<PAGE> 1
As filed with the Securities and Exchange Commission on January 18, 2000.
Securities Act Registration No. 333-______
Investment Company Act Registration No. 811-____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No [ ]
AND/OR
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. __
e-harmon Funds
--------------
(Exact Name of Registrant as Specified in Charter)
400 Montgomery Street, 3rd Floor, San Francisco, California 94104
-----------------------------------------------------------------
(Address of Principal Executive Offices)(Zip Code)
Registrant's Telephone Number, Including Area Code:
(415-391-5335)
James Hartmann
400 Montgomery Street, 3rd Floor
San Francisco, California 94104
With a copy to:
Maureen A. Miller
Gardner, Carton & Douglas
321 N. Clark St.
Chicago, IL 60610
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date.
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
Title of Securities Being Registered.........Shares of Beneficial Interest,
$.01 par value per share
<PAGE> 2
PROSPECTUS , 2000
e-harmon Funds has two portfolios or funds. This prospectus presents information
about both.
The e-harmon Internet Fund seeks long-term capital appreciation. It
invests primarily in equity securities of Internet companies.
The e-harmon Net30 Index Fund seeks to match, before expenses, the
performance of the e-harmon Net30 Index of Internet stocks.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
FUND OVERVIEW................................................................1
FEES AND EXPENSES............................................................4
MANAGEMENT...................................................................6
INVESTMENT POLICIES AND STRATEGIES...........................................8
SHARE CLASS DESCRIPTION.....................................................14
BUYING AND SELLING SHARES...................................................16
DISTRIBUTIONS AND TAXES.....................................................26
</TABLE>
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FUND OVERVIEW
What are the objectives and principal investment strategies of the e-harmon
Internet Fund?
e-harmon INTERNET FUND seeks long-term capital appreciation. This Fund invests
primarily in equity securities of Internet companies. e-harmon Capital
Management LLC, the Fund's investment adviser, decides where to invest the
Funds' assets based on its research of attractive opportunities in the Internet
sector. Some of the key Internet industry segments in which the fund is likely
to invest include:
- E-COMMERCE - companies directly or indirectly involved in the
buying and selling of products and services over the Internet
- BUSINESS-TO-BUSINESS (B2B) - companies that engage in or enable
corporate commercial transactions via the Internet
- BROADBAND - companies that design and develop products and
services that enable highspeed Internet infrastructure
- ACCESS - Internet service providers (ISPs) and companies that
enable access to the Internet
- SERVICES - firms that provide corporations with professional
and information services related to the Internet
- SOFTWARE - developers of applications that enable a variety of
Internet business activities, including, for example, electronic
commerce, communications, content provision, and web development
- HARDWARE - computer, digital and electronic products designed
and developed to enable Internet business activities, products,
and services
The Fund may invest in Internet companies in industry segments not included in
the list above.
Stock selection is based on research that assesses a company's fundamental
prospects. The Fund can buy everything from small companies developing new
technologies to mature firms with established track records of developing and
marketing technological advances. This Fund may invest in smaller capitalization
firms, and thus may have higher share price volatility than funds that invest in
larger capitalization, more established companies. The Fund also may invest in
companies that could benefit from technological advances even if they are not
directly involved in research and development. The Fund may sell securities for
a variety of reasons, such as to lock-in gains, limit losses, or redeploy assets
into more promising opportunities, but in all cases will continue to pursue the
overall investment objective.
What are the objectives and principal investment strategies of the e-harmon
Net30 Index Fund?
e-harmon NET30 INDEX FUND seeks to match the performance of the e-harmon Net30
Index of Internet stocks before expenses. e-harmon Net30 Index is an index of
the top 30 Internet
<PAGE> 5
companies as ranked by total revenues.
The e-harmon Net30 Index is calculated as a modified market capitalization
weighted index that limits the weighting of any single stock to 10% of the total
capitalization of the companies in the index at the time of each quarterly
rebalancing. The effect of this weighting restriction is to limit the impact
that any single stock might have on the performance of the index.
What is an Internet company?
The Adviser considers an Internet company to be one that receives more than 50%
of its revenue from Internet related business activities. These activities
include, the research, development, production, sale or distribution of
technology and products related to the Internet; and the development, delivery,
sale or distribution of services or processes related to the Internet.
What are the main risks of investing in these Funds?
As with all equity funds, the Funds' share prices can decline because of
weakness in the broad market, the Internet sector, other technology sectors, a
particular industry, or specific holdings. The equity market as a whole can
decline for many reasons, including adverse political or economic developments
here or abroad, changes in investor psychology, or heavy institutional selling.
The prospects for an industry or company may deteriorate because of a variety of
factors, including earnings surprises or changes in the competitive environment.
Our analyses of companies held in the Funds may prove wrong, resulting in losses
or poor performance even in a rising market.
The Funds' investment strategies pose investment risks specific to the Internet
sector. Companies in the rapidly changing Internet industry may face unusually
high price volatility, both gains and losses. The potential for wide variation
in performance is based on the special risks common to these stocks. For
example, products or services that at first appear promising may not prove
commercially successful or may become obsolete quickly. Also, increasing
competition, rapidly changing markets, frequent mergers or acquisitions of
Internet companies and changes in strategic alliances among various Internet
businesses may have a significant effect on the financial condition of companies
in the Internet industry. Changes in government policies, such as telephone and
cable regulations and antitrust enforcement and the need for regulatory
approvals, can also have a material effect on the companies in the industry. A
portfolio focused primarily on these stocks is therefore likely to be much more
volatile than one with broader diversification that includes investments in more
economic sectors. The level of risk will be increased to the extent that a Fund
has significant exposure to smaller companies or those with less than three
years of operating history, which may not have established products or more
experienced management.
The Funds are non-diversified under the Investment Company Act of 1940 ("1940
Act"), which means that there is no restriction under the 1940 Act on how much
these Funds may invest in the securities of any one issuer. However, in order to
qualify for certain tax treatment the Funds will not invest more than 25% of
total assets in any one issuer. See "Investment Policies and Strategies -
Diversification." Accordingly, each Fund may be more susceptible to the effects
of
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adverse economic, political or regulatory developments affecting a single issuer
or industry sector than funds that are diversified.
In addition, each Fund can borrow up to 33-1/3% of its total assets for
investment and for other purposes. The Funds can also sell securities short,
that is sell securities it does not own. Both of these strategies can magnify
investment gains, as well as investment losses.
To a limited extent, e-harmon Internet Fund may participate in the initial
public offering (IPO) market. IPOs may significantly increase the Fund's total
returns during any period that the Fund has a small asset base. On the other
hand, investments in IPOs that are not successful can have a significant
negative effect on a Fund's total return. As the Fund's assets grow, any impact
of IPO investments on the Fund's total return may decline.
Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve, or
any other government agency, and are subject to investment risks, including
possible loss of the principal amount invested.
As with any mutual fund, there can be no guarantee the Funds will achieve their
objectives. The Funds' share price may decline, so when you sell your shares,
you may lose money. The Funds are not a complete investment program.
How can you tell if these Funds are an appropriate investment?
These Funds may be appropriate if you have:
- - a long-term investment time horizon
- - familiarity with technology and Internet stocks
- - tolerance for fluctuations in stock valuations and prices
- - no intention to actively trade mutual fund shares
These Funds are not appropriate if you have:
- - a short-term investment time horizon
- - little knowledge of technology and Internet stocks
- - aversion to fluctuations in stock valuations and prices
- - an intention to actively trade of mutual fund shares
The Funds can be used in both regular and tax-deferred accounts, such as IRAs.
See "Distributions and Taxes."
FEES AND EXPENSES
The tables below are designed to help you understand the fees and expenses
investors may bear by investing in e-harmon Funds.
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<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
e-harmon INTERNET FUND Class A Class B Class C
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder fees (fees paid directly from
your investment)(1)
Maximum sales charge (load) imposed on % % %
purchases as a % of offering price
Maximum deferred sales charge (load) as % % %
a % of [purchase price or sales proceeds]
Redemption fees for shares held less than
6 months 1.00% 1.00% 1.00%
==== ==== ====
Exchange fees
Maximum account fee
Annual fund operating expenses
(expenses that are deducted from
Fund assets)
Management fees % % %
Distribution and Service (12b-1) fees % % %
Other expenses(2) % % %
- - -
Total annual Fund
operating expenses % % %
==== ==== ====
- --------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) Brokers may charge you a separate or additional fee for purchases
and sales of shares.
(2) Other expenses are estimated for the Fund's current fiscal year.
7
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<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
e-harmon NET30 INDEX FUND Investor Shares Institutional Shares
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shareholder fees (fees paid directly from
your investment)(1)
Maximum sales charge (load) imposed on % %
purchases as a % of offering price
Maximum deferred sales charge (load) as
a % of [purchase price or sales proceeds] % %
Redemption fees for shares held less than
6 months .50% .50%
Exchange fees
Maximum account fee
Annual fund operating expenses
(expenses that are deducted from Fund assets)
Management fees % %
Distribution and Service (12b-1) fees % %
Other expenses(2) % %
=== ===
Total annual Fund
operating expenses % %
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Brokers may charge you a separate or additional fee for purchases
and sales of shares.
(2) Other expenses are estimated for the Fund's current fiscal year.
8
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EXAMPLE
The following table gives you an idea of how expenses estimated for our new
Funds may translate into dollars and helps you to compare the cost of investing
in these Funds with those of other funds. Although your actual costs may be
higher or lower, the table shows how much you would pay if estimated operating
expenses remain the same, you invest $10,000, you earn a 5% annual return, and
you hold the investment for the periods indicated and then sell all of your
shares at the end of those periods:
e-harmon INTERNET FUND
<TABLE>
<CAPTION>
1 Year 3 Year
<S> <C> <C>
Class A $ $
Class B $ $
Class C $ $
e-harmon NET 30 INDEX FUND
1 Year 3 Year
Investor Shares $ $
Institutional Shares $ $
</TABLE>
You would pay the following expenses on the same investment if you did not sell
your shares:
e-harmon INTERNET FUND
<TABLE>
<CAPTION>
1 Year 3 Year
<S> <C> <C>
Class A $ $
Class B $ $
Class C $ $
e-harmon NET 30 INDEX FUND
1 Year 3 Year
Investor Shares $ $
Institutional Shares $ $
</TABLE>
MANAGEMENT
GENERAL OVERSIGHT
A Board of Trustees that meets regularly to review the Fund's investments,
performance, expenses, and other business affairs governs the Funds. The
majority of the Board members are independent of e-harmon Capital Management
LLC, the Funds' investment adviser.
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<PAGE> 10
HOW THE FUNDS ARE MANAGED
Each Fund is managed by e-harmon Capital Management LLC, the Funds' Adviser. The
Adviser does not have any prior experience managing a mutual fund. The Adviser
makes all decisions regarding the purchase and sale of the Fund's investments
and handles its business affairs. The Adviser's business address is 400
Montgomery Street, 3rd Floor, San Francisco, California 94104.
STEVE HARMON AND LISA CAVALLARI MANAGE e-harmon INTERNET FUND, with support from
the research group at e-harmon Capital Management LLC. This Fund's annual
management fee is ___% of average daily net assets.
As an index fund based on the e-harmon Net30 Index, the e-harmon NET30 INDEX
FUND is managed by Steve Harmon and Lisa Cavallari. This Fund's annual
management fee is ___% of average daily net assets.
STEVE HARMON CHIEF INVESTMENT OFFICER
Steve Harmon is founder and CEO of e-harmon.com, Inc., which invests in public
and private Internet companies. e-harmon.com, Inc. is the parent company of the
Adviser. Mr. Harmon has been involved in the Internet investing field since
1994. Mr. Harmon authored "Zero Gravity" (Bloomberg Press, November, 1999), an
Internet venture capital book and a guide for entrepreneurs and investors
wanting to get inside the how-to of going from garage to the Web.
Before launching his own firm, Mr. Harmon was Vice President of Business
Development & Senior Investment Analyst for Internet.com and Mecklermedia from
1996. Mr. Harmon's role at Internet.com and Mecklermedia (Internet.com's former
parent company) included responsibility for business and content alliances,
strategic acquisitions, new products and revenue streams.
Prior to Internet.com/Mecklermedia, Mr. Harmon was Senior Investment Analyst for
Jupiter Communications in 1995-96 where he covered Internet and media
industries. In December 1995, he authored "Internet Investment Outlook 1996"
which forecast five years of Internet growth in several areas including
ecommerce, emusic, broadband cable Internet, content, software, hardware among
topics covered.
LISA A. CAVALLARI, PORTFOLIO MANAGER AND SENIOR VICE PRESIDENT
Ms. Cavallari holds a B.A. in Economics from Northwestern University and
graduated from the University of Chicago's Graduate School of Business with an
MBA in finance and statistics. Ms. Cavallari was previously a Principal at
Barclays Global Investors. At BGI she was responsible for the construction and
trading of equity and fixed income derivative overlays for institutional
clients. She also served as portfolio manager for the retail asset allocation
funds that Barclays managed and sub-advised. Prior to BGI, Ms. Cavallari was an
analyst in the Russell Index Group at Frank Russell Company where she was the
lead for the annual index reconstitution effort.
INVESTMENT POLICIES AND STRATEGIES
In pursuit of its investment objective, each Fund may invest in a variety of
securities and use a variety of investment practices. The section below
describes some of the types of securities and strategies that the Adviser may
use in its day-to-day management of each Fund's assets. As stated
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below, both Funds will invest primarily in Internet stocks. The Adviser
considers an Internet company to be one that receives more than 50% of its
revenue from Internet related business activities. These activities include, the
research, development, production, sale or distribution of technology and
products related to the Internet; and the development, delivery, sale or
distribution of services or processes related to the Internet.
e-harmon INTERNET FUND
e-harmon Internet Fund will invest at least 65% of its total assets in the
equity securities of companies expected to benefit from the development,
advancement, and use of the Internet. This Fund invests primarily in equity
securities of Internet companies.
e-harmon Capital Management LLC, the Fund's investment adviser, decides where to
invest the Fund's assets based on its research of attractive opportunities in
the Internet sector. Some of the key Internet industry segments in which the
Fund is likely to invest include:
- E-COMMERCE - companies directly or indirectly involved in the
buying and selling of products and services over the Internet
- BUSINESS-TO-BUSINESS (B2B) - companies that engage in or
enable corporate commercial transactions via the Internet
- BROADBAND - companies that design and develop products and
services that enable highspeed Internet infrastructure
- ACCESS - Internet service providers (ISPs) and companies that
enable access to the Internet
- SERVICES - firms that provide corporations with professional
and information services related to the Internet
- SOFTWARE - developers of applications that enable a variety of
Internet business activities, including, for example, electronic
commerce, communications, content provision, and web development
- HARDWARE - computer, digital and electronic products designed
and developed to enable Internet business activities, products,
and services
The Fund may invest in Internet companies in industry segments not included in
the list above.
Equity securities include common stocks, non-convertible preferred stocks,
securities convertible or exchangeable for common stocks or preferred stocks,
equity investments in partnerships, joint ventures and other forms of
non-corporate investments, American Depository Receipts, American Depository
Shares, and warrants and rights exercisable for equity securities.
e-harmon NET30 INDEX FUND
e-harmon Net30 Index Fund will invest at least 80% of total assets in the equity
securities that comprise the e-harmon Net30 Index.
e-harmon Net30 Index Fund seeks to match the performance of the e-harmon Net30
Index of
11
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Internet stocks before expenses. e-harmon Net30 Index is an index of the top 30
Internet companies as ranked by total revenues. e-harmon Capital Management
believes the use of revenue as the primary measurement criteria results in an
index comprised of large Internet companies with promising prospects for future
business success.
The e-harmon Net30 Index is calculated as a modified market capitalization
weighted index that limits the weighting of any single stock to 10% of the total
capitalization of the companies in the index at the time of each quarterly
rebalancing. The effect of this weighting restriction is to limit the impact
that any single stock might have on the performance of the index.
ILLIQUID SECURITIES. Each Fund may invest up to 15% of its net assets in
illiquid securities. Illiquid securities are securities for which there is no
ready market (which inhibits the ability to sell them and obtain their full
market value) or which are legally restricted as to their resale by the Fund.
Venture Capital Companies. As part of its investment in illiquid securities, the
Funds may invest in equity securities of privately owned companies that plan to
conduct an initial public offering, or IPO, within a period of several months to
three years from the time the Fund makes its investment. These companies will
typically be Internet companies and are referred to as venture capital
companies. There will be no public market for the shares of a venture capital
company at the time of a Fund's investment, and there can be no assurance that a
planned IPO will be completed.
Rule 144A Securities. Each Fund may invest in commercial obligations issued in
reliance on the "private placement" exemption from registration under Section
4(2) of the Securities Act. The Funds may also purchase securities that are not
registered under the Securities Act, but which can be sold to qualified
institutional buyers in accordance with Rule 144A under the Securities Act. Rule
144A securities generally must be sold only to other qualified institutional
buyers. Commercial obligations sold under Section 4(2) are restricted under
Federal securities laws and generally are sold to institutional investors who
agree that they are purchasing the obligations for investment and not for public
distribution. If a particular investment in commercial obligations or Rule 144A
securities is not determined to be liquid, that investment will be included
within the Fund's limitation on investment in illiquid securities. The Adviser
will determine the liquidity of such investments pursuant to guidelines
established by the Board of Trustees. It is possible that unregistered
securities purchased by the Funds in reliance upon Rule 144A could have the
effect of increasing the level of the Funds' illiquidity to the extent that
qualified institutional buyers become, for a period, uninterested in purchasing
these securities.
U.S. GOVERNMENT SECURITIES. Each Fund may invest in U.S. Government securities,
including, U.S. Treasury obligations such as Treasury Bills (maturities of one
year or less) or Treasury Notes (maturities of less than three years). The
market value of U.S. Government securities will fluctuate with changes in
interest rate levels. Thus, if interest rates increase from the time the
security was purchased, the market value of the security will decrease.
Conversely, if interest rates decrease, the market value of the security will
increase.
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SECURITIES OPTIONS. Each Fund may write (sell) covered call options, including
those that trade in the OTC market, to seek to increase its return (through the
receipt of premiums) or to seek to provide a partial hedge against declines in
the market value of its portfolio securities. The Funds can also engage in such
transactions for speculative purposes. Each Fund may write covered call options
on securities comprising no more than 25% of the Fund's net assets at the time
of any writing. The writing of call options is subject to various risks,
including the risk that the Fund will not be able to participate in any
appreciation in the value of the underlying securities above the exercise price.
Each Fund may also purchase and write (sell) listed call options provided that
the value of the call options outstanding at any time will not exceed 5% of the
Fund's net assets. Each Fund may buy call and put options on stock indices to
seek to hedge against the risk of market or industry-wide stock price
fluctuations.
FUTURES CONTRACTS AND RELATED OPTIONS; FOREIGN CURRENCY FORWARD CONTRACTS. Each
Fund may enter into financial futures contracts and related options. A financial
futures contract is an agreement to buy or sell a set quantity of an underlying
financial instruments at a future date or to make or receive a cash payment
based on the value of the instrument where it is a securities index. A Fund can
speculate in these instruments as long as the margin for futures and premiums
doesn't exceed 5% of the liquidation value of the Fund's portfolio. Each Fund
also may enter into foreign currency forward contracts to seek to protect the
value of its assets against future changes in the level of foreign currency
exchange rates. A foreign currency forward contract is an obligation to buy or
sell a given currency on a future date at a set price.
FOREIGN INVESTMENTS. Each Fund may invest up to 15% of its total assets in
securities of foreign issuers or securities that are principally traded in
foreign markets ("foreign securities"). When foreign investments are made, the
Adviser will attempt to take advantage of differences between economic trends
and the performance of securities markets in various countries to maximize
investment performance. In most instances, foreign investments will be made in
companies principally based in developed countries. Investments in foreign
securities may be made through the purchase of individual securities on
recognized exchanges and developed over-the-counter markets. To attempt to
reduce exposure to currency fluctuations, each Fund may trade in forward foreign
currency exchange contracts (forward contracts), currency futures contracts and
options thereon and securities indexed to foreign securities. The Funds may also
invest in American Depository Receipts and American Depository Shares that the
Funds do not consider to be foreign securities.
TEMPORARY DEFENSIVE INVESTMENTS AND CASH MANAGEMENT. Under normal circumstances
each Fund may make investments in corporate debt securities, commercial paper,
certificates of deposit, bankers' acceptances and time deposits of U.S. or
foreign banks, obligations issued or guaranteed by the U.S. Government and its
agencies and foreign governments and their agencies. In response to adverse
market, economic or political conditions, the Funds may temporarily invest up to
100% of the Funds' assets in securities denominated in U.S. dollars or U.S.
Treasury securities or hold cash. Investing heavily in these securities limits
our ability to achieve the Funds' investment objectives, but can help preserve
the Funds' assets when the markets are volatile.
BORROWING. Each Fund may borrow up to 33 1/3% of the value of its total assets
(calculated when the loan is made) from banks to meet redemption requests, for
temporary, extraordinary or
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emergency purposes or for investment purposes. A Fund may pledge up to 33 1/3%
of its assets to secure these borrowings. If a Fund borrows to invest in
securities, any investment gains made on the securities in excess of interest
paid on the borrowing will cause the net asset value of the shares to rise
faster than would otherwise be the case. On the other hand, if the investment
performance of the additional securities purchased fails to cover their cost
(including any interest paid on the money borrowed), the net asset value of the
Fund's shares will decrease faster than would otherwise be the case. This
speculative factor is known as leverage.
SHORT SALES. Each Fund may make short sales of a security. This means that a
Fund may sell a security that it does not own when the Adviser thinks the value
of the security will decline. A Fund generally borrows the security to deliver
to the buyer in a short sale. The Fund must then buy the security at its market
price when the borrowed security must be returned to the lender. Short sales
involve costs and risk. The Fund must pay the lender interest on the security it
borrows, and the Fund will lose money if the price of the security increases
between the time of the short sale and the date when the Fund replaces the
borrowed security. The Fund also may make short sales "against the box." In a
short sale against the box, at the time of the sale, the Fund owns or has the
right to acquire the identical security at no additional cost. When selling
short against the box, a Fund gives up the opportunity for capital appreciation
in the security.
LENDING OF PORTFOLIO SECURITIES. Like other mutual funds, the Funds may lend
securities to broker-dealers, other institutions, or other persons to earn
additional income. The principal risk is the potential insolvency of the
broker-dealer or other borrower. In this event, a Fund could experience delays
in recovering its securities and possibly capital losses.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements, where a
party agrees to sell a security to the Fund and then repurchase it at an
agreed-upon price at a stated time. This creates a fixed return for the Fund and
is, in effect, a loan by the Fund.
SPECIAL RISK CONSIDERATIONS
When you own shares of a Fund, you not only have the ability to participate in
potential increases in share value, you also bear the risk that the value of the
Fund's shares may decline. This section discusses some of the special risks
associated with an investment in the Funds.
INTERNET COMPANIES. The Funds will invest primarily in companies engaged in
Internet related business activities. The value of such companies is
particularly vulnerable to rapidly changing technology, extensive government
regulation and relatively high risks of obsolescence caused by scientific and
technological advances. The Funds may involve significantly greater risks and
therefore may experience greater volatility than a mutual fund that does not
concentrate its investments in one industry.
SMALL COMPANIES. The Funds may invest in companies with small market
capitalizations (i.e., less than $500 million) or companies that have relatively
small revenues, limited product lines, and a small share of the market for their
products or services (collectively, "small companies"). Small companies may lack
depth of management, they may be unable to internally generate funds
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<PAGE> 15
necessary for growth or potential development or to generate such funds through
external financing on favorable terms, and they may be developing or marketing
new products or services for which markets are not yet established and may never
become established. Due to these and other factors, small companies may suffer
significant losses, as well as realize substantial growth. Securities of small
companies present greater risks than securities of larger, more established
companies. Historically, stocks of small companies have been more volatile than
stocks of larger companies and are, therefore, more speculative than investments
in larger companies. Among the reasons for the greater price volatility are the
less certain growth prospects of smaller companies, the lower degree of
liquidity in the markets for such stocks, and the greater sensitivity of small
companies to changing economic conditions. Besides exhibiting greater
volatility, small company stocks may, to a degree, fluctuate independently of
larger company stocks. Small company stocks may decline in price as large
company stocks increase; or increase in price as large company stocks decline.
Therefore, the value of the e-harmon Internet Fund and the e-harmon Net30 Index
Fund shares may be more volatile than the shares of a mutual fund that invests
primarily in larger company stocks.
TECHNOLOGY AND RESEARCH COMPANIES AND CURRENCY RISK. Consistent with its
investment objective, each of the Funds expects to invest a portion of its
assets in securities of companies involved in computing technologies, or
communication technologies (collectively, "technology sectors"). Typically,
these companies' products or services compete on a global, rather than a
predominately domestic or regional basis. The technology sectors historically
have been volatile and securities of companies in these sectors may be subject
to abrupt or erratic price movements. The Adviser will seek to reduce such risks
through extensive research and emphasis on more globally competitive companies.
