SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. 1 / X /
---
Post-Effective Amendment No. / /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 1 / /
(Check appropriate box or boxes.)
The Innovative Funds - File Nos. 333-93925 and 811-09767
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(Exact Name of Registrant as Specified in Charter)
7435 Watson Road, Suite 88, St. Louis, Missouri 63119
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (314) 963-3434
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Neil A. Eisner, The Innovative Funds, 7435 Watson Road, Suite 88, St. Louis,
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Missouri 63119
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(Name and Address of Agent for Service)
With copy to:
Donald S. Mendelsohn, Brown, Cummins & Brown Co., L.P.A.
3500 Carew Tower, Cincinnati, Ohio 45202
Approximate Date of Proposed Public Offering: March 1, 2000.
It is proposed that this filing will become effective:
/ / 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 the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a)
may determine.
<PAGE>
Disruptive Growth Fund
Prospectus
_____, 2000
INVESTMENT OBJECTIVE:
Long term capital appreciation.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
PAGE
ABOUT THE FUND..................................................................
FEES AND EXPENSES OF INVESTING IN THE FUND......................................
HOW TO BUY SHARES...............................................................
HOW TO REDEEM SHARES............................................................
DETERMINATION OF NET ASSET VALUE................................................
DIVIDENDS, DISTRIBUTIONS AND TAXES..............................................
MANAGEMENT OF THE FUND..........................................................
OTHER INFORMATION ABOUT INVESTMENTS.............................................
FOR MORE INFORMATION.................................................Back Cover
<PAGE>
ABOUT THE FUND
Investment Objective
The investment objective of the Disruptive Growth Fund is long term
capital appreciation.
Principal Strategies
The Fund invests primarily in common stocks of companies that the
adviser believes are "disruptive technology" companies. These are companies
whose innovation strategies fit the pattern, identified through the adviser's
research, that historically many entrant companies have followed in displacing
the leading competitors in their industries. Typically, disruptive technology
companies emerge when the performance, cost and complexity of the products and
services of the leading companies in an industry have increased to the point
that they over-serve what is actually needed or utilized by customers in the
mainstream of the market. When this occurs, it creates the opportunity for
disruptive technology companies to enter the over-served tiers of the market
with products and services that are simpler, less expensive and more convenient
to use.
The adviser views technologies in the broader sense, to extend beyond
engineering and manufacturing to include marketing, investment and management
processes. The adviser seeks companies that are innovatively using any of these
technologies in a way that has the potential to be disruptive.
Disruptive technology companies have often helped create major new
market applications, because they typically have enabled a much larger
population of customers to use the product or service than historically had been
possible. Examples of products and services that disruptive technology companies
have introduced to create new, high-growth market applications include
microprocessors, routers, wireless telephony, off-road motorcycles, modular mass
data storage systems, discount brokerage and discount retailing. These
historically disruptive products and services have now captured the mainstream
of the markets they once had attacked. The investment strategy of the Fund is to
invest in firms that presently are positioned to transform their industries in
analogous ways.
The adviser will assess the growth potential of companies based upon the extent
to which the company is using disruptive products or services to create new
market applications for existing technology, or has created a new business model
to serve markets at fundamentally lower costs than established competitors. The
adviser analyzes product performance and customer needs in conjunction with
fundamental review of a company's financial condition and industry or market
position to identify companies for the Fund's portfolio. Although the adviser
focuses primarily on medium-sized companies, the adviser may also make
substantial investments in larger or smaller companies. The adviser may invest
in common stocks of domestic and foreign companies.
The adviser will sell a company's stock when the adviser believes that
the company no longer is positioned to take advantage of its technology and
market position to disrupt large competitors in more profitable tiers of its
markets, or if the company's financial condition or industry or market position
has deteriorated.
Principal Risks of Investing in the Fund
o Management Risk. The strategy used by the Fund's adviser may fail to
produce the intended results. The Fund has no operating history and the
Fund's adviser has no prior experience managing the assets of a mutual
fund.
o Company Risk. The value of the Fund may decrease in response to the
activities and financial prospects of an individual company in the Fund's
portfolio. The value of an individual company can be more volatile than the
market as a whole.
o Market Risk. Overall stock market risks may also affect the value of the
Fund. Factors such as domestic economic growth and market conditions,
interest rate levels, and political events affect the securities markets
and could cause the Fund's share price to fall.
o Sector Risk. If the Fund's portfolio is overweighed in a certain sector,
any negative development affecting that sector will have a greater impact
on the Fund than a fund that is not overweighed in that sector. The Fund
may have a greater concentration in traditional technology companies and
weakness in this sector could result in significant losses to the Fund.
o Volatility risk. Common stocks tend to be more volatile than other
investment choices. The value of an individual company can be more volatile
than the market as a whole. This volatility affects the value of the Fund's
shares.
o Smaller Company Risk. To the extent the Fund invests in smaller
companies, the Fund will be subject to additional risks. These include:
o The earnings and prospects of smaller companies are more volatile than
larger companies.
o Smaller companies may experience higher failure rates than do larger
companies.
o The trading volume of securities of smaller companies is normally less
than that of larger companies and, therefore, may disproportionately
affect their market price, tending to make them fall more in response
to selling pressure than is the case with larger companies.
o Smaller companies may have limited markets, product lines or financial
resources and may lack management experience.
o Foreign Risk. To the extent the Fund invests in foreign equity securities,
the Fund could be subject to greater risks because the Fund's performance
may depend on issues other than the performance of a particular company.
Changes in foreign economies and political climates are more likely to
affect the Fund than a mutual fund that invests exclusively in U.S.
companies. The value of foreign securities is also affected by the value of
the local currency relative to the U.S. dollar. There may also be less
government supervision of foreign markets, resulting in non-uniform
accounting practices and less publicly available information.
o An investment in the Fund is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
o The Fund is not a complete investment program. As with any mutual fund
investment, the Fund's returns will vary and you could lose money.
Is the Fund right for You?
The Fund may be suitable for:
o Long-term investors seeking a fund with a capital appreciation investment
strategy
o Investors who can tolerate the greater risks associated with common stock
investments
How the Fund has Performed
Although past performance of a fund is no guarantee of how it will
perform in the future, historical performance may give you some indication of
the risk of investing in the fund because it demonstrates how its returns have
varied over time. The Bar Chart and Performance Table that would otherwise
appear in this prospectus have been omitted because the Fund is recently
organized.
FEES AND EXPENSES OF INVESTING IN THE FUND
The tables describe 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)
Maximum Sales Charge (Load)
Imposed on Purchases ......................................................5.75%
Maximum Deferred Sales Charge (Load).......................................NONE
Redemption Fee on Shares Held Less Than 90 Days (as a % of amount redeemed.1.50%
Exchange Fee...............................................................NONE
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fees............................................................1.50%
Distribution/Service (12b-1) Fees..........................................0.25%
Other Expenses** ..........................................................0.00%
Total Annual Fund Operating Expenses ......................................1.75%
** The Fund estimates that other expenses (fees and expenses of the
trustees who are not "interested persons" as defined in the Investment Company
Act) will be less than 0.005% of average net assets for the first fiscal year.
Example:
The example below is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. The example uses
the same assumptions as other mutual fund prospectuses: a $10,000 initial
investment for the time periods indicated, reinvestment of dividends and
distributions, 5% annual total return, constant operating expenses, and sale of
all shares at the end of each time period. Although your actual expenses may be
different, based on these assumptions your costs will be:
1 year 3 years
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$777 $1,228
HOW TO BUY SHARES
The minimum initial investment in the Fund is $2,500 ($500 for IRAs and
other qualified retirement accounts) and minimum subsequent investments are $50.
These minimums may be waived by the adviser for accounts participating in an
automatic investment program. If your investment is aggregated into an omnibus
account established by an investment adviser, broker or other intermediary, the
account minimums apply to the omnibus account, not to your individual
investment. If you purchase or redeem shares through a broker/dealer or another
intermediary, you may be charged a fee by that intermediary.
Initial Purchase
By Mail- To be in proper form, your initial purchase request must include:
o a completed and signed investment application form (which accompanies this
Prospectus); and
o a check (subject to the minimum amounts) made payable to the Fund.
Mail the application and check to:
<TABLE>
<S> <C> <C>
U.S. Mail: Disruptive Growth Fund Overnight: Disruptive Growth Fund
P.O. Box 6110 c/o Unified Fund Services, Inc.
Indianapolis, Indiana 46206-6110 431 North Pennsylvania Street
Indianapolis, Indiana 46204
</TABLE>
By Wire- You may also purchase shares of the Fund by wiring federal
funds from your bank, which may charge you a fee for doing so. To wire money,
you must call Unified Fund Services, Inc. the Fund's transfer agent at (888)
837-2588 to set up your account and obtain an account number. You should be
prepared at that time to provide the information on the application. Then,
provide your bank with the following information for purposes of wiring your
investment:
United Missouri Bank, N.A.
ABA #101000695
Attn: Disruptive Growth Fund
D.D.A. #9870983990
For Further Credit:
Account Name _________________(write in shareholder name)
Account # ______________(write in account number)
You must mail a signed application to Unified Fund Services, Inc., the
Fund's transfer agent, at the above address for your initial wire purchase. Wire
orders will be accepted only on a day on which the Fund, custodian and transfer
agent are open for business. A wire purchase will not be considered made until
the wired money is received and the purchase is accepted by the Fund. Any delays
which may occur in wiring money, including delays which may occur in processing
by the banks, are not the responsibility of the Fund or the transfer agent.
There is presently no fee for the receipt of wired funds, but the Fund may
charge shareholders for this service in the future.
Additional Investments
You may purchase additional shares of the Fund at any time (subject to
minimum investment requirements) by mail, wire, or automatic investment. Each
additional mail purchase request must contain:
-your name -the name of your account(s)
-your account number(s) -a check made payable to Disruptive Growth Fund
Checks should be sent to the Disruptive Growth Fund at the address listed above.
A bank wire should be sent as outlined above.
Sales Loads
Shares of the Fund are purchased at the public offering price. The
public offering price for the Fund's shares is the next determined NAV plus a
sales load as shown in the following table.
<TABLE>
<S> <C> <C> <C>
==================================================================================================================
Sales Load as % of:
Public Net
Offering Amount Dealer Reallowance as % of
Amount of Investment Price Invested Public Offering Price*
==================================================================================================================
Less than $25,000 5.75% ___% 5.00%
$25,000 but less than $50,000 5.00% ___% 4.25%
$50,000 but less than $100,000 4.50% ___% 3.75%
$100,000 but less than $250,000 3.50% ___% 2.75%
$250,000 but less than $500,000 2.50% ___% 2.00%
$500,000 but less than $750,000 2.00% ___% 1.60%
$750,000 but less than $1,000,000 1.50% ___% 1.20%
$1,000,000 or more 0.00% ___% 0.00%
==================================================================================================================
* Under certain circumstances, the Fund's distributor may increase or decrease the reallowance to certain dealers.
</TABLE>
Purchases Without a Sales Charge. The persons described below may
purchase and redeem shares of the Fund without paying a sales charge. In order
to purchase shares without paying a sales charge, you must notify the Fund's
transfer agent as to which conditions apply.
o Trustees, directors, officers and employees of the Trust, the adviser
and service providers of the Trust, including members of the immediate
family of such individuals and employee benefit plans of such entities;
o Broker-dealers that have selling agreements with the Fund's distributor
or that are otherwise entitled to be compensated under the Fund's 12b-1
Distribution Plan (and registered personnel and employees, their
immediate family members and employee benefit plans of such entities);
o Financial planners, registered investment advisers, bank trust
departments and other financial intermediaries with service agreements
with the Fund's distributor (and employees, their immediate family
members and employee benefit plans of such entities);
o Clients (who pay a fee to the relevant administrator or financial
intermediary) of administrators of tax-qualified plans, financial
planners, registered investment advisers, bank trust departments and
other financial intermediaries, provided the administrator or financial
intermediary has an agreement with the Fund's distributor or the Fund
for this purpose;
o Clients of the Fund's adviser who were not introduced to the adviser by
a financial intermediary and, prior to the effective date of the Fund,
executed investment management agreements with the adviser;
o Separate accounts of insurance companies, provided the insurance
company has an agreement with the Fund's distributor or the Fund for
this purpose;
o Participants in wrap account programs, provided the broker-dealer,
registered investment adviser or bank offering the program has an
agreement with the Fund's distributor or the Fund for this purpose.
In addition, shares of the Fund may be purchased at net asset value
through processing organizations (broker-dealers, banks or other financial
institutions) that have a sales agreement or have made special arrangements with
the Fund's distributor. When shares are purchased this way, the processing
organization, rather than its customer, may be the shareholder of record of the
shares. The minimum initial and subsequent investments in the Fund for
shareholders who invest through a processing organization generally will be set
by the processing organization. Processing organizations may also impose other
charges and restrictions in addition to or different from those applicable to
investors who remain the shareholder of record of their shares. Thus, an
investor contemplating investing with the Fund through a processing organization
should read materials provided by the processing organization in conjunction
with this Prospectus.
Right of Accumulation. Any "purchaser" (as defined above) may buy
shares of the Fund at a reduced sales charge by aggregating the dollar amount of
the new purchase and the total net asset value of all shares of the Fund then
held by the purchaser and applying the sales charge applicable to such
aggregate. In order to obtain such discount, the purchaser must provide
sufficient information at the time of purchase to permit verification that the
purchase qualifies for the reduced sales charge. The right of accumulation is
subject to modification or discontinuance at any time with respect to all shares
purchased thereafter.
Letter of Intent. A Letter of Intent for amounts of $25,000 or more
provides an opportunity for an investor to obtain a reduced sales charge by
aggregating investments over a 13 month period, provided that the investor
refers to such Letter when placing orders. For purposes of a Letter of Intent,
the "Amount of Investment" as referred to in the preceding sales charge table
includes all purchases of shares of the Fund over the 13 month period based on
the total amount of intended purchases plus the value of all shares previously
purchased and still owned. An alternative is to compute the 13 month period
starting up to 90 days before the date of execution of a Letter of Intent. Each
investment made during the period receives the reduced sales charge applicable
to the total amount of the investment goal. If the goal is not achieved within
the period, the investor must pay the difference between the sales charges
applicable to the purchases made and the charges previously paid, or an
appropriate number of escrowed shares will be redeemed. Please contact the
Fund's transfer agent to obtain a Letter of Intent application.
Distribution Plan
The Fund has adopted a plan under Rule 12b-1 that allows it to pay
distribution and service fees for the sale and distribution of its shares. The
plan provides that the Fund will pay annual 12b-1 expenses of 0.25% of the
Fund's average daily net assets to the adviser for its distribution and service
activities on behalf of the Fund. The fees received by the adviser in any year
may be more or less than its costs for its distribution and service activities.
Because these fees are paid out of the Fund's assets on an on-going basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
Automatic Investment Plan
You may make regular investments in the Fund with an Automatic
Investment Plan by completing the appropriate section of the account application
and attaching a voided personal check. Investments may be made monthly to allow
dollar-cost averaging by automatically deducting $50 or more from your bank
checking account. You may change the amount of your monthly purchase at any
time.
Tax Sheltered Retirement Plans
Since the Fund is oriented to longer-term investments, the Fund may be
an appropriate investment for tax-sheltered retirement plans, including:
individual retirement plans (IRAs); simplified employee pensions (SEPs); 401(k)
plans; qualified corporate pension and profit-sharing plans (for employees); tax
deferred investment plans (for employees of public school systems and certain
types of charitable organizations); and other qualified retirement plans. You
should contact the Fund's transfer agent for the procedure to open an IRA or SEP
plan, as well as more specific information regarding these retirement plan
options. Please consult with an attorney or tax advisor regarding these plans.
You must pay custodial fees for your IRA by redemption of sufficient shares of
the Fund from the IRA unless you pay the fees directly to the IRA custodian.
Call the Fund's transfer agent about the IRA custodial fees.
Other Purchase Information
The Fund may limit the amount of purchases and refuse to sell to any
person. If your check or wire does not clear, you will be responsible for any
loss incurred by the Fund. If you are already a shareholder, the Fund can redeem
shares from any identically registered account in the Fund as reimbursement for
any loss incurred. You may be prohibited or restricted from making future
purchases in the Fund.
HOW TO REDEEM SHARES
You may receive redemption payments by check or federal wire transfer.
The proceeds may be more or less than the purchase price of your shares,
depending on the market value of the Fund's securities at the time of your
redemption. Presently there is no charge for wire redemptions; however, the Fund
may charge for this service in the future. Any charges for wire redemptions will
be deducted from your Fund account by redemption of shares. If you redeem your
shares through a broker/dealer or other institution, you may be charged a fee by
that institution.
The Fund will deduct a short term trading fee of 1.50% from the
redemption amount if you sell your shares after holding them less than 90 days.
This fee is paid to the Fund rather than the Funds distributor, and is designed
to offset the brokerage commissions, market impact and other costs associated
with fluctuations in fund asset levels and cash flow caused by short term
shareholder trading. If you bought shares on different days, the shares you held
longest will be redeemed first for purposes of determining whether the short
term trading fee applies. The short term trading fee does not apply to shares
that were acquired through reinvestment of distributions. Your shares will be
sold at the net asset value per share (NAV) next calculated after your order is
received in proper form, minus the short term trading fee, if applicable.
By Mail - You may redeem any part of your account in the Fund at no
charge by mail. Your request should be addressed to:
Disruptive Growth Fund
P.O. Box 6110
Indianapolis, Indiana 46206-6110
Requests to sell shares are processed at the net asset value next
calculated after we receive your order in proper form. To be in proper form,
your request for a redemption must include your letter of instruction, including
the Fund name, account number, account name(s), the address, and the dollar
amount or number of shares you wish to redeem. This request must be signed by
all registered share owner(s) in the exact name(s) and any special capacity in
which they are registered. The Fund requires that signatures be guaranteed by a
bank or member firm of a national securities exchange if you are requesting a
redemption of $5,000 or more, or a redemption of any amount payable to a person
other than the shareholder of record, or if you request the proceeds be sent to
an address other than the address on record. Signature guarantees are for the
protection of shareholders. At the discretion of the Fund or the Fund's transfer
agent, a shareholder, prior to redemption, may be required to furnish additional
legal documents to insure proper authorization.
By Telephone - You may redeem any part of your account in the Fund by
calling the Fund's transfer agent at (888) 837-2588. You must first complete the
Optional Telephone Redemption and Exchange section of the investment application
to institute this option. The Fund, the transfer agent and the custodian are not
liable for following redemption or exchange instructions communicated by
telephone that they reasonably believe to be genuine. However, if they do not
employ reasonable procedures to confirm that telephone instructions are genuine,
they may be liable for any losses due to unauthorized or fraudulent
instructions. Procedures employed may include recording telephone instructions
and requiring a form of personal identification from the caller.
The Fund or the transfer agent may terminate the telephone redemption
procedures at any time. During periods of extreme market activity, it is
possible that shareholders may encounter some difficulty in telephoning the
Fund, although neither the Fund nor the transfer agent has ever experienced
difficulties in receiving and in a timely fashion responding to telephone
requests for redemptions or exchanges. If you are unable to reach the Fund by
telephone, you may request a redemption or exchange by mail.
Additional Information - If you are not certain of the requirements for
a redemption please call the Fund's transfer agent at (888) 837-2588.
Redemptions specifying a certain date or share price cannot be accepted and will
be returned. You will be mailed the proceeds on or before the fifth business day
following the redemption. However, payment for redemption made against shares
purchased by check will be made only after the check has been collected, which
normally may take up to fifteen calendar days from purchase date. Also, when the
New York Stock Exchange is closed (or when trading is restricted) for any reason
other than its customary weekend or holiday closing, or under any emergency
circumstances (as determined by the Securities and Exchange Commission) the Fund
may suspend redemptions or postpone payment dates.
Because the Fund incurs certain fixed costs in maintaining shareholder
accounts, the Fund may require you to redeem all of your shares in the Fund on
30 days' written notice if the value of your shares in the Fund is less than
$2,500 due to redemption, or such other minimum amount as the Fund may determine
from time to time. An involuntary redemption constitutes a sale. You should
consult your tax advisor concerning the tax consequences of involuntary
redemptions. You may increase the value of your shares in the Fund to the
minimum amount within the 30-day period. Your shares are subject to redemption
at any time if the Board of Trustees determines in its sole discretion that
failure to so redeem may have materially adverse consequences to all or any of
the shareholders of the Fund.
DETERMINATION OF NET ASSET VALUE
The price you pay for your shares is based on the Fund's net asset
value per share (NAV), plus any applicable sales charge. The NAV is calculated
at the close of trading (normally 4:00 p.m. Eastern time) on each day the New
York Stock Exchange is open for business (the Stock Exchange is closed on
weekends, Federal holidays and Good Friday). The NAV is calculated by dividing
the value of the Fund's total assets (including interest and dividends accrued
but not yet received) minus liabilities (including accrued expenses) by the
total number of shares outstanding.
The Fund's assets are generally valued at their market value. If market
prices are not available, or if an event occurs after the close of the trading
market that materially affects the values, assets may be valued by the Fund's
adviser at their fair value, according to procedures approved by the Fund's
board of trustees.
Requests to purchase and sell shares are processed at the NAV next
calculated after we receive your order in proper form.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions. The Fund typically distributes
substantially all of its net investment income in the form of dividends and
taxable capital gains to its shareholders. These distributions are automatically
reinvested in the Fund unless you request cash distributions on your application
or through a written request. The Fund expects that its distributions will
consist primarily of [capital gains].
Taxes. In general, selling shares of the Fund and receiving
distributions (whether reinvested or taken in cash) are taxable events.
Depending on the purchase price and the sale price, you may have a gain or a
loss on any shares sold. Any tax liabilities generated by your transactions or
by receiving distributions are your responsibility. You may want to avoid making
a substantial investment when the Fund is about to make a capital gains
distribution because you would be responsible for any taxes on the distribution
regardless of how long you have owned your shares.
Early each year, the Fund will mail to you a statement setting forth
the federal income tax information for all distributions made during the
previous year. If you do not provide your taxpayer identification number, your
account will be subject to backup withholding.
The tax considerations described in this section do not apply to
tax-deferred accounts or other non-taxable entities. Because each investor's tax
circumstances are unique, please consult with your tax advisor about your
investment.
MANAGEMENT OF THE FUND
EC Advisors, Inc., 7435 Watson Road, Suite 88, St. Louis, Missouri
63119 serves as investment adviser to the Fund. EC Advisors, Inc. is a newly
formed investment adviser. The Fund is authorized to pay the adviser a fee equal
to 1.50% of its average daily net assets.
Neil A. Eisner and Clayton M. Christensen are primarily responsible for
the investment of the Funds portfolio. Mr. Eisner is Chairman and President of
Eisner Securities, Inc., a full-service stockbrokerage firm. A Cornell graduate
with dual degrees in engineering and law, he began his career as a Wall Street
investment banker in the early 70s with Lehman Brothers and successor firms.
His expertise in energy financing brought him to prominence as a presidential
appointee under the Carter and Reagan administrations. Serving as acting Chief
Financial Officer of the United States Synthetic Fuels Corporation, Mr. Eisner
formulated financial policy for this $17 billion government corporation. Prior
to starting Eisner Securities, he headed his own investment banking consulting
firm whose client list included Fortune 500 companies. He has been managing
investment portfolios for private clients since 1989.
