<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 17, 1999
FILE NO.
FILE NO.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT ACT OF 1940
COMMONFUND INSTITUTIONAL FUNDS
(Exact Name of Registrant as Specified in Charter)
THE CORPORATION TRUST COMPANY
1209 ORANGE STREET
WILMINGTON, DELAWARE 19801, COUNTY OF NEW CASTLE
(Name and Address of Agent for Service)
Copies to:
ARTHUR GARDINER, ESQUIRE JOHN H. GRADY, Jr., ESQUIRE
8 Sargent Street Morgan, Lewis & Bockius LLP
Hanover, NH 03755 1701 Market Street
Philadelphia, PA 19103
/X/ Approximate date of Proposed Public Offering:
As soon as practicable after the
effective date of this Registration Statement
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.
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\ COMMONFUND
INSTITUTIONAL FUNDS
PRELIMINARY PROSPECTUS
AUGUST 17, 1999
COMMONFUND SHORT DURATION FUND
INVESTMENT MANAGER
COMMONFUND ASSET MANAGEMENT COMPANY, INC.
INVESTMENT SUB-ADVISERS
WELLINGTON MANAGEMENT COMPANY, LLP
WESTERN ASSET MANAGEMENT COMPANY
DISTRIBUTOR
COMMONFUND SECURITIES, INC.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THE FUND'S SHARES OR
DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE.
IT IS A CRIME FOR ANYONE TO TELL YOU OTHERWISE.
<PAGE> 3
COMMONFUND INSTITUTIONAL FUNDS
Commonfund Institutional Funds ("CIF") is a no-load, open-end, diversified
management investment company that seeks to improve the net investment returns
of its shareholders by making available to them a series of investment funds,
each with its own investment objectives and policies. The investment funds are
sold primarily to institutional investors, including colleges, universities,
private secondary schools, hospitals, foundations, pension funds, museums,
libraries, performing arts groups and centers, public secondary school
districts, charitable service organizations and others. The investment funds are
not available to individuals, except directors, officers and employees of the
Investment Manager and its affiliates.
HOW TO READ THIS PROSPECTUS
The Commonfund Short Duration Fund (the "Fund") has individual investment goals
and strategies. This prospectus gives you important information about the Fund
that you should know before investing. This prospectus has been arranged into
different sections so that you can easily review this important information.
Please read this prospectus and keep it for future reference.
The Fund.................................................................. 3
Investments and Portfolio Management...................................... 3
Purchasing and Redeeming Shares........................................... 7
Dividends, Distributions and Taxes........................................ 9
To obtain more information about Commonfund Institutional Funds please refer to
the Back Cover of the Prospectus
2
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COMMONFUND SHORT DURATION FUND
INVESTMENT GOAL
Current income consistent with liquidity and safety of principal.
INVESTMENT FOCUS
A portfolio of U.S. Government securities and other high quality debt
securities.
PRINCIPAL INVESTMENT STRATEGY
The Commonfund Short Duration Fund invests in a diversified portfolio of
securities issued or guaranteed by the U.S. Government and its agencies and
instrumentalities, obligations of highly-rated banks, high quality corporate
debt securities, including commercial paper, and fully collateralized repurchase
agreements with highly rated counterparties. The fixed income securities
acquired by the Fund may include mortgage-backed and asset-backed securities.
The Fund seeks to produce for shareholders a monthly total rate of return that
exceeds the total return on 90 day U.S. Treasury securities.
The Fund seeks to maintain a relatively stable net asset value by maintaining
high credit quality standards and employing a relatively short effective
duration. The Fund's effective duration generally will not exceed one (1) year,
and the maximum remaining maturity of any individual security will be five and
one-half (5 1/2) years, except for certain mortgage-related and asset-backed
securities. The Fund is diversified both by issuer and by industry.
Commonfund Asset Management Company, Inc. (the "Investment Manager"), allocates
the Fund's assets among selected Sub-Advisers, who in turn manage the Fund's
assets on a day-to-day basis. Subject to oversight by the Investment Manager,
the Fund's Sub-Advisers, Wellington Management Company, LLP ("Wellington") and
Western Asset Management Company ("Western Asset") select investments for its
portion of the Fund's assets based on its own investment style and strategy.
Wellington's investment philosophy is to maximize total return while limiting
the level of risk appropriate for the strategy by combining a top-down strategy
which directs portfolio structure including duration and sector weights and a
bottom up securities selection process. Western Asset applies a team approach to
portfolio management that revolves around their investment outlook, focusing on
duration weighting, term structure position, sector and issue selection. While
duration and yield curve structure decisions underlie Western Asset's investment
process, the company concentrates primarily on sector and issue selection for
adding value. The Sub-Advisers seek to achieve the Fund's objectives on a total
return basis and without regard to tax consequences. The Fund's portfolio
turnover rate, and associated transaction costs, may be higher as a result.
OTHER INVESTMENTS
The Fund also may invest in other securities, use other strategies and engage in
other investment practices. These investments and strategies, as well as those
described in this prospectus, are described in greater detail in the Fund's
Statement of Additional Information (SAI).
During unusual economic or market conditions, or for temporary defensive or
liquidity purposes, the Fund may invest up to 100% of its assets in cash,
repurchase agreements and short-term obligations that would not ordinarily be
consistent with the Fund's objective.
RELATED RISKS
The value of an investment in the Fund is based on the market value of the
securities the Fund holds. These prices change daily due to economic and other
events that affect particular companies and other issuers. These price
movements, sometimes called volatility, may be greater or lesser depending on
the types of securities the Fund owns and the markets in which they trade.
Generally, the Fund's fixed income securities will decrease in value if interest
rates rise and vice versa. The price of fixed income securities also may
fluctuate in reprise to changes in credit risk. Also, prices of longer-term
securities are generally more volatile, so the average maturity of the Fund's
portfolio affects risk.
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The Investment Manager's allocation of Fund assets to the Sub-Advisers and the
Sub-Advisers' judgments about the markets, the economy and/or companies may not
anticipate actual market movements, economic conditions or company performance,
and these judgments may affect the Fund's return. In fact, no matter how good a
job the Investment Manager and the Sub-Advisers do, you can lose money on your
investment in the Fund, just as you could with other investments. A Fund share
is not a bank deposit, and it is not insured or guaranteed by the FDIC or any
government agency.
RISKS OF HOLDING CERTAIN SECURITIES
U.S. Government Securities. U.S. Government securities are considered to be
those with the least credit risk, but U.S. Government securities are subject to
price movements due to changing interest rates. Obligations issued by some U.S.
Government agencies are backed by the U.S. Treasury, while others are backed
solely by the ability of the agency to borrow from the U.S. Treasury or by the
agency's own resources, and are subject to slightly greater credit risks.
Asset-Backed Securities. Asset-backed securities are fixed income securities
representing an interest in a pool of loans or receivables of an entity, such as
a bank or credit card company. Therefore, repayment depends largely on the cash
flows generated by the assets backing the securities. It is possible that
prepayments on the underlying assets will alter the cash flow on asset-backed
securities, making it difficult to predict with certainty the actual maturity
date or average life of an asset-backed security and, therefore, to assess the
volatility risk of the Fund.
Mortgage-Backed Securities. Mortgage-backed securities are fixed income
securities representing an interest in a pool of underlying mortgage loans.
Mortgage-backed securities are sensitive to changes in interest rates, but may
respond to these changes differently from other fixed income securities due to
the possibility of prepayment of the underlying mortgage loans. It may not be
possible to determine in advance the actual maturity date or average life of a
mortgage-backed security and, therefore, to assess the volatility risk of the
Fund.
YEAR 2000 RISKS
Like other mutual funds, the Fund could be affected by computer problems related
to the transition to the year 2000. While no one knows if these problems will
have any impact on the Fund or on the financial markets in general, the Fund is
taking steps to protect investors. These include efforts to ensure that the
Fund's own systems are prepared to make the transition to the year 2000, and to
determine that the problem will not affect the systems used by the Fund's major
service providers. Whether these steps will be effective can only be known for
certain in the year 2000. In addition, year 2000 problems may negatively affect
the companies and governments whose securities the Fund purchases, which may
ultimately have an impact on the value of the Fund's shares.
PRIOR PERFORMANCE INFORMATION
As of [October 31, 1999,] the Fund had not yet commenced operations, and did not
have a performance history.
FUND FEES AND EXPENSES
This table describes the Fund's fees and expenses that you will pay if you buy
and hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (expenses deducted from Fund assets)
<TABLE>
<S> <C>
Investment Advisory Fees 0.19%
Distribution (12b-1) Fees None
Other Expenses* 0.30%
TOTAL ANNUAL FUND OPERATING EXPENSES 0.49%
Fee waivers and expense reimbursements 0.24%
NET TOTAL OPERATING EXPENSES 0.25%**
</TABLE>
* OTHER EXPENSES ARE ESTIMATED ASSUMING THE AVERAGE DAILY NET ASSETS OF THE
FUND WILL BE $100 MILLION.
** THE INVESTMENT MANAGER HAS AGREED TO WAIVE FEES AND TO REIMBURSE EXPENSES IN
ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 0.25% FOR A PERIOD OF
TWO YEARS FROM THE DATE OF THIS PROSPECTUS.
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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. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated. The Example also
assumes that each year your investment has a 5% return and Fund expenses remain
the same. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
<TABLE>
<S> <C>
1 Year $ 26
3 Years $ 79
</TABLE>
INVESTMENT MANAGER
Commonfund Asset Management Company, Inc. (the "Investment Manager") is an
indirect, wholly-owned subsidiary of The Commonfund for Non-Profit Organizations
("Commonfund"). Employees of the Investment Manager also are responsible for the
Commonfund's investment program, which is comprised of more than 20 funds with
more than $20 billion in assets and is conducted in a "manager or managers"
format.
The Investment Manager acts as a "manager of managers" for the Fund, and
supervises adherence by the Sub-Advisers with the Fund's investment policies and
guidelines. The Investment Manager also recommends the appointment of additional
or replacement Sub-Advisers to the Fund's Board of Directors. It is anticipated
that the Fund and the Investment Manager will obtain exemptive relief from the
SEC necessary to permit the Investment Manager and the Fund to add or terminate
Sub-Advisers without shareholder approval.
INVESTMENT SUB-ADVISERS
WELLINGTON MANAGEMENT COMPANY, LLP traces its origins to 1928 and, as of June
30, 1999 managed approximately $223 billion of assets, with approximately $91
billion in fixed income securities, for domestic and foreign clients.
Wellington, headquartered in Boston, Massachusetts, with affiliates in London,
Singapore, Sydney and Tokyo is a Massachusetts limited liability partnership
with 59 general partners, all of whom provide full time service to the firm, and
over 200 investment professionals.
WESTERN ASSET MANAGEMENT COMPANY manages over $50 billion in assets. The firm
has managed short-duration portfolios since 1974. It is wholly-owned by Legg
Mason Inc., a financial services company headquartered in Baltimore, Maryland.
PORTFOLIO MANAGERS
Commonfund Asset Management Company, Inc. The Investment Manager employs a team
to supervise the Sub-Advisers, which includes the following members:
Todd E. Petzel is President and Chief Investment Officer of Commonfund
Asset Management Company, a position he assumed in August, 1999. From January,
1996 until August, 1999, he served as Executive Vice President and Chief
Investment Officer for Commonfund after having been the Vice President for
Financial Research of the Chicago Mercantile Exchange for 8 years. Todd received
his A.B., A.M., and Ph.D. degrees from the University of Chicago.
MaryEllen Beaudreault is a Senior Vice President with Commonfund
responsible for the oversight of all fixed income funds and strategies including
cash management, domestic, global and international fixed income managers and
strategies. MaryEllen has 15 years of professional experience, 6 of which have
been with Commonfund. MaryEllen is a graduate of Central Connecticut State
University.
Wellington Management Company, LLP. Responsibility for investment
decisions will rest with two persons:
John C. Keogh, Chairman of the Short Term Strategy Group, a Senior Vice
President and Portfolio Manager who has 20 years of professional experience, 16
of which have been with Wellington. Mr. Keogh received a B.A. from Tufts
University in 1979.
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Timothy E. Smith, Vice President and Portfolio Manager who has 14 years
of professional experience, 7 of which have been with Wellington. Mr. Smith
received his MBA from Babson College in 1992.
Western Asset Management. Western Asset's Investment Strategy Group is
responsible for investment decisions. The group consists of senior portfolio
managers who specialize in all major sectors of the fixed income market, such as
U.S. Government securities, money market instruments, mortgage-related
securities, and asset-backed securities. Each sector specialist is responsible
for selecting individual securities to implement an overall strategy set by the
Investment Strategy Group. The following individuals are members of Western
Asset's Investment Strategy Group:
Stephen A. Walsh, a Managing Director with 18 years of professional
experience, has been with Western Asset since 1991. Mr. Walsh received his B.S.
from the University of Colorado at Boulder.
Carl E. Eichstaedt, a Portfolio Manager who has 13 years of
professional experience, has been with Western Asset since 1994. Mr. Eichstaedt
received his B.S. from University of Illinois and his M.B.A. from the Kellogg
Graduate School of Management at Northwestern University.
PRIOR PERFORMANCE
The following tables present a composite of each Sub-Adviser's past performance
when managing other accounts that have investment objectives, policies and
strategies that are similar to the Fund's in all material respects. This table
does not indicate how the Fund may perform in the future.
Wellington Management Company
Historical Performance of Account for Periods Ended June 30, 1999*
<TABLE>
<CAPTION>
1 year 2 years Since Inception (9/96)
<S> <C> <C>
5.41% 5.75% 5.80%
</TABLE>
* Performance results are before the deduction of fees and reflect composite
returns for all discretionary accounts managed in accordance with Wellington's
short duration strategy with similar investment guidelines, none of which are
registered investment companies.
Western Asset Management Company
Historical Performance for Periods Ended June 30, 1999*
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C>
5.55% 5.67% 5.66% 5.75%
</TABLE>
* Performance results are before the deduction of fees and reflect composite
returns for all discretionary accounts managed in accordance with Western
Asset's short duration strategy with similar investment objectives, none of
which are registered investment companies.
6
<PAGE> 8
INVESTING IN THE COMMONFUND
INSTITUTIONAL FUNDS A SUMMARY:
In order to open a new account, you must complete and mail the New Account
Application that you receive with this prospectus to:
Commonfund Institutional Funds
450 Post Road East
Westport, CT 06881-0909
The Fund's minimum initial investment is $100,000 for institutions and $5,000
for individuals. The minimum subsequent investment is $1,000 except that no
minimum applies to reinvestments from dividends and distributions.
Once you are a shareholder of the Commonfund Institutional Funds you can do the
following:
* Purchase or redeem Fund shares by phone.
Call 1-888-TCF-FUND to place a trade.
* Purchase or redeem Fund shares at the
Commonfund Website:
www.commonfund.org
Click on "Portfolio Access" and follow instructions provided.
* Purchase Fund shares by wiring funds to:
Investors Bank & Trust Company
ABA #011001438
Account #
Further Credit: Commonfund Short Duration Fund, shareholder name and
Commonfund Institutional Funds account number
PURCHASING AND REDEEMING COMMONFUND
INSTITUTIONAL FUNDS SHARES
This section tells you how to buy and redeem shares of the Fund.
PURCHASING SHARES
WHEN CAN YOU PURCHASE SHARES?
You may purchase shares of the Fund on any day that the New York Stock Exchange
and the Federal Reserve System are both open for business (a Business Day).
To open an account:
Please send your completed New Account Application to Commonfund
Institutional Funds, 450 Post Road East, Westport, CT 06881-0909. All
investments by institutions must be made by wire.
Please call us to let us know that you intend to make an investment.
You will need to instruct your bank to wire money to: Investors Bank &
Trust Company, ABA # ; for Account Number ; Further
Credit: Commonfund Short Duration Institutional Fund. The shareholder's
name and account number must be specified in the wire.
HOW ARE FUND SHARE PRICES CALCULATED?
The price per share (the offering price) will be the net asset value per share
(NAV) next determined after the Fund receives your purchase order. The Fund's
NAV is calculated once each Business Day at the regularly-scheduled close of
normal trading on the New York Stock Exchange (NYSE) (normally, 4:00 p.m.,
Eastern time).
NET ASSET VALUE
NAV for one Fund share is the value of that share's portion of all of the net
assets in the Fund. In calculating NAV, the Fund generally values its portfolio
at market price. If market prices are unavailable or we think that they are
unreliable, fair value prices may be determined in good faith using methods
approved by the Board of Directors.
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<PAGE> 9
ACCEPTANCE OF SUBSCRIPTIONS
We may reject any purchase order if we determine that accepting the order would
not be in the best interests of the Fund or its shareholders.
PURCHASING ADDITIONAL SHARES
* By Phone -- Current shareholders are eligible to purchase shares by
phone by calling 1-888-TCF-FUND if they have requested that privilege
by checking the appropriate box on the New Account Application.
* By Internet -- Current shareholders are eligible to purchase shares
over the Internet by logging in to www.commonfund.org if they have
requested that privilege by checking the appropriate box on the New
Account Application.
PURCHASES BY INDIVIDUALS
Individuals who are eligible to invest may purchase shares by mail at the
address of Commonfund Institutional Funds. The purchase price may be tendered by
personal check. We do not accept third party checks or cash.
TELEPHONE AND INTERNET TRANSACTIONS
Purchasing or redeeming Fund shares over the telephone or the Internet is
extremely convenient, but not without risk. Although we have certain safeguards
and procedures to confirm the identity of callers and the authenticity of
instructions, we are not responsible for any losses or costs incurred by
following telephone instructions we reasonably believe to be genuine. If you or
your financial institution transact with us over the telephone or the Internet,
you will generally bear the risk of any loss.
REDEEMING SHARES
You may redeem your shares on any Business Day by contacting us directly by mail
or telephone or the Internet. The sale price of each share will be the NAV next
determined after we receive your request. In the case of institutions, payments
in redemption will be made to the account designated in your New Account
Application or another account that has properly been designated with a
signature guarantee. In the case of individuals, payments in redemption will be
made by check payable to the individual or by wire transfer to a properly
designated account.
Payments in redemption will only be sent to the account designated in your New
Account Application or to an account that you designate with a properly
guaranteed signature. In the case of individuals, payments in redemption may be
made by check. A proper signature guarantee must be provided when redemption
proceeds are to be sent to a different person or address.
SIGNATURE GUARANTEES
A signature guarantee is a widely accepted way to protect shareholders by
verifying signatures. Signature guarantees can be obtained from any of the
following institutions: a national or state bank, a trust company, a federal
savings and loan association, or a broker-dealer that is a member of a national
securities exchange. A notarized signature is not sufficient.
METHODS FOR REDEEMING SHARES
* By Mail -- If you wish to redeem shares of the Fund you should send us
a letter with your name, Fund and account number and the amount of your
request. All letters must be signed by the owner(s) of the account.
* By Phone or Internet -- When filling out your New Account Application,
you are given the opportunity to establish telephone or Internet
redemption privileges.
* Systematic Withdrawal Plan -- Under the plan you may arrange monthly,
quarterly, semi-annual or annual automatic withdrawals.
REDEMPTIONS IN KIND -- The Fund generally pays redemption proceeds in cash.
However, under
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<PAGE> 10
unusual conditions that make the payment of cash unwise (and for the protection
of the Fund's remaining shareholders), the Fund might pay all or part of your
redemption proceeds in liquid securities with a market value equal to the
redemption price (redemption in kind). In the highly unlikely event that your
shares are redeemed in kind, you will have to pay brokerage costs to sell the
securities distributed to you.
SUSPENSION OF YOUR RIGHT TO REDEEM SHARES -- The Fund may suspend your right to
redeem your shares if the NYSE restricts trading, the SEC declares an emergency
or for other reasons.
INVOLUNTARY SALES OF YOUR SHARES -- If your account balance drops below the
required minimum of $100,000 for institutions or $5,000 for individuals, you may
be required to sell your shares. You will always be given at least 60 days'
written notice to give you time to add to your account and avoid selling your
shares.
RECEIVING YOUR MONEY
Normally, we will send your sale proceeds the next Business Day after we receive
your request. In unusual circumstances, it may take up to seven days. Your
proceeds can be wired to your properly designated account at a financial
institution or, in the case of individuals, sent to you by check.
DISTRIBUTION OF FUND SHARES
Commonfund Securities, Inc. is the distributor of the Fund and receives no
compensation from the Fund for that service.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund accrues dividends of net investment income on a daily basis, and
declares and pays dividends monthly. The Fund makes distributions of capital
gains, if any, at least annually.
Shareholders will receive dividends and distributions in the form of additional
shares. Dividends generally are not paid in cash.
TAXES
The Fund is managed without regard to tax consequences. Shareholders seeking to
finance tax obligations may need to redeem shares.
The Fund will distribute substantially all of its investment income and capital
gains, if any. The dividends and distributions you receive may be subject to
federal, state and local taxation, depending upon your tax situation. Capital
gains distributions may be taxable at different rates depending on the length of
time the Fund holds its portfolio securities. EACH SALE OR EXCHANGE OF FUND
SHARES IS A TAXABLE EVENT.
This summary is based on current tax laws, which may change.
MORE INFORMATION ABOUT TAXES IS IN THE SAI.
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COMMONFUND
INSTITUTIONAL FUNDS
INVESTMENT MANAGER
Commonfund Asset Management Company, Inc.
INVESTMENT SUB-ADVISERS
Wellington Management Company, LLP
Western Asset Management Company
DISTRIBUTOR
Commonfund Securities, Inc.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103
More information about the Commonfund Institutional Funds is available without
charge through the following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI dated August 17, 1999, includes more detailed information about
Commonfund Institutional Funds. The SAI is on file with the SEC and is
incorporated by reference into this prospectus. This means that the SAI, for
legal purposes, is a part of this prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
These reports list the Fund's holdings and contain information from the Fund's
managers about Fund strategies and recent market conditions and trends. The
reports also contain detailed financial information about the Fund.
