As filed with the Securities and Exchange Commission on December 22, 1999.
Commission File No.
Commission File No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 1
Searay Financial Funds
(Exact Name of Registrant as Specified in Charter)
P. O. Box 292707, 321 S. Bromfield Road, Dayton, OH 45429
(Address of Principal Executive Offices-Zip Code)
Registrant's Telephone Number, including Area Code: (937) 299-1727
Cameron M. Bernadsky, Vice President - The Sturgeon Financial Group, Ltd.
P. O. Box 292707, 321 S. Bromfield Road, Dayton, OH 45429
(Name and Address of Agent for Service)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
It is proposed that this filing will become effective (check appropriate
box).
-----
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
-----
/ / on pursuant to paragraph (b) of Rule 485.
-----
/XXX / 60 days after filing pursuant to paragraph (a)(1).
-----
/ / on 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.
<PAGE>
SEARAY FINANCIAL FUNDS
THE STURGEON FUND
PROSPECTUS - ______________, 2000
[LOGOS]
The Searay Financial Funds consist of a contrarian equity mutual fund, The
Sturgeon Fund.
This Prospectus gives you important information about the fund that you
should know before you invest. Please read this Prospectus carefully and keep it
handy for future reference.
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy or accuracy of this Prospectus. Any
representation to the contrary is a criminal offense.
The Searay Financial Funds
321 S. Bromfield Road
Dayton, OH 45429
1-800-___-____ or ___-___-____
Internet: WWW. .COM
<PAGE>
CONTENTS
________________________________________________________________________THE FUND
A look at investment goals, Investment Goal 3
strategies, risks, performance Strategies 3
and expenses Main Risk Factors 3
Performance 4
Fees and Expenses of the Fund 4
Information on who may want to Who May Want to Invest 5
invest and who may not want to invest
More information about the fund More Information about the
you should know before investing Fund's Investments 6
Who Manages the Fund? 7
Distribution Fees 8
How is the Trust Organized? 8
How Does Taxation Affect the
Fund and Its Shareholders? 9
______________________________________________________________SHAREHOLDER MANUAL
Information about account How to Buy Shares 11
transactions and services How to Make Withdrawals
(Redemptions) 14
Transaction Policies 14
Other Shareholder Services 15
_________________________________________________________________MORE ABOUT RISK
Investment Practices, Securities
and Related Risks 16
____________________________________________________________FOR MORE INFORMATION
Where to learn more about the fund Back Cover
2
<PAGE>
STURGEON FUND
[ICON] INVESTMENT GOAL
The fund seeks long-term capital appreciation primarily through
investment in common stocks that its investment adviser considers to
be undervalued.
[ICON] STRATEGIES
The adviser uses a "contrarian" approach to selecting investments,
which means that the adviser seeks securities of companies whose value
the adviser believes is not fully recognized by the public. The
adviser believes that the stock market will adjust to reflect the
intrinsic value of these securities.
The types of companies in which the fund may invest include: companies
with disappointing financial results which the adviser considers to be
short-term, companies that are undervalued relative to other companies
in the same industry, companies that have enjoyed recent market
popularity but which have temporarily fallen out of favor for reasons
that are short-term, and companies whose earnings potential is
expected to increase more than is perceived by the public.
Companies in which the fund invests may have small, mid or large
market capitalizations and may operate in any market sector. Although
the adviser will search for investments across a number of sectors,
normally it expects to have a significant position in the technology
sector (including computers and telecommunications).
The adviser is not restricted by any specific investment style. At any
point in time, the adviser may tend to buy "value" stocks or "growth"
stocks. In buying and selling securities for the fund, the adviser
relies on fundamental analysis of each company. The adviser considers
many factors including earnings and sales estimates, cash flow and
anticipated cash flow, growth potential, management, competitive
advantages and effective research, product development and marketing.
The fund may invest in options on securities or securities indices.
The fund may lend its securities to broker-dealers or other
institutions to earn income for the fund.
The fund may invest up to 100% of its assets in money market funds,
money market securities and short-term debt securities as a temporary
defensive tactic. When invested defensively, the fund could be unable
to achieve its investment goal.
[ICON] MAIN RISK FACTORS
The value of an investment in the fund will fluctuate over time and,
as with any mutual fund, it is possible to lose money invested in the
fund.
STOCK MARKET. The value of your investment in the fund will fluctuate
in response to stock market movements. Stock market movements will
affect the fund's share price on a daily basis. Declines are possible
both in the overall stock market or in the types of securities held by
the fund.
3
<PAGE>
COMPANY-SPECIFIC CHANGES. An investment in the common stock of a
company represents a proportionate ownership interest in that company.
Therefore, the fund takes part in the success or failure of any
company in which it holds stock. The market value of common stocks can
fluctuate dramatically in response to such things as the business
performance of the company, investors perceptions of the company, the
overall stock market, and general economic and political developments.
For example, you may lose money if investors continue to disfavor
stocks purchased by the fund, causing their prices to remain
depressed. The value of securities of smaller, less well known,
companies can be more volatile than that of larger companies.
VALUE STOCK INVESTING. The determination that a stock is undervalued
is subjective; the market may not agree, and the stock's price may not
increase to what the adviser believes is its full value. It may even
decrease in value. If the adviser's judgment about the attractiveness,
value or potential appreciation of a particular stock proves to be
incorrect, the stock's price may decrease in value.
TECHNOLOGY COMPANIES. The technology sector has historically been
volatile due to the rapid pace of product change and development
within the sector. The stock prices of companies operating within this
sector may be subject to abrupt or erratic movements.
PERFORMANCE
Performance history will be available for the fund after it has been
in operation for one calendar year.
[ICON] FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay
if you buy and hold shares of the fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) 4.00%1
Maximum Deferred Sales Charge (Load) (as a
percentage of offering price or redemption
proceeds, as applicable) None
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND
ASSETS)
Management Fees 1.00%
Distribution and Service (12b-1) Fees 0.50%
Other Expenses2 0.82%
-------
Total Annual Fund Operating Expenses 2.32%
Expense Reimbursement3 - 0.07%
-------
Net Expenses 2.25%
1 The sales charge declines as the amount invested increases. See "How to
Buy Shares."
2 "Other Expenses" are based upon estimated amounts for the current fiscal
year.
4
<PAGE>
3 The adviser has agreed to waive its fees and/or absorb expenses to limit
the fund's total annual operating expenses to 2.25%. The adviser may terminate
this agreement after December 31, 2000.
EXAMPLE
The example in the table below is intended to help you compare the
cost of investing in the fund with the cost of investing in other
mutual funds.
Assuming you
o invest $10,000 in the fund
o redeem your shares at the end of the periods shown below
o earn a 5% return each year and
o incur the same fund operating expenses shown above,
your cost of investing in the fund would be:
1 YEAR 3 YEARS
------ -------
$619 $1,089
Of course, your actual costs may be higher or lower.
WHO MAY WANT TO INVEST
The fund may be appropriate for you, if you:
o are seeking to participate in the long-term growth potential of
the stock market through a contrarian approach to investing
o are willing to accept higher short-term risk along with
potentially higher long-term returns
o are willing to accept the risks of investing in the stock market,
including the risks of investing in stocks that may be price
depressed, undervalued or out of favor
o are seeking to add a core holding to establish the foundation of
a value-oriented portfolio
o are seeking to diversify your growth-equity investments
The fund may not be appropriate for you, if you:
o are unwilling to accept an investment that will go up and down in
value
o are investing to meet short-term financial goals
o need regular income
5
<PAGE>
MORE INFORMATION ABOUT THE FUND'S INVESTMENTS
EQUITY SECURITIES. The fund invests primarily in common stocks and other
equity securities. Equity securities include exchange traded and
over-the-counter common stocks and preferred shares, debt securities convertible
into equity securities, and warrants and rights relating to equity securities.
OPTIONS. Generally, the fund may invest in options on securities or
securities indexes. See "Options" under "MORE ABOUT RISK - Investment Practices,
Securities and Related Risks" below. One of the option strategies that the
adviser may use is writing (selling) covered call options ("Calls"). When the
adviser believes that stocks held by the fund are approaching the top of the
adviser's growth and price expectations, calls may be written (sold) against
such stocks.
When the fund writes a call, it receives a premium and agrees to sell the
underlying security to a purchaser of a corresponding call at a specified price
("strike price") by a future date ("exercise date"). To terminate its obligation
on a call the fund has written, it may purchase a corresponding call in a
"closing purchase transaction". A profit or loss will be realized, depending
upon whether the price of the closing purchase transaction is more or less than
the premium (net of transaction costs) previously received on the call written.
The fund may realize a profit if the call it has written lapses unexercised, in
which case the fund keeps the premium and retains the underlying security as
well. If a call written by the fund is exercised, the fund forgoes any possible
profit from an increase in the market price of the underlying security over the
exercise price plus the premium received. If the adviser is incorrect in its
expectations and the market price of a stock subject to a call option rises
above the exercise price of the option, the fund will lose the opportunity of
further appreciation in that security.
The fund may purchase or write options which are not issued by the Options
Clearing Corporation or listed on a national securities exchange. Call writing
affects the fund's portfolio turnover rate and the brokerage commissions paid.
Commissions for options, which are normally higher than for general securities
transactions, are payable when writing calls and when purchasing closing
purchase transactions. See "Options" under "MORE ABOUT RISK - Investment
Practices, Securities and Related Risks" below.
SECURITIES OF SMALLER COMPANIES. The fund may invest in securities of
companies with small or mid-sized market capitalizations. Market capitalization
is defined as total current market value of a company's outstanding common
stock. Investments in companies with smaller market capitalizations may involve
greater risks and price volatility (that is, more abrupt or erratic price
movements) than investments in larger, more mature companies since smaller
companies may be at an earlier stage of development and may have limited product
lines, reduced market liquidity for their shares, limited financial resources or
less depth in management than larger or more established companies. Smaller
companies also may be less significant factors within their industries and may
have difficulty withstanding competition from larger companies. While smaller
companies may be subject to these additional risks, they may also realize more
substantial growth than larger or more established companies. See "Small and
Mid-sized Company Securities" under "MORE ABOUT RISK - Investment Practices,
Securities and Related Risks" below.
SECURITIES OF COMPANIES WITH LIMITED OPERATING HISTORIES. The fund may
invest in securities of companies with limited operating histories. The fund
considers these to be securities of companies with a record of less than three
years' continuous operation, even including the operations of any predecessors
and parents. (These are sometimes referred to as "unseasoned issuers.") These
companies by their nature have only a limited operating history which can be
used for evaluating the company's growth prospects. As a result, investment
decisions for these securities may place a greater emphasis on current or
planned product lines and the reputation and experience of the company's
management and less emphasis on fundamental valuation factors than would be the
case for more mature companies. In addition, many of these companies may also be
small companies and involve the risks and price volatility associated with
smaller companies. See "Companies with Limited Operating Histories" under "MORE
ABOUT RISK - Investment Practices, Securities and Related Risks" below.
6
<PAGE>
INITIAL PUBLIC OFFERINGS. The fund may invest a company's securities at the
time the company first offers securities to the public, that is, at the time of
the company's initial public offering or IPO. Although companies can be any age
or size at the time of their IPOs, they are often smaller and have a limited
operating history, which involve a greater potential for the value of their
securities to be impaired following the IPO. See "Securities of Smaller
Companies" and "Securities of Companies with Limited Operating Histories" above.
In addition, market psychology prevailing at the time of an IPO can have a
substantial and unpredictable effect on the price of an IPO security, causing
the price of a company's securities to be particularly volatile at the time of
its IPO and for a period thereafter. As a result, the adviser might decide to
sell an IPO security more quickly than it would otherwise, which may result in a
significant gain or loss to the fund.
A portion of the fund's returns may be attributable to its investment in
IPO's, which have a magnified impact due to the fund's small asset base. If the
fund's assets grow, it is probable that the effect of the fund's investment in
IPOs on its total returns will decline, which may reduce the fund's total
returns.
SECURITIES LENDING. The fund may lend its portfolio securities. See
"Securities Lending" under "MORE ABOUT RISK - Investment Practices, Securities
and Related Risks" below.
DEFENSIVE INVESTING. During periods when the adviser deems it necessary for
temporary defensive purposes, the fund may invest up to 100% of its assets in
money market funds, high quality money market instruments and short-term debt
securities. These instruments consist of commercial paper, certificates of
deposit, banker's acceptances and other bank obligations, obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, high grade
corporate obligations and repurchase agreements. If the fund takes a temporary
defensive position, it may be unable to achieve its investment goal. See
"Defensive Measures" under "MORE ABOUT RISK - Investment Practices, Securities
and Related Risks" below.
WHO MANAGES THE FUND?
THE BOARD. The board of trustees oversees the management of the fund and elects
its officers. The officers are responsible for the fund's day-to-day operations.
Information concerning the trustees and officers of the fund appears in the
Statement of Additional Information.
INVESTMENT ADVISER. The Sturgeon Financial Group ("SFG" or the "Adviser") serves
as investment adviser to the fund. SFG has had no prior experience in managing a
mutual fund. However, SFG's affiliated investment adviser and distributor of the
fund's shares, Creative Capital Management Corp. (CCM), has been an investment
adviser to individuals, trusts and corporations since 1972. As of December 31,
1999, CCM managed approximately $___ million in assets. SFG serves the fund
pursuant to an Investment Advisory Contract under the terms of which it has
agreed to provide an investment program within the limitations of the fund's
investment policies and restrictions. SFG maintains its principal offices at 321
S. Bromfield Road, Dayton, OH 45429.
FUND MANAGER. Richard W. Bradford is the individual primarily responsible for
the day-to-day management of the fund. Mr. Bradford has managed the fund since
its inception in _____, 2000.
Mr. Bradford is a Trustee and Vice President of the Trust and has been a
director and Chief Executive Officer of the adviser since its incorporation in
_________, 1999. Mr. Bradford has been a portfolio manager for Creative Capital
Management Corp., distributor of the fund and an affiliate of the adviser, since
March, 1999. From January 1996 to March, 1999, Mr. Bradford was a registered
representative of Dean Securities, a broker-dealer. From August, 1993 to
7
<PAGE>
December, 1995, Mr. Bradford attended South Puget Sound College where he earned
an Associates degree in business.
MANAGEMENT FEES. The fund will pay management fees totaling 1.00% of the fund's
average daily net assets.
DISTRIBUTOR. Creative Capital Management Corp. (the "Distributor"), 595 Route
25A, Suite 1C, Miller Place, NY 11764, an affiliate of SFG, serves as the
distributor of the shares of the fund.
DISTRIBUTION FEES
Rule 12b-1 of the Investment Company Act permits mutual funds that adopt a
written plan to pay out of fund assets certain expenses relating to the sale and
distribution of their shares. The fund has adopted distribution and service
plans. Under its plans, the fund pays the distributor an annual distribution
(12b-1) fee of 0.25% of fund assets and an annual service fee of 0.25% of fund
assets.
Distribution fees are used primarily to offset initial and ongoing
commissions paid to brokerage firms for selling shares of the fund. The
distributor may use distribution fees that are not allocated to brokerage firms
to reduce its own sales and marketing expenses. Service fees are used primarily
to reimburse brokerage firms for providing personal services to fund
shareholders and maintaining shareholder accounts. The distributor may use
service fees that are not allocated to brokerage firms to reduce its own
expenses for providing personal services and maintaining shareholder accounts.
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 charges.
HOW IS THE TRUST ORGANIZED?
The fund is an open-end management investment company that is a series of
The Searay Financial Funds trust (the "Trust").
The Trust is supervised by a board of trustees, an independent body that
has ultimate responsibility for the fund's activities. The board retains various
companies to carry out the fund's operations, including the investment adviser,
custodian, transfer agent and others. The board has the right, and the
obligation, to terminate the fund's relationship with any of these companies and
to retain a different company if the board believes it is in the shareholders'
best interests. At a mutual fund's inception, the initial shareholder (typically
the adviser) appoints the fund's board. Thereafter, the board and the
shareholders determine the board's membership. The board of the Trust may
include individuals who are affiliated with the investment adviser.
The fund does not hold annual shareholder meetings, but may hold special
meetings for such purposes as electing or removing board members, changing
fundamental policies, approving a management contract or approving a 12b-1 plan
(12b-1 fees are explained in "Distribution Fees").
PORTFOLIO TRADES
In placing portfolio trades, the fund's adviser may use brokerage firms
that market the fund's shares, but only when the advisers believe no other firm
offers a better combination of quality execution (i.e., timeliness and
completeness) and favorable price. As long as the adviser believes a brokerage
firm can provide this combination, it may consider research and related services
when choosing a brokerage firm. Brokerage firms may use a portion of the
commissions paid by the fund to reduce its expenses.
8
<PAGE>
INVESTMENT GOALS
None of the fund's investment goals are fundamental; therefore, they may be
changed without shareholder approval.
DIVERSIFICATION
The fund is diversified, which means the fund may not, with respect to at
least 75% of its assets, invest more than 5% in the securities of one company.
HOW DOES TAXATION AFFECT THE FUND AND ITS SHAREHOLDERS?
HOW DOES THE FUND EARN INCOME AND GAINS?
The fund earns dividends and interest (the "income") on its investments.
When the fund sells a security for a price that is higher than it paid, it has a
gain. When the fund sells a security for a price that is lower than it paid, it
has a loss. If the fund has held the security for more than one year, the gain
or loss will be a long-term capital gain or loss. If the fund has held the
security for one year or less, the gain or loss will be a short-term capital
gain or loss. The fund's gains and losses are netted together, and, if the fund
has a net gain (the fund's "gains"), that gain will generally be distributed to
you.
TAXATION OF THE FUND'S INVESTMENTS
The fund invests your money in the securities that are described in the
sections "Strategies" and "How Does the Fund Pursue Its Investment Goal?"
Special tax rules may apply in determining the income and gains that the fund
earns on its investments. These rules may, in turn, affect the amount of
distributions that the fund pays to you. These special tax rules are discussed
in the SAI.
TAXATION OF A FUND. As a regulated investment company, the fund generally
pays no federal income tax on the income and gains that it distributes to you.
FOREIGN TAXES. Foreign governments may impose taxes on the income and gains
from the fund's investments in foreign securities. These taxes will reduce the
amount of the fund's distributions to you.
TAXATION OF SHAREHOLDERS
WHAT IS A DISTRIBUTION?
As a shareholder, you will receive your share of the fund's income and
gains on the fund's investments in stocks and other securities. The fund's
income and short-term capital gains are paid to you as ordinary dividends. The
fund's long-term capital gains are paid to you as capital gain distributions. If
the fund pays you an amount in excess of its income and gains, this excess will
generally be treated as a non-taxable distribution. These amounts, taken
together, are what we call the fund's distributions to you. The fund distributes
capital gains, if any, annually.
DISTRIBUTIONS. Distributions from the fund, whether you receive them in
cash or in additional shares, are generally subject to income tax. The fund will
send you a statement in January of the current year that reflects the amount of
ordinary dividends, capital gain distributions and non-taxable distributions you
received from the fund in the prior year. This statement will include
distributions declared in December and paid to you in January of the current
year, but which are taxable as if paid on December 31 of the prior year. The IRS
requires you to report these amounts on your income tax return for the prior
year.
9
<PAGE>
DISTRIBUTIONS TO RETIREMENT PLANS. Fund distributions received by your
qualified retirement plan, such as a 401(k) plan or IRA, are generally
tax-deferred; this means that you are not required to report fund distributions
on your income tax return when paid to your plan, but, rather, when your plan
makes payments to you. Special rules apply to payouts from Roth and Education
IRAs.
DIVIDENDS-RECEIVED DEDUCTION. Corporate investors may be entitled to a
dividends-received deduction on a portion of the ordinary dividends they receive
from the funds.
BUYING A DIVIDEND. Purchasing fund shares in a taxable account shortly
before a distribution is known as "buying a dividend." In taxable accounts, you
must pay income taxes on the distribution whether you take the distribution in
cash or reinvest it. In addition, you will have to pay taxes on the distribution
whether the value of your investment decreased, increased or remained the same
after you bought the fund shares. The risk in buying a dividend is that the
portfolios may build up taxable gains throughout the period covered by a
distribution, as securities are sold at a profit. We distribute those gains to
you, after subtracting any losses, even if you did not own the shares when the
gains occurred.
DIVIDEND REINVESTMENTS. Most investors have their dividends reinvested in
additional shares of the same fund. If you choose this option, or if you do not
indicate any choice, your dividends will be reinvested on the dividend payable
date. Alternatively, you can choose to have a check for your dividends mailed to
you. However, if the check is not deliverable, your dividends will be
reinvested.
REDEMPTIONS
WHAT IS A REDEMPTION?
A redemption is a sale by you to the fund of some or all of your shares in
the fund. The price per share you receive when you redeem fund shares may be
more or less than the price at which you purchased those shares. When you redeem
your shares, you will generally have a gain or loss, depending upon whether the
amount you receive for your shares is more or less than your cost or other basis
in the shares.
If you redeem your shares, you will generally have a gain or loss that the
IRS requires you to report on your income tax return. All or a portion of any
loss on the redemption or exchange of your shares will be disallowed by the IRS
if you purchase other shares in the fund within 30 days before or after your
redemption or exchange.
U.S. GOVERNMENT INTEREST. Many states grant tax-free status to dividends
paid from interest earned on direct obligations of the U.S. Government, subject
to certain restrictions. The fund will provide you with information at the end
of each calendar year on the amount of any such dividends that may qualify for
exemption from reporting on your individual income tax returns.
NON-U.S. INVESTORS. Ordinary dividends generally will be subject to U.S.
income tax withholding. Your home country may also tax ordinary dividends,
capital gain distributions and gains arising from redemptions or exchanges of
your fund shares. Fund shares held by the estate of a non-U.S. investor may be
subject to U.S. estate tax. You may wish to contact your tax advisor to
determine the U.S. and non-U.S. tax consequences of your investment in the fund.
STATE TAXES. Ordinary dividends and capital gain distributions that you
receive from the fund, and gains arising from redemptions or exchanges of your
fund shares will generally by subject to state and local income tax. The holding
of fund shares may also be subject to state and local intangibles taxes. You may
wish to contact your tax advisor to determine the state and local tax
consequences of your investment in the fund.
10
<PAGE>
SHAREHOLDER MANUAL
HOW TO BUY SHARES
MINIMUM INVESTMENT -- The minimum investment to open an account is $2,500,
except for an Individual Retirement Account (IRA), which has a $500 minimum. You
may make subsequent investments in any account in amounts of at least $100.
OPENING AN ACCOUNT -- You may open an account and make an investment by
purchasing shares through brokerage firms having sales agreements with the
Distributor. You may also purchase shares directly from the fund by submitting a
check. In the case of a new account, fill out the New Account Application
accompanying this Prospectus. A check payable to the Sturgeon Fund must
accompany your New Account Application. You may make payments by check or
Federal Reserve Draft payable to the fund. Please send your completed
application and payment to the following address: THE SEARAY FINANCIAL FUNDS,
C/O MUTUAL FUNDS SERVICE CO., P. O. BOX 7177, DUBLIN, OHIO 43017.
Should an order to purchase shares be canceled because your check does not
clear, you will be responsible for any resulting losses or fees incurred in the
transaction. All orders for the purchase of shares are subject to acceptance or
rejection by the fund or by the Distributor. Direct purchase orders received by
Mutual Funds Service Company (the "Transfer Agent"), the fund's transfer agent,
by 4:00 p.m., Eastern time, are confirmed at that day's public offering price.
Direct purchase orders received by the Transfer Agent after 4:00 p.m. and orders
received by brokerage firms after 5:00 p.m. are confirmed at the public offering
price on the following business day.
Wire orders for shares of the fund received by dealers prior to 4:00 p.m.,
Eastern time, and received by the Transfer Agent before 5:00 p.m., Eastern time
on the same day, are confirmed at that day's public offering price. Orders
received by dealers after 4:00 p.m., Eastern time, are confirmed at the public
offering price on the following business day. It is the dealer's obligation to
place the order with the Transfer Agent before 5:00 p.m., Eastern time, and to
forward payment to Firstar, N.A., the Custodian for the fund.
