As filed with the Securities and Exchange Commission on March 2, 2000.
Commission File No. 333-93443
Commission File No. 811-9743
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 2
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 2
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:
----
/ XX / as soon as practicable after the effective date of this registration
---- statement.
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SEARAY FINANCIAL FUNDS
THE STURGEON FUND
PROSPECTUS - March 2, 2000
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
1-800-445-8327
Internet: WWW.THESTURGEONFUND.COM
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CONTENTS
THE FUND
A look at investment goals, Investment Goal 3
strategies, risks, performance Main 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 Fund's
you should know before investing Investments 6
Who Manages the Fund? 7
How is the Trust Organized? 8
How Does Taxation Affect the
Fund and Its Shareholders? 8
SHAREHOLDER MANUAL
Information about account How to Buy Shares 11
transactions and services Distribution Fees 14
How to Make Withdrawals
(Redemptions) 14
Transaction Policies 15
Other Shareholder Services 15
MORE ABOUT RISK
Investment Practices, Securities
and Related Risks 16
Glossary of Risks 17
FOR MORE INFORMATION
Where to learn more about the fund Back Cover
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STURGEON FUND
[ICON] INVESTMENT GOAL
The fund seeks long-term capital appreciation.
[ICON] MAIN STRATEGIES
The fund invests primarily in equity securities that its investment
adviser considers to be undervalued. An equity security represents an
ownership interest in a company or business. 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. The adviser
primarily 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. Market
capitalization is the total current market value of a company's
outstanding stock. 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.
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.
The fund's investment goal is not fundamental; therefore, it may be
changed without shareholder approval.
[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
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both in the overall stock market or in the types of securities held by
the fund.
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.
SECURITIES OF SMALLER COMPANIES. The fund may invest in securities of
companies with small or mid-sized market capitalizations in addition
to companies with large market capitalizations. 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. Information about
smaller companies may not be available, complete, accurate or
comparable.
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
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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.
3 The adviser has contractually 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 June 30, 2001.
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 diversify your growth-equity investments
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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
MORE INFORMATION ABOUT THE FUND'S INVESTMENTS
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 fund writes a call on a security, 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.
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 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, price volatility and reduced market
liquidity associated with smaller companies.
INITIAL PUBLIC OFFERINGS. Although it is not a principal investment
strategy of the fund, 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
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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 OF PRIVATELY HELD BUSINESSES. The fund may invest in securities
of businesses that are privately held. There is no public market for these
securities. These securities are illiquid, which means they cannot be sold
readily. See "Illiquid and Restricted Securities" under "MORE ABOUT RISK" below.
Consequently, the fund may have to accept a less than desirable price to
complete the sale of these securities or may not be able to sell these
securities at all. These privately held businesses may have small
capitalizations and thus, may involve greater risks and price volatility than
investments in larger businesses. Information about these privately held
businesses may not be available, complete, accurate or comparable. See
"Securities of Smaller Companies" under "MAIN RISK FACTORS" above. In addition,
these privately held businesses may have limited operating histories. As a
result, a decision by the fund to invest in these privately held businesses may
rely more heavily on current or planned product lines and the reputation and
experience of their management rather than fundamental valuation factors. See
"Securities of Companies with Limited Operating Histories" above.
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
high quality money market instruments and short-term debt securities, and up to
10% of its assets in money market funds. These money market instruments and
short-term debt securities 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 and it may
miss out on investment opportunities that are more advantageous. If the fund
invests in a money market fund, you will not only bear your proportionate share
of the expenses of the fund, but also you will bear indirectly similar expenses
of the underlying money market fund.
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 Ltd. ("SFG" or the "Adviser")
serves as investment adviser to the fund. SFG has had no prior experience in
managing a mutual fund. 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 March, 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
December, 1998. 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 and has been primarily involved in managing equity accounts. From
January 1996 to March, 1999, Mr. Bradford was a registered representative of
Dean Securities, a broker-dealer. From August, 1993 to 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.
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").
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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"). Shareholders may remove a
trustee at a shareholder meeting by an affirmative vote of two-thirds of the
outstanding shares of the fund.
The Trust may, in the future, seek to achieve the fund's investment goal by
investing all of the fund's assets in an open-end management investment company
having substantially the same investment goal as the fund. The fund's investment
policies permit such an investment. You will receive 30 days prior written
notice with respect to any such investment.
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 services when
choosing a brokerage firm. Brokerage firms may use a portion of the commissions
paid by the fund to reduce its expenses.
DIVERSIFICATION
The fund is diversified, which means the fund may not, with respect to at
least 75% of its assets, invest more than 5% of its assets 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 may earn 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.
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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. 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 return of principal. 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.
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.
TAXATION OF 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.
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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.
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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.
If your order to purchase shares is canceled because your check does not
clear, you will be responsible for any resulting losses or fees incurred in the
transaction. The fund or the distributor may reject any order. 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 1-800-445-8327. Tell the fund 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 821637956
ACCOUNT NAME (your name)
YOUR SEARAY FINANCIAL FUNDS ACCOUNT NUMBER
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:
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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
------------------------------------------------
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o No deferred sales charge
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SHARE PRICE - The fund's shares are sold at net asset value plus the
applicable sales charge as shown in the table below. 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
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,
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indicating the amount you wish to invest. The LOI may 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 also 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 Fund 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
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
mutual 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.
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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
plan. Under its plan, the fund pays the distributor an annual distribution
(12b-1) fee of up to 0.25% of fund assets and an annual service fee of up to
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 TO MAKE WITHDRAWALS (REDEMPTIONS)
You may redeem shares and withdraw funds at net asset value. There are no
redemption fees. (See "Valuation of Shares.")
BY MAIL -- You may redeem shares by mailing a written request to Searay
Financial Funds, c/o Mutual Funds Service Co., P. O. Box 7177, Dublin, OH 43017.
Amounts withdrawn are mailed without charge to your address of record.
BY TELEPHONE - You may redeem by telephone by calling 1-800-445-8327. If
you wish to redeem by telephone you must elect the telephone redemption feature
on the new account application. Amounts withdrawn from your account by telephone
are mailed to you without charge to your address of record.
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.
SIGNATURE GUARANTEE - Certain requests by mail must include a signature
guarantee. It is designed to protect you and the fund from fraud. Your request
must be made in writing and include a signature guarantee if any of the
following situations apply:
o You wish to sell more than $50,000 worth of shares;
o Your account registration has changed within the last 30 days;
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o The check is being mailed to a different address than the one on your
account (record address);
o The check is being made payable to someone other than the account
owner; or
o The redemption proceeds are being transferred to a fund account with a
different registration.
You should be able to obtain a signature guarantee from a bank, broker,
dealer, credit union (if authorized under state law), securities exchange or
association, clearing agency, or savings association. A notary public cannot
provide a signature guarantee.
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 "Valuation of Shares.")
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
VALUATION OF SHARES. The net asset value per share (NAV) for the fund will
be calculated on each business day at the close of regular trading on the New
York Stock Exchange (typically 4:00 p.m. Eastern time) by dividing the fund's
net assets by the number of its shares outstanding. The New York Stock Exchange
is closed on certain holidays listed in the Statement of Additional Information.
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
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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 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.
You may make additional investments and may change or stop the program at
any time. There is no charge for this program.
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 $2,500 ($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 $2,500 ($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 under "MAIN RISK FACTORS" 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
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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. ADR's include MARKET, INFORMATION, CURRENCY AND POLITICAL RISKS
(see risk definitions below).
BORROWING AND REVERSE REPURCHASE AGREEMENTS refer to a loan of money from a
bank or other financial institution undertaken by the fund. A reverse repurchase
agreement means the sale of a security by the fund that must later be
repurchased by the fund at the same price plus interest. The fund may borrow up
to 33-1/3% of its assets. Borrowing and reverse repurchase agreements include
LEVERAGE AND CREDIT RISKS (see risk definitions below).
CONVERTIBLE SECURITIES are debt or equity securities which may be converted
on specified terms into stock of the issuer. Convertible securities include
MARKET, INTEREST RATE, PREPAYMENT AND CREDIT RISKS (see risk definitions below).
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 and may include options which are not issued by the Options
Clearing Corporation or listed on a national securities exchange. The fund may
invest up to 15% of its assets in illiquid and restricted securities. Illiquid
and restricted securities include MARKET, LIQUIDITY AND TRANSACTION RISKS (see
risk definitions below).
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. The fund
may purchase or write options which are not issued by the Options Clearing
Corporation or listed on a national securities exchange. Options include
HEDGING, CORRELATION, OPPORTUNITY, LEVERAGE, INTEREST RATE, MARKET, AND
LIQUIDITY RISKS (see risk definitions below).
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. Repurchase agreements include
CREDIT RISK (see risk definitions below).
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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. Securities lending includes CREDIT RISK
(see risk definitions below).
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. The fund
may engage in short-term trading. If the fund engages in short-term trading, the
fund will have higher turnover and transaction expenses. Short-term trading may
also result in short-term capital gains. Upon the distribution to you of any net
short-term capital gains from the fund, you will be taxed at ordinary tax rates.
Short-term trading includes MARKET RISK (see risk definitions below).
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. When issued securities and forward commitments include MARKET,
OPPORTUNITY AND LEVERAGE RISK (see risk definitions below).
GLOSSARY OF 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.
CURRENCY RISK happens when the fund buys or sells a security denominated in
foreign currency. Foreign currencies "float" in value against the U.S. dollar.
Adverse changes in foreign currency value can cause investment losses when the
fund's investments are converted to U.S. dollars.
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.")
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.
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.
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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 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.
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.
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.
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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.
Information about the fund (including the SAI) can be reviewed and
copied at the Commission's Public Reference Room in Washington, D.C.,
and information on the operation of the Public Reference Room may be
obtained by calling the Commission at 1-202-942-8090. Reports and
other information about the fund are available on the EDGAR Database
on the Commission's Internet site at http://www.sec.gov, and copies of
this information may be obtained, after paying a duplicating fee, by
electronic request at the following E-mail address:
[email protected], or by writing the Commission's Public Reference
Section, Washington, D.C. 20549-0102.
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
1-800-445-8327
Internet: WWW.THESTURGEONFUND.COM
SEC File No.: 811-9743
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THE STURGEON FUND
A FUND OF THE SEARAY FINANCIAL FUNDS TRUST
STATEMENT OF ADDITIONAL INFORMATION
March 2, 2000
This Statement is not a prospectus but should be read in conjunction with
the Prospectus of The Sturgeon Fund (dated March 2, 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 1-800-445-8327. 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
Principal Holders of Outstanding Shares 30
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 series
of the Trust. 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.
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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;
PROVIDED THAT NOTHING IN THE FOLLOWING INVESTMENT RESTRICTIONS WILL PREVENT THE
FUND FROM INVESTING ALL OR PART OF THE FUND'S ASSETS IN AN OPEN-END MANAGEMENT
INVESTMENT COMPANY WITH THE SAME INVESTMENT OBJECTIVE AS THE FUND. THE FUND MAY
NOT
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(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). The Fund will not purchase any security while borrowings
representing more than 5% of its total assets are outstanding;
(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);
(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; or
(8) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities)
if, as a result 25% or more of the Fund's total assets would be invested in the
securities of companies whose principal business activities are in the same
industry.
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.
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(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.
(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
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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
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.
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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
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.
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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
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
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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
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.
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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. 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
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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.
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.
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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.
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
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(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
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.
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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
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
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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.
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 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.
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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.
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.
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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.
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. 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
17
<PAGE>
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
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.
The Fund may effect transactions in its portfolio securities 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 fixed income 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
Fund if, in the opinion of the Board of Trustees, some other method (e.g.,
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<PAGE>
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.
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
19
<PAGE>
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.
Morningstar, Inc. is a mutual fund rating service that rates mutual funds on the
basis of risk-adjusted performance.
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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.
NON-STANDARDIZED PERFORMANCE. The Fund may also advertise performance
information (a "non-standardized quotation") which is calculated differently
from average annual total return. A non-standardized quotation of total return
may be a cumulative return which measures the percentage change in the value of
an account between the beginning and end of a period, assuming no activity in
the account other than reinvestment of dividends and capital gains
distributions. A non-standarized quotation may also be an average annual
compounded rate of return over a specified period, which may be a period
different from those specified for average annual total return. In addition, a
non-standardized quotation may be an indication of the value of a $10,000
investment (made on the date of the initial public offering of the Fund's
shares) as of the end of a specified period. These non-standardized quotations
21
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do not include the effect of the applicable sales load which, if included, would
reduce the quoted performance. A non-standardized quotation of total return will
always be accompanied by the Fund's average annual total return as described
above.
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.
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);
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(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
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.
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NO CERTIFICATES. 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.
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
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.
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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 "Adviser") 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
Group, Ltd.; association dues; the cost of printing and mailing confirmations,
prospectuses, proxies, proxy statements, notices and reports to existing
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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 June 30, 2001.
The Sturgeon Financial Group, Ltd. was formed as a Delaware corporation in
December 1998 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:
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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 Sturgeon Financial Group, Ltd.;
and 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.
THOMAS E. BECK, JR., 52 Trustee President and Chief Executive
P. O. Box 789 Officer of Thomas Beck, Inc., a
Sausalito, CA 94966-0789 consultant to the electronics
industry since 1978.
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KENNETH L. SIMON, 50 Trustee Customer Partnership Manager, GTE
P. O. Box 12347 Northwest Incorporated, a
Olympia, WA 98508 ______________ company (July 1998
to present); Senior Account
Manager (BDN), GTE California
(1993-July, 1998).
* 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.
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.
The Trust and the Manager have each adopted a Code of Ethics that permits
personnel subject to the Code to invest in securities, including, under certain
circumstances and subject to certain restrictions, securities that may be
purchased or held in the Fund's portfolio. However, each such Code restricts
personal investing practices by directors and officers of the Manager and its
affiliates (including the Distributor), and employees of the Manager with access
to information about the purchase or sale of securities in the Fund's portfolio.
The Code of Ethics for the Trust also restricts personal investing practices of
trustees of the Trust who have knowledge about recent Fund trades. Among other
provisions, each Code of Ethics requires that such directors and officers and
employees with access to information about the purchase or sale of securities in
the Fund's portfolio obtain preclearance before executing personal trades. Each
Code of Ethics prohibits acquisition of securities without preclearance in,
among other events, an initial public offering or a limited offering, as well as
profits derived from the purchase and sale of the same security within 60
calendar days. These provisions are designed to put the interests of Fund
shareholders before the interest of people who manage the Fund.
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 Adviser, 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.
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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 up to 0.25% per
year (paid to the Distributor, Creative Capital Management Corp.) of their
average net asset value. In addition, Fund shares bear an asset based service
fee of up to 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
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.
29
<PAGE>
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.
TRANSFER AGENT. Accounting, stock transfer, and dividend disbursing
services are provided to the Fund by Mutual Funds Service Company, 6000 Memorial
Drive, Dublin, Ohio 43017. Mutual Funds Service Company also serves as
Administrator to the Fund pursuant to an Administration Services Agreement.
Services provided to the Fund include coordinating and monitoring any third
party services to the Fund; providing the necessary personnel to perform
administrative functions for the Fund; assisting in the preparation, filing and
distribution of proxy materials, periodic reports to Trustees and shareholders,
registration statements and other necessary documents. The Fund incurs an annual
administrative fee, payable monthly, of .05% of the Fund's average net assets
subject to a minimum annual fee of $30,000.
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.
PRINCIPAL HOLDERS OF OUTSTANDING SHARES
At the date shares of the Fund were first publicly offered for sale, March
2, 2000, Robert Michie owned beneficially and of record 100% of the issued and
outstanding shares of the Fund. As a result, Mr. Michie controls the Fund.
Because of this control, Mr. Michie could prevent a change in the investment
adviser of the Fund that is favored by other shareholders. Mr. Michie could also
cause a change in the investment adviser of the Fund that is opposed by other
shareholders.
FINANCIAL STATEMENTS
Financial statements for the Fund are presented on the following pages.
30
<PAGE>
SEARAY FINANCIAL FUNDS
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 2000
STURGEON FUND
ASSETS:
Cash in Bank $100,000
Total Assets $100,000
LIABILITIES: $ 0
--------
Total Liabilities $ 0
--------
NET ASSETS $100,000
NET ASSETS CONSIST OF:
Capital Paid In $100,000
OUTSTANDING SHARES 10,000
NET ASSET VALUE PER SHARE $10.00
OFFERING PRICE PER SHARE $10.42
See Accountants' Audit Report
<PAGE>
SEARAY FINANCIAL FUNDS
NOTES TO FINANCIAL STATEMENTS
February 29, 2000
1. ORGANIZATION
Searay Financial Funds (the "Trust") is an open-end investment company
established under the laws of the State of Massachusetts on December 20,
1999. The Trust may issue an unlimited number of shares, and presently
consists of one series of shares for the Sturgeon Fund (the "Fund").
The primary investment objective of the Fund is long-term capital
appreciation.
The Fund uses an independent custodian and transfer agent. No transactions
other than those relating to organizational matters and the sale of 10,000
shares of the Sturgeon Fund have taken place to date.
2. RELATED PARTY TRANSACTIONS
As of February 29, 2000, all of the outstanding shares of the Fund were
owned by Robert Michie. A shareholder who beneficially owns, directly or
indirectly, more than 25% of the Fund's voting securities may be deemed a
"control person" (as defined in the 1940 Act) of the Fund.
Sturgeon Financial Group, Ltd. ("SFG"), the Fund's investment adviser, is
registered as an investment adviser under the Investment Advisers Act of
1940. Certain shareholders and officers of SFG are also trustees or
officers of the Trust.
As adviser, SFG receives from the Fund as compensation for its services to
the Fund an annual fee of 1.00% of the Fund's net assets. The fee is paid
monthly and calculated on the average daily closing net asset value of the
Fund.
The 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 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 SFG under the Investment Advisory
Contract and other miscellaneous expenses.
SFG has agreed to reduce its fees and/or absorb expenses to limit the
Fund's total annual operating expenses to 2.25%. SFG may terminate this
agreement after June 30, 2001.
Creative Capital Management Corp., an affiliate of SFG, serves as
distributor of the Fund.
<PAGE>
SEARAY FINANCIAL FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
February 29, 2000
3. DISTRIBUTION PLAN
The Fund has adopted a distribution plan in accordance with Rule 12b-1
under the 1940 Act. The Fund will pay a distribution fee to the distributor
at a rate of 0.25% per annum of the average daily net assets.
4. CAPITAL STOCK AND DISTRIBUTION
At February 29, 2000, an unlimited number of shares were authorized and
paid in capital amounted to $100,000 for the Sturgeon Fund. Transactions in
capital stock were as follows:
Shares Sold:
Sturgeon Fund 10,000
Shares Redeemed:
Sturgeon Fund 0
Net Increase:
Sturgeon Fund 10,000
Shares Outstanding:
Sturgeon Fund 10,000
<PAGE>
To The Shareholders and Trustees
Searay Financial Funds:
We have audited the accompanying statement of assets and liabilities of Searay
Financial Funds (comprised of the Sturgeon Fund) as of February 29, 2000. This
financial statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets and liabilities is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
statement of assets and liabilities presentation. Our procedures included
confirmation of cash held by the custodian as of February 29, 2000, by
correspondence with the custodian. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of the
Sturgeon Fund as of February 29, 2000, in conformity with generally accepted
accounting principles.
/s/ McCurdy & Associates
McCurdy & Associates CPA's, Inc.
Westlake, Ohio
February 29, 2000
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits
(a) Declaration of Trust - filed as an exhibit to Registrant's initial
Registration Statement on December 22, 1999, which exhibit is
incorporated herein by reference.
(b) By-laws of the Trust - filed as an exhibit to Registrant's initial
Registration Statement on December 22, 1999, which exhibit is
incorporated herein by reference.
(c) Not applicable.
(d) Investment Advisory Agreement between The Sturgeon Fund and The
Sturgeon Financial Group, Ltd. is filed herewith.
(e) (1) Underwriting Agreement between Searay Financial Funds and Creative
Capital Management Corp., is filed herewith.
(2) Dealer's Agreement is filed herewith.
(f) Not applicable.
(g) Custodian Agreement between Firstar Bank, N.A. and Searay Financial
Funds is filed herewith.
(h) (1) Administration Agreement between Searay Financial Funds and Mutual
Funds Service Co. is filed herewith.
(2) Transfer Agency Agreement between Searay Financial Funds and
Mutual Funds Service Co. is filed herewith.
(3) Accounting Services Agreement between Searay Financial Funds and
Mutual Funds Service Co. is filed herewith.
(i) Opinion and Consent of Counsel of James B. Craver is filed herewith.
(j) Consent of McCurdy & Associates, CPA's, Inc., Independent Auditors, is
filed herewith.
(k) Not applicable.
(l) Agreements etc. for initial capital, etc. - are filed herewith.
(m) Distribution and Service Plan is filed herewith.
(n) Not applicable.
(o) Not applicable.
(p) Codes of Ethics of Registrant and Sturgeon Financial Group, Ltd. are
filed herewith.
(q) Powers of Attorney of the Trustees are filed herewith.
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 Pre-Effective Amendment No. 2
to its 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 2nd day of
March 2000.
SEARAY FINANCIAL FUNDS
BY: /s/ Cameron M. Bernadsky
------------------------------
Cameron M. Bernadsky
Pursuant to the requirements of the Securities Act, this Pre-Effective
Amendment No. 2 to its 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 March 2, 2000
- -------------------------
George Doumanis
/s/ Richard W. Bradford Secretary/Treasurer and Trustee March 2, 2000
- ------------------------- (Principal Financial Officer
Richard W. Bradford and Principal Accounting Officer)
/s/ Cameron M. Bernadsky Vice President and Trustee March 2, 2000
- -------------------------
Cameron M. Bernadsky
Thomas E. Beck, Jr.*
- ------------------------ Trustee March 2, 2000
Thomas E. Beck, Jr.
Kenneth L. Simon*
- ----------------------- Trustee March 2, 2000
Kenneth L. Simon
*By: /s/ Cameron M. Bernadsky
- ------------------------------
Cameron M. Bernadsky
Executed by Cameron M. Bernadsky on behalf
of those indicated pursuant to Powers of Attorney
INVESTMENT ADVISORY AGREEMENT
Between
SEARAY FINANCIAL FUNDS
THE STURGEON FUND
and
THE STURGEON FINANCIAL GROUP
This Agreement is effective the 1st day of March, 2000, by and between THE
STURGEON FUND (the "Fund"), a separate investment series of Searay Financial
Funds, a business trust organized and existing under the laws of the
Commonwealth of Massachusetts, operating as an open-end investment company (the
"Trust") , and THE STURGEON FINANCIAL GROUP, a corporation organized and
existing under the laws of the State of Delaware (the "Adviser").
W I T N E S S E T H :
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended; and
WHEREAS, the Adviser is engaged principally in the business of rendering
investment supervisory services and is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Trust desires to retain the Adviser to render investment and
supervisory services to the Fund in the manner and on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, the parties hereto agree as follows:
I
INVESTMENT RESPONSIBILITY
(1) In providing the services and assuming the obligations set forth
herein, the Adviser may, at its expense, employ one or more subadvisers.
References herein to the Adviser shall include any subadviser employed by the
Adviser. Any agreement between the Adviser and a subadviser shall be subject to
the renewal, termination and amendment provisions of section V hereof.
The Trust hereby retains the Adviser to supervise and assist in the
management of the assets for the Fund and to furnish the Fund with a continuous
<PAGE>
program for the investment of the Fund's assets in accordance with the Fund's
currently effective registration statement, including:
a. Recommendations as to specific securities to be purchased for or
eliminated from the Fund, and
b. Recommendations as to the portion of the Fund's assets that should be
held uninvested.
(2) Notwithstanding the generality of the foregoing, the Adviser may
itself, and at its own expense, contract for such supplementary advisory and
research services as it deems necessary or desirable to fulfill its obligations
under paragraph (1) above, provided that any such contract shall have been
approved by the Fund and its shareholders to the extent, and in the manner,
required by the Investment Company Act of 1940, as amended.
(3) The Adviser shall furnish to the Trust the services of one or more
persons who shall be authorized by the Trust to place orders for the purchase
and sale of securities for the account of the Fund. Acting through a person so
authorized by the Trust, the Adviser shall place such orders for the Fund.
(4) Notwithstanding the generality of paragraph (3) above, and subject to
the provisions of paragraphs (5) and (6) below, the Adviser shall endeavor to
secure for the Fund the best possible price and execution of every purchase and
sale for the account of the Fund. In seeking such best price and execution the
Adviser shall use its own judgment as to the implementation of its own
investment recommendations, including the Adviser's judgment as to the time when
an order should be placed, the number of securities to be bought or sold in any
one trade that is a part of any particular recommendation, and the market in
which an order should be placed.
(5) The Adviser shall use its own judgment in determining the
broker-dealers who shall be employed to execute orders for the purchase or sale
of securities for the Fund, in order to:
a. Secure best price and execution on purchases and sales for the Fund;
and
b. Secure supplemental research and statistical data for use in making
its recommendations to the Fund.
(6) The Adviser shall use its discretion as to when, and in which market,
the Fund's transactions shall be executed, in order to secure for the Fund the
benefits of best price and execution, and supplemental research and statistical
data. The use of such discretion shall be subject to review by the Trustees of
the Trust at any time and form time to time. The Trust, acting by its Trustees,
may withdraw said discretion at any time, and may direct the execution of
portfolio transactions for the Fund in any lawful manner different from that
provided for herein. Until a decision is made to withdraw or limit the
2
<PAGE>
discretion herein granted, the Adviser shall not be liable for any loss suffered
by the Fund through the exercise by the Adviser of that discretion unless the
Adviser shall be guilty of gross negligence or willful misconduct.
II
ADMINISTRATIVE RESPONSIBILITY
During the continuance of this Agreement, Adviser shall provide the Fund
with a continuous program of general administration including:
a. Office space, equipment, supplies and utility services as shall be
required to conduct Fund business;
b. The provision and supervision of all persons performing the executive,
administrative, and clerical functions necessary for the conduct of the Fund's
business except as set forth in g., below;
c. The supervision of accounting, and of records and record-keeping for the
Fund;
d. The preparation and distribution of mandatory reports to Fund
shareholders and regulatory bodies;
e. The supervision of the daily net asset value of the Fund;
f. The preparation and distribution on behalf of the Fund of notices of
shareholder and Trustee meetings, agendas, proxies, and proxy statements; and
g. Other facilities, services, and activities necessary for the conduct of
the Fund's business, except for services by the Fund's Custodian, Registrar,
Transfer Agent, Administrator, Accounting Services Agent, Dividend Disbursing
Agent, Auditors, and Legal Counsel.