TO OBTAIN MORE INFORMATION:
BY TELEPHONE: Call 1-888-TCF-FUND
BY MAIL: Write to
Commonfund Institutional Funds
450 Post Road East
Westport, CT 06881
BY INTERNET: http://www.commonfund.org
FROM THE SEC: You can also obtain the SAI or the Annual or Semi-Annual Reports,
as well as other information about Commonfund Institutional Funds, from the
SEC's website ("http://www.sec.gov"). You may review and copy documents at the
SEC Public Reference Room in Washington, DC (for information call
1-800-SEC-0330). You may request documents by mail from the SEC, upon payment of
a duplicating fee, by writing to: Securities and Exchange Commission, Public
Reference Section, Washington, DC 20549-6009.
The Fund's Investment Company Act registration number is 811- .
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<PAGE> 12
COMMONFUND INSTITUTIONAL FUNDS
COMMONFUND SHORT DURATION FUND
INVESTMENT MANAGER
COMMONFUND ASSET MANAGEMENT COMPANY, INC.
INVESTMENT SUB-ADVISERS
WELLINGTON MANAGEMENT COMPANY, LLP
WESTERN ASSET MANAGEMENT COMPANY
DISTRIBUTOR
COMMONFUND SECURITIES, INC.
This Statement of Additional Information is not a prospectus and relates only to
the Commonfund Short Duration Fund (the "Fund"). It is intended to provide
additional information regarding the activities and operations of the Commonfund
Institutional Funds (the "Company") and should be read in conjunction with the
Fund's Prospectus dated August 17, 1999. The Prospectus may be obtained without
charge by calling 1-888-TCF-FUND.
TABLE OF CONTENTS
THE COMPANY .......................................................... S-
INVESTMENT OBJECTIVE.................................................. S-
INVESTMENT POLICIES................................................... S-
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS................. S-
INVESTMENT LIMITATIONS................................................ S-
THE INVESTMENT MANAGER AND SUB-ADVISERS............................... S-
FUND ADMINISTRATION................................................... S-
DISTRIBUTION AND SHAREHOLDER SERVICES................................. S-
DIRECTORS AND OFFICERS OF THE COMPANY................................. S-
COMPUTATION OF YIELD AND TOTAL RETURN................................. S-
PURCHASE AND REDEMPTION OF SHARES..................................... S-
DETERMINATION OF NET ASSET VALUE...................................... S-
TAXES................................................................. S-
PORTFOLIO TRANSACTIONS................................................ S-
VOTING................................................................ S-
DESCRIPTION OF SHARES................................................. S-
SHAREHOLDER LIABILITY................................................. S-
LIMITATION OF DIRECTORS' LIABILITY.................................... S-
5% SHAREHOLDERS....................................................... S-
EXPERTS............................................................... S-
CUSTODIAN............................................................. S-
LEGAL COUNSEL......................................................... S-
FINANCIAL STATEMENTS.................................................. S-
APPENDIX.............................................................. A-1
August 17, 1999
<PAGE> 13
THE COMPANY
This Statement of Additional Information relates only to the Commonfund Short
Duration Fund (the "Fund"). The Fund is a separate series of Commonfund
Institutional Funds (the "Company"), an open-end management investment company
established as a Delaware business trust under an Agreement and Declaration of
Trust dated August 7, 1999. The Agreement and Declaration of Trust permits the
Company to offer separate series of units of beneficial interest ("shares"), and
separate classes of shares within the Fund. Each share of the Fund represents an
equal proportionate interest in the Fund.
INVESTMENT OBJECTIVE
The Fund seeks current income from interest and price appreciation consistent
with liquidity and capital preservation. There can be no assurance that the Fund
will achieve its investment objective. Net asset value of the Fund is expected
to fluctuate modestly in response to changes in interest rates.
INVESTMENT POLICIES
The Fund invests in a diversified portfolio of fixed income securities issued or
guaranteed by the U.S. Government and its agencies and instrumentalities,
obligations of highly-rated banks, high quality corporate debt securities,
including commercial paper, and repurchase agreements. The securities acquired
by the Fund may include mortgage-backed and asset-backed securities. The Fund
seeks to produce for shareholders a monthly total rate of return that exceeds
the total return on 90 day U.S. Treasury securities.
The Fund seeks to maintain a relatively stable net asset value by maintaining
high credit quality standards and employing a relatively short effective
duration. The Fund's effective duration generally will not exceed one (1) year,
and the maximum maturity of any individual security will be five and one-half
(5 1/2) years, except for certain mortgage-related and asset-backed securities.
The Fund is diversified both by issuer and by industry.
The Fund will purchase the following types of securities if, at the time of
purchase, such securities either have been classified as investment grade by a
nationally recognized statistical rating organization ("NRSRO") or are
determined by the Investment Manager or a Sub-Adviser to be of comparable
quality: (i) obligations issued or guaranteed as to principal and interest by
the U.S. Government or its agencies or instrumentalities; (ii) corporate bonds
and debentures of U.S. or foreign issuers rated in one of the three highest
rating categories and denominated in U.S. Dollars; (iii) private mortgage-backed
securities rated in one of the three highest rating categories; (iv)
asset-backed securities rated in one of the three highest rating categories; (v)
commercial paper rated in one of the two highest rating categories; (vi)
obligations of highly-rated U.S. and foreign commercial banks ("bank
obligations"); and (vii) repurchase agreements. If a security is downgraded to
below the minimum quality level specified above, the Investment Manager and the
Sub-Adviser(s) involved will review the situation and take appropriate action.
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The Fund may purchase fixed income securities with variable and floating rates.
The Fund may purchase securities that are eligible for resale under Rule 144A
and other restricted securities, provided that said securities will be deemed to
be illiquid unless they are deemed liquid under guidelines adopted by the
Company.
The Fund may purchase securities on a when-issued basis or delayed delivery
basis.
The Fund may borrow money only for temporary or emergency circumstances, and
then only in amounts not to exceed 5% of the Fund's net assets.
The Fund may enter into futures and options transactions to the extent permitted
for registered investment companies under positions adopted by the Securities
and Exchange Commission (the "SEC") and the staff thereof.
The Fund may invest in illiquid securities, but in an amount not to exceed 15%
of its net assets.
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS
ASSET-BACKED SECURITIES
Asset-backed securities are secured by non-mortgage assets such as company
receivables, truck and auto loans, leases and credit card receivables. Such
securities are generally issued as pass-through certificates, which represent
undivided fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity,
such as a trust, organized solely for the purpose of owning such assets and
issuing such debt.
Asset-backed securities are not issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; however, the payment of principal and interest on
such obligations may be guaranteed up to certain amounts and for a certain
period by a letter of credit issued by a financial institution (such as a bank
or insurance company) unaffiliated with the issuers of such securities. The
purchase of asset-backed securities raises risk considerations peculiar to the
financing of the instruments underlying such securities. For example, there is a
risk that another party could acquire an interest in the obligations superior to
that of the holders of the asset-backed securities. There also is the
possibility that recoveries on repossessed collateral may not, in some cases, be
available to support payments on those securities. Asset-backed securities
entail prepayment risk, which may vary depending on the type of asset, but is
generally less than the prepayment risk associated with mortgage-backed
securities. In addition, credit card receivables are unsecured obligations of
card holders.
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BANKERS' ACCEPTANCES
The Fund may invest in bankers' acceptances or notes, which are fixed income
instruments evidencing a bank's obligation to pay a draft drawn on it by a
customer. These instruments represent the obligation of the bank and of the
drawer to to pay the full amount of the instrument upon maturity.
BORROWING
Borrowing may exaggerate changes in the net asset value of the Fund's shares and
in the return on the Fund's portfolio. Although the principal of any borrowing
will be fixed, the Fund's assets may change in value during the time the
borrowing is outstanding. The Fund may be required to liquidate portfolio
securities at a time when it would be disadvantageous to do so in order to make
payments with respect to any borrowing. The Fund may be required to segregate
liquid assets in an amount sufficient to meet its obligations in connection with
such borrowings.
CERTIFICATES OF DEPOSIT
The Fund may invest in certificates of deposit or time deposits, which are
obligations issued against funds deposited in a banking institution for a
specified period of time as a specified interest rate.
DERIVATIVES
Derivatives are securities that derive their value from other securities,
financial instruments or indices. The following are considered derivative
securities: financial futures, options (e.g., puts and calls) on financial
futures, options on securities, swap agreements, mortgage-backed securities
(e.g., CMOs), when issued securities, floating and variable rate securities and
"stripped" U.S. Treasury securities (e.g., STRIPs). See elsewhere in the
"Description of Permitted Investments" for discussions of these various
instruments.
FIXED INCOME SECURITIES
The market value of fixed income investments will change in response to interest
rate changes and other factors. During periods of falling interest rates, the
values of outstanding fixed income securities generally rise. Conversely, during
periods of rising interest rates, the values of such securities generally
decline. Moreover, while securities with longer maturities tend to produce
higher yields, the prices of longer maturity securities are also subject to
greater market fluctuations as a result of changes in interest rates. Changes by
recognized agencies in the rating of any fixed income security and in the
ability of an issuer to make payments of interest and principal also affect the
value of these investments. Changes in the value of these securities will not
necessarily affect cash income derived from these securities, but will affect
the Fund's net asset value.
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FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a specific security at a specified future
time and at a specified price. An option on a futures contract gives the
purchaser the right, in exchange for a premium, to assume a position in a
futures contract at a specified exercise price during the term of the option.
The Fund may use futures contracts and related options for bona fide hedging
purposes, to offset changes in the value of securities held or expected to be
acquired or be disposed of, to minimize fluctuations in foreign currencies, or
to gain exposure to a particular market or instrument. The Fund will minimize
the risk that it will be unable to close out a futures contract by only entering
into futures contracts which are traded on pre-approved futures exchanges.
No price is paid upon entering into futures contracts. Instead, the Fund would
be required to deposit an amount of cash or U.S. Treasury securities known as
"initial margin." Subsequent payments, called "variation margin," to and from
the broker, would be made on a daily basis as the value of the futures position
varies (a process known as "marking to market"). The margin is in the nature of
a performance bond or good-faith deposit on a futures contract.
There are risks associated with these activities, including the following: (1)
the success of a hedging strategy may depend on an ability to predict movements
in the prices of individual securities, fluctuations in markets and movements in
interest rates; (2) there may be an imperfect or no correlation between the
changes in market value of the securities held by the Fund and the prices of
futures and options on futures; (3) there may not be a liquid secondary market
for a futures contract or option; (4) trading restrictions or limitations may be
imposed by an exchange; and (5) government regulations may restrict trading in
futures contracts and futures options.
The Fund may enter into futures contracts and options on futures contracts
traded on an exchange regulated by the Commodities Futures Trading Commission
("CFTC"), as long as, to the extent that such transactions are not for "bona
fide hedging purposes" or risk management, the aggregate initial margin and
premiums on such positions (excluding the amount by which such options are in
the money) do not exceed 5% of the Fund's net assets. The Fund may buy and sell
futures contracts and related options to manage its exposure to changing
interest rates and securities prices. Some strategies reduce the Fund's exposure
to price fluctuations, while others tend to increase its market exposure.
Futures and options on futures can be volatile instruments and involve certain
risks that could negatively impact the Fund's return.
ILLIQUID SECURITIES
Illiquid securities are securities that cannot be disposed of within seven
business days at approximately the price at which they are being carried on the
Fund's books. Illiquid securities include demand instruments with demand notice
periods exceeding seven days, securities for which there is no active secondary
market, and repurchase agreements with durations or maturities over seven days
in length.
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MORTGAGE-RELATED SECURITIES
A mortgage-related security is an interest in a pool of mortgage loans. Most
mortgage-related securities are pass-through securities, which means that
investors receive payments consisting of a pro rata share of both principal and
interest (less servicing and other fees), as well as unscheduled prepayments, as
mortgages in the underlying mortgages pool are paid off by the borrowers.
Agency-Mortgage-Related Securities: The dominant issuers or guarantors of
mortgage-related securities today are GNMA, Fannie Mae and the Federal Home Loan
Mortgage Corporation ("FHLMC"). GNMA creates pass-through securities from pools
of U.S. government guaranteed or insured (Federal Housing Authority or Veterans
Administration) mortgages originated by mortgage bankers, commercial banks and
savings associations. Fannie Mae and FHLMC issue pass-through securities from
pools of conventional and federally insured and/or guaranteed residential
mortgages obtained from various entities, including savings associations,
savings banks, commercial banks, credit unions and mortgage bankers.
Fannie Mae Securities: Fannie Mae is a federally chartered and privately owned
corporation established under the Federal National Mortgage Association Charter
Act. Fannie Mae provides funds to the mortgage market primarily by purchasing
home mortgage loans from local lenders, thereby providing them with funds for
additional lending. Fannie Mae acquires funds to purchase loans from investors
that may not ordinarily invest in mortgage loans directly, thereby expanding the
total amount of funds available for housing.
Each Fannie Mae pass-through security represents a proportionate interest in one
or more pools of loans, including conventional mortgage loans (that is, mortgage
loans that are not insured or guaranteed by any U.S. Government agency). The
loans contained in those pools consist of one or more of the following: (1)
fixed-rate level payment mortgage loans; (2) fixed-rate growing equity mortgage
loans; (3) fixed-rate graduated payment mortgage loans; (4) variable rate
mortgage loans; (5) other adjustable rate mortgage loans; and (6) fixed-rate
mortgage loans secured by multifamily projects.
Federal Home Loan Mortgage Corporation Securities: The operations of FHLMC
currently consist primarily of the purchase of first lien, conventional,
residential mortgage loans and participation interests in mortgage loan and the
resale of the mortgage loans in the form of mortgage-backed securities.
The mortgage loans underlying FHLMC securities typically consist of fixed rate
or adjustable rate mortgage loans with original terms to maturity of between 10
to 30 years, substantially all of which are secured by first liens on
one-to-four-family residential properties or multifamily projects. Each mortgage
loan must include whole loans, participation interests in whole loans and
undivided interests in whole loans and participation in another FHLMC security.
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Government National Mortgage Association Securities: GNMA is a wholly owned
corporate instrumentality of the U.S. Government within the Department of
Housing and Urban Development. In order to meet its obligations under a
guarantee, GNMA is authorized to borrow from the U.S. Treasury with no
limitations as to amount.
GNMA pass-through securities may represent a proportionate interest in one or
more pools of the following types of mortgage loans: (1) fixed-rate level
payment mortgage loans; (2) fixed rate graduated payment mortgage loans; (3)
fixed-rate growing equity mortgage loans; (4) fixed-rate mortgage loans secured
by manufactured (mobile) homes; (5) mortgage loans on multifamily residential
properties under construction; (6) mortgage loans on completed multifamily
projects; (7) fixed-rate mortgage loans as to which escrowed funds are used to
reduce the borrower's monthly payments during the early years of the mortgage
loans ("buydown" mortgage loans); (8) mortgage loans that provide for
adjustments on payments based on periodic changes in interest rates or in other
payment terms of the mortgage loans; and (9) mortgage-backed serial notes.
The principal and interest on GNMA pass-through securities are guaranteed by
GNMA and backed by the full faith and credit of the U.S. Government. Fannie Mae
guarantees full and timely payment of all interest and principal, while FHLMC
guarantees timely payment of interest and ultimate collection of principal, of
its pass-through securities. Fannie Mae and FHLMC securities are not backed by
the full faith and credit of the United States; however, they are generally
considered to present minimal credit risks. The yields provided by these
mortgage-related securities historically have exceeded the yields on other types
of U.S. government securities with comparable maturities in large measure due to
the risks associated with prepayment.
Adjustable rate mortgage securities ("ARMs") are a form of pass-through security
representing interests in pools of mortgage loans, the interest rates of which
are adjusted from time to time. The adjustments usually are determined in
accordance with a predetermined interest rate index and may be subject to
certain limits. The adjustment feature of ARMs tends to make their values less
sensitive to interest rate changes. As the interest rates on the mortgages
underlying ARMS are reset periodically, yields of such portfolio securities will
gradually align themselves to reflect changes in market rates. Unlike fixed rate
mortgages, which generally decline in value during periods of rising interest
rates, ARMS allow the Funds to participate in increases in interest rates
through periodic adjustments in the coupons of the underlying mortgages,
resulting in both higher current yields and low price fluctuations. Furthermore,
if prepayments of principal are made on the underlying mortgages during periods
of rising interest rates, the Funds may be able to reinvest such amounts in
securities with a higher current rate of return. During periods of declining
interest rates, of course, the coupon rates may readjust downward, resulting in
lower yields to the Funds. Further, because of this feature, the value of ARMS
are unlikely to rise during periods of declining interest rates to the same
extent as fixed rate instruments.
Collateralized mortgage obligations ("CMOs") are mortgage-related securities
that separate the cash flows of mortgage pools into different components called
classes or "tranches." Each class of a CMO is issued at a specific fixed or
floating coupon rate and has a stated maturity or final
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distribution date. Principal prepayments on the collateral pool may cause the
various classes of a CMO to be retired substantially earlier than their stated
maturities or final distribution dates. The principal of, and interest on, the
collateral pool may be allocated among the several classes of a CMO in a number
of different ways. Generally, the purpose of the allocation of the cash flow of
a CMO to the various classes is to obtain a more predictable cash flow to some
of the individual tranches than exists with the underlying collateral of the
CMO. As a general rule, the more predictable the cash flow is on a CMO tranche,
the lower the anticipated yield will be on that tranche at the time of issuance
relative to prevailing market yields on mortgage-related securities. Certain
classes of CMOs may have priority over others with respect to the receipt of
prepayments on the mortgages.
The Fund considers GNMA-, Fannie Mae-, and FHLMC-issued pass-through
certificates, CMOs, and other mortgage-related securities to be U.S. Government
securities for purposes of each Fund's investment policies.
Privately Issued Mortgage-Related Securities: Mortgage-related securities
offered by private issuers include pass-through securities for pools of
conventional residential mortgage loans; mortgage pay-through obligations and
mortgage-backed bonds, which are considered to be obligations of the institution
issuing the bonds and are collateralized by mortgage loans; and bonds and CMOs
which are collateralized by mortgage-related securities issued by GNMA, Fannie
Mae, FHLMC or by pools of conventional mortgages. The Fund limits its
investments in privately issued mortgage-related securities to "mortgage related
securities" within the meaning of the Secondary Mortgage Market Enhancement Act
of 1984, as amended.
The Fund may invest in, among other things, "parallel pay" CMOs and Planned
Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class. These
simultaneous payments are taken into account in calculating the stated maturity
date or final distribution date of each class, which like the other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. PAC Bonds are parallel pay CMOs that generally
require payments of a specified amount of principal on each payment date; the
required principal payment on PAC Bonds have the highest priority after interest
has been paid to all classes.
Mortgage-related securities created by private issuers generally offer a higher
rate of interest (and greater credit and interest rate risk) than U.S.
Government and U.S. Government mortgage-related securities because they offer no
direct or indirect government guarantees of payments. However, many issuers or
servicers of mortgage-related securities guarantee, or provide insurance for,
timely payment of interest and principal on such securities.
Additional Risk Factors: Due to the possibility of prepayments of the underlying
mortgage instruments, mortgage-backed securities generally do not have a known
maturity. In the absence of a known maturity, market participants generally
refer to an estimated average life. An average life estimate is a function of an
assumption regarding anticipated prepayment patterns, based upon
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current interest rates, current conditions in the relevant housing markets and
other factors. The assumption is necessarily subjective, and thus different
market participants can produce different average life estimates with regard to
the same security. There can be no assurance that estimated average life will be
a security's actual average life.
OPTIONS
A put option gives the purchaser of the option the right to sell, and the writer
of the option the obligation to buy, the underlying security at any time during
the option period. A call option gives the purchaser of the option the right to
buy, and the writer of the option the obligation to sell, the underlying
security at any time during the option period. The premium paid to the writer is
the consideration for undertaking the obligations under the option contract. The
initial purchase (sale) of an option contract is an "opening transaction." In
order to close out an option position, the Fund may enter into a "closing
transaction," which is simply the sale (purchase) of an option contract on the
same security with the same exercise price and expiration date as the option
contract originally opened. If the Fund is unable to effect a closing purchase
transaction with respect to an option it has written, it will not be able to
sell the underlying security until the option expires or the Fund delivers the
security upon exercise.
The Fund may purchase put and call options to protect against a decline in the
market value of the securities in its portfolio or to anticipate an increase in
the market value of securities that the Fund may seek to purchase in the future.
The Fund purchasing put and call options pays a premium therefor. If price
movements in the underlying securities are such that exercise of the options
would not be profitable for the Fund, loss of the premium paid may be offset by
an increase in the value of the Fund's securities or by a decrease in the cost
of acquisition of securities by the Fund.
The Fund may write covered call options as a means of increasing the yield on
its portfolio and as a means of providing limited protection against decreases
in its market value. When the Fund sells an option, if the underlying securities
do not increase or decrease to a price level that would make the exercise of the
option profitable to the holder thereof, the option generally will expire
without being exercised and the Fund will realized as profit the premium
received for such option. When a call option written by the Fund is exercised,
the Fund will be required to sell the underlying securities to the option holder
at the strike price, and will not participate in any increase in the price of
such securities above the strike price. When a put option written by the Fund is
exercised, the Fund will be required to purchase the underlying securities at
the strike price, which may be in excess of the market value of such securities.
The Fund may purchase and write options on an exchange or over the counter. Over
the counter options ("OTC options") differ from exchange-traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and therefore entail the risk of non-performance by the
dealer. OTC options are available for a greater variety of securities and for a
wider range of expiration dates and exercise prices than are available for
exchange-traded options. Because OTC options are not traded on an exchange,
pricing is done normally by reference to
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information from a market maker. It is the position of the SEC that OTC options
are generally illiquid.
Risk Factors: Risks associated with options transactions include: (1) the
success of a hedging strategy may depend on an ability to predict movements in
the prices of individual securities, fluctuations in markets and movements in
interest rates; (2) there may be an imperfect correlation between the movement
in prices of options and the securities underlying them; (3) there may not be a
liquid secondary market for options; and (4) while the Fund will receive a
premium when it writes covered call options, it may not participate fully in a
rise in the market value of the underlying security.