In addition, because these companies compete globally, the securities of these
companies may be subject to fluctuations in value due to the effect of changes
in the relative values of currencies on such companies' businesses. The history
of these markets reflects both decreases and increases in worldwide currency
valuations, and these may reoccur unpredictably in the future.
CONVERTIBLE SECURITIES. The Adviser believes that convertible securities
generally have less potential for gain or loss than common stocks. In general, a
convertible security performs more like a stock when the underlying stock's
price is high (because it is assumed it will be converted into the stock) and
more like a bond when the underlying stock's price is low (because it is assumed
that it will mature without being converted). Each convertible security offers a
different combination of upside potential and downside risk. Securities that are
convertible other than at the option of the holder generally do not limit the
potential for loss to the same extent as securities convertible at the option of
the holder. Because convertible securities have both an equity and a
fixed-income component, the value of the fund's investments varies in response
to many factors. The equity component makes the value of convertible securities
subject to the activities of individual companies, and general market and
economic conditions. The fixed-income component causes fluctuations based on
changes in interest rates and in the credit quality of the issuer. In addition,
convertible securities are often lower-quality securities.
DERIVATIVES. A Fund's risk is mostly dependent on the types of securities it
purchases and its investment techniques. Each Fund is authorized to use options,
futures and forward foreign
15
<PAGE> 16
currency exchange contracts, which are types of derivative instruments.
Derivative instruments are instruments that derive their value from a different
underlying security, index or financial indicator. The use of derivative
instruments exposes the Fund to additional risks and transaction costs. Risks
inherent in the use of derivative instruments include: (1) the risk that
interest rates, securities prices and currency markets will not move in the
direction that a portfolio manager anticipates; (2) imperfect correlation
between the price of derivative instruments and movements in the prices of the
securities, interest rates or currencies being hedged; (3) the fact that skills
needed to use these strategies are different than those needed to select
portfolio securities; (4) inability to close out certain hedged positions to
avoid adverse tax consequences; (5) the possible absence of a liquid secondary
market for any particular instrument and possible exchange-imposed price
fluctuation limits, either of which may make it difficult or impossible to close
out a position when desired; (6) leverage risk, that is, the risk that adverse
price movements in an instrument can result in a loss substantially greater than
the Fund's initial investment in that instrument (in some cases, the potential
loss is unlimited); and (7) particularly in the case of privately-negotiated
instruments, the risk that the counterparty will not perform its obligations,
which could leave the Fund worse off than if it had not entered into the
position.
ILLIQUID SECURITIES. To the extent that a Fund invests in illiquid securities,
the Fund risks not being able to sell securities at the time and the price that
it would like. The Fund may therefore have to lower the price, sell substitute
securities or forego an investment opportunity, each of which might adversely
affect the Fund.
BORROWING AND SHORT SALES. Leverage borrowing for investment may magnify losses.
Interest costs and borrowing fees may exceed potential investment gains.
FOREIGN INVESTMENTS. There are certain risks and costs involved in investing in
securities of companies and governments of foreign nations. These risks may
involve more risk than investing in U.S. securities for the following reasons:
(1) there may be less public information available about foreign companies than
is available about U.S. companies; (2) foreign companies are not generally
subject to the uniform accounting, auditing and financial reporting standards
and practices applicable to U.S. companies; (3) foreign markets have less volume
than U.S. markets, and the securities of some foreign companies are less liquid
and more volatile than the securities of comparable U.S. companies; (4) there
may be less government regulation of stock exchanges, brokers, listed companies
and banks in foreign countries than in the United States; (5) the Fund may incur
fees on currency exchanges when it changes investments from one country to
another; (6) the Fund's foreign investments could be affected by expropriation,
confiscatory taxation, nationalization of bank deposits, establishment of
exchange controls, political or social instability or diplomatic developments;
(7) fluctuations in foreign exchange rates will affect the value of the Fund's
portfolio securities, the value of dividends and interest earned, gains and
loses realized on the sale of securities, net investment income and unrealized
appreciation or depreciation of investments; and (8) possible imposition of
dividend or interest withholding by a foreign country.
DIVERSIFICATION. The Funds are non-diversified under the 1940 Act, which means
that there is no restriction under the 1940 Act on how much these Funds may
invest in the securities of any one issuer. However, to qualify for tax
treatment as a regulated investment company under the
16
<PAGE> 17
Internal Revenue Code ("Code"), the Funds intend to comply, as of the end of
each taxable quarter, with certain diversification requirements imposed by the
Code. Pursuant to these requirements, each of these Funds will, among other
things, limit its investments in the securities of any one issuer (other than
U.S. Government securities or securities of other regulated investment
companies) to no more than 25% of the value of the Fund's total assets. In
addition, the Funds, with respect to 50% of their total assets, will limit their
investments in the securities of any issuer to 5% of the Fund's total assets,
and will not purchase more than 10% of the outstanding voting securities of any
one issuer. Nevertheless, as a general matter, the Funds may be more susceptible
than a diversified mutual fund to the effects of adverse economic, political or
regulatory developments affecting a single issuer or industry sector in which
these Funds may maintain investments.
SHARE CLASS DESCRIPTION
You can choose from different classes for each Fund. The different classes
represent investments in the same portfolio of securities, but each has a
different combination of sales charges, fees, eligibility requirements and other
features.
INTERNET FUND
This Fund offers three different classes of shares - Class A, Class B and Class
C. In deciding whether to purchase Class A, Class B or Class C shares, you
should consider:
- - the amount of your purchase
- - how long you expect to hold the shares
- - the amount of any up-front sales charge
- - whether a contingent deferred sales charge (CDSC) would apply upon
redemption
- - the amount of any distribution or service fees that you may incur while you
own the shares
- - whether you qualify for a sales charge waiver or reduction
- - whether you meet the eligibility criteria for the class
For a summary of the charges and expenses for each class, please see "Fees and
Expenses."
CLASS A SHARES
You can buy Class A shares at the offering price, which is the net asset value
per share plus an up-front sales charge. You may qualify for a reduced sales
charge, or the sales charge may be waived, as described below. The up-front
Class A sales charge is as follows:
<TABLE>
<CAPTION>
Authorized Dealer
Sales Charge as % of Sales Charge as % of Commission as % of
Amount of Purchase Public Offering Price Net Amount Invested Public Offering Price
- ------------------ --------------------- ------------------- ---------------------
<S> <C> <C> <C>
</TABLE>
A number of ways are offered to reduce or eliminate the up-front sales charge on
Class A Shares.
17
<PAGE> 18
<TABLE>
<CAPTION>
Class A Sales Charge Class A Sales Charge
Reduction Waivers
------------------- --------------------
<S> <C>
</TABLE>
CLASS B SHARES
You can buy Class B shares at their net asset value without any up-front charge
so that the full amount of your purchase is invested in the Fund. However, you
will pay annual distribution and service fees of ___%. If you sell your shares
within [___] years of purchase, you will be charged a [____% CDSC or a declining
CDSC of __% to __% based on your [purchase price or the sales proceeds.]
When you redeem Class B shares that are subject to a CDSC, the Fund will first
redeem any shares that are not subject to a CDSC or that represent an increase
in the value of your Fund account due to capital appreciation, and then redeem
the shares you have owned for the longest period of time. No CDSC sales charge
is imposed on shares you buy through the reinvestment of dividends and capital
gains.
CLASS C SHARES
Class C shares are offered at net asset value without any up-front sales charge
or CDSC to certain institutional investors. [Class C shares have lower ongoing
expenses than other classes.]
NET30 INDEX FUND
The Fund offers two different classes of shares based on investment minimums -
Investor Shares and Institutional Shares.
- - Investor Shares have an investment minimum of $________
- - Institutional Shares have an investment minimum of $_______
DISTRIBUTION AND SERVICE PLAN
The Funds have a Distribution and Service Plan (the "Plan") pursuant to Rule
12b-1 under the 1940 Act. Under the Plan, the Funds can pay for the sale and
distribution of their shares at an annual rate of up to ____% of each Fund's
average daily net assets. These distribution fees are paid from each Fund's
assets on a continuous basis. Over time, the fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
BUYING AND SELLING SHARES
Here is what you need to know about buying and selling shares of e-harmon
Internet Fund and e-harmon Net30 Index Fund.
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<PAGE> 19
INVESTMENT MINIMUMS
<TABLE>
<CAPTION>
e-harmon INTERNET FUND
Initial Minimum Purchase Additional Minimum Purchase
Class A Class B Class C Class A Class B Class C
<S> <C> <C> <C> <C> <C>
Regular accounts
Automatic Investment Plan
IRAs
Gift to Minors
</TABLE>
<TABLE>
<CAPTION>
e-harmon NET30 INDEX FUND
Initial Minimum Purchase Additional Minimum Purchase
Investor Shares Institutional Shares Investor Shares Institutional Shares
<S> <C> <C> <C>
Regular accounts
Automatic
Investment Plan
IRAs
Gift to Minors
</TABLE>
The Funds may waive minimums for qualified retirement plans. Investors must make
purchases in U.S. dollars, by checks drawn on U.S. banks. The Funds do not
accept cash, credit cards or third party checks.
SHAREHOLDER ACTIVITIES
e-harmon Funds not only invest in Internet companies, but also believes in the
Internet as a way to benefit the e-harmon Funds and their shareholders. e-harmon
Funds encourage you to:
- establish an account online by visiting e-harmon.com
- receive all shareholder documentation via electronic means
- buy, sell and exchange shares online
- view account information, such as balances, positions, and
transaction history online
- handle simple customer service issues and questions about the
Funds' online
Details on how to open an account and enjoy all the online services of e-harmon
Funds are described below.
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<PAGE> 20
OPENING AN ACCOUNT
If you prefer to receive all shareholder documentation via electronic memo,
please answer affirmatively the questions related to electronic account delivery
in the New Account Application.
VIA INTERNET
You can open an account in the e-harmon Net30 Index Fund via the Internet. Visit
www.e-harmon.com, proceed to the New Investors section, and complete the online
application. To open your account, you will need to [transfer] money from your
bank account. Please have your bank account number and bank ABA number handy
before starting the application process. You may not open an account in the
e-harmon Internet Fund via the Internet. You may complete an application on the
Internet, but you must print and mail the application to the Funds to open an
account in the e-harmon Internet Fund.
VIA MAIL
- - Complete a New Account Application (available on line at www.e-harmon.com or
by calling 1-8XX-XXX-XXXX)
- - Mail the completed application with a check payable to __________________ Fund
to:
e-harmon Funds
P.O. Box XXXX
Milwaukee, WI 53201-XXXX
- - For overnight or express mail, use this address:
e-harmon Funds
207 E. Buffalo St., Suite 315
Milwaukee, WI 53202-5712
VIA TELEPHONE
- - Call 1-8XX-XXX-XXXX to arrange for an investor account number. You must also
complete and submit a New Account Application to arrange for
WIRING INSTRUCTIONS
A.B.A. #
For credit to __________________ Fund
Account #
For further credit to:
(investor account number)
(name or account registration)
(Social Security or Taxpayer Identification Number)
- - As soon as possible after wiring money, send us your original New Account
Application. The Funds must receive a properly completed and executed
application to establish telephone and
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<PAGE> 21
exchange privileges. If the Funds do not receive your original application, it
can delay payment of redemption proceeds and require us to withhold taxes on any
redemption or other distribution.
- - Wired funds are considered received in good order on the day they reach the
Fund's bank account by the Fund's purchase cut-off time (3:00 p.m. Central time)
and all required information is provided in the wire instructions. The wire
instructions will determine the terms of the purchase transaction.
BUYING MORE SHARES
VIA INTERNET
- - You may add to an existing account in the e-harmon Net30 Index Fund via the
Internet. You may purchase shares in an existing account at www.e-harmon.com. To
establish online transaction privileges, you must enroll through the website.
For important information on this feature, see "Important Information About
Online Transactions" on page __ of this Prospectus. You may not add to an
existing account in the e-harmon Internet fund via the Internet.
VIA MAIL
- - Send your check, plus an investment slip from a recent statement or a signed
note with the account's full name and number.
- - Use the addresses on the back cover/last page of this Prospectus.
VIA TELEPHONE
- - To buy more share by telephone and sending a wire, follow the instructions
under "Wiring Instructions" above.
- - During shifts in the market or economy, it may be difficult to buy shares by
telephone (or wire). You then can mail your purchase order as described above.
- - Wired funds are considered received in good order on the day they reach the
Fund's bank account by the Fund's purchase cut-off time (3:00 p.m. Central time)
and all required information is provided in the wire instructions. The wire
instructions will determine the terms of the purchase transaction.
VIA ELECTRONIC FUNDS TRANSFER
- - The Fund requires ten business days to verify your bank information before
initiating this privilege. If your account is already open and you would like to
establish electronic funds transfer privileges, call 1-8XX-XXX-XXXX.
- - Request the electronic transfer by phone, Internet or in writing, in amounts
from $XX to $XX,XXX.
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<PAGE> 22
AUTOMATIC INVESTMENT PLAN (AIP)
- - Complete the Automatic Investment Plan section on your New Account
Application, and open your account with at least $XXX.
- - Each month, quarter or year, the amount you specify ($XX or more) is
automatically withdrawn from your bank account to buy shares. You can choose to
make investments on the 5th, 10th, 15th, 20th, 25th, or end of each month. You
will receive QUARTERLY statements showing these purchases.
- - The Funds do not charge a service fee for AIP, but if there is not enough
money in your bank account to cover the withdrawal, you will be charged $20,
your purchase will be cancelled, and you will be responsible for any resulting
loss to the Funds.
- - If your account is already open and you would like to add the Automatic
Investment Plan feature, call 1-8XX-XXX-XXXX for an application. Plan investment
minimums apply. Adding bank information to your account requires a signature
guarantee, described on page __.
- - The Funds require ten business days to verify your bank information before
initiating the plan.
- - A sale of all shares from your account will not automatically discontinue the
plan. To terminate your Automatic Investment Plan, send the Fund a written
request at least five days before your next plan investment date or call our
Shareholder Services department.
MORE YOU SHOULD KNOW ABOUT BUYING SHARES
Accepting orders. The Fund must receive a properly completed online or paper New
Account Application before an initial investment can be completed. In the
application you authorize certain shareholder services such as telephone and
exchange privileges. The Funds may return incomplete applications or checks.
The Funds may reject any purchase order (paper, online, or otherwise), or refuse
a telephone transaction if the Funds believe it is advisable to do so. The Funds
will not accept an account if you are investing for another person as
attorney-in-fact, or an account with "Power of Attorney" or "POA" in the New
Account Application's registration section.
Certificates. The Funds do not issue stock certificates. You will receive a
statement confirming your purchase.
Purchases through third parties. If you buy shares through a broker-dealer,
financial institution, or other provider, their policies and fees may differ
from those described here.
The Funds may accept requests to buy additional shares into a broker-dealer
street name account only from the broker-dealer.
The Funds may authorize service providers and their designees to accept purchase
orders on the Funds' behalf. The Funds consider such orders received when the
service provider accepts them,
22
<PAGE> 23
and prices them at the next net asset value calculated after receipt by the
service provider.
The Funds have agreed to allow some service providers to enter purchase orders
for their customers by telephone, with payment to follow. The Funds price these
telephone orders at the next net asset value calculated after the service
provider receives them. The service provider is responsible for placing the
orders promptly and for ensuring the Funds receive payment within the
agreed-upon period. Otherwise, the provider could be liable for resulting fees
or losses.
Returned checks/insufficient funds. You will be charged a $20 service fee
against your account for any check or electronic transfer returned unpaid. YOUR
PURCHASE WILL BE CANCELLED, AND YOU WILL BE RESPONSIBLE FOR ANY RESULTING LOSS
TO THE FUNDS.
EXCHANGING SHARES
If you are opening a new account with an exchange, the transaction must meet
account minimums. If you are adding to an account, the exchange must be $XXX or
more. New accounts will have the same registration and privileges as your
existing account unless you specify otherwise.
VIA TELEPHONE
Follow the instructions under "Selling Shares - Via Telephone."
VIA MAIL
Send us your request at the address on the back cover/last page of this
Prospectus with your name, account number and the dollar amount or number of
shares of the fund you want to exchange out of and information.
[Insert language regarding exchange between load and no-load funds, i.e.
tracking of loads, etc.]
EXCHANGE RESTRICTIONS
The e-harmon Funds are for long-term investing, not short-term market
speculation. Active trading can hurt the Funds' performance. So:
- The Funds may restrict the number of exchanges you can make.
- The Funds may suspend or terminate, without further notice, the
exchange privilege of any investor who uses it [excessively].
- The Funds may restrict or refuse exchanges if they receive or
anticipate simultaneous orders affecting significant portions of the
Funds' assets.
Note that when you exchange shares, you may realize a capital gain or loss for
federal tax purposes. Loads and redemption fees do apply to exchanged charges
because an exchange involves a sale of shares of one Fund and the purchase of
shares of another. See "Taxes and Distributions."
23
<PAGE> 24
SELLING SHARES
You may sell or redeem your shares anytime. The price you receive will be the
next net asset value calculated after the Funds receive your request in good
order. See "Other Purchase, Selling and Exchange Policies" on page __ for a
definition of "good order." Note that when you sell shares, you may realize a
capital gain or loss for federal tax purposes.
REDEMPTION FEES
There are transaction charges to sell shares if you redeem by wire ($10) or you
redeem from an IRA account ($12.50) (detailed in your IRA Disclosure Statement &
Custodial Agreement) to cover tax reporting. Transactions handled through
broker-dealers may be subject to additional transaction fees. Please consult
your broker-dealer before executing an order.
In order to protect long-term investors in the Funds from portfolio trading
costs related to active trading of Fund shares, the Funds will collect
redemption fees as follows:
- - e-harmon Net30 Index Fund
.50% for shares redeemed within 6 months of purchase.
- - e-harmon Internet Fund
1.00% for shares redeemed within 6 months of purchase.
Class B shares are subject to a CDSC as described under "Choosing a Share
Class."
VIA INTERNET
- - You may redeem shares in the e-harmon Net30 Index Fund via the Internet at
e-harmon.com. To establish online transaction privileges, you must enroll
through the website. For important information on this feature, see "Important
Information About Online Transactions" on page __ of this Prospectus. You may
not redeem shares in the e-harmon Internet Fund via the Internet.
VIA TELEPHONE
- - If you did not waive this privilege on your New Account Application, you may
call the Funds at 1-8XX-XXX-XXXX to redeem share amounts of $XXX to $XX,XXX. You
must request redemptions over $XX,XXX in writing with signatures guaranteed.
- - The Funds will mail proceeds to your address of record, or send by wire or
electronic funds transfer to the bank account listed in your account records.
The Fund will deduct a $10 wire redemption fee from your proceeds. There is also
a $12.50 fee for redemptions from IRAs.
- - The Funds reserve the right to refuse a any (telephone, writing or Internet)
redemption request and do not accept redemption requests via fax.
- - During shifts in the market or economy, it may be difficult to sell shares by
telephone or wire. You then can deliver or mail your redemption requests as
described above.
24
<PAGE> 25
The Funds will not accept telephone redemption requests for payment by check for
XX days following an address change. You must make the request in writing, with
all signatures guaranteed.
VIA MAIL
- - Send the Fund your unconditional written request with:
- the number of shares or the dollar amount to be redeemed,
- the name(s) on the account registration, and
- the account number
to the address on the back cover/last page of this Prospectus.
- - If you are redeeming from an IRA, please tell us the proper tax withholding on
your redemption request. If you do not, The Funds will automatically withhold
10% of your redemption proceeds.
- - Sign the request exactly as the account is registered. YOU WILL NEED A
SIGNATURE GUARANTEE IF:
- the amount to be redeemed is more than $XX,XXX,
- the proceeds are to be sent to someone other than the
shareholders of record or to somewhere other than the address
of record, or
- the request is made within XX days of an address change.
See "Signature guarantees" below for more information.
- - Include any documentation required for corporate, partnership or fiduciary
accounts. Call 1-8XX-XXX-XXXX for details.
SYSTEMATIC WITHDRAWAL PLAN. If your account balance is $10,000 or more, you can
request regular distributions of at least $XX. Note that withdrawals may result
in a gain or loss for federal income tax purposes.
Call 1-8XX-XXX-XXXX for a Systematic Withdrawal Plan application. To change the
bank information, send a request in writing, with a signature guarantee for each
registered holder of the account. You can stop your plan anytime without charge
or penalty. The Funds may change or eliminate the plan anytime with 60 days'
notice. You may terminate the plan at any time in writing or by telephone.
OTHER REDEMPTION POLICIES
The Funds will not accept any (telephone, writing or Internet) redemption
requests for payment by check for XX days following an address change. You must
make the request in writing, with all signatures guaranteed.
Payment. When you redeem shares, you will receive payment as follows:
- - Mailed payments will be sent within 7 days of receiving redemption
instructions in good order.
- - Wire payments for redemptions requested by phone will usually be made on the
next business day.
25
<PAGE> 26
- - Electronic funds transfers will ordinarily arrive at your bank 2 to 3 banking
days after transmission.
The Fund may delay payment for up to 7 business days after receiving a
redemption request, to allow checks used to purchase Fund shares to clear. The
Fund may also suspend redemptions if the New York Stock Exchange closes or for
other emergencies.
If the dollar amount you request to be redeemed is greater than the current
account value (as determined by the NAV on the redemption date), the Funds will
redeem your entire account balance.
Redeeming shares through third parties. A broker-dealer, financial institution
or other service provider may charge a fee to redeem your Fund shares. If that
service provider is the shareholder of record, the Funds may accept redemption
requests only from that provider.
The Funds may authorize service providers and their designees to accept
redemption requests on the Funds' behalf. The Funds consider these requests
received when the provider accepts them, and price them at the next net asset
value calculated.
Small accounts. If a redemption [or exchange] leaves your account below the
$X,XXX minimum, or you discontinue the Automatic Investment Plan before you
reach the minimum, The Funds may provide you a 60-day notice to add to your
balance or renew your Automatic Investment Plan. Otherwise, the Funds may close
your account and send you the proceeds.
Redemption in Kind. If you sell shares during any 90-day period that reach the
lesser of $250,000 or 1% of the value of the Fund's net assets, the Funds can
give you securities from the Fund's portfolio instead of cash. If you wanted to
sell the securities for cash, you would have to pay the costs charged by a
broker.
OTHER BUYING, SELLING AND EXCHANGING POLICIES
GOOD ORDER
The Funds must receive your request to buy, sell or exchange shares in good
order. The request must include:
- your account number
- the number or dollar amount of shares you want to buy, sell or
exchange
- signatures of all owners, exactly as registered on the account
- signature guarantees for redemption requests over $XX,XXX
- any documentation required for redemptions by corporations,
partnerships, fiduciaries, estates, trusts, and other
organizations
TELEPHONE TRANSACTIONS
Unless you waive telephone privileges on your New Account Application, you
automatically have the privilege to make telephone inquiries, purchases,
exchanges and redemptions. Once your
26
<PAGE> 27
account is established, you must make requests to change these privileges in
writing, signed by each registered holder of the account, with all signatures
guaranteed. A NOTARY PUBLIC IS NOT AN ACCEPTABLE GUARANTOR.
The Fund will take reasonable measures to prevent unauthorized telephone
transactions and will not be liable for such transactions if it follows such
measures. THE FUND RESERVES THE RIGHT TO REFUSE A TELEPHONE TRANSACTION.
SIGNATURE GUARANTEE
Generally, whenever you change your account privileges, your bank information,
or your registration information, you need signature guarantees for each
registered account owner. You also sometimes need a signature guarantee when you
sell shares. See "Selling Shares." These guarantee requirements help protect you
from fraud. You can have signatures guaranteed by a U.S. commercial bank or
trust company, a member of the National Association of Securities Dealers, Inc.
or other eligible institutions. A NOTARY PUBLIC IS NOT AN ACCEPTABLE GUARANTOR.
IMPORTANT INFORMATION ABOUT ONLINE TRANSACTIONS
In addition to checking your account balances and historical transactions, you
may purchase, sell or exchange shares of the e-harmon Net30 Index Fund through
the e-harmon.com website. You may establish online transaction privileges by
enrolling on the website. You will be required to enter into a user's agreement
through the website in order to enroll for these privileges.
Payment for purchases of shares through the website may be made only through an
ACH debit of your bank account. Redemptions will be paid by check, wire or ACH
transfer only to the address or bank account in our records. Redemptions from
accounts established through the website will be paid only to the bank account
in our records. Only bank accounts at U.S. financial institutions that are
Automated Clearing House members can be used for transactions through the
website.
The Funds limit purchase and redemption transactions through the website to
$XX,XXX. Transactions through the website are subject to the same minimum
purchases as other transaction methods.
You should be aware that the Internet is an unsecured, unstable, unregulated and
unpredictable environment. Your ability to use the website for transactions is
dependent upon the Internet and equipment, software, systems, data and services
provided by various vendors and third parties. While the Funds and their service
providers have established certain security procedures, the Funds, their
adviser, their distributor and their transfer agent cannot assure you that
inquiries or trading activity will be completely secure. There also may be
delays, malfunctions or other inconveniences generally associated with this
medium. There also may be times when the website is unavailable for Fund
transactions. Should this happen, you should consider purchasing, redeeming or
exchanging shares by another method. Neither the Funds, nor their adviser,
transfer agent or distributor will be liable for any such delays or malfunctions
or unauthorized interception or access to communications.