Mr. Christensen is an Associate Professor of Technology & Operations
Management and General Management at the Harvard University Graduate School of
Business Administration. His teachings and research expertise in the management
of technological innovation and the cultivation of organizational capabilities
have earned him numerous awards, including the 1991 William Abernathy Award for
the best paper in technology management; the 1993 Newcomen Special Award for the
best paper in business history; and the 1995 McKinsey Award for the best article
published in the Harvard Business Review.
Mr. Christensen is the author of the best selling book, "The
Innovator's Dilemma: When New Technologies Cause Great Firms to Fail" (Harvard
Business School Press, 1997; HarperCollins paperback, May 2000), winner of the
Financial Times/Booz-Allen & Hamilton Global Business Award for the best
business book of 1997. The New York Times, as well as Forbes, Business Week, and
Wired magazines, have all featured Christensens research on "disruptive
technologies" and its impact on mainstream markets. From 1979 to 1984 Mr.
Christensen was a consultant for the Boston Consulting Group. In 1982 he was
chosen to be a White House Fellow where he served as Special Assistant to U.S.
Transportation Secretaries Drew Lewis and Elizabeth Dole.
Mr. Christensen holds a Bachelors Degree in Economics from Brigham
Young University, a Masters of Philosophy in Economics from the University of
Oxford where he was a Rhodes Scholar; and a Masters and Doctor of Business
Administration from Harvard University Graduate School of Business
Administration where he distinguished himself as a George F. Baker Scholar.
The adviser pays all of the operating expenses of the Fund except
brokerage, taxes, borrowing costs (such as interest and dividend expense of
securities sold short), fees and expenses of non-interested person trustees,
extraordinary expenses and expenses incurred pursuant to Rule 12b-1under the
Investment Company Act of 1940. In this regard, it should be noted that most
investment companies pay their own operating expenses directly, while the Fund's
expenses, except those specified above, are paid by the adviser. The adviser
(not the Fund) may pay certain financial institutions (which may include banks,
brokers, securities dealers and other industry professionals) a fee for
providing distribution related services and/or for performing certain
administrative servicing functions for Fund shareholders to the extent these
institutions are allowed to do so by applicable statute, rule or regulation.
OTHER INFORMATION ABOUT INVESTMENTS
General
The investment objective of the Fund may be changed without shareholder
approval.
From time to time, the Fund may take temporary defensive positions
which are inconsistent with the Fund's principal investment strategies, in
attempting to respond to adverse market, economic, political, or other
conditions. For example, the Fund may hold all or a portion of its assets in
money market instruments, securities of no-load money market funds or repurchase
agreements. If the Fund invests in shares of a money market fund, the
shareholders of the Fund generally will be subject to duplicative management
fees. As a result of engaging in these temporary measures, the Fund may not
achieve its investment objective. The Fund may also invest in such instruments
at any time to maintain liquidity or pending selection of investments in
accordance with its policies.
Equity Securities.
The Fund may invest in common stocks and other equity securities. Equity
securities consist of common stock, preferred stock, convertible preferred
stock, convertible bonds, rights and warrants. Common stocks, the most familiar
type, represent an equity (ownership) interest in a corporation. Warrants are
options to purchase equity securities at a specified price for a specific time
period. Rights are similar to warrants, but normally have a short duration and
are distributed by the issuer to its shareholders. Although equity securities
have a history of long-term growth in value, their prices fluctuate based on
changes in a company's financial condition and on overall market and economic
conditions. The Fund will not invest more than 5% of its net assets in each of
the following: preferred stock, convertible preferred stock and convertible
bonds.
Equity securities also include SPDRs (known as "Spiders"). These are
Standard & Poor's Depositary Receipts based on the S&P 500 or S&P 400 Composite
Stock Price Index or the NASDAQ 100 Price Index (NDX). The SPDR Trust is a unit
investment trust that holds shares of all the companies in the S&P 500, 400, or
NDX and closely tracks the price performance and dividend yield of the
applicable Index. SPDRs trade on the American Stock Exchange under the ticker
symbol "SPY", "MDY", and "QQQ." Equities also include instruments similar to
SPDRs such as DIAMONDS (shares of a unit investment trust that invests in the
Dow Jones Industrial Average.) Shares of SPDRs, DIAMONDS and similar instruments
are considered by the Fund to be common stock.
Short Sales.
The Fund may sell a security short in anticipation of a decline in the
market value of the security. When the Fund engages in a short sale, it sells a
security which it does not own. To complete the transaction, the Fund must
borrow the security in order to deliver it to the buyer. The Fund must replace
the borrowed security by purchasing it at the market price at the time of
replacement, which may be more or less than the price at which the Fund sold the
security. The Fund will incur a loss as a result of the short sale if the price
of the security increases between the date of the short sale and the date on
which the Fund replaces the borrowed security. The Fund will realize a profit if
the security declines in price between those dates.
In connection with its short sales, the Fund will be required to
maintain a segregated account with its Custodian of cash or high grade liquid
debt assets equal to the market value of the securities sold less any collateral
deposited with its broker. However, the segregated account and deposits will not
necessarily limit the Fund's potential loss on a short sale, which is unlimited.
Option Transactions.
The Fund may invest up to 5% of its net assets, including premiums and
potential settlement obligations, in option transactions involving individual
securities and market indices. An option involves either (a) the right or the
obligation to buy or sell a specific instrument at a specific price until the
expiration date of the option, or (b) the right to receive payments or the
obligation to make payments representing the difference between the closing
price of a market index and the exercise price of the option expressed in
dollars times a specified multiple until the expiration date of the option.
Options are sold (written) on securities and market indices. The purchaser of an
option on a security pays the seller (the writer) a premium for the right
granted but is not obligated to buy or sell the underlying security. The
purchaser of an option on a market index pays the seller a premium for the right
granted, and in return the seller of such an option is obligated to make the
payment. A writer of an option may terminate the obligation prior to expiration
of the option by making an offsetting purchase of an identical option. Options
are traded on organized exchanges and in the over-the-counter market. Options on
securities which the Fund sells (writes) will be covered or secured, which means
that it will own the underlying security (for a call option); will segregate
with the Fund's custodian high quality liquid debt obligations equal to the
option exercise price (for a put option); or (for an option on a stock index)
will hold a portfolio of securities substantially replicating the movement of
the index (or, to the extent it does not hold such a portfolio, will maintain a
segregated account with the Fund's custodian of high quality liquid debt
obligations equal to the market value of the option, marked to market daily).
When the Fund writes options, it may be required to maintain a margin account,
to pledge the underlying securities or U.S. government obligations or to deposit
liquid high quality debt obligations in a separate account with the Fund's
custodian.
The purchase and writing of options involves certain risks; for
example, the possible inability to effect closing transactions at favorable
prices and an appreciation limit on the securities set aside for settlement, as
well as (in the case of options on a stock index) exposure to an indeterminate
liability. The purchase of options limits the Fund's potential loss to the
amount of the premium paid and can afford the Fund the opportunity to profit
from favorable movements in the price of an underlying security to a greater
extent than if transactions were effected in the security directly. However, the
purchase of an option could result in the Fund losing a greater percentage of
its investment than if the transaction were effected directly. When the Fund
writes a covered call option, it will receive a premium, but it will give up the
opportunity to profit from a price increase in the underlying security above the
exercise price as long as its obligation as a writer continues, and it will
retain the risk of loss should the price of the security decline. When the Fund
writes a covered put option, it will receive a premium, but it will assume the
risk of loss should the price of the underlying security fall below the exercise
price. When the Fund writes a covered put option on a stock index, it will
assume the risk that the price of the index will fall below the exercise price,
in which case the Fund may be required to enter into a closing transaction at a
loss. An analogous risk would apply if the Fund writes a call option on a stock
index and the price of the index rises above the exercise price.
<PAGE>
FOR MORE INFORMATION
Several additional sources of information are available to you. The
Statement of Additional Information (SAI), incorporated into this prospectus by
reference, contains detailed information on Fund policies and operations. Annual
and semi-annual reports contain management's discussion of market conditions,
investment strategies and performance results as of the Fund's latest
semi-annual or annual fiscal year end.
Call the Funds at (888) 837-2588 to request free copies of the SAI and
the Fund's annual and semi-annual reports, to request other information about
the Fund and to make shareholder inquiries.
You may review and copy information about the Fund (including the SAI
and other reports) at the Securities and Exchange Commission (SEC) Public
Reference Room in Washington, D.C. Call the SEC at 1-202-942-8090 for room hours
and operation. You may also obtain reports and other information about the Fund
(under "The Innovative Funds" on the EDGAR Database on the SEC's Internet site
at http.//www.sec.gov, and copies of this information may be obtained, after
paying a duplicating fee, by electronic request at the following e-mail address:
[email protected], or by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-0102.
Investment Company Act #811-9767
<PAGE>
INNOVATIVE FUNDS GROUP
The Disruptive Growth Fund
STATEMENT OF ADDITIONAL INFORMATION
____________, 2000
This Statement of Additional Information ("SAI") is not a prospectus.
It should be read in conjunction with the Prospectus of the Disruptive Growth
Fund dated ______, 2000. This SAI incorporates by reference the Fund's Annual
Report to Shareholders for the fiscal year ended _______, 1999 ("Annual
Report"). A free copy of the Prospectus can be obtained by writing the Transfer
Agent at 431 North Pennsylvania Street, Indianapolis, Indiana 46204, or by
calling __________.
TABLE OF CONTENTS
PAGE
DESCRIPTION OF THE TRUST AND FUND.............................................1
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS AND RISK
CONSIDERATIONS...............................................................1
INVESTMENT LIMITATIONS........................................................5
THE INVESTMENT ADVISOR........................................................8
TRUSTEES AND OFFICERS.........................................................8
PORTFOLIO TRANSACTIONS AND BROKERAGE..........................................9
DETERMINATION OF SHARE PRICE.................................................10
INVESTMENT PERFORMANCE.......................................................11
CUSTODIAN....................................................................12
TRANSFER AGENT...............................................................12
ACCOUNTANTS..................................................................12
DISTRIBUTOR..................................................................12
ADMINISTRATOR................................................................12
<PAGE>
DESCRIPTION OF THE TRUST AND FUND
The Disruptive Growth Fund (the "Fund") was organized as a series of
The Innovative Funds (the "Trust") on November 29, 1999. The Trust is an
open-end investment company established under the laws of Ohio by an Agreement
and Declaration of Trust dated November 29, 1999 (the "Trust Agreement"). The
Trust Agreement permits the Trustees to issue an unlimited number of shares of
beneficial interest of separate series without par value.
The Fund does not issue share certificates. All shares are held in
non-certificate form registered on the books of the Fund and the Fund's transfer
agent for the account of the Shareholder. Each share of a series represents an
equal proportionate interest in the assets and liabilities belonging to that
series with each other share of that series and is entitled to such dividends
and distributions out of income belonging to the series as are declared by the
Trustees. The shares do not have cumulative voting rights or any preemptive or
conversion rights, and the Trustees have the authority from time to time to
divide or combine the shares of any series into a greater or lesser number of
shares of that series so long as the proportionate beneficial interest in the
assets belonging to that series and the rights of shares of any other series are
in no way affected. In case of any liquidation of a series, the holders of
shares of the series being liquidated will been titled to receive as a class a
distribution out of the assets, net of the liabilities, belonging to that
series. Expenses attributable to any series are borne by that series. Any
general expenses of the Trust not readily identifiable as belonging to a
particular series are allocated by or under the direction of the Trustees in
such manner as the Trustees determine to be fair and equitable. No shareholder
is liable to further calls or to assessment by the Trust without his or her
express consent.
Any Trustee of the Trust may be removed by vote of the shareholders
holding not less than two-thirds of the outstanding shares of the Trust. The
Trust does not hold an annual meeting of shareholders. When matters are
submitted to shareholders for a vote, each shareholder is entitled to one vote
for each whole share he owns and fractional votes for fractional shares he owns.
All shares of the Fund have equal voting rights and liquidation rights. The
Declaration of Trust can be amended by the Trustees, except that any amendment
that adversely effects the rights of shareholders must be approved by the
shareholders affected. Each share of the Fund is subject to redemption at any
time if the Board of Trustees determines in its sole discretion that failure to
so redeem may have materially adverse consequences to all or any of the Fund's
shareholders.
Prior to the public offering of the Fund, Neil A. Eisner, 7435 Watson
Road, Suite 88, St. Louis, MO 63199, purchased all of the outstanding shares of
the Fund in his IRA, and as a result he may be deemed to control the Fund. As
the controlling shareholder, Neil A. Eisner could control the outcome of any
proposal submitted to the shareholders for approval, including changes to the
Fund's fundamental policies or the terms of the management agreement with the
advisor. After the public offering commences, it is anticipated that Neil A.
Eisner will no longer control the Fund.
For information concerning the purchase and redemption of shares of the
Fund, see "How to Buy Shares" and "How to Redeem Shares" in the Fund's
Prospectus. For a description of the methods used to determine the share price
and value of the Fund's assets, see "Determination of Net Asset Value" in the
Fund's Prospectus and this Statement of Additional Information.
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS AND RISK CONSIDERATIONS
This section contains a discussion of some of the investments the Fund
may make and some of the techniques it may use.
A. Equity Securities. Equity securities consist of common stock,
------------------
convertible preferred stock, convertible bonds, rights and warrants. Common
stocks, the most familiar type, represent an equity (ownership) interest in a
corporation. Warrants are options to purchase equity securities at a specified
price for a specific time period. Rights are similar to warrants, but normally
have a short duration and are distributed by the issuer to its shareholders.
Although equity securities have a history of long-term growth in value, their
prices fluctuate based on changes in a company's financial condition and on
overall market and economic conditions. The Fund may not invest more than 5% of
its net assets in either convertible preferred stocks or convertible bonds. The
Advisor will limit the Fund's investment in convertible securities to those
rated A or better by Moody's Investors Service, Inc. or Standard & Poor's Rating
Group or, if unrated, of comparable quality in the opinion of the Advisor.
B. American Depository Receipts (ADRs). The Fund may invest up to 10%
-------------------------------------
of its assets in ADRs. ADRs are subject to risks similar to those associated
with direct investment in foreign securities. For example, there may be less
information publicly available about a foreign company then about a U.S.
company, and foreign companies are not generally subject to accounting, auditing
and financial reporting standards and practices comparable to those in the U.S.
Other risks associated with investments in foreign securities include changes in
restrictions on foreign currency transactions and rates of exchanges, changes in
the administrations or economic and monetary policies of foreign governments,
the imposition of exchange control regulations, the possibility of expropriation
decrees and other adverse foreign governmental action, the imposition of foreign
taxes, less liquid markets, less government supervision of exchanges, brokers
and issuers, difficulty in enforcing contractual obligations, delays in
settlement of securities transactions and greater price volatility. In addition,
investing in foreign securities will generally result in higher commissions than
investing in similar domestic securities.
C. Restricted and Illiquid Securities. The portfolio of the Fund may
-----------------------------------
contain illiquid securities. Illiquid securities generally include securities
which cannot be disposed of promptly and in the ordinary course of business
without taking a reduced price. Securities may be illiquid due to contractual or
legal restrictions on resale or lack of a ready market. The following securities
are considered to be illiquid: repurchase agreements and reverse repurchase
agreements maturing in more than seven days, nonpublicly offered securities and
restricted securities. Restricted securities are securities the resale of which
is subject to legal or contractual restrictions. Restricted securities may be
sold only in privately negotiated transactions, in a public offering with
respect to which a registration statement is in effect under the Securities Act
of 1933 or pursuant to Rule 144 or Rule 144A promulgated under such Act. Where
registration is required, the Fund may be obligated to pay all or part of the
registration expense, and a considerable period may elapse between the time of
the decision to sell and the time such security may be sold under an effective
registration statement. If during such a period adverse market conditions were
to develop, the Fund might obtain a less favorable price than the price it could
have obtained when it decided to sell. The Fund will not invest more than 15% of
its net assets in illiquid securities.
With respect to Rule 144A securities, the Fund may treat these
restricted securities as exempt from the 15% limit on illiquid securities,
provided that a dealer or institutional trading market in such securities
exists. The Fund will not, however invest more than 15% of its net assets in
Rule 144A securities. Under the supervision of the Board of Trustees of the
Fund, the Advisor determines the liquidity of restricted securities and, through
reports from the Advisor, the Board will monitor trading activity in restricted
securities. If institutional trading in restricted securities were to decline,
the liquidity of the Fund could be adversely affected.
D. Real Estate Investment Trusts (REITs). A REIT is a corporation or
---------------------------------------
business trust that invests substantially all of its assets in interests in real
estate. The Fund's investments in REITs will be those characterized as equity
REITs. Equity REITs are those which purchase or lease land and buildings and
generate income primarily from rental income. Equity REITs may also realize
capital gains (or losses) when selling property that has appreciated (or
depreciated) in value. Risks associated with REIT investments include the fact
that REITs are dependent upon specialized management skills and are not fully
diversified. These characteristics subject REITs to the risks associated with
financing a limited number of projects. They are also subject to heavy cash flow
dependency, defaults by borrowers and self-liquidation. Additionally, equity
REITs may be affected by any changes in the value of the underlying property
owned by the trusts.
E. Repurchase Agreements. The Fund may invest in repurchase agreements
---------------------
fully collateralized by U.S. Government obligations. A repurchase agreement is a
short-term investment in which the purchaser (i.e., the Fund) acquires ownership
of a U.S. Government obligation (which may be of any maturity) and the seller
agrees to repurchase the obligation at a future time at a set price, thereby
determining the yield during the purchaser's holding period (usually not more
than seven days from the date of purchase). Any repurchase transaction in which
the Fund engages will require full collateralization of the seller's obligation
during the entire term of the repurchase agreement. In the event of a bankruptcy
or other default of the seller, the Fund could experience both delays in
liquidating the underlying security and losses in value. However, the Fund
intends to enter into repurchase agreements only with Star Bank, N.A. (the
Fund's Custodian), other banks with assets of $1 billion or more and registered
securities dealers determined by the Advisor to be creditworthy. The Advisor
monitors the creditworthiness of the banks and securities dealers with
which the Fund engages in repurchase transactions.
F. Short Sales. The Fund may sell a security short in anticipation of a
decline in the market value of the security. When the Fund engages in a short
sale, it sells a security which it does not own. To complete the transaction,
the Fund must borrow the security in order to deliver it to the buyer. The Fund
must replace the borrowed security by purchasing it at the market price at the
time of replacement, which may be more or less than the price at which the Fund
sold the security. The Fund will incur a loss as a result of the short sale if
the price of the security increases between the date of the short sale and the
date on which the Fund replaces the borrowed security. The Fund will realize a
profit if the security declines in price between those dates.
In connection with its short sales, the Fund will be required to
maintain a segregated account with its Custodian of cash or high grade liquid
assets equal to the market value of the securities sold less any collateral
deposited with its broker. The Fund will limit its short sales so that no more
than 25% of its net assets (less all its liabilities other than obligations
under the short sales) will be deposited as collateral and allocated to the
segregated account. However, the segregated account and deposits will not
necessarily limit the Fund's potential loss on a short sale, which is unlimited.
The Fund's policy with respect to short sales is non-fundamental, and may be
changed by the Board of Trustees without the vote of the Fund's shareholders.
G. Corporate Debt Securities. Corporate debt securities are bonds or
notes issued by corporations and other business organizations, including
business trusts, in order to finance their credit needs. Corporate debt
securities include commercial paper which consist of short term (usually from
one to two hundred seventy days) unsecured promissory notes issued by
corporations in order to finance their current operations
The Fund may also sell a security short "against the box", which means
that the Fund sells a security which it owns and therefore the borrowing and
segregated account provisions described above do not apply.
INVESTMENT LIMITATIONS
Fundamental. The investment limitations described below have been
------------
adopted by the Trust with respect to the Fund and are fundamental
("Fundamental"), i.e., they may not be changed without the affirmative vote of a
majority of the outstanding shares of the Fund. As used in the Prospectus and
this Statement of Additional Information, the term "majority" of the outstanding
shares of the Fund means the lesser of (1) 67% or more of the outstanding shares
of the Fund present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented at such meeting; or
(2) more than 50% of the outstanding shares of the Fund. Other investment
practices which may be changed by the Board of Trustees without the approval of
shareholders to the extent permitted by applicable law, regulation or regulatory
policy are considered non-fundamental ("Non-Fundamental").
1. Borrowing Money. The Fund will not borrow money, except (a) from a
---------------
bank, provided that immediately after such borrowing there is an asset coverage
of 300% for all borrowings of the Fund; or (b) from a bank or other persons for
temporary purposes only, provided that such temporary borrowings are in an
amount not exceeding 5% of the Fund's total assets at the time when the
borrowing is made. This limitation does not preclude the Fund from entering into
reverse repurchase transactions, provided that the Fund has an asset coverage of
300% for all borrowings and repurchase commitments of the Fund pursuant to
reverse repurchase transactions.
2. Senior Securities. The Fund will not issue senior securities. This
-----------------
limitation is not applicable to activities that may be deemed to involve the
issuance or sale of a senior security by the Fund, provided that the Fund's
engagement in such activities is consistent with or permitted by the Investment
Company Act of 1940, as amended, the rules and regulations promulgated
thereunder or interpretations of the Securities and Exchange Commission or its
staff.
3. Underwriting. The Fund will not act as underwriter of securities
------------
issued by other persons. This limitation is not applicable to the extent that,
in connection with the disposition of portfolio securities (including restricted
securities), the Fund may be deemed an underwriter under certain federal
securities laws.
4. Real Estate. The Fund will not purchase or sell real estate. This
-----------
limitation is not applicable to investments in marketable securities which are
secured by or represent interests in real estate. This limitation does not
preclude the Fund from investing in mortgage-related securities or investing in
companies engaged in the real estate business or that have a significant portion
of their assets in real estate (including real estate investment trusts).
5. Commodities. The Fund will not purchase or sell commodities unless
-----------
acquired as a result of ownership of securities or other investments. This
limitation does not preclude the Fund from purchasing or selling options or
futures contracts, from investing in securities or other instruments backed by
commodities or from investing in companies which are engaged in a commodities
business or have a significant portion of their assets in commodities.
6. Loans. The Fund will not make loans to other persons, except (a) by
-----
loaning portfolio securities, (b) by engaging in repurchase agreements, or (c)
by purchasing nonpublicly offered debt securities. For purposes of this
limitation, the term "loans" shall not include the purchase of a portion of an
issue of publicly distributed bonds, debentures or other securities.
7. Concentration. The Fund will not invest 25% or more of its total
-------------
assets in a particular industry. This limitation is not applicable to
investments in obligations issued or guaranteed by the U.S. government, its
agencies and instrumentalities or repurchase agreements with respect thereto.
With respect to the percentages adopted by the Trust as maximum
limitations on its investment policies and limitations, an excess above the
fixed percentage will not be a violation of the policy or limitation unless the
excess results immediately and directly from the acquisition of any security or
the action taken. This paragraph does not apply to the borrowing policy set
forth in paragraph 1 above.
Notwithstanding any of the foregoing limitations, any investment
company, whether organized as a trust, association or corporation, or a personal
holding company, may be merged or consolidated with or acquired by the Trust,
provided that if such merger, consolidation or acquisition results in an
investment in the securities of any issuer prohibited by said paragraphs, the
Trust shall, within ninety days after the consummation of such merger,
consolidation or acquisition, dispose of all of the securities of such issuer so
acquired or such portion thereof as shall bring the total investment therein
within the limitations imposed by said paragraphs above as of the date of
consummation.
Non-Fundamental. The following limitations have been adopted by the Trust
---------------
with respect to the Fund and are Non-Fundamental (see "Investment Restrictions
above).