PORTFOLIO TURNOVER
An annual portfolio turnover rate in excess of 100% may result from the
Investment Manager's use of a multimanager approach. Transaction costs and the
amount of taxable gains vary directly with portfolio turnover rates.
REPURCHASE AGREEMENTS
Repurchase agreements are agreements by which the Fund obtains a security in
exchange for cash and simultaneously commits to return the security to the
seller (typically, a member bank of the Federal Reserve System or primary
securities dealer as recognized by the Federal Reserve Bank of New York) at an
agreed upon price (including principal and interest) 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 market rate of
interest which is unrelated to the coupon rate or maturity of the underlying
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 of the
underlying security.
Repurchase agreements are considered to be loans by the Fund for purposes of its
investment limitations. The repurchase agreements entered into by the Fund will
provide that the underlying security at all times shall have a value at least
equal to the resale price stated in the agreement. Under all repurchase
agreements entered into by the Fund, the Company's Custodian or its agent must
take possession of the underlying collateral. However, if the seller defaults,
the Fund could realize a loss on the sale of the underlying security to the
extent that the proceeds of sale, including accrued interest, are less than the
resale price provided in the agreement including interest. In addition, even
though the Bankruptcy Code provides protection for most repurchase agreements,
if the seller should be involved in bankruptcy or insolvency proceedings, the
Fund may experience delays and incur costs in selling the underlying security,
or may suffer a loss of principal and interest if it is treated as an unsecured
creditor and is required to return the underlying security to the seller's
estate.
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RULE 144A SECURITIES
Rule 144A securities are securities exempt from registration on resale pursuant
to Rule 144A under the 1933 Act. Rule 144A securities are traded in the
institutional market pursuant to this registration exemption, and, as a result,
may not be as liquid as exchange-traded securities since they may only be resold
to certain qualified institutional investors. Due to the relatively limited size
of this institutional market, these securities may affect the Fund's liquidity
to the extent that qualified institutional buyers become, for a time,
uninterested in purchasing such securities. Nevertheless, Rule 144A securities
may be treated as liquid securities pursuant to guidelines adopted by the
Company's Board of Directors.
SECURITIES LENDING
In order to generate additional income, the Fund may lend its securities
pursuant to agreements requiring that the loan be continuously secured by
collateral consisting of cash or securities of the U.S. Government or its
agencies equal to at least 100% of the market value of the loaned securities.
The Fund continues to receive interest on the loaned securities while
simultaneously earning interest on the investment of cash collateral. Collateral
is marked to market daily. There may be risks of delay in recovery of the
securities or even loss of rights in the collateral should the borrower of the
securities fail financially or become insolvent.
U.S. GOVERNMENT SECURITIES
U.S. Government Securities: U.S. Government securities are bills, notes and
bonds issued by the U.S. Government and backed by the full faith and credit of
the United States.
U.S. Treasury Obligations: U.S. Treasury Obligations are bills, notes and bonds
issued by the U.S. Treasury, and separately traded interest and principal
component parts of such obligations that are transferable through the Federal
book-entry system known as Separately Traded Registered Interested and Principal
Securities ("STRIPS").
U.S. Government Agency Obligations: Certain Federal agencies, such as the GNMA,
have been established as instrumentalities of the U.S. Government to supervise
and finance certain types of activities. Issues of these agencies, while not
direct obligations of the U.S. Government, are either backed by the full faith
and credit of the United States (e.g., GNMA securities) or supported by the
issuing agencies' right to borrow from the Treasury. The issues of other
agencies are supported by the credit of the instrumentality (e.g., Fannie Mae
securities).
VARIABLE AND FLOATING RATE INSTRUMENTS
Certain obligations may carry variable or floating rates of interest, and may
involve a conditional or unconditional demand feature. Such instruments bear
interest at rates which are not fixed, but
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which vary with changes in specified market rates or indices. The interest rates
on these securities may be reset daily, weekly, quarterly or some other reset
period, and may have a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates. A demand instrument with a demand notice
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
When-issued or delayed delivery securities are subject to market fluctuations
due to changes in market interest rates and it is possible that the market value
at the time of settlement could be higher or lower than the purchase price if
the general level of interest rates has changed. Although the Fund may purchase
securities on a when-issued [or forward commitment] basis with the intention of
actually acquiring securities for its investment portfolio, it may dispose of a
when-issued security or forward commitment prior to settlement if it deems
appropriate.
YANKEE DOLLARS
The Fund may invest in certain fixed income securities known as Yankee dollars,
which are dollar-denominated obligations issued by foreign banks in the U.S.
markets.
YEAR 2000
The Company depends on the smooth functioning of computer systems in almost
every aspect of its business. Like other mutual funds, business and individuals
around the world, the Company could be adversely affected if the computer
systems used by its service providers do not properly process dates on and after
January 1, 2000 and distinguish between the year 2000 and the year 1900. The
Company has asked its service providers whether they expect to have their
computer systems adjusted for the year 2000 transition, and received assurances
from each that its system is expected to accommodate the year 2000 without
material adverse consequences to the Company. The Company and its shareholders
may experience losses if these assurances prove to be incorrect or as a result
of year 2000 computer difficulties experienced by issuers of portfolio
securities or third parties, such as custodians, banks, broker-dealers or others
with which the Company does business.
INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
The following investment limitations are fundamental policies of the Fund which
cannot be changed with respect to the Fund without the consent of the holders of
a majority of the Fund's outstanding shares. The term "majority of the
outstanding shares" means the vote of (i) 67% or more of the Fund's shares
present at a meeting, if more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the Fund's outstanding
shares, whichever is less.
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The Fund may not:
1. Purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities
and repurchase agreements involving such securities) if, as a result,
more than 5% of the total assets of the Fund would be invested in the
securities of such issuer; or (ii) acquire more than 10% of the
outstanding voting securities of any one issuer. This restriction
applies to 75% of the Fund's total assets.
2. Purchase any securities which would cause 25% or more of the total
assets of the Fund to be invested in the securities of one or more
issuers conducting their principal business activities in the same
industry, provided that this limitation does not apply to investments
in obligations issued or guaranteed by the U.S. Government or its
agencies and instrumentalities and repurchase agreements involving such
securities.
3. Borrow money in an amount exceeding 33 1/3% of the value of its total
assets, provided that, for purposes of this limitation, investment
strategies which either obligate the Fund to purchase securities or
require the Fund to segregate assets are not considered to be
borrowings.
4. Make loans if, as a result, more than 33 1/3% of its total assets would
be lent to other parties, except that the Fund may (i) purchase or hold
debt instruments in accordance with its investment objective and
policies; (ii) enter into repurchase agreements; and (iii) lend its
securities.
5. Purchase or sell real estate, physical commodities, or commodities
contracts, except that the Fund may purchase (i) marketable securities
issued by companies which own or invest in real estate (including real
estate investment trusts), commodities, or commodities contracts; and
(ii) commodities contracts relating to financial instruments, such as
financial futures contracts and options on such contracts.
6. Issue senior securities (as defined in the Investment Company Act of
1940 (the "1940 Act")) except as permitted by rule, regulation or order
of the SEC.
7. Act as an underwriter of securities of other issuers, except as it may
be deemed an underwriter in selling a portfolio security.
8. Invest in interests in oil, gas, or other mineral exploration or
development programs and oil, gas or mineral leases.
The foregoing percentages (except with respect to the limitation on borrowing)
will apply at the time of the purchase of a security and shall not be considered
violated unless an excess or deficiency occurs immediately after or as a result
of a purchase of such security.
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NON-FUNDAMENTAL POLICIES
The following investment limitations are non-fundamental policies of the Fund
and may be changed with respect to the Fund by the Board of Directors.
The Fund may not:
1. Pledge, mortgage or hypothecate assets, except to secure borrowings
permitted by the Fund's fundamental limitation on borrowing. Transfer
of assets under repurchase agreements is not considered a pledge or
hypothecation subject to this restriction.
2. Invest in companies for the purpose of exercising control.
3. Purchase securities on margin or effect short sales, except that the
Fund may (i) obtain short-term credits as necessary for the clearance
of security transactions; (ii) provide initial and variation margin
payments in connection with transactions involving futures contracts
and options on such contracts; and (iii) make short sales "against the
box" or in compliance with the SEC's position regarding the asset
segregation requirements imposed by Section 18 of the 1940 Act.
4. Invest its assets in securities of any investment company.
5. Purchase or hold illiquid securities (i.e., securities that cannot be
disposed of for their approximate carrying value in seven days or less)
if, in the aggregate, more than 15% of its net assets would be invested
in illiquid securities. Unregistered securities sold in reliance on the
exemption from registration in Section 4(2) of the 1933 Act and
securities exempt from registration on re-sale pursuant to Rule 144A of
the 1933 Act may be treated as liquid securities under procedures
adopted by the Board of Directors.
THE INVESTMENT MANAGER
Commonfund Asset Management Company, Inc. (the "Investment Manager") is an
indirect, wholly owned subsidiary of The Commonfund for Nonprofit Organizations
("Commonfund"). Employees of the Investment Manager are responsible for the
Commonfund's investment programs which are also conducted in a "manager of
managers" format.
The Investment Manager serves as the investment adviser for the Fund under an
investment advisory agreement (the "Advisory Agreement"). Under the Advisory
Agreement, and subject to the supervision of, and policies established by, the
Fund's Board of Directors, the Investment Manager acts as a "manager of
managers" for the Fund, and supervises adherence by the Sub-Adviser(s) with the
Fund's investment policies and guidelines. The Investment Manager also
recommends the appointment of additional or replacement Sub-Advisers to the
Fund's Board of Directors. The Investment Manager makes recommendations to the
Board of Directors with respect to the
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<PAGE> 26
appropriate allocation of assets to each of the Sub-Advisers. It is anticipated
that the Fund and the Investment Manager will obtain exemptive relief from the
SEC necessary to permit the Investment Manager and the Fund to add or terminate
Sub-Advisers without shareholder approval.
The Advisory Agreement provides that the Investment Manager shall not be
protected against any liability to the Company or its shareholders by reason of
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard of its obligations or
duties thereunder.
The continuance of the Advisory Agreement after the first two years must be
specifically approved at least annually (i) by the vote of the Board of
Directors or by a vote of the shareholders of the Fund, and (ii) by the vote of
a majority of the Board of Directors who are not parties to the Advisory
Agreement or "interested persons" of any party thereto (the "Independent
Directors"), cast in person at a meeting called for the purpose of voting on
such approval. The Advisory Agreement will terminate automatically in the event
of its assignment, and is terminable at any time without penalty by the Board of
Directors of the Company or, with respect to the Fund, by a majority of the
outstanding shares of the Fund, on not less than 30 days' nor more than 60 days'
written notice to the Investment Manager, or by the Investment Manager on 90
days' written notice to the Company.
THE SUB-ADVISERS
The Fund has two Sub-Advisers -- Wellington Management Company, LLP and Western
Asset Management Company (each a "Sub-Adviser" and, collectively, the
"Sub-Advisers"). Each Sub-Adviser will manage a portion of the Fund's assets
allocated to it, which allocation is determined by the Directors upon the
recommendation of the Investment Manager. Each Sub-Adviser makes the investment
decisions for the assets of the Fund subject to the supervision of, and policies
established by, the Board of Directors. Currently, each Sub-Adviser has been
allocated assets in the range of 50% of the Fund's total assets.
WELLINGTON MANAGEMENT COMPANY, LLP ("Wellington") traces its origins to 1928
and, as of June 30, 1999 managed approximately $223 billion of assets, with
approximately $91 billion in fixed income securities, for domestic and foreign
clients. Wellington, headquartered in Boston, Massachusetts, with affiliates in
London, Singapore, Sydney and Tokyo, is a Massachusetts limited liability
partnership with 59 general partners, all of whom provide full time service to
the firm, and over 200 investment professionals. Wellington's investment
philosophy is to maximize total return while limiting the level of risk
appropriate for the strategy by combining a top-down strategy which directs
portfolio structure, including duration and sector weights, and a bottom-up
securities selection process. For its services, Wellington is entitled to
receive a fee from the Fund, which is calculated daily and paid quarterly, equal
to the following percentage of the average daily net assets of the Fund
allocated to it: 0.10% of the first $100 million, 0.075% of the next $100
million, and 0.055% thereafter.
S-15
<PAGE> 27
WESTERN ASSET MANAGEMENT COMPANY ("Western Asset") manages over $50 billion in
assets. The firm has managed short-duration portfolios since 1974. It is
wholly-owned by Legg Mason Inc., a financial services company headquartered in
Baltimore, Maryland. Western Asset applies a team approach to portfolio
management that revolves around their investment outlook, focusing on duration
weighting, term structure position, sector and issue selection. While duration
and yield curve structure decisions underlie Western Asset's investment process,
the company concentrates primarily on sector and issue selection for adding
value. For its services, Western Asset is entitled to receive a fee from the
Fund, which is calculated daily and paid quarterly, at an annual rate of 0.055%
of the average daily net assets of the Fund allocated to it.
FUND ADMINISTRATION
The Company and Investors Bank & Trust Company ("IBT Co.") have entered into an
administration agreement (the "Administration Agreement"), pursuant to which IBT
Co. provided general fund administration services to the Fund. The
Administration Agreement provides that the Administrator shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Company
in connection with the matters to which the Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of IBT Co. in the performance of its duties or from reckless
disregard by it of its duties and obligations thereunder.
The Administration Agreement has an initial term of three years and is
automatically renewed for an additional three year term unless terminated by
either party on 90 days prior notice. The Administration Agreement is terminable
by the Company at any time during its term on 30 days notice upon payment of a
termination fee and is terminable by the Company or by IBT Co. without penalty
in the event of a material breach of the agreement that is not cured within 90
days of notice thereof.
IBT Co. also acts as the Fund's Transfer Agent and Fund Accounting Agent
pursuant to seperate transfer agency and fund accounting agreement between the
Company and IBT Co.
DISTRIBUTION
Commonfund Securities, Inc. (the "Distributor"), an indirect, wholly-owned
subsidiary of Commonfund, serves as the distributor of interests in the Company
under a Distribution Agreement. The Distribution Agreement shall remain in
effect for a period of two years after the effective date of the agreement and
is renewable annually thereafter with the approval of a majority of the Board of
Directors and a majority of the Independent Directors. The Distribution
Agreement may be terminated by the Distributor, by a majority vote of the
Directors who are not interested persons and have no financial interest in the
Distribution Agreement or by a majority vote of the outstanding securities of
the Company upon not more than 60 days' written notice by either party or upon
assignment by the Distributor. The distributor receives no compensation from the
Fund. The Investment Manager pays the distributor an annual fee equal to the
costs it incurs in distributing shares of the Fund, plus 5% of such costs.
DIRECTORS AND OFFICERS OF THE COMPANY
S-16
<PAGE> 28
The management and affairs of the Company are supervised by the Directors under
the laws of the State of Delaware. The Directors have approved contracts under
which, as described above, certain companies provide essential management
services to the Company. The Directors and executive officers of the Company and
their principal occupations for the last five years are set forth below. Each
may have held other positions with the named companies during that period. The
Company pays the fees for the Independent Directors. Unless otherwise noted, the
business address of each Director and each Executive Officer is c/o Commonfund
Institutional Fund, 450 Post Road East, Westport, CT 06881.
Directors
Robert L. Bovinette - 59
Mr. Bovinette has served as President and Chief Executive Officer of
The Common Fund for Nonprofit Organizations since January, 1996. Prior to that
time, he served as President and Chief Executive Officer of Albuquerque Academy
in Albuquerque, New Mexico, a private day school with a substantial
endowment.
Officers
President - Robert L. Bovinette - see above.
Secretary - John W. Auchincloss - 41
Mr. Auchincloss is Associate General Counsel and Secretary of The
Common Fund for Nonprofit Organizations. He joined that organization as
Assistant General Counsel in July 1996. Prior to that time he was of Counsel to
the Westport, Connecticut law firm of Levett, Rockwood & Sanders, P.C. which he
joined after serving as an Assistant United States Attorney in the Office of the
United States Attorney for the Southern District of New York in the Spring of
1994.
Treasurer - Marita K. Wein - 37
Ms. Wein is Senior Vice President and Treasurer of The Common Fund for
Nonprofit Organizations. She has been employed by that organization for 12 years
in the fund accounting area and, since her appointment to her present position
in June 1997, she has been responsible for general investor accounting and
reporting functions of the company.
COMPENSATION OF DIRECTORS AND OFFICERS
Officers of the company serve without compensation as such. The Company pays
each Independent Director an annual fee of $8,000, plus reasonable out-of-pocket
expenses.
The Directors and Officers of the Company own less than 1% of the outstanding
shares of the Fund.
S-17
<PAGE> 29
COMPUTATION OF YIELD AND TOTAL RETURN
From time to time the Company may advertise yield and total return of the Fund.
These figures will be based on historical earnings and are not intended to
indicate future performance. No representation can be made concerning actual
future yields or returns. The yield of the Fund refers to the annualized income
generated by an investment in the Fund over a specified 30-day period. The yield
is calculated by assuming that the income generated by the investment during
that 30-day period is generated in each period over one year and is shown as a
percentage of the investment. In particular, yield will be calculated according
to the following formula:
Yield = 2[((a-b)/cd + 1)(6) - 1] where a = dividends and interest earned during
the period; b = expenses accrued for the period (net of reimbursement); c = the
current daily number of shares outstanding during the period that were entitled
to receive dividends; and d = the maximum offering price per share on the last
day of the period.
The total return of the Fund refers to the average compounded rate of return to
a hypothetical investment for designated time periods (including but not limited
to, the period from which the Fund commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each
period. In particular, total return will be calculated according to the
following formula: P (1 + T)(n) = ERV, where P = a hypothetical initial payment
of $1,000; T = average annual total return; n = number of years; and ERV =
ending redeemable value, as of the end of the designated time period, of a
hypothetical $1,000 payment made at the beginning of the designated time period.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through Investors Bank & Trust Company
(the "Transfer Agent") on days when the Federal Reserve System and the New York
Stock Exchange are open for business. Currently, the weekdays on which the Fund
is closed for business are: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans Day, Thanksgiving Day and Christmas Day. Shares of the
Fund are offered on a continuous basis.
It is currently the Company's policy to pay all redemptions in cash. The Company
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by the Fund in
lieu of cash. Shareholders may incur brokerage charges on the sale of any such
securities so received in payment of redemptions.
The Company reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or valuation of the Fund's securities is not reasonably practicable, or
for such other periods as the SEC has by order permitted. The Company also
reserves the right to
S-18
<PAGE> 30
suspend sales of shares of the Fund for any period during which the New York
Stock Exchange, the Investment Manager, the Administrator, the Transfer Agent
and/or the Custodian are not open for business.
DETERMINATION OF NET ASSET VALUE
The securities of the Fund are valued by the Fund Accounting Agent. The Fund
Accounting Agent may use an independent pricing service to obtain valuations of
securities. The pricing service relies primarily on prices of actual market
transactions as well as on trade quotations obtained from third parties.
However, the pricing service may use a matrix system to determine valuations of
fixed income securities. This system considers such factors as security prices,
yields, maturities, call features, ratings and developments relating to specific
securities in arriving at valuations. The procedures used by the pricing service
and its valuation are reviewed by the officers of the Company under the general
supervision of the Board of Directors. If there is no readily ascertainable
market value for a security, the Investment Manager may make a good faith
determination as to the "fair value" of the security in accordance with
procedures adopted by the Board of Directors.
Securities with remaining maturities of 60 days or less will be valued by the
amortized cost method, unless it is determined not to represent fair value in
accordance with procedures adopted by the Board of Directors. The amortized cost
method involves valuing a security at its cost on the date of purchase and
thereafter (unless amortized cost is determined in accordance with procedures
approved by the Board of Directors not to represent fair value) assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuations in general market rates of interest on the value of the
instrument. While this method provides certainty in valuation, it may result in
periods during which value, as determined by this method, is higher or lower
than the price the Fund would receive if it sold the instrument.
TAXES
The following is only a summary of certain tax considerations generally
affecting the Fund and its shareholders, and is not intended as a substitute for
careful tax planning. Shareholders are urged to consult their tax advisors with
specific reference to their own tax situations, including their state and local
tax liabilities.
FEDERAL INCOME TAX
The following is only a summary of certain additional federal tax considerations
generally affecting the Fund that are not discussed in the Fund's Prospectus. No
attempt is made to present a detailed explanation of the federal, state or local
tax treatment of the Fund or its shareholders and the discussion here and in the
Fund's prospectus is not intended as a substitute for careful tax planning.
The discussion of federal income tax consequences is based on the Internal
Revenue Code of 1986 (the "Code"), and the regulations issued thereunder as in
effect on the date of this Statement of
S-19
<PAGE> 31
Additional Information. New legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
The Fund intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By following such a policy, the Fund
expects to eliminate or reduce to a nominal amount the federal taxes to which it
may be subject.
In order to qualify for treatment as a RIC under the Code, the Fund must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) ("Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
the Fund's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock or securities, or certain other income (including
gains from options, futures or forward contracts); (ii) at the close of each
quarter of the Fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. Government securities,
securities of other RICs and other securities, with such other securities
limited, in respect to any one issuer, to an amount that does not exceed 5% of
the value of the Fund's assets and that does not represent more than 10% of the
outstanding voting securities of such issuer; and (iii) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its assets
may be invested in securities (other than U.S. Government securities or the
securities of other RICs) of any one issuer, or of two or more issuers which are
engaged in the same, similar or related trades or business if the Fund owns at
least 20% of the voting power of such issuer.
Notwithstanding the Distribution Requirement described above, which requires
only that the Fund distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), the
Fund will be subject to a nondeductible 4% federal excise tax to the extent it
fails to distribute by the end of any calendar year 98% of its ordinary income
for that year and 98% of its capital gain net income (the excess of short- and
long-term capital gains over short-and long-term capital losses) for the
one-year period ending on October 31 of that year, plus certain other amounts.
The Fund intends to make sufficient distributions to avoid liability for the
federal excise tax. The Fund may in certain circumstances be required to
liquidate Fund investments in order to make sufficient distributions to avoid
federal excise tax liability at a time when the investment advisor might not
otherwise have chosen to do so, and liquidation of investments in such
circumstances may affect the ability of the Fund to satisfy the requirements for
qualification as a RIC.