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<PAGE> 28
Neither the Funds, nor their adviser, transfer agent or distributor will be
liable for any loss, liability, cost or expense for following instructions
communicated through the Internet, including fraudulent or unauthorized
instructions.
TAX IDENTIFICATION NUMBER
The Funds must have your correct Social Security or corporate tax identification
number on a signed New Account Form or W-9 Form. Otherwise, federal law requires
us to withhold a percentage (currently 31%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS fine. If this
information is not received within 60 days after your account is established,
your account may be redeemed and priced at the NAV on the date of redemption.
HOW SHARES ARE PRICED
When you buy or sell (redeem) shares, the Funds price your transaction at the
next net asset value determined after the Funds receive your request in good
order. See "Other Purchase, Selling and Exchange Policies" on page __ for a
definition of "good order".
NAV is calculated at the close of regular trading (generally 3:00 p.m. Central
time) each day the New York Stock Exchange is open. The Exchange is closed on
weekends and most national holidays. Because the Funds can invest in foreign
securities, the NAV can change on days when you cannot buy or sell shares.
If the transfer agent receives your buy or sell request in good order before the
close of regular trading on the Exchange, you will pay or receive that day's
NAV. If the transfer agent receives your buy or sell request in good order after
the close of regular trading on the NYSE, you will pay or receive the next
determined NAV.
The Fund values securities other than debt instruments maturing within 60 days
at market prices. The Fund values debt securities maturing within 60 days at
amortized cost. If market prices are not readily available for particular
securities, the Fund prices these securities at their fair value as determined
by the Adviser under procedures approved by the Board of Trustees.
DISTRIBUTIONS AND TAXES
DIVIDENDS AND OTHER DISTRIBUTIONS
All net investment income and realized capital gains are distributed to
shareholders.
- - Dividend and capital gain distributions are reinvested in additional Fund
shares in your account unless you select another option on your New Account
Form.
- - Distributions that are not reinvested are paid by check or transmitted to
your bank account via ACH. If the Post Office cannot deliver your check, or
if your check remains uncashed for
28
<PAGE> 29
six months, the Funds reserve the right to reinvest your distribution check
in your account at the NAV on the business day of the reinvestment and to
reinvest all subsequent distributions in shares of the Fund. No interest
accrues on amounts represented by uncashed distribution or redemption
checks.
- - The Funds declare and pay income dividends (if any) and capital gains
distributions (if any) annually. Both are usually declared and paid in
December to shareholders of record on a specified date that month.
TAX INFORMATION
The following discussion is intended to summarize certain federal income tax
considerations applicable to an investment in the Funds. It does not address
state, local, or foreign income or other taxes, and is not meant to be tax
advice. For tax advice, please consult with your tax adviser.
TAXES WHEN YOU SELL SHARES
When you sell shares in a Fund, you may realize a capital gain or loss. An
exchange of shares of one Fund for shares of the other Fund is generally
considered a sale for tax purposes.
In January of each year, you will be sent Form 1099-B indicating the date and
amount of each sale of Fund shares you made during the prior year. This
information will also be reported to the Internal Revenue Service (the "IRS").
The Funds will report to you the gain or loss on the shares you sold during the
prior year, based on the "average cost," single category method. This
calculation of gain or loss will not be reported to the IRS, and you do not have
to use it in determining your gain or loss. You may calculate your cost basis in
the shares sold using other methods acceptable to the IRS, such as "specific
identification."
The Funds will send you a confirmation immediately following each transaction
you make (except for systematic purchases and redemptions) and a year-end
statement detailing all your transactions in each Fund account during the year.
TAXES ON FUND DISTRIBUTIONS
The following does not apply to qualified retirement accounts, such as IRAs,
which are not subject to current tax.
In January of each year, you will be sent Form 1099-DIV indicating the tax
status of any dividend and capital gain distributions made to you. This
information will also be reported to the IRS. Distributions are generally
taxable to you in the year in which they were paid. Distributions are taxable
whether reinvested in additional shares or received in cash. You will be sent
any additional information you need to determine your taxes on Fund
distributions, such as the portion of your dividends, if any, that may be exempt
from state income taxes.
The tax treatment of a capital gain distribution is determined by how long the
Fund held the
29
<PAGE> 30
portfolio securities generating the capital gains, not how long you held shares
in the Fund. Distributions of short-term capital gains, which arise from the
sale of securities held by a Fund for one year or less, are taxable at ordinary
income rates of up to 39.6% for individuals. Distributions of long-term capital
gains, which arise from the sale of securities held by a Fund for more than one
year, are generally taxed at a rate of 20% for individuals. Different rates
apply to corporations.
If you realized a loss on the sale or exchange of Fund shares that you held six
months or less, your short-term loss will be reclassified to a long-term loss to
the extent of any long-term capital gain distribution received during the period
you held the shares.
TAX EFFECT OF BUYING SHARES BEFORE A CAPITAL GAIN OR DIVIDEND DISTRIBUTION
If you buy shares shortly before or on the "record date" - the date that
establishes you as the person to receive the upcoming distribution - you will
receive a portion of the money you just invested in the form of a taxable
distribution. Therefore, you may wish to find out a Fund's record date before
investing. Of course, a Fund's share price may, at any time, reflect
undistributed capital gains or income and unrealized appreciation, which may
result in future taxable distributions.
Potential shareholders are urged to consult their tax adviser to discuss the
potential tax implications of an investment in the Funds.
30
<PAGE> 31
[Back Cover]
Please read this prospectus before you invest in the Funds and keep it for
future reference. For information or shareholder questions contact.
Mailing address:
e-harmon Funds
P.O. Box XXXX
Milwaukee, WI 53201-XXXX
Overnight Delivery Address:
e-harmon Funds
207 E. Buffalo St., Suite 315
Milwaukee, WI 53202-5712
Wiring Information:
Call 1-800-XXX-XXXX for Investor Account Number
Wiring Instruction ...
New Account Application:
Visit e-harmon.com
Call 1-800-XXX-XXXX
Investor Services:
e-mail [email protected]
Call 1-800-XXX-XXXX
Telephone Transactions:
If you have previously authorized the telephone privilege, you
can call 1-800-XXX-XXXX to make share transactions.
Visit e-harmon.com, Inc.'s website at:
http://www.e-harmon.com
You may elect to receive statements, confirmations and/or regulatory mailings
electronically in lieu of paper copies by electing this feature on your account
application or on the website.
Additional information about the Funds can be found in the following documents,
available without charge upon request:
31
<PAGE> 32
STATEMENT OF ADDITIONAL INFORMATION (SAI)
(incorporated by reference into this prospectus)
ANNUAL REPORT
(contains a discussion of the market conditions and investment strategies
that significantly affected the Fund's performance during its most recent
fiscal)
SEMI-ANNUAL REPORT
You can also obtain copies of the Funds' documents from the Securities and
Exchange Commission as follows:
By Mail:
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-0102
(The SEC charges a fee to copy documents)
By Electronic Request:
[email protected]
In Person:
Public Reference room in Washington, DC
(For hours of operation, call 1(202) 942-8090)
Via the Internet:
http://www.sec.gov.
CUSIP Numbers:
e-harmon Net30 Index Fund
Class A
Class B
Class C
e-harmon Internet Fund
Investor Shares
Institutional Shares
Investment Company Act File No: 811-
32
<PAGE> 33
STATEMENT OF ADDITIONAL INFORMATION
______________, 2000
e-harmon Funds (the "Trust") is an open-end management investment company
currently comprised of two portfolios (the "Funds"):
- - e-harmon Internet Fund
- - e-harmon Net 30 Index Fund
The Funds are professionally managed by e-harmon Capital Management LLC (the
"Adviser").
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the Prospectus dated _________, 2000, which may be obtained
from the Funds upon request. The Funds' address is 400 Montgomery Street, 3rd
floor, San Francisco, California 94104, and the telephone number is (415)
391-5335.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HISTORY OF THE TRUST....................................................................................2
INVESTMENT POLICIES.....................................................................................2
INVESTMENT RESTRICTIONS.................................................................................7
MANAGEMENT OF THE FUNDS.................................................................................8
PRINCIPAL HOLDERS OF SECURITIES.........................................................................9
INVESTMENT MANAGEMENT SERVICES.........................................................................10
PORTFOLIO TRANSACTIONS.................................................................................13
PRICING OF SECURITIES..................................................................................17
NET ASSET VALUE PER SHARE..............................................................................18
TAX STATUS.............................................................................................18
INVESTMENT PERFORMANCE.................................................................................22
SHARES.................................................................................................22
LEGAL COUNSEL..........................................................................................24
INDEPENDENT ACCOUNTANTS................................................................................24
FINANCIAL STATEMENTS...................................................................................25
</TABLE>
<PAGE> 34
HISTORY OF THE TRUST
The Trust was organized as an unincorporated business trust in December 1999
under the laws of the State of Delaware.
CLASSIFICATION. The Trust is an open-end management investment company.
INVESTMENT POLICIES
The Prospectus describes the fundamental investment objectives and certain
investment policies and restrictions applicable to each Fund. The following is
additional information for your consideration.
ILLIQUID AND RESTRICTED SECURITIES. Each Fund may invest up to 15% of its net
assets in illiquid securities, including repurchase agreements with maturities
in excess of seven days.
Restricted/Rule 144A Securities. Subject to this limitation, the Board of
Trustees has authorized each Fund to invest in restricted securities where such
investment is consistent with that Fund's investment objective, and has
authorized such securities to be considered liquid to the extent e-harmon
Capital Management LLC (the "Adviser") determines that there is a liquid
institutional or other market for such securities -- for example, restricted
securities that may be freely transferred among qualified institutional buyers
under Rule 144A of the Securities Act of 1933 ("1933 Act"), and for which a
liquid institutional market has developed. The Board of Trustees will review any
determination by the Adviser to treat a restricted security as a liquid security
on an ongoing basis, including the Adviser's assessment of current trading
activity and the availability of reliable price information. In determining
whether a restricted security is properly considered a liquid security, the
Adviser and the Board of Trustees will take into account the following factors:
(a) the frequency of trades and quotes for the security; (b) the number of
dealers willing to buy or sell the security and the number of other potential
buyers; (c) dealer undertakings to make a market in the security; (d) the nature
of the security and marketplace trades, including the time needed to dispose of
the security, the method of soliciting offers, and the mechanics of transfer;
and (e) such other factors as the Adviser may determine to be relevant to such
determination.
Venture Capital Companies. The Fund expects to invest in venture capital
companies that it determines to be in the "late-stage" or "pre-IPO" stage of
development. The Adviser considers a company to be in the late stage if it has a
developed infrastructure and has commenced earning revenues. The Fund expects
that late-stage companies will undertake an initial public offering within a
period of one to three years. A pre-IPO company is somewhat more developed than
a late-stage company. The Adviser expects to be able to acquire equity
securities for the Funds of pre-IPO companies in private placements within
B-2
<PAGE> 35
a year prior to their planned initial public offerings. Late-stage and pre-IPO
companies will typically have small market capitalizations and limited or no
liquidity; even after an initial public offering, liquidity may be limited and a
Fund may be subject to contractual limitations on its ability to sell shares. Of
the Fund's venture capital investments, up to 5% of the Fund's total assets may
be invested in securities of investment funds that invest primarily in venture
capital companies.
WRITING CALL OPTIONS. Each Fund may write (sell) covered call options. Covered
call options written by a Fund give the holder the right to buy the underlying
securities from the Fund at a stated exercise price. A call option written by a
Fund is "covered" if the Fund owns the underlying security that is subject to
the call or has an absolute and immediate right to acquire that security without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian bank) upon conversion or exchange of other
securities held in its portfolio. A call option is also covered if a Fund holds
a call on the same security and in the same principal amount as the call written
where the exercise price of the call held (a) is equal to or less than the
exercise price of the call written or (b) is greater than the exercise price of
the call written if the difference is maintained by the Fund in cash and high
grade debt securities in a segregated account with its custodian bank. The
premium paid by the buyer of an option will reflect, among other things, the
relationship of the exercise price to the market price and volatility of the
underlying security, the remaining term of the option, supply and demand and
interest rates. The writer of a call option may have no control over when the
underlying securities must be sold because the writer may be assigned an
exercise notice at any time prior to the termination of the obligation. Whether
or not an option expires unexercised, the writer retains the amount of the
premium. This amount, of course, may, in the case of a covered call option, be
offset by a decline in the market value of the underlying security during the
option period. If a call option is exercised, the writer experiences a profit or
loss from the sale of the underlying security. The writer of an option that
wishes to terminate its obligation may effect a "closing purchase transaction,"
by buying an option of the same series as the option previously written. The
effect of the purchase is that the writer's position will be canceled by the
clearing corporation. However, a writer may not effect a closing purchase
transaction after being notified of the exercise of an option.
There is no guarantee that a Fund will be able to effect a closing purchase
transaction for the options it has written. Effecting a closing purchase
transaction in the case of a written call option will permit a Fund to write
another call option on the underlying security with either a different exercise
price, expiration date or both. Also, effecting a closing purchase transaction
will permit the Fund to use cash or proceeds from the concurrent sale of any
securities subject to the option to make other investments. If a Fund desires to
sell a particular security from its portfolio on which it has written a call
option, it will effect a closing purchase transaction before or at the same time
as the sale of the security. A Fund will realize a profit from a closing
purchase transaction if the price of the transaction is less than the premium
received from writing the option. A Fund will realize a loss from a
B-3
<PAGE> 36
closing purchase transaction if the price of the transaction is more than the
premium received from writing the option. Because increases in the market price
of a call option will generally reflect increases in the market price of the
underlying security, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security owned by a Fund.
WRITING COVERED OVER-THE-COUNTER ("OTC") OPTIONS. A Fund may write (sell)
covered call options that trade in the OTC market in the same manner that it
will engage in exchange traded options. Just as with exchange traded options,
OTC call options give the holder the right to buy an underlying security from an
option writer at a stated exercise price. However, OTC options differ from
exchange traded options in certain material respects. OTC options are arranged
directly with dealers and not, as is the case with exchange traded options, with
a clearing corporation. Thus, there is a risk of non-performance by the dealer.
Because there is no exchange, pricing is typically done by reference to
information from market makers. However, OTC options are available for a greater
variety of securities, and in a wider range of expiration dates and exercise
prices, than exchange traded options, and the writer of an OTC option is paid
the premium in advance by the dealer. There can be no assurance that a
continuous liquid secondary market will exist for any particular OTC option at
any specific time. When a Fund writes an OTC option, it generally can close out
that option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Fund originally wrote the option.
FUTURES CONTRACTS. Each Fund may buy and sell futures contracts traded on
domestic futures exchanges to hedge the value of its portfolio against changes
in market conditions. Although futures contracts call for the actual taking or
delivery of cash, in most cases, each Fund expects to liquidate its futures
positions through offsetting transactions, which may result in a gain or a loss,
before cash settlement is required. A Fund will incur brokerage fees when it
purchases and sells a futures contract, and, at the time a Fund purchases or
sells a futures contract, it must make a good faith deposit known as the
"initial margin." Thereafter, a Fund may need to make subsequent deposits, known
as "variation margin." A Fund may buy or sell a futures contract so long as the
sum of the amount of margin deposits on open positions with respect to all
futures contracts does not exceed 5% of the Fund's net assets. To the extent a
Fund enters into a futures contract, it will maintain with its custodian bank,
to the extent required by the rules of the Securities and Exchange Commission
(the "SEC"), assets in a segregated account to cover its obligations with
respect to such contract, which will consist of cash, cash equivalents or liquid
high quality securities from its portfolio in an amount equal to the difference
between the fluctuating market value of such futures contract and the aggregate
value of the initial and variation margin payments made by the Fund with respect
to such futures contracts.
BORROWING. Each Fund may borrow up to 33 1/3% of the value of its total assets
B-4
<PAGE> 37
(calculated when the loan is made) from banks to meet redemption requests, for
temporary, extraordinary or emergency purposes or for investment purposes. A
Fund may pledge up to 33 1/3% of its total assets to secure these borrowings. If
a fund borrows to invest in securities, any investment gains made on the
securities in excess of interest paid on the borrowing will cause the net asset
value of the shares to rise faster than would otherwise be the case. On the
other hand, if the investment performance of the additional securities purchased
fails to cover their cost (including any interest paid on the money borrowed) to
the Fund, the net asset value of the Fund's shares will decrease faster than
would otherwise be the case. This is the speculative factor known as "leverage."
If the Fund's asset coverage of borrowings falls below 300%, the Fund will take
prompt action (within 3 days) to reduce its borrowings. If the 300% asset
coverage should decline as a result of market fluctuations or other reasons, the
Fund may be required to sell portfolio securities to reduce the debt and restore
the 300% asset coverage, even though it may be disadvantageous from an
investment standpoint to sell securities at that time.
SHORT SALES. A Fund may sell a security it does not own in anticipation of a
decline in the market value of that security (short sales). To complete such a
transaction, a Fund must borrow the security to make delivery to the buyer. The
Fund then is obligated to replace the security borrowed by purchasing it at
market price at the time of replacement. The price at such time may be more or
less than the price at which the security was sold by the Fund. Until the
security is replaced, the Fund is required to pay to the lender any dividends or
interest which accrue during the period of the loan. To borrow the security, the
Fund also may be required to pay a premium, which would increase the cost of the
security sold. The proceeds of the short sale will be retained by the broker, to
the extent necessary to meet margin requirements, until the short position is
closed out. Until the Fund replaces a borrowed security, the Fund will segregate
with its Custodian cash or other liquid assets sat such a level that (i) the
amount segregated plus the amount deposited with the broker as collateral will
equal the current value of the security sold short and (ii) the amount
segregated plus the amount deposited with the broker as collateral will not be
less than the market value of the security at the time it was sold short. The
Fund will incur a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which the
Fund replaces the borrowed security. The Fund will realize a gain if the
security declines in price between those dates. This result is the opposite of
what one would expect from a cash purchase of a long position in a security. The
amount of any gain will be decreased, and the amount of any loss increased, by
the amount of any premium, dividends or interest the Fund may be required to pay
in connection with a short sale. No more than 25% of the Fund's net assets will
be, when added together: (i) deposited as collateral for the obligation to
replace securities borrowed to effect short sales; and (ii) segregated in
connection with short sales.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements. A
repurchase agreement is an instrument under which the Fund acquires ownership of
a debt security and the seller agrees, at the time of the sale, to repurchase
the obligation at a
B-5
<PAGE> 38
mutually agreed upon time and price, thereby determining the yield during the
Fund's holding period. Although each Fund will enter into repurchase agreements
only with institutions that the Adviser believes present minimal credit risk, it
is conceivable that a repurchase agreement issuer could seek relief under
bankruptcy laws or otherwise default on its obligations under its repurchase
agreement. In that event, a Fund could experience both delays in liquidating the
underlying securities and losses, including: (a) a possible decline in the value
of the underlying security during the period while the Fund seeks to enforce its
rights thereto; (b) possible subnormal levels of income and lack of access to
income during this period; (c) a possible loss on the sale of the underlying
collateral; and (d) expenses of enforcing its rights.
WARRANTS. Each Fund may invest in warrants. A warrant is a security that gives
the holder the right, but not the obligation, to purchase a given number of
shares of a particular company at a fixed price within a certain period of time.
Warrants generally trade in the open market and may be sold rather than
exercised. The purchaser of a warrant expects the market price of the security
underlying the warrant to exceed the purchase price of the warrant plus the
exercise price of the warrant, thus yielding a profit. Of course, it is possible
that the market price of the security underlying a warrant won't exceed the
exercise price of the warrant before the expiration date of the warrant.
Consequently, the purchaser of a warrant risks the loss of the entire purchase
price of the warrant. Additionally, price movements in the security underlying a
warrant are generally magnified in the price movements of the warrant.
Therefore, the price of a warrant tends to be more volatile than, and may not
correlate exactly to, the price of its underlying security.
Lending of Portfolio Securities. Securities loans are made to broker-dealers or
institutional investors or other persons, pursuant to agreements requiring that
the loans be continuously secured by collateral at least equal at all times to
the value of the securities lent, marked to market on a daily basis. The
collateral received will consist of cash, U.S. Government securities, letters of
credit or such other collateral as may be permitted under its investment
program. While the securities are being lent, the Fund will continue to receive
the equivalent of the interest or dividends paid by the issuer on the
securities, as well as interest on the investment of the collateral or a fee
from the borrower. The Fund has a right to call each loan and obtain the
securities, within such period of time which coincides with the normal
settlement period for purchases and sales of such securities in the respective
markets. The Fund will not have the right to vote on securities while they are
being lent, but it will call a loan in anticipation of any important vote. The
risks in lending portfolio securities, as with other extensions of secured
credit, consist of possible delay in receiving additional collateral or in the
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially. Loans will only be made to firms deemed by the
Adviser to be of good standing and will not be made unless, in the judgment of
the Adviser, the consideration to be earned from such loans would justify the
risk.
B-6
<PAGE> 39
Portfolio Turnover. A Fund may sell a portfolio security, and will reinvest the
proceeds, whenever the Adviser deems such action prudent. A Fund's annual
portfolio turnover rate may vary significantly from year to year. A higher rate
of portfolio turnover may result in higher transaction costs, including
brokerage commissions. Also, to the extent that higher portfolio turnover
results in a higher rate of net realized capital gains to a Fund, the portion of
a Fund's distributions constituting taxable capital gains may increase. The
Adviser does not expect the annual portfolio turnover rates for either Fund to
exceed 100%.
RISK CONSIDERATIONS REGARDING OPTIONS AND FUTURES. Although each Fund may write
covered call options and purchase and sell futures contracts to hedge against
declines and for other purposes in market value of its portfolio securities, the
use of these instruments involves certain risks. As the writer of covered call
options, a Fund receives a premium, but loses any opportunity to profit from an
increase in the market price of the underlying securities above the exercise
price during the option period. A Fund also retains the risk of loss if the
price of the security declines, though the premium received may partially offset
such loss. To the extent that the Funds use futures for hedging against adverse
changes in the value of a Fund's portfolio securities, they are derivative
instruments that are subject to a number of risks. During certain market
conditions, purchases and sales of futures contracts may not completely offset a
decline or rise in the value of a Fund's portfolio. In the futures markets, it
may not always be possible to execute a buy or sell order at the desired price,
or to close out an open position due to market conditions, limits on open
positions and/or daily price fluctuations. Changes in the market value of a
Fund's portfolio may differ substantially from the changes anticipated by the
Fund when it established its hedged positions, and unanticipated price movements
in a futures contract may result in a loss substantially greater than a Fund's
initial investment in such contract. Successful use of futures contracts depends
upon the Adviser's ability to predict correctly movements in the direction of
the securities markets generally or of a particular segment of a securities
market. No assurance can be given that Adviser's judgment in this respect will
be correct. In addition, to the extent that the Funds speculate in futures
contracts and related options, the Funds could lose money as with other
investments.
The CFTC and the various exchanges have established limits referred to as
"speculative position limits" on the maximum net long or net short position that
any person may hold or control in a particular futures contract. Trading limits
are imposed on the maximum number of contracts that any person may trade on a
particular trading day. An exchange may order the liquidation of positions found
to be in violation of these limits and it may impose other sanctions or
restrictions. Each Fund does not believe that these trading and positions limits
will have an adverse impact on its strategies for hedging its securities.
B-7
<PAGE> 40
INVESTMENT RESTRICTIONS
The Trust has adopted the following restrictions as fundamental policies for
each Fund as stated. These restrictions are fundamental policies of the Fund and
may not be changed for any given Fund without the approval of the lesser of (i)
more than 50% of the outstanding voting securities of the Fund or (ii) 67% or
more of the voting securities present at a shareholder meeting of the Fund if
more than 50% of the outstanding voting securities of the Fund are represented
at the meeting in person or by proxy. The investment restrictions of one Fund
thus may be changed without affecting those of the other Fund. Under the
restrictions, each Fund MAY NOT:
1. Issue senior securities, except to the extent permitted by the 1940 Act,
including permitted borrowings.
2. Make loans, except for collateralized loans of portfolio securities in an
amount not exceeding 33 1/3% of the Fund's total assets (at the time of the
most recent loan). This limitation does not apply to purchases of debt
securities or to repurchase agreements.
3. Borrow money, except for temporary, extraordinary or emergency purposes or
for investment purposes in an amount not exceeding 33 1/3% of the Fund's
total assets (including the amount borrowed) less liabilities (other than
borrowings).
4. Invest more than 25% of the Fund's total assets (at the time of the most
recent investment) in any single industry. The Internet is not considered
an industry for purposes of this limitation. This limitation does not apply
to investments in obligations of the US. Government or any of its agencies
or instrumentalities.
5. Act as an underwriter, except to the extent that, in connection with the
disposition of portfolio securities, the Fund may be deemed to be an
underwriter for purposes of the 1933 Act.
6. Invest in securities for the purpose of exercising management or control of
the issuer, except that each Fund may purchase securities of other
investment companies to the extent permitted by the 1940 Act, regulations
thereunder, or exemptions therefrom.