If the wire order is for a new account, you must telephone the fund prior
to making your initial investment. Call 1-800-___-____, or (___) ___-____.
Advise the fund of the amount you wish to invest and obtain an account number
and instructions. Have your bank wire federal funds to:
FIRSTAR, N.A. CINTI/TRUST
ABA #: 042-00001-3
ATTENTION: SEARAY FINANCIAL FUNDS
THE STURGEON FUND
Account Number ___________
ACCOUNT NAME (your name)
YOUR SEARAY FINANCIAL FUNDS ACCOUNT NUMBER
11
<PAGE>
No stock certificates will be issued. Instead, the Transfer Agent will
establish an account for each investor, and all shares purchased or received,
including those acquired through the reinvestment of dividends and
distributions, are registered on the books of the fund and credited to such
account.
The fund will not permit redemptions until it receives the New Account
Application in good order.
SUBSEQUENT INVESTMENTS - You may make subsequent investments in the fund by
mailing a check payable to The Sturgeon Fund. Please include your account number
and mail as follows:
SEARAY FINANCIAL FUNDS
C/O MUTUAL FUNDS SERVICE CO.
P. O. BOX 7177
DUBLIN, OHIO 43017
You may also make subsequent investments by bank wire as described above.
You must notify the fund prior to each wire purchase. Wires sent without
notifying the fund will result in a delay of the effective date of your
purchase.
SALES CHARGES - Maximum sales charges and fees are set forth in the table
below, and quantity discounts for the fund's initial sales charge are set forth
below.
---------------------------------------------
o Initial Sales Charge of 4.00% or less
---------------------------------------------
o No deferred sales charge
---------------------------------------------
The fund's shares are sold at net asset value plus the applicable sales
charge as shown in the table below. The fund's shares also bear a Rule 12b-1 fee
of 0.25% per year (paid to the Distributor, Creative Capital Management Corp.)
of their average net asset value. In addition, the fund's shares bear an asset
based service fee of 0.25% per year. The sales charge on the fund's shares is
allocated between your brokerage firm and Creative Capital Management Corp. as
shown below:
THE SALES CHARGE WHICH EQUALS YOUR DEALER
WHEN YOU INVEST MAKES UP THIS % OF THIS % OF YOUR RECEIVES THIS % OF
THIS AMOUNT THE OFFERING PRICE INVESTMENT THE OFFERING PRICE
- ----------- ------------------ ---------- ------------------
Up to $50,000 4.00% 4.16% 3.50%
$50,001 to $150,000 3.00% 3.09% 2.50%
$150,001 to $250,000 2.00% 2.04% 1.50%
$250,001 or more none none none
The offering price of The Sturgeon Fund shares includes the applicable
sales charge.
QUANTITY DISCOUNTS
CUMULATIVE QUANTITY DISCOUNT - lets you combine all of your shares in the
fund for purposes of calculating the sales charge. Therefore, the quantity
discounts shown in the table above will apply if the dollar amount of your
12
<PAGE>
purchase, plus the net asset value of fund shares you already own, is more than
$50,000. The sales charge on the shares being purchased will then be at the rate
applicable to the aggregate value of such shares then owned, plus the amount of
the purchase.
To receive the cumulative quantity discount, either you or your brokerage
firm must request the discount at the time of placing your purchase order. In
addition, you must give the Transfer Agent sufficient information to determine
and confirm that your purchase will qualify for the discount. The cumulative
quantity discount may be amended or terminated at any time as to all purchases
occurring thereafter.
LETTER OF INTENTION (LOI) - expresses your intent to buy a stated dollar
amount of shares over a 13-month period and lets you receive the same sales
charge as if all shares had been purchased at one time. To take advantage of
this discount, simply sign and complete the LOI on the New Account Application,
indicating the amount you wish to invest. The LOI may be back-dated to include
purchases made within 90 days prior to the signing of the LOI. The LOI will not
be a binding obligation on either the purchaser or the fund.
Purchases made under the LOI receive the sales charge applicable to the
aggregate amount you have indicated in the LOI, as if all shares were purchased
in a single transaction. During the period covered by the LOI, the Transfer
Agent will escrow shares representing 5% of your intended purchase. If you do
not purchase the amount stated in your LOI, your sales charge will be adjusted
to reflect the actual amount you invested during the period covered by your LOI,
and any additional sales charge will be recovered from your escrowed shares.
Your LOI can be amended: (a) during the 13-month period, if you file an
amended LOI with the same expiration date as the original, and (b) automatically
after the end of the period, if the total purchases credited to your LOI qualify
for an additional reduction in sales charge.
SALES CHARGE WAIVERS: Directors, trustees, officers and full-time employees
of the Searay Financial Funds trust, the adviser or the Distributor, including
members of the immediate families of such individuals and employee benefit plans
established by such entities, may purchase shares of the fund at net asset
value.
Fund shares may be sold at net asset value without an initial sales charge
to:
o clients of the adviser or the Distributor, registered investment
advisers, broker-dealers and financial planners, who are purchasing on
behalf of their clients or on behalf of clients in wrap accounts, by
making arrangements to do so with the Trust and the Transfer Agent
o participants in certain retirement and deferred compensation plans,
including qualified or non-qualified plans under the Internal Revenue
Code and certain affinity group and group savings plans, provided that
such plans have at least 100 eligible employees or members and
13
<PAGE>
o broker-dealers who have a sales agreement with the Distributor and by
their registered personnel and employees, including members of the
immediate families of such registered personnel and employees (i.e.,
spouse and minor children only)
See "Other Shareholder Services - Systematic Withdrawal Program" and the
Statement of Additional Information.
No sales charge will be charged on accounts that are opened for you by your
brokerage firm where the amount invested represents redemption proceeds from
funds distributed other than by the Distributor, and where you have paid a sales
charge in connection with the purchase of such other fund's shares; provided
that (i) shares of the fund are purchased within 60 days after redemption of
such other fund's shares; and (ii) sufficient documentation of such redemption
as the Transfer Agent may require shall be provided at the time fund shares are
purchased.
HOW TO MAKE WITHDRAWALS (REDEMPTIONS)
You may redeem shares and withdraw funds at net asset value. There are no
redemption fees. (See "How Net Asset Value Is Determined.")
BY MAIL -- You may redeem shares by mailing a written signature guaranteed
request to Searay Financial Funds, c/o Mutual Funds Service Co., P. O. Box 7177,
Dublin, OH 43017. Signature guaranteed means that you must have signed the
request and the signature(s) must be guaranteed by an eligible guarantor
institution (a bank, broker-dealer, credit union, securities exchange, clearing
agency or savings association). We may require further documentation if you are
requesting redemption of shares held of record in the name of corporations or
trustees, and other fiduciaries.
Amounts withdrawn are mailed without charge to the address printed on your
account statement.
BY BANK WIRE -- You may redeem by telephone by placing a wire redemption
through a securities dealer. Wire redemption requests received by dealers prior
to 4:00 p.m., Eastern time, and received by the Transfer Agent before 5:00 p.m.,
Eastern time on the same day, are confirmed at that day's net asset value per
share. Direct wire redemption requests must be received by 4:00 p.m. to be
confirmed at that day's net asset value.
WHEN REDEMPTIONS ARE EFFECTIVE -- Redemptions are made at the net asset
value per share next determined after receipt of a redemption request in good
order. (See "How Net Asset Value Is Determined.")
WHEN PAYMENTS ARE MADE -- Shares are redeemed at their net asset value per
share next determined after receipt by the Transfer Agent of the redemption
request in the form described above. Payment is normally made within seven days
after the redemption request.
TRANSACTION POLICIES
14
<PAGE>
VALUATION OF SHARES. The net asset value per share (NAV) for the fund will
be calculated each day at approximately 4:00 p.m. Eastern time by dividing the
fund's net assets by the number of its shares outstanding.
The assets of the fund are generally valued on the basis of market
quotations or, where market quotations are not readily available, on the basis
of fair value as determined by the adviser under procedures adopted by the Board
of Trustees.
EXECUTION OF REQUESTS. The fund is open on those days when the New York
Stock Exchange is open, typically Monday through Friday. Buy and sell requests
are executed at the next NAV to be calculated after your request is received by
the transfer agent.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider sending your request in writing.
In unusual circumstances, the fund may temporarily suspend the processing
of sell requests, or may postpone payment of proceeds for up to seven business
days, as allowed by federal securities laws.
TELEPHONE TRANSACTIONS. For your protection, telephone requests may be
recorded in order to verify their accuracy. In addition, the transfer agent will
take measures to verify the identity of the caller, such as asking for name,
account number, Social Security or other taxpayer ID number and other relevant
information. If appropriate measures are taken, the transfer agent is not
responsible for any losses that may occur to any account due to an unauthorized
telephone call. Proceeds from telephone transactions can only be mailed to the
address of record.
SALES IN ADVANCE OF PURCHASE PAYMENTS. When you place a request to sell
shares for which the purchase money has not yet been collected, the request will
be executed in a timely fashion, but the fund will not release the proceeds to
you until your purchase payment clears. This may take up to fifteen business
days after the purchase.
OTHER SHAREHOLDER SERVICES
AUTOMATIC ACCOUNT BUILDER: This program offers you a convenient way for you
to invest in the fund by automatically transferring money from your checking or
savings account each month to buy shares. Under the program, regular investments
in the fund of $100 or more will be deducted from your checking or savings
account and invested in shares of the fund. Your bank must be a member of the
Automated Clearing House (ACH). To sign up, complete the Automatic Account
Builder section of your New Account Application. There is no additional charge
for this service.
SYSTEMATIC WITHDRAWAL PROGRAM: This program allows you to automatically
sell your shares and receive regular distributions of $100 or more from your
account. You must either own or purchase shares having a value of at least
$10,000 and advise the fund in writing of the amount to be distributed and the
desired frequency, i.e., monthly, quarterly or annually. To sign up, complete
the appropriate section of your New Account Application. You should realize that
if withdrawals exceed income dividends, the invested principal may be depleted.
15
<PAGE>
You may make additional investments and may change or stop the program at
any time. There is no charge for this program.
16
<PAGE>
SHAREHOLDER ACCOUNTS
The fund maintains an account for each shareholder in full and fractional
shares. The fund may reject any purchase order and may waive minimum purchase
requirements.
CONFIRMATION STATEMENT -- All purchases and sales, and dividend
reinvestments, are confirmed promptly after they become effective.
ACCOUNTS WITH LOW BALANCES. The fund may redeem shares in your account for
its then current net asset value and pay the proceeds to you if at any time your
account has shares valued at less than $1,000 ($500 for an IRA) as a result of
redemptions you have made. The fund may redeem the shares in your account if you
have opened your account for less than the minimum purchase amount and you do
not purchase additional shares to meet the minimum. Before any shares are
redeemed for these purposes, you will be notified in writing 30 days before any
such redemption to bring the value of shares in your account to $1,000 ($500 for
an IRA).
MORE ABOUT RISK
The fund's risk profile is largely defined by the fund's principal
securities and investment practices. You may find the most concise description
of the fund's risk profile in the fund summary near the beginning of this
Prospectus.
The fund is permitted to use - within limits established by the trustees -
certain other securities and investment practices that have higher risks and
opportunities associated with them. To the extent that the fund uses these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following pages are brief descriptions of these
securities and investment practices, along with the risks associated with them,
which risks are also defined below. The fund follows certain policies that may
reduce these risks.
As with any mutual fund, there is no guarantee that the fund will earn
income or show a positive total return over any period of time - days, months or
years.
INVESTMENT PRACTICES, SECURITIES AND RELATED RISKS
Percentages below show allowable usage only; for actual usage, consult the
fund's annual/semiannual reports.
AMERICAN DEPOSITARY RECEIPT ("ADR") is a receipt for the shares of a
foreign corporation held by a United States bank. Instead of the fund buying
shares of foreign companies in overseas markets, it may buy shares in the United
States in the form of an ADR. The political, economic, legal and social
structure affecting foreign companies underlying the ADR's may be less stable
and more volatile than those in the United States. The risks of investing in
foreign companies through ADR's includes the imposition of exchange controls,
foreign ownership limitations, expropriation, nationalization of assets and
punitive taxes. MARKET, INFORMATION, CURRENCY AND POLITICAL RISKS.
17
<PAGE>
BORROWING AND REVERSE REPURCHASE AGREEMENTS refer to a loan of money from a
bank or other financial institution undertaken by the fund. The fund may borrow
up to 33-1/3% of its assets. LEVERAGE AND CREDIT RISKS.
COMMON STOCK is a share of ownership (equity) interest in a company.
COMPANIES WITH LIMITED OPERATING HISTORIES are securities issued by
companies that have been in continuous operation for less than three years.
Sometimes called "unseasoned" issuers. MARKET, LIQUIDITY AND INFORMATION RISKS.
CONVERTIBLE SECURITIES are debt or equity securities which may be converted
on specified terms into stock of the issuer. MARKET, INTEREST RATE, PREPAYMENT
AND CREDIT RISKS.
CORRELATION RISK occurs when the fund "hedges" - uses one investment to
offset the fund's position in another. If the two investments do not behave in
relation to one another the way the fund managers expect them to, then
unexpected results may occur.
CREDIT RISK means that the issuer of a security or the counterparty to an
investment contract may default or become unable to pay its obligations when
due.
DEFENSIVE MEASURES may be taken when the fund's adviser believes they are
warranted due to market conditions. When this happens, the fund may invest 100%
of its assets in money market instruments, government securities and other
short-term securities without regard to the fund's investment restrictions,
policies or normal investment emphasis. As a result, the fund could be unable to
achieve its investment objective. OPPORTUNITY RISK.
DIVERSIFICATION means a diversified fund may not, with respect to at least
75% of its assets, invest more than 5% in the securities of one company. A
non-diversified fund may be more volatile than a diversified fund because it
invests more of its assets in a smaller number of companies and the gains or
losses on a single stock will therefore have a greater impact on the fund's
share price. The Sturgeon Fund is a diversified fund.
HEDGING RISK comes into play when the fund uses a security whose value is
based on an underlying security or index to "offset" the fund's position in
another security or currency. The objective of hedging is to offset potential
losses in one security with gains in the hedge. But a hedge can eliminate or
reduce gains as well as offset losses. (Also see "Correlation Risk.")
ILLIQUID AND RESTRICTED SECURITIES are securities which, by rules of their
issue or by their nature, cannot be sold readily. These include illiquid Rule
144A securities. The fund may invest up to 15% of its assets in illiquid and
restricted securities. MARKET, LIQUIDITY AND TRANSACTION RISKS.
INFORMATION RISK means that information about a security or issuer may not
be available, complete, accurate or comparable.
INTEREST RATE RISK is the risk that changes in interest rates will
adversely affect the value of an investor's securities. When interest rates
rise, the value of fixed-income securities will generally fall. Conversely, a
drop in interest rates will generally cause an increase in the value of
fixed-income securities. Longer-term securities are subject to greater interest
rate risk.
18
<PAGE>
LEVERAGE RISK occurs in some securities or techniques that tend to magnify
the effect of small changes in an index or a market. This can result in a loss
that exceeds the account that was invested in the contract.
LIQUIDITY RISK occurs when investments cannot be sold readily. The fund may
have to accept a less-than-desirable price to complete the sale of an illiquid
security or may not be able to sell it at all.
MARKET CAPITALIZATION is the total current market value of a company's
outstanding common stock.
MARKET RISK exists in all mutual funds and means the risk that the prices
of securities in a market, a sector, or an industry will fluctuate, and that
such movements might reduce an investment's value.
OPPORTUNITY RISK means missing out on an investment opportunity because the
assets necessary to take advantage of it are committed to less advantageous
investments or strategies.
OPTIONS are contracts giving the holder the right but not the obligation to
purchase or sell a security on or before a predetermined future date for a fixed
price. Options on securities indexes are similar, but settle in cash. HEDGING,
CORRELATION, OPPORTUNITY, LEVERAGE, INTEREST RATE, MARKET, AND LIQUIDITY RISKS.
POLITICAL RISK comes into play with investments, particularly foreign
investments, which may be adversely affected by nationalization, taxation, war,
government instability or other economic or political actions or factors.
PREPAYMENT RISK is the risk that, as interest rates fall, borrowers are
more likely to refinance their debts. As a result, the principal on certain
fixed income securities may be paid earlier than expected, which could cause
investment losses and cause prepaid amounts to have to be reinvested at a
relatively lower interest rate.
REPURCHASE AGREEMENTS means the purchase of a security that must later be
sold back to the issuer at the same price plus interest. The fund may invest up
to 20% of its assets in repurchase agreements. CREDIT RISK.
SECURITIES LENDING means the lending of securities to financial
institutions, which provide cash or government securities as collateral. The
fund may lend up to 33-1/3% of assets. CREDIT RISK.
SHORT SALES AGAINST THE BOX occurs when the fund sells short securities it
owns. The fund will incur transaction costs, including interest expenses, in
connection with opening, maintaining and closing short sales against the box,
which results in a "constructive sale" requiring the fund to recognize any
taxable gain from the transaction.
SHORT-TERM TRADING means selling a security soon after purchase. If the
fund engages in short-term trading, you will have higher turnover and
transaction expenses. Short-term trading may also result in short-term capital
19
<PAGE>
gains. Upon the distribution to you of any net short-term capital gains from the
fund, you will be taxed at ordinary tax rates. MARKET RISK.
SMALL AND MID-SIZED COMPANY SECURITIES are securities issued by small or
mid-sized companies, as measured by their market capitalization. Historically,
smaller company securities have been more volatile in price than larger company
securities, especially over the short-term. Among the reasons for the greater
price volatility are the less certain growth prospects of smaller companies, the
lower degree of liquidity in the markets for such securities, and the greater
sensitivity of smaller companies to changing economic conditions. In general,
the smaller the company, the greater its risks. MARKET, LIQUIDITY AND
INFORMATION RISKS.
TRANSACTION RISK means that the fund may be delayed or unable to settle a
transaction or that commissions and settlement expenses may be higher than
usual.
WHEN ISSUED SECURITIES AND FORWARD COMMITMENTS involve the purchase and
sale of securities for delivery at a future date, market value may change before
delivery. MARKET, OPPORTUNITY AND LEVERAGE RISKS.
20
<PAGE>
FOR MORE INFORMATION:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more detailed information about the fund. The SAI has
been filed with the Securities and Exchange Commission and is
incorporated by reference in this Prospectus (is legally a part of
this Prospectus).
ANNUAL AND SEMIANNUAL REPORTS
These reports include portfolio holdings, financial statements,
performance information, the auditor's report (in the case of the
annual report), and a discussion of the market conditions and
investment strategies that significantly affected the fund's
performance during its last fiscal year.
The SAI, the reports and other information about the fund may be
viewed on the Commission's Internet website at HTTP://WWW.SEC.GOV and
copies of this information may be obtained (upon payment of a copying
fee) by writing the public reference section of the Commission,
Washington, D.C. 20549-6009 (telephone 1-800-SEC-0330).
To request a free copy of the current annual/semi-annual report or
SAI, request other information about the fund, or make shareholder
inquiries, please write, call or E-mail us at:
The Searay Financial Funds
321 S. Bromfield Road
Dayton, OH 45429
1-800-___-____ or ___-___-____
Internet: WWW. .COM
SEC File No.: 811-____
21
<PAGE>
THE STURGEON FUND
A FUND OF THE SEARAY FINANCIAL FUNDS TRUST
STATEMENT OF ADDITIONAL INFORMATION
____________, 2000
This Statement is not a prospectus but should be read in conjunction with
the Prospectus of The Sturgeon Fund (dated ________, 2000). Please retain this
document for future reference. A copy of the Prospectus may be obtained from The
Searay Financial Funds c/o Mutual Funds Service Co., 6000 Memorial Drive,
Dublin, Ohio 43017 or by calling 1-800-___-_____. Capitalized terms used and not
otherwise defined herein have the same meanings as defined in the Prospectus.
TABLE OF CONTENTS PAGE
Description of the Trust 2
Investment Policies and Related Matters 3
Risk Considerations 16
Portfolio Transactions 17
Valuation of Portfolio Securities 18
Performance 19
Additional Purchase and Redemption Information 21
Distributions and Taxes 24
Investment Adviser and Manager 25
Trustees and Officers 26
The Distributor 28
Additional Information 29
Financial Statements 30
INVESTMENT ADVISER DISTRIBUTOR
The Sturgeon Financial Group, Ltd. Creative Capital Management Corp.
TRANSFER AGENT
Mutual Funds Service Co.
<PAGE>
DESCRIPTION OF THE TRUST
BACKGROUND. The Searay Financial Funds (the "Trust") were organized as a
Massachusetts business trust on December 20, 1999. The Sturgeon Fund is a
diversified open-end investment management company. The Trust's offices are at
321 S. Bromfield Road, Dayton, OH 45429. The business and affairs of the Trust
are under the direction of its Board of Trustees.
The Trust has retained the services of The Sturgeon Financial Group, Ltd.
as investment adviser of the Sturgeon Fund.
As stated in "Investment Policies and Limitations," except as otherwise
expressly provided herein, the Fund's investment objectives and policies are not
fundamental and may be changed by Trustees without shareholder approval.
For descriptions of the investment objectives and policies of the Fund, see
"Investment Policies and Related Matters." For descriptions of the management
and expenses of the Fund, see "Investment Adviser and Manager" and "Trustees and
Officers."
SHARES OF BENEFICIAL INTEREST. The Trust's Declaration of Trust permits the
Trust to offer and sell an unlimited number of full and fractional shares of
beneficial interest in each of the Trust's existing funds and to create
additional funds. All shares have a par value of $.10 per share, are fully paid,
non-assessable and fully transferable when issued. All shares are issued as full
or fractional shares.
A fraction of a share has the same rights and privileges as a full share.
Each fund of the Trust will issue its own series of shares of beneficial
interest. The shares of each fund represent an interest only in that fund's
assets (and profits or losses) and in the event of liquidation, each share of a
particular fund would have the same rights to dividends and assets as every
other share of that fund.
Each full or fractional share has a proportionate vote. On some issues,
such as the election of Trustees, all shares of the Trust vote together as one
series. On an issue affecting a particular fund, only its shares vote as a
separate series. An example of such an issue would be a fundamental investment
restriction pertaining to only one fund. In voting on a Distribution Plan,
approval of the Plan by the shareholders of a particular fund would make the
Plan effective as to that fund, whether or not it had been approved by the
shareholders of the other funds.
Shares are fully paid and nonassessable. Shares have no preemptive or
conversion rights. The Trust or any fund may be terminated upon the sale of its
assets to another open-end management investment company, if approved by vote of
the holders of a majority of the Trust or the fund, as determined by the current
value of each shareholder's investment in the fund or Trust, or upon liquidation
and distribution of its assets, if approved by a majority of the Trustees of the
Trust. If not so terminated, the Trust and the fund will continue indefinitely.
2
<PAGE>
TRUSTEE LIABILITY. The Declaration of Trust provides that the Trustees, if
they have exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the Declaration of Trust protects Trustees against
any liability to which they would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of their office.
VOTING RIGHTS. When matters are submitted for shareholder vote,
shareholders of each fund will have one vote for each full share held and
proportionate, fractional votes for fractional shares held. A separate vote of a
fund is required on any matter affecting the fund on which shareholders are
entitled to vote. Shareholders of one fund are not entitled to vote on a matter
that does not affect that fund but that does require a separate vote of any
other fund. There normally will be no meetings of shareholders for the purpose
of electing Trustees unless and until such time as less than a majority of
Trustees holding office have been elected by shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
Trustees. Any Trustee may be removed from office upon the vote of shareholders
holding at least two-thirds of the Trust's outstanding shares at a meeting
called for that purpose. The Trustees are required to call such a meeting upon
the written request of shareholders holding at least 10% of the Trust's
outstanding shares. Shareholders have under certain circumstances (e.g., upon
application and submission of certain specified documents to the Trustees of a
fund by a specified number of shareholders) the right to communicate with other
shareholders in connection with requesting a meeting of shareholders for the
purpose of removing one or more Trustees.