Any gain or loss recognized on a sale, exchange or redemption of shares of the
Fund by a shareholder who is not a dealer in securities will generally, for
individual shareholders, be treated as a long-term capital gain or loss if the
shares have been held for more than twelve months, and otherwise will be treated
as short-term capital gain or loss. However, if shares on which a
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<PAGE> 32
shareholder has received a net capital gain distribution are subsequently sold,
exchanged or redeemed and such shares have been held for six months or less, any
loss recognized will be treated as a long-term capital loss to the extent of the
net capital gain distribution. Long-term capital gains are currently taxed at a
maximum rate of 20% and short-term capital gains are currently taxed at ordinary
income tax rates.
In certain cases, the Fund will be required to withhold, and remit to the U.S.
Treasury, 31% of any distributions paid to a shareholder who (1) has failed to
provide a correct taxpayer identification number, (2) is subject to backup
withholding by the Internal Revenue Service, or (3) has not certified to the
Fund that such shareholder is not subject to backup withholding.
If the Fund fails to qualify as a RIC for any taxable year, it will be taxable
at regular corporate rates. In such an event, all distributions (including
capital gains distributions) will be taxable as ordinary dividends to the extent
of the Fund's current and accumulated earnings and profits, and such
distributions may generally be eligible for the corporate dividends-received
deduction.
STATE TAXES
The Fund is not liable for any income or franchise tax in Delaware if it
qualifies as a RIC for federal income tax purposes. Distributions by the Fund to
shareholders and the ownership of shares may be subject to state and local
taxes.
PORTFOLIO TRANSACTIONS
The Sub-Advisers are authorized to select brokers and dealers to effect
securities transactions for the Fund. The Sub-Advisers will seek to obtain the
most favorable net results by taking into account various factors, including
price, commission, if any, size of the transactions and difficulty of
executions, the firm's general execution and operational facilities and the
firm's risk in positioning the securities involved. While the Sub-Advisers
generally seek reasonably competitive spreads or commissions, the Fund will not
necessarily be paying the lowest spread or commission available. The
Sub-Advisers seek to select brokers or dealers that offer the Fund best price
and execution or other services which are of benefit to the Fund.
The Sub-Advisers may, consistent with the interests of the Fund, select brokers
on the basis of the research services they provide. Such services may include
analyses of the business or prospects of a company, industry or economic sector,
or statistical and pricing services. Information so received by the Sub-Advisers
will be in addition to and not in lieu of the services required to be performed
by them under their Sub-Advisory Agreements. If, in the judgment of a
Sub-Adviser, the Fund or other accounts managed by the Sub-Adviser will be
benefitted by supplemental research services, the Sub-Adviser is authorized to
pay brokerage commissions to a broker furnishing such services which are in
excess of commissions which another broker may have charged for effecting the
same transaction. These research services include advice, either directly or
through publications or
S-21
<PAGE> 33
writings, as to the value of securities, the advisability of investing in,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities; furnishing of analyses and reports
concerning issuers, securities or industries; providing information on economic
factors and trends; assisting in determining portfolio strategy; providing
computer software used in security analyses; and providing portfolio performance
evaluation and technical market analyses. The expenses of the Sub-Adviser will
not necessarily be reduced as a result of the receipt of such supplemental
information, such services may not be used exclusively, or at all, with respect
to the Fund or account generating the brokerage, and there can be no guarantee
that the Sub-Adviser will find all of such services of value in advising the
Fund.
VOTING
Each share held entitles the shareholder of record to one vote. Shares issued by
the Fund have no preemptive, conversion, or subscription rights. Each whole
share shall be entitled to one vote and each fractional share shall be entitled
to a proportionate fractional vote. The Fund, as a separate series of the
Company, votes separately on matters affecting the Fund. Voting rights are not
cumulative. Shareholders of each Class of the Fund will vote separately on
matters pertaining solely to that Class. As a Delaware business trust, the
Company is not required to hold annual meetings of shareholders, but approval
will be sought for certain changes in the operation of the Company and for the
election of Directors under certain circumstances.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of funds
and shares thereof. Each share of the Fund represents an equal proportionate
interest in the Fund with each other share. Shares are entitled upon liquidation
to a pro rata share in the net assets of the Fund. Shareholders have no
preemptive rights. The Declaration of Trust provides that the Directors of the
Company may create additional series of shares or separate classes of funds. All
consideration received by the Company for shares of any fund or separate class
and all assets in which such consideration is invested would belong to that fund
or separate class and would be subject to the liabilities related thereto. Share
certificates representing shares will not be issued.
5% SHAREHOLDERS
As of the date of this Statement of Additional Information, the following
shareholders owned more than 5% of the Fund's outstanding shares:
CUSTODIAN
Investors Bank & Trust (the "Custodian") acts as the custodian of the Company.
The Custodian holds cash, securities and other assets of the Company as required
by the 1940 Act.
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<PAGE> 34
EXPERTS
The Independent Accountants for the Company are [__________].
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP, 1701 Market Street, Philadelphia, Pennsylvania
19103, serves as counsel to the Company.
FINANCIAL STATEMENTS
S-23
<PAGE> 35
APPENDIX
The following descriptions are summaries of published ratings.
DESCRIPTION OF CORPORATE BOND RATINGS
Bonds rated AAA have the highest rating S&P assigns to a debt obligation. Such a
rating indicates an extremely strong capacity to pay principal and interest.
Bonds rated AA by S&P also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and differs from AAA issues only in
small degree. Debt rated A by S&P has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher rated
categories.
Bonds rated Aaa by Moody's are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large, or an exceptionally stable,
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. Bonds rated Aa by Moody's are
judged by Moody's to be of high quality by all standards. Together with bonds
rated Aaa, they comprise what are generally known as high-grade bonds. They are
rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than in Aaa securities. Bonds rated A by
Moody's 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.
Fitch uses plus and minus signs with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the AAA category. Bonds rated AAA by Fitch are considered to be
investment grade and of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events. Bonds rated AA by
Fitch are considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+. Bonds rated A by Fitch
are considered to be investment grade and of high credit quality. The obligor's
ability to pay interest and repay principal is considered to be strong, but may
be more vulnerable to adverse changes in economic conditions and circumstances
than bonds with higher ratings.
Bonds rated AAA by Duff are judged by Duff to be of the highest credit quality,
with negligible risk factors being only slightly more than for risk-free U.S.
Treasury debt. Bonds rated AA by Duff are judged by Duff to be of high credit
quality with strong protection factors and risk that is modest but that may vary
slightly from time to time because of economic conditions. Bonds rated A by Duff
are judged by Duff to have average but adequate protection factors. However,
risk factors are more variable and greater in periods of economic stress.
Obligations rated AAA by IBCA have the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial, such
that adverse changes in business, economic or
A-1
<PAGE> 36
financial conditions are unlikely to increase investment risk significantly.
Obligations for which there is a very low expectation of investment risk are
rated AA by IBCA. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly. Obligations for which
there is a low expectation on investment risk are rated A by IBCA. Capacity for
timely repayment of principal and interest is strong, although adverse changes
in business, economic or financial conditions may lead to increased investment
risk.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Commercial paper rated A by Standard & Poor's Corporation ("S&P") is regarded by
S&P as having the greatest capacity for timely payment. Issues rated A are
further refined by use of the numbers 1, 1+, and 2 to indicate the relative
degree of safety. Issues rated A-1+ are those with an "overwhelming degree" of
credit protection. Those rated A-1, the highest rating category, reflect a "very
strong" degree of safety regarding timely payment. Those rated A-2, the second
highest rating category, reflect a satisfactory degree of safety regarding
timely payment but not as high as A-1.
Commercial paper issues rated Prime-1 or Prime-2 by Moody's Investors Service,
Inc. ("Moody's") are judged by Moody's to be of "superior" quality and "strong"
quality respectively on the basis of relative repayment capacity.
F-1+ (Exceptionally Strong) is the highest commercial paper rating Fitch
assigns; paper rated F-1+ is regarded as having the strongest degree of
assurance for timely payment. Paper rated F-1 (Very Strong) reflects an
assurance of timely payment only slightly less in degree than paper rated F-1+.
The rating F-2 (Good) reflects a satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as for issues rated F-1+ or
F-1.
The rating Duff-1 is the highest commercial paper rating assigned by Duff. Paper
rated Duff-1 is regarded as having very high certainty of timely payment with
excellent liquidity factors which are supported by good fundamental protection
factors. Risk factors are minor. Duff has incorporated gradations of 1+ and 1-
to assist investors in recognizing quality differences within this highest tier.
Paper rated Duff-1+ has the highest certainty of timely payment, with
outstanding short-term liquidity and safety just below risk-free U.S. Treasury
short-term obligations. Paper rated Duff-1- has high certainty of timely payment
with strong liquidity factors which are supported by good fundamental protection
factors. Risk factors are very small. Paper rated Duff-2 is regarded as having
good certainty of timely payment, good access to capital markets (although
ongoing funding may enlarge total financing requirements) and sound liquidity
factors and company fundamentals. Risk factors are small.
The designation A1, the highest rating by IBCA, indicates that the obligation is
supported by a strong capacity for timely repayment. Those obligations rated A1+
are supported by the highest capacity for timely repayment. Obligations rated
A2, the second highest rating, are supported by a satisfactory capacity for
timely repayment, although such capacity may be susceptible to adverse changes
in business, economic or financial conditions.
A-2
<PAGE> 37
PART C: OTHER INFORMATION
Item 23. Exhibits:
(a)(1) Certificate of Trust
(a)(2) Declaration of Trust of Commonfund Institutional Funds
(b) By-Laws
(d) Form of Investment Advisory Agreement
Item 24. Persons Controlled by or under Common Control with the Fund
Not applicable.
Item 25. Indemnification
Article III, Section 8. of the Declaration of Trust filed as Exhibit (a)(2) to
this Registration Statement is incorporated herein by reference.
Item 26. Business and other Connections of the Investment Adviser and
Sub-Advisers:
Other business, profession, vocation, or employment of a substantial nature in
which each director or principal officer of the Adviser is or has been, at any
time during the last two fiscal years, engaged for his own or in the capacity of
director, officer, employee, partner or trustee are as follows:
COMMONFUND ASSET MANAGEMENT COMPANY
To be completed by Amendment.
WESTERN ASSET MANAGEMENT COMPANY
Western Asset Management is a Sub-Adviser for the Registrant's Fund. Their
principal business address is 117 E. Colorado Blvd., Pasadena, CA 91105.
Western Asset Management is an investment adviser registered under the
Advisers Act.
<TABLE>
<CAPTION>
NAME AND POSITION WITH CONNECTION WITH OTHER
INVESTMENT ADVISER OTHER COMPANY COMPANY
- ------------------ ------------- ---------------------
<S> <C> <C>
Carl L. Eichstaedt
Portfolio Manager ---- ----
Kent S. Engel
Vice Chairman ---- ----
</TABLE>
ii
<PAGE> 38
<TABLE>
<S> <C> <C>
Keith J. Gardner
Portfolio Manager ---- ----
Scott F. Grannis
Director & Economist ---- ----
Ilene Schiowitz Harker
Director of Admin & Controls ---- ----
James W. Hirschmann III
Director of Marketing ---- ----
Randolph L. Kohn
Director of Client Services ---- ----
Stephen K. Leech
Director & CIO ---- ----
William C. Livingston
Director & CEO ---- ----
Raymond A. Mason Legg Mason, Inc. Chairman, President & CEO
Non-Employee Director
Legg Mason Wood Walker, Inc. Chairman, President & CEO
Ronald D. Mass
Portfolio Manager ---- ----
Edward A. Moody
Director & Sr. Portfolio Manager ---- ----
James V. Nelson
Director of Invest. Research ---- ----
Elisabeth Nurick Spector Legg Mason, Inc. Senior Vice President
Non-Employee Director
Legg Mason Wood Walker, Inc. Senior Vice President
Edward A. Taber III Legg Mason, Inc. Sr. Exec VP & Investment
Non-Employee Director Management
Legg Mason Wood Walker, Inc. Director & Sr. Executive Vice
President
Jeffrey D. Van Schaick
Director & Sr. Research Analyst ---- ----
Stephen A. Walsh
Director of Portfolio Management ---- ----
Trudie D. Whitehead
Portfolio Manager ---- ----
</TABLE>
iii
<PAGE> 39
WELLINGTON MANAGEMENT COMPANY
Wellington Management Company, LLP ("Wellington") is a Sub-Adviser for
the Registrant's Fund. Their principal business address is 75 State Street,
Boston, Massachusetts 02109. Wellington is an investment adviser registered
under the Advisers Act.
<TABLE>
<CAPTION>
NAME AND POSITION WITH CONNECTION WITH OTHER
INVESTMENT ADVISER NAME OF OTHER COMPANY COMPANY
------------------ --------------------- ---------------------
<S> <C> <C>
Kenneth Lee Abrams
General Partner
Nicholas Charles Adams
General Partner
Rand Charles Alexander
General Partner
Deborah Louise Allison
General Partner
James Halsey Averill
General Partner
Karl E. Bandtel
General Partner
Marie-Claude Petit Bernal
General Partner
William Nicholas Booth
General Partner
Paul Braverman
General Partner
Robert A. Bruno
General Partner
Pamela Dippel
General Partner
Robert Wren Doran Wellington Trust Company, NA Director & Chairman of the Board
General Partner and of the Executive Committee
Charles Townsend Freeman
General Partner
Laurie Allen Gabriel
General Partner
</TABLE>
iv
<PAGE> 40
<TABLE>
<S> <C> <C>
Frank Joseph Gilday, III
General Partner
John Herrick Gooch Wellington Management Partner
General Partner International
Wellington Trust Compnay, NA Director & Vice President
Nicholas Peter Greville Wllington Management Partner
General Partner International
Paul J. Hammel
General Partner
William Claude Sandifer Hicks
General Partner
Paul David Kaplan
General Partner
John Charles Keogh
General Partner
George Cabot Lodge, Jr.
General Partner
Nancy T. Lukitsh Wellington Trust Company, NA Director & Vice President
General Partner
Mark T. Lynch
General Partner
Christine Smith Manfredi
General Partner
Patrick John McCloskey
General Partner
Earl Edward McEvoy
General Partner
Duncan Mathieu McFarland Wellington Management Partner
General Partner International
Wellington Trust Company, NA Director & Vice Chairman
Paul Mulford Mecray, III
General Partner
Matthew Edward Megargel
General Partner
James Nelson Mordy
General Partner
</TABLE>
v
<PAGE> 41
<TABLE>
<S> <C> <C>
Diane Carol Nordin
General Partner
Stephen T. O'Brien
General Partner
Edward Paul Owens
General Partner
Saul Joseph Pannell
General Partner
Thomas Louis Pappas
General Partner
David Minter Parker
General Partner
Jonathan Martin Payson Wellington Trust Company, NA Director & President
General Partner
Stephen Michael Pazuk Wellington Management Partner
General Partner International
Robert Douglas Rands
General Partner
Eugene Edward Record, Jr.
General Partner
James Albert Rullo
General Partner
John Robert Ryan
General Partner
Joseph Harold Schwartz
General Partner
Theodore Shasta
General Partner
Binkley Calhoun Shorts
General Partner
Trond Skramstad
General Partner
Catherine Anne Smith
General Partner
Stephen Albert Soderberg
General Partner
</TABLE>
vi
<PAGE> 42
<TABLE>
<S> <C> <C>
Brendan James Swords
General Partner
Harriett Tee Taggart
General Partner
Perry Marques Traquina
General Partner
Gene Roger Tremblay
General Partner
Mary Ann Tynan
General Partner
Clare Villari
General Partner
Ernst Hans von Metzsch
General Partner
James Leland Walters Wellington Trust Company, NA Director, Senior Trust Officer &
General Partner Trust Counsel
Kim Williams
General Partner
Francis Vincent Wisneski, Jr.
General Partner
</TABLE>
Item 27. Principal Underwriters
To be completed by Amendment.
Item 28. Location of Accounts and Records
To be completed by Amendment.
Item 29. Management Services
Not applicable
Item 30. Undertakings
Not applicable
vii
<PAGE> 43
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement (File No._________) to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Westport, State of Connecticut on
this 16th day of August, 1999.
Commonfund Institutional Funds
By: /s/ ROBERT L. BOVINETTE
-------------------------------
Robert L. Bovinette
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacity on the dates indicated.
By: /s/ ROBERT L. BOVINETTE Director August 16, 1999
-------------------------
Robert L. Bovinette
viii
<PAGE> 44
EXHIBIT INDEX
Name Exhibit Page
- ---- ------------
Certificate of Trust EX-99.B(a)(1)
Declaration of Trust of NewCo Trust EX-99.B(a)(2)
By-Laws EX-99.B(b)
Form of Advisory Agreement EX-99.B(d)
Power of Attorney EX-99.P
ix
<PAGE> 1
CERTIFICATE OF TRUST
OF
COMMONFUND INSTITUTIONAL FUNDS
This Certificate of Trust for Commonfund Institutional Funds (the "Trust"), a
business trust registered under the Investment Company Act of 1940, is filed in
accordance with the provisions of the Delaware Business Trust Act (Del. Code
Ann. tit.12, Section 3810) and sets forth the following:
1. The name of the trust is: Commonfund Institutional Funds
2. As required by 12 Del. Code Ann. tit. 12 sections 3807 and 3810, the
business address of the registered office of the Trust and of the
registered agent of the Trust for service of process is:
The Corporation Trust Company
1209 Orange Street
Wilmington, Delaware 19801, County of Newcastle
3. This certificate shall be effective upon filing.
4. Notice is hereby given that the Trust is a series Trust. The debts,
liabilities, obligations and expenses incurred, contracted for or
otherwise existing with respect to a particular series of the Trust
shall be enforceable against the assets of such series only and not
against the assets of the Trust generally.
This certificate is executed this 12 day of August 1999 in Westport, CT, upon
the penalties of perjury and constitutes the oath or affirmation that the facts
stated above are true to the undersigned trustees belief or knowledge.
/s/ Robert L. Bovinette
- -----------------------------
Robert L. Bovinette
Initial Trustee
<PAGE> 1
AGREEMENT AND DECLARATION OF TRUST
OF
COMMONFUND INSTITUTIONAL FUNDS
WHEREAS, THIS AGREEMENT AND DECLARATION OF TRUST is made and
entered into as of the date set forth below by the Directors named hereunder for
the purpose of forming a Delaware business trust in accordance with the
provisions hereinafter set forth,
NOW, THEREFORE, the Directors hereby direct that a Certificate of Trust
be filed with the Office of the Secretary of State of the State of Delaware and
do hereby declare that the Directors will hold IN TRUST all cash, securities and
other assets which the Trust now possesses or may hereafter acquire from time to
time in any manner and manage and dispose of the same upon the following terms
and conditions for the prospectus rata benefit of the holders of Shares of this
Trust.
ARTICLE I
NAMES AND DEFINITIONS
Section 1. Name. This trust shall be known as "Commonfund Institutional
Funds" and the Directors shall conduct the business of the Trust under that name
or any other name as they may from time to time determine.
Section 2. Definitions. Whenever used herein, unless otherwise required
by the context or specifically provided:
(a) The "1940 Act" refers to the Investment Company Act of
1940 and the Rules and Regulations thereunder, all as amended from time to time;
(b) "By-Laws" shall mean the By-Laws of the Trust as amended
from time to time which By-Laws are expressly herein incorporated by reference
as part of the "governing instrument" within the meaning of the Delaware Act;
(c) "Class" means a class of Shares in a Series of the Trust
established in accordance with the provisions of Article III hereof.
(d) The terms "Commission" and "Principal Underwriter" shall
have the respective meanings given them in Section 2(a)(7) and Section 2(a)(29)
of the 1940 Act;
<PAGE> 2
(e) "Declaration of Trust" shall mean this Agreement and
Declaration of Trust, as amended or restated from time to time;
(f) "Delaware Act" means the Delaware Business Trust Act, 12
Del. Code, Section 3801 et seq., as amended from time to time;
(g) "Directors" refer to the persons who have signed this
Agreement and Declaration of Trust, so long as they continue in office in
accordance with the terms hereof, and all other persons who may from time to
time be duly elected or appointed to serve on the Board of Directors in
accordance with the provisions hereof, and reference herein to a Director or the
Directors shall refer to such person or persons in their capacity as trustees
hereunder;
(h) The term "Interested Person" has the meaning given it in
Section 2(a)(19) of the 1940 Act;
(i) "Investment Manager" or "Manager" means a party furnishing
services to the Trust pursuant to any contract described in Article IV, Section
7(a) hereof;
(j) "Person" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures, estates and other entities,
whether or not legal entities, and governments and agencies and political
subdivisions thereof, whether domestic or foreign;
(k) "Series" refers to each Series of Shares established and
designated under or in accordance with the provisions of Article III and shall
mean an entity such as that described in Section 18(f)(2) of the 1940 Act, and
subject to Rule 18f-2 thereunder:
(l) "Shareholder" means a record owner of outstanding Shares;
(m) "Shares" means the shares of beneficial interest into
which the beneficial interest in the Trust shall be divided from time to time
and includes fractions of Shares as well as whole Shares;
(n) The "Trust" refers to the Delaware business trust
established under the Delaware Act by this Agreement and Declaration of Trust
and the filing of the Certificate of Trust in the Office of the Secretary of
State of the State of Delaware, as it may be amended from time to time;
(o) The "Trust Property" means any and all property, real or
personal, tangible or intangible, which is owned or held by or for the account
of the Trust, including without limitation the rights referenced in Article
VIII, Section 10 hereof.
2
<PAGE> 3
ARTICLE II
PURPOSE OF THE TRUST
The purpose of the Trust is to conduct, operate and carry on the
business of a management investment company registered under the 1940 Act
through one or more Series investing primarily in securities.