III
ALLOCATION OF EXPENSES
The Adviser shall pay the Fund's pro rata share of the cost and expenses of
the following services, facilities and activities: necessary office space,
equipment, supplies, utility services and all other ordinary office expenses;
the salaries and other compensation of the Trust's trustees, officers and
employees who are affiliated persons of the Adviser; and fees for supplementary
advisory and research services performed for the Adviser. The Fund shall pay all
other expenses incurred in the operation of the Fund and the continuous offering
of interests in the Fund, including, but not limited to, the following:
3
<PAGE>
a. The Fund's pro rata share of the fees and expenses of counsel in
connection with the organization of the Fund.
b. The regular fees or special charges of any Custodian, Transfer Agent,
Administrator, Registrar, Accounting Services Agent or Dividend Disbursing Agent
allocable to the Fund.
c. The Fund's pro rata share of the compensation or fees of the Trust's
auditors and legal counsel, and compensation and costs relating to legal or
administrative proceedings or to litigation.
d. Income, franchise, stock transfer and other taxes attributable to the
Fund.
e. Initial or renewal fees payable to governmental agencies in connection
with the filing of reports, notices, registration statements, and other material
required to be filed in connection with the Fund's business.
f. The Fund's pro rata share of any insurance or bond premiums.
g. The Fund's pro rata share of association dues or assessments.
h. Brokerage fees or commissions on all Fund transactions.
i. The Fund's pro rata share of interest on borrowed funds or otherwise.
j. The Fund's distribution (12b-1) and service fees to the extent permitted
by the Fund's distribution (12b-1) and service plan.
k. Any extraordinary expenses attributable directly to the Fund.
IV
COMPENSATION
The Fund shall pay the Adviser a fee, based on the value of the net assets
of the Fund determined in accordance with the Trust's Declaration of Trust, and
computed as follows:
(a) The annual advisory fee (the "Fee") shall be equal to the sum of 1.00%
of the Fund's average daily net assets.
(b) The amounts due the Adviser in payment of the Fee set forth above. The
Fee will be accrued daily and shall be paid to the Adviser in pro rata monthly
installments due and payable on the first business day of each calendar month.
4
<PAGE>
V
DURATION AND TERMINATION
(1) The term of this Agreement shall begin on the date first written above
and, unless sooner terminated as hereinafter provided, this Agreement shall
remain in effect for a period of two years. Thereafter this Agreement shall
continue in effect from year to year, subject to the termination provisions and
all other terms and conditions hereof; if: (a) such continuation shall be
specifically approved at least annually by vote of the holders of a majority of
the outstanding voting securities of the Fund or by the vote, cast in person at
a meeting called for the purpose of voting on such approval, of a majority of
the Trustees of the Trust, including a majority of the Trustees who are not
parties to this Agreement or interested persons of any such party; and (b) the
Adviser shall not have notified the Fund, in writing, at least 60 days prior to
the expiration of any term, that it does not desire such continuation. The
Adviser shall furnish to the Trust, promptly upon its request, such information
as may reasonably be necessary to evaluate the terms of this Agreement or any
extension, renewal or amendment hereof.
(2) This Agreement may not be amended, transferred, sold or in any manner
hypothecated or pledged, without the affirmative vote of a majority of the
outstanding voting securities of the Fund, and this Agreement shall
automatically and immediately terminate in the event of its assignment.
(3) This Agreement may be terminated by either party hereto, without the
payment of any penalty, upon at least 60 days' notice in writing to the other
party, provided, that in the case of termination by the Fund such action shall
have been authorized by resolution of the Trustees of the Trust or by vote of a
majority of the outstanding voting securities of the Fund.
VI
MISCELLANEOUS
(1) The Adviser shall not deal with the Fund as broker or dealer but the
Adviser may enter orders for the purchase or sale of the Fund's securities
through a company or companies that are under common control with the Adviser,
provided such company acts as broker and charges a commission that does not
exceed the usual and customary broker's commission if the sale is effected on a
securities exchange, or, 1 per centum of the purchase or sale price of such
securities if the sale is otherwise effected. In connection with the purchase or
sale of portfolio securities for the account of the Fund, neither the Adviser
nor any officer or director or affiliate of the Adviser shall act as a
principal.
(2) Except as expressly prohibited in this Agreement, nothing herein shall
in any way limit or restrict the Adviser, or any officers, shareholders or
employees of Adviser, from buying selling or trading in any security for its or
their own account. Neither the Adviser nor any Officer or Director thereof shall
5
<PAGE>
take a short position in any interests of the Fund or otherwise purchase such
interests for any purpose other than that of investment. However, the Adviser
may act as underwriter or distributor provided it does so pursuant to a written
contract approved in the manner specified in the Investment Company Act of 1940,
as amended.
(3) The Adviser may act as investment adviser to, and provide management
services for, other investment companies, and may engage in businesses that are
unrelated to investment companies, without limitation, provided the performance
of such services and the transaction of such businesses does not impair the
Adviser's performance of this Agreement.
(4) The Adviser shall 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
this Agreement relates (including, but not limited to, loss sustained by reason
of the adoption or implementation of any investment policy or the purchase, sale
or retention of any security), except for loss resulting from willful
misfeasance, bad faith or gross negligence of the Adviser in the performance of
its duties or from reckless disregard by the Adviser of its obligations and
duties under this Agreement.
(5) Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Investment Company Act of 1940, as amended, shall be resolved by
reference to such term or provision of the Act and to interpretations thereof,
if any, by the United States courts or, in the absence of any controlling
decision of any such court, by rules, regulations or orders of the Securities
and Exchange Commission validly issued pursuant to said Act. Specifically, the
terms "vote by a majority of the outstanding voting securities", "annually",
"interested person", "assignment", and "affiliated person", as used herein,
shall have the meanings assigned to them by the Investment Company Act of 1940,
as amended. In addition, where the effect of a requirement of the Investment
Company Act of 1940, as amended, reflected in any provision of this contract is
relaxed by a rule, regulation or order of the Securities and Exchange
Commission, whether of special or of general application, such provision shall
be deemed to incorporate the effect of such rule, regulation or order.
(6) The Trust will provide the Adviser with all information concerning the
investment policies and restrictions of the Fund as the Adviser may from time to
time request or which the Trust deems necessary. In the event of any change in
the investment policies or restrictions of the Fund, the Trust will promptly
provide Adviser with all information concerning such change including, but not
limited to, copies of all documents filed by the Fund with the Securities and
Exchange Commission.
(7) The Trustees, officers, employees and agents of the Trust shall not be
personally bound by or liable hereunder, nor shall resort be had to their
private property for the satisfaction of any obligation or claim hereunder.
6
<PAGE>
(8) Except to the extent the provisions of this Agreement are governed by
federal law, they shall be governed by the law of Delaware, without reference to
its choice of law rules.
(9) This Agreement represents the entire agreement between the parties
hereto.
(10) This Agreement may be executed in two or more counterparts, each of
which shall be considered an original.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first above written.
SEARAY FINANCIAL FUNDS
THE STURGEON FUND
Attest:________________________ By: __________________________
Secretary
THE STURGEON FINANCIAL GROUP
Attest:________________________ By: ___________________________
Secretary
7
UNDERWRITING AGREEMENT
This Agreement made as of this 1st day of March, 2000, by and between
SEARAY FINANCIAL FUNDS, a Massachusetts business trust (the "Trust"), and
Creative Capital Management Corp., an Ohio corporation ("Underwriter").
WHEREAS, Searay Financial Funds' The Sturgeon Fund (the "Fund") is an
investment company registered under the Investment Company Act of 1940, as
amended (the "Act"); and
WHEREAS, Underwriter is a broker-dealer registered with the Securities and
Exchange Commission (the "Commission") and a member of the National Association
of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, the Fund and Underwriter are desirous of entering into an
agreement providing for the distribution by Underwriter of shares of the Fund
(the "Shares");
NOW, THEREFORE, in consideration of the promises and agreements of the
parties contained herein, the parties agree as follows:
1. APPOINTMENT. The Fund hereby appoints Underwriter as its exclusive agent
for the distribution of the Shares, and Underwriter hereby accepts such
appointment under the terms of this Agreement. Notwithstanding any other
provision hereof, the Fund may terminate, suspend or withdraw the offering
of its Shares whenever, in its sole discretion, it deems such action to be
desirable.
2. SALE AND REPURCHASE OF SHARES.
(a) Underwriter will have the right, as agent for the Fund, to enter
into dealer agreements with responsible investment dealers, and to sell
Shares to such investment dealers against orders therefor at the public
offering price (as defined in paragraph 2(d) hereof) less a discount
determined by Underwriter, which discount shall not exceed the amount of
the sales charge stated in the Fund's then current Prospectus (as defined
in paragraph 5(a) hereof) and statement of additional information. At the
request of the Fund (which request shall not be more frequent than
quarterly), Underwriter shall furnish a list of broker-dealers with whom
Underwriter has entered into a dealer agreement. The Fund shall have the
right to delete from such list any broker-dealer from whom the Fund chooses
not to accept sales orders. Upon receipt of an order to purchase Shares
from a dealer with whom Underwriter has a dealer agreement, Underwriter
will promptly cause such order to be filled by the Fund. Underwriter shall
have no obligation to accept monies or Shares, or establish customer
accounts. All sales of Shares shall be conducted strictly through other
registered broker/dealers with Underwriter acting in the role of
wholesaler. The right granted to the Underwriter to sell Shares to such
investment dealers against orders therefor shall not apply to Shares issued
in the event that an investment company (whether a regulated or private
investment company or a personal holding company) is merged with and into
or consolidated with the Fund or in the event that the Fund acquires by
purchase or otherwise, all or substantially all of the assets or the
outstanding shares of any such company. Such right shall also not apply to
Shares issued by the Fund as a dividend or stock split.
(b) Underwriter will also have the right, as agent for the Fund, to
sell Shares to the public against orders therefor at the public offering
price (as defined in paragraph 2(d) hereof).
(c) Underwriter will also have the right, as agent for the Fund, to
sell Shares at its net asset value to such persons as may be approved by
the Board of Trustees of the Trust and provided in the Prospectus, all such
<PAGE>
sales to comply with the provisions of the Act, the rules and regulations
of the Commission promulgated thereunder and all other federal and state
securities laws, rules and regulations.
(d) The public offering price shall be the net asset value of Shares
then in effect, plus any applicable sales charge determined in the manner
set forth in the Prospectus or as permitted by the Act and the rules and
regulations of the Commission promulgated thereunder. In no event shall any
applicable sales charge exceed the maximum sales charge permitted by the
rules and regulations of the NASD.
(e) The net asset value of the Shares shall be determined in the
manner provided in the Prospectus, and when determined shall be applicable
to transactions as provided for in the Prospectus. The net asset value of
the Shares shall be calculated by the Fund or by another entity on behalf
of the Fund. Underwriter shall have no duty to inquire into or liability
for the accuracy of the net asset value per Share as calculated pursuant to
paragraph (d) above.
(f) The Fund shall receive the applicable net asset value of its
Shares promptly, but in no event later than the third (3rd) business day
following the date on which Underwriter shall have received an order for
the purchase of Shares. Underwriter shall have the right to retain the
sales charge less any applicable dealer discount.
(g) Upon receipt of purchase instructions, Underwriter will transmit
such instructions to the Fund or its transfer agent for registration of the
Shares purchased. Sales of the Shares of the Fund shall be deemed to be
made when and where accepted by the Fund's transfer agent.
(h) If Underwriter is not registered as a broker-dealer in any state
or an exemption for sales of Shares by Underwriter in such state is not
otherwise available, the Fund shall not be permitted to sell Shares in the
state until Underwriter is so registered or such exemption is available.
(i) Nothing in this Agreement shall prevent Underwriter or any
affiliated person (as defined in the Act) of Underwriter from acting as
underwriter or distributor for any other person, firm or corporation
(including other investment companies) or in any way limit or restrict
Underwriter or such affiliated person from buying, selling or trading any
securities for its or their own account or for the accounts of others for
whom it or they may be acting; provided, however, that Underwriter
expressly agrees that it will undertake no activities which will, in its
judgment, adversely affect the performance of its obligations to the Fund
under this Agreement.
(j) Underwriter may repurchase Shares at such prices and upon such
terms and conditions as shall be specified in the Prospectus.
3. SALES OF SHARES. Underwriter does not agree to sell any specific number
of Shares. Underwriter, as agent for the Fund, undertakes to sell Shares on
a best efforts basis only against orders therefor.
4. RULES OF NASD, ETC.
(a) Underwriter will conform in all material respects to the Rules of
Fair Practice of the NASD and the securities laws of any jurisdiction in
which it sells any Shares.
(b) Underwriter will require each dealer with whom Underwriter has a
dealer agreement to conform to the applicable provisions of the Prospectus,
with respect to the public offering price of the Shares, and Underwriter
2
<PAGE>
shall not withhold the placing of purchase orders so as to make a profit
thereby.
(c) Underwriter agrees to obtain the prior written approval of the
Fund (which approval shall not be unreasonably withheld or delayed) with
regard to, and file and clear with the proper authorities copies of, any
agreements, plans or other materials it intends to use in connection with
any sales of Shares. Copies of such materials and evidence of filing with
the proper authorities shall be furnished to the Fund. To the extent the
Fund has created any such sales materials, the Fund shall not use such
materials until Underwriter has approved of such materials and filed them
with the proper authorities.
(d) Underwriter shall not make, or authorize any registered
representative, broker or dealer to make, in connection with any sales or
solicitation of a sale of the Shares, any representations concerning the
Shares except those contained in the Prospectus covering the Shares and in
sales materials approved by the Underwriter and the Fund as information
supplemental to such Prospectus. Copies of the Prospectus will be supplied
by the Fund to Underwriter in reasonable quantities upon request.
5. REPRESENTATIONS AND WARRANTIES OF THE FUND. The Fund represents and
warrants to, and agrees with Underwriter that:
(a) A registration statement on Form N-1A with respect to its Shares
has been prepared and filed by the Fund with the Commission under and in
all material respects in conformity with the requirements of the Securities
Act of 1933, as amended (the "33 Act"), and the Act and the Rules and
Regulations (as defined hereinbelow); such registration statement is
currently effective. As used in this Agreement, the term "Registration
Statement" means such registration statement, including all exhibits
thereto, as amended from time to time; and the term "Prospectus" means the
prospectus and statement of additional information, as amended from time to
time, constituting a part of the Registration Statement, in the form filed
with the Commission.
(b) Neither the Commission nor any state has issued any order
preventing or suspending the use of any Prospectus, and each Prospectus
complies in all material respects with the requirements of the 33 Act and
Act (together the "Acts") and the rules and regulations (the "Rules and
Regulations") promulgated by the Commission under the Acts and the
Securities Exchange Act of 1934 as amended (the "34 Act"), and does not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading. The Registration Statement and the Prospectus
and any amendments or supplements thereto contain all statements which are
required to be stated therein in accordance with the Acts and the Rules and
Regulations and comply in all material respects with the requirements of
the Acts and the Rules and Regulations; and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto
includes any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading.
(c) The Fund is a business trust which is validly existing and in good
standing under the laws of the Commonwealth of Massachusetts with full
power and authority to own its properties and conduct its business as now
conducted; and its Shares have been duly authorized and when issued will be
validly issued, fully paid and nonassessable.
(d) The Shares conform in all material respects to the description
thereof contained in the Prospectus.
3
<PAGE>
(e) The Fund has full legal right, power and authority to enter into
this Agreement and to issue, sell and deliver the Shares to be sold by it
to Underwriter as provided herein, and this Agreement has been duly
authorized, executed and delivered by the Fund as required by the Act.
(f) The Fund is not in violation of the Trust's Declaration of Trust
or By-laws or in default under any agreement, indenture or instrument, the
effect of which violation or default would be material to the Fund. No
consent, approval, authorization or order of any court or governmental
agency or body or securities exchange is required for the consummation of
the transactions contemplated by this Agreement except such as have been
obtained and such as may be required under the Acts and the Rules and
Regulations and such as may be required under state securities laws or Blue
Sky Laws in connection with the purchase and distribution of the Shares by
Underwriter. The consummation by the Fund of the transactions contemplated
by this Agreement will not conflict with, result in the creation or
imposition of any lien, charge or encumbrance upon the assets of the Fund
pursuant to the terms of, result in a breach or violation by the Fund of
any of the terms or provisions of, or constitute a default by the Fund
under, any indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument to which the Fund is a party or to which it
or its property is subject, the Declaration of Trust or By-laws of the
Trust, any statute, or any judgment, decree, order, rule or regulation of
any court or governmental agency or body having jurisdiction over the Fund
or any of its property.
(g) The financial statements and the related notes included in the
Registration Statement and Prospectus present fairly the financial
position, results of operations and changes in financial position of the
Fund at the dates and for the periods to which they relate and have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis, except as otherwise stated therein.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, the Fund has not
incurred any material liabilities or obligations, direct or contingent, or
entered into any material transaction, whether or not in the ordinary
course of business, and there has not been any material change in the
capital stock, or any material adverse change, in the business, condition
(financial or other), key personnel, properties, results of operations or
assets of the Fund except in each case as disclosed in or contemplated by
the Prospectus.
(i) There is not pending, or to the knowledge of the Fund,
contemplated or threatened, any action, suit, proceeding, inquiry or
investigation, to which the Fund is a party, or to which the property of
the Fund is subject, before or brought by any court or governmental agency
or body, or any arbitrator, which, if determined adversely to the Fund
might result in any material adverse change in the business, condition
(financial or other), net asset value or results of operations, or
materially adversely affect the properties or assets of the Fund.
(j) The Fund is not in violation of any law, ordinance, governmental
rule or regulation or court decree to which it may be subject or has not
failed to obtain any license, permit, franchise or other governmental
authorization necessary to the ownership of its property or to the conduct
of its business, which violation or failure to obtain is likely to have any
material adverse effect on the condition (financial or other), properties,
prospective results of operations or net asset value of the Fund.
(k) There are no contracts or other documents required to be described
in the Registration Statement or Prospectus or to be filed as exhibits to
the Registration Statement by the Acts or by the Rules and Regulations
which have not been described or filed as required.
(l) The Fund has timely filed all necessary federal income tax returns
and all necessary state and foreign income, excise, state and franchise tax
returns, has paid all taxes shown as due thereon and has made adequate
4
<PAGE>
reserves for future tax liabilities, and, except as described in the
Prospectus, there is no tax deficiency that has been asserted against the
Fund that would materially and adversely affect the business of the Fund.
(m) The Fund maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (A) transactions are
executed in accordance with management's general or specific
authorizations, (B) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability of assets, (C) access
to assets is permitted only in accordance with management's general or
specific authorization, and (D) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
6. COVENANTS OF THE FUND. The Fund covenants and agrees with Underwriter
that:
(a) The Fund will cause any subsequent amendments to the Registration
Statement to become effective as promptly as practicable and will not file
any amendment to the Registration Statement or any supplement to the
Prospectus of which Underwriter shall not previously have been furnished
with a copy a reasonable time prior to the proposed filing. Except as
otherwise provided in Section 1 hereof, the Fund will maintain an effective
Registration Statement as required by the Acts at all times during the term
of this Agreement. Except as otherwise provided in Section 1 hereof, the
Fund will comply so far as it is able with all requirements imposed upon it
by the Acts and the Rules and Regulations to the extent necessary to permit
the continuance of sales of the Shares in accordance with the provisions
hereof and of the Prospectus and the Fund will prepare and file with the
Commission any amendments to the Registration Statement or supplements to
the Prospectus which it deems necessary or advisable in connection with the
distribution of the Shares by Underwriter, and will use its best efforts to
cause the same to become effective as promptly as practicable.
(b) The Fund will advise Underwriter promptly after it receives notice
or obtains knowledge thereof, of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or any
order preventing or suspending the use of the Prospectus, or of the
suspension of the qualification of the Shares for offering or sale in any
jurisdiction, or of the institution or threatening of any proceeding for
any such purpose, or of any request made by the Commission for amending the
Registration Statement, for supplementing the Prospectus or for additional
information, and the Fund will use its best efforts to prevent the issuance
of any such order and, if any such order is issued to obtain the lifting
thereof as promptly as practicable.
(c) The Fund will arrange for the qualification of the Shares for
offering and sale under the securities or Blue Sky laws of such
jurisdictions in which the Shares will be sold.
(d) The Fund will furnish to Underwriter copies of the Registration
Statement, the Prospectus, and all amendments and supplements thereto, in
each case as soon as available, and in such quantities as Underwriter may
reasonably request.
(e) The Fund will furnish to its shareholders semi-annual and annual
reports including such information and within the time requirements
prescribed by the Act.
(f) If sales of the Fund's Shares are facilitated through the use of a
clearing agency (e.g., National Securities Clearing Corporation), the Fund
shall direct its transfer agent to settle all clearing agency transactions
promptly according to the rules and regulations of such clearing agency.
5
<PAGE>
7. REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITER.
The Underwriter represents and warrants to, and agrees with the Fund, that:
(a) Underwriter has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Ohio, with
all requisite corporate power and authority to conduct its business and to
perform its obligations contemplated herein.
(b) This Agreement has been duly and validly authorized, executed and
delivered by Underwriter and constitutes Underwriter's valid, binding and
enforceable agreement.
(c) Underwriter's execution and delivery of this Agreement, and the
performance of Underwriter's obligations hereunder, will not result in a
violation of, be in conflict with or constitute a default under any
agreement or instrument to which Underwriter is a party or by which
Underwriter or Underwriter's properties are bound, or any judgment, decree,
order, statute, rule or regulation applicable to Underwriter.
(d) The information supplied by Underwriter for inclusion in the
Prospectus and Registration Statement relating to Underwriter is complete
and correct and does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein not
misleading.
(e) Underwriter is (i) a broker-dealer duly registered pursuant to the
provisions of the 34 Act, (ii) a member in good standing of the NASD, and
(iii) duly registered as a broker-dealer under the applicable laws and
regulations of each state in which Underwriter will offer and sell the
Shares, except such states in which Underwriter is exempt from registration
or such registration is not otherwise required. Underwriter will maintain
its registration in good standing, or its exemption from such registration,
throughout the term of this Agreement and Underwriter will comply with all
statutes and other requirements applicable to Underwriter with respect to
Underwriter's brokerage activities within those jurisdictions. Underwriter,
its affiliates, officers and directors have not taken or failed to take any
act, and are not subject to any order or proceeding, that would prevent the
registration of the Shares with any state securities commission, or which
will result in the issuance of any stop order on the sale of the Shares.
(f) Underwriter shall use reasonable efforts to become a member of
National Securities Clearing Corporation.
8. COVENANTS OF THE UNDERWRITER.
The Underwriter covenants and agrees with the Fund that:
(a) In offering and selling the Shares, Underwriter will comply with
all applicable requirements of the Acts, the 34 Act and the Rules and
Regulations.
(b) Subject to valid exemption(s) from the requirement to register as
a broker-dealer under any of the Blue Sky Laws, Underwriter will comply
with all applicable requirements of the Blue Sky Laws applicable to
Underwriter as a broker-dealer. Underwriter will not offer or sell any of
the Shares in any jurisdiction prior to receiving instructions (oral or
written) from the Fund that offers may be made in such jurisdiction.
(c) Underwriter will abide by, and take reasonable precautions to
insure compliance with, all provisions contained in the Prospectus and this
Agreement regulating the terms and manner of conducting the offering of the
Shares. Underwriter will not use any offering or selling material other
than materials furnished or approved in writing by the Fund. Neither
6
<PAGE>
Underwriter nor any of its agents will give any information or make any
representation with respect to the Fund other than the information or
representations contained in the Prospectus or any sales literature
authorized by the Fund for use in connection with the offering of the
Shares, or such other information as is specifically authorized by the
Fund.
(d) In offering and selling the Shares, Underwriter will comply in all
material respects with all applicable rules of the NASD, including Sections
8, 24, and 36 of Article III of the Rules of Fair Practice.
(e) Neither Underwriter nor any of its directors or officers (nor any
other person serving in a similar capacity):
(i) Has been convicted within ten years of date hereof of any
crime or offense involving the purchase or sale of any security,
involving the making of a false statement to the Commission, or
arising out of such person's conduct as an underwriter, broker,
dealer, municipal securities dealer or investment advisor.
(ii) Is subject to any order, judgment or decree of any court of
competent jurisdiction temporarily or preliminarily enjoining or
restraining, or is subject to any order, judgment or decree of any
court of competent jurisdiction, entered into within five years prior
to the date hereof, permanently enjoining or restraining such person
from engaging in or continuing any conduct or practice in connection
with the purchase or sale of any security, involving the making of a
false filing with the Commission, or arising out of the conduct of the
business of an underwriter, broker, dealer, municipal securities
dealer or investment advisor;
(iii) Is subject to an order of the Commission entered pursuant
to section 15(b), 15B(a), or 15B(c) of the 34 Act; or is subject to an
order of the Commission entered pursuant to section 203(e) or (f) of
the Investment Advisers Act of 1940;
(iv) Is suspended or expelled from membership in, or suspended or
barred from association with a member of, an exchange registered as a
national securities exchange pursuant to section 6 of the 34 Act, an
association registered as a national securities association under
section 15A of the 34 Act, or a Canadian securities exchange or
association for any act or omission constituting conduct inconsistent
with just and equitable principles of trade;
(v) Is subject to a United States Postal Service false
representation order entered within five years of the date hereof; or
is subject to a restraining order or preliminary injunction entered
under section 3007 of title 39, United States Code, with respect to
any conduct alleged to constitute postal fraud;
(vi) Has been or has been named as an underwriter of any
securities covered by any registration statement which is the subject
of any pending proceeding or examination under section 8 of the 33
Act, or is the subject of any refusal order or stop order entered
thereunder within five years prior to the date hereof;
(vii) Has been or has been named as an underwriter of any
securities covered by any filing which is subject to any pending
proceeding under Rule 261 or any similar Rule adopted under section
3(b) of the 33 Act, or to an order entered thereunder within five
years prior to the date hereof; and
7
<PAGE>
(viii) Has taken or failed to take any other act, or is subject
to any other order or proceeding, that would make unavailable any
registration or qualification requirements of the Acts, the 34 Act,
the Rules and Regulations or the Blue Sky Laws.