7. Purchase or sell commodity contracts, except that each Fund may, as
appropriate and consistent with its investment objectives and policies,
enter into financial futures contracts, options on such futures contracts,
foreign currency forward contracts, forward commitments, and repurchase
agreements.
8. Make short sales of securities or maintain a short position if, when added
together, more than 25% of the value of the Fund's net assets would be (i)
deposited as collateral for the obligation to replace securities borrowed
to effect short sales and (ii) allocated to segregated accounts in
connection with short sales. Short sales "against-the-box" are not subject
to this limitation.
B-8
<PAGE> 41
9. Purchase or sell real estate or any interest therein, except that each Fund
may, as appropriate and consistent with its investment objectives and
policies, invest in securities of corporate and governmental entities
secured by real estate or marketable interests therein, or securities of
issuers that engage in real estate operations or interests therein, and may
hold and sell real estate acquired as a result of ownership of such
securities.
MANAGEMENT OF THE FUNDS
The officers and Trustees of the Fund are listed below. Unless otherwise noted,
the address of each is 400 Montgomery Street, 3rd Floor, San Francisco,
California 94104. In the list below, the Funds' Trustees who are considered
"interested persons" of e-harmon Capital Management LLC, as defined under
Section 2(a)(19) of the 1940 Act are noted with an asterisk (*).
<TABLE>
<CAPTION>
NAME AND AGE POSITION WITH PRINCIPAL OCCUPATIONS
------------ THE TRUST DURING PAST FIVE YEARS
------------- ----------------------
<S> <C> <C>
Joseph Van Remortel President Senior Vice President,
(34) Business Development,
e-harmon.com, Inc., December
1999- present; Vice President
and Secretary, E*TRADE Funds,
January 1999 - November 1999;
Vice President of Operations,
E*TRADE Asset Management,
December 1998 - November 1999;
Senior Manager, E*TRADE
Securities, Inc., September
1996 - November 1999; Senior
Consultant, KPMG Peat Marwick
Strategic Consulting, March
1994 - September 1996;
Associate, Analysis Group,
Inc, May 1992 - March 1994.
</TABLE>
B-9
<PAGE> 42
<TABLE>
<S> <C> <C>
*James Hartmann Secretary, President and COO of
(34) Treasurer and e-harmon.com, Inc. August
Trustee 1999-present); Director of
Institutional Services,
Capstone Investments (January
1999 - July 1999); Consultant,
MCG LLC (June 1998 - January
1999); VP of Institutional
Marketing and Product
Development, Summit Capital
Management LLC and Summit
Capital Partners LP (June 1997
- May 1998); Chief Compliance
Officer, Prudential Insurance
Co. of America (April 1994 -
June 1997); Investment Company
Examiner, U.S. Securities &
Exchange Commission (January
1990 - April 1994).
</TABLE>
We do not pay pension or retirement benefits to our officers or Funds trustees.
Also, any trustee of a Fund who is an officer or employee of [e-Harmon Funds or
e-harmon Capital Management LLC] does not receive any compensation from the
Fund. We will pay our trustees who are not interested persons $______ annually
and $______ for each committee meeting attended.
PRINCIPAL HOLDERS OF SECURITIES
As of the date of the Prospectus, the officers and trustees of the Trust, as a
group, owned less than 1% of the outstanding shares of the Fund and
__________________ owned all of the Funds' shares. Upon the public offering of
the Funds' shares, that control position is expected to diminish.
INVESTMENT MANAGEMENT SERVICES
SERVICES
Under two Advisory Agreements, e-harmon Capital Management LLC (which we call
the Adviser) provides the Funds with discretionary investment services.
Specifically, it is responsible for supervising and directing the investments of
each Fund in accordance with the Funds' investment objectives, program, and
restrictions as provided in the Prospectus and this Statement of Additional
Information. The Adviser is also responsible for effecting all security
transactions on behalf of the Funds, including the negotiation of commissions
and the allocation of portfolio brokerage. In addition to these services, the
Adviser provides each Fund with certain corporate administrative services,
including: maintaining the Funds' corporate records; registering and qualifying
Fund shares under federal laws; monitoring the financial, accounting, and
administrative functions of the Fund; maintaining
B-10
<PAGE> 43
relationships with the agents employed by the Fund such as the Funds' custodian
and transfer agent; assisting the Fund in the coordination of such agents'
activities; and permitting the Adviser's employees to serve as officers,
trustees, and committee members of the Trust without cost to the Fund.
The Advisory Agreements also provide that the Adviser, its members, officers,
employees, and certain other persons performing specific functions for each Fund
will only be liable to the Fund for losses resulting from willful misfeasance,
bad faith, gross negligence, or reckless disregard of duty.
MANAGEMENT FEE
Each Fund pays the Adviser a management fee ("Fee"). e-harmon Internet Fund pays
the Adviser a fee of the average net assets of the Fund annually. e-harmon Net30
Index Fund pays the Adviser a fee of ____% of the average net assets of the Fund
annually.
The Advisory Agreements between the Funds and the Adviser provide that each Fund
bears all expenses of its operations not specifically assumed by the Adviser.
MANAGEMENT RELATED SERVICES
As noted above, the Advisory Agreements spell out the expenses to be paid by
each Fund. In addition to the management fee, the Funds pay for the following:
shareholder service expenses; custodial, accounting, legal, and audit fees;
costs of preparing and printing prospectuses and reports sent to shareholders;
registration fees and expenses; proxy and annual meeting expenses (if any); and
Trustee fees and expenses.
ADMINISTRATION AND FUND ACCOUNTING
Sunstone Financial Group, Inc., 207 East Buffalo Street, Suite 400, Milwaukee,
Wisconsin 53202 ("Sunstone") has agreed to provide various administrative and
fund accounting services to the Funds under an Administration and Fund
Accounting Agreement dated March _______, 2000 (the "Administration Agreement").
Sunstone's services include, but are not limited to, the following: calculating
daily net asset values for the Funds; overseeing the Funds' Custodian; assist in
preparing and filing all federal income and excise tax filings (other than those
to be made by the Funds' Custodian); overseeing the Funds' fidelity insurance
relationships; preparing notice and renewal securities filings pursuant to state
securities laws; compiling data for and preparing notices to the SEC; preparing
financial statements for the annual and semi-annual reports to the SEC and
current investors; monitoring the Funds' expenses; monitoring the Funds' status
as a regulated investment company under Subchapter M of the Code; monitoring
compliance with the Funds' investment policies and restrictions and generally
assisting the Funds' administrative operations.
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Sunstone, at its own expense, and without reimbursement from the Funds,
furnishes office space and all necessary office facilities, equipment, supplies
and clerical and executive personnel for performing the services required to be
performed by it under the Administration Agreement. The Administration Agreement
will remain in effect until _______________ (the "Initial Term") and thereafter
for successive annual periods. After the Initial Term, the Administration
Agreement may be terminated on not less than ___ days' notice, without the
payment of any penalty, by the Board of Trustees of the Trust or by Sunstone.
Under the Administration Agreement, the Funds have agreed to indemnify Sunstone
against all claims except those resulting from the willful misfeasance, bad
faith or gross negligence of Sunstone. The Administration Agreement also
provides that Sunstone may provide similar services to others, including other
investment companies.
For the foregoing, Sunstone receives a fee on the value of each Fund computed
daily and payable monthly, at the annual rate of 0.__ percent of the first $__
million of its average daily net assets, and decreasing as assets reach certain
levels, subject to an annual minimum fee of $_________ per Fund, plus
out-of-pocket expenses.
TRANSFER AGENT AND DIVIDEND-PAYING AGENT
Sunstone also acts as the Funds' transfer agent and dividend-paying agent. As
such, Sunstone processes purchase and redemption requests for the securities of
the Funds, keeps records of shareholder accounts and transactions, pays
dividends as declared by the Board of Trustees and issues confirmations of
transactions to shareholders. For these services, the Funds pay Sunstone a fee
based on the number of shareholder accounts, transactions and other activities,
subject to a minimum annual fee. Sunstone does not exercise any supervisory
functions over the management of the Funds or the purchase and sale of Fund
securities.
DISTRIBUTION AND SERVICE OF THE FUNDS
Sunstone Distribution Services, LLC ("Sunstone Distribution") serves as
distributor to each Fund pursuant to a Distribution Agreement ("Distribution
Agreement"). The offering of the Funds' shares is continuous. The Distribution
Agreement provides that Sunstone Distribution may incur expenses for appropriate
distribution activities which it deems reasonable and which are primarily
intended to result in the sale of shares of the Funds, including, but not
limited to, advertising, the printing and mailing of prospectuses to other than
current shareholders, and the printing and mailing of sales literature. At the
direction of the Trust, Sunstone Distribution may enter into servicing and/or
selling agreements with qualified broker/dealers and other persons with respect
to the offering of Shares to the public. Sunstone Distribution's address is 207
East Buffalo Street, Milwaukee, WI 53202.
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Distribution and Service Plan
[Each] Fund [and each class that has a 12b-1 fee] has adopted a Distribution and
Service Plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. The Board
of Trustees believes that the adoption of this plan may stimulate new sales of
[each] Fund's shares, causing growth in the size of [each] Fund and potentially
leading to economies of scale and lower expense ratios for both current and new
shareholders. [Each] Plan authorizes payments by a Fund in connection with the
distribution of its shares at an annual rate, as determined from time to time by
the Board of Trustees, or up to [_____]% of the Fund's average daily net assets.
Payments may be made by a Fund under the Plan for the purpose of financing any
activity primarily intended to result in the sales of shares of the Fund as
determined by the Board of Trustees. Such activities typically include
advertising; compensation for sales and sales marketing activities, such as
dealers or distributors; shareholder account servicing; and production and
dissemination of prospectuses and sales and marketing materials to prospective
investors. To the extent any activity is one which a Fund may finance without a
Plan, the Fund may also make payments to finance such activity outside of the
Plan and not subject to its limitations. Payments under the Plan are not tied
exclusively to actual distribution and service expenses, and the payments may
exceed distribution and service expenses actually incurred.
CLASS A PLAN
[to come]
CLASS B PLAN
[to come]
Administration of each Plan is regulated by Rule 12b-1 under the 1940 Act, under
which the Board of Trustees is required to receive and review at least quarterly
reports concerning the nature and qualification of expenses incurred and approve
all agreements implementing the Plan. The Plan may be continued from
year-to-year only if the Board of Trustees concludes at least annually that
continuation of the Plan is likely to benefit shareholders.
CUSTODIAN
[_______________] is the custodian for the Funds' U.S. securities and cash, but
it does not participate in the Funds' investment decisions. Portfolio securities
purchased in the U.S. are maintained in the custody of the Bank [______________]
main office is at [______________________________________].
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[____________________] is the custodian for each Fund's foreign assets held
outside the United States, but it does not participate in the Fund's investment
decisions. [Portfolio securities purchased outside of the U.S. are maintained in
the custody of the bank. [____________________]'s main office is at
[____________________].
SHAREHOLDER SERVICES
The Funds from time to time may enter into agreements with outside parties
through which shareholders hold Funds shares. The shares would be held by such
parties in omnibus accounts. The agreements would provide for payments by the
Funds to the outside party for shareholder services provided to shareholders in
the omnibus accounts.
CODE OF ETHICS
The Funds and Adviser have a written Code of Ethics that requires all employees
to obtain prior clearance before engaging in personal securities transactions.
Employees will not be permitted to effect transactions in a security: if there
are pending client orders in the security; the security has been purchased or
sold by a client within two calendar days; the security is being considered for
purchase for a client; or the security is subject to internal trading
restrictions. In addition, employees are prohibited from profiting from
short-term trading (e.g., purchases and sales involving the same security within
60 days). Any material violation of the Code of Ethics is reported to the Board
of the Trust. The Board also reviews the administration of the Code of Ethics on
an annual basis.
PORTFOLIO TRANSACTIONS
INVESTMENT OR BROKERAGE DISCRETION
Decisions with respect to the purchase and sale of portfolio securities on
behalf of the Fund are made by the adviser. The Adviser is also responsible for
implementing these decisions, including the negotiation of commissions and the
allocation of portfolio brokerage and principal business.
HOW BROKERS AND DEALERS ARE SELECTED
EQUITY SECURITIES
In purchasing and selling equity securities, it is the adviser's policy to
obtain quality execution at the most favorable prices through responsible
brokers and dealers and, in the case of agency transactions, at competitive
commission rates. However, under certain conditions, the Fund may pay higher
brokerage commissions in return for brokerage and research services. As a
general practice, over-the-counter orders are executed with market-makers. In
selecting among market-makers, the Adviser generally seeks to select those it
believes to be actively and effectively trading the security being purchased or
sold.
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In selecting broker-dealers to execute the Funds' portfolio transactions,
consideration is given to such factors as the price of the security, the rate of
the commission, the size and difficulty of the order, the reliability,
integrity, financial condition, general execution and operational capabilities
of competing brokers and dealers, their expertise in particular markets and
brokerage and research services provided by them. It is not the policy of the
Adviser to seek the lowest available commission rate where it is believed that a
broker or dealer charging a higher commission rate would offer greater
reliability or provide better price or execution services.
FIXED INCOME SECURITIES
Fixed income securities are generally purchased from the issuer or a primary
market-maker acting as principal for the securities on a net basis, with no
brokerage commission being paid by the client although the price usually
includes an undisclosed compensation. Transactions placed through dealers
serving as primary market-makers reflect the spread between the bid and asked
prices. Securities may also be purchased from underwriters at prices which
include underwriting fees.
With respect to equity and fixed income securities, the Adviser may effect
principal transactions on behalf of the Fund with a broker or dealer who
furnishes brokerage and/or research services, designate any such broker or
dealer to receive selling concessions, discounts or other allowances, or
otherwise deal with any such broker or dealer in connection with the acquisition
of securities in underwritings. The Adviser may receive research services in
connection with brokerage transactions, including designations in a fixed price
offerings.
HOW EVALUATIONS ARE MADE OF THE OVERALL REASONABLENESS OF BROKERAGE COMMISSIONS
PAID
On a continuing basis, the Adviser seeks to determine what levels of commission
rates are reasonable in the marketplace for transactions executed on behalf of
the Fund. In evaluating the reasonableness of commission rates, the Adviser
considers: (a) historical commission rates; (b) rates which other institutional
investors are paying, based on available public information; (c) rates quoted by
brokers and dealers; (d) the size of a particular transaction, in terms of the
number of shares, dollar amount, and number of clients involved; (e) the
complexity of a particular transaction in terms of both execution and
settlement; (f) the level and type of business done with a particular firm over
a period of time; and (g) the extent to which the broker or dealer has capital
at risk in the transaction.
RESEARCH SERVICES RECEIVED FROM BROKERS AND DEALERS
The Adviser receives a wide range of research services from brokers and dealers.
These services include information on the economy, industries, groups of
securities, individual
B-15
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companies, statistical information, accounting and tax law interpretations,
political developments, legal developments affecting portfolio securities,
technical market action, pricing and appraisal services, credit analysis, risk
measurement analysis, performance analysis and analysis of corporate
responsibility issues. These services provide both domestic and international
perspective. Research services are received primarily in the form of written
reports, computer generated services, telephone contacts and personal meetings
with security analysts. In addition, such services may be provided in the form
of meetings arranged with corporate and industry spokespersons, economists, and
government representatives. In some cases, research services are generated by
third parties but are provided to the adviser by or through broker-dealers.
Research services received from brokers and dealers are supplemental to the
Adviser's own research effort and, when utilized, are subject to internal
analysis before being incorporated by the adviser into its investment process.
As a practical matter, it would not be possible for the Adviser to generate all
of the information presently provided by brokers and dealers. The Adviser pays
cash for certain research services received from external sources. The Adviser
also allocates brokerage for research services which are available for cash.
While receipt of research services from brokerage firms has not reduced the
Adviser's normal research activities, the expenses of the Adviser could be
materially increased if it attempted to generate such additional information
through its own staff. To the extent that research services of value are
provided by brokers or dealers, the Adviser may be relieved of expenses which it
might otherwise bear.
The Adviser has a policy of not allocating brokerage business in return for
products or services other than brokerage or research services. In accordance
with the provisions of Section 28(e) of the Securities Exchange Act of 1934, the
Adviser may from time to time receive services and products which serve both
research and non-research functions. In such event, the Adviser makes a good
faith determination of the anticipated research and non-research use of the
product or service and allocates brokerage only with respect to the research
component.
COMMISSIONS TO BROKERS WHO FURNISH RESEARCH SERVICES
Certain brokers and dealers who provide quality brokerage and execution services
also furnish research services to the Adviser. With regard to the payment of
brokerage commissions, the adviser has adopted a brokerage allocation policy
embodying the concepts of Section 28(e) of the Securities Exchange Act of 1934,
which permits an investment adviser to cause an account to pay commission rates
in excess of those another broker or dealer would have charged for effecting the
same transaction, if the adviser determines in good faith that the commission
paid is reasonable in relation to the value of the brokerage and research
services provided. The determination may be viewed in terms of either the
particular transaction involved or the overall responsibilities of the adviser
with respect to the accounts over which it exercises investment discretion.
Accordingly,
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<PAGE> 49
while the Adviser cannot readily determine the extent to which commission rates
or net prices charged by broker-dealers reflect the value of their research
services, the Adviser would expect to assess the reasonableness of commissions
in light of the total brokerage and research services provided by each
particular broker. The Adviser may receive research, as defined in Section
28(e), in connection with selling concessions and designations in fixed price
offerings in which the Funds participate.
INTERNAL ALLOCATION PROCEDURES
The Adviser has a policy of not precommitting a specific amount of business to
any broker or dealer over any specific time period. Historically, the majority
of brokerage placement has been determined by the needs of a specific
transaction such as market-making, availability of a buyer or seller of a
particular security, or specialized execution skills. However, the Adviser does
have an internal brokerage allocation procedure for that portion of its
discretionary client brokerage business where special needs do not exist, or
where the business may be allocated among several brokers or dealers which are
able to meet the needs of the transaction.
Each year, the Adviser assesses the contribution of the brokerage and research
services provided by brokers or dealers, and attempts to allocate a portion of
its brokerage business in response to these assessments. The investment team
seeks to evaluate the brokerage and research services they receive from brokers
or dealers and make judgments as to the level of business which would recognize
such services. In addition, brokers or dealers sometimes suggest a level of
business they would like to receive in return for the various brokerage and
research services they provide. Actual brokerage received by any firm may be
less than the suggested allocations but can, and often does, exceed the
suggestions, because the total business is allocated on the basis of all the
considerations described above. In no case is a broker or dealer excluded from
receiving business from the adviser because it has not been identified as
providing research services.
MISCELLANEOUS
The Adviser's brokerage allocation policy is consistently applied to all its
fully discretionary accounts, which represent a substantial majority of all
assets under management. Research services furnished by brokers or dealers
through which the Adviser effects securities transactions may be used in
servicing all accounts (including non-Fund accounts) managed by the Adviser.
Conversely, research services received from brokers or dealers which execute
transactions for the Fund are not necessarily used by the Adviser exclusively in
connection with the management of the Fund. From time to time, orders for
clients may be placed through a computerized transaction network.
The Funds do not allocate business to any broker-dealer on the basis of sales of
the Funds' shares. However, this does not mean that broker-dealers who purchase
Fund shares for their clients will not receive business from the Fund.
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<PAGE> 50
Some of the Adviser's other clients have investment objectives and programs
similar to those of the Fund. The Adviser may occasionally make recommendations
to other clients which result in their purchasing or selling securities
simultaneously with the Fund. As a result, the demand for securities being
purchased or the supply of securities being sold may increase, and this could
have an adverse effect on the price of those securities. It is the Adviser's
policy not to favor one client over another in making recommendations or in
placing orders. The Adviser frequently follows the practice of grouping orders
of various clients for execution which generally results in lower commission
rates being attained. In certain cases, where the aggregate order is executed in
a series of transactions at various prices on a given day, each participating
client's proportionate share of such order reflects the average price paid or
received with respect to the total order. The Adviser has established a general
investment policy that it will ordinarily not make additional purchases of a
common stock of a company for its clients (including the Adviser) if, as a
result of such purchases, 10% or more of the outstanding common stock of such
company would be held by its clients in the aggregate.
At the present time, the Adviser does not recapture commissions or underwriting
discounts or selling group concessions in connection with taxable securities
acquired in underwritten offerings.
TRADE ALLOCATION POLICIES
The Adviser has developed written trade allocation guidelines for its accounts.
Generally, when the amount of securities available in a public offering or the
secondary market is insufficient to satisfy the volume or price requirements for
the participating client portfolios, the guidelines require a pro-rata
allocation based upon the amounts initially requested by each portfolio manager.
In allocating trades made on combined basis, the Adviser seeks to achieve the
same net unit price of the securities for each participating client. Because a
pro-rata allocation may not always adequately accommodate all facts and
circumstances, the guidelines provide for exceptions to allocate trades on an
adjusted, pro-rata basis. Examples of where adjustments may be made include: (i)
reallocations to recognize the efforts of a portfolio manager in negotiating a
transaction or a private placement; (ii) reallocations to eliminate de minimis
positions; (iii) priority for accounts with specialized investment policies and
objectives; and (iv) reallocations in light of a participating portfolio's
characteristics (e.g., industry or issuer concentration, duration, and credit
exposure).
PRICING OF SECURITIES
Equity securities listed or regularly traded on a securities exchange are valued
at the last quoted sales price at the time the valuations are made. A security
that is listed or traded
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on more than one exchange is valued at the quotation on the exchange determined
to be the primary market for such security. Listed securities not traded on a
particular day and securities regularly traded in the over-the-counter market
are valued at the mean of the latest bid and asked prices. Other equity
securities are valued at a price within the limits of the latest bid and asked
prices deemed by the Board of Trustees, or by persons delegated by the Board,
best to reflect fair value.
Debt securities are generally traded in the over-the-counter market and are
valued at a price deemed best to reflect fair value as quoted by dealers who
make markets in these securities or by an independent pricing service.
Short-term debt securities are valued at their amortized cost in local currency
which, when combined with accrued interest, approximates fair value. Investments
in mutual funds are valued at the closing net asset value per share of the
mutual fund on the day of valuation. In the absence of a last sale price,
purchased and written options are valued at the mean of the latest bid and asked
prices, respectively.
For the purposes of determining the Funds' net asset value per share, the U.S.
dollar value of all assets and liabilities initially expressed in foreign
currencies is determined by using the mean of the bid and offer prices of such
currencies against U.S. dollars quoted by a major bank. Assets and liabilities
for which the above valuation procedures are inappropriate or are deemed not to
reflect fair value, are stated at fair value as determined in good faith by or
under the supervision of the officers of the Trust, as authorized by the Board
of Trustees.
NET ASSET VALUE PER SHARE
The purchase and redemption price of the Funds' shares is equal to the Funds'
net asset value per share or share price. The Fund determines its net asset
value per share by subtracting its liabilities (including accrued expenses and
dividends payable) from its total assets (the market value of the securities the
Fund holds plus cash and other assets, including income accrued but not yet
received) and dividing the result by the total number of shares outstanding. The
net asset value per share of the Fund is normally calculated as of the close of
trading on the New York Stock Exchange ("NYSE") every day the NYSE is open for
trading. The NYSE is closed on the following days: New Year's Day, Dr. Martin
Luther King, Jr. Holiday, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Determination of net asset value (and the offering, redemption and repurchase of
shares) for the Fund may be suspended at times (a) during which the NYSE is
closed, other than customary weekend and holiday closings, (b) during which
trading on the NYSE is restricted, (c) during which an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during which a governmental
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body having jurisdiction over the Fund may by order permit such a suspension for
the protection of the Funds' shareholders; provided that applicable rules and
regulations of the SEC (or any succeeding governmental authority) shall govern
as to whether the conditions prescribed in (b), (c), or (d) exist.
TAX STATUS
Each Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
Qualification as a regulated investment company essentially allows the Funds
(but not their shareholders) to avoid paying federal income tax on ordinary
income and capital gains which are distributed to shareholders. In addition, it
permits net capital gains (the excess of net long-term capital gains over net
short-term capital losses) of the Funds to be treated as long-term capital gains
of the Funds' shareholders, regardless of how long the shareholders have held
their shares.
If either Fund fails to qualify for treatment as a regulated investment company
under the Code, that Fund will not be afforded this special treatment. Rather,
that Fund will be subject to federal income tax on its net income and capital
gains at the applicable corporate income tax rate, regardless of whether
distributions are made to shareholders. In addition, any dividend distributions
to the shareholders will constitute ordinary income which will be subject to
federal income tax at the shareholder level.
As regulated investment companies, the Funds will be required to distribute 98%
of their ordinary income in the same calendar year in which such income is
earned. During the calendar year, the Funds are also required to distribute 98%
of the capital gain net income they earned during the twelve-month period ending
on October 31 of such calendar year. In addition, during the calendar year, the
Funds must distribute all undistributed ordinary income from the prior year and
all undistributed capital gain net income from the twelve-month period ending on
October 31 of the prior calendar year. To the extent they do not meet these
distribution requirements, the Funds will be subject to a non-deductible 4%
excise tax on the undistributed amount. For purposes of this excise tax, income
on which the Funds pay income tax is treated as distributed.