1. Pledging. The Fund will not mortgage, pledge, hypothecate or in any
--------
manner transfer, as security for indebtedness, any assets of the Fund except as
may be necessary in connection with borrowings described in limitation (1)
above. Margin deposits, security interests, liens and collateral arrangements
with respect to transactions involving options, futures contracts, short sales
and other permitted investments and techniques are not deemed to be a mortgage,
pledge or hypothecation of assets for purposes of this limitation.
2. Borrowing. The Fund will not purchase any security while borrowings
---------
(including reverse repurchase agreements) representing more than 5% of its total
assets are outstanding.
3. Margin Purchases. The Fund will not purchase securities or evidences
----------------
of interest thereon on "margin." This limitation is not applicable to short term
credit obtained by the Fund for the clearance of purchases and sales or
redemption of securities, or to arrangements with respect to transactions
involving options, futures contracts, short sales and other permitted
investments and techniques.
4. Illiquid Investments. The Fund will not invest more than 15% of its
--------------------
net assets in securities for which there are legal or contractual restrictions
on resale and other illiquid securities.
5. Loans of Portfolio Securities. The Fund will not make loans of
-------------------------------
portfolio securities.
THE INVESTMENT ADVISOR
The Fund's investment advisor is EC Advisors, Inc., 7435 Watson Road,
Suite 88, St. Louis, MO 63119. Neil A. Eisner, President of the Advisor, and
Clayton M. Christensen are the controlling shareholders of the Advisor.
Under the terms of the management agreement (the "Agreement"), the
Advisor manages the Fund's investments subject to approval of the Board of
Trustees and pays all of the expenses of the Fund except brokerage, taxes,
borrowing costs (such as interest and dividend expense of securities sold
short), fees and expenses of the non-interested person trustees, extraordinary
expenses and expenses incurred pursuant to Rule 12b-1 under the Investment
Company Act of 1940. As compensation for its management services and agreement
to pay the Fund's expenses, the Fund is obligated to pay the Advisor a fee
computed and accrued daily and paid monthly at an annual rate of 1.50% of the
average daily net assets of the Fund. The Advisor may waive all or part of its
fee, at any time, and at its sole discretion, but such action shall not obligate
the Advisor to waive any fees in the future.
The Advisor retains the right to use the names Innovative and
Disruptive in connection with another investment company or business enterprise
with which the Advisor is or may become associated. The Trust's right to use the
names Innovative and Disruptive automatically ceases ninety days after
termination of the Agreement and may be withdrawn by the Advisor on ninety days
written notice.
The Advisor may make payments to banks or other financial institutions
that provide shareholder services and administer shareholder accounts. If a bank
or other financial institution were prohibited from continuing to perform all or
a part of such services, management of the Fund believes that there would be no
material impact on the Fund or its shareholders. Banks may charge their
customers fees for offering these services to the extent permitted by applicable
regulatory authorities, and the overall return to those shareholders availing
themselves of the bank services will be lower than to those shareholders who do
not. The Fund may from time to time purchase securities issued by banks which
provide such services; however, in selecting investments for the Fund, no
preference will be shown for such securities.
<PAGE>
TRUSTEES AND OFFICERS
The Board of Trustees supervises the business activities of the Trust.
The names of the Trustees and executive officers of the Trust are shown below.
Each Trustee who is an "interested person" of the Trust, as defined in the
Investment Company Act of 1940, is indicated by an asterisk.
=========================== ============= =====================================
Name, Age and Address Position Principal Occupations During
Past 5 Years
=========================== ============= =====================================
Neil A. Eisner* President President and Director of Eisner
7435 Watson Road, Suite 88 and Trustee Securities, Inc., since 1995, The
St. Louis, MO 63119 Innovative Funds, a Trust, since
1999, and EC Advisors, Inc., Invest-
Year of Birth: 1938 ment Advisor since 1999, President
and Director of Neil A. Eisner
Company, Investment Banking 1983-
1998.
=========================== ============= =====================================
Bruce P. Oakes* Secretary, Chief Operating Officer of Eisner
7435 Watson Road, Suite 88 Treasurer Securities, since 1996, Vice
St. Louis, MO 63119 and Trustee President of Capital Securities,
1994-1996.
Year of Birth: 1965
=========================== ============= =====================================
Craig R. Hildreth Trustee Partner of Allen, Hildreth and
905 Kingscove Ct. Zenisek, L.L.P., Physicians, from
Town and Country, MO 63017 1989 to present.
Year of Birth: 1957
=========================== ============= =====================================
Eugene D. Ruth, Jr. Trustee Headmaster of The Wilson School since
7210 Waterman Avenue 1994, President and owner of child-
St. Louis, MO 63130 care centers from 1983 to 1996.
Year of Birth: 1940
=========================== ============= =====================================
Douglas C. Braithwaite Trustee Principal partner of Doug
156 Claffin Street Braithwaite Associates, a consulting
Belmont, MA 02478 firm, since 1992.
Year of Birth: 1939
=========================== ============= =====================================
The following table estimates the Trustees' compensation for the first
full fiscal year. Trustee fees are Trust expenses paid by the Fund.
=========================== ============= =====================================
Name Aggregate Total Compensation
Compensation from Trust (the Trust is
from Trust not in a Fund Complex)
=========================== ============= =====================================
Neil A. Eisner 0 0
Bruce P. Oakes 0 0
Craig R. Hildreth $1,000 $1,000
Eugene D. Ruth, Jr. $1,000 $1,000
Douglas C. Braithwaite $1,000 $1,000
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Trustees of the Trust,
the Advisor is responsible for the Fund's portfolio decisions and the placing of
the Fund's portfolio transactions. In placing portfolio transactions, the
Advisor seeks the best qualitative execution for the Fund, taking into account
such factors as price (including the applicable brokerage commission or dealer
spread), the execution capability, financial responsibility and responsiveness
of the broker or dealer and the brokerage and research services provided by the
broker or dealer. The Advisor generally seeks favorable prices and commission
rates that are reasonable in relation to the benefits received. Consistent with
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc., and subject to its obligation of seeking best qualitative execution, the
Fund's Advisor may give consideration to sales of shares of the Trust as a
factor in the selection of brokers and dealers to execute portfolio
transactions.
The Advisor is specifically authorized to select brokers or dealers who
also provide brokerage and research services to the Fund and/or the other
accounts over which the Advisor exercises investment discretion and to pay such
brokers or dealers a commission in excess of the commission another broker or
dealer would charge if the Advisor determines in good faith that the commission
is reasonable in relation to the value of the brokerage and research services
provided. The determination may be viewed in terms of a particular transaction
or the Advisor's overall responsibilities with respect to the Trust and to other
accounts over which it exercises investment discretion.
Research services include supplemental research, securities and
economic analyses, statistical services and information with respect to the
availability of securities or purchasers or sellers of securities and analyses
of reports concerning performance of accounts. The research services and other
information furnished by brokers through whom the Fund effects securities
transactions may also be used by the Advisor in servicing all of its accounts.
Similarly, research and information provided by brokers or dealers serving other
clients may be useful to the Advisor in connection with its services to the
Fund. Although research services and other information are useful to the Fund
and the Advisor, it is not possible to place a dollar value on the research and
other information received. It is the opinion of the Board of Trustees and the
Advisor that the review and study of the research and other information will not
reduce the overall cost to the Advisor of performing its duties to the Fund
under the Agreement.
Over-the-counter transactions will be placed either directly with
principal market makers or with broker-dealers, if the same or a better price,
including commissions and executions, is available. Fixed income securities are
normally purchased directly from the issuer, an underwriter or a market maker.
Purchases include a concession paid by the issuer to the underwriter and the
purchase price paid to a market maker may include the spread between the bid and
asked prices.
To the extent that the Trust and another of the Advisor's clients seek
to acquire the same security at about the same time, the Trust may not be able
to acquire as large a position in such security as it desires or it may have to
pay a higher price for the security. Similarly, the Trust may not be able to
obtain as large an execution of an order to sell or as high a price for any
particular portfolio security if the other client desires to sell the same
portfolio security at the same time. On the other hand, if the same securities
are bought or sold at the same time by more than one client, the resulting
participation in volume transactions could produce better executions for the
Trust. In the event that more than one client wants to purchase or sell the same
security on a given date, the purchases and sales will normally be made by
random client selection.
<PAGE>
DETERMINATION OF SHARE PRICE
The price (net asset value) of the shares of the Fund is determined as
of 4:00 p.m., Eastern time on each day the Trust is open for business and on any
other day on which there is sufficient trading in the Fund's securities to
materially affect the net asset value. The Trust is open for business on every
day except Saturdays, Sundays and the following holidays: New Year's Day, Martin
Luther King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas. For a description of the methods
used to determine the net asset value (share price), see "Determination of Net
Asset Value" in the Prospectus.
Securities which are traded on any exchange or on the NASDAQ
over-the-counter market are valued at the last quoted sale price. Lacking a last
sale price, a security is valued at its last bid price except when, in the
Fund's Advisor's opinion, the last bid price does not accurately reflect the
current value of the security. All other securities for which over-the-counter
market quotations are readily available are valued at their last bid price. When
market quotations are not readily available, when the Fund's Advisor determines
the last bid price does not accurately reflect the current value or when
restricted securities are being valued, such securities are valued as determined
in good faith by the Fund's Advisor, subject to review of the Board of Trustees
of the Trust.
Fixed income securities generally are valued by using market
quotations, but may be valued on the basis of prices furnished by a pricing
service when the Fund's Advisor believes such prices accurately reflect the fair
market value of such securities. A pricing service utilizes electronic data
processing techniques based on yield spreads relating to securities with similar
characteristics to determine prices for normal institutional-size trading units
of debt securities without regard to sale or bid prices. When prices are not
readily available from a pricing service, or when restricted or illiquid
securities are being valued, securities are valued at fair value as determined
in good faith by the Fund's Advisor, subject to review of the Board of Trustees.
Short term investments in fixed income securities with maturities of less than
60 days when acquired, or which subsequently are within 60 days of maturity, are
valued by using the amortized cost method of valuation, which the Board has
determined will represent fair value.
INVESTMENT PERFORMANCE
The Fund may periodically advertise "average annual total return."
"Average annual total return," as defined by the Securities and Exchange
Commission, is computed by finding the average annual compounded rates of return
for the period indicated that would equate the initial amount invested to the
ending redeemable value, according to the following formula:
P(1+T)n=ERV
Where: P = a hypothetical $1,000 initial investment
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the
applicable period of the hypothetical $1,000
investment made at the beginning of the
applicable period.
The computation assumes that all dividends and distributions are reinvested at
the net asset value on the reinvestment dates and that a complete redemption
occurs at the end of the applicable period.
In addition to providing average annual total return, the Fund may also
provide non-standardized quotations of total return for differing periods and
may provide the value of a $10,000 investment (made on the date of the initial
public offering of the Fund's shares) as of the end of a specified period.
The Fund's investment performance will vary depending upon market
conditions, the composition of the Fund's portfolio and operating expenses of
the Fund. These factors and possible differences in the methods and time periods
used in calculating non-standardized investment performance should be considered
when comparing the Fund's performance to those of other investment companies or
investment vehicles. The risks associated with the Fund's investment objective,
policies and techniques should also be considered. At any time in the future,
investment performance may be higher or lower than past performance, and there
can be no assurance that any performance will continue.
From time to time, in advertisements, sales literature and information
furnished to present or prospective shareholders, the performance of the Fund
may be compared to indices of broad groups of unmanaged securities considered to
be representative of or similar to the portfolio holdings of the Fund or
considered to be representative of the stock market in general. The Fund may use
the Standard & Poor's 500 Stock Index or the Dow Jones Industrial Average.
In addition, the performance of the Fund may be compared to other
groups of mutual funds tracked by any widely used independent research firm
which ranks mutual funds by overall performance, investment objectives and
assets, such as Lipper Analytical Services, Inc. or Morningstar, Inc. The
objectives, policies, limitations and expenses of other mutual funds in a group
may not be the same as those of the Fund. Performance rankings and ratings
reported periodically in national financial publications such as Barron's and
Fortune also may be used.
CUSTODIAN
UMB, N.A., is Custodian of the Fund's investments. The Custodian acts
as the Fund's depository, safekeeps its portfolio securities, collects all
income and other payments with respect thereto, disburses funds at the Fund's
request and maintains records in connection with its duties.
TRANSFER AGENT
Unified Fund Services, Inc., 431 North Pennsylvania Street,
Indianapolis, Indiana 46204, acts as the Fund's transfer agent and, in such
capacity, maintains the records of each Unified shareholder's account, answers
shareholders' inquiries concerning their accounts, processes purchases and
redemptions of the Fund's shares, acts as dividend and distribution disbursing
agent and performs other shareholder service functions. In addition, Unified
provides the Fund with fund accounting services, which includes certain monthly
reports, record-keeping and other management-related services. For its services
as fund accountant, Unified receives an annual fee from the Advisor equal to
0.05% of the Fund's assets up to $50 million, 0.04% of the Fund's assets from
$50 million to $100 million, 0.03% of the Fund's assets from $100 million to
$500 million, 0.02% from $500 million to $1 billion, and 0.01% over $100 billion
(subject to various monthly minimum fees, the maximum being $_____ per month for
assets of $_____ to $____ million).
ACCOUNTANTS
The firm of McCurdy & Associates CPA's, Inc. ("McCurdy"), 27955 Clemens
Road, Westlake, Ohio 44145 has been selected as independent public accountants
for the Fund for the fiscal year ending February 29, 2000. McCurdy performs an
annual audit of the Fund's financial statements and provides financial, tax and
accounting consulting services as requested.
DISTRIBUTOR
Eisner Securities, Inc., (the "Distributor"), is the exclusive agent
for distribution of shares of the Fund. Neil A. Eisner and Bruce D. Oakes,
officers and Trustees of the Trust, are affiliates of the Distributor. The
Distributor is obligated to sell the shares of the Fund on a best efforts basis
only against purchase orders for the shares. Shares of the Fund are offered to
the public on a continuous basis.
ADMINISTRATOR
The Fund retains Unifed Fund Services, Inc., (the "Administrator") to
manage the Fund's business affairs and provide the Fund with administrative
services, including all regulatory reporting and necessary office equipment,
personnel and facilities. The administrator receives a monthly fee from the
Advisor equal to an annual rate of 0.10% of the Fund's assets under $50 million,
0.07% of the Fund's assets from $50 million to $100 million, 0.05% of the Fund's
assets from $100 million to $500 million, 0.04% from $500 million to $1 billion
and 0.03% of the Fund's assets over $1 billion (subject to a minimum fee of $___
per month.
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 23, 2000
Disruptive Growth Fund
- ----------------------
ASSETS:
Cash in Bank $100,000
Total Assets $100,000
LIABILITIES: $ 0
Total Liabilities $ 0
NET ASSETS $100,000
--------
NET ASSETS CONSIST OF:
Capital Paid In $100,000
OUTSTANDING SHARES 10,000
NET ASSET VALUE PER SHARE $10.00
OFFERING PRICE PER SHARE $10.61
MINIMUM REDEMPTION PRICE PER SHARE $9.85
See Accountants' Audit Report
<PAGE>
THE INNOVATIVE FUNDS
NOTES TO FINANCIAL STATEMENTS
February 23, 2000
1. ORGANIZATION
The Innovative Funds (the "Trust") is an open-end investment company established
under the laws of the State of Ohio on November 29, 1999. The Trust may issue an
unlimited number of shares, and presently consists of one series of shares for
the Disruptive Growth Fund (the "Fund").
The primary investment objective of the Fund is long-term capital appreciation.
The Fund uses an independent custodian and transfer agent. No transactions other
than those relating to organizational matters and the sale of 10,000 shares of
the Disruptive Growth Fund have taken place to date.
2. RELATED PARTY TRANSACTIONS
As of February 23, 2000, all of the outstanding shares of the Fund were owned by
the Neil A. Eisner IRA. A shareholder who beneficially owns, directly or
indirectly, more than 25% of the Fund's voting securities may be deemed a
"control person" (as defined in the 1940 Act) of the Fund. Neil A. Eisner is the
President of the Trust.
EC Advisors, Inc., the Fund's investment Advisor and administrator, is
registered as an investment Advisor under the Investment Advisors Act of 1940.
Neil A. Eisner is an officer of EC Advisors, Inc. Certain shareholders and
officers of EC Advisors, Inc. are also trustees or officers of the Trust.
As Advisor, EC Advisors, Inc. receives from the Fund as compensation for its
services to the Fund an annual fee of 1.50% of the Fund's net assets. The fee is
paid monthly and calculated on the average daily closing net asset value of the
Fund.
The Advisor pays all expenses incident to the Funds operations and business
except brokerage, taxes, borrowing costs, fees and expenses of non-interested
trustees, extraordinary expenses and expenses incurred pursuant to Rule 12b-1
under the Investment Act of 1940.
3. DISTRIBUTION PLAN
The Fund has adopted a distribution plan in accordance with Rule 12b-1 under the
1940 Act. The Fund will pay a distribution fee to the Advisor at a rate of 0.25%
per annum of the average daily net assets.
4. REDEMPTION FEE
The shares carry a 1.50% redemption fee if sold within 90 days of purchase. The
redemption fee is calculated at 1.50% of the net asset value of such shares and
paid to the Fund at the time of redemption.
<PAGE>
THE INNOVATIVE FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
February 23, 2000
5. CAPITAL STOCK AND DISTRIBUTION
At February 23, 2000, an unlimited number of shares were authorized and paid in
capital amounted to $100,000 for the Disruptive Growth Fund. Transactions in
capital stock were as follows:
Shares Sold:
Disruptive Growth Fund 10,000
Shares Redeemed:
Disruptive Growth Fund 0
Net Increase:
Disruptive Growth Fund 10,000
Shares Outstanding:
Disruptive Growth Fund 10,000
<PAGE>
To The Shareholders and Trustees
The Innovative Funds:
We have audited the accompanying statement of assets and liabilities of The
Innovative Funds (comprised of the Disruptive Growth Fund) as of February 23,
2000. This financial statement is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets and liabilities is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
statement of assets and liabilities presentation. Our procedures included
confirmation of cash held by the custodian as of February 23, 2000, by
correspondence with the custodian. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of the
Disruptive Growth Fund as of February 23, 2000, in conformity with generally
accepted accounting principles.
McCurdy & Associates CPA's, Inc.
Westlake, Ohio
February 23, 2000
<PAGE>
THE INNOVATIVE FUNDS
PART C. OTHER INFORMATION
Item 23. Exhibits
- ------- --------
(a) Articles of Incorporation. Copy of Registrant's Agreement and
Declaration of Trust, which was filed as an Exhibit to Registrant's
Registration Statement, is hereby incorporated by reference.
(b) By-laws. Copy of Registrant's By-laws, which was filed as an Exhibit to
Registrant's Registration Statement, is hereby incorporated by
reference.
(c) Instruments Defining Rights of Security Holders. None other than in the
Declaration of Trust and By-Laws of the Registrant.
(d) Investment Advisory Contracts. Registrant's Management Agreement with
its adviser, EC Advisors, Inc., is filed herewith.
(e) Underwriting Contracts.
(i) Copy of Registrant's Underwriting Agreement with Eisner
Securities, Inc. is filed herewith.
(ii) Form of Dealer Agreement is filed herewith.
(f) Bonus or Profit Sharing Contracts. None.
(g) Custodian Agreements. Copy of Registrant's Custodian Agreement with
UMB Bank, N.A. is filed herewith.
(h) Other Material Contracts. None.
(i) Legal Opinion.
(i) Legal Opinion of Brown, Cummins & Brown Co., L.P.A., which was
filed as an Exhibit to Registrant's Registration Statement, is
hereby incorporated by reference.
(ii) Consent of Brown, Cummins & Brown Co., L.P.A. is filed herewith.
(j) Other Opinions. Consent of McCurdy & Associates CPA's, Inc., is filed
herewith.
(k) Omitted Financial Statements. None.
(l) Initial Capital Agreements. Copy of Letter of Initial Shareholder
is filed herewith.
(m) Rule 12b-1 Plan. Copy of Registrant's 12b-1 Distribution and Service
Plan is filed herewith.
(n) Financial Data Schedule. None.
(o) Rule 18f-3 Plan. None.
(p) Power of Attorney.
(i) Power of Attorney for Registrant and Certificate with respect
thereto are filed herewith.
(ii) Powers of Attorney for the Trustees and Officers of the Trust are
filed herewith.
Item 24. Persons Controlled by or Under Common Control with the Fund
- ------- -----------------------------------------------------------
None.
Item 25. Indemnification
- ------- ----------------
(a) Article VI of the Registrant's Declaration of Trust provides for
indemnification of officers and Trustees as follows:
Section 6.4 Indemnification of Trustees, Officers, etc. Subject to and except as
- -------------------------------------------------------
otherwise provided in the Securities Act of 1933, as amended, and the 1940 Act,
the Trust shall indemnify each of its Trustees and officers (including persons
who serve at the Trust's request as directors, officers or trustees of another
organization in which the Trust has any interest as a shareholder, creditor or
otherwise (hereinafter referred to as a "Covered Person") against all
liabilities, including but not limited to amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and expenses, including
reasonable accountants' and counsel fees, incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been involved
as a party or otherwise or with which such person may be or may have been
threatened, while in office or thereafter, by reason of being or having been
such a Trustee or officer, director or trustee, and except that no Covered
Person shall be indemnified against any liability to the Trust or its
Shareholders to which such Covered Person would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office.
Section 6.5 Advances of Expenses. The Trust shall advance attorneys' fees or
- ---------------------------------
other expenses incurred by a Covered Person in defending a proceeding to the
full extent permitted by the Securities Act of 1933, as amended, the 1940 Act,
and Ohio Revised Code Chapter 1707, as amended. In the event any of these laws
conflict with Ohio Revised Code Section 1701.13(E), as amended, these laws, and
not Ohio Revised Code Section 1701.13(E), shall govern.
Section 6.6 Indemnification Not Exclusive, etc. The right of indemnification
- ---------------------------------------------------
provided by this Article VI shall not be exclusive of or affect any other rights
to which any such Covered Person may be entitled. As used in this Article VI,
"Covered Person" shall include such person's heirs, executors and
administrators. Nothing contained in this article shall affect any rights to
indemnification to which personnel of the Trust, other than Trustees and
officers, and other persons may be entitled by contract or otherwise under law,
nor the power of the Trust to purchase and maintain liability insurance on
behalf of any such person.
The Registrant may not pay for insurance which protects the Trustees and
officers against liabilities rising from action involving willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of their offices.
(b) The Registrant may maintain a standard mutual fund and investment advisory
professional and directors and officers liability policy. The policy, if
maintained, would provide coverage to the Registrant, its Trustees and
officers, and could cover its Advisers, among others. Coverage under the
policy would include losses by reason of any act, error, omission,
misstatement, misleading statement, neglect or breach of duty.
(c) Pursuant to the Underwriting Agreement, the Trust provides indemnification
to the Underwriter and its affiliates for liabilities arising due to
material misstatements or omissions in the Registration Statement not based
on information furnished by the Underwriter, except to the extent against
public policy or arising from the Underwriter's willful misfeasance, bad
faith, gross nigligence or reckless disregard of its obligations under the
Agreement.
