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As filed with the Securities and Exchange Commission on September 16, 1999
Registration No. 333 - ___________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. ___
Post-Effective Amendment No. ___
and / or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No.___
THE STOCKBACK TRUST
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(Exact Name of Registrant as Specified in Charter)
55 BROAD STREET
6TH FLOOR
NEW YORK, NEW YORK 10004
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 773-0618
ROBERT S. FEIDELSON
STOCKBACK.COM LLC
55 BROAD STREET
6TH FLOOR
NEW YORK, NEW YORK 10004
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(Name and Address of Agent for Service)
COPIES TO:
JOSEPH H. NESLER C. ERIC PETERS
THOMAS M. THESING STOCKBACK.COM LLC
SIDLEY & AUSTIN 55 BROAD STREET
ONE FIRST NATIONAL PLAZA 6TH FLOOR
CHICAGO, ILLINOIS 60603 NEW YORK, NEW YORK 10004
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Approximate Date of Proposed Public Offering: As soon as practicable after this
Registration Statement becomes effective.
It is proposed that this filing will become effective: (check appropriate box)
/ / immediately upon filing pursuant to paragraph(b)
/ / on (date) pursuant to paragraph(b)
/ / 60 days after filing pursuant to paragraph(a)(1)
/ / on (date) pursuant to paragraph(a)(1)
/ / 75 days after filing pursuant to paragraph(a)(2)
/ / on (date) pursuant to paragraph(a)(2) of Rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date
for a previously filed post-effective amendment
The 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 this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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THE STOCKBACK FUND
PROSPECTUS (Subject to Completion)
September __, 1999
The Fund is a recently organized mutual fund whose investment objective
is long-term capital appreciation. The Fund will seek to achieve this objective
by investing primarily in publicly-traded equity securities issued by internet
merchants that participate in the customer Loyalty Program sponsored and
administered by StockBack.com LLC and its affiliates.
As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any State.
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TABLE OF CONTENTS
PAGE
A BRIEF OVERVIEW OF THE FUND'S INVESTMENT OBJECTIVE AND STRATEGY, RISKS,
AND FEES AND EXPENSES 3
HOW YOU MAY PURCHASE AND REDEEM FUND SHARES 6
INVESTMENT OBJECTIVE AND STRATEGY 10
RISKS 12
FEES AND EXPENSES 14
THE INVESTMENT ADVISER 14
DIVIDENDS AND OTHER DISTRIBUTIONS 15
TAX CONSEQUENCES 15
OTHER INFORMATION 16
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A BRIEF OVERVIEW OF THE FUND'S INVESTMENT OBJECTIVE AND STRATEGY, RISKS, AND
FEES AND EXPENSES
INVESTMENT OBJECTIVE AND STRATEGY
The Fund's investment objective is long-term capital appreciation. The
Fund will seek to achieve this objective by investing primarily in
publicly-traded equity securities (usually, shares of common stock or the
equivalent) issued by retailers and other providers of goods and services that
engage in internet commerce as part of their marketing and sales operations and
that participate in the customer Loyalty Program sponsored and administered by
StockBack.com LLC and its affiliates. StockBack.com LLC and its affiliates are
referred to in this Prospectus as "StockBack," and on-line retailers and other
providers of goods or services that participate in StockBack's Loyalty Program
are referred to as "Participating E-Merchants." You may find a more complete
description of StockBack and its Loyalty Program by visiting StockBack's
internet Web site (http://www.stockback.com).
Proceeds from the sale of the Fund's shares will be invested in
publicly-traded equity securities issued by Participating E-Merchants (or by the
parent companies of Participating E-Merchants) in accordance with a
pre-determined formula. Under this formula, all proceeds from the sale of Fund
shares that are attributable to rebates credited to a member of the Loyalty
Program as a result of the member's on-line purchases of goods or services from
a Participating E-Merchant will be invested in the publicly-traded equity
securities, if any, of that merchant (or its parent company). You will find a
description of how rebates are credited to a Loyalty Program member and how
those rebates are applied to the purchase of Fund shares for the member under
"HOW YOU MAY PURCHASE AND REDEEM FUND SHARES -- HOW YOU MAY PURCHASE FUND
SHARES," below.
In addition, the Fund's investment formula provides that proceeds from
the sale of the Fund's shares that are not attributable to rebates credited to
members of the Loyalty Program as a result of their on-line purchases of goods
or services from Participating E-Merchants, or that are attributable to rebates
credited to members as a result of their on-line purchases of goods or services
from Participating E-Merchants in situations where neither the merchants nor
their parent companies have issued publicly-traded equity securities, will be
invested in the shares of Participating E-Merchants (or their parent companies)
whose shares are publicly-traded, in a manner designed to ensure that the Fund's
relative positions in those shares are approximately the same immediately after
the investment as they were before the investment.
Under certain limited circumstances, the Fund may depart from its
standard investment formula. You will find a description of these circumstances
under "INVESTMENT OBJECTIVE AND STRATEGY -- PORTFOLIO MANAGEMENT," below.
RISKS
Like any investor in an equity mutual fund, you will face the risk
that, when you sell shares in the Fund, you may receive less than the price paid
for them. This risk results from the fact that the value of the Fund's shares
will be based entirely on the values of the Fund's underlying equity investments
- -- values that may decline or fluctuate from time to time, sometimes sharply, in
response to any number of factors. These factors may include general market,
economic and business conditions, as well as specific conditions relating to
particular Participating E-Merchants.
You should be particularly aware that, under the Fund's investment
formula, the Fund invests in the shares of Participating E-Merchants based
solely on the fact that those merchants participate in StockBack's Loyalty
Program, and neither the Fund's investment adviser nor any other person acting
on behalf of the Fund will evaluate the economic merits and risks of the shares
of Participating E-Merchants in determining whether to purchase or dispose of
such shares for the Fund. The Fund's investment formula, in other words, does
not involve "active management."
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In addition, because the Fund will concentrate its investments in
equity securities issued by companies that engage in internet commerce as part
(often a significant part) of their marketing and sales operations, it will
expose itself to the risk of a general decline in the fortunes of such
companies.
Finally, it is expected that, at least at the outset of the Fund's
operations, the Fund will be a "non-diversified" fund -- i.e., its investments
will be concentrated in equity securities issued by a relatively limited number
of Participating E-Merchants. As a result, the poor performance of the equity
securities of even one Participating E-Merchant could significantly affect the
overall performance of the Fund.
In light of these risks, which are described more fully below under
"RISKS," you should only consider an investment in the Fund if:
- you are a long-term investor who is capable of tolerating
day-to-day share price volatility and have no need for current
income in respect of your investment in shares of the Fund
- you understand that an investment in the Fund does not
constitute a complete investment program and
- you believe the equity securities of Participating E-Merchants
are likely to appreciate in value over the long term.
FEES AND EXPENSES
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY
AND HOLD SHARES OF THE FUND.
SHAREHOLDER FEES (fees paid directly from your investment):
Sales Charge (Load) Imposed on Purchases..................None
Deferred Sales Charge (Load) .............................None
Sales Charge (Load) Imposed on Reinvested Dividends
and other Distributions ..........................None
Redemption Fee for shares held one year or more
(as a percentage of amount redeemed)..............None
Redemption Fee for shares held less than one year
(as a percentage of amount redeemed).............2.00%
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted
from Fund assets):
Management Fees ..........................................None
Distribution and /or Service (12b-1) Fees ............0.25%(1)
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(1) Under the Fund's Rule 12b-1 Plan, the Fund may pay amounts up to
0.25% per annum of the Fund's net asset value to defray certain
distribution-related and shareholder servicing expenses. The Fund does not
currently intend to pay any amounts under the Plan, but may do so in the future.
Accordingly, the expense table above reflects the maximum amount payable under
the Plan to enable you to assess the effect of the payment of this amount if the
Fund (continued...)
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Other Expenses .......................................1.00%(2)
Total Annual Fund Operating Expenses .................1.25%(2)
EXPENSE 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 (1) you invest $10,000 in the Fund for the
time periods indicated, (2) you redeem all of your shares at the end of those
periods, (3) your investment has a 5% return each year and (4) the Fund's
operating expenses remain the same as disclosed above. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years
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<S> <C> <C>
$ 341(3) $ 408
You would pay the following expenses
if you did not redeem your shares ... $ 131 $ 408
</TABLE>
As described more fully below under "FEES AND EXPENSES," Participating
E-Merchants will pay StockBack certain fees for structuring and maintaining the
Loyalty Program. StockBack expects to use a portion of these fees to reimburse
the Fund (in an amount not to exceed $2,000,000 annually) for the types of fees
and expenses described above under "Other Expenses."
- ------------------------------
(1)(...continued)
should determine to pay it in the future.
(2) The Fund expects that "Other Expenses" will be approximately
$2,000,000 based on an assumed asset size of $200,000,000 for the Fund's fiscal
year ending December 31, 2000. "Other Expenses" consist primarily of federal and
state registration fees, directors' fees (not to exceed $50,000 per year in the
aggregate) payable by the Fund to its independent directors, custodial, transfer
agent and dividend paying agent fees and expenses, and accounting, printing,
legal, Web site maintenance and shareholder correspondence fees and expenses.
StockBack, however, has agreed to reimburse the Fund for up to $2,000,000 in
"Other Expenses" annually. Accordingly, if "Other Expenses" for a given fiscal
year of the Fund should be less than $2,000,000, the amount set forth above next
to the caption "Other Expenses" would be 0.00%, and the amount set forth next to
the caption "Total Annual Fund Operating Expenses" would be 0.25% (subject to
further reduction to 0.00% to the extent the Fund does not pay the full amounts
it is authorized to pay under its Rule 12b-1 Plan). StockBack is not obligated
to reimburse the Fund for amounts paid by the Fund under its Rule 12b-1 Plan or
for transaction costs incurred by the Fund in connection with the purchase or
sale of investments.
(3) Redemption fees are assessed only with respect to shares held for
less than one year. This example assumes that shares are redeemed on the 364th
day after the date of purchase and are therefore subject to the 2% redemption
fee. If the shares were not redeemed until the 365th day after the date of
purchase, the $341 figure would fall to $131.
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HOW YOU MAY PURCHASE AND REDEEM FUND SHARES
WHO MAY PURCHASE FUND SHARES?
In order to purchase Fund shares, you must first become a member of
StockBack's Loyalty Program. To become a member, you need to complete the
on-line application that can be found at StockBack's Web site
(http://www.stockback.com). As part of the application process and as a
condition to membership in the Loyalty Program, you will be asked to consent to
certain matters, including your consent to electronic delivery of all reports,
statements and other information that the Fund or StockBack may deliver to you.
Further, as described in more detail below, you will be asked to authorize
StockBack Capital LLC, an affiliate of StockBack ("StockBack Capital") whose
address is 55 Broad Street, 6th Floor, New York, New York 10004, to invest, for
your account, all cash rebates credited to your account in connection with your
on-line purchases of goods or services from Participating E-Merchants (or your
use of the StockBack credit card) in shares of the Fund. This authorization on
your part is known as a "Standing Order" to StockBack Capital to use the rebates
credited to your account to purchase shares of the Fund for your account.
Since one of the principal purposes of participation in the Loyalty
Program is to enable a member to acquire shares of the Fund through these
rebates, you should not become a member of the Loyalty Program unless you
first determine that an investment in the Fund is appropriate for you.
HOW YOU MAY PURCHASE FUND SHARES
Once you have become a member of the Loyalty Program, you may purchase
Fund shares in one of three ways:
- by making on-line purchases of goods or services from
Participating E-Merchants through StockBack's Web site portals
to these merchants, in which case all cash rebates credited to
your account in connection with those purchases will be
applied to the purchase of Fund shares for your account in
accordance with your Standing Order to StockBack Capital
- by using your StockBack credit card to purchase goods or
services, in which case all cash rebates credited to your
account in connection with those purchases will be applied to
the purchase of Fund shares for your account in accordance
with your Standing Order
- by sending funds to StockBack Capital
These three purchase methods are described in detail below.
ON-LINE PURCHASES OF GOODS OR SERVICES FROM PARTICIPATING E-MERCHANTS
Each time you make an on-line purchase of a good or service from a
Participating E-Merchant through StockBack's Web site portal to that merchant,
the merchant will rebate (on a daily, weekly, monthly or quarterly basis,
depending on the merchant's payment processing procedures) a particular
percentage of the purchase price to a bank escrow agent (currently, Chase
Manhattan Bank, 1211 Avenue of Americas, New York, New York 10036). The bank
escrow agent will credit to you (on its books and records) each rebate paid to
it by a Participating E-Merchant that is attributable to your purchase of goods
or services from such merchant. The bank escrow agent will perform the same
function for other members, and will hold all rebates it receives in connection
with your on-line purchases of goods or services from Participating E-Merchants
in a master escrow account with all rebates it receives in connection with other
members' on-line purchases of goods or services from Participating E-Merchants.
The particular percentage of the purchase price to be rebated by a Participating
E-Merchant to the bank escrow agent for your account will be determined by
agreement between StockBack and the merchant and will be posted on StockBack's
Web site. StockBack and Participating E-Merchants may change these rebate
percentages from time to time. Any such changes will be posted on StockBack's
Web site and will not become effective until posted.
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Once rebates totaling not less than $10 have been credited to your
account by the bank escrow agent, the total amount will be invested by StockBack
Capital for your account in shares of the Fund in accordance with your Standing
Order to StockBack Capital. Fund shares will be priced at the net asset value
per share in effect at the time of the investment. The concept of "net asset
value per share" is explained below under "PRICING OF FUND SHARES FOR PURPOSES
OF PURCHASES AND REDEMPTIONS." The investment will occur [NO LATER THAN THE
CLOSE OF BUSINESS ON THE FIRST BUSINESS DAY OF THE FUND FALLING IN THE MONTH
THAT FOLLOWS THE MONTH DURING WHICH YOU HAVE REACHED THE $10 THRESHOLD ]. This
investment process will resume every time rebates totaling not less than $10 (or
such lesser amount as StockBack may from time to time determine and post on its
Web site) have been credited by the bank escrow agent to your account. The
Fund's business days consist of those days on which the New York Stock Exchange
is open for business.