At the time of an investor's purchase, the Funds' net asset values may reflect
undistributed income, capital gains, and/or net unrealized appreciation of
securities held by the Funds. A subsequent distribution to an investor of such
amounts, although constituting a return of his or her investment, would be
taxable as a dividend or capital gain distribution. For federal income tax
purposes, dividends and capital gain distributions paid to shareholders in
additional shares are treated the same as if such payments were made in cash. A
portion of the dividends paid by the Funds to corporate shareholders may be
eligible for the 70% dividends-received deduction.
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Gains or losses on sales of securities by a Fund will be treated as long-term
capital gains or losses if the securities have been held by it for more than one
year, except in certain cases where the Fund acquires a put or writes a call
thereon or otherwise holds an offsetting position with respect to the
securities. Other gains or losses on the sale of securities will be short-term
capital gains or losses. Gains and losses on the sale, lapse or other
termination of options on securities will be treated as gains and losses from
the sale of securities. If an option written by a Fund on securities lapses or
is terminated through a closing transaction, such as a repurchase by the Fund of
the option from its holder, the Fund will generally realize short-term capital
gain or loss. If securities are sold by a Fund pursuant to the exercise of a
call option written by it, the Fund will include the premium received in the
sale proceeds of the securities delivered in determining the amount of gain or
loss on the sale. Certain of the Funds' transactions may be subject to wash
sale, short sale, constructive sale, anti-conversion and straddle provisions of
the Code which may, among other things, require the Funds to defer recognition
of losses. In addition, debt securities acquired by a Fund may be subject to
original issue discount and market discount rules which, respectively, may cause
the Fund to accrue income in advance of the receipt of cash with respect to
interest or cause gains to be treated as ordinary income.
Special rules apply to most options on stock indices, future contracts and
options thereon, and foreign currency forward contracts in which the Funds may
invest. These investments will generally constitute Section 1256 contracts under
the Code, and will be required to be "marked to market" for federal income tax
purposes at the end of a Fund's taxable year; that is, treated as having been
sold at market value. Except with respect to certain foreign currency forward
contracts, sixty percent of any gain or loss recognized on such deemed sales and
on actual dispositions will be treated as long-term capital gain or loss, and
the remainder will be treated as short-term capital gain or loss.
For federal income tax purposes, the Funds are permitted to carry forward their
net realized capital losses, if any, for eight years and thus may realize net
capital gains up to the amount of such losses without being required to pay
taxes on, or distribute, such gains. However, the Funds currently do not have
any net realized capital losses, and thus will not be able to offset any net
realized capital gains.
Dividends and capital gain distributions may also be subject to state and/or
local taxes.
FOREIGN CURRENCY GAINS AND LOSSES
Gains or losses attributable to fluctuations in exchange rates which occur
between the time the Funds accrue interest or other receivables or accrue
expenses or other liabilities denominated in a foreign currency and the time the
Funds actually collect such receivables or pay such liabilities are treated as
ordinary income or ordinary loss. Similarly, gains or losses on foreign currency
forward contracts or dispositions of debt securities
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denominated in a foreign currency attributable to fluctuations in the value of
the foreign currency between the date of acquisition of the security and the
date of disposition also are treated as ordinary gain or loss. These gains or
losses, referred to under the Code as "Section 988" gains or losses, increase or
decrease the amount of a Fund's investment company taxable income available to
be distributed to its shareholders as ordinary income, rather than increasing or
decreasing the amount of the Fund's net capital gain. If Section 988 losses
exceed other investment company taxable income during a taxable year, (i) the
Fund would not be able to make any ordinary dividend distributions, or (ii)
distributions made before the losses were realized would be recharacterized as a
return of capital to shareholders (as opposed to being treated as an ordinary
dividend) thereby reducing each shareholder's basis in his or her Fund shares.
Investors should consult their own tax advisers with respect to the particular
tax consequences to them of an investment in the Funds.
TAXATION OF FOREIGN SHAREHOLDERS
In general, dividends and net short-term capital gain distributions paid by the
Funds (i) to a shareholder (including a shareholder acting as a nominee or
fiduciary) who is a nonresident alien individual, a foreign corporation, or a
foreign partnership (each a "foreign shareholder"), and (ii) which are not
effectively connected with a U.S. trade or business conducted by such
shareholder, are subject to a 30% withholding tax in the absence of a Tax Treaty
providing for a reduced rate or exemption from U.S. taxation. Long-term capital
gain distributions paid to a foreign shareholder by the Funds generally are not
subject to withholding tax. However, even if withholding is not required, a
foreign shareholder will be subject to U.S. income tax on any dividends and
capital gain distributions which are effectively connected with a U.S. trade or
business of the foreign shareholder.
Foreign investors should consult their own tax advisors with respect to the
particular tax consequences to them of an investment in the Funds.
PASSIVE FOREIGN INVESTMENT COMPANIES
The Funds may purchase the securities of certain foreign investment funds or
trusts called passive foreign investment companies ("PFICs"). In addition to
bearing their proportionate share of the Funds' expenses (management fees and
operating expenses), the Funds' shareholders will also indirectly bear similar
expenses of any PFICs in which the Funds invest. Capital gains on the sale of
such holdings are considered ordinary income regardless of how long the Funds
hold their investment. In addition, the Funds may be subject to corporate income
tax and an interest charge on certain dividends and capital gains earned from
these investments, regardless of whether such income and gains are distributed
to the Funds' shareholders.
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To avoid such tax and interest, each Fund intends to treat these securities as
sold on the last day of its fiscal year and recognize any gains for federal
income tax purposes at that time. Deductions for losses are allowable only to
the extent of any gains resulting from these deemed sales for prior taxable
years. Such gains and losses will be treated as ordinary income. The Funds will
be required to distribute any resulting income even though they have not
actually sold the security and received cash to pay such distributions.
Income received by the Funds from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Income tax
treaties between certain countries and the United States may reduce or eliminate
such taxes. However, it is impossible to determine in advance the effective rate
of foreign tax to which the Funds will be subject, since the amount of the
Funds' assets to be invested in various countries will vary.
INVESTMENT PERFORMANCE
TOTAL RETURN PERFORMANCE
The Funds' calculation of total return performance includes the reinvestment of
all capital gain distributions and income dividends for the period or periods
indicated, without regard to tax consequences to a shareholder in the Fund.
Total return is calculated as the percentage change between the beginning value
of a static account in the Funds and the ending value of that account measured
by the then current net asset value, including all shares acquired through
reinvestment of income and capital gain dividends.
OUTSIDE SOURCES OF INFORMATION
From time to time, in reports and promotional literature: (1) the Funds' total
return performance, ranking, or any other measure of the Funds' performance may
be compared to any one or combination of the following: (a) a broad-based index;
(b) other groups of mutual funds, including the Adviser, tracked by independent
research firms ranking entities, or financial publications; (c) indices of
securities comparable to those in which the Fund invests; (2) the Consumer Price
Index (or any other measure for inflation, government statistics, such as GNP
may be used to illustrate investment attributes of the Fund or the general
economic, business, investment, or financial environment in which the Fund
operates; (3) various financial, economic and market statistics developed by
brokers, dealers and other persons may be used to illustrate aspects of the
Funds' performance; (4) the effect of tax-deferred compounding on the Funds'
investment returns, or on returns in general in both qualified and nonqualified
retirement plans or any other tax advantage product, may be illustrated by
graphs, charts, etc.; and (5) the sectors or industries in which the Funds
invests may be compared to relevant indices or surveys in order to
B-23
<PAGE> 56
evaluate the Funds' historical performance or current or potential value with
respect to the particular industry or sector.
OTHER PUBLICATIONS
From time to time, in newsletters and other publications issued by e-harmon.com,
Inc. our mutual fund portfolio managers or analysts may discuss economic,
financial and political developments in the U.S. and abroad and how these
conditions have affected or may affect securities prices or a Fund; individual
securities within the Funds' portfolio; and their philosophy regarding the
selection of individual stocks, including why specific stocks have been added,
removed or excluded from the Funds' portfolio.
SHARES
The Trust, organized as an unincorporated business trust in 1999 under the laws
of Delaware, is a trust fund of the type commonly known as a "business trust."
The Trust is authorized to issue an unlimited number of shares of beneficial
interest, $.01 par value per share, divided into two series (the Funds).
e-harmon Internet Fund is divided into three classes, designated Class A, Class
B and Class C shares. e-harmon Net30 Index Fund is divided into two classes,
designated Investor Shares and Institutional Shares. Each class of shares
represents an interest in the same assets of a Fund and is identical in all
respects except that (1) each class is subject to different sales charges and
distribution and/or service fees which may affect performance, (2) each class
has exclusive voting rights on any matter submitted to shareholders that relates
solely to its arrangement and has separate voting rights on any matter submitted
to shareholders in which the interests of one class differ from the interests of
any other class, (3) each class has a different exchange privilege [and (4) only
Class B shares have a conversion feature.]
In accordance with the Trust's Declaration of Trust, the Trustees may authorize
the creation of additional series and classes within such series, with such
preferences, privileges, limitations and voting and dividend rights as the
Trustees may determine. The voting rights of the shareholders of a series or
class can be modified only by the vote of shareholders of that series or class.
Shares of the Trust, when issued, are fully paid, nonassessable, fully
transferable and redeemable at the option of the holder. Shares are also
redeemable at the option of the Trust under certain circumstances. Each share of
each class is equal as to earnings, assets and voting privileges, except as
noted above, and each class of shares bears the expenses related to the
distribution of its shares. [Except for the conversion feature applicable to the
Class B shares, there are no conversion, preemptive or other subscription
rights.] In the event of liquidation, each share of a Fund is entitled to its
portion of all of the Fund's assets after all debt and expenses of the Fund have
been paid. [Since Class B have higher distribution expenses than Class A shares,
the liquidation
B-24
<PAGE> 57
proceeds to shareholders of those classes are likely to be lower than to Class A
shareholders.]
The Trust does not intend to hold annual meetings of shareholders unless
otherwise required by law. The Trust will not be required to hold meetings of
shareholders unless, for example, the election of Trustees is required to be
acted on by shareholders under the 1940 Act. Shareholders have certain rights,
including the right to call a meeting upon the vote of 10% of the Trust's
outstanding shares for the purpose of voting on the removal of one or more
Trustees or to transact any other business. Under the Declaration of Trust, the
Trustees may authorize the creation of additional series of shares (the proceeds
of which would be invested in separate, independently managed portfolios with
distinct investment objectives and policies and share purchase, redemption and
net asset value procedures) with such preferences, privileges, limitations and
voting and dividend rights as the Trustees may determine. All consideration
received by the Trust for shares of any additional series, and all assets in
which such consideration is invested, would belong to that series (subject only
to the rights of creditors of that series) and would be subject to the
liabilities related thereto. Under the 1940 Act, shareholders of any additional
series of shares would normally have to approve the adoption of any advisory
contract relating to such series and of certain changes in the investment
policies related thereto. The Trustees have the power to alter the number and
the terms of office of the Trustees, provided that always at least a majority of
the Trustees have been elected by the shareholders of the Trust. The voting
rights of shareholders are not cumulative, so that holders of more than 50
percent of the shares voting can, if they choose, elect all Trustees being
selected, while the holders of the remaining shares would be unable to elect any
Trustees.
LEGAL COUNSEL
Gardner, Carton & Douglas, whose address is 321 North Clark Street, Suite 3300,
Chicago, Illinois 60610 is legal counsel to the Funds.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 333 Market Street, San Francisco, California 94105
are the independent accountants to the Funds.
B-25
<PAGE> 58
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS e-harmon FUNDS
================================================================================
To the Shareholders and Board of Trustees of e-harmon Funds:
In our opinion, the accompanying statements of assets and liabilities
present fairly, in all material respects, the financial positions of e-harmon
Internet Fund and e-harmon Net30 Index Fund (the two fund constituting e-harmon
Funds, collectively referred to hereinafter as the "Trust") at ________, 2000,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Trust's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provide(s) a reasonable basis for the opinion expressed above.
B-26
<PAGE> 59
STATEMENT OF ASSETS AND LIABILITIES e-harmon INTERNET FUND
<TABLE>
<CAPTION>
=====================================================================================================================
_______, 2000
<S> <C>
ASSETS
Cash....................................................................................................$_____
[Deferred offering costs]................................................................................_____
Total assets...................................................................................._____
[LIABILITIES
Offering costs payable].................................................................................._____
NET ASSETS
Applicable to _____ shares of beneficial interest..............................................$
======
Calculation of Offering Price
Class A: $_____
Net asset value and redemption price per Class A share
($_____ divided by _____ shares of beneficial interest issued and outstanding)............._____
Maximum sales charge (% of offering price)......................................................_____
Offering price to public........................................................................_____
Class B:
Net asset value, offering price and redemption price per Class B share
($_______ divided by _____ shares of beneficial interest issued and outstanding)..........$
======
Class C:
Net asset value, offering price and redemption price per Class C share
($______ divided by _____ shares of beneficial interest issued and outstanding)...........$
======
</TABLE>
B-27
<PAGE> 60
STATEMENT OF ASSETS AND LIABILITIES e-harmon NET 30 INDEX FUND
<TABLE>
<CAPTION>
======================================================================================================================
______, 2000
<S> <C>
ASSETS
Cash....................................................................................................$_____
[Deferred offering costs]................................................................................_____
Total assets...................................................................................._____
[LIABILITIES
Offering costs payable].................................................................................._____
NET ASSETS
Applicable to _____ shares of beneficial interest..............................................$
======
Calculation of Offering Price
Institutional Shares:
Net asset value, offering price and redemption price per Institutional Shares
($_______ divided by _____ shares of beneficial interest issued and outstanding).........$
======
Investor Shares:
Net asset value, offering price and redemption price per Investor Shares
($______ divided by _____ shares of beneficial interest issued and outstanding)..........$_____
</TABLE>
B-28
<PAGE> 61
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Agreement and Declaration of Trust
(b) By-Laws of Registrant
(c) Instruments Defining Rights of Securityholders*
(d) Advisory Agreement*
(e) Distribution Agreement*
(f) Inapplicable
(g) Custody Agreement*
(h) (1) Transfer Agency Agreement*
(2) Administration and Fund Accounting Agreement*
(i) Opinion of Gardner, Carton & Douglas*
(j) Consent of Independent Accountants*
(k) Inapplicable
(l) Subscription Agreement*
(m) Rule 12b-1 Plan*
(n) Rule 18f-3 Plan*
(p) Code of Ethics*
(x) Financial Data Schedule*
*To be filed by pre-effective amendment
C-29
<PAGE> 62
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Zero Gravity Venture Fund, Inc.
ITEM 25. INDEMNIFICATION
As permitted by Sections 17(h) and (i) of the Investment Company Act of 1940, as
amended, (the Investment Company Act) and pursuant to Article VII of the
Agreement and Declaration of Trust (Exhibit (a) to the Registration Statement)
and Article XI of the Trust's By-Laws (Exhibit (b) to the Registration
Statement), officers, trustees, employees and agents of the Registrant will not
be liable to the Registrant, any stockholder, officer, director, employee, agent
or other person for any action or failure to act, except for bad faith, willful
misfeasance, gross negligence or reckless disregard of duties, and those
individuals may be indemnified against liabilities in connection with the
Registrant, subject to the same exceptions. Section 3817 of the Delaware
Business Trust Act permits indemnification of trustees who acted in good faith
and reasonably believed that the conduct was in the best interest of the
Registrant.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and the Distribution Agreement in a manner consistent
with Release No. 11330 of the Securities and Exchange Commission under the
Investment Company Act as long as the interpretation of Section 17(h) and 17(i)
of such Act remains in effect and is consistently applied.
ITEM 26. Business and Other Connections of the Investment Adviser
<TABLE>
<CAPTION>
NAME POSITION COMPANY
- ---- -------- -------
<S> <C> <C>
Lisa Cavallari Senior Vice President and e-harmon Capital Management LLC (1999 - present)
Portfolio Manager
Senior Vice President and e-harmon.com, Inc. (1999 - present)
Portfolio Manager
Principal Barclays Global Investors (19__ - 1999)
Steve Harmon Chairman, Chief e-harmon Capital Management LLC (1999 - present)
Executive Officer and Chief
Investment Officer
Chairman, Chief Executive Officer e-harmon.com, Inc. (1999 - present)
and Chief Investment Officer
Zero Gravity Management LLC (1999 - present)
Vice President of Internet.com/Mecklermedia (1996 - 1999)
Business Development
& Senior Investment Analyst
</TABLE>
C-30
<PAGE> 63
<TABLE>
<S> <C> <C>
James Hartmann President, Chief Operating e-harmon Capital Management LLC (1999 - present)
Officer and Chief Compliance
Officer
President and Chief Operating e-harmon.com, Inc. (1999 - present)
Officer
Zero Gravity Management LLC (1999 - present)
Director of Institutional Services Capstone Investments (1999)
Consultant MCG LLC (1998 - 1999)
Vice President of Institutional Summit Capital Management LLC
Marketing and Product Development and Summit Capital Partners LP
(1997 - 1998)
Mark Moorberg Senior Vice President, Marketing e-harmon Capital Management LLC (1999 - present)
and Client Services
Senior Vice President, Marketing e-harmon.com, Inc. (1999 - present)
and Client Services
Vice President / Merrill Lynch (1996 - 1999)
Financial Consultant
Private Placement Division
Joseph Van Remortel Senior Vice President Business e-harmon Capital Management LLC (1999 - present)
Development
Senior Vice President Business e-harmon.com, Inc. (1999 - present)
Development
Vice President and Secretary E*TRADE Funds (1999)
Vice President of Operations E*TRADE Asset Management (1998 - 1999)
Senior Manager E*TRADE Securities, Inc. (1996 - 1999)
</TABLE>
*Addresses are 400 Montgomery Street, 3rd Floor, San Francisco, California
94104, unless otherwise indicated.
ITEM 27. Principal Underwriters
(a) Sunstone Distribution Services, LLC currently serves as the distributor of
the shares of Choice Funds, First Omaha Funds, Inc., The Marsico Investment
Fund, Green Century Funds, The Haven Funds, Johnson Family Funds and La Crosse
Funds.
(b) The principal business address of Sunstone Distribution Services, LLC, the
Registrant's distributor, is 207 East Buffalo Street, Suite 400, Milwaukee,
Wisconsin 53202. To the best of the Registrant's knowledge, the following are
the members and officers of Sunstone Distribution Services, LLC:
C-31
<PAGE> 64
<TABLE>
<CAPTION>
Name Positions and Offices Positions and Offices
with Underwriter with Registrant
<S> <C> <C>
Miriam M. Allison President, Treasurer, Member None
Therese A. Ladwig Vice President None
Peter Hammond Vice President None
</TABLE>
(c) None
Item 28. Location of Accounts and Records
All accounts, books or other documents required to be maintained by Section
31(a) of the Investment Company Act and the rules promulgated thereunder, are in
the possession of the Registrant, located at 400 Montgomery Street, 3rd Floor,
San Francisco, California 94104, other than records held and maintained by
(i)_____________, the Registrant's custodian, located at ___________________;
(ii) Sunstone Financial Group, Inc., the Trust's administrator and fund
accountant, transfer agent and dividend-paying agent and Sunstone Distribution
Services, LLC, the Registrant's distributor, each of which is located at 207
East Buffalo Street, Suite 400, Milwaukee, Wisconsin 53202.
ITEM 29. MANAGEMENT SERVICES
Other than as set forth under the caption "Organization and Management" in the
Prospectus and the caption "Management of the Funds" in the Statement of
Additional Information, constituting Parts A and B, respectively, of this
Registration Statement, Registrant is not a party to any management-related
service contract.
ITEM 30.
Not applicable.
C-32
<PAGE> 65
SIGNATURES
Pursuant to the requirements of the Securities Act, and the Investment
Company Act, the Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, duly authorized, in the City of San
Francisco, State of California, this 18th day of January, 2000.
e-harmon Funds
By: /s/ Joseph Van Remortel
-----------------------------
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
/s/ James Hartmann Trustee and January 18, 2000
- ------------------ Treasurer
James Hartmann
C-33
<PAGE> 66
EXHIBIT INDEX
(a) Agreement and Declaration of Trust
(b) By-Laws of Registrant
(c) Instruments Defining Rights of Securityholders*
(d) Advisory Agreement*
(e) Distribution Agreement*
(f) Inapplicable
(g) Custody Agreement*
(h) (1) Transfer Agency Agreement*
(2) Administration and Fund Accounting Agreement*
(i) Opinion of Gardner, Carton & Douglas*
(j) Consent of Independent Accountants*
(k) Inapplicable
(l) Subscription Agreement*
(m) Rule 12b-1 Plan*
(n) Rule 18f-3 Plan*
(p) Code of Ethics*
(x) Financial Data Schedule*
*To be filed by pre-effective amendment
C-34
<PAGE> 1
EXHIBIT 99a
AGREEMENT AND DECLARATION OF TRUST
of
E-HARMON FUNDS,
a Delaware Business Trust
Principal Place of Business:
400 Montgomery Street, 3rd Floor
San Francisco, California 94104
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I. Name and Definitions......................................................................1
Section 1. Name....................................................................1
Section 2. Definitions.............................................................1
ARTICLE II. Purpose of Trust..........................................................................2
ARTICLE III. Shares....................................................................................3
Section 1. Division of Beneficial Interest.........................................3
Section 2. Ownership of Shares.....................................................3
Section 3. Transfer of Shares......................................................4
Section 4. Investments in the Trust................................................4
Section 5. Status of Shares and Limitation of Personal Liability...................4
Section 6. Establishment and Designation of Series.................................4
Section 7. Indemnification of Shareholders.........................................6
ARTICLE IV. The Board of Trustees.....................................................................7
Section 1. Number, Election and Tenure.............................................7
Section 2. Effect of Death, Resignation, etc. of a Trustee.........................7
Section 3. Powers..................................................................7
Section 4. Payment of Expenses by the Trust.......................................11
Section 5. Payment of Expenses by Shareholders....................................11
Section 6. Ownership of Assets of the Trust.......................................11
Section 7. Service Contracts......................................................12
Section 8. Trustees and Officers as Shareholders..................................13
ARTICLE V. Shareholders' Voting Powers and Meetings.................................................13
Section 1. Voting Powers, Meetings, Notice and Record Dates.......................13
Section 2. Quorum and Required Vote...............................................14
Section 3. Record Dates...........................................................14
Section 4. Additional Provisions..................................................14
ARTICLE VI. Net Asset Value, Distributions and Redemptions...........................................15
Section 1. Determination of Net Asset Value, Net Income, and Distributions........15
Section 2. Redemptions and Repurchases............................................15
ARTICLE VII. Compensation and Limitation of Liability of Trustees.....................................16
Section 1. Compensation...........................................................16
Section 2. Indemnification and Limitation of Liability............................16
Section 3. Trustee's Good Faith Action, Expert Advice, No Bond or Surety..........17
Section 4. Insurance..............................................................17
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE VIII. Miscellaneous............................................................................17
Section 1. Liability of Third Persons Dealing with Trustees.......................17
Section 2. Termination of Trust or Series.........................................18
Section 3. Reorganization and Master/Feeder.......................................18
Section 4. Amendments.............................................................19
Section 5. Filing of Copies, References, Headings.................................19
Section 6. Applicable Law.........................................................20
Section 7. Provisions in Conflict with Law or Regulations.........................20
Section 8. Business Trust Only....................................................21
Section 9. Derivative Actions.....................................................21
</TABLE>
-ii-
<PAGE> 4
AGREEMENT AND DECLARATION OF TRUST OF E-HARMON FUNDS
THIS AGREEMENT AND DECLARATION OF TRUST is made and entered into as of
the date set forth below by the Trustees named hereunder for the purpose of
forming a Delaware business trust in accordance with the provisions hereinafter
set forth.
NOW, THEREFORE, the Trustees hereby direct that the Certificate of
Trust be filed with the Office of the Secretary of State of the State of
Delaware and do hereby declare that the Trustees will hold IN TRUST all cash,
securities and other assets which the Trust now possesses or may hereafter
acquire from time to time in any manner and manage and dispose of the same upon
the following terms and conditions for the benefit of the holders of Shares in
this Trust.
ARTICLE I.
Name and Definitions
Section 1. Name. This Trust shall be known as e-harmon Funds and the
Trustees shall conduct the business of the Trust under that name or any other
name as they may from time to time determine.
Section 2. Definitions. Whenever used herein, unless otherwise required
by the context or specifically provided:
(a) "By-Laws" shall mean the By-Laws of the Trust as amended from
time to time, which By-Laws are expressly herein incorporated by
reference as part of the "governing instrument" within the meaning of
the Delaware Act;
(b) "Certificate of Trust" means the certificate of trust, as
amended or restated from time to time, filed by the Trustees in the
Office of the Secretary of State of the State of Delaware in accordance
with the Delaware Act;
(c) "Class" means a class of Shares of a Series of the Trust
established in accordance with the provisions of Article III hereof;
(d) "Commission" and "Principal Underwriter" shall have the
meanings given them in the 1940 Act;
(e) "Declaration of Trust" means this Agreement and Declaration of
Trust, as amended or restated from time to time;
(f) "Delaware Act" means the Delaware Business Trust Act, 12 Del.