(d) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant pursuant to the provisions of Ohio law and the Agreement and
Declaration of the Registrant or the By-Laws of the Registrant, 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 the 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 or paid by a trustee,
officer or controlling person of the Trust in the successful defense of any
action, suit or proceeding) is asserted by such trustee, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 26. Business and Other Connections of Investment Adviser
- -------- -----------------------------------------------------
(a). EC Advisors, Inc. ("Adviser"), 7435 Watson Road, Suite 88, St. Louis,
Missouri 63119, adviser to the Disruptive Growth Fund, plans to file an
application to become a registered investment adviser.
(i) Adviser has engaged in no other business during the past two fiscal
years.
(ii) Information with respect to each principal of the Adviser is
incorporated by reference to Schedule D of Form ADV filed by it under
the Investment Advisors Act (File 801-57206).
Item 27. Principal Underwriters
- ------- ----------------------
a. Eisner Securities, Inc., the Registrant's principal underwriter, acts as
principal underwriter or adviser to no other investment company.
b. Information with respect to each director and officer of Eisner Securities,
Inc. is incorporated by reference to Schedule A of Form BD filed by it
under the Securities Exchange Act of 1934 (File No. 8-49084).
c. Not applicable.
Item 28. Location of Accounts and Records
- ------- --------------------------------
Accounts, books and other documents required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and the rules promulgated thereunder will
be maintained by the Registrant at 7435 Watson Road, Suite 88, St. Louis,
Missouri 63119 and/or by the Registrant's Custodian, UMB Bank, N.A., 928 Grand
Blvd., 10th Floor, Kansas City, Missouri 64106, and/or by the Registrant's
Transfer Agent and Fund Accountant, Unified Fund Services, Inc., 431 North
Pennsylvania Street, Indianapolis, Indiana 46204.
Item 29. Management Services Not Discussed in Parts A or B
- -------- --------------------------------------------------
None.
Item 30. Undertakings
- ------- --------------
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Pre-Effective Amendment No. 1 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Cincinnati, State of Ohio on the 23rd
day of February, 2000.
The Innovative Funds
By:/s/
Donald S. Mendelsohn
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
*By:/s/
Donald S. Mendelsohn
Attorney-in-Fact
February 23, 2000
Neil A. Eisner*, President and Trustee
Douglas C. Braithwaite*, Trustee
Craig R. Hildreth*, Trustee
Bruce D. Oakes*, Treasurer and Trustee
Eugene D. Ruth, Jr.*, Trustee
<PAGE>
EXHIBIT INDEX
1. Management Agreement............................................EX-99.23.d
2. Underwriting Agreement..........................................EX-99.23.e.1
3. Form of Dealer Agreement........................................EX-99.23.e.2
4. Custodian Agreement.............................................EX-99.23.g
5. Consent of Brown, Cummins & Brown Co., L.P.A....................EX-99.23.i
6. Consent of McCurdy & Associates CPA's, Inc......................EX-99.23.j
7. Letter of Initial Shareholder...................................EX-99.23.l
8. Rule 12b-1 Distribution and Service Plan........................EX-99.23.m
9. Powers of Attorney..............................................EX-99.23.p
MANAGEMENT AGREEMENT
TO: E.C. Advisors, Inc.
7345 Watson Road, Suite 88
St. Louis, MO 63119
Dear Sirs:
The Innovative Funds (the "Trust") herewith confirms our agreement with
you.
The Trust has been organized to engage in the business of an investment
company. The Trust currently offers one series of shares to investors, the
Disruptive Growth Fund (the "Fund").
You have been selected to act as the sole investment adviser of the
Fund and to provide certain other services, as more fully set forth below, and
you are willing to act as such investment adviser and to perform such services
under the terms and conditions hereinafter set forth. Accordingly, the Trust
agrees with you as follows effective upon the date of the execution of this
Agreement.
1. ADVISORY SERVICES
You will regularly provide the Fund with such investment
advice as you in your discretion deem advisable and will furnish a continuous
investment program for the Fund consistent with the Fund's investment objectives
and policies. You will determine the securities to be purchased for the Fund,
the portfolio securities to be held or sold by the Fund and the portion of the
Fund's assets to be held uninvested, subject always to the Fund's investment
objectives, policies and restrictions, as each of the same shall be from time to
time in effect, and subject further to such policies and instructions as the
Board may from time to time establish. You will advise and assist the officers
of the Trust in taking such steps as are necessary or appropriate to carry out
the decisions of the Board and the appropriate committees of the Board regarding
the conduct of the business of the Fund.
2. ALLOCATION OF CHARGES AND EXPENSES
You will pay all operating expenses of the Fund, including the
compensation and expenses of any employees of the Fund and of any other persons
rendering any services to the Fund; clerical and shareholder service staff
salaries; office space and other office expenses; fees and expenses incurred by
the Fund in connection with membership in investment company organizations;
legal, auditing and accounting expenses; expenses of registering shares under
federal and state securities laws, including expenses incurred by the Fund in
connection with the organization and initial registration of shares of the Fund;
insurance expenses; fees and expenses of the custodian, transfer agent, dividend
disbursing agent, shareholder service agent, plan agent, administrator,
accounting and pricing services agent and underwriter of the Fund; expenses,
including clerical expenses, of issue, sale, redemption or repurchase of shares
of the Fund; the cost of preparing and distributing reports and notices to
shareholders, the cost of printing or preparing prospectuses and statements of
additional information for delivery to the Fund's current and prospective
shareholders; the cost of printing or preparing stock certificates or any other
documents, statements or reports to shareholders; expenses of shareholders'
meetings and proxy solicitations; advertising, promotion and other expenses
incurred directly or indirectly in connection with the sale or distribution of
the Fund's shares (excluding expenses which the Fund is authorized to pay
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended
(the"1940 Act")); and all other operating expenses not specifically assumed by
the Fund.
The Fund will pay all brokerage fees and commissions, taxes, borrowing
costs (such as (a) interest and (b) dividend expenses on securities sold short),
interest, fees and expenses of the non-interested person trustees and such
extraordinary or non-recurring expenses as may arise, including litigation to
which the Fund may be a party and indemnification of the Trust's trustees and
officers with respect thereto. The Fund will also pay expenses which it is
authorized to pay pursuant to Rule 12b-1 under the 1940 Act. You may obtain
reimbursement from the Fund, at such time or times as you may determine in your
sole discretion, for any of the expenses advanced by you, which the Fund is
obligated to pay, and such reimbursement shall not be considered to be part of
your compensation pursuant to this Agreement.
3. COMPENSATION OF THE ADVISER
For all of the services to be rendered and payments to be made
as provided in this Agreement, as of the last business day of each month, the
Fund will pay you a fee at the annual rate of 1.50% of the average value of its
daily net assets.
The average value of the daily net assets of the Fund shall be
determined pursuant to the applicable provisions of the Declaration of Trust of
the Trust or a resolution of the Board, if required. If, pursuant to such
provisions, the determination of net asset value of the Fund is suspended for
any particular business day, then for the purposes of this paragraph, the value
of the net assets of the Fund as last determined shall be deemed to be the value
of the net assets as of the close of the business day, or as of such other time
as the value of the Fund's net assets may lawfully be determined, on that day.
If the determination of the net asset value of the Fund has been suspended for a
period including such month, your compensation payable at the end of such month
shall be computed on the basis of the value of the net assets of the Fund as
last determined (whether during or prior to such month).
4. EXECUTION OF PURCHASE AND SALE ORDERS
In connection with purchases or sales of portfolio securities
for the account of the Fund, it is understood that you will arrange for the
placing of all orders for the purchase and sale of portfolio securities for the
account with brokers or dealers selected by you, subject to review of this
selection by the Board from time to time. You will be responsible for the
negotiation and the allocation of principal business and portfolio brokerage. In
the selection of such brokers or dealers and the placing of such orders, you are
directed at all times to seek for the Fund the best qualitative execution,
taking into account such factors as price (including the applicable brokerage
commission or dealer spread), the execution capability, financial responsibility
and responsiveness of the broker or dealer and the brokerage and research
services provided by the broker or dealer.
You should generally seek favorable prices and commission
rates that are reasonable in relation to the benefits received. In seeking best
qualitative execution, you are authorized to select brokers or dealers who also
provide brokerage and research services to the Fund and/or the other accounts
over which you exercise investment discretion. You are authorized to pay a
broker or dealer who provides such brokerage and research services a commission
for executing a Fund portfolio transaction which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if you determine in good faith that the amount of the commission is
reasonable in relation to the value of the brokerage and research services
provided by the executing broker or dealer. The determination may be viewed in
terms of either a particular transaction or your overall responsibilities with
respect to the Fund and to accounts over which you exercise investment
discretion. The Fund and you understand and acknowledge that, although the
information may be useful to the Fund and you, it is not possible to place a
dollar value on such information. The Board shall periodically review the
commissions paid by the Fund to determine if the commissions paid over
representative periods of time were reasonable in relation to the benefits to
the Fund.
Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., and subject to seeking best qualitative
execution as described above, you may give consideration to sales of shares of
the Fund as a factor in the selection of brokers and dealers to execute Fund
portfolio transactions.
Subject to the provisions of the 1940 Act, and other
applicable law, you, any of your affiliates or any affiliates of your affiliates
may retain compensation in connection with effecting the Fund's portfolio
transactions, including transactions effected through others. If any occasion
should arise in which you give any advice to clients of yours concerning the
shares of the Fund, you will act solely as investment counsel for such client
and not in any way on behalf of the Fund. Your services to the Fund pursuant to
this Agreement are not to be deemed to be exclusive and it is understood that
you may render investment advice, management and other services to others,
including other registered investment companies.
5. LIMITATION OF LIABILITY OF ADVISER
You may rely on information reasonably believed by you to be
accurate and reliable. Except as may otherwise be required by the 1940 Act or
the rules thereunder, neither you nor your shareholders, members, officers,
directors, employees, agents, control persons or affiliates of any thereof shall
be subject to any liability for, or any damages, expenses or losses incurred by
the Trust in connection with, any error of judgment, mistake of law, any act or
omission connected with or arising out of any services rendered under, or
payments made pursuant to, this Agreement or any other matter to which this
Agreement relates, except by reason of willful misfeasance, bad faith or gross
negligence on the part of any such persons in the performance of your duties
under this Agreement, or by reason of reckless disregard by any of such persons
of your obligations and duties under this Agreement.
Any person, even though also a director, officer, employee,
member, shareholder or agent of you, who may be or become an officer, director,
trustee, employee or agent of the Trust, shall be deemed, when rendering
services to the Trust or acting on any business of the Trust (other than
services or business in connection with your duties hereunder), to be rendering
such services to or acting solely for the Trust and not as a director, officer,
employee, member, shareholder or agent of you, or one under your control or
direction, even though paid by you.
6. DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall take effect on the date of its execution,
and shall remain in force for a period of two (2) years from the date of its
execution, and from year to year thereafter, subject to annual approval by (i)
the Board or (ii) a vote of a majority of the outstanding voting securities of
the Fund, provided that in either event continuance is also approved by a
majority of the trustees who are not interested persons of you or the Trust, by
a vote cast in person at a meeting called for the purpose of voting such
approval.
This Agreement may, on sixty days written notice, be
terminated with respect to the Fund, at any time without the payment of any
penalty, by the Board, by a vote of a majority of the outstanding voting
securities of the Fund, or by you. This Agreement shall automatically terminate
in the event of its assignment.
7. USE OF NAME
The Trust and you acknowledge that all rights to the name
"Innovative" or any variation thereof belong to you, and that the Trust is being
granted a limited license to use such words in its Fund name or in any class
name. In the event you cease to be the adviser to the Fund, the Trust's right to
the use of the name "Innovative" shall automatically cease on the ninetieth day
following the termination of this Agreement. The right to the name may also be
withdrawn by you during the term of this Agreement upon ninety (90) days'
written notice by you to the Trust. Nothing contained herein shall impair or
diminish in any respect, your right to use the name "Innovative" in the name of,
or in connection with, any other business enterprises with which you are or may
become associated. There is no charge to the Trust for the right to use this
name.
8. AMENDMENT OF THIS AGREEMENT
No provision of this Agreement may be changed, waived,
discharged or terminated orally, and no amendment of this Agreement shall be
effective until approved by the Board, including a majority of the trustees who
are not interested persons of you or of the Trust, cast in person at a meeting
called for the purpose of voting on such approval, and (if required under
interpretations of the 1940 Act by the Securities and Exchange Commission or its
staff) by vote of the holders of a majority of the outstanding voting securities
of the series to which the amendment relates.
9. LIMITATION OF LIABILITY TO TRUST PROPERTY
The term "Innovative Funds" means and refers to the Trustees
from time to time serving under the Trust's Declaration of Trust as the same may
subsequently thereto have been, or subsequently hereto be, amended. It is
expressly agreed that the obligations of the Trust hereunder shall not be
binding upon any of the trustees, shareholders, nominees, officers, agents or
employees of the Trust personally, but bind only the trust property of the
Trust, as provided in the Declaration of Trust of the Trust. The execution and
delivery of this Agreement have been authorized by the trustees and shareholders
of the Trust and signed by officers of the Trust, acting as such, and neither
such authorization by such trustees and shareholders nor such execution and
delivery by such officers shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but shall
bind only the trust property of the Trust as provided in its Declaration of
Trust. A copy of the Agreement and Declaration of Trust of the Trust is on file
with the Secretary of the State of Ohio.
10. SEVERABILITY
In the event any provision of this Agreement is determined to
be void or unenforceable, such determination shall not affect the remainder of
this Agreement, which shall continue to be in force.
11. QUESTIONS OF INTERPRETATION
(a) This Agreement shall be governed by the laws of the State
of Ohio.
(b) For the purpose of this Agreement, the terms "majority of
the outstanding voting securities," "control" and "interested person" shall have
their respective meanings as defined in the 1940 Act and rules and regulations
thereunder, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under the 1940 Act; and the term "brokerage
and research services" shall have the meaning given in the Securities Exchange
Act of 1934.
(c) Any question of interpretation of any term or provision of
this Agreement having a counterpart in or otherwise derived from a term or
provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretation thereof, if any, by the United
States courts or in the absence of any controlling decision of any such court,
by the Securities and Exchange Commission or its staff. In addition, where the
effect of a requirement of the 1940 Act, reflected in any provision of this
Agreement, is revised by rule, regulation, order or interpretation of the
Securities and Exchange Commission or its staff, such provision shall be deemed
to incorporate the effect of such rule, regulation, order or interpretation.
12. NOTICES
Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other party, it is agreed that the address of the Trust
and your address is 7435 Watson Road, Suite 88, St. Louis, Missouri 63119.
13. COUNTERPARTS
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
14. BINDING EFFECT
Each of the undersigned expressly warrants and represents that
he has the full power and authority to sign this Agreement on behalf of the
party indicated, and that his signature will operate to bind the party indicated
to the foregoing terms.
15. CAPTIONS
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
If you are in agreement with the foregoing, please sign the
form of acceptance on the accompanying counterpart of this letter and return
such counterpart to the Trust, whereupon this letter shall become a binding
contract upon the date thereof.
Yours very truly,
ATTEST:
The Innovative Funds
By: /s/ By: /s/
Name/Title Neil A. Eisner, President
Dated: February 23, 2000
ACCEPTANCE
The foregoing Agreement is hereby accepted.
ATTEST:
E. C. Advisors, Inc.
By:/s/ By:/s/
Name/Title Name/Title
Dated: February 23, 2000
UNDERWRITING AGREEMENT
----------------------
THIS AGREEMENT is made as of February 23, 2000, by and between The
Innovative Funds, an Ohio business trust (the "Trust"), and Eisner Securities,
Inc., a Texas corporation ("Underwriter").
WHEREAS, the Trust is an investment company registered under the
Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, Underwriter is a broker-dealer registered with the Securities
and Exchange Commission and a member of the National Association of Securities
Dealers, Inc. (the "NASD"); and
WHEREAS, the Trust and Underwriter are desirous of entering into an
agreement providing for the distribution by Underwriter of shares of beneficial
interest (the "Shares") of each series of shares of the Trust (the "Series").
NOW, THREEFORE, in consideration of the promises and agreements of the
parties contained herein, the parties agree as follows:
1. Appointment. The Trust hereby appoints Underwriter as its exclusive
------------
agent for the distribution of the Shares, and Underwriter hereby accepts such
appointment under the terms of this Agreement. While this Agreement is in force,
the Trust shall not sell any Shares except on the terms set forth in this
Agreement. Notwithstanding any other provision hereof, the Trust may terminate,
suspend or withdraw the offering of Shares of any Series whenever, in its sole
discretion, it deems such action to be desirable.
2. Sale and Repurchase of Shares.
------------------------------
(a) Underwriter will have the right, as agent for the Trust, to enter
into dealer agreements with registered and qualified dealers, and to sell Shares
to such dealers against orders therefor at the public offering price (as defined
in subparagraph 2(e) hereof) less a discount determined by Underwriter, which
discount shall not exceed the amount of the sales charge stated in the Trust's
effective Registration Statement on Form N-1A under the Securities Act of 1933,
as amended (the "1933 Act"), including the then current prospectus and statement
of additional information (the "Registration Statement"). Upon receipt of an
order to purchase Shares from a dealer with whom Underwriter has a dealer
agreement, Underwriter will promptly cause such order to be filled by the Trust.
(b) Underwriter will have the right, as agent for the Trust, to sell
such Shares to the public against orders therefor at the public offering price.
(c) Underwriter will also have the right, as agent for the Trust, to
sell Shares at their net asset value to such persons as may be approved by the
Trustees of the Trust, all such sales to comply with the provisions of the Act
and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
(d) Underwriter will also have the right to take, as agent for the
Trust, allactions which, in Underwriter's judgment, are necessary to carry into
effect the distribution of the Shares.
(e) The public offering price for the Shares of each Series (and, with
respect to each Series offering multiple classes of Shares, the Shares of each
Class of such Series) shall be the respective net asset value of the Shares of
that Series (or Class of that Series) then in effect, plus any applicable sales
charge determined in the manner set forth in the Registration Statement or as
permitted by the Act and the rules and regulations of the Securities and
Exchange Commission promulgated thereunder. In no event shall any applicable
sales charge exceed the maximum sales charge permitted by the Rules of Fair
Practice of the NASD.
(f) The net asset value of the Shares of each Series (or Class of a
Series) shall be determined in the manner provided in the Registration
Statement, and when determined shall be applicable to transactions as provided
for in the Registration Statement. The net asset value of the Shares of each
Series (or each Class of a Series) shall be calculated by the Trust or by
another entity on behalf of the Trust. Underwriter shall have no duty to inquire
into or liability for the accuracy of the net asset value per share as
calculated.
(g) On every sale, the Trust shall receive the applicable net asset
value of the Shares promptly, but in no event later than the third business day
following the date on which Underwriter shall have received an order for the
purchase of the Shares. Underwriter shall have the right to retain the sales
charge less any applicable dealer discount.
(h) Upon receipt of purchase instructions, Underwriter will transmit
such instructions to the Trust or its transfer agent for registration of the
Shares purchased.
(i) As additional compensation for its activities under this Agreement,
the Underwriter shall receive all contingent deferred sales charges imposed on
redemptions, if any. Whether and at what rate a contingent deferred sales charge
will be imposed with respect to a redemption shall be determined in accordance
with, and in the manner set forth in, the Registration Statement.
(j) Nothing in this Agreement shall prevent Underwriter or any
affiliated person (as defined in the Act) of Underwriter from acting as
underwriter or distributor for any other person, firm or corporation (including
other investment companies) or in any way limit or restrict Underwriter or any
such affiliated person from buying, selling or trading any securities for its or
their own account or for the accounts of others for whom it or they may be
acting; provided, however, that Underwriter expressly represents that it will
undertake no activities which, in its judgment, will adversely affect the
performance of its obligations to the Trust under this Agreement.
(k) Underwriter, as agent of and for the account of the Trust, may
repurchase the Shares at such prices and upon such terms and conditions as shall
be specified in the Registration Statement. Such price shall reflect the
subtraction of the contingent deferred sales charge, if any, computed in
accordance with and in the manner set forth in the Registration Statement. At
the end of each business day, the Underwriter shall notify the Trust and the
Trust's transfer agent of the number of shares redeemed, and the identity of the
shareholders or dealers offering Shares for repurchase. Upon such notice, the
Trust shall pay the Underwriter the net asset value of the redeemed shares in
cash or in the form of a credit against monies due the Trust from the
Underwriter as proceeds from the sale of Shares. The Trust reserves the right to
suspend such repurchase right upon written notice to the Underwriter. The
Underwriter further agrees to act as agent for the Trust to receive and transmit
promptly to the Trust's transfer agent, shareholder and dealer requests for
redemption of Shares.
3. Sales of Shares by the Trust. The Trust reserves the right to issue
-----------------------------
any Shares at any time directly to the holders of Shares ("Shareholders"), to
sell Shares to its Shareholders or to other persons approved by Underwriter at
not less than net asset value and to issue Shares in exchange for substantially
all the assets of any corporation or trust or for the shares of any corporation
or trust.
4. Basis of Sale of Shares. Underwriter does not agree to sell any
------------------------
specific number of Shares. Underwriter, as agent for the Trust, undertakes to
sell Shares on a best efforts basis only against orders therefor.
5. Compliance with NASD and Government Rules.
------------------------------------------
(a) Underwriter will conform to the Rules of Fair Practice of the NASD
and the securities laws of any jurisdiction in which it sells, directly or
indirectly, any Shares.
(b) Underwriter, at its own expense, will pay the costs incurred in
establishing and maintaining its relationship with the dealers selling the
Shares. Underwriter will require each dealer with whom Underwriter has a dealer
agreement to conform to the applicable provisions hereof and the Registration
Statement, and neither Underwriter nor any such dealers shall withhold the
placing of purchase orders so as to make a profit thereby.
(c) Underwriter agrees to furnish to the Trust sufficient copies of any
agreements, plans or other materials it intends to use in connection with any
sales of Shares in adequate time for the Trust to file and clear them with the
proper authorities before they are put in use, and not to use them until so
filed and cleared.
(d) Underwriter, at its own expense, will qualify as dealer or broker,
or otherwise, under all applicable State or federal laws required in order that
Shares may be sold in such States as may be mutually agreed upon by the parties.
(e) Underwriter shall not make, or permit any representative, broker or
dealer to make, in connection with any sale or solicitation of a sale of the
Shares, any representations concerning the Shares except those contained in the
then current prospectus and statement of additional information covering the
Shares and in printed information approved by the Trust as information
supplemental to such prospectus and statement of additional information. Copies
of the then effective prospectus and statement of additional information and any
such printed supplemental information will be supplied by the Trust to
Underwriter in reasonable quantities upon request.
6. Records to be Supplied by Trust. The Trust shall furnish to
----------------------------------
Underwriter copies of all information, financial statements and other papers
which Underwriter may reasonably request for use in connection with the
distribution of the Shares, and this shall include, but shall not be limited to,
one certified copy, upon request by Underwriter, of all financial statements
prepared for the Trust by independent public accountants.
7. Expenses to be Borne by Trust. The Trust will bear the following expenses:
-----------------------------
(a) preparation, setting in type, printing of sufficient copies of the
prospectus and statement of additional information for distribution to
shareholders, and the distribution to shareholders of the prospectus and
statement of additional information;
(b) preparation, printing and distribution of reports and other
communications to shareholders;
(c) registration of the Shares under the federal securities law;
(d) qualification of the Shares for sale in the jurisdictions
designated by Underwriter;
(e) qualification of the Trust as a dealer or broker under the laws of
jurisdictions designated by Underwriter as well as qualification of the Trust to
do business in any jurisdiction, if Underwriter determines that such
qualification is necessary or desirable for the purpose of facilitating sales of
the Shares;
(f) maintaining facilities for the issue and transfer of the Shares;
(g) supplying information, prices and other data to be furnished by the
Trust under this Agreement; and
(h) any original issue taxes or transfer taxes applicable to the sale
or delivery of the Shares of certificates therefor.