Although you will have instructed StockBack Capital, pursuant to your
Standing Order, to invest, in shares of the Fund, amounts that have been
credited to your account by the bank escrow agent, you will be entitled, at your
option, to withdraw any such amounts in cash by making an on-line cash
withdrawal request to StockBack Capital, provided you do so before StockBack
Capital, under the Standing Order, has placed an order with the Fund to purchase
Fund shares with such amounts. This is the case even if amounts credited to your
account by the bank escrow agent do not exceed the $10 threshold described
above. However, you should understand that you will be charged a nominal
processing fee (currently, $2.00, but subject to change upon posting on
StockBack's Web site) in connection with any amount you withdraw from the bank
escrow account.
You should be aware that, under current Loyalty Program policies, a
Participating E-Merchant from whom you have purchased a good or service will not
remit the rebate attributable to such purchase to the bank escrow agent for your
account until the merchant's stated return period (as in effect on the date you
made your purchase) applicable to the good or service has expired. For example,
if you purchase a good from a Participating E-Merchant on a particular day but,
in accordance with the merchant's return policy in effect on that day, you are
entitled to return the good for a refund within a specified number of days after
the date of your purchase, the merchant will remit the rebate attributable to
such purchase to the bank escrow agent, and the bank escrow agent will credit
the rebate to your account, only if you keep the good and do not return it to
the merchant for a refund prior to the expiration of such period. StockBack
intends to review this policy from time to time and may change the policy by
posting the change on its Web site. Any such change would be effective only with
respect to rebates attributable to purchases of goods or services made after the
posting of such change. Although it has no present intention to do so, StockBack
may alter the current policy to provide that a Participating E-Merchant shall
remit the rebate attributable to a member's purchase of a good or service from
such merchant to the bank escrow agent prior to the expiration of the merchant's
stated return period. In that case, the current policy might also be modified to
provide that, if a member returns a good to a Participating E-Merchant prior to
the expiration of that merchant's stated return period with respect to that
good, StockBack would be entitled to take actions designed to reimburse the
merchant for the amount of the rebate. Such actions might include directing the
bank escrow agent to debit the member's account in the amount of the rebate and
to remit such amount to the merchant or directing the Fund to redeem shares held
by the member to the extent necessary to reimburse the merchant for the amount
of the rebate and to remit such redemption proceeds to the merchant. As an
alternative to either of these actions, StockBack might reimburse the merchant
for the amount of the rebate out of its own resources and instruct the bank
escrow agent to debit the member's account for such amount and credit that
amount to StockBack.
You should also be aware that you are not entitled to any interest or
other earnings on funds held by the bank escrow agent in the master escrow
account for your account. All such interest and other earnings, if any, will be
payable to StockBack.
USING YOUR STOCKBACK CREDIT CARD TO PURCHASE GOODS OR SERVICES
If you use your StockBack credit card to purchase goods or services
from any merchant that accepts the card, the issuer of the card will rebate a
particular percentage of the purchase price to the bank escrow agent, and the
bank escrow agent will credit to you (on its books and records) each rebate so
paid to it by the issuer of the card in connection with your use of the card.
The stated percentage in effect for purchases made on a particular day will be
the percentage
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posted that day on StockBack's Web site. The issuer will rebate amounts to the
bank escrow agent for your account regardless of whether the merchant
participates in the Loyalty Program and regardless of whether you make your
purchase on-line or through a more traditional method. Of course, if you use
your StockBack card to make an on-line purchase from a Participating E-Merchant
through StockBack's Web site portal to that merchant, you will also be eligible
for the benefits described above under " ON-LINE PURCHASES OF GOODS OR SERVICES
FROM PARTICIPATING E-MERCHANTS." As described more fully below, you may use your
StockBack credit card to purchase shares of the Fund. The issuer of the card,
however, will not rebate any amounts to the bank escrow agent for your account
in connection with those purchases.
As is the case with rebates from Participating E-Merchants, rebates
from the issuer of the StockBack credit card will be forwarded to the bank
escrow agent (on a daily, monthly or quarterly basis, depending on the issuer's
payment processing procedures) and will be used to purchase Fund shares in a
manner identical to the manner described above under "ON-LINE PURCHASES OF GOODS
OR SERVICES FROM PARTICIPATING E-MERCHANTS." Again, you should be aware that
rebate amounts from the issuer of the StockBack credit card will be subject to
the Loyalty Program return policy in effect at the time of the related purchase,
as described above. In addition, you will not be entitled to any interest or
other earnings on funds held by the bank escrow agent in the master escrow
account for your account.
CASH PURCHASES
You may purchase shares for cash by sending funds to StockBack Capital
(at the address for StockBack Capital set forth on page 6) or authorizing
StockBack Capital to make automatic deductions from your bank checking or
savings account for the purpose of purchasing shares. You may also purchase
shares by using a credit card, including your StockBack credit card. Purchases
of shares will be made as of the close of business on the Fund business day on
which StockBack Capital receives your funds (at the net asset value per share in
effect at that time), as long as StockBack Capital receives the funds on or
before 11:00 a.m., Eastern time, on such day. If StockBack Capital receives your
funds after 11:00 a.m., Eastern time, on a particular Fund business day,
purchases will be made as of the close of business on the next Fund business day
(at the net asset value per share in effect at that time). If you send a check
to StockBack Capital or otherwise send funds that cannot freely be used by
StockBack Capital to purchase shares for your account, StockBack Capital will
invest in Fund shares for your account only after your check has cleared or such
funds become freely available to StockBack Capital.
Each cash purchase must be made in an amount not less than $10.00.
[The Fund will charge a check processing fee not to exceed $5 for each
purchase of shares made by check.] If you use a credit card to purchase shares,
the issuer of the card may assess a processing fee up to 3% of the amount
charged. For example, if you charge $100 on your StockBack credit card to
purchase Fund shares and the issuer of the card charges a $3 processing fee,
only $97 will be invested in the Fund for your account.
HOW YOU MAY REDEEM FUND SHARES
You may redeem Fund shares on any Fund business day by making an
on-line redemption request or written redemption request to StockBack Capital.
StockBack Capital may, but is not required, to accept telephone or fax
redemption requests. If StockBack Capital receives your redemption request on or
before 11:00 a.m., Eastern time, on a particular Fund business day, your
redemption will be effected as of the close of business on that day. If
StockBack Capital receives your redemption request after 11:00 a.m., Eastern
time, on a particular Fund business day, your redemption will be effected as of
the close of business on the next Fund business day.
If you request that a particular dollar amount of your shares be
redeemed instead of requesting the redemption of a particular number of shares,
StockBack Capital will cause the Fund to redeem that number of shares that will
yield the desired dollar amount.
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Redemption requests that contain a restriction as to the time, date
or share price at which the redemption is to be effective will not be honored.
If you request a redemption of Fund shares, you will ordinarily receive
a check in the amount of the redemption proceeds (minus the amount of the
redemption fee described below, if you have held the shares for less than one
year in accordance with the "first-in, first-out" formula described below). The
Fund will usually make payment for redemptions of Fund shares within one
business day, but not later than seven calendar days after receipt of a
redemption request. The Fund, at its discretion, may agree to forward redemption
proceeds (minus the amount of the redemption fee, if you have held the shares
for less than one year) to you or on your behalf by less traditional means, such
as a wire transfer of the proceeds either to a designated bank account or to the
issuer of your StockBack credit card for the purpose of paying off any
outstanding balance you may have. In these cases, the Fund may assess you a
nominal fee to cover its expenses.
The Fund reserves the right to redeem your shares "in-kind" (that is,
with securities held by the Fund) rather than in cash. The Fund generally does
not intend to exercise its right to redeem your shares in kind. In addition, the
Fund may not exercise the right unless the aggregate dollar amount of your
redemptions during any ninety-day period exceeds the lesser of (i) $250,000 or
(ii) an amount equal to 1% of the net asset value of the Fund at the beginning
of such ninety day period.
REDEMPTION FEE
The Fund is designed for long-term investors who are willing to accept
the risks associated with a long-term investment in the equity securities of
Participating E-Merchants. The Fund is not designed for short-term traders whose
frequent purchases and redemptions can generate substantial cash flow
complications that may disrupt the Fund's investment program. Short-term traders
often redeem when the market is most turbulent, often forcing the sale of
underlying securities held by the Fund at the worst possible time as far as
long-term investors are concerned. Additionally, short-term trading drives up
the Fund's transaction costs--measured by both commissions and bid/ask
spreads--which are borne by the remaining long-term investors. For these
reasons, the Fund assesses a 2.00% redemption fee on the redemption of shares
held for less than one year. Any redemption fees charged by the Fund will be
payable by the redeeming investor to the Fund, not to the Fund's investment
advisor or any other service provider. Accordingly, redemption fees charged by
the Fund will be available to pay expenses the Fund would otherwise bear
(including any transaction expenses incurred by the Fund in liquidating
investments in order to meet redemption requests), to make additional portfolio
investments, or to pay dividends to Fund shareholders.
The redemption fee will not apply to any shares purchased through
reinvested distributions (dividends and capital gains) or to shares held in
retirement plans (such as 401(k), 403(b), 457, Keogh, Profit Sharing Plans, and
Money Purchase Pension Plans). This fee also does not apply to shares held in
IRA accounts.
The Fund will use the "first-in, first-out" (FIFO) method to determine
whether a redeeming shareholder will be charged the 2.00% redemption fee. Under
this method, the date of the redemption will be compared to the earliest
purchase date of shares held in the account. If the holding period of the shares
determined in accordance with this method is less than one year, the redemption
fee will be assessed against such shares. The redemption fee will not decrease
during the one year period in which shares are held. In other words, the full
2.00% fee will apply to shares redeemed on the 364th day after purchase as well
as to shares redeemed earlier.
AUTOMATIC REDEMPTIONS
The Fund has reserved the right to redeem your shares if you revoke
your consent to receive information about the Fund through electronic delivery,
unless you expressly agree to bear the cost of paper delivery of such
information. The Fund seeks to operate at a low expense level, and the cost of
paper delivery of Fund information (if not paid for by the individual
shareholders requesting such information) would increase Fund expenses for all
shareholders above what StockBack believes is an appropriate level. Shareholders
may request paper delivery of
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Fund information from time to time, provided that the cost of such delivery will
be assessed directly against the shareholder and not absorbed as a Fund expense
generally. Written notice of a proposed mandatory redemption will be given at
the time consent to electronic delivery is revoked, if the shareholder revoking
consent has not expressly agreed to bear the cost of paper delivery.
The Fund has also reserved the right to redeem your shares to satisfy a
reimbursement obligation owed to a Participating E-Merchant as a result of a
return of goods purchased by you, as described above under "HOW YOU MAY PURCHASE
FUND SHARES."
Finally, the Fund has reserved the right to redeem your shares (unless
you are an IRA) if, after giving effect to a particular redemption request, the
total value of your remaining Fund shares would be less than $10.00. If you
request a redemption that would result in the total value of your remaining Fund
shares being less than that amount, your redemption request will be deemed to
include a request to redeem your remaining shares.
TRANSFER RESTRICTIONS
All of your Fund shares will be issued by the Fund in the name of
StockBack Capital or its nominee, which will hold the shares on its books for
your account and benefit. You may transfer the beneficial ownership of your
shares on StockBack Capital's books upon reasonable notice to StockBack
Capital. A nominal fee will be applied to such transfers. The amount of this
fee in effect on a particular transfer date will be the transfer fee posted
on StockBack's Web site on that date. You may not obtain certificates for
your shares. Further, the Fund will not issue shares in your name or the name
of any of your transferees.
PRICING OF FUND SHARES FOR PURPOSES OF PURCHASES AND REDEMPTIONS
The Fund will value its shares for purchase and redemption purposes on
each day on which the New York Stock Exchange is open for business. In
determining the net asset value per share on a particular purchase or redemption
date, the Fund will first determine the overall net asset value of the Fund on
that date (calculated as of the close of regular trading on the New York Stock
Exchange, normally 4:00 p.m., Eastern time), and then divide the overall net
asset value by the number of Fund shares then outstanding. In determining its
overall net asset value, the Fund will first determine the overall value of its
portfolio investments, and then subtract from that value the amount of its
liabilities, including accrued expenses. In determining the overall value of its
portfolio investments, the Fund will value securities for which market
quotations are readily available (expected to constitute the bulk of the Fund's
portfolio) at their market price. The Fund will generally value short-term debt
securities held by it for liquidity purposes on an amortized cost basis. In the
unlikely event the Fund invests in illiquid securities and other securities and
assets for which market quotations are not readily available, it will value such
investments at "fair value," as determined in good faith by or under the
direction of its Board of Directors.
The equity securities of certain foreign Participating E-Merchants may
trade in the U.S. securities markets in the form of depositary receipts,
commonly known as ADRs, which represent interests in the foreign merchants'
equity securities. In other cases, however, the equity securities of foreign
Participating E-Merchants may not trade in the U.S. securities markets, and may
trade in foreign markets on days on which the New York Stock Exchange is closed.
This means that the Fund's net asset value -- and, as a result, the value of
your Fund shares -- may change on a day that you cannot purchase or redeem your
shares.
INVESTMENT OBJECTIVE AND STRATEGY
GENERAL
The Fund will seek to achieve its objective of long-term capital
appreciation by investing primarily in publicly-traded equity securities
(usually, shares of common stock or depositary receipts representing interests
in shares of common stock) issued by Participating E-Merchants -- i.e.,
retailers and other providers of goods or services that
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engage in internet commerce as part of their marketing and sales operations and
that participate in StockBack's Loyalty Program. The internet is a world-wide
network of computers designed to permit users to share information and transfer
data quickly and easily. The internet has emerged as a major market for the sale
of goods and services.
Under limited circumstances, the Fund may invest in other equity
securities, including publicly-traded equity securities issued by internet
merchants that do no participate in the Loyalty Program and publicly-traded
equity securities issued by companies that are not internet merchants. You will
find a description of these circumstances under "-- PORTFOLIO MANAGEMENT --
PURCHASES OF SECURITIES," below.
You may find a more complete description of StockBack's Loyalty
Program by visiting StockBack's Web site (http://www.stockback.com).