C. Sections 3801 et seq., as amended from time to time;
(g) "Interested Person" shall have the meaning given it in Section
2(a)(19) of the 1940 Act;
<PAGE> 5
(h) "Investment Manager" or "Manager" means a party furnishing
services to the Trust pursuant to any contract described in Article IV,
Section 7(a)hereof;
(i) "1940 Act" means the Investment Company Act of 1940 and the
Rules and Regulations thereunder, all as amended from time to time;
(j) "Person" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures, estates and other
entities, whether or not legal entities, and governments and agencies
and political subdivisions thereof, whether domestic or foreign;
(k) "Series" means each Series of Shares established and
designated under or in accordance with the provisions of Article III;
(l) "Shareholder" means a record owner of outstanding Shares;
(m) "Shares" means the shares of beneficial interest into which
the beneficial interest in the Trust shall be divided from time to time
and includes fractions of Shares as well as whole Shares;
(n) "Trust" means the Delaware Business Trust established under
the Delaware Act by this Declaration of Trust and the filing of the
Certificate of Trust in the Office of the Secretary of State of the
State of Delaware;
(o) "Trust Property" means any and all property, real or personal,
tangible or intangible, which is from time to time owned or held by or
for the account of the Trust; and
(p) "Trustees" means the persons who have signed this Declaration
of Trust and all other Persons who may from time to time be duly
elected or appointed to serve as Trustees in accordance with the
provisions hereof, in each case so long as such Person shall continue
in office in accordance with the terms of this Declaration of Trust,
and reference herein to a Trustee or the Trustees shall refer to such
Person or Persons in his or their capacity as trustees hereunder.
ARTICLE II.
PURPOSE OF TRUST
The purpose of the Trust is to conduct, operate and carry on the
business of a management investment company registered under the 1940 Act
through one or more Series investing primarily in securities, and to carry on
such other business as the Trustees may from time to time determine pursuant to
their authority under this Declaration of Trust.
2
<PAGE> 6
ARTICLE III.
SHARES
Section 1. Division of Beneficial Interest. The beneficial interest in
the Trust shall be divided into one or more Series. Each Series may be divided
into two or more Classes. Subject to the further provisions of this Article III
and any applicable requirements of the 1940 Act, the Trustees shall have full
power and authority, in their sole discretion, and without obtaining any
authorization or vote of the Shareholders of any Series or Class thereof, (i) to
divide the beneficial interest in each Series or Class thereof into Shares, with
or without par value as the Trustees shall determine, (ii) to issue Shares
without limitation as to number (including fractional Shares), to such Persons
and for such amount and type of consideration, subject to any restriction set
forth in the By-Laws, including cash or securities, at such time or times and on
such terms as the Trustees may deem appropriate, (iii) to establish and
designate and to change in any manner any Series or Class thereof and to fix
such preferences, voting powers, rights, duties and privileges and business
purpose of each Series or Class thereof as the Trustees may from time to time
determine, which preferences, voting powers, rights, duties and privileges maybe
senior or subordinate to (or in the case of business purpose, different from)
any existing Series or Class thereof and may be limited to specified property or
obligations of the Trust or profits and losses associated with specified
property or obligations of the Trust, (iv) to divide or combine the Shares of
any Series or Class thereof into a greater or lesser number without thereby
materially changing the proportionate beneficial interest of the Shares of such
Series or Class in the assets held with respect to that Series, (v) to classify
or reclassify any issued Shares of any Series or Class thereof into shares of
one or more Series or Classes thereof and (vi) to take such other action with
respect to the Shares as the Trustees may deem desirable. Subject to the
distinctions permitted among Classes of the same Series as established by the
Trustees consistent with the requirements of the 1940 Act, each Share of a
Series of the Trust shall represent an equal beneficial interest in the net
assets of such Series, and each holder of Shares of a Series shall be entitled
to receive such holder's pro rata share of distributions of income and capital
gains, if any, made with respect to such Series. Upon redemption of the Shares
of any Series, the applicable Shareholder shall be paid solely out of the funds
and property of such Series of the Trust. All references to Shares in this
Declaration of Trust shall be deemed to be Shares of any or all Series or
Classes thereof, as the context may require. All provisions herein relating to
the Trust shall apply equally to each Series of the Trust and each Class
thereof, except as the context otherwise requires. All Shares issued hereunder,
including, without limitation, Shares issued in connection with a dividend in
Shares or a split or reverse split offshore, shall be fully paid and
non-assessable. Except as otherwise provided by the Trustees, Shareholders shall
have no preemptive or other right to subscribe to any additional Shares or other
securities issued by the Trust.
Section 2. Ownership of Shares. The Ownership of Shares shall be
recorded on the books of the Trust or a transfer or similar agent for the Trust,
which books shall be maintained separately for the Shares of each Series (or
Class). No certificates certifying the ownership of Shares shall be issued
except as the Board of Trustees may otherwise determine from time to time. The
Trustees may make such rules as they consider appropriate for the issuance of
Share
3
<PAGE> 7
certificates, the transfer of Shares of each Series (or Class) and similar
matters. The record books of the Trust as kept by the Trust or any transfer or
similar agent, as the case may be, shall be conclusive as to the identity of the
Shareholders of each Series (or 4 Class) and as to the number of Shares of each
Series (or Class) held from time to time by each Shareholder.
Section 3. Transfer of Shares. Except as otherwise provided by the
Trustees, Shares shall be transferable on the books of the Trust only by the
record holder thereof or by his duly authorized agent upon delivery to the
Trustees or the Trust's transfer agent of a duly executed instrument of
transfer, together with a Share certificate if one is outstanding, and such
evidence of the genuineness of each such execution and authorization and of such
other matters as may be required by the Trustees. Upon such delivery, and
subject to any further requirements specified by the Trustees or contained in
the By-Laws, the transfer shall be recorded on the books of the Trust. Until a
transfer is so recorded, the Shareholder of record of Shares shall be deemed to
be the holder of such Shares for all purposes hereunder and neither the Trustees
nor the Trust, nor any transfer agent or registrar or any officer, employee or
agent of the Trust, shall be affected by any notice of a proposed transfer.
Section 4. Investments in the Trust. Investments may be accepted by the
Trust from such Persons, at such times, on such terms, and for such
consideration as the Trustees from time to time may authorize.
Section 5. Status of Shares and Limitation of Personal Liability.
Shares shall be deemed to be personal property giving only the rights provided
in this instrument. Every Shareholder by virtue of having become a Shareholder
shall be held to have expressly assented and agreed to the terms hereof. The
death, incapacity, dissolution, termination or bankruptcy of a Shareholder
during the existence of the Trust shall not operate to terminate the Trust, nor
entitle the representative of any such Shareholder to an accounting or to take
any action in court or elsewhere against the Trust or the Trustees, but entitles
such representative only to the rights of such Shareholder under this Trust.
Ownership of Shares shall not entitle the Shareholder to any title in or to the
whole or any part of the Trust Property or right to call for a partition or
division of the same or for an accounting, nor shall the ownership of Shares
constitute the Shareholders as partners. Neither the Trust nor the Trustees, nor
any officer, employee or agent of the Trust shall have any power to bind
personally any Shareholders, nor, except as specifically provided herein, to
call upon any Shareholder for the payment of any sum of money or assessment
whatsoever other than such as the Shareholder may at any time personally agree
to pay.
Section 6. Establishment and Designation of Series. The establishment
and designation of any Series (or Class) of Shares shall be effective upon the
adoption by a majority of the then Trustees of a resolution that sets forth such
establishment and designation and the relative rights and preferences of such
Series (or Class), whether directly in such resolution or by reference to
another document including, without limitation, any registration statement of
the Trust, or as otherwise provided in such resolution. Shares of each Series
(or Class) established pursuant to this Article III, unless otherwise provided
in the resolution establishing such Series, shall have the following relative
rights and preferences:
4
<PAGE> 8
(a) Assets Held with Respect to a Particular Series. All
consideration received by the Trust for the issue or sale of Shares of
a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits,
and proceeds thereof from whatever source derived, including, without
limitation, any proceeds derived from the sale, exchange or liquidation
of such assets, and any funds or payments derived from any reinvestment
of such proceeds in whatever form the same may be, shall irrevocably be
held with respect to that Series for all purposes, subject only to the
rights of creditors of such Series, and shall be so recorded upon the
books of account of the Trust. Such consideration, assets, income,
earnings, profits and proceeds thereof, from whatever source derived,
including, without limitation, any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds, in whatever form the
same may be, are herein referred to as "assets held with respect to"
that Series. In the event that there are any assets, income, earnings,
profits and proceeds thereof, funds or payments which are not readily
identifiable as assets held with respect to any particular Series
(collectively "General Assets"), the Trustees shall allocate such
General Assets to, between or among any one or more of the Series in
such manner and on such basis as the Trustees, in their sole
discretion, deem fair and equitable, and any General Assets so
allocated to a particular Series shall be held with respect to that
Series. Each such allocation by the Trustees shall be conclusive and
binding upon the Shareholders of all Series for all purposes. Separate
and distinct records shall be maintained for each Series and the assets
held with respect to each Series shall be held and accounted for
separately from the assets held with respect to all other Series and
the General Assets of the Trust not allocated to such Series.
(b) Liabilities Held with Respect to a Particular Series. The
assets of the Trust held with respect to each particular Series shall
be charged against the liabilities of the Trust held with respect to
that Series and all expenses, costs, charges and reserves attributable
to that Series. Any general liabilities of the Trust which are not
readily identifiable as being held with respect to any particular
Series shall be allocated and charged by the Trustees to and among any
one or more of the Series in such manner and on such basis as the
Trustees in their sole discretion deem fair and equitable. All
liabilities, expenses, costs, charges, and reserves so charged to a
Series are herein referred to as "liabilities held with respect to"
that Series. Each allocation of liabilities, expenses, costs, charges
and reserves by the Trustees shall be conclusive and binding upon the
holders of all Series for all purposes. All liabilities held with
respect to a particular Series shall be enforceable against the assets
held with respect to such Series only and not against the assets of the
Trust generally or against the assets held with respect to any other
Series and, except as otherwise provided in this Declaration of Trust,
none of the debts, liabilities, obligations and expenses incurred,
contracted for or otherwise existing with respect to the Trust
generally or any other Series thereof shall be enforceable against the
assets of such Series. Notice of this contractual limitation on the
liability of each Series shall be set forth in the Certificate of Trust
or in an amendment thereto prior to the issuance of any Shares of a
Series.
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(c) Dividends, Distributions, Redemptions, and Repurchases.
Notwithstanding any other provisions of this Declaration of Trust,
including, without limitation, Article VI, no dividend or distribution,
including, without limitation, any distribution paid upon termination
of the Trust or of any Series (or Class) with respect to, nor any
redemption or repurchase of, the Shares of any Series (or Class) shall
be effected by the Trust other than from the assets held with respect
to such Series, nor shall any Shareholder of any particular Series
otherwise have any right or claim against the assets held with respect
to any other Series except to the extent that such Shareholder has such
a right or claim hereunder as a Shareholder of such other Series. The
Trustees shall have full discretion, to the extent not inconsistent
with the 1940 Act, to determine which items shall be treated as income
and which items as capital; and each such determination and allocation
shall be conclusive and binding upon the Shareholders.
(d) Equality. All the Shares of each particular Series shall
represent an equal proportionate interest in the assets held with
respect to that Series (subject to the liabilities held with respect to
that Series and such rights and preferences as may have been
established and designated with respect to Classes of Shares within
such Series), and each Share of any particular Series shall be equal to
each other Share of that Series.
(e) Fractions. Any fractional Share of a Series shall carry
proportionately all the rights and obligations of a whole Share of that
Series, including rights with respect to voting, receipt of dividends
and distributions, redemption of Shares and termination of the Trust.
(f) Exchange Privilege. The Trustees shall have the authority to
provide that the holders of Shares of any Series shall have the right
to exchange said Shares for Shares of one or more other Series of
Shares in accordance with such requirements and procedures as may be
established by the Trustees.
(g) Combination of Series. The Trustees shall have the authority,
without the approval of the Shareholders of any Series unless otherwise
required by applicable law, to combine the assets and liabilities held
with respect to any two or more Series into assets and liabilities held
with respect to a single Series.
(h) Elimination of Series. At any time that there are no Shares
outstanding of any particular Series (or Class) previously established
and designated, the Trustees may by resolution of a majority of the
then Trustees abolish that Series (or Class) and rescind the
establishment and designation thereof.
Section 7. Indemnification of Shareholders. If any Shareholder or
former Shareholder shall be exposed to liability by reason of a claim or demand
relating to such Person being or having been a Shareholder, and not because of
such Person's acts or omissions, the Shareholder or former Shareholder (or such
Person's heirs, executors, administrators, or other legal representatives or in
the case of a corporation or other entity, its corporate or other general
successor) shall be entitled to be held harmless from and indemnified out of the
assets of the Trust against all loss and expense arising from such claim or
demand, but only out of the assets
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held with respect to the particular Series of Shares of which such Person is or
was a Shareholder and from or in relation to which such liability arose.
ARTICLE IV.
THE BOARD OF TRUSTEES
Section 1. Number, Election and Tenure. The number of Trustees shall
initially be one, who shall be James Hartmann. Hereafter, the number of Trustees
shall at all times be at least one and no more than fifteen as determined, from
time to time, by the Trustees pursuant to Section 3 of this Article IV. Each
Trustee shall serve during the continued lifetime of the Trust until he or she
dies, resigns, is declared bankrupt or incompetent by a court of appropriate
jurisdiction, or is removed, or, if sooner, until the next meeting of
Shareholders called for the purpose of electing Trustees and until the election
and qualification of his or her successor. In the event that less than the
majority of the Trustees holding office have been elected by the Shareholders,
the Trustees then in office shall call a Shareholders' meeting for the election
of Trustees. Any Trustee may resign at any time by written instrument signed by
him and delivered to any officer of the Trust or to a meeting of the Trustees.
Such resignation shall be effective upon receipt unless specified to be
effective at some other time. Except to the extent expressly provided in a
written agreement with the Trust, no Trustee resigning and no Trustee removed
shall have any right to any compensation for any period following the effective
date of his or her resignation or removal, or any right to damages on account of
such removal. The Shareholders may elect Trustees at any meeting of Shareholders
called by the Trustees for that purpose. Any Trustee may be removed at any
meeting of Shareholders by a vote of two-thirds of the outstanding Shares of the
Trust.
Section 2. Effect of Death, Resignation, etc. of a Trustee. The death,
declination to serve, resignation, retirement, removal, or incapacity of one or
more Trustees, or all of them, shall not operate to annul the Trust or to revoke
any existing agency created pursuant to the terms of this Declaration of Trust.
Whenever there shall be fewer than the designated number of Trustees, until
additional Trustees are elected or appointed as provided herein to bring the
total number of Trustees equal to the designated number, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by this Declaration
of Trust. As conclusive evidence of such vacancy, a written instrument
certifying the existence of such vacancy may be executed by an officer of the
Trust or by a majority of the Trustees. In the event of the death, declination,
resignation, retirement, removal, or incapacity of all the then Trustees within
a short period of time and without the opportunity for at least one Trustee
being able to appoint additional Trustees to replace those no longer serving,
the Trust's Investment Manager(s) are empowered to appoint new Trustees subject
to the provisions of Section 16(a) of the 1940 Act.
Section 3. Powers. Subject to the provisions of this Declaration of
Trust, the business of the Trust shall be managed by the Trustees, and the
Trustees shall have all powers necessary or convenient to carry out that
responsibility including the power to engage in securities transactions of all
kinds on behalf of the Trust. Without limiting the foregoing, the
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Trustees may: adopt By-Laws not inconsistent with this Declaration of Trust
providing for the regulation and management of the affairs of the Trust and may
amend and repeal them to the extent that such By-Laws do not reserve that right
to the Shareholders; enlarge or reduce their number; remove any Trustee with or
without cause at any time by written instrument signed by at least two-thirds of
the number of Trustees prior to such removal, specifying the date when such
removal shall become effective, and fill vacancies caused by enlargement of
their number or by the death, resignation or removal of a Trustee; elect and
remove, with or without cause, such officers and appoint and terminate such
agents as they consider appropriate; appoint from their own number and establish
and terminate one or more committees consisting of two or more Trustees which
may exercise the powers and authority of the Board of Trustees to the extent
that the Trustees determine; employ one or more custodians of the assets of the
Trust and authorize such custodians to employ subcustodians and to deposit all
or any part of such assets in a system or systems for the central handling of
securities or with a Federal Reserve Bank; retain a transfer agent or a
shareholder servicing agent, or both; provide for the issuance and distribution
of Shares by the Trust directly or through one or more Principal Underwriters or
otherwise; redeem, repurchase and transfer Shares pursuant to applicable law;
set record dates for the determination of Shareholders with respect to various
matters; declare and pay dividends and distributions to Shareholders of each
Series from the assets of such Series; and in general delegate such authority as
they consider desirable to any officer of the Trust, to any committee of the
Trustees and to any agent or employee of the Trust or to any such custodian,
transfer or Shareholder servicing agent, or Principal Underwriter. Any
determination as to what is in the interests of the Trust made by the Trustees
in good faith shall be conclusive. In construing the provisions of this
Declaration of Trust, the presumption shall be in favor of a grant of power to
the Trustees. Unless otherwise specified herein or in the By-Laws or required
bylaw, any action by the Trustees shall be deemed effective if approved or taken
by a majority of the Trustees present at a meeting of Trustees at which a quorum
(as defined in the By-Laws, as may be amended from time to time) of Trustees is
present, within or without the State of Delaware.
Without limiting the foregoing, the Trustees shall have the power and
authority to cause the Trust (or to act on behalf of the Trust):
(a) To invest and reinvest cash, to hold cash uninvested, and to
subscribe for, invest in, reinvest in, purchase or otherwise acquire,
own, hold, pledge, sell, assign, transfer, exchange, distribute, write
options on, lend or otherwise deal in or dispose of contracts for the
future acquisition or delivery of fixed income or other securities, and
securities of every nature and kind, including, without limitation, all
types of bonds, debentures, stocks, negotiable or non-negotiable
instruments, obligations, evidences of indebtedness, certificates of
deposit or indebtedness, commercial paper, repurchase agreements,
bankers' acceptances, and other securities of any kind, issued,
created, guaranteed, or sponsored by any and all Persons, including,
without limitation, states, territories, and possessions of the United
States and the District of Columbia and any political subdivision,
agency, or instrumentality thereof, any foreign government or any
political subdivision of the U.S. Government or any foreign government,
or any international instrumentality, or by any bank or savings
institution, or by any corporation or organization organized under the
laws of the United States or of any state, territory, or
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possession thereof, or by any corporation or organization organized
under any foreign law, or in "when issued" contracts for any such
securities, to change the investments of the assets of the Trust; and
to exercise any and all rights, powers, and privileges of ownership or
interest in respect of any and all such investments of every kind and
description, including, without limitation, the right to consent and
otherwise act with respect thereto, with power to designate one or more
Persons, to exercise any of said rights, powers, and privileges in
respect of any of said instruments;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease,
or write options (including, options on futures contracts) with respect
to or otherwise deal in any property rights relating to any or all of
the assets of the Trust or any Series;
(c) To vote or give assent, or exercise any rights of ownership,
with respect to stock or other securities or property; and to execute
and deliver proxies or powers of attorney to such Person or Persons as
the Trustees shall deem proper, granting to such Person or Persons such
power and discretion with relation to securities or property as the
Trustees shall deem proper;
(d) To exercise powers and right of subscription or otherwise
which in any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form, or in
its own name or in the name of a custodian or subcustodian or a nominee
or nominees or otherwise;
(f) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or issuer of
any security which is held in the Trust; to consent to any contract,
lease, mortgage, purchase or sale of property by such corporation or
issuer; and to pay calls or subscriptions with respect to any security
held in the Trust;
(g) To join with other security holders in acting through a
committee, depository, voting trustee or otherwise, and in that
connection to deposit any security with, or transfer any security to,
any such committee, depository or trustee, and to delegate to them such
power and authority with relation to any security (whether or not so
deposited or transferred) as the Trustees shall deem proper, and to
agree to pay, and to pay, such portion of the expenses and compensation
of such committee, depository or trustee as the Trustees shall deem
proper;
(h) To compromise, arbitrate or otherwise adjust claims in favor
of or against the Trust or any matter in controversy, including, but
not limited to, claims for taxes;
(i) To enter into joint ventures, general or limited partnerships
and any other combinations or associations;
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(j) To borrow funds or other property in the name of the Trust
exclusively for Trust purposes and in connection therewith issue notes
or other evidence of indebtedness; and to mortgage and pledge the Trust
Property or any part thereof to secure any or all of such indebtedness;
(k) To endorse or guarantee the payment of any notes or other
obligations of any Person; to make contracts of guaranty or suretyship,
or otherwise assume liability for payment thereof; and to mortgage and
pledge the Trust Property or any part thereof to secure any of or all
of such obligations;
(l) To purchase and pay for entirely out of Trust Property such
insurance as the Trustees may deem necessary or appropriate for the
conduct of the business, including, without limitation, insurance
policies insuring the assets of the Trust or payment of distributions
and principal on its portfolio investments, and insurance policies
insuring the Shareholders, Trustees, officers, employees, agents,
investment advisers, principal underwriters, or independent contractors
of the Trust, individually against all claims and liabilities of every
nature arising by reason of holding Shares, holding, being or having
held any such office or position, or by reason of any action alleged to
have been taken or omitted by any such Person as Trustee, officer,
employee, agent, investment adviser, principal underwriter, or
independent contractor, including any action taken or omitted that may
be determined to constitute negligence, whether or not the Trust would
have the power to indemnify such Person against liability;
(m) To adopt, establish and carry out pension, profit-sharing,
share bonus, share purchase, savings, thrift and other retirement,
incentive and benefit plans and trusts, including the purchasing of
life insurance and annuity contracts as a means of providing such
retirement and other benefits, for any or all of the Trustees,
officers, employees and agents of the Trust;
(n) To operate as and carry out the business of an investment
company, and exercise all the powers necessary or appropriate to the
conduct of such operations;
(o) To enter into contracts of any kind and description;
(p) To employ one or more banks, trust companies or companies that
are members of a national securities exchange or such other entities as
the Commission may permit as custodians of any assets of the Trust
subject to any conditions set forth in this Declaration or Trust or in
the By-Laws;
(q) To interpret the investment policies, practices or limitations
of any Series or Class; and
(r) To invest part or all of the Trust Property (or part or all of
the assets of any Series), or to dispose of part or all of the Trust
Property (or part or all of the assets of any Series) and invest the
proceeds of such disposition, in securities issued by one or more other
investment companies registered under the 1940 Act (including
investment by
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means of transfer of part or all of the Trust Property in exchange for
an interest or interests in such one or more investment companies) all
without any requirement of approval by Shareholders unless required by
the 1940 Act. Any such other investment company may (but need not) be a
trust (formed under the laws of the State of Delaware or of any other
state) which is classified as a partnership for federal income tax
purposes.
(s) Subject to the 1940 Act, to engage in any other lawful act or
activity in which a business trust organized under the Delaware Act may
engage.
The Trust shall not be limited to investing in obligations maturing
before the possible termination of the Trust or one or more of its Series. The
Trust shall not in any way be bound or limited by any present or future law or
custom in regard to investment by fiduciaries. The Trust shall not be required
to obtain any court order to deal with any assets of the Trust or take any other
action hereunder.
Section 4. Payment of Expenses by the Trust. The Trustees are
authorized to pay or cause to be paid out of the principal or income of the
Trust, or partly out of the principal and partly out of income, as they deem
fair, all expenses, fees, charges, taxes and liabilities incurred or arising in
connection with the Trust, or in connection with the management thereof,
including, but not limited to, the Trustees compensation and such expenses and
charges for the services of the Trust's officers, employees, investment adviser
or manager, Principal Underwriter, auditors, counsel, custodian, transfer agent,
shareholder servicing agent, and such other agents or independent contractors
and such other expenses and charges as the Trustees may deem necessary or proper
to incur, which expenses, fees, charges, taxes and liabilities shall be
allocated in accordance with Article III, Section 6 hereof.
Section 5. Payment of Expenses by Shareholders. The Trustees shall have
the power, as frequently as they may determine, to cause each Shareholder, or
each Shareholder of any particular Series, to pay directly, in advance or
arrears, for charges of the Trust's custodian or transfer, Shareholder servicing
or similar agent, an amount fixed from time to time by the Trustees, by setting
off such charges due from such Shareholder from declared but unpaid dividends
owed such Shareholder and/or by reducing the number of Shares in the account of
such Shareholder by that number of full and/or fractional Shares which
represents the outstanding amount of such charges due from such Shareholder.