ARTICLE III
SHARES
Section 1. Division of Beneficial Interest. The beneficial interest in
the Trust shall be divided into one or more Series. Each Series may be divided
into two or more Classes. Subject to the further provisions of this Article III
and any applicable requirements of the 1940 Act, the Directors shall have full
power and authority, in their sole discretion, and without obtaining any
authorization or vote of the Shareholders of any Series or Class thereof, (i) to
divide the beneficial interest in each Series or Class thereof into Shares, with
or without par value, as the Directors shall determine, (ii) to issue Shares
without limitation as to number (including fractional Shares), to such Persons
and for such amount and type of consideration, subject to any restriction set
forth in the By-Laws, including cash or securities, at such time or times and on
such terms as the Directors may deem appropriate, (iii) to establish and
designate and to change in any manner any Series or Class thereof and to fix
such preferences, voting powers, rights, duties and privileges and business
purpose of each Series or Class thereof as the Directors may from time to time
determine, which preferences, voting powers, rights, duties and privileges may
be senior or subordinate to (or in the case of business purpose, different from)
any existing Series or Class thereof and may be limited to specified property or
obligations of the Trust or profits and losses associated with specified
property or obligations of the Trust, (iv) to divide or combine the Shares or
any Series or Class thereof into a greater or lesser number without thereby
materially changing the proportionate beneficial interest of the Shares of such
Series or Class in the assets held with respect to that Series or Class, (v) to
Classify or reclassify any issued Shares of any Series or Class thereof into
shares of one or more Series or Classes thereof, and (vi) to take such other
action with respect to the Shares as the Directors may deem desirable.
Subject to the distinctions permitted among Classes of the same Series
as established by the Directors consistent with the requirements of the 1940
Act, each Share of a Series of the Trust shall represent an equal beneficial
interest in the net assets of such Series, and each holder of Shares of a Series
shall be entitled to receive such holder's prospectus rata share of
distributions of income and capital gains, if any, made with respect to such
Series. Upon redemption of the Shares of any Series, the applicable Shareholder
shall be paid solely out of the funds and property of such Series of the Trust.
3
<PAGE> 4
All references to Shares in this Declaration of Trust shall be deemed
to be Shares of any or all Series or Classes thereof, as the context may
require. All provisions herein relating to the Trust shall apply equally to each
Series of the Trust and each Class thereof, except as the context otherwise
requires.
All Shares issued hereunder, including, without limitation, Shares
issued in connection with a dividend paid in Shares or a split or reverse split
of Shares, shall be fully paid and non-assessable. Except as otherwise provided
by the Directors, Shareholders shall have no preemptive or other right to
subscribe to any additional Shares or other securities issued by the Trust.
Section 2. Ownership of Shares. The ownership of Shares shall be
recorded on the books or the Trust or a transfer or similar agent for the Trust,
which books shall be maintained separately for the Shares of each Series (or
Class). No certificates certifying the ownership of Shares shall be issued
except as the Board of Directors may otherwise determine from time to time. The
Directors may make such rules as they consider appropriate for the issuance of
Share certificates, transfer of Shares of each Series (or Class) and similar
matters. The record books of the Trust as kept by the Trust, or any transfer or
similar agent, as the case may be, shall be conclusive as to the identity of the
Shareholders of each Series (or Class) and as to the number of Shares of each
Series (or Class) held from time to time by each.
Section 3. Transfer of Shares. Except as otherwise provided by the
Directors, Shares shall be transferable on the books of the Trust only by the
record holder thereof or by his duly authorized agent upon delivery to the
Directors or the Trust's transfer agent of a duly executed instrument of
transfer, together with a Share certificate if one is outstanding, and such
evidence of the genuineness of each such execution and authorization and of such
other matters as may be required by the Directors. Upon such delivery, and
subject to any further requirements specified by the Directors or contained in
the By-Laws, the transfer shall be recorded on the books of the Trust. Until a
transfer is so recorded, the Shareholder of record of Shares shall be deemed to
be the holder of such Shares for all purposes hereunder and neither the
Directors nor the Trust, nor any transfer agent or registrar or any officer,
employee or agent of the Trust, shall be affected by any notice of any proposed
transfer.
Section 4. Investments in the Trust. Investments may be accepted by the
Trust from such Persons, at such times, on such terms, and for such
consideration as the Directors from time to time may authorize. Each investment
shall be credited to the individual Shareholder's account in the form of full
and fractional Shares of the Trust, in such Series (or Class) as the purchaser
shall select, at the net asset value per Share next determined for such Series
(or Class) after receipt of the investment; provided, however, that the
Directors may, in their sole discretion, impose a sales charge or transaction
fee upon investments in the Trust.
Section 5. Status of Shares and Limitation of Personal Liability.
Shares shall be deemed to be personal property giving only the rights provided
in this instrument. Every Shareholder by
4
<PAGE> 5
virtue of having become a Shareholder shall be held to have expressly assented
and agreed to the terms hereof and to have become a party hereto. The death,
incapacity, dissolution, termination or bankruptcy of a Shareholder during the
existence of the Trust shall not operate to terminate the Trust, nor entitle the
representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Directors, but entitles
such representative only to the rights of such Shareholder under this Trust.
Ownership of Shares shall not entitle the Shareholder to any title in or to the
whole or any part of the Trust Property or right to call for a partition or
division of the same or for an accounting, nor shall the ownership of Shares
constitute the Shareholders as partners. Neither the Trust nor the Directors,
nor any officer, employee or agent of the Trust shall have any power to bind
personally any Shareholder, nor, except as specifically provided herein, to call
upon any Shareholder for the payment of any sum of money or assessment
whatsoever other than such as the Shareholder may at any time personally agree
to pay.
Section 6. Power of Board of Directors to Change Provisions Relating to
Shares. Notwithstanding any other provisions of this Declaration of Trust and
without limiting the power of the Board of Directors to amend the Declaration of
Trust as provided elsewhere herein, the Board of Directors shall have the power
to amend this Declaration of Trust, at any time and from time to time, in such
manner as the Board of Directors may determine in their sole discretion, without
the need for Shareholder action, so as to add to, delete, replace or otherwise
modify any provisions relating to the Shares contained in this Declaration of
Trust, provided that before adopting any such amendment without Shareholder
approval the Board of Directors shall determine that it is consistent with the
fair and equitable treatment of all Shareholders or that Shareholder approval is
not otherwise required by the 1940 Act or other applicable federal or state law.
Subject to the foregoing Paragraph, the Board of Directors may amend
the Declaration of Trust to amend any of the provisions set forth in paragraphs
(a) through (i) of Section 7 of this Article III.
Section 7. Establishment and Designation of Shares. The establishment
and designation of any Series (or Class) of Shares shall be effective upon the
resolution by a majority of the then Directors, adopting a resolution which sets
forth such establishment and designation and the relative rights and preferences
of such Series (or Class) whether directly in such resolution or by reference to
another document including, without limitation, any registration statement of
the Trust, or as otherwise provided in such resolution. Each such resolution
shall be incorporated herein by reference upon adoption.
Shares of each Series (or Class) established pursuant to this Section
7, unless otherwise provided in the resolution establishing such Series (or
Class), shall have the following relative rights and preferences:
5
<PAGE> 6
(a) Assets Held with Respect to a Particular Series. All
consideration received by the Trust for the issue of Shares of a particular
Series, together with all assets in which such consideration is invested or
reinvested, all income, earnings, profits, and proceeds thereof from whatever
source derived, including, without limitation, any proceeds derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably be held with respect to that Series for all purposes, subject only
to the rights of creditors, and shall be so recorded upon the books of account
of the Trust. Such consideration, assets, income, earnings, profits and proceeds
thereof, from whatever source derived, including, without limitation, any
proceeds derived from any reinvestment of such proceeds, in whatever form the
same may be, are herein referred to as "assets held with respect to" that
Series. In the event that there are any assets, income, earnings, profits and
proceeds thereof, funds or payments which are not readily identifiable as assets
held with respect to any particular Series (collectively "General Assets"), the
Directors shall allocate such General Assets to, between or among any one or
more of the Series in such manner and on such basis as the Directors, in their
sole discretion, deem fair and equitable, and any General Assets as allocated to
a particular Series shall be held with respect to that Series. Each such
allocation by the Directors shall be conclusive and binding upon the
Shareholders of all Series for all purposes. Separate and distinct records shall
be maintained for each Series and the assets held with respect to each Series
shall be held and accounted for separately from the assets held with respect to
all other Series and General Assets of the Trust not allocated to such Series.
(b) Liabilities Held with Respect to a Particular Series. The
assets of the Trust held with respect to each particular Series shall be charged
against the liabilities of the Trust held with respect to that Series and all
expenses, costs, charges and reserves attributable to that Series, and any
general liabilities of the Trust which are not readily identifiable as being
held with respect to any particular Series shall be allocated and charged by the
Directors to and among any one or more of the Series in such manner and on such
basis as the Directors in their sole discretion deem fair and equitable. The
liabilities, expenses, costs, charges, and reserves so charged to a Series are
herein referred to as "liabilities held with respect to" that Series. Each
allocation of liabilities, expenses, costs, charges and reserves by the
Directors shall be conclusive and binding upon the holders of all Series for all
purposes. All Persons who have extended credit which has been allocated to a
particular Series, or who have a claim or contract which has been allocated to
any particular Series, shall look, and shall be required by contract to look,
exclusively to the assets of that particular Series for payment of such credit,
claim, or contract. In the absence of an express contractual agreement so
limiting the claims of such creditors, claimants and contract providers, each
creditor, claimant and contract provider will be deemed nevertheless to have
impliedly agreed to such limitation unless an express provision to the contrary
has been incorporated in the written contract or other document establishing the
claimant relationship.
(c) Dividends, Distributions, Redemptions, and Repurchases.
Notwithstanding any other provisions of this Declaration of Trust, including,
without limitation, Article VI, no dividend or distribution including, without
limitation, any distribution paid upon
6
<PAGE> 7
termination of the Trust or paid on or in respect to any Series (or Class), nor
any redemption or repurchase of the Shares of any Series (or Class), shall be
effected by the Trust other than from the assets held with respect to such
Series, nor, except as specifically provided in Section 8 of this Article III,
shall any Shareholder of any particular Series, otherwise have any right or
claim against the assets held with respect to any other Series except to the
extent that such Shareholder has such a right or claim hereunder as a
Shareholder of such other Series. The Directors shall have full discretion, to
the extent not inconsistent with the 1940 Act, to determine which items shall be
treated as income and which items as capital; and each such determination and
allocation shall be conclusive and binding upon the Shareholders.
(d) Voting. All Shares of the Trust entitled to vote on a
matter shall vote separately by Series (and, if applicable, by Class): that is,
the Shareholders of each Series (or Class) shall have the right to approve or
disapprove matters affecting the Trust and each respective Series (or Class) as
if the Series (or Classes) were separate companies. There are, however, two
exceptions to voting by separate Series (or Classes). First, if the 1940 Act
requires all shares of the Trust to be voted in the aggregate without
differentiation between the separate Series (or Classes), then all the Trust's
Shares shall be entitled to vote on a dollar-weighted basis, i.e., voting shall
be based on the relative net asset value of each Series (or each Class within a
Series). Second, if any matter affects only the interests of some but not all
Series (or Classes), then only the Shareholders of such affected Series (or
Classes) shall be entitled to vote on the matter on the same dollar-weighted
basis.
(e) Equality. All the Shares of each particular Series shall
represent an equal proportionate undivided interest in the assets held with
respect to that Series (subject to the liabilities held with respect to that
Series and such rights and preferences as may have been established and
designated with respect to Classes of Shares within such Series), and each Share
of any particular Series shall be equal to each Share of that Series.
(f) Fractions. Any fractional Share of a Series shall carry
proportionately all the rights and obligations of a whole Share of that Series,
including rights with respect to voting, receipt of dividends and distributions,
redemption of Shares and termination of the Trust.
(g) Exchange Privilege. The Directors shall have the authority
to provide that the holders of Shares of any Series shall have the right to
exchange said Shares for Shares of one or more other Series of Shares in
accordance with such requirements and procedures as may be established by the
Directors.
(h) Combination of Series. The Directors shall have the
authority, without the approval of the Shareholders of any Series, unless
otherwise required by applicable law, to combine the assets and liabilities held
with respect to any two or more Series into assets and liabilities held with
respect to a single Series.
7
<PAGE> 8
(i) Elimination of Series. At any time there are no Shares
outstanding of any particular Series (or Class) previously established and
designated, the Directors may by resolution of a majority of the then Directors
abolish that Series (or Class) and rescind the establishment and designation
thereof.
Section 8. Indemnification of Shareholders. If any Shareholder or
former Shareholder shall be exposed to liability by reason of a claim or demand
relating to his or her being or having been a Shareholder, and not because of
his or her acts or omissions, the Shareholder or former Shareholder (or his or
her heirs, executors, administrators, or other legal representatives or in the
case of a corporation or other entity, its corporate or other general successor)
shall be entitled to be held harmless from and indemnified out of the assets of
the Trust against all loss and expense arising from such claim or demand, but
only out of the assets held with respect to the particular Series or Class of
which such Person is or was a Shareholder and from or in relation to which such
liability arose.
ARTICLE IV
THE BOARD OF DIRECTORS
Section 1. Number, Election and Tenure. The number of Directors
constituting the Board of Directors shall initially be one who shall be Robert
Bovinette. Hereafter, the number shall be fixed from time to time by a written
instrument signed, or by resolution approved at a duly constituted meeting, by a
majority of the Board of Directors, provided, however, that the number of
Directors shall in no event be less than one (1) nor more than fifteen (15). The
Board of Directors, by action of a majority of the then Directors at a duly
constituted meeting, may fill vacancies in the Board of Directors or remove
Directors with or without cause. Subject to any policy adopted by the Board of
Directors, each Director shall serve during the continued lifetime of the Trust
for a term of five (5) years, or, if sooner, until he or she dies, resigns, is
declared bankrupt or incompetent by a court or appropriate jurisdiction, or is
removed, or until the next meeting of Shareholders called for the purpose of
electing Directors and until the election and qualification of his or her
successor. In the event that less than a majority of the Directors holding
office have been elected by the Shareholders, the Directors then in office shall
call a Shareholders' meeting for the election of Directors. Any Director may
resign at any time by written instrument signed by him or her and delivered to
any officer of the Trust or to a meeting of the Directors. Such resignation
shall be effective upon receipt, unless specified to be effective at some other
time. Except to the extent expressly provided in a written agreement with the
Trust, no Director resigning and no Director removed shall have any right to any
compensation or expense reimbursement for any period following his or her
resignation or removal, or any right to damages on account of such removal. The
Shareholders may elect Directors at any meeting of Shareholders called by the
Directors for that purpose. A meeting of Shareholders for the purpose of
electing or removing one or more Directors may be called (i) by the Directors
upon their own vote, or (ii) upon the demand of shareholders owning 10% or more
of the Shares of the Trust in the aggregate.
8
<PAGE> 9
Section 2. Effect of Death, Resignation, etc. of a Director. The death,
declination, resignation, retirement, removal, or incapacity of one or more
Directors, or all of them, shall not operate to annul the Trust or to revoke any
existing agency created pursuant to the terms of this Declaration of Trust.
Whenever a vacancy in the Board of Directors shall occur, until such vacancy is
filled as provided in Article IV, Section 1, the Directors in office, regardless
of their number, shall have all the powers granted to the Directors and shall
discharge all the duties imposed upon the Directors by this Declaration of
Trust. As conclusive evidence of such vacancy, a written instrument certifying
the existence of such vacancy may be executed by an officer of the Trust or by a
majority of the Board of Directors.
Section 3. Powers. Subject to the provisions of this Declaration of
Trust, the business of the Trust shall be managed by the Board of Directors, and
such Board shall have all powers necessary or convenient to carry out that
responsibility including the power to engage in securities transactions of all
kinds on behalf of the Trust. The Directors shall have full power and authority
to do any and all acts and to make and execute any and all contracts and
instruments that they may consider necessary or appropriate in connection with
the administration of the Trust. Without limiting the foregoing, the Directors
may: (i) adopt ByLaws not inconsistent with this Declaration of Trust providing
for the regulation and management of the affairs of the Trust and may amend and
repeal them to the extent that such By-Laws do not reserve that right to the
Shareholders; (ii) elect and remove, with or without cause, such officers and
appoint and terminate such agents as they consider appropriate; (iii) appoint
from their own number and establish and terminate one or more committees
consisting of two or more Directors which may exercise the powers and authority
of the Board of Directors to the extent that the Directors determine; (iv)
employ one or more custodians of the assets of the Trust and may authorize such
custodians to employ subcustodians and to deposit all or any part of such assets
in a system or systems for the central handling of securities or with a Federal
Reserve Bank, retain a transfer agent or a shareholder servicing agent, or both;
(v) provide for the issuance and distribution of Shares by the Trust directly or
through one or more Principal Underwriters or for the determination of
Shareholders with respect to various matters; (vi) declare and pay dividends and
distributions to Shareholders of each Series from the assets of such Series;
(vii) establish form time to time, in accordance with the provisions of Article
III, hereof, any Series (or Class) of Shares, each such Series (or Class) to
operate as a separate and distinct investment medium and with separately defined
investment objectives and policies and distinct investment purpose; and (viii)
in general delegate such authority as they consider desirable to any officer of
the Trust, to any committee of the Directors and to any agent or employee of the
Trust or to any such custodian, transfer or shareholder servicing agent, or
Principal Underwriter. Any determination as to what is in the interests of the
Trust made by the Directors in good faith shall be conclusive. In construing the
provisions of this Declaration of Trust, the presumption shall be in favor of a
grant of power to the Directors. Unless otherwise specified herein or in the
By-Laws or required by law, any action by the Board of Directors shall be deemed
effective if approved or taken by a majority of the Directors present at a
meeting of Directors at which a quorum of Directors is present, within or
without the State of Delaware. Any action required or permitted to be taken at
any meeting of the Board of Directors, or any
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committee thereof, may be taken without a meeting if all members of the Board of
Directors or committee (as the case may be) consent thereto in writing, and the
writing or writings are filed with the minutes of the proceedings of the Board
of Directors, or committee.
Without limiting the foregoing, the Directors shall have the power and
authority to cause the Trust (or to act on behalf of the Trust):
(a) To invest and reinvest cash, to hold cash uninvested, and
to subscribe for, invest in, reinvest in, purchase or otherwise acquire, own,
hold, pledge, sell, assign, transfer, exchange, distribute, write options on,
lend or otherwise deal in or dispose of contracts for the future acquisition or
delivery of fixed income or other securities, and securities of every nature and
kind, including, without limitation, all types of bonds, debentures, stocks,
preferred stocks, negotiable or non-negotiable instruments, obligations,
evidences of indebtedness, certificates of deposit or indebtedness, commercial
paper, repurchase agreements, bankers acceptances, and other securities of any
kind, issued, created guaranteed, or sponsored by any and all Persons,
including, without limitation, states, territories, and possessions of the
United States and the District of Columbia and any political subdivision,
agency, or instrumentality thereof, any foreign government or any political
subdivision of the U.S. Government or any foreign government, or any
international instrumentality, or by any bank or savings institution, or by any
corporation or organization organized under the laws of the United States or of
any state, territory, or possession thereof, or by any corporation or
organization organized under any foreign law, or in "when issued" contracts for
any such securities, to change the investments of the assets of the Trust; and
to exercise any and all rights, powers, and privileges of ownership or interest
in respect of any and all such investments of every kind and description,
including, without limitation, the right to consent and otherwise act with
respect thereto, with power to designate one or more Persons, to exercise any of
said rights, powers and privileges in respect of any of said instruments;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate,
lease, or write options with respect to or otherwise deal in any property rights
relating to any or all of the assets of the Trust or any Series, subject to any
requirements of the 1940 Act;
(c) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property; and to execute
and deliver proxies or powers of attorney to such Person or Persons as the
Directors shall deem proper, granting to such Person or Persons such power and
discretion with relation to securities or property as the Directors shall deem
proper;
(d) To exercise powers and right of subscription or otherwise
which in any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating
that it is Trust Property, whether in bearer, unregistered or other negotiable
form, or in its own name or in the
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name of a custodian or subcustodian or a nominee or nominees or otherwise or to
authorize the custodian or a subcustodian or a nominee or nominees to deposit
the same in a securities depository;
(f) To consent to, or participate in, any plan for the
reorganization, consolidation or merger of any corporation or issuer of any
security which is held in the Trust; to consent to any contract, lease,
mortgage, purchase or sale of property by such corporation or issuer; and to pay
calls or subscriptions with respect to any security held in the Trust;
(g) To join with other security holders in acting through a
committee, depositary, voting trust or otherwise, and in that connection to
deposit any security with, or transfer any security to, any such committee,
depositary or voting trust, and to delegate to them such power and authority
with relation to any security (whether or not so deposited or transferred) as
the Directors shall deem proper, and to agree to pay, and to pay, such portion
of the expenses and compensation of such committee, depositary or voting trust
as the Directors shall deem proper;
(h) To compromise, arbitrate or otherwise adjust claims in
favor of or against the Trust or any matter in controversy, including but not
limited to claims for taxes;
(i) To enter into joint ventures, general or limited
partnerships and any other combinations or associations;
(j) To borrow funds or other property in the name of the Trust
exclusively for Trust purposes;
(k) To endorse or guarantee the payment of any notes or other
obligations of any Person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof;
(l) To purchase and pay for entirely out of Trust Property
such insurance as the Directors may deem necessary or appropriate for the
conduct of the business, including, without limitation, insurance policies
insuring the assets of the Trust or payment of distributions and principal on
its portfolio investments, and insurance policies insuring the Shareholders,
Directors, officers, employees, agents, Investment Managers, Principal
Underwriters, or independent contractors of the Trust, individually against all
claims and liabilities of every nature arising by reason of holding Shares,
holding, being or having held any such office or position, or by reason of any
action alleged to have been taken or omitted by any such Person as Director,
officer, employee, agent, Investment Manager, Principal Underwriter, or
independent contractor, including any action taken or omitted that may be
determined to constitute negligence, whether or not the Trust would have the
power to indemnify such Person against liability;
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(m) To adopt, establish and carry out pension, profit-sharing,
share bonus, share purchase, savings, thrift and other retirement, incentive and
benefit plans, trusts and provisions, including the purchasing of life insurance
and annuity contracts as a means of providing such retirement and other
benefits, for any or all of the Directors, officers, employees and agents of the
Trust;
(n) To employ one or more banks, trust companies or companies
that are members of a national securities exchange or such other entities as the
Commission may permit as custodians of any assets of the Trust subject to any
conditions set forth in this Declaration or Trust or in the By-Laws;
(o) To interpret the investment policies, practices or
limitations of any Series or Class; and
(p) To invest part or all of the Trust Property (or part or
all of the assets of any Series), or to dispose of part or all of the Trust
Property (or part or all of the assets of any Series) and invest the proceeds of
such disposition, in securities issued by one or more other investment companies
registered under the 1940 Act (including investment by means of transfer of part
or all of the Trust Property in exchange for an interest or interests in such
one or more investment companies) all without any requirement of approval by
Shareholders unless required by the 1940 Act. Any such other investment company
may (but need not) be a trust (formed under the laws of the State of Delaware or
of any other state) which is classified as a partnership for federal income tax
purposes.