StockBack's Web site contains an up-to-date listing of Participating
E-Merchants. StockBack may from time to time add new Participating
E-Merchants to the Loyalty Program, and terminate the participation of other
merchants.
PORTFOLIO MANAGEMENT
PURCHASES OF SECURITIES
Proceeds from the sale of the Fund's shares will be invested in
publicly-traded equity securities issued by Participating E-Merchants in
accordance with a pre-determined formula. Under this formula, all proceeds from
the sale of Fund shares that are attributable to rebates credited to a member of
the Loyalty Program as a result of the member's on-line purchases of goods or
services from a Participating E-Merchant will be invested in the publicly-traded
equity securities, if any, of that merchant (or its parent company).
In addition, the Fund's investment formula provides that proceeds from
the sale of the Fund's shares that are not attributable to rebates credited to
members of the Loyalty Program as a result of their on-line purchases of goods
or services from Participating E-Merchants, or that are attributable to rebates
credited to members as a result of their on-line purchases of goods or services
from Participating E-Merchants in situations where neither the merchants nor
their parent companies have issued publicly-traded equity securities, will be
invested in the shares of Participating E-Merchants (or their parent companies)
whose shares are publicly-traded, in a manner designed to ensure that the Fund's
relative positions in those shares are approximately the same immediately after
the investment as they were before the investment.
In certain cases, Participating E-Merchants that participate in the
Loyalty Program do not issue publicly-traded equity securities, but are
subsidiaries of corporate parents that do. In these cases, the Fund will apply
its investment formula to the publicly-traded equity securities of the parent
companies.
The Fund may depart from its investment formula in two limited
circumstances. First, the Fund may depart from the formula to the extent
necessary to ensure that the Fund meets the portfolio diversification
requirements necessary for it to maintain favorable tax treatment under the
Internal Revenue Code, as described below under "PORTFOLIO DIVERSIFICATION."
Second, it is the Fund's policy not to own 5% or more of the
outstanding equity securities of a particular issuer. Accordingly, the Fund will
not purchase the securities of a particular issuer to the extent that, after
giving effect to the purchase, the Fund would own 5% or more of the outstanding
equity securities of that issuer. To the extent that the investment of an amount
the Fund would otherwise invest in the securities of a particular Participating
E-Merchant in accordance with the Fund's investment formula would result in the
Fund owning 5% or more of the outstanding equity securities of that merchant,
the Fund will invest such excess amount in other Participating E-Merchants in
accordance with its investment formula.
To the extent the Fund's investment adviser reasonably determines that
it is necessary for the Fund to depart from its investment formula for one of
the reasons described above, the investment adviser will cause the Fund to
invest
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in publicly-traded securities issued by companies that are not Participating
E-Merchants. These companies may consist of companies that are internet
merchants that do not participate in the Loyalty Program or that are not
internet merchants. The Fund will not invest in securities issued by a company
that is not a Participating E-Merchant unless that company's securities are
included within the S&P 500 Stock Index or the Nasdaq Index at the time of
investment.
Notwithstanding the foregoing, upon receiving proceeds from the sale
of its shares, the Fund may invest such assets in high-quality, short-term
investments (i.e., instruments issued or guaranteed by the federal government
or its agencies, or rated within one of the top three rating categories by at
least two nationally recognized statistical rating organizations, in each
case having a maturity of one year or less at the time of purchase) pending
investment of such proceeds in other portfolio securities. Similarly, the
Fund may invest proceeds received by it in connection with the liquidation of
its portfolio securities in such high quality, short-term investments pending
reinvestment of such proceeds in other portfolio securities or the
distribution of such proceeds to shareholders in connection with the
redemption of their shares or otherwise. Finally, to the extent the Fund
borrows monies in order to meet redemption requests, the Fund may invest the
proceeds of such borrowings in such high-quality, short-term investments
pending the redemption of its shares.
PORTFOLIO DIVERSIFICATION
Although the Fund will be considered a "non-diversified" fund for
certain legal purposes, the Fund -- in order to obtain favorable tax treatment
under the Internal Revenue Code -- must generally invest at least 50% of its
assets in such a manner that no investment in a single issuer made with such
assets exceeds 5% of the value of the Fund's assets at the time the investment
is made.
SALES OF SECURITIES
The Fund will pursue a "buy and hold" strategy. That is, once monies
received by the Fund from its investors have been invested in equity securities,
the Fund will not sell such securities unless it is required to do so (1) in
order to meet investor redemption requests, (2) to ensure that the Fund will be
treated as a diversified fund for federal income tax purposes or (3) to ensure
that the Fund does not maintain an investment in 5% or more of the outstanding
equity securities of a particular issuer. The Fund will not attempt to insulate
the Fund from "down market" risks by managing its portfolio or any particular
investment in anticipation of or response to adverse market, economic, political
or other conditions. In this regard, the Fund will not employ temporary
defensive tactics or strategies (such as maintaining large cash positions in
response to adverse conditions in the equity markets) of the types sometimes
employed by equity mutual funds.
Subject to the considerations described in (2) and (3) of the preceding
paragraph, the Fund will attempt to sell its equity investments in a manner
designed to ensure that the Fund's relative positions in its equity investments
will be approximately the same after giving effect to such sales.
FREQUENCY OF FUND TRADING
As a result of the purchase and sale policies discussed above, the
frequency of the Fund's trading activities will depend heavily on the frequency
with which investors purchase and redeem shares.
RISKS
EQUITY RISK
The principal risk of investing in the Fund is equity risk. Equity risk
is the risk that the prices of the equity securities held by the Fund -- and,
consequently, the price of the Fund's shares -- will decline or fluctuate from
time to time, sometimes sharply, in response to various factors, including
general market, economic and business conditions and specific conditions
relating to particular Participating E-Merchants.
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<PAGE>
You should be particularly aware that, under the Fund's investment
formula, the Fund will purchase shares of Participating E-Merchants based solely
on their participation in StockBack's Loyalty Program and not on any evaluation,
by the investment adviser or any other party acting on behalf of the Fund, of
the economic merits and risks of those shares. You should not invest in shares
of the Fund unless, based on your own evaluation, you believe that shares of
Participating E-Merchants are likely to appreciate in value over the long-term.
INDUSTRY CONCENTRATION
The Fund expects to invest primarily in equity securities issued by
retailers, wholesalers and other providers of goods or services that engage in
internet commerce as part (often a significant part) of their marketing and
sales operations (although the Fund may hold limited amounts of short-term debt
securities for liquidity purposes). These internet merchants are particularly
vulnerable to the relatively high risk of obsolescence resulting from rapid
technological development, as well as to government regulation. Any developments
in technology or government regulation that have an adverse effect on the
internet business generally could be expected to result in a decline in the
value of the Fund's investments. Accordingly, the Fund may involve significantly
greater risks and may experience greater volatility than a mutual fund that does
not concentrate its investments in an industry such as internet commerce.
In addition, there is no limitation on the percentage of the Fund's
investments in internet merchants that participate in a particular line of
business. For example, the Fund may hold a significant percentage of its
investments in internet merchants that engage primarily in the sale of general
merchandise, health and beauty products, apparel and accessories, food and
beverage, music and videotapes, office supplies, pet supplies, books and
magazines, toys, housewares and furniture, consumer electronics, automobiles, or
personal computers (hardware and software), or provide services such as auction,
travel or ticketing services.
ISSUER CONCENTRATION
At the outset of its operations, the Fund expects that it will be
legally classified as a "non-diversified" fund. Unlike a "diversified" fund,
which generally must invest at least 75% of its assets in such a manner that no
investment in a single issuer made with such assets exceeds 5% of the value of
the fund's assets at the time the investment is made, a "non-diversified fund"
is not subject to issuer diversification restrictions. Lack of issuer
diversification leads to increased risk because the poor performance of the
common stock of even one Participating E-Merchant could significantly affect the
overall performance of the Fund. While there can be no assurance, StockBack
expects that, over time, the universe of on-line retailers, wholesalers and
service providers will continue to expand, affording StockBack the opportunity
to secure additional merchant participation in the Loyalty Program. Such
additional merchant participation in the Loyalty Program could be expected to
result in additional issuer diversification for the Fund, but there can be no
assurance that this will be the case.
Although the Fund will be considered a "non-diversified" fund for
certain legal purposes, the Fund -- in order to obtain favorable tax treatment
under the Internal Revenue Code --generally must invest at least 50% of its
assets in such a manner that no investment in a single issuer made with such
assets exceeds 5% of the value of the Fund's assets at the time the investment
is made. You will find a more complete description of this requirement under
"INVESTMENT OBJECTIVE AND STRATEGY -- PORTFOLIO MANAGEMENT -- PORTFOLIO
DIVERSIFICATION," above.
YEAR 2000 COMPLIANCE
As the year 2000 approaches, an issue has emerged regarding how the
software used by the Fund's service providers can accommodate the date "2000."
Failure to adequately address this issue could result in major systems or
process failures which could disrupt the Fund's operations. StockBack is
actively working with the Fund's service providers to prepare for the year 2000.
Based on information currently available, StockBack does not expect that the
Fund will incur significant operating expenses or be required to incur material
costs to be year 2000 compliant. The Fund cannot guarantee, however, that all
year 2000 issues will be identified and corrected by January 1, 2000, and any
non-compliant computer system could hurt key Fund operations. In addition, the
Year 2000 problem may adversely
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<PAGE>
affect the companies in which the Fund invests, particularly given the fact that
the Fund expects to invest a substantial portion of its assets in the securities
of Participating E-Merchants. These portfolio company problems may have a
corresponding adverse effect on the Fund's performance.
FOREIGN SECURITIES
The Fund may invest in equity securities issued by foreign
Participating E-Merchants, either directly or in the form of ADRs. Securities of
foreign issuers are often subject to risks that are greater than or in addition
to the risks to which the securities of U.S. issuers are subject. Please consult
the SAI for a description of certain of these risks.
FEES AND EXPENSES
While redemptions of shares held for less than one year are subject to
the redemption fees described above, no front-end or deferred sales loads apply
to your purchase or redemption of Fund shares, or to the reinvestment of
dividends or other distributions in Fund shares. Under the Fund's Rule 12b-1
Plan, the Fund may pay amounts up to 0.25% per annum of the Fund's net asset
value to defray certain distribution-related and shareholder servicing expenses.
The Fund does not currently intend to pay any amounts under the Plan, but may do
so in the future.
StockBack has agreed to reimburse the Fund, in an amount not to
exceed $2,000,000 per year, for fees and expenses such as federal and state
registration fees, directors' fees (not to exceed $50,000 per year in the
aggregate) payable by the Fund to its independent directors, custodial,
transfer agent and dividend paying agent fees and expenses, and accounting,
printing, legal, Web site maintenance and shareholder correspondence fees and
expenses. You should be aware, however, that Participating E-Merchants will
pay fees to StockBack for structuring and administering the Loyalty Program,
and that StockBack expects to use a portion of these fees to reimburse the
Fund for fees and expenses that the Fund might otherwise bear.
The fees payable by Participating E-Merchants to StockBack may take any
number of forms. In some cases, a merchant might agree to pay StockBack an
annual fee or a fixed dollar amount in connection with each purchase you make
from such merchant. In other cases, a merchant might agree to pay StockBack an
amount equal to a percentage of the dollar amount of each purchase you make.
For example, if you make a purchase of $100 and the merchant agrees to
rebate 5% of that amount (or $5) to you, the merchant might also agree to pay
StockBack a fee equal to 1% of the amount of your purchase (or $1). However,
once the applicable return period has expired, the ENTIRE AMOUNT of the rebate
that the merchant has agreed to rebate to you will be forwarded to the bank
escrow agent for your account, without any deduction. Thus, in the example
above, $5 would be forwarded to the bank escrow agent, without any deduction for
the $1 payable by the merchant to StockBack. Further, any amounts payable by
participating merchants to StockBack will be payable even if you determine to
withdraw the amounts of rebates credited to your account in the form of cash
instead of applying such amounts to the purchase of Fund shares.
While the fees payable to StockBack by a particular Participating
E-Merchant will be negotiated by StockBack and the merchant, it is not generally
expected that fees payable to StockBack by a merchant in connection with any
particular purchase you make from such merchant would exceed 10% of the dollar
amount of your purchase.
THE INVESTMENT ADVISER
StockBack Advisers LLC, an affiliate of StockBack with principal
offices located at 55 Broad Street, 6th Floor, New York, New York 10004
("StockBack Advisers"), will serve as investment adviser to the Fund. As
investment adviser, StockBack Advisers will have responsibility for the
management of the Fund's investments, for providing various administrative
services to the Fund and for supervising the Fund's daily business affairs,
subject to the overall authority and supervision of the Fund's Board of
Directors.
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StockBack Advisers' management responsibilities to the Fund are
expected to be limited in light of the fact that, except under the limited
circumstances described above under "INVESTMENT OBJECTIVE AND POLICIES --
PORTFOLIO MANAGEMENT -- PURCHASES OF SECURITIES," the Fund will purchase
securities in accordance with a pre-determined investment formula. Similarly,
except under the limited circumstances described above under "INVESTMENT
OBJECTIVE AND POLICIES -- PORTFOLIO MANAGEMENT -- SALE OF SECURITIES," the Fund
will not sell its portfolio securities unless it is required to do so (1) in
order to meet investor redemption requests, (2) to ensure that the Fund will be
treated as a diversified fund for federal income tax purposes or (3) to ensure
that the Fund does not maintain an investment in 5% or more of the outstanding
equity securities of a particular issuer. Subject to the considerations
described in (2) and (3) of the preceding sentence, the Fund will attempt to
sell its equity investments in a manner designed to ensure that the Fund's
relative positions in its equity investments will be approximately the same
after giving effect to such sales.
Robert S. Feidelson will be primarily responsible for the day-to-day
management of the Fund's investments on behalf of StockBack Advisers. Mr.
Feidelson serves as a manager of the sole member of StockBack Advisers and has
been associated with StockBack Advisers since its inception in September, 1999.
From 1994 through April 1999, Mr. Feidelson was a Managing Director of Lehman
Brothers Holdings, Inc.