(f) Neither Underwriter nor any of its directors, officers, employees,
or members of an advisory board is (i) ineligible, by reason of subsection
(a) of Section 9 of the Act to serve or act in such capacities or (ii)
subject to an order of the Commission entered pursuant to subsections (b)
or (f) of Section 9 of the Act.
9. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligations of
Underwriter hereunder shall be subject, in its discretion, to the accuracy
of the representations and warranties of the Fund herein and to the
performance by the Fund of its covenants and agreements hereunder.
10. CONDITIONS OF THE FUNDS' OBLIGATIONS. The obligations of the Fund
hereunder shall be subject, in their discretion, to the accuracy of the
representations and warranties of Underwriter herein and to the performance
by Underwriter of its covenants and agreements hereunder.
11. INDEMNIFICATION.
(a) The Fund agrees to indemnify and hold harmless the Underwriter,
each person, if any, who controls Underwriter and the directors, officers
and employees of Underwriter (each, including any such controlling person,
is referred to herein as a "related person") within the meaning of the Acts
or Section 20 of the 34 Act, from and against any losses, claims, damages,
fines and liabilities, joint or several, to which Underwriter or a related
person may become subject under the Acts or otherwise insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained (A) in the Registration Statement,
the Prospectus, or any amendment or supplement thereto, or (B) in any Blue
Sky Application or other document executed by the Fund specifically for
that purpose or based upon written information furnished by the Fund filed
in any state or other jurisdiction in order to qualify any or all of the
Shares under the securities laws thereof (any such application, document or
information being hereinafter called a "Blue Sky Application"), (ii) the
omission or alleged omission to state in the Registration Statement, the
Prospectus, any amendment or supplement thereof, any Blue Sky Application,
or any sales material, a material fact required to be stated therein or
necessary to make the statements therein not misleading; and will reimburse
Underwriter and each related person for any legal or other expenses
reasonably incurred by Underwriter or such related person in connection
with investigating or defending any such loss, claim, damage, liability or
action, or (iii) the failure of the Fund's transfer agent to remit
appropriate amounts to or properly settle with any clearing agency (e.g.,
National Securities Clearing Corporation) in accordance with such agency's
rules and regulations; provided, however, that the Fund will not be liable
in any such case to the extent, but only to the extent, that any such loss,
claim, damage, liability or action arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made
in the Registration Statement, or any sales material, the Prospectus or any
amendment or supplement thereto, or any Blue Sky Application, in reliance
upon and in conformity with written information furnished to the Fund by
Underwriter expressly for use therein. This indemnity shall not apply to
any loss, claim, liability or action resulting from willful misfeasance,
bad faith or gross negligence on the part of Underwriter or a related
person. This indemnity agreement will be in addition to any liability which
the Fund may otherwise have.
(b) The Underwriter agrees to indemnify and hold harmless the Trust,
the Fund, the trustees and officers of the Fund and Trust, and any person
who controls the Fund or Trust within the meaning of the 33 Act from and
against any losses, claims, damages or liabilities to which the Trust, the
Fund or any such trustee, officer or controlling person may become subject,
under the Acts or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
8
<PAGE>
(i) any untrue statement or alleged untrue statement made by the
Underwriter (A) in the Registration Statement, the Prospectus, or any
amendment or supplement thereto, or (B) in any Blue Sky Application, or
(ii) the omission or the alleged omission to state therein made by
Underwriter of a material fact required to be stated therein or necessary
to make the statements therein not misleading, in each case to the extent,
but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Fund or the Trust by
the Underwriter expressly for use therein; Underwriter will reimburse any
legal or other expenses reasonably incurred by the Fund or the Trust or any
such trustee, officer or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or
action. This indemnity agreement will be in addition to any liability which
the Underwriter may otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may
be sought pursuant to paragraphs (a) or (b) of this Section 11, such person
(the "indemnified party") shall promptly notify the person against whom
such indemnity may be sought (the "indemnifying party") in writing (but the
omission so to notify the indemnifying party will not relieve it from any
other liability which it may have to any indemnified party), and the
indemnifying party, upon request of the indemnified party, shall retain
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party and any others the indemnifying party may designate
(including the indemnifying party) in such proceeding and shall pay the
fees and disbursements of such counsel related to such proceeding. In any
such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential conflicts of interest between
them, in which case the fees and disbursements of such counsel related to
such proceeding shall be paid by the indemnifying party. It is understood
that the indemnifying party shall not, in connection with any proceeding or
related proceeding in the same jurisdiction, be liable for (a) the
reasonable fees and expenses of more than one separate firm (in addition to
any local counsel) for Underwriter and all persons, if any, who control
Underwriter within the meaning of either the Acts or Section 20 of the 34
Act, and (b) the reasonable fees and expenses of more than one separate
firm (in addition to any local counsel) for the Fund, the Trust or their
trustees or officers. It is further understood that all such fees and
expenses shall be reimbursed as they are incurred. In the case of any such
separate firm for Underwriter and such control persons of Underwriter, such
firm shall be designated in writing by Underwriter. In the case of any such
separate firm for the Fund and Trust, and such trustees or officers of the
Trust or Fund, such firm shall be designated in writing by the Trust or the
Fund. The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss
or liability by reason of such settlement or judgment.
(d) The Fund and the Underwriter each agree to notify the other
promptly of the commencement of any litigation or proceeding against it in
connection with the issuance and sale of any of the Shares.
12. RECORDS TO BE SUPPLIED BY THE FUND. The Fund shall furnish to
Underwriter copies of all information, financial statements and other
papers which Underwriter may reasonably request for use in connection with
the distribution of its Shares, and this shall include, but shall not be
limited to, one certified copy, upon request by Underwriter, of all
financial statements prepared for the Fund by independent public
accountants.
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<PAGE>
13. EXPENSES.
(a) Except as otherwise provided herein, the Fund will bear all costs
and expenses incurred under this Agreement including but not limited to:
(i) Preparation, setting in type, and printing of sufficient
copies of prospectuses and statements of additional information for
distribution to existing shareholders.
(ii) Preparation, printing and distribution of reports and other
communications to existing shareholders.
(iii) Registration of its Shares under the Acts.
(iv) Qualification of its Shares for sale in the various States.
(v) Qualification of the Fund as a dealer or broker under the
laws of any jurisdiction as well as qualification of the Fund to do
business in any jurisdiction, if such qualification is necessary for
the purpose of selling the Shares.
(vi) Maintaining facilities for the issue and transfer of the
Shares.
(vii) Supplying information, prices and other data to be
furnished by the Fund under this Agreement.
(viii) Any original issue taxes or transfer taxes applicable to
the sale of delivery of the Shares or certificates therefor.
(b) Except as otherwise agreed to by the parties or as otherwise
provided herein, Underwriter will pay all other expenses (other than
expenses which one or more dealers may bear pursuant to any agreement with
Underwriter) incident to the sale and distribution of the Shares sold
hereunder.
14. DISTRIBUTION PLANS. The Fund has adopted a distribution plan with
respect to the sale of its shares pursuant to Rule 12b-1 under the Act (the
"Plan") which provides that the Fund may incur expenses to finance any
activity which is primarily intended to result in the sale of Shares. Such
activities may include, but are not limited to, advertising, salaries and
other expenses of Underwriter relating to selling efforts, seminars,
printing of prospectuses, statements of additional information and reports
for other than existing shareholders, preparation and distribution of
advertising material and sales literature, and supplemental payments to
dealers. Underwriter shall be paid by the Fund pursuant to the Plan with
respect to the sale of shares a fee not to exceed 0.25% per annum of their
average daily net assets as may be determined by the Trust's Board of
Trustees from time to time for expenses incurred by Underwriter in
connection with this Agreement.
15. LIABILITY OF UNDERWRITER.
(a) Underwriter, its directors, officers, employees, shareholders and
agents shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the performance of
this Agreement, except a loss resulting from a breach of fiduciary duty
with respect to the receipt of compensation for services or a loss
resulting from willful misfeasance, bad faith or gross negligence on the
part of Underwriter in the performance of its obligations and duties under
this Agreement.
10
<PAGE>
(b) Any person, even though also a director, officer, employee,
shareholder or agent of Underwriter, who may be or become an officer,
trustee, employee or agent of the Trust, shall be deemed, when rendering
services to the Fund or acting on any business of the Fund (other than
services or business in connection with Underwriter's duties hereunder), to
be rendering such services to or acting solely for the Fund and not as a
director, officer, employee, shareholder or agent, or one under the control
or direction of Underwriter even though paid by it.
16. TERMINATION OF THIS AGREEMENT.
(a) This Agreement may be terminated, with respect to the Fund at any
time, without payment of any penalty, by vote of a majority of the members
of the Board of Trustees of the Trust who are not interested persons of the
Fund and who have no direct or indirect financial interest in the
preparation of the Plan or in any agreement relating to the Plan or by vote
of a majority of the outstanding voting securities of the Fund on not more
than ninety (90) days' written notice to the other party. This Agreement
shall automatically terminate in the event of its assignment.
(b) The Underwriter may terminate this Agreement by giving the Fund
written notice of its intention to terminate this Agreement at the
expiration of ninety (90) days from the date of delivery of such written
notice of intention to the Fund.
17. EFFECTIVE PERIOD OF THIS AGREEMENT.
The provisions of paragraph 11 hereof shall survive the termination of
this Agreement. The remaining provisions of this Agreement shall be
effective on the date first above written and shall remain in full force
and effect for a period of two (2) years thereafter (unless terminated as
set forth in Paragraph 16), and from year to year thereafter, but only so
long as such continuance is specifically approved at least annually by (i)
the Board of Trustees of the Trust or by a vote of the majority of the
outstanding voting securities of the Fund and (ii) by a majority of the
Trustees of the Trust who are not parties to this Agreement or interested
persons of any such party by vote cast in person at a meeting called for
the purpose of voting on such approval.
18. REPORTS.
Underwriter shall prepare reports for the Board of Trustees of the
Trust on a quarterly basis showing such information as from time to time
shall be reasonably requested by such Board and necessary for an informed
determination as to whether this Agreement shall continue. The Underwriter
shall provide a written report, on a quarterly basis, of the amounts
expended, the purposes for which such expenditures were made and any other
information reasonably requested by the Board of Trustees of the Trust to
enable it to fulfill its responsibilities under paragraph (d) of Rule 12b-1
under the Act and to make findings required by paragraph (e) of Rule 12b-1.
19. SEVERABILITY.
In the event any provision of this Agreement is determined to be void
or unenforceable, such determination shall not affect the remainder of this
Agreement, which shall continue to be in force.
20. QUESTIONS OF INTERPRETATION.
This Agreement shall be governed by the laws of the State of Ohio,
without reference to its choice of law rules.
11
<PAGE>
21. NOTICES.
Any notices required or permitted to be given hereunder shall be
sufficient if in writing, and if delivered by hand, or sent by certified
mail, return receipt requested, to the following addresses:
If to the Trust or the Fund:
Searay Financial Funds
The Sturgeon Fund
321 S. Bromfield Road
Dayton, OH 45429
Attn: President
If to the Underwriter:
Creative Capital Management Corp.
595 Route 25A, Suite 1C
Miller Place, NY 11764
Attn: President
or such other address as either party may from time to time designate in
writing to the other, and shall be deemed given as of the date of the
delivery or mailing.
22. ARBITRATION.
Any dispute, controversy or claim arising out of or in connection with
this Agreement will be settled by binding arbitration in accordance with
the applicable rules for expedited review of (and by an independent
arbitrator selected by) the American Arbitration Association, and the
decision of such arbitrator, including any award of attorneys' fees and
costs, may be entered into any court with jurisdiction.
23. ATTORNEYS' FEES.
If any legal action or any arbitration or other proceeding is brought
to enforce the provisions of this Agreement, or because of an alleged
dispute, breach, default or misrepresentation in connection with any of the
provisions of this Agreement, the successful or prevailing party or
parties, whether such party or parties have instituted the action, shall be
entitled to recover reasonable attorneys' fees and other costs incurred in
such action or proceeding, in addition to any other relief to which the
Fund, the Trust or Underwriter may be entitled.
24. ENTIRE AGREEMENT AND BINDING EFFECT.
This Agreement contains the entire agreement between the parties
hereto with respect to the subject matter hereof and shall be binding upon
and inure to the benefit of the parties hereto and their respective legal
representatives, heirs, distributees, successors and permitted assigns.
25. AMENDMENTS.
This Agreement may not be amended except by a writing signed by all of
the parties hereto.
12
<PAGE>
IN WITNESS WHEREOF, the Trust and Underwriter have each caused this
Agreement to be signed in duplicate, as of the day and year first above written.
ATTEST: TRUST:
SEARAY FINANCIAL FUNDS
__________________________________ BY: ____________________________
__________________________________ ITS:____________________________
ATTEST: UNDERWRITER:
CREATIVE CAPITAL MANAGEMENT CORP.
__________________________________ BY: ____________________________
ITS:____________________________
13
CREATIVE CAPITAL MANAGEMENT CORP.
595 ROUTE 25A, SUITE 1C
MILLER PLACE, NEW YORK 11764
561-744-0190
DEALER'S AGREEMENT
Creative Capital Management Corp. ("Underwriter") invites you, as a
selected dealer, to participate as principal in the distribution of shares (the
"Shares") of the Searay Financial Funds' The Sturgeon Fund (the "Fund"), of
which it is the exclusive underwriter. Underwriter agrees to sell to you,
subject to any limitations imposed by the Fund, Shares issued by the Fund and to
promptly confirm each sale to you. All sales will be made according to the
following terms:
1. All offerings of any of the Shares by you must be made at the public
offering prices, and shall be subject to the conditions of offering, set forth
in the then current Prospectus and Statement of Additional Information of the
Fund and to the terms and conditions herein set forth, and you agree to comply
with all requirements applicable to you of all applicable laws, including
federal and state securities laws, the rules and regulations of the Securities
and Exchange Commission, and the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. (the "NASD"), including Section 24 of
the Rules of Fair Practice of the NASD. You will not offer the Shares for sale
in any state or other jurisdiction where they are not qualified for sale under
the Blue Sky Laws and regulations of such state or jurisdiction, or where you
are not qualified to act as a dealer. Upon application to Underwriter,
Underwriter will inform you as to the states or other jurisdictions in which
Underwriter believes the Shares may legally be sold.
2. (a) You will receive a discount from the public offering price
("concession") on all Shares purchased by you from Underwriter as indicated on
Schedule A, as it may be amended by Underwriter from time to time.
(b) In all transactions in open accounts in which you are designated
as Dealer of Record, you will receive the concessions as set forth on
Schedule A. You hereby authorize Underwriter to act as your agent in
connection with all transactions in open accounts in which you are
designated as Dealer of Record. All designations as Dealer of Record, and
all authorizations of Underwriter to act as your Agent pursuant thereto,
shall cease upon the termination of this Agreement or upon the investor's
instructions to transfer his open account to another Dealer of Record. No
dealer concessions will be allowed on purchases generating less than $1.00
in dealer concessions.
(c) As the exclusive underwriter of the Shares, Underwriter reserves
the privilege of revising the discounts specified on Schedule A at any time
by written notice.
3. Concessions will be paid to you at the address of your principal office,
as indicated below in your acceptance of this Agreement.
4. Underwriter reserves the right to cancel this Agreement at any time
without notice if any Shares shall be offered for sale by you at less than the
then current public offering prices determined by, or for, the Fund.
5. All orders are subject to acceptance or rejection by Underwriter in its
sole discretion. The Underwriter reserves the right, in its discretion, without
notice, to suspend sales or withdraw the offering of Shares entirely.
6. Payment shall be made to the Fund and shall be received by their
transfer agent within three (3) business days after the acceptance of your order
or such shorter time as may be required by law. With respect to all Shares
ordered by you for which payment has not been received, you hereby assign and
pledge to Underwriter all of your right, title and interest in such Shares to
secure payment therefor. You appoint Underwriter as your agent to execute and
deliver all documents necessary to effectuate any of the transactions described
in this paragraph. If such payment is not received within the required time
period, Underwriter reserves the right, without notice, and at its option,
forthwith (a) to cancel the sale, (b) to sell the Shares ordered by you back to
the Fund, or (c) to assign your payment obligation, accompanied by all pledged
Shares, to any person. You agree that Underwriter may hold you responsible for
any loss, including loss of profit, suffered by the Fund, its transfer agent or
Underwriter, resulting from your failure to make payment within the required
time period.
7. No person is authorized to make any representations concerning Shares of
the Fund except those contained in the current applicable Prospectus and
Statement of Additional Information and in sales literature issued and furnished
by Underwriter supplemental to such Prospectus. Underwriter will furnish
additional copies of the current Prospectus and Statement of Additional
Information and such sales literature and other releases and information issued
by Underwriter in reasonable quantities upon request.
<PAGE>
8. Under this Agreement, you act as principal and are not employed by
Underwriter as broker, agent or employee. You are not authorized to act for
Underwriter nor to make any representation on its behalf; and in purchasing or
selling Shares hereunder, you rely only upon the current Prospectus and
Statement of Additional Information furnished to you by Underwriter from time to
time and upon such written representations as may hereafter be made by
Underwriter to you over its signature.
9. You appoint the transfer agent for the Funds as your agent to execute
the purchase transactions of Shares in accordance with the terms and provisions
of any account, program, plan or service established or used by your customers
and to confirm each purchase to your customers on your behalf, and you guarantee
the legal capacity of your customers purchasing such Shares and any co-owners of
such Shares.
10. You will (a) maintain all records required by law relating to
transactions in the Shares, and upon the request of Underwriter, or the request
of the Fund, promptly make such records available to Underwriter or to the Fund
as are requested, and (b) promptly notify Underwriter if you experience any
difficulty in maintaining the records required in the foregoing clause in an
accurate and complete manner. In addition, you will establish appropriate
procedures and reporting forms and schedules, approved by Underwriter and by the
Fund, to enable the parties hereto and the Fund to identify all accounts opened
and maintained by your customers.
11. Each party hereto represents that it is presently, and, at all times
during the term of this Agreement, will be, a member in good standing of the
NASD and agrees to abide by all its Rules of Fair Practice including, but not
limited to, the following provisions:
(a) You shall not withhold placing customers' orders for any Shares so
as to profit yourself as a result of such withholding. You shall not
purchase any Shares from Underwriter other than for investment, except for
the purpose of covering purchase orders already received.
(b) All conditional orders received by Underwriter must be at a
specified definite price.
(c) If any Shares purchased by you are repurchased by the Fund (or by
Underwriter for the account of the Fund) or are tendered for redemption
within seven business days after confirmation of the original sale of such
Shares (1) you agree to forthwith refund to Underwriter the full concession
allowed to you on the original sale, such refund to be paid by Underwriter
to the Fund, and (2) Underwriter shall forthwith pay to the Fund that part
of the discount retained by Underwriter on the original sale. Notice will
be given to you of any such repurchase or redemption within ten days of the
date on which the repurchase or redemption request is made.
(d) Neither Underwriter, as exclusive underwriter for the Fund, nor
you as principal, shall purchase any Shares from a record holder at a price
lower than the net asset value then quoted by, or for, the Fund. Nothing in
this subparagraph shall prevent you from selling Shares for the account of
a record holder to Underwriter or the Fund at the net asset value currently
quoted by, or for, the Fund and charging the investor a fair commission for
handling the transaction.
(e) You warrant on behalf of yourself and your registered
representatives and employees that any purchase of Shares at net asset
value by the same pursuant to the terms of the Prospectus of the applicable
Fund is for investment purposes only and not for purposes of resale. Shares
so purchased may be resold only to the Fund which issued them.
12. You agree that you will indemnify Underwriter, the Fund, the Fund's
transfer agent, the Fund's investment adviser, and the Fund's custodian and hold
such persons harmless from any claims or assertions relating to the lawfulness
of your company's participation in this Agreement and the transactions
contemplated hereby or relating to any activities of any persons or entities
affiliated with your company which are performed in connection with the
discharge of your responsibilities under this Agreement. If any such claims are
asserted, the indemnified parties shall have the right to engage in their own
defense, including the selection and engagement of legal counsel of their
choosing, and all costs of such defense shall be borne by you.
13. This Agreement will automatically terminate in the event of its
assignment. Either party hereto may cancel this Agreement without penalty upon
ten days' written notice. This Agreement may also be terminated as to the Fund
at any time without penalty by the vote of a majority of the members of the
Board of Trustees of the Fund who are not "interested persons" (as such term is
defined in the Investment Company Act of 1940) and who have no direct or
indirect financial interest in the Fund's Distribution Expense Plan or any
agreement relating to such Plan, including this Agreement, or by a vote of a
majority of the outstanding voting securities of the Fund on ten days' written
notice.
14. All communications to Underwriter shall be sent to Creative Capital
Management Corp., 595 Route 25A, Suite 1C, Miller Place, New York 11764, or at
such other address as Underwriter may designate in writing. Any notice to you
shall be duly given if mailed or transmitted by facsimile with original to
follow by mail to you at the address of your principal office, as indicated
below in your acceptance of this Agreement.
<PAGE>
15. This Agreement supersedes any other agreement with you relating to the
offer and sale of the Shares, and relating to any other matter discussed herein.
16. This Agreement shall be binding (i) upon placing your first order with
Underwriter for the purchase of Shares, or (ii) upon receipt by Underwriter in
Miller Place, New York of a counterpart of this Agreement duly accepted and
signed by you, whichever shall occur first. This Agreement shall be construed in
accordance with the laws of the State of New York.
17. The undersigned, executing this Agreement on behalf of Dealer, hereby
warrants and represents that he is duly authorized to so execute this Agreement
on behalf of Dealer.
If the foregoing is in accordance with your understanding of our agreement,
please sign and return one copy of this Agreement to the Underwriter.
ACCEPTED BY DEALER CREATIVE CAPITAL MANAGEMENT CORP.
By:________________________________ By:_______________________________
Authorized Signature, Position
___________________________________ __________________________________
Type or Print Name Date
Dealer Name:
Address:
Address:
Phone:
___________________________________
Date
<PAGE>
SCHEDULE A
COMMISSION SCHEDULE
SCHEDULE A
COMMISSION SCHEDULE
- ----------------------------- ------------- ----------------
Dollar amount of Purchase Total Dealer
(At Offering Price) Sales Concession
Charge
- ----------------------------- ------------- ----------------
- ----------------------------- ------------- ----------------
Up to $50,000 4.00% 3.50%
- ----------------------------- ------------- ----------------
- ----------------------------- ------------- ----------------
$50,001 to $150,000 3.00% 2.50%
- ----------------------------- ------------- ----------------
- ----------------------------- ------------- ----------------
$150,001 to $250,000 2.00% 1.50%
- ----------------------------- ------------- ----------------
- ----------------------------- ------------- ----------------
$250,001 or more none none
- ----------------------------- ------------- ----------------
Payment to broker/dealer, paid quarterly, based on quarterly average daily net
assets of each registered representative as follows:
- ----------------------------- ---------------- -------------- ------------
Shareholder
Dollar amount Servicing
in Fund Fee 12b-1 Total
- ----------------------------- ---------------- -------------- ------------
- ----------------------------- ---------------- -------------- ------------
Under $3,000,000 25bp 5bp 30bp
$3,000,001 up to $5,000,000 25bp 10bp 35bp
Over $5,000,001 25bp 15bp 40bp
- ----------------------------- ---------------- -------------- ------------
Brokers may invest for their own account at NAV.
4/1/00
CUSTODY AGREEMENT
BETWEEN
FIRSTAR BANK, N.A.
AND
SEARAY FINANCIAL FUNDS
<PAGE>
TABLE OF CONTENTS
Definitions 1
ARTICLE II - Appointment; Acceptence; and Furnishing of Documents
II. A. Appointment of Custodian. 5
II. B. Acceptance of Custodian. 5
II. C. Documents to be Furnished. 5
II. D. Notice of Appointment of Dividend and Transfer Agent. 5
ARTICLE III - Receipt of Trust Assets
III. A. Delivery of Moneys. 6
III. B. Delivery of Securities. 6
III. C. Payments for Shares. 6
III. D. Duties Upon Receipt. 7
ARTICLE IV - Disbursement of Trust Assets
IV. A. Declaration of Dividends by Trust. 7
IV. B. Segregation of Redemption Proceeds. 7
IV. C. Disbursements of Custodian. 8
IV. D. Payment of Custodian Fees. 8
ARTICLE V - Custody of Trust Assets
V. A. Separate Accounts for Each Fund. 8
V. B. Segregation of Non-Cash Assets. 9
V. C. Securities in Bearer and Registered Form. 9
V. D. Duties of Custodian as to Securities. 9
V. E. Certain Actions Upon Written Instructions. 10
V. F. Custodian to Deliver Proxy Materials. 11
V. G. Custodian to Deliver Tender Offer Information. 11
V. H. Custodian to Deliver Security and Transaction Information. 12
ARTICLE VI - Purchase and Sale of Securities
VI. A. Purchase of Securities. 12
VI. B. Sale of Securities. 13
VI. C. Delivery Versus Payment for Purchases and Sales. 14
VI. D. Payment on Settlement Date. 14
VI. E. Segregated Accounts. 14
VI. F. Advances for Settlement. 16
<PAGE>
ARTICLE VII - Trust Indebtedness
VII. A. Borrowings. 17
VII. B. Advances. 18
ARTICLE VIII - Concerning the Custodian
VIII. A. Limitations on Liability of Custodian. 18
VIII. B. Actions not Required by Custodian. 20
VIII. C. No Duty to Collect Amounts Due From Dividend and Transfer Agent. 21
VIII. D. No Enforcement Actions. 21
VIII. E. Authority to Use Agents and Sub-Custodians. 22
VIII. F. No Duty to Supervise Investments. 22
VIII. G. All Records Confidential. 23
VIII. H. Compensation of Custodian. 23
VIII. I. Reliance Upon Instructions. 23
VIII. J. Books and Records. 24
VIII. K. Internal Accounting Control Systems. 24
VIII. L. No Management of Assets by Custodian. 24
VIII. M. Assistance to Trust. 25
ARTICLE IX - Termination
IX. A. Termination. 25
IX. B. Failure to Designate Successor Custodian. 26
ARTICLE X - Force Majeure
ARTICLE XI - Miscellaneous
XI. A. Designation of Authorized Persons. 27
XI. B. Limitation of Personal Liability. 27
XI. C. Authorization By Board. 28
XI. D. Custodian's Consent to Use of Its Name. 28
XI. E. Notices to Custodian. 29
XI. F. Notices to Trust. 29
XI. G. Amendments In Writing. 29
XI. H. Successors and Assigns. 29
XI. I. Governing Law. 29
XI. J. Jurisdiction. 30
XI. K. Counterparts. 30
XI. L. Headings. 30
<PAGE>
APPENDIX A
APPENDIX B
APPENDIX C
APPENDIX D
APPENDIX E
<PAGE>
CUSTODY AGREEMENT
This agreement (the "Agreement") is entered into as of the 24th day of
February, 2000, by and between Searay Financial Funds, a Massachusetts business
trust (the "Trust") and Firstar Bank, National Association, (the "Custodian"), a
national banking association having its principal office at 425 Walnut Street,
Cincinnati, Ohio, 45202.