The Trust shall not be limited to investing in obligations maturing
before the possible termination of the Trust or one or more of its Series. The
Trust shall not in any way be bound or limited by any present or future law or
custom in regard to investment by fiduciaries. The Trust shall not be required
to obtain any court order to deal with any assets of the Trust or take any other
action hereunder.
Section 4. Payment of Expenses by the Trust. The Directors are
authorized to pay or cause to be paid out of the principal or income of the
Trust or any Series (or Class), or partly out of the principal and partly out of
the income, and to charge or allocate the same to, between or among such one or
more of the Series (or Classes) that may be established or designated pursuant
to Article III, as they deem fair, all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with the Trust or Series (or
Class), or in connection with the management thereof, including, but not limited
to, the Directors' compensation and such expenses and charges for the services
of the Trust's officers, employees, Investment Manager, Principal Underwriter,
auditors, counsel, custodian, transfer agent, Shareholder servicing agent, and
such other agents or independent contractors and such other expenses and charges
as the Directors may deem necessary or proper to incur.
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Section 5. Payment of Expenses by Shareholders. The Directors shall
have the power, as frequently as they may determine, to cause each Shareholder,
or each Shareholder of any particular series, to pay directly, in advance or
arrears, for charges of the Trust's custodian or transfer agent, Shareholder
servicing or similar agent, an amount fixed from time to time by the Directors,
by setting off such charges due from such Shareholder from declared but unpaid
dividends owed such Shareholder and/or by reducing the number of Shares in the
account of such Shareholder by that number of full and/or fractional Shares
which represents the outstanding amount of such charges due from such
Shareholder.
Section 6. Ownership of Assets of the Trust. Title to all of the assets
of the Trust shall at all times be considered as vested in the Trust, except
that the Directors shall have power to cause legal title to any Trust Property
to be held by or in the name of one or more of the Directors, or in the name of
the Trust, or in the name of any other Person as nominee, on such terms as the
Directors may determine. The right, title and interest of the Directors in the
Trust Property shall vest automatically in each Person who may hereafter become
a Director. Upon the resignation, removal or death of a Director he or she shall
automatically cease to have any right, title or interest in any of the Trust
Property, and the right, title and interest of such Director in the Trust
Property shall vest automatically in the remaining Directors. Such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered.
Section 7. Service Contracts.
(a) Subject to such requirements and restrictions as may be
set forth in the ByLaws, the Directors may, at any time and from time to time,
contract for exclusive or nonexclusive advisory, management and/or
administrative services for the Trust or for any Series with any corporation,
trust, association or other organization; and any such contract may contain such
other terms as the Directors may determine, including without limitation,
authority for the Investment Manager or administrator to determine from time to
time without prior consultation with the Directors what investments shall be
purchased, held, sold or exchanged and what portion, if any, of the assets of
the Trust shall be held uninvested and to make changes in the Trust's
investments, or such other activities as may specifically be delegated to such
party.
(b) The Directors may also, at any time and from time to time,
contract with any corporation, trust, association or other organization,
appointing it exclusive or nonexclusive distributor or Principal Underwriter for
the Shares of one or more of the Series (or Classes) or other securities to be
issued by the Trust. Every such contract shall comply with such requirements and
restrictions as may be set forth in the By-Laws; and any such contract may
contain such other terms as the Directors may determine.
(c) The Directors are also empowered, at any time and from
time to time, to contract with any corporations, trusts, associations or other
organizations, appointing it or them the custodian, transfer agent and/or
shareholder servicing agent for the Trust or one or more of its
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Series. Every such contract shall comply with such requirements and restrictions
as may be set forth in the By-Laws or stipulated by resolution of the Directors.
(d) The Directors are further empowered, at any time and from
time to time, to contract with any entity to provide other services to the Trust
or one or more of the Series, as the Directors determine to be in the best
interests of the Trust and the applicable Series.
(e) The fact that:
(i) any of the Shareholders, Directors, or officers
of the Trust is a shareholder, director, officer,
partner, director, employee, manager, adviser,
principal underwriter, distributor, or affiliate or
agent of or for any corporation, trust, association,
or other organization or for any parent or affiliate
of any organization with which an advisory,
management or administration contract, or principal
underwriter's or distributor's contract, or transfer,
shareholder servicing or other type of service
contract may have been or may hereafter be made, or
that any such organization, or any parent or
affiliate thereof, is a Shareholder or has an
interest in the Trust, or that
(ii) any corporation, trust, association or other
organization with which an advisory, management or
administration contract or principal underwriter's or
distributor's contract, or transfer, shareholder
servicing or other type of service contract may have
been or may hereafter be made also has an advisory,
management or administration contract, or principal
underwriter's or distributor's contract, or transfer,
shareholder servicing or other service contract with
one or more other corporations, trust, associations,
or other organizations, or has other business or
interests shall not affect the validity of any such
contract or disqualify any Shareholder, Director or
officer of the Trust from voting upon or executing
the same, or create any liability or accountability
to the Trust or its Shareholders, provided approval
of each such contract is made pursuant to the
requirements of the 1940 Act.
ARTICLE V.
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 1. Voting Powers. Subject to the provisions of Article III,
Section 7(d), Shareholders shall have power to vote only (i) for the election or
removal of Directors as provided in Article IV, Section 1, and (ii) with respect
to such additional matters relating to the Trust as may be required by this
Declaration of Trust, the By-Laws or any registration statement of the Trust
filed with the Commission (or any successor agency) or any state, or as the
Directors
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may consider necessary or desirable. Each whole Share shall be entitled to one
vote as to any matter on which it is entitled to vote and each fractional Share
shall be entitled to one vote as to any matter on which it is entitled to vote
and each fractional Share shall be entitled to a proportionate fractional vote.
There shall be no cumulative voting in the election of Directors. Shares may be
voted in person or by proxy. 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 one 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.
The By-Laws may provide that proxies may also, or may instead, be given by any
electronic or telecommunications device or in any other manner. Notwithstanding
anything else contained herein or in the By-Laws, in the event a proposal by
anyone other than the officers or Directors of the Trust is submitted to a vote
of the Shareholders of one or more Series or Classes thereof or of the Trust, or
in the event of any proxy contest or proxy solicitation or proposal in
opposition to any proposal by the officers or Directors of the Trust, Shares may
be voted only in person or by written proxy at a meeting. Until Shares are
issued, the Directors may exercise all rights of Shareholders and may take any
action required by law, this Declaration of Trust or the By-Laws to be taken by
the Shareholders.
Section 2. Voting Power and Meetings. Meetings of the Shareholders may
be called by the Directors for the purpose of electing Directors as provided in
Article IV, Section 1 and for such other purposes as may be prescribed by law,
by this Declaration of Trust or by the ByLaws. Meetings of the Shareholders may
also be called by the Directors from time to time for the purpose of taking
action upon any other matter deemed by the Directors to be necessary or
desirable. A meeting of Shareholders may be held at any place designated by the
Directors. Written notice of any meeting of Shareholders shall be given or
caused to be given by the Directors by mailing such notice at least seven (7)
days before such meeting, postage prepaid, stating the time and place of the
meeting, to each Shareholder at the Shareholder's address as it appears on the
records of the Trust. Whenever notice of a meeting is required to be given to a
Shareholder under this Declaration of trust or the By-Laws, a written waiver
thereof, executed before or after the meeting by such Shareholder or his or her
attorney thereunto authorized and filed with the records of the meeting, shall
be deemed equivalent to such notice.
Section 3. Quorum and Required Vote. Except when a larger quorum is
required by applicable law, by the By-Laws or by this Declaration of Trust,
forty percent (40%) of the Shares entitled to vote shall constitute a quorum at
a Shareholders meeting. When any one or more Series (or Classes) is to vote as a
single Class separate from any other Shares, forty percent (40%) of the Shares
of each such Series (or Classes) entitled to vote shall constitute a quorum at a
Shareholder's meeting of that Series (or Class). Any meeting of Shareholders may
be adjourned from time to time by a majority of the votes properly cast upon the
question of adjourning a meeting to another date and time, whether or not a
quorum is present, and the meeting may be held as adjourned within a reasonable
time after the date set for the original meeting without further notice. Subject
to the provisions of Article III, Section 7(d), when a
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quorum is present at any meeting, a majority of the Shares voted shall decide
any questions and a plurality shall elect a Director, except when a larger vote
is required by any provision of this Declaration of Trust or the By-Laws or by
applicable law. Where any provision of law or of this Declaration of Trust
requires that the holders of any Series (or Class) shall vote as a Series (or
Class) on the matter (or a plurality with respect to the election of a Director)
the vote of a majority of the Shares of the Series (or Class) shall decide that
matter insofar as that Series (or Class) is concerned.
Section 4. Action by Written Consent. Any action taken by Shareholders
may be taken without a meeting if Shareholders holding a majority of the Shares
entitled to vote on the matter (or such larger proportion thereof as shall be
required by any express provision of this Declaration of Trust, by the By-Laws
or by applicable law) and holding a majority (or such larger proportion as
aforesaid) of the Shares of any Series (or Class) entitled to vote separately on
the matter consent to the action in writing and such written consents are filed
with the records of the meetings of Shareholders. Such consent shall be treated
for all purposes as a vote taken at a meeting of Shareholders.
Section 5. Record Dates. For the purpose of determining the
Shareholders of any Series (or Class) entitled to vote or act at any meeting or
any adjournment thereof, the Directors may from time to time fix a time, which
shall be not more than ninety (90) days before the date of any meeting of
Shareholders, as the record date for determining the Shareholders of the Trust,
or of such Series (or Class), having the right to notice of and to vote at such
meeting and any adjournment thereof, and in such case only Shareholders of
record on such record date shall have such right, notwithstanding any transfer
of shares on the books of the Trust after the record date. For the purpose of
determining the Shareholders of any Series (or Class) who are entitled to
receive payment of any dividend or of any other distribution, the Directors may
from time to time fix a date, which shall be before the date for the payment of
such dividend or such other payment, as the record date for determining the
Shareholders of such Series (or Class) having the right to receive such dividend
or distribution. Without fixing a record date the Directors may for voting
and/or distribution purposes close the register or transfer books for one or
more Series for all or any part of the period between a record date and a
meeting of Shareholders or the payment of a distribution. Nothing in this
Section shall be construed as precluding the Directors from setting record dates
for different Series (or Classes).
Section 6. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters.
ARTICLE VI.
NET ASSET VALUE, DISTRIBUTIONS, AND REDEMPTIONS
Section 1. Determination of Net Asset Value, Net Income, and
Distributions. Subject to Article III, Section 7 hereof, the Directors, in their
absolute discretion, may prescribe and shall
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set forth in the By-Laws or in a duly adopted vote of the Directors such bases
and time for determining the per Share or net asset value of the Shares of any
Series (or Class) or net income attributable to the Shares of any Series (or
Class), or the declaration and payment of dividends and distributions on the
Shares of any Series, as they may deem necessary or desirable.
Section 2. Redemptions and Repurchases. The Trust shall purchase such
Shares as are offered by any Shareholder for redemption, upon the presentation
of a proper instrument of transfer together with a request directed to the Trust
or a Person designated by the Trust that the Trust purchase such Shares or in
accordance with such other procedures for redemption as the Directors may from
time to time authorize; and the Trust will pay therefor the net asset value
thereof, in accordance with the By-Laws and applicable law. Payment for said
Shares shall be made by the Trust to the Shareholder within seven days after the
date on which the request is made in proper form. The obligation set forth in
this Section 2 is subject to the provision that in the event that any time the
New York Stock Exchange (the "Exchange") is closed for other than weekends or
holidays, or if permitted by the Commission during periods when trading on the
Exchange is restricted or during any emergency which makes it impracticable for
the Trust to dispose of the investments of the applicable Series or to determine
fairly the value of the net assets held with respect to such Series or during
any other period permitted by order of the Commission for the protection of
investors, such obligations may be suspended or postponed by the Directors. In
the case of a suspension of the right of redemption as provided herein, a
Shareholder may either withdraw the request for redemption or receive payment
based on the net asset value per Share next determined after the termination of
such suspension.
The redemption price may in any case or cases be paid wholly or partly
in kind if the Directors determine that such payment is advisable in the
interest of the remaining Shareholders of the Series for which the Shares are
being redeemed. Subject to the foregoing, the fair value, selection and quantity
of securities or other property so paid or delivered as all or part of the
redemption price may be determined by or under authority of the Directors. In no
case shall the Trust be liable for any delay of any corporation or other Person
in transferring securities selected for delivery as all or part of any payment
in kind.
Section 3. Redemptions at the Option of the Trust. The Directors may
require Shareholders to redeem Shares for any reason under terms set by the
Directors, including, but not limited to, (i) the determination of the Directors
that direct or indirect ownership of Shares of any Series has or may become
concentrated in such Shareholder to an extent that would disqualify any Series
as a regulated investment company under the Internal Revenue Code of 1986, as
amended (or any successor statute thereto), (ii) the failure of a Shareholder to
supply a tax identification number if required to do so, or to have the minimum
investment required (which may vary by Series or Class), or (iii) the failure of
a Shareholder to pay when due for the purchase of Shares issued to him. Any such
redemption shall be effected at the redemption price and in the manner provided
in this Article VI.
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Section 4. Disclosure of Ownership. The holders of Shares shall upon
demand disclose to the Trustees in writing such information with respect to
direct and indirect ownership of Shares as the Trustees deem necessary to comply
with the provisions of the Internal Revenue Code of 1986, as amended (or any
successor statute thereto), or to comply with the requirements of any other
taxing authority or other applicable law.
ARTICLE VII.
COMPENSATION AND LIMITATION OF LIABILITY OF DIRECTORS
Section 1. Compensation. The Directors as such shall be entitled to
reasonable compensation from the Trust, and they may fix the amount of such
compensation. Nothing herein shall in any way prevent the employment of any
Director for the advisory, management, legal, accounting, investment banking or
other services and payment for the same by the Trust.
Section 2. Standard of Care. The fiduciary duties of Directors to the
Trust and its Shareholders are the same as those of the directors of a Delaware
corporation to the corporation and its shareholders.
Section 3. Indemnification and Limitation of Liability. A Director,
when acting in such capacity, shall not be personally liable to any Person,
other than the Trust or a Shareholder to the extent provided in this Article
VII, for any act, omission or obligation of the Trust, of such Director, or of
any other Director. A Director shall not be personally liable for monetary
damages for breach of fiduciary duty as a trustee except in cases in which (i)
the Director breaches the duty of loyalty to the Trust or its Shareholders, (ii)
an act or omission not in good faith or that involves intentional misconduct or
a knowing violation of law, (iii) the Director derived an improper personal
benefit. The Directors shall not be responsible or liable in any event for any
neglect or wrong-doing of any officer, agent, employee, Manager or Principal
Underwriter of the Trust, nor shall any Director be responsible for the act or
omission of any other Director. The Trust shall indemnify each Person who is, or
has been, a Director, a trustee, officer, employee or agent of the Trust, any
Person who is serving or has served at the Trust's request as a director,
officer, trustee, employee or agent of another organization in which the Trust
has any interest as a shareholder, creditor or otherwise to the extent and in
the manner provided in the By-Laws.
All persons extending credit to, contracting with or having any claim
against the Trust or the Directors shall look only to the assets of the
appropriate Series, or, if the Directors have yet to establish Series, of the
Trust for payment under such credit, contract or claim; and neither the
Directors nor the Shareholders, nor any of the Trust's officers, employees or
agents, whether past, present or future, shall be personally liable therefor.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever executed or done by or on behalf of the
Trust or Directors by any of them in
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connection with the Trust shall conclusively be deemed to have been executed or
done only in or with respect to his or their capacity as Director or Directors,
and such Director or Directors shall not be personally liable thereon. At the
Directors' discretion, any note, bond, contract, instrument, certificate or
undertaking made or issued by the Directors or by any officer or officers may
give notice that the Certificate of Trust is on file in the Office of the
Secretary of State or the State of Delaware and that a limitation on liability
of Series exists and such note, bond, contract, instrument, certificate or
undertaking may, if the Directors so determine, recite that the same was
executed or made on behalf of the Trust or by a Director or Directors in such
capacity and not individually or by an officer or officers in such capacity and
not individually and that the obligations of such instrument are not binding
upon any of them or the Shareholders individually but are binding only on the
assets and property of the Trust or a Series thereof, and may contain such
further recital as such Person or Persons may deem appropriate. The omission of
any such notice or recital shall in no way operate to bind any Directors,
officers or Shareholders individually.
Section 4. Director's Good Faith Action, Expert Advice, No Bond or
Surety. The exercise by the Directors of their powers and discretions hereunder
shall be binding upon everyone interested. A Director shall be liable to the
Trust and to any Shareholder solely for this or her own willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Director, and shall not be liable for errors of
judgment or mistakes of fact or law. The Directors may take advice of counsel or
other experts with respect to the meaning and operation of this Declaration of
Trust, and shall be under no liability for any act or omission in accordance
with such advice nor for failing to follow such advice. The Directors shall not
be required to give any bond as such, nor any surety if a bond is required.
Section 5. Insurance. The Directors shall be entitled and empowered to
the fullest extent permitted by law to purchase with Trust assets insurance for
liability and for all expenses reasonably incurred or paid or expected to be
paid by a Director or officer in connection with any claim, action, suit or
proceeding in which he or she becomes involved by virtue of his or her capacity
or former capacity with the Trust, whether or not the Trust would have the power
to indemnify him or her against such liability under the provisions of this
Article.
ARTICLE VIII.
MISCELLANEOUS
Section 1. Liability of Third Persons Dealing with Directors. No Person
dealing with the Directors shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Directors or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
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Section 2. Termination of Trust or Series.
(a) Unless terminated as provided herein, the Trust shall
continue without limitation of time. The Trust may be terminated at any time by
vote of a majority of the Shares of each Series entitled to vote, voting
separately by Series, or by the Directors by written notice to the Shareholders.
Any Series or Class may be terminated at any time by vote of a majority of the
Shares of that Series or Class entitled to vote, or by the Directors by written
notice to the Shareholders of that Series or Class.
(b) Upon the requisite Shareholder vote or action by the
Directors to terminate the Trust or any one or more Series of Shares or any
Class thereof, after paying or otherwise providing for all charges, taxes,
expenses and liabilities, whether due or accrued or anticipated, of the Trust or
of the particular Series of any Class thereof as may be determined by the
Directors, the Trust shall, in accordance with such procedures as the Directors
consider appropriate, reduce the remaining assets of the Trust or of the
affected Series or Class to distributable form in cash or Shares (if any Series
remain) or other securities, or any combination thereof, and distribute the
proceeds to the Shareholders of the Series or Classes involved, ratably
according to the number of Shares of such Series or Class held by the several
Shareholders of such Series or Class on the date of distribution. Thereupon, the
Trust or any affected Series or Class shall terminate and the Directors and the
Trust shall be discharged of any and all further liabilities and duties relating
thereto or arising therefrom, and the right, title and interest of all parties
with respect to the Trust or such Series or Class shall be canceled and
discharged.
(c) Upon termination of the Trust, following completion of
winding up of its business, the Directors shall cause a certificate of
cancellation of the Trust's Certificate of Trust to be filed in accordance with
the Delaware Act, which certificate of cancellation may be signed by any one
Director.
Section 3. Reorganization and Master/Feeder.
(a) Notwithstanding anything else herein, the Directors may,
without Shareholder approval unless such approval is required by applicable law.
(i) cause the Trust to merge or consolidate with or
into one or more trusts (or series thereof to the extent permitted by law),
partnerships, associations, corporations or other business entities (including
trusts, partnerships, associations, corporations or other business entities
created by the Directors to accomplish such merger or consolidation) so long as
the surviving or resulting entity is an open-end management investment company
under the 1940 Act, or is a series thereof, that will succeed to or assume the
Trust's registration under the 1940 Act and that is formed, organized or
existing under the laws of the United States or of a state, commonwealth,
possession or colony of the United States;
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<PAGE> 21
(ii) cause the Shares to be exchanged under or
pursuant to any state or federal statute to the extent permitted by law; or
(iii) cause the Trust to incorporate under the laws
of Delaware. Any agreement of merger or consolidation or exchange or certificate
of merger may be signed by a majority of the Directors and facsimile signatures
conveyed by electronic or telecommunication means shall be valid.
(b) Pursuant to and in accordance with the provisions of
Section 3815(f) of the Delaware Act, and notwithstanding anything to the
contrary contained in this Declaration of Trust, an agreement of merger or
consolidation approved by the Directors in accordance with this Section 3 may
effect any amendment to the governing instrument of the Trust or effect the
adoption of a new instrument of the Trust if the Trust is the surviving or
resulting trust in the merger or consolidation.
(c) The Directors may create one or more business trusts to
which all or any part of the assets, liabilities, profits or losses of the Trust
or any Series or Class thereof may be transferred and may provide for the
conversion of Shares in the Trust or any Series or Class thereof into beneficial
interests in any such newly created trust or trusts or any series or classes
thereof.