StockBack Advisers expects to retain one or more persons to assist Mr.
Feidelson in making investment decisions that are outside the Fund's investment
formula. As described above under, however, the Fund may not invest in
securities issued by a company that is not a Participating E-Merchant unless
that company's securities are included within the S&P 500 Stock Index or Nasdaq
Index at the time of investment.
FEES OF STOCKBACK ADVISERS
StockBack Advisors will not charge any fee to the Fund for the
investment advisory and administrative services it provides to the Fund.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Fund is designed for investors whose objective is long-term capital
appreciation. Many of the companies in which the Fund will invest will be in the
"start-up" or development phase and may not be expected to pay dividends or make
other distributions for the foreseeable future. As a result, the Fund may not be
in a position to pay dividends or, if it is in a position to pay dividends,
those dividends may not be substantial.
If the Fund should receive dividends or other distributions from the
companies in which it invests and the Board of Directors of the Fund determines
to distribute such amounts to Fund shareholders as dividends, it will
automatically reinvest your share of such dividends in additional shares of the
Fund, unless you affirmatively elect to receive dividends from the Fund in cash.
You may make an affirmative election to receive dividends and distributions in
cash at the time you register as a member of the Loyalty Program. You may change
this election by notifying the Fund on-line or in writing at any time prior to
the record date for a particular dividend or distribution.
There are no sales or other charges in connection with the reinvestment
of dividends and other distributions.
TAX CONSEQUENCES
TAXES ON DIVIDENDS AND OTHER DISTRIBUTIONS MADE BY THE FUND
Dividends and other distributions you receive from the Fund (if any)
are subject to federal income tax and may also be subject to state and local
taxes. This is the case even if you reinvest these dividends and other
distributions in additional Fund shares. For federal tax purposes, to the extent
the Fund's dividends or other distributions are attributable to dividends
received by the Fund from the companies in which it invests, or to the sale of
portfolio securities held by the Fund for one year or less, your share of such
dividends and distributions generally will be taxable to you as ordinary income.
To the extent
15
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that the Fund's dividends or other distributions are attributable to the sale of
portfolio securities held by the Fund for more than one year, your share of such
dividends and distributions generally will be taxable to you as long-term
capital gains.
If you acquire shares when the Fund has realized but not yet
distributed income or capital gains, you will be "buying a dividend" by paying
the full price for the shares and then receiving a portion of the price back in
the form of a taxable distribution.
TAXES ON REDEMPTION OF FUND SHARES
When you redeem shares, you may receive more or less than the price
paid for them, resulting in a taxable gain or loss to you.
This summary of tax consequences is intended for general information
only. You should consult a tax advisor concerning the tax consequences of your
investment in the Fund.
OTHER INFORMATION
The Fund's Statement of Additional Information ("SAI") includes
additional information about the Fund. The SAI is incorporated herein by
reference (legally forms a part of this prospectus). For a free copy of the
SAI or to request other information or ask questions about the Fund, you may
call StockBack at 1-800- --- ---- or visit StockBack's Web site at
http://www.stockback.com. Neither StockBack's Web site, nor the Web site of
any Participating E-Merchant, forms part of this Prospectus or the Fund's
SAI, and no such Web site is incorporated herein by reference.
The SAI and other related materials are available on the SEC's Web
site (http://www.sec.gov). You can obtain copies of this information, upon
paying a duplicating fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. You can also review and copy information about
the Fund, including the Fund's SAI, at the SEC's Public Reference Room in
Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the
SEC's Public Reference Room.
16
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Investment Company Act of 1940, File Number ________________
17
<PAGE>
THE STOCKBACK FUND
a series of
THE STOCKBACK TRUST
STATEMENT OF ADDITIONAL INFORMATION
September __, 1999
This Statement of Additional Information (the "SAI") relating to The StockBack
Fund (the "Fund") is not a prospectus for the Fund, but supplements the
information contained in the current prospectus for the Fund dated September__,
1999 (the "Prospectus"), and should be read in conjunction with the Prospectus.
For a free copy of the Prospectus or to request other information or ask
questions about the Fund, call StockBack.com LLC ("StockBack") at
1-800-???-???? or visit StockBack's Web site at http://www.stockback.com.
Neither StockBack's Web site, nor the Web site of any Participating
E-Merchant, forms part of the Prospectus or this SAI and is not incorporated
by reference into either.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This SAI shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any State.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
THE TRUST AND THE FUND
GENERAL ............................................................. 3
INVESTMENT COMPANY ACT CLASSIFICATION................................ 3
CAPITAL STOCK ....................................................... 3
VOTING............................................................... 3
FUNDAMENTAL INVESTMENT POLICIES............................................... 4
OTHER INVESTMENT POLICIES AND PRACTICES AND ASSOCIATED RISKS
INVESTMENTS IN FOREIGN SECURITIES ................................... 5
INVESTMENTS IN DEPOSITARY RECEIPTS .................................. 6
CURRENCY RISK ....................................................... 6
INVESTMENTS IN ILLIQUID SECURITIES .................................. 7
BORROWING ........................................................... 7
SECURITIES LENDING .................................................. 7
PORTFOLIO TURNOVER .................................................. 8
MANAGEMENT OF THE FUND ....................................................... 8
BOARD OF DIRECTORS................................................... 8
MANAGEMENT INFORMATION............................................... 8
COMPENSATION......................................................... 9
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<PAGE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES .......................... 9
INVESTMENT ADVISORY AND OTHER SERVICES ....................................... 10
THE INVESTMENT ADVISER............................................... 10
PRINCIPAL UNDERWRITER AND DISTRIBUTOR................................ 11
CUSTODIAN, TRANSFER AGENT AND DIVIDEND PAYING AGENT ................. 11
INDEPENDENT AUDITORS ................................................ 12
LEGAL COUNSEL ....................................................... 12
BROKERAGE ALLOCATION AND RELATED PRACTICES.................................... 12
GENERAL.............................................................. 12
SELECTION OF BROKERS................................................. 12
SELECTION OF DEALERS................................................. 12
PURCHASES AND REDEMPTIONS OF FUND SHARES...................................... 13
WHO MAY PURCHASE FUND SHARES? ....................................... 13
HOW YOU MAY PURCHASE FUND SHARES..................................... 13
HOW YOU MAY REDEEM FUND SHARES....................................... 15
PRICING OF FUND SHARES FOR PURPOSES OF PURCHASES AND REDEMPTIONS .... 17
TAXATION...................................................................... 18
TAXATION OF THE FUND AND SHAREHOLDERS .............................. 18
INVESTMENT COMPANY TAXATION ......................................... 18
TAXATION OF DIVIDENDS AND DISTRIBUTIONS ............................. 18
PURCHASES AND REDEMPTIONS AND EXCHANGES OF FUND SHARES .............. 19
BACKUP WITHHOLDING .................................................. 19
OTHER TAXATION....................................................... 19
REPORTS ...................................................................... 19
OTHER INFORMATION............................................................. 20
FINANCIAL STATEMENTS.......................................................... 21
</TABLE>
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THE TRUST AND THE FUND
GENERAL
The Fund is a separate and distinct investment fund whose shares
constitute a separate and distinct "series" of shares offered by The StockBack
Trust (the "Trust"). The Trust is a business trust that was formed under the
laws of the State of Delaware on September __, 1999. The Trust is authorized to
create any number of separate and distinct investment funds (each, a
"Portfolio"), and to issue a separate and distinct "series" of shares
representing the equity interests in each Portfolio (each, a "Series"). The Fund
is currently the only Portfolio maintained by the Trust.
The Fund (and any other Portfolio of the Fund formed hereafter) will be
treated as a separate entity for purposes of Delaware law, for certain purposes
of the Investment Company Act of 1940, as amended (the "ICA"), and for certain
other purposes. In this regard, the Fund (and any such other Portfolio) will
bear its own expenses (except to the extent another party has agreed to bear
such expenses on its behalf ) and other liabilities, as well as its pro rata
share of the Trust's liabilities. A shareholder of one Portfolio will have an
undivided beneficial interest in the assets of that Portfolio only (unless, of
course, the shareholder also acquires shares of another Portfolio), and a
shareholder who purchases shares of one Portfolio will not thereby acquire
shares of or any other interest in any other Portfolio. As a result, a person
who purchases shares of the Fund becomes entitled to his or her pro rata share
of the dividends and other distributions, if any, paid by the Fund, and must
bear his or her pro rata share of any Fund losses, but is not, in his or her
capacity as a shareholder of the Fund, entitled to receive dividends or other
distributions from any other Portfolio or subject to the losses of any other
Portfolio.
INVESTMENT COMPANY ACT CLASSIFICATION
The Fund is an open-end management investment company within the
meaning of the Investment Company Act of 1940, as amended (the "ICA"). The Fund
is currently classified as a "non-diversified" fund within the meaning of the
ICA. The Fund may change its classification from a "non-diversified" fund to a
"diversified" fund upon the approval of the Board of Directors of the Trust (the
"Board") without shareholder approval. The Fund may not thereafter change its
classification from a "diversified" fund to a "non-diversified" fund without
shareholder approval, as described more fully below.
CAPITAL STOCK
The Fund (and any other Portfolio of the Fund formed hereafter) is
authorized to issue a single class of capital stock, known as a Series, as
described above. Each Series consists of such number of shares (which may be
unlimited) as the Board may determine at the time it authorizes the creation of
the related Portfolio. Each Series may be subdivided into two or more classes.
It is not anticipated that shares of the Fund will be subdivided into classes.
Shareholders are not entitled to any dividends or other distributions
in respect of their shares unless such dividends or distributions are declared
by the Board in its sole and absolute discretion.
Shares have no pre-emptive, appraisal or conversion rights.
VOTING
The Trust will not hold annual shareholder meetings. Shareholders under
certain circumstances have the right to call a meeting of shareholders for the
purpose of voting to remove members of the Board and fill vacancies on the
Board. In addition, shareholders of each Portfolio will have the power to vote
at special meetings with respect to, among other things, changes in fundamental
investment policies of such Portfolio, approval of changes to investment
advisory agreements and such additional matters relating to the Trust or such
Portfolio (or classes of shares thereof, if applicable) as might be required by
the ICA. As to any matter on which shareholders of the Trust are entitled to
vote, they shall be entitled to one noncumulative vote for each full share and
to a proportionate fractional vote for each fractional share standing in the
shareholder's name on the books of the Trust. In no event shall holders of
shares of a Series (or, if
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<PAGE>
applicable, class) be entitled to vote such shares with respect to any matter
that does not affect any interest of such Series (or class) unless otherwise
required by the ICA. All shares then issued and outstanding and entitled to be
voted shall be voted on a Series by Series basis, except that (1) shares shall
be voted in the aggregate without differentiation among the separate Series
(and, if applicable, classes) in the case of the election or removal of members
of the Board and where otherwise required by the ICA or the Trust's Agreement
and Declaration of Trust, (2) shares shall be voted by class where required by
the ICA, and (3) the Board in its sole discretion may determine that, in
situations where the shares of more than one Series or class are entitled to be
voted with respect to a matter, such shares shall be voted as a single class
with respect to such matter if and to the extent permitted under the ICA.
FUNDAMENTAL INVESTMENT POLICIES
Except as described below, it is a fundamental policy of the Fund to
invest in equity securities (including, without limitation, American Depositary
Receipts, European Depositary Receipts and similar depositary receipts
(collectively, "Depositary Receipts") representing interests in underlying
equity securities) issued by domestic or foreign issuers that engage (or whose
subsidiaries engage) in internet commerce as a part of their marketing and sales
operations and that participate (or whose subsidiaries participate) in
StockBack's customer Loyalty Program, all in accordance with the investment
formula described below. This fundamental policy, however, is subject to two
additional fundamental policies. First, the Fund shall meet such portfolio
diversification requirements as it may be required to meet in order for it to
maintain favorable tax treatment under the Internal Revenue Code of 1986, as
amended (the "Code"). Second, the Fund may own up to 5%, but not 5% or more, of
the outstanding equity securities of a particular issuer.
All proceeds from the sale of Fund shares that are attributable to
rebates credited to a member of the Loyalty Program as a result of the member's
on-line purchases of goods or services from a Participating E-Merchant will be
invested in the publicly-traded equity securities, if any, of that merchant (or
its parent company).
All proceeds from the sale of Fund shares that are not attributable to
rebates credited to members of the Loyalty Program as a result of their on-line
purchases of goods or services from Participating E-Merchants, or that are
attributable to rebates credited to members as a result of their on-line
purchases of goods or services from Participating E-Merchants in situations
where neither the merchants nor their parent companies have issued
publicly-traded equity securities, will be invested in the shares of
Participating E-Merchants (or their parent companies) whose shares are
publicly-traded, in a manner designed to ensure that the Fund's relative
positions in those shares are approximately the same immediately after the
investment as they were before the investment.
To the extent that the investment of an amount the Fund would otherwise
invest in the securities of a particular Participating E-Merchant in accordance
with the Fund's investment formula would result in the Fund owning 5% or more of
the outstanding equity securities of that merchant, the Fund will invest such
excess amount in other Participating E-Merchants in accordance with its
investment formula.
To the extent the Fund's investment advisor reasonably determines that
it is necessary for the Fund to depart from its investment formula because of
the application of one of the fundamental policies described in the last two
sentences of the first paragraph of this section, the Fund may invest in
publicly-traded securities issued by companies that are not Participating
E-Merchants. These companies may consist of companies that are internet
merchants that do not participate in the Loyalty Program or that are not
internet merchants. However, it is a fundamental policy of the Fund not to
invest in securities issued by a company that is not a Participating E-Merchant
unless that company's securities are included within the S&P 500 Stock Index or
the Nasdaq Index at the time of investment.
Notwithstanding the foregoing, upon receiving proceeds from the sale
of its shares, the Fund may invest such assets in high-quality, short-term
investments (i.e., instruments issued or guaranteed by the federal government
or its agencies, or rated within one of the top three rating categories by at
least two nationally recognized statistical rating organizations, in each
case having a maturity of one year or less at the time of purchase) pending
investment of such proceeds in equity securities. Similarly, the Fund may
invest proceeds received by it in connection with the liquidation of its
portfolio securities in such high quality, short-term investments pending
reinvestment of such
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<PAGE>
proceeds in other portfolio securities or the distribution of such proceeds to
shareholders in connection with the redemption of their shares or otherwise.