INVESTMENT POLICIES AND RELATED MATTERS
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted whenever an investment policy or limitation
states a maximum percentage of the Fund's assets that may be invested in any
security or other asset, or sets forth a policy regarding quality standards,
such standard or percentage limitation will be determined immediately after and
as a result of the Fund's acquisition of such security or other asset.
Accordingly any subsequent change in net asset values or other circumstances
will not be considered when determining whether the investment complies with the
Fund's investment policies and limitations.
The Fund's fundamental investment limitations cannot be changed without
approval by a majority of the outstanding voting securities (as defined in the
Investment Company Act of 1940) of the Fund. However, except for the fundamental
investment limitations set forth below, the investment policies and limitations
described in this Statement of Additional Information are not fundamental and
may be changed by the Trustees without shareholder approval. THE FOLLOWING ARE
THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE
FUND MAY NOT
3
<PAGE>
(1) with respect to 75% of the Fund's total assets, purchase the securities
of any issuer (other than obligations issued or guaranteed by the government of
the United States or any of its agencies or instrumentalities or the securities
of other investment companies if otherwise permitted) if, as a result thereof,
(a) more than 5% of the Fund's total assets would be invested in the securities
of such issuer or (b) the Fund would hold more than 10% of the voting securities
of such issuer;
(2) issue senior securities except as permitted under the Investment
Company Act of 1940;
(3) borrow money except that the Fund may borrow money from banks,
broker-dealers and other institutions in an amount not exceeding 33-1/3% of its
total assets (including the amount borrowed) less liabilities (other than
borrowings);
(4) underwrite securities issued by others (except to the extent that the
Fund may be deemed to be an underwriter within the meaning of the Securities Act
of 1933 in the disposition of restricted securities);
(5) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the Fund from
investing in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business);
(6) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Fund from purchasing or selling options and futures contracts or from investing
in securities or other instruments backed by physical commodities); or
(7) lend any security or make any other loan if as a result more than
33-1/3% of its total assets would be lent to other parties but this limitation
does not apply to purchases of debt securities or to repurchase agreements.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) The Fund does not currently intend to sell securities short unless it
owns or has the right to obtain securities equivalent in kind and amount to the
securities sold short and provided that transactions in options are not deemed
to constitute selling securities short.
(ii) The Fund does not currently intend to purchase any security if as a
result more than 15% of its net assets would be invested in securities that are
deemed to be illiquid because they are subject to legal or contractual
restrictions on resale or because they cannot be sold or disposed of in the
ordinary course of business at approximately the prices at which they are valued
including repurchase agreements with remaining maturities in excess of seven
days or securities without readily available market quotes.
4
<PAGE>
(iii) The Fund does not currently intend to purchase the securities of any
issuer (other than securities issued or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a result, more than 25% of
its total assets would be invested in the securities of business enterprises
that, including predecessors, have a record of less than three years of
continuous operation.
(iv) The Fund does not currently intend to purchase warrants, valued at the
lower of cost or market, in excess of 5% of the Fund's net assets. Included in
that amount, but not to exceed 2% of the Fund's net assets, may be warrants that
are not listed on the New York Stock Exchange or the American Stock Exchange.
Warrants acquired by the Fund in units or attached to securities are not subject
to these restrictions.
(v) The Fund does not currently intend to invest in oil, gas, or other
mineral exploration or development programs or leases.
(vi) The Fund does not currently intend to purchase the securities of any
issuer if those officers and Trustees of the Trust and those officers and
directors of the Manager who individually own more than 1/2 of 1% of the
securities of such issuer, together own more than 5% of such issuer's
securities.
For the Fund's limitations on options transactions, see the section
entitled "Limitations on Options Transactions" herein. For the Fund's
limitations on short sales, see the section entitled "Short Sales" herein.
MONEY MARKET INSTRUMENTS. When investing in U.S. money market instruments,
the Fund will limit its purchases, denominated in U.S. dollars, to the following
securities.
* U.S. Government Securities and Securities of its Agencies and
Instrumentalities - obligations issued or guaranteed as to principal
or interest by the United States or its agencies (such as the Export
Import Bank of the United States, Federal Housing Administration, and
Government National Mortgage Association) or its instrumentalities
(such as the Federal Home Loan Bank, Federal Intermediate Credit Banks
and Federal Land Bank), including Treasury bills, notes and bonds.
* Bank Obligations and Instruments Secured Thereby - obligations
including certificates of deposit, time deposits and bankers'
acceptances) of domestic banks having total assets of $1,000,000,000
or more, instruments secured by such obligations and obligations of
foreign branches of such banks, if the domestic parent bank is
unconditionally liable to make payment on the instrument if the
foreign branch fails to make payment for any reason. The Fund may also
invest in obligations (including certificates of deposit and bankers
acceptances) of domestic branches of foreign banks having assets of
$1,000,000,000 or more if the domestic branch is subject to the same
regulation as United States banks. The Fund will not invest at time of
purchase more than 25% of its assets in obligations of banks nor will
the Fund invest more than 10% of its assets in time deposits. * High
5
<PAGE>
Quality Commercial Paper - The Fund may invest in commercial paper
rated no lower than A-2 by Standard & Poor's Corporation or Prime-2 by
Moody's Investors Services Inc. or if not rated issued by a company
having an outstanding debt issue rated at least A by Standard & Poor's
or Moody's.
* Private Placement Commercial Paper - Private placement commercial
paper consists of unregistered securities which are traded in public
markets to qualified institutional investors such as the Fund. The
Fund's risk is that the universe of potential buyers for the
securities should the Fund desire to liquidate a position is limited
to qualified dealers and institutions and therefore such securities
could have the effect of being illiquid.
* High Grade Corporate Obligations - obligations rated at least A by
Standard & Poor's or Moody's. See rating information below.
* Repurchase Agreements -- See Repurchase Agreements below.
The Adviser exercises due care in the selection of money market
instruments. However, there is a risk that the issuers of the securities may not
be able to meet their obligations to pay interest or principal when due. There
is also a risk that some of the Fund's securities might have to be liquidated
prior to maturity at a price less than original amortized cost or value face
amount or maturity value to meet larger than expected redemptions. Any of these
risks if encountered could cause a reduction in net income or in the net asset
value of the Fund.
RATINGS
1. Moody's Investors Services Inc.'s Corporate Bond Rating:
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins or
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
6
<PAGE>
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length or time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
2. Standard and Poor s Corporation's Corporate Bond Rating:
AAA- Bonds rated AAA are highest grade obligations. They possess the
ultimate degree of protection as to principal and interest. Marketwise they move
with interest rates and hence provide the maximum safety on all counts.
AA - Bonds rated AA also qualify as high grade obligations and in the
majority of instances differ from AAA issues only in small degree. Here too
prices move with the long-term money market.
A - Bonds rated A are regarded as upper medium grade. They have
considerable investment strength but are not entirely free from the adverse
effect of changes in economic and trade conditions. Interest and principal are
regarded as safe. They predominantly reflect money rates in their market
behavior but to some extent also economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
3. A-1 and P-1 Commercial Paper Ratings:
Commercial paper rated A-1 by Standard & Poor's Corporation ("S&P") has the
following characteristics: Liquidity ratios are adequate to meet cash
requirements. Long-term senior debt is rated A or better. The issuer has access
to at least two additional channels of borrowing. Basic earnings and cash flow
have an upward trend. Typically the issuer's industry is well established and
the issuer has a strong position within the industry. The reliability and
quality of management are unquestioned. Relative strength or weakness of the
above factors determines whether the issuer's commercial paper is A-1 A-2 or
A-3.
The rating P-1 is the highest commercial paper rating assigned by Moody's
Investors Service Inc. ("Moody's"). Among the factors considered by Moody's in
assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend
of earnings over a period of ten years; (7) financial strength of a parent
company and the relationships which exist with the issuer; and (8) recognition
7
<PAGE>
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations.
4. Description of Permitted Money Market Investments:
Commercial Paper - refers to promissory notes issued by corporations in
order to finance their short term credit needs.
U.S. Government Obligations - are bills, certificates of indebtedness,
notes and bonds issued by the U.S. Treasury and agencies, authorities and
instrumentalities of the U.S. Government established under the authority of an
act of Congress. Some obligations of U.S. Government agencies, authorities and
instrumentalities are supported by the full faith and credit of the U.S.
Treasury, as for example, the Government National Mortgage Association; others
by the right of the issuer to borrow from the Treasury, as in the case of
Federal Farm Credit Banks and Federal National Mortgage Association; and others
only by the credit of the agency authority or instrumentality; as for example,
Federal Home Loan Mortgage and Federal Home Loan Bank.
Repurchase Agreements - See Repurchase Agreements below.
Certificates of Deposit - are certificates issued against funds deposited
in a bank are for a definite period of time earn a specified or variable rate of
return and are normally negotiable.
Banker's Acceptances - are short-term credit instruments used to finance
the import, export, transfer or storage of goods. They are termed accepted when
a bank guarantees their payment at maturity.
Corporate Obligations - include bonds and notes issued by corporations in
order to finance longer term credit needs.
COMMON AND PREFERRED STOCKS. Stocks represent shares of ownership in a
company. Generally, preferred stock has a specified dividend and ranks after
bonds and before common stock in its claim on income for dividend payments and
on assets if the company is liquidated. After other claims are satisfied, common
stockholders participate in company profits on a pro rata basis; profits may be
paid out in dividends or reinvested in the company to help it grow. Increases
and decreases in earnings are usually reflected in a company's stock price, so
common stocks generally have the greatest appreciation and depreciation
potential of all corporate securities. While most preferred stocks pay a
dividend, the Fund may purchase preferred stock where the issuer has omitted, or
is in danger of omitting, payment of its dividend. Such investments would be
made primarily for their capital appreciation potential.
CONVERTIBLE SECURITIES AND WARRANTS. The Fund may invest in debt or
preferred equity securities convertible into or exchangeable for equity
securities. Traditionally, convertible securities have paid dividends or
8
<PAGE>
interest at rates higher than common stocks but lower than non-convertible
securities. They generally participate in the appreciation or depreciation of
the underlying stock into which they are convertible, but to a lesser degree. In
recent years, convertibles have been developed which combine higher or lower
current income with options and other features. Warrants are options to buy a
stated number of shares of common stock at a specified price any time during the
life of the warrants (generally, two or more years).
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they are
valued. Under the supervision of the Board of Trustees, the Adviser determines
the liquidity of the Fund's investments and through reports from the Adviser,
the Board monitors investments in illiquid instruments. In determining the
liquidity of the Fund's investments the Adviser may consider various factors
including (1) the frequency of trades and quotations, (2) the number of dealers
and prospective purchasers in the marketplace, (3) dealer undertakings to make a
market, (4) the nature of the security (including any demand or tender
features), and (5) the nature of the marketplace for trades (including the
ability to assign or offset the Fund's rights and obligations relating to the
investment). Investments currently considered by the Fund to be illiquid include
repurchase agreements not entitling the holder to payment of principal and
interest within seven days and over-the-counter options. However, with respect
to over-the-counter options the Fund writes, all or a portion of the value of
the underlying instrument may be illiquid depending on the assets held to cover
the option and the nature and terms of any agreement the Fund may have to close
out the option before expiration. In the absence of market quotations, illiquid
investments are priced at fair value as determined in good faith by the Board of
Trustees. If through a change in values, net assets or other circumstances, the
Fund were in a position where more than 15% of its net assets were invested in
illiquid securities, it would seek to take appropriate steps to protect
liquidity.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions pursuant to an exemption from registration under the Securities Act
of 1933 or in a registered public offering. 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 it decides to seek registration
and the time the Fund may be permitted to sell a security 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 prevailed when it
decided to seek registration of the security.
REPURCHASE AGREEMENTS. For temporary defensive purposes and for cash
management purposes, the Fund may enter into repurchase agreements with U.S.
banks and broker-dealers. A repurchase agreement involves the obligation of the
seller to pay the agreed upon price which obligation is in effect secured by the
value (at least equal to the amount of the agreed upon resale price and marked
to market daily) of the underlying security. Under a repurchase agreement, the
Fund acquires a security from a U.S. bank or a registered broker-dealer who
simultaneously agrees to repurchase the security at a specified time and price.
The repurchase price is in excess of the purchase price by an amount which
reflects an agreed-upon rate of return, which is not tied to the coupon rate on
the underlying security.
9
<PAGE>
Under the 1940 Act, repurchase agreements are considered to be loans
collateralized by the underlying security and therefore will be fully
collateralized. However, if the seller should default on its obligation to
repurchase the underlying security, the Fund may experience delay or difficulty
in exercising its rights to realize upon the security and might incur a loss if
the value of the security declines, as well as incur disposition costs in
liquidating the security.
The Fund may engage in repurchase agreements with respect to any security
in which it is authorized to invest.
While it does not presently appear possible to eliminate all risks from
these transactions (particularly the possibility of a decline in the market
value of the underlying securities, as well as delays and costs to the Fund in
connection with bankruptcy proceedings), it is the Fund's current policy to
limit repurchase agreement transactions to parties whose creditworthiness has
been reviewed and found satisfactory by the Adviser.
BORROWING. As a fundamental policy, the Fund may borrow up to one-third of
the value of its total assets from banks, broker dealers or other institutions
to increase its holdings of portfolio securities. Under the Investment Company
Act of 1940, the Fund is required to maintain continuous asset coverage of 300%
with respect to such borrowings and to sell (within three days) sufficient
portfolio holdings to restore such coverage if it should decline to less than
300% due to market fluctuations or otherwise, even if such liquidations of the
Fund's holdings may be disadvantageous from an investment standpoint. Leveraging
by means of borrowing may exaggerate the effect of any increase or decrease in
the value of portfolio securities on the Fund's net asset value, and money
borrowed will be subject to interest and other costs (which may include
commitment fees and/or the cost of maintaining minimum average balances), which
may or may not exceed the income or gains received from the securities purchased
with borrowed funds.
SECURITIES LENDING. The Fund may lend to broker-dealers portfolio
securities with an aggregate market value of up to one-third of its total assets
to generate income. Such loans must be secured by collateral (consisting of any
combination of cash, U.S. government securities or irrevocable letters of
credit) in an amount at least equal (on a daily market-to-market basis) to the
current market value of the securities loaned. The Fund may terminate the loans
at any time and obtain the return of the securities loaned within five business
days. The Fund will continue to receive any interest or dividends paid on the
loaned securities and will continue to retain any voting rights with respect to
the securities. In the event that the borrower defaults on its obligation to
return borrowed securities, because of insolvency or otherwise, the Fund could
experience delays and costs in gaining access to the collateral and could suffer
a loss to the extent that the value of the collateral falls below the market
value of the borrowed securities.
Securities lending allows the Fund to retain ownership of the securities
loaned and, at the same time, to earn additional income. Since there may be
delays in the recovery of loaned securities or even a loss of rights in
collateral supplied should the borrower fail financially, loans will be made
only to parties deemed by the Adviser to be of good standing. Furthermore, they
will only be made if in the Adviser's judgment the consideration to be earned
from such loans would justify the risk.
10
<PAGE>
The Adviser understands that it is the current view of the SEC Staff that
the Fund may engage in loan transactions only under the following conditions:
(1) the Fund must receive 100% collateral in the form of cash or cash
equivalents (e.g. U.S. Treasury bills or notes) from the borrower; (2) the
borrower must increase the collateral whenever the market value of the
securities loaned (determined on a daily basis) rises above the value of the
collateral; (3) after giving notice, the Fund must be able to terminate the loan
at any time; (4) the Fund must receive reasonable interest on the loan or a flat
fee from the borrower, as well as amounts equivalent to any dividends, interest
or other distributions on the securities loaned and to any increase in market
value; (5) the Fund may pay only reasonable custodian fees in connection with
the loan; and (6) the Board of Trustees must be able to vote proxies on the
securities loaned, either by terminating the loan or by entering into an
alternative arrangement with the borrower.
Cash received through loan transactions may be invested in any security in
which the Fund is authorized to invest. Investing this cash subjects that
investment as well as the security loaned to market forces (i.e. capital
appreciation or depreciation).
ADR'S. ADR's are depositary receipts typically issued by a U.S. bank or
trust company which evidence ownership of underlying securities issued by a
foreign corporation. Generally, depositary receipts in registered form are
designed for use in the U.S. securities market and depositary receipts in bearer
form are designed for use in securities markets outside the U.S. Depositary
receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. Depositary receipts may
be issued pursuant to sponsored or unsponsored programs. In sponsored programs,
an issuer has made arrangements to have its securities traded in the form of
depositary receipts. In unsponsored programs, the issuer may not be directly
involved in the creation of the program. Although regulatory requirements with
respect to sponsored and unsponsored programs are generally similar, in some
cases it may be easier to obtain financial information from an issuer that has
participated in the creation of a sponsored program. Accordingly, there may be
less information available regarding issuers of securities underlying
unsponsored programs and there may not be a correlation between such information
and the market value of the depositary receipts. Depositary receipts also
involve the risks of other investments in foreign securities, as discussed
herein. For purposes of the Fund's investment policies, the Fund's investments
in depositary receipts will be deemed to be investments in the underlying
securities.
Foreign investments can involve significant risks in addition to the risks
inherent in U.S. investments. The value of securities denominated in or indexed
to foreign currencies and of dividends and interest from such securities can
change significantly when foreign currencies strengthen or weaken relative to
the U.S. dollar. Foreign securities markets generally have less trading volume
and less liquidity than U.S. markets, and prices on some foreign markets can be
highly volatile.
11
<PAGE>
Many foreign countries lack uniform accounting and disclosure standards
comparable to those applicable to U.S. companies, and it may be more difficult
to obtain reliable information regarding an issuer's financial condition and
operations.
In addition, the costs of foreign investing, including withholding taxes,
brokerage commissions, and custodial costs, are generally higher than for U.S.
investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal rights
in foreign countries.
Investing abroad through ADR's also involves different political and
economic risks. Foreign investments may be affected by actions of foreign
governments adverse to the interests of U.S. investors, including the
possibility of expropriation or nationalization of assets, confiscatory
taxation, restrictions on U.S. investment or on the ability to repatriate assets
or convert currency into U.S. dollars, or other government intervention. There
may be a greater possibility of default by foreign governments or foreign
government-sponsored enterprises. Investments in foreign countries also involve
a risk of local political, economic, or social instability, military action or
unrest, or adverse diplomatic developments. There is no assurance that the
Adviser will be able to anticipate or counter these potential events.
The considerations noted above generally are intensified for investments in
developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities.
The Fund may invest in ADR's whose underlying foreign securities impose
restrictions on transfer within the U.S. or to U.S. persons. Although securities
subject to transfer restrictions may be marketable abroad, they may be less
liquid than foreign securities of the same class that are not subject to such
restrictions.
OPTIONS ON SECURITIES OR INDICES. The Fund may write (i.e., sell)
covered put and call options and purchase put and call options on securities or
securities indices that are traded on U.S. exchanges or in the over-the-counter
markets. An option on a security is a contract that permits the purchaser of the
option, in return for the premium paid, the right to buy a specified security
(in the case of a call option) or to sell a specified security (in the case of a
put option) from or to the writer of the option at a designated price during the
term of the option. An option on a securities index permits the purchaser of the
option, in return for the premium paid, the right to receive from the seller
cash equal to the difference between the closing price of the index and the
exercise price of the option. The Fund may write a call or put option to
generate income, and will do so only if the option is "covered." This means that
so long as the Fund is obligated as the writer of a call option, it will own the
underlying securities subject to the call, or hold a call at the same or lower
12
<PAGE>
exercise price, for the same exercise period, and on the same securities as the
written call. A put is covered if the Fund maintains liquid assets with a value
at least equal to the exercise price in a segregated account, or holds a put on
the same underlying securities at an equal or greater exercise price.
LIMITATIONS ON OPTIONS TRANSACTIONS. The Fund will not: (a) purchase put
options or write call options if, as a result, more than 50% of the Fund's total
assets would be hedged with options under normal conditions; (b) write put
options if, as a result, the Fund's total obligations upon settlement or
exercise of written put options would exceed 25% of its total assets; or (c)
purchase call options if, as a result, the current value of option premiums for
call options purchased by the Fund would exceed 5% of the Fund's total assets.
The value of the underlying securities on which options may be written at any
one time will not exceed 15% of the total assets of the Fund. These limitations
do not apply to options attached to or acquired or traded together with their
underlying securities, and do not apply to securities that incorporate features
similar to options. The above limitations on the Fund's investments in options
and the Fund's policies regarding options discussed elsewhere in this Statement
of Additional Information may be changed as regulatory agencies permit.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Fund
obtains the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the Fund pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments, including specific securities, indices
of securities prices and futures contracts. The Fund may terminate its position
in a put option it has purchased by allowing it to expire or by exercising the
option. If the option is allowed to expire, the Fund will lose the entire
premium it paid. If the Fund exercises the option, it completes the sale of the
underlying instrument at the strike price. The Fund may also terminate a put
option position by closing it out in the secondary market at its current price,
if a liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price does
not fall enough to offset the cost of purchasing the option, a put buyer can
expect to suffer a loss (limited to the amount of the premium paid, plus related
transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option s strike
price.
A call buyer typically attempts to participate in potential price increases
of the underlying instrument with risk limited to the cost of the option if
security prices fall. At the same time, the buyer can expect to suffer a loss if
security prices do not rise sufficiently to offset the cost of the option.
WRITING PUT AND CALL OPTIONS. When the Fund writes a put option, it takes
the opposite side of the transaction from the option's purchaser. In return for
receipt of the premium the Fund assumes the obligation to pay the strike price
for the option's underlying instrument if the other party to the option chooses
to exercise it. The Fund may seek to terminate its position in a put option it
13
<PAGE>
writes before exercise by closing out the option in the secondary market at its
current price. If the secondary market is not liquid for a put option the Fund
has written, however, the Fund must continue to be prepared to pay the strike
price while the option is outstanding, regardless of price changes and must
continue to set aside assets to cover its position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it received. If
security prices remain the same over time, it is likely that the writer will
also profit because it should be able to close out the option at a lower price.
If security prices fall, the put writer would expect to suffer a loss. This loss
should be less than the loss from purchasing the underlying instrument directly,
however, because the premium received for writing the option should mitigate the
effects of the decline.
Writing a call option obligates the Fund to sell or deliver the option's
underlying instrument in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
COMBINED POSITIONS. The Fund may purchase and write options in combination
with each other, to adjust the risk and return characteristics of the overall
position. For example, the Fund may purchase a put option and write a call
option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial price
increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange-traded options, it is likely that the standardized contracts
available will not match the Fund's current or anticipated investments exactly.
The Fund may invest in options based on securities with different issuers,
maturities or other characteristics from the securities in which it typically
invests, which involves a risk that the options will not track the performance
of the Fund's other investments.
Options prices can also diverge from the prices of their underlying
instruments even if the underlying instruments match the Fund's investments
well. Options prices are affected by such factors as current and anticipated
short-term interest rates, changes in volatility of the underlying instrument,
and the time remaining until expiration of the contract, which may not affect
security prices the same way. Imperfect correlation may also result from
differing levels of demand in the options and futures markets and the securities
markets, from structural differences in how options and securities are traded,
or from imposition of daily price fluctuation limits or trading halts.