8. Services to and Actions for Trust, Not Underwriter. Any person, even
--------------------------------------------------
though also a director, officer, employee, shareholder or agent of Underwriter,
who may be or become an officer, trustee, employee or agent of the Trust, shall
be deemed, when rendering services to the Trust or acting on any business of the
Trust (other than services or business in connection with Underwriter's duties
hereunder), to be rendering such services to or acting solely for the Trust and
not as a director, officer, employee, shareholder or agent, or one under the
control or direction of Underwriter, even though paid by it.
9. Indemnification.
----------------
(a) The Trust agrees to indemnify, defend and hold the Underwriter, its
officers, directors, employees, shareholders and agents, and any person who
controls the Underwriter within the meaning of Section 15 of the 1933 Act
(hereinafter referred to as "Covered Person"), free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which a Covered Person may incur
under the 1933 Act, or under common law or otherwise, arising out of or based
upon any untrue statement of a material fact or alleged untrue statement of a
material fact contained in the Registration Statement or arising out of or based
upon any omission or alleged omission to state a material fact required to be
stated in the Registration Statement or necessary to make the statements therein
not misleading, except insofar as such claims, demands, liabilities or expenses
arise out of or are based upon any such untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
information furnished in writing by the Underwriter to the Trust for use in the
Registration Statement; provided, however, that this indemnity agreement shall
not inure to the benefit of any person who is also an officer or trustee of the
Trust or who controls the Trust within the meaning of Section 15 of the 1933
Act, unless a court of competent jurisdiction shall determine, or it shall have
been determined by controlling precedent, that such result would not be against
public policy as expressed in the 1933 Act; and further provided, that in no
event shall anything contained herein be so construed as to protect the
Underwriter against any liability to the Trust or to the shareholders of any
Series to which the Underwriter would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations under this Agreement.
(b) The Underwriter agrees to indemnify, defend, and hold the Trust,
its officers, trustees, employees, shareholders and agents, and any person who
controls the Trust within the meaning of Section 15 of the 1933 Act, free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending against such claims, demands
or liabilities and any counsel fees incurred in connection therewith) which the
Trust, its trustees, officers, employees, shareholders and agents, or any such
controlling person may incur under the 1933 Act or under common law or otherwise
arising out of or based upon any untrue statement of a material fact or alleged
untrue statement of a material fact contained in information furnished in
writing by the Underwriter to the Trust for use in the Registration Statement,
or arising out of or based upon any omission or alleged omission to state a
material fact in connection with such information required to be stated in the
Registration Statement necessary to make such information not misleading.
(c) A party seeking indemnification hereunder (the "Indemnitee") shall
give prompt written notice to the party from whom indemnification is sought
("Indemnitor") of a written assertion or claim of any threatened or pending
legal proceeding which may be subject to indemnity under this Section; provided,
however, that failure to notify the Indemnitor of such written assertion or
claim shall not relieve the Indemnitor of any liability arising from this
Section. The Indemnitor shall be entitled, if it so elects, to assume the
defense of any suit brought to enforce a claim subject to this Agreement and
such defense shall be conducted by counsel chosen by the Indemnitor and
satisfactory to the Indemnitee; provided, however, that if the defendants
include both the Indemnitee and the Indemnitor, and the Indemnitee shall have
reasonably concluded that there may be one or more legal defenses available to
it which are different from or additional to those available to the Indemnitor
("conflict of interest"), the Indemnitor shall not have the right to elect to
defend such claim on behalf of the Indemnitee, and the Indemnitee shall have the
right to select separate counsel to defend such claim on behalf of the
Indemnitee. In the event that the Indemnitor elects to assume the defense of any
suit pursuant to the preceding sentence and retains counsel satisfactory to the
Indemnitee, the Indemnitee shall bear the fees and expenses of additional
counsel retained by it except for reasonable investigation costs which shall be
borne by the Indemnitor. If the Indemnitor (i) does not elect to assume the
defense of a claim, (ii) elects to assume the defense of a claim but chooses
counsel that is not satisfactory to the Indemnitee or (iii) has no right to
assume the defense of a claim because of a conflict of interest, the Indemnitor
shall advance or reimburse the Indemnitee, at the election of the Indemnitee,
reasonable fees and disbursements of any counsel retained by Indemnitee,
including reasonable investigation costs.
10. Advances of Expenses. The Trust shall advance attorneys' fees or
--------------------
other expenses incurred by a Covered Person in defending a proceeding only to
the extent permitted by the 1933 Act and the Act.
11. Termination and Amendment of this Agreement. This Agreement shall
-------------------------------------------
automatically terminate, without the payment of any penalty, in the event of its
assignment. This Agreement may be amended only if such amendment is approved (i)
by Underwriter, (ii) either by action of the Board of Trustees of the Trust or
at a meeting of the Shareholders of the Trust by the affirmative vote of a
majority of the outstanding Shares, and (iii) by a majority of the Trustees of
the Trust who are not interested persons of the Trust or of Underwriter, by vote
cast in person at a meeting called for the purpose of voting on such approval.
Either the Trust or Underwriter may at any time terminate this Agreement on
sixty (60) days' written notice delivered or mailed by registered mail, postage
prepaid, to the other party.
12. Effective Period of this Agreement. This Agreement shall take
------------------------------------
effect upon its execution and shall remain in full force and effect for a period
of two years from the date of its execution (unless terminated automatically as
set forth in Paragraph 11), and from year to year thereafter, subject to annual
approval (i) by Underwriter, (ii) by the Board of Trustees of the Trust or a
vote of a majority of the outstanding Shares, and (iii) by a majority of the
Trustees of the Trust who are not interested persons of the Trust or of
Underwriter, by vote cast in person at a meeting called for the purpose of
voting on such approval.
13. Limitation of Trust's Liability. The term "The Innovative Funds"
--------------------------------
means and refers to the Trustees from time to time serving under the Trust's
Declaration of Trust as the same may subsequently thereto have been, or
subsequently hereto be, amended. It is expressly agreed that the obligations of
the Trust hereunder shall not be binding upon any of the Trustees, Shareholders,
nominees, officers, agents or employees of the Trust, personally, but bind only
the trust property of the Trust, as provided in the Declaration of Trust of the
Trust. The execution and delivery of this Agreement have been authorized by the
Trustees and Shareholders of the Trust and signed by the officers of the Trust,
acting as such, and neither such authorization by such Trustees and Shareholders
nor such execution and delivery by such officers shall be deemed to have been
made by any of them individually or to impose any liability on them personally,
but shall bind only the trust property of the Trust as provided in its
Declaration of Trust. A copy of the Agreement and Declaration of Trust of the
Trust is on file with the Secretary of State of Ohio.
14. New Series. The terms and provisions of this Agreement shall become
-----------
automatically applicable to any additional series of the Trust established
during the initial or renewal term of this Agreement.
15. Successor Investment Company. Unless this Agreement has been
------------------------------
terminated in accordance with Paragraph 11, the terms and provisions of this
Agreement shall become automatically applicable to any investment company which
is a successor to the Trust as a result of a reorganization, recapitalization or
change of domicile.
16. Severability. In the event any provision of this Agreement is
------------
determined to be void or unenforceable, such determination shall not affect the
remainder of this Agreement, which shall continue to be in force.
17. Questions of Interpretation.
---------------------------
(a) This Agreement shall be governed by the laws of the State of Ohio.
(b) Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Act shall be resolved by reference to such term or provision of the Act
and to interpretation thereof, if any, by the United States courts or in the
absence of any controlling decision of any such court, by rules, regulations or
orders of the Securities and Exchange Commission issued pursuant to said Act. In
addition, where the effect of a requirement of the Act, reflected in any
provision of this Agreement is revised by rule, regulation or order of the
Securities and Exchange Commission, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
18. Notices. Any notices under this Agreement shall be in writing,
-------
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other party, it is agreed that for this purpose the
address of the Trust shall be 7435 Watson Road, Suite 88, St. Louis, Missouri
63119 and of the Underwriter shall be 7435 Watson Road, Suite 88, St. Louis,
Missouri 63119.
19. Counterparts. This Agreement may be in one or more counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
20. Binding Effect. Each of the undersigned expressly warrants and
---------------
represents that he has the full power and authority to sign this Agreement on
behalf of the party indicated, and that his signature will operate to bind the
party indicated to the foregoing terms.
21. Force Majuere. If Underwriter shall be delayed in its performance
-------------
of services or prevented entirely or in part from performing services due to
causes or events beyond its control, including and without limitation, acts of
God, interruption of power or other utility, transportation or communication
services, acts of civil or military authority, sabotages, national emergencies,
explosion, flood, accident, earthquake or other catastrophe, fire, strike or
other labor problems, legal action, present or future law, governmental order,
rule or regulation, or shortages of suitable parts, materials, labor or
transportation, such delay or non-performance shall be excused and a reasonable
time for performance in connection with this Agreement shall be extended to
include the period of such delay or non-performance.
IN WITNESS WHEREOF, the Trust and Underwriter have each caused this
Agreement to be signed on its behalf, all as of the day and year first above
written.
THE INNOVATIVE FUNDS
By: ___/s/__________________
Neil A. Eisner, President
EISNER SECURITIES, INC.
By: ___/s/___________________
Bruce D. Oakes,
Chief Operating Officer
<PAGE>
THE INNOVATIVE FUNDS
DEALER AGREEMENT
----------------
Eisner Securities, Inc. ("Underwriter") invites you, as a selected
dealer, to participate as principal in the distribution of shares (the "Shares")
of the mutual funds set forth on Schedule A to this Agreement (the "Funds"), of
which it is the exclusive underwriter. Underwriter agrees to sell to you,
subject to any limitations imposed by the Funds, Shares issued by the Funds and
to promptly confirm each sale to you. All sales will be made according to the
following terms:
1. All offerings of any of the Shares by you must be made at the public
offering prices, and shall be subject to the conditions of offering, set forth
in the then current Prospectus and Statement of Additional Information of the
applicable Fund and to the terms and conditions herein set forth, and you agree
to comply with all requirements applicable to you of all applicable laws,
including federal and state securities laws, the rules and regulations of the
Securities and Exchange Commission, and the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. (the "NASD"), including Section
24 of the Rules of Fair Practice of the NASD. You will not offer the Shares for
sale in any state or other jurisdiction where they are not qualified for sale
under the Blue Sky Laws and regulations of such state or jurisdiction, or where
you are not qualified to act as a dealer. Upon application to Underwriter,
Underwriter will inform you as to the states or other jurisdictions in which
Underwriter believes the Shares may legally be sold.
2. (a) You will receive a discount from the public offering price
("concession") on all Shares purchased by you from Underwriter as indicated on
Schedule A, as it may be amended by Underwriter from time to time.
(b) In all transactions in open accounts in which you are designated as
Dealer of Record, you will receive the concessions as set forth on Schedule A.
You hereby authorize Underwriter to act as your agent in connection with all
transactions in open accounts in which you are designated as Dealer of Record.
All designations as Dealer of Record, and all authorizations of Underwriter to
act as your Agent pursuant thereto, shall cease upon the termination of this
Agreement or upon the investor's instructions to transfer his open account to
another Dealer of Record. No dealer concessions will be allowed on purchases
generating less than $1.00 in dealer concessions.
(c) As the exclusive underwriter of the Shares, Underwriter reserves
the privilege of revising the discounts specified on Schedule A at any time by
written notice.
3. Concessions will be paid to you at the address of your principal
office, as indicated below in your acceptance of this Agreement.
4. Underwriter reserves the right to cancel this Agreement at any time
without notice if any Shares shall be offered for sale by you at less than the
then current public offering prices determined by, or for, the Funds.
5. All orders are subject to acceptance or rejection by Underwriter in
its sole discretion. Underwriter reserves the right, in its discretion, without
notice, to suspend sales or withdraw the offering of Shares entirely.
6. Payment shall be made to the Funds and shall be received by its
Transfer Agent within three (3) business days after the acceptance of your order
or such shorter time as may be required by law. With respect to all Shares
ordered by you for which payment has not been received, you hereby assign and
pledge to Underwriter all of your right, title and interest in such Shares to
secure payment therefor. You appoint Underwriter as your agent to execute and
deliver all documents necessary to effectuate any of the transactions described
in this paragraph. If such payment is not received within the required time
period, Underwriter reserves the right, without notice, and at its option,
forthwith (a) to cancel the sale, (b) to sell the Shares ordered by you back to
the Funds, or (c) to assign your payment obligation, accompanied by all pledged
Shares, to any person. You agree that Underwriter may hold you responsible for
any loss, including loss of profit, suffered by the Funds, its Transfer Agent or
Underwriter, resulting from your failure to make payment within the required
time period.
7. No person is authorized to make any representations concerning
Shares of the Funds except those contained in the current applicable Prospectus
and Statement of Additional Information and in sales literature issued and
furnished by Underwriter supplemental to such Prospectus. Underwriter will
furnish additional copies of the current Prospectus and Statement of Additional
Information and such sales literature and other releases and information issued
by Underwriter in reasonable quantities upon request.
8. Under this Agreement, you act as principal and are not employed by
Underwriter as broker, agent or employee. You are not authorized to act for
Underwriter nor make any representation on its behalf; and in purchasing or
selling Shares hereunder, you rely only upon the current Prospectus and
Statement of Additional Information furnished to you by Underwriter from time to
time and upon such written representations as may hereafter be made by
Underwriter to you over its signature.
9. You appoint the transfer agent for the Funds as your agent to
execute the purchase transactions of Shares in accordance with the terms and
provisions of any account, program, plan or service established or used by your
customers and to confirm each purchase to your customers on your behalf, and you
guarantee the legal capacity of your customers so purchasing such Shares and any
co-owners of such Shares.
10. You will (a) maintain all records required by law relating to
transactions in the Shares, and upon the request of Underwriter, or the request
of the Funds, promptly make such of these records available to Underwriter or to
the Funds as are requested, and (b) promptly notify Underwriter if you
experience any difficulty in maintaining the records required in the foregoing
clause in an accurate and complete manner. In addition, you will establish
appropriate procedures and reporting forms and schedule, approved by Underwriter
and by the Funds, to enable the parties hereto and the Funds to identify all
accounts opened and maintained by your customers.
11. Each party hereto represents that it is present, and at all times
during the term of this Agreement will be, a member in good standing of the NASD
and agrees to abide by all its Rules of Fair Practice including, but not limited
to, the following provisions:
(a) You shall not withhold placing customers' orders for any Shares so
as to profit yourself as a result of such withholding. You shall not purchase
any Shares from Underwriter other than for investment, except for the purpose of
covering purchase orders already received.
(b) All conditional orders received by Underwriter must be at a
specified definite price.
(c) If any Shares purchased by you are repurchased by the Funds (or by
Underwriter for the account of the Funds) or are tendered for redemption within
seven business days after confirmation of the original sale of such Shares (1)
you agree to forthwith refund to Underwriter the full concession allowed to you
on the original sale, such refund to be paid by Underwriter to the Funds, and
(2) Underwriter shall forthwith pay to the Funds that part of the discount
retained by Underwriter on the original sale. Notice will be given to you of any
such repurchase or redemption within ten days of the date on which the
repurchase or redemption request is made.
(d) Neither Underwriter, as exclusive underwriter for the Funds, nor
you as principal, shall purchase any Shares from a record holder at a price
lower than the net asset value then quoted by, or for, the Funds. Nothing in
this sub-paragraph shall prevent you from selling Shares for the account of a
record holder to Underwriter or the Funds at the net asset value currently
quoted by, or for, the Funds and charging the investor a fair commission for
handling the transaction.
(e) You warrant on behalf of yourself and your registered
representatives and employees that any purchase of Shares at net asset value by
the same pursuant to the terms of the Prospectus of the applicable Fund is for
investment purposes only and not for purposes of resale. Shares so purchased may
be resold only to the Fund which issued them.
12. You agree that you will indemnify Underwriter, each Fund, each
Fund's transfer agent, each Fund's investment adviser, and each Fund's custodian
and hold such persons harmless from any claims or assertions relating to the
lawfulness of your company's participation in this Agreement and the
transactions contemplated hereby or relating to any activities of any persons or
entities affiliated with your company which are performed in connection with the
discharge of your responsibilities under this Agreement. If any claims are
asserted, the indemnified parties shall have the right to engage in their own
defense, including the selection and engagement of legal counsel of their
choosing, and all costs of such defense shall be borne by you.
13. This Agreement will automatically terminate in the event of its
assignment. Either party hereto may cancel this Agreement without penalty upon
ten days' written notice. This Agreement may also be terminated as to any Fund
at any time without penalty by the vote of a majority of the members of the
Board of Trustees of the terminating Fund who are not "interested persons" (as
such term is defined in the Investment Company Act of 1940) or by a vote of a
majority of the outstanding voting securities of the terminating Fund on ten
days' written notice.
14. All communications to Underwriter should be sent to Eisner
Securities, Inc. 7435 Watson Road, Suite 88, St. Louis, Missouri 63119, or at
such other address as Underwriter may designate in writing. Any notice to you
shall be duly given if mailed or telegraphed to you at the address of your
principal office, as indicated below in your acceptance of this Agreement.
15. This Agreement supersedes any other agreement with you relating to
the offer and sale of the Shares, and relating to any other matter discussed
herein.
16. This Agreement shall be binding (i) upon placing your first order
with Underwriter for the purchase of Shares, or (ii) upon receipt by Underwriter
in St. Louis, Missouri of a counterpart of this Agreement duly accepted and
signed by you, whichever shall occur first. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO.
17. The undersigned, executing this Agreement on behalf of Dealer,
hereby warrants and represents that he is duly authorized to so execute this
Agreement on behalf of Dealer.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one copy of this Agreement.
The foregoing Procedures were adopted unanimously by the Board of
Trustees of the Trust, including a majority of its Independent Trustees, at a
meeting held on February 15, 2000.
EISNER SECURITIES, INC.
By: _________________________________
Neil A. Eisner, President
ACCEPTED BY DEALER:
________________________________
Firm Name
By: _________________________________ ________________________________
Authorized Signature, Position Type or Print Name
ADDRESS (Principal Office):
_________________________________________
_________________________________________
_________________________________________
Date: __________________________________
CUSTODY AGREEMENT
Dated February 22, 2000
Between
UMB BANK, N.A.
and
THE INNOVATIVE FUNDS
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION PAGE
1. Appointment of Custodian 1
2. Definitions 1
(a) Securities 1
(b) Assets 1
(c) Instructions and Special Instructions 1
3. Delivery of Corporate Documents 2
4. Powers and Duties of Custodian and Domestic Subcustodian 2
(a) Safekeeping 3
(b) Manner of Holding Securities 3
(c) Free Delivery of Assets 4
(d) Exchange of Securities 4
(e) Purchases of Assets 4
(f) Sales of Assets 5
(g) Options 5
(h) Futures Contracts 6
(i) Segregated Accounts 6
(j) Depositary Receipts 6
(k) Corporate Actions, Put Bonds, Called Bonds, Etc. 6
(l) Interest Bearing Deposits 7
(m) Foreign Exchange Transactions 7
(n) Pledges or Loans of Securities 8
(o) Stock Dividends, Rights, Etc. 8
(p) Routine Dealings 8
(q) Collections 8
(r) Bank Accounts 9
(s) Dividends, Distributions and Redemptions 9
(t) Proceeds from Shares Sold 9
(u) Proxies and Notices; Compliance with the Shareholders
Communication Act of 1985 9
(v) Books and Records 9
(w) Opinion of Fund's Independent Certified Public Accountants 10
(x) Reports by Independent Certified Public Accountants 10
(y) Bills and Others Disbursements 10
5. Subcustodians 10
(a) Domestic Subcustodians 10
(b) Foreign Subcustodians 10
(c) Interim Subcustodians 11
(d) Special Subcustodians 11
(e) Termination of a Subcustodian 11
(f) Certification Regarding Foreign Subcustodians 11
6. Standard of Care 12
(a) General Standard of Care 12
(b) Actions Prohibited by Applicable Law, Events Beyond 12
Custodian's Control, Armed Conflict, Sovereign Risk, etc.
(c) Liability for Past Records 12
(d) Advice of Counsel 12
(e) Advice of the Fund and Others 12
(f) Instructions Appearing to be Genuine 13
(g) Exceptions from Liability 13
7. Liability of the Custodian for Actions of Others 13
(a) Domestic Subcustodians 13
(b) Liability for Acts and Omissions of Foreign Subcustodians 13
(c) Securities Systems, Interim Subcustodians, Special 13
Subcustodians, Securities Depositories and Clearing
Agencies
(d) Defaults or Insolvencys of Brokers, Banks, Etc. 14
(e) Reimbursement of Expenses 14
8. Indemnification 14
(a) Indemnification by Fund 14
(b) Indemnification by Custodian 14
9. Advances 14
10. Liens 15
11. Compensation 15
12. Powers of Attorney 15
13. Termination and Assignment 15
14. Additional Funds 15
15. Notices 16
16. Miscellaneous 16
</TABLE>
<PAGE>
29
CUSTODY AGREEMENT
This agreement made as of this 22nd day of February, 2000, between UMB
Bank, N.A., a national banking association with its principal place of business
located in Kansas City, Missouri (hereinafter "Custodian"), and each of the
Funds listed on Appendix B hereof, together with such additional Funds which
shall be made parties to this Agreement by the execution of Appendix B hereto
(individually, a "Fund" and collectively, the "Funds").
WITNESSETH:
WHEREAS, each Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended; and
WHEREAS, each Fund desires to appoint Custodian as its custodian for
the custody of Assets (as hereinafter defined) owned by such Fund which Assets
are to be held in such accounts as such Fund may establish from time to time;
and
WHEREAS, Custodian is willing to accept such appointment on the terms
and conditions hereof.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties hereto, intending to be legally bound, mutually covenant and
agree as follows:
1. APPOINTMENT OF CUSTODIAN.
-------------------------
Each Fund hereby constitutes and appoints the Custodian as custodian of
Assets belonging to each such Fund which have been or may be from time to time
deposited with the Custodian. Custodian accepts such appointment as a custodian
and agrees to perform the duties and responsibilities of Custodian as set forth
herein on the conditions set forth herein.
2. DEFINITIONS.
------------
For purposes of this Agreement, the following terms shall have the
meanings so indicated:
(a) "Security" or "Securities" shall mean stocks, bonds, bills, rights,
script, warrants, interim certificates and all negotiable or nonnegotiable paper
commonly known as Securities and other instruments or obligations.
(b) "Assets" shall mean Securities, monies and other property held by
the Custodian for the benefit of a Fund.
(c)(1) "Instructions", as used herein, shall mean: (i) a tested telex,
a written (including, without limitation, facsimile transmission) request,
direction, instruction or certification signed or initialed by or on behalf of a
Fund by an Authorized Person; (ii) a telephonic or other oral communication from
a person the Custodian reasonably believes to be an Authorized Person; or (iii)
a communication effected directly between an electro-mechanical or electronic
device or system (including, without limitation, computers) on behalf of a Fund.
Instructions in the form of oral communications shall be confirmed by the
appropriate Fund by tested telex or in writing in the manner set forth in clause
(i) above, but the lack of such confirmation shall in no way affect any action
taken by the Custodian in reliance upon such oral Instructions prior to the
Custodian's receipt of such confirmation. Each Fund authorizes the Custodian to
record any and all telephonic or other oral Instructions communicated to the
Custodian.