WHEREAS, the Trust and the Custodian desire to enter into this Agreement to
provide for the custody and safekeeping of the assets of the Trust as required
by the Act (as hereafter defined).
THEREFORE, in consideration of the mutual promises hereinafter set forth,
the Trust and the Custodian agree as follows:
DEFINITIONS
The following words and phrases, when used in this Agreement, unless the
context otherwise requires, shall have the following meanings:
ACT - the Investment Company Act of 1940, as amended.
1934 ACT - the Securities and Exchange Act of 1934, as amended.
AUTHORIZED PERSON - any person, whether or not any such person is an
officer or employee of the Trust, who is duly authorized by the Board of
Trustees of the Trust to give Oral Instructions and Written Instructions on
behalf of the Trust or any Fund, and named in Appendix A attached hereto and as
amended from time to time by resolution of the Board of Trustees, certified by
an Officer, and received by the Custodian.
BOARD OF TRUSTEES - the Trustees from time to time serving under the
Trust's Agreement and Declaration of Trust, as from time to time amended.
BOOK-ENTRY SYSTEM - a federal book-entry system as provided in Subpart O of
Treasury Circular No. 300, 31 CFR 306, in Subpart B of 31 CFT Part 350, or in
such book-entry regulations of federal agencies as are substantially in the form
of Subpart O.
<PAGE>
BUSINESS DAY - any day recognized as a settlement day by The New York Stock
Exchange, Inc. and any other day for which the Trust computes the net asset
value of Shares of any fund.
DEPOSITORY - The Depository Trust Company ("DTC"), a limited purpose trust
company, its successor(s) and its nominee(s). Depository shall include any other
clearing agency registered with the SEC under Section 17A of the 1934 Act which
acts as a system for the central handling of Securities where all Securities of
any particular class or series of an issuer deposited within the system are
treated as fungible and may be transferred or pledged by bookkeeping entry
without physical delivery of the Securities provided that the Custodian shall
have received a copy of a resolution of the Board of Trustees, certified by an
Officer, specifically approving the use of such clearing agency as a depository
for the Funds.
DIVIDEND AND TRANSFER AGENT - the dividend and transfer agent appointed,
from time to time, pursuant to a written agreement between the dividend and
transfer agent and the Trust.
FOREIGN SECURITIES - a) securities issued and sold primarily outside of the
United States by a foreign government, a national of any foreign country, or a
trust or other organization incorporated or organized under the laws of any
foreign country or; b) securities issued or guaranteed by the government of the
United States, by any state, by any political subdivision or agency thereof, or
by any entity organized under the laws of the United States or of any state
thereof, which have been issued and sold primarily outside of the United States.
FUND - each series of the Trust listed in Appendix B and any additional
series added pursuant to Proper Instructions. A series is individually referred
to as a "Fund" and collectively referred to as the "Funds."
MONEY MARKET SECURITY - debt obligations issued or guaranteed as to
principal and/or interest by the government of the United States or agencies or
instrumentalities thereof, commercial paper, obligations (including certificates
of deposit, bankers' acceptances, repurchase agreements and reverse repurchase
<PAGE>
agreements with respect to the same), and time deposits of domestic banks and
thrift institutions whose deposits are insured by the Federal Deposit Insurance
Corporation, and short-term corporate obligations where the purchase and sale of
such securities normally require settlement in federal funds or their equivalent
on the same day as such purchase and sale, all of which mature in not more than
thirteen (13) months.
NASD - the National Association of Securities Dealers, Inc.
OFFICER - the Chairman, President, Secretary, Treasurer, any Vice
President, Assistant Secretary or Assistant Treasurer of the Trust.
ORAL INSTRUCTIONS - instructions orally transmitted to and received by the
Custodian from an Authorized Person (or from a person that the Custodian
reasonably believes in good faith to be an Authorized Person) and confirmed by
Written Instructions in such a manner that such Written Instructions are
received by the Custodian on the Business Day immediately following receipt of
such Oral Instructions.
PROPER INSTRUCTIONS - Oral Instructions or Written Instructions. Proper
Instructions may be continuing Written Instructions when deemed appropriate by
both parties.
PROSPECTUS - the Trust's then currently effective prospectus and Statement
of Additional Information, as filed with and declared effective from time to
time by the Securities and Exchange Commission.
SECURITY OR SECURITIES - Money Market Securities, common stock, preferred
stock, options, financial futures, bonds, notes, debentures, corporate debt
securities, mortgages, bank certificates of deposit, bankers' acceptances,
mortgage-backed securities or other obligations and any certificates, receipts,
warrants, or other instruments or documents representing rights to receive,
purchase, or subscribe for the same or evidencing or representing any other
rights or interest therein, or any similar property or assets, including
<PAGE>
securities of any registered investment company, that the Custodian has the
facilities to clear and to service.
SEC - the Securities and Exchange Commission of the United States of
America.
SHARES - with respect to a Fund, the units of beneficial interest issued by
the Trust on account of such Fund.
TRUST - the business trust organized under the laws of Massachusetts which
is an open-end diversified management investment company registered under the
Act.
WRITTEN INSTRUCTIONS - communications in writing actually received by the
Custodian from an Authorized Person. A communication in writing includes a
communication by facsimile, telex or between electro-mechanical or electronic
devices (where the use of such devices have been approved by resolution of the
Board of Trustees and the resolution is certified by an Officer and delivered to
the Custodian). All written communications shall be directed to the Custodian,
attention: Mutual Fund Custody Department.
ARTICLE II
APPOINTMENT; ACCEPTANCE; AND FURNISHING OF DOCUMENTS
II. A. APPOINTMENT OF CUSTODIAN. The Trust hereby constitutes and appoints
the Custodian as custodian of all Securities and cash owned by the Trust at any
time during the term of this Agreement.
II. B. ACCEPTANCE OF CUSTODIAN. The Custodian hereby accepts appointment as
such custodian and agrees to perform the duties thereof as hereinafter set
forth.
II. C. DOCUMENTS TO BE FURNISHED. The following documents, including any
amendments thereto, will be provided contemporaneously with the execution of the
Agreement, to the Custodian by the Trust:
1. A copy of the Declaration of Trust of the Trust certified by the
Secretary.
<PAGE>
2. A copy of the By-Laws of the Trust certified by the Secretary.
3. A copy of the resolution of the Board of Trustees of the Trust
appointing the Custodian, certified by the Secretary.
4. A copy of the then current Prospectus.
5. A Certificate of the President and Secretary of the Trust setting
forth the names and signatures of all Authorized Persons.
II. D. NOTICE OF APPOINTMENT OF DIVIDEND AND TRANSFER AGENT. The Trust
agrees to notify the Custodian in writing of the appointment, termination or
change in appointment of any Dividend and Transfer Agent.
ARTICLE III
RECEIPT OF TRUST ASSETS
III. A. DELIVERY OF MONEYS. During the term of this Agreement, the Trust
will deliver or cause to be delivered to the Custodian all moneys to be held by
the Custodian for the account of any Fund. The Custodian shall be entitled to
reverse any deposits made on any Fund's behalf where such deposits have been
entered and moneys are not finally collected within 30 days of the making of
such entry.
III. B. DELIVERY OF SECURITIES. During the term of this Agreement, the
Trust will deliver or cause to be delivered to the Custodian all Securities to
be held by the Custodian for the account of any Fund. The Custodian will not
have any duties or responsibilities with respect to such Securities until
actually received by the Custodian. The Custodian is hereby authorized by the
Trust, acting on behalf of the Fund, to actually deposit any assets of the Fund
in the Book-Entry System or in a Depository, provided, however, that the
Custodian shall always be accountable to the Trust for the assets of the Fund so
deposited. Assets deposited in the Book-Entry System or the Depository will be
represented in accounts which include only assets held by the Custodian for
customers, including but not limited to accounts in which the Custodian acts in
a fiduciary or representative capacity.
<PAGE>
III. C. PAYMENTS FOR SHARES. As and when received, the Custodian shall
deposit to the account(s) of a Fund any and all payments for Shares of that Fund
issued or sold from time to time as they are received from the Trust's
distributor or Dividend and Transfer Agent or from the Trust itself.
III. D. DUTIES UPON RECEIPT. The Custodian shall not be responsible for any
Securities, moneys or other assets of any Fund until actually received.
ARTICLE IV
DISBURSEMENT OF TRUST ASSETS
IV. A. DECLARATION OF DIVIDENDS BY TRUST. The Trust shall furnish to the
Custodian a copy of the resolution of the Board of Trustees of the Trust,
certified by the Trust's Secretary, either (i) setting forth the date of the
declaration of any dividend or distribution in respect of Shares of any Fund of
the Trust, the date of payment thereof, the record date as of which the Fund
shareholders entitled to payment shall be determined, the amount payable per
share to Fund shareholders of record as of that date, and the total amount to be
paid by the Dividend and Transfer Agent on the payment date, or (ii) authorizing
the declaration of dividends and distributions in respect of Shares of a Fund on
a daily basis and authorizing the Custodian to rely on Written Instructions
setting forth the date of the declaration of any such dividend or distribution,
the date of payment thereof, the record date as of which the Fund shareholders
entitled to payment shall be determined, the amount payable per share to Fund
shareholders of record as of that date, and the total amount to be paid by the
Dividend and Transfer Agent on the payment date.
On the payment date specified in the resolution or Written Instructions
described above, the Custodian shall segregate such amounts from moneys held for
the account of the Fund so that they are available for such payment.
<PAGE>
IV. B. SEGREGATION OF REDEMPTION PROCEEDS. Upon receipt of Proper
Instructions so directing it, the Custodian shall segregate amounts necessary
for the payment of redemption proceeds to be made by the Dividend and Transfer
Agent from moneys held for the account of the Fund so that they are available
for such payment.
IV. C. DISBURSEMENTS OF CUSTODIAN. Upon receipt of a Certificate directing
payment and setting forth the name and address of the person to whom such
payment is to be made, the amount of such payment, the name of the Fund from
which payment is to be made, and the purpose for which payment is to be made,
the Custodian shall disburse amounts as and when directed from the assets of
that Fund. The Custodian is authorized to rely on such directions and shall be
under no obligation to inquire as to the propriety of such directions.
IV. D. PAYMENT OF CUSTODIAN FEES. Upon receipt of Written Instructions
directing payment, the Custodian shall disburse moneys from the assets of the
Trust in payment of the Custodian's fees and expenses as provided in Article
VIII hereof.
ARTICLE V
CUSTODY OF TRUST ASSETS
V. A. SEPARATE ACCOUNTS FOR EACH FUND. As to each Fund, the Custodian shall
open and maintain a separate bank account or accounts in the United States in
the name of the Trust coupled with the name of such Fund, subject only to draft
or order by the Custodian acting pursuant to the terms of this Agreement, and
shall hold all cash received by it from or for the account of the Fund, other
than cash maintained by the Fund in a bank account established and used by the
Fund in accordance with Rule 17f-3 under the Act. Moneys held by the Custodian
on behalf of a Fund may be deposited by the Custodian to its credit as Custodian
in the banking department of the Custodian. Such moneys shall be deposited by
the Custodian in its capacity as such, and shall be withdrawable by the
Custodian only in such capacity.
<PAGE>
V. B. SEGREGATION OF NON-CASH ASSETS. All Securities and non-cash property
held by the Custodian for the account of a Fund (other than Securities
maintained in a Depository or Book-entry System) shall be physically segregated
from other Securities and non-cash property in the possession of the Custodian
(including the Securities and non-cash property of the other Funds) and shall be
identified as subject to this Agreement.
V. C. SECURITIES IN BEARER AND REGISTERED FORM. All Securities held which
are issued or issuable only in bearer form, shall be held by the Custodian in
that form; all other Securities held for the Fund may be registered in the name
of the Custodian, any sub-custodian appointed in accordance with this Agreement,
or the nominee of any of them. The Trust agrees to furnish to the Custodian
appropriate instruments to enable the Custodian to hold, or deliver in proper
form for transfer, any Securities that it may hold for the account of any Fund
and which may, from time to time, be registered in the name of a Fund.
V. D. DUTIES OF CUSTODIAN AS TO SECURITIES. Unless otherwise instructed by
the Trust, with respect to all Securities held for the Trust, the Custodian
shall on a timely basis (concerning items 1 and 2 below, as defined in the
Custodian's Standards of Service Guide, as amended from time to time, annexed
hereto as Appendix D):
1.) Collect all income due and payable with respect to such
Securities;
2.) Present for payment and collect amounts payable upon all
Securities which may mature or be called, redeemed, or retired,
or otherwise become payable;
3.) Surrender interim receipts or Securities in temporary form for
Securities in definitive form; and
4.) Execute, as Custodian, any necessary declarations or certificates
of ownership under the Federal income tax laws or the laws or
<PAGE>
regulations of any other taxing authority, including any foreign
taxing authority, now or hereafter in effect.
V. E. CERTAIN ACTIONS UPON WRITTEN INSTRUCTIONS. Upon receipt of a Written
Instructions and not otherwise, the Custodian shall:
1.) Execute and deliver to such persons as may be designated in such
Written Instructions proxies, consents, authorizations, and any
other instruments whereby the authority of the Trust as
beneficial owner of any Securities may be exercised;
2.) Deliver any Securities in exchange for other Securities or cash
issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation, or
recapitalization of any corporation, or the exercise of any
conversion privilege;
3.) Deliver any Securities to any protective committee,
reorganization committee, or other person in connection with the
reorganization, refinancing, merger, consolidation,
recapitalization, or sale of assets of any corporation, and
receive and hold under the terms of this Agreement such
certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery;
4.) Make such transfers or exchanges of the assets of any Fund and
take such other steps as shall be stated in the Written
Instructions to be for the purpose of effectuating any duly
authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Trust; and
5.) Deliver any Securities held for any Fund to the depository agent
for tender or other similar offers.
<PAGE>
V. F. CUSTODIAN TO DELIVER PROXY MATERIALS. The Custodian shall promptly
deliver to the Trust all notices, proxy material and executed but unvoted
proxies pertaining to shareholder meetings of Securities held by any Fund. The
Custodian shall not vote or authorize the voting of any Securities or give any
consent, waiver or approval with respect thereto unless so directed by Written
Instructions.
V. G. CUSTODIAN TO DELIVER TENDER OFFER INFORMATION. The Custodian shall
promptly deliver to the Trust all information received by the Custodian and
pertaining to Securities held by any Fund with respect to tender or exchange
offers, calls for redemption or purchase, or expiration of rights as described
in the Standards of Service Guide attached as Appendix D. If the Trust desires
to take action with respect to any tender offer, exchange offer or other similar
transaction, the Trust shall notify the Custodian at least five Business Days
prior to the date on which the Custodian is to take such action. The Trust will
provide or cause to be provided to the Custodian all relevant information for
any Security which has unique put/option provisions at least five Business Days
prior to the beginning date of the tender period.
V. H. CUSTODIAN TO DELIVER SECURITY AND TRANSACTION INFORMATION. On each
Business Day that the Federal Reserve Bank is open, the Custodian shall furnish
the Trust with a detailed statement of monies held for the Fund under this
Agreement and with confirmations and a summary of all transfers to or from the
account of the Fund. At least monthly and from time to time, the Custodian shall
furnish the Trust with a detailed statement of the Securities held for the Fund
under this Agreement. Where Securities are transferred to the account of the
Fund without physical delivery, the Custodian shall also identify as belonging
to the Fund a quantity of Securities in a fungible bulk of Securities registered
in the name of the Custodian (or its nominee) or shown on the Custodian's
account on the books of the Book-Entry System or the Depository. With respect to
information provided by this section, it shall not be necessary for the
Custodian to provide notice as described by Article XI Section F. Notices to
<PAGE>
Trust; it shall be sufficient to communicate by such means as shall be mutually
agreeable to the Trust and the Custodian.
ARTICLE VI
PURCHASE AND SALE OF SECURITIES
VI. A. PURCHASE OF SECURITIES. Promptly after each purchase of Securities
by the Trust, the Trust shall deliver to the Custodian (i) with respect to each
purchase of Securities which are not Money Market Securities, Written
Instructions, and (ii) with respect to each purchase of Money Market Securities,
Proper Instructions, specifying with respect to each such purchase the;
1.) name of the issuer and the title of the Securities,
2.) the number of shares, principal amount purchased (and accrued
interest, if any) or other units purchased,
3.) date of purchase and settlement,
4.) purchase price per unit,
5.) total amount payable,
6.) name of the person from whom, or the broker through which, the
purchase was made,
7.) the name of the person to whom such amount is payable, and
8.) the Fund for which the purchase was made.
The Custodian shall, against receipt of Securities purchased by or for the
Trust, pay out of the moneys held for the account of such Fund the total amount
specified in the Written Instructions, or Oral Instructions, if applicable, to
the person named therein. The Custodian shall not be under any obligation to pay
out moneys to cover the cost of a purchase of Securities for a Fund, if in the
relevant Fund custody account there is insufficient cash available to the Fund
for which such purchase was made. With respect to any repurchase agreement
transaction for the Funds, the Custodian shall assure that the collateral
<PAGE>
reflected on the transaction advice is received by the Custodian.
VI. B. SALE OF SECURITIES. Promptly after each sale of Securities by a
Fund, the Trust shall deliver to the Custodian (i) with respect to each sale of
Securities which are not Money Market Securities, Written Instructions, and (ii)
with respect to each sale of Money Market Securities, Proper Instructions,
specifying with respect to each such sale the:
1.) name of the issuer and the title of the Securities,
2.) number of shares, principal amount sold (and accrued interest, if
any) or other units sold,
3.) date of sale and settlement,
4.) sale price per unit,
5.) total amount receivable,
6.) name of the person to whom, or the broker through which, the sale
was made,
7.) name of the person to whom such Securities are to be delivered,
and
8.) Fund for which the sale was made.
The Custodian shall deliver the Securities against receipt of the total amount
specified in the Written Instructions, or Oral Instructions, if applicable.
VI. C. DELIVERY VERSUS PAYMENT FOR PURCHASES AND SALES. Purchases and sales
of Securities effected by the Custodian will be made on a delivery versus
payment basis. The Custodian may, in its sole discretion, upon receipt of
Written Instructions, elect to settle a purchase or sale transaction in some
other manner, but only upon receipt of acceptable indemnification from the Fund.
VI. D. PAYMENT ON SETTLEMENT DATE. On contractual settlement date, the
account of the Fund will be charged for all purchased Securities settling on
that day, regardless of whether or not delivery is made. Likewise, on
<PAGE>
contractual settlement date, proceeds from the sale of Securities settling that
day will be credited to the account of the Fund, irrespective of delivery.
VI. E. SEGREGATED ACCOUNTS. The Custodian shall, upon receipt of Proper
Instructions so directing it, establish and maintain a segregated account or
accounts for and on behalf of a Fund. Cash and/or Securities may be transferred
into such account or accounts for specific purposes, to-wit:
1.) in accordance with the provision of any agreement among the
Trust, the Custodian, and a broker-dealer registered under the
1934 Act, and also a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of the Options Clearing
Corporation and of any registered national securities exchange,
the Commodity Futures Trading Commission, any registered contract
market, or any similar organization or organizations requiring
escrow or other similar arrangements in connection with
transactions by the Fund;
2.) for purposes of segregating cash or Securities in connection with
options purchased, sold, or written by the Fund or commodity
futures contracts or options thereon purchased or sold by the
Fund;
3.) for the purpose of compliance by the Fund with the procedures
required for reverse repurchase agreements, firm commitment
agreements, standby commitment agreements, short sales, or any
other securities by Act Release No. 10666, or any subsequent
release or releases or rule of the SEC relating to the
maintenance of segregated accounts by registered investment
companies;
<PAGE>
4.) for the purpose of segregating collateral for loans of Securities
made by the Fund; and
5.) for other proper corporate purposes, but only upon receipt of, in
addition to Proper Instructions, a copy of a resolution of the
Board of Trustees, certified by an Officer, setting forth the
purposes of such segregated account.
Each segregated account established hereunder shall be established and
maintained for a single Fund only. All Proper Instructions relating to a
segregated account shall specify the Fund involved.
VI. F. ADVANCES FOR SETTLEMENT. Except as otherwise may be agreed upon by
the parties hereto, the Custodian shall not be required to comply with any
Written Instructions to settle the purchase of any Securities on behalf of a
Fund unless there is sufficient cash in the account(s) pertaining to such Fund
at the time or to settle the sale of any Securities from such an account(s)
unless such Securities are in deliverable form. Notwithstanding the foregoing,
if the purchase price of such Securities exceeds the amount of cash in the
account(s) at the time of such purchase, the Custodian may, in its sole
discretion, advance the amount of the difference in order to settle the purchase
of such Securities. The amount of any such advance shall be deemed a loan from
the Custodian to the Trust payable on demand and bearing interest accruing from
the date such loan is made up to but not including the date such loan is repaid
at the rate per annum customarily charged by the Custodian on similar loans.
<PAGE>
ARTICLE VII
TRUST INDEBTEDNESS
VII. A. BORROWINGS. In connection with any borrowings by the Trust, the
Trust will cause to be delivered to the Custodian by a bank or broker requiring
Securities as collateral for such borrowings (including the Custodian if the
borrowing is from the Custodian), a notice or undertaking in the form currently
employed by such bank or broker setting forth the amount of collateral. The
Trust shall promptly deliver to the Custodian Written Instructions specifying
with respect to each such borrowing: (a) the name of the bank or broker, (b) the
amount and terms of the borrowing, which may be set forth by incorporating by
reference an attached promissory note duly endorsed by the Trust, or a loan
agreement, (c) the date, and time if known, on which the loan is to be entered
into, (d) the date on which the loan becomes due and payable, (e) the total
amount payable to the Trust on the borrowing date, and (f) the description of
the Securities securing the loan, including the name of the issuer, the title
and the number of shares or other units or the principal amount. The Custodian
shall deliver on the borrowing date specified in the Written Instructions the
required collateral against the lender's delivery of the total loan amount then
payable, provided that the same conforms to that which is described in the
Written Instructions. The Custodian shall deliver, in the manner directed by the
Trust, such Securities as additional collateral, as may be specified in Written
Instructions, to secure further any transaction described in this Article VII.
The Trust shall cause all Securities released from collateral status to be
returned directly to the Custodian and the Custodian shall receive from time to
time such return of collateral as may be tendered to it.
The Custodian may, at the option of the lender, keep such collateral in its
possession, subject to all rights therein given to the lender because of the
<PAGE>
loan. The Custodian may require such reasonable conditions regarding such
collateral and its dealings with third-party lenders as it may deem appropriate.
VII. B. ADVANCES. With respect to any advances of cash made by the
Custodian to or for the benefit of a Fund for any purpose which results in the
Fund incurring an overdraft at the end of any Business Day, such advance shall
be repayable immediately upon demand made by the Custodian at any time.
ARTICLE VIII
CONCERNING THE CUSTODIAN
VIII. A. LIMITATIONS ON LIABILITY OF CUSTODIAN. Except as otherwise
provided herein, the Custodian shall not be liable for any loss or damage,
including counsel fees, resulting from its action or omission to act or
otherwise, except for any such loss or damage arising out of its negligence or
willful misconduct. The Trust, on behalf of the Fund and only from assets of the
Fund (or insurance purchased by the Trust with respect to its liabilities on
behalf of the Fund hereunder), shall defend, indemnify and hold harmless the
Custodian and its directors, officers, employees and agents with respect to any
loss, claim, liability or cost (including reasonable attorneys' fees) arising or
alleged to arise from or relating to the Trust's duties hereunder or any other
action or inaction of the Trust or its Trustees, officers, employees or agents,
except such as may arise from the negligent action, omission, willful misconduct
or breach of this Agreement by the Custodian, its directors, officers, employees
or agents.. The Custodian shall defend, indemnify and hold harmless the Trust
and its trustees, officers, employees or agents with respect to any loss, claim,
liability or cost (including reasonable attorneys' fees) arising or alleged to
arise from or relating to the Custodian's duties as specifically set forth in
this agreement with respect to the Fund hereunder or any other action or
inaction of the Custodian or its directors, officers, employees, agents,
nominees, or Sub-Custodians as to the Fund, except such as may arise from the
<PAGE>
negligent action, omission or willful misconduct of the Trust, its trustees,
officers, employees, or agents. The Custodian may, with respect to questions of
law apply for and obtain the advice and opinion of counsel to the Trust at the
expense of the Fund, or of its own counsel at its own expense, and shall be
fully protected with respect to anything done or omitted by it in good faith in
conformity with the advice or opinion of counsel to the Trust, and shall be
similarly protected with respect to anything done or omitted by it in good faith
in conformity with advice or opinion of its counsel, unless counsel to the Fund
shall, within a reasonable time after being notified of legal advice received by
the Custodian, have a differing interpretation of such question of law. The
Custodian shall be liable to the Trust for any proximate loss or damage
resulting from the use of the Book-Entry System or any Depository arising by
reason of any negligence, misfeasance or misconduct on the part of the Custodian
or any of its employees, agents, nominees or Sub-Custodians, but not for any
special, incidental, consequential, or punitive damages; provided, however, that
nothing contained herein shall preclude recovery by the Trust, on behalf of the
Fund, of principal and of interest to the date of recovery on Securities
incorrectly omitted from the Fund's account or penalties imposed on the Trust,
in connection with the Fund, for any failures to deliver Securities. In any case
in which one party hereto may be asked to indemnify the other or hold the other
harmless, the party from whom indemnification is sought (the "Indemnifying
Party") shall be advised of all pertinent facts concerning the situation in
question, and the party claiming a right to indemnification (the "Indemnified
Party") will use reasonable care to identify and notify the Indemnifying Party
promptly concerning any situation which presents or appears to present a claim
for indemnification against the Indemnifying Party. The Indemnifying Party shall
have the option to defend the Indemnified Party against any claim which may be
the subject of the indemnification, and in the event the Indemnifying Party so
elects, such defense shall be conducted by counsel chosen by the Indemnifying
<PAGE>
Party and satisfactory to the Indemnified Party and the Indemnifying Party will
so notify the Indemnified Party and thereupon such Indemnifying Party shall take
over the complete defense of the claim and the Indemnifying Party shall sustain
no further legal or other expenses in such situation for which indemnification
has been sought under this paragraph, except the expenses of any additional
counsel retained by the Indemnified Party. In no case shall any party claiming
the right to indemnification confess any claim or make any compromise in any
case in which the other party has been asked to indemnify such party (unless
such confession or compromise is made with such other party's prior written
consent. The provisions of this section VIII. A. shall survive the termination
of this Agreement.