(d) Notwithstanding anything else herein, the Directors may,
without Shareholder approval, invest all or a portion of the Trust Property of
any Series, or dispose of all or a portion of the Trust Property of any Series,
and invest the proceeds of such disposition in interests issued by one or more
other investment companies registered under the 1940 Act. Any such other
investment company may (but need not) be a trust (formed under the laws of the
State of Delaware or any other state or jurisdiction) (or subtrust thereof)
which is classified as a partnership for federal income tax purposes.
Notwithstanding anything else herein, the Directors may, without Shareholder
approval unless such approval is required by applicable law, cause a Series that
is organized in the master/feeder fund structure to withdraw or redeem its Trust
Property from the master fund and cause such Series to invest its Trust Property
directly in securities and other financial instruments or in another master
fund.
Section 4. Amendments. Except as specifically provided in this Section,
the Directors may, without Shareholder vote, restate, amend or otherwise
supplement this Declaration of Trust. Shareholders shall have the right to vote:
(i) on any amendment that would affect their right to
vote granted in Article V, Section 1 hereof;
(ii) on any amendment to this Section 4 Article VIII;
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(iii) on any amendment for which a Shareholder vote
may be required by applicable law or by the Trust's registration statement filed
with the Commission; and
(iv) on any amendment submitted to them by the
Directors. Any amendment required or permitted to be submitted to the
Shareholders that, as the Directors determine, shall affect the Shareholders of
one or more Series (or Class) shall be authorized by a vote of the Shareholders
of each Series (or Class) affected and no vote of Shareholders of a Series (or
Class) not affected shall be required. Notwithstanding anything else herein, no
amendment hereof or shall limit the rights to indemnification referred in
Article VII, Section 3 hereof or as provided in the By-Laws with respect to any
actions or omissions of Persons covered thereby prior to such amendment. The
Directors may, without Shareholder vote, restate, amend, or otherwise supplement
the Certificate of Trust as they deem necessary or desirable.
Section 5. Filing of Copies, References, Headings. The original or a
copy of this instrument and of each restatement and/or amendment hereto shall be
kept at the office of the Trust where it may be inspected by any Shareholder.
Anyone dealing with the Trust may rely on a certificate by an officer of the
Trust as to whether or not any such restatements and/or amendments have been
made and as to any matters in connection with the Trust hereunder; and, with the
same effect as if it were the original, may rely on a copy certified by an
officer of the Trust to be a copy of this instrument or of any such restatements
and/or amendments. Headings are placed herein for convenience of reference only
and shall not be taken as a part hereof or control or affect the meaning,
construction or effect of this instrument. Whenever the singular number is used
herein, the same shall include the plural; and the neuter, masculine and
feminine genders shall include each other, as applicable. This instrument may be
executed in any number of counterparts each of which shall be deemed an
original.
Section 6. Applicable Law.
(a) The Trust is created under, and this Declaration of Trust
is to be governed by, and construed and enforced in accordance with, the laws of
the State of Delaware. The Trust shall be of the type commonly called a business
trust, and without limiting the provisions hereof, the Trust specifically
reserves the right to exercise any of the powers or privileges afforded to
business trusts or actions that may be engaged in by business trusts under the
Delaware Act, and the absence of a specific reference herein to any such power,
privilege or action shall not imply that the Trust may not exercise such power
or privilege or take such actions.
(b) Notwithstanding the first sentence of Section 6(a) of this
Article VIII, there shall not be applicable to the Trust, the Trustees or this
Declaration of Trust (x) the provisions of Section 3540 of Title 12 of the
Delaware Code or (y) any provisions of the laws (statutory or common) of the
State of Delaware (other than the Delaware Act) pertaining to trusts that relate
to or regulate:
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<PAGE> 23
(i) the filing with any court or governmental body
or agency of trustee accounts or schedules of trustee fees and charges;
(ii) affirmative requirements to post bonds for
trustees, officers, agents or employees of the trust;
(iii) the necessity for obtaining a court or other
governmental approval concerning the acquisition, holding or disposition of real
or personal property;
(iv) fees or other sums applicable for trustees,
officers, agents or employees of a trust;
(v) the allocation of receipts and expenditures to
income or principal;
(vi) restrictions or limitations on the permissible
nature, amount or concentration of trust investments or requirements relating to
the titling, storage or other manner of holding of trust assets; or
(vii) the establishment of fiduciary or other
standards or responsibilities or limitations on the acts or powers of trustees
that are inconsistent with the limitations or liabilities or authorities and
powers of the Directors set forth or referenced in this Declaration of Trust.
Section 7. Provisions in Conflict with Law or Regulations.
(a) The provisions of this Declaration of Trust are severable,
and if the Directors shall determine, with the advice of counsel, that any of
such provisions is in conflict with the 1940 Act, the regulated investment
company provisions of the Internal Revenue Code or with other applicable laws
and regulations, the conflicting provision shall be deemed never to have
constituted a part of this Declaration of Trust; provided, however, that such
determination shall not affect any of the remaining provisions of this
Declaration of Trust or render invalid or improper any action taken or omitted
prior to such determination.
(b) If any provision of this Declaration of Trust shall be
held invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction and
shall not in any manner affect such provision in any other jurisdiction or any
other provision of this Declaration of Trust in any jurisdiction.
Section 8. Business Trust Only. It is the intention of the Directors to
create a business trust pursuant to the Delaware Act, and thereby to create only
the relationship of Director and beneficial owners within the meaning of such,
Delaware Act between the Directors and each Shareholder. It is not the intention
of the Directors to create a general partnership, limited
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<PAGE> 24
partnership, joint stock association, corporation, bailment, or any form of
legal relationship other than a business trust pursuant to such Delaware Act.
Nothing in this Declaration of Trust shall be construed to make the
Shareholders, either by themselves or with the Directors, partners or members of
a joint stock association.
Section 9. Derivative Actions. In addition to the requirements set
forth in Section 3816 of the Delaware Act, a Shareholder may bring a derivative
action on behalf of the Trust only if the following conditions are met:
(a) The Shareholder or Shareholders must make a pre-suit
demand upon the Directors to bring the subject action unless an effort to cause
the Directors to bring such an action is not likely to succeed. For purposes of
this Section 9(a), a demand on the Directors shall only be deemed not likely to
succeed and therefore excused if a majority of the Board of Directors, or a
majority of any committee established to consider the merits of such action, has
a personal financial interest in the transaction at issue, and a Director shall
not be deemed interested in a transaction or otherwise disqualified from ruling
on the merits of a Shareholder demand by virtue of the fact that such Director
receives remuneration for his service on the Board of Directors of the Trust or
on the boards of one or more Trusts that are under common management with or
otherwise affiliated with the Trust.
(b) Unless a demand is not required under paragraph (a) of
this Section 9, Shareholders eligible to bring such derivative action under the
Delaware Act who hold at least 10% of the outstanding Shares of the Trust, or
10% of the outstanding Shares of the Series or Class to which such action
relates, shall join in the request for the Directors to commence such action;
and
(c) Unless a demand is not required under paragraph (a) of
this Section 9, the Directors must be afforded a reasonable amount of time to
consider such Shareholder request and to investigate the basis of such claim.
The Directors shall be entitled to retain counsel or other advisors in
considering the merits of the request and shall require an undertaking by the
Shareholders making such request to reimburse the Trust for the expense of any
such advisors in the event that the Directors determine not to bring such
action.
For the purposes of this Section 9, the Board of
Directors may designate a committee of one Director to consider a Shareholder
demand if necessary to create a committee with a majority of Directors who do
not have a personal financial interest in the transaction at issue. The
Directors shall be entitled to retain counsel or other advisors in considering
the merits of the request and shall require an undertaking by the Shareholders
making such request to reimburse the Trust for the expense of any such advisors
in the event that the Directors determine not to bring such action.
Section 10. Use of the name "Commonfund Institutional Funds" or
"Commonfund". The name "Commonfund Institutional Funds" or "Commonfund" and all
rights to the use of the
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<PAGE> 25
name "Commonfund Institutional Funds" or "Commonfund" belong to Commonfund for
NonProfit Organizations ("Commonfund NPO") the sponsor of the Trust. Commonfund
NPO has consented to the use by the Trust of the identifying word "Commonfund"
and has granted to the Trust a non-exclusive license to use the name
"Commonfund" as part of the name of the Trust and the name of any Series of
Shares. In the event an affiliate of Commonfund NPO is not appointed as Manager
and/or Principal Underwriter or ceases to be the Manager and/or Principal
Underwriter of the Trust or of any Series using such names, the non-exclusive
license granted herein may be revoked by Commonfund NPO and the Trust shall
cease using the name "Commonfund" as part of its name or the name of any Series
of Shares, unless otherwise consented to by or any successor to its interests in
such names.
[the remainder of this page left intentionally blank]
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<PAGE> 26
IN WITNESS WHEREOF, the Director named below does hereby make and enter
into this Declaration of Trust as of the 7th day of August, 1999.
/s/ Robert L. Bovinette
- -------------------------------
Robert L. Bovinette
THE PRINCIPAL PLACE OF BUSINESS OF THE TRUST IS:
450 Post Road East
Westport, CT 06881
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<PAGE> 27
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I Names and Definitions.................................................................................. 1
Section 1. Name............................................................................... 1
Section 2. Definitions........................................................................ 1
ARTICLE II Purpose of the Trust.................................................................................. 3
ARTICLE III Shares............................................................................................... 3
Section 1. Division of Beneficial Interest.................................................... 3
Section 2. Ownership of Shares................................................................ 4
Section 3. Transfer of Shares................................................................. 4
Section 4. Investments in the Trust........................................................... 4
Section 5. Status of Shares and Limitation of Personal Liability.............................. 4
Section 6. Power of Board of Directors to Change Provisions
Relating to Shares............................................................................. 5
Section 7. Establishment and Designation of Shares............................................ 5
Section 8. Indemnification of Shareholders................................................... 8
ARTICLE IV The Board of Directors................................................................................ 8
Section 1. Number, Election and Tenure....................................................... 8
Section 2. Effect of Death, Resignation, etc. of a Director................................... 9
Section 3. Powers............................................................................. 9
Section 4. Payment of Expenses by the Trust................................................... 12
Section 5. Payment of Expenses by Shareholders................................................ 13
Section 6. Ownership of Assets of the Trust. ................................................. 13
Section 7. Service Contracts.................................................................. 13
ARTICLE V. Shareholders' Voting Powers and Meetings.............................................................. 14
Section 1. Voting Powers...................................................................... 14
Section 2. Voting Power and Meetings.......................................................... 15
Section 3. Quorum and Required Vote........................................................... 15
Section 4. Action by Written Consent.......................................................... 16
Section 5. Record Dates....................................................................... 16
Section 6. Additional Provisions.............................................................. 16
ARTICLE VI. Net Asset Value, Distributions, and Redemptions...................................................... 16
Section 1. Determination of Net Asset Value, Net Income, and Distributions.................... 16
Section 2. Redemptions and Repurchases........................................................ 17
Section 3. Redemptions at the Option of the Trust............................................. 17
Section 4. Disclosure of Ownership............................................................ 18
</TABLE>
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<PAGE> 28
<TABLE>
<S> <C>
ARTICLE VII. Compensation and Limitation of Liability of Directors............................................... 18
Section 1. Compensation....................................................................... 18
Section 2. Standard of Care................................................................... 18
Section 3. Indemnification and Limitation of Liability........................................ 18
Section 4. Director's Good Faith Action, Expert Advice,
No Bond or Surety.............................................................................. 19
Section 5. Insurance. ........................................................................ 19
ARTICLE VIII. Miscellaneous...................................................................................... 19
Section 1. Liability of Third Persons Dealing with Directors.................................. 19
Section 2. Termination of Trust or Series..................................................... 20
Section 3. Reorganization and Master/Feeder................................................... 20
Section 4. Amendments......................................................................... 21
Section 5. Filing of Copies, References, Headings............................................. 22
Section 6. Applicable Law..................................................................... 22
Section 7. Provisions in Conflict with Law or Regulations..................................... 23
Section 8. Business Trust Only................................................................ 23
Section 9. Derivative Actions................................................................. 24
Section 10. Use of the name "Commonfund Institutional Funds" or
"Commonfund"................................................................................... 24
</TABLE>
28
<PAGE> 1
BY-LAWS
OF
COMMONFUND INSTITUTIONAL FUNDS
ARTICLE I
Agreement and Declaration of Trust
SECTION 1. AGREEMENT AND DECLARATION OF TRUST. These By-Laws shall be
subject to the Agreement and Declaration of Trust, as from time to time amended,
supplemented or restated (the "Declaration of Trust") of Commonfund
Institutional Funds (the "Trust").
SECTION 2. DEFINITIONS. Unless otherwise defined herein, the terms used
herein have the respective meanings given them in the Declaration of Trust.
ARTICLE II
Offices
SECTION 1. PRINCIPAL OFFICE. The principal office of the Trust shall be
located in the City of Westport, State of Connecticut or such other location as
the Directors may from time to time determine.
SECTION 2. REGISTERED OFFICE AND OTHER OFFICES. The registered office
of the Trust shall be located in the City of Wilmington, State of Delaware or
such other location within the State of Delaware as the Directors may from time
to time determine. The Trust may establish and maintain such other offices and
places of business as the Directors may from time to time determine.
ARTICLE III
Shareholders
SECTION 1. MEETINGS. Meetings of the Shareholders shall be held at the
principal executive offices of the Trust or at such other place within the
United States of America as the Directors shall designate. Meetings of the
Shareholders shall be called by the Secretary whenever (i) ordered by the
Directors or (ii) for the purpose of voting on the removal of any Director,
requested in writing by Shareholders holding at least ten percent (10%) of the
<PAGE> 2
outstanding Shares entitled to vote. If the Secretary, when so ordered or
requested, refuses or neglects for more than 10 days to call such meetings, the
Directors or the Shareholders so requesting, may, in the name of the Secretary,
call the meeting by giving notice thereof in the manner required when notice is
given by the Secretary.
SECTION 2. NOTICE OF MEETINGS. Notice of all meetings of the
Shareholders, stating the time, place and purposes of the meeting, shall be
given by the Secretary by delivering or mailing, postage prepaid, to each
Shareholder at his or her address as recorded on the register of the Trust at
least (10) days and not more than ninety (90) days before the meeting. Any
adjourned meeting may be held as adjourned without further notice. No notice
need be given to any Shareholder who shall have failed to inform the Trust of
his or her current address or if a written waiver of notice, executed before or
after the meeting by the Shareholder or his or her authorized attorney is filed
with the records of the meeting.
SECTION 3. RECORD DATE FOR MEETINGS. For the purpose of determining the
Shareholders who are entitled to notice of and to vote at any meeting, the
Directors may from time to time close the transfer books for such period, not
exceeding thirty (30) days, as the Directors may determine; or without closing
the transfer books the Directors may fix a date not more than ninety (90) days
prior to the date of any meeting of Shareholders as a record date for the
determination of the persons to be treated as Shareholders of record for such
purpose.
SECTION 4. PROXIES. At any meeting of Shareholders, any holder of
Shares entitled to vote thereat may vote by proxy, provided that no proxy shall
be voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken;
provided, however, that notwithstanding any other provision of this Section 4 to
the contrary, the Directors may at any time adopt one or more electronic,
telecommunication or other alternatives to execution of a written instrument
that will enable holders of Shares entitled to vote at any meeting to appoint a
proxy to vote such holders' Shares at such meeting. Proxies may be solicited in
the name of one or more Directors or one or more of the officers of the Trust.
Only Shareholders of record shall be entitled to vote. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled by the Declaration
of Trust to vote, and each fractional Share shall be entitled to a proportionate
fractional vote. When any Share is held jointly by several persons, any one of
them may vote at any meeting in person or by proxy in respect of such Share, but
if more than one of them shall be present at such meeting in person or by proxy,
and such joint owners or their proxies so present disagree as to any vote to be
cast, such vote shall not be received in respect of such Share. 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. If the holder of any such Share is a
minor or a person of unsound mind, and subject to guardianship or the legal
control of any other person as regards the charge or management of such Share,
he or she may vote by his or her guardian or such other person appointed or
having such control, and such vote may be given in person or by proxy. At all
meetings of the Shareholders, unless the voting is conducted by inspectors, all
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<PAGE> 3
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. Except as otherwise provided herein or in the Declaration of Trust, all
matters relating to the giving, voting or validity of proxies shall be governed
by the General Corporation Law of the State of Delaware relating to proxies, and
judicial interpretations thereunder, as if the Trust were a Delaware corporation
and the Shareholders were shareholders of a Delaware corporation.
SECTION 5. INSPECTION OF BOOKS. The Directors shall from time to time
determine whether and to what extent, and at what times and places, and under
what conditions and regulations the accounts and books of the Trust or any of
them shall be open to the inspection of the Shareholders; and no Shareholder
shall have any right to inspect any account or book or document of the Trust
except as conferred by law or otherwise by the Directors or by resolution of the
Shareholders.
SECTION 6. ACTION WITHOUT MEETING. Any action that may be taken at any
meeting of Shareholders may be taken without a meeting and without prior notice
if a consent in writing setting forth the action so taken is signed by the
holders of outstanding Shares having not less than the minimum number of votes
that would be necessary to authorize or take that action at a meeting at which
all Shares entitled to vote on that action were present and voted. All such
consents shall be filed with the records of Shareholder meetings. Such consents
shall be treated for all purposes as a vote taken at a meeting of Shareholders.
SECTION 7. APPLICATION OF THIS ARTICLE. Meetings of Shareholders shall
consist of Shareholders of any Series (or Class thereof) or of all Shareholders,
as determined pursuant to the Declaration of Trust, and this Article shall be
construed accordingly.
ARTICLE IV
Directors
SECTION 1. MEETINGS OF THE DIRECTORS. The Directors may in their
discretion provide for regular or stated meetings of the Directors. Notice of
regular or stated meetings need not be given, except as may be required by
applicable law. Meetings of the Directors other than regular or stated meetings
shall be held whenever called by the Chairman, the President, or by any two of
the Directors, at the time being in office. Notice of the time and place of each
meeting other than regular or stated meetings shall be given by the Secretary or
an Assistant Secretary or by the officer or Directors calling the meeting and
shall be delivered or mailed, postage prepaid, to each Director at least two
days before the meeting, or shall be telegraphed, cabled, wired, or delivered by
equivalent electronic means, to each Director at his or her business address, or
personally delivered to him or her, at least one day before the meeting. Such
notice may, however, be waived by any Director. Notice of a meeting need not be
given to any Director if a written waiver of notice, executed by him or her
before the meeting, is filed with the records of the
3
<PAGE> 4
meeting, or to any Director who attends the meeting without protesting prior
thereto or at its commencement the lack of notice to him or her. A notice or
waiver of notice need not specify the purpose of any meeting, except as may be
required by applicable law. The Directors may meet by means of a telephone
conference circuit or similar communications equipment by means of which all
persons participating in the meeting are connected, which meeting shall be
deemed to have been held at a place designated by the Directors at the meeting.
Participation in a telephone conference meeting shall constitute presence in
person at such meeting. Any action required or permitted to be taken at any
meeting of the Directors may be taken by the Directors without a meeting if a
majority of the Directors then in office (or such higher number of Directors as
would be required to act on the matter under the Declaration of Trust, these
By-Laws or applicable law if a meeting were held) consent to the action in
writing and the written consents are filed with the records of the Directors'
meetings. Such consents shall be treated for all purposes as a vote taken at a
meeting of the Directors. Notwithstanding the foregoing, all actions of the
Directors shall be taken in compliance with the provisions of the Investment
Company Act of 1940, as amended.
SECTION 2. QUORUM AND MANNER OF ACTING. A majority of the Directors
then in office shall constitute a quorum for the transaction of business. If at
any meeting of the Directors there shall be less than a quorum present, a
majority of those present may adjourn the meeting from time to time until a
quorum shall be obtained. Notice of an adjourned meeting need not be given. The
act of the majority of the Directors present at any meeting at which there is a
quorum shall be the act of the Directors, except as may be otherwise
specifically provided by law or by the Declaration of Trust or by these By-Laws.
ARTICLE V
Committees
SECTION 1. EXECUTIVE, NOMINATING, AUDIT AND OTHER COMMITTEES. The
Directors by vote of a majority of all the Directors may elect from their own
number an Executive Committee to consist of not less than three (3) Directors to
hold office at the pleasure of the Directors, which shall have the power to
conduct the current and ordinary business of the Trust while the Directors are
not in session, including the purchase and sale of securities and the
designation of securities to be delivered upon redemption of Shares of the
Trust, and such other powers of the Directors as the Directors may, from time to
time, delegate to them except those powers by law, the Declaration of Trust or
these By-Laws they are prohibited from delegating. The Directors may also elect
from their own number or otherwise other Committees from time to time, the
number composing such Committees, the powers conferred upon the same (subject to
the same limitations as with respect to the Executive Committee) and the terms
of membership on such Committees to be determined by the Directors. Such
committees shall include a Nominating and Compensation Committee and an Audit
Committee. The Directors may designate a chairman of any Committee. In the
absence of such designation the Committee may elect its own chairman.
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<PAGE> 5
SECTION 2. MEETINGS, QUORUM AND MANNER OF ACTING. The Directors may (1)
provide for stated meetings of any Committees, (2) specify the manner of calling
and notice required for a special meeting of any Committee, (3) specify the
number of members of a Committee required to constitute a quorum.
ARTICLE VI
Officers
SECTION 1. GENERAL PROVISIONS. The officers of the Trust shall be a
President, a Treasurer and a Secretary, who shall be elected by the Directors.
The Directors may elect or appoint such other officers or agents as the business
of the Trust may require, including a Chairman of the Board ("Chairman"), Vice
Chairman, one or more Vice Presidents, one or more Assistant Secretaries, and
one or more Assistant Treasurers. The Directors may delegate to any officer or
Committee the power to appoint any subordinate officers or agents.
SECTION 2. TERM OF OFFICE AND QUALIFICATIONS. Except as otherwise
provided by law, the Declaration of Trust or these By-Laws, the President, the
Treasurer and the Secretary, and all other officers shall hold office at the
pleasure of the Directors. The Secretary and Treasurer may be the same person. A
Vice President and the Treasurer or a Vice President and the Secretary may be
the same person, but the offices of Vice President, Secretary and Treasurer
shall not be held by the same person. The President shall hold no other office,
but may be a Director of the Trust. Except as above provided, any two offices
may be held by the same person. The Chairman, if such an officer is elected,
shall be a Director and may, but need not be, a Shareholder. Any other officer
may be, but none need be, a Director or Shareholder.