14
<PAGE>
The Fund may purchase or sell options with a greater or lesser value than
the securities it wishes to hedge or intends to purchase in order to attempt to
compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price changes
in the Fund's options are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
LIQUIDITY OF OPTIONS. There is no assurance a liquid secondary market will
exist for any particular options at any particular time. Options may have
relatively low trading volume and liquidity if their strike prices are not close
to the underlying instrument's current price. In addition, exchanges may
establish daily price fluctuation limits for options. On volatile trading days
when a trading halt is imposed, it may be impossible for the Fund to enter into
new positions or close out existing positions. If the secondary market for a
contract is not liquid because of price fluctuation limits or otherwise, it
could prevent prompt liquidation of unfavorable positions, and potentially could
require the Fund to continue to hold a position until delivery or expiration
regardless of changes in its value. As a result, the Fund's access to other
assets held to cover its options could also be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and strike
price, the terms of over-the-counter options (options not traded on exchanges)
generally are established through negotiation with the other party to the option
contract. While this type of arrangement allows the Fund greater flexibility to
tailor an option to its needs, OTC options generally involve greater credit risk
than exchange-traded options, which are guaranteed by the clearing organization
of the exchanges where they are traded.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The Fund will comply with
guidelines established by the SEC with respect to coverage of options by mutual
funds, and if the guidelines so require, will set aside appropriate liquid
assets in a segregated custodial account in the amount prescribed. Securities
held in a segregated account cannot be sold while the option strategy is
outstanding, unless they are replaced with other suitable assets. As a result,
there is a possibility that segregation of a large percentage of the Fund's
assets could impede portfolio management or the Fund's ability to meet
redemption requests or other current obligations.
SHORT SALES. The Fund may enter into short sales "against the box" with
respect to stocks it owns or has the right to obtain. For example, if the
Adviser anticipates a decline in the price of a stock it owns or has the right
to obtain, it may sell the stock short "against the box" by borrowing the stock
from a broker and then selling the borrowed stock. The Fund is then obligated to
replace the borrowed stock, but is able to close the open short position by
making delivery of the stock it owns or has the right to obtain. If the stock
price subsequently declines, the proceeds of the short sale could be expected to
offset all or a portion of the effect of the stock's decline. The Fund currently
intends to hedge no more than [15%] of its total assets with short sales on
equity securities under normal circumstances.
15
<PAGE>
When the Fund enters into a short sale, it will be required to set aside
securities equivalent in kind and amount to those sold short (or securities
convertible or exchangeable into such securities) and will be required to
continue to hold them while the short sale is outstanding. The Fund will incur
transaction costs, including interest expense, in connection with opening,
maintaining, and closing short sales.
PORTFOLIO TURNOVER. The portfolio turnover rate is calculated by dividing
the lesser of sales or purchases of portfolio securities by the average monthly
value of the Fund's securities, excluding securities having a maturity at the
date of purchase of one year or less.
High transaction costs could result when compared with other funds. High
portfolio turnover may involve correspondingly greater brokerage commissions and
other transaction costs which will be borne directly by the Fund. Trading may
also result in realization of net short-term capital gains upon which
shareholders may be taxed at ordinary tax rates when distributed from the Fund.
RISK CONSIDERATIONS
As with any investment in securities, the value of, and income from, an
investment in the Fund can decrease as well as increase, depending on a variety
of factors which may affect the values and income generated by the Fund's
portfolio securities, including general economic conditions and market factors.
In addition to the factors which affect the value of individual securities, you
may anticipate that the value of the shares of the Fund will fluctuate with
movements in the broader equity markets. History reflects both decreases and
increases in the stock market and these may occur unpredictably in the future.
Additionally, investment decisions made by the Adviser will not always be
profitable or prove to have been correct. The Fund is not intended as a complete
investment program.
Leveraging by means of borrowing may exaggerate the effect of any increase
or decrease in the value of portfolio securities on the Fund's net asset value,
and money borrowed will be subject to interest and other costs (which may
include commitment fees and/or the cost of maintaining minimum average balances)
which may or may not exceed the income or gains received from the securities
purchased with borrowed funds.
Use of options is subject to special risk considerations. A liquid
secondary market for any options contract may not be available when an options
position is sought to be closed. In addition, there may be an imperfect
correlation between movements in the securities on which the options contract is
based and movements in the securities currency in the Fund's portfolio. Use of
options contracts is further dependent on the Adviser's ability to correctly
predict movements in the securities markets and no assurance can be given that
its judgment will be correct. Successful use of options on securities or
securities indices is subject to similar risk considerations. In addition, by
writing covered call options, the Fund gives up the opportunity, while the
option is in effect, to profit from any price increase in the underlying
security above the option exercise price.
16
<PAGE>
There are further risk factors, including possible losses through the
holding of securities in domestic custodian banks and depositories, described
elsewhere in this Statement of Additional Information.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of the Fund by the Adviser pursuant to authority contained in the
investment advisory agreement and investment subadvisory agreement. The Adviser
is also responsible for the placement of transaction orders for accounts for
which it or its affiliates act as investment adviser. In selecting
broker-dealers, subject to applicable limitations of the federal securities
laws, the Adviser considers various relevant factors, including, but not limited
to, the size and type of the transaction; the nature and character of the
markets for the security to be purchased or sold; the execution efficiency,
settlement capability, and financial condition of the broker-dealer firm; the
broker-dealer's execution services rendered on a continuing basis; the
reasonableness of any commissions; and arrangements for payment of Fund
expenses.
The Fund may execute portfolio transactions with broker-dealers who provide
research and execution services to the Fund or other accounts over which the
Adviser or its affiliates exercise investment discretion. Such services may
include advice concerning the value of securities; the advisability of investing
in purchasing or selling securities; the availability of securities or the
purchasers or sellers of securities; furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio
strategy, and performance of accounts; and effecting securities transactions and
performing functions incidental thereto (such as clearance and settlement). The
selection of such broker-dealers generally is made by the Adviser (to the extent
possible consistent with execution considerations) in accordance with a ranking
of broker-dealers determined periodically by the Adviser's investment staff
based upon the quality of research and execution services provided.
The receipt of research from broker-dealers that execute transactions on
behalf of the Fund may be useful to the Adviser in rendering investment
management services to the Fund or the Adviser's other clients, and conversely,
such research provided by broker-dealers who have executed transaction orders on
behalf of other Adviser clients may be useful to the Adviser in carrying out its
obligations to the Fund. The receipt of such research is not expected to reduce
the Adviser's normal independent research activities; however, it enables the
Adviser to avoid the additional expenses that could be incurred if the Adviser
tried to develop comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause the Fund
to pay such higher commissions, the Adviser must determine in good faith that
such commissions are reasonable in relation to the value of the brokerage and
research services provided by such executing broker-dealers, viewed in terms of
a particular transaction or the Adviser's overall responsibilities to the Fund
17
<PAGE>
and its other clients. In reaching this determination, the Adviser will not
attempt to place a specific dollar value on the brokerage and research services
provided or to determine what portion of the compensation should be related to
those services.
The Adviser is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided assistance in the
distribution of shares of the Fund to the extent permitted by law.
The Adviser may allocate brokerage transactions to broker-dealers who have
entered into arrangements with the Adviser under which the broker-dealer
allocates a portion of the commissions paid by the Fund toward payment of the
Fund's expenses, such as transfer agent fees of Mutual Funds Service Co. or
custodian fees. The transaction quality must, however, be comparable to those of
other qualified broker-dealers.
The Trustees periodically review the Adviser's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Fund and review the commissions paid by the Fund over
representative periods of time to determine if they are reasonable in relation
to the benefits to the Fund.
From time to time, the Trustees will review whether the recapture for the
benefit of the Fund of some portion of the brokerage commissions or similar fees
paid by the Fund on portfolio transactions is legally permissible and advisable.
The Fund seeks to recapture soliciting broker-dealer fees on the tender of
portfolio securities, but at present no other recapture arrangements are in
effect. The Trustees intend to continue to review whether recapture
opportunities are available and are legally permissible and, if so, to determine
in the exercise of their business judgment, whether it would be advisable for
the Fund to seek such recapture.
The Fund may effect transactions in its portfolio securities on securities
exchanges on a non-exclusive basis through Creative Capital Management Corp.,
the distributor of the Fund's shares and an affiliate of the Adviser (the
"Distributor"), in its capacity as a broker-dealer.
VALUATION OF PORTFOLIO SECURITIES
Portfolio securities are valued by various methods depending on the primary
market or exchange on which they trade. Equity securities are valued at last
sale price or, if no sale has occurred, at the closing bid price. If the last
sale price (on the local exchange) is unavailable, the last evaluated quote or
last bid price is normally used. Short-term securities are valued either at
amortized cost or at original cost plus accrued interest, both of which
approximate current value.
Securities and other assets for which there is no readily available market
are valued in good faith by the Board of Trustees. The procedures set forth
above need not be used to determine the value of the securities owned by the
18
<PAGE>
Fund if, in the opinion of the Board of Trustees, some other method (e.g.,
closing over-the-counter bid prices in the case of debt instruments traded on an
exchange) would more accurately reflect the fair market value of such
securities.
Generally, the valuation of domestic equity securities, as well as
corporate bonds, U.S. government securities, money market instruments, and
repurchase agreements, is substantially completed each day at the close of the
New York Stock Exchange (NYSE).
The values of any such securities held by the Fund are determined as of
such time for the purpose of computing the Fund's net asset value. If an
extraordinary event that is expected to materially affect the value of a
portfolio security occurs after the close of an exchange on which that security
is traded, then the security will be valued as determined in good faith by the
Board of Trustees.
PERFORMANCE
The Fund's performance may be used from time to time in advertisements,
shareholder reports or other communications to shareholders or prospective
shareholders. Performance information may include the Fund's investment results
and/or comparisons of its investment results to various unmanaged indices or
results of other mutual funds or investment or savings vehicles. All performance
information supplied by the Fund in advertising is historical and is not
intended to indicate future returns. The Fund's share price and total returns
fluctuate in response to market conditions and other factors, and the value of
Fund shares when redeemed may be more or less than their original cost.
TOTAL RETURN CALCULATIONS. The Fund may provide period and average
annualized "total return" quotations. The Fund's "total return" refers to the
change in the value of an investment in the Fund over a stated period based on
any change in net asset value per share and including the value of any shares
purchasable with any dividends or capital gains distributed during such period.
Period total return may be annualized. Average annual total return smoothes out
variations in performance and takes into account any applicable initial or
contingent deferred sales charges.
Total returns quoted in advertising reflect all aspects of the Fund's
return, including the effect of reinvesting dividends and capital gain
distributions, and any change in the Fund's net asset value over the period.
Average annual returns will be calculated by determining the growth or decline
in value of a hypothetical historical investment in the Fund over a stated
period, and then calculating the annually compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant over the period. While average annual returns are a convenient means of
comparing investment alternatives, investors should realize that the Fund's
performance is not constant over time but changes from year to year and that
average annual returns represent averaged figures as opposed to the actual
year-to-year performance of the Fund.
19
<PAGE>
In addition to average annual returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount, and may be calculated for a single
investment, a series of investments or series of redemptions over any time
period. Total returns may be broken down into their components of income and
capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns may be quoted on a before-tax or after-tax basis. Total
returns yields and other performance information may be quoted numerically, or
in a table graph, or similar illustration.
Total return is computed by finding the average annual compounded rates of
return over the length of the base periods that would equate the initial amount
invested to the ending redeemable value according to the following formula:
P(1+T)(to the nth power) = ERV
P = initial investment of $1,000
T = average annual total return
n = Number of years
ERV = ending redeemable value at the end of the base period
NET ASSET VALUE. Charts and graphs using the Fund's net asset values,
adjusted net asset values, and benchmark indices may be used to exhibit
performance. An adjusted net asset value includes any distributions paid by the
Fund and reflects all elements of its return. Unless otherwise indicated, the
Fund's adjusted net asset values are not adjusted for sales charges, if any.
MOVING AVERAGES. The Fund may illustrate performance using moving averages.
A long-term moving average is the average of each week's adjusted closing net
asset value for a specified period. A short-term moving average is the average
of each day's adjusted closing net asset value for a specified period. Moving
Average Activity Indicators combine adjusted closing net asset values from the
last business day of each week with moving averages for a specified period to
produce indicators showing when a net asset value has crossed, stayed above, or
stayed below its moving average.
HISTORICAL FUND RESULTS. The Fund's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed as mutual
fund rankings prepared by Lipper Analytical Services, Inc. (Lipper), an
independent service located in Summit, New Jersey that monitors the performance
of mutual funds. Lipper generally ranks funds on the basis of total return,
assuming reinvestment of distributions, but does not take sales charges or
redemption fees into consideration, and total return is prepared without regard
to tax consequences. In addition to the mutual fund rankings, the Fund's
performance may be compared to mutual fund performance indices prepared by
Lipper.
From time to time, the Fund's performance may also be compared to other
mutual funds tracked by financial or business publications and periodicals. For
example, the Fund may quote Morningstar, Inc. in its advertising materials.
20
<PAGE>
Morningstar, Inc. is a mutual fund rating service that rates mutual funds on the
basis of risk-adjusted performance.
In advertising materials, the Trust may reference or discuss its products
and services, which may include: retirement investing; the effects of periodic
investment plans and dollar cost averaging; saving for college; and charitable
giving. In addition, the Fund may quote financial or business publications and
periodicals, including model portfolios or allocations, as they relate to Fund
management, investment philosophy, and investment techniques.
VOLATILITY. The Fund may quote various measures of volatility and benchmark
correlation in advertising. In addition, the Fund may compare these measures to
those of other funds. Measures of volatility seek to compare the Fund's
historical share price fluctuations or total returns to those of a benchmark.
Measures of benchmark correlation indicate how valid a comparative benchmark may
be. All measures of volatility and correlation are calculated using averages of
historical data.
MOMENTUM INDICATORS indicate the Fund's price movements over specific
periods of time. Each point on the momentum indicator represents the Fund's
percentage change in price movements over that period.
The Fund may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a Fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against loss in a
declining market, the investor's average cost per share can be lower than if
fixed numbers of shares are purchased at the same intervals. In evaluating such
a plan, investors should consider their ability to continue purchasing shares
during periods of low price levels.
The Fund may be available for purchase through retirement plans or other
programs offering deferral of, or exemption from, income taxes, which may
produce superior after-tax returns over time. For example, a $1,000 investment
earning a taxable return of 10% annually would have an after-tax value of $1,949
after ten years, assuming tax was deducted from the return each year at a 31%
rate. An equivalent tax-deferred investment would have an after-tax value of
$2,100 after ten years, assuming tax was deducted at a 31% rate from the
tax-deferred earnings at the end of the ten-year period.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Fund is open for business and its net asset value per share (NAV) is
calculated each day the NYSE is open for trading. The NYSE has designated the
following holiday closings: New Year's Day, Martin Luther King Day (observed),
Washington's Birthday (observed), Good Friday, Memorial Day (observed),
Independence Day (observed), Labor Day, Thanksgiving Day, and Christmas Day
(observed). The NYSE may modify its holiday schedule at any time.
21
<PAGE>
The Fund's net asset value is determined as of 4:00 p.m. Eastern time.
If the Trustees determine that existing conditions make cash payment
undesirable, redemption payments may be made in whole or in part in securities
or other property, valued for this purpose as they are valued in computing the
Fund's NAV. Shareholders receiving securities or other property on redemption
may realize a gain or loss for tax purposes, and will incur any costs of sale,
as well as the associated inconveniences.
RIGHTS OF ACCUMULATION. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of related
investors, as described below, may aggregate the value of their existing
holdings of shares of the Fund to determine the reduced sales charge. The value
of existing holdings for purposes of determining the reduced sales charge is
calculated using the maximum offering price (net asset value plus maximum sales
charge) as of the previous business day. See "How Net Asset Value is Determined"
in the Prospectus. The Transfer Agent must be notified at the time of purchase
that the investor is entitled to a reduced sales charge. The reduced sales
charges will be granted subject to confirmation of the investor's holdings.
An eligible group of related Fund investors includes any combination of the
following:
(a) an individual;
(b) the individual's spouse, their children and their parents;
(c) the individual's Individual Retirement Account (IRA);
(d) any company controlled by the individual (a person, entity or
group that holds 25% or more of the outstanding voting securities
of a corporation will be deemed to control the corporation, and a
partnership will be deemed to be controlled by each of its
general partners);
(e) a trust created by the individual, the beneficiaries of which are
the individual, his or her spouse, parents or children;
(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act
account created by the individual or the individual's spouse; and
(g) one or more employee benefit plans of a company controlled by an
individual.
LETTERS OF INTENT. Reduced sales charges are also available to investors
(or an eligible group of related investors) who enter into a written Letter of
Intent providing for the purchase, within a thirteen-month period, of shares of
the Fund. All shares of the Fund which were previously purchased and are still
owned are also included in determining the applicable reduction. The Transfer
Agent must be notified at the time of purchase that the investor is entitled to
22
<PAGE>
a reduced sales charge. The reduced sales charges will be granted subject to
confirmation of the investor's holdings.
A Letter of Intent permits a purchase to establish a total investment goal
to be achieved by any number of investments over a thirteen-month period. Each
investment made during the period will receive the reduced sales charge
applicable to the amount represented by the goal, as if it were a single
investment. Shares totaling 5% of the dollar amount of the Letter of Intent will
be held by the Transfer Agent in escrow in the name of the purchaser. The
effective date of a Letter of Intent may be back-dated up to 90 days, in order
that any investments made during this 90-day period, valued at the purchaser's
cost, can be applied to the fulfillment of the Letter of Intent goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the purchaser is required to pay
the difference between the sales charge otherwise applicable to the purchases
made during this period and sales charges actually paid. Such payment may be
made directly to the Transfer Agent or, if not paid, the Transfer Agent will
liquidate sufficient escrowed shares to obtain such difference. If the goal is
exceeded in an amount which qualifies for a lower sales charge, a price
adjustment is made by refunding to the purchaser the amount of excess sales
charge, if any, paid during the thirteen-month period. Investors electing to
purchase shares of the Fund pursuant to a Letter of Intent should carefully read
such Letter of Intent.
AUTOMATIC ACCOUNT BUILDER. An investor may arrange to have a fixed amount
of $100 or more automatically invested in shares of the Fund monthly by
authorizing his or her bank account to be debited to invest specified dollar
amounts in shares of the Fund. The investor's bank must be a member of the
Automatic Clearing House System.
Further information about these programs and an application form can be
obtained from the Fund's Transfer Agent.
SYSTEMATIC WITHDRAWAL PROGRAM. A systematic withdrawal plan is available
for shareholders having shares of the Fund with a minimum value of $10,000,
based upon the offering price. The plan provides for monthly, quarterly or
annual checks in any amount, but not less than $100 (which amount is not
necessarily recommended).
Dividends and/or distributions on shares held under this plan are invested
in additional full and fractional shares at net asset value. See "Shareholder
Investment Account - Automatic Reinvestment of Dividends and/or Distributions"
above. The Transfer Agent acts as agent for the shareholder in redeeming
sufficient full and fractional shares to provide the amount of the periodic
withdrawal payment. The plan may be terminated at any time.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
23
<PAGE>
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be recognized for federal income tax purposes. In
addition, withdrawals made concurrently with purchases of additional shares are
inadvisable because of the applicable sales charges to the purchase of shares.
Each shareholder should consult his or her own tax adviser with regard to the
tax consequences of the plan, particularly if used in connection with a
retirement plan.
DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. The Fund's dividends, if any,
will be declared payable to shareholders on at least an annual basis. In
December, the Fund may distribute an additional ordinary income dividend
(consisting of net short-term capital gains and undistributed income) in order
to preserve its status as a registered investment company (mutual fund) under
the Internal Revenue Code. Net long-term capital gains, if any, also are
declared and distributed in December.
A portion of the Fund's dividends derived from certain U.S. government
obligations may be exempt from state and local taxation. Gains (losses)
attributable to foreign currency fluctuations are generally taxable as ordinary
income and therefore will increase (decrease) dividend distributions. The Fund
will send each shareholder a notice in January describing the tax status of
dividends and capital gain distributions for the prior year.
Long-term capital gains earned by the Fund on the sale of securities and
distributed to shareholders of the Fund are federally taxable as long-term
capital gains regardless of the length of time shareholders have held their
shares. If a shareholder receives a long-term capital gain distribution on
shares of the Fund and such shares are held six months or less and are sold at a
loss, the portion of the loss equal to the amount of the long-term capital gain
distribution will be considered a long-term loss for tax purposes.
Short-term capital gains distributed by the Fund are taxable to
shareholders as dividends not as capital gains. Distributions from short-term
capital gains do not qualify for the dividends-received deduction.
If you request to have distributions mailed to you and the U.S. Postal
Service cannot deliver your checks, or if your checks remain uncashed for six
months, the Adviser may reinvest your distributions at the then-current NAV. All
subsequent distributions will then be reinvested until you provide the Adviser
with alternate instructions.
TAX STATUS OF THE FUND. The Trust files federal income tax returns for the
Fund.
The Fund intends to qualify each year as a "regulated investment company"
for tax purposes so that it will not be liable for federal tax on income and
capital gains distributed to shareholders. In order to qualify as a regulated
investment company and avoid being subject to federal income or excise taxes at
the Fund level, the Fund intends to distribute substantially all of its net
investment income and net realized capital gains within each calendar year as
well as on a fiscal year basis. The Fund might deviate from this policy, and
24
<PAGE>
incur a tax liability, if this were necessary to fully protect shareholder
values. The Fund intends to comply with other tax rules applicable to regulated
investment companies.
OTHER TAX INFORMATION. The information above is only a summary of some of
the tax consequences generally affecting the Fund and its shareholders, and no
attempt has been made to discuss individual tax consequences. In addition to
federal income taxes, shareholders may be subject to state and local taxes on
Fund distributions. Investors should consult their tax advisers to determine
whether the Fund is suitable to their particular tax situation.
INVESTMENT ADVISER AND MANAGER
The Sturgeon Financial Group, Ltd. (the "Manager") is the investment
adviser and manager for, and has an Investment Advisory Contract with, the Fund.
Pursuant to the Investment Advisory Contract with the Fund, the Manager,
subject to the supervision of the Fund's Board of Trustees and in conformity
with the stated objective and policies of the Fund, manages both the investment
operations of the Fund and the composition of the Fund's portfolio, including
the purchase, retention, disposition and loan of securities. In connection
therewith, the Manager is obligated to keep certain books and records of the
Fund. The Manager also administers the Fund's corporate affairs, and in
connection therewith, furnishes the Fund with office facilities, together with
those ordinary clerical and bookkeeping services which are not being furnished
by Firstar Bank, N.A., the Fund's custodian and Mutual Funds Service Co., the
Fund's transfer and disbursing agent. The management services of the Manager are
not exclusive under the terms of the Investment Advisory Agreement and the
Manager is free to render management services to others.
The Investment Advisory Contract for the Fund was separately approved by a
vote of a majority of the Trustees, including a majority of those Trustees who
are not "interested persons" (as defined in the Investment Company Act of 1940)
of the Trust. The Investment Advisory Contract is to remain in force so long as
renewal thereof is specifically approved at least annually by a majority of the
Trustees or by vote of a majority of the outstanding voting securities of the
Fund, and in either case by vote of a majority of the Trustees who are not
"interested persons" (as defined in the Investment Company Act of 1940) at a
meeting called for the purpose of voting on such renewal.
The Investment Advisory Contract provides that the Manager will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the matters to which the Investment Advisory
Contract relates except for a loss resulting from willful misfeasance, bad
faith, gross negligence or reckless disregard of duty. The Investment Advisory
Contract will terminate automatically if assigned and may be terminated without
penalty at any time upon 60 days' prior written notice by Majority Vote of the
Fund, by the Trustees of the Trust, or by the Manager.
The Fund pays the fees of the Trust's independent auditors, legal counsel,
custodian, transfer agent and accountants; insurance premiums; the fees and
expenses of Trustees who do not receive compensation from The Sturgeon Financial
25
<PAGE>
Group, Ltd.; association dues; the cost of printing and mailing confirmations,
prospectuses, proxies, proxy statements, notices and reports to existing
shareholders; state registration fees; distribution expenses within the
percentage limitations of the distribution and service plan, including the cost
of printing and mailing of prospectuses and other materials incident to
soliciting new accounts; and other miscellaneous expenses.
Expenses of the Fund also include all fees under its Accounting and
Administrative Service Agreement; expenses of meetings of shareholders and
Trustees; the advisory fees payable to the Manager under the Investment Advisory
Contract and other miscellaneous expenses.
The Manager earns an annual fee at the rate of 1% of the average net assets
of the Fund, payable in monthly installments.