VIII. B. ACTIONS NOT REQUIRED BY CUSTODIAN. Without limiting the generality
of the foregoing, the Custodian, acting in the capacity of Custodian hereunder,
shall be under no obligation to inquire into, and shall not be liable for:
1.) The validity of the issue of any Securities purchased by or for
the account of any Fund, the legality of the purchase thereof, or
the propriety of the amount paid therefor;
2.) The legality of the sale of any Securities by or for the account
of any Fund, or the propriety of the amount for which the same
are sold;
3.) The legality of the issue or sale of any Shares of any Fund, or
the sufficiency of the amount to be received therefor;
4.) The legality of the redemption of any Shares of any Fund, or the
propriety of the amount to be paid therefor;
5.) The legality of the declaration or payment of any dividend by the
Trust in respect of Shares of any Fund;
<PAGE>
6.) The legality of any borrowing by the Trust on behalf of the Trust
or any Fund, using Securities as collateral;
7.) Whether the Trust or a Fund is in compliance with the 1940 Act,
the regulations thereunder, the provisions of the Trust's charter
documents or by-laws, or its investment objectives and policies
as then in effect.
VIII. C. NO DUTY TO COLLECT AMOUNTS DUE FROM DIVIDEND AND TRANSFER AGENT.
The Custodian shall not be under any duty or obligation to take action to effect
collection of any amount due to the Trust from any Dividend and Transfer Agent
of the Trust nor to take any action to effect payment or distribution by any
Dividend and Transfer Agent of the Trust of any amount paid by the Custodian to
any Dividend and Transfer Agent of the Trust in accordance with this Agreement.
VIII. D. NO ENFORCEMENT ACTIONS. Notwithstanding Section D of Article V,
the Custodian shall not be under any duty or obligation to take action, by legal
means or otherwise, to effect collection of any amount, if the Securities upon
which such amount is payable are in default, or if payment is refused after due
demand or presentation, unless and until (i) it shall be directed to take such
action by Written Instructions and (ii) it shall be assured to its satisfaction
(including prepayment thereof) of reimbursement of its costs and expenses in
connection with any such action.
VIII. E. AUTHORITY TO USE AGENTS AND SUB-CUSTODIANS. The Trust acknowledges
and hereby authorizes the Custodian to hold Securities through its various
agents described in Appendix C annexed hereto. In addition, the Trust
acknowledges that the Custodian may appoint one or more financial institutions,
as agent or agents or as sub-custodian or sub-custodians, including, but not
limited to, banking institutions located in foreign countries, for the purpose
of holding Securities and moneys at any time owned by the Fund. The Custodian
shall not be relieved of any obligation or liability under this Agreement in
connection with the appointment or activities of such agents or sub-custodians.
Any such agent or sub-custodian shall be qualified to serve as such for assets
<PAGE>
of investment companies registered under the Act. The Funds shall reimburse the
Custodian for all costs incurred by the Custodian in connection with opening
accounts with any such agents or sub-custodians. Upon request, the Custodian
shall promptly forward to the Trust any documents it receives from any agent or
sub-custodian appointed hereunder which may assist trustees of registered
investment companies to fulfill their responsibilities under Rule 17f-5 of the
Act.
VIII. F. NO DUTY TO SUPERVISE INVESTMENTS. The Custodian shall not be under
any duty or obligation to ascertain whether any Securities at any time delivered
to or held by it for the account of the Trust are such as properly may be held
by the Trust under the provisions of the Declaration of Trust and the Trust's
By-Laws.
VIII. G. ALL RECORDS CONFIDENTIAL. The Custodian shall treat all records
and other information relating to the Trust and the assets of all Funds as
confidential and shall not disclose any such records or information to any other
person unless (i) the Trust shall have consented thereto in writing or (ii) such
disclosure is compelled by law.
VIII. H. COMPENSATION OF CUSTODIAN. The Custodian shall be entitled to
receive and the Trust agrees to pay to the Custodian, for the Fund's account
from the Fund's assets only, such compensation as shall be determined pursuant
to Appendix E attached hereto, or as shall be determined pursuant to amendments
to Appendix E as approved by the Custodian and the Trust. The Custodian shall be
entitled to charge against any money held by it for the accounts of the Fund the
amount of any loss, damage, liability or expense, including counsel fees, for
which it shall be entitled to reimbursement under the provisions of this
Agreement as determined by agreement of the Custodian and the Trust or by the
final order of any court or arbitrator having jurisdiction and as to which all
rights of appeal shall have expired. The expenses which the Custodian may charge
against the account of a Fund include, but are not limited to, the expenses of
<PAGE>
agents or Sub-Custodians incurred in settling transactions involving the
purchase and sale of Securities of the Fund.
VIII. I. RELIANCE UPON INSTRUCTIONS. The Custodian shall be entitled to
rely upon any Proper Instructions if such reliance is made in good faith. The
Trust agrees to forward to the Custodian Written Instructions confirming Oral
Instructions in such a manner so that such Written Instructions are received by
the Custodian, whether by hand delivery, telex, facsimile or otherwise, on the
same Business Day on which such Oral Instructions were given. The Trust agrees
that the failure of the Custodian to receive such confirming instructions shall
in no way affect the validity of the transactions or enforceability of the
transactions hereby authorized by the Trust. The Trust agrees that the Custodian
shall incur no liability to the Trust for acting upon Oral Instructions given to
the Custodian hereunder concerning such transactions.
VIII. J. BOOKS AND RECORDS. The Custodian will (i) set up and maintain
proper books of account and complete records of all transactions in the accounts
maintained by the Custodian hereunder in such manner as will meet the
obligations of the Fund under the Act, with particular attention to Section 31
thereof and Rules 3la-1 and 3la-2 thereunder and those records are the property
of the Trust, and (ii) preserve for the periods prescribed by applicable Federal
statute or regulation all records required to be so preserved. All such books
and records shall be the property of the Trust, and shall be available, upon
request, for inspection by duly authorized officers, employees or agents of the
Trust and employees of the SEC.
VIII. K. INTERNAL ACCOUNTING CONTROL SYSTEMS. The Custodian shall send to
the Trust any report received on the systems of internal accounting control of
the Custodian, or its agents or sub-custodians, as the Trust may reasonably
request from time to time.
VIII. L. NO MANAGEMENT OF ASSETS BY CUSTODIAN. The Custodian performs only
the services of a custodian and shall have no responsibility for the management,
investment or reinvestment of the Securities or other assets from time to time
<PAGE>
owned by any Fund. The Custodian is not a selling agent for Shares of any Fund
and performance of its duties as custodian shall not be deemed to be a
recommendation to any Fund's depositors or others of Shares of the Fund as an
investment. The Custodian shall have no duties or obligations whatsoever except
such duties and obligations as are specifically set forth in this Agreement, and
no covenant or obligation shall be implied in this Agreement against the
Custodian.
VIII. M. ASSISTANCE TO TRUST. The Custodian shall take all reasonable
action, that the Trust may from time to time request, to assist the Trust in
obtaining favorable opinions from the Trust's independent accountants, with
respect to the Custodian's activities hereunder, in connection with the
preparation of the Fund's Form N- IA, Form N-SAR, or other annual reports to the
SEC.
VIII. N. GRANT OF SECURITY INTEREST. The Trust hereby pledges to and grants
the Custodian a security interest in the assets of any Fund to secure the
payment of any liabilities of the Fund to the Custodian for money borrowed from
the Custodian. This pledge is in addition to any other pledge of collateral by
the Trust to the Custodian.
ARTICLE IX
TERMINATION
IX. A. TERMINATION. Either party hereto may terminate this Agreement for
any reason by giving to the other party a notice in writing specifying the date
of such termination, which shall be not less than ninety (90) days after the
date of giving of such notice. If such notice is given by the Trust, it shall be
accompanied by a copy of a resolution of the Board of Trustees of the Trust,
certified by the Secretary of the Trust, electing to terminate this Agreement
and designating a successor custodian or custodians each of which shall be a
bank or trust company having not less than $100,000,000 aggregate capital,
surplus, and undivided profits. In the event such notice is given by the
Custodian, the Trust shall, on or before the termination date, deliver to the
<PAGE>
Custodian a copy of a resolution of the Board of Trustees of the Trust,
certified by the Secretary, designating a successor custodian or custodians to
act on behalf of the Trust. In the absence of such designation by the Trust, the
Custodian may designate a successor custodian which shall be a bank or trust
company having not less than $100,000,000 aggregate capital, surplus, and
undivided profits. Upon the date set forth in such notice this Agreement shall
terminate, and the Custodian, provided that it has received a notice of
acceptance by the successor custodian, shall deliver, on that date, directly to
the successor custodian all Securities and monies then owned by the Fund and
held by it as Custodian. Upon termination of this Agreement, the Trust shall pay
to the Custodian on behalf of the Trust such compensation as may be due as of
the date of such termination. The Trust agrees on behalf of the Trust that the
Custodian shall be reimbursed for its reasonable costs in connection with the
termination of this Agreement.
IX. B. FAILURE TO DESIGNATE SUCCESSOR CUSTODIAN. If a successor custodian
is not designated by the Trust, or by the Custodian in accordance with the
preceding paragraph, or the designated successor cannot or will not serve, the
Trust shall, upon the delivery by the Custodian to the Trust of all Securities
(other than Securities held in the Book-Entry System which cannot be delivered
to the Trust) and moneys then owned by the Trust, be deemed to be the custodian
for the Trust, and the Custodian shall thereby be relieved of all duties and
responsibilities pursuant to this Agreement, other than the duty with respect to
Securities held in the Book-Entry System, which cannot be delivered to the
Trust, which shall be held by the Custodian in accordance with this Agreement.
ARTICLE X
FORCE MAJEURE
Neither the Custodian nor the Trust shall be liable for any failure or
delay in performance of its obligations under this Agreement arising out of or
caused, directly or indirectly, by circumstances beyond its reasonable control,
<PAGE>
including, without limitation, acts of God; earthquakes; fires; floods; wars;
civil or military disturbances; sabotage; strikes; epidemics; riots; labor
disputes; acts of civil or military authority; governmental actions; or
inability to obtain labor, material, equipment or transportation; provided,
however, that the Custodian, in the event of a failure or delay, shall use its
best efforts to ameliorate the effects of any such failure or delay.
ARTICLE XI
MISCELLANEOUS
XI. A. DESIGNATION OF AUTHORIZED PERSONS. Appendix A sets forth the names
and the signatures of all Authorized Persons as of this date, as certified by
the Secretary of the Trust. The Trust agrees to furnish to the Custodian a new
Appendix A in form similar to the attached Appendix A, if any present Authorized
Person ceases to be an Authorized Person or if any other or additional
Authorized Persons are elected or appointed. Until such new Appendix A shall be
received, the Custodian shall be fully protected in acting under the provisions
of this Agreement upon Oral Instructions or signatures of the then current
Authorized Persons as set forth in the last delivered Appendix A.
XI. B. LIMITATION OF PERSONAL LIABILITY. No recourse under any obligation
of this Agreement or for any claim based thereon shall be had against any
organizer, shareholder, officer, trustee, past, present or future as such, of
the Trust or of any predecessor or successor, either directly or through the
Trust or any such predecessor or successor, whether by virtue of any
constitution, statute or rule of law or equity, or by the enforcement of any
assessment or penalty or otherwise; it being expressly agreed and understood
that this Agreement and the obligations thereunder are enforceable solely
against the assets of the Trust, and that no such personal liability whatever
shall attach to, or is or shall be incurred by, the organizers, shareholders,
officers, or trustees of the Trust or of any predecessor or successor, or any of
<PAGE>
them as such, because of the obligations contained in this Agreement or implied
therefrom and that any and all such liability is hereby expressly waived and
released by the Custodian as a condition of, and as a consideration for, the
execution of this Agreement.
XI. C. AUTHORIZATION BY BOARD. The obligations set forth in this Agreement
as having been made by the Trust have been made by the Board of Trustees, acting
as such Trustees for and on behalf of the Trust, pursuant to the authority
vested in them under the laws of the State of Massachusetts, the Declaration of
Trust and the By-Laws of the Trust. This Agreement has been executed by Officers
of the Trust as officers, and not individually, and the obligations contained
herein are not binding upon any of the Trustees, Officers, agents or holders of
shares, personally, but bind only the Trust and then only to the extent of the
assets of the Trust.
XI. D. CUSTODIAN'S CONSENT TO USE OF ITS NAME. The Trust shall obtain the
Custodian's consent prior to the publication and/or dissemination or
distribution, of the Prospectus and any other documents (including advertising
material) specifically mentioning the Custodian (other than merely by name and
address).
XI. E. NOTICES TO CUSTODIAN. Any notice or other instrument in writing,
authorized or required by this Agreement to be given to the Custodian, shall be
sufficiently given if addressed to the Custodian and mailed or delivered to it
at its offices at Firstar Bank Center, 425 Walnut .Street, M. L. 6118,
Cincinnati, Ohio 45202, attention Mutual Fund Custody Department, or at such
other place as the Custodian may from time to time designate in writing.
XI. F. NOTICES TO TRUST. Any notice or other instrument in writing,
authorized or required by this Agreement to be given to the Trust shall be
sufficiently given when delivered to the Trust or on the second Business Day
following the time such notice is deposited in the U.S. mail postage prepaid and
<PAGE>
addressed to the Trust at its office at 321 S. Bromfield Road, Dayton, Ohio
45429, or at such other place as the Trust may from time to time designate in
writing.
XI. G. AMENDMENTS IN WRITING. This Agreement, with the exception of the
Appendices, may not be amended or modified in any manner except by a written
agreement executed by both parties with the same formality as this Agreement,
and authorized and approved by a resolution of the Board of Trustees of the
Trust.
XI. H. SUCCESSORS AND ASSIGNS. This Agreement shall extend to and shall be
binding upon the parties hereto, and their respective successors and assigns;
provided, however, that this Agreement shall not be assignable by the Trust or
by the Custodian, and no attempted assignment by the Trust or the Custodian
shall be effective without the written consent of the other party hereto.
XI. I. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Ohio.
XI. J. JURISDICTION. Any legal action, suit or proceeding to be instituted
by either party with respect to this Agreement shall be brought by such party
exclusively in the courts of the State of Ohio or in the courts of the United
States for the Southern District of Ohio, and each party, by its execution of
this Agreement, irrevocably (i) submits to such jurisdiction and (ii) consents
to the service of any process or pleadings by first class U.S. mail, postage
prepaid and return receipt requested, or by any other means from time to time
authorized by the laws of such jurisdiction.
XI. K. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
XI. L. HEADINGS. The headings of paragraphs in this Agreement are for
convenience of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective Officers, thereunto duly authorized as of the day
and year FIRST above written.
WITNESS: TRUST:
Searay Financial Funds
__________________________ By: __________________________________
WITNESS: CUSTODIAN:
Firstar Bank, N.A.
___________________________ By: __________________________________
Title: _________________________________
<PAGE>
APPENDIX A
AUTHORIZED PERSONS SPECIMEN SIGNATURES
Chairman: __________________ ______________________________
President: ___________________________________________________
Secretary: ___________________________________________________
Treasurer: ___________________________________________________
Senior Vice
President: __________________ ______________________________
Assistant
Secretary: __________________________________________________
Assistant
Treasurer: __________________ ______________________________
Adviser Employees: __________________ ______________________________
__________________ ______________________________
Transfer Agent/Fund Accountant
Employees: _______________ ______________________________
_______________ ______________________________
_______________ ______________________________
_______________ ______________________________
* Authority restricted; does not include: ___________________________________
<PAGE>
APPENDIX B
Series of the Trust
THE STURGEON FUND
<PAGE>
APPENDIX C
AGENTS OF THE CUSTODIAN
The following agents are employed currently by Firstar Bank, N.A. for
securities processing and control ...
The Depository Trust Company (New York)
7 Hanover Square
New York, NY 10004
The Federal Reserve Bank
Cincinnati and Cleveland Branches
Banker of New York
1 Wall Street
New York, NY 10286
(For Foreign Securities and certain non-DTC eligible Securities)
ADMINISTRATION AGREEMENT
SEARAY FINANCIAL FUNDS
AND
MUTUAL FUNDS SERVICE CO.
This Administration Agreement (the "Agreement") dated as of March 2, 2000,
made by and between SEARAY FINANCIAL FUNDS (the "Trust"), a business trust
operating as an open-end investment company, duly organized and existing under
the laws of the Commonwealth of Massachusetts, on behalf of The Sturgeon Fund
(the "Fund"), and MUTUAL FUNDS SERVICE CO. (the "Administrator"), a corporation
duly organized and existing under the laws of the State of Ohio.
W I T N E S S E T H
WHEREAS, the Fund is engaged in business as an open-end investment company
registered under the Investment Company Act of 1940 (collectively with the rules
and regulations promulgated thereunder, the "1940 Act"); and
WHEREAS, the Trust wishes to engage the Administrator to provide certain
administrative and management services, and the Administrator is willing to
provide such administrative and management services to the Fund, on the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual agreements of the parties
hereto as herein set forth, the parties agree as follows:
1. DUTIES OF THE ADMINISTRATOR. Subject to the direction and control of the
Board of Trustees of the Trust, the Administrator shall perform such
administrative services as may from time to time be reasonably requested by the
Fund. The types of services which may be called for hereunder include without
limitation: (a) providing equipment and clerical personnel necessary for
performing the administrative and management functions herein set forth; (b)
arranging, if desired by the Fund, for Trustees, officers and employees of the
Administrator to serve as Trustees, officers or agents of the Fund if duly
elected or appointed to such positions and subject to their individual consent
and to any limitations imposed by law; (c) supervising the overall
administration of the Fund, including negotiation of contracts and fees with and
the monitoring of performance and billings of the Fund's custodian and other
independent contractors or agents; (d) assisting in preparing and, if
applicable, filing all documents required for compliance by the Fund with
applicable federal laws and regulations, including registration statements,
semi-annual and annual reports to shareholders and proxy statements; (e)
preparing supporting documents for meetings of Trustees and committees of
Trustees; and (f) maintaining current and accurate books and records of the
<PAGE>
Fund. Notwithstanding the foregoing, the Administrator shall not be deemed to
have assumed any duties with respect to, and shall not be responsible for, the
management of the Fund's assets or the rendering of investment advice and
supervision with respect thereto, nor shall the Administrator be deemed to have
assumed or have any responsibility with respect to functions specifically
assumed by any custodian of the Fund or any person or agent responsible for
state registration or renewal functions of the Fund.
Accounts, records and other information shall belong to the Trust and be
considered confidential and shall be made available to the Trust, within a
reasonable time, upon demand. Accounts, records and other information will not
be disclosed to other than federal and state regulators without permission from
the Fund.
2. ALLOCATION OF CHARGES AND EXPENSES. The Administrator shall pay the
entire salaries and wages of its officers and employees who devote part or all
of their time to the affairs of the Administrator, and the wages and salaries of
such persons shall not be deemed to be expenses incurred by the Fund for
purposes of this Section 2. Except as provided in the foregoing sentence, the
Fund or its Advisor, as specified in its prospectus will pay all of its own
expenses including, without limitation, compensation of Trustees not affiliated
with the Administrator; governmental fees; interest charges; taxes; membership
dues in the Investment Company Institute allocable to the Fund; fees and
expenses of the Fund's independent auditors, legal counsel and any transfer
agent or registrar of the Fund; expenses of printing and mailing reports,
notices, proxy statements and reports to investors and governmental agencies and
commissions; expenses of mailing agendas and supporting documents for meetings
of Trustees and committees of Trustees; expenses connected with the execution,
recording and settlement of security transactions; insurance premiums; fees and
expenses of the Fund's custodian for all services to the Fund, including
safekeeping of funds and securities and maintaining required books and accounts;
expenses of calculating the net asset value of shares of the Fund; expenses of
meetings of shareholders of the Fund; and expenses relating to the issuance,
registration and qualification of shares of the Fund.
3. COMPENSATION OF THE ADMINISTRATOR. For the services to be rendered and
the facilities to be provided by the Administrator hereunder, the Fund shall pay
to the Administrator an administrative fee computed and paid in accordance with
Schedule A hereto.
4. LIMITATION OF LIABILITY OF THE ADMINISTRATOR. The Administrator and its
Trustees, officers, employees and agents shall not be liable for any error of
judgment or mistake of law or for any act or omission in the administration of
the Fund or the performance of its duties hereunder, unless caused by the
Administrator's negligence, willful misfeasance, or breach of this Agreement.
5. ACTIVITIES OF THE ADMINISTRATOR. The services of the Administrator to
the Fund are not to be deemed to be exclusive, the Administrator being free to
render administrative and/or other services to other parties.
2
<PAGE>
6. TERMINATION. This Agreement shall have an initial term of one (1) year
beginning on the date of this Agreement. After the initial term of one year,
this Agreement may be terminated by either party upon 60 days' prior written
notice.
7. DELEGATION BY THE ADMINISTRATOR. The Administrator may delegate any or
all of its obligations hereunder to any one or more entities or persons;
provided, however, that the Administrator shall not make any such delegation
unless the Trustees of the Fund shall have approved such delegation; and
provided, further, that, unless the Fund otherwise expressly agrees in writing,
the Administrator shall be as fully responsible to the Fund for the acts and
omissions of the entity or person to whom the Administrator has made such
delegation as it would be for its own acts or omissions.
8. NOTICES. Any notice or other communication required by or permitted to
be given in connection with this Agreement shall be in writing, and shall be
delivered in person or sent by certified mail, postage prepaid, return receipt
requested, to the respective parties as follows:
IF TO THE FUND:
---------------
The Sturgeon Fund
Attention: Cameron M. Bernadsky
321 S. Bromfield Road
Dayton, OH 45429
IF TO THE ADMINISTRATOR:
------------------------
Mutual Funds Service Co.
Attention: Thomas E. Line, President
6000 Memorial Drive
Box 7177
Dublin, OH 43017
9. The Trustees, shareholders, nominees, officers, employees and agents of
the Trust shall not be personally bound by or liable hereunder, nor shall resort
be had to their private property for the satisfaction of any obligation or claim
hereunder nor shall the execution and delivery of this Agreement by such
officers be deemed to have been made by any of them individually. This Agreement
shall bind Trust property only as provided in its Declaration of Trust, a copy
of which is on file with the Secretary of the Commonwealth of Massachusetts.
10. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which when so executed shall be deemed to be an original,
but such counterparts shall together constitute but one and the same instrument.
11. ASSIGNMENT. This Agreement shall be binding upon the parties hereto and
their respective successors and assigns; provided, however, that this Agreement
3
<PAGE>
shall not be assignable by the Fund without the written consent of the
Administrator, or by the Administrator without the written consent of the Fund,
in each case authorized or approved by a resolution of its Trustees.
12. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio, without reference to its choice
of law rules.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized officers as of the day and year first above
written.
SEARAY FINANCIAL FUNDS
By ______________________________
MUTUAL FUNDS SERVICE CO.
By ______________________________
4
<PAGE>
Schedule A
MUTUAL FUNDS SERVICE CO.
FEE SCHEDULE FOR ADMINISTRATION SERVICES
BASIS POINT FEE - 5 Basis Points annual fee on the average net assets of
the Fund (payable monthly).
MINIMUM ANNUAL FEE - $30,000 (payable monthly)
In addition, all out-of-pocket expenses shall be separately charged and
shall include but not be limited to: printed/copied material, postage,
overnight mail, courier service, EDGAR filing fees, which includes SEC
imposed fees and charges for converting and filing by EDGAR, transportation
and lodging.
<PAGE>
MUTUAL FUNDS SERVICE CO.
ADMINISTRATION SERVICES SUMMARY
o If desired by the Fund, arranging for Trustees, officers and employees of
Mutual Funds Service Co. to serve as trustees, officers, agents of Fund if
duly elected or appointed.
o Negotiation of contracts and fees with other independent contractors.
Monitor performance and billings of the Fund's custodian and other
independent contractors or agents.
o Preparing for review by Fund legal counsel and Trustees and, where
applicable, filing with the SEC, those documents required for compliance by
the Fund under applicable federal laws and regulations:
(1) Form N-1A Registration Statement
(2) Rule 24f-2 Notice
(3) Semi-annual and annual reports to shareholders
(4) Form N-SAR Semi-Annual Report for Regulated Investment Companies
(5) Proxy Statements
(6) 12b-1 Reports
(7) 18f-3 Reports
o Prepare requested supporting documents and summaries for meetings of
Trustees and committees of Trustees.
o Prospectus, New Account Application, miscellaneous forms, reports to
shareholders and Directors will be produced and customized to meet your
needs.
o Monitor quarterly compliance with IRS diversification tests and prospectus
investment restrictions.
o Coordinate all Blue Sky registration or renewal functions of the Fund in
coordination with the Fund's in-house personnel or agent.
o Calculate performance data.
o Coordinate and supervise the preparation and filing of the Fund' tax
returns.
o Advise the Trust and its Board on administrative matters concerning the
Fund.