(c)(2) "Special Instructions", as used herein, shall mean Instructions
countersigned or confirmed in writing by the Treasurer or any Assistant
Treasurer of a Fund or any other person designated by the Treasurer of such Fund
in writing, which countersignature or confirmation shall be included on the same
instrument containing the Instructions or on a separate instrument relating
thereto.
(c)(3) Instructions and Special Instructions shall be delivered to the
Custodian at the address and/or telephone, facsimile transmission or telex
number agreed upon from time to time by the Custodian and each Fund.
(c)(4) Where appropriate, Instructions and Special Instructions shall
be continuing instructions.
3. DELIVERY OF CORPORATE DOCUMENTS.
-------------------------------
Each of the parties to this Agreement represents that its execution
does not violate any of the provisions of its respective charter, articles of
incorporation, articles of association, declaration of trust or bylaws and all
required corporate action to authorize the execution and delivery of this
Agreement has been taken.
Each Fund has furnished the Custodian with copies, properly certified
or authenticated, with all amendments or supplements thereto, of the following
documents:
(a) Certificate of Incorporation (or equivalent document) of the Fund
as in effect on the date hereof;
(b) By-Laws of the Fund as in effect on the date hereof;
(c) Resolutions of the Board of Directors of the Fund appointing the
Custodian and approving the form of this Agreement; and
(d) The Fund's current prospectus and statements of additional
information.
Each Fund shall promptly furnish the Custodian with copies of any
updates, amendments or supplements to the foregoing documents.
In addition, each Fund has delivered or will promptly deliver to the
Custodian, copies of the Resolution(s) of its Board of Directors or Trustees and
all amendments or supplements thereto, properly certified or authenticated,
designating certain officers or employees of each such Fund who will have
continuing authority to certify to the Custodian: (a) the names, titles,
signatures and scope of authority of all persons authorized to give Instructions
or any other notice, request, direction, instruction, certificate or instrument
on behalf of each Fund, and (b) the names, titles and signatures of those
persons authorized to countersign or confirm Special Instructions on behalf of
each Fund (in both cases collectively, the "Authorized Persons" and
individually, an "Authorized Person"). Such Resolutions and certificates may be
accepted and relied upon by the Custodian as conclusive evidence of the facts
set forth therein and shall be considered to be in full force and effect until
delivery to the Custodian of a similar Resolution or certificate to the
contrary. Upon delivery of a certificate which deletes or does not include the
name(s) of a person previously authorized to give Instructions or to countersign
or confirm Special Instructions, such persons shall no longer be considered an
Authorized Person authorized to give Instructions or to countersign or confirm
Special Instructions. Unless the certificate specifically requires that the
approval of anyone else will first have been obtained, the Custodian will be
under no obligation to inquire into the right of the person giving such
Instructions or Special Instructions to do so. Notwithstanding any of the
foregoing, no Instructions or Special Instructions received by the Custodian
from a Fund will be deemed to authorize or permit any director, trustee,
officer, employee, or agent of such Fund to withdraw any of the Assets of such
Fund upon the mere receipt of such authorization, Special Instructions or
Instructions from such director, trustee, officer, employee or agent.
4. POWERS AND DUTIES OF CUSTODIAN AND DOMESTIC SUBCUSTODIAN.
---------------------------------------------------------
Except for Assets held by any Subcustodian appointed pursuant to
Sections 5(b), (c), or (d) of this Agreement, the Custodian shall have and
perform the powers and duties hereinafter set forth in this Section 4. For
purposes of this Section 4 all references to powers and duties of the
"Custodian" shall also refer to any Domestic Subcustodian appointed pursuant to
Section 5(a).
(a) Safekeeping.
------------
The Custodian will keep safely the Assets of each Fund which are
delivered to it from time to time. The Custodian shall not be responsible for
any property of a Fund held or received by such Fund and not delivered to the
Custodian.
(b) Manner of Holding Securities.
----------------------------
(1) The Custodian shall at all times hold Securities of each Fund
either: (i) by physical possession of the share certificates or other
instruments representing such Securities in registered or bearer form; or (ii)
in book-entry form by a Securities System (as hereinafter defined) in accordance
with the provisions of sub-paragraph (3) below.
(2) The Custodian may hold registrable portfolio Securities which have
been delivered to it in physical form, by registering the same in the name of
the Custodian or its nominee, for whose actions the Custodian shall be fully
responsible. Upon the receipt of Instructions, the Custodian shall hold such
Securities in street certificate form, so called, with or without any indication
of fiduciary capacity. However, unless it receives Instructions to the contrary,
the Custodian will register all such portfolio Securities in the name of the
Custodian's authorized nominee. All such Securities shall be held in an account
of the Custodian containing only assets of the appropriate Fund or only assets
held by the Custodian as a fiduciary, provided that the records of the Custodian
shall indicate at all times the Fund or other customer for which such Securities
are held in such accounts and the respective interests therein.
(3) The Custodian may deposit and/or maintain domestic Securities owned
by a Fund in, and each Fund hereby approves use of: (a) The Depository Trust
Company; (b) The Participants Trust Company; and (c) any book-entry system as
provided in (i) Subpart O of Treasury Circular No. 300, 31 CFR 306.115, (ii)
Subpart B of Treasury Circular Public Debt Series No. 27-76, 31 CFR 350.2, or
(iii) the book-entry regulations of federal agencies substantially in the form
of 31 CFR 306.115. Upon the receipt of Special Instructions, the Custodian may
deposit and/or maintain domestic Securities owned by a Fund in any other
domestic clearing agency registered with the Securities and Exchange Commission
("SEC") under Section 17A of the Securities Exchange Act of 1934 (or as may
otherwise be authorized by the SEC to serve in the capacity of depository or
clearing agent for the Securities or other assets of investment companies) which
acts as a Securities depository. Each of the foregoing shall be referred to in
this Agreement as a "Securities System", and all such Securities Systems shall
be listed on the attached Appendix A. Use of a Securities System shall be in
accordance with applicable Federal Reserve Board and SEC rules and regulations,
if any, and subject to the following provisions:
(i) The Custodian may deposit the Securities directly or through one or
more agents or Subcustodians which are also qualified to act as custodians for
investment companies.
(ii) The Custodian shall deposit and/or maintain the Securities in a
Securities System, provided that such Securities are represented in an account
("Account") of the Custodian in the Securities System that includes only assets
held by the Custodian as a fiduciary, custodian or otherwise for customers.
(iii) The books and records of the Custodian shall at all times
identify those Securities belonging to any one or more Funds which are
maintained in a Securities System.
(iv) The Custodian shall pay for Securities purchased for the account
of a Fund only upon (a) receipt of advice from the Securities System that such
Securities have been transferred to the Account of the Custodian in accordance
with the rules of the Securities System, and (b) the making of an entry on the
records of the Custodian to reflect such payment and transfer for the account of
such Fund. The Custodian shall transfer Securities sold for the account of a
Fund only upon (a) receipt of advice from the Securities System that payment for
such Securities has been transferred to the Account of the Custodian in
accordance with the rules of the Securities System, and (b) the making of an
entry on the records of the Custodian to reflect such transfer and payment for
the account of such Fund. Copies of all advices from the Securities System
relating to transfers of Securities for the account of a Fund shall be
maintained for such Fund by the Custodian. The Custodian shall deliver to a Fund
on the next succeeding business day daily transaction reports that shall include
each day's transactions in the Securities System for the account of such Fund.
Such transaction reports shall be delivered to such Fund or any agent designated
by such Fund pursuant to Instructions, by computer or in such other manner as
such Fund and Custodian may agree.
(v) The Custodian shall, if requested by a Fund pursuant to
Instructions, provide such Fund with reports obtained by the Custodian or any
Subcustodian with respect to a Securities System's accounting system, internal
accounting control and procedures for safeguarding Securities deposited in the
Securities System.
(vi) Upon receipt of Special Instructions, the Custodian shall
terminate the use of any Securities System on behalf of a Fund as promptly as
practicable and shall take all actions reasonably practicable to safeguard the
Securities of such Fund maintained with such Securities System.
(c) Free Delivery of Assets.
-----------------------
Notwithstanding any other provision of this Agreement and except as
provided in Section 3 hereof, the Custodian, upon receipt of Special
Instructions, will undertake to make free delivery of Assets, provided such
Assets are on hand and available, in connection with a Fund's transactions and
to transfer such Assets to such broker, dealer, Subcustodian, bank, agent,
Securities System or otherwise as specified in such Special Instructions.
(d) Exchange of Securities.
----------------------
Upon receipt of Instructions, the Custodian will exchange portfolio
Securities held by it for a Fund for other Securities or cash paid in connection
with any reorganization, recapitalization, merger, consolidation, or conversion
of convertible Securities, and will deposit any such Securities in accordance
with the terms of any reorganization or protective plan.
Without Instructions, the Custodian is authorized to exchange
Securities held by it in temporary form for Securities in definitive form, to
surrender Securities for transfer into a name or nominee name as permitted in
Section 4(b)(2), to effect an exchange of shares in a stock split or when the
par value of the stock is changed, to sell any fractional shares, and, upon
receiving payment therefor, to surrender bonds or other Securities held by it at
maturity or call.
(e) Purchases of Assets.
--------------------
(1) Securities Purchases. In accordance with Instructions, the
---------------------
Custodian shall, with respect to a purchase of Securities, pay for such
Securities out of monies held for a Fund's account for which the purchase was
made, but only insofar as monies are available therein for such purpose, and
receive the portfolio Securities so purchased. Unless the Custodian has received
Special Instructions to the contrary, such payment will be made only upon
receipt of Securities by the Custodian, a clearing corporation of a national
Securities exchange of which the Custodian is a member, or a Securities System
in accordance with the provisions of Section 4(b)(3) hereof. Notwithstanding the
foregoing, upon receipt of Instructions: (i) in connection with a repurchase
agreement, the Custodian may release funds to a Securities System prior to the
receipt of advice from the Securities System that the Securities underlying such
repurchase agreement have been transferred by book-entry into the Account
maintained with such Securities System by the Custodian, provided that the
Custodian's instructions to the Securities System require that the Securities
System may make payment of such funds to the other party to the repurchase
agreement only upon transfer by book-entry of the Securities underlying the
repurchase agreement into such Account; (ii) in the case of Interest Bearing
Deposits, currency deposits, and other deposits, foreign exchange transactions,
futures contracts or options, pursuant to Sections 4(g), 4(h), 4(l), and 4(m)
hereof, the Custodian may make payment therefor before receipt of an advice of
transaction; and (iii) in the case of Securities as to which payment for the
Security and receipt of the instrument evidencing the Security are under
generally accepted trade practice or the terms of the instrument representing
the Security expected to take place in different locations or through separate
parties, such as commercial paper which is indexed to foreign currency exchange
rates, derivatives and similar Securities, the Custodian may make payment for
such Securities prior to delivery thereof in accordance with such generally
accepted trade practice or the terms of the instrument representing such
Security.
(2) Other Assets Purchased. Upon receipt of Instructions and except as
-----------------------
otherwise provided herein, the Custodian shall pay for and receive other Assets
for the account of a Fund as provided in Instructions.
(f) Sales of Assets.
----------------
(1) Securities Sold. In accordance with Instructions, the Custodian
----------------
will, with respect to a sale, deliver or cause to be delivered the Securities
thus designated as sold to the broker or other person specified in the
Instructions relating to such sale. Unless the Custodian has received Special
Instructions to the contrary, such delivery shall be made only upon receipt of
payment therefor in the form of: (a) cash, certified check, bank cashier's
check, bank credit, or bank wire transfer; (b) credit to the account of the
Custodian with a clearing corporation of a national Securities exchange of which
the Custodian is a member; or (c) credit to the Account of the Custodian with a
Securities System, in accordance with the provisions of Section 4(b)(3) hereof.
Notwithstanding the foregoing, Securities held in physical form may be delivered
and paid for in accordance with "street delivery custom" to a broker or its
clearing agent, against delivery to the Custodian of a receipt for such
Securities, provided that the Custodian shall have taken reasonable steps to
ensure prompt collection of the payment for, or return of, such Securities by
the broker or its clearing agent, and provided further that the Custodian shall
not be responsible for the selection of or the failure or inability to perform
of such broker or its clearing agent or for any related loss arising from
delivery or custody of such Securities prior to receiving payment therefor.
(2) Other Assets Sold. Upon receipt of Instructions and except as
-------------------
otherwise provided herein, the Custodian shall receive payment for and deliver
other Assets for the account of a Fund as provided in Instructions.
(g) Options.
--------
(1) Upon receipt of Instructions relating to the purchase of an option
or sale of a covered call option, the Custodian shall: (a) receive and retain
confirmations or other documents, if any, evidencing the purchase or writing of
the option by a Fund; (b) if the transaction involves the sale of a covered call
option, deposit and maintain in a segregated account the Securities (either
physically or by book-entry in a Securities System) subject to the covered call
option written on behalf of such Fund; and (c) pay, release and/or transfer such
Securities, cash or other Assets in accordance with any notices or other
communications evidencing the expiration, termination or exercise of such
options which are furnished to the Custodian by the Options Clearing Corporation
(the "OCC"), the securities or options exchanges on which such options were
traded, or such other organization as may be responsible for handling such
option transactions.
(2) Upon receipt of Instructions relating to the sale of a naked option
(including stock index and commodity options), the Custodian, the appropriate
Fund and the broker-dealer shall enter into an agreement to comply with the
rules of the OCC or of any registered national securities exchange or similar
organizations(s). Pursuant to that agreement and such Fund's Instructions, the
Custodian shall: (a) receive and retain confirmations or other documents, if
any, evidencing the writing of the option; (b) deposit and maintain in a
segregated account, Securities (either physically or by book-entry in a
Securities System), cash and/or other Assets; and (c) pay, release and/or
transfer such Securities, cash or other Assets in accordance with any such
agreement and with any notices or other communications evidencing the
expiration, termination or exercise of such option which are furnished to the
Custodian by the OCC, the securities or options exchanges on which such options
were traded, or such other organization as may be responsible for handling such
option transactions. The appropriate Fund and the broker-dealer shall be
responsible for determining the quality and quantity of assets held in any
segregated account established in compliance with applicable margin maintenance
requirements and the performance of other terms of any option contract.
(h) Futures Contracts.
------------------
Upon receipt of Instructions, the Custodian shall enter into a futures
margin procedural agreement among the appropriate Fund, the Custodian and the
designated futures commission merchant (a "Procedural Agreement"). Under the
Procedural Agreement the Custodian shall: (a) receive and retain confirmations,
if any, evidencing the purchase or sale of a futures contract or an option on a
futures contract by such Fund; (b) deposit and maintain in a segregated account
cash, Securities and/or other Assets designated as initial, maintenance or
variation "margin" deposits intended to secure such Fund's performance of its
obligations under any futures contracts purchased or sold, or any options on
futures contracts written by such Fund, in accordance with the provisions of any
Procedural Agreement designed to comply with the provisions of the Commodity
Futures Trading Commission and/or any commodity exchange or contract market
(such as the Chicago Board of Trade), or any similar organization(s), regarding
such margin deposits; and (c) release Assets from and/or transfer Assets into
such margin accounts only in accordance with any such Procedural Agreements. The
appropriate Fund and such futures commission merchant shall be responsible for
determining the type and amount of Assets held in the segregated account or paid
to the broker-dealer in compliance with applicable margin maintenance
requirements and the performance of any futures contract or option on a futures
contract in accordance with its terms.
(i) Segregated Accounts.
-------------------
Upon receipt of Instructions, the Custodian shall establish and
maintain on its books a segregated account or accounts for and on behalf of a
Fund, into which account or accounts may be transferred Assets of such Fund,
including Securities maintained by the Custodian in a Securities System pursuant
to Paragraph (b)(3) of this Section 4, said account or accounts to be maintained
(i) for the purposes set forth in Sections 4(g), 4(h) and 4(n) and (ii) for the
purpose of compliance by such Fund with the procedures required by the SEC
Investment Company Act Release Number 10666 or any subsequent release or
releases relating to the maintenance of segregated accounts by registered
investment companies, or (iii) for such other purposes as may be set forth, from
time to time, in Special Instructions. The Custodian shall not be responsible
for the determination of the type or amount of Assets to be held in any
segregated account referred to in this paragraph, or for compliance by the Fund
with required procedures noted in (ii) above.
(j) Depositary Receipts.
-------------------
Upon receipt of Instructions, the Custodian shall surrender or cause to
be surrendered Securities to the depositary used for such Securities by an
issuer of American Depositary Receipts or International Depositary Receipts
(hereinafter referred to, collectively, as "ADRs"), against a written receipt
therefor adequately describing such Securities and written evidence satisfactory
to the organization surrendering the same that the depositary has acknowledged
receipt of instructions to issue ADRs with respect to such Securities in the
name of the Custodian or a nominee of the Custodian, for delivery in accordance
with such instructions.
Upon receipt of Instructions, the Custodian shall surrender or cause to
be surrendered ADRs to the issuer thereof, against a written receipt therefor
adequately describing the ADRs surrendered and written evidence satisfactory to
the organization surrendering the same that the issuer of the ADRs has
acknowledged receipt of instructions to cause its depository to deliver the
Securities underlying such ADRs in accordance with such instructions.
(k) Corporate Actions, Put Bonds, Called Bonds, Etc.
------------------------------------------------
Upon receipt of Instructions, the Custodian shall: (a) deliver
warrants, puts, calls, rights or similar Securities to the issuer or trustee
thereof (or to the agent of such issuer or trustee) for the purpose of exercise
or sale, provided that the new Securities, cash or other Assets, if any,
acquired as a result of such actions are to be delivered to the Custodian; and
(b) deposit Securities upon invitations for tenders thereof, provided that the
consideration for such Securities is to be paid or delivered to the Custodian,
or the tendered Securities are to be returned to the Custodian.
Notwithstanding any provision of this Agreement to the contrary, the
Custodian shall take all necessary action, unless otherwise directed to the
contrary in Instructions, to comply with the terms of all mandatory or
compulsory exchanges, calls, tenders, redemptions, or similar rights of security
ownership, and shall notify the appropriate Fund of such action in writing by
facsimile transmission or in such other manner as such Fund and Custodian may
agree in writing.
The Fund agrees that if it gives an Instruction for the performance of
an act on the last permissible date of a period established by any optional
offer or on the last permissible date for the performance of such act, the Fund
shall hold the Bank harmless from any adverse consequences in connection with
acting upon or failing to act upon such Instructions.
(l) Interest Bearing Deposits.
--------------------------
Upon receipt of Instructions directing the Custodian to purchase
interest bearing fixed term and call deposits (hereinafter referred to,
collectively, as "Interest Bearing Deposits") for the account of a Fund, the
Custodian shall purchase such Interest Bearing Deposits in the name of such Fund
with such banks or trust companies, including the Custodian, any Subcustodian or
any subsidiary or affiliate of the Custodian (hereinafter referred to as
"Banking Institutions"), and in such amounts as such Fund may direct pursuant to
Instructions. Such Interest Bearing Deposits may be denominated in U.S. dollars
or other currencies, as such Fund may determine and direct pursuant to
Instructions. The responsibilities of the Custodian to a Fund for Interest
Bearing Deposits issued by the Custodian shall be that of a U.S. bank for a
similar deposit. With respect to Interest Bearing Deposits other than those
issued by the Custodian, (a) the Custodian shall be responsible for the
collection of income and the transmission of cash to and from such accounts; and
(b) the Custodian shall have no duty with respect to the selection of the
Banking Institution or for the failure of such Banking Institution to pay upon
demand.
(m) Foreign Exchange Transactions.
------------------------------
(l) Each Fund hereby appoints the Custodian as its agent in the
execution of all currency exchange transactions. The Custodian agrees to provide
exchange rate and U.S. Dollar information, in writing, to the Funds. Such
information shall be supplied by the Custodian at least by the business day
prior to the value date of the foreign exchange transaction, provided that the
Custodian receives the request for such information at least two business days
prior to the value date of the transaction.
(2) Upon receipt of Instructions, the Custodian shall settle foreign
exchange contracts or options to purchase and sell foreign currencies for spot
and future delivery on behalf of and for the account of a Fund with such
currency brokers or Banking Institutions as such Fund may determine and direct
pursuant to Instructions. If, in its Instructions, a Fund does not direct the
Custodian to utilize a particular currency broker or Banking Institution, the
Custodian is authorized to select such currency broker or Banking Institution as
it deems appropriate to execute the Fund's foreign currency transaction.
(3) Each Fund accepts full responsibility for its use of third party
foreign exchange brokers and for execution of said foreign exchange contracts
and understands that the Fund shall be responsible for any and all costs and
interest charges which may be incurred as a result of the failure or delay of
its third party broker to deliver foreign exchange. The Custodian shall have no
responsibility or liability with respect to the selection of the currency
brokers or Banking Institutions with which a Fund deals or the performance of
such brokers or Banking Institutions.
(4) Notwithstanding anything to the contrary contained herein, upon
receipt of Instructions the Custodian may, in connection with a foreign exchange
contract, make free outgoing payments of cash in the form of U.S. Dollars or
foreign currency prior to receipt of confirmation of such foreign exchange
contract or confirmation that the countervalue currency completing such contract
has been delivered or received.
(5) The Custodian shall not be obligated to enter into foreign exchange
transactions as principal. However, if the Custodian has made available to a
Fund its services as a principal in foreign exchange transactions and subject to
any separate agreement between the parties relating to such transactions, the
Custodian shall enter into foreign exchange contracts or options to purchase and
sell foreign currencies for spot and future delivery on behalf of and for the
account of the Fund, with the Custodian as principal.
(n) Pledges or Loans of Securities.
------------------------------
(1) Upon receipt of Instructions from a Fund, the Custodian will
release or cause to be released Securities held in custody to the pledgees
designated in such Instructions by way of pledge or hypothecation to secure
loans incurred by such Fund with various lenders including but not limited to
UMB Bank, n.a.; provided, however, that the Securities shall be released only
upon payment to the Custodian of the monies borrowed, except that in cases where
additional collateral is required to secure existing borrowings, further
Securities may be released or delivered, or caused to be released or delivered
for that purpose upon receipt of Instructions. Upon receipt of Instructions, the
Custodian will pay, but only from funds available for such purpose, any such
loan upon re-delivery to it of the Securities pledged or hypothecated therefor
and upon surrender of the note or notes evidencing such loan. In lieu of
delivering collateral to a pledgee, the Custodian, on the receipt of
Instructions, shall transfer the pledged Securities to a segregated account for
the benefit of the pledgee.
(2) Upon receipt of Special Instructions, and execution of a separate
Securities Lending Agreement, the Custodian will release Securities held in
custody to the borrower designated in such Instructions and may, except as
otherwise provided below, deliver such Securities prior to the receipt of
collateral, if any, for such borrowing, provided that, in case of loans of
Securities held by a Securities System that are secured by cash collateral, the
Custodian's instructions to the Securities System shall require that the
Securities System deliver the Securities of the appropriate Fund to the borrower
thereof only upon receipt of the collateral for such borrowing. The Custodian
shall have no responsibility or liability for any loss arising from the delivery
of Securities prior to the receipt of collateral. Upon receipt of Instructions
and the loaned Securities, the Custodian will release the collateral to the
borrower.
(o) Stock Dividends, Rights, Etc.
-----------------------------
The Custodian shall receive and collect all stock dividends, rights,
and other items of like nature and, upon receipt of Instructions, take action
with respect to the same as directed in such Instructions.