The Manager has agreed to reduce its fees and/or absorb expenses to limit
the fund's total annual operating expenses to 2.25%. The Manager may terminate
this agreement after December 31, 2000.
The Sturgeon Financial Group, Ltd. was formed as a Delaware corporation on
_________, 1999 and maintains its principal offices at 321 S. Bromfield Road,
Dayton, OH 45249.
The Manager's officers and directors are as set forth as follows: George
Doumanis, Chairman; Cameron M. Bernadsky, President, Chief Operating Officer and
Chief Financial Officer; Richard W. Bradford, Chief Executive Officer; Karin
Williamson, Vice President; and George Madsen, Secretary, Treasurer. Each of
Messrs. Bernadsky, Bradford and Doumanis is a Trustee and officer of the Trust.
The Manager and Adviser may use their resources to pay expenses associated
with the sale of the Fund's shares. This may include payments to third parties
such as banks or broker-dealers that provide shareholder support services or
engage in the sale of the Fund's shares. However, the Fund does not pay the
Manager any separate fees for this service.
TRUSTEES AND OFFICERS
The Trust is managed by its trustees and officers. Their names, positions
and principal occupations during the past five years are listed below. Except as
indicated, each individual has held the office shown or other offices in the
same company for the last five years. Unless otherwise noted, the business
address of each Trustee and officer is 321 South Bromfield Road, Dayton, OH
45429, which is also the address of the Manager. Those Trustees who are
"interested persons" (as defined in the Investment Company Act of 1940) by
virtue of their affiliation with the Trust or the Manager are indicated by an
asterisk (*).
The Trust is managed by its Trustees and officers. Their names, positions
and principal occupations during the past five years are listed below:
26
<PAGE>
NAME, ADDRESS AND AGE POSITION HELD PRINCIPAL OCCUPATION
GEORGE DOUMANIS*+, 41 Trustee/ Chairman of The Sturgeon Financial
President Group, Ltd; Registered Principal,
Creative Capital Management Corp.;
Registered Principal, Amerivet
Securities (January 1997 to August
1997), a broker-dealer; Registered
Principal, Brockington Securities
(October 1994 to January 1997), a
broker-dealer.
RICHARD W. BRADFORD*+, 35 Trustee/ Chief Executive Officer of The
Secretary and Sturgeon Financial Group, Ltd.;
Treasurer Registered Principal, Creative
Capital Management Corp.;
Registered Representative, Dean
Securities (January 1996 to March
1999), a broker-dealer; attended
and obtained an Associates degree
from South Puget Sound College
(August 1993 to December 1995).
CAMERON M. BERNADSKY*+, 33 Trustee/ President, Chief Operating Officer
Vice President and Chief Financial Officer, The
Sturgeon Financial Group, Ltd.;
Registered Representative, Creative
Capital Management Corp.;
Registered Representative, Sky
Investments (November 1995 to June
1999), a broker-dealer; Registered
Representative, Edward Jones,
(January 1994 to November 1995),
a broker-dealer.
* Interested Person of the Trust (as defined in the Investment Company Act of
1940), The Sturgeon Financial Funds.
+ 321 S. Bromfield Road, Dayton, OH 45429.
27
<PAGE>
Each Trustee who is not an "interested person" is paid a meeting fee of
$250 per meeting. In addition, each such Trustee earns an annual fee, payable
quarterly, of $5,000. Members of the Audit Committee are paid $250 for each
Committee meeting attended.
The Trustees and officers of the Trust own, in the aggregate, less than 1%
of the Fund's total outstanding shares.
SALES CHARGE WAIVERS: Directors, Trustees, officers and full-time employees
of the Searay Financial Funds trust, the Manager, or the Distributor, including
members of the immediate families of such individuals and employee benefit plans
established by such entities, may purchase shares of the funds at net asset
value.
THE DISTRIBUTOR
Creative Capital Management Corp. (the "Distributor"), 595 Route 25A, Suite
1C, Miller Place, NY 11764, an affiliate of the Manager, acts as the distributor
of the shares of the Fund.
Pursuant to a plan of distribution (the "Plan") adopted by the Fund under
Rule 12b-1 under the 1940 Act and an underwriting agreement (the Underwriting
Agreement) the Distributor incurs the expenses of distributing the Fund's
shares. See "Distribution Plans" in the Prospectus.
Fund shares are sold at net asset value plus the applicable sales charge as
shown in the table below. Shares also bear a Rule 12b-1 fee of 0.25% per year
(paid to the Distributor, Adviser Dealer Services, Inc.) of their average net
asset value. In addition, Fund shares bear an asset based service fee of 0.25%
per year. The sales charge on Fund shares is allocated between the investment
dealer and Creative Capital Management Corp. as shown below:
AS A PERCENTAGE AS A PERCENTAGE
OF OFFERING OF NET ASSET
PRICE OF THE VALUE OF THE DEALER'S
SHARES SHARES SALES
AMOUNT INVESTED PURCHASED PURCHASED CONCESSION
- -----------------------------------------------------------------------------
Up to $50,000 4.00% 4.16% 3.50%
$50,001 to $150,000 3.00% 3.09% 2.50%
$150,001 to $250,000 2.00% 2.04% 1.50%
$250,001 or more none none none
The Board of Trustees, including a majority of the Trustees who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Plan or in any agreement related to the Plan
(the Rule 12b-1 Trustees), at a meeting called for the purpose of voting on the
Plan, adopted a plan of distribution for the shares of the Fund. The Plan was
approved by shareholders of the Fund.
The Plan continues in effect from year to year, provided that each such
continuance is approved at least annually by a vote of the Board of Trustees,
including a majority vote of the Rule 12b-1 Trustees, cast in person at a
28
<PAGE>
meeting called for the purpose of voting on such continuance. The Plan may be
terminated at any time, without penalty, by the vote of a majority of the
Trustees who are not interested persons or by the vote of the holders of a
majority of the outstanding shares of the Fund. The Plan may be amended to
increase materially the amounts to be spent for the services described therein
without approval by shareholders and all material amendments are required to be
approved by the Board of Trustees in the manner described above. The Fund will
not be contractually obligated to pay expenses incurred under the Plan if it is
terminated or not continued.
Pursuant to the Plan, the Board of Trustees will review at least quarterly
a written report of the distribution expenses incurred on behalf of the shares
of the Fund by the Distributor. The report includes an itemization of the
distribution expenses and the purposes of such expenditures. In addition, as
long as the Plan remains in effect, the selection and nomination of Trustees who
are not interested persons of the Fund shall be committed to the Trustees who
are not interested persons of the Fund.
Pursuant to the Underwriting Agreement, the Fund has agreed to indemnify
the Distributor to the extent permitted by applicable law against certain
liabilities under the Securities Act and the Investment Company Act of 1940. The
Underwriting Agreement was approved by the Board of Trustees, including a
majority of the Rule 12b-1 Trustees.
ADDITIONAL INFORMATION
CUSTODIAN. Firstar Bank, N.A., 425 Walnut Street, Cincinnati, OH 45201, is
custodian of the assets of the Fund. The custodian is responsible for the
safekeeping of the Fund's assets and the appointment of subcustodian banks and
clearing agencies. The custodian takes no part in determining the investment
policies of the Fund or in deciding which securities are purchased or sold by
the Fund. The Fund may, however, invest in obligations of the custodian and may
purchase or sell securities from or to the custodian.
AUDITORS. McCurdy & Associates CPA's, Inc., 27955 Clemens Road, Westlake,
Ohio 44145, serves as the trust's independent auditors. The auditors audit
financial statements for the Fund and provide other assurance, tax, and related
services.
FINANCIAL STATEMENTS
Not Applicable.
29
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits
(a) Declaration of Trust dated December 20, 1999 is filed as Exhibit 23(a)
hereto.
(b) By-laws of the Trust dated December 20, 1999 is filed as Exhibit 23(b)
hereto.
(c) Not applicable.
(d) Investment Advisory Agreement between The Sturgeon Fund and The
Sturgeon Financial Group, Ltd. will be filed by amendment.
(e) Underwriting Agreement between Searay Financial Funds and Creative
Capital Management Corp., to be filed by amendment.
(f) Not applicable.
(g) Custodian Agreement between Firstar Bank, N.A. and Searay Financial
Funds to be filed by amendment.
(h) (1) Administration Agreement between Searay Financial Funds and Mutual
Funds Service Co. to be filed by amendment.
(2) Transfer Agency Agreement between Searay Financial Funds and
Mutual Funds Service Co. to be filed by amendment.
(3) Accounting Services Agreement between Searay Financial Funds and
Mutual Funds Service Co. to be filed by amendment.
(i) Opinion and Consent of Counsel to be filed by amendment.
(j) Consent of McCurdy & Associates, CPA's, Inc., Independent Auditors, to
be filed by amendment.
(k) Not applicable.
(l) Agreements etc. for initial capital, etc. - to be filed by amendment.
(m) Not applicable.
(n) Not applicable.
Item 24. Persons Controlled by or under Common Control with Registrant.
None.
<PAGE>
Item 25. Indemnification
Reference is made to Section 5.3 of the Declaration of Trust filed as
Exhibit 23(a) hereto. As provided therein, the Trust is required to
indemnify its officers and trustees against claims and liability
arising in connection with the affairs of the Trust, except liability
arising from breach of trust, bad faith, willful misfeasance, gross
negligence or reckless disregard of duties. The Trust is obligated to
undertake the defense of any action brought against any officer,
trustee or shareholder, and to pay the expenses thereof if he acted in
good faith and in a manner he reasonably believed to be in or not
opposed to the best interest of the Trust, and with respect to any
criminal action had no reasonable cause to believe his conduct was
unlawful. Other conditions are applicable to the right of
indemnification as set forth in the Declaration of Trust. In applying
these provisions, the Trust will comply with the provisions of the
Investment Company Act.
Item 26. Business and Other Connections of Investment Adviser.
Not applicable.
Item 27. Principal Underwriters.
(a) Not Applicable.
(b)
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Underwriter Registrant
---------------- ----------- ----------
Buster Parker* Director, President
and Secretary None
William Davis* Director, Senior Vice
President and Treasurer None
Steve Wagoner* Vice President
Operations None
(c) Not Applicable
* 595 Route 25A, Suite 1C, Miller Place, NY 11764
Item 28. Location of Accounts and Records.
Registrant's Declaration of Trust, By-laws, and Minutes of Trustees'
and Shareholders' Meetings, and contracts and like documents are in
the physical possession of Mutual Funds Service Co., the Registrant's
fund accountant, administrator and transfer agent, at 6000 Memorial
Drive, Dublin, Ohio 43017 or The Sturgeon Financial Group, Ltd., 321
S. Bromfield Road, Dayton, OH 45429. Certain custodial records are in
the custody of Firstar Bank, N.A., the Fund's custodian, at 425 Walnut
Street, Cincinnati, Ohio 45202. All other records are kept in the
custody of The Sturgeon Financial Group, Ltd., 321 S. Bromfield Road,
Dayton, OH 45429 and Mutual Funds Service Co., 6000 Memorial Drive,
Dublin, OH 43017.
Item 29. Management Services.
None
<PAGE>
Item 30. Undertakings.
Registrant undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of one or more
directors, if requested to do so by the holders of at least 10% of the
Registrant's outstanding shares, and will assist communications among
shareholders as set forth within Section 16(c) of the 1940 Act.
Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act, the Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, duly authorized, in the City of Dayton,
and the State of Ohio on the 20th day of December, 1999.
SEARAY FINANCIAL FUNDS
BY: /s/ Richard W. Bradford
------------------------------
Richard W. Bradford
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ George Doumanis President and Trustee December 20, 1999
- -------------------------
George Doumanis
/s/ Richard W. Bradford Secretary/Treasurer and Trustee December 20, 1999
- -------------------------
Richard W. Bradford
/s/ Cameron M. Bernadsky Vice President and Trustee December 20, 1999
- ------------------------- (Principal Financial Officer
Cameron M. Bernadsky and Principal Accounting Officer)
TABLE OF CONTENTS
PAGE
ARTICLE I--NAME AND DEFINITIONS
Section 1.1 Name 1
Section 1.2 Definitions 1
ARTICLE II--TRUSTEES
Section 2.1 Number of Trustees 3
Section 2.2 Term of Office of Trustees 3
Section 2.3 Resignation and Appointment of Trustees 3
Section 2.4 Vacancies 4
Section 2.5 Delegation of Power to Other Trustees 4
ARTICLE III--POWERS OF TRUSTEES
Section 3.1 General 4
Section 3.2 Investments 5
Section 3.3 Legal Title 6
Section 3.4 Issuance and Repurchase of Securities 6
Section 3.5 Borrowing Money; Lending Trust Property 6
Section 3.6 Delegation; Committees 6
Section 3.7 Collection and Payment 7
Section 3.8 Expenses 7
Section 3.9 Manner of Acting/ By-Laws 7
Section 3.10 Miscellaneous Powers 7
Section 3.11 Principal Transactions 8
Section 3.12 Trustees and Officers as Shareholders 8
ARTICLE IV--INVESTMENT ADVISER, DISTRIBUTOR, ADMINISTRATOR, TRANSFER AGENT
AND SHAREHOLDER SERVICING AGENTS
Section 4.1 Investment Adviser 9
Section 4.2 Distributor 9
Section 4.3 Administrator 9
Section 4.4 Transfer Agent and Shareholder Servicing Agents 9
Section 4.5 Parties to Contract 10
ARTICLE V--LIMITATIONS OF LIABILITY OF SHAREHOLDERS, TRUSTEES AND OTHERS
Section 5.1 No Personal Liability of Shareholders,
Trustees, etc. 10
i
<PAGE>
Section 5.2 Non-Liability of Trustees, etc. 11
Section 5.3 Mandatory Indemnification; Insurance 11
Section 5.4 No Bond Required of Trustees 12
Section 5.5 No Duty of Investigation; Notice in Trust
Instruments, etc. 13
Section 5.6 Reliance on Experts, etc. 13
ARTICLE VI--SHARES OF BENEFICIAL INTEREST
Section 6.1 Beneficial Interest 13
Section 6.2 Rights of Shareholders 14
Section 6.3 Trust Only 14
Section 6.4 Issuance of Shares 14
Section 6.5 Register of Shares 14
Section 6.6 Transfer of Shares 15
Section 6.7 Notices 15
Section 6.8 Voting Powers 15
Section 6.9 Series Designation 16
ARTICLE VII--REDEMPTIONS
Section 7.1 Redemptions 18
Section 7.2 Suspension of Right of Redemption 18
Section 7.3 Redemption of Shares; Disclosure of Holding 19
Section 7.4 Redemptions of Accounts of Less than
Minimum Amount 19
ARTICLE VIII--DETERMINATION OF NET ASSET VALUE, NET INCOME AND
DISTRIBUTIONS 20
ARTICLE IX--DURATION; TERMINATION OF TRUST; AMENDMENT; MERGERS, ETC.
Section 9.1 Duration 20
Section 9.2 Termination of Trust 20
Section 9.3 Amendment Procedure 21
Section 9.4 Merger, Consolidation and Sale of Assets 22
Section 9.5 Incorporation, Reorganization 23
Section 9.6 Incorporation or Reorganization of Series 23
ARTICLE X--REPORTS TO SHAREHOLDERS AND SHAREHOLDER COMMUNICATIONS 23
ARTICLE XI--MISCELLANEOUS
Section 11.1 Filing 23
Section 11.2 Governing Law 24
ii
<PAGE>
Section 11.3 Counterparts 24
Section 11.4 Reliance by Third Parties 24
Section 11.5 Provisions in Conflict with Law or Regulations 24
Section 11.6 Principal Office 24
APPENDIX I--SERIES DESIGNATION
iii
<PAGE>
27
DECLARATION OF TRUST
OF
SEARAY FINANCIAL FUNDS
-------------------------
Dated as of December 20, 1999
WHEREAS, the Trustees desire to establish a trust for the investment and
reinvestment of funds contributed thereto; and
WHEREAS, the Trustees desire that the beneficial interest in the trust
assets be divided into transferable Shares of Beneficial Interest (par value
$0.10 per share) ("Shares") issued in one or more series as hereinafter
provided;
NOW, THEREFORE, the Trustees hereby declare that all money and property
contributed to the trust established hereunder shall be held and managed in
trust for the benefit of holders, from time to time, of the Shares issued
hereunder and subject to the provisions hereof.
ARTICLE I
NAME AND DEFINITIONS
SECTION 1.1. NAME. The name of the trust created hereby is "Searay
Financial Funds".
SECTION 1.2. DEFINITIONS. Wherever they are used herein, the following
terms have the following respective meanings:
(a) "ADMINISTRATOR" means a party furnishing services to the Trust
pursuant to any contract described in Section 4.3 -------------
hereof.
(b) "BY-LAWS" means the By-laws referred to in Section 3.9 hereof, as from
time to time amended. -------
(c) "COMMISSION" has the meaning given that term in the 1940 Act.
(d) "CUSTODIAN" means a party employed by the Trust to furnish services as
described in Article X of the By-Laws.
(e) "DECLARATION" means this Declaration of Trust as amended from time to
time. Reference in this Declaration of Trust to "DECLARATION",
"HEREOF", "HEREIN", and "HEREUNDER" shall be deemed to refer to this
Declaration rather than the article or section in which such words
appear.
<PAGE>
(f) "DISTRIBUTOR" means a party furnishing service to the Trust pursuant
to any contract described in Section 4.2 hereof.
(g) "INTERESTED PERSON" has the meaning given that term in the 1940 Act.
(h) "INVESTMENT ADVISER" means a party furnishing services to the Trust
pursuant to any contract described in Section 4.1 hereof.
(i) "MAJORITY SHAREHOLDER VOTE" has the same meaning as the phrase "vote
of a majority of the outstanding voting securities" as defined in the
1940 Act, except that such term may be used herein with respect to the
Shares of the Trust as a whole or the Shares of any particular series,
as the context may require.
(j) "1940 ACT" means the Investment Company Act of 1940 and the Rules and
Regulations thereunder, as amended from time to time.
(k) "PERSON" means and includes individuals, corporations, partnerships,
trusts, associations, joint ventures and other entities, whether or
not legal entities, and governments and agencies and political
subdivisions thereof, whether domestic or foreign.
(l) "SHAREHOLDER" means a record owner of outstanding Shares.
(m) "SHARES" means the Shares of Beneficial Interest into which the
beneficial interest in the Trust shall be divided from time to time
or, when used in relation to any particular series of Shares
established by the Trustees pursuant to Section 6.9 hereof, equal
proportionate transferable units into which such series of Shares
shall be divided from time to time. The term "Shares" includes
fractions of Shares as well as whole Shares.
(n) "SHAREHOLDER SERVICING AGENT" means a party furnishing services to the
Trust pursuant to any shareholder servicing contract described in
Section 4.4 hereof.
(o) "TRANSFER AGENT" means a party furnishing services to the Trust
pursuant to any transfer agency contract described in Section 4.4
hereof.
(p) "TRUST" means the trust created hereby.
(q) "TRUST PROPERTY" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account
of the Trust or the Trustees, including, without limitation, any and
all property allocated or belonging to any series of Shares pursuant
to Section 6.9 hereof.
(r) "TRUSTEES" means the persons who have signed the Declaration, so long
as they shall continue in office in accordance with the terms hereof,
and all other persons who may from time to time by duly elected or
appointed, qualified and serving as Trustees in accordance with the
2
<PAGE>
provisions hereof, and reference herein to a Trustee or the Trustees
shall refer to such person or persons in their capacity as trustee
hereunder.
ARTICLE II
TRUSTEES
SECTION 2.1. NUMBER OF TRUSTEES. The number of Trustees shall be such
number as shall be fixed from time to time by a written instrument signed by a
majority of the Trustees, provided, however, that the number of Trustees shall
in no event be less than three (3) nor more than fifteen (15).
SECTION 2.2. TERM OF OFFICE OF TRUSTEES. Subject to the provisions of
Section 16(a) of the 1940 Act, the Trustees shall hold office during the
lifetime of this Trust and until its termination as hereinafter provided; except
that (a) any Trustee may resign his trust (without need for prior or subsequent
accounting) by an instrument in writing signed by him and delivered to the other
Trustees, which shall take effect upon such delivery or upon such later date as
is specified therein; (b) any Trustee may be removed with cause, at any time by
written instrument signed by at least two-thirds of the remaining Trustees,
specifying the date when such removal shall become effective; (c) any Trustee
who has attained a mandatory retirement age established pursuant to any written
policy adopted from time to time by at least two-thirds of the Trustees shall,
automatically and without action of such Trustee or the remaining Trustees, be
deemed to have retired in accordance with the terms of such policy, effective as
of the date determined in accordance with such policy; (d) any Trustee who has
become incapacitated by illness or injury as determined by a majority of the
other Trustees, may be retired by written instrument signed by a majority of the
other Trustees, specifying the date of his retirement; and (e) a Trustee may be
removed at any meeting of Shareholders by a vote of two-thirds of the
outstanding Shares of each series. For purposes of the foregoing clause (b), the
term "cause" shall include, but not be limited to, failure to comply with such
written policies as may from time to time be adopted by at least two-thirds of
the Trustees with respect to the conduct of Trustees and attendance at meetings.
Upon the resignation, retirement or removal of a Trustee, or his otherwise
ceasing to be a Trustee, he shall execute and deliver such documents as the
remaining Trustees shall require for the purpose of conveying to the Trust or
the remaining Trustees any Trust Property held in the name of the resigning,
retiring or removed Trustee. Upon the incapacity or death of any Trustee, his
legal representative shall execute and deliver on his behalf such documents as
the remaining Trustees shall require as provided in the preceding sentence.
SECTION 2.3. RESIGNATION AND APPOINTMENT OF TRUSTEES. In case of the
declination, death, resignation, retirement, removal or inability of any of the
Trustees, or in case a vacancy shall, by reason of an increase in number, or for
any other reason, exist, the remaining Trustees shall fill such vacancy by
appointing such other individual as they in their discretion shall see fit. Such
appointment shall be evidenced by a written instrument signed by a majority of
the Trustees in office. Any such appointment shall not become effective,
3
<PAGE>
however, until the person named in the written instrument of appointment shall
have accepted in writing such appointment and agreed in writing to be bound by
the terms of the Declaration. Within twelve months of such appointment, the
Trustees shall cause notice of such appointment to be mailed to each Shareholder
at his address as recorded on the books of the Trustees. An appointment of a
Trustee may be made by the Trustees then in office and notice thereof mailed to
Shareholders as aforesaid in anticipation of a vacancy to occur by reason of
retirement, resignation or increase in number of Trustees effective at a later
date, provided that said appointment shall become effective only at or after the
effective date of said retirement, resignation or increase in number of
Trustees. The power of appointment is subject to the provisions of Section 16(a)
of the 1940 Act.
SECTION 2.4. VACANCIES. The death, declination, resignation, retirement,
removal or incapacity of the Trustees, or any one of them, shall not operate to
annul the Trust or to revoke any existing agency created pursuant to the terms
of this Declaration. Whenever a vacancy in the number of Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by the Declaration.
A written instrument certifying the existence of such vacancy signed by a
majority of the Trustees shall be conclusive evidence of the existence of such
vacancy.
SECTION 2.5. DELEGATION OF POWER TO OTHER TRUSTEES. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six months at
any one time to any other time to any other Trustee or Trustees; provided that
in no case shall fewer than two Trustees personally exercise the powers granted
to the Trustees under the Declaration except as herein otherwise expressly
provided.
ARTICLE III
POWERS OF TRUSTEES
SECTION 3.1. GENERAL. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and
business in their own right, but with such powers of delegation as may be
permitted by the Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without the Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as the Trustees deem necessary, proper or desirable in order to
promote the interests of the Trust although such things are not herein
specifically mentioned. Any determination as to what is in the interests of the
Trust made by the Trustees in good faith shall be conclusive. In construing the
provisions of the Declaration, the presumption shall be in favor of a grant of
power to the Trustees.