Section 6. Ownership of Assets of the Trust. Title to all of the assets
of the Trust shall at all times be considered as vested in the Trust, except
that the Trustees shall have power to cause legal title to any Trust Property to
be held by or in the name of one or more of the Trustees, or in the name of the
Trust, or in the name of any other Person as nominee, on such terms as the
Trustees may determine. The right, title and interest of the Trustees in the
Trust Property shall vest automatically in each Person who may hereafter become
a Trustee. Upon the resignation, removal or death of a Trustee, he or she shall
automatically cease to have any right, title or interest in any of the Trust
Property, and the right, title and interest of such Trustee in the Trust
Property shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered.
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Section 7. Service Contracts.
(a) Subject to such requirements and restrictions as may be set
forth under federal and/or state law and in the By-Laws, including,
without limitation, the requirements of Section 15 of the 1940 Act, the
Trustees may, at any time and from time to time, contract for exclusive
or nonexclusive advisory, management and/or administrative services for
the Trust or for any Series (or Class thereof) with any corporation,
trust, association or other organization; and any such contract may
contain such other terms as the Trustees may determine, including,
without limitation, authority for the Investment Manager or
administrator to delegate certain or all of its duties under such
contracts to qualified investment advisers and administrators and to
determine from time to time without prior consultation with the
Trustees what investments shall be purchased, held, sold or exchanged
and what portion, if any, of the assets of the Trust shall be held
uninvested and to make changes in the Trust's investments, or such
other activities as may specifically be delegated to such party.
(b) The Trustees may also, at any time and from time to time,
contract with any corporation, trust, association or other
organization, appointing it exclusive or nonexclusive distributor or
Principal Underwriter for the Shares of one or more of the Series (or
Classes) or other securities to be issued by the Trust. Every such
contract shall comply with such requirements and restrictions as may be
set forth under federal and/or state law and in the By-Laws, including,
without limitation, the requirements of Section 15 of the1940 Act; and
any such contract may contain such other terms as the Trustees may
determine.
(c) The Trustees are also empowered, at any time and from time to
time, to contract with any corporations, trusts, associations or other
organizations, appointing it or them the custodian, transfer agent
and/or Shareholder servicing agent for the Trust or one or more of its
Series. Every such contract shall comply with such requirements and
restrictions as may be set forth under federal and/or state law and in
the By-Laws or stipulated by resolution of the Trustees.
(d) Subject to applicable law, the Trustees are further empowered,
at any time and from time to time, to contract with any entity to
provide such other services to the Trust or one or more of the Series,
as the Trustees determine to be in the best interests of the Trust and
the applicable Series.
(e) The fact that: (i) Any of the Shareholders, Trustees, or
officers of the Trust is a shareholder, director, officer, partner,
trustee, employee, Manager, adviser, Principal Underwriter,
distributor, or affiliate or agent of or for any corporation, trust,
association, or other organization, or for any parent or affiliate of
any organization with which an advisory, management or administration
contract, or principal underwriter's or distributor's contract, or
transfer, shareholder servicing or other type of service contract may
have been or may hereafter be made, or that any such organization, or
any parent or affiliate thereof, is a Shareholder or has an interest in
the Trust, or that (ii) any corporation, trust, association or other
organization with which an advisory, management or administration
contract or principal underwriter's or distributor's contract, or
transfer, shareholder servicing or other type of service contract may
have been or may hereafter be made also has an advisory, management
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or administration contract, or principal underwriter's or distributor's
contract, or transfer, shareholder servicing or other service contract
with one or more other corporations, trusts, associations, or other
organizations, or has other business or interests, shall not affect the
validity of any such contract or disqualify any Shareholder, Trustee or
officer of the Trust from voting upon or executing the same, or create
any liability or accountability to the Trust or its Shareholders,
provided approval of each such contract is made pursuant to the
requirements of the 1940 Act.
Section 8. Trustees and Officers as Shareholders. Any Trustee, officer
or agent of the Trust may acquire, own and dispose of Shares to the same extent
as if he were not a Trustee, officer or agent; and the Trustees may issue and
sell and cause to be issued and sold Shares to, and redeem such Shares from, any
such Person or any firm or company in which such Person is interested, subject
only to the general limitations contained herein or in the By-Laws relating to
the sale and redemption of such Shares.
ARTICLE V.
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 1. Voting Powers, Meetings, Notice and Record Dates. The
Shareholders shall have power to vote only (i) for the election or removal of
Trustees as provided in Article IV, Section 1, and (ii) with respect to such
additional matters relating to the Trust as may be required by applicable law,
this Declaration of Trust, the By-Laws or any registration of the Trust with the
Commission (or any successor agency) or any state, or as the Trustees may
consider necessary or desirable. As determined by the Trustees without the vote
or consent of Shareholders (except as required by the 1940 Act), on any matter
submitted to a vote of Shareholders, either (i) each whole Share shall been
titled to one vote as to any matter on which it is entitled to vote and each
fractional Share shall be entitled to a proportionate fractional vote or (ii)
each dollar of Net Asset Value (number of Shares owned times Net Asset Value per
share of such Series or Class, as applicable) shall been titled to one vote on
any matter on which such Shares are entitled to vote and each fractional dollar
amount shall be entitled to a proportionate fractional vote.
Without limiting the power of the Trustees in any way to designate
otherwise in accordance with the preceding sentence, the Trustees hereby
establish that each whole Share shall be entitled to one vote as to any matter
on which it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote. Notwithstanding any other provision of this
Declaration of Trust, on any matter submitted to a vote of the Shareholders, all
Shares of the Trust then entitled to vote shall be voted in aggregate, except
(i) when required by the1940 Act, Shares shall be voted by individual Series;
(ii) when the matter involves the termination of a Series or any other action
that the Trustees have determined will affect only the interests of one or more
Series, then only Shareholders of such Series shall be entitled to vote thereon;
and (iii)
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when the matter involves any action that the Trustees have determined will
affect only the interests of one or more Classes, then only the Shareholders of
such Class or Classes shall be entitled to vote thereon. There shall be no
cumulative voting in the election of Trustees. Shares may be voted in person or
by proxy. A proxy may be given in writing. The By-Laws may provide that proxies
may also, or may instead, be given by any electronic or telecommunications
device or in any other manner. Notwithstanding anything else contained herein or
in the By-Laws, in the event a proposal by anyone other than the officers or
Trustees of the Trust is submitted to a vote of the shareholders of one or more
Series or Classes thereof or of the Trust, or in the event of any proxy contest
or proxy solicitation or proposal in opposition to any proposal by the officers
or Trustees of the Trust, Shares may be voted only in person or by written proxy
at a meeting. Until Shares are issued, the Trustees may exercise all rights of
Shareholders and may take any action required by law, this Declaration of Trust
or the By-Laws to be taken by the Shareholders. Meetings of the Shareholders
shall be called and notice thereof and record dates therefor shall be given and
set as provided in the By-Laws.
Section 2. Quorum and Required Vote. Except when a larger quorum is
required by applicable law, by the By-Laws or by this Declaration of Trust,
forty percent (40%) of the Shares entitled to vote shall constitute a quorum at
a Shareholders' meeting. When any one or more Series (or Class) is to vote as a
single class separate from any other Shares, forty percent (40%) of the Shares
of each such Series (or Class) entitled to vote shall constitute a quorum at a
Shareholders' meeting of that Series (or Class). Except when a larger vote is
required by any provision of this Declaration of Trust or the By-Laws or by
applicable law, when a quorum is present at any meeting, a majority of the
Shares voted shall decide any questions and a plurality of the Shares voted
shall elect a Trustee, provided that where any provision of law or of this
Declaration of Trust requires that the holders of any Series shall vote as a
Series (or that holders of a Class shall vote as a Class), then a majority of
the Shares of that Series (or Class) voted on the matter (or a plurality with
respect to the election of a Trustee) shall decide that matter insofar as that
Series (or Class) is concerned.
Section 3. Record Dates. For the purpose of determining the
Shareholders of any Series (or Class) who are entitled to receive payment of any
dividend or of any other distribution, the Trustees may from time to time fix a
date, which shall be before the date for the payment of such dividend or such
other payment, as the record date for determining the Shareholders of such
Series (or Class) having the right to receive such dividend or distribution.
Without fixing a record date, the Trustees may for distribution purposes close
the register or transfer books for one or more Series (or Classes) at any time
prior to the payment of a distribution. Nothing in this Section shall be
construed as precluding the Trustees from setting different record dates for
different Series (or Classes).
Section 4. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters.
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ARTICLE VI.
NET ASSET VALUE, DISTRIBUTIONS AND REDEMPTIONS
Section 1. Determination of Net Asset Value, Net Income, and Distributions.
Subject to applicable law and Article III, Section 6 hereof, the Trustees, in
their absolute discretion, may prescribe and shall set forth in a duly adopted
vote of the Trustees such bases and time for determining the per Share or net
asset value of the Shares of any Series (or Class) or net income attributable to
the Shares of 19 any Series (or Class), or the declaration and payment of
dividends and distributions on the Shares of any Series (or Class), as they may
deem necessary or desirable.
Section 2. Redemptions and Repurchases.
(a) The Trust shall purchase such Shares as are offered by any
Shareholder for redemption, upon the presentation of a proper
instrument of transfer together with a request directed to the Trust or
a Person designated by the Trust that the Trust purchase such Shares or
in accordance with such other procedures for redemption as the Trustees
may from time to time authorize; and the Trust will pay therefor the
net asset value thereof as determined by the Trustees (or on their
behalf), in accordance with any applicable provisions of the By-Laws
and applicable law, less any fees imposed on such redemption. Unless
extraordinary circumstances exist, payment for said Shares shall be
made by the Trust to the Shareholder within seven (7) days after the
date on which the request is made in proper form. The obligation set
forth in this Section 2 is subject to the provision that in the event
that any time the New York Stock Exchange (the "Exchange") is closed
for other than weekends or holidays, or if permitted by the rules and
regulations or an order of the Commission during periods when trading
on the Exchange is restricted or during any emergency which makes it
impracticable for the Trust to dispose of the investments of the
applicable Series or to determine fairly the value of the net assets
held with respect to such Series or during any other period permitted
by order of the Commission for the protection of investors, such
obligations may be suspended or postponed by the Trustees. In the case
of a suspension of the right of redemption as provided herein, a
Shareholder may either withdraw the request for redemption or receive
payment based on the net asset value per share next determined after
the termination of such suspension, less any fees imposed on such
redemption.
(b) The redemption price may in any case or cases be paid wholly
or partly in kind if the Trustees determine that such payment is
advisable in the interest of the remaining Shareholders of the Series
for which the Shares are being redeemed. Subject to the foregoing, the
fair value, selection and quantity of securities or other property so
paid or delivered as all or part of the redemption price may be
determined by or under authority of the Trustees. In no case shall the
Trust be liable for any delay of any corporation or other Person in
transferring securities selected for delivery as all or part of any
payment in kind.
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(c) The Trustees may require Shareholders to redeem Shares for any
reason under terms set by the Trustees, including, but not limited to,
(i) the determination of the Trustees that direct or indirect ownership
of Shares of any Series has or may become concentrated in such
Shareholder to an extent that would disqualify any Series as a
regulated investment company under the Internal Revenue Code of 1986,
as amended (or any successor statute thereto), (ii) the failure of a
Shareholder to supply a tax identification number if required to do so,
or to have the minimum investment required (which may vary by Series),
or (iii) the failure of a Shareholder to pay when due for the purchase
of Shares issued to him. Any such redemption shall be effected at the
redemption price and in the manner provided in this Article VI.
(d) The holders of Shares shall upon demand disclose to the
Trustees in writing such information with respect to direct and
indirect ownership of Shares as the Trustees deem necessary to comply
with the provisions of the Internal Revenue Code of 1986, as amended
(or any successor statute thereto), or to comply with the requirements
of any other taxing authority.
ARTICLE VII.
COMPENSATION AND LIMITATION OF LIABILITY OF TRUSTEES
Section 1. Compensation. The Trustees as such shall be entitled to
reasonable compensation from the Trust, and they may fix the amount of
such compensation. Nothing herein shall in any way prevent the
employment of any Trustee for advisory, management, legal, accounting,
investment banking or other services and payment for the same by the
Trust.
Section 2. Indemnification and Limitation of Liability. A Trustee,
when acting in such capacity, shall not be personally liable to any
Person, other than the Trust or a Shareholder to the extent provided in
this Article VII, for any act, omission or obligation of the Trust, of
such Trustee or of any other Trustee. The Trustees shall not be
responsible or liable in any event for any neglect or wrongdoing of any
officer, agent, employee, Manager, adviser, sub-adviser or Principal
Underwriter of the Trust. The Trust shall indemnify each Person who is,
or has been, a Trustee, officer, employee or agent of the Trust and any
Person who is serving or has served at the Trust's request as a
director, officer, trustee, employee or agent of another organization
in which the Trust has any interest as a shareholder, creditor or
otherwise to the extent and in the manner provided in the By-Laws.
All persons extending credit to, contracting with or having any claim
against the Trust or the Trustees shall look only to the assets of the Series
that such person extended credit to, contracted with or has a claim against, or,
if the Trustees have yet to establish Series, of the Trust for payment under
such credit, contract or claim; and neither the Trustees nor the Shareholders,
nor any of the Trust's officers, employees or agents, whether past, present or
future, shall be personally liable therefor.
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Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Trustees by any of them in connection with the Trust shall
conclusively be deemed to have been executed or done only in or with respect to
his or their capacity as Trustee or Trustees, and such Trustee or Trustees shall
not be personally liable thereon. At the Trustees' discretion, any note, bond,
contract, instrument, certificate or undertaking made or issued by the Trustees
or by any officer or officers may give notice that the Certificate of Trust is
on file in the Office of the Secretary of State of the State of Delaware and
that a limitation on liability of Series exists and such note, bond, contract,
instrument, certificate or undertaking may, if the Trustees so determine, recite
that the same was executed or made on behalf of the Trust by a Trustee or
Trustees in such capacity and not individually or by an officer or officers in
such capacity and not individually and that the obligations of such instrument
are not binding upon any of them or the Shareholders individually but are
binding only on the assets and property of the Trust or a Series thereof, and
may contain such further recital as such Person or Persons may deem appropriate.
The omission of any such notice or recital shall in no way operate to bind any
Trustees, officers or Shareholders individually.
Section 3. Trustee's Good Faith Action, Expert Advice, No Bond or
Surety. The exercise by the Trustees of their powers and discretions hereunder
shall be binding upon everyone interested. A Trustee shall be liable to the
Trust and to any Shareholder solely for his or her own willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee, and shall not be liable for errors of judgment
or mistakes of fact or law. The Trustees may take advice of counsel or other
experts with respect to the meaning and operation of this Declaration of Trust,
and shall be under no liability for any act or omission in accordance with such
advice nor for failing to follow such advice. The Trustees shall not be required
to give any bond as such, nor any surety if a bond is required.
Section 4. Insurance. The Trustees shall be entitled and empowered to
the fullest extent permitted by law to purchase with Trust assets insurance for
liability and for all expenses reasonably incurred or paid or expected to be
paid by a Trustee, officer, employee or agent of the Trust in connection with
any claim, action, suit or proceeding in which he or she becomes involved by
virtue of his or her capacity or former capacity with the Trust.
ARTICLE VIII.
MISCELLANEOUS
Section 1. Liability of Third Persons Dealing with Trustees. No Person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
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Section 2. Termination of Trust or Series.
(a) Unless terminated as provided herein, the Trust shall continue
without limitation of time. The Trust may be terminated at any time by
vote of a majority of the Shares of each Series entitled to vote,
voting separately by Series, or by the Trustees by written notice to
the Shareholders. Any Series of Shares or Class thereof may be
terminated at any time by vote of a majority of the Shares of such
Series or Class entitled to vote or by the Trustees by written notice
to the Shareholders of such Series or Class.
(b) Upon the requisite Shareholder vote or action by the Trustees
to terminate the Trust or any one or more Series of Shares or any Class
thereof, after paying or otherwise providing for all charges, taxes,
expenses and liabilities, whether due or accrued or anticipated, of the
Trust or of the particular Series or any Class thereof as may be
determined by the Trustees, the Trust shall in accordance with such
procedures as the Trustees consider appropriate reduce the remaining
assets of the Trust or of the affected Series or Class to distributable
form in cash or Shares (if any Series remain) or other securities, or
any combination thereof, and distribute the proceeds to the
Shareholders of the Series or Classes involved, ratably according to
the number of Shares of such Series or Class held by the several
Shareholders of such Series or Class on the date of distribution.
Thereupon, the Trust or any affected Series or Class shall terminate
and the Trustees and the Trust shall be discharged of any and all
further liabilities and duties relating thereto or arising therefrom,
and the right, title and interest of all parties with respect to the
Trust or such Series or Class shall be canceled and discharged.
(c) Upon termination of the Trust, following completion of winding
up of its business, the Trustees shall cause a certificate of
cancellation of the Trust's Certificate of Trust to be filed in
accordance with the Delaware Act, which certificate of cancellation may
be signed by any one Trustee.
Section 3. Reorganization and Master/Feeder.
(a) Notwithstanding anything else herein, the Trustees may,
without Shareholder approval unless such approval is required by
applicable law, (i) cause the Trust to merge or consolidate with or
into one or more trusts (or series thereof to the extent permitted by
law), partnerships, associations, corporations or other business
entities (including trusts, partnerships, associations, corporations or
other business entities created by the Trustees to accomplish such
merger or consolidation) so long as the surviving or resulting entity
is an open-end management investment company under the 1940 Act, or is
a series thereof, that will succeed to or assume the Trust's
registration under the 1940 Act and that is formed, organized or
existing under the laws of the United States or of a state,
commonwealth, possession or colony of the United States, (ii) cause the
Shares to be exchanged under or pursuant to any state or federal
statute to the extent permitted by law or (iii) cause the Trust to
incorporate under the laws of Delaware. Any agreement of merger or
consolidation or exchange or certificate of merger may be signed by a
majority of the Trustees and facsimile signatures conveyed by
electronic or telecommunication means shall be valid.
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(b) Pursuant to and in accordance with the provisions of Section
3815(f) of the Delaware Act, and notwithstanding anything to the
contrary contained in this Declaration of Trust, an agreement of merger
or consolidation approved by the Trustees in accordance with this
Section 3 may effect any amendment to the governing instrument of the
Trust or effect the adoption of a new trust instrument of the Trust if
the Trust is the surviving or resulting trust in the merger or
consolidation.
(c) The Trustees may create one or more business trusts to which
all or any part of the assets, liabilities, profits or losses of the
Trust or any Series or class thereof may be transferred and may provide
for the conversion of Shares in the Trust or any Series or Class
thereof into beneficial interests in any such newly created trust or
trusts or any series or classes thereof.
(d) Notwithstanding anything else herein, the Trustees may,
without Shareholder approval, invest all or a portion of the Trust
Property of any Series, or dispose of all or a portion of the Trust
Property of any Series, and invest the proceeds of such disposition in
interests issued by one or more other investment companies registered
under the 1940 Act. Any such other investment company may (but need
not) be a trust (formed under the laws of the State of Delaware or any
other state or jurisdiction) (or subtrust thereof) which is classified
as a partnership for federal income tax purposes. Notwithstanding
anything else herein, the Trustees may, without Shareholder approval
unless such approval is required by applicable law, cause a Series that
is organized in the master/feeder fund structure to withdraw or redeem
its Trust Property from the master fund and cause such series to invest
its Trust Property directly insecurities and other financial
instruments or in another master fund.
Section 4. Amendments. Except as specifically provided in this Section,
the Trustees may, without Shareholder vote, restate, amend or otherwise
supplement this Declaration of Trust. Shareholders shall have the right to vote
(i) on any amendment that would affect their right to vote granted in Article V,
Section 1 hereof, (ii) on any amendment to this Section 4 of Article VIII, (iii)
on any amendment that may be required to be approved by Shareholders by
applicable law or by the Trust's registration statement filed with the
Commission and (iv) on any amendment submitted to them by the Trustees. Any
amendment required or permitted to be submitted to the Shareholders that, as the
Trustees determine, shall affect the Shareholders of one or more Series shall be
authorized by a vote of the Shareholders of each Series affected and no vote of
Shareholders of a Series not affected shall be required. Notwithstanding
anything else herein, no amendment hereof shall limit the rights to insurance
provided by Article VII, Section 4 with respect to any acts or omissions of
Persons covered thereby prior to such amendment nor shall any such amendment
limit the rights to indemnification referenced in Article VII, Section 2 hereof
as provided in the By-Laws with respect to any actions or omissions of Persons
covered thereby prior to such amendment. The Trustees may, without Shareholder
vote, restate, amend, or otherwise supplement the Certificate of Trust as they
deem necessary or desirable.
Section 5. Filing of Copies, References, Headings. The original or a
copy of this instrument and of each restatement and/or amendment hereto shall be
kept at the office of the
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Trust where it may be inspected by any Shareholder. Anyone dealing with the
Trust may rely on a certificate by an officer of the Trust as to whether or not
any such restatements and/or amendments have been made and as to any matters in
connection with the Trust hereunder; and, with the same effect as if it were the
original, may rely on a copy certified by an officer of the Trust to be a copy
of this instrument or of any such restatements and/or amendments. In this
instrument and in any such restatements and/or amendments, references to this
instrument, and all expressions such as "herein", "hereof" and "hereunder",
shall be deemed to refer to this instrument as amended or affected by any such
restatements and/or amendments. Headings are placed herein for convenience of
reference only and shall not be taken as a part hereof or control or affect the
meaning, construction or effect of this instrument. Whenever the singular number
is used herein, the same shall include the plural; and the neuter, masculine and
feminine genders shall include each other, as applicable. This instrument may be
executed in any number of counterparts each of which shall be deemed an
original.
Section 6. Applicable Law.
(a) The Trust is created under, and this Declaration of Trust is
to be governed by, and construed and enforced in accordance with, the
laws of the State of Delaware. The Trust shall be of the type commonly
called a business trust, and without limiting the provisions hereof,
the Trust specifically reserves the right to exercise any of the powers
or privileges afforded to business trusts or actions that may be
engaged in by business trusts under the Delaware Act, and the absence
of a specific reference herein to any such power, privilege or action
shall not imply that the Trust may not exercise such power or privilege
or take such actions.
(b) Notwithstanding the first sentence of Section 6(a) of this
Article VIII, there shall not be applicable to the Trust, the Trustees
or this Declaration of Trust (x) the provisions of Section 3540 of
Title 12 of the Delaware Code or (y) any provisions of the laws
(statutory or common) of the State of Delaware (other than the Delaware
Act) pertaining to trusts that relate to or regulate: (i) the filing
with any court or governmental body or agency of trustee accounts or
schedules of trustee fees and charges, (ii) affirmative requirements to
post bonds for trustees, officers, agents or employees of a trust,
(iii) the necessity for obtaining a court or other governmental
approval concerning the acquisition, holding or disposition of real or
personal property, (iv) fees or other sums applicable to trustees,
officers, agents or employees of a trust, (v) the allocation of
receipts and expenditures to income or principal, (vi) restrictions or
limitations on the permissible nature, amount or concentration of trust
investments or requirements relating to the titling, storage or other
manner of holding of trust assets, or (vii) the establishment of
fiduciary or other standards or responsibilities or limitations on the
acts or powers of Trustees that are inconsistent with the limitations
or liabilities or authorities and powers of the Trustees set forth or
referenced in this Declaration of Trust.
Section 7. Provisions in Conflict with Law or Regulations.
(a) The provisions of the Declaration of Trust are severable, and
if the Trustees shall determine, with the advice of counsel, that any
of such provision is in
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conflict with the 1940 Act, the regulated investment company provisions
of the Internal Revenue Code of 1986, as amended (or any successor
statute thereto), and the regulations thereunder, the Delaware Act or
with other applicable laws and regulations, the conflicting provision
shall be deemed never to have constituted a part of the Declaration of
Trust; provided, however, that such determination shall not affect any
of the remaining provisions of the Declaration of Trust or render
invalid or improper any action taken or omitted prior to such
determination.
(b) If any provision of the Declaration of Trust shall be held
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such
jurisdiction and shall not in any manner affect such provision in any
other jurisdiction or any other provision of the Declaration of Trust
in any jurisdiction.
Section 8. Business Trust Only. It is the intention of the Trustees to
create a business trust pursuant to the Delaware Act. It is not the intention of
the Trustees to create a general partnership, limited partnership, joint stock
association, corporation, bailment, or any form of legal relationship other than
a business trust pursuant to the Delaware Act. Nothing in this Declaration of
Trust shall be construed to make the Shareholders, either by themselves or with
the Trustees, partners or members of a joint stock association.
Section 9. Derivative Actions. In addition to the requirements set
forth in Section 3816 of the Delaware Act, a Shareholder may bring a derivative
action on behalf of the Trust only if the following conditions are met:
(a) The Shareholder or Shareholders must make a pre-suit demand
upon the Trustees to bring the subject action unless an effort to cause
the Trustees to bring such an action is not likely to succeed. For
purposes of this Section 9(a), a demand on the Trustees shall only be
deemed not likely to succeed and therefore excused if a majority of the
Board of Trustees, or a majority of any committee established to
consider the merits of such action, has a personal financial interest
in the transaction at issue, and a Trustee shall not be deemed
interested in a transaction or otherwise disqualified from ruling on
the merits of a Shareholder demand by virtue of the fact that such
Trustee receives remuneration for his service on the Board of Trustees
of the Trust or on the boards of one or more trusts that are under
common management with or otherwise affiliated with the Trust.