TRANSFER AGENT AGREEMENT
SEARAY FINANCIAL FUNDS
AND
MUTUAL FUNDS SERVICE CO.
This Transfer Agent Agreement (the "Agreement") dated as of March 2, 2000, made
by and between SEARAY FINANCIAL FUNDS ("Trust") a business trust operating as an
open-end investment company, duly organized and existing under the laws of the
Commonwealth of Massachusetts, on behalf of The Sturgeon Fund (the "Fund"), and
MUTUAL FUNDS SERVICE CO. (the "Agent"), a corporation duly organized and
existing under the laws of the State of Ohio.
W I T N E S S E T H
WHEREAS, Agent has agreed to act as Transfer, Dividend Disbursing and
Redemption Agent for the Trust; and
WHEREAS, pursuant to a separate agreement (the "Custodian Agreement"),
Firstar Bank, formerly Star Bank, N.A. (the "Bank") performs the duties of
Custodian of the securities and cash of the Trust.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto, intending to be legally bound, do hereby
agree as follows:
SECTION 1. The Trust hereby appoints Agent as its Transfer, Redemption and
Dividend Disbursing Agent for the Trust, and Agent accepts such appointment and
agrees to act in such capacities upon the terms set forth in this Agreement.
TRANSFER AGENCY
SECTION 2. Agent will maintain registry records in the usual form in which
it will note the issuance, transfer and redemption of each class of shares of
the Fund (the "Shares") and the issuance and transfer of Share certificates, if
any. Agent is also authorized to maintain an account entitled Unissued
Certificate Account in which it will record the Shares and fractions of Shares
issued and outstanding from time to time. The Trust shall provide Agent with
reports of Share purchases, redemptions and total Shares outstanding on the next
business day after each net asset valuation. Agent is authorized to keep records
in which it will note the names and registered addresses of shareholders of the
Fund (the "Shareholders"), and the number of Shares and fractions from time to
time owned by them for which no Share Certificates are outstanding.
<PAGE>
SECTION 3. Agent will issue Share Certificates for Shares of the Fund, only
if authorized by the Trust and then only upon receipt of a written request from
a Shareholder. The Trust authorizes Agent to dispense with the issuance and
countersignature of Share Certificates whenever Shares are purchased. In such
case Agent, as Transfer Agent, shall merely note on its stock registry records
the issuance of the Shares and fractions, if any; shall credit the Unissued
Certificate Account with the Shares and fractions issued; and shall credit the
proper number of Shares and fractions to the respective Shareholders. Likewise,
whenever Agent has occasion to surrender for redemption Shares and fractions to
the respective Shareholders, it shall be unnecessary to issue Share Certificates
for redemption purposes. The Trust authorizes Agent in such cases to process the
transactions by appropriate entries in its stock transfer records, and debiting
of the unissued Certificate Account and the record of issued Shares outstanding.
SECTION 4. Agent in its capacity as Transfer Agent will, in addition to the
duties and functions above-mentioned, perform the usual duties and functions of
a stock Transfer Agent for a corporation. It will countersign for issuance or
reissuance Share Certificates representing original issue or reissued treasury
Shares as directed by the written instructions of the Trust, and will transfer
Share Certificates registered in the name of Shareholders from one Shareholder
to another in the usual manner. Agent may rely conclusively and act without
further investigation upon any list, instruction, certification, authorization,
Share Certificate or other instrument or paper believed by it in good faith to
be genuine and unaltered, and to have been signed, countersigned, or executed by
a duly authorized person or persons, or upon the instructions of any officer of
the Trust, or upon the advice of counsel for the Trust or for Agent. Agent may
record any transfer of Share Certificates which is believed by it in good faith
to have been duly authorized or may refuse to record any transfer of Share
Certificates if in good faith Agent deems such refusal necessary in order to
avoid any liability to any person.
SECTION 5. In case of any request or demand for the inspection of the Share
records of the Trust from a third party, Agent as Transfer Agent, shall endeavor
to notify the Trust and to secure instructions as to permitting or refusing such
inspection. However, Agent may exhibit such records to any person in any case
where it is advised by its counsel that it may be held liable for failure to do
so.
ISSUANCE OF SHARES
SECTION 6. Prior to the daily determination of net asset value in
accordance with the Trust's prospectus, Agent shall process all purchase orders
received in Federal Funds since the last determination of the Trust's net asset
value.
For the purposes of this Section 6, the Trust hereby instructs Agent to:
a. Process purchase orders received prior to 4:00 p.m., Eastern Standard
time on the same day; and
2
<PAGE>
b. Process purchase orders received at or after 4:00 p.m., Eastern
Standard time on the following business day.
Immediately after 4:00 p.m., Eastern Standard time, on each day that the
Trust and Agent are open for business or on any other day on which there is
sufficient degree of trading in the Trust's portfolio securities that the
current net asset value of the Trust's Shares might be materially affected,
Agent shall obtain from the Trust (or its agent for such purpose) a quotation
(on which it may conclusively rely) of the net asset value per Share determined
as of 4:00 p.m., Eastern Standard time, on that day. Agent shall proceed to
calculate the amount available for investment in Shares at the quoted net asset
value, the number of Shares and fractional Shares to be purchased and the net
asset value to be deposited with the Bank. Agent, as agent for the Shareholders,
shall place a purchase order daily with the Trust for the proper number of
Shares and fractional Shares to be purchased and confirm such number to the
Trust in writing.
SECTION 7. Agent having made the calculations provided for in Section 6,
shall thereupon pay over the net asset value of Shares purchased to the Bank.
The payment shall then be deposited in the account maintained under the
Custodian Agreement. The proper number of Shares and fractional Shares shall
then be issued daily and credited by Agent to the Unissued Certificate Account.
The Shares and fractional Shares purchased for each Shareholder will be credited
by Agent to his separate account. Agent shall mail to each Shareholder a
confirmation of each purchase, with copies to the Trust with, the new Share
balance, the Shares held under a Plan (if any), the Shares for which Stock
Certificates are outstanding (if any), the amount invested and the price paid
for the newly purchased Shares.
REDEMPTIONS
SECTION 8. Agent shall, prior to the daily determination of net asset value
in accordance with the Trust's prospectus, process all requests from
Shareholders to redeem Shares and determine the number of Shares required to be
redeemed to make monthly payments, automatic payment or the like. Thereupon,
Agent shall advise the Trust of the total number of Shares available for
redemption and the number of Shares and fractional Shares requested to be
redeemed. The Trust (or its agent for such purpose) shall then quote to Agent
the applicable net asset value, whereupon Agent shall furnish the Trust with an
appropriate confirmation of the redemptions and process the redemptions by
filing with the Bank an appropriate statement and making the proper distribution
of the redemption proceeds in accordance with the Trust's prospectus. The stock
registry books recording outstanding Shares, the Unissued Certificate Account
and the individual account of the Shareholder shall be properly debited.
In lieu of carrying out the redemption procedures hereinabove provided for
in this Section 8, Agent may, at the request of the Trust, sell Shares to the
Trust as repurchases from Shareholders, provided that in each such case the sale
price shall be not less than the applicable redemption price. In such case the
redemption procedures shall be appropriately modified.
3
<PAGE>
SECTION 9. The proceeds of redemption shall be remitted by Agent in
accordance with the Trust's prospectus as follows:
(a) By check mailed to Shareholder at his registered address. The request
and stock certificates, if any, for Shares being redeemed, must have the owner's
signature guaranteed by a domestic commercial bank or trust company or a member
firm of a national securities exchange.
(b) By wire to a designated bank or broker upon telephone request, without
signature guarantee, if such redemption procedure has been elected by the
Shareholder on the Account Application. Any change in the designated bank or
broker account will be accepted by Agent only if made in writing by the
Shareholder with signature guaranteed as required by paragraph (a) of this
Section 9.
(c) By check payable to the Shareholder of record and mailed to his
registered address designated in the Account Application in the case of a
telephone redemption.
DIVIDENDS
SECTION 10. It is mutually understood by the parties that the Fund intends
to declare dividends to Shareholders, and that all dividends are to be
automatically reinvested in additional Shares or remitted in accordance with the
Fund's currently effective prospectus. The Agent shall compute the dividends per
Share payable with respect to the account of each Shareholder and the number of
additional Shares and fractional Shares to be issued as dividends. The Agent
shall notify the Fund of the total number of additional Shares and fractional
Shares which have been issued as dividends. The Agent shall maintain records as
to the additional Shares and fractional Shares issued as dividends with respect
to the account of each Shareholder.
If the Fund changes its dividend policy or orders the distribution of any
long-term gains, the Fund shall notify the Agent of each resolution of its
Trustees declaring a dividend or other distribution, the amount payable per
Share, the record date for determining Shareholders entitled to payment, the net
asset value to be used for reinvestments of dividends and the payment date. The
Agent shall, on the designated payment date, calculate the amount to be
reinvested in Shares and fractional Shares for each Shareholder.
4
<PAGE>
GENERAL PROVISIONS
SECTION 11. Agent shall maintain records (which may be part of the stock
transfer records) in connection with the issuance and redemption of Shares, the
disbursement of dividends and dividend reinvestments, in which will be noted and
transactions effected for each Shareholder and the number of Shares and
fractional Shares owned by each for which no Share Certificates are outstanding.
SECTION 12. Agent agrees (a) to maintain any records relating to services
provided under this Agreement which are required to be maintained by Rule 31a-1
under the Investment Company Act of 1940 (the "Act"), (b) that such records are
the property of the Trust and will be made available to the Trust upon request
and maintained as required by Rule 31a-2 of the Act.
SECTION 13. In addition to service as Transfer Agent and Dividend
Disbursing Agent as above set forth, Agent will perform other services for the
Trust as agreed from time to time, including but not limited to, preparation of
and mailing Federal Tax Information Forms, mailing semi-annual reports of the
Trust, preparation of lists of Shareholders, and mailing notices of
Shareholders' meetings, proxies and proxy statements.
SECTION 14. Except as set forth in Section 6, nothing contained in this
Agreement is intended to or shall require Agent in any capacity hereunder, to
perform any functions or duties on any holiday, day of special observance or any
other day on which the New York Stock Exchange is closed. Functions or duties
normally scheduled to be performed on such days shall be performed on, and as
of, the next business day on which the New York Stock Exchange is open.
SECTION 15. Agent shall not be liable for any taxes, assessments, or
governmental charges related to the Fund or the Trust which may be levied or
assessed, excepting only for taxes assessed against it in its corporate capacity
arising out of its compensation hereunder.
SECTION 16. (a) The Trust shall indemnify Agent and save it harmless from
and against all actions, suits and claims, whether groundless or otherwise,
arising directly or indirectly out of or in connection with its performance
under this Agreement and from and against any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liabilities incurred by Agent in
connection with any such action, suit, or claim provided Agent was not grossly
negligent and acted in good faith and in compliance with this Agreement. Agent
shall not be under any obligation to prosecute or to defend any action, suit or
claim arising out of or in connection with its performance under this Agreement,
which, in the opinion of its counsel, may involve Agent in expense or liability,
and the Trust shall, so often as reasonably requested, furnish Agent with
satisfactory indemnity against such expense or liability, and upon request of
Agent the Trust shall assume the entire defense of any action, suit, or claim
subject to the foregoing indemnity; provided, however, that Agent shall give the
5
<PAGE>
Trust notice and reasonable opportunity to defend any such action, suit, or
claim, in the name of the Trust or Agent or both.
Without limiting the foregoing:
(i) Agent may rely upon the advice of the Trust, or of counsel, who
may be counsel for the Trust or counsel for Agent, and upon statements of
accountants, brokers and other persons believed by it in good faith to be
expert in the matters upon which they are consulted and for any actions
taken in good faith upon such statements, Agent shall not be liable.
(ii) Agent shall not be liable for any action taken in good faith
reliance upon any written or oral instruction or certified copy of any
resolution of the Board of Trustees of the Trust, and Agent may rely upon
the genuineness of any such document or copy thereof believed in good faith
by Agent to have been validly executed.
(iii) Agent may rely and shall be protected in acting upon any
signature, instruction, request, letter of transmittal, certificate,
opinion of counsel, statement, instrument, report, notice, consent, order,
or other paper or document believed by it to be genuine and to have been
signed or presented by the purchaser, Trust or other proper party or
parties.
(b) Notwithstanding the provisions of Paragraph (a), it is intended that
insofar as Agent may in the future be liable for the consequences of any
payments upon forged instruments or of oversights, errors or omissions by Agent,
such liability shall be borne by Agent's insurance carriers to the extent
possible. In the event of any loss occurring which is attributable to any
payment upon a forged instrument, oversight, error or omission by Agent, Agent
shall use its best efforts to have its insurance carriers bear the loss.
SECTION 17. Agent is authorized, upon receipt of specific written
instructions from the Trust, to make payment upon redemption of Shares without a
signature guarantee provided reasonable procedures are employed so that Agent in
good faith believes the redemption request is genuine, and further provided the
redemption request is made in accordance with the Prospectus and applicable
investor application. The Trust hereby agrees to indemnify and hold Agent, its
successors and assigns, harmless of and from any and all expenses, damages,
claims, suits, liabilities, actions, demands, losses whatsoever arising out of
or in connection with a payment by Agent upon redemption of Shares without a
signature guarantee and upon the request of Agent the Trust shall assume the
entire defense of any action, suit or claims subject to the foregoing indemnity.
Agent shall notify the Trust of any such action, suit or claim with 30 days
after receipt by Agent of notice thereof.
6
<PAGE>
SECTION 18. The Trust shall promptly cause to be turned over to Agent all
records, files, and other materials necessary or appropriate for proper
performance of the functions assumed by Agent under this Agreement.
SECTION 19. The Trust shall file with Agent a certified copy of each
resolution of its Board of Trustees authorizing the execution of written
instructions or the transmittal of oral instructions.
SECTION 20. The Trust agrees to pay the Agent compensation for its services
and to reimburse it for expenses, as set forth in Schedule A attached hereto, or
as shall be set forth in amendments to such Schedule approved by the Trust and
the Agent.
SECTION 21. This Agreement shall have an initial term of one (1) year
beginning on the date of this Agreement. After the initial term of one year,
this Agreement may be terminated by either party upon 60 days' prior written
notice.
SECTION 22. Any notice or other communication required by or permitted to
be given in connection with this Agreement shall be in writing, and shall be
delivered in person or sent by first class mail, postage prepaid, to the
respective parties as follows:
IF TO THE FUND:
---------------
The Sturgeon Fund
Attention: Cameron M. Bernadsky
321 S. Bromfield Road
Dayton, OH 45429
IF TO AGENT:
------------
Mutual Funds Service Co.
Attention: Thomas E. Line, President
6000 Memorial Drive
Dublin, OH 43017
SECTION 23. The Trustees, shareholders, nominees, officers, employees and
agents of the Trust shall not be personally bound by or liable hereunder, nor
shall resort be had to their private property for the satisfaction of any
obligation or claim hereunder nor shall the execution and delivery of this
Agreement by such officers be deemed to have been made by any of them
individually.
SECTION 24. The Trust represents and warrants to Agent that the execution
and delivery of this Administration Agreement by the undersigned officers of the
Trust has been duly and validly authorized by resolution of the Trustees of the
Trust.
SECTION 25. This Agreement may be executed in two or more counterparts,
each of which when so executed shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.
7
<PAGE>
SECTION 26. This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by the Trust without the written
consent of Agent or by Agent without the written consent of the Trust,
authorized or approved by a resolution of its Trustees.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized officers and their corporate seals hereunto duly
affixed and attested, as of the day and year first above written.
SEARAY FINANCIAL FUNDS
By:_______________________________
MUTUAL FUNDS SERVICE CO.
By:_______________________________
8
<PAGE>
Schedule A
MUTUAL FUNDS SERVICE CO.
FEE SCHEDULE FOR STOCK TRANSFER, DIVIDEND
DISBURSING AND SHAREHOLDER SUPPORT SERVICES
RETAIL
ANNUAL FEE - $20,000 base fee plus an annual $15 per shareholder account fee
(payable monthly).
In addition, all out-of-pocket expenses shall be separately charged, shall
include but not be limited to: printed forms, postage, overnight mail, and
telephone expense.
<PAGE>
MUTUAL FUNDS SERVICE CO.
TRANSFER AGENT AND DIVIDEND DISBURSING SERVICES
SERVICES
o Opening new accounts
o Processing all payments
o Issuing confirmation statements
o Processing partial and complete redemptions
o Regular and legal transfers of accounts
o Mailing reports; semi-annual and annual reports
o Process dividends and capital gain distributions. This includes
mailing of cash dividends and/or preparing statements to shareholders
for reinvested distributions
o Blue Sky Reports. This indicates shares sold to investors in various
States.
ACCOUNT MAINTENANCE
o Maintaining shareholder records. This includes a file containing each
shareholders new account application, copies of redemption checks,
forms and any correspondence pertaining to the account holder
o Changing shareholders' addresses
o Daily or periodic reports on numbers of shares, accounts
o Addressing and tabulating annual proxy cards
o Supplying stockholder lists as needed
o Preparation of Federal Tax Information forms such as 1099-B, 1099-DIV,
1099R, 5498 to both shareholders and IRS.
SHAREHOLDER SUPPORT SERVICES
o Provide and maintain the necessary personnel to receive and answer
inquiries relating to account status, share purchases, redemptions and
other relevant inquiries.
o Replying to shareholder correspondence.
o Mail fulfillment. Mailing of materials to potential investors.
ACCOUNTING SERVICES AGREEMENT
SEARAY FINANCIAL FUNDS
AND
MUTUAL FUNDS SERVICE CO.
This Accounting Services Agreement (the "Agreement"), dated as of March 2,
2000, made by and between SEARAY FINANCIAL FUNDS (the "Trust"), a business trust
operating as an open-end investment company, duly organized and existing under
the laws of the Commonwealth of Massachusetts, on behalf of The Sturgeon Fund
(the "Fund"), and MUTUAL FUNDS SERVICE CO. (the "Agent"), a corporation duly
organized and existing under the laws of the State of Ohio.
WITNESSETH THAT:
WHEREAS, the Trust desires to appoint the Agent as its Accounting Services
Agent for the Fund to perform certain accounting and record keeping functions
required of a duly registered investment company; to file certain financial
reports; to maintain and preserve certain books, accounts, and records as the
basis for such reports; and to perform certain daily functions in connection
with such accounts and records;
WHEREAS, the Agent is willing to perform such functions upon the terms and
conditions herein set forth; and
WHEREAS, pursuant to a separate Agreement, the Agent will perform the
duties of administrator, transfer agent, and dividend disbursing agent for the
Fund.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto, intending to be legally bound, hereby
agree as follows:
Section 1. The Trust shall turn over to the Agent all of the Fund's
accounts and records previously maintained by or for the Trust. The Agent shall
be entitled to rely exclusively on the completeness and correctness of the
accounts and records turned over to it by the Trust, and the Trust shall
indemnify and hold the Agent harmless of and for any and all expenses, damages,
claims, suits, liabilities, actions, demands, and losses whatsoever arising out
of or in connection with any errors, omission, inaccuracy, or other deficiency
of such accounts and records or in the failure of the Trust to provide any
portion of such or to provide any information needed by the Agent knowledgeably
to perform its functions hereunder.
Section 2. The Agent shall examine and review the Fund's existing accounts,
records, and other documents, and systems in order to determine or recommend how
such accounts, records, and other documents, and systems shall be maintained.
<PAGE>
Section 3. Upon receipt of necessary information and appropriate
instructions from the Trust, the Agent shall maintain and keep current such
books, accounts, records, journals, or other records of original entry, relating
to the business of the Fund, and necessary or advisable for compliance with
applicable regulations, including Rules 31(a)-1 and 31(a)-2, of the Investment
Company Act of 1940, as amended, and as may be mutually agreed to between the
Trust and the Agent including:
(a) Cash Receipts
(b) Cash Disbursements
(c) Dividend Record
(d) Purchase and Sales of Portfolio Securities
(e) Subscription and Redemption Journals
(f) Security Ledger
(g) Broker Ledger
(h) General Ledger
(i) Daily Expense Accruals
(j) Daily Interest Accruals
(k) Securities and Monies borrowed or loaned and collateral
therefor
(l) Trial Balances
Unless appropriate information necessary to perform the above functions is
furnished to the Agent in a timely manner, the Agent shall incur no liability to
the Trust or any other person.
It shall be the responsibility of the Trust to furnish the Agent with the
declaration, record, and payment dates and amounts of any dividends or income
and any other special actions required concerning each security owned by the
Fund ("Securities").
The Agent shall maintain all accounts and records above mentioned as
required by regulation and as agreed upon between the Trust and the Agent.
Section 4. Upon receipt by the Agent of written or oral instructions, the
Agent shall make proper accounting entries in accordance therewith. The Trust
shall direct that each broker-dealer, or other person through whom a transaction
has occurred, shall send a confirmation thereof to the Agent. The Agent shall
verify this confirmation against the written or oral instructions when received
from the Trust and forward the confirmation to the Custodian. The Agent shall
promptly notify the Trust of any discrepancy between the confirmation and the
Trust's written instructions when received from the Trust but shall incur no
responsibility or liability for such discrepancy. The Trust shall cause any
necessary corrections to be made and shall advise the Agent and the Custodian
accordingly.
Section 5. The Agent shall calculate the Fund's net asset value in
accordance with the Trust's currently effective prospectus, once daily.
2
<PAGE>
The Agent shall prepare and maintain a daily valuation of Securities for
which market quotations are available by the Agent's use of Bloomberg Financial
Markets and ILX Quotation Services; all other Securities shall be valued in
accordance with the Trust's written instructions, and the Agent shall have no
responsibility or liability for the accuracy of the information supplied by the
Trust or upon the written instructions.
The Trust assumes all responsibility for valuations not ascertainable
solely by mechanical procedures.
Section 6. At the end of each month, the Agent shall obtain from the
Custodian a monthly statement of cash and portfolio transactions, which shall be
reconciled with the Agent's accounts and records maintained for the Fund. The
Agent shall report any discrepancies to the Custodian and the Trust, and report
any unreconciled items to the Trust.
Section 7. The Agent shall supply daily and periodic reports to the Trust,
as required by law or regulation, and as requested by the Trust and agreed upon
by the Agent.
Section 8. The Trust shall report and confirm to the Transfer Agent all
Share purchases and redemptions of shares of the Fund ("Shares") of which it is
aware. The Agent shall obtain from the Transfer Agent daily reports of Share
purchases, redemptions, and total shares outstanding.
The Agent shall reconcile outstanding Shares with the Transfer Agent
periodically and certify at least monthly to the Trust the reconciled Share
balance outstanding.
Section 9. The accounts and records of the Fund maintained by the Agent
shall be the property of the Trust, and shall be made available to the Trust,
within a reasonable period of time, upon demand. The Agent shall assist the
Trust's independent auditors, or upon approval of the Trust, or upon demand, any
regulatory body, in any requested review of the Fund's accounts and records but
shall be reimbursed for all expenses and employee time invested in any such
review outside of routine and normal periodic review. Upon receipt from the
Trust of the necessary information, the Agent shall supply the necessary data
for the Trust's completion of any necessary tax returns, questionnaires,
periodic reports to Shareholders of the Fund, and such other reports and
information requests as the Trust and the Agent shall agree upon from time to
time.
Section 10. The Agent and the Trust may from time to time adopt uniform or
standing procedures, and the Agent may conclusively assume that any procedure
approved by the Trust, or directed by the Trust, does not conflict with or
violate any requirements of its prospectus, Declaration of Trust, By-Laws, or
any rule or regulation of any regulatory body or governmental agency.
3
<PAGE>
Section 11. The Agent may rely upon the advice of the Trust and upon
statements of the Trust's accountants and other persons believed by it in good
faith to be expert in matters upon which they are consulted, and the Agent shall
not be liable for any actions taken in good faith upon such statements.
Section 12. The Agent shall not be liable for any action taken in good
faith reliance upon any authorized oral instructions, any written instructions,
any certified copy of any resolution of the Trustees of the Trust or any other
document reasonably believed by the Agent to be genuine and to have been
executed or signed by the proper person or persons. The Trust will send written
instructions to verify oral instructions, and the Agent will compare the
information against the oral instructions previously furnished. The Agent will
inform the Trust immediately of any noted discrepancy or will request, if no
written instruction is received in a reasonable time, that the Trust forward
same to Agent.
The Agent shall not be held to have notice of any change of authority of
any officer, employee, or agent of the Trust until receipt of notification
thereof by the Trust.
In addition to indemnification expressly provided elsewhere in this
Agreement, the Trust shall indemnify and hold harmless the Agent from all claims
and liabilities (including reasonable expenses for legal counsel) incurred by or
assessed against the Agent in connection with the performance of this Agreement,
except such as may arise from the Agent's own negligent action, omission, or
willful misconduct; provided, however, that before confessing any claim against
it, the Agent shall give the Trust reasonable opportunity to defend against such
claim in the name of the Trust, the Fund or the Agent or any of them.
Section 13. The Trustees, shareholders, nominees, officers, employees and
agents of the Trust shall not be personally bound by or liable hereunder, nor
shall resort be had to their private property for the satisfaction of any
obligation or claim hereunder, nor shall the execution and delivery of this
Agreement by such officers be deemed to have been made by any of them
individually. This Agreement shall bind Trust property only as provided in its
Declaration of Trust, a copy of which is on file with the Secretary of the
Commonwealth of Massachusetts.
Section 14. The Trust agrees to pay the Agent compensation for its services
and to reimburse it for expenses, as set forth in Schedule A attached hereto, or
as shall be set forth in amendments to such Schedule approved by the Trust and
the Agent.
Section 15. Nothing contained in this Agreement is intended to or shall
require the Agent, in any capacity hereunder, to perform any functions or duties
on any holiday or other day of special observance on which the New York Stock
Exchange is closed. Functions or duties normally scheduled to be performed on
such days shall be performed on, and as of, the next business day on which the
New York Stock Exchange is open.
4
<PAGE>
Section 16. This Agreement shall have an initial term of one (1) year
beginning on the date of this Agreement. After the initial term of one year,
this Agreement may be terminated by either party upon 60 days' prior written
notice.