4
<PAGE>
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
SECTION 3.2. INVESTMENTS. (a) The Trustees shall have the power:
(i) to conduct, operate and carry on the business of an investment company;
(ii) to subscribe for, invest in, reinvest in, purchase or otherwise
acquire, own, hold, pledge, sell, assign, transfer, exchange, distribute, lend
or otherwise deal in order dispose of U.S. and foreign currencies, any form of
gold or other precious metal, commodity contracts, any form of option contract,
contracts for the future acquisition or delivery of fixed income or other
securities, shares of, or any other interest in, any investment company as
defined in the Investment Company Act of 1940, and securities and related
derivatives of every nature and kind, including, without limitation, all types
of bonds, debentures, stocks, negotiable or non-negotiable instruments,
obligations, evidences of indebtedness, certificates of deposit or indebtedness,
commercial paper, repurchase agreements, bankers' acceptances, and other
securities of any kind, issued, created, guaranteed or sponsored by any and all
Persons, including, without limitation,
(A) states, territories and possessions of the United States and the
District of Columbia and any political subdivision, agency or instrumentality of
any such Person,
(B) the U.S. Government, any foreign government, any political subdivision
or any agency or instrumentality of the U.S. Government, any foreign government
or any political subdivision of the U.S. Government or any foreign government,
(C) any international or supranational instrumentality,
(D) any bank or savings institution, or
(E) any corporation, trust, partnership or other organization organized
under the laws of the United States or of any state, territory or possession
thereof, or under any foreign law;
or in "when issued" contracts for any such securities, to retain Trust assets in
cash and from time to time to change the securities or obligations in which the
assets of the Trust are invested; and to exercise any and all rights, powers and
privileges of ownership or interest in respect of any and all such investments
of every kind and description, including, without limitation, the right to
consent and otherwise act with respect thereto, with power to designate one or
more Persons to exercise any of said rights, powers and privileges in respect of
any of said investments; and
(iii) to carry on any other business in connection with or incidental to
any of the foregoing powers, to do everything necessary, proper or desirable for
the accomplishment of any purpose or the attainment of any object or the
5
<PAGE>
furtherance of any power hereinbefore set forth, and to do every other act or
thing incidental or appurtenant to or connected with the aforesaid purposes,
objects or powers.
(b) The Trustees shall not be limited to investing in securities or
obligations maturing before the possible termination of the Trust, nor shall the
Trustees be limited by any law limiting the investments which may be made by
fiduciaries.
(c) Notwithstanding any other provision of this Declaration to the
contrary, the Trustee shall have the power in their discretion without any
requirement of approval by shareholders to either invest all or a portion of the
Trust Property, or sell all or a portion of the Trust Property and invest the
proceeds of such sales, in another investment company that is registered under
the 1940 Act.
SECTION 3.3. LEGAL TITLE. Legal title to all Trust Property shall be vested
in the Trustees as joint tenants except that the Trustees shall have power to
cause legal title to any Trust Property to be held by or in the name of one or
more of the Trustees, or in the name of the Trust, or in the name of any other
Person or nominee, on such terms as the Trustees may determine. The right, title
and interest of the Trustees in the Trust Property shall vest automatically in
each Person who may hereafter become a Trustee. Upon the resignation, removal or
death of a Trustee, such Trustee shall automatically cease to have any right,
title or interest in any of the Trust Property, and the right, title and
interest of such Trustee in the Trust Property shall vest automatically in the
remaining Trustees. Such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered.
SECTION 3.4. ISSUANCE AND REPURCHASE OF SECURITIES. The Trustees shall have
the power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold,
resell, reissue, dispose of, transfer, and otherwise deal in Shares and, subject
to the provisions set forth in Articles VII, VIII and IX and Section 6.9 hereof,
to apply to any such repurchase, redemption, retirement, cancellation or
acquisition of Shares any funds of the Trust or other Trust Property whether
capital or surplus or otherwise, to the full extent now or hereafter permitted
by the laws of the Commonwealth of Massachusetts governing business
corporations.
SECTION 3.5. BORROWING MONEY; LENDING TRUST PROPERTY. The Trustees shall
have power to borrow money or otherwise obtain credit and to secure the same by
mortgaging, pledging or otherwise subjecting as security the Trust Property, to
endorse, guarantee, or undertake the performance of any obligation, contract or
engagement of any other Person and to lend Trust Property.
SECTION 3.6. DELEGATION; COMMITTEES. The Trustees shall have power to
delegate from time to time to such of their number or to officers, employees or
agents of the Trust the doing of such things and the execution of such
instruments either in the name of the Trustee or the names of the Trustees or
otherwise as the Trustees may deem expedient.
6
<PAGE>
SECTION 3.7. COLLECTION AND PAYMENT. Subject to Section 6.9 hereof, the
Trustees shall have power to collect all property due to the Trust; to pay all
claims, including taxes, against the Trust Property; to prosecute, defend,
compromise or abandon any claims relating to the Trust Property; to foreclose
any security interest securing any obligations, by virtue of which any property
is owed to the Trust; and to enter into releases, agreements and other
instruments.
SECTION 3.8. EXPENSES. Subject to Section 6.9 hereof, the Trustees shall
have the power to incur and pay any expenses which in the opinion of the
Trustees are necessary or incidental to carry out any of the purposes of the
Declaration, and to pay reasonable compensation from the funds of the Trust to
themselves as Trustees. The Trustees shall fix the compensation of all officers,
employees and Trustees.
SECTION 3.9. MANNER OF ACTING; BY-LAWS. Except as otherwise provided herein
or in the By-Laws, any action to be taken by the Trustees may be taken by a
majority of the Trustees present at a meeting of Trustees at which a quorum is
present, including any meeting held by means of a conference telephone circuit
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, or by written consents of a majority of the
Trustees. The Trustees may adopt By-Laws not inconsistent with this Declaration
to provide for the conduct of the business of the Trust and may amend or repeal
such By-Laws to the extent such power is not reserved to the Shareholders.
SECTION 3.10. MISCELLANEOUS POWERS. The Trustees shall have the power to:
(a) employ or contract with such Persons as the Trustees may deem desirable for
the transaction of the business of the Trust; (b) enter into joint ventures,
partnerships and any other combinations or associations; (c) remove Trustees or
fill vacancies in or add to their number, elect and remove such officers and
appoint and terminate such agents or employees as they consider appropriate, and
appoint from their own number, and terminate, any one or more committees which
may exercise some or all of the power and authority of the Trustees as the
Trustees may determine; (d) purchase, and pay for out of Trust Property,
insurance policies insuring the Shareholders, the Administrator, Trustees,
officers, employees, agents, the Investment Adviser, the Distributor, selected
dealers or independent contractors of the Trust against all claims arising by
reason of holding any such position or by reason of any action taken or omitted
by any such Person in such capacity, whether or not constituting negligence, or
whether or not the Trust would have the power to indemnify such Person against
such liability; (e) establish pension, profit-sharing, Share purchase, and other
retirement, incentive and benefit plans for any Trustees, officers, employees or
agents of the Trust; (f) to the extent permitted by law, indemnify any person
with whom the Trust has dealings, including any Investment Adviser,
Administrator, Custodian, Distributor, Transfer Agent, Shareholder Servicing
Agent and any dealer, to such extent as the Trustees shall determine; (g)
guarantee indebtedness or contractual obligations of others; (h) determine and
change the fiscal year of the Trust and the method by which its accounts shall
be kept; and (i) adopt a seal for the Trust, provided, that the absence of such
seal shall not impair the validity of any instrument executed on behalf of the
Trust.
7
<PAGE>
SECTION 3.11. PRINCIPAL TRANSACTIONS. Except in transactions permitted by
the 1940 Act, or any order of exemption issued by the Commission, the Trustees
shall not, on behalf of the Trust, buy any securities (other than Shares) from
or sell any securities (other than Shares) to, or lend any assets of the Trust
to, any Trustee or officer of the Trust or any firm of which any such Trustee or
officer is a member acting as principal, or have any such dealings with any
Investment Adviser, Administrator, Shareholder Servicing Agent, Custodian,
Distributor or Transfer Agent or with any Interested Person, or firm or company
in which such Person is an Interested Person, as broker, legal counsel,
registrar, transfer agent, dividend disbursing agent or custodian.
SECTION 3.12. TRUSTEES AND OFFICERS AS SHAREHOLDERS. Except as hereinafter
provided, no officer, Trustee or member of any advisory board of the Trust, and
no member, partner, officer, director or trustee of the Investment Adviser,
Administrator or of the Distributor, and no Investment Adviser, Administrator or
Distributor of the Trust, shall take long or short positions in the securities
issued by the Trust. The foregoing provision shall not prevent:
(a) The Distributor from purchasing Shares from the Trust if such purchases
are limited (except for reasonable allowances for clerical errors, delays and
errors of transmission and cancellation of orders) to purchases for the purpose
of filling orders for Shares received by the Distributor and provided that
orders to purchase from the Trust are entered with the Trust or the Custodian
promptly upon receipt by the Distributor of purchase orders for Shares, unless
the Distributor is otherwise instructed by its customer;
(b) The Distributor from purchasing Shares as agent for the account of the
Trust;
(c) The purchase from the Trust or from the Distributor of Shares by any
officer, Trustee or member of any advisory board of the Trust or by any member,
partner, officer, director or trustee of the Investment Adviser or of the
Distributor at a price not lower than the net asset value of the Shares at the
moment of such purchase, provided that any such sales are only to be made
pursuant to a uniform offer described in the current prospectus or statement of
additional information for the Shares being purchased; or
(d) The Investment Adviser, the Distributor, the Administrator, or any of
their officers, partners, directors or trustees from purchasing Shares prior to
the effective date of the Trust's Registration Statement under the Securities
Act of 1933, as amended, relating to the Shares.
8
<PAGE>
ARTICLE IV
INVESTMENT ADVISER, DISTRIBUTOR, ADMINISTRATOR, TRANSFER
AGENT AND SHAREHOLDER SERVICING AGENTS
SECTION 4.1. INVESTMENT ADVISER. Subject to a Majority Shareholder Vote of
the Shares of each series affected thereby, the Trustees may in their discretion
from time to time enter into one or more investment advisory or management
contracts whereby the other party to each such contract shall undertake to
furnish the Trust such management, investment advisory, statistical and research
facilities and services, promotional activities, and such other facilities and
services, if any, with respect to one or more series of Shares, as the Trustees
shall from time to time consider desirable and all upon such terms and
conditions as the Trustees may in their discretion determine. Notwithstanding
any provision of the Declaration, the Trustees may delegate to the Investment
Adviser authority (subject to such general or specific instructions as the
Trustees may from time to time adopt) to effect purchases, sales, loans or
exchanges of assets of the Trust on behalf of the Trustees or may authorize any
officer, employee or Trustee to effect such purchases, sales, loans or exchanges
pursuant to recommendations of the Investment Adviser (and all without further
action by the Trustees). Any of such purchases, sales, loans or exchanges shall
be deemed to have been authorized by all the Trustees. Such services may be
provided by one or more Persons.
SECTION 4.2. DISTRIBUTOR. The Trustees may in their discretion from time to
time enter into one or more distribution contracts providing for the sale of
Shares whereby the Trust may either agree to sell the Shares to the other party
to any such contract or appoint any such other party its sales agent for such
Shares. In either case, any such contract shall be on such terms and conditions
as the Trustees may in their discretion determine, provided that such terms and
conditions are not inconsistent with the provisions of the Declaration or the
By-Laws; and such contract may also provide for the repurchase or sale of Shares
by such other party as principal or as agent of the Trust and may provide that
such other party may enter into selected dealer and sales agreements with
registered securities dealers and depository institutions to further the purpose
of the distribution or repurchase of the Shares. Such services may be provided
by one or more Persons.
SECTION 4.3. ADMINISTRATOR. The Trustees may in their discretion from time
to time enter into one or more administrative services contracts whereby the
other party to each such contract shall undertake to furnish such administrative
services to the Trust as the Trustees shall from time to time consider desirable
and all upon such terms and conditions as the Trustees may in their discretion
determine, provided that such terms and conditions are not inconsistent with the
provisions of this Declaration or the By-Laws. Such services may be provided by
one or more Persons.
SECTION 4.4. TRANSFER AGENT AND SHAREHOLDER SERVICING AGENTS. The Trustees
may in their discretion from time to time enter into one or more transfer agency
and shareholder servicing contracts whereby the other party to each such
contract shall undertake to furnish such transfer agency and/or shareholder
services to the Trust or to shareholders of the Trust as the Trustees shall from
9
<PAGE>
time to time consider desirable and all upon such terms and conditions as the
Trustees may in their discretion determine, provided that such terms and
conditions are not inconsistent with the provisions of this Declaration or the
By-Laws. Such services may be provided by one or more Persons. Except as
otherwise provided in the applicable shareholder servicing contract, a
Shareholder Servicing Agent shall be deemed to be the record owner of
outstanding Shares beneficially owned by customers of such Shareholder Servicing
Agent for whom it is acting pursuant to such shareholder servicing contract.
SECTION 4.5. PARTIES TO CONTRACT. Any contract of the character described
in Section 4.1, 4.2, 4.3 or 4.4 of this Article IV or any Custodian contract as
described in Article X of the By-Laws may be entered into with any Person,
although one or more of the Trustees or officers of the Trust may be an officer,
partner, director, trustee, shareholder, or member of such other party to the
contract, and no such contract shall be invalidated or rendered voidable by
reason of the existence of any such relationship; nor shall any Person holding
such relationship be liable merely by reason of such relationship for any loss
or expense to the Trust under or by reason of any such contract or accountable
for any profit realized directly or indirectly therefrom, provided that the
contract when entered into was not inconsistent with the provisions of this
Article IV or the By-Laws. The same Person may be the other party to contracts
entered into pursuant to Sections 4.1, 4.2, 4.3 and 4.4 above or any Custodian
contract as described in Article X of the By-Laws, and any individual may be
financially interested or otherwise affiliated with Persons who are parties to
any or all of the contracts mentioned in this Section 4.5.
ARTICLE V
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
SECTION 5.1. NO PERSONAL LIABILITY OF SHAREHOLDERS, TRUSTEES, ETC. No
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust. No Trustee, officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard for his duty to such Person; and all such Persons shall look
solely to the Trust Property for satisfaction of claims of any nature arising in
connection with the affairs of the Trust. If any Shareholder, Trustee, officer,
employee, or agent, as such, of the Trust, is made a party to any suit or
proceeding to enforce any such liability, he shall not, on account thereof, be
held to any personal liability. The Trust shall indemnify and hold each
Shareholder harmless from and against all claims and liabilities to which such
Shareholder may become subject by reason of his being or having been a
Shareholder, and shall reimburse such Shareholder for all legal and other
expenses reasonably incurred by him in connection with any such claim or
liability. The rights accruing to a Shareholder under this Section 5.1 shall not
exclude any other right to which such Shareholder may be lawfully entitled, nor
shall anything herein contained restrict the right of the Trust to indemnify or
10
<PAGE>
reimburse a Shareholder in any appropriate situation even though not
specifically provided herein. Notwithstanding any other provision of this
Declaration to the contrary, no Trust Property shall be used to indemnify or
reimburse any Shareholder of any Shares of any series other than Trust Property
allocated or belonging to that series.
SECTION 5.2. NON-LIABILITY OF TRUSTEES, ETC. No Trustee, officer, employee
or agent of the Trust shall be liable to the Trust or to any Shareholder,
Trustee, officer, employee, or agent thereof for any action or failure to act
(including without limitation the failure to compel in any way any former or
acting Trustee to redress any breach of trust) except for his own bad faith,
willful misfeasance, gross negligence or reckless disregard of his duties.
SECTION 5.3. MANDATORY INDEMNIFICATION; INSURANCE. (a) Subject to the
exceptions and limitations contained in paragraph (b) below:
(i) every person who is or has been a Trustee or officer of the Trust shall
be indemnified by the Trust, to the fullest extent permitted by law (including
the 1940 Act) as currently in effect or as hereafter amended, against all
liability and against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been a Trustee
or officer and against amounts paid or incurred by him in the settlement
thereof;
(ii) the words "claim", "action", "suit", or "proceeding" shall apply to
all claims, actions, suits or proceedings (civil, criminal, administrative or
other, including appeals), actual or threatened; and the words "liability" and
"expenses" shall include, without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or officer:
(i) against any liability to the Trust or the Shareholders by reason of a
final adjudication by the court or other body before which the proceeding was
brought that he engage in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that his
action was in the best interest of the Trust; or
(iii) in the event of a settlement involving a payment by a Trustee or
officer or other disposition not involving a final adjudication as provided in
paragraph (b)(i) or (b)(ii) above resulting in a payment by a Trustee or
officer, unless there has been either a determination that such Trustee or
officer did not engage in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office by the
11
<PAGE>
court or other body approving the settlement or other disposition or by a
reasonable determination, based upon a review of readily available facts (as
opposed to a full trial-type inquiry) that he did not engage in such conduct:
(A) by vote of a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees then in office
act on the matter); or
(B) by written opinion of independent legal counsel.
(c) Subject to the provisions of the 1940 Act, the Trust may maintain
insurance for the protection of the Trust Property, its Shareholders, Trustees,
officers, employees and agents in such amount as the Trustees shall deem
adequate to cover possible tort liability (whether or not the Trust would have
the power to indemnify such Persons against such liability), and such other
insurance as the Trustees in their sole judgment shall deem advisable.
(d) The rights of indemnification herein provided shall be severable, shall
not affect any other rights to which any Trustee or officer may now or hereafter
be entitled, shall continue as to a Person who has ceased to be such a Trustee
or officer and shall inure to the benefit of the heirs, executors and
administrators of such Person. Nothing contained herein shall affect any rights
to indemnification to which personnel other than Trustees and officers may be
entitled by contract or otherwise under law.
(e) Expenses of preparation and presentation of a defense to any claim,
action, suit, or proceeding of the character described in paragraph (a) of this
Section 5.3 shall be advanced by the Trust prior to final disposition thereof
upon receipt of an undertaking by or on behalf of the recipient to repay such
amount if it is ultimately determined that he is not entitled to indemnification
under this Section 5.3, provided that either:
(i) such undertaking is secured by a surety bond or some other appropriate
security or the Trust shall be insured against losses arising out of any such
advances; or
(ii) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then in office act on
the matter) or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 5.3 a "Disinterested Trustee" is one (i) who is not
an "Interested Person" of the Trust (including anyone who has been exempted from
being an "Interested Person" by any rule, regulation or order of the
Commission), and (ii) against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same or similar
grounds is then or had been pending.
SECTION 5.4. NO BOND REQUIRED OF TRUSTEES. No Trustee shall be obligated to
give any bond or other security for the performance of any of his duties
hereunder.
12
<PAGE>
SECTION 5.5. NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS, ETC. No
purchaser, lender, Shareholder Servicing Agent, Transfer Agent or other Person
dealing with the Trustees or any officer, employee or agent of the Trust shall
be bound to make any inquiry concerning the validity of any transaction
purporting to be made by the Trustees or by said officer, employee or agent or
be liable for the application of money or property paid, loaned, or delivered to
or on the order of the Trustees or of said officer, employee or agent. Every
obligation, contract, instrument, certificate, Share, other security of the
Trust or undertaking, and every other at or thing whatsoever executed in
connection with the Trust shall be conclusively presumed to have been executed
or done by the executors thereof only in their capacity as Trustees under the
Declaration or in their capacity as officers, employees or agents of the Trust.
Every written obligation, contract, instrument, certificate, Share, other
security of the Trust or undertaking made or issued by the Trustees shall recite
that the same is executed or made by them not individually, but as Trustees
under the Declaration, and that the obligations of any such instrument are not
binding upon any of the Trustees or Shareholders individually, but bind only the
trust estate, and may contain any further recital which they or he may deem
appropriate, but the omission of such recital shall not operate to bind any of
the Trustees or Shareholders individually. The Trustees shall at all times
maintain insurance for the protection of the Trust Property, Shareholders,
Trustees, officers, employees and agents in such amount as the Trustees shall
deem adequate to cover possible tort liability, and such other insurance as the
Trustees in their sole judgment shall deem advisable.
SECTION 5.6. RELIANCE ON EXPERTS, ETC. Each Trustee and officer or employee
of the Trust shall, in the performance of his duties, be fully and completely
justified and protected with regard to any act or any failure to act resulting
from reliance in good faith upon the books of account or other records of the
Trust, upon an opinion of counsel, or upon reports made to the Trust by any of
its officers or employees or by the Investment Adviser, the Distributor,
Transfer Agent, any Shareholder Servicing Agent, selected dealers, accountants,
appraisers or other experts or consultant selected with reasonable care by the
Trustees, officers or employees of the Trust, regardless of whether such counsel
or expert may also be a Trustee.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
SECTION 6.1. BENEFICIAL INTEREST. The interest of the beneficiaries
hereunder may be divided into transferable Shares, which may be divided into one
or more series as provided in Section 6.9 hereof. Each such series shall have
such class or classes of Shares as the Trustees may from time to time determine.
The number of Shares authorized hereunder is unlimited. All Shares issued
hereunder including, without limitation, Shares issued in connection with a
dividend in Shares or a split of Shares, shall be fully paid and non-assessable.
13
<PAGE>
SECTION 6.2. RIGHTS OF SHAREHOLDERS. The ownership of the Trust Property of
every description and the right to conduct any business hereinbefore described
are vested exclusively in the Trustees, and the Shareholders shall have not
interest therein other than the beneficial interest conferred by their Shares,
and they shall have no right to call for any partition or division of any
property, profits, rights or interests of the Trust nor can they be called upon
to assume any losses of the Trust or suffer an assessment of any kind by virtue
of their ownership of Shares. The Shares shall be personal property giving only
the rights specifically set forth in the Declaration. The Shares shall not
entitle the holder to preference, pre-emptive, appraisal, conversion or exchange
rights, except as the Trustees may determine with respect to any series of
Shares.
SERIES 6.3. TRUST ONLY. It is the intention of the Trustees to create only
the relationship of Trustee and beneficiary between the Trustees and the
Shareholders. It is not the intention of the Trustees to create a general
partnership, limited partnership, joint stock association, corporation, bailment
or any form of legal relationship other than a trust. Nothing in the Declaration
shall be construed to make the Shareholders, either by themselves or with the
Trustees, partners or members of a joint association.
SECTION 6.4. ISSUANCE OF SHARES. The Trustees, in their discretion may,
from time to time without vote of the Shareholders, issue Shares, in addition to
the then issued and outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount and type of consideration, including cash
or property, and on such terms as the Trustees may deem best, and may deem best,
and may in such manner acquire other assets (including the acquisition of assets
subject to, and in connection with, the assumption of liabilities) and
businesses. In connection with any issuance of Shares, the Trustees may issue
fractional Shares. The Trustees may from time to time divide or combine the
Shares of any series into a greater or lesser number without thereby changing
their proportionate beneficial interests in Trust Property allocated or
belonging to such series. Contributions to the Trust may be accepted for, and
Shares shall be redeemed as, whole Shares and/or fractions of a Share.
SECTION 6.5. REGISTER OF SHARES. A register or registers shall be kept at
the principal office of the Trust or at an office of the Transfer Agent or any
one or more Shareholder Servicing Agents which register or registers, taken
together, shall contain the names and addresses of the Shareholders and the
number of Shares held by them respectively and a record of all transfers
thereof. Such register or registers shall be conclusive as to who are the
holders of the Shares and who shall be entitled to receive dividends or
distributions or otherwise to exercise or enjoy the rights of Shareholders. No
Shareholder shall be entitled to receive payment of any dividend or
distribution, nor to have notice given to him as herein or in the By-Laws
provided, until he has given his address to the Transfer Agent, the Shareholder
Servicing Agent which is the agent of record for such Shareholder, or such other
officer or agent of the Trustees as shall keep the said register for entry
thereon. It is not contemplated that certificates will be issued for the Shares;
however, the Trustees, in their discretion, may authorize the issuance of Share
certificates and promulgate appropriate rules and regulations as to their use.