(b) Unless a demand is not required under paragraph (a) of this
Section 9, Shareholders eligible to bring such derivative action under
the Delaware Act who collectively hold at least 10% of the Outstanding
Shares of the Trust, or who collectively hold at least 10% of the
Outstanding Shares of the Series or Class to which such action relates,
shall join in the request for the Trustees to commence such action; and
(c) Unless a demand is not required under paragraph (a) of this
Section 9, the Trustees must be afforded a reasonable amount of time to
consider such shareholder request and to investigate the basis of such
claim. The Trustees shall be entitled to retain
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counsel or other advisors in considering the merits of the request and
shall require an undertaking by the Shareholders making such request to
reimburse the Trust for the expense of any such advisors in the event
that the Trustees determine not to bring such action.
For purposes of this Section 9, the Board of Trustees may designate a
committee of one Trustee to consider a Shareholder demand if necessary to create
a committee with a majority of Trustees who do not have a personal financial
interest in the transaction at issue. The Trustees shall be entitled to retain
counsel or other advisors in considering the merits of the request and may
require an undertaking by the Shareholders making such request to reimburse the
Trust for the expense of any such advisors in the event that the Trustees
determine not to bring such action.
IN WITNESS WHEREOF, the Trustee named below does hereby make and enter
into this Declaration of Trust as of the 21st day of December, 1999.
/s/ James Hartmann
---------------------------
James Hartmann, Trustee
THE PRINCIPAL PLACE OF BUSINESS OF THE TRUST IS:
400 Montgomery Street, 3rd Floor
San Francisco, California 94104
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<PAGE> 1
EXHIBIT 99b
BYLAWS
OF
E-HARMON FUNDS
ARTICLE I.
Agreement and Declaration of Trust
Section 1. Agreement and Declaration of Trust. These Bylaws shall be
subject to the Agreement and Declaration of Trust, as from time to time amended,
supplemented or restated (the "Agreement and Declaration of Trust") of e-harmon
Funds (the "Trust").
Section 2. Definitions. Unless otherwise defined herein, the terms used
herein have the respective meanings given them in the Agreement and Declaration
of Trust.
ARTICLE II.
Offices
Section 1. Principal Office. The principal office of the Trust shall be
located in the City of San Francisco, State of California, or such other
location as the Trustees may from time to time determine.
Section 2. Registered Office and Other Offices. The registered office
of the Trust shall be located in the City of Wilmington, State of Delaware or
such other location within the State of Delaware as the Trustees may from time
to time determine. The Trust may establish and maintain such other offices and
places of business as the Trustees may from time to time determine.
ARTICLE III.
Shareholders
Section 1. Meetings. Meetings of the Shareholders shall be held at the principal
executive offices of the Trust or at such other place within the United States
of America as the Trustees shall designate. Meetings of the Shareholders shall
be called by the Secretary whenever (i) ordered by the Trustees or (ii) for the
purpose of voting on the removal of any Trustee, requested in writing by
Shareholders holding at lest ten percent (10%) of the outstanding Shares
entitled to vote. If the Secretary, when so ordered or requested, refuses or
neglects for more than 10 days to call such meetings, the Trustees or the
Shareholders so requesting, may, in the name of the Secretary, call the meeting
by giving notice thereof in the manner required when notice is given by the
Secretary.
<PAGE> 2
Section 2. Notice of Meetings. Except as otherwise herein provided,
notice of all meetings of the Shareholders, stating the time, place and purposes
of the meeting, shall be given by the Secretary by delivering or mailing,
postage prepaid, to each Shareholder entitled to vote at said meeting at his or
her address as recorded on the register of the Trust at least ten (10) days and
not more than ninety (90) days before the meeting. Only the business stated in
the notice of the meeting shall be considered at such meeting. Notice of
adjournment of a Shareholders' meeting to another time or place need not be
given, if such time and place are announced at the meeting and the adjourned
meeting is held within a reasonable time after the date set for the original
meeting. No notice need be given to any Shareholder who shall have failed to
inform the Trust of his or her current address or if a written waiver of notice,
executed before or after the meeting by the Shareholder or his or her attorney
thereunto authorized, is filed with the records of the meeting.
Section 3. Record Date for Meetings. For the purpose of determining the
Shareholders who are entitled to notice of and to vote at any meeting, the
Trustees may from time to time close the transfer books for such period, not
exceeding thirty (30) days, as the Trustees may determine; or without closing
the transfer books the Trustees may fix a date not more than ninety (90) days
prior to the date of any meeting of Shareholders as a record date for the
determination of the persons to be treated as Shareholders of record for such
purpose.
Section 4. Proxies. At any meeting of Shareholders, any holder of
Shares entitled to vote thereat may vote either in person or by written proxy
signed by the Shareholder, provided that no proxy shall be voted at any meeting
unless it shall have been placed on file with the Secretary, or with such other
officer or agent of the Trust as the Secretary may direct, for verification
prior to the time at which such vote shall be taken; provided, however, that
notwithstanding any other provision of this Section 4 to the contrary, the
Trustees may at any time adopt one or more electronic, telecommunication,
telephonic, computerized or other alternatives to execution of a written
instrument that will enable holders of Shares entitled to vote at any meeting to
appoint a proxy to vote such holders' Shares at such meeting. Proxies may be
solicited in the name of one or more Trustees or one or more of the officers of
the Trust. Only Shareholders of record shall be entitled to vote. When any Share
is held jointly by several persons, any one of them may vote at any meeting in
person or by proxy in respect of such Share, but if more than one of them shall
be present at such meeting in person or by proxy, and such joint owners or their
proxies so present disagree as to any vote to be cast, such vote shall not be
received in respect of such Share. A proxy purporting to be executed by or on
behalf of a Shareholder shall be deemed valid unless challenged at or prior to
its exercise, and the burden of proving invalidity shall rest on the challenger.
If the holder of any such Share is a minor or a person of unsound mind, and
subject to guardianship or the legal control of any other person as regards the
charge or management of such Share, he or she may vote by his or her guardian or
such other person appointed or having such control, and such vote may be given
in person or by proxy. At all meetings of the Shareholders, unless the voting is
conducted by inspectors, all questions relating to the qualifications of voters,
the validity of proxies, and the acceptance or rejection of votes shall be
decided by the chairman of the meeting. Except as otherwise provided herein or
in the Agreement and Declaration of Trust, all matters relating to the giving,
voting or validity of proxies shall be governed by the General Corporation Law
of the State of Delaware
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<PAGE> 3
relating to proxies, and judicial interpretations thereunder, as if the Trust
were a Delaware corporation and the Shareholders were shareholders of a Delaware
corporation.
Section 5. Inspection of Books. The Trustees shall from time to time
determine whether and to what extent, and at what times and places, and under
what conditions and regulations the accounts and books of the Trust or any of
them shall be open to the inspection of the Shareholders; and no Shareholder
shall have any right to inspect any account or book or document of the Trust
except as conferred by law or otherwise by the Trustees or by resolution of the
Shareholders.
Section 6. Action Without Meeting. Any action that may be taken at any
meeting of Shareholders may be taken without a meeting and without prior notice
if a consent in writing setting forth the action so taken is signed by the
holders of outstanding Shares having not less than the minimum number of votes
that would be necessary to authorize or take that action at a meeting at which
all Shares entitled to vote on that action were present and voted. All such
consents shall be filed with the records of Shareholder meetings. Such consents
shall be treated for all purposes as a vote taken at a meeting of Shareholders.
Section 7. Application of this Article. Meetings of Shareholders shall
consist of Shareholders of any Series (or Class thereof) or of all Shareholders,
as determined pursuant to the Agreement and Declaration of Trust, and this
Article shall be construed accordingly.
ARTICLE IV.
Trustees
Section 1. Meetings of the Trustees. The Trustees may in their
discretion provide for regular or stated meetings of the Trustees. Notice of
regular or stated meetings need not be given. Meetings of the Trustees other
than regular or stated meetings shall be held whenever called by the Chairman,
the President, or by any two of the Trustees, at the time being in office.
Notice of the time and place of each meeting other than regular or stated
meetings shall be given by the Secretary or an Assistant Secretary or by the
officer or Trustees calling the meeting and shall be delivered or mailed,
postage prepaid, to each Trustee at least two days before the meeting, or shall
be telegraphed, cabled, or wired to each Trustee at his or her business address,
or personally delivered to him or her, at least one day before the meeting. Such
notice may, however, be waived by any Trustees. Notice of a meeting need not be
given to any Trustee if a written waiver of notice, executed by him or her
before or after the meeting, is filed with the records of the meeting, or to any
Trustee who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him or her. A notice or waiver of notice need
not specify the purpose of any meeting. The Trustees may meet by means of a
telephone conference circuit or similar communications equipment by means of
which all persons participating in the meeting are connected, which meeting
shall be deemed to have been held at a place designated by the Trustees at the
meeting. Participation in a telephone conference meeting shall constitute
presence in person at such meeting. Any action required or permitted to be taken
at any meeting of the Trustees may be taken by the Trustees without a meeting if
a majority of the Trustees then in office (or such higher number of Trustees as
would be required to act on the
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matter under the Agreement and Declaration of Trust, these Bylaws or applicable
law if a meeting were held) consent to the action in writing and the written
consents are filed with the records of the Trustees' meetings. Such consents
shall be treated for all purposes as a vote taken at a meeting of the Trustees.
Notwithstanding the foregoing, all actions of the Trustees shall be taken in
compliance with the provisions of the Investment Company Act of 1940, as
amended.
Section 2. Quorum and Manner of Acting. A majority of the Trustees then
in office shall constitute a quorum for the transaction of business. If at any
meeting of the Trustees there shall be less than a quorum present, a majority of
those present may adjourn the meeting from time to time until a quorum shall be
obtained. Notice of an adjourned meeting need not be given. The act of the
majority of the Trustees present at any meeting at which there is a quorum shall
be the act of the Trustees, except as may be otherwise specifically provided by
law or by the Agreement and Declaration of Trust or by these Bylaws.
ARTICLE V.
Committees
Section 1. Executive and Other Committees. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three (3) Trustees to hold office at the
pleasure of the Trustees, which shall have the power to conduct the current and
ordinary business of the Trust while the Trustees are not in session, including
the purchase and sale of securities and the designation of securities to be
delivered upon redemption of Shares of the Trust, and such other powers of the
Trustees as the Trustees may, from time to time, delegate to them except those
powers by law, the Agreement and Declaration of Trust or these Bylaws they are
prohibited from delegating. The Trustees may also elect from their own number or
otherwise other Committees from time to time, the number composing such
Committees, the powers conferred upon the same (subject to the same limitations
as with respect to the Executive Committee), the terms of membership on such
Committees and the termination or circumstances giving rise to the termination
of such Committees to be determined by the Trustees. The Trustees may designate
a chairman of any such Committee. In the absence of such designation the
Committee may elect its own chairman.
Section 2. Meetings, Quorum and Manner of Acting. The Trustees may (1)
provide for stated meetings of any Committees, (2) specify the manner of calling
and notice required for special meeting of any Committee, (3) specify the number
of members of a Committee required to constitute a quorum and the numbers of
members of a Committee required to exercise specified powers delegated to such
Committee, (4) authorize the making of decisions to exercise specified powers by
written assent of the requisite number of members of a Committee without a
meeting, and (5) authorize the members of a Committee to meet by means of a
telephone conference circuit. Each Committee shall keep regular minutes of its
meetings and records of decisions taken without a meeting and cause them to be
recorded in a book designated for that purpose and kept at the principal
executive offices of the Trust.
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ARTICLE VI.
Officers
Section 1. General Provisions. The officers of the Trust shall be a
President, a Treasurer and a Secretary, who shall be elected by the Trustees.
The Trustees may elect or appoint such other officers or agents as the business
of the Trust may require, including a Chairman of the Board ("Chairman"), one or
more Vice Presidents, one or more Assistant Secretaries and one or more
Assistant Treasurers. The Trustees may delegate to any officer or Committee the
power to appoint any subordinate officers or agents.
Section 2. Term of Office and Qualifications. Except as otherwise
provided by law, the Agreement and Declaration of Trust or these Bylaws, the
President, the Treasurer and the Secretary, and all other officers shall hold
office at the pleasure of the Trustees. The Secretary and Treasurer may be the
same person. A Vice President and the Treasurer or a Vice President and the
Secretary may be the same person, but the offices of Vice President, Secretary
and Treasurer shall not be held by the same person. The President shall hold no
other office, but may be a Trustee of the Trust. Except as above provided, any
two offices may be held by the same person. The Chairman, if there be one, shall
be a Trustee and may but need not be a Shareholder. Any other officer may be but
none need be a Trustee or Shareholder.
Section 3. Removal. The Trustees, at any regular or special meeting of
the Trustees, may remove any officer with or without cause, by a vote of a
majority of the Trustees then in office. Any officer or agent appointed by an
officer or committee may be removed with or without cause by such appointing
officer or committee.
Section 4. Powers and Duties of the Chairman. The Chairman, if such an
officer is elected, shall if present preside at meetings of the Shareholders and
the Trustees, shall be the chief executive officer of the Trust and shall,
subject to the control of the Trustees, have general supervision, direction and
control of the business and the officers of the Trust and exercise and perform
such other powers and duties as may be from time to time assigned to him by the
Trustees or prescribed by the Agreement and Declaration of Trust or these
Bylaws.
Section 5. Powers and Duties of the President. Subject to the powers of
the Chairman, if there be such an officer, the President shall be the principal
executive officer of the Trust. He or she may call meetings of the Trustees and
of any Committee thereof when he or she deems it necessary and, in the absence
of the Chairman, shall preside at all meetings of the Shareholders and the
Trustees. Subject to the control of the Trustees, the Chairman and any
Committees of the Trustees, within their respective spheres, as provided by the
Trustees, the President shall at all times exercise a general supervision and
direction over the affairs of the Trust. The President shall have the power to
employ attorneys, accountants and other advisers and agents for the Trust and to
employ such subordinate officers, agents, clerks and employees as he or she may
find necessary to transact the business of the Trust. He or she shall also have
the power to grant, issue, execute or sign such powers of attorney, proxies or
other documents as may be deemed advisable or necessary in furtherance of the
interests of the Trust. The President
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shall have such other powers and duties as from time to time may be conferred
upon or assigned to him or her by the Trustees.
Section 6. Powers and Duties of the Vice President. In the absence or
disability of the President, the Vice President or, if there be more than one
Vice President, any Vice President designated by the Trustees shall perform all
the duties and may exercise any of the powers of the President, subject to the
control of the Trustees. Each Vice President shall perform such other duties as
may be assigned to him or her from time to time by the Trustees or the
President.
Section 7. Powers and Duties of the Treasurer. The Treasurer shall be
the principal financial and accounting officer of the Trust. The Treasurer shall
deliver all funds of the Trust which may come into his or her hands to such
Custodian as the Trustees may employ pursuant to Article X of these Bylaws. He
or she shall render a statement of condition of the finances of the Trust to the
Trustee as often as they shall require the same and he or she shall in general
perform all the duties incident to the office of Treasurer and such other duties
as from time to time may be assigned to him or her by the Trustees. The
Treasurer shall give a bond for the faithful discharge of his or her duties, if
required so to do by the Trustees, in such sum and with such surety or sureties
as the Trustees shall require.
Section 8. Powers and Duties of the Secretary. The Secretary shall keep
the minutes of all meetings of the Trustees and of the Shareholders in proper
books provided for that purpose; he or she shall have custody of the seal of the
Trust; he or she shall have charge of the Share transfer books, lists and
records unless the same are in the charge of the Transfer Agent. The Secretary
shall attend to the giving and serving of all notices by the Trust in accordance
with the provisions of these Bylaws and as required by law; and subject to these
Bylaws, he or she shall in general perform all duties incident to the office of
the Secretary and such other duties as from time to time may be assigned to him
or her by the Trustees.
Section 9. Powers and Duties of Assistant Treasurers. In the absence or
disability of the Treasurer, any Assistant Treasurer designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Treasurer. Each Assistant Treasurer shall perform such other duties as from time
to time may be assigned to him or her by the Trustees. Each Assistant Treasurer
shall give a bond for the faithful discharge of his or her duties, if required
so to do by the Trustees, in such sum and with such surety or sureties as the
Trustees shall require.
Section 10. Powers and Duties of Assistant Secretaries. In the absence
or disability of the Secretary, any Assistant Secretary designated by the
Trustees shall perform all the duties, and may exercise any of the powers, of
the Secretary. Each Assistant Secretary shall perform such other duties as from
time to time may be assigned to him or her by the Trustees.
Section 11. Compensation of Officers and Trustees. Subject to any
applicable provisions of the Agreement and Declaration of Trust, the
compensation of the officers and Trustees shall be fixed from time to time by
the Trustees or, in the case of officers, by any Committee or officer upon whom
such power may be conferred by the Trustees. No officer shall be prevented from
receiving such compensation as such officer by reason of the fact that he or she
is also a Trustee.
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ARTICLE VII.
Fiscal Year
The fiscal year of the Trust shall end on such date as the Trustees
shall from time to time determine.
ARTICLE VIII.
Seal
The Trustees may adopt a seal which shall be in such form and shall
have such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX.
Waivers of Notice
Whenever any notice whatever is required to be given by law, the
Agreement and Declaration of Trust or these Bylaws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent thereto. A notice shall be
deemed to have been telegraphed, cabled or wired for the purposes of these
Bylaws when it has been delivered to a representative of any telegraph, cable or
wire company with instructions that it be telegraphed, cabled or wired.
ARTICLE X.
Custody of Securities
Section 1. Employment of a Custodian. The Trust shall place and at all
times maintain in the custody of a Custodian (including any sub-custodian for
the Custodian) all funds, securities and similar investments included in the
Trust Property. The Custodian (and any sub-custodian) shall be a bank having not
less than $20,000,000 aggregate capital, surplus and undivided profits and shall
be appointed from time to time by the Trustees, who shall fix its remuneration.
Section 2. Action upon Termination of Custodian Agreement. Upon
termination of a Custodian Agreement or inability of the Custodian to continue
to serve, the Trustees shall promptly appoint a successor custodian, but in the
event that no successor custodian can be found who has the required
qualifications and is willing to serve, the Trustees shall call as promptly as
possible a special meeting of the Shareholders to determine whether the Trust
shall function without a custodian or shall be liquidated. If so directed by a
vote of holders of the majority of the outstanding Shares entitled to vote, the
Custodian shall deliver and pay over all Trust Property held by it as specified
in such vote.
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Section 3. Provisions of Custodian Contract. The following provisions
shall apply to the employment of a Custodian and to any contract entered into
with the Custodian so employed: The Trustees shall cause to be delivered to the
Custodian all securities included in the Trust Property or to which the Trust
may become entitled, and shall order the same to be delivered by the Custodian
only in completion of a sale, exchange, transfer, pledge, loan of portfolio
securities to another person, or other disposition thereof, all as the Trustees
may generally or from time to time require or approve or to a successor
Custodian; and the Trustees shall cause all funds included in the Trust Property
or to which it may become entitled to be paid to the Custodian, and shall order
the same disbursed only for investment against delivery of the securities
acquired (including securities acquired under a repurchase agreement), or the
return of cash held as collateral for loans of portfolio securities, or in
payment of expenses, including management compensation, and liabilities of the
Trust, including distributions to Shareholders, or to a successor Custodian.
Notwithstanding anything to the contrary to these Bylaws, upon receipt of proper
instructions, which may be standing instructions, the Custodian may deliver
funds in the following cases: In connection with repurchase agreements, the
Custodian shall transmit prior to receipt on behalf of the Trust of any
securities or other property, funds from the Trust's custodian account to a
special custodian approved by the Trustees of the Trust, which funds shall be
used to pay for securities to be purchased by the Trust subject to the Trust's
obligation to sell and the seller's obligation to repurchase such securities (in
such case, the securities shall be held in the custody of the special
custodian); in connection with the Trust's purchase or sale of financial futures
contracts, the Custodian shall transmit, prior to receipt on behalf of the Trust
of any securities or other property, funds from the Trust's custodian account in
order to furnish and to maintain funds with brokers as margin to guarantee the
performance of the Trust's futures obligations in accordance with the applicable
requirements of commodities exchanges and brokers.
Section 4. Central Certificate System. Subject to applicable rules,
regulations and orders adopted by the Securities and Exchange Commission (the
"Commission"), the Trustees may direct the Custodian to deposit all or any part
of the securities owned by the Trust in a system for the central handling of
securities established by a national securities exchange or a national
securities association registered with the Commission under the Securities
Exchange Act of 1934, or such other person as may be permitted by the
Commission, or otherwise in accordance with the 1940 Act, pursuant to which
system all securities of any particular class or series of any issuer deposited
within the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities, provided that
all such deposits shall be subject to withdrawal only upon the order of the
Trust.
ARTICLE XI.
Indemnification of Trustees, Officers,
Employees and Other Agents
Section 1. Agents, Proceedings, Expenses. For the purpose of this
Article, "agent" means any Person who is or was a Trustee, officer, employee or
other agent of the Trust or is or was serving at the request of the Trust as a
trustee, director, officer, employee or agent of another organization in which
the Trust has any interest as a shareholder, creditor or otherwise;
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"proceeding" means any threatened, pending or completed claim, action, suit or
proceeding, whether civil, criminal, administrative or investigative (including
appeals); and "expenses" includes, without limitation, attorneys' fees, costs,
judgments, amounts paid in settlement, fines, penalties and all other
liabilities whatsoever.
Section 2. Indemnification. Subject to the exceptions and limitation
contained in Section 3 below, every agent shall be indemnified by the Trust to
the fullest extent permitted by law against all liabilities and against all
expenses reasonably incurred or paid by him or her in connection with any
proceeding in which he or she becomes involved as a party or otherwise by virtue
of his or her being or having been an agent.
Section 3. Limitations, Settlements. No indemnification shall be
provided hereunder to an agent:
(a) who shall have been adjudicated by the court or other body before
which the proceeding was brought to be liable to the Trust or its Shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office
(collectively, "disabling conduct"); or
(b) with respect to any proceeding disposed of (whether by settlement,
pursuant to a consent decree or otherwise) without an adjudication by the court
or other body before which the proceeding was brought that such agent was liable
to the Trust or its Shareholders by reason of disabling conduct, unless there
has been a determination that such agent did not engage in disabling conduct:
(i) by the court or other body before which the proceeding was brought;
(ii) by at least a majority of those Trustees who are neither
Interested Persons of the Trust nor are parties to the proceeding based upon a
review of readily available facts (as opposed to a full trial-type inquiry); or
(iii) by written opinion of independent legal counsel based upon a
review of readily available facts (as opposed to a full trial-type inquiry);
provided, however, that indemnification shall be provided hereunder to an agent
with respect to any proceeding in the event of (1) a final decision on the
merits by the court or other body before which the proceeding was brought that
the agent was not liable by reason of disabling conduct, or (2) the dismissal of
the proceeding by the court or other body before which it was brought for
insufficiency of evidence of any disabling conduct with which such agent has
been charged.
Section 4. Insurance, Rights Not Exclusive. The rights of
indemnification herein provided may be insured against by policies maintained by
the Trust on behalf of any agent, shall be severable, shall not be exclusive of
or affect any other rights to which any agent may now or hereafter be entitled
and shall inure to the benefit of the heirs, executors and administrators of any
agent.
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Section 5. Advance of Expenses. Expenses incurred by an agent in
connection with the preparation and presentation of a defense to any proceeding
may be paid by the Trust from time to time prior to final disposition thereof
upon receipt of an undertaking by or on behalf of such agent that such amount
will be paid over by him or her to the Trust if it is ultimately determined that
he or she is not entitled to indemnification under this Article XI; provided,
however, that (a) such agent shall have provided appropriate security for such
undertaking, (b) the Trust is insured against losses arising out of any such
advance payments or (c) either a majority of the Trustees who are neither
Interested Persons of the Trust nor parties to the proceedings, or independent
legal counsel in a written opinion, shall have determined, based upon a review
of readily available facts (as opposed to a trial-type inquiry or full
investigation), that there is reason to believe that such agent will be found
entitled to indemnification under this Article XI.
Section 6. Fiduciaries of Employee Benefit Plan. The Article does not
apply to any proceeding against any Trustee, investment manager or other
fiduciary of an employee benefit plan in that person's capacity as such, even
though that person may also be an agent of this Trust as defined in Section 1 of
this Article. Nothing contained in this Article shall limit any right to
indemnification to which such Trustee, investment manager, or other fiduciary
may be entitled by contract or otherwise which shall be enforceable to the
extent permitted by applicable law other than this Article.
ARTICLE XII.
Amendments
These Bylaws, or any of them, may be altered, amended or repealed, or
new Bylaws may be adopted by (a) a vote of holders of the majority of the
outstanding Shares entitled to vote or (b) by the Trustees, provided, however,
that no Bylaw may be amended, adopted or repealed by the Trustees if such
amendment, adoption or repeal is required by applicable law, the Agreement and
Declaration of Trust or these Bylaws, to be submitted to a vote of the
Shareholders.
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