Finally, to the extent the Fund borrows monies in order to meet redemption
requests, the Fund may invest the proceeds of such borrowings in such
high-quality, short-term investments pending the redemption of its shares.
The following are additional fundamental policies of the Fund:
- The Fund may not issue "senior securities" within the meaning of
the ICA (except to the extent that the Fund may be deemed to
issue "senior securities" in connection with any permitted
borrowing by the Fund).
- The Fund may not borrow money or pledge, mortgage or hypothecate
any of its assets, except that, subject to applicable law, the
Fund may borrow money from a bank on a secured or unsecured
basis for temporary purposes, in an amount which, when
considered with any other amounts borrowed by the Fund which
have not been repaid, does not exceed 10% of its total net asset
value (determined at the time of such borrowing and not counting
such borrowing, or the other amounts borrowed by the Fund which
have not been repaid, for purposes of determining net asset
value).
- The Fund may not underwrite securities issued by other issuers
(except to the extent that, in connection with the disposition
of portfolio securities, the Fund may technically be deemed to
be an underwriter of such securities under applicable securities
laws).
- The Fund may not purchase or sell real estate or commodities.
- The Fund may not sell securities short.
- The Fund may not make loans; provided, however, that the Fund
may from time to time lend its portfolio securities to brokers,
dealers and financial institutions, if (1) after giving effect
to any such loan, the aggregate value of the Fund's portfolio
securities on loan does not exceed 33% of the Fund's total asset
value, including collateral received from such loans (at market
value computed at the time of the loan) and (2) in the event the
voting rights with respect to securities loaned by the Fund pass
to the borrower of the securities, the Board makes appropriate
arrangements which entitle the Fund to call the loaned
securities to vote proxies, or otherwise to vote or consent with
respect to a material event affecting securities on loan, when
the Board believes it is necessary to vote.
The Fund may not change or deviate from any of its fundamental policies
(or, if the Board should hereafter classify the Fund as a "diversified" fund,
change its classification from a "diversified" fund to a "non-diversified"
fund), except upon the approval of the holders of not less than a majority of
the Fund's outstanding shares. For this purpose, a majority of the Fund's
outstanding shares means the lesser of (1) 67% of the Fund's shares present at a
shareholder meeting, if the holders of more than 50% of the outstanding shares
of the Fund are present in person or by proxy at such meeting, or (2) more than
50% of the Fund's outstanding shares.
OTHER INVESTMENT POLICIES AND PRACTICES AND ASSOCIATED RISKS
The Fund's investment objective, the strategy by which the Fund will
pursue that objective, and the general risks to which Fund investors are
subject, are discussed in the Prospectus under the headings "INVESTMENT
OBJECTIVE AND STRATEGY" and "RISKS." The discussion that follows is intended to
supplement and enhance the discussion contained in the Prospectus under those
headings.
INVESTMENTS IN FOREIGN SECURITIES
Investing in the securities of foreign issuers involves significant
risks that are not typically associated with investing in securities of domestic
issuers. In addition to being affected by changes in currency exchange rates, as
5
<PAGE>
discussed below, such investments may be affected by changes in foreign or U.S.
laws or restrictions applicable to such investments and by changes in exchange
control regulations.
Since foreign issuers are not subject to uniform accounting, auditing
and financial reporting standards, practices and requirements comparable to
those applicable to U.S. issuers, there may be less publicly available
information about a foreign issuer than about a domestic issuer. Volume and
liquidity in many foreign securities markets are less than volume and liquidity
in U.S. securities markets, and securities of many foreign issuers are less
liquid and more volatile than securities of comparable domestic issuers. Fixed
commissions on certain foreign securities exchanges are generally higher than
negotiated commissions on U.S. exchanges. There is generally less government
supervision and regulation of securities exchanges, brokers, dealers and listed
and unlisted issuers in foreign countries than in the United States. Mail
service between the United States and foreign countries may be slower or less
reliable than within the United States, thus increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities.
Foreign investment markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when a portion of the Fund's assets is uninvested and no return is
earned on such assets. The inability of the Fund to make intended securities
purchases due to settlement problems could cause the Fund to miss attractive
investment opportunities. Inability to dispose of Fund investments due to
settlement problems could result either in losses to the Fund due to subsequent
declines in value of the portfolio securities or, if the Fund has entered into a
contract to sell the securities, could result in possible liability of the Fund
to the purchaser. In addition, with respect to certain foreign countries, there
is the possibility of expropriation, confiscatory taxation, political or social
instability, or diplomatic developments which could affect the Fund's
investments in those countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency or balance of payments position.
INVESTMENTS IN DEPOSITARY RECEIPTS
Many securities of foreign issuers are represented by American
Depositary Receipts (ADRs), European Depositary Receipts (EDRs) and similar
Depositary Receipts. ADRs are certificates issued by a U.S. bank or trust
company that represent the right to receive securities of foreign issuers
deposited with the bank or trust company or a foreign corespondent bank. Prices
of ADRs are quoted in U.S. dollars, and ADRs are traded in the United States on
exchanges or over-the-counter. ADRs do not eliminate all the risks inherent in
investing in the securities of foreign issuers. To the extent that the Fund
acquires ADRs through banks which do not have a contractual relationship with
the foreign issuer of the security underlying the ADR to issue and service such
ADR (i.e., an unsponsored ADR), there may be an increased possibility that the
Fund would not become aware of and be able to respond in a timely manner to
corporate actions such as stock splits or rights offerings involving the foreign
issuer. In addition, the lack of information may result in inefficiencies in the
valuation of such instruments. However, by investing in ADRs rather than
directly in the stock of foreign issuers, the Fund will avoid currency risks
during the settlement period for either purchases or sales. In general, there is
a large, liquid market in the United States for ADRs quoted on a national
securities exchange or the Nasdaq Stock Market. The information available for
ADRs is subject to the accounting, auditing and financial reporting standards of
the domestic market or exchange on which they are traded, which standards are
more uniform and more exacting than those to which many foreign issuers may be
subject.
EDRs are receipts evidencing an arrangement with a non-U.S. bank
similar to that for ADRs and are designed for use in non-U.S. securities
markets. EDRs are not necessarily quoted in the same currency as the underlying
security.
CURRENCY RISK
To the extent that the Fund's assets consist of investments quoted or
denominated in a currency other than the U.S. dollar, the Fund will be exposed
to adverse developments affecting the value of such currency. A decline in the
currency in which a foreign security is quoted or denominated might reduce the
value of the Fund's investment in such a
6
<PAGE>
security. In addition, if the exchange rate for the currency in which the Fund
receives dividend payments declines against the U.S. dollar before such
dividends are paid by the Fund to its shareholders, the Fund may have to sell
portfolio securities to obtain sufficient cash to pay such dividends. The Fund
may from time to time have substantial currency exposure from investments quoted
or denominated in foreign currencies.
Currency exchange rates may fluctuate significantly over short periods
of time causing, along with other factors, the Fund's net asset value to
fluctuate. Such exchange rates generally are determined by the forces of supply
and demand in the foreign exchange markets and the relative merits of
investments in different countries, actual or anticipated changes in interest
rates and other complex factors. Currency exchange rates also can be affected
unpredictably by intervention by U.S. or foreign governments or central banks,
or the failure to intervene, or by currency controls or political developments
in the U.S. or abroad. To the extent that a substantial portion of the Fund's
total assets is denominated or quoted in the currencies of foreign countries,
the Fund will be more susceptible to the risk of adverse economic and political
developments within those countries.
The Fund will not seek to hedge against the risks associated with
fluctuations in currency exchange rates.
INVESTMENTS IN ILLIQUID SECURITIES
StockBack Advisers LLC ("StockBack Advisers"), an affiliate of
StockBack, will serve as the Fund's investment adviser. As investment adviser,
StockBack Advisers is responsible for valuing and monitoring the liquidity of
investments held by the Fund. Investments may be illiquid because of the absence
of a trading market, making it difficult to value them or dispose of them
promptly at an acceptable price. The Fund may not acquire any investment if, as
a result, more than 15% of its net assets (taken at current value) would be
invested in instruments that are illiquid by virtue of the absence of a readily
available market.
Illiquid investments include most restricted securities. A restricted
security is one that has a contractual restriction on resale or cannot be resold
publicly until it is registered under the Securities Act of 1933.
The foregoing restriction on illiquid investments does not apply to
purchases of restricted securities eligible for sale to qualified institutional
buyers in reliance upon Rule 144A under the Securities Act of 1933 that the
Board or StockBack Advisers (operating under the general oversight of the Board)
determines to be liquid. In making such determination, the Board or StockBack
Advisers will take into account trading activity for such securities and the
availability of reliable pricing information, among other factors. To the extent
that qualified institutional buyers become for a time uninterested in purchasing
these restricted securities, the Fund's holdings of those securities may become
illiquid. The foregoing restriction also does not apply to purchases of
securities of foreign issuers offered and sold outside the United States in
reliance upon the exemption from registration provided by Regulation S under the
Securities Act of 1933.
BORROWING
The Fund may borrow money from a bank on a secured or unsecured basis
for temporary purposes (such as for meeting redemption requests), in an amount
which, when considered with any other amounts borrowed by the Fund which have
not been repaid, does not exceed 10% of its total net asset value (determined at
the time of such borrowing and not counting such borrowing, or the other amounts
borrowed by the Fund which have not been repaid, for purposes of determining net
asset value). Interest on borrowed money is an expense that the Fund would not
otherwise incur, so that the Fund may have little or no net investment income
during periods of borrowing. Since substantially all of the Fund's assets
fluctuate in value whereas borrowing obligations are fixed, when the Fund has
outstanding borrowings, its net asset value tends to increase and decrease more
when portfolio investments increase and decrease, respectively, than would
otherwise be the case.
SECURITIES LENDING
7
<PAGE>
If the Fund lends its portfolio securities, such loans will be secured
by collateral in the form of cash or U.S. Treasury securities, which at all
times during which the loan is outstanding will be maintained in an amount at
least equal to the current market value of the loaned securities. The Fund will
continue to receive interest and dividends on the loaned securities during the
term of its loans and, in addition, will receive either a fee from the borrower
or interest earned from the securities in which cash collateral is invested
during the term of the loan. The Fund will also receive any gain or loss in the
market value of its loaned securities.
The right to terminate a loan of securities, subject to appropriate
notice, will be given to either party. When a loan is terminated, the borrower
will return the loaned securities to the Fund.
The Fund intends to limit the amount of its securities lending so that
the aggregate amount of interest received attributed to securities loaned, if
considered "other income" for federal tax purposes, will not cause it to lose
its tax status as a regulated investment company.
The primary risk involved in lending securities is that the borrower
will fail financially and not return the loaned securities at a time when
collateral is insufficient to replace the full amount of the loaned securities.
The borrower would be liable for the shortage, but the Fund would be an
unsecured creditor with respect to such shortage and might not be able to
recover all or any of it. In order to minimize this risk, the Fund will make
loans of securities only to firms that StockBack Advisers (under the general
oversight of the Board) deems creditworthy.
PORTFOLIO TURNOVER
As a result of the investment policies discussed in the Prospectus
under the heading "INVESTMENT OBJECTIVE AND STRATEGY," the frequency of the
Fund's trading activities will depend heavily on the frequency with which
investors purchase and redeem shares. The frequency of purchases of Fund
shares is in turn expected to depend not only on the frequency with which
investors make direct cash purchases, but also on the frequency with which
investors use the StockBack credit card to purchase goods or services or make
on-line purchases of goods and services from Participating E-Merchants
through StockBack's Web site portals to these merchants (as well as the
dollar amounts of those purchases). The frequency of share redemptions cannot
be gauged with any degree of accuracy. Accordingly, turnover rates may vary
greatly from year to year as well as within a particular year and may be
affected not only by cash requirements for redemptions of the Fund's shares,
but also by certain requirements which the Fund must satisfy to receive
certain favorable tax treatment.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
Under the Trust's Agreement and Declaration of Trust, the Board is
responsible for the overall management and conduct of the business and affairs
of the Fund. Subject to that general responsibility, the Board is authorized to
delegate day-to-day investment management responsibilities with respect to the
management of the Fund's assets to one or more investment advisers, which in
turn are authorized to delegate such day-to-day investment management
responsibilities to one or more subadvisers. In addition, the Board may elect
one or more officers of the Fund and, subject to the Board's general
responsibility with respect to the Fund, delegate to such officers such duties
and responsibilities as the Board determines to be necessary, advisable or
appropriate to the management and conduct of the Fund's day-to-day business and
affairs.
MANAGEMENT INFORMATION
The names of the Directors and Officers of the Fund, as well as their
addresses, ages and principal occupations for the past five years, are set forth
below. Those individuals designated with an asterisk are "interested persons" of
the Trust, as that term is defined in Section 2(a)(19) of the ICA. Each of these
individuals is also affiliated with and/or an officer of Dome Partners, LLC and
its subsidiary companies, including StockBack, StockBack Advisers and StockBack
Capital. See "CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES."
8
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION(S)
NAME, ADDRESS AND AGE POSITION(S) HELD WITH FUND DURING PAST 5 YEARS
- --------------------- -------------------------- -------------------
<S> <C> <C>
*Robert S. Feidelson, 35 Director; Chief Financial From 1994 through April, 1999, Managing Director
7 Plateau Lane Officer and Treasurer of Lehman Brothers Holdings, Inc. ("Lehman").
Bedford, NY 10506.
*Timothy C. Parrott, 32 Director; President 3/99 - 5/99 - Saker Advisors Limited, an
39 Worth St., Apt. 2E Investment Management Regulatory Organization
New York, NY 10013 and Commodity Futures Trading Commission
regulated investment advisor in the United
Kingdom ("Saker") - Managing Director. 1996 -
3/99 - Lehman - Executive Director and Head of
European Hedge Fund Group. 1994-1996 - Refco
Commodities Group - Senior vice president.