(p) Routine Dealings.
-----------------
The Custodian will, in general, attend to all routine and mechanical
matters in accordance with industry standards in connection with the sale,
exchange, substitution, purchase, transfer, or other dealings with Securities or
other property of each Fund except as may be otherwise provided in this
Agreement or directed from time to time by Instructions from any particular
Fund. The Custodian may also make payments to itself or others from the Assets
for disbursements and out-of-pocket expenses incidental to handling Securities
or other similar items relating to its duties under this Agreement, provided
that all such payments shall be accounted for to the appropriate Fund.
(q) Collections.
-----------
The Custodian shall (a) collect amounts due and payable to each Fund
with respect to portfolio Securities and other Assets; (b) promptly credit to
the account of each Fund all income and other payments relating to portfolio
Securities and other Assets held by the Custodian hereunder upon Custodian's
receipt of such income or payments or as otherwise agreed in writing by the
Custodian and any particular Fund; (c) promptly endorse and deliver any
instruments required to effect such collection; and (d) promptly execute
ownership and other certificates and affidavits for all federal, state, local
and foreign tax purposes in connection with receipt of income or other payments
with respect to portfolio Securities and other Assets, or in connection with the
transfer of such Securities or other Assets; provided, however, that with
respect to portfolio Securities registered in so-called street name, or physical
Securities with variable interest rates, the Custodian shall use its best
efforts to collect amounts due and payable to any such Fund. The Custodian shall
notify a Fund in writing by facsimile transmission or in such other manner as
such Fund and Custodian may agree in writing if any amount payable with respect
to portfolio Securities or other Assets is not received by the Custodian when
due. The Custodian shall not be responsible for the collection of amounts due
and payable with respect to portfolio Securities or other Assets that are in
default.
(r) Bank Accounts.
-------------
Upon Instructions, the Custodian shall open and operate a bank account
or accounts on the books of the Custodian; provided that such bank account(s)
shall be in the name of the Custodian or a nominee thereof, for the account of
one or more Funds, and shall be subject only to draft or order of the Custodian.
The responsibilities of the Custodian to any one or more such Funds for deposits
accepted on the Custodian's books shall be that of a U.S. bank for a similar
deposit.
(s) Dividends, Distributions and Redemptions.
----------------------------------------
To enable each Fund to pay dividends or other distributions to
shareholders of each such Fund and to make payment to shareholders who have
requested repurchase or redemption of their shares of each such Fund
(collectively, the "Shares"), the Custodian shall release cash or Securities
insofar as available. In the case of cash, the Custodian shall, upon the receipt
of Instructions, transfer such funds by check or wire transfer to any account at
any bank or trust company designated by each such Fund in such Instructions. In
the case of Securities, the Custodian shall, upon the receipt of Special
Instructions, make such transfer to any entity or account designated by each
such Fund in such Special Instructions.
(t) Proceeds from Shares Sold.
-------------------------
The Custodian shall receive funds representing cash payments received
for shares issued or sold from time to time by each Fund, and shall credit such
funds to the account of the appropriate Fund. The Custodian shall notify the
appropriate Fund of Custodian's receipt of cash in payment for shares issued by
such Fund by facsimile transmission or in such other manner as such Fund and the
Custodian shall agree. Upon receipt of Instructions, the Custodian shall: (a)
deliver all federal funds received by the Custodian in payment for shares as may
be set forth in such Instructions and at a time agreed upon between the
Custodian and such Fund; and (b) make federal funds available to a Fund as of
specified times agreed upon from time to time by such Fund and the Custodian, in
the amount of checks received in payment for shares which are deposited to the
accounts of such Fund.
(u) Proxies and Notices; Compliance with the Shareholders Communication
-------------------------------------------------------------------
Act of 1985.
-----------
The Custodian shall deliver or cause to be delivered to the appropriate
Fund all forms of proxies, all notices of meetings, and any other notices or
announcements affecting or relating to Securities owned by such Fund that are
received by the Custodian, any Subcustodian, or any nominee of either of them,
and, upon receipt of Instructions, the Custodian shall execute and deliver, or
cause such Subcustodian or nominee to execute and deliver, such proxies or other
authorizations as may be required. Except as directed pursuant to Instructions,
neither the Custodian nor any Subcustodian or nominee shall vote upon any such
Securities, or execute any proxy to vote thereon, or give any consent or take
any other action with respect thereto.
The Custodian will not release the identity of any Fund to an issuer
which requests such information pursuant to the Shareholder Communications Act
of 1985 for the specific purpose of direct communications between such issuer
and any such Fund unless a particular Fund directs the Custodian otherwise in
writing.
(v) Books and Records.
-----------------
The Custodian shall maintain such records relating to its activities
under this Agreement as are required to be maintained by Rule 31a-1 under the
Investment Company Act of 1940 ("the 1940 Act") and preserve them for the
periods prescribed in Rule 31a-2 under the 1940 Act. These records shall be open
for inspection by duly authorized officers, employees or agents (including
independent public accountants) of the appropriate Fund during normal business
hours of the Custodian.
The Custodian shall provide accountings relating to its activities
under this Agreement as shall be agreed upon by each Fund and the Custodian.
(w) Opinion of Fund's Independent Certified Public Accountants.
The Custodian shall take all reasonable action as each Fund may request
to obtain from year to year favorable opinions from each such Fund's independent
certified public accountants with respect to the Custodian's activities
hereunder and in connection with the preparation of each such Fund's periodic
reports to the SEC and with respect to any other requirements of the SEC.
(x) Reports by Independent Certified Public Accountants.
At the request of a Fund, the Custodian shall deliver to such Fund a
written report prepared by the Custodian's independent certified public
accountants with respect to the services provided by the Custodian under this
Agreement, including, without limitation, the Custodian's accounting system,
internal accounting control and procedures for safeguarding cash, Securities and
other Assets, including cash, Securities and other Assets deposited and/or
maintained in a Securities System or with a Subcustodian. Such report shall be
of sufficient scope and in sufficient detail as may reasonably be required by
such Fund and as may reasonably be obtained by the Custodian.
(y) Bills and Other Disbursements.
Upon receipt of Instructions, the Custodian shall pay, or cause to be
paid, all bills, statements, or other obligations of a Fund.
5. SUBCUSTODIANS.
---------------
From time to time, in accordance with the relevant provisions of this
Agreement, the Custodian may appoint one or more Domestic Subcustodians, Foreign
Subcustodians, Special Subcustodians, or Interim Subcustodians (as each are
hereinafter defined) to act on behalf of any one or more Funds. A Domestic
Subcustodian, in accordance with the provisions of this Agreement, may also
appoint a Foreign Subcustodian, Special Subcustodian, or Interim Subcustodian to
act on behalf of any one or more Funds. For purposes of this Agreement, all
Domestic Subcustodians, Foreign Subcustodians, Special Subcustodians and Interim
Subcustodians shall be referred to collectively as "Subcustodians".
(a) Domestic Subcustodians.
-----------------------
The Custodian may, at any time and from time to time, appoint any bank
as defined in Section 2(a)(5) of the 1940 Act or any trust company or other
entity, any of which meet the requirements of a custodian under Section 17(f) of
the 1940 Act and the rules and regulations thereunder, to act for the Custodian
on behalf of any one or more Funds as a subcustodian for purposes of holding
Assets of such Fund(s) and performing other functions of the Custodian within
the United States (a "Domestic Subcustodian"). The Custodian's appointment of
any such Domestic Subcustodian shall not be effective without prior written
approval of the appointment by the Fund(s). Each such duly approved Domestic
Subcustodian shall be listed on Appendix A attached hereto, as it may be
amended, from time to time.
(b) Foreign Subcustodians.
---------------------
The Custodian may at any time appoint, or cause a Domestic Subcustodian
to appoint, any bank, trust company or other entity meeting the requirements of
an "eligible foreign custodian" under Section 17(f) of the 1940 Act and the
rules and regulations thereunder to act for the Custodian on behalf of any one
or more Funds as a subcustodian or sub-subcustodian (if appointed by a Domestic
Subcustodian) for purposes of holding Assets of the Fund(s) and performing other
functions of the Custodian in countries other than the United States of America
(hereinafter referred to as a "Foreign Subcustodian" in the context of either a
subcustodian or a sub-subcustodian); provided that the Custodian shall have
obtained prior written confirmation from each Fund of the approval of the Board
of Directors or other governing body of each such Fund (which approval may be
withheld in the sole discretion of such Board of Directors or other governing
body or entity) with respect to (i) the identity of any proposed Foreign
Subcustodian (including branch designation), (ii) the country or countries in
which, and the securities depositories or clearing agencies (hereinafter
"Securities Depositories and Clearing Agencies"), if any, through which, the
Custodian or any proposed Foreign Subcustodian is authorized to hold Securities
and other Assets of each such Fund, and (iii) the form and terms of the
subcustodian agreement to be entered into with such proposed Foreign
Subcustodian. Each such duly approved Foreign Subcustodian and the countries
where and the Securities Depositories and Clearing Agencies through which they
may hold Securities and other Assets of the Fund(s) shall be listed on Appendix
A attached hereto, as it may be amended, from time to time. Each Fund shall be
responsible for informing the Custodian sufficiently in advance of a proposed
investment which is to be held in a country in which no Foreign Subcustodian is
authorized to act, in order that there shall be sufficient time for the
Custodian, or any Domestic Subcustodian, to effect the appropriate arrangements
with a proposed Foreign Subcustodian, including obtaining approval as provided
in this Section 5(b). In connection with the appointment of any Foreign
Subcustodian, the Custodian shall, or shall cause the Domestic Subcustodian to,
enter into a subcustodian agreement with the Foreign Subcustodian in form and
substance approved by each such Fund. The Custodian shall not consent to the
amendment of, and shall cause any Domestic Subcustodian not to consent to the
amendment of, any agreement entered into with a Foreign Subcustodian, which
materially affects any Fund's rights under such agreement, except upon prior
written approval of such Fund pursuant to Special Instructions.
(c) Interim Subcustodians.
----------------------
Notwithstanding the foregoing, in the event that a Fund shall invest in
an Asset to be held in a country in which no Foreign Subcustodian is authorized
to act, the Custodian shall notify such Fund in writing by facsimile
transmission or in such other manner as such Fund and the Custodian shall agree
in writing of the unavailability of an approved Foreign Subcustodian in such
country; and upon the receipt of Special Instructions from such Fund, the
Custodian shall, or shall cause its Domestic Subcustodian to, appoint or approve
an entity (referred to herein as an "Interim Subcustodian") designated in such
Special Instructions to hold such Security or other Asset.
(d) Special Subcustodians.
---------------------
Upon receipt of Special Instructions, the Custodian shall, on behalf of
a Fund, appoint one or more banks, trust companies or other entities designated
in such Special Instructions to act for the Custodian on behalf of such Fund as
a subcustodian for purposes of: (i) effecting third-party repurchase
transactions with banks, brokers, dealers or other entities through the use of a
common custodian or subcustodian; (ii) providing depository and clearing agency
services with respect to certain variable rate demand note Securities, (iii)
providing depository and clearing agency services with respect to dollar
denominated Securities, and (iv) effecting any other transactions designated by
such Fund in such Special Instructions. Each such designated subcustodian
(hereinafter referred to as a "Special Subcustodian") shall be listed on
Appendix A attached hereto, as it may be amended from time to time. In
connection with the appointment of any Special Subcustodian, the Custodian shall
enter into a subcustodian agreement with the Special Subcustodian in form and
substance approved by the appropriate Fund in Special Instructions. The
Custodian shall not amend any subcustodian agreement entered into with a Special
Subcustodian, or waive any rights under such agreement, except upon prior
approval pursuant to Special Instructions.
(e) Termination of a Subcustodian.
------------------------------
The Custodian may, at any time in its discretion upon notification to
the appropriate Fund(s), terminate any Subcustodian of such Fund(s) in
accordance with the termination provisions under the applicable subcustodian
agreement, and upon the receipt of Special Instructions, the Custodian will
terminate any Subcustodian in accordance with the termination provisions under
the applicable subcustodian agreement.
(f) Certification Regarding Foreign Subcustodians.
---------------------------------------------
Upon request of a Fund, the Custodian shall deliver to such Fund a
certificate stating: (i) the identity of each Foreign Subcustodian then acting
on behalf of the Custodian; (ii) the countries in which and the Securities
Depositories and Clearing Agencies through which each such Foreign Subcustodian
is then holding cash, Securities and other Assets of such Fund; and (iii) such
other information as may be requested by such Fund, and as the Custodian shall
be reasonably able to obtain, to evidence compliance with rules and regulations
under the 1940 Act.
6. STANDARD OF CARE.
-----------------
(a) General Standard of Care.
------------------------
The Custodian shall be liable to a Fund for all losses, damages and
reasonable costs and expenses suffered or incurred by such Fund resulting from
the negligence or willful misfeasance of the Custodian or any Domestic
Subcustodian.
(b) Actions Prohibited by Applicable Law, Events Beyond Custodian's
--------------------------------------------------------------------
Control, Sovereign Risk, Etc.
- ----------------------------
In no event shall the Custodian or any Domestic Subcustodian incur
liability hereunder (i) if the Custodian or any Subcustodian or Securities
System, or any subcustodian, Securities System, Securities Depository or
Clearing Agency utilized by the Custodian or any such Subcustodian, or any
nominee of the Custodian or any Subcustodian (individually, a "Person") is
prevented, forbidden or delayed from performing, or omits to perform, any act or
thing which this Agreement provides shall be performed or omitted to be
performed, by reason of: (a) any provision of any present or future law or
regulation or order of the United States of America, or any state thereof, or of
any foreign country, or political subdivision thereof or of any court of
competent jurisdiction (and neither the Custodian nor any other Person shall be
obligated to take any action contrary thereto); or (b) any event beyond the
control of the Custodian or other Person such as armed conflict, riots, strikes,
lockouts, labor disputes, equipment or transmission failures, natural disasters,
or failure of the mails, transportation, communications or power supply; or (ii)
for any loss, damage, cost or expense resulting from "Sovereign Risk." A
"Sovereign Risk" shall mean nationalization, expropriation, currency
devaluation, revaluation or fluctuation, confiscation, seizure, cancellation,
destruction or similar action by any governmental authority, de facto or de
jure; or enactment, promulgation, imposition or enforcement by any such
governmental authority of currency restrictions, exchange controls, taxes,
levies or other charges affecting a Fund's Assets; or acts of armed conflict,
terrorism, insurrection or revolution; or any other act or event beyond the
Custodian's or such other Person's control.
(c) Liability for Past Records.
--------------------------
Neither the Custodian nor any Domestic Subcustodian shall have any
liability in respect of any loss, damage or expense suffered by a Fund, insofar
as such loss, damage or expense arises from the performance of the Custodian or
any Domestic Subcustodian in reliance upon records that were maintained for such
Fund by entities other than the Custodian or any Domestic Subcustodian prior to
the Custodian's employment hereunder.
(d) Advice of Counsel.
-----------------
The Custodian and all Domestic Subcustodians shall be entitled to
receive and act upon advice of counsel of its own choosing on all matters. The
Custodian and all Domestic Subcustodians shall be without liability for any
actions taken or omitted in good faith pursuant to the advice of counsel.
(e) Advice of the Fund and Others.
------------------------------
The Custodian and any Domestic Subcustodian may rely upon the advice of
any Fund and upon statements of such Fund's accountants and other persons
believed by it in good faith to be expert in matters upon which they are
consulted, and neither the Custodian nor any Domestic Subcustodian shall be
liable for any actions taken or omitted, in good faith, pursuant to such advice
or statements.
(f) Instructions Appearing to be Genuine.
------------------------------------
The Custodian and all Domestic Subcustodians shall be fully protected
and indemnified in acting as a custodian hereunder upon any Resolutions of the
Board of Directors or Trustees, Instructions, Special Instructions, advice,
notice, request, consent, certificate, instrument or paper appearing to it to be
genuine and to have been properly executed and shall, unless otherwise
specifically provided herein, be entitled to receive as conclusive proof of any
fact or matter required to be ascertained from any Fund hereunder a certificate
signed by any officer of such Fund authorized to countersign or confirm Special
Instructions.
(g) Exceptions from Liability.
-------------------------
Without limiting the generality of any other provisions hereof, neither
the Custodian nor any Domestic Subcustodian shall be under any duty or
obligation to inquire into, nor be liable for:
(i) the validity of the issue of any Securities purchased by or for any
Fund, the legality of the purchase thereof or evidence of ownership required to
be received by any such Fund, or the propriety of the decision to purchase or
amount paid therefor;
(ii) the legality of the sale of any Securities by or for any Fund, or
the propriety of the amount for which the same were sold; or
(iii) any other expenditures, encumbrances of Securities, borrowings or
similar actions with respect to any Fund's Assets;
and may, until notified to the contrary, presume that all Instructions or
Special Instructions received by it are not in conflict with or in any way
contrary to any provisions of any such Fund's Declaration of Trust, Partnership
Agreement, Articles of Incorporation or By-Laws or votes or proceedings of the
shareholders, trustees, partners or directors of any such Fund, or any such
Fund's currently effective Registration Statement on file with the SEC.
7. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF OTHERS.
------------------------------------------------
(a) Domestic Subcustodians
----------------------
The Custodian shall be liable for the acts or omissions of any Domestic
Subcustodian to the same extent as if such actions or omissions were performed
by the Custodian itself.
(b) Liability for Acts and Omissions of Foreign Subcustodians.
---------------------------------------------------------
The Custodian shall be liable to a Fund for any loss or damage to such
Fund caused by or resulting from the acts or omissions of any Foreign
Subcustodian to the extent that, under the terms set forth in the subcustodian
agreement between the Custodian or a Domestic Subcustodian and such Foreign
Subcustodian, the Foreign Subcustodian has failed to perform in accordance with
the standard of conduct imposed under such subcustodian agreement and the
Custodian or Domestic Subcustodian recovers from the Foreign Subcustodian under
the applicable subcustodian agreement.
(c) Securities Systems, Interim Subcustodians, Special Subcustodians,
-----------------------------------------------------------------
Securities Depositories and Clearing Agencies.
- ----------------------------------------------
The Custodian shall not be liable to any Fund for any loss, damage or
expense suffered or incurred by such Fund resulting from or occasioned by the
actions or omissions of a Securities System, Interim Subcustodian, Special
Subcustodian, or Securities Depository and Clearing Agency unless such loss,
damage or expense is caused by, or results from, the negligence or willful
misfeasance of the Custodian or any Domestic Subcustodian.
(d) Defaults or Insolvencys of Brokers, Banks, Etc.
------------------------------------------------
The Custodian shall not be liable for any loss, damage or expense
suffered or incurred by any Fund resulting from or occasioned by the actions,
omissions, neglects, defaults or insolvency of any broker, bank, trust company
or any other person with whom the Custodian may deal (other than any of such
entities acting as a Subcustodian, Securities System or Securities Depository
and Clearing Agency, for whose actions the liability of the Custodian is set out
elsewhere in this Agreement) unless such loss, damage or expense is caused by,
or results from, the negligence or willful misfeasance of the Custodian.
(e) Reimbursement of Expenses.
--------------------------
Each Fund agrees to reimburse the Custodian for all out-of-pocket
expenses incurred by the Custodian in connection with this Agreement, but
excluding salaries and usual overhead expenses.
8. INDEMNIFICATION.
---------------
(a) Indemnification by Fund.
-----------------------
Subject to the limitations set forth in this Agreement, each Fund
agrees to indemnify and hold harmless the Custodian and its nominees from all
losses, damages and expenses (including attorneys' fees) suffered or incurred by
the Custodian or its nominee caused by or arising from actions taken by the
Custodian, its employees or agents in the performance of its duties and
obligations under this Agreement, including, but not limited to, any
indemnification obligations undertaken by the Custodian under any relevant
subcustodian agreement; provided, however, that such indemnity shall not apply
to the extent (i) such loss, damage or expense is incurred by, or results from,
the negligence or willful misfeasance of the Custodian or any Domestic
Subcustodian, or (ii) the Custodian is liable under Section 6 or 7 hereof.
If any Fund requires the Custodian to take any action with respect to
Securities, which action involves the payment of money or which may, in the
opinion of the Custodian, result in the Custodian or its nominee assigned to
such Fund being liable for the payment of money or incurring liability of some
other form, such Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
(b) Indemnification by Custodian.
----------------------------
Subject to the limitations set forth in this Agreement and in addition
to the obligations provided in Sections 6 and 7, the Custodian agrees to
indemnify and hold harmless each Fund from all losses, damages and expenses
suffered or incurred by each such Fund caused by the negligence or willful
misfeasance of the Custodian or any Domestic Subcustodian.
9. ADVANCES.
---------
In the event that, pursuant to Instructions, the Custodian or any
Subcustodian, Securities System, or Securities Depository or Clearing Agency
acting either directly or indirectly under agreement with the Custodian (each of
which for purposes of this Section 9 shall be referred to as "Custodian"), makes
any payment or transfer of funds on behalf of any Fund as to which there would
be, at the close of business on the date of such payment or transfer,
insufficient funds held by the Custodian on behalf of any such Fund, the
Custodian may, in its discretion without further Instructions, provide an
advance ("Advance") to any such Fund in an amount sufficient to allow the
completion of the transaction by reason of which such payment or transfer of
funds is to be made. In addition, in the event the Custodian is directed by
Instructions to make any payment or transfer of funds on behalf of any Fund as
to which it is subsequently determined that such Fund has overdrawn its cash
account with the Custodian as of the close of business on the date of such
payment or transfer, said overdraft shall constitute an Advance. Any Advance
shall be payable by the Fund on behalf of which the Advance was made on demand
by Custodian, unless otherwise agreed by such Fund and the Custodian, and shall
accrue interest from the date of the Advance to the date of payment by such Fund
to the Custodian at a rate agreed upon in writing from time to time by the
Custodian and such Fund. It is understood that any transaction in respect of
which the Custodian shall have made an Advance, including but not limited to a
foreign exchange contract or transaction in respect of which the Custodian is
not acting as a principal, is for the account of and at the risk of the Fund on
behalf of which the Advance was made, and not, by reason of such Advance, deemed
to be a transaction undertaken by the Custodian for its own account and risk.
The Custodian and each of the Funds which are parties to this Agreement
acknowledge that the purpose of Advances is to finance temporarily the purchase
or sale of Securities for prompt delivery in accordance with the settlement
terms of such transactions or to meet emergency expenses not reasonably
foreseeable by a Fund. The Custodian shall promptly notify the appropriate Fund
of any Advance. Such notification shall be sent by facsimile transmission or in
such other manner as such Fund and the Custodian may agree.
10. LIENS.
-----
If the Bank advances cash or securities to the Fund for any purpose or
in the event that the Bank or its nominee shall incur or be assessed any taxes,
charges, expenses, assessments, claims or liabilities in connection with the
performance of its duties hereunder, except such as may arise from its or its
nominee's negligent action, negligent failure to act or willful misconduct, any
Property at any time held for the Custody Account shall be security therefor and
the Fund hereby grants a security interest therein to the Bank. The Fund shall
promptly reimburse the Bank for any such advance of cash or securities or any
such taxes, charges, expenses, assessments, claims or liabilities upon request
for payment, but should the Fund fail to so reimburse the Bank, the Bank shall
be entitled to dispose of such Property to the extent necessary to obtain
reimbursement. The Bank shall be entitled to debit any account of the Fund with
the Bank including, without limitation, the Custody Account, in connection with
any such advance and any interest on such advance as the Bank deems reasonable.