SECTION 3. REMOVAL. The Directors, at any regular or special meeting of
the Directors, may remove any officer with or without cause, by a vote of a
majority of the Directors then in office. Any officer or agent appointed by an
officer or committee may be removed with or without cause by such appointing
officer or committee.
SECTION 4. POWERS AND DUTIES OF THE CHAIRMAN. The Chairman, if such an
officer is elected, shall, if present, preside at meetings of the Shareholders
and the Directors, and shall, subject to the control of the Directors, have
general supervision, direction and control of the business and the officers of
the Trust and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Directors or prescribed by the Declaration
of Trust or these By-Laws. In the absence of the Chairman, the Vice Chairman, if
such an officer is elected, shall assume all powers and duties assigned to the
Chairman hereunder.
SECTION 5. POWERS AND DUTIES OF THE PRESIDENT. Subject to the powers of
the Chairman, if there be such an officer, the President shall be the principal
executive officer of the Trust. He or she may call meetings of the Directors and
of any Committee thereof when he or she deems it
5
<PAGE> 6
necessary and, in the absence of the Chairman, shall preside at all meetings of
the Shareholders. Subject to the control of the Directors, the Chairman and any
Committees of the Directors, within their respective spheres, as provided by the
Directors, the President shall at all times exercise a general supervision and
direction over the affairs of the Trust. The President shall have the power to
employ attorneys and counsel for the Trust and to employ such subordinate
officers, agents, clerks and employees as he or she may find necessary to
transact the business of the Trust. He or she shall also have the power to
grant, issue, execute or sign such powers of attorney, proxies or other
documents as may be deemed advisable or necessary in furtherance of the
interests of the Trust. The President shall have such powers and duties as from
time to time may be conferred upon or assigned to him or her by the Directors.
SECTION 6. POWERS AND DUTIES OF THE VICE PRESIDENT. In the absence or
disability of the President, the Vice President or, if there be more than one
Vice President, any Vice President designated by the Directors shall perform all
the duties and may exercise any of the powers of the President, subject to the
control of the Directors. Each Vice President shall perform such other duties as
may be assigned to him or her from time to time by the Directors or the
President.
SECTION 7. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall be
the principal financial and accounting officer of the Trust. The Treasurer shall
deliver all funds of the Trust which may come into his or her hands to such
Custodian as the Directors may employ pursuant to Article X of these By-Laws. He
or she shall render a statement of condition of the finances of the Trust to the
Directors as often as they shall require the same and he or she shall in general
perform all the duties incident to the office of Treasurer and such other duties
as from time to time may be assigned to him or her by the Directors. The
Treasurer shall give a bond for the faithful discharge of his or her duties, if
required so to do by the Directors, in such sum and with such surety or sureties
as the Directors shall require.
SECTION 8. POWERS AND DUTIES OF THE SECRETARY. The Secretary shall keep
the minutes of all meetings of the Directors and of the Shareholders in proper
books provided for that purpose; he or she shall have custody of the seal of the
Trust; he or she shall have charge of the Share transfer books, lists and
records unless the same are in the charge of the Transfer Agent. The Secretary
shall attend to the giving and serving of all notices by the Trust in accordance
with the provisions of these By-Laws and as required by law; and subject to
these By-Laws, he or she shall in general perform all duties incident to the
office of the Secretary and such other duties as from time to time may be
assigned to him or her by the Directors.
SECTION 9. POWERS AND DUTIES OF ASSISTANT TREASURERS. In the absence or
disability of the Treasurer, any Assistant Treasurer designated by the Directors
shall perform all the duties, and may exercise any of the powers, of the
Treasurer. Each Assistant Treasurer shall give a bond for the faithful discharge
of his or her duties, if required so to do by the Directors, in such sum and
with such surety or sureties as the Directors shall require.
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SECTION 10. POWERS AND DUTIES OF ASSISTANT SECRETARIES. In the absence
or disability of the Secretary, any Assistant Secretary designated by the
Directors shall perform all the duties, and may exercise any of the powers, of
the Secretary. Each Assistant Secretary shall perform such other duties as from
time to time may be assigned to him or her by the Directors.
SECTION 11. COMPENSATION OF DIRECTORS. Directors shall receive such
compensation, including stated salaries, retirement benefits, deferred
compensation or any other form of compensation, as may be set from time to time
by the Board of Directors or by the Nominating and Compensation Committee. The
Trust is authorized to pay the necessary expenses of members of the Board of
Directors incurred in connection with the performance of the official duties of
their office.
SECTION 12. COMPENSATION OF OFFICERS. Subject to any applicable
provisions of the Declaration of Trust, the compensation of the officers shall
be fixed from time to time by the Directors or by any Committee or officer upon
whom such power may be conferred by the Directors. No officer shall be prevented
from receiving such compensation as such officer by reason of the fact that he
or she is also a Director.
ARTICLE VII
Fiscal Year
The fiscal year of the Trust shall end on such date as the Directors shall from
time to time determine.
ARTICLE VIII
Seal
The Directors may adopt a seal which shall be in such form and shall
have such inscription thereon as the Directors may from time to time prescribe.
ARTICLE IX
Waivers of Notice
Whenever any notice whatever is required to be given by law, the Declaration of
Trust or these By-Laws, a waiver thereof in writing, signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. A notice shall be deemed to have
been telegraphed, cabled or wired for the purposes of these By-Laws when it
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has been delivered to a representative of any telegraph, cable or wire company
with instructions that it be telegraphed, cabled or wired.
ARTICLE X
Custody of Securities
SECTION 1. EMPLOYMENT OF A CUSTODIAN. The Trust shall place and at all
times maintain in the custody of a Custodian (including any sub-custodian for
the Custodian) all funds, securities and similar investments included in the
Trust Property. The Custodian (and any sub-custodian) shall be a bank or other
depository meeting such requirements as may be set forth in the Investment
Company Act of 1940 and other applicable law and regulations for institutions
serving as custodians of funds held by registered investment companies. The
Custodian shall be appointed from time to time by the Directors, who shall fix
its remuneration.
SECTION 2. ACTION UPON TERMINATION OF CUSTODIAN AGREEMENT. Upon
termination of a Custodian Agreement or inability of the Custodian to continue
to serve, the Directors shall promptly appoint a successor Custodian, but in the
event that no successor Custodian can be found who has the required
qualifications and is willing to serve, the Directors shall call as promptly as
possible a special meeting of the Shareholders to determine whether the Trust
shall function without a Custodian or shall be liquidated. If so directed by a
vote of holders of the majority of the outstanding Shares entitled to vote, the
Custodian shall deliver and pay over all Trust Property held by it as specified
in such vote.
SECTION 3. PROVISIONS OF CUSTODIAN CONTRACT. The Custodian contract
shall contain such provisions as may be required in the case of such
arrangements by the Investment Company Act of 1940 and rules and regulations
adopted thereunder.
SECTION 4. CENTRAL CERTIFICATE SYSTEM. Subject to applicable rules,
regulations and orders adopted by the Commission, the Directors 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 national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, 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.
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ARTICLE XI
Indemnification of Directors, Officers, Employees and Other Agents
SECTION 1. AGENTS, PROCEEDINGS, EXPENSES. For the purpose of this
Article, "agent" means any Person who is or was a Director, officer, employee or
other agent of the Trust or is or was serving at the request of the Trust as a
director, officer, employee or agent of another organization in which the Trust
has any interest as a shareholder, creditor or otherwise; "proceeding" means any
threatened, pending or completed claim, action, suit or proceeding, whether
civil, criminal, administrative or investigative (including appeals);and
"expenses" includes, without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and all other liabilities
whatsoever.
SECTION 2. INDEMNIFICATION. Subject to the exceptions and limitation
contained in Section 3 below, every agent shall be indemnified by the Trust to
the fullest extent permitted by law against all liabilities and against all
expenses reasonably incurred or paid by him or her in connection with any
proceeding in which he or she becomes involved as a party or otherwise by virtue
of his or her being or having been an agent.
SECTION 3. LIMITATIONS, SETTLEMENTS. No indemnification shall be
provided hereunder to an agent:
(a) who shall have been adjudicated by the court or other body before
which the proceeding was brought to be liable to the Trust or its Shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office
(collectively, "disabling conduct"); or
(b) with respect to any proceeding disposed of (whether by settlement,
pursuant to a consent decree or otherwise) without an adjudication by the court
or other body before which the proceeding was brought that such agent was liable
to the Trust or its Shareholders by reason of disabling conduct, unless there
has been a determination that such agent did not engage in disabling conduct:
(i) by the court or other body before which the proceeding was
brought;
(ii) by at least a majority of those Directors who are neither
Interested Persons of the Trust nor are parties to the proceeding based upon a
review of readily available facts (as opposed to a full trial-type inquiry); or
(iii) by written opinion of independent legal counsel based
upon a review of readily available facts (as opposed to a full trial-type
inquiry); provided, however, that indemnification shall be provided hereunder to
an agent with respect to any proceeding in the event of (1) a final decision on
the merits by the court or other body before which the proceeding was brought
that
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<PAGE> 10
the agent was not liable by reason of disabling conduct, or (2) the dismissal of
the proceeding by the court or other body before which it was brought for
insufficiency of evidence of any disabling conduct with which such agent has
been charged.
SECTION 4. INSURANCE, RIGHTS NOT EXCLUSIVE. The rights of
indemnification herein provided may be insured against by policies maintained by
the Trust on behalf of any agent, shall be severable, shall not be exclusive of
or affect any other rights to which any agent may now or hereafter be entitled
and shall inure to the benefit of the heirs, executors and administrators of any
agent.
SECTION 5. ADVANCE OF EXPENSES. Expenses incurred by an agent in
connection with the preparation and presentation of a defense to any proceeding
may be paid by the Trust from time to time prior to final disposition thereof
upon receipt of an undertaking by or on behalf of such agent that such amount
will be paid over by him or her to the Trust if it is ultimately determined that
he or she is not entitled to indemnification under this Article XI; provided,
however, that (a) such agent shall have provided appropriate security for such
undertaking, (b) the Trust is insured against losses arising out of any such
advance payments or (c) either a majority of the Directors who are neither
Interested Persons of the Trust nor parties to the proceedings, or independent
legal counsel in a written opinion, shall have determined, based upon a review
of readily available facts (as opposed to a trial-type inquiry or full
investigation), that there is reason to believe that such agent will be found
entitled to indemnification under this Article XI.
SECTION 6. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. The Article does not
apply to any proceeding against any director, investment manager or other
fiduciary of an employee benefit plan in that person's capacity as such, even
though that person may also be an agent of this Trust as defined in Section 1 of
this Article. Nothing contained in this Article shall limit any right to
indemnification to which such director, investment manager, or other fiduciary
may be entitled by contract or otherwise which shall be enforceable to the
extent permitted by applicable law other than this Article.
ARTICLE XII
Amendments
These By-Laws, or any of them, may be altered, amended or repealed, or
new By-laws may be adopted by (a) a vote of holders of the majority of the
outstanding Shares entitled to vote or (b) by the Directors, provided, however,
that no By-law may be amended, adopted or repealed by the Directors if such
amendment, adoption or repeal is required by applicable law, the Declaration of
Trust or these By-Laws, to be submitted to a vote of the Shareholders.
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<PAGE> 1
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this ___ day of August, 1999, by and between Commonfund
Institutional Funds, a Delaware business trust (the "Fund"), and Commonfund
Asset Management Company (the "Adviser").
WHEREAS, the Fund is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended, which
may consist of several series of shares, each having its own investment policies
(each, a "Portfolio"); and
WHEREAS, the Trust desires to retain the Adviser to render investment
management services with respect to such Portfolios as the Fund and the Adviser
may agree upon and as are set forth in the attached schedule, and the Adviser is
willing to render such services.
NOW, THEREFORE, in consideration of mutual covenants herein contained,
the parties hereto agree as follows:
1. DUTIES OF ADVISER. The Fund employs the Adviser to manage the
investment and reinvestment of the assets of the Portfolio(s),
and to hire (subject to the approval of the Fund's Board of
Trustees and, except as otherwise permitted under the terms of
any exemptive relief obtained in the future by the Adviser
from the Securities and Exchange Commission, or by rule or
regulation, a majority of the outstanding voting securities of
the Portfolio(s)) and to supervise the investment activities
of one or more sub-advisers deemed necessary to carry out the
investment program of the Portfolio(s), and to continuously
review, supervise and (where appropriate) administer the
investment program of the Portfolio(s), to determine in its
discretion (where appropriate) the securities to be purchased
or sold, to provide the Fund with records concerning the
Adviser's activities which the Fund is required to maintain,
and to render regular reports to the Fund's officers and
Trustees concerning the Adviser's discharge of the foregoing
responsibilities. The retention of a sub-adviser by the
Adviser shall not relieve the Adviser of its responsibilities
under this Agreement.
The Adviser shall discharge the foregoing responsibilities
subject to the control of the Board of Trustees of the Fund
and in compliance with such policies as the Trustees may from
time to time establish, and in compliance with the objectives,
policies, and limitations for each such Portfolio set forth in
the Portfolio's prospectus and statement of additional
information as amended from time to time, and applicable laws
and regulations.
The Adviser accepts such employment and agrees, at its own
expense, to render the services and to provide the office
space, furnishings and equipment and the personnel
<PAGE> 2
(including any sub-advisers) required by it to perform the
services on the terms and for the compensation provided
herein. The Adviser will not, however, pay for the cost of
securities, commodities, and other investments (including
brokerage commissions and other transaction charges, if any)
purchased or sold for the Fund.
2. PORTFOLIO TRANSACTIONS. The Adviser is authorized to select
the brokers or dealers that will execute the purchases and
sales of portfolio securities for the Portfolios and is
directed to use its best efforts to obtain the best net
results as described from time to time in the Portfolios'
Prospectuses and Statement of Additional Information. The
Adviser will promptly communicate to the officers and the
Trustees of the Fund such information relating to portfolio
transactions as they may reasonably request.
It is understood that the Adviser will not be deemed to have
acted unlawfully, or to have breached a fiduciary duty to the
Fund or be in breach of any obligation owing to the Fund under
this Agreement, or otherwise, by reason of its having directed
a securities transaction on behalf of the Fund to a
broker-dealer in compliance with the provisions of Section
28(e) of the Securities Exchange Act of 1934 or as described
from time to time by the Portfolios' Prospectuses and
Statement of Additional Information.
3. COMPENSATION OF THE ADVISER. For the services to be rendered
by the Adviser as provided in Sections 1 and 2 of this
Agreement, the Fund shall pay to the Adviser compensation at
the rate specified in the Schedule(s) which are attached
hereto and made a part of this Agreement. Such compensation
shall be paid to the Adviser at the end of each month, and
calculated by applying a daily rate, based on the annual
percentage rates as specified in the attached Schedule(s), to
the assets. The fee shall be based on the average daily net
assets for the month involved (less any assets of such
Portfolios held in non-interest bearing special deposits with
a Federal Reserve Bank). The Adviser may, in its discretion
and from time to time, waive a portion of its fee.
All rights of compensation under this Agreement for services
performed as of the termination date shall survive the
termination of this Agreement.
4. OTHER EXPENSES. The Fund shall pay all expenses relating to
mailing to existing shareholders prospectuses, statements of
additional information, proxy solicitation material and
shareholder reports.
5. EXCESS EXPENSES. If the expenses for any Portfolio for any
fiscal year (including fees and other amounts payable to the
Adviser, but excluding interest, taxes, brokerage costs,
litigation, and other extraordinary costs) as calculated every
business day would exceed the expense limitations imposed on
investment companies by any
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<PAGE> 3
applicable statute or regulatory authority of any jurisdiction
in which shares of a Portfolio are qualified for offer and
sale, the Adviser shall bear such excess cost.
However, the Adviser will not bear expenses of any Portfolio
which would result in the Portfolio's inability to qualify as
a regulated investment company under provisions of the
Internal Revenue Code.
6. REPORTS. The Fund and the Adviser agree to furnish to each
other, if applicable, current prospectuses, proxy statements,
reports to shareholders, certified copies of their financial
statements, and such other information with regard to their
affairs as each may reasonably request.
7. STATUS OF ADVISER. The services of the Adviser to the Fund are
not to be deemed exclusive, and the Adviser shall be free to
render similar services to others so long as its services to
the Fund are not impaired thereby. The Adviser shall 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.
8. CERTAIN RECORDS. Any records required to be maintained and
preserved pursuant to the provisions of Rule 31a-1 and Rule
31a-2 promulgated under the Investment Company Act of 1940
which are prepared or maintained by the Adviser on behalf of
the Fund are the property of the Fund and will be surrendered
promptly to the Fund on request.
9. LIMITATION OF LIABILITY OF ADVISER. The duties of the Adviser
shall be confined to those expressly set forth herein, and no
implied duties are assumed by or may be asserted against the
Adviser hereunder. The Adviser shall not be liable for any
error of judgment or mistake of law or for any loss arising
out of any investment or for any act or omission in carrying
out its duties hereunder, except a loss resulting from willful
misfeasance, bad faith or gross negligence in the performance
of its duties, or by reason of reckless disregard of its
obligations and duties hereunder, except as may otherwise be
provided under provisions of applicable state law or Federal
securities law which cannot be waived or modified hereby. (As
used in this Paragraph 9, the term "Adviser" shall include
directors, officers, employees and other corporate agents of
the Adviser as well as that entity itself).
10. PERMISSIBLE INTERESTS. Trustees, agents, and shareholders of
the Fund are or may be interested in the Adviser (or any
successor thereof) as directors, partners, officers, or
shareholders, or otherwise; directors, partners, officers,
agents, and shareholders of the Adviser are or may be
interested in the Fund as Trustees, shareholders or otherwise;
and the Adviser (or any successor) is or may be interested in
the Fund as a shareholder or otherwise. In addition, brokerage
transactions for the Fund may be
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<PAGE> 4
effected through affiliates of the Adviser if approved by the
Board of Trustees, subject to the rules and regulations of the
Securities and Exchange Commission.
11. LICENSE OF ADVISER'S NAME. The Adviser hereby agrees to grant
a license to the Fund for use of its name in the name of the
Fund and names of the Portfolios for the term of this
Agreement and such license shall terminate upon termination of
this Agreement.
12. DURATION AND TERMINATION. This Agreement, unless sooner
terminated as provided herein, shall remain in effect until
two years from date of execution, and thereafter, for periods
of one year so long as such continuance thereafter is
specifically approved at least annually (a) by the vote of a
majority of those Trustees of the Fund who are not parties to
this Agreement or interested persons of any such party, cast
in person at a meeting called for the purpose of voting on
such approval, and (b) by the Trustees of the Fund or by vote
of a majority of the outstanding voting securities of each
Portfolio; provided, however, that if the shareholders of any
Portfolio fail to approve the Agreement as provided herein,
the Adviser may continue to serve hereunder in the manner and
to the extent permitted by the Investment Company Act of 1940
and rules and regulations thereunder. The foregoing
requirement that continuance of this Agreement be
"specifically approved at least annually" shall be construed
in a manner consistent with the Investment Company Act of 1940
and the rules and regulations thereunder.
This Agreement may be terminated as to any Portfolio at any
time, without the payment of any penalty by vote of a majority
of the Trustees of the Fund or by vote of a majority of the
outstanding voting securities of the Portfolio on not less
than 30 days nor more than 60 days written notice to the
Adviser, or by the Adviser at any time without the payment of
any penalty, on 90 days written notice to the Fund. This
Agreement will automatically and immediately terminate in the
event of its assignment. Any notice under this Agreement shall
be given in writing, addressed and delivered, or mailed
postpaid, to the other party at any office of such party.
As used in this Section 12, the terms "assignment",
"interested persons," and a "vote of a majority of the
outstanding voting securities" shall have the respective
meanings set forth in the Investment Company Act of 1940 and
the rules and regulations thereunder; subject to such
exemptions as may be granted by the Securities and Exchange
Commission under said Act.
13. NOTICE. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient if sent by
registered or certified mail, postage prepaid, addressed by
the party giving notice to the other party at the last address
furnished by the other party to the party giving notice: if to
the Fund, at 450 Post Road East,
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<PAGE> 5
Westport, CT 06881, and if to the Adviser at 450 Post Road
East, Westport, CT 06881.
14. SEVERABILITY. If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be
affected thereby.
15. GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Delaware and the applicable
provisions of the 1940 Act. To the extent that the applicable
laws of the State of Delaware, or any of the provisions
herein, conflict with the applicable provisions of the 1940
Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year first written above.
COMMONFUND INSTITUTIONAL FUNDS
By:
----------------------------
Attest:
------------------------
Commonfund Asset Management Company
By:
----------------------------
Attest:
------------------------
5
<PAGE> 6
SCHEDULE A DATED __________, 1999
TO THE
INVESTMENT ADVISORY AGREEMENT
DATED AUGUST ___, 1999
BETWEEN
COMMONFUND INSTITUTIONAL FUNDS
AND
COMMONFUND ASSET MANAGEMENT COMPANY
Pursuant to Article 3, the Fund shall pay the Adviser compensation at an annual
rate as follows:
Portfolio Annual Fee
--------- ----------
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<PAGE> 1
COMMONFUND INSTITUTIONAL FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of Commonfund Institutional Funds (the "Trust"), a business trust
organized under the laws of the State of Delaware, hereby constitutes and
appoints John Auchincloss, Arthur Gardiner, and John H. Grady, Jr., and each of
them, his true and lawful attorney-in-fact and agent, to sign for him and in his
name, place and stead, and in the capacity indicated below, to sign any and all
Registration Statements and all amendments thereto relating to the offering of
the Trust's shares under the provisions of the Investment Company Act of 1940
and/or the Securities Act of 1933, each such Act as amended, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Robert L. Bovinette Date: 8/12/99
- ------------------------------- -----------------------
Robert L. Bovinette