*C. Eric Peters, 32 Director; Vice President and 11/98 - 5/99 - Saker - Director 1997 - Credit
100 W. 72nd St., Apt. 2E Secretary Suisse First Boston - Proprietary Trader.
New York, NY 10023 1994-1997 - Lehman, Vice President and
Proprietary Trader.
Michael Luther, 32 Director 6/98 - Present - Bandspeed, Inc. - Co-Founder,
6530 W. 6th St. CEO and President Bandspeed develops and
Los Angeles, CA 90048 licenses next generation signal processing
technology. 8/97 - 5/98 - Hynomics, Inc. - Vice
President of Business Development. Hynomics
develops control and planning technology for
enterprise software systems. 9/95 - 6/97 -
Student, Stanford University Graduate School of
Business. 9/94 - 8/95 - Artic Orchard, LLC -
Co-founder and Principal. Artic Orchard is a
food retailer.
Peter Zurkow, 46 Director Since 1994, Managing Director, PaineWebber,
7 Ridgecrest Inc.
North Scarsdale, NY 10583
</TABLE>
COMPENSATION
Directors of the Trust, and officers of the Trust or the Fund, who are
interested persons of the Trust do not receive any compensation from the Trust
or the Fund for their services to the Trust or the Fund. Each director of the
Trust who is not an interested persons of the Trust will receive compensation
from the Trust at the rate not to exceed $25,000 annually. In addition,
directors of the Trust who are not interested persons of the Trust will be
reimbursed by the Trust for any out-of-pocket expenses incurred by them in
connection with the Trust's affairs (including Trust affairs relating to the
Fund).
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
CONTROL PERSONS
As of September 16, 1999, Dome Partners, LLC, a Delaware limited
liability company whose address is 55 Broad Street, 6th Floor, New York, NY
10004 ("Dome"), owned, beneficially and of record, 100% of the issued and
9
<PAGE>
outstanding capital shares of the Fund, all of which were issued to Dome in
connection with the organization of the Fund. It is expected that Dome will own,
beneficially and of record, substantially less than 25% of the Fund's
outstanding capital shares within six months of the date on which the Fund first
offers and sells its shares to the public. As a result, although Dome may now
control the Fund, it is not expected that it will continue to control the Fund
subsequent to the expiration of that six-month period.
PRINCIPAL HOLDERS
As of September 16, 1999, no person (other than Dome) owned of record
5% or more of the Fund's outstanding capital shares.
As of September 16, 1999, due to their ownership of membership
interests in Dome, the following individuals and entities would be deemed to
beneficially own more than 5% of the Fund's outstanding shares:
<TABLE>
<CAPTION>
NAME ADDRESS PERCENTAGE
---- ------- ----------
<S> <C> <C>
Robert S. Feidelson 7 Plateau Lane 21.59%
Bedford, NY 10506
Timothy C. Parrott 39 Worth St., Apt. 2E 21.59%
New York, NY 10013
C. Eric Peters 100 W. 72nd St., Apt. 2E New York, 21.59%
NY 10023
Thomas H. Dittmer Trust 111 West Jackson Blvd., #1700 6.48%
Chicago, IL 60604
</TABLE>
It is expected that each of the Thomas H. Dittmer Trust and Messrs. Feidelson,
Parrott and Peters will own, beneficially and of record, less than 5% of the
Fund's outstanding shares within six months of the date on which the Fund first
offers and sells its shares to the public. As a result, none of these persons is
expected to be a principal holder of Fund shares subsequent to the expiration of
that six-month period.
MANAGEMENT OWNERSHIP
As of September 16, 1999, the directors and officers of the Fund, as a
group, owned less than 1% of the Fund's outstanding shares. See, however,
"PRINCIPAL HOLDERS" above.
INVESTMENT ADVISORY AND OTHER SERVICES
THE INVESTMENT ADVISER
StockBack Advisers, the Fund's investment adviser, with principal
offices located at 55 Broad Street, 6th Floor, New York, New York 10004, is
described in the Prospectus under the heading "THE INVESTMENT ADVISER." The
discussion that follows is intended to supplement and enhance the discussion
contained in the Prospectus under that heading.
STOCKBACK ADVISERS
As investment adviser, StockBack Advisers will have responsibility for
the management of the Fund's investments and for providing various
administrative services to the Fund, subject to the overall authority and
supervision of the Board. In this connection, StockBack Advisers will keep,
prepare or file, or cause to be kept, prepared or filed, all accounts, books,
records and other documents required to be kept, prepared or filed by the Fund
10
<PAGE>
under federal or state law, as well as provide additional services with respect
to the daily administration of the Fund. StockBack Advisers is a
recently-organized investment adviser having no history of operations.
StockBack Advisers' management responsibilities to the Fund are
expected to be limited in light of the fact that, except under the limited
circumstances described in the Prospectus under "INVESTMENT OBJECTIVE AND
POLICIES -- PORTFOLIO MANAGEMENT -- PURCHASES OF SECURITIES," the Fund will
purchase securities in accordance with a pre-determined investment formula.
Similarly, except under the limited circumstances described in the Prospectus
under "INVESTMENT OBJECTIVE AND POLICIES -- PORTFOLIO MANAGEMENT -- SALE OF
SECURITIES," the Fund will not sell its portfolio securities unless it is
required to do so (1) in order to meet investor redemption requests, (2) to
ensure that the Fund will be treated as a diversified fund for federal income
tax purposes or (3) to ensure that the Fund does not maintain an investment in
5% or more of the outstanding equity securities of a particular issuer. Subject
to the considerations described in (2) and (3) of the preceding sentence, the
Fund will attempt to sell its equity investments in a manner designed to ensure
that the Fund's relative positions in its equity investments will be
approximately the same after giving effect to such sales.
StockBack Advisers is a wholly-owned indirect subsidiary of Dome.
Each of Messrs. Feidelson, Parrott and Peters is affiliated with and/or
an officer of Dome and its subsidiary companies, including StockBack Advisers.
See "CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES."
StockBack Advisers will not charge any fee or expenses to the Fund for
the investment advisory and administrative services it provides to the Fund.
PRINCIPAL UNDERWRITER AND DISTRIBUTOR
The Trust has entered into a Distribution Agreement with StockBack
Capital LLC, 55 Broad Street, 6th Floor, New York, New York 10004 ("StockBack
Capital"), under which StockBack Capital acts as the principal underwriter and
distributor of Fund shares. Neither the Trust nor the Fund pays StockBack
Capital any fees for these services. StockBack Capital has agreed to use its
best efforts to market and sell Fund shares on a continuous basis, but has no
obligation to purchase Fund shares for its own account.
Each of Messrs. Feidelson, Parrott and Peters is affiliated with and/or
an officer of Dome and its subsidiary companies, including StockBack Capital.
See "CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES."
CUSTODIAN, TRANSFER AGENT AND DIVIDEND PAYING AGENT
[INSERT NAME OF CUSTODIAN] (the "Custodian") serves as the custodian of
the assets of the Fund pursuant to a Custodial Services Agreement. The principal
office of the Custodian is located at [INSERT CUSTODIAN'S ADDRESS]. Under the
Custodial Services Agreement, the Custodian is entitled to receive from the Fund
a fee, [DESCRIBE CUSTODIAN'S FEE]. Also, the Custodial Services Agreement
authorizes the Custodian to appoint one or more sub-custodians with the approval
of the Board. Pursuant to a sub-custody agreement with [INSERT NAME OF
SUB-CUSTODIAN], [INSERT ADDRESS OF SUBCUSTODIAN] (the "Subcustodian"), the
Custodian, with the approval of the Board, has appointed the Subcustodian to
serve as custodian for the securities of foreign issuers held by the Fund.
Neither the Custodian nor the Subcustodian plays any role in determining the
investment policies of the Fund or the securities purchased or sold by the Fund.
[INSERT NAME OF TRANSFER AGENT] (the "Transfer Agent") serves as the
transfer and dividend paying agent for the Fund pursuant to an Administration
and Accounting Services Agreement. The principal office of the Transfer Agent is
located at [INSERT TRANSFER AGENT'S ADDRESS]. Under the Administration and
Accounting Services Agreement, the Transfer Agent is entitled to receive from
the Fund a fee, [DESCRIBE TRANSFER AGENT'S FEE].
11
<PAGE>
StockBack has agreed to reimburse the Fund, in an amount not to exceed
$2,000,000 per year, for fees and expenses such as costs incurred in connection
with the organization of the Fund, federal and state registration fees,
directors' fees (not to exceed $50,000 per year in the aggregate) payable by the
Fund to its independent directors, custodial, transfer agent and dividend paying
agent fees and expenses, and accounting, printing, legal, Web site maintenance
and shareholder correspondence fees and expenses. The fees payable by the Fund
under the Custodial Services Agreement and the Administration and Accounting
Services Agreement are subject to this reimbursement obligation on the part of
StockBack.
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP, 1301 Avenue of Americas, New York, NY
10019, serves as independent auditors for the Trust and performs an audit of the
Trust's financial statements annually.
LEGAL COUNSEL
[INSERT NAME OF LAW FIRM], [INSERT ADDRESS OF LAW FIRM, INCLUDING ZIP
CODE], serves as counsel to the Trust and its independent directors.
BROKERAGE ALLOCATION AND RELATED PRACTICES
GENERAL
The Fund will invest primarily in equity securities. To the extent
these securities are exchange-traded, StockBack Advisers will select brokers to
execute transactions in these securities and negotiate the commissions charged
to the Fund by the brokers. To the extent these securities are traded in the
"dealer" or "over the counter" markets, such as the Nasdaq Stock Market,
StockBack Advisers will select the dealers with whom transactions in these
securities are effected. Similarly, to the extent (expected to be limited) that
the Fund invests in fixed-income securities that are traded in the "dealer" or
"principal" markets, StockBack Advisers will select the dealers with whom
transactions in these securities are effected. In many cases, however,
fixed-income "money market" instruments may be traded directly with the issuers
of such instruments without the intervention of a broker or dealer.
Neither StockBack Advisers nor any company affiliated with it will act
as a broker or dealer for the purposes of executing or effecting portfolio
transactions for or with the Fund.
SELECTION OF BROKERS
StockBack Advisers will select only those brokers who it reasonably
believes are likely to provide "best execution" of the transactions entrusted to
it. "Best execution" of a transaction means providing the best overall terms for
the Fund under prevailing market conditions. The principal element of "best
execution" is obtaining the lowest purchase price for the Fund, or the highest
sales price for the Fund, as the case may be, in light of the type and amount of
security being purchased or sold and prevailing market conditions (the "Best
Price Factor"). However, the "qualitative" aspects of execution -- e.g.,
timeliness, accuracy, responsiveness to StockBack Advisers' instructions, the
ability to effect the transaction at all if a large block is involved, the
availability of the broker to stand ready to execute possibly difficult
transactions in the future, the financial strength and stability of the broker
and similar factors -- are also important elements of "best execution" (the
"Qualitative Factors"). Because of these Qualitative Factors, the StockBack
Advisers will not necessarily select brokers who charge the lowest commissions,
but may select brokers who charge higher commissions if, in StockBack Advisers'
reasonable judgment, the "qualitative" execution services provided by those
brokers (including related clearance and settlement services) justify the
payment of higher commissions.
SELECTION OF DEALERS
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In selecting dealers to effect transactions with the Fund in securities
traded in the "dealer" or "over the counter" markets, StockBack Advisers will
select dealers on a transaction-by-transaction basis with a view to obtaining
the highest sales price (net of the dealer's mark-down) or lowest purchase price
(net of the dealer's mark-up) in connection with each particular transaction
(taking into account the dealer's ability to provide the best "qualitative"
execution, as described above).
In certain cases, StockBack Advisers may employ agents to seek out the
best dealer market for the Fund and cause the Fund to pay a commission for this
service. StockBack Advisers will employ agents to perform this service only in
situations where it reasonably believes that, in light of the type and/or amount
of security to be bought or sold in a particular transaction and/or prevailing
market conditions, StockBack Advisers does not have the "in house" capability to
seek out and obtain "best execution" and that employment of any agent will
result in better overall terms to the Fund, notwithstanding the payment of a
commission.
PURCHASES AND REDEMPTION OF FUND SHARES
WHO MAY PURCHASE FUND SHARES?
In order to purchase Fund shares, you must first become a member of
StockBack's Loyalty Program. To become a member, you need to complete the
on-line application that can be found at StockBack's Web site
(http://www.stockback.com). As part of the application process and as a
condition to membership in the Loyalty Program, you will be asked to consent to
certain matters, including your consent to electronic delivery of all reports,
statements and other information that the Fund or StockBack may deliver to you.
Further, as described in more detail below, you will be asked to authorize
StockBack Capital LLC, an affiliate of StockBack ("StockBack Capital") whose
address is 55 Broad Street, 6th Floor, New York, New York 10004, to invest, for
your account, all cash rebates credited to your account in connection with your
on-line purchases of goods or services from Participating E-Merchants (or your
use of the StockBack credit card) in shares of the Fund. This authorization on
your part is known as a "Standing Order" to StockBack Capital to use the rebates
credited to your account to purchase shares of the Fund for your account.
Since one of the principal purposes of participation in the Loyalty
Program is to enable a member to acquire shares of the Fund through these
rebates, you should not become a member of the Loyalty Program unless you
first determine that an investment in the Fund is appropriate for you.
HOW YOU MAY PURCHASE FUND SHARES
Once you have become a member of the Loyalty Program, you may purchase
Fund shares in one of three ways:
- by making on-line purchases of goods or services from
Participating E-Merchants through StockBack's Web site portals
to those merchants, in which case all cash rebates credited to
your account in connection with those purchases will be applied
to the purchase of Fund shares for your account in accordance
with your Standing Order to StockBack Capital
- by using your StockBack credit card to purchase goods or
services, in which case all cash rebates credited to your
account in connection with those purchases will be applied to
the purchase of Fund shares for your account in accordance with
your Standing Order
- by sending funds to StockBack Capital
These three purchase methods are described in detail below.