Section 17. Any notice or other communication required by or permitted to
be given in connection with this Agreement shall be in writing, and shall be
delivered in person or sent by first class mail, postage prepaid, to the
respective parties as follows:
If to the Trust:
----------------
Searay Financial Funds
321 S. Bromfield Road
Dayton, OH 45429
Attention: President
If to the Agent:
----------------
Mutual Funds Service Co.
Attention: Thomas E. Line, President
6000 Memorial Drive
Box 7177
Dublin, OH 43017
Section 18. This Agreement may be executed in two or more counterparts,
each of which when so executed shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.
Section 19. This Agreement shall be binding upon the parties hereto and
their respective successors and assigns; provided, however, that this Agreement
shall not be assignable by the Trust without the written consent of the Agent,
or by the Agent without the written consent of the Trust, authorized or approved
by a resolution of its Trustees.
Section 20. This Agreement shall be governed by the laws of the State of
Ohio.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized officers as of the day and year first above
written.
SEARAY FINANCIAL FUNDS
By_________________________
MUTUAL FUNDS SERVICE CO.
By__________________________
5
<PAGE>
MUTUAL FUNDS SERVICE CO.
ACCOUNTING SERVICES
PORTFOLIO PRICING & GENERAL LEDGER SERVICES
DAILY
o Daily trial balance with a computation sheet of net asset value
o Daily performance sheet
o Daily cash available sheet
o Daily reconciliation of Fund shares
o Daily interest calculations
o Daily portfolio calculation with comparison to previous day
o Daily processing and settlement of all security trades
MONTHLY
o Balance Sheet and Income Statement
o Schedule of purchases and sales of securities
o Brokerage commission schedule for the month and year to date
o Security ledger
QUARTERLY
o Testing for compliance with IRS diversification rules and all Sub M
and excise tax requirements
SEMI-ANNUALLY
o Prepare answers to applicable items on Form NSAR
OTHER
o Assist with the preparation of the unaudited reports that are required
either quarterly or semi-annually
o Furnish reports for the independent auditor and assist with the audit
o Calculation of available or required income or capital gain
distributions to shareholders
o Provide requested material for Board meetings
<PAGE>
Schedule A
MUTUAL FUNDS SERVICE CO.
FEE SCHEDULE FOR ACCOUNTING SERVICES
BASIS POINT FEE (Annual Fee, Payable Monthly)
5 Basis Points on first $100 million of assets
3 Basis Points on next $150 million of assets
1 Basis Point on assets over $250 million
MINIMUM ANNUAL FEE - $20,000
*For an additional class of shares there will be an additional fee of
$10,000 annually.
In addition, all out-of-pocket expenses shall be separately charged,
shall include but not be limited to: printed forms, postage, overnight
mail, pricing services, telephone expense and costs associated with
providing fund information to outside services (NASDAQ, rating
services, etc.)
JAMES B. CRAVER
ATTORNEY AT LAW
P. O. BOX 811
42 MILLER HILL ROAD
DOVER, MA 02030
508-785-0171
FAX 785-9736
March 1, 2000
Searay Financial Funds
P. O. Box 7177
6000 Memorial Drive
Dublin, OH 43017
Ladies and Gentlemen:
Re: Registration of Shares of Beneficial Interest Pursuant to
RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT OF 1940
I am acting as special Massachusetts counsel to Searay Financial Funds, a
Massachusetts business trust (the "Trust"), in connection with the Trust's
registration, pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended (the "1940 Act"), of an indefinite number of the Trust's Shares of
Beneficial Interest (par value $0.10 per share) (the "Shares") under the
Securities Act of 1933, as amended (the "1933 Act"). This opinion is being
furnished in conjunction with the filing of the Trust's registration statement
on Form N-1A (the "Registration Statement") under the 1940 Act and the 1933 Act.
This opinion is limited solely to the laws of the Commonwealth of Massachusetts
as applied by courts in such Commonwealth. I understand that the foregoing
limitation is acceptable to you.
Based upon and subject to the foregoing, please be advised that it is my opinion
that the Shares being registered under the 1933 Act pursuant to the Registration
Statement have been duly authorized for issuance and, when sold in accordance
with the prospectus contained in the Registration Statement, will be legally
issued, fully paid and nonassessable, except that shareholders of the Trust may
under certain circumstances be held personally liable for its obligations.
I hereby consent to the filing of this letter as an exhibit to the Registration
Statement.
Very truly yours,
/s/ James B. Craver
James B. Craver
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
Pre-effective Amendment No. 2 to the Registration Statement (File No.
33-93443) for Searay Financial Funds of our report dated February 29, 2000
and all references to our firm included in or made a part of this
Amendment.
McCurdy & Associates CPA's, Inc.
February 29, 2000
INVESTMENT LETTER
S.1. SUBSCRIPTION
The undersigned subscriber ("Subscriber") hereby offers and agrees to
invest $100,000 in consideration for 10,000 shares, $.10 par value per share
(the "Shares"), of Searay Financial Funds' The Sturgeon Fund (the "Fund").
S.2. DISCLOSURE DOCUMENTS
Subscriber acknowledges receipt of the amended Prospectus and amended
Statement of Additional Information for the Fund (collectively, the "Disclosure
Documents").
S.3. REPRESENTATIONS AND WARRANTIES
Subscriber understands that the shares are not registered under the
Securities Act of 1933, as amended (the "Act"), and are being offered and sold
in reliance upon the exemption from registration in Section 4(2) of the Act.
Subscriber makes the following agreements, representations, declarations,
acknowledgments and warranties with the intent that they may be relied upon in
determining his suitability to purchase the Shares.
(a) Subscriber has read, understands and is fully familiar with the
Disclosure Documents and has received adequate information concerning all
matters which he considers material to investing in the Fund.
(b) The Shares subscribed for will be acquired solely by and for the
account of Subscriber, for investment only, and not as a nominee and not for
subdivision, fractionalization, resale or distribution. Subscriber has no
agreement or arrangement with any person to sell, transfer or pledge the Shares
or any part thereof; and Subscriber has no present plan or intention to enter
into any such agreement or arrangement. Subscriber also has no present plan or
intention to change his residence to a different jurisdiction.
(c) SUBSCRIBER WARRANTS THAT HE HAS SUCH KNOWLEDGE AND EXPERIENCE IN
FINANCIAL, INVESTMENT AND BUSINESS MATTERS THAT HE IS CAPABLE OF EVALUATING THE
MERITS AND RISKS OF AN INVESTMENT IN THE FUND, INCLUDING THE RISK FACTORS SET
FORTH IN THE DISCLOSURE DOCUMENTS, THE RESTRICTIONS ON RESALE SET FORTH HEREIN
AND THE TAX CONSEQUENCES OF THE INVESTMENT.
(d) The Fund has made all documents pertaining to the transactions
described in the Disclosure Documents available to Subscriber and has allowed
Subscriber an opportunity to verify and clarify any information contained in the
Disclosure Documents or such other documents.
<PAGE>
(e) Subscriber has relied solely upon the Disclosure Documents and
independent investigations made by Subscriber in deciding to invest, and no oral
or other representations other than those explicitly in the Disclosure Documents
have been made to Subscriber regarding the Shares.
(f) Subscriber is an "accredited investor" as defined in Rule 501 of
Regulation D under the Act because Subscriber's net worth (including home,
furnishings and automobiles), or joint net worth with his spouse, exceeds
$1,000,000 as of the date of this Letter.
(g) All information provided by Subscriber herein is accurate and complete
as of the date hereof and may be relied upon by the Fund and its agents, and
Subscriber agrees to notify the Fund of any material change in such information
occurring prior to the acceptance of Subscriber's subscription.
(h) Subscriber received the Disclosure Documents and first learned of the
Fund in the State of Washington and intends that the state securities laws of
such state alone govern this transaction.
S.4. INDEMNIFICATION
Subscriber shall indemnify the Searay Financial Funds (the "Trust"), the
Fund, and any officer, trustee, director, stockholder, employee, affiliate or
agent of the Trust and/or the Fund from and against any loss, damage, liability
or expense (including reasonable attorneys' fees and expenses) which they incur
as a result of Subscriber's breach of any representation or covenant herein.
This indemnification shall survive Subscriber's death, disability or disposition
of the Shares.
S.5. ACCEPTANCE AND REVOCATION
This subscription may be accepted or rejected by the Fund in whole or in
part, in its discretion, and if accepted the Shares will be issued only in the
name of Subscriber. This Letter shall survive: (a) changes in the Trust's
registration statement which are not material, (b) Subscriber's death or
disability and (c) the acceptance of this subscription by the Fund.
S.6. MISCELLANEOUS
This Agreement shall be binding upon Subscriber's heirs, executors,
administrators and other successors. This Agreement constitutes the entire
agreement between the parties and shall be governed by the internal law of
Massachusetts.
SUBSCRIBER:
Date: February 28, 2000 _________________________
Robert Michie
DISTRIBUTION AND SERVICE PLAN
OF
SEARAY FINANCIAL FUNDS' THE STURGEGON FUND
DISTRIBUTION AND SERVICE PLAN, dated as of March 2, 2000, of Searay
Financial Funds, a Massachusetts business trust ("Trust").
WITNESSETH:
WHEREAS, the Trust has been organized to operate as an open-end management
investment company and is registered under the Investment Company Act of 1940,
as amended (collectively with the rules and regulations promulgated thereunder,
the "1940 Act"); and
WHEREAS, the Trust intends to distribute Shares of The Sturgeon Fund (the
"Fund") in accordance with Rule 12b-1 under the 1940 Act ("Rule 12b-1"), and
desires to adopt this Distribution and Service Plan (the "Plan") as a plan of
distribution pursuant to such Rule;
WHEREAS, the Trust desires to engage Creative Capital Management Corp., an
Ohio corporation (along with any successor underwriter, the "Underwriter"), to
provide (or cause to be provided) certain distribution and shareholder services
for the Trust;
WHEREAS, the Trust desires to enter into a distribution agreement (in such
form as may from time to time be approved by the Board of Trustees of the Trust
in the manner specified in Rule 12b-1 (the "Underwriting Agreement")) with the
Underwriter, whereby the Underwriter will provide facilities and personnel and
render services to the Trust in connection with the offering and distribution of
the Shares of the Fund; and
WHEREAS, the Board of Trustees, in considering whether the Fund should
adopt and implement this Plan, has evaluated such information as it deemed
necessary to an informed determination as to whether this Plan should be adopted
and implemented and has considered such pertinent factors as it deemed necessary
to form the basis for a decision to use assets of the Fund for such purposes,
and has determined that there is a reasonable likelihood that the adoption and
implementation of this Plan will benefit the Fund and its shareholders.
NOW, THEREFORE, the Board of Trustees hereby adopts this Plan for the Fund
as a plan of distribution in accordance with Rule 12b-1, on the following terms
and conditions:
1. As specified in the Underwriting Agreement, the Trust will reimburse the
Underwriter for costs and expenses incurred in connection with the distribution
<PAGE>
and marketing of Shares of the Fund. Such distribution costs could include,
without limitation, advertising expenses and the expenses of printing (excluding
typesetting) and distributing prospectuses and reports used for sales purposes,
expenses of preparing and printing sales literature; expenses of sales employees
or agents of the Underwriter, including salary, commissions, travel and related
expenses, payments to broker-dealers, banks or other financial institutions
("Dealers") for services in connection with the distribution of shares,
including service fees and trail or maintenance commissions calculated with
reference to the average daily net asset value of shares held by shareholders
who have a brokerage or other service relationship with the Dealer or
institution receiving such fees; and other distribution-related expenses whether
or not specifically required to be made by the Underwriter pursuant to the
Underwriting Agreement.
2. The Trust may pay the Underwriter distribution fees from the Fund not to
exceed on an annual basis 0.25% of the average daily net assets of the Fund for
its then-current fiscal year as reimbursement for costs and expenses incurred in
connection with the distribution and sales of Shares of the Fund. To the extent
such expenses exceed the stated limit, the Underwriter will bear such expenses.
3. The Trust may also pay the Underwriter service fees from the Fund not to
exceed on an annual basis 0.25% of the average daily net assets of the Fund for
its then-current fiscal year in connection with providing (or causing to be
provided) personal services and shareholder account maintenance services.
4. The Trust shall pay or cause to be paid all fees and expenses of any
independent auditor, legal counsel, administrator, sponsor, transfer agent,
custodian, registrar or dividend disbursing agent of the Trust; expenses of
distributing and redeeming Shares and (other than the service fees covered by
the Plan) servicing shareholder accounts; expenses of preparing, printing and
mailing prospectuses, shareholder reports, notices, proxy statements and reports
to governmental officers and commissions and to shareholders of the Trust;
insurance premiums; expenses of calculating the net asset value of Shares;
expenses of shareholder meetings; and expenses relating to the issuance,
registration and qualification of Shares.
5. Nothing herein contained shall be deemed to require the Trust to take
any action contrary to its Declaration of Trust or By-Laws or any applicable
statutory or regulatory requirement to which it is subject or by which it is
bound, or to relieve or deprive the Board of Trustees of the responsibility for
and control of the conduct of the affairs of the Trust.
6. This Plan shall become effective upon approval by a vote of the Board of
Trustees of the Fund and a vote of 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 "Qualified Trustees"), such votes to be cast in person at a meeting called
for the purpose of voting on this Plan.
2
<PAGE>
7. This Plan shall continue in effect indefinitely; provided, however, that
such continuance is subject to annual approval by a vote of the Board of
Trustees of the Fund and a majority of the Qualified Trustees, such votes to be
cast in person at a meeting called for the purpose of voting on continuance of
this Plan. If such annual approval is not obtained, this Plan shall expire on
the date which is fifteen months after the date of the last approval.
8. This Plan may be amended at any time by the Board of Trustees, provided,
that (a) any amendment to increase materially the amount that may be expended
from the assets of the Fund for the services described herein shall be effective
only upon approval by a vote of a "majority of the outstanding voting
securities" of the Fund, and (b) any material amendment of this Plan shall be
effective only upon approval by a vote of the Board of Trustees, and a majority
of the Qualified Trustees, such votes to be cast in person at a meeting called
for the purpose of voting on such amendment. This Plan may be terminated at any
time with respect to the Fund by a vote of a majority of the Qualified Trustees
or by a vote of a "majority of the outstanding voting securities" of the Fund.
9. The Fund and the Underwriter each shall provide the Board of Trustees,
and the Board of Trustees shall review, at least quarterly, a written report of
the amounts expended under this Plan and the purposes for which such
expenditures were made.
10. While this Plan is in effect, the selection and nomination of Trustees
who are not "interested persons" of the Trust shall be committed to the
discretion of the Trustees who are not "interested persons" of the Trust.
11. For the purposes of this Plan, the terms "interested persons" and
"majority of the outstanding voting securities" are used as defined in the 1940
Act.
12. The Trust shall preserve copies of this Plan, and each agreement
related hereto and each report referred to in paragraph 9 hereof (collectively,
the "Records") for a period of six years from the end of the fiscal year in
which such Record was made, and each such Record shall be kept in an easily
accessible place for the first two years of said record-keeping.
13. This Plan shall be construed in accordance with the laws of
Massachusetts and the applicable provisions of the 1940 Act.
14. If any provision of this Plan shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Plan shall not be
affected thereby.
3
CODE OF ETHICS
SEARAY FINANCIAL FUNDS
THE STURGEON FUND
The Sturgeon Fund, the first series of the Searay Financial Funds (the
"Fund"), has determined to adopt this Code of Ethics (the "Code") as of February
19, 2000, to specify and prohibit certain types of personal securities
transactions deemed to create a conflict of interest and to establish reporting
requirements and preventive procedures pursuant to the provisions of Rule
17j-1(b)(1) under the Investment Company Act of 1940 (the "1940 Act").
I. DEFINITIONS
A. An "Access Person" means (i) any Trustee, Director, officer or
Advisory Person (as defined below) of the Fund or any investment
adviser thereof, or (ii) any director or officer of any principal
underwriter or placement agent of the Fund who, in the ordinary course
of his or her business, makes, participates in or obtains information
regarding the purchase or sale of Securities for the Fund for which
the principal underwriter or placement agent so acts or whose
functions or duties as part of the ordinary course of his or her
business relate to the making of any recommendation to the Fund
regarding the purchase or sale of Securities or (iii) notwithstanding
the provisions of clause (i) above, where the investment adviser is
primarily engaged in a business or businesses other than advising
registered investment companies or other advisory clients, any
trustee, director, officer or Advisory Person of the investment
adviser who, with respect to the Fund, makes any recommendation or
participates in the determination of which recommendation shall be
made, or whose principal function or duties relate to the
determination of which recommendation shall be made to the Fund or who
in connection with his or her duties, obtains any information
concerning Securities recommendations being made by such investment
adviser to the Fund.
B. An "Advisory Person" means any employee of the Fund or any investment
adviser thereof (or of any company in a control relationship to the
Fund or such investment adviser), who, in connection with his or her
regular functions or duties, makes, participates in or obtains
information regarding the purchase or sale of Securities by the Fund
or whose functions relate to any recommendations with respect to such
purchases or sales and any natural person in a control relationship
with the Fund or adviser who obtains information regarding the
purchase or sale of Securities.
C. A "Fund Manager" means any person or persons with the direct
responsibility and authority to make investment decisions affecting
the Fund.
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D. "Access Persons," "Advisory Persons" and "Fund Managers" shall not
include any individual who is required to and does file quarterly
reports with the Fund's investment adviser, any subadviser, the
administrator or the principal underwriter or placement agent
substantially in conformity with Rule 17j-1 of the 1940 Act or Rule
204-2 of the Investment Advisers Act of 1940.
E. "Beneficial Ownership" shall be interpreted subject to the provisions
of Rule 16a-1(a) (exclusive of Section (a)(1) of such Rule) of the
Securities Exchange Act of 1934.
F. "Control" shall have the same meaning as set forth in Section 2(a)9 of
the 1940 Act.
G. "Disinterested Trustee" means a Trustee who is not an "interested
person" within the meaning of Section 2(a)(19) of the 1940 Act. An
"interested person" includes any person who is a trustee, director,
officer, employee or owner of 5% or more of the outstanding stock of
any investment adviser. Affiliates of brokers or dealers are also
"interested persons", except as provided in Rule 2(a)(19)(1) under the
1940 Act.
H. The "Review Officer" is the person designated by the Fund's Board of
Trustees to monitor the overall compliance with this Code. In the
absence of any such designation the Review Officer shall be the
Treasurer or any Assistant Treasurer of the Fund.
I. The "Preclearance Officer" is the person designated by the Fund's
Board of Trustees to provide preclearance of any personal Security
transaction as required by this Code of Ethics.
J. "Purchase or sale of a Security" includes, among other things, the
writing of an option to purchase or sell a Security.
K. "Security" shall have the meaning as set forth in Section 2(a)(36) of
the 1940 Act (in effect, all securities), except that it shall not
include direct obligations of the U.S. Government (or any other
"government security" as that term is defined in the 1940 Act),
bankers' acceptances, bank certificates of deposit, commercial paper
and high quality short-term debt instruments, including repurchase
agreements; shares of registered open-end investment companies; and
stock index futures.
L. A Security is "being considered for purchase or sale" when a
recommendation to purchase or sell the Security has been made and
communicated and, with respect to the person making the
recommendation, when such person seriously considers making such a
recommendation.
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II. STATEMENT OF GENERAL PRINCIPLES
The following general fiduciary principles shall govern the personal
investment activities of all Access Persons.
Each Access Person shall adhere to the highest ethical standards and
shall:
A. at all times, place the interests of the Fund before his personal
interests;
B. conduct all personal Securities transactions in a manner consistent
with this Code, so as to avoid any actual or potential conflicts of
interest, or an abuse of position of trust and responsibility; and
C. not take any inappropriate advantage of his position with or on behalf
of the Fund.
III. RESTRICTIONS ON PERSONAL INVESTING ACTIVITIES
A. BLACKOUT PERIODS
1. No Access Person shall purchase or sell, directly or indirectly,
any Security in which he has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership on a day
during which he knows or should have known the Fund has a pending
"buy" and "sell" order in that same Security until that order is
executed or withdrawn.
2. No Advisory Person or Fund Manager shall purchase or sell,
directly or indirectly, any Security in which he has, or by
reason of such transaction acquires, any direct or indirect
beneficial ownership within at least seven calendar days before
and after the Fund trades (or has traded) in that Security.
B. INITIAL PUBLIC OFFERINGS
With regard to acquiring any Security in an "initial public
offering" (as defined in Rule 17j-1(a)(6) under the 1940 Act) for the
personal account of an Advisory Person, he or she shall
1. obtain express prior written approval from the Review Officer
(who, in making such determination, shall consider, among other
factors, whether the investment opportunity should be reserved
for the Fund, and whether such opportunity is being offered to
such Advisory Person by virtue of his position with the Fund) for
any acquisition of Securities in an initial public offering; and
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2. after authorization to acquire Securities in an initial public
offering has been obtained, disclose such personal investment,
with respect to any subsequent consideration by the Fund (or any
other investment company for which he acts in a capacity as an
Advisory Person) for investment in that issuer.
C. LIMITED OFFERINGS
With regard to a "limited offering" (as defined in Rule 17j-1(a)(8)
under the 1940 Act), each Advisory Person shall:
1. obtain express prior written approval from the Review Officer
(who, in making such determination, shall consider among other
factors, whether the investment opportunity should be reserved
for the Fund, and whether such opportunity is being offered to
such Advisory Person by virtue of his position with the Fund) for
any acquisition of Securities in a limited offering; and
2. after authorization to acquire Securities in a limited offering
has been obtained, disclose such personal investment with respect
to any subsequent consideration by the Fund (or any other
investment company for which he acts in a capacity as an Advisory
Person) for investment in that issuer.
If the Fund decides to purchase Securities of an issuer the shares of
which have been previously obtained for personal investment by an
Advisory Person, that decision shall be subject to an independent
review by Advisory Persons with no personal interest in the issuer.
D. SHORT-TERM TRADING PROFITS
With regard to the purchase and sale, or sale and purchase,
within 60 calendar days, of the same (or equivalent) Securities of
which an Advisory Person has beneficial ownership, each Advisory
Person shall:
1. obtain express prior written approval from the Review Officer
(who, in making such determination, shall consider, among other
factors, whether such opportunity is being offered to such
Advisory Person by virtue of his position with the Fund) for the
closing transaction (whether a purchase or sale) which would
result in the short-term profit; and
2. after authorization to purchase or sell such Securities has been
obtained, disclose such personal investment with respect to any
subsequent consideration by the Fund (or any other investment
company for which he acts in a capacity as an Advisory Person)
for investment in that issuer.
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<PAGE>
E. GIFTS
No Advisory Person shall receive any gift or other things of more than
DE MINIMIS value from any person or entity that does business with or
on behalf of the Fund.
F. SERVICE AS A DIRECTOR
1. No Advisory Person shall serve on a board of directors of a
publicly traded company without prior authorization from the
Board of Trustees of the Fund, based upon a determination that
such board service would be consistent with the interests of the
Fund and its investors..
2. If board service of an Advisory Person is authorized by the Board
of Trustees of the Fund, such Advisory Person shall be isolated
from the investment making decisions of the Fund with respect to
the company of which he is a director.
G. EXEMPTED TRANSACTIONS
The prohibition of Section III shall not apply to:
1. purchases or sales effected in any account over which the Access
Person has no direct or indirect influence or control;
2. purchases or sales that are non-volitional on the part of the
Access Person or the Fund, including mergers, recapitalizations
or similar transactions;
3. purchases which are part of an automatic dividend reinvestment
plan;
4. purchases effected upon the exercise of rights issued by an
issuer PRO RATA to all holders of a class of its Securities, to
the extent such rights were acquired from such issuer, and sales
of such rights so acquired; and
5. purchases and sales that receive prior approval in writing by the
Preclearance Officer as (a) only remotely potentially harmful to
the Fund because they would be very unlikely to affect a highly
institutional market, (b) clearly not economically related to the
Securities to be purchased or sold or held by the Fund or client
or (c) not representing any danger of the abuses prescribed by
Rule 17j-1, but only if in each case the prospective purchaser
has identified to the Review Officer all factors of which he or
she is aware which are potentially relevant to a conflict of
interest analysis, including the existence of any substantial
economic relationship between his or her transaction and
Securities held or to be held by the Fund.
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<PAGE>
IV. COMPLIANCE PROCEDURES
A. PRE-CLEARANCE
An Access Person (other than a Disinterested Trustee) may not,
directly or indirectly, acquire or dispose of beneficial ownership of
a Security except as provided below unless:
1. such purchase or sale has been approved by the Preclearance
Officer or, in the case of persons employed by the Fund's
investment adviser, by a supervisory person designated by the
investment adviser.
2. the approved transaction is completed on the same day approval is
received; and
3. the Preclearance Officer has not rescinded such approval prior to
execution of the transaction.
B. REPORTING
1. Coverage:
a. Each Access Person, (other than Disinterested Trustees) shall
file with the Review Officer confidential quarterly reports
containing the information required in Sections IV.B.1.b. and
IV.B.2 of this Code with respect to ALL transactions during the
preceding quarter in any Securities in which such person has, or
by reason of such transaction acquires, any direct or indirect
beneficial ownership, PROVIDED that (i) no Access Person shall be
required to report transactions effected for any account over
which such Access Person has no direct or indirect influence or
control (except that such an Access Person must file a written
certification stating that he or she has no direct or indirect
influence or control over the account in question), (ii) an
Access Person who is an Access Person of the investment adviser
of the Fund shall file such Access Person's reports with the
investment adviser. To the extent such reports would duplicate
information recorded pursuant to Rules 204-2(a)(12) or
204-2(a)(13) of the Investment Advisers Act of 1940, no such
reports need be filed by such Access Person pursuant to this
Code, and (iii) an Access Person who is an Access Person of the
principal underwriter or placement agent of the Fund shall file
such Access Person's reports with the principal underwriter. All
such Access Persons shall file reports, even when no transactions
6
<PAGE>
have been effected, representing that no transactions subject to
reporting requirements were effected.
b. If during such preceding quarter an Access Person establishes
any account in which any Securities were held during such quarter
for the direct or indirect benefit of the Access Person, the
Access Person must also include the following information in such
quarterly report: (i) the name of the broker, dealer or bank with
whom the Access Person established the account and (ii) the date
the account was established.