14
<PAGE>
SECTION 6.6. TRANSFER OF SHARES. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by his agent thereunto
duly authorized in writing, upon delivery to the Trustees, the Transfer Agent or
the Shareholder Servicing Agent which is the agent of record for such
Shareholder, of a duly executed instrument of transfer, together with any
certificate or certificates (if issued) for such Shares and such evidence of the
genuineness of each such execution and authorization and of other matters as may
reasonably be required. Upon such delivery the transfer shall be recorded on the
register of the Trust. Until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereunder and
neither the Trustees nor any Transfer Agent, Shareholder Servicing Agent or
registrar nor any officer, employee or agent of the Trust shall be affected by
any notice of the proposed transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees, the Transfer
Agent or the Shareholder Servicing Agent which is the agent of record for such
Shareholder; but until such record is made, the Shareholder of record shall be
deemed to be the holder of such Shares for all purposes hereunder and neither
the Trustees nor any Transfer Agent, Shareholder Servicing Agent or registrar
nor any officer or agent of the Trust shall be affected by any notice of such
death, bankruptcy or incompetence, or other operation of law.
SECTION 6.7. NOTICES. Any and all notices to which any Shareholder may be
entitled and any and all communications shall be deemed duly served or given if
mailed, postage prepaid, addressed to any Shareholder of record at his last
known address as recorded on the register of the Trust.
SECTION 6.8. VOTING POWERS. The Shareholders shall have power to vote only
(i) for the removal of Trustees as provided in Section 2.2 hereof, (ii) with
respect to any investment advisory or management contract as provided in Section
4.1 hereof, (iii) with respect to termination of the Trust as provided in
Section 9.2 hereof, (iv) with respect to any amendment of this Declaration to
the extent and as provided in Section 9.3 hereof, (v) with respect to any
merger, consolidation or sale of assets as provided in Sections 9.4 and 9.6
hereof, (vi) with respect to incorporation of the Trust or any series to the
extent and as provided in Sections 9.5 and 9.6 hereof, (vii) to the same extent
as the stockholders of a Massachusetts business corporation as to whether or not
a court action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or the
Shareholders, and (viii) with respect to such additional matters relating to the
Trust with the Commission (or any successor agency) or any state, or as the
Trustees may consider necessary or desirable. Each whole Share shall be entitled
to one vote as to any matter on which it is entitled to vote and each fractional
Share shall be entitled to a proportionate fractional vote, except that Shares
held in the treasury of the Trust shall not be voted and except that all Shares
shall be voted by individual series on any matter submitted to a vote of the
15
<PAGE>
Shareholders except as provided in Section 6.9(g) hereof. Shares shall be voted
by individual series on any matter submitted to a vote of the Shareholders of
the Trust except as provided in Section 6.9(g) hereof. There shall be no
cumulative voting in the election of Trustees. Until Shares are issued, the
Trustees may exercise all rights of Shareholders and may take any action,
required by law, the Declaration or the By-Laws to be taken by Shareholders. At
any meeting of Shareholders of the Trust or of any series of the Trust, a
Shareholder Servicing Agent may vote any shares as to which such Shareholder
Servicing Agent is the agent of record and which are not otherwise represented
in person or by proxy at the meeting, proportionately in accordance with the
votes cast by holders of all shares otherwise represented at the meeting in
person or by proxy as to which such Shareholder Servicing Agent is the agent of
record. Any shares so voted by a Shareholder Servicing Agent will be deemed
represented at the meeting for quorum purposes. The By-Laws may include further
provisions for Shareholder votes and meetings and related matters.
SECTION 6.9. SERIES DESIGNATION. As set forth in Appendix I hereto, the
Trustees have authorized the division of Shares into series, as designated and
established pursuant to the provisions of Appendix I and this Section 6.9. The
Trustees, in their discretion, may authorize the division of Shares into one or
more additional series, and the different series shall be established and
designated, and the variations in the relative rights, privileges and
preferences as between the different series shall be fixed and determined by the
Trustees upon and subject to the following provisions:
(a) All Shares shall be identical except that there may be such variations
as shall be fixed and determined by the Trustees between different series as to
purchase price, right of redemption and the price, terms and manner of
redemption, and special and relative rights as to dividends and on liquidation.
(b) The number of authorized Shares and the number of Shares of each series
that may be issued shall be unlimited. The Trustees may classify or reclassify
any unissued Shares or any Shares previously issued and reacquired of any series
into one or more series that may be established and designated from time to
time. The Trustees may hold as treasury shares (of the same or some other
series), reissue for such consideration and on such terms as they may determine,
or cancel any Shares of any series reacquired by the Trust at their discretion
from time to time.
(c) All consideration received by the Trust for the issuance or sale of
Shares of a particular series, together with all assets in which such
consideration is invested or reinvested, all income and earnings thereon,
profits therefrom, and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation of such assets, and any funds or payments derived
from any reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that series for all purposes, subject only to the rights
of creditors of such series, and shall be so recorded upon the books of account
of the Trust. In the event that there are any assets, income, earnings, profits,
proceeds, funds or payments which are not readily identifiable as belonging to
any particular series, the Trustees shall allocate them to and among any one or
more of the series established and designated from time to time in such manner
and on such basis as the Trustees, in their sole discretion, deem fair and
equitable. Each such allocation by the Trustees shall be conclusive and binding
16
<PAGE>
upon the Shareholders of all series for all purposes. No Shareholder of any
particular series shall have any claim on or right to any assets allocated or
belonging to any other series of Shares.
(d) The assets belonging to each particular series shall be charged with
the liabilities of the Trust in respect of that series and all expenses, costs,
charges and reserves attributable to that series, and any general liabilities,
expenses, costs, charges or reserves of the Trust which are not readily
identifiable as belonging to any particular series shall be allocated and
charged by the Trustees to and among any one or more of the series established
and designated from time to time in such manner and on such basis as the
Trustees, in their sole discretion, deem fair and equitable. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders of all series for all purposes. The
Trustees shall have full discretion, to the extent not inconsistent with the
1940 Act, to determine which items shall be treated as income and which items as
capital; and each such determination and allocation shall be conclusive and
binding upon the Shareholders. Under no circumstances shall the assets allocated
or belonging to any particular series be charged with liabilities, expenses,
costs, charges or reserves attributable to any other series. All Persons who
have extended credit which has been allocated to a particular series, or who
have a claim or contract which has been allocated to any particular series,
shall look only to the assets of that particular series for payment of such
credit, claim or contract.
(e) The power of the Trustees to invest and reinvest the Trust Property
allocated or belonging to any particular series shall be governed by Section 3.2
hereof unless otherwise provided in the instrument of the Trustees establishing
such series which is hereinafter described.
(f) Each Share of a series shall represent a beneficial interest in the net
assets allocated or belonging to such series only, and such interest shall not
extend to the assets of the Trust generally. Dividends and distributions on
Shares of a particular series may be paid with such frequency as the Trustees
may determine, which may be monthly or otherwise, pursuant to a standing vote or
votes adopted only once or with such frequency as the Trustees may determine, to
the Shareholders of that series only, from such of the income and capital gains,
accrued or realized, from the assets belonging to that series, as the Trustees
may determine, after providing for actual and accrued liabilities belonging to
that series. All dividends and distributions on Shares of a particular series
shall be distributed PRO RATA to the Shareholders of that series in proportion
to the number of Shares of that series held by such Shareholders at the date and
time of record established for the payment of such dividends or distributions.
Shares of any particular series of the Trust may be redeemed solely out of Trust
Property allocated or belonging to that series. Upon liquidation or termination
of a series of the Trust, Shareholders of such series shall be entitled to
receive a PRO RATA share of the net assets of such series only.
(g) Notwithstanding any provision hereof to the contrary, on any matter
submitted to a vote of the Shareholders, all Shares then entitled to vote shall
be voted by individual series, except that (i) when required by the 1940 Act to
be voted in the aggregate, Shares shall not be voted by individual series, and
17
<PAGE>
(ii) when the Trustees have determined that the matter affects the interests of
Shareholders of more than one series, Shareholders of all such affected series
shall vote in the aggregate.
(h) The establishment and designation of any series of Shares shall be
effective upon the execution by a majority of the Trustees of an instrument
setting forth such establishment and designation and the relative rights and
preferences of such series, or as otherwise provided in such instrument. At any
time that there are no Shares outstanding of any particular series previously
established and designated, the Trustees may by an instrument executed by a
majority of their number abolish that series and the establishment and
designation thereof. Each instrument referred to in this paragraph shall have
the status of an amendment to this Declaration.
(i) Notwithstanding anything in this Declaration to the contrary, the
Trustees may, in their discretion, authorize the division of Shares of any
series into Shares of one or more classes or subseries of such series. All
Shares of a class or a subseries shall be identical with each other and with the
Shares of each other class or subseries of the same series except for such
variations between classes or subseries as may be approved by the Board of
Trustees and be permitted under the 1940 Act or pursuant to any exemptive order
issued by the Commission.
ARTICLE VIII
REDEMPTIONS
SECTION 7.1. REDEMPTIONS. In case any Shareholder at any time desires to
dispose of his Shares, he may deposit his certificate or certificates therefor,
duly endorsed in blank or accompanied by an instrument of transfer executed in
blank, or if the Shares are not represented by any certificate, a written
request or other such form of request as the Trustees may from time to time
authorize, at the office of the Transfer Agent, the Shareholder Servicing Agent
which is the agent of record for such Shareholder, or at the office of any bank
or trust company, either in or outside of the Commonwealth of Massachusetts,
which is a member of the Federal Reserve System and which the said Transfer
Agent or the said Shareholder Servicing Agent has designated in writing for that
purpose, together with an irrevocable offer in writing in a form acceptable to
the Trustees to sell the Shares represented thereby to the Trust at the net
asset value per Share thereof, next determined after such deposit as provided in
Section 8.1 hereof. Payment for said Shares shall be made to the Shareholder
within seven days after the date on which the deposit is made, unless (i) the
date of payment is postponed pursuant to Section 7.2 hereof, or (ii) the
receipt, or verification of receipt, of the purchase price for the Shares to be
redeemed is delayed, in either of which events payment may be delayed beyond
seven days.
SECTION 7.2. SUSPENSION OF RIGHT OF REDEMPTION. The Trust may declare a
suspension of the right of redemption or postpone the date of payment of the
redemption proceeds for the whole or any part of any period (i) during which the
New York Stock Exchange is closed other than customary weekend and holiday
18
<PAGE>
closings, (ii) during which trading on the New York Stock Exchange is
restricted, (iii) during which an emergency exists as a result of which disposal
by the Trust of securities owned by it is not reasonably practicable or it is
not reasonably practicable for the Trust fairly to determine the value of its
net assets, or (iv) during which the Commission for the protection of
Shareholders by order permits the suspension of the right of redemption or
postponement of the date of payment of the redemption proceeds; provided that
applicable rules and regulations of the Commission shall govern as to whether
the conditions prescribed in (ii), (iii) or (iv) exist. Such suspension shall
take effect at such time as the Trust shall specify but not later than the close
of business on the business day next following the declaration of suspension,
and thereafter there shall be no right of redemption or payment of the
redemption proceeds until the Trust shall declare the suspension at an end,
except that the suspension shall terminate in any event on the first day on
which said stock exchange shall have reopened or the period specified in (ii) or
(iii) shall have expired (as to which, in the absence of an official ruling by
the Commission, the determination of the Trust shall b conclusive). In the case
of a suspension of the right of redemption, a Shareholder may either withdraw
his request for redemption or receive payment based on the net asset value
existing after the termination of the suspension.
SECTION 7.3. REDEMPTION OF SHARES; DISCLOSURE OF HOLDING. If the Trustees
shall, at any time and in good faith, be of the opinion that direct or indirect
ownership of Shares has or may become concentrated in any Person to an extent
which would disqualify the Trust, or any series of the Trust, as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"), then the Trustees shall have the power by lot or other means deemed
equitable by them (i) to call for redemption by any such Person a number of
Shares of the Trust, or such series of the Trust, sufficient to maintain or
bring the direct or indirect ownership of Shares of the Trust, or such series of
the Trust, into conformity with the requirements for such qualification, and
(ii) to refuse to transfer or issue Shares of the Trust, or such series of the
Trust, to any Person whose acquisition of the Shares of the Trust, or such
series of the Trust, would result in such disqualification. The redemption shall
be effected at the redemption price and in the manner provided in Section 7.1
hereof.
The Shareholders of the Trust shall upon demand disclose to the Trustees in
writing such information with respect to direct and indirect ownership of Shares
of the Trust as the Trustees deem necessary to comply with the provisions of the
Code, or to comply with the requirements of any other authority. Upon the
failure of a Shareholder to disclose such information and to comply with such
demand of the Trustees, the Trust shall have the power to redeem such Shares at
a redemption price determined in accordance with Section 7.1 hereof.
SECTION 7.4. REDEMPTIONS OF ACCOUNTS OF LESS THAN MINIMUM AMOUNT. The
Trustees shall have the power, and any Shareholder Servicing Agent with whom the
Trust has so agreed (or a subcontractor of such Shareholder Servicing Agent)
shall have the power, at any time to redeem Shares of any Shareholder at a
redemption price determined in accordance with Section 7.1 hereof if at such
time the aggregate net asset value of the Shares owned by such Shareholder is
19
<PAGE>
less than a minimum amount as determined from time to time and disclosed in a
prospectus of the Trust or in the Shareholder Servicing Agent's (or
subcontractor's) agreement with its customer. A Shareholder shall be notified
that the aggregate value of his Shares is less than such minimum amount and
allowed 60 days to make an additional investment before redemption is processed.
ARTICLE VIII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
The Trustees, in their absolute discretion, may prescribe and shall set
forth in the By-Laws or in a duly adopted vote or votes of the Trustees such
bases and times for determining the per Share net asset value of the Shares or
net income, or the declaration and payment of dividends and distributions, as
they may deem necessary or desirable.
ARTICLE IX
DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS, ETC.
SECTION 9.1. DURATION. The Trust shall continue without limitation of time
but subject to the provisions of this Article IX.
SECTION 9.2. TERMINATION OF TRUST. (a) The Trust may be terminated (i) by a
Majority Shareholder Vote of its Shareholders, or (ii) by the Trustees by
written notice to the Shareholders. Any series of the Trust may be terminated
(i) by a Majority Shareholder Vote of the Shareholders of that series, or (ii)
by the Trustees by written notice to the Shareholders of that series. Upon the
termination of the Trust or any series of the Trust:
(i) The Trust or series of the Trust shall carry on no business except for
the purpose of winding up its affairs;
(ii) The Trustees shall proceed to wind up the affairs of the Trust or
series of the Trust and all the powers of the Trustees under this Declaration
shall continue until the affairs of the Trust or series of the Trust shall have
been wound up, including the power to fulfill or discharge the contracts of the
Trust, collect the assets of the Trust or series of the Trust, sell, convey,
assign, exchange, transfer or otherwise dispose of all or any part of the
remaining Trust Property of the Trust or series of the Trust to one or more
Persons at public or private sale for consideration which may consist in whole
or in part of cash, securities or other property of any kind, discharge or pay
the liabilities of the Trust or series of the Trust, and to do all other acts
appropriate to liquidate the business of the Trust or series of the Trust;
provided, that any sale, conveyance, assignment, exchange, transfer or other
disposition of all or substantially of the Trust Property of the Trust or series
20
<PAGE>
of the Trust shall require Shareholder approval in accordance with Section 9.4
or 9.6 hereof, respectively; and
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property of the Trust or series of the Trust, in
cash or in kind or partly in cash and partly in kind, among the Shareholders of
the Trust or series of the Trust according to their respective rights.
(b) After termination of the Trust or series of the Trust and distribution
to the Shareholders of the Trust or series of the Trust as herein provided, a
majority of the Trustees shall execute and lodge among the records of the Trust
an instrument in writing setting forth the fact of such termination, and the
Trustees shall thereupon be discharged from all further liabilities and duties
hereunder with respect to the Trust or series of the Trust, and the rights and
interests of all Shareholders of the Trust or series of the Trust shall
thereupon cease.
SECTION 9.3. AMENDMENT PROCEDURE. (a) This Declaration may be amended by a
Majority Shareholder Vote of the Shareholders or by any instrument in writing,
signed by a majority of the Trustees and consented to by the holders of not less
than a majority of the Shares of the Trust. The Trustees may also amend this
Declaration without the vote or consent of Shareholders to designate series in
accordance with Section 6.9 hereof, to change the name of the Trust, to supply
any omission, to cure, correct or supplement any ambiguous, defective or
inconsistent provision hereof, or to conform this Declaration to the
requirements of applicable federal laws or regulations or the requirements of
the regulated investment company provisions of the Internal Revenue Code of
1986, as amended, or to (i) change the state or other jurisdiction designated
herein as the state or other jurisdiction whose laws shall be the governing law
hereof, (ii) effect such changes herein as the Trustees find to be necessary or
appropriate (A) to permit the filing of this Declaration under the laws of such
state or other jurisdiction applicable to trusts or voluntary associations, (B)
to permit the Trust to elect to be treated as a "regulated investment company"
under the applicable provisions of the Internal Revenue Code of 1986, as
amended, or (C) to permit the transfer of shares (or to permit the transfer of
any other beneficial interests or shares in the Trust, however denominated), and
(iii) in conjunction with any amendment contemplated by the foregoing clause (i)
or the foregoing clause (ii) to make any and all such further changes or
modifications to this Declaration as the Trustees find to be necessary or
appropriate, any finding of the Trustees referred to in the foregoing clause
(ii) or clause (iii) to be conclusively evidenced by the execution of any such
amendment by a majority of the Trustees, but the Trustees shall not be liable
for failing so to do.
(b) No amendment which the Trustees have determined would affect the
rights, privileges or interests of holders of a particular series of Shares, but
not the rights, privileges or interests of holders of all series of Shares
generally, and which would otherwise require a Majority Shareholder Vote under
paragraph (a) of this Section 9.3, may be made except with the vote or consent
21
<PAGE>
by a Majority Shareholder Vote of Shareholders of such series.
(c) Notwithstanding any other provision of this Declaration to the
contrary, the Trustees shall have the power in their discretion without any
requirement of approval by shareholders to either invest all or a portion of the
Trust Property, or sell all or a portion of the Trust Property and invest the
proceeds of such sales, in another investment company that is registered under
the 1940 Act.
(d) Notwithstanding any other provision hereof, no amendment may be made
under this Section 9.3 which would change any rights with respect to the Shares,
or any series of Shares, by reducing the amount payable thereon upon liquidation
of the Trust or by diminishing or eliminating any voting rights pertaining
thereto, except with the Majority Shareholder Vote of the Shares or that series
of Shares. Nothing contained in this Declaration shall permit the amendment of
this Declaration to impair the exemption from personal liability of the
Shareholders, Trustees, officers, employees and agents of the Trust or to permit
assessments upon Shareholders.
(e) A certificate signed by a majority of the Trustees setting forth an
amendment and reciting that it was duly adopted by the Shareholders or by the
Trustees as aforesaid, and executed by a majority of the Trustees, shall be
conclusive evidence of such amendment when lodged among the records of the
Trust.
(f) Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of Shares of the Trust shall have become effective,
this Declaration may be amended in any respect by the affirmative vote of a
majority of the Trustees or by an instrument signed by a majority of the
Trustees.
SECTION 9.4. MERGER, CONSOLIDATION AND SALE OF ASSETS. The Trust may merge
or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust Property (or all or substantially all of the Trust Property allocated or
belonging to a particular series of the Trust) including its good will, upon
such terms and conditions and for such consideration when and as authorized at
any meeting of Shareholders called for such purpose by the vote of the holders
of two-thirds of the outstanding Shares of all series of the Trust voting as a
single class, or of the affected series of the Trust, as the case may be, or by
an instrument or instruments in writing without a meeting, consented to by the
vote of the holders of two-thirds of the outstanding Shares of all series of the
Trust voting as a single class, or of the affected series of the Trust, as the
case may be; provided, however, that if such merger, consolidation, sale, lease
or exchange is recommended by the Trustees, the vote or written consent by
Majority Shareholder Vote shall be sufficient authorization; and any such
merger, consolidation, sale, lease or exchange shall be deemed for all purposes
to have been accomplished under and pursuant to the statutes of the Commonwealth
of Massachusetts. Nothing contained herein shall be construed as requiring
approval of Shareholders for any sale of assets in the ordinary course of the
business of the Trust.
22
<PAGE>
SECTION 9.5. INCORPORATION, REORGANIZATION. With the approval of the
holders of a majority of the Shares outstanding and entitled to vote, the
Trustees may cause to be organized or assist in organizing a corporation or
corporations under the laws of any jurisdiction, or any other trust, unit
investment trust, partnership, association or other organization to take over
all of the Trust Property or to carry on any business in which the Trust shall
directly or indirectly have any interest, and to sell, convey and transfer the
Trust Property to any such corporation, trust, partnership, association or
organization in exchange for the shares or securities thereof or otherwise, and
to lend money to, subscribe for the shares or securities of, and enter into any
contracts with any such corporation, trust, partnership, association or
organization in which the Trust holds or is about to acquire shares or any other
interest. Subject to Section 9.4 hereof, the Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any such
corporation, trust, partnership, association or other organization if and to the
extent permitted by law. Nothing contained in this Section 9.5 shall be
construed as requiring approval of Shareholders for the Trustees to organize or
assist in organizing one or more corporations, trusts, partnerships,
associations or other organizations and selling, conveying or transferring a
portion of the Trust Property to such organization or entities.
SECTION 9.6. INCORPORATION OR REORGANIZATION OF SERIES. With the approval
of a Majority Shareholder Vote of any series, the Trustees may sell, lease or
exchange all of the Trust Property allocated or belonging to that series, or
cause to be organized or assist in organizing a corporation or corporations
under the laws of any other jurisdiction, or any other trust, unit investment
trust, partnership, association or other organization, to take over all of the
Trust Property allocated or belonging to that series and to sell, convey and
transfer such Trust Property to any such corporation, trust, unit investment
trust, partnership, association, or other organization in exchange for the
shares or securities thereof or otherwise.
ARTICLE X
REPORTS TO SHAREHOLDERS AND SHAREHOLDER COMMUNICATIONS
The Trustees shall at least semi-annually submit to the Shareholders a
written financial report of the transactions of the Trust, including financial
statements which shall at least annually be certified by independent trust
accountants.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. FILING. This Declaration and any amendment hereto shall be
filed in the office of the Secretary of the Commonwealth of Massachusetts and in
such other place or places as may be required under the laws of the Commonwealth
of Massachusetts and may also be filed or recorded in such other places as the
Trustees deem appropriate. Each amendment so filed shall state or be accompanied
23
<PAGE>
by a certificate signed and acknowledged by a Trustee stating that such action
was duly taken in the manner provided herein, and unless such amendment or such
certificate sets forth some later time for the effectiveness of such amendment,
such amendment shall be effective upon its filing. A restated Declaration,
integrating into a single instrument all of the provisions of the Declaration
which are then in effect and operative, may be executed from time to time by a
majority of the Trustees and shall, upon filing with the Secretary of the
Commonwealth of Massachusetts, be conclusive evidence of all amendments
contained therein and may thereafter be referred to in lieu of this original
Declaration and the various amendments thereto.
SECTION 11.2. GOVERNING LAW. This Declaration is executed by the Trustees
and delivered in the Commonwealth of Massachusetts and with reference to the
laws thereof, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed according to the laws
of said Commonwealth.
SECTION 11.3. COUNTERPARTS. This Declaration may be simultaneously executed
in several counterparts, each of which shall be deemed to be an original, and
such counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any such original counterpart.
SECTION 11.4. RELIANCE BY THIRD PARTIES. Any certificate executed by an
individual who, according to the records of the Trust, is a Trustee hereunder
certifying to: (i) the number or identity of Trustees or Shareholders, (ii) the
due authorization of the execution of any instrument or writing, (iii) the form
of any vote passed at a meeting of Trustees or Shareholders, (iv) the fact that
the number of Trustees or Shareholders present at any meeting or executing any
written instrument satisfies the requirements of this Declaration, (v) the form
of any By-Laws adopted by or the identity of any officers elected by the
Trustees, or (vi) the existence of any fact or facts which in any manner relates
to the affairs of the Trust, shall be conclusive evidence as to the matters so
certified in favor of any Person dealing with the Trustees and their successors.