11. COMPENSATION.
------------
Each Fund will pay to the Custodian such compensation as is agreed to
in writing by the Custodian and each such Fund from time to time. Such
compensation, together with all amounts for which the Custodian is to be
reimbursed in accordance with Section 7(e), shall be billed to each such Fund
and paid in cash to the Custodian. The Custodian may debit such Funds account if
any such bill is not paid on a timely basis.
12. POWERS OF ATTORNEY.
------------------
Upon request, each Fund shall deliver to the Custodian such proxies,
powers of attorney or other instruments as may be reasonable and necessary or
desirable in connection with the performance by the Custodian or any
Subcustodian of their respective obligations under this Agreement or any
applicable subcustodian agreement.
13. TERMINATION AND ASSIGNMENT.
--------------------------
Any Fund or the Custodian may terminate this Agreement by notice in
writing, delivered or mailed, postage prepaid (certified mail, return receipt
requested) to the other not less than 90 days prior to the date upon which such
termination shall take effect. Upon termination of this Agreement, the
appropriate Fund shall pay to the Custodian such fees as may be due the
Custodian hereunder as well as its reimbursable disbursements, costs and
expenses paid or incurred. Upon termination of this Agreement, the Custodian
shall deliver, at the terminating party's expense, all Assets held by it
hereunder to the appropriate Fund or as otherwise designated by such Fund by
Special Instructions. Upon such delivery, the Custodian shall have no further
obligations or liabilities under this Agreement except as to the final
resolution of matters relating to activity occurring prior to the effective date
of termination.
This Agreement may not be assigned by the Custodian or any Fund without
the respective consent of the other, duly authorized by a resolution by its
Board of Directors or Trustees.
14. ADDITIONAL FUNDS.
----------------
An additional Fund or Funds may become a party to this Agreement after
the date hereof by an instrument in writing to such effect signed by such Fund
or Funds and the Custodian. If this Agreement is terminated as to one or more of
the Funds (but less than all of the Funds) or if an additional Fund or Funds
shall become a party to this Agreement, there shall be delivered to each party
an Appendix B or an amended Appendix B, signed by each of the additional Funds
(if any) and each of the remaining Funds as well as the Custodian, deleting or
adding such Fund or Funds, as the case may be. The termination of this Agreement
as to less than all of the Funds shall not affect the obligations of the
Custodian and the remaining Funds hereunder as set forth on the signature page
hereto and in Appendix B as revised from time to time.
15. NOTICES.
-------
As to each Fund, notices, requests, instructions and other writings
delivered to Eisner Securities, 7435 Watson Road, Suite 88, Attn: Neil Eisner,
St. Louis, Missouri 63119, postage prepaid, or to such other address as any
particular Fund may have designated to the Custodian in writing, shall be deemed
to have been properly delivered or given to Fund.
Notices, requests, instructions and other writings delivered to the
Securities Administration department of the Custodian at its office at 928 Grand
Blvd., 10th Floor, Attn: Ralph Santoro, Kansas City, Missouri 64106, or mailed
postage prepaid, to the Custodian's Securities Administration department, Post
Office Box 226, Attn: Ralph Santoro, Kansas City, Missouri 64141, or to such
other addresses as the Custodian may have designated to each Fund in writing,
shall be deemed to have been properly delivered or given to the Custodian
hereunder; provided, however, that procedures for the delivery of Instructions
and Special Instructions shall be governed by Section 2(c) hereof.
16. MISCELLANEOUS.
-------------
(a) This Agreement is executed and delivered in the State of Missouri
and shall be governed by the laws of such state.
(b) All of the terms and provisions of this Agreement shall be binding
upon, and inure to the benefit of, and be enforceable by the respective
successors and assigns of the parties hereto.
(c) No provisions of this Agreement may be amended, modified or waived,
in any manner except in writing, properly executed by both parties hereto;
provided, however, Appendix A may be amended from time to time as Domestic
Subcustodians, Foreign Subcustodians, Special Subcustodians, and Securities
Depositories and Clearing Agencies are approved or terminated according to the
terms of this Agreement.
(d) The captions in this Agreement are included for convenience of
reference only, and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
(e) This Agreement shall be effective as of the date of execution
hereof.
(f) This Agreement may be executed simultaneously in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
(g) The following terms are defined terms within the meaning of this
Agreement, and the definitions thereof are found in the following sections of
the Agreement:
Term Section
- ---- -------
Account 4(b)(3)(ii)
ADR'S 4(j)
Advance 9
Assets 2(b)
Authorized Person 3
Banking Institution 4(1)
Domestic Subcustodian 5(a)
Foreign Subcustodian 5(b)
Instruction 2(c)(1)
Interim Subcustodian 5(c)
Interest Bearing Deposit 4(1)
Liens 10
OCC 4(g)(1)
Person 6(b)
Procedural Agreement 4(h)
SEC 4(b)(3)
Securities 2(a)
Securities Depositories and Clearing Agencies 5(b)
Securities System 4(b)(3)
Shares 4(s)
Sovereign Risk 6(b)
Special Instruction 2(c)(2)
Special Subcustodian 5(d)
Subcustodian 5
1940 Act 4(v)
(h) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid by any court of competent
jurisdiction, the remaining portion or portions shall be considered severable
and shall not be affected, and the rights and obligations of the parties shall
be construed and enforced as if this Agreement did not contain the particular
part, term or provision held to be illegal or invalid.
(i) This Agreement constitutes the entire understanding and agreement
of the parties hereto with respect to the subject matter hereof, and accordingly
supersedes, as of the effective date of this Agreement, any custodian agreement
heretofore in effect between the Fund and the Custodian.
IN WITNESS WHEREOF, the parties hereto have caused this Custody
Agreement to be executed by their respective duly authorized officers.
INNOVATIVE FUNDS
Attest: /s/ Bruce D. Oakes By: /s/
- --------------------------- ----------------------------------
Name: Neil Eisner
----------------------------------
Title: President
----------------------------------
Date: February 18, 2000
----------------------------------
UMB BANK, N.A.
Attest: /s/ R. William Bloemker By: /s/
- -------------------------------- ----------------------------------
Name: Ralph R. Santoro
----------------------------------
Title: Senior Vice President
----------------------------------
Date: February 22, 2000
-----------------------------------
<PAGE>
APPENDIX A
CUSTODY AGREEMENT
DOMESTIC SUBCUSTODIANS:
Brown Brothers Harriman &Company (Foreign Securities Only)
SECURITIES SYSTEMS:
Federal Book Entry
Depository Trust Company
Participant Trust Company
SPECIAL SUBCUSTODIANS:
SECURITIES DEPOSITORIES
COUNTRIES FOREIGN SUBCUSTODIANS CLEARING AGENCIES
- --------- --------------------- -----------------
Eurolear
INNOVATIVE FUNDS UMB BANK, N.A.
By: /s/ By: /s/
- ---------------------------------- -----------------------------------
Name: Neil Eisner Name: Ralph R. Santoro
- ---------------------------------- -----------------------------------
Title: President Title: Senior Vice President
- ---------------------------------- -----------------------------------
Date: February 18, 2000 Date: February 22, 2000
- ---------------------------------- -----------------------------------
<PAGE>
APPENDIX B
CUSTODY AGREEMENT
The following open-end management investment companies ("Funds") are
hereby made parties to the Custody Agreement dated February 22, 2000, with UMB
Bank, N.A. ("Custodian") and the Innovative Funds, and agree to be bound by all
the terms and conditions contained in said Agreement:
THE DISRUPTIVE GROWTH FUND
INNOVATIVE FUNDS
Attest: /s/Bruce D. Oakes By: /s/
- ------------------------------
--------------------------------
Name: Neil Eisner
--------------------------------
Title: President
--------------------------------
Date: February 18, 2000
--------------------------------
UMB BANK, N.A.
Attest: /s/ R. William Boemker By: /s/
- ------------------------------
--------------------------------
Name: Ralph R. Santoro
--------------------------------
Title: Senior Vice President
--------------------------------
Date: February 22, 2000
--------------------------------
BROWN, CUMMINS & BROWN CO., L.P.A.
ATTORNEYS AND COUNSELORS AT LAW
3500 Carew Tower
J.W. Brown (1911-1995) 441 Vine Street Melanie S. Corwin
James R. Cummins Cincinnati, Ohio 45202 JoAnn M. Strasser
Robert S. Brown Telephone (513) 381-2121 Aaron A. Vanderlaan
Donald S. Mendelsohn Telecopier (513) 381-2125 Of Counsel
Lynne Skilken Gilbert Bettman
Amy G. Applegate
Kathryn Knue Przywara
February 23, 2000
The Innovative Funds
7435 Watson Road, Suite 88
St. Louis, Missouri 63119
Gentlemen:
A legal opinion regarding The Innovative Funds (the Legal Opinion) that
we prepared was filed with the Registration Statement. We hereby give you our
consent to incorporate by reference the Legal Opinion and consent to all
references to us in the Pre-Effective Amendment No. 1 to the Registration
Statement.
Very truly yours,
/s/
Brown, Cummins & Brown Co., L.P.A.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
Pre-effective Amendment No. 1 to the Registration Statement (File No. 33-93925)
for The Innovative Funds of our report dated February 23, 2000 and all
references to our firm included in or made a part of this Amendment.
McCurdy & Associates CPA's, Inc.
February 23, 2000
February 18, 2000
The Innovative Funds
7435 Watson Road, Suite 88
St. Louis, MO 63119
Gentlemen:
The undersigned hereby purchases 10,000 shares of the Disruptive Growth
Fund at $10.00 per share, representing a total investment of $100,000 in the
shares of that series of The Innovative Funds. The undersigned hereby represents
that (i) such purchase is for investment purposes, and (ii) the undersigned has
no present intention of redeeming or selling said shares.
Neil A. Eisner, IRA
By: /s/
Neil A. Eisner
THE INNOVATIVE FUNDS
DISTRIBUTION AND SERVICE PLAN
Pursuant to Rule 12b-1
WHEREAS, The Innovative Funds, an Ohio business trust (the "Trust"),
engages in business as an open-end management investment company and is
registered as such under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Trust is authorized to issue an unlimited number of shares
of beneficial interest without par value (the "Shares"), which may be divided
into one or more series of Shares ("Series"); and
WHEREAS, the Trust currently offers one Series, the Disruptive Growth
Fund (the "Fund"); and
WHEREAS, the Trustees of the Trust as a whole, and the Trustees who are
not interested persons of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of this Plan or in any
agreement relating hereto (the "Qualified Trustees"), having determined, in the
exercise of reasonable business judgment and in light of their fiduciary duties
under state law and under Section 36(a) and (b) of the 1940 Act, that there is a
reasonable likelihood that this Plan will benefit the Fund and its shareholders,
have approved this Plan by votes cast in person at a meeting called for the
purpose of voting hereon and on any agreements related hereto;
NOW THEREFORE, the Trust hereby adopts this Plan for the Fund, in
accordance with Rule 12b-1 under the 1940 Act, on the following terms and
conditions:
1. Distribution and Service Activities. Subject to the
-----------------------------------------
supervision of the Trustees of the Trust, the Trust may,
directly or indirectly, engage in any activities related to
the distribution of Shares of the Fund, which activities may
include, but are not limited to, the following: (a) payments,
including incentive compensation, to securities dealers or
other financial intermediaries, financial institutions,
investment advisors and others that are engaged in the sale of
Shares, or that may be advising shareholders of the Trust
regarding the purchase, sale or retention of Shares; (b)
payments, including incentive compensation, to securities
dealers or other financial intermediaries, financial
institutions, investment advisors and others that hold Shares
for shareholders in omnibus accounts or as shareholders of
record or provide shareholder support or administrative
services to the Fund and its shareholders; (c) expenses of
maintaining personnel (including personnel of organizations
with which the Trust has entered into agreements related to
this Plan) who engage in or support distribution of Shares or
who render shareholder support services, including, but not
limited to, allocated overhead, office space and equipment,
telephone facilities and expenses, answering routine inquiries
regarding the Trust, processing shareholder transactions, and
providing such other shareholder services as the Trust may
reasonably request; (d) costs of preparing, printing and
distributing prospectuses and statements of additional
information and reports of the Fund for recipients other than
existing shareholders of the Fund; (e) costs of formulating
and implementing marketing and promotional activities,
including, but not limited to, sales seminars, direct mail
promotions and television, radio, newspaper, magazine and
other mass media advertising; (f) costs of preparing, printing
and distributing sales literature; (g) costs of obtaining such
information, analyses and reports with respect to marketing
and promotional activities as the Trust may, from time to
time, deem advisable; and (h) costs of implementing and
operating this Plan. The Trust is authorized to engage in the
activities listed above, and in any other activities related
to the distribution of Shares, either directly or through
other persons. Payments under this Plan are not tied
exclusively to actual distribution and service expenses, and
the payments may exceed distribution and service expenses
actually incurred. Any payments received by service providers
to the Fund, including without limitation the investment
adviser of the Fund and the distributor of the Fund, are in
addition to fees paid by the Fund for the applicable advisory
or distribution services.
2. Annual Fee. The Fund will pay the Fund's investment adviser an
----------
annual fee for the investment adviser's services in connection
with the distribution and service activities for the Fund,
including its expenses in connection therewith. The annual fee
paid to the investment adviser under this Plan will be
calculated daily and paid monthly by the Fund on the first day
of each month at an annual rate of 0.25% of the average daily
net assets of the Shares of the Fund. Payments received by the
investment adviser pursuant to this Plan are in addition to
fees paid by the Fund pursuant to the Management Agreement.
3. Term and Termination. (a) This Plan shall not take effect
----------------------
until it has been approved by a vote of at least a majority of
the outstanding voting securities of the Fund (as defined in
the Act) if the Shares of the Fund have already been publicly
offered. With respect to the submission of the Plan for such a
vote, it shall have been effectively approved with respect to
the Shares of the Fund if a majority of the outstanding voting
securities of the Fund votes for approval of the Plan,
notwithstanding that the matter has not been approved by a
majority of the outstanding voting securities of the Trust or
of any other Fund or class. In the event no shareholder
approval is required because the Shares of the Fund have not
been publicly offered, the Plan shall take effect on the day
before the first public offering of the Shares of the Fund.
(b) Unless terminated as herein provided, this Plan shall continue
in effect for one year from the effective date and shall
continue in effect for successive periods of one year
thereafter, but only so long as each such continuance is
specifically approved by votes of a majority of both (i) the
Trustees of the Trust and (ii) the Qualified Trustees, cast in
person at a meeting called for the purpose of voting on such
approval.
(c) This Plan may be terminated at any time by the vote of a
majority of the qualified Trustees or by vote of a majority of
the outstanding voting securities (as defined in the 1940 Act)
of the Fund. If this Plan is terminated, the Fund will not be
required to make any payments for expenses incurred after the
date of termination.
4. Amendments. All material amendments to this Plan must be
-----------
approved in the manner provided for annual renewal of this
Plan in Section 3(b) hereof. In addition, this Plan may not be
amended to materially increase the amount of expenditures
provided for in Section 2 hereof unless such amendment is
approved by a vote of the majority of the outstanding voting
securities of the Fund (as defined in the 1940 Act).
5. Selection and Nomination of Trustees. While this Plan is in
--------------------------------------
effect, the selection and nomination of Trustees who are not
interested persons (as defined in the 1940 Act) of the Trust
shall be committed to the discretion of the Trustees who are
not interested persons of the Trust.
6. Quarterly Reports. The Treasurer of the Trust shall provide to
-----------------
the Trustees and the Trustees shall review, at least
quarterly, a written report of the amounts expended pursuant
to this Plan and any related agreement and the purposes for
which such expenditures were made.
7. Recordkeeping. The Trust shall preserve copies of this Plan
-------------
and any related agreement and all reports made pursuant
Section 6 hereof, for a period of not less than six years from
the date of this Plan, the agreements or such reports, as the
case may be, the first two years in an easily accessible
place.
8. Limitation of Liability. A copy of the Agreement and
--------------------------
Declaration of Trust of the Trust, as amended, is on file with
the Secretary of the State of Ohio and notice is hereby given
that this Plan is executed on behalf of the Trustees of the
Trust as trustees and not individually and that the
obligations of this instrument are not binding upon the
Trustees, the shareholders of the Trust individually or the
assets or property of any other series of the Trust, but are
binding only upon the assets and property of the Fund.
IN WITNESS WHEREOF, the Trust had adopted this Plan on February 15,
2000, to be effective in accordance with paragraph 3(a).
THE INNOVATIVE FUNDS
By: /s/
Bruce D. Oakes, Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, The Innovative Funds, a business trust organized under the
laws of the State of Ohio (hereinafter referred to as the "Trust"), periodically
files amendments to its Registration Statement with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended; and
WHEREAS, the undersigned is the President and a Trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints JAMES
R. CUMMINS and DONALD S. MENDELSOHN, and each of them, his attorneys for him and
in his name, place and stead, and in his office and capacity in the Trust, to
execute and file any Amendment or Amendments to the Trust's Registration
Statement, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
15th day of February, 2000.
____/s/_______________
Neil A. Eisner
President and Trustee
STATE OF MISSOURI )
) ss:
COUNTY OF ST. LOUIS )
Before me, a Notary Public, in and for said county and state,
personally appeared NEIL A. EISNER, known to me to be the person described in
and who executed the foregoing instrument, and who acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
WITNESS my hand and official seal this 15 day of February, 2000.
__/s/ Patricia Miller_____
Notary Public
My commission expires: 12-18-2002
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, The Innovative Funds, a business trust organized under the
laws of the State of Ohio (hereinafter referred to as the "Trust"), periodically
files amendments to its Registration Statement with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended; and
WHEREAS, the undersigned is the Treasurer and Secretary and a Trustee
of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints JAMES
R. CUMMINS and DONALD S. MENDELSOHN, and each of them, his attorneys for him and
in his name, place and stead, and in his office and capacity in the Trust, to
execute and file any Amendment or Amendments to the Trust's Registration
Statement, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 15th
day of February, 2000.
_____/s/_______________
Bruce D. Oakes
Treasurer, Secretary and Trustee
STATE OF MISSOURI )
) ss:
COUNTY OF ST. LOUIS )
Before me, a Notary Public, in and for said county and state,
personally appeared BRUCE D. OAKES, known to me to be the person described in
and who executed the foregoing instrument, and who acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
WITNESS my hand and official seal this 15 day of February, 2000.
_/s/ Patricia Miller_______
Notary Public
My commission expires: 12-18-2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, The Innovative Funds, a business trust organized under the
laws of the State of Ohio (hereinafter referred to as the "Trust"), periodically
files amendments to its Registration Statement with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended; and
WHEREAS, the undersigned is a Trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints JAMES
R. CUMMINS and DONALD S. MENDELSOHN, and each of them, his attorneys for him and
in his name, place and stead, and in his office and capacity in the Trust, to
execute and file any Amendment or Amendments to the Trust's Registration
Statement, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
15th day of February, 2000.
__/s/______________
Douglas C. Braithwaite
Trustee
STATE OF MISSOURI )
) ss:
COUNTY OF ST. LOUIS )
Before me, a Notary Public, in and for said county and state,
personally DOUGLAS C. BRAITHWAITE, known to me to be the person described in and
who executed the foregoing instrument, and who acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
WITNESS my hand and official seal this 15 day of February, 2000.
___/s/ Patricia Miller____
Notary Public
My commission expires: 12-18-2002
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, The Innovative Funds, a business trust organized under the
laws of the State of Ohio (hereinafter referred to as the "Trust"), periodically
files amendments to its Registration Statement with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended; and
WHEREAS, the undersigned is a Trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints JAMES
R. CUMMINS and DONALD S. MENDELSOHN, and each of them, his attorneys for him and
in his name, place and stead, and in his office and capacity in the Trust, to
execute and file any Amendment or Amendments to the Trust's Registration
Statement, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
15th day of February, 2000.
____/s/______________
Craig R. Hildreth
Trustee
STATE OF MISSOURI )
) ss:
COUNTY OF ST. LOUIS )
Before me, a Notary Public, in and for said county and state,
personally appeared CRAIG R. HILDRETH, known to me to be the person described in
and who executed the foregoing instrument, and who acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
WITNESS my hand and official seal this 15 day of February, 2000.
_/s/ Patricia Miller___
Notary Public
My commission expires: 12-18-2002
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, The Innovative Funds, a business trust organized under the
laws of the State of Ohio (hereinafter referred to as the "Trust"), periodically
files amendments to its Registration Statement with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended; and
WHEREAS, the undersigned is a Trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints JAMES
R. CUMMINS and DONALD S. MENDELSOHN, and each of them, his attorneys for him and
in his name, place and stead, and in his office and capacity in the Trust, to
execute and file any Amendment or Amendments to the Trust's Registration
Statement, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
15th day of February, 2000.
_____/s/________________
Eugene D. Ruth, Jr.
Trustee
STATE OF MISSOURI )
) ss:
COUNTY OF ST. LOUIS )
Before me, a Notary Public, in and for said county and state,
personally appeared EUGENE D. RUTH, JR., known to me to be the person described
in and who executed the foregoing instrument, and who acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
WITNESS my hand and official seal this 15 day of February, 2000.
_/s/ Patricia Miller__
Notary Public
My commission expires: 12-18-2002
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, THE INNOVATIVE FUNDS, a business trust organized under the
laws of the State of Ohio (hereinafter referred to as the "Trust"), periodically
files amendments to its Registration Statement with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended; and
NOW, THEREFORE, the undersigned hereby constitutes and appoints JAMES
R. CUMMINS and DONALD S. MENDELSOHN, and each of them, its attorneys for it and
in its name, place and stead, and in its office and capacity in the Trust, to
execute and file any Amendment or Amendments to the Trust's Registration
Statement, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as it
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the Trust has caused its name to be subscribed
hereto by the President this 15th day of February, 2000.
ATTEST: THE INNOVATIVE FUNDS
__s/s Bruce D. Oakes_____ By: /s/ Neil A. Eisner_________
Secretary President
STATE OF MISSOURI )
) ss:
COUNTY OF ST. LOUIS )
Before me, a Notary Public, in and for said county and state,
personally appeared NEIL A. EISNER, President and BRUCE D. OAKES, Secretary, who
represented that they are duly authorized in the premises, and who are known to
me to be the persons described in and who executed the foregoing instrument, and
they duly acknowledged to me that they executed and delivered the same for the
purposes therein expressed.
WITNESS my hand and official seal this 15 day of February, 2000.
_/s/ Patricia Miller____
Notary Public
My commission expires: 12-18-2002
<PAGE>
CERTIFICATE
The undersigned, Secretary of The Innovative Funds, hereby certifies
that the following resolution was duly adopted by a majority of the Board of
Trustees at a meeting held February15, 2000, and is in full force and effect:
"WHEREAS, The Innovative Funds, a business trust organized under the laws of the
State of Ohio (hereinafter referred to as the "Trust"), periodically files
amendments to its Registration Statement with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended;
NOW, THEREFORE, the undersigned hereby constitutes and appoints JAMES R. CUMMINS
and DONALD S. MENDELSOHN, and each of them, its attorneys for it and in its
name, place and stead, to execute and file any Amendment or Amendments to the
Trust's Registration Statement, hereby giving and granting to said attorneys
full power and authority to do and perform all and every act and thing
whatsoever requisite and necessary to be done in and about the premises as fully
to all intents and purposes as it might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do or cause to be done by virtue hereof."
Dated: 2/15, 2000 __/s/___________________
Bruce D. Oakes, Secretary
The Innovative Funds