ON-LINE PURCHASES OF GOODS OR SERVICES FROM PARTICIPATING E-MERCHANTS
Each time you make an on-line purchase of a good or service from a
Participating E-Merchant through StockBack's Web site portal to that merchant,
the merchant will rebate (on a daily, weekly, monthly or quarterly basis,
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depending on the merchant's payment processing procedures) a particular
percentage of the purchase price to a bank escrow agent (currently, Chase
Manhattan Bank, 1211 Avenue of Americas, New York, New York 10036). The bank
escrow agent will credit to you (on its books and records) each rebate paid to
it by a Participating E-Merchant that is attributable to your purchase of goods
or services from such merchant. The bank escrow agent will perform the same
function for other members, and will hold all rebates it receives in connection
with your on-line purchases of goods or services from Participating E-Merchants
in a master escrow account with all rebates it receives in connection with other
members' on-line purchases of goods or services from Participating E-Merchants.
The particular percentage of the purchase price to be rebated by a Participating
E-Merchant to the bank escrow agent for your account will be determined by
agreement between StockBack and the merchant and will be posted on StockBack's
Web site. StockBack and Participating E-Merchants may change these rebate
percentages from time to time. Any such changes will be posted on StockBack's
Web site and will not become effective until posted.
Once rebates totaling not less than $10 have been credited to your
account by the bank escrow agent, the total amount will be invested by StockBack
Capital for your account in shares of the Fund in accordance with your Standing
Order to StockBack Capital. Fund shares will be priced at the net asset value
per share in effect at the time of the investment. The concept of "net asset
value per share" is explained below under "PRICING OF FUND SHARES FOR PURPOSES
OF PURCHASES AND REDEMPTIONS." The investment will occur [NO LATER THAN THE
CLOSE OF BUSINESS ON THE FIRST BUSINESS DAY OF THE FUND FALLING IN THE MONTH
THAT FOLLOWS THE MONTH DURING WHICH YOU HAVE REACHED THE $10 THRESHOLD ]. This
investment process will resume every time rebates totaling not less than $10 (or
such lesser amount as StockBack may from time to time determine and post on its
Web site) have been credited by the bank escrow agent to your account. The
Fund's business days consist of those days on which the New York Stock Exchange
is open for business.
Although you will have instructed StockBack Capital, pursuant to your
Standing Order, to invest, in shares of the Fund, amounts that have been
credited to your account by the bank escrow agent, you will be entitled, at your
option, to withdraw any such amounts in cash by making an on-line cash
withdrawal request to StockBack Capital, provided you do so before StockBack
Capital, under the Standing Order, has placed an order with the Fund to purchase
Fund shares with such amounts. This is the case even if amounts credited to your
account by the bank escrow agent do not exceed the $10 threshold described
above. However, you should understand that you will be charged a nominal
processing fee (currently, $2.00, but subject to change upon posting on
StockBack's Web site) in connection with any amount you withdraw from the bank
escrow account.
You should be aware that, under current Loyalty Program policies, a
Participating E-Merchant from whom you have purchased a good or service will not
remit the rebate attributable to such purchase to the bank escrow agent for your
account until the merchant's stated return period (as in effect on the date you
made your purchase) applicable to the good or service has expired. For example,
if you purchase a good from a Participating E-Merchant on a particular day but,
in accordance with the merchant's return policy in effect on that day, you are
entitled to return the good for a refund within a specified number of days after
the date of your purchase, the merchant will remit the rebate attributable to
such purchase to the bank escrow agent, and the bank escrow agent will credit
the rebate to your account, only if you keep the good and do not return it to
the merchant for a refund prior to the expiration of such period. StockBack
intends to review this policy from time to time and may change the policy by
posting the change on its Web site. Any such change would be effective only with
respect to rebates attributable to purchases of goods or services made after the
posting of such change. Although it has no present intention to do so, StockBack
may alter the current policy to provide that a Participating E-Merchant shall
remit the rebate attributable to a member's purchase of a good or service from
such merchant to the bank escrow agent prior to the expiration of the merchant's
stated return period. In that case, the current policy might also be modified to
provide that, if a member returns a good to a Participating E-Merchant prior to
the expiration of that merchant's stated return period with respect to that
good, StockBack would be entitled to take actions designed to reimburse the
merchant for the amount of the rebate. Such actions might include directing the
bank escrow agent to debit the member's account in the amount of the rebate and
to remit such amount to the merchant or directing the Fund to redeem shares held
by the member to the extent necessary to reimburse the merchant for the amount
of the rebate and to remit such redemption proceeds to the merchant. As an
alternative to either of these actions, StockBack
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might reimburse the merchant for the amount of the rebate out of its own
resources and instruct the bank escrow agent to debit the member's account for
such amount and credit that amount to StockBack.
You should also be aware that you are not entitled to any interest or
other earnings on funds held by the bank escrow agent in the master escrow
account for your account. All such interest and other earnings, if any, will be
payable to StockBack.
USING YOUR STOCKBACK CREDIT CARD TO PURCHASE GOODS OR SERVICES
If you use your StockBack credit card to purchase goods or services
from any merchant that accepts the card, the issuer of the card will rebate a
particular percentage of the purchase price to the bank escrow agent, and the
bank escrow agent will credit to you (on its books and records) each rebate so
paid to it by the issuer of the card in connection with your use of the card.
The stated percentage in effect for purchases made on a particular day will be
the percentage posted that day on StockBack's Web site. The issuer will rebate
amounts to the bank escrow agent for your account regardless of whether the
merchant participates in the Loyalty Program and regardless of whether you make
your purchase on-line or through a more traditional method. Of course, if you
use your StockBack card to make an on-line purchase from a Participating
E-Merchant through StockBack's Web site portal to that merchant, you will also
be eligible for the benefits described above under " ON-LINE PURCHASES OF GOODS
OR SERVICES FROM PARTICIPATING E-MERCHANTS." As described more fully below, you
may use your StockBack credit card to purchases shares of the Fund. The issuer
of the card, however, will not rebate any amounts to the bank escrow agent for
your account in connection with those purchases.
As is the case with rebates from Participating E-Merchants, rebates
from the issuer of the StockBack credit card will be forwarded to the bank
escrow agent (on a daily, monthly or quarterly basis, depending on the issuer's
payment processing procedures) and will be used to purchase Fund shares in a
manner identical to the manner described above under " ON-LINE PURCHASES OF
GOODS OR SERVICES FROM PARTICIPATING E-MERCHANTS." Again, you should be aware
that rebate amounts from the issuer of the StockBack credit card will be subject
to the return policy described above. In addition, you will not be entitled to
any interest or other earnings on funds held by the bank escrow agent in the
master escrow account for your account.
CASH PURCHASES
You may purchase shares for cash by sending funds to StockBack Capital
(at the address for StockBack Capital set forth on page 13) or authorizing
StockBack Capital to make automatic deductions from your bank checking or
savings account for the purpose of purchasing shares. You may also purchase
shares by using a credit card, including your StockBack credit card. Purchases
of shares will be made as of the close of business on the Fund business day on
which StockBack Capital receives your funds (at the net asset value per share in
effect at that time), as long as StockBack Capital receives the funds on or
before 11:00 a.m., Eastern time, on such day. If StockBack Capital receives your
funds after 11:00 a.m., Eastern time, on a particular Fund business day,
purchases will be made as of the close of business on the next Fund business day
(at the net asset value per share in effect at that time). If you send a check
to StockBack Capital or otherwise send funds that cannot freely be used by
StockBack Capital to purchase shares for your account, StockBack Capital will
invest in Fund shares for your account only after your check has cleared or such
funds become freely available to StockBack Capital.
Each cash purchase must be made in an amount not less than $10.00.
[The Fund will charge a check processing fee not to exceed $5 for each
purchase of shares made by check.] If you use a credit card to purchase shares,
the issuer of the card may assess a processing fee up to 3% of the amount
charged. For example, if you charge $100 on your StockBack credit card to
purchase Fund shares and the issuer of the card charges a $3 processing fee,
only $97 will be invested in the Fund for your account.
HOW YOU MAY REDEEM FUND SHARES
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You may redeem Fund shares on any Fund business day by making an
on-line redemption request or written redemption request to StockBack Capital.
StockBack Capital may, but is not required, to accept telephone or fax
redemption requests. If StockBack Capital receives your redemption request on or
before 11:00 a.m., Eastern time, on a particular Fund business day, your
redemption will be effected as of the close of business on that day. If
StockBack Capital receives your redemption request after 11:00 a.m., Eastern
time, on a particular Fund business day, your redemption will be effected as of
the close of business on the next Fund business day.
If you request that a particular dollar amount of your shares be
redeemed instead of requesting the redemption of a particular number of shares,
StockBack Capital will cause the Fund to redeem that number of shares that will
yield the desired dollar amount.
Redemption requests that contain a restriction as to the time, date
or share price at which the redemption is to be effective will not be honored.
If you request a redemption of Fund shares, you will ordinarily receive
a check in the amount of the redemption proceeds (minus the amount of the
redemption fee described below, if you have held the shares for less than one
year in accordance with the "first-in, first-out" formula described below). The
Fund will usually make payment for redemptions of Fund shares within one
business day, but not later than seven calendar days after receipt of a
redemption request. The Fund, at its discretion, may agree to forward redemption
proceeds (minus the amount of the redemption fee, if you have held the shares
for less than one year) to you or on your behalf by less traditional means, such
as a wire transfer of the proceeds either to a designated bank account or to the
issuer of your StockBack credit card for the purpose of paying off any
outstanding balance you may have. In these cases, the Fund may assess you a
nominal fee to cover its expenses.
The Fund reserves the right to redeem your shares "in-kind" (that is,
with securities held by the Fund) rather than in cash. The Fund generally does
not intend to exercise its right to redeem your shares in kind. In addition, the
Fund may not exercise the right unless the aggregate dollar amount of your
redemptions during any ninety-day period exceeds the lesser of (i) $250,000 or
(ii) an amount equal to 1% of the net asset value of the Fund at the beginning
of such ninety day period.
REDEMPTION FEE
The Fund is designed for long-term investors who are willing to accept
the risks associated with a long-term investment in the equity securities of
Participating E-Merchants. The Fund is not designed for short-term traders whose
frequent purchases and redemptions can generate substantial cash flow
complications that may disrupt the Fund's investment program. Short-term traders
often redeem when the market is most turbulent, often forcing the sale of
underlying securities held by the Fund at the worst possible time as far as
long-term investors are concerned. Additionally, short-term trading drives up
the Fund's transaction costs--measured by both commissions and bid/ask
spreads--which are borne by the remaining long-term investors. For these
reasons, the Fund assesses a 2.00% redemption fee on the redemption of shares
held for less than one year. Any redemption fees charged by the Fund will be
payable by the redeeming investor to the Fund, not to the Fund's investment
advisor or any other service provider. Accordingly, redemption fees charged by
the Fund will be available to pay expenses the Fund would otherwise bear
(including any transaction expenses incurred by the Fund in liquidating
investments in order to meet redemption requests), to make additional portfolio
investments, or to pay dividends to Fund shareholders.
The redemption fee will not apply to any shares purchased through
reinvested distributions (dividends and capital gains) or to shares held in
retirement plans (such as 401(k), 403(b), 457, Keogh, Profit Sharing Plans, and
Money Purchase Pension Plans). This fee also does not apply to shares held in
IRA accounts.
The Fund will use the "first-in, first-out" (FIFO) method to determine
whether a redeeming shareholder will be charged the 2.00% redemption fee. Under
this method, the date of the redemption will be compared to the earliest
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purchase date of shares held in the account. If the holding period of the shares
determined in accordance with this method is less than one year, the redemption
fee will be assessed against such shares. The redemption fee will not decrease
during the one year period in which shares are held. In other words, the full
2.00% fee will apply to shares redeemed on the 364th day after purchase as well
as to shares redeemed earlier.
AUTOMATIC REDEMPTIONS
The Fund has reserved the right to redeem your shares if you revoke
your consent to receive information about the Fund through electronic delivery,
unless you expressly agree to bear the cost of paper delivery of such
information. The Fund seeks to operate at a low expense level, and the cost of
paper delivery of Fund information (if not paid for by the individual
shareholders requesting such information) would increase Fund expenses for all
shareholders above what StockBack believes is an appropriate level. Shareholders
may request paper delivery of Fund information from time to time, provided that
the cost of such delivery will be assessed directly against the shareholder and
not absorbed as a Fund expense generally. Written notice of a proposed mandatory
redemption will be given at the time consent to electronic delivery is revoked,
if the shareholder revoking consent has not expressly agreed to bear the cost of
paper delivery.
The Fund has also reserved the right to redeem your shares to satisfy a
reimbursement obligation owed to a Participating E-Merchant as a result of a
return of goods purchased by you, as described above under "HOW YOU MAY PURCHASE
FUND SHARES."
Finally, the Fund has reserved the right to redeem your shares (unless
you are an IRA) if, after giving effect to a particular redemption request, the
total value of your remaining Fund shares would be less than $10.00. If you
request a redemption that would result in the total value of your remaining Fund
shares being less than that amount, your redemption request will be deemed to
include a request to redeem your remaining shares.
TRANSFER RESTRICTIONS
All of your Fund shares will be issued by the Fund in the name of
StockBack Capital or its nominee, which will hold the shares on its books for
your account and benefit. You may transfer the beneficial ownership of your
shares on StockBack Capital's books upon reasonable notice to StockBack
Capital. A nominal fee will be applied to such transfers. The amount of this
fee in effect on a particular transfer date will be the transfer fee posted
on StockBack's Web site on that date. You may not obtain certificates for
your shares. Further, the Fund will not issue shares in your name or the name
of any of your transferees.
PRICING OF FUND SHARES FOR PURPOSES OF PURCHASES AND REDEMPTIONS
The Fund will value its shares for purchase and redemption purposes on
each day on which the New York Stock Exchange is open for business. In
determining the net asset value per share on a particular purchase or redemption
date, the Fund will first determine the overall net asset value of the Fund on
that date (calculated as of the close of regular trading on the New York Stock
Exchange, normally 4:00 p.m., Eastern time), and then divide the overall net
asset value by the number of Fund shares then outstanding. In determining its
overall net asset value, the Fund will first determine the overall value of its
portfolio investments, and then subtract from that value the amount of its
liabilities, including accrued expenses.