SECTION 11.5. PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS. (a) The
provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any such provision is in conflict
with the 1940 Act, the regulated investment company provisions of the Internal
Revenue Code of 1986, as amended, or with other applicable laws and regulations,
the conflicting provision shall be deemed never to have constituted a part of
this Declaration; provided however, that such determination shall not affect any
of the remaining provisions of this Declaration or render invalid or improper
any action taken or omitted prior to such determination.
SECTION 11.6. PRINCIPAL OFFICE. The principal office of the Trust is 321 S.
Bromfield Road, Dayton, OH 45429.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
24
<PAGE>
affect such provision in any other jurisdiction or any other provision of the
Declaration in any jurisdiction.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of the
20th day of December, 1999.
/s/ Richard W. Bradford
----------------------------------
as Trustee and not individually
/s/ Cameron M. Bernadsky
----------------------------------
as Trustee and not individually
/s/ George Doumanis
----------------------------------
as Trustee and not individually
25
<PAGE>
STATE OF OHIO
COUNTY OF MONTGOMERY
December ___, 1999
Then personally appeared the above-named Cameron M. Bernadsky, who
acknowledged the foregoing instrument to be his free act and deed.
Before me,
---------------------------------------
Notary Public
My commission expires:
STATE OF NEW YORK
COUNTY OF ______________
December ___, 1999
Then personally appeared the above-named George Doumanis, who acknowledged
the foregoing instrument to be his free act and deed.
Before me,
---------------------------------------
Notary Public
My commission expires:
<PAGE>
STATE OF WASHINGTON
COUNTY OF ____________
December ___, 1999
Then personally appeared the above-named Richard W. Bradford, who
acknowledged the foregoing instrument to be his free act and deed.
Before me,
---------------------------------------
Notary Public
My commission expires:
<PAGE>
Appendix I
Searay Financial Funds
Establishment and
Designation of Series of Shares of
Beneficial Interest (par value $0.10 per share)
Pursuant to Section 6.9 of the Declaration of Trust, dated as of December
__, 1999 (the "Declaration of Trust"), of Searay Financial (the "Trust"), the
Trustees of the Trust hereby establish and designate a series of Shares (as
defined in the Declaration of Trust) (the "Fund") to have the following special
and relative rights:
1. The Fund shall be designated as follows:
The Sturgeon Fund
2. The Fund shall be authorized to hold cash, invest in securities,
instruments and other properties and use investment techniques as from time to
time described in the Trust's then currently effective registration statement
under the Securities Act of 1933 to the extent pertaining to the offering of
Shares of the Fund. Each Share of the Fund shall be redeemable, shall be
entitled to one vote (or fraction thereof in respect of a fractional share) on
matters on which Shares of the Fund shall be entitled to vote, shall represent a
PRO RATA beneficial interest in the assets allocated or belonging to the Fund,
and shall be entitled to receive its PRO RATA share of the net assets of the
Fund upon liquidation of the Fund, all as provided in Section 6.9 of the
Declaration of Trust. The proceeds of sales of Shares of the Fund, together with
any income and gain thereon, less any diminution or expenses thereof, shall
irrevocably belong to that Fund, unless otherwise required by law.
3. Shareholders of the Fund shall vote separately as a class on any matter
to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to the Fund as provided in, Rule 18f-2, as
from time to time in effect, under the Investment Company Act of 1940, as
amended, or any successor rule, and by the Declaration of Trust.
4. The assets and liabilities of the Trust shall be allocated as set forth
in Section 6.9 of the Declaration of Trust.
5. Subject to the provisions of Section 6.9 and Article IX of the
Declaration of Trust, the Trustees (including any successor Trustees) shall have
the right at any time and from time to time to reallocate assets and expenses,
to change the designation of the Fund now or hereafter created, or otherwise to
change the special and relative rights of the Fund.
BY-LAWS
OF
SEARAY FINANCIAL FUNDS
ARTICLE I
DEFINITIONS
The terms "COMMISSION", "DECLARATION", "DISTRIBUTOR", "INVESTMENT ADVISER",
"MAJORITY SHAREHOLDER VOTE", "1940 ACT", "SHAREHOLDER", "SHARES", "TRANSFER
AGENT", "TRUST", TRUST PROPERTY" and "TRUSTEES" have the respective meanings
given them in the Declaration of Trust of The Sturgeon Fund dated as of December
__, 1999.
ARTICLE II
OFFICES
SECTION 1. PRINCIPAL OFFICE. Until changed by the Trustees, the principal
office of the Trust shall be P. O. Box 292707, 321 S. Bromfield Road, Dayton, OH
45429.
SECTION 2. OTHER OFFICES. The Trust may have offices in such other places
without as well as within the State of Ohio or the Commonwealth of Massachusetts
as the Trustees may from time to time determine.
ARTICLE III
SHAREHOLDERS
SECTION 1. MEETINGS. A meeting of Shareholders may be called at any time by
a majority of the Trustees and shall be called by any Trustee upon written
request, which shall specify the purpose or purposes for which such meeting is
to be called, of Shareholders holding in the aggregate not less than 10% of the
outstanding Shares entitled to vote on the matters specified in such written
request. Any such meeting shall be held within or without the Commonwealth of
Massachusetts on such day and at such time as the Trustees shall designate. The
holders of a majority of outstanding Shares entitled to vote present in person
or by proxy shall constitute a quorum at any meeting of the Shareholders. In the
absence of a quorum, a majority of outstanding Shares entitled to vote present
in person or by proxy may adjourn the meeting from time to time until a quorum
shall be present.
Whenever a matter is required to be voted by Shareholders of the Trust in
the aggregate under Section 6.8 and Section 6.9 and Section 6.9(g) of the
Declaration, the Trust may either hold a meeting of Shareholders of all series,
as defined in Section 6.9 of the Declaration, to vote on such matter, or hold
1
<PAGE>
separate meetings of shareholders of each of the individual series to vote on
such matter, PROVIDED THAT (i) such separate meetings shall be held within one
year of each other, (ii) a quorum consisting of the holders of the majority of
outstanding Shares of the individual series entitled to vote present in person
or by proxy shall be present at each such separate meeting and (iii) a quorum
consisting of the holders of a majority of all Shares of the Trust entitled to
vote present in person or by proxy shall be present in the aggregate at such
separate meetings, and the votes of Shareholders at all such separate meetings
shall be aggregated in order to determine if sufficient votes have been cast for
such matter to be voted.
SECTION 2. NOTICE OF MEETINGS Notice of all meetings of Shareholders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Shareholder entitled to vote at such meeting at his
address as recorded on the register of the Trust, mailed at least 10 days and
not more than 60 days before the meeting. Only the business stated in the notice
of the meeting shall be considered at such meeting. Any adjourned meeting may be
held as adjourned without further notice. No notice need be given to any
Shareholder who shall have failed to inform the Trust of his current address or
if a written waiver of notice, executed before or after the meeting by the
Shareholder or his attorney thereunto authorized, is filed with the records of
the meeting.
Where separate meetings are held for Shareholders of each of the individual
series to vote on a matter required to be voted on by Shareholders of the Trust
in the aggregate, as provided in Article III, Section 1 above, notice of each
such separate meeting shall be provided in the manner described above in this
Section 2.
SECTION 3. RECORD DATE. For the purpose of determining the Shareholders who
are entitled to notice of and to vote at any meeting, or to participate in any
distribution, or for the purpose of any other action, the Trustees may from time
to time close the transfer books for such period, not exceeding 30 days, as the
Trustees may determine; or without closing the transfer books the Trustees may
fix a date not more than 60 days prior to the date of any meeting of
Shareholders or distribution or other action as a record date for the
determination of the persons to be treated as Shareholders of record for such
purpose.
Where separate meetings are held for Shareholders of each of the individual
series to vote on a matter required to be voted on by Shareholders of the Trust
in the aggregate, as provided in Article III, Section 1 above, the record date
of each such separate meeting shall be determined in the manner described above
in this Section 3.
SECTION 4. PROXIES. At any meeting of Shareholders, any holder of Shares
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken.
Pursuant to a vote of a majority of the Trustees, proxies may be solicited in
the name of the Trust or one or more Trustees or officers of the Trust. Only
Shareholders of record shall be entitled to vote. Each full Share shall be
2
<PAGE>
entitled to one vote and fractional Shares shall be entitled to a vote of such
fraction. When any Share is held jointly by several persons, any one of them may
vote at any meeting in person or by proxy in respect of such Share, but if more
than one of them shall be present at such meeting in person or by proxy, and
such joint owners or their proxies so present disagree as to any vote to be
cast, such vote shall not be received in respect of such Share. A proxy
purporting to be executed by or on behalf of a Shareholder shall be deemed valid
unless challenged at or prior to its exercise, and the burden of proving
invalidity shall rest on the challenger. If the holder of any such Share is a
minor or a person of unsound mind, and subject to guardianship or to the legal
control of any other person as regards the charge or management of such Share,
such Share may be voted by such guardian or such other person appointed or
having such control, and such vote may be given in person or by proxy.
SECTION 5. INSPECTION OF RECORDS. The records of the Trust shall be open to
inspection by Shareholders to the same extent as is permitted shareholders of a
Massachusetts business corporation.
SECTION 6. ACTION WITHOUT MEETING. Any action which may be taken by
Shareholders may be taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such larger proportion thereof as shall be
required by law, the Declaration or these By-Laws for approval of such matter)
consent to the action in writing and the written consents are filed with the
records of the meetings of Shareholders. Such consent shall be treated for all
purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
SECTION 1. MEETINGS OF THE TRUSTEES. The Trustees may in their discretion
provide for regular or stated meetings of the Trustees. Notice of regular or
stated meetings need not be given. Meetings of the Trustees other than regular
or stated meetings shall be held whenever called by the Chairman or by any
Trustee. Notice of the time and place of each meeting other than regular or
stated meetings shall be given by the Secretary or an Assistant Secretary or by
the officer or Trustee calling the meeting and shall be mailed to each Trustee
at least two days before the meeting, or shall be telegraphed, cabled, or
wirelessed to each Trustee at his business address, or personally delivered to
him at least one day before the meeting. Notice of a meeting need not be given
to any Trustee if a written waiver of notice, executed by him before or after
the meeting, is filed with the records of the meeting, or to any Trustee who
attends the meeting without protesting prior thereto or at its commencement the
lack of notice to him. A notice or waiver of notice need not specify the purpose
of any meeting. The Trustees may meet by means of a telephone conference circuit
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, which telephone conference meeting shall be
deemed to have been held at a place designated by the Trustees at the meeting.
Participation in a telephone conference meeting shall constitute presence in
person at such meeting. Any action required or permitted to be taken at any
meeting of the Trustees may be taken by the Trustees without a meeting if all
the Trustees consent to the action in writing and the written consents are filed
with the records of the Trustees' meetings. Such consents shall be treated as a
vote for all purposes.
3
<PAGE>
SECTION 2. QUORUM AND MANNER OF ACTING. A majority of the Trustees present
in person at any regular or special meeting of the Trustees shall constitute a
quorum for the transaction of business at such meeting and (except as otherwise
required by law, the Declaration or these By-Laws) the act of a majority of the
Trustees present at any such meeting, at which a quorum is present, shall be the
act of the Trustees. In the absence of a quorum, a majority of the Trustees
present may adjourn the meeting from time to time until a quorum shall be
present. Notice of an adjourned meeting need not be given.
ARTICLE V
COMMITTEES AND ADVISORY BOARD
SECTION 1. EXECUTIVE AND OTHER COMMITTEES. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three Trustees to hold office at the
pleasure of the Trustees. While the Trustees are not in session, the Executive
Committee shall have the power to conduct the current and ordinary business of
the Trust, including the purchase and sale of securities and the designation of
securities to be delivered upon redemption of Shares of the Trust, and such
other powers of the Trustees as the Trustees may, from time to time, delegate to
the Executive Committee except those powers which by law, the Declaration or
these By-Laws the Trustees are prohibited from so delegating. The Trustees may
also elect from their own number other Committees from time to time, the number
composing such Committees, the powers conferred upon the same (subject to the
same limitations as with respect to the Executive Committee) and the term of
membership on such Committees to be determined by the Trustees. The Trustees may
designate a chairman of any such Committee. In the absence of such designation a
Committee may elect its own chairman.
SECTION 2. MEETING QUORUM AND MANNER OF ACTING. The Trustees may (i)
provide for stated meetings of any Committee, (ii) specify the manner of calling
and notice required for special meetings of any Committee, (iii) specify the
number of members of a Committee required to constitute a quorum and the number
of members of a Committee required to exercise specified powers delegated to
such Committee, (iv) authorize the making of decisions to exercise specified
powers by written assent of the requisite number of members of a Committee
without a meeting, and (v) authorize the members of a Committee to meet by means
of a telephone conference circuit.
Each Committee shall keep regular minutes of its meetings and records of
decisions taken without a meeting and cause them to be recorded in a book
designated for that purpose and kept in the office of the Trust.
SECTION 3. ADVISORY BOARD. The Trustees may appoint an Advisory Board to
consist in the first instance of not less than three members. Members of such
Advisory Board shall not be Trustees or officers and need not be Shareholders. A
member of such Advisory Board shall hold office for such period as the Trustees
may by vote provide and may resign therefrom by a written instrument signed by
him which shall take effect upon its delivery to the Trustees. The Advisory
4
<PAGE>
Board shall have no legal powers and shall not perform the functions of Trustees
in any manner, such Advisory Board being intended merely to act in an advisory
capacity. Such Advisory Board shall meet at such times and upon such notice as
the Trustees may by vote provide.
SECTION 4. CHAIRMAN. The Trustees may, by a majority vote of all the
Trustees, elect from their own number a Chairman, to hold office until his
successor shall have been duly elected and qualified. The Chairman shall not
hold any other office. The Chairman may be, but need not be, a Shareholder. The
Chairman shall preside at all meetings of the Trustees and shall have such other
duties as from time to time may be assigned to him by the Trustees.
ARTICLE VI
OFFICERS
SECTION 1. GENERAL PROVISIONS. The officers of the Trust shall be a
President, a Treasurer and a Secretary, each of whom shall be elected by the
Trustees. The Trustees may elect or appoint such other officers or agents as the
business of the Trust may require, including one or more Vice Presidents, one or
more Assistant Treasurers, and one or more Assistant Secretaries. The Trustees
may delegate to any officer or committee the power to appoint any subordinate
officers or agents.
SECTION 2. TERM OF OFFICE AND QUALIFICATIONS. Except as otherwise provided
by law, the Declaration or these By-Laws, the President, the Treasurer and the
Secretary shall hold office until his respective successor shall have been duly
elected and qualified, and all other officers shall hold office at the pleasure
of the Trustees. The Secretary and Treasurer may be the same person. A Vice
President and the Treasurer or a Vice President and the Secretary may be the
same person, but the offices of Vice President, Secretary and Treasurer shall
not be held by the same person. The President shall not hold any other office.
Except as above provided, any two offices may be held by the same person. Any
officer may be, but does not need be, a Trustee or Shareholder.
SECTION 3. REMOVAL. The Trustees, at any regular or special meeting of the
Trustees, may remove any officer with or without cause by a vote of a majority
of the Trustees. Any officer or agent appointed by any officer or committee may
be removed with or without cause by such appointing officer or committee.
SECTION 4. POWERS AND DUTIES OF THE PRESIDENT. The President, unless a
Chairman is so elected by the Trustees, shall be the principal executive officer
of the Trust. Subject to the control of the Trustees and any committee of the
Trustees, the President shall at all times exercise a general supervision and
direction over the affairs of the Trust. The President shall have the power to
employ attorneys and counsel for the Trust and to employ such subordinate
officers, agents, clerks and employees as he may find necessary to transact the
business of the Trust. The President shall also have the power to grant, issue,
execute or sign such powers of attorney, proxies or other documents as may be
deemed advisable or necessary in the furtherance of the interests of the Trust.
5
<PAGE>
The President shall have such other powers and duties as, from time to time, may
be conferred upon or assigned to him by the Trustees.
SECTION 5. POWERS AND DUTIES OF VICE PRESIDENTS. In the absence or
disability of the President, the Vice President or, if there are more than one
Vice President, any Vice President designated by the Trustees shall perform all
the duties and may exercise any of the powers of the President, subject to the
control of the Trustees. Each Vice President shall perform such other duties as
may be assigned to him from time to time by the Trustees or the President.
SECTION 6. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall be the
principal financial and accounting officer of the Trust. The Treasurer shall
deliver all funds of the Trust which may come into his hands to such custodian
as the Trustees may employ pursuant to Article X hereof. The Treasurer shall
render a statement of condition of the finances of the Trust to the Trustees as
often as they shall require the same and shall in general perform all the duties
incident to the office of Treasurer and such other duties as from time to time
may be assigned to him by the Trustees. The Treasurer shall give a bond for the
faithful discharge of his duties, if required to do so by the Trustees, in such
sum and with such surety or sureties as the Trustees shall require.
SECTION 7. POWERS AND DUTIES OF THE SECRETARY. The Secretary shall keep the
minutes of all meetings of the Shareholders in proper books provided for that
purpose; shall keep the minutes of all meetings of the Trustees; shall have
custody of the seal of the Trust; and shall have charge of the Share transfer
books, lists and records unless the same are in the charge of the Transfer
Agent. The Secretary shall attend to the giving and serving of all notices by
the Trust in accordance with the provisions of these By-Laws and as required by
law; and subject to these By-Laws, shall in general perform all the duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him by the Trustees.
SECTION 8. POWERS AND DUTIES OF ASSISTANT TREASURERS. In the absence or
disability of the Treasurer, any Assistant Treasurer designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Treasurer. Each Assistant Treasurer shall perform such other duties as from time
to time may be assigned to him by the Trustees. Each Assistant Treasurer shall
give a bond for the faithful discharge of his duties, if required to do so by
the Trustees, in such sum and with such surety or sureties as the Trustees shall
require.
SECTION 9. POWERS AND DUTIES OF ASSISTANT SECRETARIES. In the absence or
disability of the Secretary, any Assistant Secretary designated by the Trustees
shall perform all of the duties, and may exercise any of the powers, of the
Secretary. Each Assistant Secretary shall perform such other duties as from time
to time may be assigned to him by the Trustees.
SECTION 10. COMPENSATION OF OFFICERS AND TRUSTEES AND MEMBERS OF THE
ADVISORY BOARD. Subject to any applicable law or provision of the Declaration,
the compensation of the officers and Trustees and members of the Advisory Board
shall be fixed from time to time by the Trustees or, in the case of officers, by
any committee of officers upon whom such power may be conferred by the Trustees.
No officer shall be prevented from receiving such compensation as such officer
by reason of the fact that he is also a Trustee.
6
<PAGE>
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall be that period beginning on the first
day of January and ending on the last day of December; provided, however, that
the Trustees may from time to time change the fiscal year.
ARTICLE VIII
SEAL
The Trustees shall adopt a seal which shall be in such form and shall have
such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX
WAIVERS OF NOTICE
Whenever any notice is required to be given by law, the Declaration or
these By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent thereto. A notice shall be deemed to have been telegraphed,
cabled or wirelessed for the purposes of these By-Laws when it has been
delivered to a representative of any telegraph, cable or wireless company with
instruction that it be telegraphed, cabled or wirelessed. Any notice shall be
deemed to be given at the time when the same shall be mailed, telegraphed,
cabled or wirelessed.
ARTICLE X
CUSTODIAN
SECTION 1. APPOINTMENT AND DUTIES. The Trustees shall at all times employ a
bank or trust company having a capital, surplus and undivided profits of at
least $5,000,000 as custodian with authority as its agent, but subject to such
restrictions, limitations and other requirements, if any, as may be contained in
the Declaration, these By-Laws and the 1940 Act:
(i) to hold the securities owned by the Trust and deliver the same upon
written order;
(ii) to receive and receipt for any monies due to the Trust and deposit the
same in its own banking department or elsewhere as the Trustees may
direct;
(iii) to disburse such funds upon orders or vouchers;
(iv) if authorized by the Trustees, to keep the books and accounts of the
Trust and furnish clerical and accounting services; and
7
<PAGE>
(v) if authorized by the Trustees, to compute the net income of the Trust
and the net asset value of Shares;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian and upon such terms and conditions as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees. Subject to the
approval of the Trustees, the custodian may enter into arrangements with
securities depositories. All such custodial, sub-custodial and depository
arrangements shall be subject to, and comply with, the provisions of the 1940
Act and the rules and regulations promulgated thereunder.
SECTION 2. CENTRAL CERTIFICATE SYSTEM. Subject to such rules, regulations
and orders as the Commission may adopt, the Trustees may direct the custodian to
deposit all or any part of the securities owned by the Trust in a system for the
central handling of securities established by a national securities exchange or
a national securities association registered with the Commission under the
Securities Exchange Act of 1934, or with such other person as may be permitted
by the Commission, or otherwise in accordance with the 1940 Act, pursuant to
which system all securities of any particular class or series of any issuer
deposited within the system are treated as fungible and may be transferred or
pledged by bookkeeping entry without physical delivery of such securities,
provided that all such deposits shall be subject to withdrawal only upon the
order of the Trust or its custodian.
SECTION 3. ACCEPTANCE OF RECEIPTS IN LIEU OF CERTIFICATES. Subject to such
rules, regulations and orders as the Commission may adopt, the Trustees may
direct the custodian to accept written receipts or other written evidences
indicating purchases of securities held in book-entry form in the Federal
Reserve System in accordance with regulations promulgated by the Board of
Governors of the Federal Reserve System and the local Federal Reserve Banks in
lieu of receipt of certificates representing such securities.
SECTION 4. PROVISIONS OF CUSTODIAN CONTRACT. The following provisions shall
apply to the employment of a custodian pursuant to this Article X and to any
contract entered into with the custodian so employed:
(a) The Trustees shall cause to be delivered to the custodian all
securities owned by the Trust or to which it may become entitled, and
shall order the same to be delivered by the custodian only upon
completion of a sale, exchange, transfer, pledge, or other disposition
thereof, and upon receipt by the custodian of the consideration
therefor or a certificate of deposit or a receipt of an issuer or of
its Transfer Agent, all as the Trustees may generally or from time to
time require or approve, or to a successor custodian; and the Trustees
8
<PAGE>
shall cause all funds owned by the Trust or to which it may become
entitled to be paid to the custodian, and shall order the same
disbursed only for investment against delivery of the securities
acquired, or in payment of expenses, including management
compensation, and liabilities of the Trust, including distributions to
Shareholders, or to a successor custodian; provided, however, that
nothing herein shall prevent delivery of securities for examination to
the broker purchasing the same in accord with the "street delivery"
custom whereby such securities are delivered to such broker in
exchange for a delivery receipt exchanged on the same day for an
uncertified check of such broker to be presented on the same day for
certification.
(b) In case of the resignation, removal or inability to serve of any such
custodian, the Trust shall promptly appoint another bank or trust
company meeting the requirements of this Article X as successor
custodian. The agreement with the custodian shall provide that the
retiring custodian shall, upon receipt of notice of such appointment,
deliver all Trust Property in its possession to and only to such
successor, and that pending appointment of a successor custodian, or a
vote of the Shareholders to function without a custodian, the
custodian shall not deliver any Trust Property to the Trust, but may
deliver all or any part of the Trust Property to a bank or trust
company of its own selection, having an aggregate capital, surplus and
undivided profits (as shown in its last published report) of at least
$5,000,000; provided that arrangements are made for the Trust Property
to be held under terms similar to those on which they were held by the
retiring custodian.
ARTICLE XI
AMENDMENTS
These By-Laws, or any of them, may be altered, amended or repealed, or new
By-Laws may be adopted (a) by the Shareholders by a Majority Shareholder Vote,
or (b) by the Trustees, provided, however, that no By-Law may be amended,
adopted or repealed by the Trustees if such amendment, adoption or repeal
requires, pursuant to law, the Declaration or these By-Laws, a vote of the
Shareholders.
9
