSUANT TO RULE 12B-1
FOR SHARES
OF
DCM SERIES TRUST
DCM GROWTH FUND
WHEREAS, DCM Series Trust (the "Trust") is an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "Act"); and
WHEREAS, the DCM Growth Fund (the "Fund"), a fund of the Trust, desires
to adopt a Plan of Distribution pursuant to Rule 12b-1 under the Act with
respect to shares of the Fund ("Shares"), and the Board of Trustees of the Trust
(the "Board") has determined that there is a reasonable likelihood that adoption
of the Plan of Distribution will benefit the Fund and its shareholders; and
WHEREAS, the Fund and ADS Distributors, Inc. (the "Distributor") have
entered into a separate Underwriting Agreement pursuant to which the Fund has
employed the Distributor in such capacity during the continuous offering of
Shares of the Fund.
NOW, THEREFORE, the Fund hereby adopts the terms of this Plan of
Distribution (the "Plan") in accordance with Rule 12b-1 under the Act with
respect to the Shares:
1. In consideration of the services to be provided, and the expenses to
be incurred, by the Distributor pursuant to the Underwriting Agreement, the Fund
will reimburse the Distributor as distribution payments (the "Payment") for
expenses actually incurred in connection with the distribution of the Shares in
an aggregate amount of up to 0.25% per year of the average daily net assets of
the Fund. Such payment shall be accrued daily and paid monthly in arrears or
shall be accrued and paid at such other intervals as the Board shall determine.
The Trust's obligation hereunder shall be limited to the assets of the Fund and
shall not constitute an obligation of the Trust except out of such assets and
shall not constitute an obligation of any shareholder of the Trust.
2. It is understood that the Payments made by the Trust under the Plan
will be used by the Distributor for the purpose of financing or assisting in the
financing of any activity which is primarily intended to result in the sale of
Shares. The scope of the foregoing shall be interpreted by the Board, whose
decision shall be conclusive except to the extent it contravenes established
legal authority. Without in any way limiting the discretion of the Board, and
subject to any differing determination that may subsequently be made by the
Board after reviewing relevant facts and applicable regulations, the following
activities are hereby declared to be primarily intended to result in the sale of
Shares: advertising or promoting the Fund or the Fund's investment adviser's
mutual fund activities; compensating underwriters, dealers, brokers, banks and
other selling entities (including the Distributor) and sales and marketing
personnel of any of them for sales of Shares, whether in a lump sum or on a
continuous, periodic, contingent, deferred or other basis; compensating
underwriters, dealers, brokers, banks and other servicing
1
<PAGE> 2
entities and servicing personnel (including the Fund's investment adviser and
its personnel and its transfer agent and its personnel) or any of them for
providing services to holders of Shares relating to their investment in the
Fund, including assistance in connection with inquiries relating to such
shareholders' accounts; the production and dissemination of the prospectus
(including the statement of additional information) of the Fund, and the
preparation, production and dissemination of sales, marketing and shareholder
servicing materials; and the financing of any activity for which Payment is
authorized by the Board. Notwithstanding the foregoing, this Plan does not
require the Distributor to perform any specific type or level of expenses for
activities covered by this Section 2. In addition, Payments made in a particular
year shall not be refundable whether or not such Payments exceed the expenses
incurred for that year pursuant to this Section 2.
3. The Fund is hereby authorized and directed to enter into appropriate
written agreements with the Distributor and each other person to whom the Fund
intends to make any Payment, and the Distributor is hereby authorized and
directed to enter into appropriate written agreements with each person to whom
the Distributor intends to make any payments in the nature of a Payment. The
foregoing requirement is not intended to apply to any agreement or arrangement
with respect to which the party to whom Payment is to be made does not have the
purpose set forth in Section 2 above (such as the printer in the case of the
printing of a prospectus or a newspaper in the case of an advertisement) unless
the Board determines that such an agreement or arrangement should be treated as
a "related" agreement for purposes of Rule 12b-1 under the Act.
4. Each agreement required to be in writing by Section 3 must contain
the provisions required by Rule 12b-1 under the Act and must be approved by a
majority of the Board ("Board Approval") and by a majority of the Trustees
("Disinterested Trustee Approval") who are not interested persons of the Fund
and have no direct or indirect financial interest in the operation of the Plan
or any such agreement, by vote cast in person at a meeting called for the
purposes of voting on such agreement. All determinations or authorizations of
the Board hereunder shall be made by Board Approval and Disinterested Trustee
Approval.
5. The officers, investment adviser or Distributor of the Fund, as
appropriate, shall provide to the Board and the Board shall review, at least
quarterly, a written report of the amounts expended pursuant to this Plan and
the purposes for which such Payments were made.
6. To the extent any activity is covered by Section 2 and is also an
activity which the Fund may pay for on behalf of the Fund without regard to the
existence or terms and conditions of a plan of distribution under Rule 12b-1 of
the Act, this Plan shall not be construed to prevent or restrict the Fund from
paying such amounts outside of this Plan and without limitation hereby and
without such payments being included in calculation of Payments subject to the
limitation set forth in Section 1.
7. The Plan may not be amended in any material respect without Board
Approval and Disinterested Trustee Approval and may not be amended to increase
the maximum level of
2
<PAGE> 3
Payments permitted hereunder without such approvals and further approval by a
vote of at least a majority of the outstanding Shares of the Fund. This Plan may
continue in effect for longer than one year after its approval only as such
continuance is specifically approved at least annually by Board of Approval and
by Disinterested Trustee Approval, cast in person at a meeting called for the
purpose of voting on this Plan.
8. The Plan or any agreement hereunder may be terminated at any time,
without payment of any penalty, by a vote of the Trustees who are not interested
persons of the Fund and have no direct or indirect financial interest in the
operation of the Plan or any agreement hereunder, cast in person at a meeting
called for the purposes of voting on such termination, or by a vote of at least
a majority of the outstanding Shares of the Fund on not less than sixty (60)
days written notice to any other party to the Plan.
9. Subject to shareholder approval as required by applicable law, while
the Plan is in effect, the selection and nomination of Trustees who are not
interested persons of the Fund shall be committed to the discretion of the
Trustees who are not such interested persons.
10. Any agreement related to the Plan will terminate automatically in
the event of an assignment.
11. As used in this Plan, the terms "interested person" and "related
agreement" shall have the meanings ascribed to them in the Act and the rules
adopted by the Securities and Exchange Commission ("SEC") thereunder and the
term "vote of a majority of the outstanding Shares" of the Fund shall mean the
lesser of 67% or the 50% voting requirements specified in clauses (A) and (B),
respectively, of the third sentence of Section 2(a)(42) of the Act, all subject
to exemptions as may be granted by the SEC.
3