Equity securities (including common stocks, preferred stocks,
convertible securities and warrants) listed or traded on a U.S. national
securities exchange are valued at their last sale price (on the principal
exchange on which they are listed or traded) prior to the time when the Fund's
assets are valued. In the absence of any exchange sales on that day and for
unlisted equity securities (domestic or foreign) traded primarily in the U.S.
over the counter market, such securities are valued at the last sale price on
the Nasdaq Stock Market. In the absence of Nasdaq Stock Market sales on that
day, such securities are valued at the last reported bid price.
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Securities that are primarily traded on foreign securities exchanges
are generally valued at the last sale price on the exchange where they are
primarily traded. All foreign securities traded primarily in the foreign over
the counter market are valued at the last sale quotation, if market quotations
are available, or the last reported bid price if there is no active trading in a
particular security on a given day. Quotations of foreign securities in foreign
currencies are converted, at current exchange rates, to their U.S. dollar
equivalents in order to determine their current value. In addition, because of
the need to value foreign securities (other than ADRs) as of the close of
trading on various exchanges and over-the-counter markets throughout the world,
the calculation of the Fund's net asset value may not take place
contemporaneously with the valuation of foreign securities held by the Fund.
Securities for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
the Board, including valuations provided by a pricing service retained for this
purpose.
Short-term debt securities are generally valued on an amortized cost
basis. Under the amortized cost basis method of valuation, the security is
initially valued at its purchase price and thereafter by amortizing any premium
or discount uniformly to maturity. If for any reason the Board believes the
amortized cost method valuation does not fairly reflect the fair value of any
security, fair value will be determined in good faith by or under the direction
of the Board.
TAXATION
TAXATION OF THE FUND AND SHAREHOLDERS
The Fund generally will make two basic types of distributions: ordinary
dividends and long-term capital gain distributions. These two types of
distributions are reported differently on a shareholder's income tax return and
they are also subject to different rates of tax. The tax treatment of the
investment activities of the Fund will affect the amount and timing and
character of the distributions made by the Fund. Tax issues relating to the Fund
are not generally a consideration for shareholders such as tax exempt entities
and tax-advantaged retirement vehicles such as an IRA or 401(k) plan.
Shareholders are urged to consult their own tax professionals regarding specific
questions as to federal, state or local taxes.
INVESTMENT COMPANY TAXATION
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986. As such, the Fund will not be
subject to federal income tax on its net investment income and capital gains, if
any, to the extent that it distributes such income and capital gains to its
shareholders. The Fund generally intends to distribute sufficient income and
gains so that the Fund will not pay corporate income tax on its earnings. The
Fund also generally intends to distribute to its shareholders in each calendar
year a sufficient amount of ordinary income and capital gains to avoid the
imposition of a 4% excise tax. However, the Fund may instead determine to retain
all or part of any net long-term capital gains in any year for reinvestment. In
such event, the Fund will pay federal income tax (and possibly excise tax) on
such retained gains. Gains or losses on sales of securities by the Fund will be
long-term capital gains or losses if the securities have a tax holding period of
more than one year. Gains or losses on the sale of securities with a tax holding
period of one year or less will be short-term gains or losses.
TAXATION OF DIVIDENDS AND DISTRIBUTIONS
Shareholders normally will have to pay federal income taxes, and any
state and/or local income taxes, on the dividends and other distributions they
receive from the Fund. Such dividends and distributions, to the extent that they
are derived from net investment income or short-term capital gains, are taxable
to the shareholder as ordinary income regardless of whether the shareholder
receives such payments in additional shares or in cash. Distributions of net
long-term capital gains, if any, are taxable to shareholders as long-term
capital gains regardless of how long a shareholder has held the Fund's shares
and regardless of whether the distribution is received in additional shares or
in cash. The maximum tax on long-term capital gains applicable to individuals is
20%. Shareholders are generally taxed on any ordinary dividend or capital gain
distributions from the Fund in the year they are actually distributed. However,
if any such dividends or distributions are declared in October, November or
December and paid in January then such amounts will be treated for tax purposes
as received by the shareholders on December 31, to shareholders of record of
such
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month. Subject to certain exceptions, a corporate shareholder may be eligible
for a 70% dividends received deduction to the extent that the Fund earns and
distributes qualifying dividends from its investments. Distributions of net
capital gains by the Fund will not be eligible for the dividends received
deduction. After the end of each calendar year, shareholders will be sent full
information on their dividends and capital gain distributions for tax purposes,
including the portion taxable as ordinary income, the portion taxable as
long-term capital gains and the amount of any dividends eligible for the federal
dividends received deduction for corporations.
PURCHASES AND REDEMPTIONS AND EXCHANGES OF FUND SHARES
Any dividend or capital gains distribution received by a shareholder
from any investment company will have the effect of reducing the net asset value
of the shareholder's stock in that company by the exact amount of the dividend
or capital gains distribution. Furthermore, such dividends and capital gains
distributions are subject to federal income taxes. If the net asset value of the
shares should be reduced below a shareholder's cost as a result of the payment
of dividends or the distribution of realized long-term capital gains, such
payment or distribution would be in part a return of the shareholder's
investment but nonetheless would be taxable to the shareholder. Therefore, an
investor should consider the tax implications of purchasing Fund shares
immediately prior to a distribution record date. In general, a sale of shares
results in capital gain or loss, and for individual shareholders, is taxable at
a federal rate dependent upon the length of time the shares were held. A
redemption of a shareholder's Fund shares is normally treated as a sale for tax
purposes. Fund shares held for a period of one year or less will, for tax
purposes, generally result in short-term gains or losses and those held for more
than one year generally result in long-term gain or loss. Any loss realized by
shareholders upon a redemption of shares within six months of the date of their
purchase will be treated as a long-term capital loss to the extent of any
distributions of net long-term capital gains with respect to such shares during
the six-month period. Gain or loss on the sale or redemption of shares in the
Fund is measured by the difference between the amount received and the tax basis
of the shares. Shareholders should keep records of investments made (including
shares acquired through reinvestment of dividends and distributions) so they can
compute the tax basis of their shares. Under certain circumstances a shareholder
may compute and use an average cost basis in determining the gain or loss on the
sale or redemption of shares. If a shareholder realizes a loss on the redemption
or exchange of the Fund's shares and reinvests in the Fund's shares within 30
days before or after the redemption or exchange, the transactions may be subject
to the "wash sale" rules, resulting in a postponement of the recognition of such
loss for tax purposes.
BACKUP WITHHOLDING
The Fund generally will be required to withhold federal income tax at a
rate of 31% ("backup withholding") from dividends paid, capital gain
distributions, and redemption proceeds to shareholders if (1) the shareholder
fails to furnish the Fund with the shareholder's correct taxpayer identification
number or social security number, (2) the IRS notifies the shareholder or the
Fund that the shareholder has failed to report properly certain interest and
dividend income to the IRS and to respond to notices to that effect, or (3) when
required to do so, the shareholder fails to certify that he or she is not
subject to backup withholding. Any amounts withheld may be credited against the
shareholder's federal income tax liability.
OTHER TAXATION
Distributions may be subject to additional state, local and foreign
taxes, depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above, including the likelihood that ordinary income dividends
distributed to them will be subject to withholding of U.S. tax at a rate of 30%
(or a lower treaty rate, if applicable). Non-U.S. investors should consult their
own tax advisors regarding federal, state, local and foreign tax considerations.
REPORTS
The Trust will issue unaudited semi-annual reports showing the Fund's
investments and other information, as well as annual reports containing Fund
financial statements audited by the Trust's independent auditors.
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OTHER INFORMATION
This SAI and the Prospectus do not contain all the information set
forth in the Registration Statement (and related exhibits) filed by the Trust
with the SEC under the Securities Act of 1933, as amended. The Registration
Statement (and related exhibits) is available on the SEC's internet Web site
(http://www.sec.gov). In addition, a copy of the Registration Statement
(including related exhibits) may be obtained, upon paying a duplicating fee, by
writing the Public Reference Section of the SEC, Washington, D.C. 20549-6009.
The Registration Statement (and related exhibits) may also be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for information on the operation of the SEC's Public Reference
Room.
20
<PAGE>
THE STOCKBACK FUND
a series of
THE STOCKBACK TRUST
(a Delaware business trust)
STATEMENT OF ASSETS AND LIABILITIES
September __, 1999
ASSETS
CASH $100,000
TOTAL $100,000
LIABILITIES
DEFERRED ORGANIZATIONAL COSTS PAYABLE (Note 1) $
-------
COMMITMENTS (Note 2)
NET ASSETS
Applicable to 1,000 capital shares issued and outstanding unlimited
number of shares authorized 100,000
-------
$100,000
-------
-------
Net asset value, offering and redemption price per share ($100,000
divided by 1,000 shares)
$10.00
------
21
<PAGE>
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
Note 1 - Organization
The StockBack Trust (the "Trust"), a business trust formed under the
laws of the State of Delaware on September __, 1999, is authorized to create any
number of separate and distinct investment funds (each, a "portfolio") and to
issue an unlimited number of shares of each portfolio. The Trust is currently
offering capital shares of only one portfolio, The StockBack Fund (the "Fund").
The Fund has had no significant operations other than the issuance of 1,000
capital shares for $100,000 on September __, 1999 to Dome Partners, LLC.
StockBack.com LLC, a Delaware limited liability company ("StockBack"),
has agreed to reimburse the Fund, in an amount not to exceed $2,000,000 per
year, for fees and expenses such as costs incurred in connection with the
organization of the Fund, federal and state registration fees, directors' fees
(not to exceed $50,000 per year in the aggregate) payable by the Fund to its
independent directors, custodial, transfer agent and dividend paying agent fees
and expenses, and accounting, printing, legal, Web site maintenance and
shareholder correspondence fees and expenses.
Note 2 - Commitments
The Fund has entered into an Investment Advisory and Administrative
Services Agreement (the "Advisory Agreement") with StockBack Advisors LLC, a
Delaware limited liability company ("StockBack Advisers"). StockBack Advisers
receives no fees from the Fund for the services provided by it to the Fund under
the Advisory Agreement.
The Fund has entered into an Administration and Accounting Services
Agreement with [INSERT NAME OF TRANSFER AGENT] (the "Transfer Agent"). For
services provided by it to the Fund under the Administration and Accounting
Services Agreement, the Transfer Agent is entitled to receive from the Fund a
fee, [SET FORTH TRANSFER AGENT'S FEE].
The Fund has entered into a Custodial Services Agreement with [INSERT
NAME OF CUSTODIAN] (the "Custodian"). For services provided by it to the Fund
under the Custodial Services Agreement, the Custodian is entitled to receive
from the Fund a fee [SET FORTH CUSTODIAN'S FEE].
As noted above, StockBack has agreed to reimburse the Fund, in an
amount not to exceed $2,000,000 per year, for certain fees and expenses. The
fees and expenses subject to this reimbursement obligation include the fees
payable by the Fund under the Administration and Accounting Services Agreement
and the Custodial Services Agreement.
The Trust has entered into a Distribution Agreement with StockBack
Capital LLC, a Delaware limited liability company ("StockBack Capital"), under
which StockBack Capital acts as the principal underwriter and distributor of
Fund shares. StockBack Capital receives no fees from the Fund for the services
provided by it to the Fund under the Distribution Agreement.
Under the Fund's Rule 12b-1 Plan, the Fund may pay amounts up to 0.25%
per annum of the Fund's net asset value to defray certain distribution-related
and shareholder servicing expenses. The Fund does not currently intend to pay
any amounts under the Plan, but may do so in the future. Amounts payable by the
Fund under its Rule 12b-1 Plan are not subject to the reimbursement obligation
of StockBack described above.
22
<PAGE>
PART C - OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Registrant's Agreement and Declaration of Trust.*
(b) Registrant's By-laws.*
(c) Specimen Share Certificate.*
(d) Investment Advisory and Administrative Services Agreement between the
Fund and StockBack Advisors LLC.*
(e) Distribution Agreement between the Fund and StockBack Capital LLC.*
(f) Not applicable.
(g) Custodial Services Agreement.*
(h) Administration and Accounting Services Agreement.*
(i) Opinion and Consent of Counsel.*
(j) Consent of Independent Accountants.*
(k) Not applicable.
(l) Initial Capital Agreement.*
(m) Rule 12b-1 Plan.*
(n) Not applicable.
- -----------------
*To be filed by amendment.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE REGISTRANT.
None.
ITEM 25. INDEMNIFICATION.
Reference is made to Article [ ] of the Registrant's Agreement and
Declaration of Trust.
Insofar as indemnification of liabilities arising under the 1933 Act
may be permitted to trustees, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in that Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
in the successful
<PAGE>
defence of any action, suit or proceeding) is asserted by such trustee, officer
or controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.
The Investment Adviser is a single-member limited liability company
organized under the laws of Delaware and is a newly-formed entity that was
created solely to serve as an investment adviser to the Fund. The Investment
Adviser has no directors and no officers.
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books, and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules promulgated thereunder are
maintained at the offices of the Fund or the Investment Adviser, 55 Broad
Street, 6th Floor, New York, New York, 10004 or the offices of the Custodian:
[ ].
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
The Fund will file an amendment to the registration statement with
certified financial statements showing the initial capital received before
accepting subscriptions from more than 25 persons.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act, the Fund has duly caused this registration statement to be signed
on its behalf by the undersigned, duly authorized, in the City of New York, and
state of New York on the 16th day of September, 1999.
The StockBack Trust
The StockBack Fund
By: /s/ Timothy C. Parrott
----------------------
Timothy C. Parrott
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on September 16th, 1999 by the following
persons in the capacities and on the dates indicated.
NAME TITLE
/s/ Timothy C. Parrott Principal Executive Officer and
- ---------------------------- Director
Timothy C. Parrott
/s/ Robert S. Feidelson Principal Financial Officer
- ---------------------------- and Director
Robert S. Feidelson
/s/ C. Eric Peters Director
- ----------------------------
C. Eric Peters
/s/ Michael Luther Director
- ----------------------------
Michael Luther
/s/ Peter Zurkow Director
- ----------------------------
Peter Zurkow