2. Filings: Every report shall be made no later than 10 days after
the end of the calendar quarter in which the transaction to which
the report relates was effected, and, in addition to any
information specified in Section IV.B.1.b. above, shall contain
the following information:
a. the date of the transaction, the title and the number of
shares and the principal amount of each Security involved;
b. the nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
c. the price at which the transaction was effected;
d. the name of the broker, dealer or bank with or through whom
the transaction was effected; and
e. the date that the report is submitted.
3. Any report may contain a statement that it shall not be construed
as an admission by the person making the report that he or she
has any direct or indirect beneficial ownership in the Security
to which the report relates.
C. REVIEW
In reviewing transactions, the Review Officer shall take into account
the exemptions allowed under Section III.G. Before making a
determination that a violation has been committed by an Access Person,
the Review Officer shall give such person an opportunity to supply
additional information regarding the transaction in question.
D. DISCLOSURES OF PERSONAL HOLDINGS
1. Initial Holdings Report: Each Access Person shall report to the
Review Officer within 10 days after becoming an Access Person (i)
the title, number of shares and principal amount of each Security
in which such Access Person had any direct or indirect beneficial
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<PAGE>
ownership when he or she became an Access Person, (ii) the name
of any broker, dealer or bank with whom such Access Person
maintained an account in which Securities were held for the
direct or indirect benefit of such Access Person as of the date
he or she became an Access Person, and (iii) the date the report
is submitted by such Access Person
2. Annual Holdings Report: On or before January 30, 2001, and
annually thereafter, each Access Person (other than Disinterested
Trustees) shall report (i) the title, number of shares and
principal amount of each Security in which such Access Person had
any direct or indirect beneficial ownership, (ii) the name of any
broker, dealer, or bank with whom such Access Person maintains an
account in which any Securities are held for the direct or
indirect benefit of such Access Person, and (iii) the date that
the report is submitted. All of the information in such report
must be current as of a date no more than 30 days before the
report is submitted.
E. CERTIFICATION OF COMPLIANCE
Each Access Person is required to certify annually that he or she
has read and understood the Fund's Code and recognizes that he or
she is subject to such Code. Further, each Access Person is
required to certify annually that he or she has complied with all
the requirements of the Code and that he or she has disclosed or
reported all personal Securities transactions pursuant to the
requirements of the Code.
V. REQUIREMENTS FOR DISINTERESTED TRUSTEES
A. Every Disinterested Trustee shall file with the Review Officer a
quarterly report indicating that he or she had no reportable
transactions or a report containing the information required in
Section IV.B. of this Code with respect to transactions (other than
exempted transactions listed under Section III.G.) in any Securities
in which such person has, or by reason of such transactions acquires,
any direct or indirect beneficial ownership, if such Trustee, at the
time of that transaction, knew or should have known, in the ordinary
course of pursuing his or her official duties as Trustee, that during
the 15-day period immediately preceding or after the transaction by
the Trustee:
1. such Security was being purchased or sold by the Fund; or
2. such Security was being considered for purchase or sale by the
Fund.
All Disinterested Trustees shall file reports, even when no
transactions have been effected, representing that no transactions
subject to reporting requirements were effected.
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<PAGE>
B. Notwithstanding the preceding section, any Disinterested Trustee may,
at his or her option, report the information described in section
IV.B.2 with respect to any one or more transactions and may include a
statement that the report shall not be construed as an admission that
the person knew or should have known of portfolio transactions by the
Fund in such Securities.
VI. REVIEW BY THE BOARD OF TRUSTEES
At least annually, the Review Officer shall report to the Board of Trustees
regarding:
A. All existing procedures concerning Access Persons' personal trading
activities and any procedural changes made during the past year;
B. Any recommended changes to the Fund's Code or procedures; and
At least annually, the Review Officer shall furnish the Board of
Trustees a written report that (i) describes any issues arising under
this Code or such procedures, including, but not limited to,
information about any material violations of this Code or such
procedures and any sanctions imposed in response to such violations
and (ii) certifies that the Fund has adopted procedures reasonably
necessary to prevent Access Persons from violating this Code.
VII. SANCTIONS
A. SANCTIONS FOR VIOLATIONS BY ACCESS PERSONS (EXCEPT DISINTERESTED
TRUSTEES).
If the Review Officer determines that a violation of this Code has
occurred, he or she shall so advise the Board of Trustees and the
Board may impose such sanctions as it deems appropriate, including,
inter alia, disgorgement of profits, censure, suspension or
termination of the employment of the violator. All material violations
of the Code and any sanctions imposed as a result thereto shall be
reported in writing at least annually to the Board of Trustees.
B. SANCTIONS FOR VIOLATIONS BY DISINTERESTED TRUSTEES
If the Review Officer determines that any Disinterested Trustee has
violated this Code, he or she shall so advise the President of the
Fund and also a committee consisting of the Disinterested Trustees
(other than the person whose transaction is at issue) and shall
provide the committee with a report, including the record of pertinent
actual or contemplated portfolio transactions of the Fund and any
additional information supplied by the person whose transaction is at
issue. The committee, at its option, shall either impose such
9
<PAGE>
sanctions as it deems appropriate or refer the matter to the full
Board of Trustees of the Fund, which shall impose such sanctions as it
deems appropriate.
VIII. MISCELLANEOUS
A. ACCESS PERSONS
The Review Officer of the Fund will identify all Access Persons who
are under a duty to make reports to the Fund and will inform such
persons of such duty. Any failure by the Review Officer to notify any
person of his or her duties under this Code shall not relieve such
person of his or her obligations hereunder.
B. RECORDS
The Fund shall maintain records in the manner and to the extent set
forth below, which records may be maintained on microfilm under the
conditions described in Rule 31a-2(f) under the 1940 Act, and shall be
available for examination by representatives of the Securities and
Exchange Commission ("SEC"):
1. a copy of this Code and any other code which is, or at any time
within the past five years has been, in effect shall be preserved
in an easily accessible place;
2. a record of any violation of this Code and of any action taken as
a result of such violation shall be preserved in an easily
accessible place for a period of not less than five years
following the end of the fiscal year in which the violation
occurs;
3. a copy of each report made pursuant to this Code shall be
preserved for a period of not less than five years from the end
of the fiscal year in which it is made, the first two years in an
easily accessible place;
4. a list of all persons who are required, or within the past five
years have been required, to make reports pursuant to this Code
shall be maintained in an easily accessible place; and
5. a record of any decision, and the reasons supporting the
decision, to approve the acquisition by Advisory Persons of
Securities under Sections III.B. and C., for at least five years
after the end of the fiscal year in which it is made, the first
two years in an easily accessible place.
C. CONFIDENTIALITY
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All reports of Securities transactions and any other information filed
pursuant to this Code shall be treated as confidential, except to the
extent required by law.
D. INTERPRETATION OF PROVISIONS
The Board of Trustees of the Fund may from time to time adopt such
interpretations of this Code as it deems appropriate.
CODE OF ETHICS
THE STURGEON FINANCIAL GROUP, LTD.
The Sturgeon Financial Group, Ltd., a Delaware corporation ("SFG"), hereby
adopts this Code of Ethics (the "Code") as of February 19, 2000 to specify and
prohibit certain types of personal securities transactions deemed to create a
conflict of interest and to establish reporting requirements and preventive
procedures pursuant to the provisions of Rule 17j-1(b)(1) under the Investment
Company Act of 1940 (the "1940 Act") and Rule 204-2 of the Investment Advisers
Act of 1940. The Board of Trustees of Searay Financial Funds, of which The
Sturgeon Fund (the "Fund") is a series, approved this Code of Ethics on February
19, 2000.
I. DEFINITIONS
A. An "Access Person" means any director or officer of SFG; any director
or officer of Creative Capital Management Corp. who, in the ordinary
course of business, makes, participates in or obtains information
regarding, the purchase or sale of a Security by the Fund, or whose
functions relate to the making of any recommendations with respect to
the purchases or sales; and any Advisory Person.
B. An "Advisory Person" means any employee of SFG who, in connection with
his regular functions or duties, makes, participates in or obtains
information regarding the purchase or sale of Securities by an account
or an Investment Company or whose functions relate to any
recommendations with respect to such purchases or sales and any
natural person in a control relationship with SFG who obtains
information regarding the purchase or sale of Securities.
C. "Beneficial Ownership" shall be interpreted subject to the provisions
of Rule 16a-1(a) (exclusive of Section (a)(1) of such Rule) of the
Securities Exchange Act of 1934.
D. "Control" shall have the same meaning as set forth in Section 2(a)(9)
of the 1940 Act.
E. The "Review Officer" is the person designated by SFG's Board of
Directors to monitor the overall compliance with this Code. In the
absence of any such designation the Review Officer shall be the
Treasurer or any Assistant Treasurer of SFG.
F. The "Preclearance Officer" is the person designated by SFG's Board of
Directors to provide preclearance of any personal Security transaction
as required by this Code of Ethics.
G. "Purchase or sale of a Security" includes, among other things, the
writing of an option to purchase or sell a Security.
H. "Security" shall have the meaning as set forth in Section 2(a)(36) of
the 1940 Act (in effect, all securities), except that it shall not
include direct obligations of the U.S. Government (or any other
"government security" as that term is defined in the 1940 Act);
bankers' acceptances, bank certificates of deposit, commercial paper
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and high quality short-term debt instruments, including repurchase
agreements; shares of registered open-end investment companies; and
stock index futures.
I. A Security is "being considered for purchase or sale" when a
recommendation to purchase or sell the Security has been made and
communicated and, with respect to the person making the
recommendation, when such person seriously considers making such a
recommendation.
J. "Investment Company" (collectively, the "Investment Companies") means
a company registered as such under the 1940 Act and for which SFG is
the investment adviser.
II. STATEMENT OF GENERAL PRINCIPLES
The following general fiduciary principles shall govern the personal
investment activities of all Access Persons.
Each Access Person shall adhere to the highest ethical standards and
shall:
A. at all times, place the interests of the accounts and the Investment
Companies before his personal interests;
B. conduct all personal Securities transactions in a manner consistent
with this Code, so as to avoid any actual or potential conflicts of
interest, or an abuse of position of trust and responsibility; and
C. not take any inappropriate advantage of his position with or on behalf
of the accounts or the Investment Companies.
III. RESTRICTIONS ON PERSONAL INVESTING ACTIVITIES
A. BLACKOUT PERIODS
1. No Access Person shall purchase or sell, directly or indirectly,
any Security in which he has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership on a day
during which he knows or should have known an account or an
Investment Company has a pending "buy" or "sell" order in that
same Security until that order is executed or withdrawn.
2. No Advisory Person shall purchase or sell, directly or
indirectly, any Security in which he has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership
within at least seven calendar days before and after an
Investment Company trades (or has traded) in that Security.
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B. INITIAL PUBLIC OFFERINGS
With regard to acquiring any Security in an "initial public
offering" (as defined in Rule 17j-1(a)(6) under the 1940 Act) for the
personal account of an Advisory Person, he or she shall
1. obtain express prior written approval from the Review Officer
(who, in making such determination, shall consider, among other
factors, whether the investment opportunity should be reserved
for an account or an Investment Company, and whether such
opportunity is being offered to such Advisory Person by virtue of
his relationship to an account or his position with an Investment
Company) for any acquisition of Securities in an initial public
offering; and
2. after authorization to acquire Securities in an initial public
offering has been obtained, disclose such personal investment,
with respect to any subsequent consideration by an account or an
Investment Company for investment in that issuer.
C. LIMITED OFFERINGS
With regard to a "limited offering" (as defined in Rule 17j-1(a)(8)
under the 1940 Act), each Advisory Person shall:
1. obtain express prior written approval from the Review Officer
(who, in making such determination, shall consider among other
factors, whether the investment opportunity should be reserved
for an account or an Investment Company, and whether such
opportunity is being offered to such Advisory Person by virtue of
his relationship to an account or his position with an Investment
Company) for any acquisition of Securities in a limited offering;
and
2. after authorization to acquire Securities in a limited offering
has been obtained, disclose such personal investment with respect
to any subsequent consideration by an account or an Investment
Company for investment in that issuer.
If an account or an Investment Company decides to purchase
Securities of an issuer the shares of which have been previously
obtained for personal investment by an Advisory Person, that
decision shall be subject to an independent review by Advisory
Persons with no personal interest in the issuer.
D. SHORT-TERM TRADING PROFITS
With regard to the purchase and sale, or sale and purchase,
within 60 calendar days, of the same (or equivalent) Securities of
which an Advisory Person has beneficial ownership, each Advisory
Person shall:
1. obtain express prior written approval from the Review Officer
(who, in making such determination, shall consider, among other
factors, whether such opportunity is being offered to such
Advisory Person by virtue of his relationship to an account or
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his position with an Investment Company) for the closing
transaction (whether a purchase or sale) which would result in
the short-term profit; and
2. after authorization to purchase or sell such Securities has been
obtained, disclose such personal investment with respect to any
subsequent consideration by an account or an Investment Company
for investment in that issuer.
E. GIFTS
No Advisory Person shall receive any gift or other things of more than
DE MINIMIS value from any person or entity that does business with or
on behalf of an account or an Investment Company.
F. SERVICE AS A DIRECTOR
1. No Advisory Person shall serve on a board of directors of a
publicly traded company without prior authorization from the
Board of Directors of SFG and the boards of trustees of the
Investment Companies, based upon a determination that such board
service would be consistent with the interests of the accounts,
the Investment Companies and their investors.
2. If board service of an Advisory Person is authorized by the Board
of Directors of SFG and the boards of trustees of the Investment
Companies, such Advisory Person shall be isolated from the
investment making decisions of the accounts and the Investment
Companies with respect to the company of which he is a director.
G. EXEMPTED TRANSACTIONS
The prohibition of Section III shall not apply to:
1. purchases or sales effected in any account over which the Access
Person has no direct or indirect influence or control;
2. purchases or sales that are non-volitional on the part of the
Access Person, an account or an Investment Company, including
mergers, recapitalizations or similar transactions;
3. purchases which are part of an automatic dividend reinvestment
plan;
4. purchases effected upon the exercise of rights issued by an
issuer PRO RATA to all holders of a class of its Securities, to
the extent such rights were acquired from such issuer, and sales
of such rights so acquired; and
5. purchases and sales that receive prior approval in writing by the
Preclearance Officer as (a) only remotely potentially harmful to
an account or an Investment Company because they would be very
unlikely to affect a highly institutional market, (b) clearly not
economically related to the Securities to be purchased or sold or
held by an account or an Investment Company or (c) not
4
<PAGE>
representing any danger of the abuses prescribed by Rule 17j-1 of
the Act or Rule 204-2 of the Investment Adviser's Act of 1940,
but only if in each case the prospective purchaser has identified
to the Review Officer all factors of which he or she is aware
which are potentially relevant to a conflict of interest
analysis, including the existence of any substantial economic
relationship between his or her transaction and Securities held
or to be held by an account or an Investment Company.
IV. COMPLIANCE PROCEDURES
A. PRE-CLEARANCE
An Access Person may not, directly or indirectly, acquire or dispose
of beneficial ownership of a Security except as provided below unless:
1. such purchase or sale has been approved by the Preclearance
Officer;
2. the approved transaction is completed on the same day approval is
received; and
3. the Preclearance Officer has not rescinded such approval prior to
execution of the transaction.
B. REPORTING
1. Coverage:
a. Each Access Person shall file with the Review Officer
confidential quarterly reports containing the information
required in Sections IV.B.1.b. and IV.B.2 of this Code with
respect to ALL transactions during the preceding quarter in any
Securities in which such person has, or by reason of such
transaction acquires, any direct or indirect beneficial
ownership, PROVIDED that no Access Person shall be required to
report transactions effected for any account over which such
Access Person has no direct or indirect influence or control
(except that such an Access Person must file a written
certification stating that he or she has no direct or indirect
influence or control over the account in question).
b. If during such preceding quarter an Access Person establishes
any account in which any Securities were held during such quarter
for the direct or indirect benefit of the Access Person, the
Access Person must also include the following information in such
quarterly report: (i) the name of the broker, dealer or bank with
whom the Access Person established the account and (ii) the date
the account was established.
2. Filings: Every report shall be made no later than 10 days after
the end of the calendar quarter in which the transaction to which
the report relates was effected, and, in addition to any
information specified in Section IV.B.1.b. above, shall contain
the following information:
5
<PAGE>
a. the date of the transaction, the title and the number of
shares and the principal amount of each Security involved;
b. the nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
c. the price at which the transaction was effected;
d. the name of the broker, dealer or bank with or through whom
the transaction was effected; and
e. the date that the report is submitted.
3. Any report may contain a statement that it shall not be construed
as an admission by the person making the report that he or she
has any direct or indirect beneficial ownership in the Security
to which the report relates.
C. REVIEW
In reviewing transactions, the Review Officer shall take into account
the exemptions allowed under Section III.G. Before making a
determination that a violation has been committed by an Access Person,
the Review Officer shall give such person an opportunity to supply
additional information regarding the transaction in question.
D. DISCLOSURES OF PERSONAL HOLDINGS
1. Initial Holdings Report: Each Access Person shall report to the
Review Officer within 10 days after becoming an Access Person (i) the
title, number of shares and principal amount of each Security in which
such Access Person had any direct or indirect beneficial ownership
when such Access Person became an Access Person, (ii) the name of any
broker, dealer or bank with whom such Access Person maintained an
account in which Securities were held for the direct or indirect
benefit of such Access Person as of the date he or she became an
Access Person, and (iii) the date the report is submitted by such
Access Person.
2. Annual Holdings Report: On or before January 30, 2001, and annually
thereafter, each Access Person shall report (i) the title, number of
shares and principal amount of each Security in which such Access
Person had any direct or indirect beneficial ownership, (ii) the name
of any broker, dealer, or bank with whom such Access Person maintains
an account in which any Securities are held for the direct or indirect
benefit of such Access Person, and (iii) the date that the report is
submitted. All of the information in such report must be current as of
a date no more than 30 days before the report is submitted.
6
<PAGE>
E. CERTIFICATION OF COMPLIANCE
Each Access Person is required to certify annually that he or she has
read and understood this Code and recognizes that he or she is subject
to this Code. Further, each Access Person is required to certify
annually that he or she has complied with all the requirements of this
Code and that he or she has disclosed or reported all personal
Securities transactions pursuant to the requirements of this Code.
V. REVIEW BY THE BOARDS
At least annually, the Review Officer shall report to the Board of
Directors of SFG and the Boards of Trustees of the Investment Companies
regarding:
A. All existing procedures concerning Access Persons' personal trading
activities and any procedural changes made during the past year;
B. Any recommended changes to this Code or procedures.
At least annually, the Review Officer shall furnish each of such Boards a
written report that (i) describes any issues arising under this Code or
such procedures, including, but not limited to, information about any
material violations of this Code or such procedures and any sanctions
imposed in response to such violations and (ii) certifies that SFG has
adopted procedures reasonably necessary to prevent Access Persons from
violating this Code.
VI. SANCTIONS
If the Review Officer determines that a violation of this Code has
occurred, he or she shall so advise the Board of Directors of SFG and the
Board may impose such sanctions as it deems appropriate, including, inter
alia, disgorgement of profits, censure, suspension or termination of the
employment of the violator. All material violations of this Code and any
sanctions imposed with respect thereto shall be reported in writing at
least annually to the Board of Directors of SFG and, if applicable, the
board of trustees of the Investment Company with respect to whose
Securities the violation occurred.
VII. MISCELLANEOUS
A. ACCESS PERSONS
The Review Officer will identify all Access Persons who are under a
duty to make reports to SFG and will inform such persons of such duty.
Any failure by the Review Officer to notify any person of his or her
duties under this Code shall not relieve such person of his or her
obligations hereunder.
7
<PAGE>
B. RECORDS
SFG shall maintain records in the manner and to the extent set forth
below, which records may be maintained on microfilm under the
conditions described in Rule 31a-2(f) under the 1940 Act, and shall be
available for examination by representatives of the Securities and
Exchange Commission ("SEC"):
1. a copy of this Code and any other code which is, or at any time
within the past five years has been, in effect shall be preserved
in an easily accessible place;
2. a record of any violation of this Code and of any action taken as
a result of such violation shall be preserved in an easily
accessible place for a period of not less than five years
following the end of the fiscal year in which the violation
occurs;
3. a copy of each report made pursuant to this Code shall be
preserved for a period of not less than five years from the end
of the fiscal year in which it is made, the first two years in an
easily accessible place;
4. a list of all persons who are required, or within the past five
years have been required, to make reports pursuant to this Code
shall be maintained in an easily accessible place; and
5. a record of any decision, and the reasons supporting the
decision, to approve the acquisition by Advisory Persons of
Securities under Sections III.B. and C., for at least five years
after the end of the fiscal year in which it is made, the first
two years in an easily accessible place.
C. CONFIDENTIALITY
All reports of Securities transactions and any other information filed
pursuant to this Code shall be treated as confidential, except to the
extent required by law.
D. INTERPRETATION OF PROVISIONS
The Board of Directors of SFG may from time to time adopt such
interpretations of this Code as it deems appropriate.
8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Searay Financial Funds, a business trust organized under the laws
of the State of Massachusetts (hereinafter referred to as the "Trust"),
periodically files amendments to its Registration Statement with the Securities
and Exchange Commission under the provisions of the Securities Act of 1933 and
the Investment Company Act of 1940, as amended; and
WHEREAS, the undersigned is a Trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints CAMERON M.
BERNADSKY, RICHARD W. BRADFORD and GEORGE K. DOUMANIS, and each of them, his
attorneys for him and in his name, place and stead, and in his office and
capacity in the Trust, to execute and file any Amendment or Amendments to the
Trust's Registration Statement, hereby giving and granting to said attorneys
full power and authority to do and perform all and every act and thing
whatsoever requisite and necessary to be done in and about the premises as fully
to all intents and purposes as he might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 19th day
of February, 2000.
/S/ THOMAS E. BECK, JR.
----------------------------
Thomas E. Beck, Jr.
Trustee
STATE OF NEVADA )
) ss:
COUNTY OF CLARK )
Before me, a Notary Public, in and for said county and state, personally
appeared THOMAS E. BECK, JR., known to me to be the person described in and who
executed the foregoing instrument, and who acknowledged to me that he executed
and delivered the same for the purposes therein expressed.
WITNESS my hand and official seal this 19th day of February, 2000.
/S/ RITCHA D. CLIFTON
----------------------------
Notary Public
My commission expires: 04/08/01
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Searay Financial Funds, a business trust organized under the laws
of the State of Massachusetts (hereinafter referred to as the "Trust"),
periodically files amendments to its Registration Statement with the Securities
and Exchange Commission under the provisions of the Securities Act of 1933 and
the Investment Company Act of 1940, as amended; and
WHEREAS, the undersigned is a Trustee and the Vice President of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints RICHARD W.
BRADFORD and GEORGE K. DOUMANIS, and each of them, his attorneys for him and in
his name, place and stead, and in his office and capacity in the Trust, to
execute and file any Amendment or Amendments to the Trust's Registration
Statement, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 19th day
of February, 2000.
/S/ CAMERON M. BERNADSKY
-----------------------------
Cameron M. Bernadsky
Vice President and Trustee
STATE OF NEVADA )
) ss:
COUNTY OF CLARK )
Before me, a Notary Public, in and for said county and state, personally
appeared CAMERON M. BERNADSKY, known to me to be the person described in and who
executed the foregoing instrument, and who acknowledged to me that he executed
and delivered the same for the purposes therein expressed.
WITNESS my hand and official seal this 19th day of February, 2000.
/S/ RITCHA D. CLIFTON
-----------------------------
Notary Public
My commission expires: 04/08/01
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Searay Financial Funds, a business trust organized under the laws
of the State of Massachusetts (hereinafter referred to as the "Trust"),
periodically files amendments to its Registration Statement with the Securities
and Exchange Commission under the provisions of the Securities Act of 1933 and
the Investment Company Act of 1940, as amended; and
WHEREAS, the undersigned is a Trustee and the Treasurer, Chief Financial
Officer and Secretary of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints CAMERON M.
BERNADSKY and GEORGE K. DOUMANIS, and each of them, his attorneys for him and in
his name, place and stead, and in his office and capacity in the Trust, to
execute and file any Amendment or Amendments to the Trust's Registration
Statement, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 19th day
of February, 2000.
/S/ RICHARD W. BRADFORD
---------------------------------
Richard W. Bradford
Treasurer, Chief Financial Officer,
Secretary and Trustee
STATE OF NEVADA )
) ss:
COUNTY OF CLARK )
Before me, a Notary Public, in and for said county and state, personally
appeared RICHARD W. BRADFORD, known to me to be the person described in and who
executed the foregoing instrument, and who acknowledged to me that he executed
and delivered the same for the purposes therein expressed.
WITNESS my hand and official seal this 19th day of February, 2000.
/S/ RITCHA D. CLIFTON
------------------------------
Notary Public
My commission expires: 04/08/01
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Searay Financial Funds, a business trust organized under the laws
of the State of Massachusetts (hereinafter referred to as the "Trust"),
periodically files amendments to its Registration Statement with the Securities
and Exchange Commission under the provisions of the Securities Act of 1933 and
the Investment Company Act of 1940, as amended; and
WHEREAS, the undersigned is a Trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints CAMERON M.
BERNADSKY, RICHARD W. BRADFORD and GEORGE K. DOUMANIS, and each of them, his
attorneys for him and in his name, place and stead, and in his office and
capacity in the Trust, to execute and file any Amendment or Amendments to the
Trust's Registration Statement, hereby giving and granting to said attorneys
full power and authority to do and perform all and every act and thing
whatsoever requisite and necessary to be done in and about the premises as fully
to all intents and purposes as he might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 23rd day
of February, 2000.
/S/ KENNETH L. SIMON
-------------------------------
Kenneth L. Simon
Trustee
STATE OF WASHINGTON )
) ss:
COUNTY OF THURSTON )
Before me, a Notary Public, in and for said county and state, personally
appeared KENNETH L. SIMON, known to me to be the person described in and who
executed the foregoing instrument, and who acknowledged to me that he executed
and delivered the same for the purposes therein expressed.
WITNESS my hand and official seal this 23rd day of February, 2000.
/S/ ROSE WULF
------------------------------
Notary Public in and for State of
Washington Residing in Olympia
My commission expires: 7-10-2001
